Courtesy of The Orlando Sentinel
September 9, 2012
Leesburg resident Russ Sloan knew something was wrong when an appraiser valued his home at $113,500.
Sure, the housing market had crashed since he and his wife paid almost twice that amount for their three-bedroom home five years earlier. But Sloan suspected the appraisal had compared his house to some distressed properties.
Three of the six comps were short sales or foreclosures, and two of them were houses on the market without sales prices," said Sloan, who filed a complaint with the state. "There was no adjustment for the distressed ones he used."
Complaints about appraisers in Florida have edged up this year for several reasons: More people are getting appraisals so they can refinance their mortgages; prices have increased so much this year that sales comparisons are quickly outdated; few properties are listed for sale, making comparisons difficult; and distressed sales still dominate the market, dragging down the value of "regular" homes with paid-up mortgages or no mortgage at all.
"We are transitioning so fast that most people can't keep up with it," said Joyce Potts, president of Southern Appraisal Group Inc. in Altamonte Springs. "In a transition market, either up or down, you have to acknowledge the lack of inventory and adjust accordingly."
Resale prices in the core Orlando housing market have increased 16 percent just since the beginning of the year, hitting a midpoint price of $125,750 in July, according to the Orlando Regional Realtor Association. In addition to contending with such fast-moving prices, appraisers in the core market must assess current market conditions with only a 3.4-month supply of homes listed for sale — about half the inventory considered healthy for a balanced market.
And if appraisers are deciding the value of a regular house, the odds are good that they will have to compare it to some foreclosures and short sales because, even now, slightly more than half the homes for sale in the Orlando area are such distressed properties.
Potts said appraisers are forced to weigh whether they should include foreclosures when determining the value of a regular home. In cases where a clear majority of the sales in a given neighborhood are discounted, distressed transactions, she said, they will tend to define the value of all homes in that particular area.
The home-appraisal business changed significantly in 2009, after the nationwide housing bubble burst, when Freddie Mac agreed to follow new rules outlined in the Home Valuation Code of Conduct. The code was part of a legal settlement between the giant federal mortgage backer and the New York State Attorney General's Office, which investigated charges that lenders had pressured appraisers to set home values high enough that sales would close without complications.
Under the new rules, appraisers are supposed to keep their distance from lenders; often they do this by working through appraisal-management companies that have come to control the industry since the reforms took effect.
Under new rules or old, appraising real estate is a challenging task, said Orlando Re/Max agent David Welch. He said he meets with appraisers at homes under contract and explains how why the sales price makes sense based on everything from school districts to transportation. Welch said he also details why certain other sales should not be considered comparable to the one being discussed.
"It's a daily event that you hear about folks having issues with appraisals," Welch said. "Appraising is a very difficult job. You're always looking behind you, and the market is different today than a few months ago."
In Sloan's case, the Leesburg resident was so unhappy with the appraisal done on his house in October that he complained to the state Department of Business and Professional Regulation. He's not alone: Through the first seven months of this year, 373 Florida property owners have complained to the department about appraisals; during the same period last year, 327 complaints were filed.
The state did not side with Sloan. He said he was disappointed because the appraiser had used erroneous information about one of the comparable properties.
Yet his complaint was validated in another manner: Two months ago, another appraiser pegged his home's value at $144,500 — more than $30,000 higher than the judgment of the October appraisal.