The appraisals are probably keeping some people from becoming homeowners who SHOULD NOT BE HOMEOWNERS!
We have seen the damage that this can do; and in the long run, that would be a good thing:
I would not wish a FORECLOSURE on anyone.
If we were selfish and say we were looking at the Big Picture; we would want things loosened up so that the Market could surge ahead:
But not at any cost; please!
As you suggested, below contract price appraisals hinder price recovery in areas where a large percentage of sales are financed. (It has no impact on value recovery.) At the same time, above contract appraisals - which are as rare as hen's teeth - also distort the market.
When we're in a rising market, as we've been in the past 7-8 months, then we should expect plenty of appraisals to come in below contract price. This problem is being driven by the fatal flaw of the appraisal process -- the comps are all looking backwards by at least 2-3 months.
Except to prevent obvious mortgage fraud, appraisals didn't protect the banks from the far bigger losses from shady mortgage underwriting practices or a declining housing market. Since there's no accountability anyways, why don't the banks just transition to use BPOs. They're much cheaper and are at least as useful as appraisals.
The appraisal review board of the lender will not only review the comps but GRADES the appraiser and overseers the resell process. The underwriters, are pedantic about makings conditions proper to insure the lender will not be required to buy back a stinky deal from the investment group.
What pops out of the end of the process, that we call an appraisal, is a bit goofy.
As Cathy seems to understand, real estate professionals must realize this process is gamed. Equipped with this reality, the battle must continue to fight to preserve the home owners equity. Failing to do so will be the element that drags down the home value recovery.
The real estate professional must accept the RESPONSIBILITY, especially when marketing a home in an eclectic community, to advise the owner to accept offers only from well informed buyers.
The market value of a home has always been defined as what a wiling and able buyer, and a willing and able seller agree upon. NOT what a corrupted 3rd party convoluted process dictates. The goals of the 3rd party is clearly different than that of the buyer or seller.
Anticipate the goof ball appraisal and make certain the selected buyer is able to adapt. The results produced by these resolute agents is being reflected in the newest stats. To these agents we must give deserving accolades. Remember, all real estate is local.
Best of success to you,
Annette Lawrence, Broker/associate
Remax Realtec Group, Palm Harbor, FL
These appraisals, as subjective as they are, can reflect the caution and pessimism on the part of the appraiser....when a judgement call is necessary. This will hopefully gradually turn to a more optimistic view. Of course there is also the other school of thought that says new regulations have put uninformed appraisers on the job as well.
I believe real estate values are so "local" in nature, the recovery takes hold in small baby steps on a case by case basis. I am witnessing these little "miracles" every day out in the marketplace.
In one example, a listing of mine recenlty sold to a cash buyer for a higher price than would have otherwise been possible....This buyer was informed about values but did not request an appraisal. He just loved the home and location, and was willing to pay for it.
What has happened as a result is the surrounding properties are now selling (and appraising) for $10 - $20k higher. .....Each seller is receiving the "gift" of increased value. .....and so it goes.
Veronika Barash, RealtorÂ®,
CERTIFIED SKILLED NEGOTIATOR
REO & SHORT SALE CERTIFIED
CERTIFIED MARKETING SPECIALIST
Keller Williams Realty Consultants
695 Mansell Rd. Ste 120
Roswell GA 30076
There are some strong arguments to be made on both sides of this issue.
One the one hand, some markets (especially in more affluent areas) are currently experiencing price appreciation. I see it all the time. Its something that an appraiser that really does his or her homework should be able to notice after evaluating neighborhood sales data.
On the otherhand, however, just because ONE person is willing to overpay, it doesnt neccessarily mean the appraiser should just give it a go ahead. If that one person defaults and goes through a short sale or if the bank forecloses, what would the next highest person be willing to offer?
Appraisals are definitely more art than science. I've seen many appraisals grossly underadjust for things like: 1 fireplace versus 5 fireplaces (-$2,000 adjustment). That just doesnt make much sense at all.
Unfortunately, now that appraisers are receiving lower fees--due to legislation requiring the use of Appraisal Management Companies--many are simply not putting in as much time and effort as we would hope for. Imagine getting paid half of what you were once accustomed to receiving. You would want to hurry through the motions, rather than exert the same amount of effort. Its human nature. It really sucks to be them these days.
$225 dollars is typically what an appraiser receives per order. Prior to passage of Frank-Dodd, it was about $450.
Still, the trend I see lately is that there is a system in place that allows banks to SET THE MARKET!
Some banks donâ€™t use MC, they have their own list of appraisers and their own guidelines, in addition to HVCC rules. Almost each appraisal gets revised by the underwriters these days. So, the definition of appraisal as â€œopinion of a valueâ€ gets skewed by banksâ€™ attempt to protect their portfolios.
Yet, hopefully, most of us have a sit-down with the seller going over the recent solds.
I never had less-than-contract-price appraisals (!) on my listings up until this year. This is why I am so alert. All these listings were under contract in one week, with multiple offers! Can it happen to overpriced listing?
Thank you, all, for sharing your thoughts! I really appreciate your input!
It was the HVCC regulation in 2009 (not the Dodd-Frank bill passed in 2010) that gave rise to the use of AMCs on all residenital loan originations.
Sorry for the confusion.
