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February 10, 2005

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Charles L. Drecksler

Appraisers Under Pressure by Charles L. Drecksler

How much pressure does an appraiser receive from either the brokers/agents or the lending institutions to make the numbers work? Many appraisers had hoped following the experience of the savings and loan crisis of the late 1980’s and the advent of state licensing of appraisers, some of the appraisal related problems in the lending industry would be solved. To the surprise of the industry, this has not been the story. Many believe the problem is worse today than before licensing. I would be remiss in this article if I did not mention that there is an Appraiser Petition signed by over 7,800 appraisers on www.AppraisersForum.com regarding appraiser pressure. It is my understanding that the secondary market including and not limited to FannieMae and FreddieMac, the National Association of Independent Fee Appraisers and the Appraisal Institute are aware of the petition and trying to work to solve some of the problems facing appraisers. It takes a great deal of pressure to get that many appraisers to agree on anything and sign such a petition. Let’s take a look at some of the types of pressure that are applied to appraisers.

First, many large lending institutions own appraisal management companies. Their vendor agreements are just too one sided to even think about signing. There have been numerous posts and discussions on the appraisal chat rooms regarding this very issue. Many appraisers have decided not to sign these vendor agreements and seek other types of appraisal assignments or are just getting out of the appraisal business. The other concern here is that these same appraisal management companies are taking a greater percent of the appraisal fee and taking the profit out of the profession. Are many of the lenders taking a short-term approach by making appraisals a profit center? How many of these appraisal assignments are being completed by trainees and the low fee provider? I cannot tell you how many well-qualified appraisers have stopped doing work for this type of client. The quality of appraisal reports being submitted to these lenders concerns me. If appraisers are required to sign these one-sided vendor agreements, then what other items are the appraisers being forced to overlook or value to hit in order to get appraisal assignments? Education, experience, residential designations and integrity are no longer factors for getting appraisal work. Appraisers who sign the vendor agreement and accept work at 1980 fees are the ones getting the appraisal business. Can this be the start of another savings and loan crisis with a different name coming down the road?

Second, lender pressure is not limited to mortgage brokers. Many large institutions with tremendous clout also apply pressure. How many times are appraisal requests sent with the following statement: IF THE VALUE ISN’T THERE, STOP AND NOTIFY US? “An appraiser must not accept an assignment that includes the reporting of predetermined opinions and conclusions” according to Uniform Standards of Professional Appraisal Practice. Appraisers are required to follow USPAP guidelines. Our interpretation is that appraisers may not accept appraisal assignments with terminology similar to what is noted above. Appraisers are not to accept appraisal assignments with pre-determined value conclusions. Payment for appraisal services is not subject to hitting a pre-determined value or an event occurring. These are major violations of USPAP. Both mortgage brokers and lending institutions send appraisal assignments that include such verbiage on a daily basis. Many brokers/lenders fail to pay the appraiser if the desired results, pre-determined value, are not concluded. These are major forms of pressure applied to appraisers. Can appraisers continue to make a living in this type of appraisal environment?

Third, appraisers are under tremendous pressure to “hit the number”. Appraisers are to make the deal work or not get future appraisal assignments. The appraiser who does not hit the desired results is not a TEAM PLAYER and labeled a DEAL KILLER. Most likely you will stay on the lender’s list. It’s just that you will be placed at the bottom of the list never to be heard from again. Kill a deal and you most likely will not get another appraisal assignment from that lender. You’re only as good as your last appraisal! It does not make a difference how good your comparables are. Appraisers are told to make the deal work! Is this common? More common than anyone wants to admit. Yes, this type of pressure is at the heart of the problem. It works on taking the honest appraisers, well-qualified appraisers, right out of making a living. Appraisers have a choice to hit the target number or you will not get future appraisal assignments.

Fourth, appraisers are pressured to ignore items. There is no carpet in the subject property or it’s really in need of replacement. The house backs up to a major freeway. Oh, the subject property is in the flight path of an airport! Can we note external obsolescence in the report? There is major cracking in the foundation. The basement has water damage and needs repair. Is that mold? There is a room addition without permits, which does not meet code. Security bars on bedrooms without release bars. Should appraisers dare mention any of these items? The appraiser is threatened time after time either take this out or you will not receive another appraisal assignment from us or any of our affiliates. Is this put in writing? NO. Is this done all the time? YES, everyday of the week!

In conclusion, vendor agreements, appraisal assignments that do not meet USPAP guidelines, pressure to hit a pre-determined number and pressure to overlook items along with non-payment for services rendered are just some types of pressure applied to appraisers. Let me make note that there are many brokers and lending institutions following the guidelines and are a pleasure to work with. To our clients and others that fall in this category, thank you! Are there solutions to stop or at least slow down these types of pressures applied to appraisers? Yes, look no further than FannieMae and FreddieMac guidelines. APPRAISERS AND UNDERWRITERS ARE NOT SUPPOSED TO REPORT TO LOAN PRODUCTION. We need to go no further than this to solve many of the problems facing appraisers today. Many lending institutions / mortgage brokers want the appraiser to solicit the loan officer for appraisal assignments. Or worse yet, the loan officer is allowed to select the appraiser. As long as this trend continues, pressure on appraisers will most likely continue and only get worse. It is up to the appraisers to make the final decision as to what type of profession they want. Hopefully, there are enough well qualified appraisers, designated and non-designated, that are willing to step up to the plate and do the right thing. Appraisers must just say NO. This will make a difference not only in the appraisal profession but also in the quality of loans in our lending institution’s portfolios. Do we dare risk another banking debacle?

