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Economic News

Blame the Appraiser

2967857972_f5e82ed1dc_mNAR released their May Existing-Home Sales Report on Tuesday. Fortunately chief economist Lawrence Yun has the answer to why the housing market remains weak – appraisers:

“…the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”

“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” he said. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

Mr. Yun is now insisting that appraisers ignore market conditions so houses can sell – isn’t that convenient?

Since every market is local, nobody can rightfully make generalizations about how foreclosures should or shouldn’t be used as comparables in an appraisal. They may be inconvenient, but they are real and often can’t just be ignored. As a Realtor you just have to be aware how they effect your market when writing an offer.

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Written By

As the son of two music teachers, Ben spent his first 21 years trying to make a living with his slightly above average trumpet playing. After no return calls from Dizzy Gillespie and then a failed attempt at becoming a fly girl on "In Living Color," he switched gears and finally found his nichè in real estate. He's a Minnesota appraiser and also a Realtor with his better half, Stacia. Labeled “one to watch” from an anonymous source (thanks mom), Ben is smart, good looking, athletic and a rock star inside his own head. He also never passes up a chance to write his own bio. Find him online at twitter or selling Stillwater Real Estate.



  1. Joe Loomer

    June 26, 2009 at 10:52 am


    According to a NAR-wide email I received, NAR President Charles McMillan will be in New York Monday to meet with the Deputy Attorney General and the staff that worked on the wording for the Home Valuation Code of Conduct (HVCC). This is in direct response to appraisal issues across the country. He will then travel to Washington to meet with the Direct of the Federal Housing Finance Agency.

    I had a contract fall through yesterday – not because of the value the appraiser put on the home, but because of the misinterpretation by all parties EXCEPT the appraiser of a required repair on the Notice of Value. She wrote “Replace Roof Shingles. Per Contract.” We replaced the shingles specifically mentioned IN the contract (we provided a previous inspection report to the Buyer). This moron now states she meant the entire roof.

    My Seller is out thousands in repairs and the appraiser refuses to admit any role in this debacle. The stories are real, the ineptitude rampant. New rules making them virtual Gods in our trade will just lead to more issues with no resolution venue.

    It has been my experience that many appraisers are failed real estate agents. Their inability to connect on a social level with clients probably lead to their career shift. There are always the 10% in any industry that give the rest a bad name, but giving such a critical side of the industry near-dictatorial powers is obscene on it’s face.

    Navy Chief, Navy Pride

  2. Matt Thomson

    June 26, 2009 at 11:03 am

    I don’t think he’s trying to conveniently misrepresent value. I think he’s paying attention to the fact that the HVCC has things screwed up. The last appraisal I had we had an appraiser from Bellingham–3hrs away and a WORLD away in terms of markets–come down and it was his first ever appraisal. His first comments when he showed up 30min late? “Sorry I’m late. I’ve always wanted to come to Gig Harbor and this was my first time here. I stopped by the Harbor to take some pictures and lost track of time.”
    Great! I don’t mind sitting and waiting 30min for someone who’s never been to my town to tell me how much this home is worth!
    I’m not much for the blame game…but Blame the Appraisers (or more specifically the HVCC) seems appropriate for me.

  3. Erion Shehaj

    June 26, 2009 at 11:19 am


    I get what the good intention was with HVCC but as Shaw said “Hell is paved with good intentions”. Here’s some of the major faults the way I see them:

    HVCC effectively nationalized the appraisal industry. It assumes that all appraisers are created equal (which they are not) and assigns jobs on a round robin basis. Thanks to this setup, we get appraisers who think a highrise condo on the second floor is identical to one on the 40th or that two units on top of each other with identical floor plans have different square footage. Turnaround times are 7-8 times longer and the cost of each report is 15-20% more – that’s if you don’t count the fact that many deals are having to be appraised, field reviewed, reappraised to no end with the consumer footing the bill. Longer turnarounds mean farther closing dates, too (having to go 45 day close minimum on all files now).

    So I wouldn’t say it’s the appraisers fault per se as much as I would say that the HVCC framework is responsible for thousands upon thousands of fallen deals.

  4. Daniel, The Real Estate Zebra

    June 26, 2009 at 11:24 am

    Erion has a point. I have no issue whatsoever with an appraiser using distressed sales as comps. If they are comparable, they are comparable. I do have an issue, however, with appraisers who are so unfamiliar with an area that they have no clue where to find comps.

    That is something that is increasingly becoming an issue.

  5. Missy Caulk

    June 26, 2009 at 11:55 am

    I agree with Lawrence on this one. The appraisals are taking forever, using out of area appraisers who don’t know the area. One even used a different MLS to comp a house.

    Have you signed the petition?

  6. BawldGuy

    June 26, 2009 at 2:21 pm

    First, let’s all agree the new procedures are laughably illustrating what often comes from committee decision making.

    I think a primary problem screaming to be addressed is the parallel tracks of distress sales vs ‘normal’ buyer/seller negotiated sales in the same locales. I don’t have the answer, but I do know that mixing foreclosure prices with arm’s length sales is sometimes, NOT always, a huge mistake.

    Surely the answer isn’t ignoring a presently sizable portion of a local market, but it’s not to be found at the other extreme either. Common sense should become fairly apparent in each local market when intelligent pros honestly look at the weight foreclosure sales have in each case.

    Make sense?

