(begin atypical rant from the Housechick)
There was an article in the current issue of Broker Agent magazine for the Tucson and Southern Arizona area - admittedly a pithy publication, thinly disguised ads posing as real content, for the most part, with occasional interesting articles.
The article is about a new survey that shows 90% of appraisers feel pressured to “hit the number,” meaning they feel pressured to return an appraisal for the sale price of a home.
Of course, the point of the article seems to be to get you, the home buyer, to call your lender and request an appraiser that has been accredited by the organization who wrote the article, so there’s little actual information.
The first thing that stands out is that they call appraisers the ONLY independent objective third party involved in a real estate transaction. (If you’re neutral, then you shouldn’t respond to pressure anyway, right?) But let’s give the writers the benefit of the doubt here - maybe this article was written for a state where they do not use an Escrow account. By definition, escrow involves a neutral third party.
Regardless, here’s what really bugs me. One of parts of the article selected for the big font highlights is “Homebuyers should ask their lender for a copy of the appraisal report. It is a consumer’s right under federal law.”
Okay, remind me again, who typically pays for the appraisal? Oh yeah - the BUYER.
And who gets a copy of it? Oh yeah - the lender.
And who has to make a request to receive a copy? After they paid for it? Is there a disconnect here or is it just me?
Some of the lenders I’ve worked with given a copy of the appraisal to my buyers without a formal request, typically mailing it out to my clients after closing or bringing a copy to the signing table. Every once in a blue moon, my buyers receive an email copy from the lender as soon as the lender has it in hand.
Is that enough though? If appraisers feel pressure to hit the sales price, who gets to say whether they performed in a neutral manner or not? Our contract states that the house has to appraise for at least the sales price by an appraiser acceptable to the lender - who, as far as I’m aware, doesn’t have fiduciary duties to the buyer. So the buyer pays… for something that has to be acceptable to the lender… and not for something or someone acceptable to them?
Who does that appraisal really protect? The buyer or the lender?
What percentage of appraisals come back at exactly the sales price? 80%? 90%? You know the appraiser usually has a copy of the contract in hand when they do the appraisal, right? Is that appropriate? Are we looking for an actual value or are we just mitigating risk for the lender at the Buyer’s expense?
Sheesh…
(end rant)
August 7th, 2007 at 5:38 pm
[...] I thought Kelley Koehler aka Housechick was a sweet little buttercup… well clutch the pearls, she’s on a rant!! [...]
August 8th, 2007 at 5:23 am
Kelly -
I recall the article that you’re talking about and thought much the same as you on the “self-serving” aspect. That said, I think what they were getting at is that most of the other parties to the transaction either have a vested interest in the “deal” (buyer/seller) or they are on “commission” and won’t be compensated UNLESS the deal is consumated. Appraisers on the other hand are paid for their service and will be paid regardless of whether the loan goes through or not. (Just like the home inspector, the termite inspector, etc. etc.)
“Who does the appraiser work for” depends on the type of assignment. The Uniform Standards of Professional Appraisal Practice (USPAP) govern all State licensed and certifed real estate appraisers. http://tinyurl.com/n4s5h
Each appraisal will identify the “Intended User” and the “Intended Use”. In the typical lending transaction the lender is the intended user (client) and the intended use is to underwrite the risk associated with making the loan.
So the basic answer to your question (in a lending situation) is that the appraiser works for the LENDER. Just because the buyer pays the appraisal fee does NOT make them an “Intended User” of that report. These relationships must clearly be stated on all appraisals.
USPAP also dictates that appraisers MUST review all current contracts. This is a requirement so that the appraiser can analyze the transaction and consider any non-arms-length considerations, seller paid concessions, or rebates that might effect the price. (and report those to their client).
As to who gets a copy of the appraisal? Confidentiality sections of USPAP restrict the appraisers delivery options to their “client” (Intended User). The Fair Credit Act includes the provisions that require their lender to provide them with a copy of the appraisal if requested in writing. As you note, some lenders “Just Do It!” as a matter of policy.
Who does the appraisal protect? Hmmmm? The appraisal is for the client’s use in underwriting the loan. It’s a risk assessment tool. So in the basic sense, it’s for their information and protection. However, in the case where a buyer is paying too much, it can alert them to that fact when the loan officer discusses the issues with the appraisal.
Appraiser Pressure? Hitting the Value? - In most cases 80% of a residential appraiser’s income comes from “Lending” transactions. They’re hired by “commissioned” loan officers and mortgage brokers. They’re recommended by “commissioned” sales agents. How many deals can an appraiser report “accurately” - but below the sales price - and still retain those folks as clients and referrals?
On the http://www.AppraisalScoop.com blog there’s a “Black Listing” category that discusses in detal what can happen to appraisers when they “Don’t Play Ball”. Fannie Mae just recently had to re-issue a statement regarding accurate reporting of the current “declining markets” in many parts of the US. This reinforces the position of the appraiser between a rock and a hard place.
