From left: Brian Olasov of McKenna Long & Aldridge, KC Conway of Colliers, and their chart showing appraisal values to final sales price for 2,076 foreclosed U.S. properties

Unrealistic commercial property valuations were at the heart of the recent economic crisis, and a recent study cited by the New York Times points the blame to appraisers rather than overly eager real estate tycoons. The study, authored by KC Conway, an executive managing director at Colliers International, and Brian Olasov, a managing director at law firm McKenna Long & Aldridge, looked at securitized real estate bonds in which proeprties were foreclosed upon. [more]

From left: Michael Vargas, a principal with Vanderbilt Appraisal Company, Kathryn Higgins, an associate broker with DJK Residential, and Melissa Cohn, president of Manhattan Mortgage

Late last month, Rep. Gary Miller offered an amendment to the House
Financial Services Committee’s “Consumer Financial Protection Act of
2009.” Miller’s amendment — which passed the committee but has yet to
be voted on by the House — stipulated that the Home Valuation Code of
Conduct would ultimately be sunsetted. According to one of the California congressman’s aides, Miller’s
amendment to the House Financial Services Committee’s act will likely
be bundled into a larger financial regulatory reform bill, and
Democrats hope to bring the bill to a vote in Congress sometime next
month. For many New York City-based appraisers and brokers, the end of HVCC cannot come quickly enough. HVCC, which went into effect May 1, requires that a third party with no
stake in a sale select appraisers. The code was designed to promote
appraiser independence and stop appraisers from inflating the value of
a property when it comes to mortgages backed by Fannie Mae and Freddie
Mac. Loan officers, mortgage brokers and agents are not allowed to
select appraisers under HVCC. “I think there are some good elements in the code,” Michael Vargas, a
principal with Vanderbilt Appraisal Company, said. “What was important
to get out there is that applying undue influence on an appraiser is
inappropriate. Promoting appraiser independence is very important.” [more]

From the August issue: Edward Milton Cisneros, a real estate agent at New York Living
Solutions, was surprised recently to receive a panicked phone call from
a family he is representing in the purchase of a Long Island City new
construction condo. The buyers said the appraisal for their new home —
a two-bedroom and studio they planned to combine into one unit — had
come in far below the agreed-upon purchase price.
“I got an alarmed phone call from my buyer,” Cisneros recalled. “The bank was questioning why they were paying so much.”
The low appraisal threatened to kill the sale, he said. The bank
would now only lend up to the appraised value, and there was no telling
whether the buyers would be willing or able to cough up the extra cash
needed to close the gap between the appraisal and the agreed-upon
price. [more]

As home values deteriorate, lenders are pressuring appraisers to be
more conservative in their estimates of home values. Doing appraisals
is more difficult even without that pressure, as home values are
shifting quickly and sale prices from previous months no longer match
the market. Several appraisers said many of the appraisals they are
doing now are too low to allow the homeowners to refinance their
mortgages. Low appraisals can also result in homeowners’ home equity
credit lines being seized, as happened to the owner of one
2,650-square-foot Manhattan apartment appraised at $1.475 million in
2005 and worth $600,000 today. [more]