New steps help appraisers adjust for distressed homes

Appraisers don’t set the market; they reflect what’s happening in the market, according to the Appraisal Institute.

That reminder was included in a statement coinciding with the release of a “guide note” pertaining to foreclosures and short sales.

“Many in the real estate industry have tried to blame the market’s distressed condition on appraisers, saying that appraisers are at fault for producing opinions of value that don’t match a home’s contract or sales price, delaying a recovery in the housing market,” the statement read.

In an effort to address the issue and provide direction to appraisers during times of “complex valuation challenges,” the Appraisal Institute issued “Guide Note 11: Comparable Selection in a Distressed Market.”

The Guide Note outlines a pair of options appraisers may use in declining markets with little sales activity. The appraiser must: 1. Expand the geographic area for comp search, then adjust for location as appropriate, and/or 2. Use less recent sales, then adjust for market conditions as appropriate.”

The action was prompted in part by owners who have complained their home’s values have fallen because appraisers have used foreclosed and other distressed properties to help develop an opinion of value. When used, such comparable sales (“comps”) may necessitate adjustments, according to the Northwest Reporter.