How Do The New Standards For Appraisers Affect YOU?

By Nesli YILMAZ
Senior Real Estate Specialist in Silicon Valley

Real Estate Appraisal used to be pretty straightforward. You’d agree to a sales price--whether it was for your own home, or one that you were purchasing--and an appraiser would take a look at the house. He’d examine it, inside and out, take measurements to get the square feet, and compare it to sales of other homes in the neighborhood. If the appraisal and the sales price matched up, then the lender gave the “OK” on the loan, and the deal was done.

But the housing boom changed all of that.

Appraisers, lenders, real estate agents, and homeowners, all, fell victim to the temptations of inflated housing valuations. Lenders and agents wanted the deals. Homeowners were more than happy to accept pie-in-the-sky valuations for their homes, so they could cash in (or cash out, as was often the case). And appraisers acquiesced and, under pressure to give the “right” valuation or lose their jobs, sent appraisal values into the stratosphere. Many homes were being sold with multiple offers at these exaggerated prices, even without the supporting closed price comparables, proof enough that the homes must be worth their high estimated prices.

All of that is over now.

In an effort to curtail the abuse of appraisals -- by appraisers, lenders, agents and, yes, homeowners, too -- the Real Estate Industry has adopted, albeit reluctantly, the Home Valuation Code of Conduct (HVCC). 

What the HVCC is supposed to do is avoid wrongdoing or undue influence on the part of anyone in a real estate transaction. Unfortunately, what it’s doing, more than anything else, is causing a great deal of confusion and frustration. Lenders can’t help appraisers by answering questions because they might be seen as trying to unduly influence the process. And appraisers are leaning towards more conservative valuations in spite of what ‘market value’ might be from the eyes of a buyer - as this overcorrection in lending and appraisal practices run their course. 

So, what does this mean for you?

First of all, know the values of homes in your neighborhood that have sold recently. Me and my top sales team will make sure that you have all of the pertinent information before encouraging you to accept an offer to purchase. Second, have realistic expectations. Is your home really worth the price you have in mind? Third, and finally, be prepared to take a deep breath and ride out the process. Putting caveats for longer financing contingencies or escrow periods in the purchase offer might be advisable.

The HVCC means well, but it’s not perfect and still needs a great deal of fine-tuning. Branches from every segment of the Real Estate industry have asked Congress to enforce a moratorium on the Code, but for now, these are the rules that we must abide.