Taking Advantage of Order Overload, Some Appraisers Engage in Price Gouging

Perhaps you saw the Sept. 29th report on 9News. It described how some appraisers are exploiting the hot market and the shortage of appraisers to charge “rush fees” for doing appraisals quickly. One of my own broker associates, Chuck Brown, brought that story to my attention because, coincidentally, the appraiser interviewed by 9News, Brian Boizot, was the same appraiser who charged Chuck’s buyer a $1,000 “rush fee” for doing his appraisal in 3 days instead of 10 days. This appraiser simply had enough work that he could give priority to those buyers who succumbed to his extortion-like demands.

Mortgage lenders pay the appraiser, passing that cost on to the buyer, but this rush fee was invoiced directly to the buyer through Chuck, and it was the only way this buyer could count on getting the appraisal done and avoid another month’s rent ($2,500) if the closing was delayed, so he paid it. It was a VA loan.

 

It doesn’t have to be this way. Many larger mortgage companies have appraisal desks which manage the process and can limit such abuse among their preferred appraisers. Speaking with Scott Lagge, a loan officer at Eagle Home Loans, I was told that it’s common for him to pay $100 to $300 for a bona fide rush, but, while he has heard of $1,000 rush fees, he has never paid one and considers that excessive.

 

Another mortgage broker, Jaxzann Riggs of The Mortgage Network, told me she once had to pay $1,600 for a rush appraisal. That was for a conventional loan.

 

The problem is worst for VA borrowers, like Chuck’s buyer. Contributing to that problem is VA’s requirement that appraisals be ordered only through the VA web portal, which delays the process considerably. In the case of Chuck’s buyer the VA didn’t assign the appraisal to Brian Boizot until 24 days after the order was entered on the VA portal, 5 days beyond the appraisal deadline in the contract. As I’ve written before, VA buyers are already disadvantaged in winning bidding wars, and this appraisal situation only further victimizes them.

 

Such delays, whether or not through the VA, can be attributed largely to the shortage of appraisers. It is not uncommon for one appraiser after another to decline an assignment because he/she is already overloaded.

 

The shortage of appraisers began several years ago when appraisal management companies (AMCs) were introduced to isolate lenders from appraisers and avoid the type of fraudulent appraisals that created to the “toxic loan” crisis. The AMCs take a percentage of the fees that previously went entirely to the appraisers. This pay cut was so extreme that many appraisers simply quit the industry. Combine that with today’s heavy workload, and you’ve created a situation that is ripe for price gouging.

 

My advice is to use a mortgage lender with a good appraisal desk. Credit unions are also good at avoiding this kind of exploitative pricing of appraisals. When choosing a lender, ask their experience with rush fees.

Published Oct. 6, 2016, in the YourHub section of the Denver Post.

Not All Regulation Is Bad -- In Some Critical Areas, We Could Use More of It

[As published in the Denver Post on Feb. 23, 2012]

When I first got into real estate in 2002, I remember that any felon could, upon leaving prison, print up business cards declaring himself a “mortgage broker,” and Colorado had one of the highest levels of mortgage fraud in the nation. 

In the years since, the legislature passed a law requiring registration, and a couple years later required licensing.  Nowadays, it’s even harder to become a mortgage broker than it is to become a real estate agent. There are tests to get licensed, continuing education requirements and mandatory bonding to protect clients.  Now Colorado has some of the strictest regulation of mortgage brokers in the nation and the lowest level of mortgage fraud.

This isn’t to say that regulation doesn’t go too far in some areas. When it is implemented administratively vs. legislatively, it can fail to consider unforeseen impacts and, yes, common sense.  When regulation is imposed by a legislative body,  there are hearings at which interested parties can testify and educate the lawmakers. Lobbyists, such as those representing the state and national Realtor and mortgage broker associations can educate committee members about such impacts.

An example of an administratively imposed regulation is the Home Valuation Code of Conduct (HVCC), which was introduced to reduce appraisal fraud, but was done behind closed doors to settle a lawsuit by then-Attorney General of New York Andrew Cuomo. I have written in the past about this ill-conceived regulation voluntarily adopted by Fannie Mae and others which took the selection of appraisers out of the hands of mortgage lenders and introduced appraisal management companies (AMC’s) which are, yes, unregulated. To maximize profits, AMC’s do not have to require geographic or other competence by the appraisers who agree to work for the lower wages they pay. Five years later, we are still struggling to regulate AMC’s and still suffering from bad appraisals. Many good, experienced appraisers are leaving the business.

An effort is underway finally to regulate homeowner associations (HOA’s) and the management companies which they hire. I have complained in previous columns about the fees which management companies charge to HOA members at the time of a sale for providing simple information or for changing the name of the homeowner on their records. Knowing that the sale can’t close without these services, the companies extort huge fees, and none of that money benefits the HOA.