Before the mortgage meltdown and the resulting Great Recession, you paid a reasonable price for an appraisal, and your loan officer typically received a reasonable opinion of value that led to your purchase or refinance getting funded.
Not so much anymore. Swift and furious post-crisis reaction from regulators gave birth to the 2009 Home Valuation Code of Conduct or HVCC, and the federal Dodd-Frank Law, passed in 2010, (which made HVCC statutorily mute) making things far worse for you in terms of appraisal cost and resulting valuations.
Appraisal charges have gone up roughly 33%. “Appraisals were $375 before, and since HVCC the prices went up to $500,” said Yorba Linda, Calif., appraiser Myles Lawson.
The Federal Housing Finance Agency, the Consumer Financial Protection Bureau and the Appraisal Subcommittee – a federal agency that reviews state regulators of appraisers -could not point to any post-crisis publicly available data on appraisal accuracy when contacted for this column.
Ask any veteran loan originator. The No. 1 reason that transactions fall apart is low-ball appraisals, not tight credit standards.
Regulators believed a quid pro quo relationship existed between appraisers and their direct loan officer customers that created unsupportable opinions of value, ultimately contributing to property prices collapsing across America. The appraiser gets the order and the work as long as the targeted value is hit.
Part of the HVCC solution was to create a firewall between the appraiser and the loan agent. It is forbidden for any originator to pick an appraiser. Honest, independent appraisers and their like-minded customers were being punished for unscrupulous behavior of others in the industry.
If the goal was getting to an objective property value by preventing appraisers from being undermined by their customers, the final rules fell woefully short. Under Dodd-Frank, lenders are allowed to own appraisal management companies (AMC), thereby having direct influence on the appraiser’s livelihood. “Ask the bankers lobby why that’s in Dodd-Frank. It’s a huge flaw in the system,” said Ken Chitester, director of communications at Chicago based Appraisal Institute.
The emphasis is now on volume, not quality. Before HVCC, independent appraisers kept 100% of the appraisal fee. “Appraisers now receive between 40% and 75% of the appraisal fee, often with a lot more required work. The AMC keeps the rest. Now it’s about who will accept the job at the lowest fee and the fastest turnaround to the AMC,” said Lawson.
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If you get low-balled and challenge the value, guess who ultimately decides the final value? That’s right, the original appraiser.
Loan officers, who normally advocate for you, cannot directly discuss or dispute flawed appraisals with the appraiser because they can face disciplinary action against their license if they do.
This past July Janice Charlton of Thousand Oaks, Calif., says she was low-balled on a refinance appraisal with the value coming in at $745,000. “I was completely shocked. I follow the real estate market,” said Charlton.
She appealed the value through the lender with the AMC that hired the appraiser, to no avail. “It’s arbitrary. It’s a real conflict-of-interest,” she added.
Charlton did not give up. She applied elsewhere. Less than a month later another appraiser through a different lender brought the value in at $860,000. Charlton’s perseverance paid off. She completed her refinance, saving $1,397 per month with her new, lower house payment.
Another reason some appraisers low-ball is to avoid claims against their errors and omissions insurance policies-for unsubstantiated value. When borrowers default or when Fannie or Freddie requires a lender to buy a loan back because of a defect in the loan file, lenders may look to blame others to recoup their losses. “Honestly, it could possibly be true,” said Anthony Mattia, co-owner and chief operating officer of North Carolina based Appraisal Nation, when asked about the insurance claim fear.
Protect yourself by quizzing the appraiser on his or her experience in your community when you are contacted to set up the appointment. If you are uncertain, request a different appraiser.
Find lenders that use panel appraisers instead of AMC’s. These are independent appraisers that tend to receive the full fee that you pay. They are more likely to be more thorough because they are getting paid full boat.
Go through proper channels to dispute problems. Have your facts at hand. Enlist your loan officer or your neighborhood realty agent to help you with your research. Vaguely saying that your value is too low will get you nowhere fast. Sometimes appraisers do own up to their mistakes. Sometimes lenders will call out bad appraisers and get you the value you deserve by ordering a new appraisal.
Mortgage Broker Jeff Lazerson is president of California-based Mortgage Grader. He has 28 years of origination experience. Contact him at: email@example.com