Could New Home Appraisal Rules Get Scrapped?

Okay I have to get this out.  Does anyone know the total wealth of the economy that this new law has destroyed?  I bet if we could put a dollar figure on it it would make the stock market crash look insignificant. 

Does anyone know if the New York Attorney General who started all this has the backing of the major banks for his run for Governor?  I think the intention of this law were good but the closed door meeting made it another what's in it for me.

Good Post. It is about time .Low-ball appraisals need to end.

As an appraiser, my experience before the HVCC was that mortgage originators/loan officers simply shopped for appraisers that would hit the number and overlook the problems, and help close deals. The LOs would remain loyal to those appraisers for as long as they kept greasing the skids for their loans, and it left no room for honest appraisers. An honest appraiser, no matter how competent, cannot compete with a yes-man that consistently and reliably makes money for his clients. It's just human nature to work with people that make things easier, not harder. So the old system rewarded crooked appraisers - all the written rules in the world aren't going to matter when there are bills to be paid, mouths to feed and lifestyles to be maintained. The separation between loan originators and appraisers has to remain because they've proven that they cannot police themselves. But now the new system is very flawed in a different way. Sweatshop AMCs taking 1/2 or more of the fee, requiring turn-times that compromise the integrity of the appraisal, and placing very limiting rules on the way we perform the appraisals.

The truth is this: Whenever someone that makes money off of the appraiser's work is in charge of doling out the work, abuses will happen. The answer? Outside of a national registry and blind rotation VA-style, my vote is to keep the HVCC but regulate AMC fees and turn-times so that appraisers aren't a like bunch of starving dogs trying to keep the crumbs coming in by doubling their production (yes, which means going out of area) and cutting their quality. It wouldn't fix everything, but it would fix a lot.

For those of you who don't understand why an appraiser doesn't use the comps that you provide or the ones that you think are patently obvious...check and see if they adhere to these requirements and it may explain a few things. I've received many alternative comps from realtors, LOs and homeowners and they just don't understand what constitutes a usable comp. We used to have some leeway to use our own judgment before AMCs came along, but now it's iron-clad:

Comps must be:

-Located within 1 mile.
-At least 2 sales must have closed within the past 90 days, the third within 6 months.
-Gross living area must be within 25% of the subject's gross living area (GROSS LIVING AREA IS EVERYTHING AT OR ABOVE THE THRESHOLD OF THE FRONT DOOR! NO BASEMENTS CAN BE COUNTED IN GLA, EVEN IN SPLITS AND TRI-LEVELS!). Some require a 20% max difference.
-Single differences cannot exceed a 10% value of the sale price. That means that on a $200k house I cannot give more than a $20k credit for, say, remodeling, lot size or view.
-Total differences cannot exceed 25%. That's all the adjustments added up.
-The sales must bracket the subject in price and GLA. You can't have all inferior or all superior comps, even if it's just a thousand dollar difference or 50 square foot difference. At least one comp has to be bigger, one has to be smaller, one more expensive and one less expensive.

Then there are individual rules from each AMC that just go on and on and further limit which comps we can use. Sometimes I think they'd like to prepare the appraisals themselves and just have us sign them! We're the ones with the the hundreds of hours of classes, thousands of hours of apprenticeship, license, insurance, data, experience, eyes on the street, etc...yet some minimum wage phone jockey (usually in another state or country) with a checklist is telling us how to do our jobs. And for this we're offered $200. Is it a wonder that quality suffers? That frustrations are running high?

I had an appraiser tell me there were no good comps on my condo listing and he was going to go a few towns over!!!!   These are people lives we are talking about!   And mine I might add!

You're kidding right? This has been a much heated debate here on AR & elsewhere. I've had one appraisal come in $30K lower than the sales price because of lack of comps. If no houses are selling in a particular area what are we to use then?  The lenders have tried to 'stick their finger' in a once lucrative pie & have ended up ruining a once smooth flowing wheel.  Appraisals never took 2 weeks for an appraiser to make an appt before?  Why now?  I also interview the appraiser to find out what area, how long he's been around, etc before I'll meet him.  If he's inexperienced you might as well just fight the appraisal right away even before it's done!  Save time, start the fight early!

HVCC was supposed to be consumer orientated but I estimate that an appraisal now costs the buyer an additional $100 to $150.  Great example of too much government inteference.  An FHA appraisal in my area now costs $500 which is totally ridiculous.

