Tearing the Heart Out of a Housing Transaction

Gene, 

It's frustrating that the market can't set the price.  We just had one that went under contract quickly and did appraise, but it was something we had to wait to hear.  

I have a cash investment buyer who is not going to bother with appraisals, as they are all over the map, with not much scientific going on.

All the best, Michelle

The joys of the wild card appraisal. It is a tough job to be an appraiser with the liability and stress. I'm glad I'm a Realtor not an appraiser.

I had a low appraisal situation on a purchase for my oldest daughter and her husband.  Talk about stressful!  I knew that the appraisal was too low, and in the 4 months since they closed escrow the comps have proven us more than right.....by a margin of $20K.  In order to get the deal done, they paid the seller an additional $5K above appraised value.

In our state, the sales figures in 2012 were influenced by almost 50% of the market being short sales. That makes it very difficult for a conventional sale to be priced fairly especially by appraisers that are not getting a fair pay for their work.

Your points are spot on. I don't have problems with appraiser in my market place as a rule because we always seem to be in an up market or at worse level. The appraiser is our friend and on most parts are reasonable and are always trying to keep their finger on the pulse of the current market. Thank you for your post it was good.

Great post. One has to keep in mind the goal. Get the house sold....Find the house for the buyer. Keep everything in perspective. Appraiser are only human and they can make mistakes.

Great post and definitely worthy of a gold star!  

While we are seeing prices starting to increase, an appraise I spoke with said there will be no adjustment made just yet per the instructions of the lenders.. they are looking for at least 5 consecutive months of increase... So far I have been very foruntate, that the appraisals have come in at or above the contract price.

Gene - The appraisals have been an issue before and after HVCC and will continue to be even as the market rises.  HVCC ran many agents out of town and allowed the use of out of town appraisers that mortgage brokers and agent wouldn't have recommended.  Additionally, the banks own many of the AMCs.  How is this good?

Gene, with prices increasing so quickly in many areas appraisers have a very difficult time justifying values even if several buyers are prepared to pay above-appraised-value prices.  The real problem is that taxpayers are still on the hook for FNMA/FHLMC losses.  Appraisers (HVCC or not) must be conservative and use past closed sales and not current market values in order to protect taxpayers from further losses.  Just as no-down financing pumped prices up artificially in the mid-2000, today's sub 4.0% rates may be doing the same thing today.  Appraisers can loosen up when taxpayers aren't responsible for mortgage losses.  That's the problem, not the low appraisals.

Gene:

I appreciate your respect for the Appraisal industry; however, I'm amazed at the amount of misinformation there is about the Home Valuation Code of Conduct (HVCC).

The HVCC was not a law, but an agreement between the Federal Housing Finance Agency, Fannie Mae, Freddie Mac and the New York State Attorney General (at the time, Andrew Cuomo), which was announced in December of 2008 and became effective on May 1, 2009. (the press release can be found at this link: http://www.fhfa.gov/webfiles/277/HVCC122308.pdf)

The HVCC did NOT mandate the use of AMCs (Appraisal Management Companies) (you can read the 6 page agreement at this link: http://www.fhfa.gov/webfiles/2302/HVCCFinalCODE122308.pdf) but rather the separation of appraisal ordering from those who's compensation was tied to the transaction.  Many lenders, rather than add staff, decided to outsource this function to AMCs.

The HVCC has been replaced by new Appraiser Independence Requirements (AIR) as part of Dodd/Frank and became effective on October 15, 2010 (Presse release: https://www.fanniemae.com/content/announcement/sel1014.pdf, AIR: https://www.fanniemae.com/content/fact_sheet/air.pdf).

Gene, good topic. these days with so many short sales you never know how they will turn out. I am sure they have a tough job....

Gene, I think appraisers are having a difficult time with stiff competition and having to do more appraisals to maintain a stable income. The value based on a willing buyer and a willing seller to come to an agreement doesn't hold much water anymore.

I have loaned out my money and did my own appraisals and I always leaned toward the conservative...then, as I watched the economy stretch and walk around, I leaned toward the ULTRA conservative...Equity to offset the potential loss must be there....What to do?

The current appraisal procedures continue to put unknowns into virtually every transaction - even those where an appraisal is not being required  - because of the effects on overall prices being received where low appraisals have had to be dealt with just to get the deal done. There are intentions with the implementation of the HVCC that would seem to be a protection for buyers, but the result in reality is one that causes perfectly valid transactions to fall apart due to the large number of appraisals that do not accurately reflect values due to the "process".

Good topic Gene and important to keep in mind when dealing with a transaction requiring financing contingencies.  I miss my lending days when I could choose my own appraiser, whom I knew was the best in the business, most experienced, and the expert in our local market.  It would drive me insane when I would get an appraisal completed by someone who lives an hour away, who would use comparables from neighborhoods that in no way could be considered like property - usually being used for the sake of bringing the value in higher.  Using HVVC appraisers led to more inappropriate and inaccurate appraisals for our resort market.  Now that I am on the Real Estate sales side of things, I hope they have fine-tuned their issues.

Gene, clearly some work needs to be done to help the improving real estate market and the appraisal process along.  Fortunately I've only had one home this year that appraised for less than purchase price, but that wasn't so much an appraisal issue as it was a USDA guideline issue.