Local real estate appraisers say they’re caught in the middle of a challenging housing market that’s complicated by a conservative lending environment and new regulations that make them do more work for less money.
Those pressures are reasons why Richard Moore, co-owner of Evaluations Inc. in Clifton Park, is looking for a new day job.
“My wife and I, we are trying to find our way out of it,” Moore said. “We’re trying to create an exit strategy.”
Still adjusting to implementation of the Home Valuation Code of Conduct — part of New York Attorney General Andrew Cuomo’s settlement with Fannie Mae and Freddie Mac last February — appraisers say the new rules are a double-edged sword. The regulation, which affects all Fannie and Freddie-originated loans — more than 60 percent of U.S. home loans — has been in force since May 1.
Cuomo’s office said the intent of the HVCC was to protect consumers, but appraisers say it adds more bureaucracy and cost to the equation by the mandatory use of independent appraisal management companies, which keep the distance between appraisers and lenders to guard against the inflated home values and predatory lending to borrowers that caused the housing bubble to burst.
Moore said many appraisal management companies are skimming $100 to $150 off a typical $350 appraisal for a single-family home.
But those same companies are demanding more from appraisers, on top of lenders’ increased requirements.
“Per job, we sometimes we get four or five pages of sentences of restrictions for us to complete,” Moore said. Meanwhile, the cost of doing business — overhead, gas, professional liability insurance — is going up.
“We have to work twice as hard to do the professional job we were doing before — for less money,” Moore said.
Appraisals that used to take two to three hours to perform now take six hours, Moore said.
So why can’t appraisers charge more if they’re getting less money for more work?
Moore said he has tried and asked — but he can’t get appraisal management companies to raise his fee revenue, even if his business has the reasons to justify raises, such as having more credentials. And inflation alone should raise the fee to $375 to $400 for a single-family home appraisal, Moore said, to coincide with rising business insurance premiums and other applicable costs that are going up.
“They continue to charge the going rate from the past and take their cut,” he said.
Appraisers say a majority of the work available comes from appraiser management companies that control the fee structure and the amount paid to appraisers.
“It’s hurt our business significantly,” McEvoy said. “They take 30 to 40 percent of the fee — and if you want to have work that’s what you have to live with.”
Appraisers can’t mark up their service on top of the fee paid to them by appraiser management companies, McEvoy said.
The HVCC has turned appraisers who ran standalone appraisal businesses to vendor suppliers, who service appraisal management companies.
“That’s the only thing we can do now,” Moore said. “It’s not even legal for us to promote ourselves any more. We can’t even do private business anymore.”
The competition for appraisal jobs is another challenge — just in Schenectady alone there are as many as 50 appraisers — and there’s only so many appraisals to be done in the market.
For smaller appraisers in rural areas, the work from appraiser management companies can add up to 10 to 20 jobs per month, several thousands dollars.
Appraiser management companies often contract with banks, which request the majority of appraisals.
There is private work available for individuals, attorneys and others, but establishing a steady clientele takes a lot of time, effort, advertising — something many smaller appraisers can’t afford. And the volume of private work available is small and does not justify the marketing investment.
Empire Appraisal Network partner Tony Mariotti in Saratoga Springs said his top appraiser is leaving the field to get a master’s degree because of where the industry is headed.
Mariotti said the new rules have knocked down the fees made from appraisals back to 1985 levels.
“They’re beating us down feewise,” Mariotti said.
Mariotti said the good part about the new code of conduct is that it keeps mortgage brokers from calling appraisers, diminishing the potential conflicts of interest.
“Our phones don’t ring as much,” Mariotti said.
As they get paid less to do more work, and their profession takes criticism for overvaluing homes during the real estate boom, appraisers are now being assailed by real estate salespeople for slowing down the sales process by setting low home values. Realtors generally represent sellers, and sellers generally want the most money they can get for their home, so when an appraiser says it is worth less than the asking price, and a buyer’s bank then says it will not write a loan for what the seller is asking, the deal may fall through.
But appraisers say they aren’t being conservative with valuations — they are reflecting what’s really going on in the market.
