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Written by Ryan Zook, Cook and Zook Team
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Friday, 19 June 2009 00:00 |
To start, here is a little background on appraisals... A lender requires an appraisal to be completed to ensure the home value is greater than or equal to the sales price. It makes sense; banks don't want to loan money at a higher amount than what the home is truly worth. An appraiser is a licensed professional who develops an unbiased opinion of the property's market value. They complete standardized checklists as they evaluate the property and neighborhood. They obtain land values from county sources, sales information for nearby comparable properties, and estimate building replacement costs using building valuation manuals and professional cost estimators. Once the appraiser is finished with their data collection, they analyze and evaluate the information in a written report outlining methods by which the fair market value was estimated. To view an example of a home appraisal report, click here.
In the last few months, the appraisal process has changed drastically. Legislation requires that appraisers be appointed by third-party entities instead of lenders, in an effort to minimize fraudulent activity. The Home Valuation Code of Conduct went into effect May 1 (click here for an outline of the Code). While the Code has good intentions, the business has shifted from experienced appraisers to appraisal management companies (AMC's), resulting in appraisers assigned work in unfamiliar locations, a disregard to time constraints of the real estate transaction, and more. Appraisal prices have gone up while quality has gone down. Experienced appraisers are leaving the business because they cannot earn a living with decreased business and commissions. As realtors®, we've noticed a huge change... New rules for appraisers cause concern among Realtors.
"Appraisals are becoming one of the biggest obstacles for Americans trying to sell their homes, refinance their mortgages or tap into home-equity credit lines..." quoted in the Wall Street Journal article, Appraisals Roil Real Estate Deals. Agents on our team have run into appraisal issues on conventional, FHA, and VA loans and in some cases, we've had a second appraisal ordered and the results have yielded a $60,000 difference in a $300,000 price range. That's a 20% difference. We've had multiple contracts over list price only to run into an appraisal issue down the road. Unfortunately, lenders, realtors®, buyers, and sellers are all at the mercy of the appraiser... This article from the Seattle Times sums up appraisals in today's market, New appraisal rules may hurt homebuyers.
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© 2008 Cook and Zook Team. All Rights Reserved.