New Appraisal Rules Frustrating Home Buyers

December 15, 2010

New appraisal rules and distressed markets lead to uncertainty in what a home's fair market value may be.

Recently imposed rules and regulations dictating how lenders choose appraisers are frustrating potential home buyers. It is hard enough to qualify for a loan these days but now prospective home buyers are faced with the daunting task of getting a satisfactory appraisal. Under the new rules, lenders are no longer able to hand-pick the appraisers. Thus, many lenders have started using appraisal management companies that afford them an arm’s length relationship with the appraiser. The appraisal management companies hand out assignments to their participating appraisers on a random basis. More importantly, they get a significant slice of the appraiser’s fee, cutting the amount that actually goes to the on-the-ground appraiser. Consequently, many experienced appraisers have left the industry all together because the lenders are demanding more work from them and paying less. The loss of qualified appraisers, coupled with the fact that today’s market is so volatile and different from anything the industry has ever seen-comparable properties typcially consist of one-third foreclosures, another third short sales and another the final third from conventional sales- results in appraisers having a hard time determining what today’s fair market value is. The real losers, however, are the prospective home buyers who spend thousand of dollars on appraisals only to find out that the bank won’t lend the money.

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