Appraisals getting more scrutiny

[SD Realtor]

Bugs, SDAppraiser and others I would like to see if this was true….because I didn’t think it was.

I was at a caravan this morning and the Countrywide rep said that Realtors should make their sellers aware of a possible appraisal issue within the industry. She said that Wells Fargo is now taking up to 5% off appraisals in declining markets! That other lenders have not started doing this but that when issues like this happen, it does tend to spread to other lenders. That seemed to cause quite a commotion at the caravan because another rep from a different lender stood up and said that she didn’t believe that was happening. Then yet another rep from another lender said it was indeed happening and he heard about it.

Has anyone else heard about this?

[donaldduckmoore]

SD Realtor, I heard that Wellsfargo is getting things really seriously. But you have raised an interesting issue for consumers. Suppose a house is on sale for $500000, and someone bids to buy it for $490000, and another lowball bidder offers $420000. The seller accepts $490000 offer. If the appraisal said that the house should worth $450000, and Wellsfargo takes off 5% of the appraisal, ie $427500, then my question is will the transaction proceed? I suppose the loan will not be approved. Then, what will happen to both the property and the buyer? Will the buyer get a loan of less than $490000, or will the deal be given to a lowball bidder?

[donaldduckmoore]

SD Realtor, I heard that Wellsfargo is getting things really seriously. But you have raised an interesting issue for consumers. Suppose a house is on sale for $500000, and someone bids to buy it for $490000, and another lowball bidder offers $420000. The seller accepts $490000 offer. If the appraisal said that the house should worth $450000, and Wellsfargo takes off 5% of the appraisal, ie $427500, then my question is will the transaction proceed? I suppose the loan will not be approved. Then, what will happen to both the property and the buyer? Will the buyer get a loan of less than $490000, or will the deal be given to a lowball bidder?

[SD Realtor]

DDM –

To answer your question, the transaction would only be able to proceed iff:

1 – The buyer would have to come in with more cash to cover the difference.

2 – The seller and buyer would indeed need to renegotiate the price, obviously in favor of the buyer.

So the direct answer to your question is, if the buyer cannot get financing then the buyer cannot get financing. The seller can recommend to the buyer to try to financing from a different lender…in term that different lender may not implement the 5% whack off the appraisal that Wells has done… so I guess that is a 3rd alternative.

I am interested to see what the appraisers here say. For all I know they may say this is heresay and they have not heard of this happening from Wells Fargo.

SD Realtor

[SD Realtor]

DDM –

To answer your question, the transaction would only be able to proceed iff:

1 – The buyer would have to come in with more cash to cover the difference.

2 – The seller and buyer would indeed need to renegotiate the price, obviously in favor of the buyer.

So the direct answer to your question is, if the buyer cannot get financing then the buyer cannot get financing. The seller can recommend to the buyer to try to financing from a different lender…in term that different lender may not implement the 5% whack off the appraisal that Wells has done… so I guess that is a 3rd alternative.

I am interested to see what the appraisers here say. For all I know they may say this is heresay and they have not heard of this happening from Wells Fargo.

SD Realtor

[Bugs]

It’s their money so I guess you could say they can decide to do whatever they want to do.

Think about it – if you were a lender and you were operating in a known declining market, wouldn’t you take steps to reduce your exposure to those declines? I know I would.

No bank can decide on their own what the appraised value is, regardless is the market is increasing or decreasing. An appraiser’s opinion of value is their own to determine. Now a lender can decide they don’t agree with an appraiser and express their own opinion, but that’s nowhere near the same thing as that lender reducing the appraised value – they’re just reducing how much they’ll loan on that value.

The only exception to this is if the lender employs or contracts with an appraiser to conduct reviews of appraisals. It’s very possible and indeed common for a review appraiser to agree with some appraisals and disagree with others. In the case where they disagree and come up with a lower value conclusion they have to support that.

But on the appraisal or appraisal review side none of what happens is supposed to be a matter of whim or client dicate. Reviewers are just as liable for what they say as appraisers are; and a reviewer can lose their appraisal license if they allow their client or their company to pressure them into “lowballing” appraisals just as readily as if they’re stretching values.

FTR, I hadn’t heard any news of WF arbitrarily reducing appraisals. What’s far more likely is their reviewers have gotten more serious about the trash they were previously accepting and have started rejecting those appraisals. In other words, they’re being allowed to do their jobs instead of just rubber stamping marginal work like they were before.

[Bugs]

It’s their money so I guess you could say they can decide to do whatever they want to do.

Think about it – if you were a lender and you were operating in a known declining market, wouldn’t you take steps to reduce your exposure to those declines? I know I would.

No bank can decide on their own what the appraised value is, regardless is the market is increasing or decreasing. An appraiser’s opinion of value is their own to determine. Now a lender can decide they don’t agree with an appraiser and express their own opinion, but that’s nowhere near the same thing as that lender reducing the appraised value – they’re just reducing how much they’ll loan on that value.

The only exception to this is if the lender employs or contracts with an appraiser to conduct reviews of appraisals. It’s very possible and indeed common for a review appraiser to agree with some appraisals and disagree with others. In the case where they disagree and come up with a lower value conclusion they have to support that.

But on the appraisal or appraisal review side none of what happens is supposed to be a matter of whim or client dicate. Reviewers are just as liable for what they say as appraisers are; and a reviewer can lose their appraisal license if they allow their client or their company to pressure them into “lowballing” appraisals just as readily as if they’re stretching values.

FTR, I hadn’t heard any news of WF arbitrarily reducing appraisals. What’s far more likely is their reviewers have gotten more serious about the trash they were previously accepting and have started rejecting those appraisals. In other words, they’re being allowed to do their jobs instead of just rubber stamping marginal work like they were before.

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