Part 3 of my complaint being what happened with the appraisal industry's own guidelines about arms length transactions vs foreclosures or short sales?  The appraisers are not even adding value for a distressed sale so the norm then becomes a foreclosure or below market short sale.  Appraisers left their cajones at home on that one!  We used to ADD value on these comps & it's just not being done anymore much to the industry detriment.

Maybe there were no sales in your condominium complex in the past 6 months that were similar to your unit? It happens all the time. Then it's the appraiser's job to find similar units in similar complexes that have similar neighborhood influences and market appeal, even if they're further away. Would you rather the appraiser use a more dissimilar comps just because they're closer?

There's not an AMC around that will allow an appraiser to take 2 weeks to set the appointment so that's either an exaggeration or there's a breakdown somewhere else in the process. We have 24 hours to get the inspection appointment set or we're not in compliance with the AMC rules and we're off the rotation. Even private lender panels aren't going to allow 2 weeks.

Appraisal prices have gone up because greedy AMCs want more profits. The appraisers aren't getting that money, believe me.

I don't think the HVCC was for consumers at all. It was created in response to the permeating fraud that was happening between loan originators and appraisers that was resulting in too many loans being made to people who couldn't afford the payments (mostly refinances - the appraiser would get the LO his 80/20 and the lax rules or outright fabrication would make the borrower look worthy of the loan) and the foreclosure epidemic when said borrowers inevitably defaulted on their loans. FNMA and FHMLC agreed to the HVCC in exchange for not being prosecuted for their crimes. FHA later adopted the separation rule because it became evident that the mortgage originators and appraisers were continuing to collude when the number of FHA loans suddenly shot way up (along with defaults).

As for distressed sales - REOs are highly discouraged from being used as comparables by both AMCs and lenders unless they're driving the market. Short sales are to be avoided if possible, but a lot of the time that's most sales and therefore they are directly competetive to the subject and are valid comparables. I've always been of the belief that the sale price in an arms-length transaction is the best indicator of market value, so unless there are very high seller concessions then the number on the contract is generally the market value. I can only remember a handful of times that I've come in below contract price, and all those times were when the sale wasn't arm-length (landlord selling to renter and taking advantage of the renter's lack of market knowledge, family selling to family and writing in a fake sale price to try to create instant equity for financing purposes, that kind of thing).

You know, I don't tell realtors how to do their jobs...

TMS,

Excellent discussion here!

Too bad Cuomo didn't talk to many of you prior to taking his action!

Many someone should forward this post to him!

Lucky :)

I agree the system is terrible. I have had two bad appraisals so far this year. One I was able to provide comps to the appraiser and he raised up the value $20,000. How could he be so far off the first time.  The second deal fell through.  This appraiser valued the home exactly at the list price, $104,900.  I am not even sure he even walked though the property.  He refused to change his appraisal.  He could not be bothered to do one more minute of work on this appraisal.  Its a shame because now this property sits on the  market for over 90 days. 

Lets hope that they can work through this intelligently, we know that won't happen so hopefully it will at least get better.

Elizabeth's list of requirements in comment #95 was an eye-opener. How many properties that aren't in new tract subdivisions could meet those requirements for comparables? That is insane.

Great post topic, and timely.

Cheers,

Robin

This is a great topic, one which I hope will go away or at least turn around by 2011!  I would like to address comments #96 and #97.

Maybe there were no suitable comps for your condo at the time, I do not know all of the details.  Sometimes it is necessary to go outside of the area for comps as long as it is a competing area and the comps are similar to the subject.  It also has to be addressed adequately in the report and explain why this was necessary. If it is explained thoroughly within the report and not all comps are outside of the area, this usually, not all the time is acceptable to the uw. Again the key is the need and the explanation in the report.

I also do not know why it would take 2 weeks to schedule an appointment to do an appraisal, but again I do not know all the details.  The thing here is geographical competence.  I have lived and traveled in the great state of Texas for over 35 years.  San Antonio, Austin, Houston, Dallas/Ft.Worth, Amarillo and more.  All of these cities have suburbs and surrounding little towns. I consider my geographical area to be San Antonio, Austin and the surrounding suburbs and little towns which very well may be in other counties, but no more than a 75 - 100 mile radius.  Some may think this is too far, but this is my comfort zone so to speak.  I am also comfortable in areas outside that radius but choose to stick with my zone.  Have I had some appraisals come in low because of this? No. But I have had appraisals come in low because of the market for that area.

