Banks, Realtors Push US Agencies to Cap Home Appraisal Do-Overs

Banks and realtors urged federal regulators to limit the number of times a potential homebuyer or seller can challenge an appraisal of the property’s value.

Five agencies proposed guidance in June seeking to make it easier for consumers to ask for so-called reconsiderations of value (ROV), particularly if they suspect racial biases affected the initial value placed on a home. The guidance is part of a broader Biden administration push to address racial disparities in home appraisals.

But allowing consumers to seek an unlimited number of new appraisals could gum up the homebuying process, according to comment letters from the National Association of Realtors and the Independent Community Bankers of America ahead of a Tuesday deadline.

“The agencies should clarify that ROVs alone may not be the most effective way to address alleged bias and discrimination, and their unnecessary use will likely result in unintended negative consequences,” the ICBA said in a Sept. 19 letter.

The appraisal guidance was issued by the Consumer Financial Protection Bureau, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the National Credit Union Administration.

The National Association of Realtors urged the agencies to follow a program set up by the Veterans Affairs Department known as the Tidewater process as a model for limiting ROV requests. That process allows no more than three reconsideration requests on homes purchased with a VA-backed loan.

“This limit allows the appraiser to focus on a creditable review,” the realtors’ Aug. 19 letter said.

Typically, mortgage lenders ask independent appraisal firms to reconsider a home value when a consumer complains that the appraised value of a property is too high or too low.

The proposed guidance outlines the type of data, including the value of comparable homes, that should be included in a complaint about an incorrect appraisal. It also offers guidelines for how banks and other mortgage lenders should collect and transmit complaints.

Consumer advocates largely approved of the proposal, but said regulators should more clearly state that the guidance applies to undervaluations as well as overvaluations.

“Homeowners are more likely to complain about undervaluation, and institutions must be willing to accept ROVs on that basis,” a Sept. 19 letter from the National Consumer Law Center, the National Community Reinvestment Coalition, the Consumer Federation of America, the National Fair Housing Alliance, the National Urban League, and other consumer groups said.

The Housing Policy Council, an industry group, said there may be a fundamental flaw in the appraisal reconsideration process: asking the same company that did the initial appraisal to do it again likely won’t work, particularly in cases of alleged discrimination.

“Such a process may in fact deter individuals from using the ROV process, an outcome that would be inconsistent with the Agencies’ intent,” the council said in its Sept. 18 letter.

Rather than relying on the original appraiser, regulators should tell banks to use other tools to reevaluate a home appraisal when disputes arise, the mortgage trade group said.

Both consumer and industry advocates urged the five financial regulators to consult with other mortgage agencies and entities that run government-backed housing programs—the Federal Housing Finance Agency, Fannie Mae, Freddie Mac, the VA, and the Department of Agriculture—about changes to the appraisal system.