As anyone whose home appraisal has been lower than expected can attest, low valuations are causing friction in the housing market.

A recent survey of more than 3,000 members of the National Association of Realtors found that 11 percent had a contract canceled because an appraised value came in below the price negotiated between the buyer and the seller, 9 percent said a contract was delayed by a low appraisal and 15 percent said a contact was renegotiated to a lower sales price as a result of a low valuation.

Low appraisals, NAR chief economic Lawrence Yun claims, are holding back home sales.

“Though the real estate recovery is taking place, the combined issues of stringent mortgage lending requirements and appraisal frictions are hampering otherwise qualified buyers from purchasing a home in a timely fashion and in some cases are preventing them from buying at all,” Yun said in a statement.

Among the problems real estate agents say they have encountered are:

● 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.

●Appraised values do not reflect market conditions such as rising prices, the presence of multi-bidding and low inventory.

●Appraised values are very inconsistent and fluctuate widely.

●Out-of-town appraisers, who are not familiar with the area or local market conditions, are being used.

●Turn-around time by both appraisers and banks is slow, which delays closings.

“One thing to keep in mind is that the goal of an appraisal report is to help the lender make a wise lending decision,” said Ken Chitester, director of communications for the Appraisal Institute. “It is not intended to confirm a sales price of a home. If an appraisal comes in less than a contract price, it doesn’t mean it’s wrong. . . . Different appraisers can and do come up with different values. The question becomes how well supported is that opinion of value, how thorough was the research, how thoughtful was the analysis, was the correct methodology applied.

“It’s important to realize the appraiser’s client is the lender and not the buyer or the seller.”  

Officials at NAR, which conducted the survey, are quick to point out that they are not faulting appraisers. Rather, they are concerned about the new process for determining a home’s value.

Back in May 2009, the Home Valuation Code of Conduct came out of an agreement between the Federal Housing Finance Agency and the New York Attorney General’s office. Among other things, the purpose of this federal regulation was to create a firewall between the lender and the appraiser. During the run up of the market, there had been stories of appraisers being pressured by the lending institutions. HVCC aimed to lessen the banks’ influence on the appraiser by introducing a middleman into the process.

“The measure was well intended but it had unintended consequences,” Chitester said.  

Enter the appraisal management company. AMCs had existed prior to HVCC, but had been little used. Now, when a bank needs an appraisal, it most often calls an AMC and has it hire an appraiser.  

According to Chitester, the process usually goes something like this: The AMC sends out an e-mail to a list of appraisers letting them know about the assignment and telling them that the first one to respond with the lowest bid is awarded the job. Some appraisers claim in order to obtain work they have slashed their fees by as much as 50 percent.

Because the AMCs pay so little, the most experienced, most competent appraisers have little to no incentive to work with them. As a result, the person appraising your home may be from outside your neighborhood and unfamiliar with the market.  

But even though the AMCs pay the appraiser a low rate, that doesn’t mean appraisal fees have gone down. In many cases, they have gone up because of the fees charged by the AMC.

For example, the AMC may pay the appraiser $200 but charge the bank $600 for the appraisal, pocketing a $400 fee. Because cost of the appraisal isn’t broken down on the settlement form, a home buyer will only sees a line item for $600.

“One could argue that consumers are paying more and getting less because of the AMCs,” Chitester said. The consumer is “paying more than if they were only paying the appraisal fee and getting less because many — not all — of the appraisers hired by AMCs are not the most competent and most qualified. They are in many cases the least experienced.”

The Appraisal Institute is working with the Consumer Financial Protection Bureau to bring more transparency to the process. It is also trying to pressure the AMCs to pay more reasonable fees to appraisers.