Standing With Us Protecting Consumers!
…average costs and appraisal turnaround times are minimal…
VaCAP joins 29 State Appraisal Organizations in opposing an increase in the appraisal threshold.
Behind the scenes, VaCAP and the Network have been working with Constantine Cannon LLP on drafting a formal comment on the proposed appraisal threshold increase from $250,000 to $400,000. The result is very thorough and factual. Each state organization contributed facts, figures and scenarios and Constantine Cannon compiled it all referencing current law and prior attempts of increasing the threshold. VaCAP is proud of the work that has been accomplished and proud to be part of a Network of dedicated appraisal professionals across the country. See the letter here.
The Cost and Time for an Appraisal Does not Limit its Value to Consumers
…the added cost and time of doing an appraisal is, at most, modest when compared to the risks and costs a home buyer faces if the residential property is mis-valued. Specifically, as of 2018, the average cost of an appraisal was $331.00, 39 while the average turn time on a residential appraisal is around five days…
While the proposed comment suggests that there may be “material costs savings” in moving the residential real estate industry away from appraisals, the agencies’ statement lacks evidentiary support. In addition to the limit of such potential cost savings, there is no guarantee such monies will be passed on to consumers. In fact, it is highly likely that only the lenders will realize any minimal cost savings. Moreover, the true cost to the consumer is not just the cost of the appraisal but also includes the fees associated with the lender utilizing third parties —AMCs— to manage the appraisal process. In their role as the intermediary between the lender and the appraiser, some AMCs charge consumers significant management fees for their retention of the appraiser to conduct the valuation of the home. In fact, these fees can nearly double the cost to the consumer, even while the appraisal fee remains unchanged. 41 An increase to the de minimis exemption will not address that ever-increasing cost to consumers.
Standing with us protecting consumers, our national organizations, American Society of Appraisers, Appraisal Institute, American Society of Farm Managers and Rural Appraisers, MBREA/The Association of Valuation Professionals, American Guild of Appraisers, OPEIU, AFL-CIO, and RICS have collaborated on a joint letter opposing an increase in the appraisal threshold. See the letter here.
- Analysis suggests that recent challenges with costs and turn times are more a result of high volume over a prolonged period than they are a sharp decline or “shortage” of appraisers 3.
Along with high loan demand issues, none of the “Temporary Waiver Requests” submitted by banks to the Appraisal Subcommittee have sufficiently demonstrated a scarcity of appraisers in their markets. We note this avenue of relief was specifically highlighted and encouraged of regulated banks by the Agencies in the EGRPRA Final Report and subsequent guidance. Yet, no bank or stakeholder organizations have been able to demonstrate a scarcity of appraisers exists in their respective market areas…
…the fee paid to the appraiser is typically not reported independently on either the loan estimate or closing documents. Instead, the number provided on this document combines both the fee paid to the appraiser and any fees paid to an appraisal management company (AMC) for their services rendered in connection with the ordering of an appraisal4. Since a substantial amount of work is ordered through AMCs5, finding complete data that includes AMC related appraisal fees may prove difficult. Additionally, while some states allow or compel appraisers to disclose the fees they received in connection with an AMC-ordered appraisal in their report, these disclosures are not public in nature.
The appraisal industry was dramatically changed by new rules for appraiser independence and increased requirements to become an appraiser. Many argue these changes resulted in today’s increase in appraisal costs as well as a shortage of appraisers in some areas. In the Agencies proposed rule, much of the reasoning for the need to increase the current appraisal threshold goes to reducing transactional costs and delays associated with the appraisal, with special concern for rural areas.
NAR is sympathetic to extreme delays and unreasonable costs in any real estate transaction, regardless of the source. Much anecdotal discussion has suggested that appraisals add considerable cost to a transaction. However, as noted by the Agencies in the proposed rulemaking, there is limited information on appraisal costs. The Agencies rely on the Department of Veteran’s Affairs (VA) appraisal fee schedule as a proxy for cost, but this is a strange choice as VA appraisers must be admitted to the VA Fee Panel in their area and follow the specific requirements necessary to complete a VA appraisal. It is widely known in the appraisal industry that VA appraisers are paid higher than what is normal in their geographic area as developing the expertise in VA
appraisals goes beyond the typical requirements for becoming a qualified appraiser. NAR’s December 2018 Appraisal Experience Survey1 demonstrates that VA appraisal costs are not the norm for most transactions. The median typical cost of an appraisal is $450, with 89 percent of REALTORS® stating the typical cost of an appraisal in their area is below $600. NAR believes these numbers better reflect the likely cost of appraisals for transactions under the Agencies regulations and should be used in assessing burden related to the cost of an appraisal.
In determining cost burdens, it is useful to look at total cost of the transactions. According to NAR’s 2018 Profile of Home Buyers and Sellers2, the median price for a home purchased was $250,000. Looking at the different regions of the county, the West has the highest median home purchase price at $362,400 while the Midwest has the most affordable homes at a median purchase price of $189,400.3 Both of these median values are below the proposed appraisal threshold value of $400,000. Assuming the median home price of $250,000 would have a median appraisal cost of $450, the appraisal would be 0.18 percent of the total transaction cost – hardly approaching a “burdensome cost.”
The Agencies note that increased cost burden is often the result of delays due to the lack of appraisal availability. NAR’s own research shows that the typical wait time for an appraisal in 2018 was seven days, with 63 percent of REALTORS® reporting wait times to be seven days or less. The question is whether that wait time is burdensome. When asked about ease of obtaining an appraisal, 67 percent of REALTORS ® felt it was “easy” or “very easy” to get an appraisal and only one percent noted it being “difficult” or “very difficult.” Given the vast majority of REALTORS® feel getting an appraisal in their area is not a problem, it is hard to imagine that the wait time for an appraisal is resulting in a large number of cost-inducing delays. Based on the average appraisal costs and REALTOR® sentiment regarding appraisal wait time, NAR does not believe that appraisals are creating a cost burden on a national level, but that the problem is likely restricted to specific markets.