Will Appraisers Stunt the Housing Recovery?


appraiser HVCCAfter the financial meltdown last year lawmakers and regulators were determined to discover who was responsible for the debacle. Yes, the very people who drafted the laws governing mortgages and yes were also responsible for oversight of them went out to determine who was responsible for the melt down. The first culprit, of course, was the lenders. I think we all know how that played out. The next group on the chopping block was the appraisers. If they wouldn’t have appraised the homes then the lenders would not have lent on them, so goes the finger pointing. From that came sordid tales of realtors and mortgage professionals pressuring and even bribing appraisers to up the value of a property.

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Home Valuation Code of Conduct – HVCC

After the scapegoats were identified the legislation followed. One prime piece of legislation aimed at appraisers was the Home Valuation Code of Conduct (PDF). The intent of the HVCC was to achieve more appraiser independence to reduce the amount of pressure placed on appraisers by lenders and Realtors. Well, if their had once been undue pressure on appraisers to inflate values it now pails in comparison to looming threat hanging over appraisers and it’s compelling them to keep prices down.

A Personal Experience

Just this week I was smacked once again by this new market reality. I had a beautiful property located in a prime location in Fairfax Virginia. We did a top notch rehabbed on the property all the way around and we thought it paid off when we got two very nice offers. Both of the people bidding were solid. They were both putting 20% down and they both offered more than $15,000 in earnest money deposits. The offers were very close but we accepted the bid that was slightly higher and moved forward.

We were pretty happy with ourselves until the appraisal came in $36,000 under our contract price. I contacted the appraiser and I was just amazed with what he told me. My property was remodeled to a superior standard and was head and shoulders above the competition; however, he did not even assess my property as high as his highest adjusted comparable home. His reason was that there was a home around the corner from mine that was the same model and also refurbished, so he essentially told me that that was the same home and so that is what my home is worth.

I begged this appraiser to look closer at my home and at the market. I brought up the data on 10 homes (his six comps included) that had recently sold. I noted that none of these homes were on the market for much more than two weeks. I begged him to consider the fact that I had multiple offers. I advised him that the home that he gave me the same value for was only on the market for 6 days. I had several people tell me that they had tried to put offers on that house but it was gone too quickly (the sellers just must have taken the first offer and ran.) Several of these would-be buyers were very upset about it. My buyers were willing to put up an additional $15,000 above the appraisal so I begged the appraiser to at least assess my home equal to his highest comparable sale which would have added another $10,000. He refused.

The appraiser, the appraiser’s supervisor, and the mortgage broker all told me that the appraisal must be based on the comps. Why yes they do have to be based on the comparable sales, but the appraiser does have the professional discretion to consider additional factors. The appraiser told me that they would not consider multiple offers because people are bidding any crazy number to win knowing that the home won’t appraise and, he said, time on market was not a factor either. People don’t put up $20,000 earnest money on that kind of gamble.

My other aggravation, though this one I fully expected, was that the appraiser gave no credit for my superior improvements. Rehabbers and homebuilders are used to this but I still think it should be addressed, it’s not a new phenomena. The comparable home had been remodeled as mine had been remodeled. Mine was clearly superior, however. I won’t go into the details but for example my bathroom had custom marble tile and a jetted shower. Theirs was a do it yourself job with 16 in ceramic tile and a standard shower. My appliances were top of the line Jenn Air and theirs were GE. I knew I was leaving money on the table by giving this value to my clients but in this case it seemed appropriate. I only hoped it would be just one more thing the appraiser could cite to justify a higher value. I plan to write a post dedicated just to this topic of over improvements after this home goes to closing.

What I’ve described here was a very summarized description of the events involving this property but I hope I’ve conveyed to you what I believe has happened in the industry. Regulators have essentially shackled appraisers. Appraisers have become not much more than data collectors to identify comparable sales. If all appraisers are obligated to keep their values at or below top comparable sale then how will property values ever go up? And, if that’s what they want then why don’t congress and the regulators just eliminate appraisers all together? We can have a computer program designed that will simply collect the sales data and then statistically analyze it and spit out a value. It could generate a median price average price, max price, minimum price, standard deviation, and all kinds of cool values for a cost to the buyer of about pennies per home.

