real estate

Real estate appraisal rules changing

That said, the end of the HVCC should help to clear up widespread confusion over who can present information -- including data about recent sales -- to an appraiser.

"The intent of the HVCC was to put a firewall between the lender and appraiser, but it put up such a big wall that everybody was afraid to talk to appraisers," Salvant says. "The (new law) does say that Realtors and sellers and buyers can talk to (appraisers)."

Appraisal management companies

The new law also regulates appraisal management companies, or AMCs. AMCs aren't new, but they have gained more control over real estate appraisers and appraisals in the 15 months since the HVCC was implemented.

The financial reform law requires federal oversight of AMCs controlled by federally regulated financial institutions. It also requires state registration of all other AMCs, according to the Appraisal Institute.

Those requirements should help consumers find out who owns an AMC and get more information about these companies.

AMCs will be required to pay appraisers reasonable and customary compensation based on fee surveys that exclude those companies, according to the Appraisal Institute. The amounts paid to the appraiser and AMC will be disclosed as separate items on the settlement statement that shows the closing costs of a real estate transaction.

The Consumer Financial Protection Bureau will be charged with establishing federal rules to ensure appraisers' independence. These rules will preempt or supplement existing federal and state appraisal laws and regulations, but little is known about the rules so far since they've yet to be proposed by the new agency.

Questions to ask

If there is an upside to the confusion over appraisals, it's that homebuyers, sellers and homeowners are now more aware of these issues, says Richard Koestner, a partner at Koestner, McGivern & Associates, an appraisal firm in Davenport, Iowa. He says they are more likely to ask questions about the appraiser's experience and expertise and calls the development "encouraging."

He also offers a few examples of questions buyers and sellers might want to ask:

  • How long have you been an appraiser?
  • How many appraisals have you completed?
  • How often do you appraise homes in this area?
  • How familiar are you with the local market?
  • Where do you get the data that you use in your appraisal reports?

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