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When Appraisals Go Wrong William Fall - CEO of William Fall Group & AMC Subsidiary, Valuation Partners

Washington, DC – (MORTGAGE BANKERS ASSOCIATION) – Jun. 6, 2016

Most of us seem to forget Murphy’s Law on a regular basis – but it sure has a home in the mortgage industry, where anything can go wrong, will.

Surely with constantly changing guidelines, new rules and regulations, there are more different ways a real estate sale can go sideways than there are words in this column.

Certainly a borrower’s inability to secure financing to buy a home is the No. 1 reason deals fall apart. But a very close second is problems involving the appraisal. In fact, according to the National Association of Realtors® (NAR), Chicago. More than one out of every five home sales is delayed or canceled before closing because of an appraisal issue.

Just within the appraisal process, there are many different ways things can go wrong. Yet most, if not all, are preventable in some measure by either lenders or appraisers – or both. Three in particular stand out and bear mentioning.

Lack of expertise
In general, the qualifications to become an appraiser are as high as they have ever been. So is lack of expertise really an issue? It is – and one needs only to take a closer look at the realities of today’s appraiser workforce to understand how it is possible.

The average appraiser is in his or her mid-to late 50s, and every year we see fewer and fewer people entering the profession. A growing number of markets are already experiencing severe closing delays of a week or more because the demand for appraisers is far exceeding the supply.

In my opinion, correcting this issue requires creating an alternative path to an appraisal career that includes fewer impediments to entry while maintaining high standards. The current reality is that when a market is experiencing a shortage of appraisers, it increases the risk that a lender will be assigned an appraiser who is working outside his or her market area.

Often an appraiser who lacks local market expertise will err on the side of caution by submitting a lower opinion of value than the negotiated purchase price. This increases the chances of a contract falling apart – in fact, in 2012, 11 percent of Realtors reported that a low appraisal caused sales to be delayed and 15 percent said contracts had to be renegotiated because of a low appraisal.

To counter this risk, some lenders are choosing to work with appraisal companies or partners that will certify an appraiser’s geographic competency before the assignment.

It’s important to point out how important human expertise remains in the appraisal process, in spite of the growing use of technology. Every determination of value is the result of thousands of individual and unique factors. No matter how the data is compiled, interpreting it is the job of an appraisal professional with a deep understanding of the local market and the broad range of influences that drive values in a neighborhood.

An appraiser’s expertise also comes into play when issues involving an appraisal are raised. For example, questions over value typically arise after an appraisal entered into the Fannie Mae’s Collateral Underwriter™ receives a score of 4 or 5, which indicates there is some unexplained issue with the appraiser’s determination of value.

While a high score on Collateral Underwriter does not necessarily mean Fannie Mae will not accept the loan, lenders often require an appraisal review. Questions regarding the high scores can be either explained or corrected by an expert appraiser. But when an expert isn’t available, delays often result.

Timing is everything
Problems can also occur when an appraisal cannot be completed on time within the terms of a sales contract or in compliance with new disclosure requirements under the Truth in Lending Act (TILA) – Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure (TRID) rule. Though appraisers are not directly impacted by these timelines, they certainly feel the pressure of them because the appraisal is one of the most time-consuming parts of the mortgage process.

On the other hand, some lenders are interpreting investor guidelines so strictly that every aspect of the valuation is closely scrutinized. More and more often, appraisers are being asked to either revisit their opinions of value or to reinspect the subject properties to determine whether certain conditions have been repaired as required by the investor.

Federal Housing Administration (FHA) purchase loans can be particularly troublesome, depending on the condition of a property. Because appraisers must rely on Department of Housing and Urban Development (HUD) Handbook 4150.2 to check a long list of health and safety issues when determining a home’s value – including assessing a home’s plumbing and electrical systems – they have practically become home inspectors.

When investigating these issues, many appraisers choose to “play it safe” and call out any issue that might be of concern to the lender. Inevitably, the more repairs that are required, the more likely one or more parties may back out of the sale.

This situation was a driving factor behind my company’s decision to completely re-engineer our process for securing purchase appraisals. We found it necessary to create special purchase assignment teams that even go so far as to review sales contracts and contact listing agents to expedite the review of a subject property. These teams basically track every appraisal from start to finish and make sure each one receives an accelerated quality review prior to delivery.

There are also times when an appraisal can cause trouble after the sale, when it is discovered that an appraiser was not properly certified or insured, or when an appraisal management company (AMC) did not meet state licensing requirements. In spite of such dangers, most AMCs and appraisal companies are still not set up to ensure appraisal compliance and are not checking an appraiser’s certifications or insurance coverage – responsibilities that ultimately fall upon the lender. These problems can not only create closing delays or result in canceled contracts, but they can also result in buybacks for the lender.

More and more, lenders are looking to third parties to not only be an appraisal partner, but to help them meet all appraisal – related requirements and regulations, such as those of the Office of the Comptroller or the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board and state requirements. In particular, they are looking for companies that can validate an appraiser’s requirements before and after assignments, check the appraiser’s licensing status and errors and omissions (E&O) insurance coverage, and ensure that Dodd-Frank Wall Street Reform and Consumer Protection Act appraisal independence requirements are met. Yet in the constantly shifting valuation landscape, very few providers can offer all of these things, increasing the odds that an appraisal will trip up a loan transaction – or worse.

Again, there are many ways that an appraisal can go wrong – too many to cover here. But there are also many ways they can go right. Certainly human expertise in the appraisal process is an irreplaceable ingredient, but we are also fortunate to live in an age where technological innovation is doing wonders to help ensure appraisal quality and compliance. When properly leveraged, and when appraisal partners focus on delivering quality, timeliness and a compliant appraisal process, most appraisal issues can be thwarted before they become serious problems.

William Fall is founder and chief executive officer of William Fall Group, Toledo, Ohio, and its appraisal management company (AMC) subsidiary, Valuation Partners, Sugar Land, Texas. A general Certified Appraiser credentialed in five states, he has taught real estate valuation courses at the university level and served as a supervisory appraiser for numerous apprentice/trainees. He can be reached at


For more than 30 years, employee staff appraisers of The William Fall Group have provided reliable real estate valuation and analysis services to residential and commercial clients. In 2003, Valuation Partners was launched to provide vendor management, conventional and FHA appraisals, appraisal reviews, broker price opinions, and appraiser-assisted products to the mortgage industry on a national scale. Please visit our website at

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