It was a few weeks ago that Watson-Touchstone Realtor Mary Christenson tipped me off to the latest hiccup standing in the way of a housing recovery: new federal regulations that are leading to flawed appraisals and derailing sales. Here's the deal: a buyer and seller come to terms to sell a home for say $400,000, yet the appraisal comes in consistently low, say $350,000. And the home had multiple bids and the comps hold up in the area. So what's wrong here? Mary and others point to rules that went into effect May 1 requiring lenders that sell loans to Fannie Maie or Freddic Mac to set up a firewall between appraisers and loan officers. All this to prevent "improper influence" between the appraiser and the Realtors. (Check out a Seattle Times story for a more complete explanation.
Now I see CNBC has picked up the story and I include a brief report from their website here. This is a serious issue, folks, and another case where over-regulation has simply gummed up the works. We have a market that is struggling to find its sea legs and regulation that is killing legitimate deals. Enough already.
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Gary Crabtree, one of the foremost experts on the issue locally, said the issue is complicated by the fact that local appraisers are being "low balled" by outsiders who know little of the market. I'm excerpting parts of an email Gary shared with me. Feel free to contact him for a fuller explanation. Said Gary:
"The reason the appraisals are holding up the closings is that the AMC's now control the purse strings of the fee. Once the appraiser would receive $375 to $400 for his services, today they receive as little as $175 to $285 from these AMC's. The experienced and ethical appraisers can not afford to produce a creditable report for that kind of money. So who is doing the appraisals? The lesser experienced, geographically incompetent and sloppy appraisers who are forced to produce a 'shoddy' product because they don't have the time to do a "creditable" report. To exacerbate things, now that they have independence from pressure from lenders, they can 'low ball' to their hearts content and not have to worry about anything. I have been swamped with calls from agents, buyers, sellers wanting to know why their appraisals are low? Well, see above for the answer.
"So who is hurt by HVCC (Home Valuation Code of Conduct)? Well lets see, first the experienced and geographically competent appraisers like Rich and me; the buyers who have been 'low balled' and lose the deal or has to come up with additional cash down; the sellers who are sometimes forced to lower their price to make the deal; the mortgage broker who can't close a deal because they are held captive by the AMC's on appraisal delivery and fees; the taxpayers who get to pay for the 'write downs' of the banks, Freddie, Fannie all of whom have been subsidized by the TARP money... How is the market to recover with this type of forces in play? "
3 comments:
Just out of curiosity, I don't get how the "lesser" appraisers benefit from lowballing an appraisal. They get paid their fee whether their appraisal comes in legitimate or $50,000 low, so why do they consistently come in LOW?
One could look at this differently. One could say that housing prices are fair again in Bakersfield after outrageous price increases that peaked several years ago. A wise buyer would take this lower appraisal and negotiate a lower price with the help of his/her agent, although one could say that the agent has no reason to help negotiate a lower price as it would negotiate a lower commission for him/her. Or, if the buyer believed the higher price was fair, arrange for the seller to carry paper. In any case, perhaps we are merely seeing an adjustment in the market returning to a time when houses are for living in and not as an investment tool, which is what the housing bubble was all about. The complainers are the people who benefitted and perhaps encouraged the bubble of past years. Too bad for them that leaner times are here.
Were it not for the "competent," "experienced" appraisers who provided highly inflated and overstated appraisals, perhaps there would not be a need for regulation currently in effect.
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