House Appraisals: A Joke?

[Chromaflage]

I'm wondering if someone can enlighten me. We are in the beginning stages of refinancing our house. The lender of course needed an appraisal. We discuss the value of the house and what we're trying to do. The lender says, "don't worry. I'll tell the appraiser what we need for a value." And, of course we're paying for it out of our pocket. A couple things:

1. Do appraisers just do what the lenders/brokers tell them to do as far as assigning a particular value to a house? If so, what's the point? The whole process seems a bit shady to me.
2. If I pay for the appraisal, why can't I get a copy directly from the appraiser? I was told that I can only obtain it through the lender who ordered it, because technically the appraisal belongs to the lender. WHAT?!?!? Technically, doesn't it belong to me, since I paid for it?

Please help me understand this nonsense.

Thanks,

CrF

[Bait O' Eggs]

A lot of flexibility in what they come back with.

When I refinanced trying to get rid of PMI years ago, I told the appraiser the number I had to have back or I had no use in his service and he told me no problem, he would make sure it was where it needed to be.

Leaves a lot of room for scams and what not.

[Troutinator]

it does seem really shady... I can't offer any advice other than use it to your advantage. And I would certainly explain to the lender that he who pays owns the appraisal. Otherwise, tell them to pound sand. There are TONS of institutions competing for your dollars.

Talk to Fishbait... he knows the industry and is as honest as the day is long.

[Headhunter]

Ok here is the deal when it comes to appraisals.

A lender needs a way to establish a value in order to use the house as collateral on a loan…that’s was happens when you have a lean (mortgage) on a house…it is collateral. If you don’t pay the mortgage and default…they take the house back…sell it…and get their money back.

There are a number of ways to establish a value on a house. The most common is an appraisal. It is ordered by the lender. The cost is usually passed on to the loan applicant and sometimes required to be paid up-front.

The Loan Officer is usually the person who picks the appraiser and will go with folks they know and trust. Think about that for a moment. A loan officer makes a commission on the loan. A house making value or not can put that loan at risk for approval by the underwriter…that means if the loan does not go through…the loan officer would not get the commission. So Loan officers tend to go with appraiser who hit the target values they are looking for. The customer/Loan Officer & Realtor pick a target value due to what they think the house is really worth and sometimes other things needed to make the loan fly (such as a loan-to-value ratio).

Now think of where does an appraiser get his/her business…usually from a Loan Officers…so they tend to come in at target or risk loosing that relationship with the LO. Now keep in mind the appraiser is a state licensed professional and needs to sign off on the value. It is their livelihood on the line. If it is way out of whack, either too high or too low, they could be reprimanded or even loose their license

Recently (last 2 years or so) more and more lenders are using an automated valuation systems especially on ReFi’s. This is a database type method where they are looking at trends and county records. If the house makes the target valuation, you are good to go. If not, there are other similar ways to establish value. If they all fail, they may have live real appraiser go to the property. You see this method more and more on Home Equity loans where the lender picks up all the costs.

Hope it helps.

Ex Loan Officer

[FJ60]

Chromaflage,

If you pay for it you have a right to recieve a copy I think what the appraiser was trying to say is it go's to the lender first and then he can immidiatly give you a copy. the way I would handle it is include the cost of the appraisal in the closing costs so there would be no up front cost to you. you can PM me if you need a better explanation I would be glad to help

[Headhunter]

PS...the appraiser usally won't give you a copy of the appraisal directly since you didn't order it and a lender will not use an appraisal that was orderd by someone other than them...it is a catch 22.

However, most lenders will give you a copy of the aappraisal if you aks...not required to do so, but it is just good business to do so.

[Buccaneer]

I've got to chime in here. I'm a real estate appraiser, 28+ years now in the Portland Metro area and designated member of the Appraisal Institute (1981).

I got into this business because an appraiser is supposed to be a disinterested third party. In otherwords, provide an unbiased "supported" market value opinion. Which is the only conditions under which I will accept an assignment. Sounded like an honorable profession to me at the time.

Unfortunately, the rapid growth of our area (and around the country) has resulted in the addition of hundreds and hundreds of poorly educated appraisers who will take assignments with a "pre-determined result" being a condition of the work order. What makes this worse is the many (feels like most)loan brokers who hire these jokers.