  7. Matthew Rathbun

    June 26, 2009 at 5:58 pm

    I’m with Yun… The system is flawed. I think they should take a break and see what’s working and what’s not.

    If the subdivision has a lot of foreclosures, than of course they affect the valuation of the subject. The issue is that now the Appraiser has too much influence, whereas before they didn’t have enough.

    Let’s fine tune it.

  8. Ryan Rockwood

    June 26, 2009 at 6:44 pm

    This is hilarious. NAR is hopeless, honestly.

  9. Joe Spake

    June 26, 2009 at 8:12 pm

    Out of area, uninformed, and sometimes paranoid appraisers are only a part of the problem with HVCC. HVCC effectively shut down important lines of communication between professionals involved in the transaction, with appraisers discouraged from talking with Realtors and virtually anyone employed in the mortgage industry.
    Would Joe’s roof issue have happened before HVCC? I doubt it. Someone would have made a phone call for clarification. Now everyone is second guessing everyone, and I can understand the virtually untenable position the appraisers are in.

  10. Matt Wilkins

    June 26, 2009 at 10:41 pm

    I think HVCC has only magnified issues that have existed for years especially with VA appraisals.

    I represented a buyer who used VA financing on an REO property last year. I contacted the appraiser to clarify the extent of a repair that was required so I could negotiate the cost and timeline properly with the bank. The appraiser immeadiately contacted the loan officer who called me giving the riot act that I “broke the ranks” not following protocol by contacting the appraiser directly. I feel this lack of comunication cost the bank (seller) both time and money with frustration for myself, the listing agent, and both buyer and seller.

  11. Ben Goheen

    June 27, 2009 at 12:37 am

    The HVCC has caused problems for everyone, with appraisers probably being the most affected. Lower fees, faster turn times required and legitimate communication thrown out the window.

    I read comments from appraisers almost daily about how the HVCC and AMCs have killed their business. Now, maybe some of these appraisers weren’t exactly playing by all the rules before – but that’s not for me to figure out. As an appraiser, I’m lucky that none of my clients are using AMCs so my fees have remained the same.

    FYI – I always get great appraisal information from NY appraiser Jonathan Miller, including this video: (only worked in IE for me, not Firefox)

  12. Jim Duncan

    June 27, 2009 at 7:24 am

    The HVCC is bad.

    But … NAR are reaping the consequences of their tireless shilling during the boom. Maybe they should take a break and refocus on whom they are supposed to be serving.

    I’m trying to devise a post that asks that question – should a trade association be advocating for consumers who aren’t their members?

  13. Andrew Lilly, MAI, SRA

    July 2, 2009 at 5:26 pm

    I have been a Realtor and appraiser for 30 years. I have read with some concern Realtor’s blaming appraisers for hindering the housing market recovery because of poor appraisals.

    First, I would like to know how an appraisal is categorized as a poor appraisal. Being a Realtor and appraiser for some time I suppose in most cases an appraisal is rated poor by a Realtor because the appraiser’s market value opinion is less than the transaction price. Just because an appraiser’s value opinion is less than a sale price does not mean it is a poor appraisal. I have reviewed many residential appraisals. As a reviewer the least important consideration is the appraised value. What is important is the credibility of the report and the appraiser’s analysis of the market data and correct application of the various methods of valuation. If flaws are found in these areas, then the value estimate may be suspect.

    I have observed over the years that more offers fail because of broker’s commissions than appraisal issues. Often times a seller and buyer are only a commission away from having an accepted sales contract. Take the commission out of the equation and a seller and buyer in many cases will modify the sale price to the appraised value. After all, the seller is concerned with net sale proceeds and not gross sale price and the buyer would be happy to pay 6% less.

    As for appraisers performing appraisals in unfamiliar markets the Uniform Standards of Professional Appraisal Practice (USPAP) specifically address geographical competency. If an appraiser lacks competency in a specific market or property type he is required to decline the assignment or take the necessary steps to become competent.

    When appraising for lenders the value the appraiser is instructed to develop is
    market value which is defined in the FNMA appraisal report as:

    Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

    Market value is linked to exposure time prior to the appraisal date. In other words, what is a reasonable closing price expectation assuming the appraised property was adequately exposed to the market for a normal marketing period prior to the appraisal date? If all the sales are REOs during the exposure period market value will follow these sales because the subject’s marketing period approximates the same time frame. Will buyers prefer REOs priced to sell quickly or will they ignore the REOs and pursue the purchase of non-REOs that are priced substantially higher?? Common sense dictates buyers will purchase the the lower priced REOs. Although REOs may be priced at “liquidation prices” if they comprise a sizeable percentage of the market liquidation prices re-set market norms and can become market value.

  14. Jim Duncan

    July 3, 2009 at 7:36 am

    Great comment, Andrew and thank you. I disagree with this –

    Being a Realtor and appraiser for some time I suppose in most cases an appraisal is rated poor by a Realtor because the appraiser’s market value opinion is less than the transaction price. Just because an appraiser’s value opinion is less than a sale price does not mean it is a poor appraisal.

    In my limited experience, this is not accurate. The two that I have had come in wrong this year were just that – wrong. The appraisers did not know the market and used comps from wrong – not comparable – neighborhoods. One was fixed in the challenge process and the other fell apart (and was bought for the same price by the backup offer that was in place).

    The HVCC is flawed, is an overreaction and needs to be fixed.

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