The National Association of Realtors (NAR) recently announced they believe the answer is yes. In an October 10th news release, NAR addressed this as a hurdle in the real estate market recovery. While 65% of realtors surveyed in September reported no issues with contracts regarding home appraisals in the prior 3 months, 11% reported a cancelled contract due to an appraised value lower than the contracted purchase price. While NAR does acknowledge most appraisers are competent and provide good valuations, they also believe changes in recent years have had a negative impact overall including:
- Out of area appraisers who are not geographically competent
- Inappropriate comparisons
- Excessive lender demands
- Lenders cutting appraised values
A major concern with the appraisals is that they are subject to strict lending requirements, resulting in limited parameters for the appraiser which NAR says is impacting the appraised value. At the top of this list? Distressed sales utilized for Comps with no adjustment reflecting the market difference. NAR data shows foreclosures sell for approximately 20% less and short sales for approximately 15% less than non-distressed, arms-length
transactions. Some other problems report by realtors:
- Slow turn times by appraisers and banks alike, delaying closings
- Inconsistent appraised values
- Appraised values that do not reflect current market conditions including increasing prices and bidding wars
Is it fair to pin this on real estate appraiser holding back the home sales? I don’t think so. I think it’s fair to say the housing market nationwide is not what buyers, sellers or realtors want it to be, and appraisals nationwide are reporting this. There is something to be said for the adage “Appraisers don’t make the market, they report it.” Much of what NAR addresses in this news release relates to lending requirements, which real estate appraisers have no control over. One such requirement is the number of comparables an appraiser is asked to provide. In many areas, it’s difficult to find 3 recent sales that are similar to the property being appraised and are arms-length transactions, let alone the 8-10 NAR reports is sometimes required.
Whenever major changes occur in any industry, there is a learning curve for everyone involved. Appraisers are required to take continuing education classes on an ongoing basis in order to keep their certification and license active and current. This helps ensure they are keeping up with industry changes and being provided education and guidance on relevant issues affecting the appraisal industry. In most cases, I don’t think it’s the real estate appraiser who is holding back the home sale, rather the real estate market and tight lending procedures.