When would we need an appraisal, other than to purchase or refinance?
Question of the week: When would we need an appraisal, other than to purchase or refinance?
Answer: I was catching up with my friend Tom, who I met in the early part of this century when we started working together. Tom was my go to appraiser for all my clients in the area until May 2009.
Why the sudden stop? The Home Valuation Code of Conduct (HVCC) was implemented by the Office of Federal Housing Enterprise Oversight—a lot of words to say the primary regulator for Fannie Mae and Freddie Mac, subsequently put under the umbrella of the Federal Housing Finance Agency when it was created in 2010 as a result of the Dodd-Frank Act.
The HVCC mandated that mortgage originators could not have “direct relationships with appraisers.” Meaning, we could not order appraisals directly, nor once we received a report, communicate directly with the appraiser. The result was an explosion of Appraisal Management Companies (AMCs), and a detrimental impact for many years to the overwhelming majority of borrowers (in my opinion and experience).
The HVCC was the result of then State Attorney General of New York Andrew Cuomo’s investigation of appraisal practices and alleged pressure on appraisers during the rapid housing price expansion (bubble) leading to the 2008 crash in real estate. The core of the investigation uncovered coercion, intimidation and “we need…” from several Washington Mutual offices in New York State.
From an originator’s perspective, I lost my excellent communication with Tom to anonymous relationships with AMCs. For almost a decade I could call Tom and get a quick opinion of value, discuss property conditions, when appraisal was received go through comps and justification of value for me to relay, if necessary, to clients and agents.
In place of this long term relationship, appraisals ordered via a website, the AMC would have random assignment of an appraisal. When appraisal was complete, if there were errors, or issues with value, we had to go through the AMC to then go to appraiser. Many times it was necessary for us to go to AMC management to show errors in the appraisal and value and appeal for new valuation from another appraiser—many times our appeals were valid and the AMC would pay to cost of the new appraisal. This could take weeks due to an intransigent appraiser who would not agree that other comparable sales were more relevant, or a deduction in value for some reason (busy street, no view, etc) was too high, or appreciating value for some reason (extra large lot, extra large garage with additional room, workshop, very recently remodeled kitchen, etc) was too low.
We went through a long period of poor appraisals because the fees charged to borrowers for appraisals were similar to what Tom and other long-term, excellent, appraiser were charging, which meant the fee paid to the appraisers through the AMCs were significantly lower than the market prior to HVCC. As a result, the appraisers in the AMC rotations were generally willing to work for low fees—and we got what was paid for.
Okay, I’m through cleansing my mind from that period of our lives. Back to my lunch with Tom.
I asked him what was keeping him busy these days. Since HVCC, Tom concentrated on commercial and industrial business, while still doing residential appraisals, but not through AMCs.
When would a family need an appraisal if they are not buying or refinancing a home?
A fair amount of his residential appraisal requests comes from attorneys.
Estate planning and execution can require appraisals to provide value for the estate for tax purposes. Does total estate exceed the $15 million for individuals, $30 million for married couples, below which is the federal estate tax exemption? When a trustee dies with real estate in the trust, values may be needed as beneficiaries may want to trade some liquid assets for real estate assets, or purchase real estate from other beneficiaries.
Another legal situation that may require an appraisal is a divorce as assets are being divided as part of a settlement. I say “may” as if property is being sold there generally is not an appraisal as the market will dictate the value of the property. For a couple with multiple properties and other assets, appraisals are critical to the “you get the house in Long Beach, I get the cabin in Big Bear and the condo in Palm Desert…” divvying up.
Companies, partnerships, looking to dissolve a partnership, or sell a company, find appraisals critical to negotiations and settlements.
Property tax appeals are a reason for an appraisal to possible lower property tax based on the County assessor’s value—a pre-construction appraisal may be used with an after-construction value to show how much the value of the property actually increased.
Tax incentivized appraisals may keep the industry busy if the “billionaire tax” passes in California (hopefully not), as properties are appraised to determine if a California resident is a billionaire or not (the Smith family is not).
Any transfer of property or lien situation, are possibilities to use Tom’s services.
One more appraisal service that make me chuckle, Tom has done quite a few appraisals for bail bonds. Before agreeing to post $100,000 bail for brother in-law John who has been indicted for fraud with his hospice care billing, an appraisal will likely be required by the bail bondsman to ensure there is enough equity to cover his bond.
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Three years, that is when the Consumer Price Index was as high as it was in April after rising 0.6% for the month for year-to-year prices increasing 3.8%. The core CPI (energy and food stripped out) shows the impact of rising gas and grocery prices on the economy, as the year-to-year increase in the stripped-down index was 2.8%, one-percent lower than total CPI. The data strongly re-affirms the consensus of no cut by the Federal Reserve in the near future, and increasing number of those who feel a hike may be in the cards this year.
Retail sales were strong in April, up 0.5% for the month. But…retail sales are based on dollars not units, so the 0.6% increase in prices for the month result in less bang for the consumer for their buck. Part of the increase in sales the past two months has been driven by tax refunds, to consumers, with most returns filed, refunds will be slowing, which may (should) slow sales in the coming months.
Rates for Friday May 15, 2026: Rates spike on the economic news, as well some are indicating the meetings between Presidents Trump and Xi in China did not result in any strong declarations of peace between the two nations pushed today’s rate jump. Not sure what expectations were between these two head-strong leaders, but they were higher than what occurred, or what was reported occurred.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:
30-year conforming 6.375% Up 0.25%
30-year high-balance conforming 6.50% Up 0.125%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
Thank you for those who sent polite messages last week indicating you prefer my version of the WR&MU to the AI version.
Long time readers of the WR&MU know I am chronophile, a history buff, but a bit more perhaps. As such, one of my favorite parts of the daily paper is “this day in history;” I enjoy seeing major events occurring on the same day.
This morning I learned that two global cultural icons for the United States were launched on this day, only twelve years apart.
In 1928, at a theater on the corner of Sunset and Gardner in Hollywood, a test screening was run for “Plane Crazy.” Today you can find Hollywood stars on the sidewalks near the intersection for Bette Midler and Robert Zemeckis. More appropriately to today’s date, are stars for Donald Duck, Minnie Mouse, Walt Disney and Mickey Mouse.
Appropriate, because “Plane Crazy” was the debut of Disney’s Mickey Mouse.
Twelve years later in San Bernardino, two brothers opened their McDonald’s hamburger stand. Almost forty years after the first McDonald’s in 1940, I was one of many high schoolers at the International School of Brussels who flooded the first McDonald’s that opened in Belgium—a huge event in the city for the tens of thousands of ex-patriots from many nations, and Belgians.
Mickey D’s and Mickey Mouse were definitely strong symbols for America and its culture in Europe in the late 1970’s and early ‘80’s.
Happy Birthday to the Mickeys!
Dennis
