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Real Estate Appraisers.. Don't Blame Them

Posted on Jan 28 in Philly Newsby PrintText Resizer Text Resizer

Article from: www.Philly.com
By: Alan J. Heavens

Ask builders, real estate agents, or mortgage brokers why the housing market continues to occupy a basement apartment, and the wordappraisals comes up a lot.

As in appraisals done by people unfamiliar with the neighborhood in which a house is located. And increased use by lenders of appraisals generated by computer rather than by licensed professionals. Those were just two “common” problems raised by a panel discussing appraisal issues at a November gathering of the National Association of Realtors in Anaheim, Calif.

Foreclosures and short sales, in which lenders agree to accept less than is owed on properties, now are the predominant form of transactions in many markets and also are throwing off appraisals. Such homes often sell for about 20 percent less than others in the same area, which can make accurate valuations more difficult, members of the discussion panel said.

The Realtors’ group noted that a survey of members late last year found that 18 percent had sales contracts canceled because of appraisals that did not come up to snuff with lenders.

Do not shoot the messenger, responds the group representing appraisers nationally: Low home values are not appraisers’ fault, the group says.

“The fact is that appraisers are undertaking the same thorough research and thoughtful analysis that they always have in order to continue producing reliable, credible opinions of value,” said Sara W. Stephens, president of the Chicago-based Appraisal Institute, which has 23,000 members in 60 countries.

Stephens called the finger-pointing at appraisers by real estate agents and builders “nonsense.”

“Appraisers don’t set the real estate market; they reflect what’s happening in the market,” she said. “Obviously, the market is depressed – home prices have fallen far below the values of a few years ago. Many homes simply aren’t worth what their owners think they are.”

Mark Zandi, Moody’s Analytics Inc.’s chief economist, said that while low appraisals have impeded home sales and a housing recovery, this is “steadily less so.”

“House prices are more stable in most parts of the country, and distress sales have leveled off, making it easier for appraisers to get a better fix on market prices,” Zandi said.

Most appraisers “do a good job and are knowledgeable in the areas they work,” said broker Jerome Scarpello, of Leo Mortgage in Ambler.

Changes in federal law were made in the aftermath of the financial meltdown, and the resulting mandate that a lender not be in direct contact with an appraiser – designed to prevent any potential influence on establishing values – has made everyone’s job more difficult, Scarpello said.

One consequence of this firewall: Appraisers are randomly selected, regardless of how far they are from the subject property, he said, adding that he had an appraiser from Mullica Hill, Gloucester County, assigned to a home in Skippack, Montgomery County.

Philadelphia mortgage broker Fred Glick, a board member of the National Association of Independent Housing Professionals, said that before the changes, “I was able to order an appraisal from a company that I had faith that they understood the area and could provide great service at a fair price to them and the consumer.”

The problem now, Glick and others say, is the third-party appraisal-management companies from whom lenders order property valuations. Although the cost of appraisals has risen 40 percent, appraisers get 50 percent less than they once did, he said.

The Appraisal Institute’s Stephens agreed the process causes trouble for everyone.

Because the management companies’ business models are based “on keeping as much of the appraisal fee as possible and paying as little as possible to the appraiser, this can lead to the least qualified, least competent appraisers being hired,” including those from cities and often states far from the property being valued, she said.

Zandi said he was certain that “the appraisal process is due for a thorough revamp, given its ignominious performance in the housing boom and bust.”

In the meantime, said Ruth Feldman, of Weichert Realtors-McCarthy Associates in Philadelphia, the job for real estate agents “is to talk to the appraiser, get a feel for whether or not they know/work in the immediate area, and always ask if I can send them comparable sales.”

In her experience, “the appraiser always says yes,” she said. “Why wouldn’t they want to at least see what I come up with?”

 

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