In real estate, the appraiser is supposed to be the fair and impartial judge of property value. Banks use the appraiser's valuation to avoid making a loan for more than a house is worth.
But during the Bubble, banks (and mortgage brokers) mostly just wanted to make lots of loans. And, real estate agents wanted to sell lots of homes. And, buyers wanted to buy everything in sight.
So back then, appraisers were strongly encouraged to be "generous" with their valuations so that more (and larger) sales could close. Which was pretty easy, since prices were soaring. And everyone was pretty happy. Best Friends Forever!
Then came the Meltdown. Homeowners started defaulting on loans, banks started foreclosing on owners, and home prices started plunging. Some blame fell on the appraisers and their cozy relationship with the agents and mortgage brokers they worked with.
And that's when our government jumped in to save the day. So you know things were about to get worse.
A new Home Valuation Code of Conduct (HVCC) was made effective in May 2009. Put simply, it put up a big brick wall between the appraiser and those who needed a high valuation price to make their deal work. No longer could agents or mortgage brokers interact with appraisers. From BFFs to TTYNs ("Talk To You Never" according to famed relationship expert Paris Hilton).
So today, even after a home seller struggles to sell a home, finally finds a willing buyer and settles upon a mutually-agreeable price, it's not over yet. The whole deal can easily go down in flames if the bank-selected appraiser sets the fair market price below that contract price. Unless the buyer can make up the difference in cash, the deal could die.
Given the vast number of foreclosures out there dragging down property values, this has become a major problem. Perhaps a wiser approach is a middle ground so that homes can still get financed and prices can stabilize.
Can't we all just agree to be frenemies?
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