Who should do your next mortgage appraisal?

By Joe Versen - Special to The Herald

A major change in the appraisal profession took effect earlier this year — the establishment of the Home Valuation Code of Conduct became the law for virtually all residential mortgage appraisal work.

The code mandates a “firewall” between any person receiving direct benefit from a loan closing and the appraiser. This effectively mandates that prior relationships mean little.

No longer can an appraiser depend on good recommendations, good service, credible work and reasonable fees as the criteria for receiving work.

Now, the appraiser is typically on a “list” of approved appraisers, receiving requests on a random basis.

Many have effectively been losing business because their business model was to provide good service to a limited number of clients over a limited geographical area.

The problem is further exacerbated by the reluctance of lenders to add to their “approved appraiser” list. We might lose good appraisers as a result.

This code was agreed to by Fannie Mae and Freddie Mac — by far the largest mortgage buyers in the U.S. — to avoid a lawsuit by New York Attorney General Andrew Cuomo.

The new code is a reaction to mortgage fraud abuse that was too commonplace in the mortgage arena. It effectively changes the way an appraisal practice is to operate.

How does this impact the typical consumer? Probably only a little, since in most cases the borrower has limited knowledge of the appraisal selection process.

However, those with knowledge might want their mortgage appraisal to be done by a particular appraiser. Perhaps someone they respect.

Now, though, they can have no influence on the selection of the appraiser. A problem area, as reported in trade publications, is that the appraisals often are assigned to the cheapest, fastest appraiser, even if the appraiser is located a great distance from the property to be appraised.

Is “cheapest/fastest” how most homeowners or homebuyers want the appraisal of their typically largest investment to be handled?

Efforts are being made to rectify this situation, particularly as “geographical competence” is required of an appraiser.

If a consumer is unhappy with an appraisal, what could be done? As I understand, lending institutions have limited recourse. If one has access to sales data, perhaps through a Realtor, an attempt can be made to identify data that could support a different value conclusion.

If support is found, the lender could contact the appraiser with the data and ask for a “reconsideration of value.” This has been a longstanding practice for FHA loans. Simply complaining probably will get no results.

Supportable complaints also can be made to the S.C. Real Estate Appraisers Board.

One way to try to avoid conflict is to have an appraisal done prior to listing or buying. The listing agent might even reimburse that cost at closing.

This appraisal should give the proper range for the list price and a reasonable expectation for final sale price.