We just got an appraisal of our home, and it came in lower than I expected. The appraiser told me that, due to new guidelines, the appraisal cannot come in higher than the most recent comparable sale.
I am not a real estate expert, but I have done plenty of work with real estate, and have experience with comps and the calculations used when using comps. I asked the appraiser if there could be any added value for things like extra bathrooms, updated kitchens, variations in lot sizes, etc., that are traditionally used for comp calculations, and she said no.
Is that right? I am fully prepared to accept that my house isn’t worth what I thought, and the appraiser did not charge me for the appraisal since it came in too low to help us, so I don’t think I’m being tricked by anyone including myself. But it seems strange, since I have a hard time imagining my house and the recent sales in my neighborhood having exactly everything in common (I live in a 1890s Victorian, and the most recent comp she pulled was from a 1950s style farmhouse, for example).
She is scared, so she is low-balling (aka ‘sandbagging’). There might be guideline, but maybe not laws, per se.
Appraisers reason that it’s their job or your appraisal/convenience/etc, so they play it close to the vest and try not to draw attention to any high appraisals. Their jobs and industry we under great scrutiny and they are reacting to new laws and new guidelines.
If she is following a guideline, it is one imposed by the company she works for, not by Fannie Mae, Freddie Mac, or any government agency. Fannie Mae and Freddie Mac issued the Home Valuation Code of Conduct (HVCC) in 2008. These guidelines concern what relationship an appraiser can have to the various parties involved in a transaction and what information can be shared among the parties involved. The guidelines don’t say anything about how an appraisal is to be performed. They only mention “comparables” once, and then only to say that it’s OK for a real estate agent to advise the appraiser as to which properties might be used as comps.
I would ask her to produce documentation of the guideline she cites. When she fails to produce it, I would call her supervisor.
The reason for the appraisal was because my husband and I are interested in buying a multi-unit property here in town, so we initiated an appraisal to see what kind of equity we had in our home to use for a down payment, use for capital improvements, whatever. It was initiated completely outside of a bank, even though we picked an appraiser we knew worked for a local bank.
The reason the appraiser didn’t charge us is because she wants us to get the property, since she seems to like us and has a building of her own on the same street. She went so far as to secretly pump up the property to the bank guy we talked to - she called him on an unrelated matter, and slipped it in that the bank should really look into our building, it’s great, etc. - without mentioning that she even knew us. I’m a little taken aback by her generosity, really, since I’ve only talked to her three times, including during the appraisal. But, it’s a small town, so I guess that’s how it works.
Is there some sort of guideline governing what can be done with comps now? I clicked through that Fannie Mae release, and found it impossible to read (no surprise). Also, does Fannie Mae automatically govern all loans/properties now? I thought they could only require compliance on loans/properties that went through Fannie Mae?
These are some very tough questions to answer. I’d ask her directly. Odds are she is buried with guidelines, from various sources, and she is playing it safe. I honestly believe that is the most likely answer. Everything she faces, be it an industry newsletter, the federal guidelines, or the company guidelines, it all screams, “Be careful and don’t go high” to her.
Heck, what would anybody do? There is only one sure way to save one’s hide in her position: Play it safe. For you, and even her, you might be able to understand the nuances of the houses in the same neighborhood (Old Victorian charm vs Cookie Cutter rancher), but she would have a very hard time making it look and feel right on a piece of paper.
So, there are countless guidelines, and even people in the industry might be overwhelmed to deal with them all, unless they adopted one common approach: Go low.
Who the hell wants to raise the bar on property value/appraisal and draw attention to themselves over some nuances?
Other than appraisals for property tax purposes, I am not aware there are any laws or regulations for private appraisals done for lending purposes. Mortgage companies might have guidelines regarding conditions the have for appraisals to be acceptable for their underwriting criteria. The FHA, may have certain criteria they have established, but if you are getting a loan from ABC bank (not a government agency) they can use whatever criteria they desire to determine the credit worthiness of your collateral.
Just as a side note, runaway appraisals could easily be blamed for a certain amount of the whole real estate bubble. I have heard a couple of RE agaents talking about which appraiser to use depending on if you are buying or selling so as to get the most beneficial numbers for their client because some of them will lean high or low in general. If you are selling houses, and you get appraisals from 2-3 different appraisers and one always comes in the highest, you are going to want to use him all the time. Market forces in those circumstances are going to lean towards inflating appraised values, because RE agents are going to keep reccomending appraisers that give the results they want.
I’m sure there are more than a few shady appraisers out there who would crank up the numbers a touch if you ask the right way. Granted, its probably illegal, and or could get an appraiser sued by a lender in the event of a property not being truly worth that, but how often does anyone really doublecheck.
Lenders are the party that picks the appraiser, not the borrower. Now if the lender is just an originator and selling off the paper to secured conduit, and are not considered about the long term viability of the loan, then sure you have a perverse incentive to have high valuations to get loans to clear. But if you are the bank that that’s going to hold that mortgage, you want a realistic appraisal, that is going to reflect the appropriate value of the home.
I’ve bought and sold six different houses in my lifetime, and never used an appraisal as a part of the purchase process between the buyer and seller, only as a part of the mortgage process, that has nothing to do with the seller.
In our state there is now some sort of appraiser lottery. Nobody with an interest in the transaction gets to pick. Not the buyer or seller, not their agents, and not any of the lenders. They’re assigned to a particular proposed transaction by some regulatory agency. This was implemented precisely to stop the appraisal-shopping mentioned above.
The problem is the agency has implmented this program with an appraiser selection pool that’s too geographically large. So you may get an appraiser from the far side of the metro area who has never set foot in your county, much less your subdivision. For generic folks with generic tract houses this isn’t too dangerous. As long as there are plenty of recent transactions to comp against.
But if there aren’t many recents, or for folks with one-off custom houses, or who have something special like a view or a golf course or a special community, a cross-town appraiser may have no clue how much or little to price that at. Ditto for folks with rural land which may or may not be in the path of ongoing development.
This lack of local knowledge by the appointed appraiser can lead to large discrepancies in appraisals, further fouling up the already gummed-up market.
The funny thing is our state never had much of a runaway appraisal problem; one wonders exactly how this particular regulatory thing got passed in a state that is generally pretty anti-regulation.
