The Appraisal Blog

Back in 2010, after the Great Recession of 2008, Congress signed Dodd-Frank into law.  It was a sweeping financial regulation act designed to prevent the events of the previous couple years from ever happening again.  A lot of the regulation was aimed at banks by requiring "stress" tests to ensure they could remain solvent.  But another part, specifically related to appraisals, required that a 3rd party intermediary be engaged by lenders when ordering an appraisal.  These 3rd parties are called AMC's (Appraisal Management Companies).  So...  the lender has a loan they want to finance.  They place the appraisal order with an AMC, the AMC finds an appraiser, the appraiser conducts the appraisal, gives it to the AMC, and the AMC gives it back to the lender.  It was implemented to stop lenders from pressuring appraisers.  And for the most part, in my opinion, it solved a problem that wasn't really a problem.  I won't say I was never asked to change the value of an appraisal.  But it was rare.

So Dodd-Frank and the AMC's "fixed" a problem that didn't exist and at the same time introduced a series of issues.  First and foremost, they increased the cost of appraisals.  As you can imagine, the AMC's don't provide their service for free.  They take a cut of what the appraiser would typically make ... often 50% or more, and even charge the lender more than the typical appraisal fee for other services.  Basically they review the report before sending to the lender.  Additionally, the model INCREASES the turn time of the appraisal.  The AMC, which like everyone exists to make money, shops the appraisal to their fee panels.  Essentially hunting for the lowest fee.  I've even bid the same assignment for the same AMC a week after the first bid!  If they had just accepted my (reasonable) fee they would have had the report back in a few days!.

But here is the thing... Dodd-Frank, at least the AMC requirement doesn't exist anymore.  It was updated several years ago and the requirement that lender order appraisals through an AMC is gone!

So all you lenders out there... I am ready to accept your order!


https://sf.freddiemac.com/faqs/appraiser-independence-requirements-faq

I've been conducting appraisal for the Veterans Administration for about 15 years.  They have a program called Tidewater which allows any parties to a transaction to provide data to the appraiser for consideration in their analysis.  It is a little more complicated than that ... there is a specific procedure and timeline that must be adhered to ... but that is the gist of it.  Federal banking agencies have been looking into allowing for a similar process for conventional loans and the Appraisal Institute has provided their support.

I am all for anything that increases transparency and public trust, and Tidewater, in general is a good process.  My concern is that this will open the door for anyone to submit irrelevant data and, if a change in value is denied, feel justified in filing complaint with the state licensing board.  And this doesn't even speak to the added time it will take to address these issues.

In other words, I fear this will open the floodgates for unsubstantiated complaints against appraiser.

See my previous post about the ROV for additional information here ... 



https://appraisalinstitute.org/advocacy/advocacy-pdf-library/tidewater-initiative

The biggest change an appraisal forms since appraisal forms were standardized is being rolled out with scheduled implementation for 2025.  The redesign rethinks what a "form" is and takes advantage of technology to create a truly dynamic format.  No more 1004 Single Family Residential form.  No more 1073 Condominium form.  The appraisal report will change based upon what kind of property you are appraising and what the assignment is.  Appraising and SFR in a PUD?  The report will have a PUD section.  Appraising a manufactured dwelling for a purchase?  Add the contract section and the HUD section.  Similar sections will appear and/or disappear for 2-4 units, and drive-by and desktop assignments.

This will take some time to get used to ... but the end result should be beneficial to everyone!


https://sf.freddiemac.com/tools-learning/uniform-mortgage-data-program/uad?utm_source=eloqua&utm_medium=email&utm_campaign=2023-09-27_TECHNOLOGY_Announcement

The latest salvo against the appraisal industry is the introduction of the bifurcated appraisal.  Essentially, for certain loans, FNMA is splitting the appraisal process into two parts,  The field inspection and the analysis.  As such, they are having non-appraisers, conduct the physical inspections, who then provide that data to the appraiser for analysis.

