The Thing About Appraisals - Part 2

The Denninger Report  - by Gini Denninger

Remember, “real estate is local”. Usually everyone involved with a real estate deal is local and knows the market; the house has been listed, shown and sold by local Realtors, the attorneys and often the loan officers are local too. The exception to this scenario is typically the bank, which does not have to be local and neither does the appraiser. In 2009 in response to the market crash, the Home Valuation Code of Conduct (HVCC) regulation was developed in response to the over-valuation of homes, (mostly in other parts of the country) which partially contributed to the housing bust. Rochester and surrounding areas were relatively unscathed by the bust, since our market has always been on the conservative side. But we all (Buyers, Sellers, Realtors and Loan Officers) feel the effects thanks to HVCC, since lenders can no longer directly hire and assign appraisers. Because of the new legislation, they have to go through a third party appraisal management company (AMC), and this is where the break down can occur.

AMCs gather and maintain lists of appraisers that can get the assignment to appraise a home. Generally the appraisers get assignments through a “round-robin” procedure, to avoid the appearance of the lender picking and choosing “friendly to the bank” appraisers.

Large, national banks for ease of use and profit, work with larger national appraisal management companies, rather than smaller locally based AMC companies. Some of the larger companies even own the AMC they use. Bank of America owns “Landsafe” and Wells Fargo owns “RELS”, both major players among the AMC’s. This seems a contradiction to the intent of the regulation but is entirely legal. Smaller, local lenders may use the national firms, but most work through smaller local AMCs. By doing so, these smaller lenders often tout that their appraisers are local and understand the local market. The local AMCs are often more responsive when repeated issues come up involving individual appraisers and they are usually more willing to take suggestions from loan officers for adding appraisers not on their lists previously. This allows local players to indirectly promote appraisers who know the local market.

Appraisers not familiar with the nuances of the area they are working in can create huge problems for sellers and buyers. Every neighborhood has pockets that can be very different from each other, yet fall into the location perimeters an appraiser is likely to use. For example, in the 19th Ward, properties near the University of Rochester can sell at around $100,000 yet a few blocks over, the same size, style and age home will sell for $20-30,000 less. If all the comparables available at that time are only those lower sales, the appraisal for the $100,000 sale will come in far lower than necessary to secure the loan. Discussing neighborhood pockets with Sherri Forbes of Homestead Funding Corporation, she explains “experienced local appraisers can tell the story of why the sale price is right to the lender.” They will know about and provide information and data to the lender explaining the differences of the sale property verses the recently sold properties. The lender will be able to make an informed and correct decision in regards to the loan, and in all likelihood the loan will be made. Astute buyers’ agents can and should advise their buyers to ask their lender to be sure to use a local appraiser familiar with the area.



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