Real estate owners in Rockville, Bethesda, Potomac, and other Washington DC suburbs need to be aware of the recent upheavals in the appraisal industry. Decisions that are being made can dramatically affect property values, appraisal costs, and loan requirements for mortgages of Washington DC and Maryland real estate. So much so that professional real estate appraisers are up in arms.
Appraisals are important. They ratify the value of properties and affect selling prices and loan requirements. They also affect refinancing and down-payment terms. The problems are stemming from the “home valuation code of conduct” issued in December 2008 by the federal regulator of Fannie Mae and Freddie Mac.
This issue has become a political tug of war and may be the subject of a federal lawsuit. The National Association of Mortgage Brokers is planning to appeal to Congress to reverse the code that is scheduled to take effect on May 1. According to an article by Kenneth R. Harney on January 10, the code “is the product of a settlement involving New York Attorney General Andrew M. Cuomo, the Federal Housing Finance Agency, and two congressionally chartered mortgage companies that the agency oversees.
Cuomo had threatened to investigate Fannie Mae and Freddie Mac to ferret out alleged yellow flags in the appraisal industry—yellow flags such as overvaluations or evidence of pressure put on appraisers to reach numbers that were needed to close loans. The parties, therefore, agreed to create a set of standards to ensure that appraisals are accurate and insulated from the pressure of mortgage brokers, lenders, real estate agents, and third-party appraisal management companies.
However, the new code goes above and beyond. Experienced appraisers are being undermined by its slipshod approach. They are refusing to sacrifice the integrity and quality of their work to perform valuations for a fraction of the regular fees. The code also eliminates the traditional practice of brokers selecting the appraisers for real estate. However, appraisal management companies require appraisers to perform valuations for under $200, a fraction of the going rates between $300 and $600. They also require quick response, which generally means cutting corners. Also, these big companies take the difference as profit.
In response, several large appraisal organizations, including the Appraisal Institute and the American Society of Appraisers, allege that the code “will force lenders to shirt their valuation assignments to third-party appraisal management companies, abandoning the traditional system of using local appraisers selected by mortgage loan officers.”
Buyers also need to be aware that it could be that a middle man is charging you a few hundred dollars for a quick, mediocre appraisal. Also, it could be that your property will lose value because of it. A good quality appraisal offers more than meets the eye. It also provides an accurate evaluation of comparable properties, pending sales contracts, and local market trends.
Feel free to contact Eric Stewart of Llewellyn Realtors at (301) 424-0900 for more information about real estate in the metropolitan areas.
