Q: I’ve been hearing complaints from homeowners and real estate agents who believe that home appraisals are coming in too low and that low-ball appraisals are delaying or even canceling sales. Can you share your thoughts on this? — Kipp C., Las Vegas
A: I can tell you from experience that this has become a significant issue for many homeowners and for members of the Greater Las Vegas Association of Realtors.
Appraisals are an increasingly important part of the homebuying process. Appraisals help sellers list their homes for an appropriate price. They also assure lenders and buyers of the value of a particular home.
As you suggest, homeowners and Realtors are reporting unusually low home appraisals. Some homes are being appraised for less than the replacement cost for that home. I’ve even seen some homes appraised for a third of what the owner paid just four or five years ago.
As you suggest, many of us have experienced delayed and lost sales due to poor appraisals conducted by inexperienced appraisers not familiar with the area. These reports seemed to intensify after the new Home Valuation Code of Conduct was implemented on May 1.
The HVCC establishes standards for solicitation, selection, compensation, conflicts of interest and appraiser independence. In many cases, this new code has slowed the appraisal process and increased the use of out-of-area appraisers who may not be familiar with the local real estate market.
Even in the best of times, it’s not easy to determine the proper value of a property. But this has become more problematic in today’s more challenging and turbulent housing market.
Part of the problem relates to the continued prevalence of foreclosed homes and short sales, which typically sell for 20 percent less than traditional homes in the same area.
This makes it challenging for appraisers to identify comparable homes and make appropriate value adjustments.
I know appraisers are also concerned about the issue. According to a recent survey by the National Association of Realtors, 36 percent of appraisers reported a severe decrease in quality.
It’s vital for appraisers to be qualified and experienced appraising properties in the areas in which they work. They must also be independent from any outside influences that could improperly influence the appraisal procedure.
Some ways to strengthen the process include allowing other parties involved in the transaction to ask the appraiser to consider additional property information and provide further detail. Also, buyers and sellers should discuss the unique conditions of a home and its neighborhood with the appraiser, especially if he or she is not familiar with the area.
The Federal Housing Finance Agency recently took a step forward in dealing with this issue when mortgage giants Fannie Mae and Freddie Mac clarified two important guidelines. These government-sponsored enterprises stated that lenders should use appraisers with clear experience in the geographic area they are appraising and clarified that appraisers are allowed to talk to real estate agents.
As Realtors, we take pride in knowing our housing markets and strive to be a valuable resource for consumers. We are ready, willing and able to help appraisers determine accurate property values.
Realtor associations nationwide have urged Congress and the FHFA to do more to address this issue. Like our counterparts nationwide, the GLVAR has called for an 18-month moratorium on implementing the new HVCC rules to determine its consequences.
Most of all, we don’t want the appraisal process preventing families from achieving the dream of homeownership.
For more information about such issues or about the GLVAR, consult a qualified local Realtor or visit lasvegasrealtor.com.
Rick Shelton is the president of the Greater Las Vegas Association of Realtors and has worked in the real estate industry for 20 years. GLVAR has 13,500 members. To ask him a question, e-mail him at firstname.lastname@example.org. For more information, visit lasvegasrealtor.com. Questions may be edited for space and clarity.