-by Pete Bruinsma, GRI
Here are two examples I’ve encountered in the past six months in which the new HVCC/FHA appraisal rules have negatively affected sales. First, a quick opinion.
The new rules for conducting appraisals are a great example of how a well-intentioned idea can be placed into practice prematurely. I know not one Realtor, lender or appraiser who is thrilled with these new rules. Quality of my appraisals have been lower, prices higher, appraisers are paid less as a result, and authority and liability have been misappropriated.
In many regions, homes are worth less now than they were worth three years ago. Some home value inflation and some demand was manufactured through fraud, committed through improper lending and appraisal practices. Although this undisputed truth was witnessed by most Realtors, lenders and appraisers, the “fraud” word is easier to finger than the abundance of misjudgments made by lenders, consumers and economists over the course of many years. I feel as though the new method of operation for appraisals is an overcompensation.
Two (out of many more) things that bug me about this:
The advent of the “Re-appraisal” – Appraisers I know recently billed $300-350 per appraisal and retained much of that. Under new rules they share the fees with management companies, costs are driven down through competition, and they now retain 50-60% of the former fees with the purchaser paying the same or more. Plus, appraisals are under hightened scrutiny, so less money for tougher work. Since appraisers are not allowed to have any contact with referring lenders under the new rules, and findings are largely unchallenged, items never before noted on an appraisal such as “peeling paint” are new cause for a note on the appraisal, and a the call for a re-inspection with an additional fee. This easy pay correction for the appraiser is just passed down to the buyer.
Discouragement of Localism – Lets face it, without connections in the business with good lenders, surveyors, lawyers, title companies, sign companies, builders, contractors, government officials, neighborhood associations and more, the job of a good Realtor would be a lot less streamlined, and the end product to clients would be less valuable. Taking the fair, reliable, knowledgeable, local appraisers we’ve worked with for years out of the running for our new business has many negative implications and should be reevaluated. Plus, appraisers randomly assigned to find comps in neighborhoods with which they are unfamiliar simply results in bad appraisals.
Here are my two examples from personal experience:
Example 1: I’m representing the buyer. Short sale finally approved after 5 months! One month deadline to get it closed, Bank of America requires 4 days to examine the HUD statement prior to close. Appraisal ends up taking three weeks and costs $650.
The chain of command explains a lot of the problem: Short sale negotiator -> Realtor -> Loan Officer -> Bank -> Appraisal Management Company -> Appraiser (via fax). The initial appraisal request took 5 days to reach the appraiser and three more to fit into his schedule. Once there, he noted some loose shingles and peeling paint, subject to repair and a $125 re-inspection fee. Repairs were made, re-inspection request submitted, 5 days for the request to reach the appraiser and two more to fit into his schedule. Appraiser comes back, repairs are satisfactory, but he notices one piece of rotten wood underneath the shingle repair, where water had been leaking. This is on a porch overhang. He notes it on the appraisal, subject to repair and a $125 re-inspection fee. He also calls for the water to be turned on again even though we’d submitted our plumbing inspection from a certifed plumbing inspector, along with a letter that stated the water was on at time of inspection.
We did make it happen, the deal did close in time, but it came down to the final day. The loan officer voluntarily paid for the two re-inspection fees. The buyers and sellers ended up emotionally exhausted but happy.
Example 2: Rehab project purchased for $17,000. Pre-construction appraisal estimated current value of $17,500 with final estimated finished value of $68,500. Finished appraisal comes in at $20,000.
Home had been sold two years prior in less-than-perfect condition for $85,000. Home was fully rehabbed by licensed contractors including new mechanicals, roof, insulation, foundation and drainage work, new hardwood floors, landscaping, paint, bathroom, etc. Tenants placed for $750/month. Home appraised for a refinance, $450 charged. Appraisal came in at $20,000 with four comps, all short sales and foreclosures in poor condition. I personally found two 3-month-old non-foreclosure sold comps and one pending sale, of similar construction, age and size within 1/2 mile that supported $60-70k. These were submitted to the bank and denied.
Now, does the owner gamble another $450 by going through another bank, not knowing who is going to appraise the home? Maybe. Does the owner realize a benefit in lowered taxes from the city assessor taking this $20,000 appraisal into consideration when determining taxable value? Nope.