My friend and appraisal colleague Ryan Lundquist and I authored a petition on change.org to point out the growing wreckless behavior that is enveloping the mortgage process.
There’s a proposal from the FDIC, Federal Reserve, and Treasury Department not to require appraisals for some mortgages under $400,000.
As we say in the petition, this change can impact several groups in particular: consumers, the taxpayers, the housing market and appraisers.
One group not explicitly mentioned in the petition but impacted down the road are real estate agents and brokers. Currently, 12% of mortgages that flow through the GSE (Fannie Mae and Freddie Mac account for 78% of residential mortgages right now) will have their appraisals waived. Those are “PiW” loans or have a “Property Inspection Waiver.” My good friend and appraiser colleague Phil Crawford says on his radio show “Voice of Appraisal” says the acronym stands for “Pissing In Wind” which is more accurate. If the buyer realizes they overpaid for the property, the agents are now the professionals with the bullseye on their back. Liability insurers are already talking about a new target when things go south.
Years ago and again this morning, I heard a real estate agent say – what do we need you (appraisers) for? “The seller and the buyer determined the market value by agreeing on the price.” The problem with this logic is the buyer may not be fully informed (i.e., from an out of market area) and will also mortgage fraud supercharged. Ever heard of straw buyers? Agents must remember that they perceived as biased even with the best intentions and the best ethics because they are paid only if the deal closes. When something goes wrong, they are completely exposed.
The direction that was taken by regulators relies heavily on AVMs (Think Zillow’s Zestimate which is not within 4.3% of the actual value 50% of the time) and “hybrid appraisers” (which removes the appraiser from the actual inspection of properties) to develop a value opinion. The inspection of the property, when done, will rely on non-licensed individuals to fill out a checklist and give an appraiser at a desk the information without any standardization, direct contact or assurance the inspector knows what they are doing. I’ve heard of fees as low as $8 to do the inspection and $78 for the appraiser. As far as I can tell, a full appraisal (inspection and analysis) cost can represent as little as a hundredth of a percent of a purchase transaction.
This petition is for everyone to sign, not just appraisers. Please sign and help bring attention to a pattern we just lived through in the financial crisis. It’s happening again.
Please make your voice known, read about and hopefully sign the petition below:
PETITION: Remember liar loans of a decade ago? Those same people want to do away with appraisers.
Tags: FDIC, Petition, Federal Reserve, Zestimate, US Treasury, financial crisis, PIW, appraisal waiver, Ryan Lundquist, AVMs
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It is indicated in places I’ve read that the elimination of the appraisal fee for loans under $400,000 is to help save the consumer some money, the very small appraisal fee. What? The appraisal fee is typically the lowest charge of all involved in a real estate transaction. If “they” want to save the borrower some money “they” should eliminate the commissions paid to Realtors. Make it a fee for the sale of a home, like an appraiser gets. Oh please, don’t even go there saying the seller pays the real estate commissions and not the borrower. Where do you think the seller gets the money to pay the outlandish commissions anyway…from the borrower via the sale price which includes the real estate commissions. When doing an appraisal, I’ve been asking people I encounter involved in the process (not the Realtor though, although some agree) if they believe that a Realtor works twice as hard and if they think the Realtor is worth twice the amount they receive for selling a $400,000 property over a $200,000 property. What do you think the answer is? Not one person has ever said yes. Realtors are highly overpaid for what they do. And what they did at one time is not what they do now. They do even less now and get more because of the increased sales prices. The commission Realtors receive is where the helping the consumer should start. The appraisers now (at least I do) have become the “prudent purchaser” in the transaction. The Realtors (buyers agents) no longer function as a watch dog for their client to ensure they do not overpay for a property. They are only concerned with the transaction and going along with the “deal”. The appraiser (some of us anyway) have become the “prudent purchaser” in the transaction. I dig into the data, perform the due diligence the Realtor of old used to do. Eliminating the appraiser in these transactions only harms the consumer, it does not help them at all. I’m very proud of what I do for the consumer. I’ve been in the appraisal industry since 06/01/1966 and have been a Realtor since 1974.
Thanks David. Well said. Whenever something doesn’t make sense, there is usually a reason.