Please do read the enclosed letter that was written as I do believe that this will help you understand some of the changes that we are experiencing in the lending side of our business. I do realize this is all very confusing as to how it affects you home value today. I hope this will help you have a better understanding of what the issues are in the market that we are in.

Please read

Dear Real Estate Professionals,

To quote a friend of mine, “I see a light at the end of the tunnel…just not sure if it is a way out or a freight train”. Certainly there has been a great deal of opinions of late as to the state of the housing market and which direction we can expect to go in the near future. Personally, I am not convinced any of these sources have a clue. But I do believe that those of us in the field everyday will know before any of the experts who produce these opinions and never get into the field.

I saw yesterday that prices increased of late. I suspect that is based on some macro market stat that is meaningless. As I have noted in the past, tracking average price is NOT an indication to either increases or decreases in prices. It is rather an indication as to WHAT is selling. I wish it were that simple but we professionals know that considerably more work must go into these kind of conclusions. I always use as an example several years back when smaller/older homes were been purchased for their land value and newer/large homes built in their place ($400,000 tear down replaced with a $1,500,000). The average sale price in the area would likely have increased significantly, but is that appreciation? No, not any more than the current market where many of the sales are short sales, foreclosures, distressed sales. Those appraisers and underwriters relying on that data to determine market change adjustments are being misled.

This brings me to my EDITORIAL:

A lot of blame has been placed on the appraisal industry for the current housing market debacle. Some of it fair…not all. The new HVCC (Home Valuation Code of Conduct) was implemented to take pressure off appraisers. While it may accomplish that issue, it has not improved the residential appraisal profession. Adding another layer of bureaucracy seldom improves anything but can and does add to timing and costs. Many complaints evolve around appraisers coming greater distances to areas they are not familiar with to complete appraisal assignments. But then this is not a new issue. I have heard this from many of my real estate agent friends for years. What has become a growing issue is that these appraisers do not take the time to gather the information to properly complete the appraisal assignment.

This can be attributed to several issues. While the cost of the appraisal may have likely increased due to the HVCC, this increased fee in many cases has not filtered down to the appraiser. Those lenders using management companies to comply with HVCC must charge a fee to operate their management business and make their profit. Therefore, the appraiser must make a “Business Decision” if they want that work as some of these management companies are taking part of the appraiser’s fee to run their business. Many qualified appraisers may pass on these assignments and prefer to develop clients where their profit margin is more in line with their business plan.

But my opinion is that this in itself, while a problem, is not the real issue. The essence of the problem with Professional Residential Appraisers is the lack of training and education. When the government chose many years back to require appraisers to be licensed/certified after the Savings and Loan debacle, it gave instant credibility to that appraiser. Membership to professional organizations diminished as a result (not that all designated appraisers are beyond these very same issues). Requirements to meet minimum guidelines for comparables (comps can’t be over 6 months and must be within 1 mile as examples) became misunderstood by lenders and appraisers alike. Adjustment guidelines were implemented. But these were guidelines and never meant to be mandatory. What has occurred is many residential appraisers have felt the pressure to meet these guidelines on every appraisal and in some instances, overlook data that could be more reflective to the value of the subject property being appraised.

Appraising is an Art….Not a Science.

But when was the last time we heard that? This was as common as location, location, location.

The appraisal forms have changed dramatically over the years with appraisers required to provide much more extensive information allowing the lender to make a solid lending decision. That is good. But what has been lost is the “Art” of the appraisal. Everyone is looking for a formula to develop the value, i.e. what is an extra bedroom or garage space worth? But that changes from market to market and house to house. There is not one answer. We professionals must develop those answers on every assignment differently. What we have today is a generation of “form fillers”. Lender guidelines may have been met but the real question that should be asked ……is the value correct?

Unfortunately, everything that has been done in attempts to improve the appraisal industry has done little more than increase costs and frustrations. The answers lie within improving the professionalism of the appraiser through education and training.

Once again, I thank those of you who have remembered me for the valuation needs of your clients. I am always available to provide training to your office should the need arise.

Sincerely

Bob

Robert E. Headrick, SRA, SCRP
Robert E. Headrick & Associates, Inc.
Real Estate Appraisers and Consultants
Specializing in Relocation, Litigation & Lending Appraisals Serving the Chicagoland Area since 1977

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Around the time his fellow Nashville, Tenn. residents are sipping their coffee some mornings, Kirk Leipzig finds himself standing elbow-to-elbow with a gaggle of bankers on the steps of the nearby Williamson County Courthouse.

Leipzig is there to scope out which banks are buying which houses out of foreclosure. Once they do, the properties are wiped clean of liens and other debts, and the bankers are often itching to unload them. Sometimes they do so right on the spot.

More From Forbes: Smart Ways to Profit From Foreclosures

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