Sounding Bored is my semi-regular column on the state of the appraisal profession. This week I get annoyed about the cost/value relationship of our services.
Bankrate.com performed a national survey on closing costs and ranked them by state. In the article covering the survey. The title of the article is what grabbed my attention. I have always found it curious how little understanding there is about what the appraisal provides in the lending and home purchase process. It allows the lender to understand the value of the asset and assess the amount of risk they can take on the loan. It tells the buyer whether they are over paying (if they look at the appraisal at closing).
It seems to me that the nominal cost of the appraisal relative to the size of the deal would make it seem like a no-brainer. $300 to $500 to see if the $1,000,000 property is worth a $1,000,000 seems very cheap to me.
If prices have gone up 100% during the housing boom for example, why have appraisal fees gone down for generic retail lenders? Our licensing does not permit the appraisal fee to be contingent on the value, yet the appraisal is done to protect the lender (whether they want to hear the bad news or not). As appraisal services for national lenders are moved to appraisal management companies, appraisers have to cut corners a lot to be able to afford their fees. Case in point:
When eAppraise-it took over the WAMU appraisal function, along with Lender’s Service their quoted appraisal fees for co-op appraisals in New York were $240 yet WAMU paid $450 for a co-op report. Even at $450, it was basically a loss leader for most appraisers. The cost of living in NYC is one of the highest in the country, yet now the fee is cut in half?
Do you think the eAppraise-it co-op reports are going to be worth the paper they are written on? I highly doubt it. I haven’t heard of any local appraisers that will be working for them. I suspect e-Appraise-it is scrambling for appraisers in this market right now. Lender’s Service has done the same thing in years past. I have been called by them on a number of occasions simply trying to get appraisers here to work for them, basically for free.
Incidentally, WAMU never referred its appraiser panel to the appraisal management companies. On the surface, its very sleezy. Actually, its pretty sleezy on all levels. On second thought, they did us all a favor since I suspect that no one on their panels will work for these firms for half their previous rate.
You can argue about greater efficiencies through technology and public record all day long, but with those enhancements have come greater pressure for faster turn around times, allowing less time for consideration of the value. In other words, quality has left the building.
Lets be honest, then. Does anyone really care about the value of doing an appraisal?