New Home Appraisal Guidelines Cause Headaches for Some

New legislation often has unintended consequences. And this is certainly the case with new laws that were intended to lessen the chances of fraud when it comes to home appraisals. These new guidelines are called the Home Valuation Code of Conduct. The purpose of this new code of conduct was to make sure that appraisers do not assign inflated values to properties because they feel pressure from a lender, a mortgage broker or a real estate agent. Unfortunately these new guidelines are slowing down the home buying process for some people are frustrating real estate professionals, buyers and sellers alike.

The new guidelines stipulate that mortgage brokers cannot order appraisals on their own. Mortgage brokers have to rely on mortgage lenders to request appraisals. And the lenders and the brokers are not supposed to discuss property value with appraisers.

It seems that at one time many homes were given an inflated appraisal value. Now the problem is the opposite: people are protesting that home appraisers are undervaluing their homes. With so many foreclosures on the market, some appraisers are valuing brand new homes and homes that are going through a standard sale alongside the sale prices for foreclosures.

To learn more about fair market value, read:
Determining Your Home's Fair Market Value

If you want to sell your home today and are concerned about getting fair market value, contact John Day at 410-507-2909 or 301-395-1489.

The Role of the Home Appraiser

In case you were unaware, a home appraisal is supposed help the lender decide whether or not to make a loan. It is not really a tool to give buyers the correct price.

Recently, The Washington Post had a brief article where they interviewed a real estate expert about the recent unrest surrounding home appraisals. The expert noted that although the foreclosure crisis has brought the home appraisal process to the forefront, that this is not the first time that this part of the real estate industry has come under scrutiny.

One big component to a home appraisal is looking at properties that are considered to be truly comparable to the property in question. Like all of us, home appraisers face pressure to do their job a certain away. Sadly, some appraisers have succumbed to the pressure to name a price that relied to heavily on what a buyer was willing to pay, and did not factor in the market and similar properties.

Just as there was talk of how there was hope that bankers and other people in finance would self-regulate, the same has been said of home appraisers. As the expert in the Post noted, we cannot rely on self-regulation alone.

To learn more about home appraisers, visit The Appraisal Foundation.

Choosing an Appraiser

More often than not, an appraisal is required by a lender. But as a homeowner, you can decide to get an appraisal on your own, if you wish. Homeowners who order an appraisal usually do so because they want an expert opinion to help them set a price for their home.

If your lender tells you that you need to get an appraisal to get a loan, be aware that you do not have to go with an appraiser that your lender picks. You are allowed to choose another. An appraiser generally charges several hundred dollars to inspect and write an appraisal of your home.

When choosing an appraiser, you should find out if that appraiser is both licensed and certified in your state. Visit http://www.asc.gov/, the website of the Appraisal Subcommittee. This website has a national registry of appraisers.

If you get an appraisal and suspect that it is not accurate, you do not have to accept it. You can get a second opinion from another appraiser. You can also file a complaint with your state's appraisal board or similar agency.

Home Appraisal Industry is in the News

Right now people are looking at the home appraisal industry since the Associated Press and other group turned a critical eye on home appraisers.

In this less that stellar real estate market, appraisals are being increasingly important. Most lenders want to see the results of an appraisal before they will agree to give a buyer a loan.

Note that an appraisal is not a home inspection. Home inspectors are more concerned with function--does the air conditioning system work properly, will the drainage system drain rainwater as it should? An appraiser is looking more at form--how many square feet, how does this home compare to others on the market? Home inspectors are concerned with you ability to live in a home after you buy it. An appraiser’s work is more connected to the actual sale of the home.

An appraiser is tasked with making sure they come up with an unbiased assessment of a home’s market value. Unfortunately, some appraisers say they have been pressured by a bank or a real estate agent to assign a home a higher value than it may be worth.

Fannie and Freddie are Changing

With all the talk about change these days, you should know that change is coming to the mortgage industry.

New York state’s Attorney General, Mario Cuomo, has agreed to end his investigation of Fannie Mae and Freddie Mac after the two organizations agreed to change the way they do business.

Cuomo was quoted as saying that he thinks this will really change the mortgage industry since Fannie Mae and Freddie Mac are so influential.

If you didn’t know, Fannie Mae, which is based in Washington, DC, stands for Federal National Mortgage Association. The Federal Home Loan Mortgage Corporation or Freddie Mac is based in MacLean, VA.

Fannie Mae and Freddie Mac have admitted no wrongdoing, but each organization will pay $12 million to set up an in independent committee to keep an eye on the way homes are being appraised.

Mortgage lenders who work with Fannie Mae and Freddie Mac will no longer be able to use their own staff for initial appraisals. Nor will they be able to use appraisal management firms that have interest in or own outright.

Apply Knowledge When Requesting an Appraisal

You may have heard that Andrew Cuomo, New York’s Attorney General has filed a lawsuit against First American Corp., an appraisal company, saying that First American Corp. assigned inflated values to homes all over the country. These inflated home values led some people to pay too much for homes, while others borrowed a lot more than they normally would have to purchase overpriced homes.

The suit accuses First American of bowing to pressure from a lender when inflating the value of some homes. Although New York State is not suing the lender, the implication is that the higher appraisals allowed the lender to make loans in higher amounts and benefit from the increase in business.

So what methods do appraisers use to evaluate a property?

Appraisers gather information from a variety of sources and weigh each piece of data. Some of the information, such as county courthouse records and data from a local Multiple Listing Service, is formal, while some of it is informal. An appraiser may also use personal knowledge and speak with real estate professionals and homeowners in the area.

Ask your appraiser just how they come up with a value for your home. Depending on the service you request, an appraiser may enter the home or base their estimation on viewing the outside and consulting other source.

You are allowed more than one appraisal, so do not feel that you are locked into a figure if you have doubts about an appraiser’s work.

Do Accurate Appraisals Need the Human Touch?

Can a computer do as good a job as a human appraiser at determining the value of your home? That's the question. Home appraisers in Maryland, Virginia and Oklahoma recently filed suit against FNC, Inc., a major mortgage technology company, asking the courts to make a determination. FNC collects traditional appraisal data, stores it and markets it to mortgage lenders as a substitute for a traditional appraisal. Processing 400,000 appraisals a month, FNC counts among its customers the 50 largest mortgage lenders in the country.

Appraisers who use FNC's Appraisal Port system charge that the technology behemoth has been stealing their data, repackaging and remarketing it to lenders for its own gain, explains Kenneth Harney of the Washington Post in his column, The Nation's Housing (click the post title to read the full article). Appraisers claim that FNC assured them that data they entered in Appraisal Port was secure, that FNC did not have access to the data and would not store or remarket the data.

For homeowners, the question of piracy is secondary to the question of which process results in the most effective appraisal. Lenders have been moving toward automated valuation models which are faster and cheaper, often only $40. A human appraiser generally charges several hundred dollars to inspect and write an appraisal of your home. While computerized models can give you a general idea of how your house compares to others in the same market, it's no substitute for a living, breathing human being. Beyond the raw data, a human appraiser sees the condition of the home, inspects for damage and signs of wear or failure. He also gauges the value of the neighborhood, the way things look and smell, all of which affect the value of your home.

Bottom line: If you want a general idea of how much a home of your size and type is worth in your area, use the online computer calculators. If you want to know how much YOUR actual home is worth, pay for a human appraiser to come out and take a look.

Veteran realtor John Day can recommend a thoroughly professional and competent appraiser. If you're buying or selling a home, give John a call or visit his website to check out the latest listings in Maryland and the metro Washington DC area. John Day is your key to success.