I recently received an email asking me to call my representatives and urge them to co-sponsor H.R. 3044, which would place an 18-month moratorium on the HVCC. Along with the email were links to several articles talking about how low appraisals are hurting real estate, essentially saying that appraisers are responsible for the slow economic recovery.
New Home Appraisal Rules Stir Industry Backlash - Associated Press (July 14, 2009)
Low Ball Appraisals Spark Uproar - Post (July 3, 2009)
While I understand the real estate industry's frustration, yet another delay in implementing the HVCC is not the answer. I think that with the exception of the appraisal management companies, everyone is in agreement that the HVCC has solved nothing except how to force good appraisers out of the business and increase the overall cost of an appraisal to the consumer. But what is really needed, and what has been lacking in the appraisal industry for quite a while, is OVERSIGHT.
Appraisals coming in too low and killing your deal? One of three things has happened, then.
1. If you are the selling agent, you priced it too high.
2. If you are the buyers agent, you did not do your due diligence with your CMA to determine what the property value truly was, and so your client has offered to pay more than the house was worth.
3. Your lender is using an Appraisal Management Company that has found someone willing to do the work for a substantial discount (although the borrower will pay at least the same fee). This person has little incentive to do a good job (how much effort would you put into selling a house if you were getting a flat $500 fee before broker expenses?), and may be coming from a great distance away and may have no real local knowledge.
I understand that it is the selling agents job to get the highest possible price for you client, so I have no real beef with you. If someone loves the house enough, they will come up with the extra money. But if you know that the house is overpriced, don't blame the appraiser for killing your deal. And please, try not to spread the idiotic concept that if a buyer and seller agree on a price, then that is the market value. Go take an appraisal class before you perpetuate that rumor.
You would probably not believe how many houses I look at that are blatantly overpriced, yet the buyers agent has allowed their client to make a full-price offer. Just like in the appraisal business, there are plenty of lazy and/or incompetent practitioners. I understand that some properties are harder to value than others, but I've seen plenty of homes in standard subdivisions where there are three recent sales with the exact same floorplan, same upgrades, and same condition, yet you have offered $5,000 more than any of those sold for. Again, don't blame me because it was easier to submit a contract and keep your fingers crossed that the appraiser would "play ball".
However, I've been reading a lot of the comments that realtors have been making, and there is a definite trend of low-priced (read "desperate") appraisers driving hundreds of miles to do an appraisal in a town they have never been in. Please understand that while I feel bad for these appraisers, they are violating USPAP, which are the standards of practice that every appraiser must follow. More specifically, it is a violation of the Competency Rule, wherein an appraiser must be familiar with, among other things, a geographic area or market. So if you have an appraiser coming in from 5 counties away to do your appraisal, then you need to find out exactly how many appraisals he/she has done in your area and what makes them competent to do your appraisal. If they are not, tell the lender you want someone else.
This has been an issue for a long time, and it points to a lot of what the HVCC was originally meant to do. Appraisers are supposed to be the "voice of reason", the impartial 3rd party, the one who makes sure that in the event that a buyer were to close and then immediately walk away from the property, the lender would be able to sell the property without incurring a loss. However, what has happened is that the viewpoint has changed, casting appraisers as just another complicit party to the transaction, rubber-stamping the contract price and collecting their fee. Now our opinions are looked at with a great deal of suspicion (witness the flood of underwriter conditions lately) due to the actions of some appraisers.
So the real problem is not how to make sure appraisers jump through hoops by providing several extra pages of information in the report to pin them down more on their numbers (like the 1004MC form). The real problem is doing something about the bad seeds in the business. I've done some review appraisals that have just been god-awful, where it was very, very obvious the appraiser was trying to hit a number, or are just severely lacking on education requirements. But if you submit a complaint to the state board, do you know what happens? Next to nothing. Maybe a slap on the wrist. There is simply not enough government funding to adequately police all appraisers, and this lack of oversight (and punishment) has allowed a culture to develop that flaunts the rules.
So delaying the HVCC another 18 months is not going to fix anything. For one thing, lenders have already made their decisions on using AMC's, and they are not likely to return to the prior method of letting loan officers select their own. The damage has been done.
What is needed is a law that disallows any lender to directly or indirectly own an AMC. Think of it this way. If you are the buyers agent on a house and the appraisal company was owned by the selling agent (or the homeowner) wouldn't you be worried? Also, the AMC's need to be held to the same standards as the appraisers. A broker is responsible for his agent, and that is essentially the same setup as AMC's and their appraisers have.
Beyond that, enforce the Competency Rule. I have no problem with a realtor or borrower asking me about my experience in the area, and neither should any other competent and ethical appraiser.
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