Realtor vs. Appraiser: Are they being pitted against each other?
August 6th, 2009 by Allison Jordan
There may be nothing so controversial in the real estate industry right now as the Home Valuation Code of Conduct (HVCC). The code was established by Fannie Mae along with the Federal Housing Finance Agency (FHFA) in an attempt to regulate the appraisal industry and create more separation between appraisers and lenders.
The HVCC states that Realtors and mortgage brokers are prohibited from selecting appraisers. Lenders can select “in house” appraisers, but due to restrictions, many are hiring appraisal management companies (AMCs) to obtain their appraisals.
Since roll-out, Realtors and mortgage brokers claim low-ball appraisals are killing their deals, and some appraisers feel the real estate industry is just pointing fingers.
Here’s how some on each side of the ring weigh in:
| Realtors: | Appraisers are making less money and thus cutting corners, often selecting inappropriate comps |
| Appraisers: | When Realtors feel appraisals are inaccurate, they should contest with hard evidence |
| Realtors: | The best indication of value is what a buyer is willing to pay |
| Appraisers: | Low appraisals are a reflection of what is going on in the market |
| Realtors: | AMCs are hiring inexperienced appraisers for less money who may not be familiar with the area |
| Appraisers: | Realtors should encourage buyers to work with lenders who are known to work with reputable AMCs |
As the accusations fly around, the only thing that’s apparent is that the system remains flawed, and the HVCC is doing nothing to help. Representatives Childers (D-MS) and Miller (R-CA) have introduced a bill calling for an 18-month moratorium on the HVCC in order to work out the kinks, though some think the this will do nothing to solve the issue.
What do you think?
Tags: appraisers, Home Valuation Code of Conduct, home values, HVCC, real estate appraisals
August 6th, 2009 at 4:14 pm
[...] a while. Upton also spent time on the disabled list last year with a strain of his left oblique. Realtor vs. Appraiser: Are they being pitted against each other? – estateofthings.com 08/06/2009 There may be nothing so controversial in the real estate [...]
August 7th, 2009 at 8:42 am
[...] Estate of Things » Blog Archive » Realtor vs. Appraiser: Are they being pitted against each other? "The HVCC states that Realtors and mortgage brokers are prohibited from selecting appraisers. [...]
August 10th, 2009 at 7:15 am
I would tend to agree with the realtors. Both my last two appraisals (late 2006 and early 2009) contained errors and comps that were less than what was expected. It’s a real shame.
August 10th, 2009 at 7:26 am
I sold my appraisal business in 2000 after 17 years of practice. Since 2000 I have been a realtor and community college instructor. HVCC is bad for appraisers as they are being forced to take lower fees or get out of the business and bad for consumers, Realtors and lenders as they are receiving lower quality valuations by appraisers who are willing to work for these lower fees.
As to the comments about value being “what buyers are willing to pay” I agree. In fact “Willing buyer and seller acting in their own best interest” is the key to any definition of value.
August 10th, 2009 at 7:28 am
Well take Birmingham Alabama, the realtors do not include the square footage. and then want to complain about an appraiser that used an inaccurate courthouse s/f. If your realtor can not even measure a house why not find a professional realtor… In Birmingham ALabama there is not even a place to put the s/f. In Huntsville MLS the sq ft is in the mls and they have few appraisers complaints,
August 10th, 2009 at 7:57 am
I am a little shocked that Mr. Cavanagh thinks that value is defined by what a buyer is willing to pay. That is not the definition of value as it should be defined by any logical person. Many people, acting on their own best interest, act illogically due to lack of experience, greed, fear, stupidity, or an assortment of other things.
The mortgage meltdown has shown again and again that people, specifically buyers, make irrational decisions. That is the reason they were willing to pay much more than they could afford for a home, just to get into the home! I am glad if certain deals are not getting approved and the market prices remain low, that way a real recovery can happen and the higher end homes will be forced to drop (which is definitly coming). So lets not rush to get back to where we were, it will only cause us to repeat the past
August 10th, 2009 at 8:09 am
This is the biggest mess I’ve seen since being licensed in 2002. The HVCC was meant to bring about more accurate appraisal values and protect the appraiser from pressure by the lender or Realtor. The only thing it has done is to add extra work on the appraiser and lower his appraisal fees. Everybody and his brother are skimming off the top from the fees the lenders are charging for handling the loans. Appraisers are coming into my area from 75 and 100 miles away to get business because the AMC’s have choked them to death by offering rediculously low appraisal fees. I think that the quality of appraisal reports have gone down while the pressure has gone up. I’m not only having to put three, four, and five comps into an appraisal, I’m having to put two and three active listings. Then the 1004MC has added another hour to the process. More work, less pay that’s all the HVCC has done for me.
