In the past, your lender picked who appraised the property. During the real estate run-up, appraisers got a lot of pressure to make homes appraise at inflated prices. If the appraiser didn’t “hit the number,” there were some veiled, if not outright threats, to not send them any more business. The politicians have identified this practice as being a scapegoat for our real estate crash. So starting May 1st, any loan that will be sold to Fannie Mae or Freddie Mac must have an appraisal done by a third-party appraisal clearinghouse, which means that the lender themselves can’t pick the appraiser.
So what’s the problem? There are many. First, I am all for fair valuations of property. What I am against is having an appraiser who isn’t familiar with an area doing an appraisal, and not knowing the positives/negatives to one neighborhood over another. I’ve run into several challenges recently with appraisers who aren’t giving appropriate credit to a neighborhood that is far superior to one of the comps the appraiser is using. I dealt with an appraiser the other day who had driven up from San Luis Obispo, and was using a map he bought at a gas station! He had 5 more to do that day in our area, and he had NO CLUE about our area.
The other problem is that the clearinghouses are keeping a big chunk of the appraisal fees for themselves. I’ve spoken to several well-regarded veteran local appraisers who are thinking of leaving the business entirely over this change. This could leave us with high-volume, cut-rate appraisers, who do them in a rush, make more mistakes, and also have less time to respond to rebuttals to their appraisals, which I am already experiencing. Or it will mean that the cost of appraisals will go up, which there are already signs this will happen. And also, the clearinghouses usually want to get paid up front, instead of at close of escrow, for their appraisal.
So the bottom line is that this new rule may lead to less accurate appraisals, at a higher cost to the borrowers. [Note – this new rule will NOT impact FHA loans, or loans made by lenders who will not sell their loans off.]
If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty