Appraisals Can Make Or Break Your Deal

For every action, there is an over reaction. When we had the mortgage meltdown a few years ago, part of the blame was placed on collusion between lenders and 'friendly' appraisers keeping appraisals high to justify the amount of money being lent.  Whether that blame is valid or not, the over reaction affecting the real estate lending market today is a strong tendency among appraisers to play it safe and place a low value on the property. 

Add to this the fact that all the foreclosures and short sales are suppressing property values. In the past such sales would not impact the appraised value of a property. However, when these transfers account for such a large percentage of the transactions they cannot be completely ignored.

Finally, the Dodd-Frank Act passed last year now regulates the appraisal process, such as adding Independence requirements and regulating the fees charged. In response, many lenders, particularly the larger mortgage lending operations, now farm out appraisals to an appraisal management company who arranges for the appraisals and takes a cut of the fee. The appraisers are pressured to keep the fees low but still churn out appraisals quickly.  Experienced appraisers are being shunted aside for ones that are cheaper, less experienced and often unfamiliar with the community where the appraised property is located.  Their appraisal reports are more susceptible to inaccuracies and as a result further suppresses the valuation of the property.

As a buyer or property owner, you cannot do much about the lower values assigned due to all the foreclosures and short sales that affect the comparables. You can however, push the lender to have the appraisal conducted early in the loan process to allow time for you to review it carefully and try to address inaccuracies, or find a new lender.  

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