August 10th, 2009 at 8:29 am
I am a certified appraiser and here’s my 2 cents. The HVCC came about because most lenders and some Realtors were consistently and aggressively putting pressure on appraisers to “make value” so their deals would go through and they would get paid. This pressure included withholding an appraisal fee and/or additional work if the appraiser didn’t “play ball.”
The HVCC also came about because, unfortunately, there are plenty of unethical appraisers who are happy to make these suggested numbers to keep a client happy and collect an appraisal fee.
The appraisal business is the one profession that has had the lowest barrier to entry – all any joeblow off the street needs to do is find an appraiser sponsor, complete some state paperwork and pay a fee and boom they’re an appraiser trainee.
I would argue that today, most appraisers don’t really know how to appraise property. They’ve been taught by their sponsors, “here’s the number, go find comps to make this work, and be sure to ignore anything that doesn’t make it work.” And now under the HVCC, when there is no indication of desired value (other than a sales contract), they have no clue how to really appraise property and correctly estimate a value. Of course this doesn’t apply to everyone, but from the number of reviews I’ve done and those I’m familiar with in my large metropolitan market, there’s a lot of this, believe me.
Yes, AMCs are bad for the real estate and appraisal industries, but so is unfettered lender selection of appraisers. Mortgage brokers and lender agents who directly stand to make money from a specific transaction will ALWAYS select appraisers that will consistently hit their values. This is in large part what led to this country’s housing collapse.
As for the argument that true value is what a buyer is willing to pay and a seller is willing to sell for, that’s correct so long as it is the “most probable price in a competitive market with both acting prudently, knowledgeably and for self interest and not under undue duress.” We all know that given the ridiculous nature of some markets’ appreciation around the country, that many buyers were not acting prudently or knowledgeably. And when you are borrowing other people’s money to pay for your purchase, you better be prudent. If it’s your cash, go to town, pay whatever you want.
It also helps to have knowledegable and responsible seller and buyer agent representation where the Realtors are supporting their client’s needs and interests rather than the Realtors’ own payday.
August 10th, 2009 at 8:41 am
I started selling Real Estate in 1976 and became an appraiser in 1998 so I have a good grasp of both sides of the issue. I feel the recent implimentation of the HVCC is a disaster and a joke. As far as the HVCC goes, I just love giving roughly 35% of my fee to a third party that requries you, as the appraiser, to be up their a*s 24/7. I waste way too much time giving updates and explaining why something is schedueled for Friday instead of Wednesday as an example. The quality of appraisals will definitely suffer since the appraisers have to increase their workload to make up for the drastic reduction in fees. Fortunately, the majority of my business is FHA so I have limited exposure to the AMC Cancer but I am sure someone is going to have a great idea. “Hey, FHA should be included” Lets hope sanity rears it’s head eliminates (or totally re structure) the HVCC.
Appraisers are forced to do much more work thanks to the useless 1004mc form which in itself is wasted time and effort. You can’t establish a reliable market trend when you have limited sales in the time periods on the form, which is most of the time, as defined by the instruction which states that sales and listings must be ones that compete with the subject property. What exactly does that mean? Use only the same style? Use only the same # of bedrooms and/or baths? Use only properties with same external obsolescence( main rd. etc)? It definitely needs to be overhauled completely or totally eliminated.
There, I said what has been on my mind since May.
August 10th, 2009 at 9:36 am
Based on my recent experience, I’ve got to agree with the realtors on this one. Between the appraisers and the mortgage departments of the lenders, it’s somewhat amazing that any properties are selling.
When the interest rates dropped earlier this year, I attempted to refinance my condo in San Francisco.
The much abbreviated story is that the lender decided that the already low appraisal of $720K wasn’t right and went with a value of $556 instead.
