Despite calls for sweeping reform of appraisal standards and new requirements that have already been implemented, calls for greater appraisal reforms persist. As Congress takes up the next stages of financial reform appraisers are under going greater scrutiny.
Accurate appraisals are fundamental to the successful performance of the financial markets that provide mortgages for real estate financing. New regulations implemented as a result of Dodd-Frank financial reform require third parties to act as a go-between for mortgage lenders and appraisers.
Appraisal management companies control about 85% of the industry in the new era of appraisal reform, but they are hiring appraisers based on the affordability of appraisals and quick turn around times.
“There are many challenges currently facing the appraisal industry, and we see appraisals as one of the most crucial and overlooked aspects of the recovery of the real estate market,” Frank Gregoire, past chair of the National Association of Realtor’s property valuation committee, told the House Financial Services Subcommittee on Insurance, Housing and Community Involvement.
Gregoire, testifying at a hearing before the committee in Washington, D.C. said a number of issues are impacting the “credible valuation of real property,” including appraiser competency, local market knowledge, challenges in accurately estimating market value in stabilizing markets, and the lack of oversight and regulation of appraisal management companies.
A large number of management companies have been criticized for contributing to problems in the industry, which has been blamed by many financial analysts for faulty and even fraudulent appraisals during the real estate bubble. There is even some evidence that management companies often compromise appraiser independence by insisting appraisers include specific comparable sales as part of their appraisal.
A large number of firms are contributing to problems in the housing market as appraisers get bogged down with new regulations. Some firms even require appraisers to accept liability if a mortgage defaults and a claim is made related to the value of the property, which could unfairly pressure appraisers to compromise the value on property and negatively impact the quality of appraisals.