John Truslow, of Castle Appraisals in Steamboat Springs, is opposed to new appraisal regulations that were implemented May 1.

Photo by Matt Stensland

John Truslow, of Castle Appraisals in Steamboat Springs, is opposed to new appraisal regulations that were implemented May 1.

Appraisal rules wreck real estate deals


— Local lenders, real estate agents and appraisers are bemoaning recently enacted appraisal regulations that have frustrated an already difficult market and spoiled potential sales, refinancings and efforts to access home-equity lines of credit.

The Home Valuation Code of Conduct was implemented May 1 and prohibits communication between appraisers and real estate agents, loan officers or mortgage brokers. Instead, appraisals must be ordered through appraisal-management companies, new middlemen in the process that cycle through a roster of appraisers and take a cut of their fees.

Whether they think it was a problem, many involved in mortgage deals locally and nationwide say they are supportive of efforts to reduce collusion and shield appraisers from being pressured to inflate home values. They say the HVCC, however, is a solution that has proven far worse than the problem by creating delays, removing flexibility, decreasing appraisal quality and substantially increasing costs. The National Association of Mortgage Brokers, which is working to see the regulations repealed, estimates the HVCC is costing consumers more than $2.8 billion a year in extra fees.

"I think the intention was good, but the result is really going to make things difficult," said John Truslow, of Castle Appraisals in Steamboat Springs. "To have a lack of communication throughout the entire process really hurts everybody. : I think it's a disaster in the making, and I see nothing good coming out of it.

"The last thing you need to be doing right now is killing real estate deals because of the HVCC : and that's what's happening."

Truslow said he has lost business because of the rules because anybody with a Colorado appraiser's license has an equal chance of receiving an assignment from an AMC regardless of his or her experience, skill or familiarity with a local market. Truslow also said AMCs take a cut of the appraisal fee and seek the lowest rate possible. He said he used to receive an average fee of about $400 for an appraisal, and now that number has dropped to $250 to $300.

"The impetus to do a good job is exactly where?" said Kathy Arce, of Phoenix Resources Mortgage in Steamboat. "The idea of it is fine. It's to take all fraud out of the appraisals. It's not a bad idea, but it doesn't work. And the customer is suffering as a result. : The appraisals are not as carefully done. : We, as brokers, can no longer work with appraisers that we have good working relationships with."

Cam Boyd, managing broker and co-owner of Prudential Steamboat Realty, said he has begun receiving calls from out-of-town appraisers asking him questions about properties he's been involved with in the past. He takes that as a sign that the appraisers don't have a good understanding of the Steamboat market. Arce, Boyd and Ed Allbright, of Columbine Mortgage in Steamboat, said they have seen deals fall through because of appraisal stumbling blocks since the HVCC was implemented.

"We had a couple of transactions fall through because of appraisals that probably were not done correctly," Boyd said. "The new rules are making it a lot harder for us."

Multitude of problems

Lower quality appraisals, however, is just one of many downsides to the process, opponents say. Arce said she used to be able to call an appraiser and ask whether a home value being sought was realistic before paying for an appraisal.

"We used to be able to figure out if a deal was doable before doing the whole thing," Arce said. "Now, we can't even inquire as to whether it's in the ballpark. : We did not influence the appraiser to say we need this value, but we could ask their honest opinion."

Allbright said he used to be able to have technical errors in an appraisal corrected the same day by calling the appraiser. Now disputes, even small technical ones, must be handled through the AMC and can take longer than a week to resolve. That alone can be enough to kill time-sensitive real estate deals.

"It's god-awful," Allbright said. "Timing is critical here. : You end up banging your head against the table."

Customers also no longer can transfer an appraisal between lenders. If they find a better deal or otherwise decide to switch lenders, they must repeat the entire HVCC appraisal process.

"If the borrower wants to explore another option, they can, but they have to pay another $400 for a new appraisal," said Arce, who said she knows customers who have had to buy as many as three appraisals. "That's unacceptable in my mind."

