New rules for home appraisals enacted to safeguard their integrity are making matters worse for the deals they're supposed to be protecting. "The intentions were solid, but the execution of the intensions is poor at best," said Teri Phiel, president of Lewis Investment Group in
Since May 1st, home appraisals must be ordered at arm's length, often through a national management company which rotates appraisers. Before the change, a mortgage broker or lender could hire a familiar appraiser to prepare the appraisal to close a deal. Now, communication between the appraiser and real estate agents is obstructed and discouraged.
Homeowners who want to refinance their loans, as well as Real estate agents, mortgage brokers and buyers, are feeling the effects of the new rules designed to prevent influencing appraisals that helped fuel the housing boom.
The new rules govern only loans that will be sold to Fannie Mae and Freddie Mac, which are government-run mortgage companies that buy most of the nation's home loans, and not loans guaranteed by the FHA or VA.
The single largest problem with the new rules are that the management companies. They are assigning appraisers from outside the local markets & who don't know the area. The appraisers are assigned by rotation after responding to a near-bid-process of lower fees offered. This is because the management companies have lost experienced appraisers by taking a large percentage of the appraisal fees. In many cases, as much as 40%.
Another issue: appraisers value properties on the low end of the value range to appease lenders who are scrutinizing appraisals even more now after realizing large loan losses in recent years.
Mortgage brokers and real estate professionals are disturb and troubled because they've lost control and influence of appraisals, said Bowen Zarn, a Windermere appraiser in
One recent example is of Bruce Crawford, of Dr. Phillips, who was trying to refinance into a loan with a fixed 4.75 percent interest rate. Crawford has a high credit score and lives in an upscale community. But his Bay Hill mortgage broker said the bank turned him down after insisting that the appraiser include in his report a short-sale and two sales from a less-desirable community nearby.
"I can't comprehend not being approved for this loan," Crawford said. "It's degrading."
The response from appraisers and the management companies is to blame the large volume of foreclosures and short sales for skewing the value estimates downward.
While a reality in the current market, distressed homes are only one aspect which should be considered and should not be used to over-correct the market. These distressed sales are NOT Arms Length transactions as you have a forced-Seller with a bargain-buying Buyer. Since the beginning of appraisals, these transactions were discounted in the finding of value of property.
White Gate Realty recently represented a client who agreed to sell a five-bedroom
The seller certainly didn't want to drop the price, and the buyers’ attitude was “Why should I pay more than the bank thinks it's worth?” The deal was lost.
However, you can sometimes argue successfully with the bank and their underwriter by challenging the appraisal.
It sometimes becomes the vinegar and honey conversation. It can be done with additional information about the area, the neighborhood, the other comparable homes NOT used in the report to help support the higher end range of value given in the report. Persistence and sweet may be the rule of thumb.
The other consideration is for both Buyer and Seller to insist on a contracted course of action to get the deal done. White Gate Realty has successfully negotiated terms placed into the contract to help reduce the obstacle of these appraisal problems. If the goal is established and agreed upon, the terms can make the issue smaller or a non-issue all together.
