“This bill will mean good news for consumers because they should see more reliable home appraisals,” said president of the Appraisal Institute Leslie Sellers. “It will encourage the use of highly trained and competent real estate appraisers, and will provide much-needed resources for oversight and enforcement.”

The Dodd-Frank Act is the first overhaul of appraisal regulations since the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989. The House passed the bill on June 30, 2010, and President Obama is expected to sign it into law shortly.

The Dodd-Frank Act will require that “reasonable and customary” fees be paid to real estate appraisers. Appraisers have complained that with the growth of appraisal management companies (AMCs) since the passing of the Home Valuation Code of Conduct (HVCC) in May 2009, they have experienced sharply reduced fees from these appraisal management companies. “Reasonable and customary” fees will reflect what the appraiser would typically be paid for the assignment without an AMC. Under the new act, violations of this policy will result in severe penalties.

By: Present Value

Additional reading:

The Dodd-Frank Wall Street Reform and Consumer Protection Act
Mortgage Players Look to Soften Bill

But after receiving appraisals they feel are too high, some lenders have taken to performing desk reviews – appraisals done from a computer. While qualified real estate appraisers are able to perform accurate desk reviews if need be, lenders’ desk review values can be wildly inaccurate. Since there is no on-site inspection, they don’t reflect the condition of a house, they don’t add value for remodels, they’re often lacking information even on room additions, and so forth. Nevertheless, lenders are using desk reviews as justification to reduce appraised values, and sales continue to fall apart.

Fannie Mae has announced that effective September 1, 2010, lenders will no longer be allowed to reduce appraised valuations. Instead, they will be required to contact the appraiser to resolve discrepancies between the appraiser’s value and the desk review value. If the disagreement can’t be resolved on that level, the lender will be required to order a second appraisal.

By: Present Value

Additional reading:

Uniform Residential Appraisal Report

From a Lender’s Perspective

Well, the final version of the bill is ready for a vote, and the real estate appraisal community is applauding the new measures, which are the first modernization of U.S. real estate appraisal regulations since the Financial Institutions Reform Recover and Enforcement Act (FIRREA) was enacted in 1989.

“We applaud the conference committee’s efforts and urge Congress to pass HR 4173,” said Appraisal Institute President Leslie Sellers. “We are extremely pleased that this bill will protect consumers by encouraging the use of highly trained and competent real estate appraisers with much-needed resources for oversight and enforcement.”

If passed, the measure would:

• Establish a federal appraisal independence standard, sunsetting the HVCC
• Require AMCs to register with state agencies
• Enhance appraiser competency provisions, including clarification regarding consideration of professional appraisal designations
• Provide financial resources for oversight and enforcement

The vote is slated to take place sometime in July.

By: Present Value

Additional Reading:

HVCC and Uncertainty

Pointing Fingers

HVCC: The Comp Check Killer

A key issue on the table is changes to rules of real estate appraisals. Ever since the advent of HVCC, virtually every type of player in the real estate game wants changes in the current rules for ordering appraisals; these rules were established after the collapse of the mortgage market. Real estate professionals say the rules have gone too far, and often inexperienced appraisers are assigned appraisals when they do not understand or are unfamiliar with the local real estate market.

We will know soon enough if lenders were successful in their bid to make adjustments to the new regulations, and how much it will affect the currently volatile real estate market.

By: Present Value

HVCC and Uncertainty

Pointing Fingers

HVCC: The Comp Check Killer

But the spill is also affecting the real estate appraisal market, particularly in Florida. Two of Florida’s property appraisers have asked state lawmakers to allow them to reduce the value of coastal real estate to reflect damage from BP’s oil spill and force BP to make up for lost tax revenue.

Appraisers are elected in Florida, and it’s their job to provide the fairest property values possible to constituents. Chris Jones, one of the elected appraisers, said, “What do I tell the owner of a $1 million house is the value if he can no longer walk on the beach? We want to hold our own citizens harmless and don’t want to put the burden on other taxpayers.” Florida Governor Charlie Crist has been asked to call a special session of the Legislature to authorize governments affected by the spill to revalue property for the current tax year, something that has been done after hurricanes and tornadoes in the past.

The appraisers are seeking permission to reflect damage to property values from the spill in tax bills property owners will receive in November. Under state law, they can’t alter the value assigned to property on January 1 in the middle of the year.

