Dodd-Frank a Win for Independent Fee Appraisers?

Dodd-Frank and Independent Fee Appraisers

Will Independent Fee Appraisers Recover Under HR4173?

The Dodd-Frank Act may help appraisers and mortgage professionals re-gain some of the footing they lost with last year's implementation of the HVCC. Appraisal Ordering (Dodd-Frank - HVCC)

Go To: Appraisal Ordering for Regulatory Compliant Appraisals.

We certainly hope so. 14 months and counting into the HVCC and mortgage professionals and appraisers are struggling. Many appraisers lost their businesses and many others are working like dogs just to keep their heads above water. Appraisals routed through AMCs cost customers more on average and the independent fee appraisers make (significantly) less per report, and frequently have less than 48 hours to turn reports around. Sounds like whining, but is it? This does not lead to the best quality reports, or the most qualified appraisers selected for assignments. And even with the rush on appraisal orders, we've heard that many loans are held up waiting for the reports to come in. Why is this supposed to be good for the industry? Is it good for your business? The best summary we've found on the portions of the Dodd-Frank Act and how they relate to the real estate appraisal industry can be found in Appraisal Insight's excellent article called Here's What You Need to Know about HR 4173, posted the date the bill was signed into law as the Frank-Dodd Wall Street Reform and Consumer Protection Act (HR 4173).

Get Ahead of the Competition

Are you ready to try something different? Can your business survive another year if you don't? Keep reading! We are independent fee appraisers and we want to earn your trust and to earn your business. We don't think your business or your customers should be suffering for the mis-deeds of a few rogue banking industry members.

The HVCC Sunsets in November of 2010

Although the HVCC sunsets in November of this year, we expect that many lending institutions will still route their appraisal orders through some sort of appraisal management company, or vendor management platform. Many of the intentions of the HVCC were reasonable, such as the desire to eliminate pressures on independent fee appraisers to "come in at value" for a transaction (in order to stay on someone's appraiser roster). We've been signing up mortgage professionals this week for the Mercury Network, a vendor management platform (VMP) from a la mode. A la mode, if you're not familiar with the name, is behind a huge percentage of the transactions in the real estate industry across the country. We use a suite of software from them to manage our appraisal orders for Austin & Central Texas Real Estate.

The Mercury Network for Appraisal Management

A la mode's entry into the AMC-alternative appraisal ordering management market is the Mercury Network. This well-crafted appraisal ordering and management platform lets mortgage professionals better manage their own business by giving them pin-point control over the routing of their appraisals and provides real-time status information. Some of the benefits of the Mercury Network include:
  • We pay the fee, on a per-appraisal basis and we don't pass this on to you or your customers. This means that our normal appraisal fee is the same whether you order your appraisal directly from us, or via the Mercury Network. If you send us a lot of business, we can also negotiate a discounted rate.
  • You can add us to your appraiser roster, still keep the appraisers you already know and trust and still maintain regulatory compliance. Give us a try - you will be impressed with our professionalism, turn around times and the quality of our appraisal reports.
  • This service is web-based and uses the latest in work flow technology to keep your orders in order. Have you had any deals go south this year because of appraisal problems?
  • The Mercury Network can help you navigate the mountain of regulatory compliance for each appraisal order: HVCC, FHA, GLBA, Interagency Appraisal and Evaluation Guidelines, FHFA's MISMO XML requirements, etc.

Collateral Valuation Policy

We're also impressed by the article written for Mortgage Banking Magazine by Adam Calvery, President of the Mortgage Solutions Division of a la mode. This article, called Three Legs of the Appraisal Management Stool serves to remind mortgage professionals that "lenders need a common sense approach to collateral valuation policy that embraces three key components: regulatory compliance, quality assurance and fraud management". With all of the fuss about HVCC compliance this last year, some of the other critical aspects of lending have been receiving less attention than necessary.

Is Your Business Ready for the Future?

If you need a certified residential appraiser for Austin & Central Texas Real Estate, you need Appraisal IQ. We can set you up on the Mercury Appraisal Network in as little as 45 minutes by calling (512) 541-2107, or you can call a la mode at 1-800-434-7260. We've had nothing but positive experiences with their client service staff, and we expect that you will receive the same great service, too. What have you got to lose? What have you got to gain? Take control, call Appraisal IQ TODAY at (512) 541-2107.

What is the HVCC?

