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March 31st, 2011

Here’s one way to increase home prices!

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Apparently, four states have proposed a way to help inflate home prices or at least attempt to keep them from falling further. The problem with this proposed solution is that, for one, it may be illegal.

Syndicated columnist and HSH blogger Peter Miller introduced me to this concept on his own blog earlier today:

It’s amazing. If you don’t like appraisal results, if you want home prices to be higher, then just change appraisal rules.

The Appraisal Institute reports that “four states — Illinois, Maryland, Missouri and Nevada — are considering legislation that would prohibit or restrict the use of ‘distressed sales,’ such as foreclosures and short sales, as comparable sales as a part of a residential real estate appraisal.

“Homebuilders and real estate sales agents are concerned that the prevalence of distressed sales, and their subsequent use as comparables, is resulting in the appraised value of residential properties not matching the contract sales price, or in the case of new construction, the cost to build.”

Legal technicalities aside, I hope this proposal isn’t being seriously considered. As Miller notes and I fully agree, home appraisals stand for and represent a fair assessment of current market values – we would essentially be falsify the true value of a piece of real estate to potential buyers.

Don’t you really think a homebuyer in Las Vegas, where according to RealtyTrac one in nine borrowers received a foreclosure filing  in 2o10, wouldn’t realize the presence and impact distressed properties have had and continue to have on their neighborhood?

The Appraisal Institute explains that “if these bills were enacted into law, appraisers would be put in the difficult position of having to choose which law to violate. Appraisers are required to adhere to comply with the Uniform Standards of Professional Appraisal Practice in federally related transactions. The standard mandates that appraisers ‘must analyze such comparables sales as are available.’ Further, the standard cannot be voided by a state or local government.”

The Appraisal Institute says the proposed laws can be found at the following web addresses:

  1. Illinois
  2. Missouri
  3. Maryland
  4. Nevada

While I assure you this isn’t an April Fool’s Day joke, it certainly seems like one. To these four states I say: Let’s try not to solve the home price issue in this country by falsifying a home’s true market value, huh?

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3 Responses to “Here’s one way to increase home prices!”

  1. Garth Jones Says: April 1st, 2011 at 12:15 pm

    Appraisals have never reflected Market Value. An appraisal is done for the bank to determine what, at some point in the future, A buyer might pay. Since the actual time the house may be for sale again or if forclosed on when that might happen the Appraised Value is a way to give lenders an idea of value. If appraisals were market value we wouldn’t see all these house on the market for $50,000.00 Below appraised Value and still not selling. Appraiers could give market value if they were instructed to determine what the house would sell for in 90 days. Since there is no time specific value given they don’t reflect true current Market Value.

  2. Tim Manni Says: April 1st, 2011 at 1:22 pm

    Hey Garth,

    Thanks for commenting. My intitial reaction is this: appraisals aren’t designed to provide future values, they’re designed to ascribe current market value — what price the market will bear.

    Thanks,
    Tim

  3. Vanessa Jeffries Says: April 2nd, 2011 at 1:15 am

    First the mortgages, now the home prices. Have these states not realized that lying about the home prices can get them sued.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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