As published in Scotsman Guide's Residential Edition, July 2008.
Brokers and real estate appraisers often disagree. Differences aside, brokers and appraisers who hold themselves to strict codes of ethics help the mortgage industry function properly.
By working to better understand appraisers and their ethical responsibilities -- and by holding themselves to high standards -- brokers can take an important step toward turning around today's difficult lending climate.
The Real Estate Settlement Procedures Act and the Uniform Standards of Professional Appraisal Practice give mortgage professionals and appraisers guidelines for conduct. Often, however, practitioners must develop the more-salient points on their own. These are based on personal experiences and knowledge of what is right and wrong.
Interestingly enough, this is where brokers and appraisers often conflict.
Typically, a residential-property appraiser's client is the mortgage broker or lender who orders the appraisal.
Appraisers provide property values based on an array of data, including: location, condition of improvements, amenities, comparable home sales, market trends, and physical and geographical information.
It's important to remember that appraisers are third parties in these deals. As such, they should render services with independence, objectivity and impartiality.
Appraiser ethics are tested when the appraised value doesn't fit the terms of the sought-after loan program. This can result in pressure to "make loans work."
At that point, appraisers must weigh their professional code against the pressure of meeting a specific value. This is nothing less than a test of honesty, integrity and ethical standards. When brokers apply this pressure, they themselves are acting outside of ethical boundaries.
If an appraiser reports a lower-than-needed value and a declining market, these factors likely will keep a deal from closing. Honest brokers, however, will work with the reported value and provide consumers with truthful opinions and service.
In the end, it serves brokers best to trust appraisers' valuations, even if that means losing a few loans. Doing so, brokers establish themselves as ethical professionals and develop reputations that ultimately should help their businesses and the industry.
Fannie Mae and Freddie Mac are creating a new code of conduct to strengthen professional behavior from the origination side and to provide support for appraisers who perform their jobs ethically. The new code will take effect at the beginning of next year.
Additionally, federal and state authorities are pushing for tighter regulations and licensing standards aimed at keeping appraisers and brokers honest.
The goal of all these efforts is to improve the quality of the valuation process while warding off unethical individuals who approach their profession intending to take advantage of public trust.
Ethical appraisers not only protect their image, but they also protect brokers, lenders, investors and consumers.
Brokers can help appraisers by respecting their code of ethics and by refusing to pressure them. Brokers can then receive the most-accurate values available, thus leading to high-quality loans based on solid information. In the end, that's good business for everyone.
Joe Williams is
president and CEO of ValuFinders Inc., a real estate valuation-services company he founded in 1999. ValuFinders provides real estate collateral risk-management products, including automated-valuation models, quality-control reviews, collateral assessment and Web-based property tracking. Williams is a graduate of the University of California, Los Angeles' Anderson School of Business. Williams can be reached at email@example.com. For more information on ValuFinders Inc., visit www.valufinders.com.