When the new rules for Fannie Mae and Freddie Mac loans were announced a few months ago, real estate agents, mortgage brokers, and appraisers all knew the results would be unpleasant for everyone concerned. They just didn’t know how much chaos would ensue.
The only “winners” to emerge as a result of the Home Valuation Code of Conduct seem to be the AMC’s – the Appraisal Management Companies that take appraisal orders, assign appraisers, and keep up to 50% of the appraisal fee.
The new rules cover all loans backed by Fannie Mae and Freddie Mac, but not FHA or VA loans. The reason for this action was a fear that appraisers were being unduly influenced by real estate agents, mortgage brokers, and homeowners seeking refinance. When the housing crash began and officials starting looking for people to blame, many were pointing fingers at appraisers.
In the past, a real estate agent was free to point out the most appropriate comps if an appraiser was unfamiliar with homes sold or for sale in the immediate neighborhood. Now there is no contact allowed, even if the appraisal comes in with inappropriate comps. This is occurring more often now as AMC’s send their favored appraisers into areas where they are not familiar with the homes.
The management companies contract with tens of thousands of appraisers, but real estate agents and mortgage brokers alike are noticing that the same few appraisers are routinely assigned – leaving others out in the cold. The reason given is that those few work quickly and give good service, but opponents doubt if that is the real reason.
Proponents claim that homebuyers will now get true values, that the appraisal process has not slowed, and that the new system saves buyers money.
In practice, agents are reporting severe delays. Also, it locks buyers to a mortgage broker who may or may not be the best for them. If they want to switch, they’ll have to pay for a new appraisal. Further, if the appraisal comes in with inappropriate comps, they can’t ask for a re-evaluation. Instead they must order and pay for a second appraisal.
Appraisers are up in arms because the AMC’s keep up to half the fee, but the appraisers do all the work. Real estate agents claim this is resulting in faster, less accurate appraisals. An accurate appraisal takes considerable time and effort, so even at full price appraisers weren’t being compensated excessively.
Proponents of the system say that buyers need to take some responsibility and make accurate offers from the start. They advise that buyers should study the market themselves, learning the selling prices of comparable homes and checking online home valuations and news reports before they apply for a loan.
Of course, this is almost impossible for the average buyer. Even if he or she has access to the list of homes sold, without seeing both the exterior and interior and knowing the various amenities, there is no way to make an accurate evaluation.
Homeowners are in a better position to know the correct price, because their listing agent will have prepared a market analysis before putting the home on the market. But if the appraiser doesn’t have similar market knowledge, that “right” price recommended by the agent may be far removed from the bottom line on an appraisal.
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