I’m having a bad real estate day because of an appraisal and I was just about to rip my hair out until I read Kris Berg’s excellent piece which did make me laugh about the “fun” we are having with appraisals these days.  Kris has a great way of getting serious issues across to her readers, but with a light touch. The HVCC, The Home Evaluation Code of Conduct, is not a humorous situation for consumers and the real estate industry, but it’s probably better for me to laugh a little, since I really want to scream.

As of May 1st, the appraisal industry had to meet new Freddie Mac guidelines called The Home Evaluation Code of Conduct, subtitled “Enhancing The Independence of Appraisers“. The debate about the new home valuation code of conduct has been going on since it was first announced last year and is going on to this day. Before the financial meltdown, there were appraisers who needed to be run out of the appraisal business for appraising properties for exorbitant prices, but the reality is there is now a new set of problems created by these new appraisal guidelines.  The appraisals or home valuation system has not been fixed, it just has new problems.  In today’s real estate world, a request for an appraisal is sent to an independent clearing house and the next appraiser on the list is selected to do the job.  This system has been designed to “enhance the independence of appraisers,” as mentioned above.

Now that this “new and improved system” has been in place for just over 30 days, I’ve had the good fortune to see  how it works in reality. Take the latest appraisals I’ve had on two  of my recent sales.  For those of you in the Seattle area, you’ll understand how far flung the different areas are that each appraiser had to drive to in order to complete assigned appraisals.  Appraiser #1 scheduled his appraisal late in the day for a home I’d sold in Redmond, Washington.  He had to come late in the day, because he was coming from an appraisal on Vashon Island.  Vashon Island, the last time I looked, is southwest of Seattle proper in Puget Sound, while Redmond is located east of Seattle across Lake Washington from downtown.  Between ferries, bridges, and highway travel, the appraiser may have to travel 1 1/2 hours (on a good day) between these two appraisal appointments. Appraiser #2 called to appraise a listing of mine in Kirkland, Washington, again on the eastside of Seattle.  This appraiser was coming from an appointment in Maple Valley, which is a city much further south and east of Seattle.

This map shows the location of the places the two appraisers had to go to do their job.  If you click on “view larger map”, you’ll be able to see the location of these cities.  Oh, I forgot, Vashon Island, which is in a different county, doesn’t show up on the map  because it’s so much farther south of the Seattle!  If you look for Maple Valley that, too, does not show up on this map.  Maple Valley happens to be south of Issaquah.

View Larger Map

Silly me, when I have a client who wants to look for a home on Vashon Island, I refer the client to a Realtor who knows the island.  The same goes for Maple Valley.  I could show homes in all of the far flung regions of Seattle/KIng County, but I don’t, because it’s a disservice to my clients.  I don’t know about the different school systems and how they affect the value of the homes in each of the cities, counties or islands in the area. I don’t know about the different builders in the area, the different neighborhoods, the shops, parks, etc, etc. Don’t appraisers need that same knowledge to evaluate properties?  How can appraisers know all of these areas well and give an accurate appraisal for a home? It’s a problem happening all over the country right now.

The second problem I’ve seen come up with appraisals is a little box checked by the appraiser.  As part of the appraisal report, the bank wants to know if the real estate market is appreciating, remaining stable or declining. Recently, two appraisers have checked the box labeling the Seattle/Eastside market as “declining.”  What a shock, this is a market where home prices have gone down!  I wonder who or where appraisers are checking anything but “declining” in that box.  In each case, because of this checked box,  the underwriter required a second appraisal.

The lending/appraisal industry was far from perfect before, but these “improvements have and are wreaking havoc with home prices and the entire loan process. If appraisers are not really familiar with a city or neighborhood, there is no way that the majority of appraisals will be accurate.  This could hurt consumers, both home buyers and home sellers, if properties are not accurately evaluated. The appraisal process needs an industry watch dog and stricter guidelines, but having the appraiser who’s next in line complete an appraisal in an area he/she knows nothing about dilutes the whole appraisal process. It’s a sad state of events for real estate.  I’m hoping the government will see the light and make reasonable changes to this system in the near future.

What problems have you seen since the change in real estate appraisals? My guess is the examples above are only the tip of the iceberg.