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 work
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.
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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