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NAR SAYS DISTRESSED SALES INTERFERE WITH ACCURATE APPRAISALS Inflated appraisals were identified as one of the causes of the housing bubble, and now undervalued appraisals are being blamed by some for stalling the recovery. The National Association of Realtors (NAR) recently issued the results of a survey it conducted among members to assess the impact home appraisals had on their business over the June-to-July period. Eleven percent of Realtors said a sales contract was cancelled because a home was appraised at a value below the negotiated price. Another 9 percent said a contract was delayed, and 15 percent said a contract was renegotiated to a lower sale price. A much larger majority, 65 percent, reported no contract problems stemming from home appraisals. One reason for low values, according to NAR, is that some appraisers are not taking into account the difference between distressed and non-distressed homes when making comparisons. "Some appraisers are using foreclosures, short sales, and run-down properties as comparable homes, and are not making adjustments for market conditions or the condition of the property," the group stated in a release. Compared to traditional sales, a foreclosure sells for a 20 percent discount on average and a short sale for a 15 percent discount. NAR acknowledged issues appraisers deal with, noting "appraisers have faced undue pressure—whether from a lender or an AMC—to complete appraisals using distressed sales as comps, to complete an appraisal in an unacceptably short time frame, and to complete a scope of work that is not justified by the fee being offered." NAR added that some appraisers are required to use eight to 10 comparable sales when previously, 44 three comparable homes were sufficient and the norm. When using a high number of comps, discounted, distressed homes end up in the equation. NAR explained this can lead to traditional homes in good condition being compared to distressed homes without appropriate adjustments. However, with the distressed market share decreasing, the impact of distressed inventory on appraisals should also subside. According to NAR, distressed sales accounted for about one-third of all sales in 2011, and by 2013, the association expects to see the share of distressed sales fall to 10 to 15 percent. Even if the issue of distressed properties diminishes, there are other issues NAR sees as distorting value assessments and hindering transactions, including out-of-town appraisers who are not familiar with the area or local market conditions, slow turnaround times, and inconsistencies and fluctuations in appraised values. NAR President Moe Veissi, broker-owner of Veissi & Associates Inc. in Miami, explained NAR's position on the issue. "Our long-standing policy is that all appraisals should be done by licensed or certified professionals with local expertise, which also is what Fannie Mae and Freddie Mac recommend, but clearly this isn't practiced universally," he said. "In the meantime, buyers, sellers, and real estate agents need to be aware that there are problems with some real estate appraisals, but also be aware of their rights to communicate with appraisers and lenders about errors or concerns with individual valuations," Veissi added. "In some cases, a second appraisal may be justified." RATINGS AGENCY FORECASTS STRONGER YEAR FOR SHORT SALES IN 2013 Even though the number of foreclosure filings has risen dramatically in recent months in some parts of the country—specifically in judicial states—the ratings agency DBRS expects total foreclosure filings to show evidence of a steady decline in 2013 when compared to 2012. This is due to "the record number of servicers that are using short sales as their primary loss mitigation tool to prevent delinquent loans from entering foreclosure," the agency's analysts said in a research note issued in mid-October. The Office of the Comptroller of the Currency (OCC) found evidence of such a shift as early as 2012's first quarter. With the release of its Q1 mortgage performance report, the federal regulator noted that the number of home retention actions implemented over the Januaryto-March timeframe was down 36.7 percent from a year earlier, while the number of short sales increased 19.7 percent. New short sale actions completed during the first quarter of this year totaled 59,996, according to the OCC's latest report, covering about 60 percent of all first-lien mortgages in the United States. Over the second-quarter period, another 63,403 short sale actions were completed by the 60-percent subject population. While it will be another month before the OCC releases its third-quarter mortgage performance data and mitigation numbers, anecdotal evidence from those in the field suggests the increase in short sales is likely to carry forward. Rudimentary projections based on the quarter-to-quarter increase seen earlier this year would mean another 138,000 completed short sales during the second half of 2012 among the 60-percent first-lien population analyzed by the OCC. DBRS believes short sales will be an effective loss mitigation tool for curbing the industry's shadow inventory backlog of unsold REO properties. Short sales are an effective way to get the home sold without having to incur the cost of foreclosure, preparing the home for sale, paying a listing agent, and maintaining the property, therefore lowering loss severity, the agency's analysts noted. As a result, DBRS expects short sales to be one of the key loss mitigation techniques used in 2013, with more servicers delegating or automating their acceptance and counteroffer process in order to be more responsive to short sale bids.

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