There is a big change coming from Fannie Mae and Freddie Mac in 2015.
In fact it is rumored to be implemented on January 26, 2015.
The alarm was sounded by the fine folks at Turner Appraisals.
You can read their article that lays out their take on the new rules that will effect all residential real estate sale starting in 2015.
Here is that article from Turner Appraisals.
Here is a video summary from the guys at NREP. They are spreading the word also, and rightfully so. Watch the video, and I will add my opinion under the video.
There you have it.
Another case of “Big Government” thinking they know better that the market.
This is all that is going to happen. Sale prices and loan values will be effected.
I am not an appraiser, but as an agent of over 15+ years doing CMAs, (Comparative Market Analysis), this meddling will do more harm than good.
The video pretty much tells how the Collateral Underwriting at Fannie Mae (and Freddie MAC) will try to “correct” an appraisal from a local professional.
Hummm…Let me see if I get this right. A computer program is going to pick comps that it feels are more correct than a local professional. This is insane. If you are a Real Estate Agent, you better perk up your ears and take note of this problem coming down the pipe.
The long and short of this is simple. After the 2007 meltdown, the backers of loans wants to make sure the values are conservative and not inflated. Sounds good so far, right?
The problem is the Government program wants to use comps that have no bearing on the actual quality of construction and take into fact the neighborhood characteristics. It appears that they will be picking comps based on location, year built, and Gross Living Area. That is a start, but does not work correctly.
Since many of you will be reading this opinion of mine from many parts of the USA, let me explain my point.
Where ever you live, there are areas in your town or city, where there are homes built with providing the most square footage for the price VS homes nearby that are built with higher than normal materials. Some call one set “Starter Homes” and the other set “Executive Homes.” Any logical person can tell that one 1,500 sqft home from one set is not the same value as the other set.
That is why people rely on experienced Appraisers to establish their value reports. That is why experienced Real Estate Agents use Comparative Market Analysis to establish a starting point of value, and then let the MARKET establishes the final selling price.
The value is the price of a home when SOLD in a given market. When the Buyer and Seller agree on a price – THAT IS THE MARKET PRICE.
Not some “blind computer program” in Washington, D.C. This computer model of picking comps out of the air can not establish if a value is “risky” or not. It can not “see” the homes it is picking and make that final HUMAN adjustment.
We will see how this unfolds, but my bet is that it will cost us more money and time in dealing with underwriting. How much? We will see in a few months. Hang On.