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Appraisers Say 'Don't Blame Us'

I had a cup of coffee the other morning with someone at the heart of this summer's appraisal fuss. And he's sick of his industry getting blamed for low appraisals that kill deals.

"We are really tired of getting slammed," said Don Blanchard, chief compliance officer and deputy general counsel for Lender Processing Services, which owns LSI, one of the nation's biggest appraisal management companies. "Show me the data."

Appraisal management companies, or AMCs, are the ones most frequently blamed for the low appraisals that have killed a lot of home sales this year. Since a new Home Valuation Code of Conduct went into effect in May for all loans sold to Fannie Mae and Freddie Mac, mortgage brokers and bank loan officers have not been allowed to order appraisals directly from the folks they've been doing business with for years. There's now supposed to be a firewall between loan officer and appraiser. Many large lenders have turned to AMCs to be that firewall, parceling the work out to their network of self-employed appraisers.

Blanchard has a different explanation for low appraisals: low values. Home values really are less than people think they should be, driven down by sales of foreclosed homes, Blanchard said. And banks are being much more conservative in their lending standards.

Critics--including many mortgage brokers who no longer can send work to their favorite appraisers--complain that companies like LSI have driven up appraisal costs to consumers, shrunk the amount paid to appraisers in the field and, more troubling, killed sales with inaccurate appraisals performed by the lowest bidder who may not even be familiar with the nuances of a particular housing market.

Blanchard, naturally, rejects all that. His main points:

-- AMCs have been around more than 25 years. An LSI appraiser has been with them about 13 years, on average. "This notion that we have any Bob, Dick or Jane doing appraisals is wrong," he said.

-- Low interest rates this spring caused a spike in refinancings -- and a spike in demand for appraisals. "Appraisers had a hard time keeping up during these prime periods," he said.

-- Home valuations naturally tend to trail the market, when prices are rising or falling. That's because last month's sales are the comparables used for this month's appraisal. "It's slow; it's a lagging indicator," he said.

Continued sales of foreclosures are still dragging prices down, he said. "If I were selling a home, I would wait."

By Elizabeth Razzi  |  August 26, 2009; 6:00 AM ET
Categories:  Buying , Foreclosure , Mortgages , Selling , The market  
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NAR's campaign would be more credible if they were on record complaining when appraised values are "too high". But that never happens. The HVCC is a response to appraiser-shopping, a practice most often, but not exclusively, of mortgage freelancers who got their deal done, passed off the loan, took the money and ran. The HVCC did restrict them and strengthen the position of AMC's, who facilitate and review appraisals done by local licensed appraisers. AMC's fees are paid, not by their client lenders, but by appraisers who discount their fees to the AMC's. My beef with AMC's is that their fees show on the consumer's closing papers as the local appraiser's fee. Their fee, unless they are licensed in each state in which they facilitate appraisal work, should be broken out separately.

But I am glad to see a response to NAR's talking point. I review appraisals and many were done well in the past, say, as of July 4, 2006 which means I research what the appraiser should have seen and analyzed in the months or year leading up to that date. Often, with unsupported appraisals, it is evident that the appraiser did not have access to the (then) small local MLS, except what was handed them by the commission-paid salesperson. And remarkably often, such appraisals were done by appraisers coming from as far as the other side of the state. So if NAR didn't complain then when their members' deals were getting done by the most desperate or ignorant or distant appraisers with no local knowledge, then they should not be singing that song now.
Renee Healion
Certified CT Appraiser and member of NAR & CAR

Posted by: rhealion | August 26, 2009 1:39 PM | Report abuse

Don Blanchard is not an appraiser that works in the field. He works for a company that represents what is very very wrong with the system. I am currently blacklisted from getting any work with LPS or LSI for refual to meet valeus or turn times or working for pennies. They utilize appraisers that are located 40-75 miles from the subject property.......................why ?? beacuase they will do it cheaper than the appraiser located with in the same town. The appraiser will laso hit a predetermined value by LSI..........if the appraiser does not hit that value................the go to the blocked or blacklist land!!!!!!!!!!!!!
The gov't has done nothing except make the problem worse than it already is.
The gov't is a joke. Wall street is a joke, banking is a joke. AMC's are a joke, and all of them are laughing all the way to the bank and the Taxpayers wallets!!!!

Posted by: aspetuckappraisal | August 26, 2009 2:45 PM | Report abuse

Not being either a lender or an appraiser, my only input is as a homeowner. I have been watching the local real estate market and I do think that a huge part of the problem is that house values *HAVE* sunk a lot. With the volume of foreclosures and short sales that have gone through in the last 18-24 months, I think that people don't realize how much their home values have sunk. We purchased a new home in 2006 and based on what I can see in the market, our home has lost about 15% of its value. Fortunately, we are planning on being in this house for a long time, but I would not be surprised at low appraisals on our new home or our neighborhood in general. And we live in a very popular and expensive neighborhood for our town. The home values have done much better than other neighborhoods, but poor relative to itself in former years.

Posted by: DadWannaBe | August 27, 2009 5:28 PM | Report abuse

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