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GAO Study: Home Appraisal Process Flawed

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Mortgage Professional America | 01 Mar 2012, 06:31 PM Agree 0
A Government Accounting Office study has raised concerns over the quality and oversight of the appraisal industry.
  • Pete Deatherage | | 01 Mar 2012, 07:35 PM Agree 0
    Whenever I see an article like this I cringe. There is a part of me that acknowledges that the appraisal industry needs work, but I also think asking Realtor's and builders is stupid. As far as they are concerned, if it doesn't come in at sale price it's a flawed appraisal.
  • mad | | 01 Mar 2012, 09:55 PM Agree 0
    Ever since the AMC's came into being appraisals have gone down hill. The established seasoned appraisers won't and don't work for the appraisal management companies. They don't need to. Instead the appraisers that cannot get business or are of poor quality have signed up to get business with the AMC's. A very well know and seasoned appraiser said that when he looked into signing up with the AMC's the only questions they asked were how fast can you turn an appraisal around and how much do you charge. No references or education questions were ever asked. You did not have to prove anything to sign up.

    Many of the appraisals we receive the appraisal management companies fail to catch the errors on the appraisals even though they go through their quality control. This then takes longer as the underwriters find the errors and then the appraiser has correct the appraisal. Waiting a 2nd time for the appraiser to make the corrections and get it back to the underwriter causes the mortgage process to be longer and rate locks have been lost. If the AMC's would do their job correctly, this would not happen as much as it does.

    Part of the problem also comes from all the regulation. Yes, appraisers are very scared of getting accused of fraud, so they feel it is safer to bring the appraisal in low to cover their behinds. Every group involved in the mortgage industry is constantly in fear of making a mistake and getting accused of something they didn't do because of all the Federal agencies breathing down our necks. Funny how every time the Government gets involved they make things worse. A clear case of people making rules when they
    have no idea what they are talking about.
  • Kim Napier | | 02 Mar 2012, 08:30 AM Agree 0
    Amen to the above comments. But I would like to further add mine.

    I'd like to point out that if only 92 of the 810 fraud cases included appraisal fraud, that's less than 12%. Now, any amout is not good, what makes up the other 88%? Builders, Realtors, mortgage officers? So...really, the appraisers are the problem?

    Also, Management Companies are the issue. When appraisers are asked to do reviews for $40.00 and drive by appraisals for $100? Really? I'm not going to put my license on the line for that amount of money. With the cost of E&O insurance and the cost to do business, I'm not taking that kind of fee. So, that begs the question, what type of appraisal quality and experience are they getting for that fee?

    When I started doing appraisal work in 1984 (I know I'm dating myself) fees were $275 to $300. Now, 28 years later, we count ourselves lucky to have a management company offer us $300.00 What other industry has not had ANY increase in fees or profit for 28 years? Realtors fees are still at typically 6%, BUT when the price of housing goes up, their 6% commission is greater. Builders may still ONLY get typically 20% profit, BUT when the price of a new house goes does that 20%.

    Back to the management companies, if they are paying the appraiser $300.00, they are most likely charging the financial institution $450-550, and they pass that fee along to the consumer.

    So, my questions to the builders, Realtors, mortgage officers, etc. would be: Are they low appraisals or inflated contracts? Is it a bad appraisal or a low quality appraisal provided by an inexperienced appraiser?

    Appraisers do not need more regulation, they need to be allowed to do their job.
  • Brett | | 02 Mar 2012, 01:11 PM Agree 0
    Thank you to all of the other comments. It finally nice to see some of us are speaking out. I find it funny on how appraisers who actually appraise daily never get asked our opinion on our profession. Ever since I started appraising (1989) I have had issues with what realtors do for their money. Granted some of them have paid their dues and are good at their jobs, but when you are required pass a weekend class and a state test to become a salesman, I have issues with their credibility. Mortgage brokers get the same requirements. While appraiser need 130 hours of class time, 2 years of training under a certified or general appraiser before he or she can say that they are an appraiser.

