home valuations

Home Valuations Code of Conduct

Guide about Home Valuations by Dan Prudhomme

value of home

With all the other things that are making selling a house, getting a mortgage, and getting the house appraised, inspected, and the sale closed, another situation has stirred up turmoil. In May, Fannie Mae and Freddie Mac- the giant government-sponsored companies that buy mortgages from lenders, enacted the Home Valuations Code of Conduct, which purpose was to protect appraisers from being influenced by mortgage brokers, lenders or real estate agents. This code mandated that mortgage brokers and loan underwriters could not directly hire appraisers. Because of this code, many lenders started using appraisal management companies which would hire appraisers for them. The problem is that appraisal management companies generally pay $175-$200 for an appraisal compared to the $350-$375 that conventional appraisers charge which in my opinion for the work involved, is a bargain. Another problem created by the appraisal management companies is that they often hire appraisers from outside the area. Needless to say, these appraisers from outside the area do not know the local market, prices, or history of the properties and therefore rarely can determine a valid appraisal value. They are coming up with low values and using foreclosures and short sales as comparables as opposed to sales that were made when a buyer and seller agreed on a price that is not determined by sales that were made on distressed properties by distressed sellers. These new rules are a reaction to the excesses of the housing boom when some appraisers reported being pressured to value a property generously to justify a big mortgage. The appraisers were also influenced at that time by rapidly rising prices for properties and plenty of rising sales and sales prices to use as comparables. Recently, instead of using comparable sales that were made in the past 6 months, appraisers are now being told that they can only use sales for the last three months. In a lot of areas and neighborhoods, there have not been any sales in the past three months. Often, the sales that have been occurring are short sales and foreclosures which were sales that occurred under duress by the sellers or at prices that banks simply dumped the properties at very low prices. Real estate agents have been taught from the beginning of time that appraised value is the price at which an informed buyer and seller agree to pay. When sales contracts are signed between an educated buyer and seller, it makes no sense to me that appraisers will not accept this price as current value but instead attempt to use comparables of sales that were made on foreclosures and short sales between buyers who were desperate to sell and buyers who took advantage of the desperate seller. Congress is now introducing legislation that would put an 18 month moratorium on the rules that were created by the Home Valuations Code of Conduct because just like so many of the government rules and programs that appear to protect the public actually harm the public and business in general. It will be very interesting to see what happens in the real estate appraisal business. In my opinion, most appraisers are honest, hard working professionals who are suffering through this changing real estate market just like the real estate agents, mortgage lenders, brokers, as well as buyers and sellers. I hope that there will be a moratorium on the rules created by this Home Valuations Code of Conduct and that the appraisal business can get back to the basic rules of appraising. Just thought you may be interested in reading this guide: Mobile Homes For Sale and House Worth