ST. PETERSBURG — Frank Gregoire is proud to be the "slowest property appraiser in Florida."
He always takes extra time to evaluate market data and conduct a thorough evaluation before he determines the value of a house.
Thanks to new regulations, which require a third party — usually an appraisal management company — to act as a go-between for appraisers and mortgage lenders, he is one of the few appraisers that do.
The appraisal management companies control about 80 percent of the business, Gregoire said, and they hire appraisers based on cost and turnaround time rather than qualifications. Those appraisers are then pressured to sway their evaluations and finish their reports as quickly as possible.
A former chairman of the Florida Real Estate Appraisal Board and the appraisal committee for the National Association of Realtors, Gregoire, 59, testified before a congressional committee on Thursday about the impact of the new appraisal oversight rules.
He told the Tampa Bay Times in an interview Friday that the system has threatened appraisers' ability to conduct thorough and objective appraisals.
Why is it so important for appraisers to be independent and objective?
The appraiser is the only one, whether during a sale or a refinance, that is not an advocate for any party. The appraiser is paid strictly for their appraisal report. The appraiser's job is to call things the way they see it. When any party to the transaction attempts to influence the appraiser to be conservative or optimistic about value, the appraiser's obligation is to ignore it. The sad fact is that under the current scheme it's very difficult to do that.
(The appraisal management companies) control the bulk of the business because they handle accounts for the big banks, the ones that are making the loans these days. If an appraiser is getting the bulk of his business from a handful of appraisal management companies, and he fails to respond to the pressure that's imposed on him or just decides he doesn't want to work for them, he may be giving up a huge percentage of his business.
What kind of pressure is being put on those appraisers?
I don't work for AMCs, so I don't have firsthand knowledge of it. The whole rub now is that appraisers are not recognizing that we have some positive signs in the market. With my belief that an appraiser should be calling it the way he sees it — good, bad or indifferent — he also has an obligation to use the market data to figure out what the property is worth today.
For my testimony (at the congressional hearing), I asked appraisers if they (adjusted their appraisals for a recent increase in home values). Some said yes, they had. But both of them said when they submitted the report to either the lender or the AMC, they were told to "rethink" it. They don't say change the adjustment, they say rethink it. I call that interference with an appraiser's independence.
What effect does that have on home buyers?
In my experience, people that buy houses are not stupid. It's a big decision and they don't make a decision in a day or two. They spend time examining the market, they negotiate. That negotiation is a pretty good indication of what the property is worth. The appraiser's job is not to validate that, but part of the information that he should be considering is that agreement. That is a piece of market information. There's plenty of evidence that appraisal management companies and lenders are not allowing the appraisers to do that job.
You also testified that these companies are hiring appraisers based on low fees and quick turnaround time, which means they are working with less-experienced appraisers. How does that affect the home buyer?
If you're buying a house, and you're worried about the market, making a big decision and obligating yourself to 20 or 30 years worth of payments, you don't want somebody going through just filling out blanks on a form or rubber-stamping it.
What do you think is the solution?
We need to find an alternative to the appraisal management company model, or make sure the appraiser is given the necessary independence. We encouraged the lender to pay the appraisal management company, rather than the borrower paying an appraisal fee. The National Association of Realtors recommended that appraisers be selected based on license level, their knowledge, experience and geographic competency, not based on their fee and turnaround time.
Obviously, that's a tough thing to do because everyone shops for time and price, but this is too important to borrowers and too important to lenders. Lenders may not be making the loans that they could be making.
There also needs to be transparency in the fees. Some of these appraisal management companies are owned by the banks, and I believe that if a borrower is paying for a service, he deserves to know if a piece of that fee is going to the bank and is pure profit.