HVCC makes cash buyers king

Ever since May 1, 2009, when Fannie Mae's new appraisal guidelines for home mortgages went into effect, buyers, sellers, real estate agents and loan originators have complained bitterly about the new process. It's inefficient, often inaccurate and time-consuming. In some cases, it could be contributing to lower home prices.

The new guidelines require lenders to select appraisers impartially. To comply, many large lenders hire appraisers from a third-party appraisal service company. The intent of the new guidelines was to keep loan originators from exerting pressure on appraisers.

However, a consequence of the new process is that some appraisals aren't always based on the best, most accurate information. This can result in an appraised value that is lower than the purchase price. Some buyers may be forced to go elsewhere for a loan and pay for another appraisal. Rather than saving buyers money, buyers can pay as much as double what they would have paid before the guidelines went into effect.

A major complaint from the real estate industry is that the appraisers from third-party appraisal companies are often from out of the area. They don't know the local market. The comparable sales used are sometimes from neighborhoods where values are different. If the appraised value is significantly lower than the purchase price and the buyers can't get the loan they need, the deal falls apart.

In some cases, the buyers and sellers renegotiate the price to keep the deal together. This sets a new price for the property, one that was lower than the price the buyers offered to pay.

Horror stories about deals falling apart because of low appraisals have added to another level of uncertainty to an already battered housing market. Listing agents who are aware of the situation let their sellers know about recent problems with appraisals and try to encourage them to select a realistic list price based on comparable sales from the last three months. ...CONTINUED

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