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Saturday, March 22, 2008

Appraisals adding to the problems...

One of the contributing factors to the mortgage meltdown mess that we're in right now was the complaisance of appraisers to go along with over valuing houses so that they could get big mortgages. Not all appraisers, mind you, but quite a few. Most were under tremendous pressures from lenders to come up with values that matched what the lenders wanted to lend on the property. The Feds eventually stepped in and slapped a bunch of hands and a few State Attorneys’ General made headlines as they pontificated about cleaning up the whole appraisal process.

Now we are suffering from the pendulum having swung too far the other way. Now lenders are telling appraisers to appraise conservatively. Lenders have designated our area as a “declining market” and have instructed appraisers to use the bank-own property sales in their comparables. The net result is dramatically lower appraisals for everything. Perfectly good homes in good neighborhoods are being dragged down by the one or two foreclosures that may be in the neighborhood or close-by. It’s crazy. In all likelihood, if you bought in the last 3-4 years your house would appraise right now for much less than you paid and likely for less than you owe.

What’s the solution to this mess? It appears that we just have to wait it out, if we can. The housing market needs to stabilize and stop dropping before we will see appraisals again showing rising values. Even then, most people will have lost 15-20% off the value of their homes and will have to wait out a period of another 3-5 years while appreciation slowly brings the value back up to where they were 2-3 years ago.

In the mean time I certainly hope that you do not have to re-finance your home anytime soon, since you are likely to not be happy with the appraisal. If you plan to sell your house anytime soon, it is likely worth the cost to get an appraisal done before you list; so that you have a good idea gong in what your house is worth in the credit market. Surprises like appraisals that are too low put a real damper on the euphoria of having made the sale. And certainly don't rely on the last re-finance appraisal that you had done a few years ago. Any appraisal over 3-4 months old is totally useless in this market.

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