Question from our reader…
Here is what has happened to me regarding the appraisal. Applied on May 1, credit report/income/assets fine, credit score of 800, appraiser came on May 8, loan officer was calling me on May 15 to say appraisal came in at same figure we estimated, everything is looking good, as soon as underwriting approves it, we can schedule closing, blah blah.
Then nothing for 3 weeks, so I call to inquire, what’s the delay? Was told underwriting rejected the appraisal. Why? What was wrong with the comps? One was over a year old; one was more than 17 miles away from subject property. I said, oh, no. Why did the appraiser do this? That isn’t right, why didn’t they use (I gave them a list of recent sales in my town of single-family homes similar in design, age, sq. footage, amenities, etc.
Then the guy admits the dirty little secret I was never told – Since my house was a townhouse (attached), ALL 3 of the Comps also had to be attached (either townhouse or condo) dwellings.
I couldn’t believe what I was hearing. I told the loan officer, a v-p of the bank that I should have been TOLD this upfront. He knew it was a townhouse, he knew it was a very tiny (rural) town, and the real estate market everywhere has tanked. He KNEW the lender was imposing conditions on this loan that would be IMPOSSIBLE to meet!
I am disputing the charge ($400) on my credit card, as, since the appraisal was done incorrectly (not according to accepted industry standards) I am dissatisfied with the purchase. Had the appraisal been properly, I would have got the loan.
If it was not possible to complete the appraiser according to standards because of a lack of THREE (3) comps all being townhomes or condos, the appraiser should have declined the job and told the lender it can’t be done instead of trying to soak me for $400. Perhaps I should add this particular bank is one of the “discount” brokers in the whole reverse mortgage loan business. I was advised by another broker to watch out for them. Should I have listened?
Your opinion, please
Mrs. Marty M. -Maryland State
Firstly, I don’t know who your broker was and have no reason to defend or disparage them. So, when I write this response, please know that I am doing so with complete objectivity on the part of the originator.
I simply don’t have an opinion on the company, and I find that quite often the company who provides the lowest cost is also doing a good deal of volume and therefore is extremely proficient at closing the loans.
Unfortunately, there are some who will say things about competitors just to get business and I find that just as offensive as providing bad service. I
In this case though, I honestly do not know how culpable the originator is in the valuation portion of the equation- but I do believe they need to work harder for you to get your money back or to get the report corrected based on your information.
Now let’s talk about appraisals
In 2010, HUD implemented a program known at “Appraiser Independence”. It was intended to insulate appraisers from originators and borrowers and keep them completely independent of any pressure to artificially inflate values.
Prior to this move, many lawmakers felt were part of the problem with the housing bubble.
The net effect for those of us originating loans and for you, the borrowers, is that we must order all appraisals from an Appraisal Management Company (AMC) and we are not even allowed to choose the individual appraiser.
Prior to this change, we had relationships with appraisers and communicated with them.
Most appraisers would let you know if they could not accept an assignment due to the property not meeting HUD guidelines, etc.
They would usually check the sale comparables before they ever made a trip to your home and started with some basic background work before incurring a charge to the borrower.
If they knew they could not produce a viable report, they would tell us and save everyone the time and expense.
This is how good appraisers kept clients happy while giving them honest values, not always the values they hoped for.
Check Comparable Sales Data
And, truth be known, we still do get that sort of feedback most often today.
A qualified FHA appraiser knows he cannot use detached single family residences as comparable sales for attached townhomes and condos.
Not knowing where you live or what the norm is there, many parts of the country are known as “Non-Disclosure States”.
What this means is that the details of properties and sales are not disclosed to the general public.
The appraisers have tools at their disposal to which they subscribe that allow them to see sales activity and prices for which those sales closed.
If you live in a non-disclosure state, the individual who took your loan application may never have had any possible way to know that there were no similar, acceptable sales available – even though he knew what type of property you had.
For that, I would not blame him.
However, once he received the appraisal, he certainly should have reviewed it and called or emailed the AMC immediately (remember, under Appraiser Independence he is not allowed to contact the appraiser directly).
Working with the Appraisal Management Company
Once the originator contacted the AMC, if they responded by telling him that no acceptable comps were available, then the company that ordered the appraisal should have gotten the AMC to reverse the charges, or at least all but the trip charge to your home if they contend that there was no way to know without a visit to the home.
This is what I would suggest you request the originator to do at this time.
The appraisal was ordered as an FHA appraisal and was not completed to HUD standards.
We have gotten many appraisal fees returned to borrowers for just this reason.
I wish I could tell you that this was a very isolated incident but unfortunately, appraisals can be one of the most frustrating parts of our industry right now.
The originator must go through an AMC, who in turn has to contact the appraiser directly and order the appraisal.
For this, the AMC keeps a portion of the fee and so appraisers no longer make as much money per assignment as they used to either.
The level of appraisals has gone down with the Appraiser Independence, not up, as AMC’s will often farm the assignment out to the first appraiser who will accept it and not always the best one for the job.
Also, in areas where there are a very limited number of appraisers, the AMC may not work with the only one or two in the immediate area and so appraisals are often delayed while they find someone willing to accept the assignment.
The appraiser that they do end up getting may travel into and not be familiar with the market area.
Also, keep in mind that if there are sales available, it is not too late to correct the appraisal or get a new one and for you to still obtain your loan.
If there are no sales available to support the value you need, that is not the appraiser’s fault, he just needs to be honest and tell everyone that from the start.
Rebutting the Appraisal
HUD and the Lender will allow him some flexibility on age of sales and distance if needed, but in the end, the lender must make the decision whether or not the property’s lack of comparable sales indicates that its marketability is impaired.
A lender will not lend on a property if they cannot determine a value or if they feel that the property is not marketable due to lack of sales or otherwise.
So, when you say, “Had the appraisal been completed correctly, I would have gotten the loan”, if that is the case, it’s not too late.
Either way, you do need to contact the originator and insist that he contact the AMC and demand a refund since the assignment was not completed in accordance with the order.
If there are sales available, then the originator can order a new appraisal from a different AMC, or the AMC may have another appraiser to whom they can assign the task.
By law you are entitled to a copy of the appraisal
You do also have other recourse available to you if they refuse. You paid for it; the originator MUST give you the appraisal.
You can also submit this appraisal to HUD and file a complaint against both the appraiser and the AMC due to the fact that the report is not HUD-compliant.
This last action would not get your money back, but if the appraiser and AMC knew you were prepared to file the complaint, they may feel it is more beneficial to issue the refund once they realize that they did err.
If they feel that they completed the assignment correctly, they would not issue the refund, but I can’t see how they could take that stance based on your information.
I wish you the best of luck!