Isn't the real problem not fluctuating markets and variable rebuild status but the way appraisers work--pick three houses in whatever you decide is a comparabale area and that you think are comparable houses and average them out. It a guesstimate at best and leaves appraisers, who are not licensed professionals, free to hit the mark the prospective lender wants so that they can earn more business. I suspect in the current environment that means that at times is good to find a house value not to support the sale price because it shows you are a "tough" appraiser the bank can potentially point to as evidence it is being responsible in its lending. It's still a guess about what somebody else would pay for it based on houses that aren't the same and that sold to other people.

I bought a house in Canton this past November for 350,000. First appraisal, 368,000 - underwriter wouldn't accept that and asked for a second appraisal. Second appraisal, 325,000 - underwriter dropped me. Got a new lender - third appraisal, 380,000. I have no logical explanation for this. All I know is that it was terribly frustrating and I still have no idea if my house is worth what I paid for it.

The HVCC has given all of the power of a home's value to the appraiser, and at the same time made it increasingly difficult to make sure someone who knows the area and the market around a particular home is the one appraising the home.

I understand the government's intent in putting a "middleman" between the banks and appraisers. I'm sure - well, I know - there was collusion and improprities in the "old" system. A broker could use "Jim Jones" for all his appraisals, and Jim became beholden to that bank and if the bank says it needs to appraise for $300k, then Jim may have felt pressured to do that.

The issue now is that no one has any power on who the appraiser is. I've had appraisers for homes in Forest Hill that are from Annapolis. Sure, that appraiser can look up comps on MRIS and see recent sales, but you can't replace someone who has worked the market, has actually been inside the comp homes and knows that one community can be more "desirable" than another one right across the street. And HVCC has taken that away.

Appraisers are licensed professionals. Anyone who performs a real estate appraisal and is not licensed by the state he or she works in cannot do work for a bank or other federally regulated entity. The HVCC has driven many experienced appraisers out of the business, including myself. Quite a few of the appraisers who work for the management companies are inexperienced or crooked as evidenced by the three appraisals noted. These appraisal management companies will pressure appraisers to "attain" a value more than the banks or brokers would even think about. The HVCC is typical of the knee jerk reactions to a problem that made things worse instead of solving the problem.

The main problem under the Home Valuation Code of Conduct is that there are no uniform standards for appraiser experience, competence or compensation. Under the recently passed FinReg many of these issues will be corrected. The new law requires that appraisers have actual local experience regarding the subject property and that they actually receive a significant portion of the fee charged by the lender or the appraisal management company. In the past a lender might charge $400 for the appraiser and then assign the work to a novice appraiser, with no actual experience in the particular area, but is willing to do the job for $175. The difference is retained by the appraisal management company as their fee for making the assignment and supervising the work. In some cases the lender has an ownership interest in the appraisal management company and the "markup" comes back to the lender as additional profit on the loan. The original draft of the Home Valuation Code of Conduct prohibited lender ownership of Appraisal Management Companies but the banks lobbied to have it removed.

I disagree with the all three of the posts above. First of all, appraisers ARE licensed. You can't get an appraisal done by an unlicensed appraiser. It won't happen. It is possible that you might have an "Apprentice" go to the home and the licensed appraiser signs off on it.

Second, the reason why the values have such a wide range is because the AMC (Appraisal Management Company) assigns an appraiser who often is not from that area. They don't know the market. And yes, experience is often a factor as well. Another factor that affects quality is that these appraisers are paid peanuts. The AMC charges $400+ for the appraisal and pays out a small fee to the appraiser. The majority of quality and experienced appraisers won't accept $100 for the work.

Another thing to remember is that the banks own the AMC's. This means they work for the bank. These are not independent appraisers.

Also, even if the HVCC is due to "sunset", that will not prevent the banks from continuing to use their own AMC in the future. All it does is say that it won't be a requirement. Only time will tell, but I will bet anything you want that the banks will still use them anyway.

One last thing, if you put a contract in and the appraisal comes in too low, that should be a warning to you (the buyer and seller) that the purchase price is too high. That means you should back out of the deal and re-negotiate for a lower price. You should use that to your advantage instead of against you. Many of the banks won't allow you to get another appraisal done even if you pay for it. Switching lenders is really the only way. So, while you may have it appraised several times, I am almost certain that your broker has already tried switching the lender numerous times as other lenders often reject other AMC's appraisals.

