It goes without saying that there are no simple and easy ways to deal with appraisal pressure, especially when it comes to standing behind your ethics. A major source of frustration for appraisers is the realization that clients do not have to follow USPAP. The ethical and performance requirements of USPAP apply only to appraisers, not to clients.
In other words, USPAP doesn’t prohibit a mortgage broker from calling and asking you to develop an appraisal based on a predetermined value, but USPAP does prohibit you from accepting that assignment.
When you are faced with appraisal pressure, here are some ways you might be able to manage the situation while still maintaining your ethical reputation.
1. Educate your appraisal clients
A lot of what appraisers consider pressure from clients is merely a result of the client’s lack of knowledge about appraisal standards and ethics. A lender might ask an appraiser to guarantee values beforehand simply because he or she is unaware that it is unethical for an appraiser to do so.
Avoid this by explaining why you cannot guarantee a value or remove that deferred maintenance photo from your report. You might be surprised at your client’s response if you take the time to educate him or her.
2. Get to know your current appraisal clients
Be aware of who your appraisal clients are, and be familiar with their business practices. If they are a local company, what is their reputation in the community? If they are not local, check up on them with the Better Business Bureau or an organization like the Mortgage Bankers Association.
3. Check out potential appraisal clients
You can tell a lot by talking to them on the phone for a few minutes. Do they start off the conversation asking about the quality of your work and your experience, or do they ask right away if you can get a particular value on a property? Asking them for a few references won’t hurt, either.
4. Fire clients who ask you to do something unethical
Your ethical reputation as an appraiser is worth infinitely more than any client or appraisal fee—so protect it accordingly.
Work on diversifying your portfolio so you aren’t dependent on one type of work (and in turn, making you more susceptible to pressure from clients). If you are getting more than 30 percent of your appraisal work from any one client, you may be in the dangerous position of having a client you can’t afford to fire.
5. Contact your state enforcement agency for backup
Check with your state agency that regulates banking or lending to find out how to file a complaint. If the pressure originates from an AMC, know that most states now regulate AMCs.
Enforcement efforts against mortgage lenders and brokers at the state level are uneven throughout the country. Some states take appraisal pressure seriously and will prosecute mortgage lenders and brokers who pressure appraisers. Other states, however, do not have the resources or the motivation to investigate incidences of appraisal pressure.
6. Require payment in advance when possible.
Getting paid in advance removes a primary source of appraisal pressure, and it helps put the appraiser in the driver’s seat. A client’s threat of nonpayment if you don’t write an appraisal the way they want it will not affect you if you got paid up front.
Of course, for most residential mortgage lending assignments, appraisers are not permitted to accept payment from the borrower at the time of inspection. But for non-lending assignments, such as divorces, estates, and bankruptcies, you are still permitted to collect your fee at the time of the inspection.
7. Become an expert on mortgage fraud
If you are educated on the different ways that fraud is perpetrated, you have a better chance of recognizing a scheme if someone asks you to become involved.
For example, if you find out that the property you are appraising for a lender client was originally offered at $120,000 for eight months and now is under agreement for $200,000 –with a corresponding change in list price in the MLS – you would recognize this as a possible “silent second” or “cash back” scheme. In either case, you don’t want to be involved. Check out our course on Avoiding Mortgage Fraud for Appraisers to learn more.
We want to hear from you. What types of unethical appraisal situations have you found yourself a part of? We’d love to hear your story. Share in the comments below.