Finding true value in the appraisal process

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"Helpful Tips: What Consumers Need to Know About Real Estate Appraisals" is available just as the appraisal industry is being served a new set of regulations stemming from federal regulatory overhaul known as "Wall Street Reform" (officially, the "Dodd-Frank Wall Street Reform and Consumer Protection Act").

by Broderick Perkins
© 2010 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Home buyers and sellers who know the role of professional, licensed appraisers can be sure homes are financed based on true values and enjoy a smooth transaction.

That sentiment has prompted the Appraisal Institute to offer consumers the timely "Helpful Tips: What Consumers Need to Know About Real Estate Appraisals."

The publication comes just as the appraisal industry is being served a new set of regulations stemming from federal regulatory overhaul known as "Wall Street Reform" (officially, the "Dodd-Frank Wall Street Reform and Consumer Protection Act").

The new rules are designed to protect consumers and keep appraisers independent, free from third party pressure, honest and compensated fairly.

The institute says "Appraisers have been wrongly accused of prolonging the nation's real estate downturn by developing value opinions that are below proposed sale prices."

To the contrary, "Credible and realistic value opinions help to stabilize real estate loans and investments, which promotes socially desirable real estate development. Appraisals are particularly valuable because they are an objective and unbiased source of real estate information," the institute says.

"Too many consumers in this struggling real estate market face problems with appraisals when attempting to buy or sell a home," said Appraisal Institute President Joseph C. Magdziarz, MAI, SRA. "But rather than passively endure delays in closing a sale, home owners and buyers can take proactive steps to avoid pitfalls," he added.

According to the institute, here's what consumers need to know.

• Learn the role of mortgage appraisals. Lenders order appraisals to learn what a property is worth in the open market so they can determine if the collateral supports the loan. Not necessarily provided to confirm a sales price, appraisals can help both lenders and consumers make sound financial decisions.

• Hire a qualified appraiser. Demand the use of a qualified, experienced, licensed appraiser. Memberships in good standing with a state or national trade group also provides some evidence the appraiser knows his or her stuff. Ask the lender for the appraiser's qualifications.

• Join the inspection. The institute says consumers can ask the lender if he or she can accompany appraisers on the inspection tour. Sellers may provide the appraiser with information they consider important. Take notes. Did the appraiser spend enough time at the property to observe important features or improvements or potential problems?

• Get the appraisal disclosed and examine the report. Consumers have a right to a copy of the appraisal under federal law. Look for common errors including misuse of adjustments to comparables, disregarding special financing and concessions, or miscalculation of the living area.

• Appeal the appraisal or get a second opinion. Lenders typically offer appraisal appeal procedures, known as "Reconsiderations of Value." If you are aware of recent, comparable sales information or items that may not have been available or
considered by the appraiser, provide those to your lender.

If problems are found with the first appraisal, you should obtain a second appraisal. Make sure your lender uses a qualified appraiser the second time, if they didn't the first time around.

• When necessary, complain. File legitimate complaints with the appropriate state appraisal board, regulatory agency or professional appraisal organizations. Federal law mandates that lenders report legitimate complaints with appropriate regulatory authorities.

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

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Perkins was the first Examiner to cover three beats for the Examiner.com news service:
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Appraisers up next for 'Wall Street Reform' brand of regulatory do-over

Click back for 'text neck' cures

The interim final rule for appraisers, part of the massive "Wall Street Reform" federal regulatory overhaul, is designed to keep appraisers independent, free from third party pressure, honest and fairly compensated.

by Broderick Perkins
© 2010 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Tolling the death knell for the Home Valuation Code of Conduct (HVCC), the Federal Reserve Board recently announced final regulatory orders for real estate appraisers.

The interim final rule for appraisers, part of the massive federal regulatory overhaul known as "Wall Street Reform" (officially, the Dodd-Frank Wall Street Reform and Consumer Protection Act), is designed to keep appraisers independent, free from third party pressure, honest and compensated fairly.

We'll see.

Appraisers have been heavily pressured for years -- before, during and after the boom -- to do the home valuation bidding of mortgage lenders, real estate agents, even buyers, sellers and refinancing homeowners who needed home values based on risky assumptions rather than true worth factors.

Bowing to pressure to over-value homes was one of the factors contributing the housing market crash that spawned the greatest recession since the Great Depression.

