Even in NW DC & Bethesda, Appraisal Regulations Puts A Wrench in Real Estate Recovery

Note To Appraisers Serving NW DC / Bethesda Area

I can’t help but start this post with a kind reminder to some of the “professional” Appraisers out there

If you “serve” Northwest DC and think “Cleveland Parkis actually a Park in Cleveland, maybe it’s best to ask for help.

And no since I know many of you are wodering, “Georgetown, DC” was not named after our previous president and “The Adagio” in Downtown Bethesda is a condo, not a day spa…

Now That We’re Clear….

It is no secret that there were many different factors that contributed to our real estate economic condition, with questionable loans being awarded to potential homebuyers being at the top of the list. This, of course, leaves one to wonder how these loans were ever approved in the first place. While there were many contributing factors that helped make this possible, one is the fact that appraisers had a tendency to “error” on the high side of appraising a property’s value. The era of exuberance almost “promised” increases in home values…this put many appraisers under pressure from some lenders wanting nothing but “the deal to go to settlement”.

In an effort to prevent what many consider to be the unscrupulous practice of inflating home values, Fannie Mae and Freddie Mac have established the Home Valuation Code of Conduct, or HVCC. While the HVCC is not a law, anyone who anticipates doing business with Freddie or Fannie needs be certain to follow these guidelines, which require properties to be appraised by an “independent” appraiser.

This may seem like a good idea on the surface, but many are concerned about the timing of the recently enacted regulations. Why? Quite simply because the HVCC guidelines have added one more hurdle to the process of selling a home, which is already difficult enough in today’s economic climate. Not only does obtaining an independent appraiser make the entire home buying process take a week or two longer to complete, it also increases the costs to the buyer. This is because many lenders must go through an independent appraisal company in order to get the appraisal completed in a timely manner. And hiring an independent appraiser through an agency costs more than contacting one directly. Appraisers say that they are actually making less money, as the third party intermediaries are claiming more of their fees.

It probably also comes as no surprise that the HVCC guidelines seem to have resulted in a downward trend in appraised values. It’s yet another example of how the pendulum continues to swing too far. Rather than erring on the high side (or, as many would argue, a “conservative” side) of the value spectrum, appraisers are well aware of why the system has changed and are downgrading the values of the properties they assess. Exacerbating this problem…appraisers used by these third party companies who are unfamiliar with the markets in where they are making their appraisals. Location, location, location? Only if those evaluating a property understand the nuances of specific markets where they practice.  The result? “Underinflated” appraisals and fewer deals going to settlement.

The bottom line is clear: in a time when our country needs to get its housing market moving again, putting more roadblocks on the path toward economic recovery seems to be a bad idea.