Ed. note: I’m pleased to have the following guest post by Karen Pape, a highly respected Charlottesville appraiser. Going with my belief that knowing whom to ask is one of my core competencies, I asked Karen to write a post on current appraisal issues. She will be writing another post soon that specifically addresses Charlottesville area appraisals. Thanks so much Karen.
In the last year, appraisals have been a central focus of both Congress and the FBI, as tales of appraisal coercion or collusion have surfaced. “Lender pressure” includes blacklisting for low values, values being changed without the appraiser’s knowledge, and appraisers physically threatened in loan sweat shops. While not much of this happened in our community, new federal regulations will change the way business is conducted all over the country.
As most know, NY Attorney General Cuomo’s threatened suit against FNMA/FHLMC in January gave birth to the “Home Valuation Code of Conduct” . The HVCC is intended to prevent appraiser coercion. When implemented, mortgage brokers will not be able to order appraisals directly from appraisers. Loan officers won’t be able to recommend specific appraisers. An Independent Institute will investigate mortgage originators who pressure appraisers.
When the Federal Housing Finance Agency (FHFA) was appointed conservator of FNMA/Freddie, implementation of the HVCC was pushed back to next year, but you can expect that the appraisal portion of your closing process will be different when it is implemented next year.
First, you will no longer be able to recommend an appraiser, and your local mortgage officer will have no control over the appraiser selection. Ordering is likely to go through an appraisal management company as a blind assignment to appraisers on their “approved list.”
In theory, it sounds pretty reasonable, but here’s what is really happening. Appraisal Management Companies (AMC’s) are often negotiating appraiser fees to a level that I have not seen since the mid 1980’s. What the consumer doesn’t realize is that the AMC’s are actually pocketing a portion of the appraisal fee rather than passing the savings along to the consumer. I believe that this fee pressure may ultimately result in poor appraisals, because the appraiser will now have to do about 30% more appraisals to make the same income.
There are appraisers who are willing to travel long distances to our area. Many will not take the time to do a thorough job and will just rely on whatever data they have at hand. I recently reviewed an appraisal of a Charlottesville condo in a project with several recent sales, but all the appraiser’s sales were from Arlington, VA! No, I am not making this up. Needless to say, closing was delayed until a new appraisal could be done.
Appraisals are being heavily scrutinized by underwriters, and this level of incompetence is going to create some real glitches in your closings. Appraisers are being asked to do a lot more work to make the underwriter comfortable in a static or declining market. It is not unusual for our office to provide 5-6 sales and 2-3 listings on a single family appraisal. In the last week alone, we have been hired to reappraise two properties where the underwriter felt that the original appraisals, conducted at a lowball fee by someone else, simply did not provide enough detailed information to allow a decision. Closing was delayed until a new appraisal could be done.
I’m reminded of the old story. The client called the appraiser and said, “I want a really good appraisal, and I need it tomorrow. And can you do it for less than the other guy?” The old appraiser replied, “You want it cheap, fast and good. Pick any two you want!” AMC’s will be getting it fast and cheap. Remember, you get what you pay for!
Ok, you think, I’ll just give the “out of town” appraiser the sales. Sounds like a great idea. BeVERY careful, because Regulation Z, passed by Congress, will bring civil and/or criminal penalties to anyone attempting to “sway” the appraiser, and Realtors could be seen as attempting to do just that.
Our area is rich with unique rural properties that require an understanding of the local market. The consumer should demand that a competent appraiser provide valuation services, and that means an appraiser who understands our local market. Advise your borrower to demand that an appraiser who is geographically competent appraise their home.
(Karen Pape, MAI, SRA, is President of Pape and Company, Inc, and has been appraising property for over 20 years. She was President of the Virginia Commonwealth Chapter of the Appraisal Institute in 2006 and currently serves on the National Government Relations Committee.