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Editor’s Note: Agents and brokers are sometimes frustrated when an appraisal value comes in under contract price but pressuring an appraiser to meet a value is a violation of appraiser independence laws and can get you in trouble.
Appraiser Pressure: What Agents/Brokers Need to Know about Filing Complaints
By Isaac Peck, Associate Editor
No one needs to tell appraisers about pressure. Despite recent regulatory changes, such as Dodd-Frank, appraisers still face pressure every day. Instead of rabid mortgage brokers, like days gone by, today there is a new source of heartburn for appraisers: real estate agents.
Dodd-Frank defines a violation of appraiser independence as any instance where “A person with an interest in the underlying transaction…attempts, to compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate such a person, for the purpose of causing the appraised value assigned, under the appraisal, to the property to be based on any factor other than the independent judgment of the appraiser.”
In recent years, appraisers have often been blamed for being “deal killers,” a code word for an appraiser who submits a value below the contract price. These days, it’s not uncommon for an agent or broker to call an appraiser, submit additional comparables for consideration, vigorously question the appraiser’s competence, and insist that the value of the property is higher than the appraiser’s independent opinion of value. But what many agents/brokers don’t understand is that such pressure is likely in violation of appraiser independence. And some agents take it a step further; they report the “bad appraisal” to their state appraisal board in what many view as retaliation for a lost deal. Such complaints are often substantiated and frequently dismissed by state boards, but nonetheless, can cause a litany of problems for the appraiser involved as well as backfiring on the complaining agent by getting them in hot water.
Stacy Roberts (quoted under an alias because she fears retaliation), appraising 27 years, recently had an angry agent file a complaint against her with the Colorado State Appraisal Board.
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Back Story
Stacy Roberts, Certified Residential, says her story begins in a small subdivision in her area. The agent in question listed the property for $50,000 above what any other property in the area had sold for, and the property ended up selling for $40,000 above the nearest comparable. “My appraisal report included five comparables within the subject property’s subdivision. Two of the comps were model matches, with one even being on the subject property’s street. All comps had closed within 90 days. My goodness, I don’t think it gets much better than that,” says Roberts. “I did not want to leave the subdivision and go to another subdivision where houses typically sell for more, because I consider that to be fraud.”
Roberts says that when there is a “value dispute” between an appraiser and an agent, the agent typically submits additional comparables to the lender, who then may or may not contact the appraiser and ask for a review of the comps. In Roberts’ case, the agent opted for a more direct approach. “The agent ended up calling me in an absolute rage, screaming and yelling. I told her to submit her comps to the lender for a reconsideration of value and that I would be happy to look at whatever she sent and see if I missed anything. She kept screaming and threatening me, telling me that I’m stupid and I don’t know what I’m doing. She threatened to go after my license. I finally hung up on her,” says Roberts. “She made the same call to my manager and told him the same thing, and he gave her the same response I did.”
Complaint
Roberts says the agent never submitted any additional comparables for consideration, likely because she did not have any. “Instead of submitting additional comparables, the agent sat down with her seller and wrote a letter making a series of very libelous accusations against me. They called me lazy and incompetent. I’m offended because I work very hard. I’ve been an appraiser 27 years and I know my business. The verbiage in this complaint was so outrageous that I was sure the State Board would realize what was going on and just toss it,” Roberts says.
Instead of tossing out the complaint as she expected, her Appraiser Board pursued it. Roberts thinks one of the reasons might be because her Board is under the supervision of the Colorado Real Estate Commission. “I think it’s a problem because the Real Estate Commission is full of agents, so those relationships get a little too cozy. I was shocked that my Board was pursuing a frivolous complaint that had no foundation in reality,” says Roberts.
In response to what she felt was retaliation by the agent for simply doing her job, Roberts filed her own complaint against the agent with the Colorado Real Estate Commission. “My complaint said what you might expect, that agents are up to their old tricks and are just using a new weapon against appraisers. I said that this woman had violated my appraiser independence and that we should not be subjected to that kind of harassment and pressure just because we don’t meet value,” says Roberts. The Commission’s response to Roberts’ complaint surprised her. An investigator for the Commission told her that he hadn’t even read her complaint. “He said, ‘You can’t file a complaint against an agent. You’re an appraiser you’re not allowed to do that.’ I was shocked! I thought I had the same rights that everybody else does. My complaint was legitimate,” says Roberts.
