Since the creation of the new Home Valuation Code of Conduct, the battered appraisal industry has been squeezed by lenders and appraisal management companies looking to reduce their fees.

The latest wrinkle in the effort to cut down the appraiser’s slice of the pie is a new desktop appraisal program, released last month by Wells Fargo. The program offers appraisers $55 to appraise a property without ever leaving their office – and doesn’t pay at all if they can’t complete a report.

Various types of desktop appraisal programs are used by many lenders. But the Wells offering has caused a storm of controversy among appraisers who feel it doesn’t follow the guidelines for Uniform Standards of Professional Appraisal Practice (USPAP), the industry standards governing ethical appraisal practices.

Restricted Use

Critics have suggested that the fees offered by the program violate the “contingency fee” standards in the appraiser’s code of conduct. Using the Wells program, if a property cannot be evaluated by the appraiser–for instance, because of some unusual feature which makes it hard to come up with comparable properties in order to estimate value—then the appraiser is not paid a fee.

By not offering a fee for such “no hit” properties, appraisers contend the firm is making their payment contingent upon the appraiser coming up with a value for a property. Such contingent payments are not allowed under USPAP, so that appraisers aren’t pressured by interested parties to come up with a desired value for a property.

Critics have also raised questions about how the report would be used. Wells Fargo specified the product would be a “restricted use” appraisal, intended for the eyes of only one recipient, who is already familiar with the property. The information provided in restricted use reports is not as detailed as that offered in a summary report, the type required for mortgages sold on the secondary market.

But the Wells Fargo product is intended for single-unit residential properties. With new guidelines from Fannie Mae making clear that a homebuyer should be considered a potential user of an appraisal report, simply declaring that a shortened report is intended for restricted use may not prevent others from accessing it, and possibly being misled, when negotiating the purchase of a property.

“Under Massachusetts law, if you pay a lender to do an appraisal on your property, they’re required to provide you a copy of that report within 30 days,” said Stephen De Castro, principle of S.G. De Castro Appraisal and Consulting in Boston. “So that’s another intended user right there.”

Looking For A Scapegoat

Moreover, even though the form of such reports is truncated, unless an appraiser has already dealt with that property, the amount of work and analysis required is similar to that of a summary report.

“You’ve already done all the work required for a summary report…but then you’re producing this short little report,” said De Castro. “You’ve done all the work!”

Anthony Tradello, a Marlborough appraiser and certified USPAP instructor, said that although he was not familiar with the new product, there has been a move from some banks toward using more automated valuations, similar to Wells Fargo’s, which can be quickly processed.

“They’re looking to use the appraiser as a scapegoat,” Tradello said. “Their name will be on the bottom line, but the thing will not be done right.”

The Appraisal Standards Board, the industry group charged with overseeing the administration of USPAP under the umbrella of Washington, D.C.’s The Appraisal Foundation, is aware of the controversy but has not yet weighed in.

John Brenan, director of research and technical issues for The Appraisal Foundation, said the Appraisal Standards Board has been made aware of the Wells Fargo product and they are in the process of formulating a USPAP Q&A that would provide guidance for appraisers on the issue.

Brenan said Wells has also contacted the Appraisal Standards Board to look at how any potential compliance issues might be resolved. If the firm can resolve the issue, the board may not need to issue guidance.