Property Appraisal After the Real Estate Bubble
Real Estate Bubble
The property appraisal is a very important aspect of transactions which are carried out in the real estate market. The entire market can become skewed if appraisals are not accurate which means that lenders must have a real value for a property to make qualified decisions about mortgages and other property loans. Since the real estate bubble there are new regulations in place for companies such as Regency Property Appraisers which will protect lenders and borrowers alike. In essence these were also instituted to ensure that the entire housing market did not collapse and wreak even more economic havoc.
The trouble came when lenders influenced appraisers to over inflate property values so that larger mortgages could be carried. The lending institution had too much control over property appraisals and at that time could influence appraisers by restricting their income or blackballing them if they did not offer a valuation of a property that would match the amount needed to complete the transaction. Many buckled under the pressure and these overinflated housing prices caused a near collapse of the housing market.
Early 2006 brought about a peak in real estate prices but toward the end of the year a decline began and continued in decline through 2008. The Case-Shiller home price index stated that it was the largest drop in its history. Due to the crisis there were many more foreclosures throughout 2006 to 2008. This had an adverse affect across many markets related to real estate. It of course had a direct impact on property and home appraisals but it also affected mortgage markets, home supply retails outlets, home builders and real estate in general. Wall Street hedge fund investors were also affected and were holding their breath in fear of the increased risk of recession.
The government attempted to rescue the real estate market in 2008 by dispersing over $900 billion to real estate institutions like the Federal Housing Administration, Freddie Mac and Fannie Mae. The United States Treasury Department also stretched some financial support over the next three years which was actually a very controversial issue with some.
Appraisers played a major role in the crisis in that they tended to give property appraisals which were largely inflated. Because home prices were exaggerated, it led to many more foreclosures which affected the financial markets adversely. After a large number of investigations and lawsuits the government updated the code of conduct regarding how a property appraisal is to be carried out. Middlemen were set up in hopes of providing extra protection between the lenders and the appraisers. The appraisal management companies, or AMCs, stood between appraisers and lenders who were putting much pressure on appraisers to inflate property values. They were wrongly trying to get appraisers to match their valuations with paperwork so that loans could be passed on through and money could be made. Appraisers such as Abbe Edelman are now able to base a property’s value on real market values for comparable properties. During the real estate bubble lenders put pressure on appraisers and this caused a sharp increase in real estate prices this was detrimental to the real estate market as well as the overall economy.
Perhaps the greatest reform that evolved from the housing bubble is the way appraisers are now selected. Fannie Mae created a Home Valuation Code of Conduct in 2009. This reinforced that appraisers had to be totally independent from properties being assessed. Agents cannot hand select appraisers and try to influence them by withholding income or blackballing them. An appraiser can make their assessments for property valuations without fear of repercussions as occurred in previous years. They have to be free to evaluate properties without pressure from sellers, buyers, realtors, mortgage brokers or any person who stands to gain financially from the transaction. This way the property appraisal is not based on any type of outside influence.
The trouble came when lenders influenced appraisers to over inflate property values so that larger mortgages could be carried. The lending institution had too much control over property appraisals and at that time could influence appraisers by restricting their income or blackballing them if they did not offer a valuation of a property that would match the amount needed to complete the transaction. Many buckled under the pressure and these overinflated housing prices caused a near collapse of the housing market.
Early 2006 brought about a peak in real estate prices but toward the end of the year a decline began and continued in decline through 2008. The Case-Shiller home price index stated that it was the largest drop in its history. Due to the crisis there were many more foreclosures throughout 2006 to 2008. This had an adverse affect across many markets related to real estate. It of course had a direct impact on property and home appraisals but it also affected mortgage markets, home supply retails outlets, home builders and real estate in general. Wall Street hedge fund investors were also affected and were holding their breath in fear of the increased risk of recession.
The government attempted to rescue the real estate market in 2008 by dispersing over $900 billion to real estate institutions like the Federal Housing Administration, Freddie Mac and Fannie Mae. The United States Treasury Department also stretched some financial support over the next three years which was actually a very controversial issue with some.
Appraisers played a major role in the crisis in that they tended to give property appraisals which were largely inflated. Because home prices were exaggerated, it led to many more foreclosures which affected the financial markets adversely. After a large number of investigations and lawsuits the government updated the code of conduct regarding how a property appraisal is to be carried out. Middlemen were set up in hopes of providing extra protection between the lenders and the appraisers. The appraisal management companies, or AMCs, stood between appraisers and lenders who were putting much pressure on appraisers to inflate property values. They were wrongly trying to get appraisers to match their valuations with paperwork so that loans could be passed on through and money could be made. Appraisers such as Abbe Edelman are now able to base a property’s value on real market values for comparable properties. During the real estate bubble lenders put pressure on appraisers and this caused a sharp increase in real estate prices this was detrimental to the real estate market as well as the overall economy.
Perhaps the greatest reform that evolved from the housing bubble is the way appraisers are now selected. Fannie Mae created a Home Valuation Code of Conduct in 2009. This reinforced that appraisers had to be totally independent from properties being assessed. Agents cannot hand select appraisers and try to influence them by withholding income or blackballing them. An appraiser can make their assessments for property valuations without fear of repercussions as occurred in previous years. They have to be free to evaluate properties without pressure from sellers, buyers, realtors, mortgage brokers or any person who stands to gain financially from the transaction. This way the property appraisal is not based on any type of outside influence.