Alternative Evaluations… Good or Bad
All of these "alternative evaluations" are an attempt to reduce the fee of the appraiser…
All this talk about alternatives to a full appraisal needs some common business sense added to the conversation. At the end of these comments I will include some of my background and you can make your decision if you think I am qualified to put my 2 cents in this discussion.
I have said this before and I will say it again, the lenders (AMC included) just want an Appraisers signature and their E&O insurance with a value and they want it as cheap as they can get it. Mortgage loans are the major asset of all mortgage lenders probably over 95% of their value and the only party involved in their funding of the loan that does not have a financial interest in the completion of the transaction is the appraiser. The value of their major asset is the appraisal report. Think about that, 95% of the value of their assets is based on Appraisal reports. Of all the businesses (individuals) that are involved in the loan transaction, be it a sales or a refinance, the appraisal fee is the smallest fee paid by the borrower and now the mortgage industry want to reduce the fee to the appraiser even more. Why don’t they reduce the AMC fee which is added on to and included as a part of the appraiser’s fee or reduce the loan officer’s fees, real estate agents fee and mortgage company’s fees. The appraiser is the only one in the mix that has a fixed fee based the complexity of the work and that is not based on completion of the loan or sale and is not influenced by the value of the property.
If I were the CEO (Chief Executive Officer) or CFO (Chief Financial Officer) of a Mortgage Loan Company I would want an accurate unbiased evaluation of the company’s major assets (loans) and I would be more than willing to pay a reasonable price for that service from a qualified individual.
If it is quicker turn times, eliminate the requirements that appraisal report include the Legal description (it is already in the loan package in at least 3 places), photos of the interior and every building on the property, review and comments on the Sales Contract, listing and comments on prior sales of the subject and comps, comments and photos of CO, Smoke Alarms and strapped water heaters, allow uses of MLS photos of comps, eliminate the MC form, FEMA map info, Cost Approach and many other items. This would speed up the appraisal turn time. Note: Alternative evaluations do not have any of these requirements and they use untrained individuals to complete most of the reports, they just need an appraiser’s signature to make it appear creditable.
I believe what the Mortgage Lender really wants is an unbiased “value” of the property and they should be willing to pay for that evaluation from a qualified professional. All of these "alternative evaluations" are an attempt to reduce the fee of the appraiser for his/her appraised value of the subject property.
If alternative evaluations become a major portion of the appraisal reports for the mortgage industry there will be a mass exodus of appraisers due to their inability to earn a living wage. Most of the ones that I have explored want to pay between $35 and $75 for a report. Secondly if an appraiser can complete 4 – 6 of these in a day this would reduce the need for appraisers by over 80%. How many appraisers will there be within 5 years and how many new appraisers will be coming into the appraisal business. What we are headed for is a computer completing the appraisal report with the help of a clerk at minimum wage and an appraiser signing the report to provide some appearance of validity.
John Pratt is a certified residential appraiser in California with 18 years’ experience and he has trained over 10 appraisers in that time. He has over 20 years’ experience in lending in the Banking industry