My New Blog

In the past, loan officers and often buyers or real estate agents selected the appraiser that would provide the appraisal for home loans. Today, under the Home Valuation Code of Conduct (HVCC) adopted by Fannie Mae and Freddie Mac, the way appraisers are selected has changed. While HVCC only applies to conventional loans, most lenders are using this process for all of their loans including FHA.

The intent of the HVCC was to provide appraiser independence to promote more realistic appraised values. The results, however, have not been what were expected. Potential purchasers and borrowers have had to pay higher appraisal fees, wait longer to get the appraisal completed and often had less competent appraisers doing the appraisal.

So as professionals what can we do to avoid "Appraisal Shock"?

1. Prepare the client by explaining the market has slowed, that overall values have declined, that lenders are tougher on appraisals and that there could be a problem.

2. When listing a home or advising a client about price be sure the living area, which is often the basis of the selling price, is correct. Differences in the living area listed and the living area calculated by the appraiser is often the problem when an appraisal does not support the contract price.

3. When establishing either an asking or selling price be sure to educate the client about what homes are really comparable. Explain that differences in lot size, age, condition, quality, room count and all other major amenities affect the value. Prepare a CMA showing past sales and current listings or suggest an appraisal. Using average price/square foot or even the price/square foot of selected homes can often under price or over price a home.

4. When offering or asking for seller concessions in a contract, understand that is the current market and under stricter appraisal review standards it is almost impossible to support a value that is above the list or asking price.

The next segment of this series will discuss how choosing the right lender get improve your chances of getting a better appraiser and appraisal

Because of the new Home Valuation Code of Conduct (HVCC) many lenders have turned to Appraisal Management Companies (AMC) to handle the appraisal process. The AMC charges a flat fee and then earns its profit by finding appraisers who will do the job for the lowest fee and with the fastest promised completion time.

Both as an appraiser and as a state director for Louisiana Realtors I recently been hearing lots of horror stories about appraisers and appraisals. It seems the old adage is true you get what you pay for. When appraisers with the lowest fees and promises of getting the job done fast are hired you often get an appraiser who is not qualified or has only minimum qualifications. To make matters worse it seems many of these appraisers don’t have a problem accepting assignments in areas where they have little or no experience despite rules that require them to know the market they are working in.

While the Realtor organization and many other industry organizations are working to change the current rules, we still must deal with the problems that have been created.

So, what can you do to limit appraisal shock? Well the answer is pretty easy and can be good for your community too.

1. Choose a local lender, unlike the large national lenders many local lenders have chosen not to use an AMC but use a panel management model. These lenders have retained their relationship with local appraisers who know the area and have a proven track record of quality. Before choosing your lender, ask if they use an AMC or if they have their own panel of local appraisers.

Remember a promise of a great rate is not that great if the loan can’t be done because of a bad appraisal.

2. When the appraiser calls for an appointment, ask some questions. Where is their office located? How long have they been certified? How long have they been working the area and how many appraisals have they done in the market where the property is located?

If you don’t think the appraiser is qualified tell the lender before you schedule the appointment. Ask that the appraisal be reassigned to someone that is local and has the experience necessary to complete the assignment properly.

3. Meet the appraiser at the property. Ask for a business card or other identification to ensure the appraiser inspecting the property is the one who is appraising the property and not another appraiser or appraiser trainee.

While these steps will not ensure you the appraiser of your choice, they will help to improve the chances that you will get an appraiser that is familiar with the market and is qualified.

The last installment of this 3 part series will include tips about how to prepare for the appraisal and what to do if there is a problem with the appraisal.