July 1, 2013

"Beauty is in the Eye of the Beholder"



For so long the scales of the appraisal process tipped heavily in the favor of the seller. Appraisers would give their "opinion" based on where the market was going, not current value. Today? Let's just say that "hitting the brakes" and "backing up" is an understatement. The exact opposite has taken place where the appraiser is not giving, in most cases, fair market value.
The time has been long overdue for an evaluation on the evaluator and fix the appraisal process.

The National Association of Home Builders (NAHB) has provided the below two letters so that members can submit them for publication in local media and raise awareness of appraisal problems that affect everyone involved with selling a home, both new construction and resale.

First letter to the editor:

With job growth at a low ebb, it’s hard enough to sell new homes these days, but the appraisal process is making it even more difficult. Faulty appraisals are harming new home values and killing sales in many markets because they do not accurately reflect the value of the home. The process has gone seriously wrong because some appraisers are improperly using distressed properties – many of which have been neglected and are in poor physical condition – as comparables in assessing the value of brand new homes without accounting for major differences in condition and quality.

This is not only unfair, and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, harms local economic activity and acts as an obstacle to the recovery of the housing market.

To address shortfalls in the appraisal process, appraisers must develop realistic valuations based on sales that are truly comparable and lenders need to use appraisers who are knowledgeable and experienced in appraising specific property types located in a given market.

Building 100 single-family homes generates more than 300 full-time jobs and $8.9 million in taxes and revenue for federal, state and local governments to support schools, police and firefighters. Working to restore the full health of the housing industry is one of the best things that Congress can do to ensure a robust recovery. This is the one sector of the economy that can be counted on to create the jobs we desperately need and lead the country back to higher ground.

Second letter to the editor:

Faced with an appraisal process that has gone seriously awry, builders face an uphill battle in trying to establish values for new homes in their marketplace. Too many new home sales are being derailed because of inaccurate appraisals. The low numbers are the result of appraisers using foreclosed or short-sale properties that have been poorly maintained as comparables for new homes that are in market-ready condition. Appraisers don’t typically enter these fixer-up homes; if they did, they would likely recognize the substantial difference between a home, for a start, that lacks working appliances compared to a home in which the appliances are new and state-of-the-art.
The inappropriate use of distressed properties as comparables, confusion over the ability of builders to convey relevant information to appraisers, a shortage of local appraisers with the experience and knowledge needed to recognize the value of green and other home features to arrive at good evaluations, and the complexity and fragmentation of the appraisal system have all contributed to the faulty process. These appraisal practices are a major contributing factor to the current housing production credit crisis that has choked off credit for home builders and hindered the nascent housing recovery.
Regulators, appraisers, lenders and all of the stakeholders in this debate must come together to establish regulatory guidelines for appraisers that acknowledge the realities of today’s marketplace. This must be a top priority. Even as signs grow that home prices are stabilizing, faulty appraisals continue to hamper the pace of the housing recovery that is needed to put the economy back on track.



NOTE: Association Maximization is taking a summer hiatus but will be back in September. Enjoy your summer and be safe.