Appraisal Headaches Plague Housing Market

By Kevin Chiu

A handful of new appraisal services hitting the market to help lenders get a handle on foreclosures and mortgage refinancing are producing home appraisers headaches for the housing market. But more affordable alternatives to full appraisals are springing up to replace broker price opinions.

Street Links Lender Solutions has launched a Liquidation Value Report (LVR), which is lender compliant. Licensed appraisers perform strict appraisal like reports that meet new appraisal standards as part of the process.

The Government Accountability Office (GAO) reported that its Appraisal Subcommittee, which oversees the industry and established regulatory controls launched by the states needs to improve monitoring of appraisers. New appraisal standards are having difficulty living up to the quality controls imposed by the Dodd-Frank financial reform.

“These findings underscore the need to establish an effective oversight system to ensure that appraisals accurately reflect true market values and don’t harm aspiring home buyers or builders,” said former National Association of Homebuilders chairman Bob Nielsen.

The housing market has been slowed by what homebuilders criticize as haphazard appraisals that come in under value as a result of the new standards. Flaws in the appraisal system are blamed for inaccurate home valuations and cancellations of hundreds of thousands of home sales since the new standards went into effect.

distressed single family home

Contract failures were reported by 33% of Realtors in January, making it the third month in a row that saw such a high number of broken sale contracts. The cancellations are caused mainly as a result of appraised values coming in under the negotiated price.

Appraisers are having a hard time justifying contracted home prices, with the majority of sales in most areas of the U.S. being bank owned REO properties that were foreclosed, and bank assisted short sales. The discounted prices those homes are selling at pressures the rest of the homes values in any neighborhood.

The GAO found that its subcommittee enforcement tools and procedures for reporting compliance levels have been limited, citing weaknesses that have limited the subcommittee’s ability to monitor regulatory agencies.

Under the financial reform legislation enacted through Dodd-Frank the subcommittee was granted authority to establish a national telephone hotline to handle complaints from consumers over noncompliance with appraisal standards, but a hotline has not yet been set up to handle the problems.