The whole landscape has, as we all know, changed significantly over the past two years. One of these areas is appraisals. The way they are handled, the way they are viewed, the requirements, etc. As of January 1, 2009 the way they will be required to be ordered will change. They will have to be ordered through a third party, basically a "management group", and assigned at random for the most part within a group of appraisers. The appraiser will not know the estimated value if it is a refinance, and will only know a purchase price because they will have to have a copy of the contract. There will, in essence, be no more interactions between a Loan Officer or Processor and the appraiser, it will be for the most part a management to management communication.
The norm has always been that the appraisal process was a relationship just like nearly everything else in this industry is a relationship. Loan Officers and Mortgage Lenders and Brokers had appraisers or appraisal companies that they trusted and used on a regular basis. They used them because they did a good job, were timely, and communicated well. If a special rush needed to be done you could count on them. The appraiser always knew the estimated value and/or purchase price and if there was going to be an issue with value more often than not they would let the lender/broker know and see if any additional information could be obtained to justify the value that they may not have. Until the market started going haywire there really were very few problems in this area among the honest lenders and brokers. Where much of the abuse came from was from those who committed fraud, would do anything to get a deal closed, and in general had very poor ethics and integrity. This included some appraisers as well who would just ask "what value do you need?" and it would magically appear.
Remember that an appraisal is an "opinion" of value supported by market information, i.e. comparable sales, etc. So values may vary from appraiser to appraiser on the same house depending on the information that they use. In today's market there is most certainly a bit of conservatism in general due to the overall increased scrutiny of appraisals. In addition we had the added boxes of "Over Supply" and "Deteriorating Market" on appraisals which became the first place you looked until the recent changes to loan to values for these issues by Fannie and Freddie. Appraisals are looked at by underwriters a little more carefully (though they have always been a part of the underwriting process) to make sure that they are comfortable with the information that is used to support the value. They may request an additional comp, etc. to have the comfort lever they need.
Much of what you are going to run into in regards to appraisal problems will be in relation to who you are using to do the loan. If it is a larger institution with strict policies then the appraisal will normally be what it is and not much to be done. If you are dealing with someone who is a little more flexible then are some things that can be looked at. We at Brand Mortgage Group try to do everything that we can to make things happen. That is, of course, within the guidelines using the utmost of honesty and integrity. Let me give you a couple of examples.
I had a customer in a subdivision that I am a preffered lender in and was competing against another lender for his business. I was something of a disadvantage because he had already made application with them and was in process. They were not a preffered lender but he had been with them prior to writing the contract and the builder had agreed to let him use them. Ultimately he stayed with them as our programs and rates were similar for what he was looking for. The week of closing he called me in a panic. The other company had done the appraisal and it had come back as "over supply" and they were cutting his ltv by 5%. No if's, ands, or buts. No appeal or conversation. He could not do the additional 5%. We had an appraisal done through our group and it came back at the value without the supply issue. We had a review done just for comfort level, and closed the loan for him in a week's time. At 100% financing (when you could still do conventional at 100%...oh...in February!) The difference here is that just the difference between one appraiser and another. However had ours come back with that issue we have the recourse of ordering another one to use if we feel there is a chance that we can overcome it, and it makes sense.
The second example is a condo in midtown that I had. The initial appraisal came in $8000 less than the purchase price. The one comp that was a primary issue was the one right next door that sold in December of last year. It had sold at exactly the same price as the appraiser was coming in on our subject. That sale, however, had been a distress sale. The agent and I (admittedly mostly the agent, she was terrific!) gathered a boat load of additional info on sales in the area to support the value. We provided all of this to the appraisal group and appraiser, but they were not going to make any additional adjustments. We felt that there was certainly a good case for the value to be there. While we have already gotten ahead of the requirements by using an appraisal management group (and they are very good, and very quick) we also have looked into others so that we have options. As a result we had another appraisal done (which we paid for) and it came in fine. We were comfortable with that and closed the loan. The customer was made aware of the situation, everything was explained to her, and she felt comfortable with what she was paying for the condo, and still felt she got a very good deal. Loan closed.
I only use these examples to show that there are still avenues to pursue. Appraisals are going to continue to be an issue. Appraisers need to be concerned and cautious due to the scrutiny they are under. I have had quite a few appraisals come in over the purchase price by quite a bit, especially in new subdivisions with the deals that have been made to sell inventory, but have NEVER had an issue with that. A good underwriter is going to know how to underwrite an appraisal and make a decision. The first avenue is management review, an AVM, or review appraisal, even a second appraisal if need be. Unless the value just isn't there, which is possible with the changing market place.
The bottom line is, just like in every other facet of this industry, try to use people you know you can trust to do everything possible to make the deal work within the framework of the guidelines we operate under. There are going to be issues, just try to find those people who are going to work a little harder to overcome them in the proper ways.
I am always happy to answer questions or help anyone in any of these areas in any way that I can! Have a great day!
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