Choose Your City
Change City

Home prices: luck of draw

Aaron and Beth Stiner are renters, but not by choice and not because they can’t afford to buy.

Aaron and Beth Stiner are renters, but not by choice and not because they can’t afford to buy. They had a move-up home in Phoenix selected and good credit scores. They even had buyers lined up for the home they were selling. Then they entered appraisal hell.

The first appraisal on their chosen home came in at $295,000, a figure that both the Stiners and the sellers agreed upon. The lender didn’t like it, and ordered up a second appraisal. Based on comparable homes that were in a different neighborhood, the new appraisal came in $25,000 lower — too low to allow the loan to go through.

They switched lenders and got another appraisal that, at $290,000, would have allowed the deal to go through. Their new lender was skeptical and ordered up another appraisal. At the same time, the home they were selling was appraised three times, with each subsequent valuation falling.

Four months later, the Stiners and their buyer both gave up. Together, they were out $1,600 for seven appraisals. “As a result, we are now renting our home out and renting the home we wanted to buy,” says Beth. “It felt like a game.”

But not a fun game.

Moving target

The biggest issue for appraisers, lenders and, ultimately, borrowers, is how to evaluate properties in neighborhoods with foreclosures, short sales and not enough solid sales to provide comparable data.

“They are appraising a market that is so volatile and different from anything they’ve ever seen,” said Mark Linne of Appraisal World, a company that provides automated valuation software and services to appraisal companies and lenders. “If you are an appraiser and one-third of the neighborhood is foreclosures, and another third is short sales, and another third is regular, how do you even determine what is fair market value?”

Brokers like Patrick Gavin — the mortgage broker who was trying to find a loan for the Stiners — contend that appraisers should mark up the value of homes when comparing them to foreclosures and short sales, because many of those distressed properties are in disrepair or are so complicated to buy that they command unrealistically low prices.

Industry upheaval

The world of home appraisals changed on May 1, 2009, when Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct.

These new rules prohibited lenders from hand-picking appraisers. To comply with those rules, many lenders have started using appraisal management companies that afford them an arm’s-length relationship with the appraiser. The appraisal management companies hand out assignments to their participating appraisers on a random basis. And they get a significant slice of the appraiser’s fee, cutting the amount that actually goes to the on-the-ground appraiser.

“They want appraisers to produce a product, and we provide a professional service,” complained Francois Gregoire, a veteran appraiser. “And they want it turned around in 24 or 48 hours. All those personal relationships that I built over the years are out the window.’’

Consider AlsoFurther Articles