Amid howls from appraisers and other real estate industry quarters, the Federal Housing Finance Agency (FHFA) implemented HVCC in May 2009, after the housing bust, purportedly to improve the independence of appraisers by prohibiting lenders and third parties from influencing appraisers' work.

Unfortunately, the code of conduct cut deeply into appraisers' income and, as the housing market floundered, it worsened working conditions for honest, hard working appraisers, who have since been looking forward to new regulations.

Appraisers deemed the HVCC as a bogus effort to clean up the industry, because it didn't focus enough on appraiser competency; it undercut professional relationships between honest appraisers and reputable mortgage professionals; it increased the influence of bottom-line oriented appraisal management companies; and it encouraged the use of glossed-over appraisals that didn't reflect the true value of a property.

By and large, for those and other reasons, real estate agents, new home builders, even mortgage brokers and others likewise detested HVCC.

In advance of the new interim rules, Fannie Mae, working FHFA and Freddie Mac released its own Appraiser Independence Requirements -- new rules for mortgage companies selling loans to the government-sponsored enterprises -- which also overwrite HVCC rules.

Fannie's rules are in line with the new federal regulations, but all conventional, single-family mortgage loans must still be in compliance with HVCC until the release of the final Federal Reserve rules, effective April 1, 2011. A public comment period on the new rules ends in December, but the interim rules will likely take hold with few changes.

The Fed's interim final rule:

• Prohibits coercion and other similar actions designed to cause appraisers to base the appraised value of properties on factors other than their independent judgment.

• Prohibits appraisers and appraisal management companies hired by lenders from having financial or other interests in the properties or the credit transactions.

• Prohibits creditors from extending credit based on appraisals if they know beforehand of violations involving appraiser coercion or conflicts of interest, unless the creditors determine that the values of the properties are not materially misstated.

• Requires that creditors or settlement service providers that have information about appraiser misconduct file reports with the appropriate state licensing authorities.

• Requires the payment of reasonable and customary compensation to appraisers who are not employees of the creditors or of the appraisal management companies hired by the creditors.

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Under the DeadlineNews Group umbrella:

Perkins is managing editor of HomeAway.com's Gulf Coast Response Center.

Perkins was the first Examiner to cover three beats for the Examiner.com news service:
• National Real Estate Examiner
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Appraisers applaud stiffer state regulations

Pepsi iPhone app for scoring, scorned

Following in the footsteps of Arkansas, Louisiana, Nevada, New Mexico and Utah, the state of California, effective Jan. 1 2010, will impose regulation and oversight on appraisal management companies (AMCs) working in California.

by Broderick Perkins
© 2008 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - States are once again stepping up to the plate to address some housing issues federal efforts often fall short on.

Following in the footsteps of Arkansas, Louisiana, Nevada, New Mexico and Utah, the state of California, effective Jan. 1 2010, will impose regulation and oversight on appraisal management companies (AMCs) working in California.

AMCs will have register with the Golden State's Office of Real Estate Appraisers (OREA) and comply with standards that require management companies operating in the state to identify, and provide contact information for all officers and directors who own 10 percent or more of the company, as well as for all individuals who perform management functions.

The individuals will have to submit to criminal background checks and may not have had their licenses or certifications as appraisers or a real estate agents or brokers refused, denied, canceled or revoked in any other state in order to practice in California.

AMCs, companies that comprise networks of independent appraisers, gained a higher profile beginning May 1 with the onset of the Home Valuation Code of Conduct (HVCC).

In an effort to put uniformity in the property valuation process, an agreement between New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac, and the Federal Housing Finance Agency, HVCC, among other provisions, made AMCs the go-to appraisal stop for certain loans.

But appraisers, home builders, mortgage brokers and real estate brokers all have had their qualms about the HVCC and AMCs.

In general, critics say AMCs are largely inexperienced, drive honest appraisers and mortgage brokers from business with low prices and reduced competition, all while increasing costs to consumers and reducing state revenues.

AMCs' trade group, the Title/Appraisal Vendor Management Association, has cried "smear" and fired back earlier this year, claiming they are getting the job done and at a fair cost in the brave new world of housing.

The feds did toughen regulations with some HVCC clarifications and the removal of a cap on appraiser fees, but not before appraisers and others took the fight to the state level.

"This new law will help to protect both consumers and appraisal professionals in California, and we eagerly anticipate the positive effects it will provide to the state's real estate market and its residents," said Appraisal Institute President Jim Amorin.

