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

It has been my experience that there is a general misunderstanding of what an appraiser does, what their opinion of value is used for and how much power an appraiser has.  I've had discussion very recently, even among real estate agents, who think that appraisers create value in markets.  This could not be farther from the true.  We report value based on what we see in the market.  Furthermore, our opinions are private.  They are not available to ANY party outside of the transaction and therefore could NOT be used by 3rd party as a basis for a different party.

Take a look at this article for a more detailed breakdown.  Let me know if you have any comments or feedback!



https://www.nar.realtor/magazine/real-estate-news/sales-marketing/how-much-power-do-appraisers-have-over-home-value

I have been appraising for 25 years with no disciplinary actions.  I follow USPAP, take the mandatory USPAP and Laws & Regs classes every 2 years, and take pride in my work.  I did have a complaint filed against me (perhaps I'll get into the details at another time), however I was interviewed and found not guilty of any wrongdoing. It was a bogus charge.

But if an appraiser does do something wrong ... here is what can happen to them ...



https://www.workingre.com/appraiser-disciplinary-levels-and-their-consequences/

James Heaslet, Chief Appraiser for the VA discusses the AAPP (Assisted Appraisal Processing Program), ANSI Standards, and PAVE (Property Appraisal and Valuation Equity).



https://www.workingre.com/whats-new-at-the-va-interview-with-vas-chief-appraiser/

I had the pleasure of speaking at the San Diego Chapter of VAREP this morning.  The Chief Appraiser of the VA spoke via Zoom regarding upcoming changes to the VA portal, Minimum Property Requirements, and the Tidewater/ROV process.  I was able to provide more detail on some of these items in addition to other general questions about the appraisal process.

VAREP is a group of patriots who advocate for our veterans and explaining and expanding the benefits of the VA Loan Guarantee program.  They are doing great work across the nation.  Check them out ...



https://varep.net/

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/

If you are interested in the requirements for a VA appraisal, Tim Lucas does a good job of explaining a appraisal vs. home inspection. the MPR's (Minimum Property Requirements) and the VA appraisal process.



https://www.militaryvaloan.com/blog/common-issues-on-va-appraisals/

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/