Five Suggestions for Honest Appraisals
by Doug Quenzer, Quenzer Appraisals, Inc.
As we all know, lender pressure can vary but I agree that ultimately it is the appraiser who says yes or no. I’ve been there many times. The real question is how do we get rid of appraisers who always bow to lender pressure? The answers are not easy but here are five suggestions. See if you agree.
1. Responsibility to Report: After a lender receives a bad review on an appraisal that is clearly intended to hit a value, it is their responsibility to report the appraiser. I recently did a review that was so bogus I actually recommended such an action. I doubt any was taken.
2. Random Audits: Appraisers should be randomly audited just like agents/brokers. I’ve experienced brokerage audits that were looking for deficiencies. This process should not be intended to “hang” appraisers. However, if an appraiser knows their work will be randomly reviewed and audited for thoroughness and competency, their performance will probably change.
3. Self Regulation: We should police ourselves, though this is not a simple proposition. I have reviewed the work of certain local appraisers that I thought was awful. However, if I turn them into the state it looks like I am trying to eliminate my competition. The real estate industry has some self-policing for certain unethical practices. There needs to be a system for complaints in each state that does not reveal the exact source. The process should not be overly punitive (at first) but should put an appraiser “on notice” that he or she is on a watch list.
4. Removal of Mortgage Brokers: Take away the power of brokers to assign appraisals. Most of the pressure comes from independent brokers whose income is based solely on commissions. I truly am sympathetic of these folks because I know what that is like. To be fair, I work for some very ethical brokers who do not want to make bad loans. But I’ve also worked for brokers who wanted me to “fudge the facts” on a consistent basis. If you refuse to comply, unethical brokers will simply find another appraiser to make the deal work. But if the appraisal assignment is taken out of the hands of brokers, most of the pressure would disappear. The institution that is assigned the loan should hire the appraiser, whose name should be unknown to the broker.
5. Removal the Agents: It should be unlawful for real estate agents to recommend appraisers, though I know it happens all the time. When a lender doesn’t know whom to use, they ask the real estate agent. The result is that they get an appraiser who always makes value. This is unethical and should be illegal.
Summary
Most of these suggestions are regulatory in nature and, as we know, many states are seriously under funded. I therefore believe that we will not see any significant changes unless there is another savings and loan type crisis. I hope I’m wrong but I don’t believe change will occur until a local market, that has been over valued, suffers a high degree of foreclosures, leaving a significant number of people stuck with over-inflated loans.