Appraisal Complaints Continue to Hinder Homeowners

Meranda Adams
Written by Meranda Adams
Updated September 8, 2016
Building an addition to your house doesn't necessarily mean the overall property value will increase dollar for dollar. (Photo courtesy of Angie's List member Julie M., of Silver Spring, Maryland)

Home appraisal complaints have skyrocketed.

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Appraisal complaints have skyrocketed in recent years, due in part to the housing market's instability and new industry regulations, says John Brenan, director of appraisal issues for The Appraisal Foundation, which sets national standards for appraisers.

The problem, Brenan says, is that lenders and borrowers now have little say in who appraises a specific property. Prior to the housing fallout, lenders could choose their own appraisers, and appraisers say they were sometimes pressured to overvalue properties.

In response, Fannie Mae and Freddie Mac adopted a code of conduct in 2009 that gave the power to choose appraisers to appraisal management companies (a third-party, unassociated with the lender). Previously, lenders rarely used AMCs and hired their own appraisers directly.

How are appraisal management companies regulated?

As part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, states must regulate AMCs. However, a final amendment to the Act actually gives states the option on whether or not to register and monitor AMCs. If they choose not to require registration, AMCs in that state are barred from providing appraisal managment services to federally related transactions.

So far, 38 states have passed legislation requiring AMCs to register, typically by a licensing board. Some states also require AMCs to have bond insurance, to help protect consumers from any fradulent activity from the AMC.

Ensel and Anderson expected home improvements, such as a new furnace and windows, to pay off with a higher appraisal. (Photo by Gene Carl Feldman)

Homeowners dismayed by poor appraisal

Eager to take advantage of low mortgage rates, Ellen Ensel and Fenwick Anderson applied to refinance their Takoma Park, Maryland, home. The deal fell apart when their house appraised for only $310,000 — $130,000 less than they expected.

"I'm still really infuriated," Anderson says of what he describes as an unfair appraisal, especially in light of the couple's $60,000 investment in major improvements.

They appealed to their bank, Bank of America, but say no one visited or requested more information. Without further explanation, the bank denied the refinancing request months later.

In their report submitted on Angie's List, Ensel and Anderson say they don't think their appraiser, Terence King of King Property Group in Clinton, Maryland, knew their neighborhood well because he compared their four-bedroom home to a condemned house undergoing rehabilitation.

King, who claims 10 years of experience, declined to discuss the couple's home, but says the bank had multiple appraisers review and uphold his appraisal. Bank of America did not return calls seeking comment.

Are AMCs a problem?

The code requiring the use of AMCs spawned another issue. "The proliferation of AMCs created a much bigger problem because they look for the cheapest and fastest, not the best appraiser," Brenan says.

Louisiana-based appraiser Sara Stephens, president-elect of the Appraisal Institute trade group, says the emphasis now seems to be on quantity, not quality.

"Many AMCs are asking for one-day turnaround, which is not much time to come up with an accurate value," she says.

Bill Seward, owner of Seward Real Estate Services in Indianapolis, says he earns about half of what he used to on each appraisal since the AMCs now take a cut. To make up the lost income, he says he must do more appraisals in a shorter amount of time.

"There are a lot of rules and regulations that force you to not overvalue properties — that's good, but consumers can have unrealistic ideas of the value," he says.

Homeowners who disagree with their appraisal have little recourse, Brenan says. If it has errors, ask your lender for a review or new appraisal. If that fails, file a complaint with the state licensing board.

"If people take it to the state board, it will weed out appraisers doing a bad job," Brenan says.

Editor's note: This is an updated version of an article originally posted on February 8, 2011.

Have you recently had your house appraised? Tell us about your experience in the comments section below.

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