Appraisers Are Sitting Ducks to Random Legislation
Bill A5185 and AMC Bill A5146 introduced to the state legislature in New Jersey show just how much state legislators don’t understand the appraisal profession. Valuation Legal warned us about this back in December: Appraiser and AMC Laws to Include Prohibitions Against Discrimination.
From Bill A5185:
b. Information concerning the prohibition of discriminatory appraisals of residential property, including the statutory basis for prohibition, shall be published on the Division of Consumer Affairs website.
I can appreciate the idea of reducing potential discrimination by an appraiser, but in the short term, this uninformed view is not the way and will make matters worse:
- Appraisers rarely interact with the property seller
- The appraiser’s client for a mortgage assignment is NOT the seller
- It is in the buyer’s best interest for the appraiser to have no interaction with the seller
- The power given to the seller over the appraiser is breathtakingly random, to which all appraisers are left twisting in the wind.
- If the seller is given the ability to criticize the appraiser, like Uber and Lyft, the appraiser should be able to rate the seller for their own protection.
Do you see where this is going? This will not solve the problem the legislature is trying to resolve.
What will happen:
- Appraisers of sales will be unable to be neutral in a valuation because anytime the appraiser kills a sale they become widely exposed to punishment that potentially ends their career due to the unreasonable power of the seller – who isn’t even the appraisers client in the scenario described in the law.
- For sales where using mortgages (and presumably refinance mortgages eventually), mortgage lending may slow in areas where this type of seller activity is prolific.
- Because appraisers are being targeted and terrified to protect their livelihood, the wrong incentives are being used – appraisal fees will ramp up, already anemic appraiser entry into the profession will collapse, and banks may pull back or even redline.
Why appraisers are especially vulnerable:
- The Appraisal Foundation and Appraisal Institute are literally the opposite of being racially diverse and have no standing in this situation. They are an embedded bureaucratic problem that has limited entry by people of color and women into the profession. Years of ignoring their self-dealing has a price.
- Appraisers are sitting ducks to random legislation like this and eventually one of these state laws will pass. The Illinois legislature just defeated a similar poorly thought out bill.
Oh, The Irony…
- What Does Seat Time Serve? - December 5, 2022
- AI Showed this Video and Anger Ensued - November 7, 2022
- Lowballed… It Is Open Season On Appraisers - October 24, 2022
This law will be a disaster for the appraisers and the appraisal industry. One claim against an appraiser can result in that appraiser losing their license and or being fined. If an appraiser loses their license it the same as being fired, they are out of work and out of business. No matter how good the appraisal report was, any buyer, seller or homeowner could file a discrimination complaint and the appraiser would have no way to prove them wrong and the appraiser knows that. No one can defend themselves against a claim of discrimination. This would result in appraisers valuing every home at the selling price or if it was a refinance just ask the owner how much they think the home is worth and bring the appraised value in at that number otherwise you risk losing your license. No appraiser in their right mind would even consider valuing a home less than the sales price or what the homeowner thinks his house is worth because it could cost the appraiser their license. Appraisal reports might as well be a “Post Card” with an Appraised Value, date and the appraiser’s signature.
I have to agree! Allowing a seller to “rate” an appraiser or his/her appraisal product is mortgage industry suicide! Sellers are not clients in the appraisal process for a mortgage transaction. The appraisal is completed for the LENDER with a possible secondary client; typically Fannie Mae, Freddie Mac, FHA, USDA, or VA. And while the buyer typically pays for the appraisal, the buyer is not a client either.
A bill such as this will make appraisers even more apprehensive of completing appraisals for mortgage related transactions. Those that do will inherit more liability, which will lead to higher fees to cover possible law suits. Appraisers unwilling to become victim to negative review of a party not related to the sales transaction will simply quit doing the appraisals. Turn times will increase significantly, sellers will be stuck sitting on their home longer, and buyers will wait a lot longer to get into their home.
This is absolutely an insane and utterly stupid bill and any state legislator considering such a bill needs to wake up and study the appraisal profession before introducing such nonsense!
What the court did not hear at the time, numerous appraisers whom were not just pressured, but denied access to the work because they would not comply with TSI’s unreasonable terms. Good faith and fair dealing are not terms most appraisers would use to describe lenders whom use amc’s. Most amc’s are now owned by title companies or major financial institutions. To control distribution in a biased manner is to control the value result. Suppositions that the amc’s do anything to bolster either appraiser independence or a more reliable valuation surety process fizzled out years ago.
The court and the state remains unaware that there is not fair distribution of requests, but rather a biased intention which originates from distribution companies. Their primary business motivation to steer the appraisal distribution process, to increase the rate of successful mortgage loan origination. Bonus income on the side if they can drive the appraisers fee down (as cost savings are not returned to borrowing consumers).
The hard truth of the matter is if there was better consumer protection in appraisal service, there would be more disappointed borrowers. To protect a consumer can often mean the recognition that price does not equal value, despite the consumers willingness to answer the difference with increased debt. Due to ignorance of the valuation process, this act of providing consumer protection is now often confused with the appraiser being discriminatory against borrowers.
