Apples, Oranges? Appraisals Are Becoming Rotten Fruit

September 28th, 2009 categories: Selling your home

I share my friend, Miami Realtor Ines Hegedus-Garcia’s appraisal that whether you’re in Miami or Charlotte nobody is happy with the current state of residential real estate appraisals.

Home appraisals used to be, more or less a check off (not a good thing), a part of the process to ensure that someone did not buy a home that was wildly over or under priced (as Martha would say that’s a good thing). Nevertheless the exact and only true value of a house is the price that a buyer is willing to pay and a seller is willing to accept, today – kinda like a share of stock – yes the free market is funny (and works great) that way! Sarcasm aside appraisals are important and (when done right**) they do provide an invaluable measure for homeowners and lenders alike. Here’s the rub there is no right way to do an appraisal and the most professional appraisers will tell you even the best appraisals are subjective and as much art as science.

The problem started about 15 years ago when Americans stumbled on a treasure chest literally under their feet - the home equity line – the mother lode first for home improvements (good), then boats (worse) and ultimately even bottles of three buck chuck (bad) at Trader Joes (now in Charlotte). We went crazy using our newfound “home-wealth” to bankroll (most of) our American dreams. There was only one pesky hitch to get into the chest (your own chest) you had to have a key which was held by the bank – and to get to the key you had to go through a gatekeeper, the appraiser! Long story short – equity lines flowed like mountain springs as many appraisers checked off on treasure chests bigger than the house – not a problem since American home values would increase forever and ever (we’ve always been an optimistic lot). Well in 2007/2008 the party ended – the treasure chests slammed shut, fingers and dreams were crushed.

Past is always prologue and all that treasure hunting inflated home values beyond belief. As we know banks (and regular Joes) got their heads and foreclosure notices handed to them as home values and loans unraveled.

What now? Well the lenders have predictably overdosed on reality and the appraisal process is feeling the brunt of this fervent – albeit understandable fiscal conservatism. The home valuation pendulum has now swung as far right as it was left and we are left with the scarily governmental HVCC Home Valuation Code of Conduct which in part “…attempts to curb inflated appraisals by refusing reports from people selected, retained or compensated by mortgage brokers and real estate agents.” Appraisers are selected by “round robin” – many are not familiar with the neighborhoods they appraise and the unintended consequence of this abject objectivity is the process has become a black hole where …

A new code of conduct, that sounds great, right?  Well as @Ines so deftly describes in her MIAMISM blog post Appraisals Kill Deals ~ in practice that code of conduct seems more like a cloak of Teflon – no over-values are gonna stick to me says Mr. or Ms. Appraiser – undervalue is de rigueur. Result? Inconsistent, uniformed appraisals are killing reasonable real estate transactions (indiscriminately and unnecessarily). What should you do — now more than ever make sure you’ve got the right agent – look for the most smart, the most informed, the most candid agent you can find and for now anyway, pray for a return to common sense!

This entry was posted on Monday, September 28th, 2009 at 6:00 am and is filed under Selling your home. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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