- The Washington Times - Friday, September 4, 2009

I hope this will be one of the last columns on the appraisal problems that have plagued the much-sought-after housing recovery.

Here’s a quick recap. Last May, Congress enacted the Home Value Code of Conduct (HVCC). The law requires that mortgage brokers, lenders and banks order appraisals for residential purchases and refinances through an independent portal system. The idea is to prevent appraisers from inflating values in order to “hit” a number that will close a deal.

The result so far? A complete backfire. I spoke with a few appraisers who are telling me laughable stories that are floating around the industry.

An appraiser from Richmond was assigned to a property in Alexandria for a refinance. The appraiser scheduled the appointment with the property owner before he made the 100-mile trip north. However, this appraiser didn’t have the database of sales in Northern Virginia. While scheduling the appointment, the appraiser asked the homeowner to provide recent sales data so he can drum up some comparable properties.

The appraiser was so unfamiliar with the area that he asked the homeowner to provide the comparables. It doesn’t sound like his report will be generated through “independent” research to me.

Here’s another absurd story that affected me personally. I recently took an application for a couple purchasing a home in Fairfax County. It’s the cleanest deal in the world. The borrowers are high-level government employees with credit scores more than 800, lots of money in the bank and a 20 percent down payment.

I ordered the appraisal through the independent management company that is now required by law. I was assigned an appraiser by the name of Michelle Kenney from Appalachian Realty Inc. based in Cumberland, which is in the northwest tip of Maryland in the mountains, 150 miles away from Fairfax.

The contract price is $455,000. Ms. Kenney appraised the property and determined that it is worth $454,000.

On occasion during my 20-year career, I have seen appraisals on purchase transactions come in low. It happens usually during a boom market when property values are rising rapidly. In such cases, the appraised value might come in $10,000 or more lower than the contract price. I have never seen an appraisal report come in only $1,000 under the contract price.

I called Ms. Kenney’s office, identified myself and told the receptionist that I was writing this column and wanted to give her a chance to explain. I was told that she was out of town and didn’t own a cell phone.

It seems to me that one of the more important indicators of value is what an independent party is prepared to pay. My clients are prepared to pay $455,000 for this house. If this appraiser found comparables to support a value of $454,000, why couldn’t she have judged that an extra $1,000 might be in the value based on the contract price?

Remember that an appraisal report is an opinion of value. The final number doesn’t come from an exact formula. I spoke with a local appraiser, and he may have summed it up perfectly in describing appraisers: “We just aren’t that good,” he said. “It’s hard for me, as an appraiser, to tell someone that his house is worth two tenths of 1 percent less than what someone is willing to pay.”

As a postscript, the report didn’t kill the deal. The buyers had to sign a contract addendum and put down a little more money. It seems to me the appraiser was grandstanding.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail at henrysavage@pmcmortgage.com.

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