“Don’t shoot the messenger,” is the message the Appraisal Institute has for those in the real estate industry. Appraisers have been taking heat the last few months over low home values, with critics arguing that values aren’t matching a home listing or contract’s price and valuations are unfairly weighing distressed properties into the equation.
“Appraisers don’t set the real estate market; they reflect what’s happening in the market,” Sara W. Stephens, the Appraisal Institute’s president, said in the handout. “Obviously, the market is depressed — home prices have fallen far below the values of a few years ago. Many homes simply aren’t worth what their owners think they are.”
Appraisers say their main goal is to protect lenders against entering into a risky mortgage, not justifying the sales price for a buyer or seller. But the report emphasizes: Appraisers are independent, third-party experts and serve as an unbiased source of information.
Buyers and sellers “shouldn’t assume an appraisal is somehow ‘wrong’ if it doesn’t match the listing or contract price,” Stephens says. “There’s no reason to assume the contract price is the ‘correct’ price simply because it’s higher than the appraisal.”
A lot of the criticism over appraisals recently has centered on appraisers using distressed sales in their comparables — comparing an abandoned foreclosure to a lived-in home that may not have the maintenance issues that the foreclosed home might have.
“Appraisers know what adjustments to make, if any, when using distressed sales as comparables,” Stephens notes. “In some markets, distressed sales are so prevalent that it would be improper not to use them as comparables.”
Source: “Don’t Shoot the Messenger,” Appraisal Institute (January 17, 2012) and “Don’t Shoot the Messenger; Appraisers Not at Fault for ‘Low’ Home Values,” RISMedia (Jan. 19, 2012)
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