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.”

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History tries to repeat itself

The Federal Housing Authority says it doesn’t have the resources to police predatory lenders. Officials from the Department of Housing and Urban Development say the FHA needs more staff, better technology and added legal authority if it is going to stop another wave of shady lending practices from hitting the country.

The Troubled Asset Relief Program, which so far has spend $350 billion, was put in place to aid lenders by giving them federal funds. The FHA is charged with screening people who apply for bailout money or otherwise try to get involved with federally backed loans. However, recent examples have shown the FHA is ill-equipped to do so. Too bad a payday loan can’t help.

Finding ways around the law

The first example seems to be simply of slipping through the cracks. An FHA lender in New York was debarred five  years ago. That lender was somehow able to go back into the business, and it continued using the same fraudulent practices that got its license taken away in the first place.

A lending company in Arizona had its license suspended and then filed for bankruptcy. The company promptly resumed operations by putting the company under a different owner’s name.

Evaluating evaluators

The FHA isn’t just in charge of screening lenders. It is also responsible for screening appraisers, people who assign value to homes or property. Right now the government’s list of appraisers still names 199 who have been disciplined by the states. The list also includes 3,480 with expired licenses.

As home prices continue to fall and property taxes continue to rise, homeowners are challenging the appraisal value of their property. Appraisers are being overloaded with requests for re-evaluating a home’s worth. The more appraisers are hit up with these requests, the more bogged down the FHA will become.

Get on the right track

In my opinion, it is imperative that these organizations immediately get the staff and the technology they need in order to be able to properly screen requests for federal funds. Obama has requested access to the remaining $350 billion in TARP funds. If the FHA’s problems aren’t fixed before the government starts handing out money again, Americans will be vulnerable, once again, to predatory lending practices. And this time it’ll be our own government paying those shady lenders.

The first step toward fixing these problems comes with double benefits: Hire people! If some bailout money is used to pay more staff it will have the added affect of giving jobs to part of the 7.2 percent of the population that is unemployed right now. Add that to preventing more of the same mistakes that caused the mortgage crisis in the first place, and we have a winner. I think getting the proper technology for these organizations would be a worthy investment, as well.

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