I wish I did not know first-hand about the problems arising from the so-called improved appraisal process, aka The Home Valuation Code of Conduct.
My SF home buyer and seller clients and I have danced the dance of this new system and as a manager, I'm privy to many more San Francisco real estate purchases waylaid by out-of-area appraisers driving too many miles from Fresno to appraise a house in the Sunset.
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Fresno to Sunset District SF = 191 miles
Yes, it's supposed to help ensure a safe, transparent home appraisal process whether you are buying a single family home in Bernal Heights or a Mission Dolores condo. The devil is in the details. As a recent Wall St. Journal article, Reappraising Home Appraisers, states,
Squeezed by a drop in fees, some appraisers are compensating by driving long distances to handle more assignments. Their wanderings are raising questions about whether they know enough about the neighborhoods to accurately assess the value of homes—which has implications for both home buyers and owners...
The debate over appraisals is inflamed by a natural tension: Real-estate agents and mortgage brokers, who need to complete transactions to collect their fees, are unhappy when an appraiser nixes the sale price. But it also suggests that there may be unintended consequences to an attempt by New York Attorney General Andrew Cuomo to reform the appraisal business.
Using the threat of litigation, Mr. Cuomo last year prodded the government-backed mortgage investors Fannie Mae and Freddie Mac into adopting a new code of conduct for appraisers. Since those two companies provide funding for the bulk of U.S. home mortgages, the code, which took effect May 1, has become the national standard for most home loans.
The code bars loan officers, mortgage brokers or real-estate agents from any role in selecting appraisers. One result is that more lenders have outsourced the selection to appraisal-management companies, or AMCs, which take a sizable cut of the appraisal fee, often 40% or more. The AMCs pay appraisers as little as $175 to $200 per assignment, compared with the $350 or more that many get when they work directly for a lender.
"Many appraisers are struggling to survive on the fees paid by the AMCs," says Bill Garber, a spokesman for the Appraisal Institute, a trade group based in Chicago. Appraisers are being asked to work faster even as their fees are cut, and that conflicts with the goal of getting reliable appraisals, he says.
The real problem are the Appraisal Management Companies which are often subsidiaries of the banks doing the lending. Um, yes, that's what I wrote. The bank that is demanding a "fair, impartial" appraisal farms out the job to a company they own!
Lender-owned AMCs are a conflict of interest, don't you think? Plus, the consumer still pays the full amount. The real difference is that the appraiser now gets a fraction of their fee (b/c the bank takes a cut!). Most appraisers I know are sole proprietors so this has had a huge impact on their livelihoods, thus forcing them to do more appraisals in less time and over a wider geographic area.
Personally, I would rather see a San Francisco-based appraiser show up at my door to value my home, wouldn't you? Our inventory and architecture is pretty distinct to put it nicely and just doesn't compare to Fresno!
*Note: This new appraisal code of conduct does not apply to FHA home loans so if you are looking to purchase a single family home in San Francisco using a FHA home loan, you are in luck. Your mortgage broker can continue to call a local appraiser for a reliable valuation. Of course, to get a reliable valuation, make sure to work with a reliable mortgage broker.
More resources: hvcc_realtor_concerns_081309