Appraisal Statistics

I’m not only one crying over this subject. In my market, despite the frantic pace of home sales for nearly a year, realtors are walking on egg shells about appraisals. I have had many discussions with other Realtors who are extra leery about VA Appraisers. This makes any Realtor who gets an offer with VA funding take pause and lean towards another offer if it has conventional financing. There is actually a real estate boom going on here but prices are not moving up as they should. We’re all afraid of what the appraiser will do to us.

The National Association of Realtors recently conducted a survey addressing the possible impact of the HVCC and here are some of their findings:

  • 76% of realtors state that appraisals are taking longer
  • 37% of realtors reported loosing sales due to appraisals 20% said it’s happened more than once
  • An increased use of out of area appraisers was reported by 70% of realtors
  • Approximately 85% of NAR Appraiser members reported a perceived reduction in appraisal quality.
  • Among Realtor respondents obtaining an appraisal for a client 55% reported a perceived decrease in appraisal quality.
  • NAR Appraiser members reported a significant number of assignments in unfamiliar geographical areas.

The National Association of Home Builders

  • 60% of builders are reporting that inadequate appraisals are causing serious problems in the market.
  • 54% of builders said that the appraisal value was less than the cost to build.

A major concern has been expressed by builders about appraisers not properly valuing upgrades. The NAHB is advising builders to make potential buyers agree to pay separately for top of the line upgrades should the appraisal come in too low and not reflect the value of these items. This really hurts the economy and is unfair to high quality manufactures and adds pressure to reduce quality.

“Home builders are increasingly concerned that inappropriate appraisal practices are needlessly driving down home values. This, in turn, is slowing new homes sales, causing more workers to lose their jobs and putting a drag on the economic recovers.” NAHB Chairman Joe Robson

(Faulty Appraisal Process Harming Housing and the Economy, July 13, 2009)


My advice to investors, Realtors, home builders and sellers is to be extra conservative in any upgrades. In the past appraisers probably wouldn’t have given you full value for top of the line materials but now they are giving no value at all. I’m writing my congressman to let them know the repercussions of all of this regulation. I also signed a petition to delay the HVCC. In the meantime be very cautious out there when it comes to valuing your property. Not that you didn’t have enough to worry about already.

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About Author

Justin Pierce

Justin’s work ethics and values are based on his small town western upbringing and eight years of active duty in the United States Marine Corps. He currently resides in the D.C. area. He holds a BA in Management, a Masters in Business Administration and an active Virginia Real Estate Agent license.


  1. It sounds like the HVCC is destined to put appraisers out of business. Who benefits here other than sites like Zillow, who do just what this thing wants – pure comps without taking outside factors into account? Could there be some powerful websites lobbying for this? Does anyone know? Who is pushing this legislation?

  2. I agree that appraisers share a role in this current housing collapse. How? 1), over-inflating home values to support loans that are more than buyers can afford, which, in turn, affect the size of the real estate agents/mortgage brokers commissions, and 2) by doing a poor job of monitoring appraisers who are committing fraud in the first place.

    As you stated, dumbing down the value of a property is not the solution for financing. It’s no better than over-inflating the real value of a property.
    .-= Iman Yusef-Yahya´s last blog ..An Open Letter to the Real Estate Guru’s =-.

    • David - Retired Appraiser on

      Appraisers don’t “create value” D.A. They report what they see in the market. That’s it.

      The escalation in housing prices can easily be traced back to the internet bust of around 2000 & George Bush’s easy money policies following his entry into middle eastern wars. Investors had to put their money somewhere. When banks made it clear they would loan money to anyone including deceased relatives real estate became the obvious investment of choice. Once that took place the gold rush was on and everyone (including the deceased) were out to obtain a mortgage.

      Blaming this on the appraiser is as thoughtless as blaming a groundhog for bad weather.

