Oh Snap?
The Appraisal Institute responds to Lawrence Yun of the National Association of Realtors after Yun points out issues home buyers and sellers are having across the crountry- homes just aren’t apprasising in situations where experts say they should.
Yun on Tuesday said, “The increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”
“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” he said. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”
To which AI Director, Bill Garber says:
“We take offense with the notion that the appraisal is only good if it happens to come in at the sales price. That mentality helped cause the mortgage meltdown to begin with. The fact that the appraisal does not match the sales price is not the fault of the appraisal but a fault of the market today.”
A tepid response on the surface, however, it seems to imply a level of culpability on bad appraisals leading up to the mortgage meltdown, is this the case?
Mr. Garber goes on to say:
In a typical real estate transaction [such as a buyer seeking a loan], our clients are the lenders. Appraisers provide lenders with information that protects them from making questionable loans and investments and helps them minimize risk. However, that should not suggest a bias toward lower valuation. Appraisers reflect the market, and sometimes, the markets don’t act like we want them to or hope they will.
In my opinion, these statements reek volumes, and almost make the case for reform. Could Mr. Yun be right?
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@bennrosales – you didn’t include the last sentence of the Appraisal Institute response:
“…competent and professional appraisers understand this and develop credible estimates of value that ultimately ensure that lenders loan the proper amount, buyers don’t pay too much and sellers get a fair price.”
With lenders now going to a round robin approach with appraisals, the quality of the appraisal is suffering. I was amazed on a recent transaction that the appraiser, who came from over 30 miles away and knew nothing about the area, actually missed 2 very important features of the property he was appraising… a second full kitchen in the finished basement and a third car garage also located in the lower level of the home. Is this the wave of the future? I certainly hope not!
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Mack – the appraiser coming from over 30 minutes away has absolutely nothing to do with the fact that he missed 2 important features. Geographical competency and intelligence don’t necessarily go hand in hand.
Are there bad appraisers? Yes.
Are there bad appraisals? Yes.
Are there bad real estate agents? Yes.
Are there houses sold for MORE THAN market value? Yes.
The problem is that all of this is more an art than a science.
The fact that a person came from 30-miles away and knew nothing about the “area” is an issue or is it?
If you view appraisals as a “science” then it doesn’t matter. I could do an appraisal in Chicago if I had access to the neccesary information — why? Because it is about the NUMBERS. And numbers aren’t swayed because it sits in the “up-and-coming” part of town.
If you view appraisals as more of an “art” then it would be imperative that the person comes from within the greater location of the home to have a “feel” for what the market is in this area.
To me it is very similar to pricing homes, it is a delicate blend of art and science to make this work. The numbers have to back up that knowledge that they are using to make the process work.
30 miles | 30 minutes
Two different things.
Though as an appraiser I can usually easily cope with anything in a 30 mile radius.
But, then again, that may be because I’ve been an appraiser for well over 20 years, and in the real estate business for over 30 years.
Appraisers are being paid between 40% and 60% of their normal fee-for-service, by the AMCs (appraisal management companies) who have taken over the vast majority of the business.
The people you’re most likely seeing are either appraisers **trying** to turn out double the amount of appraisals to keep themselves housed & fed, or, appraisers who were most recently apprentices/trainees.
Quick…… After a month of double work for the same pay, (a) how tired would you be?, and, (b) how angry would you be?
Now….. How do you think this would affect the quality of your work.
OK… you **now** know why the HVCC works so well.
There is a combination of issues with appraisals. HVCC laws changed as of May 1, no more appraiser sleeping with loan officer. End the fraud, the buffing up of values. Secondly is Larry Yun sleeping at the wheel we are in a declining market, you can’t take values over 6 months old. The primary sales in most parts of the country have been reo properties.
The listing agents are not providing up to date data and values to sellers thus listing properties at values what the sellers want.
Secondly a buyer agent not educating the buyer on current values is another. This not an appraiser issue. It’s agents not educating their clients, so when crap hits the fans then everyone wants to point the finger. Sounds like Lawerence Yun needs to educate himself and many realtors. “The truth is hard to swallow”
As a a short sale investor who deals with lenders and their BPO agents on an almost daily basis I can say from first-hand experience that the valuations that lenders (through their BPO agents) are attributing to properties are MORE OFTEN THAN NOT out of whack with the realities of the market as they exist today.
