One thing that would be helpful is to enforce and expand a Maryland law passed in response to the appraisal issues of last decade. Specifically, Maryland has a law that applies in Baltimore City only as a pilot, requiring information about all residential appraisals be submitted to the City via the appraisal commission. This, in theory, would help assure more honest appraisals. The trouble is there is no enforcement against those who do not comply. Also, the law should apply statewide.
Robert J. Strupp
Director of Research and Policy
Community Law Center
roberts@communitylaw.org
www.communitylaw.org

For the most part, the appraisers are out of business. Since Cuomo required all Fannie and Freddie loans to go through HVCC, most of the independent appraisers are out of business. Now, we have Appraisal Management Companies, or AMC's. What people don't know is that these AMC's are owned by the banks. The banks have full autonomy over their appraisals. The AMC's will charge the borrower $400+ and give the appraiser a measly $50 to $100 for their report. There is no motivation for an appraiser to do a good job and put the time/effort into their work. I have heard so many horror stories that these appraisers have no clue about the local market and have even heard of some taking photos of the wrong house. Not only is the report of poor quality, but the process is not too quick either. As far as fraud is concerned, I don't see that being much of an issue since the banks own the AMC's now. I don't see why an appraiser of the AMC would essentially ripoff their own employer. Their appraiser license is still on the line. The quality may be poor, but I don't see their being a problem with the intent to commit fraud.

A BPO on the other hand gives the real estate company the opportunity to give their opinion of value without risk of losing their license. Since there is no license obtained other than a real estate broker license, they really don't have much to lose from giving a lower figure other than the bank's business, which most likely will cost them in the long run. Since these real estate broker's are in the business of selling home's, I think they are more likely to low ball the BPO report as a motivation to receive a quick sale and possible resale (essentially 2 commissions) on one home. Real estate brokers are going to be more motivated due to the commissions received and money to be made. A low figure BPO will not put them at business or risk losing their license. An appraiser has no motivation to low ball as they are not a party to the transaction on a sale, while the agents are. Also, the appraisers are less likely to have investors who are able to put up the cash as real estate agents deal with buyers on a daily basis.

I think the only way an appraiser will be motivated to low ball the appraisal is if the realtor gives the appraiser a kickback. Unfortunately, that is also a RESPA Violation and both could go to jail or severely fined. Appraisals are now completed independent from real estate agents and mortgage brokers. The appraisers are not even suppose to talk to each other.

With that said, the BPO report is more likely to be low balled than an appraisal. However, it is also possible that a BPO could come in higher than the appraisal. In terms of fraud, a real estate broker in my opinion is more likely to motivated due to money and they most certainly have the means to make it happen while an appraiser does not. An appraiser can't sell a house and get the commission. The only way is if both are involved and I don't see that happening.

We should be able to trust the market to fix this. What if several real estate agents offered a BPO, essentially a bid, and the bank chose the one that they liked, presumably the highest? Competition could win the day as, if you bid too low, you won't get the deal, and if you bid too high, you'll have it on the market forever.

Personally, I'm in favor of appraisers arriving at value. They use a great deal of information, recently sold comps, adjustments for pros and cons, but I think that a BPO, properly structured, could work just as well.

@JohnScottSmith

Great piece. They really should make a clear distinction between what good real estate professionals do when they buy a home fix it up and resell it for a profit due to good, honest value adding efforts versus someone who commits fraud to deceive and or cheat a buyer and or seller. We really feel like we serve our clients and communities by doing very good work to convert a lonely house back into a home for a family, by turning an eyesore for a neighborhood into the jewel of the neighborhood.

I think that flopping must be handled via a RESPA Violation when kickbacks are involved. And as far as Vicki Cox stating, "There is no evidence to support the assertion that appraisers are more or less likely to engage in mortgage fraud than real estate agents", that's sort of like saying "There is no evidence to support the assertion Weapons Of Mass Destruction were not in Iraq and just moved before we invaded." It's called proving the negative and is a debate tactic used to counter a proving the positive argument. The bottom line is that it's going on, period.

