Professional Home Staging and Photography Blog: Perhaps There's a Better Way to do House Appraisals ....

Perhaps There's a Better Way to do House Appraisals ....

Before I begin, let me say that I think we can resolve this Home Valuation Code of Conduct (HVCC) method of odering appraisals. You can take it for what it's worth - just two cents - or perhaps we can openly discuss any ramifications such a proposal may have on the industry, on issues that I may have missed, and/or by providing alternative solutions either by adding, amending and.or deleting some of the provisions that I thought of. Perhaps, by a committee of responsible and appropriately licensed professionals as well as thoughts from the general public, we can find a common ground that we agree would work in the better if not best interest of all.

First and foremost, I would like to see the HVCC in its present form abolished completely. Don't get me wrong. I believe that changes are needed, but to institute a system that mirros the same setup that WAMU had with AMCs - the exact same setup Attorney General Andrew Cuomo of NY said caused this mess and who then crammed down our throats - is not the answer. I won't get into all the reasons why it should be abolished - I think we all already know.

I propose that we go back to the old way of doing business (wait, wait - hear me out on this!) but with a proviso - that a section be added to the appraisal report where the appraiser is to note whether or not he (or she) was unduly coerced or influenced by a broker, lender or real estate estate agent into coming up with any certain value for a property. FNMA, Freddie Mac, US Dept of HUD, USDA and the VA should impose underwriting requirements that state that if the appraiser notes undue influence and/or coercion in any way, shape or form from any broker, lender and/or real estate agent and/or home buyer and/or home owner, then that particular appraisal is not to be accepted. Period. End of discussion. Get another appraiser and keep your mouth shut if you to purchase, refinance or sell your home or get paid on the loan or get paid on the transaction. It will certainly be an expensive lesson if you didn't keep your mouth shut the first time around.

However, nothing should preclude a real estate agent (both buyer's agents and listing agents) or home owner from presenting comps (by way of a comparative market analysis or CMA) to give to the appraiser so as to show how they may have arrived at their estimate of value PROVIDED further that they do not in any other way try to influence or coerce the appraiser on his expert opinion as to the home's present market value. The appraiser should be free to consider in whole or in part, or to reject completely, the comps provided.

For home owners looking to refinance, home buyers looking to purchase, and home owners looking to sell, they should be required to sign a disclosure (yeah, I know, yet another disclosure, but such are the times we live in) that they attest that they have not nor will in any way attempt to influence or coerce an appraiser to assign any particular value on the property.

As we're all licensed (at least all appraisers and real estate agents are, and soon all loan officers - no matter who they're employed by (including federally chartered banks) or what state they're located in), the regulators who have jurisdiction over each respective license can institute an enforcement hearing looking to impose penalties that may include a written admonishment, civil penalties (only judges can impose fines), suspension of license or revocation of license (depending on the nature of coercion and/or the number of times involved in such coercion), and the same shall be made part of their permanent license record. (Try and get another job in the field with THAT on your record!)

Loan officers and real estate agents should still be permitted to select the appraisers with whom they have established working relationships, and who otherwise do good work and who are resposive to their customers (excepting of course any influence or coercion). And, just as licensed loan officers and real estate agents are to be held accountable for their actions, so should the appraisers. Appraisers, as well as loan officers, should be required to take courses in ethics and attend periodic refreshers and exams in same as real estate agents must do as member of the National Assocation of Realtors (NAR). Appraisers should also be permitted to decline any work from any lender he or she does not feel comfortable with without fear of reprisal (i.e., black listing) by other lenders.

Probably needs some tweeking, but at least it would be a step in the right direction. Just my 2 cents worth....   -- Lew

 

East Bridgewater, MA 02333
Phone: (508) 443-1332

Lew Corcoran, ASP®, IAHSP, IAHSP-CB
Accredited Home Staging Professional
Professional Real Estate Photographer

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Comment balloon 3 commentsLew Corcoran, ASP® • June 27 2009 07:45PM

Comments

Lewis, I like your 2 cents!!  As real estate agents we know our market and it is very frustrating when an appraiser from out of the area comes in and gives us goofy comparatives and then not be able to fight it.

Posted by Marchel Peterson, Spring TX Real Estate E-Pro (Results Realty) about 9 years ago

Lewis,

It sounds to me like you are describing the old system.  The first time an appraiser noted that they were coerced by a lender would be the last time they saw any work from that lender.  Let's get real here - for almost twenty years now, (from the time just following the S&L "debacle"), lenders have put increasing pressure on appraisers to lie.  Those of us who refused to "play ball" have had a much more difficult time of it than those who went along with the program.

As long as parties with vested interests in individual transactions have the ability to choose the appraiser(s) for those transactions, there will be fraud - period!

Can you imagine an appraiser stating they were coerced on the appraisal?  Is that supposed to mean that they allowed a lender's actions to influence their development of an opinion of value?  If an appraiser did that they could lose their license, so you know that will never happen.  And, if they did, you suggest that the appraisal be tossed and another one ordered.  So, let me see if I understand this correctly - the lender keeps ordering appraisals until they get one that doesn't state that the appraiser was coerced, and, that also comes in at the value they want?

In most cases, a lender's concept of an appraiser who "does good work," is an appraiser who inflates values so the lender can close loans.  This is not the exception - it is the rule.  And, just like there are many lenders who will do whatever it takes to close loans, there are also many appraisers who are complicit in these shady transactions.

As it is now, appraisers are usually the most highly educated of the major players in any given real estate transaction, and also, the lowest paid.  The loan originator and, any realtors, (if the loan is for a sale transaction), are usually paid many times what the appraiser is.  To become an appraiser today, you need to have a college degree, and, take anywhere from about 150 hours to 400 hours of pre-licensing education classes, and, be an "intern" or "trainee" appraiser for at least two years before you can get licensed.  We are also required to take continuing education classes on an ongoing basis.  (Oh, by the way, ethics coursed have been a required part of our curriculum for many years).

I agree with you, the HVCC is poorly conceived.  A much simpler solution would be to use simple, double blind ordering systems, a number of which have existed for some time.  These platforms have the ability to insulate the appraiser from the lender, while at the same time, allowing a particular lender to utilize their own panel of appraisers.  Each request is ordered on what is essentially a rotational basis amongst the specific group of appraisers.  The appraisers don't have loan originators calling them up trying to put pressure on them, because they don't know which appraiser received the request.  All communications regarding the request are written, and go through the third party's mail servers.  These types of companies typically charge very reasonable administrative fees of between $5 and $15 per request.  Appraisal management companies typically take between forty and sixty percent of the appraisal fee for doing about the same thing.  This type of system is certainly not foolproof, but it would eliminate the vast majority of the corruption.  Other checks and balances could also be implemented which would further guarantee honest transactions.

What do you think?

Posted by David Mescon (DAVID B. MESCON REAL ESTATE APPRAISER AND CONSULTANT) about 9 years ago

I never heard a complaint about "out of the area appraisers" who inflate value.

Posted by Moshe Cohen about 9 years ago

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