New Appraisal Rules – A Problem, or A Solution?
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Saturday’s Washington Post Real Estate section featured an article by Ken Harney entitled, “New Appraisal Rules Come With Costs,” in which he posits the following scenarios:
- The real estate appraisal that used to cost you $325 now costs $450, even though the appraiser doing the work is getting only $175 or $200.
- Your appraisal-related charges may now be subject to add-on fees – such as $50 to $100 extra in “no show” penalties if you get stuck in traffic and miss your appointment with the appraiser, or an extra $50 to $150 if the property is worth more than $500,000.
- Your mortgage loan officer requires you to pay for the appraisal upfront with a credit or debit card, rather than including the fee with the usual lender origination costs at settlement. Your card may be charged more than the anticipated cost of the appraisal – leaving debit-card holders in a potential overdraft situation.
- The person conducting your appraisal may be new to the field – willing to work for a cut rate – and may not be as familiar with local value trends and pricing adjustments as an appraiser with more experience.
- If your mortgage application is denied by one lender, you could be forced to pay for a second full appraisal because the new lender may not accept the first one.
The “new appraisal rules,” which go by the name Home Valuation Code of Conduct, were imposed May 1 by Fannie Mae and Freddie Mac, and are intended to improve the accuracy of appraisals by eliminating pressure on appraisers from loan officers. The code pushes most large lenders to use third-party “appraisal management companies” that contract with networks of independent appraisers around the country who thus are not in direct contact with retail loan officers or mortgage brokers. The Code came about as a result of an agreement made between the Federal Housing Finance Agency and the New York State Attorney General. The intent of the agreement was made to enhance the independence of appraisers. The most relevant part of the code seems to be the following:
The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents)
It used to be that a mortgage professional – whether working for a specific lender or as a broker – might have a “stable” of appraisers he or she could call on to provide services. Most of them just wanted a reliably thorough and competent job. However, and this is the reason for the new rules, some only wanted appraisers who were willing to find the right “comps” to hit a specific valuation necessary for the loan to go through. Under pressure to produce that number or perish, many appraisers buckled.
But are the new rules helpful or harmful to the more ethical mortgage lenders and brokers out there? Are they seeing big increases in appraisal costs? How about appraisal quality, now that they can’t choose one of their go-to guys? I asked several of the mortgage professionals I work with every day in Northern Virginia to give me their impressions about whether they find the scenarios suggested in Harney’s article to be happening here:.
We’ve actually been working under these rules for many years . . . All appraisals have been ordered through a 3rd party management company, and while we did have some communication with the appraiser (although not encouraged), we cannot any longer . . .
This is actually a good thing that is happening. Too many times appraisers have been bullied by agents, mortgage lenders and borrowers for not having the same opinion. This [code] will take that opportunity away. This does NOT mean that you can’t call the appraiser, still meet them at the home, etc . . . this is so that lenders cannot contact the appraisers directly – even for a status, as this is seen as undue pressure. These appraisers are professionally trained, educated and have to uphold ethical standards just like all of us; yet no one challenges our decisions like these people.
[The fees and time requirements] are the same, for now. I bet the appraisal costs will go up, and they should. The appraisers can’t live on a “cut” and they have been required to do so many more compliance checks etc . . [Turnaround times] are longer due to volume.
This won’t change the quality . . . if anything the quality will improve because the lenders and agents are now separated from any undue influence.
Jennifer Duplessis, Prosperity Mortgage
Interesting article and I am happy to say we have not had the issues mentioned. [Local] appraisers have only added $25.00 to their fees due to some additional addendums that required extra research. Appraisal fees have ranged from $350 to $375 and now are $375.00 to $400.00 for under $1 million sale price, and they have always charged more for above $1 million – that is not new. Yes, loan officers are no longer allowed to directly pick the appraiser – it is an automated random selection of a pool of known appraisers in our local area.