Four of the six comps had adjusted values between $735K and $880K; the second lowest had an adjusted value of $680K. The lowest one (and the one the appraiser weighted the least) had an adjusted value of $556K – $124K less than the next lowest.
The lender’s sole rationale for selecting that sale as the most represenative comp? It was on the same street as mine. If you’re buying or trying to refinance you’d better hope there hasn’t been a recent sale in that neighborhood considerably lower than yours.
For those of you interested in all the gory details, read on …
The initial appraisal came in lower than anticipated at $720K, but high enough that I had still had 20% equity in my property.
Since I have a credit score in the upper 700s, I should have been all set, but then the lender (Wells Fargo) requested a ‘collateral review’ by someone in their lending group located in Bloomington, MN (who obviously would know the SF market!) … that person ultimately came up with a value of $556K. Yes, more than $160K less than the already low appraisal.
My refinancing came to a screeching halt. They graciously offered to go forward with lending me 80% of the $556K value … all I needed to do was pay down $120K in principal.
Before you think I’m just another homeowner with an inflated view of the value of my property, let me add that the owner of another unit in our condo association had just received a $735K offer for his unit.
Our floor plans aren’t identical but both are 3 bed/2 bath with just under 1500 sq ft and panoramic views of San Francisco, the bay and the East Bay hills beyond from the living room and all 3 bedrooms. When you consider that my unit has been fully renovated over the past 3 years and has a larger master bath (with separate shower, 6′ jetted tub and dual sink vanity) compared to his unit that has the original 1962 kitchen and a smaller Mbath with just a shower and a single sink vanity, I think it’s safe to say that my unit should have appraised out at least at the $735K, and probably closer to $800K given the differences in condition.
Unfortunately for me, he decided not to sell, so it wasn’t available as a comp for the appraisal process, a fact that would come back to haunt me.
So you’re probably wondering, how did they come up with the $556K value?
As part of the collateral review process, they solicited feedback from a SF realtor who submitted their own comps and a value of $780K. So far, so good.
Unfortunately, there was a comp included in the original appraisal report that was much lower than the other 5 and that’s the one they decided was the right value. As I noted earlier, five of the six comps had adjusted values between $680 and $880K (four were at $735 and above). The lowest one (and the one he weighted the least) had an adjusted value of $556K … $120 less than the next lowest. Needless to say, with a $300K variation in values from low to high, there’s a reason for the differences.
Why was the $556K property so much lower? It’s only a 2 BR/2 bath (mine is 3/2) and only the 3rd floor has any sort of view compared to unobstructed views from all rooms in mine (the comp is on the other side of the street from our buildings so we block the view). The condition of the interior was rated as “inferior”. It was a rental unit and took over 300 days to sell (not typical for the SF market). I think the only reason it had been included was because it was on the same street as mine.
But surely, you ask, the appraisal considers those things when coming up with the adjusted value for a property?
As you’re probably aware, in order to come up with comparable values, the appraisl process adds or subtracts from the other property’s sales price based on comparison to the property being appraised. In this case, that property sold for $520K. They added $12,000 to the sales price because my unit had more rooms, $2,800 because mine has more square footage (the used $50/sf, whilet the avg $/sf for the area are $400-$500), $3,000 because mine has a fireplace, and $20,000 to account for the differences in interior condition. They didn’t do any adjustment for the difference in the view. Add that up and they came up with an ajusted value of $556K.
I could take issue with several of the values, but the one that was totally ridiculous was adding only $20,000 for the difference between a unit that was judged to have an “inferior” interior and one that has been fully renovated with higer-end finishes.
Even had everything else been equal in terms of layout and view, there is no way someone would pay only $20,000 less for a property that needs to be totally renovated. In this market, you’d be looking at a difference of close to $150K.
After arguing with Wells Fargo for 2 months, they refuse to budge. My mortgage broker tells me that they’ve become increasingly difficult to deal with for mortages over the past 3 months. My only hope is that another lender will be more reasonable. Or pay for another appraisal and hope that one isn’t included.
August 10th, 2009 at 9:46 am
As a Professional Realtor(R) of 25 years, I know we have a loud voice in government and politics, but we must act in a manner that influences change and solves issues.
