The Law of Unintended Consequence: When an action leads to results that were unanticipated or unintended; can be positive or negative
The current home appraisal rules (HVAC) have had a myriad of unintended consequences. The intent of the guidelines was laudable: to help make the home valuation process more objective. The idea being that shady appraisers, Realtors, mortgage brokers, buyers and sellers helped create the over-inflated housing mess. I have a couple of issues with this approach. 1. We’re not all shady. 2. As with many bureaucratic pursuits, the intended goals are “lost in translation” as the rules fail to take into account how things actually work in local markets & in practice.
The unintended consequence of the new appraisal rules has been kind of the opposite of what the rules were trying to avoid. Instead of plumping up home prices, they are pushing them down.And the word it out.
We’ve been dealing with this since May 2009 but the pile of bad press continues to build. Sometimes, Sellers are so nervous about these appraisal rules that they accept much lower prices that are not contingent on an appraisal. This means that the sales price (which then becomes the latest comparable sale) is actually NOT market value because it was not the highest price a buyer was willing to pay for the home, whether a Noe Valley condo or a Bernal Heights single family home. But, it will be used as market value by the next appraiser on the next home sale.
And now for a brief introduction from our corporate sponsor: Hey you, CASH BUYER! It’s your turn to really cash in, no pun intended. Before we fix this HVAC system, you’re poised to get an even better deal than ever. C’mon, buy a house! 😉
Beloved real estate expert, Dian Hymer, wrote about this yesterday in the Chronicle. (Yes, I still read the Sunday paper.)
“The new guidelines require lenders to select appraisers impartially. To comply, many large lenders hire appraisers from an appraisal service company. The intent of the new guidelines was to keep loan originators from exerting pressure on appraisers.
However, a consequence of the new process is that some appraisals aren’t based on accurate information. This can result in an appraised value that is lower than the purchase price. This forces buyers to go elsewhere for a loan and pay for another appraisal. Rather than saving buyers money, buyers can pay as much as double what they would have paid before the guidelines went into effect.
A major complaint from the real estate industry is that the appraisers from third-party appraisal companies often don’t know the local market. The comparable sales used are sometimes from neighborhoods where values are different. If the appraised value is significantly lower than the purchase price and the buyers can’t get the loan they need, the deal falls apart.”