Credible, accurate appraisals will make all the difference in your deals, accelerating smooth closings and making borrowers happy. If the appraised value on a subject property is too low, most deals are dead in their tracks, and many lenders tell me they’re often left holding the bag. Borrowers tend to chalk up the entire experience to the lender, regardless of the specifics of the deal.
To keep your deals on track and your borrowers happy, there are many ways you can proactively control the appraisal process without choosing the specific appraiser so you’re still in full compliance with the law.
Getting it right and avoiding the headaches and lost deals all starts at the beginning of the process, not at the end. Instead of arguing with appraisers after the report is delivered, which rarely produces any results, ensure you have a process in place to choose the best appraiser for each subject property. There are several factors to consider when choosing the appraiser, but here are a five that many lenders overlook:
Are all of your minimum requirements covered? Often, an appraisal will be underway or even completed before a lender knows that the particular appraiser chosen for the assignment doesn’t have the specific designation required, their license has lapsed or they don’t carry your minimum requirement of errors and omissions insurance. It’s also not uncommon to find that the appraiser you’ve assigned is on your investor’s “do not use list”. It’s critical to keep a current appraiser profile for everyone on your appraisal panel so you know exactly who is eligible for any particular assignment. With a live data feed of appraiser profile information, you can eliminate the risk of placing the order with an ineligible appraiser, which wastes time, money, and risks damaging your relationship with that vendor.
Is the appraiser an expert on this neighborhood? Real estate markets are hyper-local and it’s important to select an appraiser that knows the area extremely well. You can prefer or require the appraiser be located within a certain proximity of the subject property to be appraised, and you can check your past appraisal orders in the area and see which appraisers have done the most work there for you.
What’s your institution’s past experience with this appraiser? An internal vendor rating system can give you tremendous insight into an appraiser’s capabilities and reputation. After every appraisal is assigned and after every report is delivered, take a few moments to rate your appraiser so you can share the intelligence across your organization. If more than one party inside your institution is ordering appraisals, an internal rating system is the only way to leverage your institution’s shared experience to ensure you’re getting the best vendor for the job.
Do you have performance statistics for your appraisers? It’s simple and imperative to track the performance of your vendors based on objective measurements. What percentage of the time do they complete the appraisal on time and deliver when promised? How often do they let appraisal orders you send them just sit in the inbox, without acknowledging them? It’s important to track rework rates, as well. How often do you have to ask them for additional information, revisions or clarification after they’ve delivered a report? Those revision requests and the accompanying phone tag and emails are often frustrating for all parties involved, and the back and forth can take weeks. If you’re tracking vendor performance proactively, you’re far less likely to send assignments to appraisers you’ve had issues with in the past.
Can you tailor the appraiser’s eligibility for your orders? It’s very common for lenders to prefer to use specific appraisers for certain property types (jumbo, desk reviews, etc.). You need a way to track your preferences for each vendor so that you’re proactively deciding which assignments they can receive from you. For example, an appraiser may cover 13 counties, but you may prefer they only do assignments in 5 of those counties for you. An appraiser may offer several different types of reports, but you may only want to use them for condos. Make sure that your internal appraiser selection system allows you to tailor the vendor’s eligibility for your orders so that you’re getting exactly what you want from each appraiser.
If your appraiser selection system is working well, you can avoid many appraisal headaches. Remember, the appraiser selection requirements prohibit anyone involved in production from choosing the specific appraiser, but you still have tremendous power in determining the pool of appraisers from which you select for each assignment. Define your selection process up front and you can dramatically reduce your appraisal frustrations down the road.
About The Author
Patrick Scott is a Senior Sales Consultant for Mercury Network, a vendor management platform used by more than 700 lenders and AMCs. His appraisal management and compliance expertise spans smaller community banks and credit unions to the largest lenders and AMCs in the country. He consults with Mercury Network clients on appraisal workflow, compliance, and efficiency issues and he can be reached at Patrick.Scott@MercuryVMP.com.