Very Welcome News About Appraisals

If you've bought a home, if you've sold a home, if you've refinanced, or are a homeowner of any kind you're likely aware of the very tight pinch being placed on your home's valuation. In my humble opinion this has all been completely unnecessary but unfortunately for me I don't make the rules.

At the point that the banks and their investors stopped being ravenous they suddenly decided that someone needed a diet. The appraisal industry must be to blame so lets reign in the appraisers. Now it would appear they've managed to starve themselves. In all fairness we did have a crisis so a typical government and big business overreaction was in order. Here's what lead to this. Mortgage regulations were way too liberal causing property values to rise way too quickly and way too much. At the height of the economic debacle they dropped like a stone, again too fast and too far. Property appraisers were put on notice. "Walk our very narrow tightrope or we'll shake you right off of it." The result it would appear, is that appraisers have been forced to become so careful, so conservative, that appraised values are now actually hindering the mortgage industry and ultimately the recovery of our real estate market. There have been so many foreclosures and short sales that almost no neighborhood has been left untouched. Most foreclosures and probably all short sales were for a time, selling below fair market value. They were also often the only comparables that appraisers had to work with.

So, here's the good news (you know I always find the good stuff). The Appraisal Institute has issued updated guidelines with the intention of minimizing potential effects of short sales and foreclosures on home values. About time right? As sited in the new guidelines, appraisers may not definitively exclude short sales and foreclosures, but are instructed to turn to less recent sales and extended geographic parameters in order to locate more appropriate comparables. Hopefully this will help neutralize the atypical motivation involved in short sales, and the substandard physical condition of many foreclosures.

As usual, I'm taking a wait-and-see approach toward any announcement regarding appraisals. But this is looking very promising for the long-term value of real estate. Definitely a step in the right direction.