I am writing in response to an Aug. 16 article from MSN Money titled "Appraisals blamed for killing home sales," blamed for killing home sales. I was hoping to read a two-sided discussion of appraisals and HVCC. Instead, I was met with a one-sided article based almost entirely on the flawed premise that “low-ball appraisals are killing deals and savaging home prices.”
You are correct, a buyer and seller of a home can negotiate whatever price they agree on provided the buyer is paying cash. When the buyer needs to borrow money to close the transaction, the appraiser’s role is to assure the lender is lending an amount that is reasonable relative to the value of the property in a competitive market.
Unfortunately, the article failed to build on this foundation. The fundamental precept missed is that housing prices, like most other goods, are based on supply and demand. Right now, there is weak demand for home purchases and a glut of lower priced inventory. Not surprisingly, housing prices are low and continuing to drop in some areas. As opposed to looking at the factors that are driving this trend, the article shoots the messengers…appraisers and appraisal management companies.
After correctly identifying the role an appraiser plays in the real estate process, your article rapidly deteriorates into false assumptions and inaccurate conclusions. For example, the very next paragraph states that “Back then (referring to housing boom), banks hired appraisers directly.” It is later noted that the advent of the HVCC pushed lenders to use AMC’s to order appraisals and that the use of AMC’s is one reason that appraisals are now unjustifiably loThe facts are that many lenders still manage their appraisers directly. HVCC did not prohibit lenders from hiring or managing appraisers directly. It simply required lenders to put in place policies and procedures to ensure that appraisers were not unduly influenced. Many lenders have chosen to use AMC’s, as opposed to manage appraisers directly, both because of our processes and track record and because creating internal checks and balances can be both difficult and expensive.
There is also a reference to economist Leonard Nakamura and his paper on bias in appraisals. Although the paper is referenced in the article as support for the argument that appraisals are now too low, in fact the majority of the paper is focused on reasons that appraisals may have been to high during the housing boom. Nakamura very briefly addresses the question of whether or not appraisals currently too low at the end of the paper. He argues that the issues with appraisals today are largely a function of low overall home activity high foreclosure activity.
The article then makes liberal use of a recent article published in The Wall Street Journal. Both articles state as fact that AMCs often use appraisers who are not familiar with specific markets. Again, this simply isn’t true. As the president of one of the country’s largest AMCs I can assure you that we only accept appraisals in areas where we have access to experienced, qualified, and ethical appraisers. Lenders will only do business with us if we deliver a quality product, and we’ve been doing that for almost 20 years. Appraisers and AMC’s have no incentive to provide a “high” or “low” value. Our incentive, in the form of continuing and growing business with our existing and new customers is to come as close as we can to getting an “accurate” value. Providing a lender with an appraisal that doesn’t meet these standards just isn’t smart business.
Over the past several years, many parts of the country have experienced serious housing price deflation. This has left tens of thousands of home owners with properties that are worth less than when they bought them and, in some cases, less than what they owe on them. Many of these home owners responsibly bought properties they could afford and financed them with loans they understood. Exploring this issue is a perfectly good basis for a news story. It is irresponsible, however, to direct blame to one segment of the industry based on incorrect facts and poor conclusions. This is just as bad coming form politicians pandering for votes from a population that feels abused and looking to blame anyone it can, but at least it is understandable. Neither this article nor its predecessor in the WSJ serves your readers or U.S. homeowners well.
John Walsh is president of DataQuick. He has more than 30 years of sales, marketing and general management experience in the financial services and real estate industries.