By: Present Value

Be Sure to Use a Reputable Appraiser

Appraisal Review

The Perils of Appraising

According to the article, Edward Farley, the so-called ringleader in the scam, caused $23 million in losses to lenders by having Walter Herman, a real estate appraiser, inflate the value of each property he appraised by $50,000 to $100,000, and then found inexperienced investors to purchase the properties from one of his real estate companies. Farley received a 25-year sentence, and Herman received the nearly three-year sentence for complicity.

This incident underscores the importance of a point we’ve made many times across many blogs – be sure you use a licensed, established, reputable real estate appraiser. Thoroughly check their credentials. Find out if they belong to appraisal organizations, like NEBBI and NAPA. And if something seems wrong, be sure you speak up.

By: Present Value

Additional Reading:

HVCC and Uncertainty

Pointing Fingers

Not the Appraisers’ Fault, Either

As the article points out, the Home Valuation Code of Conduct (HVCC) was supposed to result in better, more honest appraisals. But a year after it was put in place, there’s still a question of whether or not home buyers are getting their money’s worth.

Real estate professionals, mortgage brokers, and even some appraisers themselves complain that lenders are using appraisers who lack experience, sometimes travel great distances to determine values in unfamiliar areas, or base their determinations on sales that are not similar to the property they are appraising.

So if you hire an appraiser that you feel violates the standards of his or her profession or is downright incompetent, you should definitely report him or her. If you think the valuation has come in way too low, you need to appeal, but with as much finesse as possible. Bear in mind that if the lender orders the appraiser to take a second look, it’s like telling him he was wrong the first time.

Of course, you can always ask for a second opinion from another appraiser. But you’ll have to pay for that one, too. Moreover, to stand any chance of winning your point, the second valuation must be more than 5% higher than the first. Anything less is considered an acceptable difference. Besides, even if the second appraisal is far above the first, it’s the lender, not you, who gets to pick the appraisal on which the loan is based.

The issues created by the well-meaning HVCC appear to be growing and new problems seem to keep cropping up. It’s more important than ever to make sure you use an established, licensed appraiser.

By: Present Value

Additional Reading:

Working with HVCC Regulations

Recent Articles about HVCC Changes

HVCC: The Comp Check Killer

There are some resources available for appraisers, however, to be better equipped to appraise in this burgeoning market. The Appraisal Institute, membership association of professional real estate appraisers, offers seminars and a certification program that can help appraisers value green buildings, including its upcoming webinar: Residential Green Valuation: Tools for Valuing High Performance Properties. The proposed Green Resources for Energy Efficient Neighborhoods (GREEN) Act legislation will mandate that appraisers have all relevant information about residential property – including plans and specs, green energy labels, and certifications and Home Energy Rater Score (HERS) ratings.

It is clear that green building is only going to become more popular, especially once the real estate market turns around; although it may take some time, appraisers will need to understand all the new complexities in this field of appraisal and adapt.

By: Present Value

Additional Reading:

Obtaining Loans for Green Construction

What Exactly Are You Doing, Appraiser?

The Journal Sentinel’s article, “Especially for Green Technology, Finding Comparable Sales Is Difficult,” describes a couple with perfect credit and a 20% down payment that was affected by this issue. Normally well-qualified borrowers, this couple had to contact four mortgage companies and increase their down payment to 30% before securing a loan. 

By: Present Value

Additional Reading:

What Exactly Are You Doing, Appraiser?

Jason, an appraiser, was inspecting an attic when he stepped on an unsupported section of the floor and fell through the bedroom ceiling below, thankfully landing on the bed. Mike, another appraiser, was chased away from a property he was inspecting by an angry peacock. Countless others have been attacked by dogs of every size and breed, horses, goats, alpacas, and sometimes even by startled property owners themselves who forgot about the appraisal.

The weather is another hazard. Tom was appraising the exterior of a home that had huge snowdrifts in the back yard. As he was taking photos from different angles, he happened upon a hole that was to someday become the family swimming pool and ended up buried up to his neck in the snowbank. And Derek watched the roof of a home he was appraising tear right off and blow away in gale-force winds.

Though some hazards can’t be predicted, if you’re having an appraisal done, go through some preparation beforehand to make it as safe as possible for the appraiser. Lock up excitable pets. Warn the appraiser about loose boards or holes. And be sure to leash your peacock.

By: Present Value

Additional Reading:

What Exactly Are You Doing, Appraiser?

Uniform Residential Appraisal Report