Appraisals Get New Level of Scrutiny by Lenders

In a recent Washington Post article, reporter Ken Harney asked, "How old can comps be before lenders won't use them?" and found that lenders are placing a greater emphasis on the comparable sales residential appraisers are using today when developing their opinions of value than they were when markets were seeing home values appreciate. Whereas lenders used to allow comps from anywhere between six to 12 months old, today lenders are requiring comps that are not older than 90 days.

Among those Harney interviewed include Appraisal Institute members Pat Turner, SRPA, SRA, Kerry Leiman, SRA, and Tim McCarthy, SRA.

According to Turner, his firm has seen "numerous" cases where using newly mandated 90-day-or-newer comps has contributed to valuations lower than the price on the sales contract. The biggest issue on the appraisal side is finding comps that fall within the 90-day range. Turner noted that he must sometimes persuade realty agents to disclose the prices on pending sales, which otherwise are not reported or listed until closing. Or he must go into the local multiple listing service and statistically derive adjustment indexes for small geographic areas based on the percentage difference between original asking prices and selling prices.

While finding fresh comps can be challenging, Turner, Leiman and McCarthy all agreed that in general, the stricter timeline for comparable sales information improves valuation accuracy for lender purposes.

To read Harney's full article,