    I have found out years ago appraisers are typically the lowest cost in the mortgage process (maybe higher than the title company). But since the AMC's came into the picture our fees dropped and turn time was cut in half. Not to mention the amount of research required to complete a good report was increased. As stated in the earlier post E&O coverage has gone up 50%. I inquired about the increase because I never had a claim since I started and that covers 2 states and 23 years. I was told they can charge higher because I am an appraiser and they are sure soon enough a claim will be brought against me. I was appalled and changed carriers, but found that was the typical response from all E&O companies.

    I personally believe that if we take the mortgage brokers, banks and realtors out of the first steps of the mortgage process we will have better quality of appraisers doing their jobs period. What I mean is, if a home wants to refi his house, they should search out the appraiser in their area and hire them to complete the report. The homeowner should pay for the report at the time of inspection to the appraiser and not any other entity. The report when completed should be handed back to the homeowner so he can then start the process of refinancing. This way the State Certified Appraiser (regulated by the state) deals with the homeowner for that deal only. The appraiser will be less likely to commit fraud it that is the only deal he is going to get from the homeowner, unlike the AMC or banks that can promise constant work flow to one company. This then will streamline the refinance by letting the mortgage officer exactly what the house is worth before they even start.

    That way appraiser will have to step up their game to become better familiar with the areas they service. There will also be professional competition amongst local appraisers and the customary and reasonable fees we should be collecting will be collected.
    Once the report is accepted by the bank or mortgage company it goes thru a review process and if errors are found the required corrections made. If the report is denied then the mortgage company can then order a review or another report to be completed on said property at the cost of the mortgage company not the homeowner. If the deal is then denied then so be it. The homeowner then has to start over again.

    I have not found a problem with this process at all. It keeps everyone honest. Also it lets the homeowner the opportunity to shop companies for the best deal for them not the other way around.

    Please let me know what is the down side to this.
  • Time4change | | 02 Mar 2012, 02:01 PM Agree 0
    Brett, are you for real? You think a home owner would (1) have the ability to select an appraiser - know who is any good at what they do or (2) would not on the other hand pay an appraiser to give them what they want??

    There are some good comments here in other posts. Brokers are not the problem. AMC's are a problem. It pains me that I used to order appraisals from good, responsible, experienced appraisers and they got paid $350. Now they get paid $250 to $300 and the home owner is paying $450. Furthermore that is usually for an appraiser who is not experienced or reliable.

    HVCC/AIR is a failure. Lenders are set up now to feret out problems in appraisals as they should have been years ago. Brokers should be able to order appraisals from reliable, experienced sources. It would cost the borrower less and they would get faster service and a better product.

    We got HVCC/AIR because appraisers whine about being coerced. How lame is that? If someone asks me to break the law, my answer is NO. I do not go to jail for anyone and no amount of money or closed deals will sway me. Appraisers can walk away from working with those who coerce.
  • Aaron | | 03 Mar 2012, 09:06 AM Agree 0
    100% AGREED
  • Mark | | 04 Mar 2012, 11:07 AM Agree 0
    I know with the tighter lending restrictions, smaller banks and credit unions are quickly becoming the prefered place Realtors are taking their buyers as they do not have all the restrictions and the larger ones. They can pick their own appraisal panels and monitor their quality internally. What has happened is the business model for the AMC world is changing where they can not afford to hire quality reviewers and as the spotlight shines on the amount of inefficiencies this causes you may see it go away. 40% or more of your appraisals are coming back with corrections needed and how many of those are REALLY needed? The fees have all raised to the $400-450 mark but most of the appraisers have been at contracted fees around $250 and have never felt the increase. There are some new porducts like regression based tools that the appraisers will be able to add to their reports that will pretty much make the QC process go away as well. I think what will shake out is a better appraisal that is statistically supported in ways that answer what reviewers or the end users would want to know.
  • gene anderson | | 06 Mar 2012, 08:50 PM Agree 0
    I am in the unique position of turning in my license after 40 years appraising real estate. I have also had 3 flawed appraisals in 2011 because the management companies shopped appraisers seeking one who would work real cheap. I get charged $400 to $600 which is 50% more than "acceptable" and the appraiser gets $150. to $200 or A 50% CUT IN PAY. Guess what! When the management company concept was created the banks were not allowed to OWN a management company. Today almost every small and large bank OWNS the appraisal management company. The bank makes $400.00 even if no mortgage is made. $400 X ? IS big bucks.
    In my 40 years the concept of fraud was so very minor as EVERY single appraisal was reviewed. Reviewed by a professional reviewer or an under writer. That has NOT changed. Fraud is always possible but when the FBI investigates 800 and can only get 92 convictions the question is how many plead guilty because they could not afford the fight. It also has something to do with the total number of appraisals completed. The entire concept of value is what a knowledgeable buyer is willing to pay. Knowledgeable may be an issue but appraisers CAN NOT make up facts. The comps either sold at a specific price or they did not. Check the net and you will find that 99.9 percent of mortgage fraud does not involve an appraiser. The system which allows banks and management companies to exist prevents quality appraisals as 35% of the appraisers walked away from the much too low fees and too often never were paid by a management company ALWAYS located in some other state.
    To correct the problem appraisers MUST be given total independence and fraudsters who try to influence an appraiser MUST be prosecuted.
  • Brett | | 07 Mar 2012, 09:48 AM Agree 0
    Are you saying homeowners are not smart enough to do research to find a competent appraiser or any other service related professional? Are you also saying homeowners can not pay for appraisals either? Real Estate appraisers are regulated and tracked once we get our license. Anyone can research a reputation of an appraiser. Each state has an online license search for all business related professionals which contains sections for professional complaints.