I think the worst [problem] is the extreme pressure the appraisers are [receiving from the lenders] to include the foreclosures and short sales when determining values. During the recession In the early 90’s foreclosures and short sales were considered distress sales and discarded as [comparable to a] homeowner selling their property. In my opinion, this change in [guideline] has escalated the erosion of home prices. They should have allowed for an adjustment upward on the distress sale, but they did not, they are requiring the appraisers to use them thus providing for lower and lower values – how unfair to the normal seller is that?
Shirley Jones, First Savings Mortgage
I haven't experienced any true horror stories yet, but the new system will definitely change things. I think the appraisers will feel empowered to bring in property values at whatever they feel the value is, regardless of what it may mean for the transaction. The old system had a conflict of interest where (I believe) appraisers didn't want to ruin too many deals with a low appraisals since they were hurting their referral sources (potentially their future income) by bringing in the low appraisal. This new system will potentially change that, which ultimately will be a good thing, but could be painful. I think that will be the biggest change. I believe we will see more low appraisals (meaning appraisal comes in below contract price).
In the past we could choose appraisers and go with ones that we felt were "good appraisers." We now have less of a say. It also adds a layer to the process which usually means more time. I do agree with what the article said about the costs of the appraisals being higher. Mortgage brokers definitely kept costs down with the old system. Appraisals have gone up by about $100 over the past year I believe. I haven't noticed a big difference in the quality of appraisal, but it is still early in the process.
Overall I don't love the new system but the old system definitely had it's flaws also. I'm not sure I would want to go back to the old system even if we could.
Kevin Haddon, Wells Fargo Home Mortgage
So on balance, it seems, in the Northern Virginia area the new rules are seen in an overall positive light by people who I believe to be in a position to know. Yes, costs my have increased slightly, and there may be a somewhat longer turnaround – especially as the system gets established – but I think the horror story scenarios drawn by critics are not reflected in the actuality. I do agree with Shirley's view about separating the distress sales from the normal sales – it's unreasonable, but it's not a part of the new rules, just a lender-imposed requirement. Appraisers should be able to reflect adjustments for condition, given the lousy condition of most foreclosures, but it's unlikely to fill the gaps.
Kim Hannemann, Real Estate Consultant/Realtor®, Samson Properties Cell: 703-861-9234 • Fax: 703-896-5055 • Email: KimTheAgent@gmail.comIt's Good To Have A Friend In The Business®
If you would like to discuss real estate questions, sell or buy a home in Northern Virginia - including Alexandria, Annandale, Arlington, Burke, Centreville, Chantilly, Clifton, Fairfax, Fairfax Station, Falls Church, Kingstowne, Lorton, McLean, Reston, Springfield, or Vienna - contact Kim today.
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March 2009 home sales activity for Fairfax and Arlington counties and the cities of Alexandria, Fairfax and Falls Church and the towns of Clifton, Herndon and Vienna (this sounds like a weather alert, doesn’t it?):
February 2009 home sales activity for Fairfax and Arlington counties, the cities of Alexandria, Fairfax and Falls Church and the towns of Vienna, Herndon and Clifton:
I just saw a note posted on our local MLS – Realtors drive a lot - about a relatively new law in Virginia that require drivers to yield the right of way or reduce their speed when approaching stationary emergency vehicles on the highway.
Stick It To The Man - that’s me! A 
It won’t cost you anything but your sanity . . . and not even that, if you
We are finding ourselves spending a whole lot of time explaining lender pricing methods to buyers. This week we saw another bank-owned listing priced a full 20% below one active listing and two in escrow – all identical homes within two blocks of the perpetrator. Now, one can argue this is a brilliant strategy for ensuring a speedy-quick sale, and one might even argue that the price will tend to float toward something more in line with true values. Both arguments are valid, but is blatant and gross under-pricing moving toward an ethical gray area? And, what about an agent’s fiduciary responsibilities? Lenders are clients, if not people, too, and pricing a property using a dreidel could be considered negligent. Finally, there is the confusion among buyers that this causes.
