Real estate appraisers must be feeling pretty picked on. A new Center for Public Integrity report takes on crooked appraisers who, after being banished from their own business, continue suckering unwitting homeowners as real estate agents and as bosses of unregulated appraisal contract firms.
The Realtors and homebuilders are on their case too, claiming appraisers are costing them business by lowballing valuations. (Our readers’ comments on that post make for a fascinating debate over what’s right or wrong with the appraisal process nowadays.)
There’s been no shortage of bad actors at every phase of the real estate deal, so I wasn’t surprised by the Center for Public Integrity’s report.
The debate over how homes are valued, though, is a big deal because it gets to the heart of why the country’s housing market isn’t recovering very quickly. I live in South Florida, which saw some of the nuttiest increases in home values in the country during boom times and now is suffering through one of the worst real estate markets in the nation. For a while, absolutely nothing was selling; even now, just about the only thing moving are foreclosures and short sales. So forget looking for comparable sales, or “comps” — if you find a recent sale in your neighborhood at all, it probably will be a bargain-basement foreclosure. Go back further and it will be an inflated boom-era deal.
This is the kind of thing driving lenders batty, because even those that want to make loans fear they’ll bet wrong and end up with more junk. For that matter, it’s also driving buyers crazy — is the house worth this much? Or if I wait, will I miss the bottom? And sellers are tearing their hair out, too, wondering why appraisers can’t recognize the value they see in their own home.
Appraisal is so much trickier in a declining market, says Knoxville, Tenn. appraiser Leslie Sellers, president-elect of the Appraisal Institute trade group. Anything selling today might involve incentives — the seller pays closing costs or (yes, he has seen this) throws in a John Deere tractor. Maybe the sellers were 10 days from foreclosure and so took any old offer. A good appraiser will spend the time to ferret all this out, Sellers says.
But many of the good appraisers have gone, say industry veterans, tired of getting yelled at by Realtors to fudge values or sick of getting squeezed on the fees. Since the well-intended Home Valuation Code of Conduct (HVCC) took effect, they say, appraisal management firms have become more like appraisal mills, churning out values cheaply and quickly — and often, wrongly. “It’s a race to the bottom,” says Ted Faravelli, executive director of the California Association of Real Estate Appraisers.
On this, the professional appraiser groups and the Realtors agree. But what’s the solution? HVCC isn’t going away, and probably shouldn’t. Will Congress have to act, or is this just another phase we have to work through to get the deals cranking again?