Printed with permission of www.RealEstateAppraiser.com


David Feaver

Just a couple of responses I would have to the articles. I agree with almost everything that was written. However, I have found that there are ways, as an appraiser, to somewhat get around lender pressure.

First of, I make it clear up front that I cannot guarantee a value, but will do almost anything else that is reasonable and in my power to assure them and the borrower that I made a bona fide effort to be fair and thorough. If they don't like that, they don't give me the assignment, which is OK because up until now, I have had more than enough work. (I sometimes wonder how I would handle it if I didn't have enough work - I suppose I would get out of the business at that point, but I don't see that happening, even with a downturn.

I belong to 5 MLS systems, 5 GIS (geographical information systems), I use state of the art technology and so far have been doing it all myself, so I let them know that I have access to a wide variety of excellent resources. Appeals are free and welcomed (I like understanding the mindset of the borrower and whatever information they or the property owner have that might be relevant). I do all this and more at very competitive fees and with a guaranteed 3 business day turnaround.

In other words, if you're going to be honest, you have to work harder and get paid less.

Fortunately, in my experience, there are more than enough people out there who want honest appraisals, so it hasn't been a major factor for me so far (although I have to have a very broad based client base). One of the fringe benefits of being honest, by the way, is that lender's won't give you as many "marginal" assignments where they think (or know) that you would have to "stretch it" to get the value. I have several lender's who do not give me an estimated value at all (blind appraisals) and they are some of my best clients.

Part of the problem is that certain appraisers get in too cozy with one or two lenders, and become beholden to them. I don't even go to Lender's parties, although that may be as much because I'm so busy than out of principle.

I am concerned, though, as the real estate market begins to cool off, we may see more pressure to do fraudulent work, not less. The incredible rates of appreciation have minimized the need to use fraudulent appraisers, although it has also covered a multitude of sins. As you know from being in the business through several cycles, sloppy work can catch up to you during the down times.

To solve the problems, I feel strongly that loan officers (or any party to the transaction who has a direct stake in the outcome of the mortgage application) should NOT be the ones ordering appraisals. That should be done by a combination of an automated rotation (perhaps a computerized dispatching system) and/or in combination with an independent "competency board". Unfortunately, although most appraisers agree with me, the Banking lobby is far stronger than the appraisal lobby, so it's unlikely to happen until, God forbid, there is a major real estate market crash. Then the public will demand it.

That's my two cents.


David S Feaver
David S Feaver Appraisals
2437 Walbert Avenue
Allentown, PA 18104-1325
Email: dfeaver@aol.com
Website: www.dfeaver.com
Appraisal Cert: RL-001503-L (PA)

RICHARD D. FRANK

WITHOUT LENDER PRESSURE AND THE NATURE OF IT, WE WOULD NOT NEED US, THE APPRAISERS. IT WOULD BE GOOD TO HAVE A PENALTY SYSTEM TO USE AGAINST LENDER FRAUD BUT/AND WHAT WE NEED ARE APPRAISERS WITH BACKBONE DOING THEIR JOB. WE GET PAID TO APPRAISE AND TAKE THE HEAT. WE RARELY GET COMMENDED WHEN THE VALUE IS HIGHER THAN ANTICIPATED. AGAIN, LENDER PRESSURE IS WHAT CREATES THE NEED FOR APPRAISERS IN THE FIRST PLACE. ONE OF THE CHARACTERISTICS OF ANY WATCHDOG OCCUPATION, (POLICE AS WELL) IS FOR THE WATCHED TO SQUAWK. TO BE A GOOD APPRAISER, YOU MUST HAVE THE ABILITY TO KNOW WHAT YOU ARE DOING (SOME HAVE NO IDEA WHAT THEY ARE SUPPOSED TO BE DOING)AND THEN BACK IT UP AND STICK TO YOUR FINDINGS. PRESSURE CAN AND DOES MAKE MY DAY MISERABLE AT TIMES, BUT IT'S PART OF THE OCCUPATION. I WOULD LIKE SOME TOOLS TO DEAL IT BACK TO THEM.

Juno888

Part of the problem is that certain appraisers get in too cozy with one or two lenders, and become beholden to them. I don't even go to Lender's parties, although that may be as much because I'm so busy than out of principle.

philippines properties

Maybe your right about that, but i think not all the banks are like that.. And I do agree that the foreclosure market is particularly vulnerable on the pressure of appraisal...

-david

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Frances Flynn Thorsen


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