Whether it’s a mortgage, remortgage or refinance, these days the odds that you are going to get a bad appraiser assigned to appraise your property are higher than ever (one of the unintended consequences of HVCC, FannieMae’s Home Valuation Code of Conduct.
Many lenders work with appraisal management companies. The appraisal management company is going to assign your appraisal to the lowest bidder. The lowest bidder often is someone who’s not competent (or not competent in your neighborhood) or, worse, not competent and short on time.
Even if you do get a competent one, things might not work out the way they’re supposed to. Appraisal management companies keep a good chunk of the appraisal fee. Many appraisers respond by cutting corners, often one too many corners.
You can do nothing about it or you can ask the lender (through your loan officer or mortgage broker) a few questions. If you don’t like the answers, you can refuse to work with them.
- How does the appraiser get hired?
Specifically, ask for the name of the appraiser, appraisal company or appraisal management company they’re going to hire. Then Google whoever they give you. Find out as much as you can about it. In addition, if it’s an appraiser, interview them. If it’s an appraisal company, interview the appraiser they’re going to send out. If it’s an appraisal management company, ask the lender the questions in this article.
- Who reviews rebuttals?
If there are mistakes in the appraisal report (by mistakes I do not mean you think the value is too low but facts the appraiser got wrong), you can write (or hire someone to write) a letter that points out the mistakes. That’s a rebuttal.
In an ideal world, someone other than the appraiser whose appraisal you’re rebutting, someone who knows appraising, reads your letter, takes a look at the appraisal report, determines that you have a basis for your complaint or not. If they find that you do, they ask the appraiser to respond, explain, or make corrections. Or, if the mistakes are really bad, they get another appraisal.
In the real world, there are appraisal management companies that have the original appraiser review rebuttals.
I have seen a case where the appraiser agreed that the mistakes pointed out in the rebuttal were real, that he’d overestimated the size of comparables by some 20%, that had he not made the mistake, he’d have given a different value (some $20,000 higher). All the same, he stood by his report, refused to change anything.
And there was nothing in the procedures of the management company beyond informing the loan officer that the appraiser thought the rebuttal was on the money but he was not going to make corrections.
- How many rebuttals do you get, ball park figure? What percentage of appraisals you order get a rebuttal?
They probably do not know exact numbers, but they should have at least a rough idea of percentages. There is no number that’s a trigger number for any action. It depends on you. Do you feel comfortable working with a lender that works with appraisers whose appraisals get challenged 10% of the time? 27% of the time?
- What is the percentage of rebuttals that are successful?
Successful here doesn’t mean that the loan was approved despite the appraisal but that
a – the appraisal was corrected
b -another appraisal was ordered (In this case, you need to find out who paid for the second appraisal. The best thing to find out is that it’s not borrowers – for the obvious reason: it was not their mistake, they shouldn’t have to pay for it. If it was the borrowers, you have to decide if you’re comfortable with that.)
The appraiser proved that what seemed like mistakes were not, in fact, mistakes is another successful outcome. But you are interested only in the first two. The numbers need not be very high. You just need to know that someone’s rebuttal was successful (because that means that they have a process that gives you a chance, should your appraisal contain mistakes, to have those mistakes corrected).
So what you are looking for here is the attitude the lender and its appraisal management company have towards appraisals.
There are those who say that any request to have the appraiser change an appraisal constitutes undue pressure. You don’t want to work with them: it is not undue pressure to demand that the appraiser measure carefully, use the best comparables, make no mistakes that render the appraisal misleading (It is actually a requirement of USPAP – Uniform Standards of Professional Appraisal Practice, the real estate appraisers’ Bible – that appraisers do not create misleading appraisals).
What do the questions get you? They let you know the lender and its appraisal management company somewhat. You want them to be professional, to have systems that work for checking accuracy and responding to errors/mistakes, you want them to understand that not all appraisals are mistake-free.
If you like their answers to the above questions, then you need to ask them to give you names and a means of contacting recent, happy customers. Large lenders work with more than one appraisal management company. You want the happy customers to be from among those who got their appraiser through the same management company you’re going to get yours.
Convincing a lender that there’s enough equity in a home to make a loan is almost always harder with a remortgage or refinance than with a purchase. Make sure you don’t get short-changed by bad appraising and by unprofessional and/or incompetent appraisal management companies.
By Andrew Watson