The process, in Colorado at least, is biased towards real estate agents and brokers, argues Roberts. “Everybody should be treated fairly. If one licensee, agent or appraiser, files a complaint against another licensee, then automatically both individuals should be investigated. It’s one-sided because it is far too easy to fire off a retaliatory complaint against an appraiser for not meeting value,” Roberts says. “If the appraiser is going to have their work file pulled, the agent should have their file pulled as well. And the dispute needs to be arbitrated by an unbiased group of people: appraisers, agents, and regular citizens.”
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Results
Two months and several responses later, Roberts reports that the complaint against her is finally being dismissed and that none of the allegations were substantiated.
Even though the complaint was ultimately dismissed, Roberts feels the situation with the Colorado Real Estate Commission needs to be addressed. Additionally, Roberts says that situations like this are happening with increasing frequency. “I attended two continuing education classes recently and being threatened by agents this way was the main topic of conversation among appraisers. Other appraisers are quite upset about this too. I gathered from the other appraisers that it was all verbal at this point, but this is still a significant problem,” Roberts insists.
Roberts tells appraisers that speaking out about the problem is the first step to addressing it. “Appraisers need to feel that they can talk about it. They shouldn’t be scared of it. We all sit in our little home offices and feel like we’re alone and we don’t have a voice. I had every right to file that complaint and the Commission was out of line to refuse to investigate it. The fact that they didn’t is very disturbing. We just can’t have this type of pressure going on,” says Roberts.
Reporting Violations
Richard Hagar, SRA, an experienced litigation consultant and expert on appraiser independence regulations, also encourages appraisers to report says that appraisers should be reporting any violation of their appraiser independence not only to regulatory authorities, but to the lender directly.
Section 129E of the Truth in Lending Act mandates that: “It shall be unlawful, in extending credit or in providing any services for a consumer credit transaction secured by the principal dwelling of the consumer, to engage in any act or practice that violates appraisal independence.” According to Hagar, this means that appraisers have the power to stop a loan for a consumer’s primary residence if they feel their appraiser independence has been violated.
“Appraisers have the biggest bat they’ve ever had. They have the power to stop the loan and prevent closing. Appraisers who feel their independence is being violated can contact the lender’s Compliance Officer in writing so that they have a chance to correct what’s going on. If their appraiser independence is violated, it’s unlawful for the lender to fund the loan,” says Hagar. “Once the lender is notified, they can’t fund the loan unless they order either a full review of the appraisal in question or a whole separate appraisal if they want to be in compliance with federal regulations.”
Hagar also advises appraisers to file complaints with the relevant state and federal regulatory bodies, including the State Attorney General.
Finally, Hagar advises that in addition to complaining to state and federal regulators when pressured by an agent or broker, appraisers should also contact the National Association of Realtors if the individual involved is a Realtor®. In some cases, according to Hagar, state Realtor® associations may take action against unethical agents and brokers who attempt to pressure appraisers into meeting value.
We’re always listening: Send your story submission/idea to the Editor: dbrauner@orep.org.
by IndV
The listing agent on a property I am in contract to buy rescheduled one appraisal appointment to, I suspect, wait for the seller to receive my request for repairs. Once received, the listing agent attempted to directly cancel my bank’s appraisal with the rational that I can reschedule the appraisal later if I like the seller’s response to my request. Obviously it is offensive that he would attempt to interfere in my mortgage application. Is it a violation of appraiser independence for him to attempt to block the appraisal?
