Home appraisals, which were blamed for being too generous during the housing boom, are now being criticized by some home owners for being too stingy, preventing them from refinancing or borrowing against their houses.
The criticism is being leveled at computerized real-estate appraisals, which depend on models that use prices from home sales and other data to determine the value of a house. Computerized appraisals calculate a home’s value by using an index derived from historical repeat-sales data, or sales records of homes with similar property characteristics, such as square footage and the number of bedrooms and baths.
In-person appraisals don’t incorporate as much transactional data as a computer model.
Yale economist Robert Shiller, who developed the first systems in the early 1990s, is among those who say that in some situations the models may be providing unrealistically low values, prompting lenders to reject loan applications or lend less money on particular properties. Some models weigh past sales of a particular property over time against a historical home-price index, and they are running into problems with properties that have been bought only once.
This is the situation in places such as Nevada and Southern California, where new subdivisions sprouted during the housing boom but many homes never sold or entered foreclosure before ever being sold in a non-distressed transaction.
Wall Street Journal (12/30/10); M.P. McQueen
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