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  Institute of Housing Technologies
Improving the Real Estate Information Network
All About The Money
Appraisal Reform
Consumer Protection is long gone. And, it's needed now more than ever. Not from runaway real estate pricing, but from greedy lenders who only want a little bigger piece of the appraisal pie. At the end of the day, it' all about the money. 
All About The Money…  

Where’s the Consumer Protection In Appraisal Laws?
​Lawmakers are looking out for banks best interests. Consumers get cheated, yet once again in the home buying and mortgage loan processes. Make no mistake; any “appraisal reform” is about money. Take away all the fancy forms and talk, and it all comes down to profits; more lender’s profits. Shouldn’t lawmakers protect consumers first? Not in the case of the appraisal industry. The system has failed the real estate market and consumer protection, and the pursuit of greed dominates any appraisal laws. Even the much heralded Dodd-Frank bill, one year after the fact, is a joke. 38 of 400 promises have been kept – that’s 362 broken – pretty impressive record. How long before we all get the hint? Wall Street and Big Banking are still in total control of our nation’s real estate market. No housing recovery can take place until we move past the appraisal reform fabrication.  

How do we fix this problem? It’s not that difficult. We need one new law that prohibits banks from profiting from the appraisal portion of the mortgage loan process. All talk of appraisal reform would magically disappear. It’s not any big secret. It’s just that nobody seems to want to talk about it in front of a camera. Ask your local lawmakers why this simple law would not protect homebuyers? And, why no such law has been introduced amidst all this talk of reform? Wall Street and banking reform pales in comparison to appraisal reform and that’s where the biggest problems lie. Think about the home buying process. What profits do lenders make from the home inspection, the home insurance, the attorney fees associated with mortgage lending? Why is appraisal any different? And, this new UAD data standard we hear so much about - what does it require? A new type of PDF file that allows someone else to charge appraisers yet another new fee. A fee that turns the appraisers secure PDF form into a file format the lender approves. Is the form any better or more secure? No. Does this new form benefit consumers or mortgage investors? No. It’s simply about money. More money coming out of appraiser’s pockets, which keeps pushing appraisal quality on its downward spiral.  

Do consumers really want their appraisal to be rushed and done by the person who will do it the cheapest? Makes you feel all warm and fuzzy inside to know your largest, lifetime, investment is being reviewed by someone who is in a hurry, and feels like they’re not getting paid enough to spend any time on the report. No time studying, researching, reviewing or in-depth investigating; just fill out the form and on to the next report. Give lenders what they want. No opinion, just numbers. And, only numbers that fit the perfect percentage guidelines. These once recommended guidelines for appraisal adjustments, only worked in about 25-40% of the real estate market when business was booming. Once a suggested guideline has turned into a steadfast appraisal law and is killing many sales, with the few buyers who are brave enough to venture into the current extreme loan review process. 

Appraisers are already working at half the fees they made two years ago, and working for a middle man who tells them when, where, and how the report will be done (even though they don’t need an appraisal license to require an appraiser to change a report or to be the appraiser’s boss). It sounds like a government intervention, inspired by lobbyist, working for big banking, who really have two objectives. 

One is simply to profit from the appraisal process. Add a few hundred dollars profit to loans all across the country and we are talking some adult money here. The second goal is to reduce the appraiser’s influence over the final mortgage product. Lenders want to be able to control every part of the loan process so they can package their loans, sell them in the secondary market (Wall Street), with no one having any checks and balances in place. Their game and their rules (the Golden Rule). Lenders are still looking for a “form to make the deal work.” That’s how this real estate crisis started in the first place. 

The appraisal report can affect the financial security of the buyer’s investment. Who really looks out for the buyer’s best interest and is an unbiased party? That’s why the appraisal profession was created. Who do you really want to confirm you are paying a fair price for your home? The agent who gets paid on a commission (only when the house sales); the lender (who only gets paid when they close a loan (they have no investment in the home or the loan); or some computer valuation program created to look fancy but provides no real value. It is a computer report, based on the inaccurate information reported in public records. After eight year of tracking these errors, shame on lenders for trying to force-feed this process to lawmakers and the public. It is embarrassing to anyone who truly understands real estate and pricing. We live in a price-per-square-foot world and that’s the main method computers use to price homes. No judgment about location, quality or condition, just price and size. And, over 80% of the info they rely upon is wrong; mistaken enough to change the home’s value by more than 10%. That’s frightening! And, there’s also no talk about reform in the public records or MLS systems, which influence all real estate prices and appraised values. 

At the very time when an experienced, qualified appraiser should be a top priority, not only for the homebuyer, but for the mortgage investor; banks are pushing AVM’s and electronic valuations reports. New types and names for condensed appraisal forms, all designed to get less professional opinion and more generic data (available through public records), not from licensed real estate professionals. If you hear any reports about the accuracy of AVM’s, it’s provided by someone who has a financial stake in computer valuations. No independent agencies are verifying this data. We are blindly following big banks and lobbyist putting on the computerized home valuation show. It’s one of the greatest sales jobs ever accomplished. But, it is nothing more than smoke and mirrors, and all designed to create a new revenue stream to replace part of the income lost from the golden days of low and no-money down loans.  

Real estate appraisal is an art and the best artists are being driven from the profession in droves. All these changes to the appraisal industry means less quality; a guaranteed byproduct of these unnecessary changes to the appraisal process. No automated valuation product will ever (never ever) accurately and consistently provide dependable real estate values. Real estate and real estate appraisal is a people business. It requires local knowledge and information about places, people, and circumstances. While the system will never be perfect, a licensed appraiser is the best opportunity to discover the true current market value of a single-family home. 

In computer valuations, all the info in the world is of little value without the knowledge and skill of how to select the appropriate parts, analyze the data, and apply it to the valuation report. Accurate valuation is only possible one home and sale at a time, by a local (living, breathing) professional.  

Lenders continue to wield their power, trying to convince lawmakers (and the public) that appraisals need to be faster and cheaper. (Remember, the only reason you’ve ever heard the phrase “turn time” in the appraisal industry, is because banks don’t order appraisals at the beginning of the loan process. To get a mortgage typically takes at least 30 days. However, lenders want appraisers to get reports back in 48 hours. What a brilliant idea! Let’s push the people who should be taking their time, researching the information and thinking about the valuation problem at hand. The entire appraisal process has been turned upside down and it’s all about money. 

Ask your local lawmakers if it’s possible to take appraisal profits out of the hands of big banking. And if not, why not? Make one more new law and let’s get America moving again.