Home appraisals are how much a home is valued at and why; based on current real estate comps. These have been blamed for being too generous during the housing boom, and are now being criticized by some homeowners for being too stingy, preventing them from refinancing or borrowing against their houses.
The criticism is being leveled at computerized real-estate appraisals, which depend on models that use prices from home sales and other data to determine the value of a house. Because of the volatility in the housing market, they can underestimate prices, some homeowners, real-estate agents and fee appraisers say.
Lenders use computerized appraisals primarily for home-equity loans, preapprovals for mortgage refinancing, loan modifications and mortgage originations of less than $250,000. Automated appraisals are cheaper and faster than in-person appraisals. They run as little as $20, whereas appraisals done by a live person can cost hundreds of dollars.
The computerized models are also used as a checks and balances against in-person appraisals. Some regulators say banks often held sway over appraisers, encouraging them to value homes at certain prices in exchange for future business. In the wake of the housing bust, regulators imposed tough new rules, prohibiting banks from picking individual appraisers for individual properties.
“The selling point was that [computerized appraisals] were faster and not prone to bank pressure,” says Steven Kane, a Colorado commercial and residential appraiser who is the author of two books on how to apply automated valuation models.
Computerized appraisals calculate a home’s value by using an index derived from historical repeat-sales data, or sales records of homes with similar property characteristics, such as square footage and the number of bedrooms and baths. In-person appraisals don’t incorporate as much transactional data as a computer model.
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