Appraiser news doesn't always capture national attention or land on the front page of a major newspaper but in recent weeks, there have been a number of news articles involving appraisers, including some that have unfairly accused appraisers of inflating home values.
As The Appraisal Foundation explained in a letter to the editor that was published in the Wall Street Journal, allegations that appraisers miss the mark are nothing new. When the housing market is booming, appraisers are often blamed for overinflating home values, thus creating a bubble. In contrast, when the market cools, they're accused of undervaluing homes and killing deals. Recently, a news article cited data that appraisers are increasingly getting it right. So what gives?Appraisers are an easy target because they are often the only party involved in a real estate transaction that has no "skin in the game." Other parties involved in the transaction, including real estate brokers and lenders, often have sizable commissions at stake, which are only paid upon consummation of a sale. Therefore, appraisers are the natural party to blame if they don't arrive at a valuation that solidifies the deal. Of course, buyers and sellers not only have a financial stake in the transaction, but are often emotionally invested as well.
In reality, appraisals neither set the value of a home nor confirm the sale price of a home. Instead, they are based on thorough and unbiased research and analyses, and are intended to reflect the market value of a property, which does not always align with the sale price. In many cases, appraisals protect buyers from overpaying for homes while helping lenders make prudent loan decisions.
Furthermore, appraisals are the most accurate and credible opinions of value that exist within the marketplace. Appraisers complying with the Uniform Standards of Professional Appraisal Practice (USPAP), the standards for the U.S. appraisal profession, are required to be independent, impartial, and objective, and perform appraisal assignments without bias. They are trained to assess a wide range of factors that affect a home's value, including its size, location, condition, age, quality, and more. By analyzing these characteristics in relation to recent sales of comparable properties, they arrive at a credible opinion of value. Any violation of USPAP is addressed by state regulatory agencies. If suspicion of unethical behavior arises, consumers, lenders, and appraisers are all encouraged to immediately report concerns to their state regulators.
For these reasons the federal government continues to consider an appraisal completed by a state licensed or certified appraiser who complies with USPAP to be the most credible valuation method available. In fact, appraisals are required by law for all loans involving federally regulated financial institutions, as well as Fannie Mae and Freddie Mac.
With so much at stake, it is imperative that we as a community be vigilant about correcting misinformation in the news. It is in everyone's best interest to ensure the public has an accurate understanding of the appraisal process real estate agents, lenders, and appraisers alike. Instead of blaming appraisers for discrepancies in value, the appraisal process should be seen as a necessary and important check to ensure people are protected in what is often one of the largest financial decisions of their lives.
David S. Bunton has served as President of The Appraisal Foundation since 1990. Prior to joining The Appraisal Foundation, he served as the Vice President of Government Affairs and Communications for the Federal Asset Disposition Association. He also previously served as a legislative assistant in the U.S. Senate for eight years and was a Congressional Chief of Staff in the House of Representatives for four years.