Beginning February 15, 2010 mortgage brokers will no longer be able to choose their appraisers, in hopes that appraisers will make more accurate value assessments. Loans that are insured by the Federal Housing Administration will be appraised by third-party appraisal management companies. Brokers, realtors, loan-production staff and anyone who has commission in the deal will no longer be in charge of who their appraisers are.
The reason third party appraisers are being selected is to ensure that an accurate value of a property is provided. A concern is that when commission is involved, appraisers in most cases set a price higher than the actual value of the home in order for higher pay.
Fannie Mae and Freddie Mac had developed a program which separated loan officers from hiring appraisers. This program is working for Fannie Mae and Freddie Mac. This is where the idea originated from. Both of these leading financial institutes are responsible for nine-tenths of new home loan originations.
The National Association of Realtors (NAR) and the Appraisal Institute believe this change will have a negative impact on their business and consumers. Some of the negative aspects will be that appraisers chosen will not have the same experience and knowledge about the neighborhood and might under price the property. The Title/Appraisal Vendor Management Association (TAVMA), the trade association of the real estate settlement services industry, states that the only reason appraisal values might be lower than expected will be a reflection of the market, not because they are not qualified. Another concern is the amount of time it will take for an appraiser to get the job done. An estimated time of more than eight days is expected after the new rules take place.
Independent appraisers might be out of business soon because these management companies are working for very low fees. Experienced appraisers, who have been in business for many years with the highest amount of expertise in the field, will be excluded from the list because banks want to pay the least amount possible for the job. In some cases hiring appraisers that are not familiar with the area the property is in might give it a value up to $100,000 less than what the property is really worth.