Okay first let me BUST a MYTH out there. The administration is telling people that even though YOU are not going to get bailed out while your neighbor who is going through foreclosure is, you should be happy because YOUR home will not suffer further loss in value if we can get these foreclosures sold and no longer sitting vacant, etc.
While there is truth to this it sure does not make those of us who have been working hard to keep our mortgage payments current feel a whole lot better. Many will start falling behind on their payments just to get bailout help...sad but true.
But here is the real deal on how appraisers are dealing with the valuation of your home in this foreclosure crisis. We DO NOT typically use foreclosed sales to compare against your home. We first evaluate your individual neighborhoods, streets, subdivisions and trust me when I tell you it can vary street by street in today's market.
If and only IF your subdivision, street or neighborhood is full of foreclosures, more so than your typical arms-length transactions, then we WILL using foreclosures as our primary source for analysis. WHY? because these sales have now defined your neighborhood. If there are more sales in your area which are not foreclosures then we will use those sales primarily.
Therefore your home may NOT necessarily decline in value due to a few scattered foreclosures in your area. Now here is where it gets a little muddy in the water....If you have a home right next to yours or a couple of doors down that has been foreclosed upon and especially if it looks "run down" and obviously vacant, this WILL have an effect on the value of your home to some degree regardless of the number of foreclosures in your area. WHY? because if you were looking to buy a home and the one next door to yours is quite frankly and eye sore, this has an impact on how the market perceives your home. Sad and not fair but true!
The foreclosures in your area or on your street and their proximity to yours has an effect from that point outward as if in a circle. The further the foreclosure/s are from your home, the better off you are!
Again, let me repeat, if you only have a few foreclosures scattered about your development, street (unless you only have a few homes on your street) or defined neighborhood, chances are you are not going to be heavily impacted as appraisers will use non-foreclosure sales whenever it is reasonable to do so and is not misleading to the lender to do so.
One thing I want to make clear! Appraisers do not determine the value of your home...Let me repeat this. Appraisers DO NOT determine the value of your home.....The MARKET DOES! We analyze the market and as long as we do this correctly and as long as we utilize properties that are truly comparable to yours and make the appropriate adjustments for any variances, then the market LEADS us to the appropriate opinion of value....So don't blame the appraiser for the value of your home okay? It is the market you need to blame.
One final note. Appraisers are supposed to protect banks from lending risks. Banks need appraisers to analyze NOW more than ever what the market is doing, what the value of the property is currently, what the trends have been and where they are likely headed.
Banks & Mortgage Companies in the past did not really care too much about the fact that we were trying to protect their interests as they wanted to close loans. Sad fact but true and that is why we are in this mess Today. Appraisers many times are considered a necessary evil and Lenders pressured many Appraisers to do what they wanted. Unfortunately many succumbed to that pressure.
Banks are now going the opposite direction and running scared. They are dictating to appraisers what the comparable properties should be. They are non believers in what our reports are telling them. Before they wanted the highest possible value, now they want the lowest. They are telling us based upon some National Report that we MUST report our area as declining! Well here in Georgia there are some area that are NOT declining but STABLE. I personally do not let lenders dictate to me and I know for a fact I have lost business over this...but I digress...
Bottom line is they are still not letting us do our jobs! We have no vested interest in these properties, if they had let us do our jobs from the start, we would not be looking at a Trillion Dollar plus spending bill. Can you tell I am just a little frustrated. I AM!
So as a consumer what can you take aways from all of this. Keep up with what is going on in your neighborhood and do not let lenders determine the value of your home. You get a copy of your appraisal report, review it carefully. If you do not agree with it, protest it! Many banks use review appraisers who either have not even seen your home or who have only driven by your home to refute the original appraisal report. Don't let that happen to you because these review appraisers do not know the home like the first appraiser!
As Realtors, you can do the same thing. You have access to the same information we as appraisers do and even more than we do as you guys see many of the INTERIORS of the comparable properties used by appraisers which we do not see. Sure we have photos of the interiors if you post them on MLS/FMLS but the pictures do not always tell the whole story! So help your clients in this lending process by not letting them reduce or change the value of the first appraisal report without good reason.
Okay I am off my soapbox now, I hope this has helped you to understand how appraisers operate in this market or at any time.
Any questions, just ask!
Mary Thompson-Certified Real Estate Appraiser
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