Appraisers are asked to do the wrong job. What they should be asked is - is the contract price reasonable for the marketplace? It does nobody any good for an appraiser to declare that a buyer - in their sole opinion - overpaid for a $275,000 house by $1000. If you believe that Fair Market Value is what a willing buyer and seller agree on in an arms-length transaction - the house is worth $275,000 - not $274,000. And we really don't care that you think it's worth $279,000 either!
But let's not confuse things. Adam Smith wrote that "the invisible hand" works when we all work in our informed self-interest; let's not ask appraisers to "take one for the team." Just call them correctly; we'll be happy!
Okie dokie, appraisers do make mistakes, the borrower should be the one that disputes it, the dispute should be in writing and contain proof. The loan officer is not allowed to see the appraisal unless the borrower wants them to review it. But that isnâ€™t usually the best path, the Realtor representing the borrower should provide better comps, if none exist then why is the appraised value wrong? Last year I had a Realtor list a home at least $50,000 above market value trying to complete a trade, of course that didnâ€™t work so well, trades can require 2 appraisals on the subject property of the mortgage. The agent complained, I requested comps, was provided comps that indicated a value that was $10,000 LESS than the appraisal. Go figure.
NMLS # 6395
Financing Kentucky One Home at a Time
Appraisals are hindering the recovery!
Most appraisals are now order through AMC aka Appraisal Management Companyâ€™s and this is due to HVCC aka Home Valuation Code of Conduct. The logic behind HVCC is good, but it turned independent appraisers to slaves of large AMCâ€™s. Consumers are paying about 1/3 more for appraisals and many times appraisers are only earning about half of the appraisal fee prior to HVCC. As a result many experienced appraiser left the industry, and many the ones who stayed hired inexperienced apprentice appraisers to drive to properties, measure and take photos so they complete more appraisals to make the same amount of money they did prior to HVCC.
HVCC has been a huge failure! Consumer loose because; 1) Quality of the appraisal is way down because of the loss of experienced appraisers. There is no fear of losing business because it takes two weeks to complete the appraisal or you or your apprentice was in a hurry and only counted 3 of the 4 bedrooms 2) Consumers are paying the price, literally with inflated appraisal fees. 3) The remaining appraisers are under so much scrutiny and limited by the scope in what they are allowed to use and comps, etcâ€¦
Example: I had a purchaser go under contract to buy a home that was almost 5,000 square foot for $199,000.00, the home was like new, only about 10 years old in a nice subdivision in Paulding County. The home had been foreclosed on and purchased for arround $135,000, the new buyer painted the home, added hardwoods, granite counter tops, landscaping and staged the home. The home only appraised for $172,000.00. There were several reasons; This was one of the larger homes. There were a couple other homes on the same street that had recently been foreclosed on in the $160,000 range. We rebutted the appraised value and stated that our home was larger and nicer and it would take $10â€™s of thousands of dollars to bring the foreclosed homes to condition of our property. Reality is most people done have the cash to fix up a property after they just put down a substantial payment and/or they just donâ€™t want to the hassle of fixing up the home themselves. The buyer and seller compromised on $188,000 sales price and the buyer brought the additional funds to closing. The buyer was smart enough and had the cash means to realize that there was no way to build the same for less than $40.00 per square foot and took advantage of the market. Now this is setting the home values in that neighborhood in the $188,000 range instead of the $198,000 range, which would infuriate me if I were a homeowner in that subdivision. Letâ€™s take this a step further, if the seller had accepted the $172,000 sales price, the neighborhood would have been valued about $20,000 to $30,000 less.
I personally think the home values should be market driven and a home should be worth whatever someone is willing to pay. This is why consumers hire Realtors, to find home that meets their needs and ensure they are paying a fair price.
Larry F Delbridge II NMLS Loan Officer# 114090
Loan Officer | Team Manager
National Direct Lender | Direct Seller/Servicer Fannie/Freddie , FHA , VA & USDA
Georgia Mortgage License # 6521
Primary Residential Mortgage Corporation NMLS # 3094
5755 North Point Parkway, Suite 38 Alpharetta, GA 30022
I know banks don't want to lend money but this was insulting. The subject is an updated brick ranch in an area with PLENTY of non-REO recent sales. The comps...2 - story wood siding and one stucco and one that actually looked like the subject. I was livid...your comps average $96,000 but your opinion of value is $85,000...OK.
Why are appraisers given the purchase and sale agreement? Why can't they just blindly provide a fair assessment of a home's value? Why do they take it upon themselves to destroy a transaction or do they have directives from the lender?
Unless they are also underwriting the loan, who are they to determine a buyer's ability to repay to the tune of destroying a deal with a pen stroke (key stroke). The issue rings very true with a comment Romney made during the Presidential debate..".the lenders don't have a handle on what classifies as a good loan risk in their own internal processes"!!
Unfortunately, the lender is the only one who can challenge the appraisal and quite frankly they seem to not care about rocking the boat even if you arm them with DATA. To add insult to injury the appraiser is also a Realtor. I can only hope KARMA visits regularly and returns the favor 10-fold.
Hyper local is what matters most and when distressed supply rises again, particularly above $200000, and interest rates rise and white collar unemployment continues to plague the USA, recoveries will only come to some hyperlocal submarkets.
As I've told many investors thinking that 2007 prices are coming back to their exurban cul de sacs...there will not be a recovery for many submarkets.
Elizabeth 'Beppy' Walton, Realtor
ASP, CFIS, DPP
Keller Williams Buckhead
C/404 234 9418; eFax/404 604 3965