Unless you’ve bought or sold a home recently you probably don’t know about the problems the real estate industry is having with bad real estate appraisals. In general, they are inaccurate and poorly done.
First, let me say, in general, this is not the fault of seasoned professional appraisers. Not surprisingly, it is the after effect of a Freddie Mac policy change called the Home Valuation Code of Conduct or as some like to say… how Freddie gave us bad real estate appraisals.
The Home Valuation Code of Conduct that went into effect in May of 2009 prohibits lenders from ordering home appraisals directly. Under the rules they must order the appraisal from a third party commonly referred to as a appraisal management company (AMC). This would be good if the AMC’s were quality verses profit driven. Alas, that is too often not the case. We’ve seen some offer 1/3 the going rate. As yoiu can imagine they do not get the best appraisers and thus home owners get bad real estate appraisals.
The problem is lenders order the appraisal via an AMC and the AMC puts the appraisal out to bid and low bid usually gets the work, even if the appraiser doesn’t have a clue about the area they are going to work.
The Urban Team has seen this more than once. For example, there was a bank owned home in the Fairview historic district that should have been valued in the $90,000 to $110,000 range. We knew it and the listing agent knew too. However, the bank, using an AMC generated appraiser, had the home valued in the $150,000 range. It was clear the bank’s appraiser used properties from Encanto Palmcroft to create the appraised value. Anyone who works or lives in the historic districts knows that Fairview homes simply do not command the prices Encanto Palmcroft homes do… but not this bank’s appraiser.
In another case we learned the appraiser came from Prescott to appraise a north Phoenix home. The comps were very clear that the home was worth about $230,000. This appraiser used homes 20 years newer and miles away to come up with a price of $280,000.
The question is, what can you do about it if you face such a problem? We found a good article on NewsWatch that discusses this very topic. Although the entire article is worth reading, make sure and read the last section on being proactive.
Since many appraiser do not want to admit they are wrong, we’ve found it best to educate them about your home and neighborhood upfront. We just approach it as being helpful and offering information of value.
I recommend you read the appraisal article on NewsWatch that explains many other techniques and cautions that are of value.
Best to you,
The Urban Connection Real Estate Team
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