Since the housing bubble burst, appraisers have come under intense pressure for failing to account for actual market conditions. And while a new home valuation code of conduct was enacted in 2008 by Fannie Mae and Freddie Mac, controversy over home values still exists.

On a national level, the public is aware of the high number of short sales and foreclosures.  News outlets such as CoreLogic recently reported that the distressed property share of national home sales fell to 24 percent, an improvement from early 2009 where levels peaked at 35 percent.

Appraisers are tasked by the buyers’ mortgage lender to provide an “opinion of value.”  “Any time you have a market in transition appraisals aren’t going to keep up because the appraisal is based on historical data” commented Rob Johnson, vice president of lending at San Diego Funding.

Foreclosed properties which are usually discounted 30 percent or more below the market rate are driving values south within most markets.  And while appraisers try to not take into account other short sales or foreclosures when evaluating a property, these types of sales are in some instances difficult to avoid.

Though it is not all doom and gloom as national news is not always in line with the local perspective. Since the appraisal landscape has come under intense scrutiny, it is critical that buyers in our local market be cautions when selecting a lending source.  While internet services like Lending Tree and Quicken Loans may sound appealing with claims of speedy, stress-free and easy loans, the proof is always in the pudding.

The following example is an excerpt of a conversation between two local professionals, Tim O’Neill of Gulfside Appraisal Group and Will Dukes of Summit Mortgages;

“I received a phone call today from a local realtor calling about a loan falling apart in front of her.  Her client was purchasing a home in Naples using internet lender Quicken Loans for financing and they contracted for the appraisal from an Appraisal Management Company (AMC) who sent an appraiser from out of county.  With local data gleaned from the MLS/county records but no real feel for the town or for the community, this appraiser made time adjustments to the comparables indicating we are still in a declining market.  As a result of these adjustments, the appraised value was below contract price and the deal was dead.” This particular community where the appraisal assignment was performed has shown signs of stabilization for the past three quarters due to competitive pricing resulting in a decreased housing supply. Certain properties in this community had even generated bidding wars, which contributed to fewer days on the market and higher absorption rates which all pointed to a higher demand!  In the end, this particular appraiser decided he would subtract 1% per month from each comparable (appraisers call this “aging the data”) even if the comparables transferred from seller to buyer in less than 90 days for the subject’s contract date!”

While it is evident that prices in our market can be soft, and true comparable properties may be scarce in certain neighborhoods, appraisers are still being pushed to be more conservative with their valuations.  What better way to safeguard your future investment than by selecting to work with local industry professionals who not only understand the local market but are privy to the nuances and trends within the markets.  Local appraisal companies want to engage sellers at an early point in the process to provide an actual snapshot of market value based on true comparables in their neighborhoods.  Should the presence of short sales or foreclosed properties threaten to sabotage the sale or purchase, individuals can at least count on having a robust conversation with the lender or appraiser.  Local lenders and appraisers are focused on client’s best interest and are dedicated to keep the community moving forward in these uncertain times. Alternatively an on-line servicer usually will deliver less than positive news via email and will direct your frantic call to an outsourced call center.

Buying locally is all the rage for a sustainable environment.  Applying that same practice to our home buying/selling practices may just save us all some heart ache, and be the key to working intelligently within the ever-changing system.

Source: Real Estate Economy Watch- S. Cook


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