Home builders and Realtors claim bad appraisals are stifling the real estate recovery, though appraisers say their reports only reflect further deterioration. As appraisal management and software firms enhance their Home Valuation Code of Conduct offerings, a former state regulator calls the new code a disaster.
Foreclosed and distressed sales are being used as comparable properties in home appraisals, though no adjustments are being made to the values for the differences in condition, the National Association of Home Builders announced Monday. The practice is "needlessly driving down home values" because borrowers can distinguish between well-kept and distressed properties.
The NAHB blamed the practice on a lack of interior inspections and called for regulatory guidelines when using distressed or foreclosed comparables. The group said comparable properties further from the subject property should be utilized in areas with a high concentration of foreclosures or short-sales.
Integrated Asset Services LLC said last month that its iValue suite of automated valuation products now includes a distressed valuation feature designed to help servicers more accurately value distressed residential properties. The enhancement identifies properties that are in a state of distress.
"The distressed valuation feature is a way to individualize the value of each property according to the state of the local market and the property-specific factors that may negatively impact value," Integrated President and Chief Executive Officer Dave McCarthy said in the statement.
Lawrence Yun, the chief economist for the National Association of Realtors, noted yesterday in a home-sales report from the group that poor appraisals are "snowballing" and have become a serious problem. He said sales contracts across the country are falling through at the last moment because of the appraisal problem.
"Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales," Yun stated. "There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected."
But the Appraisal Institute's director of government and external relations, Bill Garber, called Yun's comments ridiculous.
"We take offense with the notion that an appraisal is only good if it happens to come in at the sales price," Garber said in a statement Tuesday. "The fact that the value reflected in the appraisal does not match the sales price is not the fault of the appraisal but a result of the market today."
Garber noted that appraisers are accountable only to their clients, which are typically lenders.
Former Tennessee Real Estate Appraiser Commission chairman John Bullington said HVCC has "backfired and appraisers nationwide are taking the hit." In a statement today, he claimed appraisals are now averaging two weeks longer than pre-HVCC appraisals and called for the repeal of the code.
Bullington -- who said he is a certified general appraiser in Tennessee, North Carolina and Virginia -- criticized appraisal management firms for taking a big cut of the appraisal fees while providing unreliable values. The firms don't have to be licensed, certified or regulated. He emphasized that appraisal management companies are not mandatory, and lenders can maintain HVCC compliance by establishing meaningful risk management practices.
Bullington said an online petition has already garnered more than 38,000 signatures.
Fannie Mae is requiring that as of early next year, all appraisal reports and attachments be electronically submitted in the MISMO XML standard, according to Announcement 09-14. The initiative was endorsed by FNC Inc., which said it will contribute to better risk assessment and improved transparency in the primary and secondary mortgage markets.
FNC said its customers already receive the reports in a format that can automatically create and deliver the MISMO XML appraisal data to Fannie.
Veros Real Estate Solutions said earlier this month that it is fully compliant with Fannie's new standard.
"While lenders can choose to individually submit appraisals via Fannie Mae's web portal, Veros' VRM platform will provide direct MISMO XML integration with the Fannie Mae system to facilitate the efficient flow of the electronic appraisal data," the statement said.
DartAppraisal.com has been integrated with Mortgage Builder's loan origination system, a statement last month said. The appraisal management company said its solution is HVCC compliant.
Southern Trust Mortgage LLC has implemented the Global DMS OASISOne platform, an announcement this month said. The online commercial and residential real estate valuation suite utilizes a centralized automation of reporting standards including SAS 70 reporting and offers the option to create government auditor logins.
GlobalDMS is a MortgageDaily.com advertiser.
An appraisal training program has been created for banks and mortgage lenders by the Appraisal Institute, a June 18 news release said. Dubbed Commercial Appraisal Engagement and Review for Bankers, the on-site Webinar reviews how appraisals fit into the regulatory scheme for financial institutions. The program can be delivered in either a four-hour or seven-hour format.