The Consumer Financial Protection Bureau wants you to see the full appraisal report on the house you’re buying or refinancing as early in the mortgage process as possible, and without your having to ask the lender for it.
This means you would be informed about all the “comparable” properties the appraiser selected, adjustments for property condition or location, plus all additional data — especially computer-generated estimates — that may have been used to arrive at the final value. It also means you would get to see who performed the appraisal and whether he or she is merely licensed in the state or carries a professional designation. (Letters such as “SRA” — which stands for “senior residential appraiser” — after a name indicate higher levels of training and experience.) In addition, it would give you an idea about whether the appraiser is locally based and thus knowledgeable about neighborhood sales and listing trends, or has traveled from another part of the state.
Information such as this can be crucial in an environment where home sellers, buyers and realty agents routinely complain about botched appraisals that complicate or kill deals by coming in thousands of dollars below the contract price. In many cases, critics say, appraisers continue to inappropriately select distressed-sale comparables to value non-distressed transactions in areas where property values are now rising. In a May survey of its members, the National Association of Realtors found that 33 percent of agents reported appraisal-related problems that endangered sales.
The consumer bureau also wants to open the door to disclosure of fee-splitting information that typically is kept hidden from you: how much of your $450 to $600 in appraisal charges at closing will go to the appraiser and how much to an unseen appraisal “management company” that may be owned by or affiliated with your lender and is also getting a cut of the action.
In a proposal announced Aug. 15, the bureau said that under its plan, mortgage lenders would be required to provide copies of all written appraisals and other data used in the valuation “promptly after receiving them,” but in no event later than three business days prior to the closing. This would include the electronic “automated valuation models” (AVMs) widely used by lenders and management companies to supplement standard reports.
AVMs, which depend on public records rather than on-site observations, have been criticized by some appraisers and realty agents as being tools to keep appraised values below prices agreed upon by sellers and buyers in rebounding markets. Banks defend their use as safeguards against overvaluation and subsequent losses in the event of default.
Pat Turner, who has an SRA designation and is active in the Richmond area, has a different term for them: “interference” in the work of the local appraiser. He says appraisers often submit reports to management companies only to hear back that an AVM has found supposed “comps” indicating the value should be below what the appraiser reported. In one recent appraisal assignment, said Turner in an interview, a bank’s management company told him to consider two lower-cost sales identified by an AVM that would have significantly depressed the valuation he submitted. He refused, he said, because he knew the objective was simply to “push the value down” so that the bank could limit the loan amount.
The consumer bureau also has issued proposals for revisions to the closing-cost sheets used nationwide for real estate transactions. Among the changes: an option to include a breakout of the appraisal charges paid by borrowers. One line would show the amount the appraiser receives; a second line would disclose what the appraisal management company takes.
Most people don’t know that appraisal management companies are often pocketing big chunks of appraisal payments. In some cases, the appraisal charge may be $500 but the appraiser is being paid $200 to $250 — much less than the traditional fee before the advent of management companies. Critics connect these low payments with the rising level of complaints about incompetent appraisals, often performed by newcomers to the field or less experienced individuals who agree to work for less.
The consumer agency’s proposals won’t be finalized for months, but in the meantime you as a consumer can ask: Where are my hundreds of dollars going? To the appraiser? Or into the coffers of my lender? If it’s the latter, what’s the justification for the extra charge? The answers might be troubling.
Ken Harney’s e-mail address is firstname.lastname@example.org.