The new law is based heavily upon legislative guidelines developed by the Appraisal Institute in conjunction with the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers. It's what the industry would like to see a federal level.

The flurry of state laws, and the federal HVCC, represent dramatic changes in the appraisal industry as a result of questionable housing market ills that contributed to the housing bust.

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You are reading a sample of "News that really hits home!", now available from several beats and published in a growing number of locations.

Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Perkins is also the first Examiner to cover three beats for the Examiner.com news service:
• National Offbeat News Examiner
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• National Real Estate Examiner

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Hating the Home Valuation Code of Conduct

How online banks stack up

The Home Valuation Code of Conduct, new federal mortgage reform rules targeting appraisals, is designed to put independence back into home appraisals and give the process more accuracy and transparency, but may be doing just the opposite. And those who stand to lose the most are home buyers and sellers.

by Broderick Perkins
© 2008 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - HVCC might as well be an acronym for Hate the Valuation Code of Conduct.

HVCC really stands for Home Valuation Code of Conduct, new federal mortgage reform rules targeting appraisals. Designed to put independence back into home appraisals and give the process more accuracy and transparency, the rules may be doing just the opposite.

And those who stand to lose the most are home buyers and sellers.

HVCC is a "law of unintended consequences," says Ted Faravelli, Jr. executive director of the California Association of Real Estate Appraisers.

"We could talk all day about it."

Since May 1, 2009, when the rules took effect, virtually every segment of the residential real estate market has been retching over rules they say are effectively delaying the housing market's recovery.

And, as goes the housing sector, most agree, so goes the economy.

Appraisers hate HVCC

Appraisers have been up in arms over the mortgage reform component known as the Home Mortgage Valuation Code of Conduct (HVCC), since before it was mandated.

The agreement between New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac, and federal regulator, the Federal Housing Finance Agency was supposed to enhance the independence and accuracy of the appraisal process, and provide added protections for homebuyers, mortgage investors and the housing market.

Appraisers say HVCC is bogus because it doesn't focus enough on appraiser competency; it undercuts professional relationships between honest appraisers and reputable mortgage professionals; it increases the influence of bottom-line oriented appraisal management companies; and encourages the use of glossed-over appraisals that don't reflect the true value of a property.

But it's not just appraisers who hate HVCC.

Realtors hate HVCC

Preliminary analysis by the National Association of Realtors (NAR) "indicates that the implementation ... appears to be having adverse impacts on the housing markets."

• Approximately 76 percent of Realtors representing buyers or sellers indicated that the time to obtain a completed appraisal increased after May 1.

• Nearly two in five, 37 percent of Realtors said HVCC caused one or more lost sales.

• Greater use of out-of-area appraisers -- who are not familiar with local market conditions that could affect values -- was reported by 70 percent of Realtors.

• Half of NAR appraisers members reported a reduction in fees received by them, and 70 percent of NAR appraisers reported consumers were paying higher fees.

• Most, 85 percent of NAR appraisers reported a perceived reduction in appraisal quality. More than half, 55 percent of Realtors had the same perception.

Home builders hate HVCC

The National Association of Home Builders (NAHB) Chairman Joe Robinson, a home builder from Tulsa, OK, said likewise, "Home builders are increasingly concerned that inappropriate appraisal practices are needlessly driving down home values. This, in turn, is slowing new home sales, causing more workers to lose their jobs and putting a drag on the economic recovery."

According to an NAHB survey:

• More than one in four, 26 percent of builders have seen signed sales contracts bomb because appraisals are coming in below the contract sales price.

Appraisers say that's not necessarily a bad thing.

"We take offense with the notion that the appraisal is only good if it happens to come in at the sales price," says Bill Garber, the Appraisal Institute's director of government and external affairs.

"That mentality helped cause the mortgage meltdown to begin with. The fact that the appraisal does not match the sales price is not the fault of the appraisal but a fault of the market today."

• New home builders, 60 percent of them, say inadequate appraisals are causing comparables of new single-family homes to be based on foreclosures and distressed sales.

• Of builders reporting appraisal problems, 54 percent said that the appraisal amount was actually less than the cost of building the home.

NAHB has called on housing and federal financial regulators to adopt clear, concise regulatory guidance that will allow appraisers to develop realistic valuations based on sales that are truly comparable.

"You can't compare a well-constructed new home with a foreclosed property that has been vacant for months and was probably neglected for a long time before it was vacated," said Robson.

