WASHINGTON — How about this scenario the next time you refinance or apply for a new mortgage: The real estate appraisal that used to cost $325 now costs $450, even though the appraiser doing the work is only getting $175 or $200.
Plus, your appraisal-related charges may now be subject to add-on fees you have never heard of: $50 to $100 in "no show" penalties if you get stuck in traffic and miss your appointment with the appraiser, or an extra $50 to $150 tacked on if the property is worth more than $500,000.
On top of all this, your mortgage loan officer requires you to pay for the appraisal up front with a credit or debit card, rather than including the fee with the usual lender origination costs at settlement. In some cases your card may be charged more than the anticipated cost of the appraisal, leaving debit cardholders in a potential overdraft situation.
Worse yet, the person now conducting your appraisal may be new to the field — willing to work for a cut-rate fee — and may not be as familiar with local value trends and pricing adjustments as an appraiser with more experience. If your mortgage application is denied by one lender, you could be forced to pay for a second full appraisal since the new lender may not accept the first.
That scenario is now reality, according to critics of the controversial new appraisal rules imposed nationwide on May 1 by Fannie Mae and Freddie Mac. Advocates of the rules say any increase in appraisal costs should be manageable for most consumers.
The rules, which go by the name Home Valuation Code of Conduct, are intended to improve the accuracy of appraisals by eliminating pressure on appraisers from loan officers. The code pushes most large lenders to use third-party "appraisal management companies" that contract with networks of independent appraisers around the country who have no direct contact with retail loan officers or mortgage brokers.
Mortgage brokers — who formerly chose appraisers and kept a competitive eye on appraisal fees — claim that Fannie's and Freddie's rules are adding 20 percent to 30 percent to consumers' appraisal costs. Jeffrey T. Hawk, vice president of Maryland Mutual Mortgage LLC in Forest Hill, Md., says a standard appraisal that previously went for $325 jumped to $400 or more May 1 when he was forced to use management company appraisers.
Some applicants also are balking at handing over credit card information when they're not completely sure what the charge will be. "I lost three clients the first week (because of the credit card requirement)," Hawk said.
Buddy McCombs, senior vice president of EverBank, a Jacksonville lender who buys loans originated by Hawk's firm and now contracts with management companies for appraisals, concedes "there's probably a little increased cost" with the new system, "but I don't think it's devastating."
Sacramento, Calif.-based appraiser James Facchini of American Pacific Appraisal Co. says "what's terrible is what's happening to (long-established) appraisers who won't work for the low fees" management companies pay.
"On May 1, I lost almost my entire customer base" — mortgage brokers who now can't pick up a phone and order an appraisal from him.
Instead Facchini and other appraisers either have to sign up with management companies or find other employment. What bothers Facchini, he says, is that "the consumer has no idea what's going on."
After signing up with one management company, he says two consumers commented to him, "Wow, you really charge a lot."
They were each being hit with $550 appraisal fees, while Facchini was getting just $250 from the management company. As he sees it, that leaves $300 of "slush" somewhere in the process — some going to the management company, but the rest probably "flowing to the lender for doing absolutely nothing."
Rich Kuegler, a vice president at MDA Lending Services Inc., a national appraisal management company, says payments to firms like his are compensation for creating, managing and reviewing a network of thousands of individual appraisers — MDA has 9,000 under contract — and for the "processing and administrative" costs that have been taken off the backs of brokers and lenders.
As to appraisers' complaints about fees, Kuegler said, "We offer (them) the ability to have a steady stream of work, training and support." In other words, appraisers can expect to make up in overall volume what they're sacrificing per assignment.
Ken Harney can be reached at firstname.lastname@example.org.