The HVCC Explained

The Federal Housing Finance Agency announced the HVCC in December of 2008 in a brief news release: FHFA Announces Home Valuation Code of Conduct.

Where did the HVCC Come From?

The HVCC is intended to protect appraiser independence by enacting a figurative "firewall" between appraisers and lenders to prevent lenders from pressuring appraisers into arriving at pre-determined (usually higher) property values. Comprehensive information about the HVCC can be obtained from Freddie Mac. We particularly like the HVCC Fact Sheet. It is the result of an agreement between the New York State Attorney General, Andrew Cuomo, Fannie Mae, Freddie Mac and the Office of Federal Housing Enterprise Oversight (OFHEO). In November of 2007, the New York Attorney General filed a class action lawsuit against First American Corporation and its appraisal management subsidiary, eAppraiseIT. An brief overview of this lawsuit can be found in this article called Washington Mutual Faces Class Action Lawsuit. In a nutshell, the lawsuit accused them of allowing Washington Mutual to pressure appraisers to change appraisal values (usually to a higher value, to support more lucrative loans), as well as to select which appraisers would be used for Washington Mutual's appraisal reports. The original lawsuit is still playing out in the New York courts. An update can be found in the June 8th, 2010, Reuters article entitled, NY court allows Cuomo suit over bogus home appraisals. Ultimately, regulators seized Washington Mutual in September 2008 after it had amassed about $176 billion of home equity, adjustable-rate and subprime home loans on its books. As reported in the NY Times, the seizure of WaMu represents the largest bank failure in American history.

Effective Date of the HVCC

The HVCC became effective on May 1st, 2009 and dramatically changed the face of the appraisal industry in the United States. We are now 14+ months into appraising under the HVCC. Although the intentions of the HVCC were noble, the impact to the real estate industry has been staggering.

The Unintended Consequences of the HVCC

Many, of not most, lenders that are in compliance with the HVCC have maintained compliance by routing their appraisals through Appraisal Management Companies (AMCs). AMCs receive appraisal orders from lenders (including mortgage brokers), and send them out to appraisers that are on their approved appraiser roster. Because AMCs take a haircut of the fee charged to the consumer, an amount that can be as high as 50%, the appraiser that performs the appraisal receives a lower fee than he or she would have before the HVCC. Many experienced appraisers have found that they cannot cover their business expenses on 50% of the fees that they used to receive for the same work. Many experienced appraisers have shuttered their businesses as a result. Many of the appraisers on the AMC rosters are newer, and/or they are willing to drive longer distances to perform an appraisal. This means that many appraisals are being done by appraisers that may not be familiar enough with a local market area to truly understand the subtle differences in the market values in a neighborhood. "Subtle differences" in value can make or break a home purchase, or a refinance. Values that come in artificially high may induce a homeowner to take on more debt than the true value of the property can support. Values that come in artificially low can break a purchase deal, or force a buyer or seller to bring more money to the table to keep the deal together. For the real estate market to work, it depends on market values that are indeed set by the actual market values of the properties that are selling. The best appraisers to determine the market value of a property are the ones who are intimately familiar with a neighborhood or a market area.

Unpredictable Order Volumes

Another unintended consequence is that appraisers now have no way to gauge the volume of business they may do in a month. An AMC that sent them 20 appraisal orders last month may send 2 this month. Pre-HVCC, the appraiser would have had a working professional relationship with the lenders that send him or her business and would have a better idea of the likely monthly volume, with seasonal fluctuations. This makes it difficult for licensed appraisers to take on appraiser trainees, and since trainees are the appraisers of tomorrow, this may lead to a shortage of qualified appraisers a few years from now.

Alternative to Appraisal Ordering Through AMCs

Although we're on the approved roster for dozens of AMCs, we expect more of our business going forward to instead come to us via a la mode's Mercury Network. The Mercury Network provides HVCC appraisal ordering through an easy-to-use interface that provides the necessary communications firewall for appraiser independence.

HVCC Compliance through the Mercury Network

HVCC Compliance is Easier Than You Thought

The requirement for HVCC compliance is changing the way Appraisers, Lenders, Mortgage Brokers, Clients and REALTORS® interact to get the deal done. HVCC Compliance and appraiser independence can be maintained while still permitting Lenders and Mortgage Brokers to work with their preferred local appraisers.