Sledgehammer for a fly

The HVCC is the result of a deal struck between New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac, the federal government-backed mortgage companies. Although inflated appraisals may have been a legitimate problem in New York and other parts of the country, Truslow, Arce, Boyd and Allbright said there was not a problem in Steamboat.

"They're using a great big sledgehammer to kill a fly," Allbright said.

Local appraiser Jim Yannaccone, of ASI Appraisal Services, disagreed and said he absolutely has felt pressure from lenders to inflate home values.

"There was definitely a need for more impartiality," Yannaccone said. "There were some lenders who had appraisers they knew they could call to look the other way. : That's the good part (about the HVCC), is we can give an honest opinion of value."

Even so, Yannaccone said he is not a fan of the HVCC overall. He complained about his inability to ask simple questions of lenders or brokers and noted that the HVCC system is not conducive to a unique resort market such as Steamboat's.

"I send my appraisal to somebody who is sitting in a high-rise in Chicago. They don't understand the market," Yannaccone said. "It's costing the consumers a lot of money and the lenders a lot of time. What we used to be able to do in two to three weeks is taking six to eight weeks."

Truslow said he is skeptical that the HVCC will effectively achieve any of its goals because people who want to collude will find a way around the new rules.

"The people who were criminals before are going to be criminals after," he said. "It's honest people who are going to suffer. : The whole system assumes that everybody is corrupt, when I think a very small percentage are. : Common sense is not the rule of the day."


housepoor 7 years, 10 months ago

I think wells fargo was already "drawing" the appraisers from an approved list? Thus not allowing the agent or loan offficer to chose a specific appraiser. I do see a issue with appraisers picking "comps" from their desk 200 miles away as we have so many micro markets in this area that they have no way knowing about.


Dan Hill 7 years, 10 months ago

In a world where lenders' incentives are properly aligned, they would be interested in appraisers doing a good job, not inflating their appraisals. After all, that's critical to them managing their risk when they make a loan. The problem is that the mortgage market was so distorted that lenders were effectively laying off ALL the risk. In that environment all they cared about was getting more mortgages issued. That's the problem that needs to be fixed at its source.

This new set of regulations for appraisals is a classic big government, bureaucratic solution to a problem that is actually a symptom of something else. It's like sticking your finger in a hose to stop the water instead of turning the faucet off at the other end.


Scott Wedel 7 years, 10 months ago

What the article missed was that the Home Valuation Code of Conduct is not part of some banking law, but is just what Fannie Mae and Freddie Mac have decided to protect themselves from further fraud and collusion.

Wells Fargo is still free to have their own list of appraisers.

And any honest appraiser is going to come in lower than desired on any number of deals because there have been few sales recently and some of those are very low. I know a street where a house with 50% more square feet on a better lot sold for $100K less than the asking price of another house for sale. Maybe someone is willing to pay close to that asking price, but there is no way an appraiser could be within $200K of the asking price.


Tim Scannell 7 years, 10 months ago

I recently purchased a townhome in the mountain area. During the process, I changed lenders and was required to get (and pay for) a second "independent" appraisal. Both were done within weeks of each other by different appraisers, and both arrived at the same result - the home appraisal was my offer price. There weren't enough comparable sales in the area.

As happens with most well-meaning gov't responses - the cost and time of the transaction increased, without any real benefit to the buyer, seller, lender or realtor. If anything, it reduces competition because it increases the cost to look at another lender.


seeuski 7 years, 10 months ago

This is a good article and illustrates the difficulty the new regs will and are putting on the contract dates and other things like misspelled words etc that must be fixed, this is what Ed Allbright was referring to. As far as some of the comments here like comps that are 200 miles away, it would help to have been in the industry before speaking. There is no underwriter in this country accepting comps that are more than a mile or two out at the worst and that appraisal would be conditioned or the file would be denied. As for the comment by Jim Yannaccone that he has felt pressured to get value, that is pretty bad on his part that he can't lean on the laws that are already in place to protect against that and shut that noise out. Dan Hill has it right. The biggest problem that was a major factor in the market collapse was bad lending practices that were backed by Fannie/Freddie. If they are guaranteeing loans that are at 103% LTV or all the liar loans and bad credit loans what does it matter if an appraiser is off a percent or two? Also, the lenders have been protecting themselves by constricting the max LTV's in this declining market. Bottom line is, these new regs are a feal good measure to make the public think that Congress is doing their job. I hope we are smart enough to see who in Congress was on the take and playing low with Fannie.