Mortagage brokers hate HVCC

The National Association of Mortgage Brokers initially sued to block implementation of HVCC back in February, but in a legal maneuver, later withdrew the suit that said HVCC would inhibit competition among mortgage originators and increase the cost of mortgages to consumers.

In a HVCC Call to Action lobbying effort, NAMB reported:

• The HVCC is costing consumers over $2.8 billion a year in extra fees, created by long delays (extended lock-in fees) and higher appraisal costs.

• Appraisal management companies (AMC), are driving honest appraisers and mortgage brokers from business, eliminating competition, increasing costs to consumers and reducing state revenue. HVCC requires that lenders place appraisal orders for certain loans with AMCs in a effort designed to keep appraisals independent, but critics say that hasn't worked.

AMCs' trade group Title/Appraisal Vendor Management Association has fired back, claiming NAMB is running a smear campaign.

The association agrees HVCC is problematic, but not because of AMC work.

"These organizations (AMCs) ensure an arms-length transaction between loan officers and appraisers. They are the best way to assure an arms-length relationship between appraisers and their clients," according to Jeff Schurman, TAVMA executive director.

NAMB also says

• The HVCC is causing significant delays in real estate transactions, hurting real estate agents, title companies and other third parties reliant on turnaround time.

• HVCC traps consumers with a specific lender. If a better deal becomes available
with a different lender, the consumer is forced to pay for another appraisal.

Change may be coming.

Let's hope, because HVCC is obviously a mess.

Appraisers recently applauded updated federal guidelines regarding HVCC and federal legislation is afoot to can HVCC for 18 months until regulators can get a better grip on the issue.

U.S. Representatives Travis Childers (D-MS) and Gary Miller (R-CA) have championed bi-partisan legislation, H.R. 3044, introduced June 25, which would put a moratorium on HVCC for a year and a half to redesign it, hopefully, so it will work as it was intended or dismantle it for a better model.

The bill has been referred to the Housing Financial Services Committee for discussion and further work.

• More appraisal news that really hits home.


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© 2008 DeadlineNews.Com

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You are reading a sample of "News that really hits home!", now available from several beats and published in a growing number of locations.

Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Perkins is also the first Examiner to cover three beats for the Examiner.com news service:
• National Offbeat News Examiner
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Federal bill aims to suspend new appraisal law

No Zicam. Herbal tea instead

The Home Mortgage Valuation Code of Conduct (HVCC) is a "law of unintended consequences" that could be suspended if legislators, appraisers, the mortgage industry and a host of others have their way.

This just in: Appraisers ask HUD for new action on appraisal management companies (AMC)

by Broderick Perkins
© 2008 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Appraisers despise it.

Mortgage brokers think it stinks.

Housing consumer don't get a say.

Now, even federal lawmakers from both political parties have something they can agree on.

The Home Mortgage Valuation Code of Conduct (HVCC) is a "law of unintended consequences," says Ted Faravelli, Jr. executive director of the California Association of Real Estate Appraisers.

"We could talk all day about it."

Likewise, Jim Amorin, president of the Appraisal Institute, says the law does just the opposite of what it was intended to do and now U.S. Representatives Travis Childers (D-MS) and Gary Miller (R-CA) have championed bi-partisan legislation to can the code for 18 months.

H.R. 3044 would put a moratorium on HVCC for a year and a half to redesign it, hopefully, so it will work as it was intended or dismantle it for a better model.

Effective May 1, 2009, HVCC is an agreement between New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac, and federal regulator, the Federal Housing Finance Agency that was supposed to enhance the independence and accuracy of the appraisal process, and provide added protections for homebuyers, mortgage investors and the housing market.

Recognizing how the pressure cooker property valuation process contributed to busting the housing boom and is perhaps prolonging the bust, the Feds set up the code to relieve pressure on appraisers in order to make appraisals more reliable.

Unfortunately, good intentions don't always pave the way, according to the Appraisal Institute.

Among other provisions, HVCC bans loan brokers and loan officers from directly ordering appraisals and mandates lenders use appraisal management firms on earmarked loans. The provision was designed to keep appraisals objective, but critics complain about high fees and other issues associated with the firms.

The National Association of Mortgage Brokers, which unsuccessfully sued to delay HVCC, says the law is responsible for delaying residential property closings and costing its members business at a critical time -- during the greatest recession since the Great Depression.

