Appraising the Appraisal Situation

It’s been a packed couple of days here at the California Association of Realtor’s Business Meetings and the information gained is overwhelming. As promised, the following is a brief description of the current efforts to fight this current (to put it lightly) dysfunctional appraisal environment. And when you are done reading this bit of info, we URGE you to contact Members and Senators to 1: Share any “horror” stories you might know of, 2. Support legislation that the Office of Real Estate Appraisals be given the authority to regulate Appraisal Management Companies and 3. Urge them to support future legislation to make appraisals portable if transferring lenders. As for now, read on.

As a result of a settlement between the New York Attorney General and the Government Sponsored Enterprises – Fannie May and Freddie Mac, the Home Valuation Code of Conduct, better known as the HVCC was created. The HVCC has no force of law and was not enacted by Congress nevertheless, because the GSE’s are dominant in the marketplace, the HVCC was effective in changing the way lenders and appraisers do business. The vision of the HVCC was to separate loan officers and brokers and sales agents from appraisers. Good idea in theory. However, as a direct result, Appraisal Management Companies, which act as intermediaries, exploded onto the scene. Yikes! Compliance with HVCC became mandatory June, 2009.

THE PROBLEM Iies in the AMC’s not being adequately regulated. We are not alone here in Lake Tahoe. Across the country, appraisals are being conducted by “out-of-area” and/or not so sharp appraisers and often, the results do not accurately reflect the true value of a property. When inaccuracies appear in the appraisal reports, there are no easy ways in which to make corrections. Everyone loses – home owners, potential buyers, escrow companies, Realtors, contractors, etc. I just learned of a local story (one of many) in which an appraiser discounted the square footage for an entire indoor pool room which included a seating area, sauna, etc. Just took it away. I am sure you have your own stories to tell.

Furthermore, lenders owning Appraisal Management Companies invite conflicts of interest. Think about it – is an appraiser, especially one from out of the area, more likely to appraise to the underwriting standards of their employer rather than that of the market. Are they so restricted by their employers guidelines that they fear losing their job if they don’t give the true value their experience tells them is fair?

Finally, it is important to take a look at the idea of making appraisals portable. Right now, lenders are requiring the preparation of another appraisal even if an appraisal has already been completed for another lender. We have even seen cases where a consumer, in shopping for the best loan, had to pay for more than one appraisal, even in the case where the same appraiser did the work. Perhaps lenders that own their own AMC’s have a financial incentive to require these additional appraisals. FHA require portability, the HVCC allows it – but lenders refuse it. WHY??

Please contact us if you have any further questions and, go back to our first paragraph and make those calls. It’s easy and incredibly effective. Please pass the word and have a great day.