housepoor 7 years, 10 months ago

seeuski, "As far as some of the comments here like comps that are 200 miles away, it would help to have been in the industry before speaking. There is no underwriter in this country accepting comps that are more than a mile or two out at the worst and that appraisal would be conditioned or the file would be denied" it would be nice if you actually took the time to read the comment before dissing it.........i said the appraisers DESK is 200 miles away not the comp i guess if you can't find something negative to comment on you just make it up????


seeuski 7 years, 10 months ago

Housepoor, You are right, I read your post hastily and I apologize. You were exactly right in that post. Sorry.


Duke_bets 7 years, 10 months ago

Tim has a very good point even though I'm sure he is not aware of the point that he made. Purchase appraisals are still looked at differently than refinance appraisals. People can still buy homes at 100% of the appraised value with no money down. An appraised value is what someone is willing to pay for a property on that day. If a contract is in place at a certain dollar amount, of course it will appraise for that. Now, try to refinance that same property. Duke bets the values won't be the same.


aichempty 7 years, 10 months ago

Lots of people made lots of money in commissions by lending money to poor credit risks. That's how we got into the mess. Each of those loan brokers had nothing personal to lose by allowing the deals to go through, except now they're unemployed. People who made their money and got out are in fat city.

This has been a perfect example of how individuals acting in their own self interest with no regard to the consequences caused a huge problem in our society, and now are paying the price themselves in many cases because their abuses of the system caused it to fail. This was what Alan Greenspan was talking about when he said that the thing he never considered was the possibility of banks not acting in their own best interest for the long run.

The lenders assumed that the borrowers would be able to "do something" when the balloon payments came due. Home equity loans were the same way; it was assumed that the econony and personal income would grow to cover the need. It just didn't work out that way, and people couldn't pay their bills, and there were so many defaults on loans that the big banks and investors saw their assets disappear.

On top of all that, add the fact that properties were way overvalued, and the only winners were the folks who sold their homes at large profits due to the over-valued market. So, I guess, anybody who made a big profit on a house should be forced to give back the part that was overvalued. That seems fair, right?

So, what would Jesus do? That's easy. He was a carpenter; he'd have built his own place, and then resisted the temptation to sell it for a big profit and get into something he couldn't afford.


seeuski 7 years, 10 months ago

While everyone continues to ignore the reality and blame those down the line for the housing crisis, like loan officers, realtors etc, here is a new dose of reality for you. One of the main players in the loan crisis is once again trying to get the GSA's to lighten the lending guidelines.

Yea, thats right, but lets blame the loan officers and not the law makers, Barney Frank, who pressured the Banks to make risky loans in the first place. Once the laws were written Banks had to make those loans or suffer under redlining laws. And it certainly is not the fault of those few consumers who knowingly over extended themselves by borrowing against their homes equity, they should not be held accountable for their financial decisions because the lenders were greedy. The world is upside down. People who were smart and sold at a profit are on the wrong side of things I guess, they should have told their buyers sorry, but I can't accept your offer as I am getting too much value you keep the change. I guess Obama will take care of this issue too. Oh yea, he did say something about eliminating the capital gains exemption of 250K. GM will get it.


JustSomeJoe 7 years, 10 months ago

Well, there's a first for everything and here goes, "great post aichempty."

You make a lovely argument for necessary regulation in financial and housing markets. When left to make a decision, a person generally makes a decision based on what's going into their pocket, not what's good for the market or what's the moral choice.

