Federal Reserve Bank Of Philadelphia - Appraising Home Purchase Appraisals

[Eli]

Well, I'll take your word for it that I expressed a concern about the independence of appraisers with clients/employers in the past; that is something I'd do right now if the situation warranted it.
I'm not sure I'll agree that such a concern equates to an alignment with LA and its actions; past, current and (based on your prognostications) future. In fact, I can tell you right now: it doesn't.

But, I won't talk about LA int his thread any further because I don't see the relevancy. I acknowledge that won't stop you.

Ok. I remember.

Are you concerned today after years later?

You should be in more ways than I referenced?

I know your nature pretty much.

 

[Eli]

Denis, I can recall the post which has been years ago where you were concerned about conflict between AMCs and appraisers. Weird huh? Your posts are important. Your concerns came to fruition. LA is bearing the fruit.

 

[Eli]

The FRB is not exempt from antitrust law.

 

[Deleted member 130081]

The writer does not understand enough about appraisal to render a credible opinion on the matter IMO, as evidenced by statements made in the first paragraph. Unfortunately, I don’t think the general public understands enough either, so they may be inclined to believe the spew of BS that follows after. Tim is right, appraisers need to set the story straight. The problem is that to do that, we would essentially need to put the entire population into an appraisal class. It’s not something you could just convey in a few sentences. I do think it is a significant problem and we ought to be working to solve it.

The first thing the writer says that discredits their paper before I even read it is that they infer that appraisers coming in at contract price is somehow wrong or diabolical. The writer calls it “information loss” lol. What the writer does not understand, is that the contract price is to many appraisers a relevant piece of data to be considered in the appraisal process. One problem there, is that not all appraisers agree on this practice. That is not the writers fault, however the writer’s failure to acknowledge it sets an inaccurate context for their conclusions. I look at the statistic of 30% coming in at price and wonder why it is not higher, not lower. The 50% above and 50% below thing is silly to say when the fact is that many of us do consider the contract price in our reconciliation. Now, if the writer wants to argue the practice of using the contract as data, so be it, but to ignore or be ignorant of the practice flaws the analysis from the start.

The second thing the writer talks about in the first paragraph that proves their limited understanding is when they say the mortgage appraisal ought to be used as a negotiation tool for the buyer and seller. I think this misconception is wide-spread to the general public and who could blame them really? After all, people do just that all the time. Heck, even a state or two have made it law allowing it. However, the gravity of this is huge. Mortgage appraisals should never be used to satisfy a sales contingency. Why? They are not designed for that use. The expectations of a lender using an appraisal to make a lending decision are not the same as the expectations of a buyer and seller using an appraisal to negotiate the price. The simple explanation of the difference is anecdotal. If a borrower wants to borrow more than 80% of the appraised value, the lender is happy to do that, so long as the borrower purchases an insurance policy, that names the lender as the beneficiary, that is used to cover the top 20% of the appraised value. How many buyers/borrowers even know what PMI is, other than an extra monthly fee they must pay to obtain the loan?

Two things have gummed up the works here. The first is that lenders are now required to forward a copy of the mortgage appraisal to the borrower. The second is that mortgage appraisals are all anyone really knows. I suppose a third would be the failure of appraisers to educate the public about appraisals.

The writer is on to something, that it is true there are institutional influences that affect appraisal quality. However, quality is measured in the context of the intended use, and the writer does not appear to understand that.

AVMs may very well become the go-to standard. Their flaws will unveil themselves eventually and I wonder if we would return to having humans do appraisals or just do away with them altogether? I do know this, it is impossible to program a computer to render a human judgement on quality and physical condition and that each of these are significant to value to a degree that is dangerous to ignore. That is of course why AMVs are wildly inaccurate much of the time. How do you teach a computer that a Monet is beautiful?

 

[hastalavista]

Ok. I remember.

Are you concerned today after years later?

You should be in more ways than I referenced?

I know your nature pretty much.

Since you asked me a direct question, I'll answer it: No, I'm not as concerned today as I was 10-15 years ago. While I never liked HVCC and what followed, I never denied there were unscrupulous brokers and too many malleable appraisers; while not the majority, enough of them to screw the rest of us (and bring on HVCC and what followed).
I measure independence in this context as it relates to the appraisal process. 15-years ago, the first question out of the mouth of a potential client might have been, "Can you hit $X?". Or, "I can only pay you if the loan closes". Those days, for retail residential mortgage assignments, are gone. Despite this paper's conclusion that there is bias for hitting the contract (with the implication that it is, therefore, nefarious... as fcrecords mentions above), it is not the same as it was when the bad brokers were directly engaging the malleable appraisers. Not even close IMNSHO.
You (and others) may have other metrics of "independence" which include fees and turn-times. I don't include those metrics in the appraiser-independence bucket. I put those in the business-model bucket.

That's my answer (no follow-up from me. I'll be happy to continue the conversation in a thread where I think it is relevant to the topic).

 

[Eli]

Since you asked me a direct question, I'll answer it: No, I'm not as concerned today as I was 10-15 years ago. While I never liked HVCC and what followed, I never denied there were unscrupulous brokers and too many malleable appraisers; while not the majority, enough of them to screw the rest of us (and bring on HVCC and what followed).
I measure independence in this context as it relates to the appraisal process. 15-years ago, the first question out of the mouth of a potential client might have been, "Can you hit $X?". Or, "I can only pay you if the loan closes". Those days, for retail residential mortgage assignments, are gone. Despite this paper's conclusion that there is bias for hitting the contract (with the implication that it is, therefore, nefarious... as fcrecords mentions above), it is not the same as it was when the bad brokers were directly engaging the malleable appraisers. Not even close IMNSHO.
You (and others) may have other metrics of "independence" which include fees and turn-times. I don't include those metrics in the appraiser-independence bucket. I put those in the business-model bucket.

That's my answer (no follow-up from me. I'll be happy to continue the conversation in a thread where I think it is relevant to the topic).

I appreciate the sarcasm. (Not)

But, public trust is my focus. Now, consider that in your context.

 

[Eli]

First, get off your pedestal.

Next, forget the sarcasm of "since you ask a direct question, I'll answer". Lol

Points of brokers is different from your post years ago regarding you would hate to see a conflict between AMCs and appraisers. Forget that concern. It's here.

Your other references to market power on price and turn times are public trust related and hence antitrust law related.

 

[Eli]

Factor demonstration reports in and correlate and reconcile that with public trust, antitrust law, fastest and cheapest, market power on price due to an oligopsony, pressure on AMC's, pressure on appraisers., lack of access to some data that is appraiser data.

Louisiana is not playing. The FTC isn't either.

 

[OSU Beavers]

I was just at a property and the site size did not "seem" like it was the same size as reported on public records. Looked into it and found out that the legal did not follow the map. The fenced area actually enclosed area owned by someone else. Try having a ****ing AVM figure that out better than an appraiser with 20+ years of experience boots on the ground.

 

[Mike Kennedy]

"appraisals have an upward bias, there is confirmation bias on purchase related appraisals"

The BULL$eye lives..........