Recent Changes and Expectations for 2016
This past year, many regulations have changed in the real estate industry. The changes highlighted are for the appraisal industry and will affect REALTORS and their transactions.
The Virginia Real Estate Appraiser Board implemented a licensing program for Appraisal Management Companies (AMCs) in February 2015. The law requires all AMCs to be registered by December 31, 2015. After this deadline, firms associated with incomplete applications and found to be practicing without an AMC license will be referred to the agency’s Complaint Analysis & Resolution Section for subsequent enforcement action. This law will affect whom your buyers choose as their lender. If the lender uses an AMC that is not licensed in the state, an appraiser should not complete an appraisal for that AMC. This could hold up the closing of a deal, since the lender will need to contract a licensed AMC or the buyer will need to find another lender. A list of licensed AMCs can be found at http://www.dpor.virginia.gov/uploadedFiles/MainSite/Content/Boards/Appraisers/REAppraiserMngementLicenses.pdf. This list is constantly being updated, so be sure to check it frequently.
Customary & Reasonable Fees
In March 2015, Governor McAuliffe signed into law the requirement of AMCs to compensate appraisers a reasonable and customary fee. AMCs have traditionally taken a portion of the appraisal fee paid by the borrower and paid the appraiser a reduced fee of typically $100 - $200 less than the fee collected. The borrower has no knowledge of this third party, since the Good Faith Estimate shows one appraisal fee and not the breakdown of the real costs involved. The law now states the appraiser must be paid the fee they would typically charge a direct client (Customary & Reasonable). The law does not state that the appraiser and AMC fees be segregated, so the borrower may be paying a higher appraisal fee to compensate for the higher appraiser fee.
FHA consolidated Single Family Mortgagee Letters, Housing Notices, past Handbooks, and other policy documents into one handbook that was effective from September 14, 2015. The handbook does not have many procedural changes for appraisers. The biggest change is wording such as changing “should” to “must” for inspections and reporting. One important inclusion for REALTORS is that the handbook once again stresses the fact that Appraisers must have the FULL contract and any other pertinent documents prior to starting the appraisal process.
The biggest affect TRID has on appraisals is if a fee change is necessary for the assignment. The appraisal fee is a service fee that cannot differ from the loan estimate, unless there is a change of circumstance. The allowed circumstances include:
The concern is that some lenders may not be willing to change the fee once it is entered on the loan estimate for fear of incompliance. This could cause a delay in the transaction if the appraiser does not receive the requested fee.
The Appraiser licensing requirements were updated in January 2015. All licensed appraisers must now hold a college degree. As of 2017, the Appraisal Qualifications Board will require background checks for all new applicants. Virginia has not stated whether this requirement will include renewing licensees as well.
The 2016 real estate market is expected to have a slower rise in sale prices, according to the Home Buying Institute. Freddie Mac reports that the 30-year fixed mortgage rates have slowly increased since January and will continue to rise through 2016 to a rate of 5.1% by the end of the year. Another factor that may affect the market is the Presidential election. Movoto reports that history has shown a decline in sale prices during a Presidential election year. This is most likely due to a decline in total sales, as election years are stressful due to the uncertainty of the outcome. Many people choose not to make big decisions, such as buying or selling a home, until the election is over. Currently, job layoffs may affect our market. Since July, five large employers have announced over 3200 layoffs or relocations. Three companies are in the government-contracting sector, one is in the resort industry and one is in the mortgage industry.
Overall, the regulation changes are positive for the appraisal industry. Since most have been in effect for several months, lenders and REALTORS should already know how these changes affect their clients.