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In a down market, appraisers can find disbelief, feel the pressure

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With home prices on the decline, residential real estate appraisers often are bearers of bad news to sellers who are hoping to get top dollar for their properties. Appraisers hold a key position in virtually all home sales.

Mortgage brokers need appraisals that support sales prices in order to secure approval for home loans. Supporting the broker's number was relatively easy during the 2000-2005 housing boom, when the value of many homes increased dramatically. Today clients often are disappointed.

"I typically wear a shirt that says 'Don't shoot the messenger' to every appointment," joked veteran appraiser Dave Eshelman, who is based in Carlsbad, Calif.



Appraiser Rick Foos of San Diego says his purpose is to inject objectivity into the home-buying process.

"We report it the way we see it," he said. "You are going to get pressure from every side. We are the neutral third party who is supposed to come in and say if something looks reasonable or not."

An appraisal that comes in too low sometimes can mean future business will dry up, said appraiser Tom Kenny, also in San Diego.

"I find I am under a lot of pressure by a lot of mortgage brokers to make certain numbers and if they aren't there, they don't use me anymore," Kenny said. "That's not all mortgage brokers."

Martin Lopez, a loan consultant for a mortgage broker in San Diego, disagrees.

"That is not what I see," he said. "I am a conservative lender. If values are down, then that is what they are."

Some clients appreciate realistic appraisals. Following the recent meltdown of the subprime lending market, many banks and loan originators are sensitive to shifting property values, said Sara Schwarzentraub, an appraiser based in La Mesa, Calif. As home prices have fallen, credit has tightened.

"Everybody is tightening things up," Schwarzentraub said. "They are putting the screws down. Nobody wants to take a loss ... Part of it is because it was so loose during the glory years. They were making loans to anybody who could sign their name."

Appraisers typically use recent sales of comparable homes or "comps" to help determine value, she explained. But when prices are changing quickly, sometimes that isn't enough.

"We look at the market and market trends and the volume of listings, the volume of sales, volume of pending sales. That is the pool from which we take the data," she said.

To reflect true value, comparable sales must closely match the property that is being appraised, she added. "The very best comp is a model match that closed yesterday next door. As we move away geographically ... the market conditions are different."

If there are no recent closed sales to compare, the prices on pending sales can help appraisers hone in on the shifting market, Schwarzentraub said. Normally, an appraisal is considered valid for six months. However, when prices are changing quickly, lenders may seek more frequent updates.

In today's market, "I think three months is probably maximum," she added.

Although some home prices have been slowly sliding since late 2005, some lenders are in denial, said Foos.

"A lot of the national lenders don't like to see what is really going on in the market," he said.

PRESSURE IS ON

Appraiser George Dell said there is high pressure from brokers to keep home values high so that loans will go through.

"Appraisers continue to get pressure from primarily mortgage brokers who are, of course, motivated to make the deal and get their commission," he said.

At the national level, various bills have been introduced in Congress to strengthen appraiser independence, make appraisers more accountable, and clarify the difference between licensed appraisers and those also holding professional credentials.

"Fundamentally, good bankers want good appraisals," said Don Kelly, vice president of public affairs for the Appraisal Institute in Washington, D.C. "Nobody likes overregulation, but I think we understand from our experience over the last couple decades that having competent, professional appraisers is a good thing for the bottom line."

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