Old Appraisal System Now Looks Pretty Good

I read the article on the problems with FHA appraisals (“FHA System Attacked for Shoddy Appraisals,” Oct. 5). It is about time that this problem was brought into the public eye.

For the last 3 1/2 years I have been on contract with the Los Angeles HUD office as a review appraiser, completing post-endorsement reviews of FHA appraisals.

When I began reviewing appraisal reports for HUD, there were two options a lender could use: The lender could employ a staff appraiser or it could use the FHA “fee panel.”

Toward the end of 1994, the new “lender select” system was implemented. With this system, any licensed appraiser could register with the local HUD office and solicit FHA business from an FHA-approved lender.

I have reviewed thousands of appraisal reports and have found that there has been a sharp decline in the quality of the appraisal reports since the “lender select” system was implemented.

According to my records, between 30% and 40% of the appraisals reviewed were what would be considered poor quality, primarily because of the overvaluation of the property--and this is from the standpoint of a “desk” review. I have seen on several occasions in which a property has been overvalued by $10,000 to $30,000 or more. That may not seem like much, especially if you live in areas such as West L.A., Bel-Air, Walnut or Palos Verdes Estates, but considering the market that FHA services, these amounts can reflect an overvaluation of 20% to 50% of the property’s actual value.

There were flaws in the Fee Panel system, but they must be considered minor compared to the fraud prevalent with the “lender select” system.

With the fee panel, a consumer could count on an objective, unbiased third-party estimate of value. An appraisal nowadays is basically a formality in the closing of the loan, as there are numerous appraisers out there who can be bought.

ANDREW SCHlFF

Lancaster

Schiff is a certified residential real estate appraiser.