Property Appraisal after the Real Estate Bubble

 

Real Estate Bubble

Property appraisers play an essential role in the housing market. It is very important for borrowers and lenders to have an accurate assessment of a property’s value and when these become skewed the entire housing market can be negatively affected. There are regulations in place which help to govern agencies such as Regency Property Appraisers to protect lenders and borrowers alike. Some lenders have tried to influence appraisers to inflate property values so that larger mortgages can be dispersed. When property appraisals are not accurate the entire economy realizes the effect. For this reason it is important to seek out reputable appraisers such as Abbe Edelman.

The housing bubble affects the US housing market. In early 2006 there was a peak in housing prices but by the latter portions of the year it continued to decline until 2008 when the Case-Shiller home price index report indicated the housing market had seen its largest drop in history. In 2006 and 2007 there was an increased amount of foreclosures and this wreaked havoc in the real estate market on into 2008. A collapse of the real estate bubble not only has a direct impact on property appraisals and home valuations, but it is a primary indicator for the mortgage markets, real estate in general, home supply retail outlets and home builders. Even hedge funds on Wall Street which are held by many investors can be effected which ultimately increases the risk of a recession.

In 2008, the government tried to rescue the real estate market by allocating more than $900 billion to agencies such as Fannie Mae, Freddie Mac and the Federal Housing Administration. The US Treasury Department also stated that they would continue to offer financial support over the next three years. This was a very controversial issue.

Property appraisals played a role in the financial crisis in that for the large part home values were inflated. This overestimation of home’s worth led to larger mortgages and caused the subsequent increase in foreclosures which had an adverse effect in the financial realm. Many lawsuits and investigations prompted the government to issue an updated code of conduct regarding how property appraising is conducted. The new guidelines set up middlemen who could provide an extra layer of protection between the nation’s appraisers and lenders. These middlemen are known as AMCs or appraisal management companies and help prevent lenders from applying pressure on appraisers to over exaggerate property values in their assessments.

One of the greatest reforms that occurred after the housing bubble was the way appraisers are selected. In 2009, Fannie Mae instituted a Home Valuation Code of Conduct. This mandates that property appraisers must be independent from the property being assessed. They can no longer be hand selected by agents so that frees them from fears of income losses or even being blackballed. Appraisers should be able to make their assessments about a property without fearing any repercussions as in previous years. They must be able to provide property valuations free from pressure from buyers, realtors, sellers or mortgage brokers or anyone else who is likely to gain from the financial transaction so that the judgment that they render will be based solely on the property and no other outside influence.

Appraisers such as Abbe Edelman should be able to base their value on recent closed sales which are comparable. The trouble during the real estate bubble was that appraisers were pressured into making valuations which would agree with the proposed contract. This allowed real estate prices to increase too quickly. It is up to the appraiser to state a reasonable valuation of a property. With the new regulations in place they are free to do so.