My Indiana Home Blog

New home appraisal rules stir industry uproar

Rule meant to stop conflicts of interest is hurting prices, they say

Its been less than three months since the new rules for home appraisal started and the industry is in an uproar.  Most parties involved aggree that the rules are causing problems. Some are backing a bill in Congress to kill them. The new guidelines prevent mortgage brokers from ordering appraisals, forcing them to do so through a mortgage lender. Lenders can use in-house staff or appraisers hired from the outside but neither may talk to the appraisers about the value of the property they're evaluating.

Since the new rules went into affect May 1st, there has been a ton of unintended consequences causing delayed closings, or undermining sales because botched appraisals are coming in too low. This is destroying the already injured housing market.

To determine what a home is worth an appraiser will look at similar homes that have closed and adjust the price based on features that the home has. If the appraisal comes in low the buyer usually has to make up the difference and may instead walk away.

It seems that some appraisers are basing a majority of their price on foreclosed properties on the market. Inflated appraisals were partially to blame for the housing bubble, hence the new rule.

Last year, Fannie Mae and Freddie Mac aggreed only to buy loans from lenders that don't directly hire appraisers.

Some appraisers are traveling too far for the good of the appraisal. If they don't know the town well they end up using wrong comparables and going too far away to get the numbers which in turn messes up the appraisal amount.

The real estate industry is fighting back again the new rules in force. The National Association of Mortgage Brokers went to court in February against the changes claiming that it limited competition. Since then other key industry groups have voiced their opinions against the new rules. Last week, the National Association of Realtors urged Congress to support a bill that would impose an 18-month moratorium on the new appraisal guidelines.

Realtors say that the new guidelines are hurting the industry. They contend that appraisers are not being hired for their competency but for their price and turnaround time.

Freddie Mac tried to address some of those fears by issuing a new home appraisal best practices guidelines for lenders. One of its recommendations includes appraisers must be certified or licensed in the state where the property being appraised is located and be familiar with the market. 

Everyone seems optimistic that the problems will be resolved quickly and the market can return to its recovery.