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Appraisal Woes? Help On The Way Soon

Posted by Benjamin Dona on Sunday, July 18th, 2010 at 9:14pm.

New FNMA Appraisal GuidelinesIn this type of market, we have all been there; a property under contract appraises for less than the purchase amount and the sale falls apart. Unfortunately, more often than you might think, it is not solely the appraisers fault. Many times the fault lies with the mortgage lender. And, believe it or not, the practice of lenders cutting value off the appraisal has been going on for years. It's just that during a normal market times, the practice isn't as noticeable as it is today.

How can this be? Well, lenders are now really fearful that the government agencies like Fannie Mae, Freddie Mac and FHA/VA (all of which have policies that will punish them if a home is overvalued) could force them to buy back mortgages if there is any suggestion of an inflated appraised property value. In the lender's eyes, it's better to be safe than sorry. The bottom line is they simply put the property in question through a valuation model program and if there is a question, their underwriters simply reduce the appraiser's value estimate. The problem is, these types of programs are less than reliable and typically cause more harm than good.

Hearing the ground swell of complaints that have arisen across the country, Fannie Mae is instituting a new rule that will become effective on September, 1. As of that date, lenders selling their loans to Fannie Mae will no longer be able to reduce the appraiser's value estimate. In guidance issued June 30, Fannie Mae told its participating lenders that they must contact the appraiser to "resolve"  valuation issues. And, if that process doesn't work out, then the lender must order a second appraisal.

Fannie Mae's guidance also attempts to deal with other appraiser complaints, such as the use of inexperienced appraisers who travel to unfamiliar territories by clarifying its "Appraiser Selection" standards. Specifically, appraisers should be experienced and "have the requisite knowledge"  about the local market conditions including having access to local data resources. In addition, the guidance also said that having an "experienced appraiser"  trumps Appraisal Management Company (AMC's) fees and turnaround times, a clear slap in the face of such company's appraisal bidding criteria.

Regarding Fannie Mae's announced rule changes, Freddie Mac said they're "looking at it."  And, FHA/VA is also currently considering making a second appraisal the norm when there are questions about a property's value.

Let's hope both jump on this bandwagon in short order.

Update: Both Freddie Mac and FHA/VA have also adopted this rule change!

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About the Author

Gulf Coast Associates, RealtorsBenjamin Dona is the Broker and Owner of Gulf Coast Associates, Realtors in Bonita Springs, Florida. He holds two advanced degrees, an MBA and an MA, and has an extensive background in both business and marketing. In 1998, he founded Gulf Coast Associates, and formed a group of like-minded Realtor® associates dedicated to offering professional Southwest Florida real estate services by concentrating on information, education and the use of leading edge technologies. He also is a recognized expert on the "Net," a much-quoted and read blog author, and a contributor to both national and international news outlets. Benjamin is a member of the National Association of Realtors, the Florida Association of Realtors, and numerous local real estate boards throughout Southwest Florida.

Contact Benjamin Dona at 239-948-3955


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5 Responses to "Appraisal Woes? Help On The Way Soon"

Marc in Miami wrote:
This is great news. Let's just keep our fingers crossed that Freddie Mac and the FHA follow suit...

Posted on Monday, July 19th, 2010 at 1:02pm.

Sam in Austin wrote:
Let's hope the "Appraiser Selection" standards does get cleaned up. Having appraisers in areas they are not familiar with is wrong.

Posted on Wednesday, July 21st, 2010 at 5:14pm.

Benjamin wrote:
Couldn't agree more with you guys.

Posted on Wednesday, July 21st, 2010 at 8:02pm.

Kermit in Minnesota wrote:
That would be about time! I can't begin to tell you how many deals are going south in the MInneapolis real estate market because of appraisal issues. We are seeing appraisers from Duluth (where houses are dirt cheap) coming to upscale Twin Cities suburbs to do appraisals. What a disaster!

Posted on Friday, July 23rd, 2010 at 2:15am.

Aprilette wrote:
Hey this is pretty interesting news! I totally agree that using appraisers who are not familiar with a certain location should be discouraged.

Posted on Friday, July 23rd, 2010 at 11:28pm.



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