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The new program that will wreck havoc on home sales!

By
Real Estate Agent with Associate Broker, Momentum Realty

 

On January 26, Fannie Mae will roll out a new program designed to facilitate appraisals. The problem is that it will do anything but make this process easier or more effective!
 
The theory is that rather than having the appraisers 'waste' their time finding the comparable sales, there will be an automated process that will provide them with comps.  That sounds okay unless you have ever had to price a property! Ken Harney, Washington Post, outlined this program in his article,Fannie Mae’s bid to boost appraisals’ accuracy draws fire.

Unless you are talking about a subdivision where no one does upgrades and there are no bad lots, or exceptional lots, there will be nuances in pricing. Pricing is not easily automated. A number of websites (who shall not be named) have given it the old college try; sometimes they come kind of close, but more often, in my experience, they miss the value. Condos usually workappraisal okay, to some degree, but even in a condo complex there are some units that are in superior and inferior locations or that have upgrades.
 
Clearly, this is an attempt to mitigate risk for the lenders. I get it--no one wants to take on an investment that they don't think is correctly valued. Unfortunately, a house is not a widget. You can't estimate its value by assuming it is just like the other widgets in the neighborhood. While a Realtor or an appraiser can often use homes in the same neighborhood as comps, there are plenty of times when we cannot. The address and the  value of a home provides no information about about the surrounding area (Is there a road out back? Are there power-lines behind one house and not another? Is one house closer to the school and the morning bus traffic?) or the upgrades inside.  
 
When I work with buyers, we weigh everything from the number of bedrooms to the position in the neighborhood. We look at whether the counter tops are high end or if they are builder grade.  We discuss that basement room that has been made into a theater room.  We talk about access and egress from the neighborhood. We talk about hills in the back yard that could hurt drainage. We talk about backing to trees rather than other houses. And the list doesn't end there; basically, we evaluate and weigh many, many factors beyond the square footage and number of rooms.
 
So we are, potentially,  back to the equation:
 
Seller agrees to price + buyer agrees to price= Appraisal blows the deal
 
I remember this formula well from the bursting of the real estate bubble when lenders were nervous and tried to too tightly manage the apprisal process.
 
It is pretty tough to fight a low appraisal.  Based on what I have heard of this program,  I think we all better sharpen our low appraisal fighting skills!
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Comments(5)

Jeff Jensen
The Federal Savings Bank/Lending in 50 states - Greenwich, CT

That certainly lacks a scientific approach.  That is bad since science is knowledge.

Jan 12, 2015 07:09 AM
Chris Ann Cleland
Long and Foster Real Estate - Gainesville, VA
Associate Broker, Bristow, VA

I think part of it may also be some of the things I've heard appraisers complaining about...which is they don't make enough money for the amount of work required.  Perhaps enough appraisers were opting out of these for them to go automated.  Just another thought to throw on the pile.

Jan 12, 2015 08:19 AM
Michael Dagner
Brokers Guild Classic - Denver, CO
Your Denver Homes Realty Expert

Everyone wants to embrace technology, even if it takes us backwards.  These people must never have listed a house before.

Jan 12, 2015 01:00 PM
Kathleen Daniels, Probate & Trust Specialist
KD Realty - 408.972.1822 - San Jose, CA
Probate Real Estate Services

Holly, if the lenders want to mitigate risks on values then they need to suck it up and pay for a full appraisal done by a local appraiser.  We know there are too many variables that impact value.  Oh gheez … what will those bone heads come up with next?

Jan 13, 2015 12:25 AM
Troy Erickson AZ Realtor (602) 295-6807
HomeSmart - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor

Holly, thanks for sharing this, as I had not heard of this previously. I hope there will still be ways for an appraiser to overwrite some of the automated comp information they receive. It will be interesting to see how this goes.

Jan 13, 2015 03:47 AM