This may come as a rant, but it’s my blog and I feel it is important. There are many problems with the NYC real estate market, and the appraisal process is just one of them.
Now, everything I say here is actual, I have seen cases on a number of sales. I cannot give any names or specifics, because my lawyer says it will bring suits against me and could cause me to lose my license to practice in New York. Therefore, I am going to leave it as a broad story and you will just have to trust me that this is happening.
A few years ago, during the dreaded financial crisis, a new law was passed to prevent mortgage fraud. This law is called the Home Valuation Code of Conduct. What it does is create a middle-man between the banker offering the loan to the home buyer, and the appraisers valuating the property for the bank. The basic concept is fine, keep the banker away from the appraisal process and stop any banker from giving kickbacks to the appraisers to overvalue homes.
In actuality, this law has created a completely muddled process in NYC. The middle management company picks appraisers at random for all different properties. As a broker on the street, I am having appraisers sent from Connecticut to appraise properties on 101st Street in Manhattan. Typically they are out of their element. Appraisers are asking me questions like, “How far is this apartment from Times Square?” and “Is this close to where Derek Jeter lives?” Appraisers are over- and under-appraising properties because they do not understand that ten blocks in Manhattan can make a million dollar difference. Many people will respond to this by saying that in our rising market, under-appraisal of property is common, but I am seeing properties being over-valued just as much as under-valued. Being in the field, I have a first-hand experience with many of these appraisers and some of them just have no idea as to where they are.
The next problem in this process is with money. These middle-management companies are taking a big percentage of the appraisers fee. This means that many very good appraisers are either leaving for better work, or taking on many more appointments then they had in the past. Thus, the overworked appraisers are rushing jobs, and in my opinion not doing as good as a job as previously.
The third problem I have is with the middle-management companies themselves. They are put in place to protect against bankers fuddling the system, but most of these companies are actually owned by banks. They just become another revenue stream for banks, the very same banks who donated to Governor Cuomo, who enacted the HVCC to begin with.
Now I don’t have a perfect solution to this situation. But I know if we discard HVCC (which will never happen) the process will be faster, more accurate and much less corrupt.