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Home Appraisals Cause Escrows to Fall Apart in North County San Diego

How to Avoid Home Appraisal Issues

There have been new federal regulations governing the relationship between appraisers, lenders and mortgage brokers which have caused an enormous disruption in the real estate market, causing home sales to fall apart at the 11th hour when they come in far below the accepted purchase price.

So Home Buyers beware when submitting an offer, make sure you are comfortable and  familiar with the comps in the area. Be careful about  making your offer too high, as it will not appraise. Preferably your sold comps should be within the last 90 days.

A listing priced too far above a realistic price will make it more challenging to attract offers or even close escrow if you do get an offer, as it may not appraise. If you are fortunate to get an all cash offer it should be smoother sailing.

The main purpose of these new federal regulations – The Home Valuation Code of Conduct which was developed by the New York attorney general, Andrew M.Cuomo, persuaded Fannie Mae and Freddie Mac to adopt it, is effectively now a national policy. Put in place with the attempt to avoid connivance between lenders, realtors, homeowners and appraisers in the home valuation procedure. Historically the values have been inflated for refinance purposes, home purchase and home flipping which in theory have pushed home prices beyond what their true value should be. Brokers and Lenders can no longer order appraisals as in the old days.

The reality is that many companies that write home loans now do not have much motivation to be concerned with the accuracy of appraisals. Simply because these companies do not keep the loans on their books, and in turn sell them to Fannie Mae or Freddie Mac.

According to Senior fellow with the public policy group demos David Callahan “the code is a formula for continued problems with fraud” “The appraisers have been asking for a long time for a reliable firewall between themselves and lenders, and are further from it than ever before”

Before real estate prices went through the roof, appraisals were reasonably straightforward. An appraiser would examine the property inside and out and compare to similar comps in the neighborhood. If the appraisal value matched the sales price the lender would finance the loan. Now with the new rules appraisers must wait for a lender or appraisal manangement company to contact them before the appraisel can take place. Very often the appraiser is not familiar with the area they have the order for which can cause problems with appraised price of the home. The appraiser now gets paid as little as half compared to what they would have received a year ago. Appraisels are more costly also, not because the appraiser receives more but because the management company takes a share of the cost.

When lending standards collapased during the housing boom, appraisers were pressured from all sides. When the appraiser did not deliver a satisfactory price the sale did not go through and everyone lost out – the broker, agent and lender did not receive their fees.

 Meanwhile homeowners enjoyed the inflated prices using their home as an ATM, living a “life well beyond their means.”

David Streitfeld, New York Times contributed to this article.