      • The real point is that there is plenty of blame to go around. The fact that the system has zeroed in on the appraisers is the problem. The cheap money policy started way before George Bush and at least the Bush administration raised the flag about Fannie back in 2004 but Barnie Franks and crew called them racists. Who’s really responsible for the cheap money… the American voter. We’re all responsible and we need a more wholistic remedie.

  3. I have had my own persoanl experience with the HVCC causing overly conservative appraisals. Just recelty, I had an appraisal come in $25k lower than the offer price when there was clearly comps (inside 90 days) and right around the corner to support the offer price.

    We all need to stand together and voice our disguest and the fact that this new system is not only negative to our economy (in many more ways than one), but that is is not the answer to prevent fraud.

  4. You know, I didn’t see a lot of problems with appraisers during the boom. Yes they appraised the homes during the bubble, but when they were appraising a home that had 10 people in line ready and able to buy the home at said price, well then the market is speaking pretty loudly. Real estate is worth what people are willing and able to pay for it. The people were willing and the lenders enabled them and yes the realtors egged them both on. I’m not going to argue that there wasn’t any appraisal fraud. I thought appraisers were in a tough spot.

    Appraisers are supposed to interpret the market. It’s a sad day when they are compelled to dictate the market.


  5. You all don’t get it. It is not your Money. It is the banks money. Just beacuse you have a willing buyer and seller does not mean that is the value.
    RE Agents put pressure on appraisers to hit the sale price because you wanted the commision. If you want it that bad, why not offfer to reduce your commision.

    Appraisers can only work with data they have. You do not get a dollar for dollar return on your improvements. Sounds like the comp he used was right on. RE agents have no risk in the process, Appraisers do. It would do you some good to go back and take an Appraiseing class to understand how it works. Or, better yet, Get a pre-listing appraisal, or talk with local appraiser about what is going on.
    We are so Tired of commision fucussed agents blaming us.

  6. Dan,

    That is a very sad statement from someone who is charged with determining value. “It’s not their money, it’s the banks.” Well sir that is the buyer’s money. It’s a commitment from the buyer to allocate his or her future earnings for 30 years. If the bank says they’re worthy and commits the money then it is their money. Many people still do take that commitment seriously. Also, the buyers in this case were putting down 20%, over $100,000. Give me a call and I’ll get you in contact with them so you can tell them they have no stake in this because they’re just playing with the banks money.

    There is far more data available than just what the neighbor’s house sold for. Real estate agents do talk to appraisers. I would not suggest you stoop so low as to talk to a real estate agent, but maybe you should talk to some buyers and sellers. Maybe you should talk to the salesman at Home Depot and see if they think people are willing to pay for upgraded cabinets. Maybe you should ask yourself how high end companies stay in business selling windows that cost twice as much as the competitor. We’re not asking for every dollar but we do know there is a difference people are willing to pay for quality.

    We should talk to appraisers? Let me talk to you now and ask you: what determines the market value of an item if it’s not people willing and able to buy. The price is just determined by what 3 other (4 bedroom 2 bath) homes sold for within 1 mile. Well maybe we should apply that to cars. Mr. BMW dealer, I’m here to inform you that you can only sell your 4 door cars for the same price as the Ford dealer down the street. After all your buyers aren’t really using their own money.

    I sympathized with appraisers in this piece. Maybe you should rethink the lofty position you’ve taken on that island before you tell people what is and is not their money. Yes, it is the buyer’s money their putting down and yes, it is the seller’s money you’re taking away.


    And by the way, I’m not just a realtor. I’m a builder, a rehabber, an investor and an owner. In this case, I was the owner and I studied that market for months. And, yes, I had a stake in this deal. And, I made no commission.

  7. Gosh, where to begin.

    Well first my background. I am a Certified Residential Real Property Appraiser in Alabama, and also a Real Estate Broker. I’ve done almost exclusively appraisal work for the last 11 years, but have switched to take a sales position for an investor’s real estate company in the past month or so.

