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Government $ 400K De minimis Proposal - It’s A Wonderful Life

by Administrator on Dec 10, 2018 Appraisal Industry 103 Views

The government’s proposal to not require appraisals on loans below $ 400,000 sounds familiar to me, much like the Fannie Mae / Freddie Mac push to expand home ownership in 2005 to the not creditworthy masses. It sounds so ridiculous that you know it has to be about politics and profits and not about the safety of our banking system.

I guess it’s also the latest run at solving the appraiser shortage “problem.” Not enough appraisers? It must be time to undermine the collateral that supports the banking system. Makes sense to me. Not. You don’t have to wonder for long about who benefits from a relaxation of the lending rules. It’s big banks, looking for another way to pull themselves out of their latest morass that only they could have created for themselves after years of bludgeoning their customers with outrageous fees.

With interest rates increasing much faster than they should there will be a lot fewer qualified borrowers, so if you are a bank you probably don’t want to look too closely at the home value. “Run a model,” I’m sure they say, “we can be off by 10% or 20%, who cares.” But 20% of several billion dollars a year is not small change.

Since only 20% of Mortgage loans will be affected the proposal sound reasonable, but is it? Once you let banks make independent decisions about the value of their collateral without appraiser oversight you have effectively lost any and all third-party perspective. Do we really have to learn this lesson again? Does anyone remember the Saving & Loan catastrophe?

When left to their own devices banks revert to the only model they understand, profits. I have no bias against capitalism, but if uncontrolled capitalism often goes off the rails. That’s why we have government insurance for deposits, it’s not because the money will evaporate when it goes into the bank vault, it’s because bank managers can and have made poor decisions.

It’s not like this move by the government will make much difference to me, I appraise very few properties for mortgage lending and the de minimis
change proposed will have little or no affect on my volume. I have however lived through two major financial crashes and I’m confused regarding why the government would voluntarily destroy even a portion of the appraisal business and put mortgage loans at greater risk?

It’s like someone in the government has decided that a fantasy world is better than a responsible one, yes it’s kind of like “It’s a Wonderful Life.” Except that you can’t return to the real world by jumping off a bridge or give an angel its wings by ringing a bell. How many Trillion dollars will it cost the American people because no one is willing to continue banking oversight?  Yes, it's hard to say no to the banks.

Update: Well we all know that you can depend on the government to do the wrong thing, and in this instance they are lined up to make sure it happens.  Let's see how long it takes for the new process to bring the system down.  For all of you in the private mortgage market . . good luck.  If you require appraisals to protect your assets you will be looked upon as being too focused on safety.  To compete with government funding you will just have to go with AVM's and roll the dice. 

I'm a real estate broker and an real property appraiser so in one way I guess that I should celebrate.  It's not like the "loan to everyone" mentality of the 2006-2007 boom that was followed by the crash but I think it will be a lot easier to borrow money.  Financial institutions will likely just lend money on real property based on borrower FICA scores and AVM estimates.  Once you figure out what you need to do to manipulate the AVM output its all over but the crying.  

For more appraisal information contact Glenn J. Rigdon MA, MRICS, IFAS, ASA is a Las Vegas / Henderson Nevada based commercial appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (, or, or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at

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