*Support Your Local Appraiser*
**By George Yacik**
***Pity the poor property appraiser. He’s under the gun like never before.
****First, the appraisal industry fell in for its share (fair or not) of the blame for the home price bubble and its subsequent collapse, due in part to inflated property values. In its wake, many appraisers left the industry, either because they were bad actors and played a role in that inflation, or simply because post-bubble business was bad.
****Now appraisers — and the mortgage industry — have a different problem. There aren’t enough appraisers to keep up with the growing pace of home sales, and escalating home prices make it difficult to discern legitimate price increases from phony ones. And they have to be able to justify their opinions to the satisfaction of their skeptical lender clients.
****And, oh yes, the lenders want those collateral reports yesterday.
****“The biggest hurdle that appraisers are having to deal with on a day to day basis is to be able to justify the price of transactions in all the different markets,” says Clint Cornett, CEO of ValuTrac Software in Dallas, which provides appraisal management software to banks. “As these markets appreciate, they really have to do their due diligence. As the appreciation starts, it’s really hard for the appraiser to justify the value of a property.”
****Case-Shiller’s 20-cityhome price index jumped more than 1% in March and is up nearly 11% in the past year, the biggest annual increase since May 2006, before the bubble burst. The National Association of Realtors says existing home sales rose to an annual rate of nearly five million in April, the highest level since November 2009, while the median home price jumped 11% to $192,800, the highest since August 2008.
****A property inspection and comps are no longer enough in today’s market, Cornett says, because lenders are scrutinizing appraisals a lot more than they used to to make sure the appraiser is providing the most accurate valuation possible.
****“They have to be able to provide more support from real data from the market,” he says. “They have to look not just at comparable sales, but also pending sales and listings. They have to get input from Realtors and find out how long the property was listed, how many offers did you have, really see what is the driving force behind appreciation in every specific market.”
****“We focus on trying to validate the sales comps and ensuring that the characteristics that the appraiser has used are valid,” says Randy Wussler, vice president of product management and marketing at Data Quick. “In fact, on about half the appraisals we look at there is some issue with some key property characteristics on the sales comps that they use. That doesn’t necessarily mean fraud, it just means you have to pay real close attention, because if they’ve got the comps wrong they have also not nailed the overall subject property as well as they should have.”
****But fraud “is still a booming business,” Wussler says, so lenders and appraisers need to be on the lookout for it. “Probably between six and 10 percent of all short sales very likely involve fraudulent activity,” he says.
****But perhaps just as big a challenge as getting home values right is meeting the increasing demands and tight deadlines of lenders, real estate agents and homeowners to get those reports in a timely manner.
****“Lenders are requiring and expecting faster turn times, and that falls squarely on the shoulders of the appraiser,” Wussler says. “There are fewer appraisers out there and more competition to get those appraisals. There certainly is more pressure on appraisers to get their reports in faster and better.”
****Needless to say, technology can help appraisers and lenders deal with some of these issues. To reduce turn times, for example, appraisers can utilize mobile technology tools that enable them to produce reports and access data while they’re on the road, not just when they get back to the office, Wussler says.
****“Technology has really redefined the appraisal management industry and the appraiser, from an efficiency standpoint, from a transparency standpoint, and from a compliance standpoint,” Cornett says. “It’s really streamlined the process for the appraiser to manage their workflow. They become more professional by focusing on what is important, and that is valuing that collateral for that loan.”
****Technology also provides a “buffer” between the originator and the appraiser valuing that property, he says.
****“Before the bubble and the downturn in the market, the lender just contacted an appraiser to do the appraisal,” he says, “but now with the technology in place it is really providing that independence so the appraiser really doesn’t feel any pressure from the lender to hit a certain number.”
George Yacik has been a financial writer for more than 30 years. After working 12 years at The Bond Buyer and American Banker as a reporter and editor, he joined SMR Research Corp. as a vice president, where he was the lead research analyst and project leader for SMR’s studies on residential mortgages and home equity lending. Since 2008 he has been writing for a variety of mortgage-related and financial publications. George is based in Stratford, CT, and can be reached at firstname.lastname@example.org.