As the quality control manager for national appraisal management company Landmark Network, I deal with myriad escalated valuation matters involving appraisers, loan officers and underwriters, or sometimes a combination of all three. In some cases my advice is sought to help handle an atypical circumstance. In other cases, I need a black and white striped shirt and a whistle as I play referee in a contentious situation between an appraiser and another party involved in the loan transaction. During such difficult times, I try to listen to and fully understand the concerns of both sides, lean on industry regulations and guidelines, and help create a solution that allows all parties to come together toward an effectual median.
In my dealings with difficult situations, I have noticed that it is becoming more frequent for appraisers to overstep their bounds on the basis that they believe certain circumstances will not allow loan approval for the property in question. In certain cases, appraisers have gone so far as to deny writing up reports on the basis that “this property will never get approved.” This is troublesome to me in that eligibility is NOT the responsibility of the appraiser, but that of the underwriter. The appraiser is charged with inspecting the property and deriving value based upon market data, costs and income potentiality, then reporting all of these findings (good, bad or ugly) in accordance with industry regulations and guidelines. Further, a failure to complete an appraisal report based on the presumption in ineligibility specifically defies industry regulatory requirements.
This situation arises most often on HUD-related files where there are issues related to the property’s condition, or other circumstances related to unpermitted modifications to the property or unauthorized uses that go against local zoning ordinances. If the property has conditional deficiencies that prevent compliance with HUD’s minimum property standards and requirements, the appraiser should move forward with a report that is conditioned “subject to repair” of those deficiencies. Or, the appraiser should note that further inspection by a qualified professional will be required if the issue is outside of the expertise of the appraiser (if there are structural issues, for example). Other issues that prevent the appraiser from stating that the property meets HUD’s minimum requirements should be clearly described and left in the hands of the underwriter, who then must address additional requirements of the borrower and make the ultimate determination of property’s eligibility.
A pivotal point that I think is often missed is that the appraisal report is a key component in the determination of eligibility for the loan. As such, even in cases where property characteristics fall far outside the guidelines, it is necessary for the appraiser to report factual information for inclusion in the loan file as part of the basis for denial.
About the Author
John Golden is the National Quality Control Manager for Landmark Network, Inc. He is a former certified residential and FHA appraiser and is currently on HUD's 203k consultant roster.