How Do You Properly Evaluate Home Values?

The current system required by Fannie Mae and Freddie Mac does not seem to be working too well.

Why not? It tends to low-ball home values, leading to fewer home sales and higher consumer fees.

So there's a revamp of this system coming.

Appraisals have no longer been portable. You can't choose qualified local home appraisers. There have been numerous complaints.

Kenneth Harney writes:

The valuation code, by contrast, was the product of a settlement among New York Atty. Gen. Andrew Cuomo, Fannie, Freddie and the two companies' regulator, the Federal Housing Finance Agency.

Cuomo agreed to back off from an investigation of Fannie's and Freddie's appraisal practices in exchange for their adoption of a set of valuation rules. The code's core purpose was to ensure "appraiser independence" from loan officers, lenders and brokers who wanted them to "hit the number" needed to get the mortgage funded, even if it meant overstating the value of a home.

Though virtually no one disagrees with the goal of appraiser independence, critics say the code went overboard and created its own set of problems. According to home builders, real estate agents and consumers who signed protest petitions, the code has encouraged many lenders to use appraisal management companies, some of them owned by or affiliated with the lenders themselves.