The January 11, 2009 USA Today article "Critics say new home-appraisal rules drive down values" by Stephanie Armour says,
"But organizations such as the National Association of
Realtors (NAR) and the Appraisal Institute say the change, along with other
efforts to reform the appraisal industry, is hurting consumers and
appraisers.
They say new rules that swept through the appraisal
industry in 2009 — rules designed to ensure appraisals are impartial — are
resulting in excessively low home values, because chosen appraisers aren't as
experienced or as familiar with local markets. They also say the appraisers take
more time, causing delays in getting appraisals done."
In response, Jim Plante, Certified General Appraiser from Jackson, TN has provided Appraisal Scoop with this response:
This article mirrors much of the sentiment of a blog article by an Atlanta broker named Tracy Anderson in July, 2009, about the adverse effects of the HVCC on home values. Find it here.
The Memphis Chapter of the TIAAO asked our AI chapter to provide a speaker to address this article at their chapter meeting, and I volunteered.
In contrast to Tracy Anderson's blog article, this one deals with FHA's adoption in principle of several of HVCC's provisions. One thing that I emphasized about the HVCC article was that at present, what one is seeing is selling prices searching for value.
Four things create value: Desire (and ability to participate), utility, scarcity, and transferability. In July 2008, the slamming shut of the subprime window removed from the market the ability of thousands of people to participate in it. Value, by definition, immediately plummeted to some point south of where it had been. We don't know exactly how far south, because there is no way of measuring value directly; instead, we use selling prices as evidence of value.
Right now, prices are still searching for values in many areas. In others, they've stabilized and are bouncing along the bottom of the graph. Complicating the matter is the fact that lenders are extremely cautious in this climate, and take a much longer time to process a mortgage application. Therefore there are fewer closed sales in any given sector, and consequently less evidence of value.
The quality of that evidence is not what it once was. The few selling prices that we do have are often clouded by foreclosures and short sales, and many of the sales may be difficult to verify. In some areas, foreclosures and short-sales provide the only indicators of value. These conditions force value conclusions to low levels; remember, price is the only firm evidence of value we have.
These conditions wouldn't exist if people bought houses with their own money like they do commodities.
The appraisal's conclusion of value does not say, "These poor people cannot have the house they so richly deserve." They can have it, but they have to use their money instead of someone else’s.
Instead, our reports say, "Mr. Bank, if this loan defaults, you're not going to be able to recover the money you lent." What uses our clients make of that conclusion is not a concern. Risk management and assessment is their job; market value is ours.
So we are not seeing "lowball appraisals;" we're seeing evidence that values are lower that we'd hoped for. You can still buy a house for whatever price you think is fair. But you must do it with your own money, not someone else's.
I should add that in a couple of the areas in which I appraise, almost all the sales are cash sales. Many are over $300,000. (These are retirement and resort areas.) It is interesting to note that these two small submarkets have shown neither reduced sales levels nor falling values. From this evidence (admittedly shallow and narrow), one could conclude that appraisals aren't the problem; living on credit is
AUTHOR: Jim Plante, Certified General Appraiser, Selmer, TN: We provide real estate consultation and
investigations for legal purposes; forensic field reviews; partial interest
appraisals; and the real-property portion of estate valuation for tax purposes. Linked In Profile
Recent Comments