If an appraisal you’ve submitted recently has been rejected, you may be wondering why. To understand the reasons for appraisal rejection, it is important to understand exactly what an appraisal is and seeks to do.
According to Inman News, “Appraisals are heavily based on comparables, which are similar houses in the same market area as the house being valued, and which were sold in the last six months or so”. Furthermore, experts at Inman claim that there haven’t been any changes in the way that appraisals are reviewed, accepted, or rejected, and so, “the most plausible explanation is that the quality of appraisals has declined”. That is, the appraisals that people are sending in for approval are of poor quality.
This change came about with the the Home Valuation Code of Conduct (HVCC) by Fannie Mae and Freddie Mac in 2009. The rule became that agencies could only purchase mortgages supported by an independent appraisal, independent meaning that the appraiser had no affiliation with brokers or real estate agents.
This took the power away from lenders, so today, many lenders obtain their appraisals from Appraisal Management Companies (AMCs), whose job it is to serve as a mediator between the appraiser and the lender. Unfortunately, this has caused a surplus of appraisers who are unfamiliar with the area in which they are working. In turn, this has led to poor, uninformed, and inferior appraisals, which are often rejected.
Additionally, because AMC appraisers are paid less than independents, and sometimes have to bid for appraisal assignments, these appraisers may not be investing as much time into doing the appraisal as an independent might have before HVCC. That is not to say that all appraisals are now poor, uninformed, and inferior now though; many appraisers still do a great job.
If you have an appraisal with good comparables, but poor appraisal form, the lender may simply have the appraisal re-done by someone who could do it successfully. However, if the comparables are not sufficient, the appraisal will be rejected altogether.
The key is to have an appraisal done by someone who is familiar with the market and the area, if possible.
For more information, click here.