Bad appraisals were one of the more implicit side effects of the housing downturn, but is the worst behind us?
Forty percent of any demographic is an awfully large chunk of people, and in 2010, at the height of the housing downturn, that was the percentage of Realtors who reported difficulty with appraisals.
As of 2014, though, that number has dropped – and by a substantial amount. According to the latest surveys from NAR, 24 percent of members has issues with appraisals, a 16-percentage-point decline that represents a drop of 40 percent.
Such a decrease leads to an inevitable question – what gives?
The Horror Days of Appraisals
Before we get into any causes, though, it’s worth revisiting just how miserable the appraisal experience became for so many real estate agents. The stories were so numerous that they practically entered lore:
- Appraisers using nearby foreclosures and short sales as comparables for non-distressed properties, which would produce a dramatically lower valuation and kill the sale.
- Appraisers from different towns or counties who had little familiarity with the character and nuances of the particular area.
- Appraisers who used insufficient data, with scant knowledge of pending contracts, home price trends or other relevant sources of information.
- And of course, appraisers with little training in the actual art of judging a home’s true price.
An Improving Market = Improving Appraisals
So, have those issues with appraisals magically disappeared in the last four years? That’s unlikely, but there are two essential components to the appraisal process that have improved, and by dramatic amounts – home prices and distressed property sales.
Home prices, as any real estate professional knows by now, have risen by double-digit amounts in the last year, so appraisers no longer have to factor in a depreciating marketplace; and distressed sales, as we recently covered, have all but fallen off a cliff, which has lessened the use of such sales as comparables.
We’re Not Out of the Woods Yet
Still, it’s worth mentioning that even with those declines, 24 percent of Realtors is just shy of a quarter of the industry, so clearly, we’re not completely out of the appraisal woods just yet.
And indeed, some of the criticisms that we mentioned above are still in full force: appraisers still arrive from out of town with little local experience; appraisals are still divvied up by Appraisal Management Companies, or AMCs, to appraisers who are less experienced, less trained and less paid than they were 10 or 20 years ago; and most importantly, appraisers still access old data when using comps, and are unable to access pending contracts, which are by far the freshest data sets.
So though it’s great to see appraisal complaints decline as much as they have, they don’t quite suggest that we’re in the clear just yet.