The key is who the broker or appraiser works for. If the seller, who wants to sell his house on a short-sale, picks the broker, they're going to want to make their client happy. If the bank has a contract with a broker, the broker will have a fiduciary duty to bring all offers to the bank and advise them appropriately. If the house subsequently sells for significantly more, the bank should hire someone independent to give them an opinion of value. If the broker acted in bad faith, the lender could sue.

I don't think Frank Rizzo has much of an idea what he is talking about. His post is full of inaccuracies.

1.) Appraisers are not out of business. There are plenty of people trying to get into the appraisal business.

Appraisers are just hired by the Apprasial Management companies and not directly by a lender / loan officer. Also Appraisers charge their normal rate for their services. Any notion that appraisers now make only $50-$100 per appraisal is complete nonsense

2.) A Bpo done by a realtor is always done by a realtor NOT involved in the transaction at all.

Also a Bpo is never, never the only information obtained about the market value of a property. Some banks order 2 Bpo's and a full appraisal before proceeding in a short sale.

Darrell S Pope
Area Realtor.

Darrell you are mistaken. Many appraisers are out of business due to HVCC. The appraisers who developed business relationships with brokers and lenders are no more. The lenders own the AMC's and use them for their own deals. They will not accept an appraisal from another AMC. Ask any broker or correspondent lender if their investors will take their previous HVCC appraisal when they have to change investors. They will tell you they need a new one. Also, it is the AMC that collects the appraisal fee up front from the borrower. The AMC selects the appraiser that will complete the report for the lowest compensation. The lowest bidder wins so the AMC makes more profit. That appraisal fee is then disbursed to the appraiser who did the report. The appraisal fee paid to the actual appraiser is usually no more than $100. I'm sure some areas are higher, but appraisers are making 30% to 40% of what they were making before and are no longer in control of assignments. They are solely dependent on the AMC's for business. FHA will soon be implementing a similar approach.

Jamie I must throw my 2 cents into this conversation.

Misrepresentation of the facts in some cases outright fraud is what got us into this current real estate mess. Restoring complete confidence in the home purchasing process including financing and the securitization market is of paramount important for any recovery in the housing market.

Others have stated some important points on this posting. Robert's expansion and enforcement of current Maryland appraisal regulations, Frank's money trail and Justin's the value of a professional Realtor.

Establishing the true current market value of a home being sold is one of the cornerstones of this process.

Appraisers have been assigned that duty because of their independence to the transaction they are fee based not a commission on sales price.

Today's requirements for a Certified Residential appraiser requires Associate degree or higher, 200 hours of approved education, 2500 hours of field work over 24 months plus testing. This compares with 60 hours of approved education and a state test to become a Realtor. If you were purchasing or selling a home which one do you want giving you the true value of the property?

Allowing a BPO is only opening up the process again to possible fraud, delaying trust in the real estate process.

Remember there is a borrower with the lender that must make up the short fall once the home is sold. How long will it take before one of those borrowers has a Broker in courts to challenge their BPO.

Realtors need to go the way of travel agents...only very few needed, with searching robust online real estate sites being the new paradigm.

What a load of Bull. I don’t think this passes the smell test. The appraiser’s lobby wants more short-sale/REO valuations swung their way. Can I blame them? No. But don’t complain under the guise of increased fraud.

Roland, there is no doubt the appraisers want more business from the banks. That is what they are trained to do, determine the true unbiased, independent market value of a property that sold or going to be sold.

It can also be said Realtors want more business from the bank's REO departments. Many Realtors have made this REO selling the main source of their income instead of their traditional client base.

My point of possible fraud, flopping, is in a system that allows the group, Realtors, responsible for selling the home also being able to determine the current market value, BPO.

Who can determine at this point the amount if any flopping that will occur with a BPO. However just the perception by the current homeowner facing a short sell may bring a lawsuit based on a low BPO. Once we have a lawsuit or lawsuits then we have the press airing more real estate dirty laundry in the public arena.

As I stated earlier the entire real estate industry including financing and the securitization market needs to stop any perception of possible fraud or wrong doing.

