That was the message delivered last week by Frank Gregoire, immediate past chair of NAR's Real Property Valuation Committee, in testimony before the U.S. House of Representatives Financial Services subcommittee on Insurance, Housing and Community Involvement regarding appraisal oversight.
"As the leading advocate for housing issues, Realtors know that an accurate appraisal is an important part of the home-buying process and that a strong and independent appraisal industry is critical to restoring faith in the mortgage origination process," Gregoire said.
"There are many challenges currently facing the appraisal industry, and we see appraisals as one of the most crucial and overlooked aspects of the recovery of the real estate market," added Gregoire, who is a state-certified residential appraiser and president of Gregoire & Gregoire Inc. in St. Petersburg, Fla.
In his testimony, Gregoire said a number of issues are impacting the credible valuation of real property, including appraiser competency and local market knowledge, challenges in accurately estimating market value in stabilizing markets, and the lack of oversight and regulation of appraisal management companies, also known as AMCs.
While many AMCs provide legitimate services for legitimate fees, a large number of AMCs are contributing to problems in the appraisal business and the overall housing market, Gregoire said.
He told the committee there is evidence that AMCs are often compromising appraiser independence by insisting appraisers include specific transactions as comparable sales, complete appraisals in unreasonably short turnaround times, and comply with a broad scope of work not commensurate with the fee paid. Many AMCs also require appraisers to accept any and all liability if a loan defaults if there is any claim related to the value of the property.
All of this puts pressure on the appraiser, compromises their independence and negatively impacts the quality of the appraisal report, said Gregoire.
"Appraisers are facing undue pressure by AMCs to complete appraisals using distressed transactions as comparable sales, to deliver completed appraisal reports faster, and do a greater scope of work for a lower fee than a competing vendor," he said. "The end result is that lenders and consumers are being underserved, and all of this is contributing to the failure to recognize positive movement in prices and values in many markets, creating an additional obstacle to the housing market recovery."