We have been treading new ground, and while it is unfortunate that new regulations are in place it is of no surprise to anyone that we are in this mess, but we must all deal with it…if not, you may opt to get out of the business.
If we as professionals are not part of the solution, shame on us, that is why the govt steps in and regulates, if we cannot find a solution to these new appraisal conflicts, shame on us again.
Simply put, stop the bickering and offer solutions! Realtors(R) defend your property values with hard facts and comps, appeal the appraisal through the lender and move forward, we will overcome these new challenges as we have all done with other situations in the past.
If you are serious about your profession, and you did not come into this business the last few years strictly for the benefit of those boom years long gone now, understand the predicament and the responsibility we all have to make this work in synch once again, and we will- we just have to be prudent in not allowing the pendulum to swing back to the extreme that got us into this turmoil. Just do it one transaction at a time…but do it!
August 10th, 2009 at 10:03 am
It is about time your industry has become more regulated. For far to long mortgage brokers and appraisers have been cutting corners only to line there own pockets and not thinking about long term market effects. The securities world has to deal with the SEC, NASD/FINRA, and compliance officers on a daily basis. I am sure if your industry were under the same scrutiny from the government that securities world is, we would not have had the extremely bloated housing prices nor as half as many mortgage defaults. In my opinion, the government is getting more involved not to assist appraisers or lenders but to make sure the general public is not getting taken advantage of.
August 10th, 2009 at 10:21 am
Frustrated, I hear your pain. It sounds like you unfortunately had one of those appraisers who do not know how to appraise as I mentioned in my previous post.
The first red flag, a $324K spread in the “adjusted” value range. They clearly were not using truly comparable sales, and had no idea how to extract appropriate adjustments from market data. At most, the range in adjusted values should not exceed about 20% from high to low, and it seems obvious they did no market comparison to account for the premium view characteristics of your property.
It’s an unfortunately all too common factor I’m seeing more and more these days – lazy, incompetent and unethical appraisers causing everyone pain – home owners, buyers, sellers, Realtors and honest, competent appraisers.
You do have a possible recourse at least with regards to this specific appraisal. You can have the appraisal reviewed by another appraiser you trust in your area, and if the appraisal consists of errors, ommissions, or inaccurate market analysis, you should file a complaint with your state appraisal licensing and certification board. This is the only way to weed out the people who shouldn’t be in the appraisal business. It certainly won’t get the loan you want from WF, but you may find some peace of mind.
The thing you do have going for you with the HVCC if you persue another lender is that the previous appraisal can’t be used. Also, not all lenders are relying on AMC appraisers. Find a large local bank or top mortgage banker in your area who has set up an in-house HVCC compliant appraiser selection process. These places will likely have had business relationships with the best appraisers in town and will likely have these appraisers included in their compliant selection database. Good luck.
August 10th, 2009 at 10:27 am
Unfortunately it seems to me that we had a bad situation 2004-2007 with no regulations on appraisers, and all the cards on the table as far as the values the realtors and loan officers needed. So now we regulate and regulate too excess. Causing appraisers who want to stay in business and not be black listed to give the lowest values possible to keep business coming in the door. The lenders win if they only invest in absolute clean deals with high equity positions borrowers.
The problem is the market is dominated by repos and short sales and so the sellers are the banks and the investors for our buyers are the banks. It seems to me the realtor once loan officer that all the new regulations are to protect the banks from getting themselves into this mess, without any consideration for the consumers who just want to be approved for a home purchase and have committed no crime.
August 10th, 2009 at 2:14 pm
I just tried to refinance a first and second mortgage into one to capatilize on the low interest rates in May. Our house appraised for 240K 2 years ago when we took out the second mortgage. We subsequently put 30K into a new kitchen, hardwood floors throughout, including custom wood up the steps. Needless to say, post HVCC, our house was ridiculously low-balled by the appraisal company at 208K. Even with all the upgrades…3300 sq ft, 5 bedrooms, 3.5 baths, completely upgraded/remodeled. We both have nearly 800 credit scores and hefty salaries, but could not capitalize on the refi due to inadaquate equity. They would not even consider adjustments even after I pointed out several flaws with comparables – large things, like I have a lot twice the size as theirs, I have a fenced in yard when they do not, some of them had no finished basement, which I do…two had no walkout basement and I did (they have a concrete patio, when I have a walkout with concrete patio and then a large cedar deck up on the main level). I even have a Cook’s storage building – 16 by 10 with a loft and none of the others even have extra storage. The mortgage lender paid this appraisal company $350 of my money for a kid about my son’s age, 20, to come out, send less than 15 minutes at my house and provide absolutely now value in my opinion. The appraisal system is badly broken and needs to be fixed!!!
