Monday, December 24, 2007
Law Would Disclose Home Prices
By Autumn Gray
Copyright © 2007 Albuquerque Journal; Assistant Business Editor
The price you paid for your home is nobody's business but yours, with some minor exceptions.
That's New Mexico law today.
But that could soon change.
A task force has recommended that New Mexico join the majority of states that require home sales prices to be made public.
The recommendation requiring "that all final negotiated real estate sales prices be public record" now sits in Gov. Richardson's office waiting for the thumbs up for consideration by the Legislature in January.
Whether it takes bill form should be determined by Friday.
The recommendation is one of 17 made by the governor's Task Force on Mortgage Lending, which was created Aug. 30.
Its mission was to evaluate the potential local impact of the subprime lending crisis and to come up with ways to protect consumers against abusive lending practices.
"One of the problems in the mortgage meltdown were loans based on inflated values," said task force co-chair Michael Loftin, who is executive director of Homewise, a nonprofit home ownership organization in Santa Fe. "So if you make more transparent what the values (home sales prices) are, it makes it harder to cook an appraisal."
As the best estimate of a home's fair market value, appraisals are used by mortgage lenders to determine loan amounts. To arrive at a value, an appraiser considers a combination of factors: home size, amenities, renovations and remodels, exterior and interior condition, and, in most states, the sales prices of comparable homes in the area, to name a few.
Task force members say unavailability of sales prices creates an environment in which it is easy for the unscrupulous appraiser to overvalue a home, possibly at the request of a lender who wants to obtain a higher loan from the underwriter. Done too often, this leads to an artificially inflated housing market in which consumers wind up buying into excessive mortgages.
"The thing I'm concerned about is (making) sure the mortgage company is getting a value that's real as opposed to one that's made to order," said John Howden, the task force member who suggested sales price disclosure be included on the list of recommendations.
The current law
New Mexico is one of about a dozen states that do not make sales prices public. However, since Jan. 1, 2004, state statute has required those prices be provided to county assessors "to be used only for analytical and statistical purposes in the application of appraisal methods."
Bernalillo County Assessor Karen L. Montoya says her office analyzes the data to identify trends in the market, and uses those trends to adjust the cost tables. It has a computer-assisted mass appraisal system that helps get the numbers as close as possible to the current market values.
Many home owners experienced sticker shock in November upon receiving their 2006 tax bills, which in some cases were much higher because of higher assessments. Generally, property taxes cannot increase more than 3 percent. But if a house is sold, no cap exists, and the assessment is based on market value.
The million dollar question is whether property taxes could increase even more if New Mexico becomes a full disclosure state. The short answer is maybe.
"It would depend on what the bill says, what the legislation brings, whether we would use it for property tax evaluation," Montoya says.
If the recommendation goes before lawmakers as a bill, it will likely be met with opposition from at least two camps some realty agents and some appraisers.
Realtors, who have near sole proprietorship of sale prices in their Multiple Listing Service, tend to be split on the matter.
Some don't feel very strongly about it.
But "some of the Realtors still think it's nobody's business what somebody sells their property for," says M. Steven Anaya, speaking both as a task force member and as executive vice president of the Realtors Association of New Mexico. "I can tell you it's a very animated discussion.
"About half of the Realtors are probably for it, half against. But the half against are probably more adamant about that position."
Appraisers in other states
Howden, chairman of the New Mexico Real Estate Appraisers Board, obviously supports the practice.
But there is some dissention.
While local appraisers were reluctant to speak to the Journal, some appraisers in other states have argued against the practice.
They say having sales price data available increases the likelihood lenders will use faster and arguably less expensive computer-based appraisal programs instead of on-site appraisers.
Such computer systems, called Automatic Valuation Models, or AVMs, rely on public record data to arrive at market value; they do not factor in observables such as property condition.
This, some appraisers say, leads to inaccurate valuations, which when used against each other as comparables, creates a flawed view of the market.
When asked whether he was aware of some of the opposition, Howden said, "The arguments I have heard about keeping New Mexico a nondisclosure state almost invariably hover around people's need to make money."
The 26-member task force was composed of representatives in industries including banking, financing, real estate, home construction, law and government.