Real estate column: New appraisal code irks some
| Tuesday, Jun 30 2009 07:51 PM
Last Updated Tuesday, Jun 30 2009 07:51 PM
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Henry A. Barrios / The Californian Fred Berger looks over the multiple listings service print out that will help appraise a house.
Henry A. Barrios / The Californian Fred Berger starts the process of a home appraisal on a four-bedroom, two-bath house. It first sold in 2006 for about $400,000. It is possible the house will appraise near $200,000 now.
If you need commercial or residential property appraised, there’s something you ought to know.
As of May 1, appraisals are subject to the Home Valuation Code of Conduct, which was hammered out in a settlement agreement among the New York Attorney General, the Federal Housing Finance Agency, Fannie Mae and Freddie Mac.
The code is intended to put a firewall between appraisers and mortgage and real estate brokers to avoid coercion.
Under the old system, real estate professionals who had a financial interest in high prices sometimes pressured appraisers to say property was worth more than it was. It was awkward for appraisers to stand up to them because they didn’t want to alienate people who could steer them business.
This isn’t an obscure issue only relevant to the industry. Inflated appraisals during the boom years are one of many reasons Kern County has one of the highest foreclosure rates in the nation. All those empty, bank-owned properties have triggered a domino effect on spending, jobs and development.
To deter undue influence on valuation, middlemen, or appraisal management companies, now hire appraisers and review their reports.
That would seem to be a good thing, but appraisers insist the well-intentioned new rules hurt consumers.
Appraisal management companies tend to work regionally, so they may hire an appraiser from outside the county who doesn’t know the local market, and the people reviewing their reports often aren’t licensed or certified.
They also pocket 40 to 70 percent of the appraisal fee, so appraisers aren’t earning as much unless they put quantity over quality, said Bakersfield appraiser Fred Berger.
“If someone showed up and told you you’re going to do twice the work for half the money, what kind of product do you think you’d get?” he said.
That’s especially true for so-called complex appraisals — that is, unique properties that are difficult to value because there aren’t a lot of comparable sales, Berger said.
If the loan amount is $249,000 or lower, you may not get an appraiser at all, said Bakersfield appraiser James Henderson, who serves on the national board of Appraisal Institute, a trade group based in Chicago.
Below that, there’s nothing to prevent the use of automated valuations gleaned from information on comparable properties in online databases.
If you’re lucky enough to get a human appraiser, it’s likely to be someone inexperienced because appraisal management companies often shop jobs around to whomever will do them for the least amount of money, Henderson said.
“Think of it in terms of a doctor,” he said. “Do you want someone who just graduated from medical school three days ago, or do you want someone board certified who’s been practicing for years?”
Henderson suggests consumers check out the person doing their appraisal the same way they would research a doctor.
There are certifications for appraisers who have undergone special training and had their work reviewed by peers. The Appraisal Institute offers one for commercial and industrial appraisers, and another for residential appraisers.
If an appraisal doesn’t smell right, there’s always the new Independent Valuation Protection Institute, or IVPI, which Fannie and Freddie jointly created to oversee the new rules.
It’s supposed to establish a telephone hotline and e-mail address consumers can contact if they believe the appraisal process is tainted or they are victims of fraud, but as of June, those weren’t up and running yet.