I can't begin to add up the number of lender clients I've had over the years that I never heard from again once I "came in short" or accurately described unusual property conditions (lenders don't like to hear about those) that have a negative impact upon value.

Lenders aren't the only ones that don't want to hear it like it is. In refi's, owners want or need a certain value in order for the loan to work or make sense. They and lenders want to know that the "value will be there" prior to the appraiser inspecting the property and doing the research and analysis necessary in order to provide a credible value opinion. Nobody wants to pay the fee if the value isn't going to be there. Well, providing any opinion of value (a dollar figure, or direction of value such as more or less than a certain amount) is specifically stated as "an appraisal" in the Uniform Standards of Professional Appraisal Practice which is federal and state law. The regulatory agencies require the appraiser to have a work file with research and analysis supporting any value opinion-written or verbal. Wouldn't you expect an appraiser to do the work necessary to provide a credible opinion on your property? How about your lender? Wouldn't you expect the lender to want a realistic opinion? It's not working that way these days folks.

So, do you want an honest appraiser? Are you willing to pay the fee regardless of the result? Thats the way its supposed to be.

Sorry for the rant. But I'm really tired of competing with appraisers that will do anything the lender/client wants, and lender clients that use these appraisers.

Now, as to your question about obtaining a copy of the appraisal. The Confidentiality Rule of USPAP prevents an appriaser from discussing an appraisal or providing copies of an appraisal to anyone other than the client. Just because you pay the fee, doesn't mean you are the client. The client can provide written authorization to an appraiser to provide copies to specific persons or entities. Just ask the lender for a copy--they will more than likely provide it.

[Headhunter]

Buccaneer…well said! All very true and that is the way it is folks.


A few more quirks on the appraisal process. If the lender is using an AVM or automated appraisal system, there is no report generated…it just comes back with a confidence score, so there would be nothing to give the customer. Now a 1055 appraisal (most common) is multiple pages with comparables (comps) and pictures of the house…(and of the comps too).

On a purchase, a lender will use the appraisal price or purchase price whichever is LOWER. If your purchase price is higher than the appraisal, you will need to make up the difference (higher LTV or loan amount, more cash down, or renegotiate the purchase price). If your purchase price is lower than the appraisal, you are getting a deal and sitting on equity right out of the gate.

[need one]

Thanks for asking this question, Chromoflage, and thanks for the informative repy, Buccaneer. I worked for a short period of time (in another part of the country), doing real estate appraisal, but got fired for "insubordination." Although it hurt my pride to get fired, on a deeper level, I was relieved, because I felt I was being paid to lie. The guy who owned the appraisal company was unethical and dishonest, and would do just about anything to "get the value." For instance, I was to take pictures NOT showing the sinking front porch on one house; I could say in one report that a property had floor coverings "because they weren't dirt floors." It was hard not to make a blanket judgement about appraisers being a bunch of crooks, but I really hoped that I had just encountered a bad one.
Good luck with the re-fi, Chromoflage!

[Buccaneer]

Need One,

That is what I'm talking about when I refer to "poor training". Unfortunately, there seems to be an abundance of appraisers that have been trained in that manner and think its OK. More than once, I've had appraisres tell me they're "laughing all the way to the bank". I do quite a bit of appraisal reviews for various third party clients and I've seen "made-up" comparables in appraisals, untrue zoning specified, no mention of a property fronting very busy arterials, statements that properties have not been on the open market in the past year when in fact they have, and the appraised value is much higher than the list price the property didn't sell for. The the list goes on.

There are many honest appraisers like myself. Not all are as I've described. I'm not saying I'm always right in my value opinions because some properties are really hard to figure out. But I am honest and have support for my opinions. If all appraisers were like that, we wouldn't be having this discussion.

I can only hope the state regulators and or a big lawsuit catches up the dishonest ones.

[wootersen]

The way that I explain it to my clients is that Appraisers are more like attorneys than anything else. We (loan officers) will present an estimated value to the appraiser and hope for the best. It's the appraisers job to look for features of the house or property to "prove" that value. Sometimes it comes in higher, sometimes lower, but any appraiser that's worth it's salt will stand by their work. Their reputation depends on it.

The only way to truly determine value is to sell the property.

