Appraisers Feel More Pressure to Boost Values

This story below outlines some of the problems appraisers are having with being pressured to over-value homes. Most of the pressure comes from Lenders, but increasingly they feel it from Realtors also, according to a recent survey of appraisers.

The problem appraisers have in a rising market is that appraisers are tied to a strict valuation methodolgy that doesn’t allow the freedom to add subjective value to a home, or to factor in “hot market” inflation the way we can as Realtors. They are handcuffed by strict guidelines, which is probably best when all things are considered, though it can be troublesome for us at times.

For example, when I write an offer for a buyer on a hot listing with multiple offers, I always perform a market analysis to justify the offer price. Often, especially in South and Southwest Austin, our market analysis (CMA) shows a value below the list price, but I know my buyer will not win the multiple offers if we stick to the value shown by the CMA. The CMA is looking in the rear view mirror ar recent sales. In a hot market where prices are rising, the CMA doesn’t reflect what the current market, that day, is willing to pay for the home because of the lag in value inherent in using sales comps that can be 3 months old.

So we add “hot market factor” which is arrived at in a somewhat subjective way based largely on the Active/Pending ratio for the area, the average number of days on the market for active, pending and sold listings, and gut instinct. Then I always ask a buyer, “how disppointed will you be if you miss out on this one?”. The answer to that question determines how high we jump, or not.

If I think an appraiser might have trouble finding comps on a particular deal, I’ll offer to help with providing comps that I think are good one. Sometimes appraisers will call and ask for help if they can’t hit the value. I never pressure an appraiser though, and I let the buyer know, right from the start, of the possiblity that the home might not appraise in a hot market if we’ve bid the price up, and we discuss the options up front, which normally is simply the Buyer accepting the property with a higher downpayment so the loan to value ratio can be met.

Here is the story.

Appraisers Feel More Pressure to Boost Values
Source: REALTOR® Magazine Online

WASHINGTON – Appraisers say they’re feeling a lot more pressure in recent years to boost their estimates of residential property values for loan approvals, according to a just-released survey.

Valuation pressure primarily comes from mortgage brokers, according to respondents to the 2007 National Appraisal Survey, conducted by market information provider October Research Corp. for Forsythe Appraisals LLC in St. Paul, Minn.

Pressure from Lenders

Seventy-one percent of appraisers said mortgage brokers applied pressure in 2007, up from 60 percent who said that in 2003. Increasingly, real estate practitioners are also applying pressure, with 56 percent of respondents citing such pressure, up from 47 percent four years ago, the survey shows.

In addition, 75 percent of those appraisers say if they refused to modify a property valuation, they were subjected to negative ramifications. Sixty-eight percent said they lost the client as a result; 45 percent said they didn’t get paid.

Forsythe Senior Vice President Alan Hummel cautioned that the increase in pressure reported in the survey doesn’t mean that more appraisers are actually succumbing to pressure. He spoke to the NATIONAL ASSOCIATION OF REALTORS® Appraisal Committee at the REALTORS® Midyear Legislative Meetings & Trade Expo this week.

Legislation to Improve Appraisal Environment

Several bills are in the works to shore up appraiser independence, including the Fair Appraisal Act (HR 1723). NAR’s Appraisal Committee voted to establish a position on an aspect of the bill that would establish a blind draw selection system for FHA appraisers.

The vote — opposing the blind draw motion — hinged on whether the value of the draw to potentially distribute appraisal work more equitably outweighed the possibility that it would lengthen the FHA loan process, discount the value of legitimate strong lender-appraiser relationships, and grant work to appraisers unfamiliar with local market trends.

Several committee members noted there are vastly different levels of experience and competency among appraisers, so a blind draw could unfairly disregard appropriately qualified appraisers.

H.R. 1723 also would increase fines on those who would improperly influence appraisers in FHA transactions. The legislation could be added to a larger FHA reform bill scheduled to be considered in early summer by the House Financial Services committee; then it would be taken up on the House floor.

Posted by Steve
9 years ago

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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