In its rawest form, a free market  will determine the value of a good or service based on the elementary principle of supply and demand.  A good or service is worth what any person is willing to pay for it on an open market.  Real estate doesn’t work as simply due to the fact that most homes are purchased through a financing program, thus, the “free market” is cluttered with multiple purchasers (the borrower and the financier).  Usually, a buyer must borrow money to be able to afford an assest as large and expensive as a home, but before the bank shells out in upwards of 80% of the “value”, said bank wants to make sure they are lending on a valuable asset.  This brings us back to appraisals and the challenges they are currently creating for buyers, sellers and lenders alike.

On May 1, 2009, the rules of appraising property has changed.  Now, lenders that sell loans to Fannie Mae or Freddie Mac are required to set up a firewall between appraisers and loan officers to prevent improper influence. The rules are the result of an agreement between the mortgage buyers and New York Attorney General Andrew Cuomo, who said an investigation found appraisers inflated values under pressure from lenders.  Buyers and real estate professionals are finding that many of the most recent appraisals are coming up short of what the buyer is willing to pay for a home, thus, limiting the amount of financing the bank will provide.

We want to hear from you, real buyers and sellers. What do you think a home should be worth?

Home buyers and sellers alike have been wondering why there are so many homes that are selling short, why there are so many homes currently in distress and why in the world did we allow ourselves to get into this mess in the first place?  Since the economic downturn was recognized, fingers have pointed in all directions from speculators, banks, real estate agents, appraisers, politions and anyone else that controlled the flow of money and large transactions.  It’s still rough out there, but changes have taken effect over the last several months.  Most noteably, in the home appraisal process.  

According to “Appraising the new appraisal problem” by Kris Berg:

Maybe some lenders did influence the valuation process to their own benefit and to the consumer’s detriment. Or maybe, and I’ll just throw this out there, a home’s value is in fact loosely related to what a buyer is willing to pay, and when the lenders were giving out free money, buyers were willing to pay a lot — a lot of the lender’s money. Either way, the regulating parents have stepped in.  So, we are now living under a new lotto system for assigning appraisers.

Whomever you blame, this article is an extremely light-hearted, funny look at the home appraisal process.

Appraising the new appraisal problem [Inman News]