A government of the people, for the people and by the people (A. Lincoln by the way) should be a government for all the people, not just the people and businesses that can afford lobbyists. I'm not sure what really could have been done to stop the cycle of inflationary home prices, stupid borrowers that thought the market would keep going up so they could flip their property, banks that made ridiculous loans to borrowers and the appraiser complicit in all of this; but maybe HVCC is a good place to start. I can state for a fact that the money spent by financial services firms lobbying the government is staggering. From 1998-2008 the financial sector spent over $5 billion in political influence in the form of campaign contributions (1.3B +) and direct lobbying (3.3B+). None of it went towards making sure individual rights were protected, all of it went towads maximizing profits and minimizing regulation. Who is watching out for us?

I'm hoping Cam Boyd and company were misquoted in the article about no inflated appraisals being done in Steamboat in the past. Take a look at the market stats over the last three years. Maybe a different word or phrase should be used other than inflated, perhaps "whatever it took to get the deal done".

I know I started on a bit of a tangent, and i probably wouldn't have joined in to discuss HVCC or this article. I just wanted to give kudos to Aich for an eloquent discussion of why it's necessary for the government to regulate. For better or worse, and much of it trending towards the worse, the regulations in place now across the goverment are in place in response to businesses and individuals that found themselves in a "self-regulatory" enviroment. For many, self-regulatory means take advantage until you get caught. Robber Barons were the genesis for the fair trade commision, anti-trust laws and the advent of labor unions. Many of the major environmental regulations are in place because companies that manufacture chemicals, plastics, clothing, leather, etc, would simply pour their hazardous waste into nearby streams, lakes, landfills, etc. Why? It was cheaper that way and profits first. The financial services industry needs a whole other post, but I think we get the idea.

Certainly not everyone in our community borrowed or built beyond their means. However, it is the financially prudent among us that are the ones being punished as the government bails out our economy. I'd hate to think of the state of our economy if Bush hadn't started TARP, and Obama hadn't set the stimulus bill and bailed out GM.


Bill Dalzell 7 years, 10 months ago

Truslow as a spokesperson. Now that's classic. Didn't you have your SRA designation revoked?


seeuski 7 years, 10 months ago

You are kidding right somejoe? Can you point to some evidence that TARP and the stimulus worked? We were threatened that if these bills were not passed then the World would end. We were told that 1 in 10 workers in this country are involved in the auto industry and may lose their jobs if we don't bail out GM and Chrysler. The worst part of the thing is that after they warned us we couldn't let GM and Chrysler go into bankruptcy they put them into bankruptcy so that Obama can give the UAW the benefits of the first in line Bond holders, unconstitutional and unlawful. Then Obama hands over 1600 Dealers the pink slip. How many employees are going to be effected by that? Why were these Franchisees told to close down especially when they are self sufficient privately owned businesses? A study has shown that most of these Dealers had something in common, they were GOP contributors. Experts say that Dealership concentration was deficient, so I bet that there will be a thousand or more new Dealerships awarded and sponsored by us, US tax$$, and given to..... I'll leave that to the imagination but the comment from Obama about spreading the wealth comes to mind. Obama promissed that without the stimulus bill passing we would hit 9% unemployment, he now admits we will hit double digits. And here we go again loading up the National debt with Government healthcare to the tune of 1+ trillion$$ for just a third of the uninsured as the CBO has found in their investigation. Obama has said on TV that we are broke, so look out. By the way, if we are broke where did the 787 billion$$ from the stimulus go to other than the AIG bonuses?

As far as your comment about Cam Boyd and inflated appraisals, the strength of the economy from 2003 to 2007 created a demand in this and many other markets where properties were going under contract sometimes on the first day. Many times you had multiple buyers fighting over homes which pushed the sales prices higher. 2007 was a record year really as one property would sell the next one on the market would be offered at 5 or 10% higher, and it would fetch it because people wanted to live here and the listings were dwindling, so the supply was low and the demand was high. Appraisers were using this upward trending data in their analysis and not all of the Appraisals supported the prices. This was common and many buyers came out of pocket to make up the difference. The down side to it all is the high investor concentration which is usual in a resort. Many of these properties are in short sale or worse, foreclosure. The markets will stabalize and start a new 10 year cycle as they always do. This time was worse though because of the abuses by Congress, Fannie/Freddie and Wall Street.


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