    To be sure the HVCC is a problem for appraisers because lenders have taken it to mean that they have to use Appraisal Management Companies (AMCs) in order to comply with the terms of the HVCC. AMCs in turn are taking as much as 40% of the appraisal fee for practically doing nothing but setting appointments. Many good appraisers will not work for these companies and that leaves you with appraisers that are not as well-trained and busting their guts to do as many as they can in order to make a living while quality suffers. That is also the reason that appraisers from “out-of-the-area” are showing up. The AMCs can’t get anybody locally so they ship in the appraiser that will take the lowest fee and most times these guys know little to nothing about the market they are appraising in.

    The HVCC was proposed by Andrew Cuomo, the Attorney General of New York and agreed to by Fannie Mae and Freddie Mac so that covers a lot of the loans being made out there, although there are lenders who keep loans in-house and do not subscribe to the HVCC rules. This is the same Cuomo that was Secretary of HUD under Clinton and who so screwed up the regulations for FHA loans that people started turning to sub-prime and the percentage of FHA loans underwritten went from 18% to 3% until the financial meltdown, caused in part by sub-prime ARM loans, practically eliminated the sub-prime market.

    So the HVCC was in reaction to the sub-prime meltdown, but what was at the root of the meltdown? Greedy mortgage brokers who put pressure on appraiser to “hit the number” was very prevalent, but they wouldn’t have done this if there weren’t sources to buy these loans. We can talk about greed on Wall Street and horrible mismanagement at Fannie and Freddie and we are getting closer to the problem, but what started this whole mess in the first place was the federal government and their misguided push to make housing affordable to anyone who wanted it whether they could really afford it or not. Pressure was put on banks to make unwise loans to further this policy (the Community Re-investment Act)or they would not be allowed to expand into other states or even open more branches at home. This push became the root of the corrupt tree that continued to grow and get more twisted as time went by – being fed by the greed that we have seen reported in the news. I’m not talking about honest investors, real estate brokers and agents, lenders, mortgage brokers and yes, even appraisers. They tried to do right by people as they always have, but the group who was out to get what they could no matter who got hurt pushed until the system couldn’t take it anymore and the whole thing collapsed.

    And then we got investigations and Congressional Committe hearings by the same people who started this mess in the first place, but who scrambled to make sure they pointed the finger at someone else. After all, elections were coming up.

    So because of all of this and the fear to make a loan that could go belly-up, appraisers are reviewed much more closely than before. Underwriters are pulling their own comps and asking appraisers why they didn’t use these instead of the ones the appraiser pulled. You have to give an explanation and defend your choice of comps or the report may be rejected. The new rules don’t allow appraisers to really do their jobs because the best comp may be over a mile away or sold 1 month before the arbitrary cut-off demanded by the lender, but we are forced to use their parameters when forming an opinion of the subject property’s value.

    Good appraisers could make valid and strong arguments for valuing subject properties higher than the highest recent comp, but these appraisers are moving to estate, divorce and tax work, leaving the hassles of mortgage work behind. And to be honest many of the ones remaining don’t see it as worth their time to go back again and again to the same report since they are making 40% less than they used to for the same work. I’m not saying that it’s right, but it’s human nature. It’s easier to say that you’re not going to change a value than to revisit it and re-evaluate the property. Also it makes you look bad in the eyes of the lender if you change values too much. And I know that it’s not fair and shouldn’t be allowed to continue, but change in this climate of suspicion is difficult at best.

    Your comments on appraisers not taking into account the extra upgrades in your houses is one I’ve heard many times before. Many people don’t know this, but our job is to look at the house like the “typical buyer” would. Some upgrades appeal to everyone – central heat and air as opposed to a window unit and a floor furnace; insulated windows to cut out the draft and reduce utility payments; etc. Then there are some updates that appeal to just a segment of the market – granite versus other solid surface countertops; a pre-wired media room; marble instead of ceramic tile; and the biggest one of all, an inground pool. You may think that everyone would love to have these upgrades, and everyone probably would, if they didn’t pay any extra for them. There is a segment of the market that would pay extra, but we have to decide if they are a “typical buyer” or not. And as for the value of upgrades and renovations, we look at many sources, one of them being the statistics from the National Association of Homebuilders showing the return on investment of differing remodeling projects and renovations. By far the best are kitchens, bathrooms and new siding. The worst return is on an inground pool and turning a garage into a den. You may think that there is a buyer who would love to have these things because of their love of swimming or huge family that needs more living space, but we -as appraisers- have to go back to the “typical buyer” scenario.

