AgentIndustry News

Appraisal rules backfire in down market

Appraisal management companies blamed for undervaluation

Enacting rules to curb abuses arising during a housing bubble, which don't take effect until the succeeding financial crisis, can easily do more harm than good. This is the case with new rules requiring that property appraisals be insulated from pressures exerted by any of the parties with a financial interest in an appraised value: primarily lenders, mortgage brokers and Realtors. Appraisals are informed judgments regarding the value of specific properties. They are not perfect because appraisers must work with incomplete information. Further, appraisers are subject to bias, and more so if less complete information is available to them. During periods of rising house prices, such as 2000-06, many appraisers erred on the upside because they were part of a community that expected further price increases. This tendency was sometimes reinforced by pressures exerted by lenders, Realtors and mortgage brokers. None of them wanted to see deals torpedoed by appraisals below the pri...

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