Home sellers and real estate brokers across the country are complaining that many home appraisers are setting extremely low house appraisals, preventing them to sell homes as buyers cannot close the gap between the home loan amount and the selling price.
Sellers and brokers are criticizing house appraisers for giving too much weight to foreclosed homes when they make their home valuations.
According to Mike Davis, real estate associate professor at the Arizona State University W.P. Carey School of Business, said that appraisers are being conservative and they do not want to be the ones calling the market has turned around.
Some analysts said appraisers could not be blamed for low appraisals because when they look for recent sales to use as comparison sales, they usually find foreclosure sales. They also need to comply with recent changes in home valuation as described in the Home Valuation Code of Conduct.
In New Jersey, real property tax boards are not using distressed sales as basis for their tax assessments, but it can be said that their decision is self-serving.
Many economists and appraisers argue that foreclosure sales and short sales should be included in house appraisals because they comprise the market.
Sam Chandan, head of Real Estate Econometrics and a professor at the University of Pennsylvania Wharton School, said residential appraisal is a relatively hit-or-miss process because real estate sales in a certain area are not constant. He added that it is difficult to find similar sales that are ideal comparison sales.
Even home builders are advising their clients not to put pricey additions to their homes because they may not get the loan they are expecting to get. Chris Gillen of New Jersey-based Beazer Homes said that an addition worth $50,000 will not automatically mean an addition of $50,000 to the home loan.
Some real estate agents and appraisers are blaming the HVCC for low appraisals. They claim that because lenders now have restrictions on how they choose appraisers, banks are now hiring appraisal management companies using untrained lower-paid appraisers who provide low appraisals.
However, according to Jeffrey Otteau, head of consulting and appraisal company Otteau Valuation Group, there are economic factors for the low valuations other than the HVCC rules. He explained that appraisers are actually relying on completed sales, which lag current market developments. He said that the home appraisal process will soon catch up as the market recovers.
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