Appraisals Burdening Housing Sales? WSJ

Rather than hire appraisers whose work is known to them, banks now outsource their selection to appraisal-management companies, which are often units of other banks and financial companies. These appraisal-management companies take a sizable cut of the fee, leaving the appraisers under pressure to work faster and cheaper.The result has been that appraisers with less experience or who are unfamiliar with a community

There is little doubt that home values have depreciated sharply in recent years for the most basic of economic reasons: excess supply of homes on the market and weak demand. But some realtors, home-sellers and economists believe low-ball appraisals also are undermining a housing recovery. Appraisals are supposed to be unbiased assessments of a property's value. The housing bubble that burst a few years ago was inflated, in part, by overly generous appraisals. Now, lenders are pressuring appraisers to come in with lower estimates, some real-estate professionals say. Banks also are using less-experienced appraisers, who often don't appreciate factors that make a home worth more, they say. And valuations are being heavily influenced by distressed sales priced at a discount to the rest of the market.Lenders are "instructing appraisers to be a little conservative, and that responsibility on the one hand is seen as credit tightening and, on the other, as exacerbating the housing problem," says Columbia Business School economist Chris Mayer. A research paper last year titled "How Much Is That Home Really Worth?" by economist Leonard Nakamura at the Philadelphia Federal Reserve also cited a downward bias in appraisals.
By S. Mitra Kalita and Carrick Mollenkamp, August 12, 2011 WSJ

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