Tuesday, October 9, 2012

Appraisers: Between a mortgage lender & a hard place

Back in the day, John Dreano belonged to a group of 375,000 licensed certified appraisers in the United States, professionals who analyzed neighborhood housing markets, sales and trends so lenders could decide the right price for a home loan, and buyers and sellers could live the American dream.

Now, Dreano's national real-estate appraisal network has dwindled to 86,000, according to information gathered by the Appraisal Institute, an international membership association of professional real estate appraisers.

Like 37 percent of others in this smaller group, according to the Institute, Dreano has been in the field for 21 years or more (nearly 30 to be exact), and he's seen his fair share of change.

But, he said, a lot of this change has occurred in the past four years - after the nationwide housing market crash, when Congress stepped in with the Dodd-Frank Act to make sure American consumers receive clear, accurate information about shopping for mortgages, credit cards and other financial products.

What's different?
When an appraiser receives a request for an appraisal, it's no longer from a loan officer, said Dreano, who owns Real Appraisals Inc. in Chesapeake with his wife, Kay Dreano.

"It used to be where mortgage companies would order their own appraisals," said Jay Payne, a
certified real-estate appraiser with Sinnen-Green & Associates in Virginia Beach and board of directors' member with Hampton Roads Realtors Association. "We could talk to the loan officers - just to touch base and try to see what's going on with the property.

"Now most of the appraisals are ordered through AMCs, (or) appraisal-management companies," said Payne, chair of HRRA's Appraisers Council.

Most of the big banks, like Bank of America and Wells Fargo, use these companies, he said.
"They're trying to keep it hands off," Payne said. "Conversely, it's hurting us appraisers."
"The industry obviously has changed," said Trey Cooper, managing director of Monarch Home Funding LLC, the mortgage arm of Monarch Bank.

"We have to sign affidavits that say we can't contact the appraiser," Cooper said. "That's a positive change."

But there are long-term ramifications.
The Appraisal Institute, after analyzing the Appraisal Subcommittee National Registry data since 2006, found that the number of appraisers continues to decrease at a rate of about 3 percent per year.

It also found that appraisal firms decreased the number of trainees dramatically over the past two to three years, and that the appraiser population could decrease 25 to 35 percent over the next decade due to age attrition and fewer new entrants.

The Institute also found that appraisers are leaving the profession, among other reasons, "due to challenging business conditions (and) increasing government regulation," a summary of its findings stated.

For Dreano, he worries about the future of his profession. He even goes as far to say that computers, or advanced valuation models, might take over the bottom line of making appraisals.

Regardless of the changes, Dreano said he still does his job the way he always has - ethically, carefully weighing the market neighborhood by neighborhood.
He's also bound to follow regulations set forth by the Uniform Standards of Professional Appraisal Practice, or USPAP, quality control for appraisal analysis and reports in the United States.

Dreano said USPAP is a good minimum starting point for his profession. States require other standards, as well as lending agencies that dictate their own requirements for an appraisal. All appraisers have had to be licensed, for example, for nearly the past 20 years, he said.
On a recent visit to his home in Miars Plantation in Chesapeake, Dreano pulled out a folder containing a home appraisal.

While there is no set format in which appraisals are presented, Dreano pointed out what he does for each of his appraisals.
Dreano said he will put the information from the Multiple Listing Service he used to come up with a home's valuation, so the lender can see "my reasoning for the value and why.
"I try to give them as much as I can," he said.

Dreano looks for comparable properties to the one being sold after his inside and outside inspection of a property.

These properties must be similar in style, condition, quality of construction, upgrades, size and room count, as well as location, according to industry standards
For example, Dreano said, he wouldn't compare a single-story house to a two-story house.
Using his "concentric-circle theory," Dreano then tries to find houses near the one being appraised - searching around and around the home until three are found.
Appraisers also look for homes that have most recently sold in a neighborhood over a certain period of time.

Dreano also takes into consideration the foreclosures, short sales and estate sales in a neighborhood if they're above 25 percent of an area's sales.

"You need to use those in the valuation," he said.
As for upgrades to a house, Dreano said, it all depends on what the market dictates.
You have to look at value and use, Dreano said. For example, granite counters, kitchen upgrades and higher-end flooring may not reflect market value, he said.

"The way that an appraiser determines any adjustment in the appraisals is by value and exchange," Dreano said. "This will determine what the buyers are willing to pay for any differences in the properties."

He advised before doing any home-improvement project getting an appraiser to look at the market your house is in - and whether that particular market has other houses with comparable improvements.

There will be no adjustment to a price if there are no comparable sales with similar features, he said.
"People perceive their house is a castle," Dreano said. "What the appraiser sees are sticks and bricks."
Toni Guagenti,tguagenti@cox.net

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.
First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.