    Funny, Brokers get a commission on what they sell. How do you expect a broker to pick an honest appraiser knowing his commission depends on that sale? Amc's are owned by the banks that place the mortgages, here is just a bad situation as AMc's have been picking the cheapest appraisers in any giving area, not to mention they dole out the work to which ever appraiser they feel gives them the best price. The homeowner on the other hand just wants a fair value for his home. Taken into consideration that he does not how much he or she may need to get a deal done! The only way he or she will know how much they need to secure a mortgage is by talking to one of those commission driven professionals we call mortgage brokers or realtors. Also if the homeowner is not smart enough to do the research for a competent appraiser, what makes you think they can do that for a realtor or a broker?

    It is sad to think that the people who complain about low appraisals are all commission based.
  • Brett | | 07 Mar 2012, 10:13 AM Agree 0
    As far as the WHINNING appraisers, Please do some research about what really happened. AG Cuomo from New York is the one that blew the whistle on this. As Countrywide was just that. Over 250,000 appraisals were done because Countrywide decided to hang the outstanding fees owed to appraisers over their heads to do what they wanted them to do. This is in no way an isolated situation. The H.V.C.C. was created because Fanny Mae and Freddie Mac were guilty and their guilt would have crushed this country way beyond what we see now. There is not a bank or lender that was not part of this and although the appraisers had that choice of saying "NO", owed money was the reason for a lot of them going along with being coerced. Today, I feel there is more appraisers being coerced then there was back then, as we are offered lower fees and quicker turn time. Not to mention work flow. Luckily, I do not work for any AMC's, but I can tell you that my work flow is a fraction of what it was. I am happy for the work I get and extremely happy that I get a address and a key code to gain access to my work. I do not get TARGET VALUES, REALTORS OR BROKERS on my orders. My OPINION OF VALUE comes from me. I find it troubling that the homeowners are getting screwed with higher fees and lower quality because of the banks.
    Anyway, I am for real, Homeowners deserve a fair appraisal, for their money and letting banks, brokers or realtors higher the appraisers at an inflated price is just unfair. These articles are also unfair for the homeowners as no appraisers have been interviewed for our side of the story. Until then, let the commission based professionals run the show.

    A quick off topic item; Deutsche Bank is the only foreign lender that is allowed to write FHA mortgages. They are the lender that started the ROBO signing problem along with creating a company called DOCX which made national news for its ROBO SIGNING problem. Only to be followed by the very honest lawyers that did there best to get the houses as quick as they can.
  • Retired Appraiser | | 15 Mar 2012, 01:45 AM Agree 0
    I retired midway through my career (20 years in) because I refused to participate in extortion. Banks have been given full legal rights to extort appraisers....nothing more.

    Appraisers are too stupid to fight for their careers but hopefully homeowners (whom I deem to be far more intelligent) will take the time to fight this injustice. Homeowners were screwed over nearly as badly as appraisers.

    I invite ALL homeowners and homeowner wannabes to visit and join over 124,000 who have said "ENOUGH OF BEING SCREWED BY BANKS".
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