Many builders, consumers, lenders and real estate agents are complaining over the new appraisal rules that resulted to lowballed valuations, which means appraising a property way below its selling price.
According to industry experts, banks assigned appraisers who use repo houses for sale as their comparables. Critics pointed out that the rules are promoting the use of appraisers who are willing to accept low fees to conduct property appraisals in areas that they are not familiar with. They added that the practice leads to low-ball appraisals that can affect the real estate market.
Industry experts said that appraisers who are inexperience and do not have knowledge of local market trends would just use repo houses for sale as basis for their appraisals. Banks are reportedly bringing in appraisers that give valuations as low as $60,000 per property.
Experts argued that repo houses for sale should not be used as basis for valuations as some of these repossessed homes are in poor condition and offer fewer amenities.
Enzoco Homes manager Enzo Perfetto pointed out that banks have started assigning out-of-the-area appraisers who often value properties as part of mortgage loans on new homes. He said that some comparables used by these appraisers are short sales and foreclosures which further depress land valuations.
He claimed that the practice of lowballed valuation is starting to become a trend in the real estate market. He added that most bank-assigned appraisers are not familiar with the local markets and they are giving low valuation to be safe.
The new appraisal rules were implemented by government-sponsored enterprises, Federal Home Loan Mortgage Corp. and Federal National Mortgage Association last May 1 and since then, builders, consumers, lenders and real estate agents complained about the lowballed appraisal practice.
The Home Valuation Code of Conduct is a 2008 legal settlement byproduct between Fannie Mae and Freddie Mac and New York Attorney General Andrew M. Cuomo.
Under the law, appraisers will be routinely assigned by appraisal companies. Appraiser assignment was previously handled by loan officers or local mortgage companies. Appraisal management companies get as much as 50 percent from the appraisal fee that consumers paid.
Several efforts have been made to address the controversial appraisal system. The National Association of Home Builders sought a change in system that uses repo houses for sale as comparables for valuation on typical and non-distressed homes.
Furthermore, Representatives Gary Miller and Travis Childers have authored a legislation calling for a moratorium on appraisal code for 18 months.
