Are appraisals hindering a housing recovery

foreclosed home
As the housing market receded, low appraisals seemed to be the rule; lower priced comparables were often to blame. As home sellers and their real estate agents become accustomed to the new market, some within the real estate industry continue to complain that low appraisals are still an issue that interferes with the housing market recovery. Many blame low appraisals for keeping home values down as well as killing pending deals.

A recent article by syndicated columnist Ken Harney (House sales hampered by appraisers who fail to recognize appreciation) brought attention to a growing issue that many claim is impeding a housing market recovery. It is clear that appraisers exercise caution and seek the conservative value, which is to avoid liability for the lender having to buy back a loan that does not comply with guidelines. However, another issue that Harney pointed out was the reliance on appraisal management companies.

If you remember, in response to claims of inflated appraisal values due to lender coercion and “undue influence,” the Home Valuation Code of Conduct (HVCC) was implemented for mortgages bought by Fannie Mae and Freddie Mac (then later by FHA). The intention of implementing these new standards of practice was to establish increased accountability and independence in the appraisal industry. One issue that was addressed was to limit communications between the lender and appraiser. As a result, many lenders resorted to using Appraisal Management Companies (AMC) to order and review appraisals.

In rush to meet the new HVCC compliance measures, lenders initially believed they needed to use the AMC to manage appraisals. However, that was not a direct requirement and some lenders have since moved away from using AMCs; subsequently implementing in-house appraisal management systems. Some lenders, however, still rely on the AMC appraisal “middle man” to assign and review appraisals.

Much of the criticism of the AMC is that they are sometimes located quite a distance away from the subject property. Appraisal reviewers who do not have the local experience and data to understand distant markets may make valuation mistakes.

home for sale

Just as quick as the lending industry moved to comply with HVCC, the pendulum has swung in the opposite direction – there are some reports of appraisers being coerced to “revise” appraisal values down. If the value is not considered within the lender’s “guidelines,” the appraiser may be requested to revise the valuation prior to submitting to the lender.

Testimony provided to the House Committee on Financial Services hearings on “Appraisal Oversight: The Regulatory Impact on Consumers and Businesses” (June 28th), Francois (Frank) Gregoir, for The National Association of Realtors®, stated: “There are a myriad of circumstances and issues working to hinder the recovery of the nation’s housing market. Among them… are those related to the credible valuation of real property…However, in today’s world there are many road blocks in the way of valuing property and, as a result, allowing for a healthy recovery of the broader real estate industry. Because there are many roadblocks there is no one, “silver bullet” solution.

Regardless of where blame lay for low appraisals, the outcome and effect on the housing market is clear: some pending sales are falling out; some home buyers are paying additional funds to cover differences between a low appraisal and contract price; and some sellers are pulling homes off the market.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

by Dan Krell
Copyright © 2012

Coping with a low appraisal

I know it’s trite to say that selling your home in today’s economic environment is challenging. You know that home buyers are very picky and money is tight. However, are you (or your real estate agent) prepared for a low appraisal?

According to the Appraisal Institute (, an appraisal is “a professional appraiser’s opinion of value.” The appraiser’s role is to “provide objective, impartial, and unbiased opinions about the value of real property”… “Appraisers assemble a series of facts, statistics, and other information regarding specific properties, analyze this data, and develop opinions of value.”

Although there is a standardized procedure in conducting and preparing an appraisal, lenders add their own criteria to meet their underwriting requirements. There is no doubt that many lenders have made their criteria more restrictive since the housing market downturn.

Contrary to the current attitudes, low appraisals have always been around. It was not until the market downturn when many home sellers were confronted with concrete evidence of their home’s depreciation. However, the issues with today’s low appraisals are slightly different those of years past. In addition to stricter lender requirements and increased appraisal scrutiny, some have argued that changes to the appraisal industry (including management and ordering) may have also contributed to low appraisals.

Although not as pervasive as they were several years ago, low appraisals are still common. If your home does appraise lower than the contract price, you can appeal the value with the lender – but it will be difficult. In the past, appraisal appeals were less demanding (typical comparables were homes that sold within 6 months and 1 to 5 miles from your home) providing you a higher chance of success. However, today’s lender requirements are more restrictive. Although lenders vary on their requirements, many lenders now only accept appeals that include three original comparables that sold within the last 3 months and are within ½ mile (or less) of your home.

Don’t wait for a low appraisal to throw a wrench in your sale; take a proactive approach. Long gone are the days of setting a price by tacking on thousands to your neighbor’s recent sale price! Pricing your home correctly doesn’t only help attract home buyers, but it can also help avoid a low appraisal. Furthermore, choosing appropriate comparables for your pricing strategy is highly important, which include: comparables that are most similar to your home (same style and within 15% to 20% of living area and lot size); the most recent sales (within 3 months, but nor more than 6 months); and in close proximity to your home (unless you are in a rural are the comparable should be within ½ mile, but no more than 1 mile).

Additionally, the appraiser should be provided with your pricing rationale (i.e., the comparables that indicate that your sale price is in line with the market as well as a list of improvements that add value to your home). The intent is not to pester the appraiser while they are trying to do their job. However, some appraisers are appreciative that you have made the effort to provide the information (especially those who are unfamiliar with the local market).

Regardless of the outcome of your home’s appraisal, take heart that you can be proactive to possibly avoid appraisal issues. And if need be, don’t be afraid to appeal a low appraisal.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.