Appraiser Coercion or Not?

Everyone in the mortgage industry, including borrowers are all too familiar with the challenge of trying to determine whether the comparables provided by the appraiser are adequate. Typically the underwriter is concerned that the value is inflated and the borrower and loan officer are concerned that the value is too low. The ‘tip toe’ around the home valuation code of conduct and requesting additional comparables begins. During an audit of an appraisal management company (AMC) I saw the communication loop that goes on between the underwriter at the lender and the appraiser assigned to do the work with the staff at the (AMC) filtering as the middle man. It was interesting to see how appraisers can feel offended (is this coercion?) when an underwriter is asking for additional comparables to support value. Isn’t the lender the appraiser’s client? Isn’t the appraiser hired to protect the lender’s interests? The underwriter is the one with the responsibility (and job on the line) to make sure the data is ‘saleable’ to an investor. Now that underwriters have access to more information through services such as Core Logic, they are under scrutiny to make sure they’ve checked the local market and concur with the appraiser’s approach. An underwriter’s request for additional data to support value is a quality check and should not be viewed as coercion or an attempt to override the appraiser. The underwriters see appraisals every day that would make a good appraiser cringe so they have to be cautious. The underwriter isn’t completely off the hook here! He/she is definitely responsible for insuring the appraiser understands the request. It is important for the underwriter to state a fact based purpose when requesting the additional data. On the other side, there are many times when the borrower or Realtor may have additional data indicating the value could be higher. It is a fine line when asking the appraiser to consider additional data provided by someone who has a vested interest in obtaining a higher value, whether this is the borrower, originator or a realtor. The lender can accept the information from the source but shouldn’t just forward this information to the appraiser for consideration. This can appear as crossing the line to coerce or inappropriately attempt to influence the appraiser. Therefore the data should be sent to the underwriter who then checks the comparables for reasonableness. Again, its recommended that the lender run Core Logic or other real estate sales data report to identify the sales in the area from an arm’s length source. Then reconcile the third party’s information with that report and ask the appraiser to comment about the sales ONLY if they are reasonable comparables. In many cases the sales information provided by the other parties are not reasonable comparables and shouldn’t be pushed to the appraiser. It’s all centered on communication. Underwriters need to work with appraisers to understand their view and experience in the market. The recovery, stability or decline in value is dictated by the ‘market’ boundaries the appraiser defines for the property. If the appraiser doesn’t communicate the logic behind the boundary then they have added a layer of risk to the loan. It’s not coercion for the lender to make an effort to reduce the risk of the appraisal.