As of Feb. 4, appraisers will be required to submit a report that the market analysis they produced supports both the indicated overall market trend and market-derived time adjustments for changes in market conditions. This represents a significant shift in responsibilities for appraisers, emphasizing the importance of their methodology and adjustments in ensuring accurate appraisal values, particularly in communities that often experience low appraisals.
The Federal Housing Finance Agency (FHFA) released a paper showing that in some communities, 67% of low appraisals in Black communities and 49% in Hispanic neighborhoods could be corrected by fixing time adjustments. This data highlights the critical need for accurate appraisals that reflect true market conditions, especially in minority communities that have been historically undervalued.
According to John Liss, the CEO and founder of True Footage, the new selling guide requirements could bring back thousands of deals that die due to low appraisal. Many deals are affected by incorrect low appraisals attributed to insufficient time adjustments, indicating that better compliance with the new requirements could stabilize and enhance the housing market.
The number one reason an appraisal comes in low when it shouldn't have is because the appraiser failed to make a time adjustment. Liss emphasized that time adjustments are essential for appraisers to ensure that the comparables sold in the past are accurately brought to present value, a critical factor in reflecting true market prices.
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