By NAR 2012 Vice President Gary Thomas
While the real estate market is certainly started on the road to recovery, there are still a few hurdles that are preventing it from gathering steam. These include tight credit and uncertainty about the rules and regulations governing the mortgage market.
A recently released NAR survey found that issues with appraisals are also holding back home sales. We’ve certainly had this problem in Orange County, California, where I live. I’ve also heard about it from my agents, who have had deals delayed or blown due to problems with appraisals.
Appraisals are a vital part of the real estate transaction. Most appraisers work hard to provide accurate valuations that comply with the Uniform Standards of Professional Appraisal Practice.
However, appraisals generally lag market conditions and some changes to the appraisal process have caused difficulty. These include use of out-of-area valuators, inappropriate comparisons and excessive lender demands. Also, before the beginning of last year, some lenders’ loan processors edited valuations across-the-board, cutting them by a certain percentage.
Although most REALTORS® surveyed in September reported no contract problems, about 35 percent reported some kind of problem that negatively impacted completion of the sales contract.
The following problems were reported:
- Some appraisers are using foreclosures, short sales and run-down properties as comparables, without making adjustments for market or property conditions.
- Appraised values don’t always reflect market conditions such as rising prices, multi-bidding and/or low inventory.
- Appraised values fluctuate widely.
- Out-of-town appraisers are unfamiliar with area or local market conditions and may lack full access to data.
- Slow turn-around time by appraisers and banks delay closings.
There are signs of improvement. The appraisal industry has made progress in adapting to market conditions, expanding education and making adjustments for distressed homes used as comparables. We know that there have been cases where appraisers have faced pressure to complete appraisals using distressed sales as comparables, often in too short of a time frame, and with a scope of work not justified by the fee. NAR continues to advocate for an independent appraisal process and enhanced education requirements that allow appraisers to produce the most accurate reports possible.
Fortunately, the number of distressed sales is decreasing. They were one-third of all sales in 2011, but have averaged about one-quarter of sales in recent months. We expect it to continue to decline, reaching about 10 to 15 percent by 2013.
Meanwhile, we should all be aware of the issues surrounding some real estate appraisals. All home valuations should be made without pressure from outside sources. That said, know that REALTORS®, along with buyers and sellers, have the right to communicate with appraisers and lenders about errors or concerns with individual valuations.