-by Kim W
Bought a house in June of 2016 for $185,000. It appraised for $195,000 when we bought it. We put on a $13,000 roof, new engineered flooring, custom Kitchen cabinets with granit countertops at over $11,000 plus all new lightening, professionally painted, and new bathroom vanity. We knew when we listed this year, we would take a huge loss but possibly break even. We got a contract after 3 weeks for $193,500 plus pay closing costs of $5,500 which we agreed to. Not even two weeks before closing the appraiser comes out. He is an hour late with no apologies, nothing. In and out in about 20 minutes. We find out 5 days later, he has appraised our house at $175,000. Everyone was in shock.. myself, the buyer, realtors, etc.. The buyer paid for another appraisal to come out on Friday. We are waiting on his results to see if this deal will happen. I am defintely looking into filing a complaint not just because of what he appraised it at but also because he put on the paperwork that the house had not been sold in 36 months among other errors. Just said he could not find comparables. To all of us involved, this has been a nightmare thanks to this guy.
-by Terry
Did you pursue filing a complaint? If yes, what were the results? I am currently experiencing the same issue. The appraiser used comps of houses that had little to no updates. Both realtors were shocked when the appraisal came back so low.
-by Todd Nuccio
Interesting how an article about pressure upon appraisers results in complaints about appraisers, which ironically proves the author’s underlying point. Please, let’s try to separate unjustified pressure from an appraiser’s competence. As an appraiser for 27 years I’ve had only one complementary letter from a buyer (approximately 25 years ago) when I missed value on the SFR they were renting and trying to buy. My appraisal first infuriated them, but then they used a Realtor to find a larger, nicer, and newer home for less. That’s when I got the letter of thanks. I should have framed the letter, but I was so naive that I never thought such a letter would be an anomaly, but it was and is. Don’t get me wrong because I really enjoy my profession, but it’s a pretty thankless business. Most think they know better than appraisers, with rare exception. And this is coming from an appraiser who is horrified by the lack of appraiser competence and professionalism. But again, if we can separate the two we can look at both issues more clearly.
-by chris
But the reality is that there are appraisers out there blowing these deals up for little to no reason. And there are legitimate complaints. On both sides I would imagine. It’s not an appraisers job to make or break a deal, it’s their job to be as honest and fair as possible, considering the comparables and the selling price of the home. It it’s within a few thousand dollars, who is the appraiser to settle on a price under asking? Are they intentionally busting the deal bc they think they are smarter than everyone else involved? I totally understand an appraiser point of few if the price just can not be justified, but there is a flip to that where the appraiser wields considerably too much power and does a rush job appraisal without considering a lot of things, and it blows the deal up. I’m an honest business man, I do things the right way. The scenario the initial comment we are referring to described is happening to me as we speak. It’s completely insane. I’m very very reasonable. But when an appraisal comes in $30K lower just 3 months later and blow a deal up over $7K, thats a problem.
-by Todd Nuccio
Chris, I completely agree with your main points. In every profession, including yours, there are unprofessional individuals. But our society has suffered greatly by generalizing rather than addressing individuals and individual circumstances. If an appraiser is commits fraud, or is evidently incompetent (based on evidence, not opinion), then I would hope consequences would ensue. I’m sorry about your deal, but regardless of whether you were representing the buyer or seller, another lender can be sought, and they’d use a different appraiser. Now if the results are the same, then perhaps you’re wrong. I’m guessing, based on the limited information you provided, that you have a legitimate concern. Blessings to you.
by Kris Klink
The first rule of real estate value? What a buyer is willing to pay. I understand the appraiser needs to “protect” their client, the lender. Unfortunately the requirements to become a licensed appraiser are so strict there is a lack of competence in the industry. The appraiser now is forcing value on a free market along with the lender. This is inherently sketchy. A perfect example is shorting a value due to lack of comps. Appraiser uses recent comps, even cash deals where there is no appraisal. This is in fact market value. So the appraisal is short by say $10,000, the seller reduces the sale price to get on with their life and they eat it. Now we have two similar properties with a difference in value that will be used on the next deal, so the that seller will be ok? It all goes back to corrupt lending practices across the board, and it has to stop. It’s time to stop protecting the lender and start protecting the consumer, the consumer didn’t create this fraudulent predatory bailed out lending policies and should not be penalized.
