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Update:           May 30, 2018


With very rare exception, an appraisal is required on every loan transaction. A final loan amount will be calculated by the using the lesser of the purchase price or the appraised value whichever is the lower. There can be an element of surprise should the appraised value be lower than the agreed upon purchase price. A refinance loan can be similarly impacted should the home value be over-evaluated when initiating a loan.


In the old days, the loan officer was able to call the appraiser and ask for an opinion of the likely value of a home, especially one in which a refinance loan was being initiated. If the appraiser suggested that the desired value was likely not reachable he borrower could cease the refi loan without having spent the appraisal fee only to learn that there was insufficient value to allow the loan to proceed. Today loan representatives are prohibited from discussing value with an appraiser – the result is some refinance loans become canceled only after having paid for an appraisal that indicates an insufficient value for the project to be beneficial. This is one portion of the new regulations that don’t seem to benefit the consumer.


The appraisal process is a bit convoluted today. The loan process must be initiated, a loan file developed and submitted to a selected lender and then an appraisal may be ordered. The order is placed via the lender’s Appraisal Management Company (AMC) and the loan representative has little contact with the actual appraiser. This process was initiated following the recession of 2008 in an effort to protect the borrower. (See the history below for a perspective on the changes)


While many of the original concerns have been addressed in the ensuing years, there are some impacts that still exist in the appraisal process:

-          The time frame for acquisition remains lengthened – having to submit a loan package to a selected lender prior to any appraisal order creates some delay.

-          The lack of easy portability (the ability to transfer an appraisal from one lender to another) limits a borrower’s capacity to change lenders. This has improved marginally in recent days.

-          The designed system has resulted in increased costs which are unlikely to diminish.

-          The process of having to order an appraisal via the lender which goes to the AMC and then to the appraiser makes challenging the value or any other aspect of an appraisal difficult – the appraiser is practically insulated from criticism from the borrower (who pays the fee) and the loan officer. .


The original process was an AMC panel of appraisers from which a given order was granted in rotation. Difficulties arose when some less qualified appraisers on said panel were assigned resulting in what were considered poorly completed reports, etc. A recent good change is that some lenders allow the local loan office to have submitted local appraiser names (usually 3 or 4) from which the assignment is made. This, in most cases, assures the likelihood of a more appropriate report. 


Finally, the process in some locations (mostly rural) is impacted by the lack of a sufficient number of appraisers resulting in delays in the acquisition of the final appraisal report. Too often, the loan file is completed and everyone is waiting for the appraisal so that the loan can be finalized. The industry has floated the idea of using internet values (via  -------) to speed u the process. Critics suggest that the internet values are mostly lower cannot account for recent upgrades or other enhancing elements of a home – only a individual assessment will do. This is a factor that is still undetermined as to a viable solution.


Overall, the process is working reasonably well. A bit of history may be interesting in understanding the ever evolving nature of the appraisal process.


The Home Value Code of Conduct (HVCC) was enacted in late 2009 in an effort to ensure appraiser autonomy, free of any persuasion from real estate lenders or licensees. Following the sub-prime meltdown in 2008, some accused appraisers and mortgage brokers of collusion in the inflation of home values. Some appraisers, it was said, had complained that if they “did not make the value number” required by real estate practitioners that they were sometimes threatened with not receiving any additional business. In retrospect, it was determined that any such acts of coercion were actually infrequent. Unfortunately, Congress latched onto the notion that it was the appraisers and mortgage brokers teaming up to artificially inflate home values and was the major cause of the mortgage implosion.


Such a simplistic notion allowed Congress to avoid placing the responsibility where it was justified . . . with the banks who created the bad loan instruments which were then “sold” to the public as a way to experience the American Dream of home ownership. While the notion of appraisers having been the major catalyst for the housing problems was found to be inaccurate, Congress seized upon the idea to, in their words, “reign in” the rogue appraisers and mortgage brokers. Here then is what evolved.




Prior to the HVCC process, a mortgage broker typically called an appraiser to order the appraisal. Deemed to be “too cozy a relationship” between broker and appraiser, the new legislation made it mostly illegal for a broker to have any contact with the appraiser. The law spawned the development of Appraisal Management Companies (AMC’s), a third party from whom appraisals were to be ordered. The process now required the mortgage originator to contact the lender to whom the loan would be submitted after which the lender would contact an AMC. The AMC, in turn, contacted an appraiser (presumably on a rotating, neutral process) who would perform the appraisal. Ironically, the big banks became the owners of the AMC’s, providing yet another profit center for the banks.


Almost immediately the flaws in the system surfaced. Here are but a few of the problems that emerged:


                1.            Appraisal fees increased. A $300 to $350 appraisal fee grew to $500 to $600 depending upon the AMC to which it was assigned.

                2.            While the AMC was now collecting the higher fee, many appraisers complained that they were being forced to accept a lower fee for their services.

