AustinTXEstates

The Neal Spelce Austin Letter from June 19 outlined a new problem trending in home sales in Austin and Travis County. That problem is surrounding the home appraisal process.

For anyone unfamiliar with the real estate process: a Home Seller and a Home Buyer negotiate, then agree on a price for a home. The Home Buyer is pre-approved for a loan, from the bank. The home is then inspected. If it passes inspection, the Home Seller and Home Buyer agree to make the deal. The lender requires third party appraisal. Where does that appraisal come from? 

It used to be that loan officers, mortgage brokers, real estate brokers or real estate agents could help select an appraiser. But as of May 1, 2009, a new National Home Valuation Code of Conduct was put into place. The new policy states that any mortgage to be owned or guaranteed by Freddie Mac or Fannie Mae cannot allow those parties (loan officers, mortgage brokers and licensed Realtors) any role in selecting the appraiser.

This agreement, struck back in March 2008 between Freddie Mac/Fannie Mae, the Federal Housing Finance Agency and the Attorney General seems like it may be in the interest of fairness. But the result is that many lenders are now outsourcing to appraisal management agencies. These agencies take part of the appraisal fee, from 30% – 50%. (With these cuts to their fees, experienced appraisers are turning down these agency offered jobs.)  There’s also a “quantity over quality” mentality, as the agencies often impose a 48 hour deadline for the appraisals. These quick appraisals are often done by out-of-area appraisers. 

The result of the “faster, quicker, cheaper” mindset? Less accuracy and less certainty of a home’s value. Further, if there isn’t a comparable sale, an in-area appraiser has a better and surer understanding of intricacies from neighborhood to neighborhood, and street to street.  

What can a Home Seller expect to see, then? Their appraisal may be outrageously incorrect, although there are cases of these appraisals being challenged.