Just to be clear I'm not an appraiser nor a Realtor.

This must stop Hud new section 32
V.S.
I was under the existing 5(H) homeownership program 906.14 there were three options to purchase Hud Program under the 5(H) homeownership program

Is the flipping? Documents do not look legal. The Judge play a part in covering up HUD'S wrong doing.

The Hud -1 form should it show the type of loans,application number?

If the Hud I form shows the house was sold improved at arms length should it read the same under real property when the person who purchased the property?

Should there every be 2 Addendums,2 Deeds and 2 Contract of sales with two difference signtures?

Should a legal Addendum I and Contract of Sale have a letter head?

On a property that is selling for 3,5000 and the buyer have a loan for 5,000.00 plus 500.00 of their owner money should the buyer have to put up 11,550.00 for a downpayment for a 35,000.00 property.

Loans not approved and overage of loans more that what the property apprasiers for. All loans are on the A&B Schedule that is recorded at the land of records that the buyer has to payback the loans at the time of resell.

The judge was informed of the finding and over looked all the items that I have listed as if she is trying to cover up Hud,s wrong doing.

A silent second mortage was taking out of the stellement based on the number of years the buyer resided in the property the buyer was in the for 13 years, 5 years as a renter and 8 years as a homeowner . The buyer was suded for 40000.00 for the net proceeds and the primissory note was for 9500.00 whcih was paid at the time of settlement during that time the balance due on the silent second morgage was1,500.00. the addendum was base on the silent second morgage of 9,500.00.

I have a situation , I'm representing the Buyer in a transaction and they getting FHA loan, unfortunately the loan fell through and house was subject of FHA Flipping rules.

Listing agent didn't disclose the house been sold 5 days before ratification of with my Buyers. Is the listing agent has to disclose the fact by law or not???

Megan, that's really frustrating. I'm afraid I don't know the answer -- it's a question for a real estate attorney. (Perhaps your brokerage firm has someone in-house you could ask?)

Law aside, common sense would suggest that a listing agent ought to disclose if an FHA buyer would not be able to purchase the house until a certain date.

Memo to Darwin Rules,

With logic like yours, the world would have a bunch of wannabe knowitalls such as yourself thinking they can easily buy and sell homes with little to know knowledge that the average or in your case below average consumer has.

You have no idea how many clients can barely understand a simple contract let alone the legalities involved in a Real Estate transaction. Good thing Government doesn't think like an ego maniac caveman such as yourself.

Yes-- Flipping benefits only the Flipper! Ethics??? Read on

Flipping destroys neighborhoods. Flippers buy properties at a low cost, make little to the property and sell the property at a high price. Normally this happens in low income neighborhoods or distressed areas. Illegal flipping typically consists of some type of fraud. Typically the investor, appraiser and mortgage broker are involved. In the end the buyer pays too much for the house. The impact of illegal property flipping can lead to foreclosures and the abandonment of properties. This leads to the decline of the neighborhood. The impact that these practices have on neighborhoods is no different than other crimes. Houses end up abandoned, and the City has to spend more money and resources to respond to other crimes associated with the declining neighborhood. Over time, illegal flipping contributes to an increasing pattern of property value decline.

Great debate here, but I must say Frank Rizzo is out of touch with reality when making such broad generalizations. Personally, HVCC hasn't hurt my business -- nor the relationships or appraiser fees. The trick is to have a short list of appraisers you know and trust. The national lenders couldn't do this. My company is a correspondent lender. I've had no trouble switching investors when necessary. And they receive $350 - $375 per appraisal. HVCC has caused a lot of damage and will now be "sunsetted" per the latest govt financial reform regulations, right? But, that's another huge socialistic can of worms.

There are frauds out there and there are some legitimate companies/investors flipping homes successfully. Personally I haven't dealt with them, but we found out pretty quickly when we do a background check on who owned the property previously and how long they owned it and with google, it is pretty easy to find someone and what they do by just their name.

Would you say that President Obama's policies are actually encouraging this practise? I'm thinking particularly about the short sale incentive program.