“Where's the bridge to Bald Head Island?”
The question is part of a story making the rounds in the area's real estate industry.
The answer, of course, is that there is none.
But it was an honest question asked of a Southport real estate agent by an out-of-town home appraiser.
He had arrived, clearly from Somewhere Else, without a boat to Bald Head or the ability to use the local multiple listing service to check statistics, the story goes.
How could he appraise a home in the Wilmington area when he didn't live here?
Though lenders and real estate agents say bad appraisals are not derailing the closings of home sales, they wonder whether it's wise to add another variable to the area's complex real estate equation: foreclosures, investor homes, and values that historically have varied from one part of town to another or from one subdivision to the next.
With all those factors in a changing market, sellers, buyers and lenders might not be blamed for wondering whether an appraiser from Pinehurst can fairly evaluate a home in Pine Valley.
This is where Bald Head guy comes in. He had been sent to Southport by an appraisal management company, or AMC. Such companies act as middlemen between banks and appraisers. And they sometimes send appraisers from hundreds of miles away to value property.
Stricter controls
AMCs are an outgrowth of the Home Valuation Code of Conduct. It became effective May 1, 2009, when mortgage company Freddie Mac said it would no longer purchase mortgages from lenders that did not adopt the code.
The code is meant to, among other things, build a firewall between the lender and appraiser to block any conflict of interest between the two. Some banks, especially large ones, use the AMC as that barrier.
But the code can – and is – being followed without the use of AMCs.
While most in the housing industry agree the code was needed, the emergence of AMCs raises hackles.
“AMCs are a train wreck,” said longtime Wilmington appraiser Howell Graham. The appraisers that AMCs hire for lenders are “looking for the cheapest guy they can get.”
That often means a novice and/or someone locally who is hurting enough financially that he or she will work for cheap, Graham said.
That, in turn, puts pressure on the veteran Wilmington-area appraisers who have seen their business fall with home sales.
Actual bank practices
There are, however, alternatives to using AMCs to satisfy the new conflict-of-interest rules, said Michael Lopez, president of Wilmington-based mortgage bank Alpha Mortgage Corp.
“We have our own appraisal department,” Lopez said. “We use local appraisers we've used for years. We know their track record.”
Lopez added that Alpha puts appraisals in rotation by ZIP code.
“A lot of appraisers will call Realtors and ask them to look up (comparable sales) because they are not a member of the local MLS,” Lopez said. “That goes against everything that the whole thing's about.
“A loan officer (at Alpha) has no connection at all to who the appraiser is,” Lopez continued. “If there is a request for an appraiser you cannot use that appraiser.”
Waccamaw Bank, the last of the locally based banks, uses only local appraisers, and it maintains a data bank for that purpose, said Rick Norris, chief credit officer at the Whiteville-based company.
“When I was a lender, the lender would order an appraisal and review it before it got to closing. I probably knew the appraisers (and saw them) on a regular basis,” Norris said.
Now, however, “we have someone working for us in our headquarters order the appraisals from a revolving list, and add them to a central list,” he explained.
Where is the market?
No matter where the appraiser comes from, the facts of life are: We're in a deep recession and housing prices have taken a dive after a huge run-up.
From nearly more than a thousand sales a month amid the boom, we're down to 300 or 400 now, and many of them are foreclosures or short sales, according to the Wilmington Regional Association of Realtors.
Though prices vary by region, “by and large the average price on one- to four-family dwellings is down 25 percent,” said Dale Hall, chief banking officer of First Federal Savings and Loan of Charleston, which took over the failed Cape Fear Bank last April.
“If a house appraised for $200,000 before the recession, on average it would come in now at $150,000,” said Hall, who emphasized that First Federal uses local appraisers in each of its markets.
The biggest challenge appraisers have is “to determine what our market is,” said David DesChamps of DesChamps Appraisal Group in Wrightsville Beach.
For instance, “there are market areas within Landfall – condos, town homes, waterfront homes.”
Not all towns and neighborhoods are affected equally by the down market.
You can't be “geographically incompetent” and know neighborhood nuances, said DesChamp, who is president of the Southeast Chapter of the N.C. Professional Appraisers Coalition.
Pete Frandano, principal with Southport Realty, sees money as a motivation to use of AMCs. “A lot of it is being driven by the banks trimming costs, and the consumer is being hurt.”
Fees are also a point of contention between local appraisers, bankers and AMCs.
With some banks, “you pay them a fee of about $400 to $450,” Lopez said, and then the AMCs they use charge the bank $500. “Then they shop appraisers willing to do appraisals in my area, and work for reduced fee,” he continued. “They try to get them for 50 cents on the dollar.”
He said Alpha collects $450 from the mortgage applicant “and it all goes to the appraiser.”
Three other banks were contacted for this story. First Bank, the Troy-based institution that took over the failed Cooperative Bank last June, declined to participate.
BB&T and Wells Fargo were asked how they are applying appraiser-lender conflict-of-interest rules, and whether they use local appraisers.
Both responded only with prepared statements issued through their spokeswomen.
BB&T, the largest state-chartered bank in North Carolina, said:
“We are engaging qualified, approved appraisers; we're meeting regulatory requirements and the home valuations code of conduct; and we are comfortable that our appraisal practices are sound and allow us to serve our cllients and investors appropriately.
We have multiple approaches to engaging appraisers.”
Wells Fargo owns an AMC, a California-based joint venture with First American Corp. called RELS LLC (Real Estate Solutions).
Wells Fargo's statement said:
“Accurate appraisals are critical to the mortgage lending process. Wells Fargo has invested substantial time and resources in the quality control of the valuation process to, among other things, ensure that individual appraisers have relevant knowledge of the markets and properties they review.
“In addition, we support the separation of the work of the loan broker and the property appraiser … .”
Bank of America also has an AMC through Texas-based LandSafe Appraisal Services, part of the bank's wholly owned subsidiary LandSafe Inc.
The code has its base in the era of easy money: With prices thought to be rising forever, many banks would make a loan even if the house being bought was overvalued. After all, the bank wanted to make the loan, the buyers wanted to buy and agents wanted their commission.
But appraiser Graham said that because his office “was known to be conservative office, Realtors would not call us to ‘make it work' ”
Regulators became “worried about home cooking,” said Waccamaw's Norris.
Wilmington-area residents realized the folly of it all when the housing bubble burst and Cape Fear and Cooperative banks failed.
It's a different story these days.
“The lenders I've spoken with want the fairest appraisal they can get,” said David Small, sales manager at Prudential Laney Real Estate. “They're not after overachievers. Lenders are cautious and the appraisers are conservative.”
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Ken KeeganReal Estate Broker(910) 523-0903 mobileEmail Mewww.KenKeegan.com
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