Who are these data collectors?  What kind of training do they have?  What is there liability and responsibility?  In short ... I don't know...



https://www.nar.realtor/research-and-statistics/research-reports/appraisal-process-report

25 years ago I charged $285 for my first full appraisal.  Last week I did one for $300.  Now, we are currently in a downturn in the real estate market in terms of volume, so there are some other market pressures, however, the AMC model has had a major impact on appraiser fees.  For those of you who don't know, after the 2008 crash, Congress signed Dodd-Frank into law which created the AMC model currently in place.  Essentially, an AMC is a middle man between the appraiser and the lender.  And for doing their service they charge anywhere between 50-100% of the appraisal fee.  That fee isn't charged to the lender/consumer... it is taken from the appraiser.



https://www.housingwire.com/articles/appraisers-raise-alarm-on-amc-revenue-sharing-models/

FNMA has relabeled their Appraisal Waiver program ... Value Acceptance.  Apparently they felt that the new phrase more accurately reflects what happens behind the scenes... which means they run an AVM (Automated Valuation Model) and then the lender and/or borrower can accept the value ... or not.

In conjunction with this they are rolling out Hybrid Appraisals.  These assignments will have unlicensed Property Data Collectors conduct on-site physical inspections of the subject who will then provide that data to a licensed appraiser who will conduct an actual desktop appraisal.

I've been told the goal is to speed up the appraisal process and reduce cost.  Neither of which will happen.  You will still have to schedule an inspection, and now you will be paying to contractors, as well as the AMC for the report.



https://www.skylineschool.net/post/fannie-mae-just-created-a-new-real-estate-career-with-their-new-appraisal-waiver-program

No ... no one is going to get shot.  A "drive-by" appraisal is an exterior only inspection of a property that is used in the lending business under certain circumstances.  Every lender has different underwriting criteria but it boils down to your credit score, How much money your are borrowing, the LTV (Loan to Value), and your income/ work history.  If these factors fit ... you may not need a full inspection for you appraisal!



https://www.rocketmortgage.com/learn/drive-by-appraisal

Thee geek in me loves a good map.  And finding zoning information can be arduous.  It needs to be searched and verified for every appraisal assignment.  It has gotten easier over time with more and more municipalities moving to on-line and searchable databases ... but the disparity and availability of data is still a hurdle.  These 3D zoning maps might add another layer of complexity for those who choose to adopt them ... but boy would they be cool!!



https://concept3d.com/blog/map-software/how-municipalities-can-leverage-stunning-3d-zoning-maps/

The CFPB is implementing procedures to allow borrowers to request a Reconsideration of Value (ROV) if they believe their appraisal is inaccurate.  I agree with the rational and intent behind the policy, however, I also believe this will open a can or worms creating excessive complaints and work with little to no gain for borrowers.  Appraisals are not conducted in a vacuum.  There is a layered review process in which multiple people must agree with the appraisal report before a loan is finalized.  For most conventional and FHA loans there is the Appraisal Management Company (AMC) who reviews the appraisal and submits questions/corrections,  Then the appraisal is given to the lender who also reviews the file and can also submit questions/reviews.  Typically somewhere in the process an AVM (automated valuation model) is run and compared to the appraisal.  So after all this ... the homeowner is going to have the ability to challenge the appraisal?  They will provide "comparable" sales that they want to be included in the report that just closed a little while ago.  Typically a little while ago to a borrower will have occurred 12+ months ago.  Or just down the street ... 3 miles away.

This is not good policy.  It will further erode public trust in appraisals and drive appraisers out of an already thinning workforce.


https://www.consumerfinance.gov/about-us/blog/mortgage-borrowers-can-challenge-inaccurate-appraisals-through-the-reconsideration-of-value-process/

George Dell discusses potential modernization of the appraisal industry on his blog ...



https://georgedell.com/appraisal-reform-whats-missing/