SHOULD you care about how much money your appraiser makes?
That question is at the heart of a dispute in the mortgage industry, pitting independent appraisers against established banks, which in recent years have built vast networks of affiliated appraisers, through appraisal management companies.
Appraisers who work on behalf of these companies typically receive less pay than those who do not. Some appraisers say the lower fees mean consumers are less likely to get a high-quality appraisal, which could jeopardize their loans.
It is a claim with which banks strenuously disagree. “Obviously, it’s in a lender’s best interest to have the most accurate appraisal possible,” said Terry Francisco, a spokesman for Bank of America, “and it’s in the homeowner’s best interest, too.”
Borrowers, though, pay the same amount no matter who orders or conducts an appraisal. In the New York region, for example, an appraisal of a single-family home will cost around $300 to $500. But independent appraisers say that when a big bank orders an appraisal, it typically pays the appraiser about $200 of that fee and pockets the rest.
Mr. Francisco of Bank of America would not disclose the compensation of the bank’s affiliated appraisers. The bank employs 700 staff appraisers and relies on another 10,000 independent appraisers to do work on its behalf. All of the appraisers, Mr. Francisco said, are licensed and certified, and their work is inspected to ensure they comply with professional standards.
But that may not be a sufficient proxy for local market knowledge, said David Adamo, the chief executive of Luxury Mortgage in Stamford, Conn. Over the last several months, he said, he has seen appraisal management companies offer the work to low bidders and hire appraisers “from two counties away from the subject property.”
“They’re in a county they’re not familiar with, so they’ll use comparable sales from inferior or superior markets than the one the subject property is located in, just because it’s in the same town limit,” he said.
In some cases, he said, a home’s true market value might be underestimated. “And that prevents homeowners from refinancing, and saving money in today’s low interest rate environment,” Mr. Adamo said.
Zachary Kimmel, an owner of William Paul Appraisals in Tarrytown, N.Y., performs appraisals for big banks and smaller lenders and brokers who do not use appraisal management companies. He would not disclose how much he is paid, but he said appraisal management companies generally pay $200 per assignment. “Most of the mortgage work now goes through the big banks and appraisal management companies,” he said, “so now the lion’s share of our work is this cut-rate kind of thing.”
But appraisals have become more complex, Mr. Kimmel said, given the declining housing market and new requirements from Fannie Mae and Freddie Mac, the government agencies that buy mortgages from lenders. He said the increased work and the decreasing compensation could eventually affect the quality of appraisals industrywide.
Broad efforts, meanwhile, are being made to protect homeowners during the appraisal process.
As a result of an agreement last year involving Fannie Mae, Freddie Mac and New York’s attorney general, Andrew M. Cuomo, lenders selling loans to Fannie and Freddie must follow stricter guidelines starting in May to ensure that people involved in processing loans do not also choose appraisers. A lender’s in-house appraisal company may still do the work, but only if that appraiser is chosen by someone not helping to evaluate or underwrite the loan.
In the meantime, Mr. Adamo of Luxury Mortgage, said borrowers should ask prospective lenders pointed questions about how they select appraisers.