Weak appraisals fuel slow recovery

You have noted our frustration with the slow recovery in the rural areas of our Multiple Listing Service geography. The increased number of sales in those areas, unlike the more densely populated ones, have not pulled their prices from the post boom doldrums.

At our Board of Directors meeting on Friday, one Silver Valley member was asked, with the improvement in sales activity, "why do prices remain so low?" Without hesitation she replied, "Appraisals. We have a problem getting our homes to appraise at value."

To many of us, common sense would dictate that a property, or anything else for that matter, is worth whatever someone is willing to pay for it. Common sense however, is not enough to convince a nervous lender to fork over the agreed upon price without an appraisal. It used to be that these appraisals were performed by independent appraisers exclusively.

Appraisers do not have the latitude they did before the housing debacle. Even so, their valuations must be, in part, based on recent sales data. So when that data is sparse they must make their valuations on historical data that may not provide the signs of recovery needed to justify the prices folks are willing to pay in a current environment.

In addition to complying with the Uniform Standards of Professional Appraisal Practice, an industry bible of sorts, bankers have their own guidelines and sometimes apply "restrictions" to appraisers that further reduce the eligible loan amount. One appraiser member noted that some banks are actually using sites like "Zillow" for value estimates. We have written before with words of caution about these third-party sites. While many believe they can get reliable information from these sites, any MLS member can quickly demonstrate their inaccuracy by using our current, verifiable data.

In September the National Association of Realtors conducted a survey of its members. Fifteen percent of the respondents said a contract was renegotiated to a lower sales price as a result of a low valuation. These adjusted prices then, are reported to the MLS in most cases, perpetuating the depressed market value of those properties. According to NAR's chief economist, Lawrence Yun, major problems reported by Realtors include:

n Appraised values using foreclosures, short sales and run down properties as comparable homes and not making adjustments for the condition of the property.

- Appraised values that do not reflect market conditions such as rising prices, multiple bids and low inventory.

- Out-of-town appraisers who are not familiar with the area.

- Slow turnaround time by both appraisers and banks.

All these factors have contributed to lost sales reported by Realtor members and therefore concern all of us.

Another large concern is that some appraisers working for an appraisal management company (AMC) are operating under limited parameters due to bank lending criteria.

Appraisers have faced undue pressure from lenders and/or AMCs to complete appraisals that include distressed properties as comps - a practice that was not typical before the protracted housing crisis.

In part, these criteria are likely due to increased banking regulations or risk aversion on the part of the lender. New "put back" risks imposed by Fannie Mae and Freddie Mac may also cause banks to set unrealistic requirements for appraisers. A put back risk is the risk that a loan sold to Fannie or Freddie may be rejected due to failure of the bank to comply with ever-changing regulations of these, government sponsored enterprises who purchase a majority of loans.

That then, could explain the conundrum that continues to constrain those rural portions of our marketplace where, sales this year outpace last year, yet prices continue to fall.

Trust an expert...call a Realtor. To find a Realtor to represent you visit the Coeur d'Alene Association of Realtors website; www.cdarealtors.com. There you can also search available properties in the Multiple Listing Service.

Kim Cooper is a real estate broker, Realtor and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your commentary and feedback. You may contact them by calling 667-0664 or by writing to them at 409 W. Neider, Coeur d'Alene, ID 83814.