People whom feel faulted by appraisers are often completely reliant on lenders, while those paying cash often don’t mind stepping back on price. Imagine a world with no price tags, a buyer has to offer blind on everything, sellers never inform buyers if they’ve offered to much. That is the real estate market without independent appraisers, rampant unchecked price inflation, lenders cashing in on every deal, offloading liability to portfolio investors, FDIC funds, taxpayers in general.
With these misguided legislative efforts individual borrowers will be steered ahead of time with legal tools which presume the appraiser is at fault if origination does not occur, alongside a state sanctioned edict to sue the appraiser for discriminatory bias. Going so far as to furnish the complaint forms online. It will remain taboo to challenge aggressive interests of salesmen and mortgage origination departments. More regulation directed at appraisers will solve absolutely nothing. Missing the IVPI proposal yet?
I am a new appraiser and think it is so strange that we have to be so confidential regarding our apppraisals, when the Realtor and homeowner can apparently discuss things all over town. WAs earlier stated, we cannot even defend ourselves.
What about what appears to be discrimination on behalf of a Realtor? I recently appraised a home that was in my opinion $20,000 underpriced and the only reason I could find is that it belonged to a black family in a predominantly white rural neighborhood. Which of course I did not mention in the report.
Oh goodness that’s a can of worms. Need more stringent verification criteria before even trying to tackle that. Don’t fall for this trap and presume racism. It’s entirely more likely you missed something, the agent missed something, or even distressed seller issues as they perhaps cut and ran. Price does not equal value and there are multitudes of possible sales techniques and postures, some better than others. Perhaps it was a slam dunk scenario or low price teaser with hopes of creating a bidding war and higher net in the end. You never know for sure, agents can be instant out of the box too, it only takes a few months and a few thousand dollars to be a licensed sales agent. The appraisers constant challenge is reverse engineering everything on a constant basis line.
Back in the day the appraiser would simply solicit the mortgage banker whom would fill out a one page order form, fill in the appraisers fee as the exact same fee the borrower was charged for appraisal services. Appraisal distribution cost nothing, it was the agents duty to line up an appraiser. It remains illegal for the mb to pad that fee, or any other fee, and take any of the appraisers fee as their own, aka junk fees. The appraisers were approved on panel by underwriters, not salesmen.
Many of us continue to opt out on principal because if amc’s provided valid service, why have they still a decade later, been unable to carve out their own space and their own standard billable amount? Amc’s exist like pirates, they’re only claim to fame being the ability to jack a portion of the fee before it gets to the appraiser, controlling workflow distribution to pad their wallets along the way, aka; lions share of orders argument.
Ongoing corruption runs deep, has nothing to do with race but everything to do with money on the table, a hundred hands reaching for it at once. Personally, it’s nicer to be the only hand reaching for what is supposed to be the reward for my effort in the first place. If they want a piece of this pie they can get an appraisers license themselves or take a flying jump and hike. The real pro’s don’t need to carve out gimmicks to get in line ahead of others, tech solutions to push more volume, we stand on quality alone. Discounting for dollars will always be a fools errand for those whom otherwise are unable to compete on the professional playing field, not understanding the dynamic intricate positions appraisers are intended to serve. If only it could be as simple as racism, it would be so much easier to navigate around all these crooks and biased interests. Everyone trying to rob each other blind all the time, straight faced lying every day of the week. Welcome to real estate.
When the introduced bill is longer (67 pages) than 99.75% of residential reports… that portends trouble
An appraiser should just show up at the door, ask what value is needed to make everyone happy, ignore any defects the property may have to avoid being called a racist. Looks like that’s what’s coming in this political correct society we now live in.
Oh, and when the neighborhood sales don’t support the contract price, be sure to go a couple neighborhoods over, perhaps even a mile, maybe more, for higher priced comparables so you’re not reported as racist!
And with the swipe of a government pen…
Price becomes value.
Sometimes I have to use comps further out because of it being on the border of another market area. So that sale that is very close by might not even be comparable. Some complaints have been about ignoring closer sales which may or may not be a valid complaint depending on if they are more comparable. Proximity is not everything. I might find that comp 1 mile away in the same community to be a better comp than one .1 mile away in a different community.
WHERE THE SMOKING “RACIAL” ISSUE REALLY LIES………
[During the early 20th century, US consumer banks routinely engaged in a systemic lending practice known as redlining, which denied loans to people of color seeking to purchase houses outside areas of cities deemed “undesirable,” in part, because they were built on areas with higher flood risk.
Today, as a result, homes worth a combined $107 billion are now 25% more likely to be flooded than non-redlined homes, according to researchers from the real estate brokerage firm Redfin. The firm released the findings from its analysis of redlined and non-redlined communities facing climate change-related flood risks Monday morning.]
I don’t see Redfin as an authority on market value or climate change for that matter.
The real issue is appraisers are being accused of racial bias. To be quite honest, when I look at a purchase agreement, I have no idea what color skin the buyer has based on the buyer name(s). And, as an appraiser, I have almost never met the buyer before closing and rarely met a buyer following the sale.
As a good example, many people think my name, Mossuto, is of Asian origin. Ohh, Mr. Mossutooo. But I’m actually Italian and it surprises some people when we meet face to face.
So, If we don’t even see a buyer, which we rarely do, how is all this our fault???
It is a case of being in the wrong place, at the wrong time.