In essence that’s what a page 1 story headline said this morning in the Oakland Press here is Southeastern Michigan. The story, which had several accounts from would-be first-time buyers basically was focused upon the role of appraisers and the HVCC guidelines in several real estate deals that went south after accepted offers. One appraiser was quoted as saying. “It’s not my job to keep your real estate deal together;” apparently in response to complaints by a Realtor of a low appraisal.
I’m sure that appraisers hate these types of stories because they end up with explanations that are way too simplistic for a very complex situation. The story had the usual complaints that the HVCC system resulted in appraisers who were not familiar with an area being assigned by appraisal management firms to do appraisal work there. That argument makes the assumption that the appraiser is somehow not competent enough to do the homework for the area that he/she needs to compensate for a lack of intimate local knowledge. That’s not an argument that really holds water, especially for appraisers with lots of years in the business. Just like a Realtor can do the homework in order to competently show houses in an area that they may not usually work in, appraisers, I’m sure, can and do put in enough time on-line and perhaps in the area to gain a sense of confidence about the appraisals that they render.
Another line of reasoning in the article is probably more valid and that has to do with appraisers being a lot more conservative these days with appraisals. The article sited the wild, pre-bust days of appraisals somehow always getting to the number that was needed to do the deal for contrast. I suspect that it is true that appraisers are receiving assignments from banks who do want them to bake in some level of risk of further price erosion, due to the continuing decline of the market. One can call that being conservative, but it is really just being risk-averse, which is the stance of most lenders these days. It’s really just the inverse of the boom days, when Realtors, lenders and appraisers baked in continued high levels of appreciation into the analysis for every loan.
So, is there any real evidence that the appraisers themselves are contributing to a continued and self-fulfilling downward home value spiral? I suppose that like the overshoot on the up-side, when homes were appreciating at double digit rates, there will be some overshoot on the downside, too. But that is not the fault of a single set of practitioners within the real estate process chain?
At the base of the problem are the lenders themselves who have overreacted to the beat down that they’ve taken form prior bad loan decisions. Then the Realtors involved have perhaps contributed by allowing (maybe even encouraging) low-balling by clients on almost every deal. That can’t help but drive values down for everybody. Perhaps some of the appraisers themselves have made mistakes or used bad comps or ended up caving in to guidance to be conservative in the appraisals, but I suspect that HVCC allowed most of them the freedom to at least think that they no longer had to be beholding to any of the parties involved.
Most appraisers that I’ve met or worked with really do believe that they are rendering honest and supportable valuations for the homes that they appraise. I may not like it, but I have no particular reason to doubt it. None of us are happy with where values are right now and where they are still headed. In my own research, it looks like the appraisers are doing a much better job that the local assessors in keep up with the market prices.
The article pointed out that HVCC will be replaced this year by new rules that have come out of the financial reform law that was passed last year. Apparently the new law will retain the arms-length relationship barrier between the lenders and the appraisers, but encourage more communications with others (read that as Realtors) involved in the sale. Many Realtors had already found ways to at least get valid comps to the appraisers and this may allow more information about a specific area to be exchanged. Unfortunately it appears that the much hated middleman - the appraisal management companies – will still be in the loop. These companies are disliked by both the appraisers (because they effectively control the pay for the services and have cut what an appraiser can make) and the Realtor involved (because they are the one supposedly responsible for making “out of area” assignments).
We shall see if the new law makes any difference. I suspect that thinks aren’t going to change much until we get more stability in the market, which means that we need to get through the next round of foreclosures and short sales and get to a point where those sales are no longer dictating market pricing (no matter who says they don’t use them). Until the banks feel better about the market and the appraisers feel better about the direction of the market, we will continue to have this conflict between how we, as Realtors, want things and how the market dictates they will be.
I’m sure that appraisers hate these types of stories because they end up with explanations that are way too simplistic for a very complex situation. The story had the usual complaints that the HVCC system resulted in appraisers who were not familiar with an area being assigned by appraisal management firms to do appraisal work there. That argument makes the assumption that the appraiser is somehow not competent enough to do the homework for the area that he/she needs to compensate for a lack of intimate local knowledge. That’s not an argument that really holds water, especially for appraisers with lots of years in the business. Just like a Realtor can do the homework in order to competently show houses in an area that they may not usually work in, appraisers, I’m sure, can and do put in enough time on-line and perhaps in the area to gain a sense of confidence about the appraisals that they render.
Another line of reasoning in the article is probably more valid and that has to do with appraisers being a lot more conservative these days with appraisals. The article sited the wild, pre-bust days of appraisals somehow always getting to the number that was needed to do the deal for contrast. I suspect that it is true that appraisers are receiving assignments from banks who do want them to bake in some level of risk of further price erosion, due to the continuing decline of the market. One can call that being conservative, but it is really just being risk-averse, which is the stance of most lenders these days. It’s really just the inverse of the boom days, when Realtors, lenders and appraisers baked in continued high levels of appreciation into the analysis for every loan.
So, is there any real evidence that the appraisers themselves are contributing to a continued and self-fulfilling downward home value spiral? I suppose that like the overshoot on the up-side, when homes were appreciating at double digit rates, there will be some overshoot on the downside, too. But that is not the fault of a single set of practitioners within the real estate process chain?
At the base of the problem are the lenders themselves who have overreacted to the beat down that they’ve taken form prior bad loan decisions. Then the Realtors involved have perhaps contributed by allowing (maybe even encouraging) low-balling by clients on almost every deal. That can’t help but drive values down for everybody. Perhaps some of the appraisers themselves have made mistakes or used bad comps or ended up caving in to guidance to be conservative in the appraisals, but I suspect that HVCC allowed most of them the freedom to at least think that they no longer had to be beholding to any of the parties involved.
Most appraisers that I’ve met or worked with really do believe that they are rendering honest and supportable valuations for the homes that they appraise. I may not like it, but I have no particular reason to doubt it. None of us are happy with where values are right now and where they are still headed. In my own research, it looks like the appraisers are doing a much better job that the local assessors in keep up with the market prices.
The article pointed out that HVCC will be replaced this year by new rules that have come out of the financial reform law that was passed last year. Apparently the new law will retain the arms-length relationship barrier between the lenders and the appraisers, but encourage more communications with others (read that as Realtors) involved in the sale. Many Realtors had already found ways to at least get valid comps to the appraisers and this may allow more information about a specific area to be exchanged. Unfortunately it appears that the much hated middleman - the appraisal management companies – will still be in the loop. These companies are disliked by both the appraisers (because they effectively control the pay for the services and have cut what an appraiser can make) and the Realtor involved (because they are the one supposedly responsible for making “out of area” assignments).
We shall see if the new law makes any difference. I suspect that thinks aren’t going to change much until we get more stability in the market, which means that we need to get through the next round of foreclosures and short sales and get to a point where those sales are no longer dictating market pricing (no matter who says they don’t use them). Until the banks feel better about the market and the appraisers feel better about the direction of the market, we will continue to have this conflict between how we, as Realtors, want things and how the market dictates they will be.
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