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.
And the National Association of Realtors has chimed in with their own letter.
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.
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The Banks want control of the valuation process, pure and simple, this is a back door way of achieving that, the consumer won’t see any savings, turnaround might improve when the valuation becomes automated and we as appraisers see the pitfalls in that. The banks have a new generation of technocrats with no memory of the last housing crisis or the one before that.
Considering now Home inspections for real estate sales are $400
An ASHI Certified Home Inspector may charge around $400 to $500 for a typical sfr. It results in a thorough and highly competent report by professionals that have been thoroughly trained and had to pass a two day two-part test (written and field test). Those are worth every penny to the consumer. My best friend had one at my urging and we found a small gas leak under his house.
What many if not most agents urge/recommend is a $300 to $400 ‘home warranty inspection’ from companies like First American (much is written about their family of companies from agents to escrow to servicing to title insurance to ownership of ACI). Training is suspect; as is competency. You will have a limited warranty if covered appliances fail in the first year, but you won’t know if your foundation is cracked; joists are rotten or there are other significant defects.
It’s possible there are conscientious and competent home inspectors out there that are not ASHI certified. I just don’t know of any.
The coalitions are gaining strong support and are the way appraisers are being heard. Every appraiser needs to be a member of their state coalition. You are doing a disservice to yourself if you are not. The letter the coalitions did is very strong and sends a clear message appraisers are not messing around.
AppraisersBlogs do you have a link for the California coalition? Thanks
This is the link I have https://www.cacap.net/
California has 2. Links to both are on this page http://appraisersblogs.com/state-appraiser-coalitions-organizations/
AppraisersBlogs thank you!
Every week I do dime a dozen million+ dollar sales where agents and brokers split 5% commission checks ($50,000), but yet it’s the appraiser who is the financial target. What about the unlicensed home inspectors (not required in my state) who charge $500 to $1,000 and print reports on the spot in 2 hours? Just saw on my latest purchase assignment that the couple paid $125 for credit checks. Ever pay attention to the ever creeping processing fees in the purchase contracts ($500 to $800 all day long).
Only when the truth is known by the powers that be, can we judge them by their actions.
Seek the truth.
Seek the truth.
When will all this B.S end ??? Sad !!!
Great article other than the garbage data and misinformation from NAR. Sometimes I’m simply embarrassed to be a member of NAR.
Many thanks to VaCAP and all the others. Special thanks to Johnathon Russell, ASA for drafting our joint letter linked in the above.
The De minimus was written into FIRREA, because they were small principal amounts and did not threaten the safe and sound banking procedures.
Well, the Real Estate Mortgage Market Crashed in 2008 with a de minimus amount of $250,000, not $400,000 and still,the banks had to be bailed out.
Apparently loans below $250,000 effected the financial health of the entire globe, because real estate crashed across most of it.
OPENING STATEMENT OF SENATOR WAYNE ALLARD WEDNESDAY, MARCH 24, 2004
Subcommittee on Housing and Transportation,
Committee on Banking, Housing, and Urban Affairs,
It is certainly appropriate for Congress to become involved in the appraisal industry because of the clear Federal interest: Taxpayer dollars are at stake. In fact, the purpose of the law is to protect Federally insured financial institutions, not consumers. While a healthy industry can be of assistance to both, we must be ever mindful of protecting taxpayer dollars.
Well dang $250,000 de minimus did not protect financial institutions, consumers or tax payers. Values across the country have not rise so high as to indicate that more than half of existing or new mortgages are written for $400,000 or more. Some states do not benefit from a larger population of wealthy citizens and might not see half of their loan generation over $400,000 for another 30-50 years. One, very high, nationwide de minimus amount, only protects the wealthiest.
“Because only rich people deserve every consumer protection available.” The rest, easy slam dunks.
Read the full letter, what a read.
A $450 appraisal fee is nothing compared to the potential loss of tens of thousands of dollars on a resale because an uninformed buyer overpaid for a property and had to sell it one year later at less than what they paid. Appraisers are there to protect the public interest as well as the government agencies that guarantee the funds for a mortgage loan.
