VA Appraisals and the Stone Age
By Charlie Elliott Jr., MAI, SRA

In recent years much has been done to streamline the appraisal process making appraisers more accountable to lenders as well as borrowers and permitting a faster and more efficient product. When one looks back at the practices of the past and compares them today’s cutting edge state of the art systems, they take on a shades of “The Flintstones.”

Think about it: appraisals are prepared and signed electronically and shipped instantly via e-mail to clients, who personally selected and ordered the products without any intervention from others. For the most part, we only see the skeletal remains of approved lists, fee panels, bureaucratic rotational-ordering systems and self-centered appraisers, who are only accountable to cronies at some government office.

Today, many of the appraisals are on limited forms which do not take “forever and a day” to produce and, on appropriate occasions, exterior inspections are permitted offering a more streamlined loan-collateralization process. Much of the comparable sales data is obtained from the Internet, eliminating those dog-eared MLS books with the faded black-and-white pictures, which we all drug around for up to two months until the next comp book came out. This new environment has provided the client and the appraiser with a freedom not known to appraisers and lenders in the past. It is good for business; it is efficient; it encourages new talent; and it permits those involved to take personal ownership of each project. Many of the most conservative government agencies have subscribed to this new and better way of doing business. These include the likes of Fannie Mae, Freddie Mac and FHA, some of the most change-resistant organizational entities known to man.

There is, however, one agency of the federal government that has not jumped exactly head first into this new and modern loan-collateralization system. That would be the Veterans Administration or the VA.

The VA still has a very “close-to-the-vest” panel of approved appraisers and, for decades, it has been next to impossible for a person without the right political connections and gray hair to crack into the business. Not only has it been extremely difficult for new appraisers to get their names on the list, but lenders are also not permitted to order appraisals from those on the panel for their VA loans; only the VA can do this. Furthermore, I have never seen the list of VA-approved appraisers, and sometimes I wonder if it does not carry a security classification such as that of top-secret military documents.

Recently Rep. Adam Smith (D-Wash.) introduced a bill into congress entitled the Veterans Appraisers Choice Act (H.R. 1500) which, if passed, would dismantle the VA’s system of rotating approved appraisers and open up the selection process to other parties involved in the transaction.

The VA currently has a system very similar to that which FHA employed in the past. A number of years ago, the FHA went to an open system that required appraisers to become FHA certified. The agency, however, does permit selection by the lender, and it does have its own appraisal guidelines. The significant point with FHA is that any state-certified appraiser in good standing is allowed to become FHA certified and may be selected by the lender originating the loan. Fannie Mae and Freddie Mac do not approve appraisers or select them. They instead place the responsibility on the lender to select any appraiser certified by the state where the property is located. They do, however, have their own appraisal guidelines. The common thread among these alternatives to the VA system is that they provide a choice. They all still have guidelines and mandate that the work be performed properly, but neither take the “holier-than-thou” approach, insisting that they not only maintain guidelines but also approve all appraisers and assign each case to a specific appraiser.

Do you suspect a little micromanagement here? Do you have reason to believe that the folks at the VA are more qualified to select appraisers and place appraisal orders than those of mortgage companies and banks? Is a VA loan really so different that the accompanying appraisal require such hand-holding and bureaucratic monitoring?

Now, I am a veteran and I am an appraiser. Once had a VA loan, and I consider myself qualified to, at least, beg the question: What is it about making VA loans that is so different than making others? Is it that veterans are somehow less competent than the average citizen to purchase a home, thereby requiring more big-brother scrutiny? Is it possible that somehow there are those within the VA with designs upon protecting their positions at the expense of the free market?

To date, there is no evidence that Rep. Smith’s bill has received traction in Congress.

“We are trying to get the process going,” said Katharine Lister, press liaison for Rep. Smith. “Veterans deserve the same consumer choice and the same opportunities as other buyers.”

Lister stated that the bill would correct a “lack of prompt response.”

“Realtors are discouraging sellers from taking bids from veterans, because of slow, low-ball appraisals,” she said. “It hurts vets and it’s hurting sales.”

As with most politically charged “hot potatoes” no one from the VA has come forward to endorse the proposal. There appears to have been a softening of position, however, by the VA recently, when it announced that it would add 2,000 new appraisers to its fee panel. Could this be an attempt to distract attention from the real issue of choice?

I applaud Rep. Smith in his attempt to shed light on the issue of openness and choice. I encourage him to press forward with his bill and to ignore the recent announcement of the VA stating its intention to add more appraisers. It is unlikely that the VA is going to make the changes that need to be made short of Congress passing legislation requiring such a change.

In my humble opinion, what we have here is another example of the time-honored “government agency self-protection plan” in action. While it would appear to be unlikely that the VA would voluntarily open the system to the “light of day,” just on the offhand chance that VA Secretary Anthony J. Principi may read this article, we appeal to him to put politics and bureaucratic protectionism aside and provide the necessary changes to bring the VA out of the “Bedrock, with Fred, Wilma, Pebbles, Barney and Betty” and into the 21st century.

Charlie W. Elliott Jr., MAI, SRA, is President of ELLIOTT® & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889 or charlie@elliottco.com or through the company’s Web site at www.appraisalsanywhere.com.