While low home values continue to be an obstacle in the way of a
full housing recovery, more and more markets in recent months have
experienced home-price improvements. Although home prices are up in
some areas, many real estate agents, homeowners and
homebuyers
alike are frustrated that appraisals aren't keeping pace with
current home-price appreciation.
Past prices don't always capture the momentum shift in a
rebounding community, says Peter Grabel, a senior loan officer at
Luxury Mortgage in Stamford, Conn. "Appraisals look backward in
time, whereas the market looks forward in time."
According to a recent survey from the National
Association of Realtors
, 34 percent of Realtors reported having had a problem with an
appraisal within the last three months. In addition to not keeping
pace with current price improvements, Realtors also noted
foreclosures being used as "comps" (information on recently sold
comparable homes), out-of-town appraisers and slow turn-around
times as being ongoing issues with today's appraisals.
Add in the fact that buyers and
refinancers
often pay around 400 dollars per appraisal and these issues are
particularly frustrating, Grabel says.
Don't blame the messenger
Richard Borges, president-elect of the Chicago-based Appraisal
Institute, says that many people find fault with the appraiser if
an assessment comes back lower than the price the seller and buyer
negotiated, but skilled appraisers take a lot into consideration
when evaluating a home in order to determine the market price.
Read:
Ho
w to challenge that low appraisal
"Appraisers look at the condition of a property, the competition
a property has and the buyer for that type of property in that
area," says Borges. "They are there to provide that unbiased,
impartial, independent, objective knowledge about the market and
the particular characteristics of the property."
This means appraisers should not assess a dollar amount solely
to make sure a real estate deal goes through, he says.
Appraisal management companies
Another major source of appraisal frustration within the real
estate community has been the increased use of appraisal management
companies (AMCs), says Grabel. Due to recent regulations, lenders
and appraisers are not allowed to influence each other, he
explains. AMCs have stepped in to fill the void, and now lenders
who need an appraisal contact an AMC, which then assigns an
appraiser for the property.
There have been complaints that AMCs pocket a large portion of
the appraisal fee, choose inexperienced appraisers who are willing
to work for less money or who are from out-of-town and aren't
familiar with the neighborhood, Grabel says. All these ultimately
affect their valuations.
Borges counters by saying that AMCs have been around a long
time, and there is an important place for them in the industry, but
trade organizations -- like the Appraisal Institute -- do try work
against any situation that encourages the use of inexperienced
appraisers.
Appraisals have improved
Despite some setbacks, things aren't as bad as they were a year
or two ago.
According to Grabel, for neighborhoods with increased real
estate activity, it's easier to find recent sales prices for
comparable homes, so the agreed upon price between buyer and seller
is more likely to be in alignment with the appraised value.
Read:
Lenders and appraisers are catching up with green homes
"In the more condensed areas where there are lots of sales, I am
typically more confident of getting a good valuation," he says.
Diane Saatchi is a senior vice president at Saunders Associates,
a real estate firm in Bridgehampton, N.Y. She says that sales
activity is picking up, and that can only make it easier to find
more accurate appraisals in the future.
"Within the last six months or so, the appraisals haven't hurt
deals," Saatchi says. "We have a lot of people who have been
waiting for the market to come up from its bottom before they start
buying. I think the perception now is it is OK to buy."
Appraisals have always been an important part of the real estate
process. As home sales continue to increase, more comps will become
available. Agents are confident this will help the value of
appraisals get more in line with current prices which can then
improve the real estate market for everyone involved.