Darci Marchese, wtop.com
WASHINGTON — A low-appraisal can sink a housing deal in this market, but the driving force behind them is a complicated matter.
Foremost, appraisals are all about the existing numbers, says Don Boucher, president of Boucher and Boucher Inc., who has been an appraiser for nearly 40 years.
Boucher explains appraisers are hired by lenders to determine a fair price for any given property.
Say, for example, an appraiser was hired back in 2004. A property at the time might appraise for $350,000, Boucher says. But today, that same property appraises for $200,000.
Was the appraiser wrong in 2004 or wrong in 2011? Answer is, Boucher explains, he wasn’t wrong at all.
“We’re not there to correct the market. We’re there to reflect what’s going on with the market at any given time.”
Appraisers are aware of market fluctuations, Boucher says, but their hands are tied. They must appraise a property based on comparables at that time.
“I look at everything,” says Boucher.
To come up with appraisals, he looks at recent sales, list prices, homes that were pulled from the market and even the contract price.
“The contract price is probably the best indication of value that you have,” he says.
The current market is more complicated because there are so many foreclosures and short sales in the mix. In the past, Boucher says an appraiser could ignore distressed properties as comps, but now some markets are made up of distressed homes. In that case, the appraisal will come in lower.
There are many other reasons why an appraisal might be lower than the contract price. One of them, Boucher says, is the contract price is simply too high and the buyer may have paid too much.
Another factor, closing assistance or other concessions are sometimes added into the sales price, which can push it above fair market price.
Inexperience can play a role, too.
New regulations call for a firewall between lenders and appraisers and one way to do that is through appraisal management companies.
Experienced appraisers used to receive $350 for a given appraisal. Now they’re getting $250. Boucher explains the more qualified appraisers are saying no to the jobs, leaving inexperienced appraisers taking on the assignment.
“It can be an appraiser who just doesn’t know the market area where they’re working,” says Boucher. “Lenders are getting people from more distant locations to come into areas they really haven’t been involved in.”
Not knowing the market can lead to low appraisals.
What can you do to prevent inexperienced appraisals? Check back on Tuesday when WTOP explores the issue.
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(Copyright 2011 by WTOP. All Rights Reserved.)
