The importance of the appraiser
Appraisers looking for cash today, have to be smart. Research is showing that one of the biggest issues consumers trying to sell their properties have to contend with is the appraiser. At its best, the appraisal is supposed to help home buyers find the right priced home and keep lenders from overestimating the value of the property. If the appraisal is too high, buyers can risk defaulting on the home in the future. If the appraisal is too low, it may be too difficult to sell or refinance the home. Unfortunately, due to the recession, many industry experts are saying that the accuracy of the appraisal is falling sharply.
One case study of an appraisal
Bob Blake was selling his Palm Beach Gardens, Florida home. He was startled when the appraiser came back with an estimate that was well below what he expected. Homes in his area were selling for on average $290,000 but the appraiser valued his property at just $228,000. Blake and his mortgage broker immediately challenged the figure and practices of the appraisal company. Eventually, the company sent a revised appraisal that brought the home’s value up to $295,000. The result was a more competitive, and reasonable price, but it still delayed Blake’s plans to refinance for well-over a month and a half.
The debate over appraisals
There is naturally a debate over appraisals due to the competition between real estate agents and mortgage brokers. Each one has a vested interest in the price of a property and when an appraiser works against their stated home price, the deal can quickly be thrown off. In an effort to better regulate the field, New York Attorney General Andrew Cuomo is looking to change current appraisal legislation. In 2009 Cuomo pushed Fannie Mae and Freddie Mac to implement a stringent code of conduct for the appraisal industry. Due to the power of these two companies and their providing funding for most US home mortgages, the new code is now the nationally accepted standard.
The new code for appraisers
The new code for appraisers bans loan officers, mortgage brokers or real estate agents from selecting appraisers. Sellers in need of cash today, need to have separate entities handle each aspect of the sale. The result is that more lenders outsource the selection to appraisal-management companies or AMCs. The AMCs are not without controversy though, due to their own portion of the appraisal fee. Bill Graber, spokesman for the Appraisal Institute, said, “Many appraisers are struggling to survive on the fees paid by the AMCs.” An AMC takes up to 40% of the appraisal cost and then gives the rest to the appraiser. In former times, the appraiser collected the entire fee.
The Appraisal Management Company
Appraisal Management Companies deny that they are taking too much out of the appraisal fee at the expense of the appraiser. A spokesman for Wells Fargo & Co, a bank that owns an AMC, said, “We have invested substantial time and research in the quality control of the valuation process to, among other things, ensure that individual appraisers have relevant knowledge of the markets and properties they review.” Appraisers are now instructed to follow a set of rules known as the Uniform Standards of Professional Appraisal Practice. The hope is that building safeguards into the system of appraisals will protect sellers, buyers, lenders and the appraisers.
The appraisers’ response to the changes
Appraisers in need of cash today have to be efficient, smart and careful. According to the Uniform Standards of Professional Appraisal Practice code, appraisers need to spend sufficient time researching unfamiliar territories. Though this is meant to protect all parties involved, appraisers have to budget their time carefully. LaRon Hall, an appraiser in California, said, “You are getting less money and you are having to do more…it is definitely a sticky situation.”
The appraiser owes no allegiance to the real estate agent or the mortgage broker. The job of the appraiser is to analyze the home being appraised and find actual sales figures in the local market for similar homes. The market speaks; the appraiser interprets.
Appraisers that catered to agents and brokers in the past were major contributors to the collapse of the mortgage industry. Agents and brokers needed the house to “hit a certain number” and were giving work to appraisers who would cooperate with what they needed. New York is making the right move by keeping appraisers, agents, and brokers on separate leashes.