Protection for the Buyer? Simple . . .They should order their OWN appraisal (making them the client and intended user) prior to making an offer on a home. The appraiser then works for THEM. There is no “deal” to be broken . . .the appraisal is for their information only. They can decide if they want to pay more or negotiate the price down.
I hope this helps you understand the situation from an “Appraiser’s Perspective”
August 8th, 2007 at 10:53 am
Brian - Thanks for the appraiser view, I was hoping to have one speak up and explain. I think I understand a little better now, and can pass that on to my clients.
My beef is really with the perception of appraisers as a final authority of value in the case of a typical residential resale transaction. It’s not perceived as a subjective value, an opinion, but rather as fact.
Also, when we’re writing a contract with a buyer, we talk about the appraisal contingency, and then we decide who will pay for it - which gives the impression that the buyer is paying for, and is the direct beneficiary of the appraiser. A typical buyer sees the appraiser as their guardian, ensuring the value of their purchase, protecting their interests. It doesn’t help the perception any that a buyer usually writes a check up front for the appraisal; they think they’ve paid for someone to work for them, when a buyer has really just paid a cost that the lender has passed on to them.
In an industry where most people don’t understand the inner-workings, it’s just one more thing to explain, again and again. The article just caught me on an off day, I think!
As for the pressure, that surprised me, I guess. I’ve never called an appraiser to make them “hit value.” After all the work we do with buyers looking at comps before making offers, I’m usually pretty confident we’re going to appraise just fine. In 4 years of real estate, I’ve only had two sales not appraise - and those both had large situational changes during our contract period (builder went into bankruptcy and a million dollar mechanic’s lien). On the other hand, I’ve had one client pay about $50k over what I could substantiate to her with the solds, but she insisted on buying the house at that price, despite my objections and explicit warnings. The appraisal on that one came back right at her sales price and they bought it happily.
Thanks again for weighing in with the appraiser perspective!
August 24th, 2007 at 7:58 pm
Kelly,
Back in March I post on my blog about who the appraiser works for titled Who Do You Really Work For? – Appraiser Agency as found on Table Talk With Apella. I have not seen the item you refer to but Brian covered the topic to the tee. Appraisers are working to educate the public about our “Agency” with the use of blogs and such. We are also working to counter pressure and other problems in the industry. Many of the appraiser web sites have links to the industry hot links that are addressing the problems or you can visit my web site’s resource page at http://www.apella.org.
The one thing that I try to encourage is the use of appraisals by homeowners and real estate professionals on an regular basis. This and the asking of questions. The Appraisal Foundation and Appraisal Institute are a couple of great places to start when wanting to learn about appraisals, what appraisers do and how.
August 25th, 2007 at 7:35 am
On one issue … if you’re having to explain the appraisal process again and again to buyers, I would strongly suggest giving the buyer a one page explanation of what Brian describes. Our appraisal company routinely emails this type explanation to homeowners prior to doing the appraisal inspection visit. We describe the process, photos, time frame, analysis, reporting, homeowner’s rights under law, etc. Just a thought, but if someone asks the same question more than twice, then it’s worth explaining in written detail.
August 26th, 2007 at 6:19 pm
I have written on this issue shortly after discovering Appraisal Contingency clauses in Purchase Agreements in CA.
That was in the lat 1990’s. Even today most appraisers are unaware that Buyers may be waiting to see IF the property is worth the Sales Price, not wanting them to rubber stamp it and call it Market Value.
Unfortunatly, I think the statistics from funded loans is that appraisers hit the Sales Price 98-99% of the time.
Transactionally, if you understand that the Lender orders the appraisal, is the appraisers client and the buyer has no contact with them; then it makes sense.
It makes sense to the extent that economic coersion is metted out against the appraisers who do not play ball and “Help Make The Deal Work” or “HitThe Sales Price”.
The honest residential appraiser and the honest home inspector are like the Maytag Repairman, not busy. The most accomodating, helpful appraisers have been the busiest in the last 4-5 years. Some of the biggest appraisal operations have been the most notorious in terms of appraisal abuses.
There is no structural support in the world of appraisal licensing for the honest appraiser. Not when those who control their livelihood can cut them off for NOT Hitting the Sales Price, or other factors, like making Repair Requirements, or checking the Declining Value box or Over Supply Box, etc, etc.
If you find a honest and skilled appraiser, cherish them, support them by having your Buyers use them before they make an offer. That is, if your Buyers really want the truth. Anytime you let a lender pick their favorite appraiser, YOU may be doing a disservice to the Buyer too.
September 5th, 2007 at 3:05 pm
[...] had a mini-rant about appraisers a couple weeks ago, but I promise, I’m not an appraiser-hater. I just keep running into [...]