Paul Dotterman bingo
As we move forward with no valid appraisal within the mortgage loan process, who will be responsible for the price paid? It will be both listing and selling agent who will be held liable.
Stop and think who the whole house inspection protects ultimately. It’s the Realtor who will not be held responsible for hidden property conditions as they used to be. The inspection phenomenon began in California over 25 years ago and swept across the country.
Nowadays, how many Realtors recommend that their client NOT get the house inspection?
Fannie and Freddie did not think this through, in my opinion. Now I am set free to do an honest appraisal without their B S guidelines. They will not have further control over the process and agents and buyers will be free to utilize the most experienced in our profession.
Marketing to sales agents directly? I’d rather scroll through the sunday help wanted section. We all know how the game is played.
You can see the active listings, and get the tax info. Send the owner your ad, ask them to consider an appraisal to substantiate the list price, so they are not wasting time. Ask them to give your ad to their agent and buyer. Plus, the seller will have your info when they want to move to their new place, so your ad should say you have contacts in various and many states, so that if they are leaving the state and call you, you can refer the order to another appraiser in their new state.
Those “appraisal contingencies” if included in the contract, will still have to be met. Agents care not, who hires or recommends the appraiser to meet the contract obligation.
Network and marketing is what makes business flow. Who do you know?
Great points Pat.
In the early 1980s Letitia Eastman bought a property that had visual evidence (“red flags”) of potential land instability. Long story short, the court held the agents failed their due diligence and awarded Ms. Eastman a significant amount of money later when the slope failed. The Eastman Act was the guiding light of disclosure for California agents all through the mid-1980s. Later; boilerplate was included in our California Association of Realtors(R) approved deposit receipts and residential purchase agreements (RPAs).
Like most boilerplate, agents have long since forgotten WHY it is there. I recently worked as a behind the scenes consultant to a law firm in the following;
Without commenting on anything privileged, the issues in the case would NOT have been determined by a bifurcated hybrid; nor even a trained insurance company claims adjuster measuring the property. Stripping away all the smoke and mirrors it required an appraisers professional opinion and interpretation of plans and city ordinances to establish a close approximation of living area.
And NOT just any appraiser; a highly competent appraiser.
Lenders and real estate agents and their brokers put themselves at extreme risk for no other reason than not knowing how to properly report physical property conditions. All the issues at heart, in this case, could have been avoided with a highly qualified and competent appraiser properly measuring and explaining living area from other finished building areas.
The ‘lowest-fee’ type appraiser would not have caught the issues involved. Not even if certified. Let me translate; a $500 to $750 or even $1,200+- AMC appraiser would not likely have properly identified the avoidable future litigation issues. A top-flight appraiser who would likely have charged from between $2,500 to $5,000 would most probably have identified the issues of non living area being included as GLA (& they were highly confused & unclear by design and subsequent code) though on the date of value just following the law/codes would have avoided the later lawsuit or at least disclosed the 2,500+- to 5,000 sf apparent discrepancy before the purchase was consummated.
I wonder what ten years of legal fees cost? Agents that fail to recommend independent appraisals for their clients are likely to find out.
Late comment on this one Ross. Also the lender and gse’s have an incentive to cause failure. Because they’re backed by taxpayer money, and profit on the upswing, a higher long term volume of lending overall is assured with the pump and dump approach. After the last housing crisis they quietly wrote in bail in language so they don’t have to ask next time, it will simply be automated. In 2019 it appears we’re just about done with the pump and sell off phase. Enjoy this brief period of somewhat stable housing markets… The answer to excess quantitative easing and unmanageable price inflation is simply to bring the price back down through higher default volume. Then they’ll have something to brag about when that is eventually mitigated. Perhaps it’s a longer cycle this time. Raised deminis keep appraisers out of the picture for the lower priced units which are easier to turn over and if borrowers have used a waiver, that eliminates half of the red tape through the repossession and resale process. Big picture. Raised deminis are not about consumer protection, they’re about swifter management of a larger volume of defaulted housing interests. It’s not if, but when.