Reformation – Appraisal Style

Should an appraisal come out below the negotiated sale price, though, Zipperer does not recommend disputing the appraisal.

“You can dispute appraisals, but that rarely works,” he says. “Maybe once in awhile it’ll work, but the advice I give to clients? Don’t bother.”

Instead, Zipperer says he often ends up cutting his losses and seeking another appraisal from another lender.

“I have a day job; I don’t have the time to untangle their issues,” he says. “If I can switch to a different lender and have it all be good, that’s absolutely what I’m going to do.”

In addition to appraisal disputes, Wessel says agents can also seek help from the IDFPR, but like disputes, the system is rife with delays.

“The only recourse agents have right now if they have a bad appraiser is to file a complaint with the IDFPR, which can take years,” he says.

When it comes to reforming the appraisal process for future real estate markets, both Zipperer and Wessel suggest the creation of an appraisal dispute board, an independent entity that would receive complaints from agents, view both the agent’s and appraiser’s evidence regarding the property’s evaluation and make a judgement on the matter – a process very similar, in fact, to how ethical disputes are handled by Chicago’s Realtor associations.

“I think that there needs to be a way a person can dispute [appraisals] outside of this process,” Zipperer says. “We need a value dispute resolution department, [and] it’s got to be timely. It can’t be six weeks, it can’t be two weeks.”

“You need to have a complaint process,” Wessel says, “where agents can contact their local board. There needs to be some kind of liaison agent between our local board and the appraisers, because most appraisers are members of the board. That’s how they get their data.

“I really think,” he continues, “that if there was a liaison between Realtors and appraisers, where agents could file a grievance, file a complaint – and I’m not just talking about filing a complaint based on the value … Agents would need to recognize that you can’t just base your complaint upon the fact that the complaint came in low; you got to have more than that. Show us where the appraiser made mistakes. Show us where he could have used better comps.”

But appraisers, Wessel says, should also consider a reformation regarding how they approach their business, especially how they are compensated for their labor.

“Appraisers are generally independent-minded, but they’re independent to the point where it’s affecting their ability to effectively manage their businesses,” he says. “I just got my car back from the car dealer. It had to have a major repair done on it. It cost me almost $2,100. I’m looking at the invoice, and the labor rates were $125 an hour. Why? The guy belongs to a union.”

But beyond disputes and labor relations, Stafford says there is another, more fundamental aspect to the appraisal process that requires attention – the very nature of the data that appraisers are privy to.

The real estate data that appraisers have access to, Stafford explains, is, by all measures, “old” data. After all, even the most recent closings are based on contracts from two, even three months in the past, and the marketplace could have shifted in some way in those intervening months. The solution, Stafford concludes, is actually a simple one, though it opens a Pandora’s box of issues – the use of pending sales in appraisals.

“The problem with pending sales is, who’s going to breach the contract issue?” Stafford asks.

Despite the seeming radicalism of the approach (after all, it would amount to a fundamental reformation to how contract permissions are handled), Stafford is confident that most buyers and sellers would authorize the release of their transaction information once the contracts were signed. He envisions a system where, once the house goes under contract, the industry’s largest brokers would then authorize the information to enter a specific database for appraisers, who would then use the data for their appraisal purposes.

The use of pending sales data is also one of Wessel’s favorite remedies for what he calls the problem of “historical information.”

“Part of the problem we have as appraisers is that appraisers are typically dealing with historical information. They’re dealing with the past, with old information,” he says. “In a market where prices are rising 1 percent a month, those properties are not adequate; [therefore,] you have to look at the market, at what’s currently pending. [And] what better comp can you have [than a pending sale]? A pending sale is telling you, right here and now, what’s going on.”