Issues with appraisals continue to impact real estate transactions, but better communications between real estate agents and appraisers could help to minimize problems, according to panelists at a property valuation forum at the 2013 Realtors Conference and Expo. Most of the attendees were both sales agents and appraisers.
Lenders implemented tighter lending standards in recent years, and appraisers must be able to conduct independent and impartial valuations due to increased government regulations. These requirements have left real estate agents and appraisers confused about what can or cannot be discussed during the appraisal process, and with whom agents can talk to if they have a complaint about the results of an appraisal.
John Anderson with Twin Oaks Realty Inc., in Crystal, Minn., said he recently asked a group of real estate agents to identify their primary concerns for the year ahead. "Eighty to 90 percent of those agents said appraisals were the top issue facing them in 2014," he said. "I've personally had more appraisal problems in the past year than I've had in the past three decades."
Anderson insists on being at a property when the appraiser arrives. "I present documents and information about the property, which might include comparable properties that were 'pocket listings,' those sold outside of a multiple listing service," he said. "There is a misconception among some appraisers about the ability to communicate, but I present them with a folder of materials for them to consider."
In today's market, home appraisals that fail to provide credible valuation can postpone or cancel sales. Valuations that are not credible can be the result of lenders or Appraisal Management Companies (AMC) assigning appraisers that do not have the necessary competency, such as geographic expertise, to complete an appraisal report.
Vic Knight, an appraiser with Chapel Hill Appraisals in Raleigh, N.C., said timing is important in communicating with appraisers. "The window of opportunity to communicate with an appraiser is before the valuation is made. Once that window closes, you can ask for a correction of errors, or seek clarification," he said.
Buyers, sellers and Realtors® are free to ask appraisers or lenders to consider additional property information, documentation and comparisons. They may discuss the unique conditions of a home and its neighborhood with appraisers.
Once an appraisal has been completed, any communications about errors or offers of additional information must be with the client who ordered the appraisal, generally the lender.
Anna Ruotolo, vice president of business development at Opes Advisors, San Francisco, with over 30 years of experience in the mortgage industry, said upfront communication is vital. "I wouldn't let an appraiser enter a home without being present, so I have an opportunity to provide them with information about the property," she said. "You can conversationally determine their geographic competency by asking how often they're in the area, or if they're aware of a particular development."
Marty Wagar, an appraiser with Midwest Appraisal Management Group in Portage, Mich., said the intent of an AMC is to provide a firewall between lenders and appraisers. "AMCs should be charged with having local competency rather than focusing on speed and cost," he said. "The primary consideration for an appraiser is geographic competency, regardless of where the appraiser lives, or his or her access to local MLS data."
Wagner said some lenders create problems by prohibiting any communications, even if it doesn't involve valuation. Another issue is regulating a healthy real estate market with standards that were drawn up during a downturn. "As for geographic competency, it's perfectly fine to ask a lender how their appraisals are distributed."
John Ebner, managing director and mortgage advisor at Opes Advisors, described the recourse that might be available after an appraisal is complete. "Possibilities regarding an error include a comparable property that should have been used or excluded or adjustments for comparable properties, which can be presented for consideration. It's not easy to get a change, but it can be done."
Appraisal standards are improved continuously as qualifications and standards of the Uniform Standards of Professional Appraisal Practice are strengthened. The continued evolution of the USPAP helps ensure that appraisers are competent with independence and integrity.
In February 2012, NAR adopted the Responsible Valuation Policy. It serves as a guide for members and staff in advocacy efforts for federal legislation and regulatory policy. This statement of policy, aside from the National Association of Realtors® Code of Ethics, offers guidelines for Realtor® members and is not intended to impose new or additional standards of practice.