Posts Tagged ‘appraisals’

Chicago Real Estate Recovery Hindered By Appraisal Process

April 11, 2011

Here’s an intelligent solution to the problems caused by HVCC – House Values Code of Conduct.  This is the policy that has governed all Fannie Mae and Freddie Mac appraisals since May 1, 2009 in their efforts to “enhance the integrity of the home appraisal process”.  
Although we all agree that there were cases of fraud and collusion between lenders and appraisers, this new system has, in many cases, debilitated the housing recovery.   Essentially, HVCC, in it’s efforts to protect the consumer, prohibits any interaction between the lender and the consumer with the appraiser.  This legislation is especially bad for appraisers and the consumer, since appraisals are generally assigned through an AMC (Appraisal Management Company) which keeps a large portion of the appraisal fee, and assigns appraisals to appraisers who are often not familiar with neighborhoods and neighborhood values (what makes a one property more attractive in a particular neighborhood).  It has not been uncommon to have an appraiser from Elgin or Tinley Park conducting an appraisal for city condos.  Do they really understand how close it is to the el, or how far?  Can they understand the difference between areas in Old Town or the West Loop, or differences in elementary school districts?   
The Chicago Tribune is reporting that CoreLogic has data showing that the sales price of non foreclosed properties stayed relatively even from one year ago (a .37% decrease).  Factor in the foreclosed property sales, and that figure changes to a decrease of 10.4% from February 2010 to February 2011.  Rep. LaShawn Ford (D-Chicago), who is himself, a Chicago real estate broker, is proposing that foreclosed property be excluded as comparable sales in appraisals.  Since lending guidelines have become so restrictive, the appraisal is one more layer which is inhibiting a real estate recovery.  In areas that have been hard hit with distressed properties, it becomes increasingly difficult to stop the slide of values when appraisers can use foreclosed property sales as a basis of value for a traditional home sale or refinance. And not all foreclosed property sales are “equal”.  If allowed to use these sales as comparables, should there not be some difference between an owner occupied vs. investor purchase?  We support this idea to keep the playing field balanced.  Not all Chicago real estate sales are created equally, and to compare distressed properties to traditional sales is like comparing the exterior photos only of homes as the basis for value without looking inside to see the condition.
Here you can read the whole article.