PARAMOUNT MORTGAGE - LENDER'S BLOG

Reappraising Home Appraisers

Reported by James R. Haggerty, Wall Street Journal

After being blamed for helping to inflate home values during the housing boom, the appraisal business is again coming under fire.

Squeezed by a drop in fees, some appraisers are compensating by driving long distances to handle more assignments. Their wanderings are raising questions about whether they know enough about the distant neighborhoods they visit to accurately assess the value of homes.

Bob Blake, a flight-test engineer who lives in Palm Beach Gardens, Fla., was shocked when an appraiser who traveled 44 miles from Port St. Lucie, Fla., valued his home at $228,000 in late May. A protest was launched at the Appraisal Management Company (AMC) charging that the appraiser had failed to look at equivalent comparable homes. The AMC sent another appraiser who valued the home at $295,000, a difference of $67,000. The dispute delayed Mr. Blake's refinancing by more than six weeks and jeopardized his closing.

If appraisals come in too high, buyers may overpay, making defaults more likely. If they are too low, it becomes hard to sell or refinance homes. Many real-estate agents and builders say that the pendulum has swung too far toward caution. Inaccurate calculations by appraisers who are unfamiliar with local markets threaten to snuff out any recovery in the housing market.

In June, Evie Salazar traveled about 75 miles from her office in Corona, Calif., to do an appraisal in Cathedral City, Calif. Because business was slow, "You do what you've got to do at times to feed the family and pay the bills," she says.

Ms. Salazar, an appraiser for the past 12 years, says she researched the market carefully and did a good job. But many real estate agents and mortgage brokers charge that some wandering appraisers are coming up with dubious estimates. Too many appraisers are getting assignments in places where they "just don't know the nuances," says Rick Turley, who oversees the San Francisco Bay area for the Coldwell Banker real-estate-brokerage chain.

At the end of July this year, the Home Valuation Code of Conduct (HVCC) was enacted to ensure appraiser independence. The Code bars loan officers, mortgage brokers or real-estate agents from influencing the appraisal process or selecting appraisers. One result is that more lenders have outsourced the selection of appraisers to appraisal-management companies, or AMCs.

Paramount Mortgage, which does not use AMCs, has implemented rigorous internal quality control procedures to adhere to HVCC guidelines. Using only a select group of local and knowledgeable appraisers, Paramount can ensure accurate property evaluations. Appraisers are required to follow a set of national rules known as the Uniform Standards of Professional Appraisal Practice.

Though consumers can't choose their own appraiser -- unless they're paying cash for a home -- they should request a copy of the appraisal and examine it for any errors. If there are flaws it should be reviewed and redone if necessary.

Link: Appraisals