The results of a real estate appraisal carry major implications for borrowers, lenders, and sellers alike. Ultimately, the goal of an appraisal is to determine a fair and reasonable value for any given property. When an appraisal comes back lower than what the potential buyer of a home wishes to borrow from a lender, problems can arise. After all, no lender is going to approve a loan amount for more than what a property is realistically worth.
Still, with appraisal being as much of an art as it is an objective science, it is also true that the same property could receive two very different valuations from different appraisers. Sometimes, an appraisal may be done too quickly or haphazardly, leading to inaccurate results that can affect a real estate transaction significantly.
This is why it’s so important for appraisal management companies (AMCs) to have thorough and reliable quality control protocols in place. By performing regular reviews of real estate appraisals and taking other steps to ensure quality control, it is possible to avoid potential legal issues and other problems related to inaccurate appraisals.
Unfortunately, a lack of appraisal quality control is one of many factors that contributed to the real estate crisis of 2008. According to one National Mortgage Professional article, haphazard appraisals “led to losses at Washington Mutual of several hundred million dollars.” In fact, there were even lawsuits filed against AMCs by lenders whose bottom lines had been drastically affected by sloppy appraisals. Ultimately, these AMCs were found to be liable for these losses.
Unfortunately, there are many common issues AMCs run into when it comes to quality control. In many cases where quality problems arise, appraisal values will differ significantly from that of local comparable properties. This often occurs when the appraisal fails to properly research his or her comps—or when he or she chooses comparables that are recent foreclosures.
In some cases, the use of “desktop appraisals” has also become problematic. With a desktop appraisal, the value of a home or commercial property is determined without a visit to the actual property itself. Instead, valuation is calculated using only online information. This isn’t to say that desktop appraisals can’t be accurate—but they must be performed by an experienced and knowledgeable appraiser to arrive at an accurate valuation using this method.
One of the most important steps AMCs can make when it comes to managing quality control is going beyond checking a state’s appraisal board records for appraiser licensure. Just because an appraiser is licensed does not mean that he or she hasn’t received disciplinary action or other remediation for inaccurate appraisals. Instead, taking the time to fully vet an appraiser before bringing him or her on board is a must when it comes to quality control.
Another issue that commonly arises within AMCs and that can lead to poor quality appraisals is that of overworking appraisal staff. When appraisers have too many jobs on their plates, they’re more likely to rush through reports and make errors. As a measure of quality control, then, AMCs should make sure they’re providing their appraisers with the time and resources they need to prepare accurate and quality reports.
Last but certainly not least, more AMCs could stand to get into the habit of performing reviews on every appraisal report before it is delivered to the client and/or lender. A thorough appraisal report will:
As a result of the real estate crisis of 2008, many mortgage lenders now require home appraisals to be frequently reviewed for quality control. Meanwhile, “mortgage investors such as the Federal Home Loan Mortgage Corporation now require lenders to conduct regular as well as random appraisal quality reviews,” according to one Home Guides article. With all this in mind, regular appraisal reviews can give AMCs and lenders the peace of mind they need with any real estate transaction.
Now more than ever, AMCs have an obligation and responsibility to review and enhance their quality control measures. In doing so, AMCs can provide the accurate and quality appraisal reports that lenders, borrowers, and sellers rely on for many real estate transactions. Meanwhile, improving your organization’s quality control can help to avoid potential lawsuits and other legal problems down the road. This is especially important as the early 2010s proved that lenders can and will file lawsuits against AMCs that have been shown to provide inaccurate or sloppy appraisal reports.
At AmeriMac Appraisal Management, we take great pride in the extensive quality control measures we have implemented. Likewise, we offer services that include appraisal reviews to assess the accuracy and completeness of any appraisal report. This is on top of our many other services that we have to offer, which include:
Interested in any of our services or wish to find out more about what we can do for you? We encourage you to reach out to the AmeriMac Appraisal Management team at (866) 395-3773. We look forward to working with you.