I want to get my home appraised but there have been only foreclosures and short sales lately in my neighborhood. I can’t see how an appraiser can produce enough “comps” to accurately determine my home’s true market value. What are your thoughts?
Unfortunately for you, all sales must be factored in when creating an appraisal, despite some industry misapprehensions that foreclosures can’t be used to determine value. As we’ve seen in the past few years, sales of distressed real estate have dragged down the values of nondistressed real estate, which no doubt seems irrational or unfair to owners who have done everything right, kept up payments and avoided those devastating adjustable-rate mortgages.
Those foreclosure-heavy valuations of the present not only create pricing problems for sellers, they are also thorns in the side of owners, seeking new valuations for a refinance.
“If one-third of the market is your sales of foreclosed properties, then that is the market you’ve got to take into consideration,” says Jim Maibach, a long-time certified appraiser with Arlington, Texas-based Peyco Southwest Realty. If there have been an inordinately high number of foreclosures or short sales in a particular neighborhood, the appraiser will then consider the sale prices of similar homes in a more stable nearby neighborhood, he says.
It’s not just foreclosures that are wreaking havoc with values. Properties in recently constructed subdivisions that have been slow to move are often getting re-valued at around 10 percent less than their previous selling price to reflect new market realities, Maibach says.
For years, finance and residential real estate veterans have complained that appraising is not an exact science and that standards vary greatly. However, appraisal accuracy has come under increased federal scrutiny during the housing bust. To aid in lending transparency, the Federal Housing Finance Agency, or FHFA, is in the process of overhauling appraisal requirements and appraiser codes of conduct for appraisers working with Fannie Mae and Freddie Mac to ensure more thorough documentation of market conditions.
Tentatively, the revised regulations call for more accurate reporting and consideration of absorption rates, or the rate at which homes are being sold in a given area, changes in the local median sale price, average days on the market, or DOM, and the average value of seller concessions made in a market. The changes are expected to be implemented by May 1 this year.
Sorry to deliver the bad news. Good luck on your sale.