Banks set the due date for the appraisal, typically driven by the loan officers. But this doesn’t guarantee that the date can be met. Because of the sheer number of appraisals being ordered, it is becoming increasingly difficult to obtain an appraisal in a timely manner.
Often, the original date must be modified, which in turn, will delay the actual closing date. This is sometimes the unintentional fault of the property owner. If the call from the appraiser is not responded to quickly, the appraiser’s schedule will be filled with other obligations. This will cause a delay in when the appraiser is available and the appraisal can be completed.
The requirement for every property transaction to be backed by an appraisal, even those that do not include the transfer for consideration — the promise to buy and the promise to sell — creates a backlog that can draw out the amount of time a property owner will wait to receive an appraisal.
For example, in the Washington area an owner of a commercial condo recently wanted to donate a condo to a non-profit tenant, and even though there was no money involved in the transaction, an appraisal was ordered.
In the past, appraisers could perform as many as four inspections in a day’s time. Add an additional day for writing the report and the appraisal could be completed within two or three days.
Unfortunately, with today’s complex rules and requests for additional information, this time has been stretched to up to a week or more from the time of inspection to the completed report. For commercial properties, this timeframe can extend to a month or more.
Here are some of the reasons:
• Never-ending requests for information from the underwriter: Because of the new rules included in the Dodd-Frank Wall Street Reform and Consumer Protection Act, underwriters are asking for more information than ever before. While Dodd-Frank’s purpose was to lower risk in certain areas of the financial system, it also adds some additional burdens.
With the new rules in place, underwriters can ask for more photos, additional details, and so on, leading to longer wait times for final appraisals and loan approvals. This issue seems to stem from the fact that before 2008, underwriting guidelines were so relaxed that almost anyone applying could secure a loan.
Now mortgage companies and banks have gone to the other extreme requiring more information from buyers and appraisers.
• Appraisal management companies: There was a time when a loan officer had a favorite appraiser and would simply call them when an appraisal was needed. This is no longer the case. Banks now work with appraisal management companies with the goal of a firewall between the loan officer and the appraiser.
Loan officers are no longer allowed to speak with or have a connection with the appraisers. While on the surface this may seem wise, the quality of appraisals can suffer. Often times, appraisal management companies use a computer program to select the appraiser when a request is received. This means the appraiser may be from out of the area and have no personal connection with or experience in the home’s area.
Sometimes, the true value of the property may be entirely based on the land itself. In these more complex situations, the appraiser needs to have an understanding of local zoning ordinances which may not be the case if the appraiser is from outside the area.
• The Real Estate Settlement Procedures Act (RESPA): This is a group of regulations that provide more transparency to buyers. Additional regulations will be put into effect in October that will introduce more simplified closing documents that better spell out how much the buyer will pay. They came about because too many buyers were signing loan agreements with terms that they were unaware of, such as floating rates and points.
With these new rules, the lender is required to get all documents to the buyer three business days before the settlement. While the transparency is good, it creates a further burden on appraisers to complete their appraisals quickly, which can lead to errors, so the lenders can meet the settlement date.
So what can consumers do to help ensure a timely closing?
The most important thing a consumer can do to make the process easier is to be prepared. Have a copy of the property survey available for the appraiser. Also provide the appraiser with a list of the home improvements that have been recently made.
In addition, you’ll also want to provide copies of the past appraisals, blueprints and a builder’s floor plan if available. Let the appraiser know how many bedrooms the home has, as well as bathrooms and outdoor improvements such as a pool or tennis court. Be sure to partner with the appraiser, so he or she has all of the information necessary. This is the best way to speed up the appraisal process, and to have a positive outcome.
Fundamentally, a real estate appraisal is a trained professional’s opinion of value. This opinion must be based on research in appropriate market areas, assembly and analysis of information pertinent to a property, and the knowledge, experience and professional judgment of the appraiser.
The consumer needs to play an active role in the process as well. The property owner must be flexible with inspection time frames and provide the appraiser with as much relevant information as possible.