Home Appraisal Reform: WSJ vs NYT

Two new articles — in the NYT and the WSJ — look at the home appraisal business:

Both article somewhat acknowledge the role appraisers played in facilitating the outsized run up in prices. Yet clearly, there are significant differences.

The Times wrote “A profession that should have been a brake on the spiral in home prices instead became a big contributor.” My view is even stronger, as I have called the appraisal industry corrupt, and the appraisers as prime enablers of the entire boom/bust/collapse cycle. They were one of the many “But Fors” — but for their failure to adequately perform their duties, much of what went wrong would not have occurred.

Surprisingly, the Journal seems unconvinced, beginning the piece with a more exonerating sentence “After being blamed for helping to inflate home values during the housing boom, the appraisal business is again coming under fire.”

Of the two, the Journal seems a bit more friendly to the NAR argument that Appraisers need to be local, and therefore somewhat less independent. This would generate more fees and business activity for RE Agents/Mortgage Brokers.

Part of the distinction seems to be the inherent anti-regulatory outlook of the Journal:

“The debate over appraisals is inflamed by a natural tension: Real-estate agents and mortgage brokers, who need to complete transactions to collect their fees, are unhappy when an appraiser nixes the sale price. But it also suggests that there may be unintended consequences to an attempt by New York Attorney General Andrew Cuomo to reform the appraisal business.”

That is a fair statement — yet somehow, the unintended consequences of allowing appraisers to run wild from 2002-07 gets overlooked. Such is the Journal’s approach focusing on whether lenders are “squeezing appraisers too hard.”

The Times piece takes a more sympathetic look at the new appraiser regs:

“On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them. Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.

The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.”

Both pieces are worth reading in their entirety.

Originally published at The Big Picture and reproduced here with the author’s permission.

2 Responses to "Home Appraisal Reform: WSJ vs NYT"

  1. Anonymous   August 21, 2009 at 5:23 am

    The system can be gamed but it takes a group. The examples happened 2-3 years ago.A friend sold his house in the Boston suburbs, purchased previously 8 years ago for $350k. The Agent suggested a selling price of $699k, the wife insisted on $725K, the house sold in one hour for $750K and appraised for that amount. It was foreclosed recently and sold for $350k.A friend purchased a three family rental at the Agent suggested asking price of $175k, pending repairs. The owner jerked around over the repairs for a month. The house appraised at $225k and the owner tried to back out of the deal, unsuccessfully.An Agent purchased several houses in a neighborhood for about $200k each over a short period of time. He collected phony construction upgrade and repair invoices, found straw buyers with no money and good credit scores, and sold the houses for double the price using an appraiser 30 miles away. The Agent used the previous inflated sales as comparisons, the appraiser never visited the properties. The houses were sold again to immigrants. The bank gave mortgages and the town assessor and tax collector did not blink an eye. When the houses foreclosed, the bank noticed all the same players. The Appraiser was not charged.These were very odd times. Crimes were committed but it is hard to focus blame.

  2. Anonymous   August 21, 2009 at 7:39 am

    Appraisers merely act as high-priced toll takers much like the rating agencies (S&P, Moody’s) and their imprimatur gives a false sense of assurance and legitimacy to a transaction.