    And you may ask “Why?” Many people believe that the appraiser’s job is to protect the buyer. Many owners think that the appraiser is there to help them sell their property. And many real estate agents think that the appraiser is there to kill their deals. (I’ve actually heard that in a Realtor class. The instructor didn’t know I was an appraiser – until break).

    In a mortgage transaction involving a federally related institution (Fannie Mae, Freddie Mac, Ginnie Mae, USDA, VA, FHA, any bank insured by FDIC, any credit union insured by NCUA, any bank in the Federal Reserve system, etc.) the appraiser’s job is to protect the public (and their federal tax money) by impartially evaluating the collateral that is being used to secure the loan and reporting an opinion of value based on the facts and not biased either towards or against any party.

    That appraiser who said it was the bank’s money was right, but he could have explained it better. We tell the lender what the property is worth so that they know whether to risk their portion of the sales price in a loan to the borrower. They want to know what the property is worth in case the borrower walks away from the loan and they are stuck with a house that they don’t want and need to sell to recover their investment. That’s why they want to know the value of the property to the typical buyer. They are not inclined to hold the property until that special someone comes along who loves all the upgrades and wants to pay extra for them.

    That’s in a normal or even seller’s market. In this down or buyer’s market, lenders are sweating bullets about every decision they make. Credit is tight, but not unobtainable, and lenders are going over all the docs, including the appraisal, with a fine-toothed comb.

    What’s the answer to our appraiser problems? One just got announced Friday by FHA. They require that the appraisal fee be for only work done by an appraiser and no portion of it can go to a management company. If others follow suit, then the better trained local appraisers may come back to practice in that part of the profession.

    In this market at this time, I would recommend that you consult with a local appraiser before making renovations just to get his (or her) perspective on what the after-repaired value might be in that neighborhood. That’s part of my duties here in my new firm. This may not be the appraiser that submits a report to the lender, but the resulting opinion should be close to what any other appraiser does. The two appraisers could even discuss the property before the lender’s appraiser makes the final report, if both agree to do so. Not to put pressure on the lender’s appraiser, but just to make sure that he has the best comps available. This is just a suggestion. Not trying to drum up business for my brother and sister appraisers. I’m just trying to make the process as smooth for everyone from the time you purchase your investment until the time you close on the sale of your renovated beauty…and then head for the Bahamas with your profits.

    I know this is a long post, but there were several issues raised and some I didn’t even get to. I believe that the sharing of knowledge and education just helps us deal with problems that come our way, hopefully before they ever come up.

    Thanks for reading and please don’t egg my house now that I’ve come out as an appraiser!

    Happy Investing!!!

  8. Chuck,

    Good comments. This is exactly the tone of discussion we should be having in this community. Your points are very valid and well stated. I know how my post can be misunderstood but honestly I’m not against appraisers. I know they are operation within the limits they’ve been given. My argument is that appraisers should be given more room to do their job as experts.

    Your comments on upgrades are very informative. The process you described there seems to be the way they used to do it. Here, I’m not seeing any credit at all for upgrades. If there is not a home in the comps that has that upgrade then you’re not getting any credit.