I am wrong on the licensing issue as noted. See http://www.dllr.state.md.us/license/reahi/reahireq.shtml

That does not alter that even an experienced appraiser is guessing what a house should sell for based on properties that are approximately comparable and that their motive is to serve the lender who picked them so they can get more work. What the lender wants may vary (to close the loan, to show that it doesn't close all loans)--it's the lender's money so I guess they can do this. However, for the seller and buyer, I wouldn't take an appraisal to be more than a good (and questionably motivated) guess. Which is why it can vary.

But what about the repairs that are required? When you get an inspection you learn what needs to be repaired to make the house actually livable and a good estimate on cost of what needs to be repaired ie. messed up structure, missing appliances, holes in the ceiling, code restrictions to railings, but when you get an appraisal done, the appraiser doesn't know the codes and what the appraisal says is required for the FHA loan isn't correct. I had the three appraisals done and the work required for all three wasn't necessary as to compaired to what the inspector said. What the inspector said was way more important than what the appraiser said and so I wasted money fixing what was on the appraisal instead of the real problems to what was on the inspection report. All the appraisals I had were by different companies by different people and had different amounts and different repairs. And I have to sink in at least $10grand into the house before I can even move in.
The seller wouldn't negotiate the price and said the second appraisal was no good and if I backed out the house would go back on the market at the price it was taken off.
Yeah it is still rigged.

pigtown, sorry to hear about your experience. If I were you, I would have walked if the seller was not willing to renegotiate or make repairs. Let them put it back on the market so it can sit. This is still a buyers market. You are in control. Your real estate agent should have put in the contract that the sale is contingent upon the appraisal AND inspection, along with final approval for financing so you don't lose your deposit.

I received some funds from the lender and seller to fix some of the repairs, but while I was waiting to settle someone decided they wanted the Copper out of my HVAC unit, now I have to replace that too. The problem with the seller not budging is that the Seller was HUD, it was a city owned property.
Even with the money I have to put in to the place, the place is a good deal. There were no permits on the property either from the previous owner, but being a city owned house I can't get dinged, but as I was doing repairs I found out the light switches were wired backwards and some aren't grounded.

I guess that explains it then. Did you check to see if the property was 203k eligible so you could add the cost of repairs to the purchase and finance it instead of paying out of pocket?

Frank makes a good point on HVCC's problems, but wide swings in valuations have always been common in Bmore City sub 100k. There are wide variations in the conditions of these homes and appraising some of them requires more of a home inspector/general contractor background than what is traditionally required of an appraiser.

What I'd be curious to hear from the OP is how difficult or agreeable the city is to work on these today? Last I checked they wanted gold-plated financial statements to assure the buyer could complete a rehab. It creates a real catch-22 as those with gold-plated financials rarely look to invest in sub 100k Bmore City.

Did you know that MD state law requires residential appraisers in Baltimore City to quarterly report their appraisals! This should be required statewide, but I wonder if the appraisals discussed above were reported? I know that many appraisers are not complying!

https://www.dllr.state.md.us/cgi-bin/ElectronicLicensing/REA/REA_application.cgi?calling_app=REA::REAresidential1

Huh! I didn't know that, Robert. Was that rule put into place because of the FHA flipping problems of the late '90s and early '00s?

Jamie,
Yes indeed, this statute was a result of 90's-00's issues with fraud, etc. Baltimore City was to be a "pilot" & I've tried to get the City, MD Appraisal Institute,& DLLR to look at this because there appears to be a lack of knowledge, lack of compliance and lack of enforcement!

The house didn't qualify for the 203k loan because according the appraisal the work needed to make the house FHA insurable was less than $5K and $5K is the minimum required for the smaller of the 203K loans.

After the implementation of HVCC things have really gotten crazy with appraisals. My take is that the management companies have taken over and they are utilizing the cheapest appraisers that they can find which results in less experienced appraisers. Thus, the values are all over the board. It may be worth getting more than one appraisal if you can afford it

The good thing about getting multiple appraisals is with the multiple lower house values it will be much easier to get your taxes for BCity lowered if you were to appeal them. Then the problem is it takes longer to get the value back up. I've thought about appealing the taxes to get them lowered instead of paying $3000 a year but then it will take me a number of years to recoup the loss in home value.

Pigtown,

Go ahead and appeal. Save the money NOW while you still can. Your home is reassessed every three years anyway. It's either pay your high taxes until the next cycle or save some money and have your home reassessed and save money later. Either way, you should get it done. You will have to file a Petition by the end of the year so your hearing is scheduled after January 1st. You would get your new assessment for 2011 and 2012 if your home won't be reassessed before then.