I’m all in favor of fair valuations, but when lender ordered valuations consistently bear no correlation to what buyers are actually willing to pay for a property, then we have a problem.
There needs to be a formal redress procedure in place – other than the “appraisal review” – to correct some of these appraisal issues. In a relatively stable area (price wise), we’re still seeing lower appraisals and contracts failing because of these appraisals. The agent certainly does have a duty – as Paul points out – to educate their client about the market conditions – but it is more often than not an appraisal done late in the game and including reo comps that screws the pooch. Agents are sometime to blame, as are Appraisers, but Appraisers can literally mess up EVERYONE’S day. And not only becuase of their valuation…..
Navy Chief, Navy Pride
I agree with what Joe and John point out. I have a somewhat objective opinion since I am not a real estate agent or an appraiser. From where I sit at the MLS level, we can track statistics on the broader market very accurately. In our area, prices have mostly returned to the pre-real estate market meltdown levels. REO’s and short sales reflect what a bank is willing to unload a property for and not what the housing market should rightly bear. An appraisal using these comps will undoubtedly be lower than actual market conditions and an unfair representation of real market value. Perhaps appraisals using short sales should be further reviewed and qualified. Put an * on it!
I’m a little late to this party but what I see happening here is what has been happening and has happened even during the “boom times” of the 2000-2005 era. Appraisers just do not want to take responsibility for “the market” or their work. During the “boom years” appraisers blamed their inflated appraisals on coercion from the lending industry (”Get me this value or you’ll never work in this town again!”). Now, they’re still the “friend” of the lending industry by protecting it from lending more than the house is worth.
Yeah, right.
I recently had an FHA appraisal from an appraiser who lived 3 miles (not 30) away from the subject property. Ostensibly, he knew the market. Ostensibly, he knew area market trends and could pick out reasonable comps. Instead he came in $4,000 less than a $216,000 sales price (.0185%). I cannot believe anyone — appraiser, Realtor — can be that accurate.
Buyers are low balling sellers because “Now, it’s my turn”. I think the same mindset has taken hold in the appraisal community. They are seeking their revenge against other real estate professionals (mortgage companies, Realtors) for supposedly making their life miserable during the “boom years”.
I get the same response from appraisers I follow on Twitter that Ben Goheen and the Institute make — “It’s the market”. Who, if not the appraisers, determine “market value”? Yes, real, live human beings, in the person of appraisers, set “market value”. Please, let’s stop making up stories about how some invisible force (God???) create market conditions.
To Ken Montville – The MD Suburbs of DC
It’s not the appraisers who set “market value”. It’s the buyers and sellers in that neighborhood.
How do I know that’s the case? I am an appraiser. I own a home the market values in the low 220,000’s. If I set the market, guess what? I would have sold that home for a cool million a long time ago.
Try to think before you speak. Or write. Many people have found it useful every time.
Live long and prosper!
I would suggest that if lenders are ok with the present situation with the outsourcing of appraiser selection to the AMCs, then they be required to use this system for the valuation in the short sale process (no more rookie agents doing worthless BPOs for $50). The lien holder would outsource the appraisal assignment to the AMC. The appraisal would then be accessible to the buyer’s lender. If the appraisal becomes outdated, a new one is done. This would streamline the appraisal process for the short sale.
If an offer comes in higher than the current appraised value on record, then a 2nd appraisal could be done. This works to the benefit of the buyer and the lien holder to arrive at market value.
This way the appraisal works honestly for both principles and and lien holders. This only hurts the bottom feeding short sale flipper.
The AMCs would be required to assign appraisals based on geographic location. No more appraisers from LA in San Diego, as they would be assigned local work in LA. The fee is initially paid by the short sale lender and reimbursed by the buyer at closing. Exceptions would be where dictated differently with govvie loans. Same money out of pocket for the buyer and the appraiser would see 75% of the fee.
Apply this to REOs and you wont have discounted distressed sales skewing the stats. Under this scenario, a comp is a comp. The market then rises or falls based on supply and demand, not artificial leverage.