The Appraisal Mess

If you're involved in the real estate business or are a buyer or seller right now you probably are well aware of the appraisal mess. If you haven't gotten a taste of this yet, here's what all the fuss is about.

In an effort to make appraisals more objective and keep lenders from twisting the arms of appraisers to get higher values, new rules were rolled out this year from Fannie Mae and Freddie Mac. Instead of a local lender calling a local appraiser, they must now call a clearinghouse who will then subcontract to an appraiser.

While the idea of keeping arms length relationship sounds good, there have been some big hiccups with this new process. Appraisers are coming from far, far away to appraise in neighborhoods they know nothing about. Just today I met an appraiser at a listing I have in Culpeper. The appraiser drove several hours from Maryland to do the appraisal.

This has resulted in wildly inaccurate appraisals. And it's slowed the process down, because there's now an extra layer there.

The other thing an extra layer does is add extra cost. The new clearinghouses want to make money off of the appraisal too. So they raise the fees they charge, increasing the cost of the appraisal to the buyer. But at the same time they've lowered what they pay the actual appraiser. Guess how many of the best appraisers want to work for these clearinghouses?

There's a movement in Congress right now to suspend these rules temporarily until some kind of fix can be found for the more egregious problems. Meanwhile, if you're waiting on an appraisal, whether you're a seller or a buyer, be prepared for bad news! And, remember that if there are issues with the appraisal, there are also potential remedies.