In this day of increased real estate appraisal regulation; banks, appraisers, and appraisal management companies are being subjected to more, “under the microscope” scrutiny. The costs of appraisals have risen significantly as a result of the Dodd Frank Act and one would think that consumers would be protected from inferior appraisals. Unfortunately, this is not the case.
One would expect that, at a minimum, all appraisal regulatory agencies would require the appraiser to perform inspections of the surrounding neighborhood and the subject property. The primary regulations affecting real estate appraisals for bank loans in the United States are the Uniform Standards for Professional Appraisal Practice (USPAP) and the Interagency Appraisal and Evaluation Guidelines.
Perhaps you guessed it! With all of the many pages of regulations contained in these government mandated appraisal rules, none of them require that the appraiser appraising a property physically inspect the neighborhood or the subject property. Would common sense not dictate that an appraiser inspect and kick the tires on a property under evaluation?
In my practice I regularly find properties being appraised, whereby the appraiser did not even do a curbside or drive-by inspection of the subject property. In some cases appraisals are being prepared by appraisers located out of state, who never enter the state where the property is located. Typically these are low cost appraisals completed for commercial and residential bank portfolio properties.
Fortunately there are banks, appraisers and appraisal management companies that have inspection requirements which exceed the minimum for USPAP and the Interagency Guidelines. Sadly enough, not all do. It is disappointing that our politicians and regulatory agencies spend so much of our time, money and mental energy mandating appraisal regulations, when they do not even require an appraiser to inspect the neighborhood or property being appraised. Why must this condition exist?
I say to Mr. Dodd, Mr. Frank, Mr. Regulator, Mr. Banker and to all others to whom we entrust our financial system; all real estate appraisals should at a minimum be subject to neighborhood and subject property site inspections by the appraisers performing the appraisal. In the United States we are paying an even heavier regulatory price for a sound financial system, and with this should come quality service and accountability.
Charlie Elliott, MAI, ASA, SRA, a Certified General Appraiser is the founder of ELLIOTT & Company Appraisers. Elliott & Company is an Appraisal Management Company specializing in complex title claim valuations for the title insurance industry. Mr. Elliott is not an attorney and nothing contained herein should be construed as a legal opinion or legal advice. All statements and opinions contained herein are those developed by Mr. Elliott given his three decades of education, training and experience as a complex property appraiser.