Michael Lenny of Cherry Hill has 49 years in the real estate industry, more than 30 of them as an appraiser.
Five years ago, he stopped doing appraisals for lenders. The income he made was not worth the trouble, he says.
That's something I've heard from many appraisers, both before and since the introduction of the Home Valuation Code of Conduct in May 2009.
This code of conduct, devised after the housing bubble burst, prohibits lenders from using their own appraisers for any new and refinanced mortgages they generate, and bars mortgage brokers from choosing or paying appraisers.
Lenny stopped working for lenders before the new rule, at a time when some lenders and mortgage brokers were trying to exert undue influence on appraisers to inflate home values.
When someone of Lenny's standing and expertise brings a real estate issue to my attention, I am willing to give it an airing. He informs me that the latest underwriting ploy by lenders limits appraisals to comparable sales within a market area in which the sold or refinanced property exceeds the highest price paid to date.
They do so by requiring "that the end-result appraised value cannot be higher than the highest price paid to date."
"Inflation alone does not result in higher real estate values," Lenny said. What do are "continued maintenance, upgrades, and a community mind-set that knows it is well worth making upgrades to existing homes when they see their neighbor's upgraded home sells for a higher price than one nearby with fewer upgrades."
In Lenny's view, that has been the foundation of not only higher prices, but market appeal - a strong community that "draws the interest of the general buying market."
If the lender insists, however, that an appraiser cannot appraise a property for more than the highest price paid in the neighborhood, then "I ask how will home values increase if attention is also not given to upgrades, not to mention square footage, lot size, lot location, and the list goes on for items that are and have been typical adjustments by an appraiser in the appraisal report?" he asked.
Lenny said there were many reasons for his decision to stop doing mortgage appraisals, with the main one being the constant changing of underwriting rules.
"I have seen, over the years, a general breakdown in the lender/appraiser relationship from a trusted and respected one to what appears to be happening today - 'Do the appraisal our way, or you're off our list.' "
That is "truly sad," Lenny said, because "the most important aspect of getting an appraisal in the first place is to have an independent and professional opinion."
Mortgage appraisers are being told there is no need for the "cost approach to value," he said.
The income approach is rarely used in residential appraisals unless the property is considered a rental. "That leaves just the sales-comparison approach, and that is where the rules and guidelines come into play in an appraisal report," he said.
Sales comparisons are limited to three to four months, rather than six, and within one mile, Lenny said. (His own neighborhood is more than one square mile in size.) Inclusion of a listing in the report is required, meaning that a house for sale is compared with those that have gone to settlement.
Under these conditions established by lenders - those selling to Freddie Mac, Fannie Mae, or FHA - home values will never increase, Lenny said.
Because of these rules, even a buyer who can put down 40 percent "still falls within the 'guideline' that the subject property cannot appraise for a price higher than exists on record."
On the House:
Inquirer real estate writer Alan J. Heavens is the author of "Remodeling on the Money" (Kaplan Publishing). His home improvement column appears Fridays in Home & Design.
Contact Alan J. Heavens at 215-854-2472, firstname.lastname@example.org or Twitter: @alheavens.