"This ill-thought out code is basically damaging the economy. It will rob consumers of the low rates that are available now," said NAMB executive director Roy DeLoach.

Faravelli says it's more proof appraisers are the only profession run by outsiders.

"We do the work, the profession is run by somebody else and we have the same problems over and over. Ten years from now, we'll still be talking about this," he said.

Amorin, testifying earlier this year before the U.S. House of Representatives' Financial Services Committee said the institute of appraisers believes HVCC has too many shortcomings.

Among them, HVCC

• Doesn't focus enough on appraiser competency.
• Undercuts professional relationships between honest appraisers and reputable mortgage professionals.
• Increases the influence of bottom-line oriented appraisal management companies.
• Encourages the continued use of computerized AVMs (automated valuation model) and BPOs (real estate broker price opinions), which lack relevance in today's market, instead of real feet-on-the-ground, eyes-on-the-property appraisals.

"The problem is appraisal management firms are notorious for focusing on who can do the cheapest and fastest appraisal," says Amorin.

"What happens is, a consumer goes to the bank, the bank collects $400 for the appraisal, but pays the (appraisal management company selected) appraiser $150 to do the appraisal and keeps the difference. Good senior appraisers can't afford to work for half price, but the consumer thinks they are getting a good appraisal. They have no idea the appraiser is getting half (the payment) and is a less-experienced appraiser. Yes there's a transparency issue, but it's also a quality issue," Amorin said.

• Also see: Perennial pressure on appraisers bad for business, housing, consumers

• For more info: Read more appraisal news

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You are reading a sample of "News that really hits home!", now available from several beats and published in a growing number of locations.

Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Perkins is also the first Examiner to cover three beats for the Examiner.com news service:
• National Offbeat News Examiner
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• National Real Estate Examiner

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Perennial pressure on appraisers bad for business, housing, consumers

Hot off the presses. Recession
prompts cities to print currency

Appraisals have become yet another sticking point on the already viscous road to home ownership because perennial pressure on appraisers is proving bad for business, housing and consumers.

by Broderick Perkins
© 2008 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime

Update: Federal bill aims to suspend new appraisal law

Deadline Newsroom - During the height of the housing boom, appraisers were pressured to up the value of homes. Now, during the housing downturn, appraisers are being pressured to lower the value of homes.

Either way, consumers, both buyers and sellers, are caught in the middle.

What's a consumer to do?

So, through all the muck, how can consumers be sure the appraiser's work is on the up and up?

It's not easy.

Appraisers are typically hired by the lender to protect its stake in a home buying transaction. That means the appraiser is beholden to his or her employee -- the lender -- not necessarily the buyer nor the seller.

However, both the seller and the buyer can play a role in the appraisal process through a process of due diligence known as looking over the lender's shoulder.

Here's how.

When the appraisal choice is yours or if you are the seller, demand the lender use only local, licensed and certified appraisers with trade group designations. Seek referrals from family, friends, co-workers or others you trust who've recently enjoyed satisfactory work from an appraiser.

Even if the choice isn't yours, you can ask the lender, or get your real estate agent to ask the lender for the appraiser's credentials.

"The buyer can ask how the appraisal was done, but you need to speak to the lender about the appraisal if you have any questions," said Ted Faravelli, Jr. an expert witness, forensic real estate analyst and executive director of the California Association of Real Estate Appraisers.

First, a local appraiser is much more familiar with local market and property conditions than outsiders.

In California, the state Office of Real Estate Appraisers licenses and certifies appraisers. Appraisers must be licensed before reaching certification. Licensed appraisers can appraise residential properties with a value of up to $1 million. Licensed appraisers with certification have as much as twice the education -- the equivalent of an associate or bachelors degree -- and can appraise any residential property no matter the value. At the highest level of certification, an appraiser can appraise any type of property, residential or commercial.

Affiliation with the Appraisal Institute or other trade group is also key. Institute members typically work beyond state licensing and certification requirements to earn a Senior Residential Appraiser (SAR) designation just as real estate agents work beyond state licensing requirements to achieve designations based on greater education and experience.

"SARs are much more experienced. They have more education and they are held to a higher code of ethics than state licensing. If you hire one, you'll get a true estimate of a home," says Jim Amorin, president of the Appraisal Institute.

