When a house goes into escrow, the buyer usually seeks a loan, which in turn requires an appraisal of the current market value of the property to ensure that the value is sufficient to cover the amount being loaned. The appraiser visits the site and inspects the home and also obtains the details of the history of comparable houses sold in the neighborhood in recent months. There is reason to believe that before the housing market collapse of recent months, sometimes appraisers were influenced to assign unjustified high values to homes to allow the sales to go through at inflated prices. This may have been a contributing factor in the housing bubble.
The San Diego Union-Tribune reported last Sunday that a new code of conduct was instituted last May 1 by Fannie Mae and Freddie Mac preventing lenders, mortgage brokers, and real estate agents from talking to appraisers directly. Although the intent of the rule was to prevent undue influence from being brought on appraisers, it may have significant adverse effects. Sometimes the appraisers are not local people or not familiar with the recent sale history of the neighborhood. They may miss evidence that the neighborhood is improving or appreciating, or be unaware of special features of the history of the subject house. The effect may be that the appraisal comes in inappropriately low. This may not only put the sale in jeopardy, but it may have an adverse effect on prices throughout the neighborhood. It may even create a downward spiral of local prices. There is a move in Congress to modify or delay the implementation of the new appraisal rules.