To all the appraisers out there and others who care whats going on with HVCC,  Check out F.A.C.T. Foundation Appraisers Coalition of Texas. Call Amy Ables 512-828-7455.

Wow! It's discussions like this one that keep me reading ActiveRain on a regular basis. The idea of removing the option for lenders to hand pick their appraisers seemed like such a good idea at the time. How did we end up with this mess? With the HVCC and the new GFE and HUD-1, it is clear that no one was really looking out for the consumer.

Paul is correct they are just guidelines and explanations can be written for all of them.   But, Elizabeth is also correct; trying to complete an appraiser within those guidelines or explain why you had to go outside the guidelines can drive an appraiser crazy. Especially when the guidelines can be 4-5 pages.

Here are some other guidelines or exceptions my reports have been rejected for (that later became guidelines).

•1.        Appointments must be scheduled within 12 hours of accepting assignment.  (Homeowner not calling back is not an excuse)

•2.       Inspection must be done within 48 hours of accepting assignment.  (Homeowner works or is on vacation is not an excuse)

•3.       Report must be delivered within 24 to 48 hours of inspection.  (Nights and weekends count.  Even though AMC has no one working Saturday or Sunday)

•4.       You must log on the AMC site twice each day to update status on all appraisals.  (Even if nothing has happened since last update)

•5.       Must answer emails asking for updates within 1 hour.  (Even if you have updated site or are in the field)

•6.       No pictures with people in them.  (Standard)

•7.       If you use an MLS picture because of gated entry, long private drive or people in it, include your original picture showing why MLS picture was used.  (Help me understand, I can't use my picture because kids were playing in front yard but I can use my picture with kids to explain that I can't use my picture with kids?)

•8.       No pictures with pictures of people in them, either photos or art work.  (The picture of the kids or the Mona Lisa has to come off the wall)

•9.       Must include pictures of all rooms including ½ baths. (without being in the mirror and must show both fixtures)

•10.   Pictures of all 4 sides of the home  (Explanation required for condos that you used 4 sides of building)

•11.   Explain why "Opinion of Value" is more than 5% above or below average value for the market area or city. 

•12.   Must include off market date, closing date, type of sale (typical, short REO, Estate, RELO) days on market,  original list price and sales price on all comparable gridded.

•13.   IF short sales or REOs are more than 10% combined of active, pending and closed sales in the market area must include one of each.

•14.   If short sales and REO's are included, explanation that price difference is typical for market is not acceptable.  Must include detailed paired sales to prove amount of adjustment.

•15.   1004 MC (to begin with this is a bad form).  A.  Must explain why with only 6 truly comparable sales in the past year, you cannot honestly fill in the check boxes as to decreasing, stable or increasing market trends.   B.  If there are no sales within subject plat or condo, explain why.  (not that there were none but why there were none)

•16.    Any request for correction or explanation must be submitted within 2 hours of time request sent.   (Doesn't matter they sent it at 8 am eastern time,  which is 5 am where I am)

 This is just a sample of some of the ones I have seen.  As you can guess, I don't do work for some of these AMCs anymore.  Some by their choice some by mine. 

 As far as 2 weeks or more to get an appraisal, that sounds about right.  With all the hands it has to go through now, I am surprised it isn't longer.

Dana (#110) - You're right!  This is a discussion I can't stop reading.  You're also right in the fact that nobody seemed to care about the consumer when these things were all created & implemented; the only one's who even came close to winning here were the politicians with all the PR they tried to get out of their "good deeds."  The funny thing is, taking appraisal ordering completely out of the hands of the loan officer did far more harm than good; most loan officers and appraisers always behaved in legal and ethical manner before. 

John (#111) - That list of guidelines amazes me!  I knew it was bad on the appraiser's side, but I had no idea it was that ridiculous.  As for the two week thing, I've always seen the most delays coming from the inefficient/incompetent AMC's; I've had to wait as long as 3 1/2 weeks for an appraisal report to make it back to me before.

HVCC has really hampered efficiency, and destroyed the hard work for the industry many good appraisers have done. For them to take a 50% pay cut, just so they can get the job while some middle man who does nothing to earn those fees is just wrong. AMCs have absolutely no value other than a leech taking hard earned money from someone else.

