A Day in the Life of Appraising Iowa-Nebraska-Florida

I often get the questions, "Should I wait to buy a house? Should I sell my house now?" History repeats itself, when we are predicting the future we base it on what happened in the past.  From 1999 to 2007 I watched the housing market climb and then crash. When the rates dropped people couldn't refinance fast enough.  I also noticed, as an appraiser in the metropolitan area of Omaha and Council Bluffs, that people were not only refinancing, but they were doing it every 2-3 years as the value of the home went up, pulling out the 3%-5% gain, to pay off short term debt.  During that time there were limited systems and regulations in place for appraisers to report a fair and equitable value and there was a tremondous amount of pressure from the mortgage broker industry "to stretch the value" to "get the deal done".  I was told on occassion by few of my clients if I continued to be conservative, they would find another appraiser.  I held my ground, and I warned lenders the refinancing and inflated values was not good.  Then 2008 it all came crashing in.

People were not able to make their mortgage payment and the foreclosures began.  I went from appraising for the banks and mortgage companies to working as a "Forensic Appraisal Specialist", for Fannie Mae and other investors reviewing appraisals and reporting what the true numbers should have been at the time of the mortgage. I learned a lot.  

When a loan went bad the appraisal became the focus. Investors took a hard look at the appraisal reports and pushed back on the lenders who sold the loan, for anything that they found wrong with the appraisal report. The appraiser did not specifically cause the default, however if there were discrepencies, the appraiser became the target. Repurchasing loan demands were based on "bad appraisals" and "unacceptable appraisal practices" outlined in Fannie Mae's Selling Guide.

Some of the mistakes I found were reporting the market stable or increasing when it was declining at the time. Misreporting the condition of the subject or comparable sales, such as using houses that were obviously superior to the subject property without a condition adjustment. Using sales outside the neighborhood that had a higher price there were sales available in the subdivision. Failing to mention the proximity to railroad tracks, or a busy highway.  

When I was able to find faults with the appraisal, the selling lender either had to defend the appraisal report, or admit the valuation was inflated and repurchase the loan. 

For these reasons many checks and balances were put in place to ensure this did not happen again in the future.  Appraisal Management companies became the go between, and promised to review the appraisals before the lender made a loan decision, ensuring the loan would never be a buy back.  It used to take 1 hour to process and appraisal, and now with the new rules it takes 2-5 hours. Every T crossed and I dotted.  After the management company reviewed the appraisal report there were programs, databases and appraisal review processes created to provide assurance the appraisal .

Given past repurchase demands, these new rules that were put in place to protect the lender and the investors.  We are heading for a decline, due to the impact of Covid-19 and people losing their jobs, however I believe it is unlikely the housing market will decline like it did in 2008.