Buckling Down on Appraisers – Increasing the Fairness of Appraisals

Market watch just dropped an article on the new laws coming into effect for the appraisal community.  This is an important issue in the real estate world as appraisers bridge the gap between actual value and what a new buyer wants to pay, be it too low or high.  Traditionally they are constantly pulled in two opposing directions – mortgage companies and buyers want lower appraisals and owners and neighborhood property owners want higher ones.  That divergent spectrum has made room for issues like bribery and coercion. 

To combat this liability in a volatile market, congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act last summer.  It raises the fines on appraisers and their management companies if they violate ethics rules to $10,000 for the first violation and $20,000 for subsequent violations.  As well, mortgage companies are now required to terminate an active deal where violation shave occurred. 

While the above regulations make sense, some points are a little more loose and questionable.  For instance, appraisers will now be paid “reasonable and customary” compensation for the area in which they work.  Not only is that vague, and why wasn’t that the case beforehand?  As well, appraiser are now required to decline a job that they don’t think they will be able to complete appropriately.  How many people are turning down business these days?  It is not a violation to mess something up if it is unintentional, so I do not expect to see a lot of appraisers sitting out a job that may be out of their league.

All said and done, the more accurately we can asses the value of homes the better off everyone will be.  Overvalued homes artificially drive up property values and set up borrowers for soaking under water while undervalued homes bring down a neighborhood’s value and thus each homeowner’s assets.  Regulation is necessary but luckily there is also increased transparency in the real estate market as websites data mine public records are bringing information to everyone.