Realtors Conclude Value
By The Magnificent Flying Miser
Those who follow the main-stream news media may have heard about the new Home Valuation Code of Conduct (HVCC) rules, designed to reduce bias and allow for more honest real estate appraisals. We have heard from myriad real estate agents who tell of underappraisals leading to unjust loan denials, inducing a downward spiral in home prices, which of course begs the question: “How are these rules seen by other actors in the real estate business? Would the rules be seen the same way by the appraisers themselves? Would the rules have the same impact across all states and real estate markets?” Although the National Association of Realtors is giving all it has to the PR campaign against the new law, there are apparently one or two people who disagree.
Chip Atvaloo, certified residential appraiser in Phoenix, AZ., believes that the new rules don’t go far enough because real estate agents are still able to interfere with appraisal methodology.
“The new HVCC laws … have not stopped the appraisers from receiving pressure with values. Typically, we do not receive direct pressure from the loan officer within a bank, (but) … this does not mean that banks and their loan officers no longer have an avenue to request a higher value, the process has simply changed.”
“Until recently, a loan officer was able to contact the appraiser to discuss the appraisal and the concluding value directly. Currently, if the loan officer believes a value increase is warranted, they must provide their comparables and rationale to a third-party vendor management company, who in turn forwards this information to the appraiser. The appraiser will then review the information and make a determination as to if a value increase is warranted and supported. The appraiser then sends the findings and revised report back to the vendor management company, who forwards back to the client/bank/loan officer.”
“In my recent findings, it is the Realtors who are now requesting additional information and rationale concerning comparable selection on appraisals which coincide with the sale of a property. Appraisers, by law, are not supposed to discuss the appraisal report, scope of work, or conclusions with anyone other than the stated client of the report. If an appraisal is being conducted for mortgage lending purposes, the Realtors associated with the transactions are not the client.”
“Realtors conclude value and decide contract pricing based off of the price-per-square foot method. This simply takes the overall square footage of the residence and divides it into the sales price to conclude an overall number with which to compare all other homes in the area. Appraisers do not utilize this method! … If an appraiser concludes an estimate of market value that is less than the overall price per square foot for the area/and or subject, then the Realtor automatically assumes the appraisal is bad, or too conservative. When this occurs, appraisers receive the most pressure.”
Karen Lodwick, licensed real estate appraiser in OH and WV, believes the HVCC rules will help to reduce bias introduced by mortgage brokers:
“I have had some pressure from mortgage brokers to ‘make the deal’. I don’t work for those people more than one time. My job is to present an opinion of value that is realistic and fair.”
“As appraisers, if we follow our Uniform Standards of Professional Appraisal Practice (USPAP) provisions, the over- and underappraising problem is not an issue. With the new HVCC regulations/guidelines, the appraiser’s contact with the mortgage broker or loan origination person will be very limited and all pressure should be eliminated from the process.”
“By following the provisions in this document, the buffer zone between the lending officer and the appraiser will be expanded and should eliminate most, if not all, pressure appraisers feel.”
On the other hand, Brenda McGann, a public relations specialist for an undisclosed client (http://www.mcgannpr.com/), sees a host of boogymen with the new rules, completely unrelated to appraised values:
“Because of the (HVCC), it is illegal for lenders or brokers to have any contact with appraisers, particularly to suggest a value. … Appraisals around the country are now ordered through middle-man companies, partially owned by banks. This has created huge problems in the appraisal industry.”
“The problem is that individual appraisers can’t get enough work from appraisal management companies to stay in business. They have to do twice as many appraisals as ever before because half their fee is absorbed by the appraisal management company (AMC). There isn’t that much work to go around.”
“Some AMCs send a link to every appraiser who signed up for that geographic area. The first one who responds gets the business, even if that appraiser is miles away and unfamiliar with the area. They’ll drive great distances for low pay because they need the work. Other AMCs demand 24-hour turnaround time from the time the appointment was scheduled. … appraisers should have more time to search for the best comparables if necessary, (but) … if you miss too many deadlines, the AMC will not send you more work. That kind of pressure promotes mistakes. Eventually, the system will weed out the incompetent appraisers, but not before many good appraisers have left the business to find employment that will support them. Other AMCs have closed their lists. Period. No discussion, no matter how many years you’ve been an appraiser.”
“Appraisers with integrity … have always said no to pressure to inflate or deflate values. Lenders and brokers … understood and did not risk their license … for one loan. When it did not, appraisers were free to decline to work for that lender. … The exception usually involved actual cases of fraud, conspiracy, and other criminal wrongdoing. Now, the HVCC has completely wiped out those established business relationships.”
“I believe … that a system that does not allow the appraiser to know the client, but demands that he or she instead work for low pay under extreme deadlines for what appear to be soulless corporations who don’t care about their vendors because they can always get someone willing to work for less, will soon create apathy among individual professionals who used to take pride in their work but are now forced to turn out products under a type of “assembly line” system that offers little reward or incentive for good work. Quality work used to mean you would continue to get business. Appraisers no longer have that reassurance. When the only qualifications an industry requires is a willingness to work for low pay and meet tight deadlines, that’s exactly what it’s going to get.”
