12.20.06

Changing Marketplace Complicates Home Valuation Process

In today’s transitioning real estate marketplace, pricing a home properly is one of the biggest challenges that sellers face. Providing accurate property valuations in this environment can be complicated, as well.

In the session, "The Low Appraisal: Recourses and Remedies," today at the 2006 REALTORS® Conference & Expo here, a panel of experts told REALTORS® how to handle a transaction in which a buyer and seller agree on a sales price that’s higher than the home’s appraised value.

For consumers, appraisals are an often unnoticed but essential part of the home buying or refinancing process. Most lenders require property appraisals when granting mortgages to ensure that they are not lending more than a home’s value. Appraisals also protect buyers by preventing them from paying too much for a home. High appraisals can sometimes be an indication of mortgage fraud, which has already resulted in $546 million in losses in the first half of 2006, according to the Federal Bureau of Investigation. Low appraisals can prevent buyers from getting a mortgage and inhibit a home sale.

The National Association of REALTORS® represents about 30,000 state-licensed and certified appraisers throughout the country. NAR recommends that lenders be required to inform borrowers of the methods used to value a property to determine the amount of the mortgage loan, and that borrowers have the right to obtain a copy of all value estimates or value opinions on the property.

"Like all NAR members, these appraisers commit to a Code of Ethics that helps protect the public. REALTORS®, appraisers and lenders must work together to support the fundamentals of the lending process and to ensure that housing remains a good investment," said Thomas M. Stevens, NAR president from Vienna, Va., and senior vice president of NRT Inc.

"All appraisers are bound by the Uniform Standards of Professional Appraisal Practice -- USPAP -- and REALTORS® and lenders are bound by the professional, regulatory and ethical obligations of their respective professions, as well," said Joseph Traynor, 2004 NAR Regional Vice President for Region 7 (Illinois, Indiana and Wisconsin) and member of the 2006 Board of Trustees for the Appraisal Foundation.

"Low appraisals can be frustrating and sometimes costly to all parties involved in the transaction, but by working together, these professionals can ensure that the interests of both home buyers and sellers are protected."

The panel recommended strategies for helping buyers and sellers close the deal when a home’s valuation is lower than its contracted sales price. Participants advised REALTORS® to approach the appraisal process proactively by providing the appraiser all information relevant to the property and describing what factors contributed to the original asking price. If the appraisal is depressed because of specific problems with the property that will be remedied, these plans must be shared with the appraiser, as well.

Panelists also discussed factors that influence low appraisals, such as a home that has been over-improved for its neighborhood, an oversupply of properties in the area, recent neighborhood foreclosures, and the state of the region’s general economic climate.

In addition to Traynor, the panelists were Melanie McLane, a REALTOR®, appraiser and member of NAR’s Appraisal Committee; and Deb Nikodym, senior vice president for quality assurance for Rels Valuation

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