Virginia regulators block real estate appraisers from online systems

By MITCH WEISS
Associated Press Writer

CHARLOTTE, N.C. (AP) - Regulators in Virginia are the first nationwide to actively discourage real estate appraisers from using online systems that could allow unscrupulous agents and lenders to remove critical information from the appraisal report.
The decision this week by the Virginia Real Estate Appraiser Board is aimed at ensuring 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," said board chairwoman Diane Quigley. "I'm just surprised why aren't the regulators aren't more interested in it."
The issue was brought to the board in February by George Dodd, an appraiser from Mechanicsville, Va., who complained that some companies that transmit appraisal reports to lenders are forcing appraisers to convert the electronic documents into a format that allows the report to be altered and information removed.
Dodd said the conversion allows 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 its worth," said Dodd, 49, who has worked as an appraiser for 25 years. "That way I know the information I'm getting about that property hasn't been distorted, changed or altered in any way or form. I don't want anyone manipulating the information."
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.
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 property reports be filed via Internet sites developed and operated by third-party companies, such as Oxford, Miss.-based FNC Inc.
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, the 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, and not his company, must convert the reports, and said FNC doesn'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.
Olson, who wasn't at this week's hearing, said he was surprised by the board's decision and was trying to find out more about it.
"To say you can't use (technology providers) seems pretty strong. I'll be curious to see what they actually write, and I would be interested in seeing what their counsel says about what they can do," he said.
But Jennifer Sides, general counsel for an appraisal software maker, praised the ruling.
"It's a great step in the right direction," she said.
The board plans to warn appraisers they place themselves in a "huge bind" by not following the guidelines, said board member Pat Turner. If an appraiser files a report later deemed to have been altered, they could face penalties of $2,500 for each violation and possibly lose their license.
"If the appraiser is going to be held responsible for the appraisal report that they produce," Dodd said, "then they have to have the right to deliver the whole report to the client."