The Home Appraisal Mess

foreclosed tbi

We’ve been talking this week about the NAR’s war against what it claims are low-ball home appraisals, caused by new regulations, and outside appraisers using distressed and foreclosure sales.

Real estate appraiser Jonathan Miller is weighing in on the question, and finds some merit to the idea that there are problems with current appraisal methods.

But first, he thinks it’s ridiculous to dismiss distressed and foreclosure sales as being somehow irrelevent, since the market is the market. If a home seller has to compete with other homes that are being foreclosed upon, then them’s the breaks, and that does legitimately drag down the value of a home.

Where Miller sees some merit in the complaints is the idea that un-qualified appraisers are sloppily comparing a house to a recently foreclosed house, without actually confirming that the houses are the same, or should be in the same ballpark.

We already are required to verify the sales to be able to make adjustments but the Cuomo/Fannie Mae deal called Home Valuation Code of Conduct (HVCC) has enabled a whole army of inexperienced or incompetent appraisers at the expense of competent experienced appraisers who can’t afford to work for half price and turn around assignments in 20% of the time without verifying the data.

I was told by a senior risk officer at a national lender that the bank uses several hundred appraisers in Manhattan. There are less than a half dozen long-time Manhattan-based firms here (with more than 1 employee). Where do all these companies come from? Out of state and up state New York. These appraisers will drive 3-4 hours to come to bang out a dozen reports in a day working for half the market rate.

Now, bear in mind again that Miller’s got a vested interest in this point, not wanting to see an army of outside appraisers coming in, doing the work at half the price.

But on the whole he’s still critical of the NAR and National Association of Home Builders for what he says are dishonest attempts to fight honest, appraisals.


What about a neutral middle ground? Good grief.

“In neighborhoods where comps include a large number of short sales or foreclosures, appraisers should have the option of expanding the geographic area or extending the time frame for eligible sales to get a more representative basket of the value of homes sold in the area, Robson added.”

They basically want appraisers to ignore all foreclosure sales because they are “low” and be allowed to expand search guidelines to find higher sales. Property values in a neighbourhood that are hurt by rising foreclosure activity isn’t caused by appraisers. They are competition to the non-foreclosure homes (and should be properly adjusted for condition). If the appraiser is determining market value of a property, he/she can’t cherry-pick the high sales. Their logic is a fall-back to credit boom reasoning which was all about finding the highest sales to make the deal happen.

“Currently, improper or insufficient adjustments to the comparable values of foreclosed and/or distressed homes often results in the undervaluation of new sales transactions.:

The best message in this release and it is absolutely true. Condition of the comps should be discovered and adjusted for. Otherwise they aren’t comps – they are merely sales.

Read the whole thing, and bear in mind what a commenter said yesterday. EVERYONE in this environment is fighting for every bit and scrap they can, and almost everyone is contorting logic to get there. As long as politics is the arbiter of so many markets — rather than just the market itself — a group’s ability to marshall support and contort the evidence will be key to their success.

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