New Appraisal Rules Won’t Help Markets
May 6, 2009 by Tom Schieber
Filed under Blog
New appraisal guidelines intended to eliminate the dishonest or fraudulent inflation of home values could backfire and keep values artificially deflatedall summer long.
Beginning this week, Fannie Mae and Freddie Mac are changing the way that lenders order appraisals. Rather than calling trusted, experienced local appraisers, most lenders will now be required to submit their requests through a third-party entity that will indiscriminately assign the job to the next appraiser in line.
The new rules also eliminate the ability of agents and lenders to assist an appraiserwith comps or other meaningful market data.
While artificially inflated values were a part of the “irrational exuberance” that lead to the bubble in the real estate market, an over-correction of the process will do more harm than good.I’m already seeing willing and able buyers making strong offers on quality homes here in Brentwood, CA for example, then fighting a conservative appraisal who uses the most run-down, beat-up, least-desirable REO properties as comparable sales.
The ability of agents to work with appraisers to justify a sales price has always been an important part of the selling process. If a buyer is never allowed to pay a price higher than the last comparable sale as a result of market dynamics, we will never see prices move upward again.
And that’s what the new appraisal ordering and submission rules are designed to do – to eliminate any influence that the agents or lenders in a transaction might have on an appraiser (An appraiser who, in this system, may have no local knowledge or limited experience, and who’s fee is being reduced by the new rules).
As with most bureaucratic decisions, the motive here is pure. But this system is not going to work like it is intended, and transactions that are already difficult, are about to have an extra layer of complexity injected.
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