August 10th, 2009 at 2:47 pm
Certified Appraiser, thanks for your comments – I agree, the $300K spread in “comps” was an immediate red flag.
There were several other issues with the original appraisal that I detailed out to my broker when we first got the appraisal. At the time, it didn’t seem worth really pursuing since the $720K value he came up with was high enough to support the loan value. It was once WF’s internal people got involved that it really went bad and they decided the $556K comp was the right one.
But the reality is that the $556K comp should never have been included in the first place. The next lowest comp was at $680K – even though that would still have been too low, if necessary, I could have come up with the $20,000 to get to an 80% loan value.
I had the misfortune to be refinancing just as the new regulations took effect. As a result of an incompetent appraiser, I lost out on getting a 4.75% fixed rate 30 year loan … a rate that I never expect to see again. But then again, I consider myself lucky that I was only trying to refinance and not to sell or purchase a property.
As I regroup and consider my current refinancing options, my mortgage broker is providing a list of questions to ask the appraiser so that I can request a different one if I’m not satisfied with their qualifications.
The irony I see in all of this is that while inflated appraisals may have contributed to the housing crash, the pendulum has swung so far the other direction that overly conservative appraisals are now working against any recovery or stablization in the housing markets. When well-qualified loan applicants aren’t able to get loans because the appraisals are unrealistically low, it just contributes to the downward spiral.
August 10th, 2009 at 3:26 pm
It seems amazing to me that early on in the bubble, it was obvious that appraisers, realtors and banks were in collusion- writing the value at whatever the bank and realtor decided on. I have no sympathy for ANY of them.
August 11th, 2009 at 7:44 pm
i recently got an appraisal and it was higher than any of the market analysis by 40,000. what do you do when no comparable houses have sold recently, within 6 months
August 14th, 2009 at 4:17 pm
JB says; It is about time your industry has become more regulated.
Well JB, doing something for the sake of saying you did something does not help consumers.
Frustrated in San Fran is an example. Wells Fargo uses a AMC, in fact they likely owned the AMC that did the appraisal in San Fran mentioned above…..That’s a pretty stupid design if the plan is to help consumers, don’t you think?
Realtors have a right to be up in arms and so do borrowers…HVCC is FUBAR
August 18th, 2009 at 2:34 pm
If I were the great Kahuna for a day, the first thing I would do at 00:00:00:01 would be to get rid of the AMCs. But, I might consider keeping the HVCC.
Even before the HVCC, AMCs were a bunch of parasites adding no value to the appraisal process. When Como went after eAppraiseIT, I thought things would get better. But, in comes HVCC and out goes carte blanche to the AMCs.
What I don’t understand is with all of the barbs being cast about among appraisers and Realtors; doesn’t it seem a bit far fetched that the collective bunch in one profession would be trying to intentionally ruin the collective bunch in another profession?
The fact of the matter is the American way of life centers around making a buck. And like a herd of cattle, we all gravitate to where the grass is greener. Just look at any new, creative, successful entrepreneurial effort and see how it attracts copycats. Since HVCC, 15 companies I personally know of have offered to provide me with a list of AMCs or to market me to the AMCs for a fee.
The housing bubble, like the dot com bubble was brought on by greed, plain and simple. The lure of the rich and famous lifestyle is a strong motivator for the American capitalist.
Supply and demand drives the market, not realtors, not appraisers, and not mortgage brokers. The makings of a “Perfect Financial Storm” were seeded by the interest rate reductions designed to stimulate the demand for housing. As demand increased, prices of vacant lots and materials went up and new home prices followed. When land and home prices increased faster than the stock market, investors came running and figured out how to make “flipping” very lucrative.