-by scottasbj@yahoo.com
Kris, you don’t know what you are talking about. Your first rule can apply to someone with cash. Given the fact almost no Real Estate Agent can be bothered to write a competent Market Analysis, how could they possibly make any kinds of assertions like yours. You stand on a pedestal regarding protecting consumers, but if you are a Real Estate agent, then you most like make no such effort.
-by Cathy
Market value is not what ONE buyer is will to pay, it is what a TYPICAL buyer is willing to pay. FNMA definition: Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.
-by Concerned & Confused
It is truly unfortunate, but one bad egg in any situation can ruin it for everyone. We have had good experience with appraisers in the past, but the one we are experiencing right now is like none other. We are refinancing, so there is no realtor involved here, just us, the lender, and the appraiser. The appraisal came in so low that it was ridiculous. The measurements on the property were not correct, and the comps that were used were not even comparable. In some cases the comps were actually in another town, in others the main dwelling was a lot smaller than our home is, and in others the land size was at best 1/3 of the size of our property (we have 35 acres, all usable). Even the larger sized properties they used as comps were off base as they did not have the equine facilities that our property has.
This has been an extremely frustrating issue as we went through the dispute process and they only brought the appraisal up by $20,000. We are now left in a situation where our lender is saying we have to accept it or withdraw our loan. They cannot have another appraiser come out for comparability. We love our lender and hate to change, but we need to get this refinance done. Unfortunately that is what we are faced with, so we will be seeking a different lender all because of one bad appraiser.
-by Veronica Klos, Cert Res RD2273, FL
Did you provide the appraiser with comparable sales that you feel are better? Perhaps there weren’t good comps. An appraisal is only as good as the comparables available
-by Todd Nuccio
Once the appraisal is submitted to the lender, the Realtor is not supposed to provide comparable sales to the appraiser. Instead they’re to go through the normal channels, in this case, through the lender, in order to initiate a reconsideration of value.
-by Chris H
Appraisals are questionable at best. Last year I closed on a home in Colorado where a well known seasoned appraiser valued our property. Somehow the appraiser reviewed our original offer on the house and his initial appraised value was $20,000 less than our actual contract price. Once the offer/contract error was corrected our home (through some act of devine intervention I assume) appraised $20,000 more with no other changes made to the appraisal. I spent 12 years in mortgage lending and I am well versed in reading appraisals. I now question the industry as a whole and I often see appraisals come in right at contract price. I still don’t know the actual value of my home because I don’t feel we received an accurate figure from the individual that was selected for us.
-by Citizen
I was required to refinance because of a divorce. Unfortunately, my appraisal came in $150,000 below the county’s assessed value! That’s a huge number, and a huge percentage of the house’s value. My house is unique and has a 360-degree hilltop view, among other special features, but was compared against nearby tract homes. I engaged a realtor to produce an independent report based on more realistic comps, to no avail. This will cost me tens of thousands of dollars over the life of the loan, and I’m told my only recourse (other than filing a complaint) is to sue for damages. Why is *that* our system?
-by Mary
ASSESSED VALUE MAY HAVE NOTHING TO DO WITH FAIR MARKET VALUE. When, oh God, when will home owners finally understand that. Sorry, you have no idea what you are talking about…
-by Sandy
What are you taking about. If you are being taxed on an amount and you know what your home is worth, you should be able to make them correct their mistake!
-by Todd Nuccio
If you know what your home is worth, then you must be an appraiser, right? If not, perhaps one should at least understand the difference between market and assessed value. I’m not saying the appraiser was right, but if he/she is right, then perhaps the homeowner’s taxes are too high due to an inflated assessed value rather than the appraiser’s error. Something to ponder anyway.
-by Pat Ryan
What recourse is there if an appraiser is incorrect. After all appraising is not a science. One ruined the sale of my house. with markdowns on the house not being updated to comps but it clearly was actually in better condition. We visited the other houses prior to pricing ours. Seems to me they have to much power.
-by Etc
Agree. Had a refinance and had the same issue.
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