    I disagree with you about the bank’s money comment. Dan (the other appraiser) was not technically right. What you said was correct in the context that you said it. His comment was completely wrong in the context stated. I had stated that a buyer is willing and able. He was saying that a buyer has no ability to buy the home because it’s the bank’s money. If we’re talking technicalities then it’s not the banks money either. The bank is allowed to lend out $10 for every actual dollar it has (or somewhere thereabout). They create money out of thin air because that’s the financial system we’ve established. Sure, if the banks stopped lending on homes then home prices would plummet. But, it wouldn’t matter because our entire financial system would then collapse in domino style. So, we need people to go to banks to pledge portions of their income to make payments on a home they feel is worthy so that money is generated, products and services are exchanged and jobs are created. Now, a bank does not give loans to just anyone. A person has to demonstrate worthiness an ABILITY if you will to support such a loan. Banks provide dollar amount approvals to buyers before they even know a property. That, sir, is a completely different subject from the fact that a bank is going to get the home appraised to make sure that it is worth what they are lending on said home. Lender and borrowers are equally dependent on each other it is the cycle of our economic system that would collapse if you removed any one element such as declaring the buyer just a casual observer who has no ability to affect the system. If the buyer chooses not to pay his bills, keep a job, strive to an appropriate income or save his money then he will not get a loan for a specific dollar amount. That’s the buyer’s demonstrated ability. It is real. It is tangible. And, it is earned, not over night but over years.

    Loved everything else you said.

    Thanks for the comment.


  9. Thank you for the feedback. I agree that appraisers should be given more leeway to do their jobs in a responsible manner and not be constrained by the lender’s parameters. If they want to know the true market value, then we can tell them, but if they disallow comps because they are 4 months old – in a slow market – the value is always going to be skewed.

    I do agree with your statement that it is the buyer’s ability to pledge to repay the loan that makes the whole transaction work. You are correct to point out that the buyers many times are already pre-approved for a certain amount without any regard to the house they may purchase. But lenders are just tightening up requirements for loans so much, a good credit rating and job history don’t mean as much if they think the value on the home the borrower’s wish to purchase is being inflated in any way. They are insisting on much more conservative appraisals.

    Just to show you that I’m fair-minded, I’ll share a horror story that I just learned about today from a broker. A buyer wanted to purchase a home with 8.5 acres, a 6,000sf outbuilding and an in-ground pool. The appraiser couldn’t find any comps within one mile that had those extra amenities, so she didn’t give them any value and the value came in way below the sales price. Since this was a semi-rural area the search radius for comparables should have been extended to 5 miles or more in order to find good comps, but she refused to go back and do this. So they had to get another appraisal by someone who knew what they were doing. Of course, since it was classified rural, the LTV was lowered, but the buyers had a substantial downpayment to overcome that glitch.

    I don’t know for sure what the solution is, but the HVCC is definitely not it.

    And BTW, thanks for starting this thread. I look forward to more discussions like this one.

  10. Absolutely, thank you for contributing. You are very fair minded.

    Real estate is very location dependent. In this market homes have dropped 50% in value. That is way too low based on the local job market and median income. I believe, from looking at the stats, that the current low home prices here were due to a market over correction. And, I believe that the price would come back to an appropriate price if they were allowed to. However, I also invest in Utah. I was out there last month looking at foreclosures and there I feel like prices may not have hit bottom and banks are being a little unrealistic about their asking prices.

    Now if I were an appraiser in Utah getting beat up about my assessment then I would also be aggravated over people blaming appraisers for low prices. There are a lot of markets out there that cannot justify higher real estate prices.

    There probably is no real answer to this problem. You can’t go too far either way. I think if we simply make it known that we as industry professionals believe it has gone too far to the conservative side then eventually they’ll free up the reigns a little and allow appraisers the leeway they need to exercise their expertise. (I did that by signing the petition to delay the HVCC. The link to that is in the article.) Until then, my purpose of this article is just to inform investors of the current market reality so that they can plan appropriately.

    Thanks again,

  11. Has your opinion on this changed in the past two years? The fluctuations of the housing market have certainly been interesting to watch. I have spent plenty of time considering the results of skewed home appraisals in today’s market.

  12. David - Retired Appraiser on

    Appraisers are indeed stunting the housing market but not on purpose; experienced appraises fled from the business years ago when their fees were cut in half, their work load was doubled, and they were forced to surrender clients lists that they spent decades building.

    The country deserves it. You forced guys who spent decades training and building their businesses. I can’t think of a better retribution towards the U.S. government and homeowners than to drive housing into a continual downward spiral.

    You reap what you sow America.

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