From a Realtor’s or appraiser’s perspective, there was plenty of data to support the inflated prices. Both professionals were aware the data supported the high prices but intuitively, both knew the value just wasn’t there. There were a lot of realty professionals who predicted the meltdown along with the foreclosures. But, while the ruckus was going on, what do you do? Say, “Here’s the data but don’t believe it because I know it’s phony, the real value is what I say it is.” I don’t think so.
The same is true on the downside. The “Flipping Investors” were the first to stick the banks and create the “Short” inventory. The sale of those properties along with a huge inventory of undervalued properties created the declining market. What do we do now? Say, “Here’s the data but don’t believe it because I know it’s phony, the real value is what I say it is.” I don’t think so.
Appraisers are ethically bound to provide an objective opinion of value without any bias, outside influence or self-serving interest. They are generally licensed by their state of residence and can do an appraisal anywhere (that is ANYWHERE) within that state. The license does not specify a community, city, county or any other limiting locale. I don’t like the idea of an out of town appraiser horning in on my turf, but being out of town doesn’t disqualify the credentials. The appraisal process is a cut and dry procedure using hard data and can be done anywhere. What is critical to be a successful appraiser is inquisitiveness and persistence. When you erode the time to do both, the quality of the appraisal suffers, not because of where the appraiser lives.
The problem we now have is the AMCs. AMCs are evil!!
For less than what is paid to fast food burger flippers, appraisers are expected to: research properties and analyze past and future market trends, do a field inspection of the Subject and comps, do more research because the results of the first research had garbage for data, complete a full report within 24 hours of the order and be constantly available for follow up and changes. And, if you don’t perform according to their timeline, your fee gets reduced and you’re put on a “Do Not Call” list. I defy anyone to tell me they could or would want to complete the assignment flawlessly.
There are still good appraisers trying to perform good appraisals for slave wages. When they finally become disgusted and leave, the ones taking short cuts in order to do the volume will be left and the appraisal report will become totally worthless just like the 1004MC.
September 11th, 2009 at 1:32 pm
I feel sorry for new appraisers. Imagine having to learn to be an appraiser in today’s market???? How are they being trained? Is anyone actually going job to job with them to teach them the appropriate way to inspect a home and find comps? I’ve been an appraiser for 15 years. I was taught by an appraiser who was appraising when reports were handwritten. I used real photos and copies of maps with stick on arrows to designate my subject and comps when I started. Looking back I remember thinking how she nitpicked every word and scrutinized every comp. Now, I’m thrilled she did and even though she’s retired, I still go to her when I need to hash out something. But on the other side of the coin, lenders have too much to say about how we do our jobs. Two comps have to be within 3 months and 1 mile, all adjustments have to be bracketed, etc. I’ve worked for AMCs for 15 years. In the beginning, even though the fees stunk, they had advantages. You got plenty of work and there was no one to bust your chops to make a value. Turntime is what aggravates me the most. We’re required to get the report back in 48 hours and then 3 months later, you get a request for an update, because the loan never closed?????!!!!! I tried working for mortgage brokers, but after a few jobs of “not making a number,” I never heard from them again. Realtors and homeowners have no idea what we have to do sometimes. It’s not always the appraiser. Sometimes the lender requires you to put in a comp that “conforms” to their thoughts. That could be why the low ball comp was put into the San Francisco job. The appraiser may not have had a choice. When doing a condo, we’re required to use a sale outside the complex? Why? If you’ve got valid sales within the complex, why go somewhere else? Just doesn’t make sense to me. I’ve also been told by borrowers, that after I’ve given my value, the bank will just say no, they don’t agree with it so this is what they think!! I agonize over EVERY job I do these days and it doesn’t matter how much I get paid. We can only work with what we have. Most times, the sales are limited so experience is key. I would not want to be an appraiser starting out today. I agree the 1004MC is a worthless form. I also think the HVCC could be a good tool, if used properly. Appraisers can work anywhere as long as they do the proper research required and have access to the necessary data. And, I’m sorry…I have a lot of friends who are realtors, but some are clueless to what’s going on in their areas as to depreciation. If I’m appraising a Raised Ranch, don’t show me Colonials for comps in a different school district or town. There’s also something important that people should remember. Realtors work on commission, as do mortgage brokers…..appraisers do not. If a buyers make an offer that the realtor thinks may be a little high, will they tell the buyer that? I’m sure there are some that will, because they are not thinking dollar signs.