I’ve written numerous posts about the contretemps over the new appraisal standards, commonly referred to as HVCC. The realtor industry keeps whining about the appraisal management companies bringing in appraisals that are lower than the sales price and this is scotching their deals. My position has been that it’s about high time appraisers brought in values that reflected reality as opposed to whatever the realtor or loan officer needed to get the job done.
I thought Barry Ritholtz at The Big Picture did a good job today putting their complaints into perspective.
Remember back during the housing boom, when all of the corrupt real estate appraisers were busy pumping up local comparables, and helping to drive prices higher?
Do you recall how the National Association of Realtors swung into action, and being in the vanguard of responsible behavior: 1) Were the first to spot these problems; 2) Demanded their membership identify these corrupt appraisers and mortgage brokers; 3) Proposed fixes for this widespread corruption and presented them to Congress
My thoughts came back to that this week, when I was catching up with some missed research and economic reports. I was traveling to and from Vancouver, so I missed the June Existing Home Sales data. In finally reading June’s EHS, I couldn’t help but notice this doozy in the 4th paragraph of the National Association of Realtors release:
“A June survey of NAR members shows 37 percent experienced at least one lost sale as a result of the new Home Valuation Code of Conduct, with seven out of 10 reporting an increased use of out-of-area appraisers. Seventy percent of NAR appraiser members said consumers were paying higher fees, while 85 percent report a perceived reduction in appraisal quality.”
What contemptible bilge.
Where TF were these concerned citizens at the NAR when appraisers were engaging in all sorts of funny business, driving prices skyward? They were AWOL. You do not recall any commentary during the boom about the artificial number of sales, or the increased prices that appraisers were causing, because somehow, the greatest bout of Appraisal fraud, predatory lending, and irresponsible mortgage underwriting standards the world has ever known managed to escape these ethicsless weasels’ notice.
I think we know where Barry stands!
Anyway, I wasn’t going to pursue this and then I ran into this on Diana Olick’s blog. It’s from those kindly folks at NAR.
The National Association of Home Builders’ Bernard Markstein told me this morning, that “in a lot of places the appraisers have not been adjusting for the fact that it’s [the comp] a foreclosed home or a short sale, and we’ve even had cases where appraisals have come in 10 or 20 percent below the construction costs of a new home.”
So what? There is nothing that says that a house has to appraise for what it cost to build it. If buyers are only willing to pay $50 a square foot for housing and you spent $75 building a new home, guess what it’s worth. That’s why we do appraisals, to figure out the market value of a property. The last time I checked most underwriters weren’t willing to accept a list of the construction costs as validation of the value of a property.
I think Mr. Markstein needs to get out more often. One of the reasons that there aren’t more new homes being built and sold in many areas is because they can’t compete with foreclosures. There are plenty of homes on the market for less than what it would cost to replace them and that’s why there is high demand for them. It’s that nasty old supply and demand phenomenon.
I’ve acknowledged that there are problems with the new appraisal system but they are operational and curable. That being said, it’s high time the NAR and its friends stopped trying to bring back the good old days. We know what their definition of a good mortgage amounts to and what effects it has and don’t really need to revisit that.
more: here (My last post on this subject with a link to all previous posts about it)