The Mercury Network

The Mercury Network, from a la mode, provides a well-executed appraisal order management solution for Lenders and Mortgage Brokers and eliminates the need for appraisals to be run through AMCs. Best of all, it is FREE.

What is the HVCC?

The HVCC (Home Valuation Code of Conduct) mandates that all lenders separate anyone on the sales side of the business (loan originators — the loan officers and loan processors) from appraisers, or that they put in place "prudent safeguards" to ensure that a commissioned employee can't influence an appraiser in any way.

AMCs Are Not the Answer

In early to mid-2009, many lenders began funneling their appraisal orders through Appraisal Management Companies (AMCs) and all but abandoned the relationships they had cultivated over the years with local appraisers in each area where they did business. By early 2010, however, it had become clear that although AMCs can provide a buffer layer between Lenders and Appraisers, this service frequently comes with a whole host of undesirable problems. Many real estate transactions fell through, to great detriment of the industry (and, of course, to the buyers and sellers). This failure has widely been attributed to AMCs sending appraisals to the cheapest appraiser, or the one that could get it done the fastest, as opposed to sending the orders to the appraisers with demonstrated expertise in a market area or type of dwelling. Out of area appraisers may be cheaper than local experts, which makes them attractive to AMCs, but they rarely know the characteristics of the local market that add (or detract) from the value of property. One key item to note is that although AMCs demonstrably send appraisals to lower-priced appraisers (or to those appraisers who will accept less than their established, or traditional fee), that cost savings is not passed on to the consumer. Consumers (buyers of real estate) are paying the same, or higher fees for appraisals than they were prior to the passing of the HVCC.

Customers Pay Higher Appraisal Fees - Appraisers Earn Less

Yes, you read that right: the Appraisers are getting paid less per appraisal, yet the Consumer is paying more. The fee taken by an AMC can be 50% (or more!) of the amount paid by the consumer for the appraisal.

Better Option for HVCC Compliance?

The Mercury Network IS the Answer: Stay HVCC Compliant and Choose Appraisers with the Market Area Experience that permits Effective, Defensible Valuation of Property The Mercury Network solves this problem (protecting appraisers from undue pressure from lenders to come in at value, among other things) by operating in a "double blind" mode that hides the identity of the appraiser and the lender, making it easy for the two to communicate while still maintaining HVCC compliance. The Mercury Network has tens of thousands of appraisers already registered and ready to accept orders. The appraiser selection system lets you take into account factors like turnaround time, percentage of orders selected, proximity to subject and more for maximum flexibility. For lenders that still allow loan originators to communicate directly with appraisers (which is allowed in many situations) they'll appreciate Mercury Network's audit trail of communications that ensures complete transparency during the entire process. Simply put: It's a solution that meets your needs as a lender no matter what level of separation you decide is prudent. And with Mercury Network, a lender can use the same appraisers they've known and trusted for years. In addition to HVCC compliance, Mercury Network includes numerous time saving features to make the process of managing appraisal orders more efficient. One example is the delivery system used by the appraiser which incorporates a customizable set of review rules that run before the appraiser sends the report, thus increasing loan production staff efficiency with fewer re-sends.

a la mode's Real Estate Services are Everywhere You Want to Be

You Probably Already Depend on a la mode technology. Over 50% of all appraisal reports today come through a la mode in some way. Since 2002, a la mode's servers have managed tens of millions of appraisals for over 200,000 mortgage professionals. That same reliable backbone that has been behind thousands of appraiser's business websites is what's driving Mercury Network today. Of course, if you simply look at the bottom of your appraisal reports, chances are at least half of them have "a la mode" in the footer. So rest assured a la mode which has been producing real estate software since 1986 is no newcomer to the industry.
To learn more about how Mercury Network uses technology to streamline your workflow and allows you to remain HVCC compliant, visit Mercury Network at Or contact a la mode, creators of the Mercury Network, at 1-800-434-7260.

Add Orlando Masis to Your Appraiser Panel

Please remember, when you join the Mercury Network, add Orlando Masis (Appraisal IQ) as one of your local appraisers for Austin and Central Texas. We guarantee that you will be satisfied with the quality of the analysis and the quality of the report - we adhere to the highest of standards, professionally, ethically, and personally.

