Tuesday, November 24, 2009

Guest Blogger Steve Bancroft: Appraisal Issues a Major Problem

When I headed up the resale efforts in Houston on Resolution Trust Corp (RTC) residential properties back in the late 80s and early 90s the comps on appraisals of the RTC sales caused significant problems with purchase/rehab sales prices. We ended up doing a small percentage of “cost-appraisals” to produce comps to overcome the downward pricing problems of REO fire-sales.

In Detroit we are facing this issue again as we try to stabilize neighborhoods affected by foreclosure. It is complicated by the new appraisal process being mandated by the banks. This process requires a “fire-wall” between the initiator of the appraisal and the actual appraiser. In theory, that makes sense as it seems to promote a more objective, less-influenced result. In practice it has produced a disaster. The process has spawned a group of national appraisal clearing houses that arrange the local appraisals through networks they have created. Unfortunately the quality is extremely spotty due to the bargain-basement fees offered. In addition, the appraisers are essentially doing BPOs and even sometimes doing appraisals by e-mail from MLS Listings. We have seen appraisals on even new construction housing range from $29,000 from these “network” appraisers to $160,000 from local appraisers on a house that sold to an actual buyer at $130,000.

We are producing a local, “distress” Automated Valuation Model (AVM) in an effort to counteract these low-ball appraisals which are preventing what little mortgage credit that is available from actually being used. We have produced workable value in our AVMs, but are still in a process of getting them confirmed for use by banks.

I would love to know if others are experiencing this phenomenon and if so; how are you addressing it?

Steve Bancroft is the executive director of the Detroit Office of Foreclosure Prevention and Response. To learn more about foreclosure prevention and neighborhood stabilization initiatives in Detroit, please visit www.foreclosuredetroit.org.


Mitch said...

There are greater problems than appraising homes. We should try to look at the root cause and deal with it. Everyone's responsible. Let's all do our share to get to the best housing solutions and get us back to where we used to be. Thanks and good luck.

Steve said...

I don't know where Mitch lives, but in Detroit, wild appraisals are a major problem.
When a newly built home has a contract for $160,000 and the bank loan appraisal come in at $29,000, there will be no sale.
When a purchase/rehab gets an appraisal of $9,000, no developer.builder can make those numbers work.
We get decent appriasals for FHA loans with local appraisers...its the out-of-town appriasers required by national appraisal networks to have 24 hour turnarounds on appriasal reports...that have the appriaser using MLS listings of REO properties as comps that are killing us.