To complicate the matter, some Realtors may add in extra closing costs in hopes of getting a target appraised value, Mariotti said. “They’ve got to understand that they can’t sell a house for more than it’s listed for with concessions worked in,” Mariotti said.
Moore said he has seen the same practice.
“Sometimes it is documented and noted; sometimes it’s not,” Moore said, adding that he notices when there is a discrepancy between the purchase price and the bottom line on the contract.
Bill McEvoy, one of the owners of Appraisal Resources in Schenectady said valuations at times may not sync up with Realtor expectations.
And as a result, sale deals are falling through, he said.
“We probably, realistically, only had two deals go bad. Both of those were sales,” McEvoy. “In each situation, the homes were selling for above market, about 20 percent higher than what the appraiser was able to value them at. The house really just wasn’t worth it.”
Moore said appraisers are professional evaluators of the value of the home who are not involved with the financing of a home purchase. The disconnect for buyers is that appraisal has little to do with how a home is marketed.
“That’s not up to us, so how do they blame us?” Moore said. “They want to blame appraisers for something that appraisers didn’t do. We’re becoming the scapegoats — but we’re really the outside watchdog.”
Moore acknowledges that a home may be marketed for more than it is actually worth in an appraiser’s eyes, with potentially negative results.
“Do we kill deals sometimes? Probably,” Moore said.
Kevin Clancy has worked both sides of the industry — 10 years as an appraiser and now as the owner of the Clancy Real Estate brokerage in Altamont.
Clancy said he is spending more time to keep existing deals afloat, rather than going after new business.
“I’ve had a spate of homes coming in low on appraisals and not getting financing,” Clancy said.
For Clancy, the back-and-forth process comes with being in the business.
“You try to manage expectations as a broker,” Clancy said.
For homebuyers, the reason for the slowdown in the purchase process are less important than the impact on their lives.
Wendy Hover walks by boxes packed in her Albany apartment. She’s waiting to move into a home in Coeyman’s Hollow.
“I’m just getting real anxious here,” she said Wednesday. “I advised my landlord I would be out by the end of this month and now it doesn’t look like that would happen.”
Hover signed a purchase contract at the end of April. By mid-May her inspections were completed. And then, for a month, she waited while there was a back-and-forth period between her lawyer, appraiser, real estate agent and bank.
By June 11, Hover’s mortgage broker said she was clear to close on the home. Now she’s waiting for the seller to clear the title so she can close on the house, she said.
“It does get frustrating, especially dealing with the banks, because they want so much information,” she said. “Sometimes it just seems overwhelming — there’s so much to get done in a short amount of time. But once the paperwork is in then it’s just a waiting game.”
And sometimes both sides do not agree on the way the house is inspected and valuated.
“When the bank appraiser looked at [the house], she didn’t come up with any of the things the home inspector found,” Hover said.
Greater Capital Association of Realtors President Sandra Nardoci said the housing crisis is causing lenders and appraisers alike to be careful.
“I would imagine today that its harder than ever to price, because the prices are still adjusting,” Nardoci said.
For Realtors, it can be a frustrating process as well, because nothing can be done until a mortgage commitment comes from the lender, usually a bank that will co-own the property until the borrower pays off the mortgage. “If the process is delayed then the closing is delayed,” Nardoci said. “If our clients go through the entire process and the house doesn’t appraise out, we’re back to square one. The buyer can walk away.”
And for borrowers looking to cash in on the federal $8,000 tax credit for first-time home buyers, delays in the process may dash all hopes of being able to close on a home in time to get the incentive.
“If you’re not into contract by the end of July, you may not close by the end of November,” Nardoci said.
Among some Realtors and mortgage lenders, the blame for delayed housing sales still rests squarely on the shoulders of appraisers.
Lawrence Yun, chief economist for the National Association of Realtors, said Tuesday he expected an improvement in U.S. housing sales, but poor appraisals are slowing the home-buying process.
“First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory. However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”
Yun also said appraisal problems have been snowballing from across the country with many contracts falling through at the last moment.
“There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”