The Appraisal Institute is comprised solely of real estate appraisers, but the American Society of Appraisers, which includes members from all appraisal disciplines, likewise grants accredited member real estate appraisers designations based on achievements that go beyond state requirements.

Local work, an unblemished license, certification and designations are good indications of an experienced and ethical appraiser, but not a blanket guarantee.

• Determine how much of the appraiser's work is done for lenders. A high number could mean the appraiser is just returning predetermined values the lender wants, rather than true market values. If all of an appraiser's work is done for a lender and the appraiser tells you he or she never comes in with a value that is lower or higher than the sales price, find another appraiser, whenever possible.

• Consider appraisers who also do estate and trust work because they are under pressure to be accurate -- not high or low. Another indication of quality is forensic or litigation work. Ask the appraiser how he or she helps litigants. The answer should be that he or she is an advocate for market value, not the litigant. Appraisers are legally required to be impartial.

• Buyers and sellers can ask their real estate agent to see a copy of the appraisal before the deal closes.

"Ask to get it in ample time to look it over. The first page has the factual information about the property, location, physical description, etc. The second page is where the value analysis takes place," said Amorin.

If the appraisal was a drive-buy or automatic valuation model-generated (AVM) some assumptions could have been made about the property and its description. If you know from your own ownership or inspection of the property that the information is inaccurate, tell the lender.

"Every borrower is entitled to a copy of the appraisal and they need to make sure they get it. A lot of them never do. You need to ask for it and you need to read it. If there's anything in there that you take exception to, you need to bring it to the attention of lenders," said Faravelli.

• Home buyers should also make sure to leave their financing contingencies in place until the lender has signed off on the appraisal. That makes financing contingent upon the buyer's approval of the appraisal.

"It's an ever-changing pendulum," says Jim Amorin, president of the Appraisal Institute.

No longer arrived at by using a simple drive-by inspection, computerized automated valuation model (AVM) or even just comparative analyses of similar properties, appraisals have become yet another sticking point along the already viscous road to home ownership.

"Everyone got seduced by double digit property value increases and never thought the bottom would come. Doing an appraisal today is a complex deal with foreclosure sales, short sales and fewer sales. You want to get the most experienced folks doing appraisals," Amorin added.

An appraisal of a home is supposed to be a fair, impartial and professional evaluation of a property's true value. The risk-management tool is designed to assure the owner gets a fair price, the buyer pays the right price and the lender's risk in making the loan is commensurate with the property's true value.

A appraisal can make or break a sale, refinanced mortgage or equity loan. It can also attract or repel buyers.

During boom times, in the first half of the decade, lenders typically used desk-bound, in-house appraisers to determine home values when skyrocketing values boosted the use of drive by inspections and computer generated values.

Now, lenders are compelled to send appraisers out into the field to inspect a property before making a final assessment.

But that doesn't mean lenders take that approach, especially when the property is a foreclosure or other distressed property.

Appraisers who complained about pressure to up the value of homes when values were skyrocketing, are now not only under pressure to lower values, but also work in a market where values are skewed by unprofessional appraisals.

Appraisal practices lacking uniformity

A primary culprit is the Broker Price Opinion or BPO. BPOs are used when lenders and mortgage companies want to expedite the sale of repossessed (real estate owned or REO) properties, foreclosures, short sales and other unconventional, distressed properties.

A BPO involves a real estate broker conducting a drive-by inspection or internal comparative analysis to come up with the value. The broker conducting the valuation is also often the broker who lists the property for sale.

"There's a lot of controversy about this end run. The person contracted to do the BPO is the sales person who is going to get the listing. How can you be impartial and objective when your conclusion is based on you getting the listing of the property?" asks Ted Faravelli, Jr., a forensic appraiser, expert witness and executive director of the California Association of Real Estate Appraisers.

There's also fallout for the homeowner with the foreclosed property. If the property is priced to move at a level lower than the amount the foreclosed owner owes (and, perhaps, lower than the house could actually sell for) the owner will have to come up with the difference to clear his or her name from bad credit hell.

"It's a real hot button for appraisers when brokers are doing work appraisers should be doing," says Amorin.

Also, the values of the BPOs get thrown in the pot of homes appraisers later must consider when doing professional valuations. That makes it tough to decide when, when not to and how to use properties assigned BPOs.

"One of the biggest problems we see is the conflict over the use of short sales and REOs and foreclosures. They are dominant in some segments of the market and we have to take them into consideration, but we have to temper our opinion when we use those," said Faravelli.

