HudPros.com

I have been waiting for an article like this to come out.  Before the real estate crisis appraisers would not use short sales or distressed properties in their report when they determine the value of a property.  If there was a concern about one of the properties used, the real estate agent or loan officer could call the appraiser and ask about problem property.

New laws make it an offense to mention anything about price to an appraiser.  This and the growing number of foreclosures are making appraisals lower.  A distressed home, in theory, sells for below market price and a home sold by the owner, as opposed to being sold by the bank, sells for market value.

When appraisers use distressed home sales in the appraisal of a regular home the regular home’s appraised value will be significantly lower than the market value which can often cause deals to fall through.

Personally I think the market value is the price somebody is willing to pay, not the average sold price of similar homes with slight adjustments made for the property in question.

Foreclosures weigh on home appraisals

The National Association of Realtors says nearly 25 percent of its members have reported clients losing a sale due to botched appraisals. The National Association of Home Builders, meanwhile, said low appraisals were sinking a quarter of all new home sales.

Roughly 40 percent of all home sales this year have been foreclosures or short sales, meaning that the property sold for less than the mortgage. This causes a problem for appraisers who look for recent comparable sales to set the appraisal price.

Appraisers determine the value of a property by looking at recent sales of comparable homes much the same way Realtors complete a CMA. Appraisers take an apples-to-apples approach excluding or making adjustments for certain features, such as a swimming pool or finished basement. It used to be a very infrequent thing that an appraiser did an appraisal and the value wasn’t supported, but now it is more common than not.

Part of the problem is that many real estate appraisers are now hired under new industry rules designed to limit conflicts of interest that can bias an appraisal. The new rules bar mortgage brokers from ordering appraisals themselves, forcing them to order them through a mortgage lender.

Lenders, in turn, may order appraisals through in-house staff or appraisers hired by outside firms known as appraisal-management companies. But neither may talk to the appraiser about the value of the property being appraised.

The result can mean that low-cost appraisers are hired from outside the area who don’t have the local knowledge to find homes that can be a better benchmark for their subject home.

Because of the uncertainty and large room for interpretation in appraisals it may be wise for a home seller to have an appraisal done, talk with their Realtor and adjust the list price accordingly. While the eventual lending institution undoubtedly will order its own appraisal, this will at least give you an up-to-date idea from a qualified appraiser.

Be sure to discuss this situation with your Realtor and lending institution to avoid last minute problems and postponement or worse, cancellation of the closing.   –more

Technorati Tags: Real estate, Real estate appraisal