By MITCH WEISS/The Associated Press
November 21, 2008
CHARLOTTE, N.C.- Regulators in Virginia are the first in the nation to actively discourage real estate appraisers from using some online systems that could allow unscrupulous agents and lenders to remove critical information from reports.
The decision this week by the Virginia Real Estate Appraiser Board is aimed at ensuring that consumers see every detail of an appraisers' report.
When appraisal reports are altered, consumers can end up overpaying for the property. That's because critical information that can reduce a home's value, such as property damage or a home's proximity to railroad tracks and highways, for example, can be hidden from prospective buyers.
"This is about the integrity of appraisals," board chairwoman Diane Quigley said. "I'm just surprised why aren't the regulators aren't more interested in it."
Appraisers have for years used software to prepare reports before sending them to clients.
For speed and convenience, lenders and appraisal management companies have increasingly demanded that property reports be filed via Internet sites developed and operated by third-party companies, such as Oxford, Miss.-based FNC Inc.
The issue was brought to the board in February by George Dodd, an appraiser from Mechanicsville. He complained some companies that transmitted appraisal reports to lenders were forcing appraisers to convert the electronic documents into a format that allowed the report to be altered and information removed.
Dodd said the conversion allowed pictures, data on comparable sales and lists of necessary repairs to be removed from a report. That, in turn, makes it easier for rogue agents to sell a home for a higher price and lenders to make a larger loan.
"If I'm the consumer and I'm buying a piece of property, I want to know that I have an independent estimate of what it's worth," said Dodd, 49, who has worked as an appraiser for 25 years.
In February, Dodd was asked to send a report through FNC. To send it, Dodd had to convert his copy to FNC's format. When he did, his software displayed a warning: "This means that what your client receives is not what you created with your appraisal software package."
Neil Olson, chief legal officer at FNC, said his company developed the online tool seven years ago because lenders wanted a predictable format. He noted that appraisers — not his company — must convert the reports and said FNC didn't unlock appraisal reports to alter or retrieve information.
Still, under rules adopted Tuesday, the Virginia board says appraisers should no longer use sites such as FNC's and instead send their reports on a property's value in a secure and unalterable Adobe PDF format.
A recent six-month Associated Press investigation found widespread evidence that real estate appraisers are pressured into inflating the values of homes at the direction of mortgage brokers and lenders.
The AP's report also found that since 2005, more than two dozen states and U.S. territories have violated federal rules by failing to investigate and resolve complaints about appraisers within a year.
Experts said the failings helped contribute to the current crisis in the U.S. housing market.
If appraisers file reports that are later deemed to have been altered, they could face penalties of $2,500 for each violation and possibly lose their licenses.