Appraisers Under Pressure
How much pressure does an appraiser receive from either the brokers/agents or the lending institutions to make the numbers work? Many appraisers had hoped following the experience of the savings and loan crisis of the late1980’s and the advent of state licensing of appraisers, some of the appraisal related problems in the lending industry would be solved. To the surprise of the industry, this has not been the story. Many believe the problem is worse today than before licensing. I would be remiss in this article if I did not mention that there is an Appraiser Petition signed by over 7,800 appraisers on www.AppraisersForum.com regarding appraiser pressure. It is my understanding that the secondary market including and not limited to Fannie Mae and Freddie Mac, the National Association of Independent Fee Appraisers and the Appraisal Institute are aware of the petition and trying to work to solve some of the problems facing appraisers. It takes a great deal of pressure to get that many appraisers to agree on anything and sign such a petition. Let’s take a look at some of the types of pressure that are applied to appraisers.
First, many large lending institutions own appraisal management companies. Their vendor agreements are just too one sided to even think about signing. There have been numerous posts and discussions on the appraisal chat rooms regarding this very issue. Many appraisers have decided not to sign these vendor agreements and seek other types of appraisal assignments or are just getting out of the appraisal business. The other concern here is that these same appraisal management companies are taking a greater percent of the appraisal fee and taking the profit out of the profession. Are many of the lenders taking a short-term approach by making appraisals a profit center? How many of these appraisal assignments are being completed by trainees and the low fee provider? I cannot tell you how many well-qualified appraisers have stopped doing work for this type of client. The quality of appraisal reports being submitted to these lenders concerns me. If appraisers are required to sign these one-sided vendor agreements, then what other items are the appraisers being forced to overlook or value to hit in order to get appraisal assignments? Education, experience, residential designations and integrity are no longer factors for getting appraisal work. Appraisers who sign the vendor agreement and accept work at 1980 fees are the ones getting the appraisal business. Can this be the start of another savings and loan crisis with a different name coming down the road?
Second, lender pressure is not limited to mortgage brokers. Many large institutions with tremendous clout also apply pressure. How many times are appraisal requests sent with the following statement: IF THE VALUE ISN’T THERE, STOP AND NOTIFY US? “An appraiser must not accept an assignment that includes the reporting of predetermined opinions and conclusions” according to Uniform Standards of Professional Appraisal Practice. Appraisers are required to follow USPAP guidelines. Our interpretation is that appraisers may not accept appraisal assignments with terminology similar to what is noted above. Appraisers are not to accept appraisal assignments with pre-determined value conclusions. Payment for appraisal services is not subject to hitting a pre-determined value or an event occurring. These are major violations of USPAP. Both mortgage brokers and lending institutions send appraisal assignments that include such verbiage on a daily basis. Many brokers/lenders fail to pay the appraiser if the desired results, pre-determined value, are not concluded. These are major forms of pressure applied to appraisers. Can appraisers continue to make a living in this type of appraisal environment?
Third, appraisers are under tremendous pressure to “hit the number”. Appraisers are to make the deal work or not get future appraisal assignments. The appraiser who does not hit the desired results is not a TEAM PLAYER and labeled a DEAL KILLER. Most likely you will stay on the lender’s list. It’s just that you will be placed at the bottom of the list never to be heard from again. Kill a deal and you most likely will not get another appraisal assignment from that lender. You’re only as good as your last appraisal! It does not make a difference how good your comparables are. Appraisers are told to make the deal work! Is this common? More common than anyone wants to admit. Yes, this type of pressure is at the heart of the problem. It works on taking the honest appraisers, well qualified appraisers, right out of making a living. Appraisers have a choice to hit the target number or you will not get future appraisal assignments.
Fourth, appraisers are pressured to ignore items. There is no carpet in the subject property or it’s really in need of replacement. The house backs up to a major freeway. Oh, the subject property is in the flight path of an airport! Can we note external obsolescence in the report? There is major cracking in the foundation. The basement has water damage and needs repair. Is that mold? There is a room addition without permits, which does not meet code. Security bars on bedrooms without release bars. Should appraisers dare mention any of these items? The appraiser is threatened time after time either take this out or you will not receive another appraisal assignment from us or any of our affiliates. Is this put in writing? NO. Is this done all the time? YES, everyday of the week!
In conclusion, vendor agreements, appraisal assignments that do not meet USPAP guidelines, pressure to hit a pre-determined number and pressure to overlook items along with non-payment for services rendered are just some types of pressure applied to appraisers. Let me make note that there are many brokers and lending institutions following the guidelines and are a pleasure to work with. To our clients and others that fall in this category, thank you! Are there solutions to stop or at least slow down these types of pressures applied to appraisers? Yes, look no further than Fannie Mae and Freddie Mac guidelines. APPRAISERS AND UNDERWRITERS ARE NOT SUPPOSE TO REPORT TO LOAN PRODUCTION. We need to go no further than this to solve many of the problems facing appraisers today. Many lending institutions / mortgage brokers want the appraiser to solicit the loan officer for appraisal assignments. Or worse yet, the loan officer is allowed to select the appraiser. As long as this trend continues, pressure on appraisers will most likely continue and only get worse. It is up to the appraisers to make the final decision as to what type of profession they want. Hopefully, there are enough well qualified appraisers, designated and non-designated, that are willing to step up to the plate and do the right thing. Appraisers must just say NO. This will make a difference not only in the appraisal profession but also in the quality of loans in our lending institution’s portfolios. Do we dare risk another banking debacle?
Drecksler & Associates, Inc.
Charles L. Drecksler, IFAS
First Published 06.2000