Recognizing how the pressure cooker property valuation process contributed to busting the boom and how it now may be prolonging the bust, the Feds recently put in place, the Home Valuation Code of Conduct (HVCC).

In an agreement, effective today, May 1, 2009, between New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac, and federal regulator, the Federal Housing Finance Agency, HVCC is designed to enhance the independence and accuracy of the appraisal process, and provide added protections for homebuyers, mortgage investors and the housing market.

The hope is that by relieving appraiser pressure, appraisals will become more reliable across the board.

Unfortunately, good intentions don't always pave the way, according to the Appraisal Institute.

Amorin, testifying before the U.S. House of Representatives' Financial Services Committee said the institute believes HVCC has too many shortcomings.

The institute says HVCC

• Doesn't focus enough on appraiser competency.
• Undercuts professional relationships between honest appraisers and reputable mortgage professionals.
• Increases the influence of bottom-line oriented appraisal management companies.
• Encourages the continued use of AVMs and BPOs, which lack relevance in today's market.

For similar reasons, the National Association of Mortgage Brokers unsuccessfully filed suit to delay HVCC.

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Appraisers advise sellers how to get top dollar

A professional appraiser's job is to determine the true market value of homes. They know what makes one property more valuable than another. They also know higher valued homes sell faster and for greater amounts. It follows then, that they can tell you how to best ready your home for market -- now or later.

by Broderick Perkins
© 2008 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Want to get top dollar when you sell your home?

Listen to what professional appraisers say.

Their job is to determine the true market value of homes so they know what makes a property sell for the greatest amount and can tell you how to best ready your home for market now and later.

"A few years ago, houses were selling quickly with little effort. Now many homeowners actually have to make improvements before they can sell their home," said appraiser Mike Evans, a Fellow of the American Society of Appraisers (ASA).

In the term, cosmetic touch ups can help a home sell a faster. They include:

• Updating the paint and carpeting. A fresh coat of paint (preferably white) inside and out and new floor covering give the home the look and smell of "new." With the facelift treatment, gone are the wrinkles of cracking paint, the sags of aging wallpaper and the dark age spots of stains and spills. When in doubt, nothing works better than a fresh coat of white paint.

• Heighten the curb appeal. How you home looks upon approach is its first impression. The idea is to make that first impression one that invites visitors inside for a longer look. At least work on the front yard, the backyard can wait, if necessary. Improve the landscaping, fix cracks and stains in the driveway and remove extraneous clutter.

• Clean house. Cleaning house means mop, pail and elbow grease action, but also clearing clutter. Put stuff in storage if that's what it takes to rid your home and garage of that unorganized look. Less is more when it comes to the appearance of larger looking rooms.

If you won't sell your home for some time, but know that possibility looms, do the right improvement things, including:

• Adding square footage. Appraisers say an addition provides more returned value to your home than most other improvements. While that doesn't necessarily mean the buyer will pay the cost of the work in terms of a higher price, you likely will attract more buyers.

• Build out your garage. All that clutter you cleared? The new buyer will want to put his or her junk right back in there. Buyers also want a comfy room for their cars. Add, expand or improve your garage and you'll also increase the value of your home.

• Think before you sink money into a pool. You may love the idea of having a pool, but a young family with small kids may see it as a potentially fatal accident waiting to happen. Other buyers don't want the upkeep and costs that come with a pool. A pool will limit your buyers pool to only those who want a pool.

• When you buy, think location. The best locations sell faster. Proximity to good schools, jobs, shopping and attractions and away from crime, heavy traffic, business, commercial or industrial locations helps homes sell faster and for more. Buy a home in a good location. Then you'll have a home to sell in a good location. Location rules.

"It looks like home prices in many markets may be on a downtrend for a while," said Evans.

"It pays to plan to make home improvement decisions strategically if you may be selling a home in the next few years. Think in terms of increasing the value of your home and not just about design and décor," he added.

See related stories on home improvements.

See related stories on staging.

See related stories on home selling.

See related stories on home value.

© 2008 DeadlineNews.Com

Need a break from doom and gloom in the housing market? Get off the beaten news track and stop by the DeadlineNews Group's Offbeat News Examiner outlet for a few laughs.

Advertise on DeadlineNews.Com

Shop DeadlineNews.Com

Get news that really hits home for your Web site or blog from DeadlineNews.Com.

Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location!

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Read more!