Appraisals have been a sore spot in the real estate market in the past decade. When things were booming, pressure was placed on appraisers to make the value hit the loan amount. This caused prices and values of properties to skyrocket.
Then when the downturn hit, appraisers realized their culpability in the boom and tightened their standards. Real estate agents were bamboozled as property sales were constantly getting stuck at the appraisal stage as the values were regularly coming in under the loan amount.
Now let me take a minute to explain I am not blasting appraisers. They are the middle man in the home sales equation and are always in a tough place. If they are too tough they do not get work later on so their is a self interest at stake. I do understand this.
But now new Fannie Mae and Freddie Mac regulations have put the appraisers in a bigger bind. They demand that lenders control the choice in appraiser, not mortgage brokers or real estate agents.
Since national lenders cannot maintain lists of appraisers in every community, they long ago began outsourcing the process to the management companies, who had claimed about 30 percent of the market before the code took effect. Now that the lenders are the ones ordering all the appraisals, the management companies are expanding their share.
Real estate groups say the management companies, with the competition from brokers and agents eliminated, are now trying to fatten their profit margins by hiring appraisers as cheaply as possible.
These inexperienced appraisers, often traveling many miles to a market they do not know well, are scuttling legitimate deals, the agents claim. This argument has resonated in Congress, where 55 legislators have sponsored a bill calling for an 18-month moratorium on the code.
Read the whole article at the NYTimes.com.
The cost cutting mentality of the appraisal management companies is lowering the standard on the quality of appraisals. What is ironic is that they are paying the appraisers less but charging the customers more at the same time.
So now the top quality appraisers are being squeezed economically while they also are under the whim of the management company to get work. This is not the recipe for an effective market.
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Yeah, I have heard nothing but complaints on the new rules. A mortgage broker friend of mine was ranting about it the other day, and about how much extra work it can cause him sometimes.
-Tyler
I haven't had any issues yet with appraisers… yet. Finding underwriters are beginning to be the silent deal killers.
The issue is when your property is appraised, the lender will order an appraisal through a secondary company. This order it then referred to a local appraisal company and then an appraiser. The appraisal is usually completed and review by the local appraisal company, referal company and then is sent to the bank. The process is very time consuming and slows the buying process. Furthermore, you can forget disputing the value like we did in the old days.
The new rules are definately creating issues with my current transactions and I agree with you 100% when you say, “This is not the recipe for an effective market”. I have been getting appraisers assigned to the properties I sell from over 50 miles away, and it just doesn’t make sense. Thanks for the post!
Thanks for this article, I've been reading quite a bit about this issue. Do you think that this is the next big stumbling block in this profession? Or is this appraisal issue something that can be overcome easily?
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