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Proposed Regulations Would Allow the Majority of US Homes To Be Bought and Sold Without Being Appraised by a Human (wsj.com)
Federal regulators have proposed loosening real-estate appraisal requirements to enable a majority of U.S. homes to be bought and sold without being evaluated by a licensed human appraiser [the link may be paywalled; alternative source]. That potentially opens the door for cheaper, faster, but largely untested property valuations based on computer algorithms. From a report:
The proposal was made earlier this month by the Office of the Comptroller of the Currency, the Federal Deposit Insurance. and the Federal Reserve. It would increase to $400,000, from $250,000, the value of homes that can be bought and sold without a tape-measure-toting appraiser visiting a property.
More than two-thirds of U.S. homes sell for $400,000 or less, according to U.S. Census data and the National Association of Realtors. If the regulators' proposal had been in force last year, about 214,000 additional home sales, or some $68 billion worth, could have been made without an appraisal, regulators said in their 69-page proposal.
Some worry, though, that dropping appraisal requirements would introduce new risks into the $10.7 trillion market for home loans. "We still would prefer a human being doing the appraisal," said Lima Ekram, a mortgage-backed securities analyst at Moody's Investors Service. One issue: Automated valuations done by computers are largely unregulated. The 2010 Dodd-Frank financial overhaul required regulators to propose quality control standards for so-called automated valuation models, but they have yet to do so.
More than two-thirds of U.S. homes sell for $400,000 or less, according to U.S. Census data and the National Association of Realtors. If the regulators' proposal had been in force last year, about 214,000 additional home sales, or some $68 billion worth, could have been made without an appraisal, regulators said in their 69-page proposal.
Some worry, though, that dropping appraisal requirements would introduce new risks into the $10.7 trillion market for home loans. "We still would prefer a human being doing the appraisal," said Lima Ekram, a mortgage-backed securities analyst at Moody's Investors Service. One issue: Automated valuations done by computers are largely unregulated. The 2010 Dodd-Frank financial overhaul required regulators to propose quality control standards for so-called automated valuation models, but they have yet to do so.
2) Most mortgage companies/banks require an appraisal of value before agreeing to the loan. Ironically, most appraisals find the value of the home is just slightly higher than the agreed upon sale price. This is the issue being discussed here.
I really don't know why an appraiser is even told what the contract price is.
I've purchased 7 properties and only one appraisal has failed to meet the price. My agent said that she and the mortgage broker would get it fixed - which made me angry because it meant I would be paying $300 for a useless valuation.
I backed out of that deal. I consider the $300 to be money well spent.
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We sold a house in the UK 5 years ago - put it on the market for X, got an offer for X and then the prospective buyers mortgage provider wanted an appraisal.
The appraiser appraised the property at X-£14,000.
Buyers wanted us to drop the price, we refused and the mortgage provider withdrew.
We put the house back on the market and it sold two weeks later for X+£10,000.
Appraisals are very much in the eye of the appraiser.