WASHINGTON (Oct. 15, 2009) – Responding to recent testimony before the House Small Business Committee, the Appraisal Institute, the nation’s largest organization of real estate appraisers, reminded the Committee’s leaders Wednesday that appraisers are not responsible for so-called low appraisals.
The Appraisal Institute joined the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers in a letter reacting to last week’s testimony by National Association of Home Builders President Joe Robson. The four appraiser organizations, representing more than 35,000 members, urged Committee Chair Nydia Velazquez, D-N.Y., and Ranking Member Sam Graves, R-Mo., not to “shoot the messenger.”
“It is important for the Committee to understand that appraisers do not create value in the housing market; they report on what is occurring in the market,” the letter stated. “The fact that some home sales have failed to close is largely the result of the housing market we are in today. … Accordingly, we urge caution in connection with those who would prefer to ‘shoot the messenger’ rather than face the realities of today’s distressed market.”
Robson’s testimony to the Committee alleged the improper use of foreclosed properties and properties from distressed sales as comparables in determining values of single family homes where no adjustment had been made to reflect the relative condition of the properties. His testimony also suggested that a high number of new home sales have fallen through because the appraisal reflects a value below the contract sales price for the property.
“Professional appraisers fully understand and agree that if foreclosure and/or distressed property sales are used as comparables, they must be treated carefully,” the letter stated. “Appropriate adjustments must be made by a qualified appraiser to reflect the physical condition of such properties as compared to the subject property. This is common practice. … It is the professional real estate appraiser’s responsibility to be aware of these conditions and analyze the market, considering all relevant data and applying proven techniques and methods.”
The letter also stated that “Given the complexity of this issue in today’s market, the competency and qualifications of the real estate appraiser is of critical importance in our system of real estate financing. … Lenders or their agents – including appraisal management companies – would be well served by retaining the services of highly qualified appraisers where such conditions exist.”
The appraiser organizations recommended four specific areas of guidance to mortgage lenders and financial institutions:
To read the Oct. 14 letter to the House Small Business Committee’s leadership by the four appraiser organizations, click here.
Seek out the services of highly qualified appraisers for complex appraisal assignments.
Recognize that sales concessions are as important as the condition of a property to the credibility and reliability of the appraisal.
Provide sufficient time for the real estate appraiser to conduct the proper analysis of the subject property and comparables used.
Promote communication between appraisers, builders and real estate agents.
To read testimony by National Association of Home Builders President Joe Robson to the House Small Business Committee on Oct. 7, click here.
To read Oct. 7 testimony to the Committee by National Association of Realtors Regional Vice President Joseph Canfora, click here.
The Appraisal Institute is a global membership association of professional real estate appraisers, with 26,000 members and 91 chapters throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. For more information regarding the Appraisal Institute, please visit www.appraisalinstitute.org.