Facing The Wrong Problem

September 22, 2011

Miscellaneous, Real Estate Appraisal

Standardization sounds like a great idea.  In specific environments, when there is a uniform output, it is absolutely sound.  However, you cannot grow Pinot Noir grapes in the same environment as corn, can you?

Well, this is what Fannie Mae and Freddie Mac are attempting to do with new regulations.  Essentially, Fannie and Freddie are trying to standardize the way property is evaluated because they believe appraisals are far too subjective.  Maybe.

On the other hand, all value is subjective, isn’t it.  And you cannot valuate a property in Malibu Beach, CA under the same rules as one in Plano, TX.  Of course, it is the same number of square feet, and both sit on a piece of dirt.

But that’s like saying four wheels and an engine make a Ferrari.  You cannot treat everyone the same and if you could, we would not have the education problems we do in this country.

The idea behind an appraiser at the local level (one who is credible) is that she understands her market and territory better than people who are not there.

The new regulations are required by Fannie Mae and Freddie Mac.  Homes were previously appraised by a narrative and now will be appraised with a series of abbreviations and numbers.

Abbreviations such as “wtr” to show that the property has a view of the water or “Adjprk” to mean that the property is adjacent to a park will now take the place of the narratives.

Property conditions will be rated on a scale of 1 to 6, which would include remodeling that was done and when it was done.  Damage to the property will also be rated on a scale of 1 to 6.

It will be interesting to see how differentiation will be drawn between high dollar material such as carpeting.  They all look the same when they are new, so how do you make the distinction?

You could make an argument that Fannie and Freddie may be buying mortgages in the future that will be far less valuable than those they bought that led to this crisis.

Once again, the government is solving problems while facing the wrong way.

Appraisal Source is a New York based residential real estate appraisal firm. Their highly-qualified appraisal staff provides independent residential real estate appraisals throughout Long Island and New York City.

Here’s the original article…Appraisers say new rules will cause confusion

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