                3.            Many of the most experienced appraisers opted out of the AMC registration process, claiming that they would not work for the reduced fees offered by the AMC’s.

                4.            This, in turn, resulted in many newer, inexperienced appraisers acquiring assignments. Complaints immediately identified:

                -  Poor appraisal quality.

                -  Appraisers being assigned from outside the area, with little or no knowledge of the local property to be appraised.

                -  Plummeting home appraisal values as appraisers reacted to the “persuasion” of the AMC’s to be conservative in their evaluations.

                -  Delays due to the convoluted process which made it nearly impossible to rebut or question errors in an appraisal. Rebuttal of any errors had to go from the mortgage broker to the lender to the AMC to the appraiser and back again.

                -  Home purchase and refinance transactions failed because of poorly done appraisals with no constructive way to correct appraisal errors.

                -  With no way to correct a poor appraisal, lenders and borrowers were too often required to seek a second appraisal with its additional fee but with no assurance that the second appraisal would be an improvement.

                -  The lack of portability of the appraisal made it difficult for a borrower to seek another lender in the case of a loan denial (often over some obscure requirement of the particular lender). In other words, if a loan was denied for some minor reason at one lender, the borrower’s loan file could be resubmitted to a more accepting lender but a new appraisal (and fee) was required.

                -  Permits took on greater importance. Appraisal reviewers seemed to be more focused on making sure appropriate permits exist for any perceived improvements. The result was some absurdity with requests for permits for wood sheds, out-buildings that have no affect on value, etc.


As complaints mounted during most of 2010, the mortgage industry hoped that the entire HVCC program would be scrapped. Congress instead “re-examined” the HVCC process with the intent to make changes. Here are the changes enacted in late 2010 and our comments at the time:


1.       A second appraisal/field review can be requested. An appraiser may be asked for a detailed explanation regarding the comps used and why. If a second appraisal is ordered, the first appraisal will become null and void, regardless of the value of the new appraisal, higher or lower. (while this may address the concern that we’ve had that we were unable to easily challenge even erroneous information contained in an appraisal, it is unclear how such a request will be made and exercised. Initial attempts to seek change has resulted in some appraisers merely commenting “this is my determination of value” and end of discussion.)

2.       Lenders will not be required to order appraisals via an AMC. (While this sounds great, we do not yet know how the alternative will be enacted. Lenders may still opt to use AMC’s? While some believe this is a first step to allowing mortgage brokers the opportunity to again order their own appraisals, the language says “lenders” and this most likely means that we will see little change. In fact, )

3.       There is language within the act that indicates that appraisers “should be compensated in line with what is reasonable within their community”. (When the AMC process developed, appraisal fees increased but the appraiser’s actual fee declined. The result was that many of the more experienced appraisers chose not to participate in the AMC ‘s as they chose not to work for the lesser fee. Some appraisers have interpreted this new language as meaning that they will again receive the greater portion of any fee charged and will encourage the more experienced appraisers to again become available for appraisal orders. This would be a good thing). 

4.       Interior photos are now mandatory, including kitchens, all baths and main living areas. Photos of any physical deterioration, remodeling or renovation projects are required. (We don’t know how much scrutiny will be applied to worn out carpeting, small damages to door frames, small holes in walls, deteriorating paint or the myriad other now considered minor items. Will cluttered or “messy” homes become problematic?).

5.       The value of personal property included in the sale will now be deducted from the value. (Does this mean that if the agreement that the “refrigerator is to remain”, “window coverings are included”, the “chandelier is to remain” or the “in wall TV is to stay” will result in deductions?)

6.       There was an attempt to address the portability of appraisals by indicating that a lender could accept an appraisal completed by another lender with the proviso that they guarantee that it was performed via the HVCC requirements. (The result has been no portability as lenders are reluctant to guarantee that the HVCC process was adhered to by the assigning lender. We continue to hope that this may still change to accommodate borrowers).


In addition to all of the above requirements and continuing adjustments, every lender has rules regarding when within the loan process the appraisal can be ordered. Nearly all appraisals are now ordered and paid for via the borrower’s credit card, often with no knowledge of the actual price of the appraisal until the bill arrives.


Perhaps one of the most important losses in the new process is the opportunity for the mortgage broker to call the appraiser prior to his/her conducting the appraisal to assess the likelihood of the property’s value. This was particularly helpful to those seeking refinances as we could “check” to see if it might be possible to obtain the necessary value to make the refinance transaction viable. Now, we too often obtain an appraisal with the anticipation that the value will be sufficient only to be disappointed in the appraiser’s determination of value. Unfortunately, the borrower has already paid for an appraisal that is useless for the loan purposes. How nice it was in the past to determine that before having to spend the $500 - 4600 for the appraisal.


Continuing change is inevitable and we will all make the necessary adjustments. The key is to determine exactly what is required by any new legislation and rules and how we must accommodate the changes. We will keep you informed as we absorb the details.


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