Northland real estate appraisers breathe easier in wake of reformsMinnesota has joined other states in insulating appraisers from pressures to inflate the value of real estate.
By: Peter Passi, Duluth News Tribune
Most of the time, the threat was unspoken, said property appraiser William Spang.
Spang, owner of Spang Appraisal Associates of Duluth, is talking about the implication that appraisers who didn’t deliver favorable numbers didn’t get called back for the next job. Sometimes it was more than an implication.
“Some of the smaller mortgage companies even came right out and suggested that,” Spang said. “You would get more business from me if your appraisal helps this sale go through.”
Economists trace the roots of the current recession to a bubble in real estate prices and overzealous lending. And inflated appraisals played a role in the easy mortgages that turned out to be unwise investments.
Recent reform efforts have focused on insulating the appraisal industry from the pressure to sign off on questionably expensive deals or run the risk of lenders taking their business elsewhere in the future.
Spang and other local appraisers said they didn’t bend to such pressures.
“We won’t work for folks who are going to try to sway us one way or another on an appraisal,” said Sandy Hoff of F.I. Salter Co. in Duluth.
But withstanding the demands of lenders has not always been simple.
Some people in the appraisal industry have faced the prospect of losing major accounts if they would not acquiesce to the wishes of clients, said Wendy Walker, vice president of the North Star Chapter of the Appraisal Institute and a member of the real estate appraisal advisory board for the Minnesota Department of Commerce.
“Other times, an assessor won’t be paid at all, if the valuation is deemed too low,” she said.
Walker cited a study by the October Research Corp., which asked appraisers across the nation how many had been pressured by a client to restate or change a valuation. In 2003, 55 percent said they had. Three years later, in 2006, 90 percent were in the same camp.
“That tells you that there was a need for legislation,” Walker said.
On Aug. 1, Minnesota became the 35th state in the nation to enact an appraiser independence law. The new Minnesota law says that no one “may improperly influence or attempt to improperly influence the development, reporting, result or review of a real estate appraisal.” It also prohibits blacklisting, boycotting, intimidation, coercion or “any other means that impairs, or may impair, the independent judgment of the appraiser.”
Protections for appraisers have been offered at the federal level, as well, with the May 1 implementation of the Home Valuation Code of Conduct by Fannie Mae and Freddie Mac. This provision attempts to buffer appraisers by requiring an independent party to serve as an intermediary between the appraiser and his or her client.
“I think it has improved matters,” said Eric Hillman of Eric Hillman Realty & Appraisal Co. in Duluth. “I feel less pressure now, personally.”
Whereas Hillman typically knew the proposed price point of properties he was appraising in the past, he likes the effect of the new rules.
“I don’t see that number any more,” he said. “I’d rather go out and appraise a property for what it’s worth in the absence of knowing the proposed sales price.”
Hillman said he has always strived to be objective in his work, but he was often uncomfortably aware of clients’ desires simply to see certain sales through in the past.
The new rules have created a boom for appraisal management companies (often called AMCs for short in real estate circles).
If a lender uses an independent AMC to arrange for an appraisal, it’s an easy way to comply with the federal code. The other typical alternative is to set up a means of separation in-house.
Hoff said many local lenders have chosen the latter route and continue to work with established appraisers in the area.
But there has been a surge in the amount of business flowing through AMCs, and this has sometimes been fraught with its own set of difficulties for appraisers.
Spang said AMCs typically expect appraisers to work at a discount, as they work to maximize their own financial take from each appraisal delivered. Unwilling to slash his own fees, Spang said he has landed little work with AMCs.
While AMCs do typically ask appraisers to work at a discount, Hillman said: “The flipside is that once you’re on the list, you can get a pretty good volume of work, and it’s often not as tough to get paid.”
Some AMCs have resorted to looking outside the Duluth market for inexpensive appraisal services.
“I’m aware of people coming into the area from St. Cloud, the Twin Cities and the Iron Range to work for AMCs,” Spang said.
This development concerns Spang.
“It’s critical to have a knowledge of the local market,” he said. “Especially in a place like Duluth.”
Hoff, too, questioned the quality of appraisals performed by outsiders for AMCs.
“If someone can’t find enough work in their own area, and they’re willing to travel a hundred miles or so to work for less of a fee than a local would, you may not get a high quality product in return,” he said.