Lenders One Appoints Scott Mort as Southwest Regional Manager
Resolving appraisal dilemmasCharlie W. Elliot Jr.appraisals, appraisal guidelines, alt-A loan, underwriters Most, if not everyone, in the mortgage business have had reason from time to time to question the work of appraisers. There are various reasons for this, some warranted and some perhaps not. Problems can range anywhere from fraud, blatant and/or intentional errors to simple differences of opinion. In cases where the appraiser's opinion of value is at question, the matter could simply be that the property is not worth enough to make a deal work. In others, there very well may be mistakes that will require investigating. Many times, if not most, issues can be resolved by discussing variances with the appraiser. When this does not work, other measures may be necessary. Listed below is a summary of some of the most common appraisal dilemmas confronted by lenders. For each dilemma, suggested solution(s) are offered. 1. The appraiser did not call me and tell me that the appraisal was coming in low. Now, I am stuck with an appraisal, which I cannot use, and my client is out $350. I am afraid that this one cannot be blamed on the appraiser. Uniform Standards of Professional Appraisal Practice do not permit the appraiser to accept an assignment with contingent value conditions. I do not doubt that some appraisers may have canceled assignments in midstream; however, it is a dangerous practice. Both the lender and the appraiser open themselves to questions of fraud in such cases. 2. The underwriter says that the gross adjustments in the appraisal are too large to meet Fannie Mae appraisal guidelines. Unless the appraiser changes the appraisal, no closing can take place. You would think that the appraiser would know better. If the appraiser made a data collection mistake or a typographical error, she has an obligation to correct the appraisal report. However, that may not be the case. Some properties simply do not conform to the guidelines. The guidelines were established to filter out properties that do not conform and, in such cases, the appraiser is right by calling a spade a spade. 3. On a home purchase, the contract price is $200,000, yet the appraiser appraised the property for $190,000. I have a copy of an old appraisal, which was prepared for a home equity loan, stating a value of $225,000. Would the facts that the property is selling for more and that it was appraised for more in the past not mean that the property is at least worth the selling price? This is a very common but sticky wicket. Who is to say that the first appraisal was not prepared in error or intentionally inflated? The focus of the solution must be on the correct appraisal, not the sales contract or previous appraisals. One of the best solutions of which I am aware is that of an appraisal review by another appraiser. This is performed on a standard appraisal review form in writing. The review could serve to verify the value estimate of the subject appraisal or to find fault with it. Typically, if the appraisal passes scrutiny, it stands; if not, the review appraisal, an amended value estimate or a new appraisal may be ordered to resolve the matter. This is usually sanctioned by the underwriter. 4. The appraisal is on the wrong form. My property is a condominium and the appraisal is on a single-family form. Assuming that the client did not specify a single-family form, there is no excuse for this. The appraiser should redo the appraisal on the proper form at no charge. It is generally expected that the client ordering the appraisal will specify which form is needed. When there is no form specified and the appraiser takes it upon herself to select a form, it becomes the appraiser's responsibility to get it right. 5. The appraiser came up with different square footage than the real estate agent and the property tax records did. My lender will not close until this issue is resolved. The appraiser says that he measured the house twice and that he is right. There are two options here. The first would be to order another appraisal and get a second opinion. Any variances could be reconciled between the appraisers. The second would be to personally go to the house and very carefully measure it, comparing your dimensions to that of the appraiser's. If the appraiser is wrong, she is obligated to make the correction at no charge. 6. I am attempting to make an alt-A loan in the amount of $1.2 million, and the lender required two appraisals. One appraiser appraised the house at $1.4 million and the other appraised it for $1.15 million. The lender insists upon averaging the two appraisals to obtain a final value indication, which in this case will not support the required 90 percent loan-to-value percentage. I think the second appraiser is low. What can I do? My experience tells me that most underwriters will not simply permit a third appraisal unless it can be demonstrated that the lower appraisal is flawed. Doing so would smack of appraiser shopping and could be considered fraud. An appraisal review on the lower appraisal by a third appraiser would be a suggestion. If the lower appraisal is found to be flawed by the reviewer, either the appraisal review value indication or a third new appraisal may be used to average with the higher appraisal. Again, this will likely be a decision that the underwriter makes. 7. I am involved in a situation where I have observed that the appraiser cited comparable sales in his appraisal that do not exist. Stated another way, he manufactured the comps. What should I do? This is a serious charge and it must be dealt with accordingly. It is assumed that at this juncture you have no pending loan transaction relating to this appraisal. If you do, order a completely new appraisal from a disinterested appraiser and start anew with the transaction. It is very important that this appraiser be held accountable for any violations of the Uniform Standards of Professional Appraisal Practice. My suggestion would be that you report the matter in writing to the state appraisal board in the state where the appraiser is licensed to perform appraisals. In the event that you have evidence of or suspect fraud, turn the matter over to the FBI for investigation. This should also be in the form of a complaint and should be in writing. All complaints should be sent via certified mail. The above-suggested solutions are not offered as the only remedies available to resolve appraisal challenges, as all situations have somewhat different circumstances. They are offered as ideas, which have proven to resolve similar problems in the past. Charlie W. Elliott Jr., MAI, SRA is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, [email protected] or through the company's Web site at www.appraisalsanywhere.com.