I recently listed a home for $424,900 and within six days, there were two offers on the home. I told the buyer agents that I had two similar offers and that my clients would be accepting the best offer. Within 24 hours, the offers arrived and my client accepted an offer of $416,000.
Three weeks later, the appraisal came in and I was shocked. The appraiser said the home was worth $405,000. After talking with the appraiser, it was clear that he would not let the home sell for any amount per square foot above the last three sold homes in the neighborhood. Since I was familiar with two of the three most recent sales (I represented the sellers), I was fully aware that the appraisal was unfair. The other two homes did not have a walkout basement – this one did.
As long as this appraisal protocol keeps up, it will be difficult for home prices to increase. Two years ago, a willing buyer and seller would have easily closed on this home at the contract price. In this case, there were two willing buyers and a willing seller – who better to determine market value than the buyer and seller?!?
In May 2009, the Department of Housing and Urban Development issued new rules with the goal of reducing appraisal fraud (inflating the value of a property). These rules are known as the Home Valuation Code of Conduct (HVCC), otherwise known as “the Code.”
The Code does not allow individual banks and mortgage brokers to select the appraisers who are knowledgeable of the market where your home is located. Instead, banks and mortgage brokers must go though an appraisal management company. In other words, there is now a “middle man” who selects appraisers at random and if you are selling your home, you may get someone completely unfamiliar with your community.
The Code was put in place to help protect the buyer, however, it appears that it is now hurting buyers and sellers when they have already agreed on a fair market value. What happened to the notion of intelligent buyers and sellers? A reasonable middle ground must be found.