Have you heard of hybrid or bifurcated appraisals offered by Lenders/Fannie Mae? In their infinite wisdom they are moving fast forward with these new appraisal products and who suffers the most? Buyers, Sellers, Realtors and Appraisers.
Hybrid or Bifurcated Appraisals:
When someone else goes to the property, measures the home, takes photos, completes the inspection inside and out, drives by the neighborhood and comparable sales and then sends that information to the Appraiser. The Appraiser never leaves their desk and are expected to complete the report based upon this data and determines the market value for the property in question.
So what problems do you see here?
They are numerous and serious.
- Someone else who is not trained to look for things that Appraisers look for in and around the home as well as the neighborhood will now be "banging" these inspections out quickly and things will be missed. When the Appraiser gets that information, they could UNDER VALUE the home due to lack of field notes, good photos and a sketch that is done incorrectly.
- If the person is an actual inspector and IF they do the kind of job an inspector is expected to do, they could actually kill deals because they will be wearing their inspector hat and finding more issues than an Appraiser, whose expertise is valuation, not inspections. Most of the time the Appraiser and Lender never see the inspection...That is a topic for another newsletter!
- No one knows how to accurately measure a home per ANSI Regulations (American National Standards Institute) other than an Appraiser. The total square footage of a home is the most important thing to get right when determining value. So if this number is off by even 50 feet, this is NOT a good thing for a seller. Also how can an Appraiser KNOW how the floor plan flows without "walking" it for themselves. Sketches do not catch the "feel of the home" in most cases. Functionality is a concern in the appraisal process.
- If the "Inspector" is a Realtor, will they provide all the pertinent information that is needed to the Appraiser so that they can produce a credible report? More importantly, do Realtors really want to take on this task?
- Since the Appraiser NEVER sees the home and only uses photos and field notes provided by the "inspector" this puts them at greater liability risk as they are producing a valuation number by relying on third party information for some of the most important facets of the job. They are going to have to cover themselves in the report to be protected and guess what that means? More conservative valuations as they do not want to stick their necks out further than they have to as the information they receive could be faulty or incomplete.
- Lenders want to pay Appraisers about $150.00 or less for these type of reports and the inspector will likely get somewhere in the $150.00 to $200.00 price range. So they are paying the Appraiser the lowest fee to provide the MOST valuable information and are at the greatest liability risk. If someone does not like the appraisal results they come to the Appraiser, not the "inspector". The inspectors have no real liability here as they are not placing a value on the home.
- Realtors: You may have deals fall apart, incorrect valuations for your buyers and sellers. Buyers will be lulled into a false sense of security that they are getting a REAL Appraisal when they are not! The appraisal process is supposed to ensure public trust in the process as we are the only unbiased party in the transaction with NO financial gains tied to an outcome. Yet Fannie Mae who is trying to SAVE money on the appraisal, came up with this new approach to valuation. I have visions of 2008-2012 in my head!
- Sellers: They may think that a REAL Appraiser is coming into their home, but that will not be the case. The inspectors will likely not tell the sellers that they are NOT Appraisers when they do the inspection. The inspectors need to advise the seller that they are NOT the Appraiser and the seller should ask that person for a business card. At that point the seller should say "I expect an Appraiser to appraise my home and that is what I want. Please tell the Lender to send one to my home". The seller has every right to get what they expect and nothing less!
Advise your clients to insist on FULL, non-hybrid appraisals. We are headed toward a correction/slow down in the market for 2020 by all financial accounts. The last thing we need is a new process muddying the waters just to save a quick buck for the lenders on the Appraisals. The cost of the appraisal is a drop in the bucket to ensure that the buyer is not paying too much and the lender is not over lending. Somehow everyone seems to forget this fact in the process to get loans closed and bringing home commissions.
As for turn time with these reports, lenders are not going to get them any sooner. Now you have 2 parties to deal with, the inspector and the Appraiser. So if anything the process will take longer because if the Appraiser needs clarification from the inspector, who knows how long that will take for them to get back to the Appraiser.
WE ALL NEED TO STAND UP FOR THE CONSUMER HERE!
Please share and
discuss during your meetings
as this can backfire and result in another mortgage crisis like we saw from 2008-2012. We surely do not want to repeat that history.
Thanks for reading. We wish you much success in your business as always. We hope 2019 is your best year yet and we thank you for all of your referrals!
