Orlando Appraisal Blog

Unskilled Appraisers Seen as Problem
January 18th, 2012 6:55 AM

Regulations intended to promote accurate real estate appraisals sometimes result in poorly qualified appraisers being assigned to determine property values for mortgage lenders, the nation’s largest professional organization for real estate appraisers has acknowledged.

Real estate appraisals “sometimes are assigned to the least qualified, least competent” appraisers, according to the Appraisal Institute, because the appraisal management companies that hire them seek to pay as little as possible.
That, the Appraisal Institute said, can lead to poorly qualified appraisers, including those from other cities or states who are unfamiliar with local markets, being hired to conduct complicated appraisals.

Realtors unhappy with appraisals

That echoes complaints that the National Association of Realtors (NAR) has been making for the past two years. NAR representatives routinely blame faulty appraisals, including those performed by poorly qualified appraisers, for cancelled home sales and for holding back the real estate market in general.
The NAR says sales cancellations often occur when appraisals fail to support the agreed-upon sales price, meaning the lender will not issue a mortgage that reflects that price.
Ironically, the acknowledgement that cost-cutting by appraisal management companies can result in poorly qualified appraisals was buried in a pair of fact sheets issued by the Appraisal Institute in conjunction with a push to defend the industry’s integrity.

Appraisals said to reflect, not determine, housing market

In an announcement titled “Don’t Shoot the Messenger,” the Appraisal Institute sought to deflect blame from appraisers in situations where the appraised value of a home comes in less than a homebuyer, home seller or home owner (in the case of a refinance) expected.
Appraisal Institute President Sara Stephens said it was “nonsense” to blame appraisers for valuations that don’t support a home’s list, contract or sale price, or for delaying a rebound in the housing market.
“Appraisers don’t set the real estate market; they reflect what’s happening in the market,” Stephens said. “Think of the appraiser as a mirror, reflecting the market. Obviously, the market is depressed – home prices have fallen far below the values of a few years ago. Many homes simply aren’t worth what their owners think they are.”

Use of foreclosure sales defended

Stephens stressed that appraisers are third-party experts hired by lenders to produce an unbiased assessment of a home’s value. She defended the often-criticized practice of using foreclosures and other distressed sales in determining market value, saying they are so common in some areas they have to be included.
Stephens said the challenges of producing accurate appraisals means that highly qualified appraisers should be used, particularly in areas with large number of distressed homes or other complicating factors. That puts her and the Appraisal Institute on essentially the same page in terms of calling for the use of well-qualified appraisers in evaluating home values.

Reforms led to new problems

Federal reforms enacted in recent years forbid lenders from hiring their own appraisers to assess home values prior to approving mortgage loans. The concern was that, during the runup to the subprime mortgage crisis, appraisers were under pressure to deliver appraisals that supported the loans.
Now, many market observers say there is a new problem. Appraisers must be hired by appraisal management companies, which act as an insulator between lenders and appraisers, and supposedly preventing conflicts of interest. However, the appraisal management companies get paid by the banks, so they have an interest in paying their appraisers as little as possible to boost their earnings, which many say results in poorly qualified appraisers.

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Posted by Alexis Olmo on January 18th, 2012 6:55 AMPost a Comment

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