REAL Exclusive Magazine

Getting Sound Appraisals In Today’s Market.
 
In today’s uncertain real estate climate, it is not unheard of to receive a property appraisal that is less than the buyer is willing to pay, essentially killing the deal for the seller. Real estate professionals agree that part of the problem is the use of appraisal management companies (AMCs), who maximize their profits by hiring appraisers who are willing to work for low fees under impossible deadlines. Because these appraisers are focused on deadlines and production to make up for the low fees, they may not take the time to choose appropriate comparable sales or to understand the nuances of the local market. 

But consumers do have options, according to presenters at a recent Appraisal 2010 seminar sponsored by C.J. Coury and HomeBanc. The three presenters – appraisers Craig DiCecco, SRA of Futurehome Appraisal Services Inc., Kevin Goodale of Atlas Appraisals LLC, and Mary L. Patterson, SRA of Patterson Appraisal Group Inc. – offered a number of considerations and solutions to a group of real estate professionals.

Ask lenders beforehand about their appraisal process. Does the lender use an AMC or does the lender have its own process in place? Avoid lenders who use AMCs that pay low fees and demand impossible turnarounds, because this practice will almost always result in an inexperienced appraiser handling your sale.

As a consequence of the Home Valuation Code of Conduct (HVCC), required for any loan backed by Fannie Mae or Freddie Mac, many lenders have resorted to AMCs, but the cure has been worse than the disease, says CJ Coury, Vice President and Mortgage Branch Manager for HomeBanc. “People mistakenly believe that HVCC standards require the use of an AMC, but that is a recommendation, not a requirement. Lenders can develop their own process and remain HVCC compliant.”

You can challenge the appraisal. After reviewing the appraisal, determine whether comparable sales were overlooked in the neighborhood. Ask for permission from the lender to speak to the appraiser and ask specific questions about comparables used in the report. Make sure that the underlying land values of the comparable sales used are similar to that of the property being appraised. This is crucial in valuing waterfront properties, for example. The lender’s underwriter has the authority and the duty to review the appraisal and contact the appraiser if warranted.  

Understand liquidation value versus market value. Perhaps the least understood component in today’s market is the inclusion of short sales and foreclosures in the comparable sales selection. Banks generally hire appraisers to form an opinion of market value, not liquidation value. Appraisers must consider all relevant transactions in a particular market area, and then determine which transactions should be included in the analysis, says Mary L. Patterson, who holds the SRA designation from the Appraisal Institute.

In a neighborhood where nearly all the recent transactions are distressed sales, market value may be equal to liquidation value. However, when market value and liquidation value are not equal, it makes no sense to use distressed sales in order to come to a conclusion about market value, Patterson continues.

You can report an incompetent appraiser. Complaints can be made to the Florida Real Estate Appraisal Board (FREAB), part of the Florida Department of Business and Professional Regulation. The board will investigate the complaint and determine if disciplinary action is warranted.

You can exercise choice. If all else fails, and you feel like you are not getting anywhere with your current lender, you can try another lender. Adaptable lenders such as HomeBanc are competing by responding to the changing concerns and needs of the marketplace.

“HVCC standards were intended to assure appraiser independence and prevent pressure on appraisers to produce a desired property value,” says Coury. “But this has created its own set problems. However, those problems can be ameliorated to a great degree, and sound appraisals in today’s climate are achievable.”

Photo: C.J. Coury