What is Your Home Really Worth?

What is your home really worth and who makes that final decision?

You think it should be worth somewhat more than you paid for it.
Your listing agent offers to list it for higher than you need so that, hopefully, your buyer will pay enough for you to walk away with some profit.
The buyer wants it at what the messed up foreclosure down the street is selling for.
The lender wants an “accurate” appraisal from a licensed appraiser.

Problem is, home sellers and appraisers argue over true valuations.  Who’s right?  Who wins?

Just exactly how much appraisers say homes are worth has become a contentious issue.

The National Association of Home builders has been asserting lately that some appraisers are using ill-chosen comparables to valuate homes. Do you want the home you’re trying to sell to be compared to ones that are in foreclosure or the subject of a short sale, and which have some maintenance issues because the homeowners who couldn’t afford their mortgages couldn’t afford repairs to the house either?

In neighborhoods where comps include a lot of short sales or foreclosures, appraisers should be able to expand the geographic area or extend the time frame for eligible sales, thereby getting a more representative cross-section of home prices.

The Home Valuation Code of Conduct went into effect May 1 and is the result of a joint agreement between Freddie Mac and the NY State Attorney General to “enhance the independence and accuracy of the appraisal process, and provide added protections for home buyers, mortgage investors and the housing market.”

The agreement, among other things, means a loan originator or broker cannot directly contact an appraiser when dealing with conventional mortgages sold to Fannie Mae and Freddie Mac.  A lending institution can create an independent department to order the appraisal for the loan, or the institution can hire an outside appraisal management firm to find an appraiser.

The rules are meant to prevent appraisers from being directly pressured by loan originators  into inflating home values to meet the contract price.  Under new industry rules, mortgage brokers are barred from ordering appraisals themselves.   Instead, lenders order appraisals in-house or hire independent firms.

During the boom years, agents and brokers often pressured appraisers to “hit the number” that the buyer and seller had agreed on so the deal would close and everyone could collect fees.

Some real estate agents and home builders say the new rules are causing delays in closing sales, or undermining sales because appraisals are coming in too low.

Often times appraisers are from a different city and have to do a large amount of research and calling around to get enough information for an accurate appraisal. This can take a lot of extra time.

There should be regulatory guidelines for those who use distressed or foreclosed properties as comparables when determining home values and, at this time, it appears that those guidelines don’t exist. Appraisers need to have proper experience and guidance to accurately assess values in distressed markets, but this market is so new and banking guidelines are changing so rapidly that it’s hard for everyone, including appraisers, to keep up.