New rules blamed for blowing Lee County real estate deals

By DICK HOGAN - news-press.com • July 9, 2009

New rules for appraising houses have some Lee County real estate agents fuming - they say inexperienced or out-of-town appraisers are blowing deals by giving lowball values that make financing impossible.
But some in the appraisal industry say that while the new rules aren't perfect, they're not a serious problem for the industry.

At issue are rules that took effect May 1 requiring that loans picked up by mortgage giants Fannie Mae and Freddie Mac need to include appraisals by appraisers that have no connection with the bank personnel approving the deals. That means that many banks have turned appraisals over to appraisal management companies that then hire the appraisers so there's no direct connection with the banks.

The rules, which are part of a pact between New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac, are in response to widespread complaints about inflated appraisals during the real estate boom.

But agents say at least some of the appraisers are hired by management companies looking for the lowest bid. That increases the management company's cut of the appraisal fee.
Meanwhile, legislation has been introduced in Congress that would implement an 18-month moratorium on the new rules.
I think the cure is worse than the problem was," said Suzanne Sherer of Re/Max Realty Team, who's president of the Realtor Association of Greater Fort Myers and the Beach. "I think there's a huge disconnect between what happens in the decision-making up in Washington and what's happening in the streets. We've seen several deals fall apart based on the appraisal."
Bad appraisals are a frequent occurrence, said agent Ron Smiley of VIP Realty Group on Sanibel. "At our Monday sales meeting you hear some of the horror stories."

In one case in his office, he said, "They sent an appraiser in Cape Coral who just got his license out to Sanibel and the appraisal came in really low" because the appraiser wasn't familiar with the market.

"You get into the subtleties of beachfront" and issues such as direct vs. indirect beach access, Smiley said
Sherer said her office had a similar experience with an appraiser from central Florida who used a freshwater canal house as a comparable value for a Gulf-access home in the Cape.
When the agent protested, she said, "The answer was that 'It's all waterfront.'"
Appraisers take a more nuanced view, however.
While the new rules are not ideal, appraisers are not to blame for a market where prices are falling rapidly, said Bill Garber, director of governmental relations at the Appraisal Institute. He defended the industry, saying, "The appraisers only report what's going on in the market."

Matt Simmons, who appraises residential property for Fort Myers-based Maxwell & Hendry Valuation Services, said not all management companies operate strictly on the bottom line.

"There's all kinds of different shades here," he said. "The big banks go with the big-box appraisal management companies and that's where the bulk of the work goes," often to the low bid.
But, Simmons said, for one job to appraise some local properties, "We signed up today with a bank in Illinois. They've taken the time to go slowly. They took the time to pick a management company that didn't operate in the same way as the big-box ones do."

The new rules are in the right spirit, but had to be implemented because for years the federal government failed to push state regulators to crack down on unethical appraisers and lenders, he said.
"The whole reason this is being done is we wouldn't hold people responsible who were abusing the system and pressuring appraisers," Simmons said, and there won't be true reform "until you really draw down on that and focus in each state on weeding out the bad apples on both the lending and appraisal sides."
He also noted that lenders don't actually have to hire management companies - if they want to, they can erect strong rules separating their appraisal departments from the bank employees green-lighting loans.
David Hall, president of Fort Myers-based First Community Bank of Southwest Florida, said the new rules occasionally scuttle a deal but aren't a serious problem. "Usually the values (of the asking price and the appraisal) are relatively close" and something can be worked out.

When the prices are far apart, he said, it's a problem, but may simply indicate the seller wants too much for a property.
"If they've got an agreement to buy for $150,000 and the appraisal comes in at a hundred, are we doing the customer a favor letting him buy it at that price?" Hall asked. "The answer is no."