Home Appraisals Causing Contract Glitches

NAR has long advocated for an independent appraisal process and enhanced education requirements that allow appraisers to produce the most accurate reports possible.  However, appraisers have faced undue pressure – whether from a lender or an AMC – to complete appraisals using distressed sales as comps, to complete an appraisal in an unacceptably short time frame, and to complete a scope of work that is not justified by the fee being offered.

These are major problems.  In addition, some appraisers are required to provide as many as eight to 10 comparable sales, which almost guarantee the use of distressed properties as comps in many cases.

Previously, three comparable homes were the norm for most appraisals.  In many cases there simply aren’t enough apples-to-apples comps to comply with the excessive demands by lenders, so discounted distressed homes are sometimes used in valuating traditional homes in good condition without appropriate adjustments.

“In short, there has been an inconsistent appraisal process leading to disruptive delays for home buyers and sellers,” Veissi said.  “All home valuations should be made without undue pressure from any source.  Even so, buyers, sellers and agents are free to ask appraisers to consider additional data and to correct errors, or discuss unique aspects of the home, the neighborhood or properties used as comps.”

The appraisal industry has made strides in adapting to market conditions, expanding education and making appropriate adjustments for distressed homes that are used as comps.  It appears many of the remaining problems are tied to appraisals made through AMCs.

Fortunately, the level of distressed sales is trending down – they accounted for about one-third of all sales in 2011, but have averaged roughly a quarter of sales in recent months.  By 2013 NAR expects the distressed market share to decline to about 10 to 15 percent.  As distressed inventory is cleared from the market over the next two years, it should help to correct ongoing problems.

“In the meantime, buyers, sellers and real estate agents need to be aware that there are problems with some real estate appraisals, but also be aware of their rights to communicate with appraisers and lenders about errors or concerns with individual valuations,” Veissi said.  “In some cases, a second appraisal may be justified.”