It’s amazing. If you don’t like appraisal results, if you want home prices to be higher, then just change appraisal rules.
That’s the theory behind a new legislative drive now taking place in several states.
The Appraisal Institute reports that “four states — Illinois, Maryland, Missouri and Nevada — are considering legislation that would prohibit or restrict the use of ‘distressed sales,’ such as foreclosures and short sales, as comparable sales as a part of a residential real estate appraisal.
“Homebuilders and real estate sales agents are concerned that the prevalence of distressed sales, and their subsequent use as comparables, is resulting in the appraised value of residential properties not matching the contract sales price, or in the case of new construction, the cost to build.”
This is a joke, right? Something set for April Fool’s Day.
Appraisals are supposed to provide home buyers with an independent and experienced view of real estate values. Licensed appraisers are NOT paid for hitting a particular number, but for providing the fair market value of a property at a particular moment in time, a valuation generally based on the recent sale of like properties nearby.
To say that distressed and foreclosed homes and short sales should not be counted when valuing local real estate makes about as much sense as refusing to include touchdown passes from left-handed quarterbacks in final scores.
The stupidity of this idea is just overwhelming. Does anyone seriously believe that potential home buyers will not notice abandoned homes across the street or down the block?
And what about local property taxes? Will assessors raise home values by not including distressed properties? Higher assessments are one path to higher property taxes.
Think how well the concept of appraisal fiction might work in Nevada, a state where legislation to fabricate appraisals has been introduced. According to RealtyTrac, “Las Vegas-Paradise continued to post the nation’s highest metro foreclosure rate, with one in every 9 housing units (10.88 percent) receiving a foreclosure filing in 2010 — nearly five times the national average. A total of 88,198 Las Vegas-area properties received a foreclosure filing in 2010, a decrease of 7 percent from 2009 but still up 31 percent from 2008.”
If you were buying a home in Nevada do you think such information might impact the price you were willing to pay for real estate? Or would you just ignore the foreclosure carnage?
And what about the profession of appraising? Why would any sane person or institution hire an appraiser who delivers anything less than a fair market valuation based on what’s actually happening in the local marketplace?
Legal or Not Legal
The Appraisal Institute explains that “if these bills were enacted into law, appraisers would be put in the difficult position of having to choose which law to violate. Appraisers are required to adhere to comply with the Uniform Standards of Professional Appraisal Practice in federally related transactions. The standard mandates that appraisers ‘must analyze such comparables sales as are available.’ Further, the standard cannot be voided by a state or local government.”
The Appraisal Institute says the proposed laws can be found at the following web addresses:
A tip of the hat to the Appraisal Institute for trying to protect its members — and the public.