While reports that the real estate market is bouncing back continue, the appraisal industry isn’t quite ready to breathe a sigh of relief.
The current real estate market, as reported by the National Association of Realtors, saw an uptick in October sales for previously owned homes. Additionally, home prices across the country are rebounding.
Real estate appraisers in West Michigan are generally finding that to be the case, as well.
“As far as the market goes, values certainly seem to be stabilizing to going up right now in areas,” said John Meyer, owner of John A. Meyer Appraisal Co.
“All the projections, especially with the low interest rates and increased optimism in the market, are that values will continue to increase next year. I think we’ve bottomed out and are heading up.”
David Van Stensel, certified residential appraiser at A. Van Stensel & Son, is proceeding with caution, however. He expects that 2013 will see a continuation of where the market has been in the past couple of years, without any drastic changes.
“If we can get things turned around in regard to getting unemployment to be reduced and some of the other things, and continuing to reduce the amount of foreclosure properties that are out there, that in turn will help the overall real estate market in the long run,” Van Stensel said. “But I just don’t see anything changing in the residential market significantly over the next year.”
One thing that might help is the reduction in the number of foreclosed properties currently on the market.
Meyer said there are still some conversations about a shadow inventory of foreclosed properties, but he thinks banks perhaps will manage this inventory better than they’ve done in the past, not flooding the market with foreclosed properties.
For Meyer and Van Stensel, the biggest change in the industry has more to do with the new requirements and legislation that have been adopted to help avoid another subprime mortgage-like situation.
“The requirements placed on appraisers now has changed significantly over the past several years in regard to not only including properties that have sold but also including current listings and/or pending sales that have occurred,” Van Stensel said.
“So most reports now have a minimum of five comparable properties on it; some have more. The biggest thing is having to bracket a lot of different characteristics of the properties you are appraising, whether it be size or age or acreage, and being very specific that way. They want to make sure you have one that is smaller than the house and one that’s larger.”
He said these practices aren’t really new, but they have become much more specific.
Additionally, Meyer said there is a greater separation now between the appraiser and the bank.
“A lot of appraisal management companies have established a relationship with lenders, and then the lender will hire the appraisal management company, and then that company will hire the appraiser.”
Although the new system is meant to provide protection, Meyer said it’s created a problem where often the quickest and cheapest firm is hired over the one most experienced or familiar with the area.
“The other thing that the industry really has to do is concentrate on geographically competent appraisers,” Meyer said. “They need to look at the people who are most familiar with the areas that they are being asked to do an appraisal in so the person is knowledgeable about what is happening in that area.”
Finally, although the projections are good for the coming year, Meyer noted the appraisal industry is at a bit of a disadvantage since it has to rely on historical data.
“All appraisers do is interpret what is happening in the market,” Meyer said. “We do not set the values or set the prices on anything. We just look at what’s sold and try to relate that to the appraisal that we are working on.
“What happens a lot of times is that we are typically behind the market because we are based on historical data. We have to look at sales that have actually closed or taken place. So when the market is increasing, it gets a little more difficult to keep up with that increasing market, because you have historical sales from lower prices and likewise when things are really going down you might be a little behind the market because you are looking at sales that have taken place.
“So, it is very important that the appraiser pays attention to the supply and demand that is happening in the market.”