The appraiser is the “eyes and ears of the lender,” and his or her job is to a market valuation of the property independent of the outcome of the loan, explained an executive with an
Realtors and appraisers are valuing properties for two different reasons, explained Joni Pilgrim, the co-founder and director of sales and marketing for Nationwide Appraisal Network, Tampa, Fla.
The Realtor wants to guide its client, the seller, when listing the property for sale. Plus, the real estate broker’s compensation is based on the sale closing and its price. So naturally, she said, they are likely to value a property on the high end.
However, appraisers are supposed to base the valuation using comparable which are very similar to the subject property. In trying to make a case for a higher valuation, the Realtor typically pulls another set of comps which are more general and possibly a further distance away, Pilgrim said.
Lenders rely on appraisers heavily to give a true market value and the system works because “the appraisers are completely independent,” she said. Appraiser fees are not based on the loan amount.
To ensure an accurate appraisal, the lender who outsources the service to an AMC needs to speak with its compliance department, Pilgrim said. This is because is AMCs have to do due diligence in terms of appraiser selection, retention and compensation; this last point is in terms of the rule requiring the payment of customary and reasonable fees.
The AMC is also required to ensure that the appraiser is geographically competent and that the person has the proper licensing or certification to submit an appraisal report.
Technology plays a huge role when it comes to the geographic competency issue, Pilgrim said. Lenders need to make sure the AMC “has the wherewithal to say, 'Here are the 10 appraisers I have in this area that could complete this assignment,’ and it lists them from closest to farthest from the property,” she continued.
Most AMCs have a “technologically advanced scoring system” that looks at an appraiser’s history of work that gives a quality rating on that performance, she said. If the AMC has to go back constantly to an appraiser to fix simple errors, that affects the score.
Then there are customer service issues, such as are they contacting the borrower in a timely manner to schedule the appointment and are they showing up on time. So there are a lot of things to consider in terms of quality.
From the lender’s own perspective, Pilgrim said, they should be doing their own due diligence by talking with their underwriting teams regarding the appraisal reports. A big question is how quickly is the AMC resolving any issues found by underwriting and what has the history been in that area?
Then the lender needs to know about the people reviewing the appraisals if they are trained in the
One of the misconceptions in the marketplace as a result of the introduction of the Home Valuation Code of Conduct (no longer in force, but many of the principals for doing business still are followed) is that the Realtor cannot contact the appraiser for any reason. Pilgrim said this is not true. “They absolutely can. Most real estate agents will show up at the property inspection with the appraiser at a purchase transaction and point out the amenities on the property and updates which have been done recently.
“The appraiser can take the information into consideration. They can’t discuss value with anybody else other than then the lender. If it is good information, they are going to use it in their report,” she said. “We encourage this kind of communication,” so people aren’t caught off guard at the end of the process.
Roger Beane, the CEO of LRES, which is also an AMC and headquartered in Orange, Calif., said there is a tremendous amount of information available on the Internet to help appraisers from various sources, giving them the opportunity “to justify and to verify and to validate the valuation that they select.
“And I do mean 'that they select,’ because it is truly a human selection of value.”
Another important point in ensuring an accurate appraisal is looking at the narrative that the appraiser provides in the report. “It really validates that they’ve the time, they’ve researched the marketplace, they’ve taken into consideration all aspects of the information available to them, and they’ve summarized it in their value methodologies,” Beane said.
The appraiser needs to state more in the report that it is a nice house and/or it needs work. The appraiser, he said, must be able to articulate the relevant steps he or she has taken to ensure the valuation is accurate.
Expanding on a point that Pilgrim made about USPAP, Beane said appraisers are held to professional standards and they are held accountable for the reports they provide. Appraising, first in the wake of the thrift crisis, and now the more recent mortgage crisis, has become a highly regulated industry with all sorts of requirements they must meet for training.
Going forward, with all the new rules coming out of the Consumer Financial Protection Bureau going into effect, and the resulting legal challenges, it remains to be seen how these will affect the relationships between appraisers, lenders/buyers and Realtors/sellers, he said.
But Beane continued, there remains a code of conduct (though not HVCC) and a level of professionalism expected not just from appraisers from all parties in the process.
As for the notion held by some, that whatever the seller was willing to pay was enough to support the valuation of the transaction, it should be easy to remember that this attitude did contribute to most recent crisis.
Many feel that appraisers are not quite up to speed in providing valuations in the recent inventory shortage. Beane pointed out that many appraisers might be gun-shy because of the new regulations and the finger that had been pointed at them during the crisis.
“It is distracting to them. It is overwhelming at times to them,” he said, continuing that being aware of the regulatory landscape has become as important as actually valuing property.
The new environment might also be contributing to the impending shortage of qualified appraisers. With all of the changes in the rules and how appraisers do business these days, many in the industry have noted there are not enough people electing to go through the steps to become an appraiser.
It will take a four-year college degree and 2,000 hours of apprentice work to become an appraiser. “We are a generation away from a shortage of certified appraisers. No doubt about it,” Beane declared.
This fact alone might be the single biggest impediment to guaranteeing the accuracy of the appraisal going forward, even with new technology tools to help.