Stuff. Most of us have waaaaay too much of it. If you know my wife, you will understand who keeps stuff organized in our house. She spent a good part of this weekend moving cookbooks, camera and various electronic gizmos from one cabinet to another, tossing things we haven’t been using, and getting some new things put away. It’s certainly not me – you should see my desk right now. I am not the best person to talk about decluttering, though it’s definitely a mantra of mine when talking to sellers! So that’s why I asked for professional help in writing this piece, and Aimee Saldivar obliged:
Do you feel bad throwing out every greeting card you receive? Or do you feel the need to save every toy your children owned to hand down to their children someday? Keeping these toys and remembrances can add up, especially if you don’t have the space to store them. If you save the toys’ original boxes or perhaps the toys that are slightly tattered, they’ll be of no value if your children decide to buy their kids new toys altogether. Get rid of them! One way to keep that precious toy close to your heart is to take a picture of it and create a digital album for you and your children to cherish tomorrow. Those pictures would make a great hardback album for a holiday gift, or can be used to create a scrapbook. It will not only take up less room, be cost effective and environmentally friendly, but it will allow more room for you to use today.
I recently finished a book by Peter Walsh, professional organizer and motivational speaker, called 
TIP: In today’s economy, second-hand and consignment stores are becoming the hot place to shop. If have you some great items that you feel guilty about giving away, consignment shops are a great way to get rid of them without having to host a yard sale or post them in the classifieds online. Remember, one man’s junk can be another man’s treasure – at less than half the price! [Followup tip from Kim: Drop off your stuff and drive away quickly, or you will come home with more than you took in!]
TIP: Getting rid of dust collectors such as books, lampshades and dried flowers can help alleviate dust for people with allergies. You may continue to dust the shelves, but not the books on the shelves or the dried flowers you are saving from a special occasion. It rarely occurs to people that dust build-up on these items is overlooked and can make matters worse for people with allergies. Once you finish reading a book, trade it for a new one or donate it. Donating books to your local public library is a very simple process and is a tax write-off for you next year.
A great way to pay tribute to a loved one after they have passed would be to dedicate a space or a room for their items. If they were in the military, one way to pay tribute would be to frame their military medals along with their uniform jacket. Or if you are having a hard time parting with their collected items, perhaps you could sell them and donate the money in their memory to an organization or educational institution they would have appreciated.
Many thanks to Aimee Saldivar, professional organizer and home stager. She also offers special occasion set-up such as table setting and arranging. You can find before and after pictures on Facebook by looking up Ladybug Staging and Organization.
It’s a fine mess when Mr. Language Man has to make up words (“stimulized?”). But it’s a pretty messy bill our elected representatives just passed. I’m sure President O would have just preferred to get $800 bill to spend as he needed, when he needed, on whatever he thinks will work. But, nooooo.
Refundable First-time Home Buyer Credit. Last year, Congress provided taxpayers with a 
Sales Tax Deduction for Vehicle Purchases. The bill provides all taxpayers with a deduction for State and local sales and excise taxes paid on the purchase of new cars, light truck, recreational vehicles, and motorcycles through 2009. This deduction is subject to a phase-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return).
Tax Credits for Energy-Efficient Improvements to Existing Homes. The bill would extend the tax credits for improvements to energy-efficient existing homes through 2010. Under current law, individuals are allowed a tax credit equal to ten percent (10%) of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during the taxable year. This tax credit is capped at $50 for any advanced main air circulating fan, $150 for any qualified natural gas, propane, oil furnace or hot water boiler, and $300 for any item of energy-efficient building property. For 2009 and 2010, the bill would increase the amount of the tax credit to thirty percent (30%) of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements during the taxable year. The bill would also eliminate the property-by-property dollar caps on this tax credit and provide an aggregate $1,500 cap on all property qualifying for the credit.
Themocracy