Jul 24, 2009

Your Home Appraisal Shouldn't Scuttle the Deal

Whether you're buying or selling a home, you have reason to be concerned that the deal will fall apart for reasons that weren't a problem a year or two ago; specifically, that the appraiser (usually sent by the buyer's lender) will assign the house a value that's significantly lower than the agreed-upon sale price. The lender will then refuse to loan more than the house is "worth," and the deal may end right there.

Part of the issue is the new-ish federal Home Valuation Code of Conduct (passed by Congress in 2008), which requires that appraisals be done by someone chosen by an independent third party.

According to recent reports by the National Association of Realtors (NAR), 37% of its surveyed members had "experienced at least one lost sale as a result of the new Home Valuation Code of Conduct, with seven out of 10 reporting an increased use of out-of-area appraisers. Seventy percent of NAR appraiser members said consumers were paying higher fees, while 85 percent report a perceived reduction in appraisal quality."

To get a more personal picture of what's happening, check out these news stories of heartbroken buyers and sellers, from Florida to Arizona to San Francisco.

As more and more people are pointing out, however, a faulty appraisal shouldn't -- and needn't -- derail your sale. Appraisers operate under a set of national rules known as the Uniform Standards of Professional Appraisal Practice. You can read them yourself -- they're not very long -- by going to The Appraisal Foundation's website. (But do so using Internet Explorer rather than another browser, or you'll just get a blank screen for the standards.)

Of particular note is the section of the standards called "COMPETENCY." Take a look, for example, at where it says  the appraiser must understand the nuances of the local market. If your appraiser doesn't, you have grounds to demand that another appraiser be sent to evaluate the house you're planning to buy or sell. With everyone in the transaction probably demanding the same thing, the third party is likely to listen.