Is there dishonesty in the industry ???....Absolutely. But we're not all bad. :grin:

[Buccaneer]

[TheKing]

You can use and appraisal to your advantage also. I had to have an appraisal to shorten my loan from a 30 to 10 year. The Lender told the appraiser he only needed x value to write the loan. The value of the house and land was easily 4x to 6x's the appraisal. The county has been jacking our tax values trough the roof because everyone around us has been building 10 to 20k sq. foot homes ( Microsoft money). I appealed the valuation and used the appraisal as evidence. I am paying $5k less per year in property taxes now.

[Chromaflage]

Wow, a wealth of info and input. Thanks to all who have responded thus far. Please be mindful that I am in no way advocating or supporting negative gernatlizations about a particular trade or industry. It's just that we've been through this exercise a few times - for purchases and re-fi's. And it seems the same every time. If the lender wants the house value to come in at $XXX, he/she will tell the lender a significantly higher amount. It's almost like the lender and appraiser negotiate in order for the home to value out. I just find it interesting, if nothing else.

Thanks again!

CrF

[Headhunter]

If the lender wants the house value to come in at $XXX, he/she will tell the lender a significantly higher amount. It's almost like the lender and appraiser negotiate in order for the home to value out.

Well not saying it doesn't happen...it does and you read about it in the paper from time to time, but I don't think it happens all that often. It's actually called collusion and people go to prison for it if they get caught. The bank would fire the Loan Officer at a minimum and the Appraiser would loose their license for sure. I doubt the appraiser would risk their livelihood for $350.00

[RODACTION]

Here is something thats good too, I refinanced some commercial property in 1998, the lender needed (wanted) 3 appraisals.............they came back and varied by well over $100,000.00 now whats up with that some home appraiseds also do commercial, I think its a knd of joke my self.

[salmonslayer]

hahaaha

[Old Coot]

An appraisal ordered by a borrower is considered tainted because the lending institution did not have control over the situation. For all they know, the appraiser is your brother-in-law. That said, the majority of appraisers I have dealt with in Oregon during 30 years in the finance biz are honest individuals.

You do not own the appraisal. The entity who orders and pays for the appraisal owns it. You pay the lender, the lender orders the appraisal and they pay the appraiser. You ARE entitled to a copy of a residential appraisal pursuant to Fed Regulation B,IF you request it in writing on a timely basis. Everywhere I have ever worked provides a copy without being asked, but there may be some lenders who require the written request.

[Chromaflage]

You pay the lender, the lender orders the appraisal and they pay the appraiser.

Nope - made the check out to the appraisal company.

[D-tangle]

I can only hope the state regulators and or a big lawsuit catches up the dishonest ones.

Unfortunately, this is the only thing that will change the the way business is done. Accountability comes through fear when morals are thrown out the window. Good luck Chromaflage.

[Chesapeake]

This is all very interesting. When I purchased my home a little over a year ago it was a 10 year old home on 2 acres with barn. Wouldnt you guess the appraisal cam back as the exact dollar value I needed to borrow to buy the place. What are the odds of that? I thought it odd but didnt ask questions, I was getting what I wanted.

My lender had no problem giving me a copy of the appraisal and the Title company sent me one too.

[fishbait]

CrF,

Some good information here. You should receive a copy of your appraisal from your lender, if not request it in writing and regulations state that they must give you a copy. My company automatically sends them out with the quality of service questionaire.

As for the values, unfortunately an appraisal is one persons opinion and not an exact science. On a purchase, the main purpose is to justify the purchase price, that is why 95% come in at the purchase price. On a Refi, the same methods are used but the value should be independantly arrived at. Giving an appraiser a value up front, although and unfortunately common, is a violation of regulations.

Also, even though you are paying for the appraisal up front, your loan officer should be able to include it in the closing costs so you get your up front cash back. This should have been discussed with you.

[husker]

not sure if i am hijacking this thread or not but here goes my rant:

i re fi'ed about 2 years ago. the appraisal came in $2500 under what i needed to elimnate the PMI. *petunias* so i payed the PMI for the 2 years less then that actually since i overpayed on my payments to get the principle down. then i call up and say i want the PMI taken off. US bank then drags there feet and wants a market study of my propery ...IE more money out of packet to let the PMI go....so i had to pay for that cost to get rid of it.....that seemed like a racket to me.....my PMI is gone but US bank did everything possible to make sure i continued to pay PMI. here is another thing that got my goat. is US bank would not have dropped the PMI had i not been on top of the situation so dont lose site of the unnerving cost. *petunias*

ron rangel