Approaches to Value

Three Approaches to Value are used by Real Estate Appraisers to Determine the Market Value of Property:

  • The Sales Comparison Approach
  • The Cost Approach
  • The Income Approach

1. The Sales Comparison Approach

The most frequently-used and accepted approach to determining value in real estate appraisal practice is the sales comparison approach. This approach bases its opinion of value on what similar properties (otherwise known as "comparables", or "comps") in the vicinity have sold for recently. These properties are adjusted for time, acreage, size, amenities, etc. as compared to the property that is being appraised. Understanding which (and to what extent) adjustments are reasonable for a given market area (for a given property) relies on the experience of the appraiser. A property characteristic that is highly valued in one neighborhood may not be valued to the same degree in a different area.

2. The Cost Approach

The second approach to determining the value of a property is the cost approach. This approach seeks to determine how much a property would cost to replace (meaning, rebuild) after subtracting accrued depreciation. Accrued depreciation is the reduction in actual value of property over a period of time as a result of wear and tear or obsolescence. The term reproduction cost is used if an exact replica of the original property is produced. The term replacement cost is used if a property is rebuilt with comparable utility, but using current design and construction methods and materials. The cost approach is considered to be more reliable when used on newer construction. The methods and results of the cost approach are considered to be less reliable with older construction. The cost approach is frequently the only approach that is considered to be reliable when appraising special use properties such as commercial/industrial properties or public properties such as libraries, schools or churches which are not traded on the open market.

3. The Income Approach

The third approach to value is called the income approach. When a property generates income for it's owner, that income, or potential for income, helps to substantiate, calculate or identify the market value of the property. Apartment buildings and duplexes are examples of income-producing properties. Appraisers use the income derived from the property as part of the assessment the market value of the property.

Appraisal Inspection Overview

Icon of a book for the Real Estate Appraisal Inspection Process

An Appraisal Inspection Determines Property Size and Condition

An Appraisal Inspection is a visit to the property being appraised to collect information that is used to determine the Market Value of a property in a real estate appraisal report. For a detailed list of the steps of an appraisal, including the appraisal inspection, please read our page on Appraisal Steps: Determining Market Value of Property.

Before the Appraisal Inspection

Prior to the appraisal inspection, the appraiser will research information about the property and the neighborhood. This includes confirming that the property details (lot, block, street address, etc.) are correct, which establishes that the correct property (called the subject property) is being appraised.

The Appraiser Visits the Property

The appraiser will then visit the property to perform the appraisal inspection. This inspection will include the following basic steps:
  1. Determination of the square footage of the property by measuring the exterior dimensions of the home for a single-family residence). The calculated square footage will include all interior, conditioned space and will not include covered patios, balconies or walkways. The square footage of the garage will also be determined and reported, but is not considered to be part of the square footage of the home.
  2. Observation of the condition of the property, to assess if the property is in poor, fair, good or excellent condition. This observation step will include taking photographs to document the condition of the subject property. These photos will include, at a minimum, a street scene (a photograph taken looking down the street, i.e., through the neighborhood), front and rear elevations, and interior pictures of the kitchen, bathrooms, fireplace(s) and living spaces. When the appraiser is assessing the condition of the property, he or she is checking for conditions that could affect the value of the property.
  3. Verification of upgrades that have been provided to the appraiser that may support additional value.
  4. Notation of permanent elements or features that could affect the value of the property. This may include built-in cabinetry, built-in appliances, built-in BBQs, and other permanent items that may not be removed from the property. The fact that an upgrade cost a certain amount does not necessarily mean that the property value will have increased correspondingly.
  5. Notation of the size and condition of the basement, including whether or not the basement, or a portion of the basement has been updated or finished. Although updated basements may affect the value of a property, the basement square footage is not included in the overall square footage reported for the property. Basement value is calculated separately from the main level(s) square footage.
  6. Verification that the property has a furnace and that the furnace appears to be in working condition. Please note that this is not a furnace inspection of the type a home or HVAC inspector would perform. The appraiser needs to determine that the furnace turns on, not that it functions as intended, which is out of the scope of a property appraisal. If the furnace does not appear to be in working order, the appraiser will not that on his report and an additional furnace inspection may be required to confirm the furnace is in good working order prior to the lender making the loan on the property.
  7. Confirmation of the number of rooms contained within the property. A room must have a closet and a window to be counted as a bedroom.

After the Appraisal Inspection

After the appraisal inspection, the appraiser will use this information to compare this property to comparable (similar) properties that have recently sold (or are for sale) in the market area and will analyze the available market data along with the specifics for the inspected property to make his determination of market value in his real estate appraisal report.
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