Back when the central San Joaquin Valley real estate market was hopping, Steve Wilson would appraise 10 homes a week. Now he's lucky to do three.
But the main culprit is not the poor economy. It's a year-old anti-fraud rule designed to improve the industry.
The decline of his Fresno appraisal business -- which Wilson runs with his wife, Jodi -- has taken a toll on family finances.
Wilson, 58, says he has had to delay retirement by three years. And he is buying homes as investment properties to try to make up the difference.
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"It's tough to watch this happen," Wilson said.
Like appraisers across the country, Wilson is feeling the effects of the anti-fraud rule, adopted by the industry in May 2009.
Under the rule, known as the Home Valuation Code of Conduct, mortgage brokers and bank loan officers no longer are allowed to pick an appraiser. Instead, they have to go through a third party.
The idea was to bring greater credibility to the appraisal process and to prevent cozy relationships that might lead to rubber-stamp appraisals for overvalued properties.
But one effect of the rule, critics say, is to steer work away from local appraisers who know their community and into the hands of inexperienced or out-of-town appraisers.
This has hurt not only some appraisers, but the entire real estate marketplace, critics say: In some cases, it leads to canceled sales when appraisals come in far under the negotiated price.
"Although the intent of the [rule] is good, it's falling short of providing consumer protection -- and it's not being implemented correctly," said Skip Ogle, president of the Central California Chapter of the Appraisal Institute, a trade organization.
On the other side of the arguments are the third-party firms -- appraisal management companies -- that have seen their businesses grow substantially as a result of the rule. They contend the criticism is off-base.
"I will not say management companies never run into a bad appraiser, but if they're not performing or if there's this huge ... [number of] problems created by them, we would have heard about them, but we don't," said Jeff Schurman, executive director of the Title Appraiser Vendor Management Association, which represents management companies.
The association's member appraisers have an average of 15 years of experience, he said. Their average travel distance is 13 miles, which is not much when the average appraiser works in three counties, Schurman said.
For people like Wilson, however, it looks like outsiders are taking away their livelihood.
Appraisers who take work through management companies do so at reduced fees. An average appraisal costs between $350 and $400, but many are being paid only $150 to $225 for their work, appraisers say. The management company keeps the rest.
Wilson is among 33 appraisers who have joined an effort to form a local appraisal management company, to be called Fresno Appraisers Appraisal Management Company.
In Washington, meanwhile, lawmakers are trying to largely eliminate the rule.
Pushing for change
Broad financial reform legislation that passed the U.S. House on Wednesday includes language that would get rid of the code of conduct.
Some of its provisions would be transferred to other financial agencies to enforce, however. That means lenders still would have to work through third-party companies to schedule appraisals. But under the proposed reform, management companies would be required to pay appraisers at market rates.
The Senate has yet to approve the bill. A vote is expected after Congress returns from a weeklong recess for the Fourth of July.
The legislative effort reflects the deep controversy the rule has stirred in the real estate industry.
It used to be that appraisal management companies handled transactions mostly for small banks and lenders who could not do it themselves, said Gary Crabtree, a member of the Appraisal Institute's government relations committee. He is also an appraiser in Bakersfield.
Many of the national banks had their own appraisal departments. But today, lenders outsource much of their work to management companies.
There are about 200 management companies nationwide, with the 10 largest handling the bulk of the appraisal work, according to the Title Appraiser Vendor Management Association.
Fresno real estate agent Lynn Heintz believes she has seen the unintended ill effects firsthand.
Last summer, Heintz, of Realty Concepts, met an appraiser from Long Beach to evaluate a 2,800-square-foot home Heintz had for sale on five acres in Clovis. The appraiser had been hired through an appraisal management company.
His work alarmed her. For example, he finished his valuation in 10 minutes, when an average appraisal takes 30 minutes to an hour to complete, Heintz said. That included measuring the house and taking pictures.
She offered him price comparisons for other homes sold in the area, but he waved it off, telling her he had to rush to another appointment.
The appraisal came in $30,000 lower than the asking price, Heintz said. Since the lender only gives a loan based on the appraisal, the buyer had to come up with extra cash, she said. The buyer walked away instead.
In this case, a second buyer wanted the house enough to order a second appraisal. That appraisal came in closer to the listed sales price.
"It's not a complete transaction killer, but it certainly can be," Heintz said.
A matter of value
Michael Keller, a Fresno appraiser with 39 years of experience, acknowledges that appraisals are a matter of opinion.
"It's not an exact science," he said about the process.
To determine a home value, an appraiser looks at the location, the number of bathrooms and bedrooms, the size of the house and the lot.
Any faults in the home are recorded in the appraisal report. Then the house is compared to similar homes sold in nearby neighborhoods.
In some cases, appraisers have been known to compare tract homes to custom homes. Others have compared homes in Merced to Fresno or foreclosed homes to a regular home sale.
But those are inaccurate comparisons, Keller and other local experts said, because the locations and types of sales are so different.
The home sale prices throughout the Valley show the difference in value of each market. The median sales price for an existing home in Fresno County was $157,250 in May, according to DataQuick, a San Diego-based real estate research company.
That is more than the median sales price in Kern County, which was $135,000, but much less than the median home price in Santa Cruz County which was $545,000.
Out-of-towners might not be aware of the differences, Keller said.
Some believe that could be a selling point to win back business for experienced appraisers. That has fueled the effort to create local appraisal management companies.
An appraiser can work for a national management company, but many choose not to, because the appraiser often gets only half the fee, with the rest going to the company.
Fresno appraiser Michael Durkin is behind the effort to create the Fresno Appraisers Appraisal Management Company.
Another new company -- the Central Valley Appraisal Management Company -- is smaller. Fresno appraiser Carla Grant and her daughter-in-law, Adria, who is studying to become an appraiser, have signed up four appraisers for that firm.
The goal is to get business from small lenders in the Valley. Many are working with with national management companies. Organizers of the local companies hope the real estate community will pressure lenders to request local appraisers.
"We're starting with a grass-roots effort to work with the real estate community because they want a good job done," Durkin said. "That doesn't mean we're going to meet top value all the time, but we'll do a confident job."