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Sunday, December 7, 2014

How Real Estate Appraisals Affect Homebuying

Back in April, I published a post on the changes in the process of having a home appraised: Appraisals Matter!  In particular, I focused on how this new process cost me additional time and effort, and I warned CCM blog readers to be expecting hiccups in the process as you purchase a home of your own.

<p>How high do you want it?</p>
 Photographer: Max Whittaker/Getty Images
PHOTOGRAPHER: MAX WHITTAKER/GETTY IMAGES

After several months, there is some support for my whinning and complaining back in April.  But there are also updates on trends that I want to make sure you're all aware of.  Real-Estate Appraisals Are Bubbly Again by Jonathan Miller, published on Bloombergview.com on 12/4/14, gives us a clear picture of the home appraisal industry.

What caused appraisals to deteriorate in terms of quality?  You can "blame" the Dodd-Frank Act or Appraisal Management Company (AMCs) greed (taking as much as 50% of the fees from borrowers) for the decline of great and experienced appraisers.  On my post Appraisals Matter! I stated that the appraisal that came in for a rental I was looking to purchase had come in significantly short of the seller's (meridianpacificproperties.com) estimated market value.   According to another Miller report back in September Guess-what-s-holding-back-housing, this was a real problem:

  
It had the effect of slowing down the residential housing recovery:

"...the impact of low appraisals may be problematic in its own right -- higher levels of loan rejections that put a damper on the housing market. With the recent rise in housing prices, we are again seeing more low appraisals. This may mean that the rules have left appraisers slower to respond to sudden changes in housing-price trends."--Miller wrote.

appraiser chart


Too many Appraisers

From the looks of things, there are now way too many appraisers.  Essentially, there are not enough homes to appraise!  Mortgage origination volume is down and home sales in turn are also down.  Banks are counting on these deals to pan out.  So are sellers and buyers.  The industry is pressuring appraisers, therefore, to see to it that the numbers match (or are close enough), estimated value versus appraised value.  Appraisers are stretching it, so to speak, probably finding comparables that are not so comparable.  Or even going further out from the subject property.  Instead of a quarter mile radius, maybe they're out a half a mile or more!  I'm not an appraiser so I am speculating.

Can we blame appraisers?  Of course not.  They're now receiving even less in the form of compensation.  Like Mr. Miller suggests, something has to change so appraisals are genuinely accurate.  Something has to give so that buyers aren't getting a bad deal and sellers are being dutifully credited for their hard work renovating a property. 

Are you an Appraiser?  How do you feel about your industry right now?  Please comment and share your concerns, frustrations, etc. with our CCM blog readers.  Thanks!

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