The bad news about appraisals

The real estate market is poised to make a recovery. First time homebuyers are out in high numbers thanks to historically low interest rates and the $8000 tax credit carrot. Life should be getting better for home sellers and the real estate community, right?  Not so fast. On May 1st of this year, the Home Valuation Code of Conduct (HVCC) went into effect and although the name sounds noble, the results of this act are not. HVVC was primarily enacted to eliminate fraud and inflated appraisals but has succeeded in hurting the very people it was trying to protect. In addition, new FHA rules effective April 1st require that a Market Conditions Addendum be included on any appraisal for a loan to be insured by the FHA. Appraisers must also adhere to new strict guidelines when the property they are appraising is in a declining market area. These tighter rules are to prevent a buyer from paying more for a home than it is worth.

I understand that new guidelines for appraisals are intended to help avoid the bad stuff that happened just a few years ago as prices escalated to ridiculous levels. We even have our own predatory lending case in New London County to show for “the greedy years”. Unfortunately, home sellers, are now dealing with low appraisals, and as a result canceled home sales when the home doesn’t appraise for what a buyer is willing to pay. In a time when buyers are ready to buy and home sales could help stimulate the economy, it just got harder to buy a home.

For a good resource on home appraisals in general, visit The Appraisal Scoop. For an excellent article explaining the new FHA appraisal guidelines, stop by Mortgaged Future.