The lending business has a love-hate relationship with appraisers – now appraisers seemed to be blamed for preventing the housing recovery. The following WSJ article from about a week ago has been making the rounds through the real estate world.
The orientation of those interviewed in this article come strictly from those heavily involved in the process of making deals during boom times. If someone prevents a deal from happening, they are an “obstacle.” Literally that is true, but there needs to be context applied.
Appraisals are becoming one of the biggest obstacles for Americans trying to sell their homes, refinance their mortgages or tap into home-equity credit lines.
During the housing boom, appraisers often complained of pressure from lenders to inflate home-value estimates to justify dubious mortgage lending. Now, some people in the mortgage business — and some borrowers — say the pendulum has swung too far the other way.
Hmmmm….the old on-off switch.
- Neutral observer v. party to the transaction
- Protector v. deal impeder
- Watch dog v. cost center
- Risk Management Tool v. Tool
Back in the day (I love that phrase, especially now because it is only 2 years ago), appraisers were marginalized because of our lack of organized political influence. We were treated as a commodity – like a flood certification rather than as a housing expert. Rubber stamping brought in a lot more business to those who played ball..
Valuation disputes are becoming more common now (translation: appraised value falls below purchase price).
Lenders are licking their wounds from billions in losses and the majority of appraisers, raised on a 7 year dose of housing boom, tend to more conservative about market value knowing they won’t be removed from a list because they won’t play ball. Most national retail banks are using AMCs. AMC appraisers are doing just what independent appraisers with integrity never stopped doing during the boom: estimate market value.
The problem is, many of the AMC “appraisers” (who are really form-fillers), are simply reading into the minds of their clients, and giving them what they think they want – low values. In other words, AMC appraisers are all over the map, depending on what their client wants and right now, lenders are not overwhelmingly excited about lending (measured by tightened underwriting) so these appraisers tend to be biased low – just the opposite of 2 years ago.
How about removing bias altogether and estimate market value?
The appraisal management company (AMC) phenomenon, which delivers some of the worst elements to the valuation process, enables legions of inept appraisers to thrive.
Kris Berg, a real estate agent in San Diego pens a perfect picture of the robotic nature of AMC appraisers and lack of competency when meeting them at the inspections for property sales. That’s because most lenders have found the AMC religion and appraisals are being ordered in conveyor-belt fashion, rather than matching up the appraiser with the assignment.
Here is one quote in the article that is absolutely ridiculous and speaks for the AMC phenomenon:
Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, said AMCs typically take about 40% of the fees and appraisers get the rest. Mr. Schurman said he has seen no evidence that AMCs’ practices lead to lower quality.
This trade group continues to claim the average fee is 40%. My experience and my colleagues rule of thumb is about a 50% discount in fees or more. Put that aside and consider this real world translation:
If you posted a job listing at a company for $100k over the past several years. Due to budget cuts, you offered the same position, when it became vacant at $60k. And hundreds of companies did this, do you think the experience and educational backgrounds of the majority of applicants would be exactly the same in either salary scenario?
Yet that’s the message being conveyed by Title/Appraisal Vendor Management Association. As Warren Buffet once said, “Never ask a barber if you need a haircut.”
Kris Berg and many good agents like her are seeing the adverse impact of AMC appraisers first hand. After all we have been through, the appraiser function as it relates to lending remains as it was, unreliable.
Tags: Pending Home Sale Index, Appraisal Management Companies, HVCC, AMC, PHSI, NAR, National Association of Realtors
I heard somewhere that appraising requires thick skin. I still want to believe appraising requires ability, hard work, honesty and professionalism. A real estate appraisal is an opinion of value. Who the heck needs an opinion from an unskilled, untrained, uneducated expert? The lenders have been taxed through FIRREA with getting an appraisal and the response by the appraisal industry was to allow the ranks of appraisers to be bloated by any applicant who could pass the test and go to work for a mill. Jonathan, HVCC is meant to keep the dance going and not to fix the real problem of lender pressure. I recall being in the group that said mortgage brokers were the problem for appraiser independence, how late I learned the brokers were only the messengers. The really unfortunate thing you have mentioned is the endemic unreliability of appraising. That is the fault of the appraisers not of the lenders or real estate agents. It comes about because the overwhelming majority of appraisers are not experts and are pushovers. On another note. I am now beginning to believe the lenders had to see this credit freeze coming. I thought lenders made money from lending deposits, but apparently there is more to it. My thinking led me on to believe that the once bailed out the banks would have to start lending or perish. Now, despite ever present NAR spin to the contrary, the FRB is not reporting that tighter lending is getting appreciably looser and I’m hearing the banks are sopping up corporate credits and doing OK. Seems they don’t need the loans as bad as the economy does. Have you heard that?
As a Listing and Buyer agent, I have no issues with any of the appraisers I have worked with; however, the underwriters seem to be out of control: changing their own guidelines, and second-guessing appraisal results – not value issues, but condition. The mortgage companies say it is driven by the investors. Bottom line-the entire process is 50% slower than a couple of years ago.
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