How Home Appraisals Have Changed – Part I

I’m sure we’ve all heard that appraisal guidelines and regulations have changed dramatically in the past year or so. But is anyone sure why and what changes were made?

Inflated home prices in many markets across the US contributed to the housing crisis, motivating the New York Attorney General to pass the Home Valuation Code of Conduct (HVCC) — a set of rules that determines how appraisals should be made — in May 2009. The law aims to distance appraisers from the real estate transaction so they can provide an unbiased, objective analysis of a property’s fair market value.

But real estate agents (like myself) argue that the system is flawed and deals are falling through because of the ever-changing, lengthy maze of rules. Long story short, with the new rules in place, appraisals now take longer, are more expensive and are often conducted by appraisers unfamiliar with the local market. The National Association of Realtors has called for a moratorium to address the shortcomings of the HVCC, but until these rules are ironed out, expect them to hinder deals in 2010.

Here are 5 ways the home appraisal process has changed:

1) Appraisals are taking longer

Historically, after your lender or mortgage broker called their appraisal company, you would have a valuation back in a matter of days, not weeks like they are now. Now, an independent third party, usually called AMC (appraisal management company) is oftentimes involved, adding a layer of independence, but also time, to the process. This is extra frustrating for agents and buyers because the appraisal is a huge part of the FHA and VA process. With the majority of FHA loans being used for REO listings, the appraisal is the only justification we have to ask for repairs necessary, and banks are being good at making these lender required repairs. The problem I’m seeing is that close of escrow dates are being extended out to accommodate the lengthy appraisal process and make any repairs. Then after the repairs (if required) are completed, another appraiser is brought in to certify that the repairs were done. Now do you see why this can be very convoluted?

2) Appraisals cost more now

The typical appraisal on a single-family now costs in excess of $350. These third party AMC companies are driving the price up. And for the money, most would contend the value of service is worse. Instead of having a local appraiser evaluate your home, AMC company sends a request to a random appraiser that may live 50 to 100 miles away from the subject property, clearly unaware of the hyper-local real estate market trends.

Stay tuned for part II of this series, where we’ll discuss the final three ways in which the home appraisal process has changed.

This article was contributed by Ryan Nager, a specialist in Mesa Real Estate in the Phoenix Metro Area.