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April 27th, 2009 10:10 AM by David W. Welch
Look for closings to take a little longer as new appraisal rules come into play beginning May 1. If it were not already hard enough to get a real estate transaction closed the new rules have been put into place to create more separation between the appraiser and the lender. The thought is that lenders put too much pressure on appraisers to come up with the right number to make a deal close. In the twelve years that I have been an agent, I have fortunately had very few appraisal issues, and I have never experienced a lender strong-arming an appraiser into making the appraisal work.
This new rule apparently thinks that each transaction occurs in a vacuum and that buyers and their agents have no idea what is going on in the market. Therefore they must be protected as well as lenders from their own loan officers. Most of the problems that I have heard about have involved loan fraud, and involve virtually everybody on the purchasing side of the transaction. Of course in these cases, if the appraiser is taken out of the equation, the deal falls apart. These cases are few and far between in the grand scheme of the real estate market. Now, because a few broke the law, everyone has to pay. A few bent the rules or stretched the truth, and it is going to cost everyone involved in a real estate transaction going forward. Why not just prosecute the ones that actually abused the system without penalizing the rest.
Why am I making such a big deal out of this? Simply put the extra regulation will add an extra level to the process of obtaining an appraisal. This will either add additional cost to the buyer (or seller since they are frequently asked to pay the buyer's costs), or it will take money out of the appraiser's pockets or both. Since there will be a buffer separating the appraisers from the lender someone has to manage the appraisal ordering process and keep the appraisers at arm's length from the lenders. That layer will involve basically a clearinghouse which will have to be managed and staffed at a cost. If an appraiser wants Fannie Mae or Freddie Mac work, they will need to belong to this clearinghouse. That is likely to cost them some money, but lenders will also have to go through the clearinghouse to order an appraisal which is likely to cost them. That cost will be passed on to the consumer. This is also likely to force some appraisers out of the business, since some portion of their fee will likely go to the clearinghouse. Fewer appraisers will add to the time it takes to have an appraisal completed. So, in a nutshell, look for appraisals to cost more take longer and probably be of a poor quality as the remaining appraisers take on more work for less money.
For a more objective view of this issue read the article by Beth Kassab in the Orlando Sentinel.
David Welch, Real Estate Optimist, @realtyoptimist