Tearing the Heart Out of a Housing Transaction
I heard it again just this weekend. A home's Appraisal came in nearly 25% below the Sales Price agreed upon ($200,000 - $250,000 range). The news was tearing the heart out of the Buyer, Seller, and their agents. Heck, the entire transaction!
Can the market recovery truly establish any solid footing if Appraisals continue to get in the way of a Buyer and Seller's agreement of terms? Or can the market really rectify and heal itself with prices established by a professional Realtor who knows a Comparable from a Seller's "need to sell it at" price utilizing the new HVCC system?
It's a fact that many Appraisals are still completed in a timely and efficient manner. Having been an Appraiser for over 20 years, I have a lot of respect for the efforts of many Appraising professionals still working within the industry. Right now, Appraising can be one difficult and very challenging gig.
It's my opinion that much of the current difficulty surrounding Appraisals is due to the new "process" in which they are performed. The HVCC Act (Home Valuation Conduct Code), was born out of the housing crisis, and the (researched) opinion that complicit Lenders/Appraisers relationships had a lot to do with the inflated property values that occurred throughout the mid-2000's.
It was determined that, in order to eliminate pressures applied by Lenders on Appraisers to "hit the numbers", a buffer ... the Appraisal Management Company ... should be established. The management company receives the Appraisal order and assigns it to:
A. Their best available appraiser
B. The next one in line
C. The Appraiser most local to the property
D. The Appraiser with the lowest fees
E. Any or all of the above
At least in theory, this is what happens. But ...
Keep in mind, the Lender (competing with an array of other Lenders), is wanting to keep the costs/fees down for their Borrower. The Appraisal Management Company (a separate business entity), competing with other AMC's for that Lender's business, also wants to keep a lid on their fees. Given that the AMC's retain anywhere from 20 to 25% (more or less), of that Appraisal Fee, that leaves a pretty lean amount left over to pay the actual Appraisers doing the work.
The HVCC has accomplished some of what it was supposed to do. It did create a "wall" between Appraisers and Lenders. It did level the playing field for Appraisers vying for business from Lenders. And further, HVCC has made it impossible for individual Loan Originators to influence the Appraisal Value by "leaning" on Appraisers. It's strictly forbidden for Lenders to do so.
Many Appraisers have remained within the industry and tackle these challenging appraising assignments on a daily basis. But stop and consider this ... can they truly be expected to spend the same amount of time working on these assignments as they did on their assignments in the past?
Can Appraisers truly be expected to produce the same quality of Appraisal ... knowing full well that they are working under much more scrutiny, a far more defined timeline, working with vast intangibles within the market such as foreclosures and short sales, and doing all it while earning far less pay? The expectations remain, but I think the many issues that surround Appraising take their toll.
How does this effect the bottomline? The HVCC Act helps consumers, doesn't it? Well, in my opinion ... yes and no.
The benefits are fairly obvious and they match the initial purpose for the HVCC itself. The negatives are that the HVCC Act can be a terribly flawed process at a time when the market desperately needs experienced, "un-influenced", and fairly compensated Appraisers. It's an imperfect process, (and dare I say ludicrous at times) given today's challenging housing market Appraisers are asked to work within and assign values to.
In a world where "no-appraisal Refinances" are now allowed for Borrowers knowingly underwater, it's my opinion that all Buyers and Sellers deserve a fair shake in regards to their transaction's Appraisal. Don't today's Buyer and Seller need and deserve the acute accuracy and highest professionalism that can be found within the Appraisal industry? The answer to that question is a resounding yes!
Many issues remain to be addressed and improved in regards to Appraisals and the Appraiser's part within today's current housing market and mortgage transaction. The whole process needs to work far better and much more quickly. Positive changes must be made for everyone's benefit. But until changes are made on the Appraiser's behalf, I believe we will continue to see problems arise on a regular basis.
* Hoping to Buy or Refinance a home within Joliet, Will County, or elsewhere in the Chicagoland region? Have clients dreaming of buying a home? Contact me now. We will work together to fulfill those hopes and dreams. I'll put my 35+ years of mortgage experience and expertise to work on your ... or your client's behalf.
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