I had an appraiser I dealt with as a lender years ago. When I asked him about value, he would always give me what he could support. Sometimes my loans received the value,  and other times it wouldn't. I never pressured him to make value, and people who did, he did not give it, if it wasn't supported. That is one honest appraiser, and there are many more out there. If I was asked to do something illegal in my job, I would not do it. That is the way honest people do their jobs. HVCC has just created a lot of bureaucracy that hampers efficiency. Borrowers pay higher fees, appraisers get less fees, and AMCs collect for doing little. Whereas an appraisal once takes 2 days from date of order, now takes up to 2 weeks.

Hope this changes, since it won't get better with this kind of inefficiency.

On a different note...  $450-$500 for 4 hours of scoping it out and 4-5 hours (now) of the paperwork ...does not sound underpaid to me.  Let's see BPOs take a good day or so if done right..for a measley $50  sometimes $75

Just sayin'

Mary, some people might argue that a real estate agent makes far too much money considering the time and effort involved in selling a house, too. Breaking our jobs down into 1-hour or 1-day increments and then dividing by fee isn't the way to determine the worth of what we do. Appraisers have a larger overhead than you might believe (data costs, E & O insurance, office space, equipment, phone/fax/internet/ and supplies, gas and vehicle maintenance, continuing education, licenses that expire every 2 years...) but what people are really paying for is our expertise, training and experience, just like you're paid for yours and just like any other professional is paid for theirs. It takes over a hundred hours of classes and thousands of hours (in other words - years) of apprenticeship before a wannabe appraiser can even sit for the state exam. As of 2007 all new appraisers must have a college degree. What does it take to get a real estate license? As for BPOs, well...I'd be willing to sell a house for a lot less than 3.5%, but it's not what I'm trained for and I wouldn't really know what I was doing, would I? Realtors doing valuations is just another way for the lending industry to save money, and it will come back to bite them.  

Mary - I have to agree with Elizabeth and Paul here.  The other point that needs to be made is that there isn't a single good Realtor out there who does BPO's without the expectation of getting REO business from the Bank or Management Group they are completing them for.  Could you make a good living just doing BPO's for $50 a piece?  Your payoff for doing this "favor" should be the potential for real business.  From what I understand, that only covers time and travel costs and a Coke at the gas station on the way.  Just because an appraiser does one HVCC appraisal, it doesn't mean they'll get a chance at doing another one or even open the door for them to do more unless they bribe the AMC company somehow to make sure they're picked more often (which I'm pretty sure is happening, too).

Remember that the only thing HVCC has really accomplished is a destruction of free enterprise for good appraisers, poor appraisal quality, declining real estate values, and increased costs and delays to consumers.  Whether you think those things are important, or not, I'm sure you've noticed fewer dollars in your wallet and more consumers being harmed since HVCC's implementation.

CC, I'm sorry to here about your situation. Maybe I can shed a little light on what could be happening.

First and foremost, all properties can be appraised. Complex properties with few and far-flung comps have to be approached carefully, and the appraisal has to be very thorough and well-supported. Then there's all the driving, and no matter how well-done there will be lender stipulations afterwards wanting this, that and everything explained and repeated. Overall, these types of properties can take 3 or 4 times the hours of a typical appraisal. The problem is that no one is offering a higher fee to cover the appraiser's extra work. We can't help but do some simple math and realize that we can do 3 or 4 regular appraisals in the time it will take do this one, and it's just not cost-effective. I turn down complex work regularly for this reason. Sure, I'll make a bid for what I think is reasonable compensation for the project, but it's rarely accepted. 

Do you know what the fee is that the appraisers who have turned down appraising your property are being offered? Not the Appraisal Management Company, the appraisers themselves. It could be the answer to the issue of no one wanting to touch the assignment.

I just have to say, that AMC's were created because of the unethical appraisers and banks. AMC's have to exist because of what has happened and those people can't work for free. I feel for appraisers who now can't get paid what they use to, but why should the homeowner have to pay more? The homeowner is the one who has suffered the whole time, and now they have to pay more!? They have lost their homes, lost value because of falsified appraisals, and now because appraisers need a babysitter the homeowner is getting screwed again! Wake up and point the fingers at the real "bad people."