Appraisal Problems

Our industry is in some turmoil because of many things, banks unwilling to lend, uncertainty as to the possible bottom of the steady decline in home values, uncertainty as to the future level of interest rates, and now, added to the problems, a dramatic change in the appraisal process which now requires appraisers be selected under a program called HVCC, Home Valuation Code of Conduct. Under this system appraisers are no longer selected and hired by brokers like me, or by the wholesale lenders with whom we do business, but instead by companies to whom we submit our appraisal requests who then select, or designate, an appraiser from a pool of appraisers. The result of this is a removal of possible influence on the appraiser by the broker or lender, also it represents an additional fee to the borrower since these companies are taking a very large slice of the fee, and a reduction in income to the appraiser, plus a greater likelihood the appraiser will be of lesser skill or quality than under the previous system. Because appraisals have been coming in below expectations nationally there has been a great deal of concern about the effectiveness of the new system. The National Assoc of Realtors has been lobbying hard to get a change in the rules because they feel the market is being adversely impacted by a too conservative approach by appraisers, and at the moment there is a bill being presented to cause an 18 month moratorium in the new program. This bill is a joint effort by Childers, a Mississippi Democrat, and Miller, a California Republican. The perception is that appraisers are running scared under this new program, which resulted from the excesses of the recent past in appraising to too loose a standard. Certainly there are transactions which have been blocked by low appraisals and real estate and mortgage people are upset at this interference in their income stream, but whether the appraisals are unrealistic is another question altogether. The appraisal process depends on finding a number of representative comparable properties that have recently changed hands between informed buyers and sellers. Not that easy to do when a significant number of sales are of a distress nature, foreclosed properties or "short sales", and when the number of transactions is reduced, and when the market is declining. Every time the government becomes involved in the business process some form of calamity follows. Lenders were induced to make bad loans, appraisers cooperated, now we're led to believe the same government can correct the problem. Changing underwriting standards is well beyond the expertise of government. All that really needed to happen to correct the problem of the recent excesses was to let the investors who pushed for looser and looser lending suffer the consequences of their cupidity and not reward them with a bail-out. If a loss is the result of bad judgement, then judgement soon improves. If gambling is risk free then it will continue. The change in appraisal regulations is typical government response. The appraisers didn't cause the problem, they were a symptom. Possibly the NAR is right to want a review of the new HVCC rules, but I'm sceptical of the motives in their request.
On a local note. Chico has enjoyed a niche environment in the real estate market, because it's a nice place to live, and because there are some above average incomes available in the area. As a result the price decline in home values has been more modest than surrounding communities. That may be about to change. The high end employers are beginning the process of furloughing and laying off, and unemployment is rising at all levels. The condition of the economy in California is desparate because of profligate spending and lack of fiscal responsibility, and the federal government is racing to demonstrate that they can be even more inefficient and thoughtless. Not to be a viewer with alarm, but be prepared for a long recovery period after the recovery begins.
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