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How to Fight Blacklisting
by Isaac Peck, Editor
Being blacklisted by a real estate agent, lender or appraisal management company (AMC) is familiar to most appraisers—it’s either happened to you or to someone you know. It can cost an appraiser time, money and more than a few sleepless nights. Here is what you should know, whether you’ve been blacklisted or not, and how to fight back if you need to.
It usually starts when an appraiser comes in “low” on a purchase transaction appraisal—delivering an appraised value that is lower than the contract price between the buyer and seller. The deal subsequently falls through and the listing agent or the buyer’s agent (or both) hold a grudge against the appraiser and make their best effort to “blacklist” that agent with their favorite lenders/AMCs, resulting in a loss of work for the appraiser.
In my role at OREP/WRE magazine, I frequently speak with insureds/ appraisers facing this issue who are seeking advice and counsel about what their options are. Typically, unless the blacklisting is coupled with a state board complaint (which sometimes happens) or includes some other threat of legal action, it is not something that involves your E&O insurance at all, but we still do our best to give our insureds advice and support whenever we can.
This article explores what appraisers face when blacklisted with some advice on what you can do if you find yourself in this very difficult and frustrating situation.
How It Happens
When a real estate agent “blacklists” an appraiser, the result is often that the agent’s lender/AMC contacts will stop using the appraiser completely (at the agent’s request), or occasionally, the lender will continue to use the appraiser but not assign the appraiser any of the transactions that that particular agent works on. In the case of the latter, sometimes the appraiser will be assigned an order only to have it cancelled later that day once the real estate agent sees the appraiser on the order and calls the lender or mortgage broker to complain. I’ve talked to appraisers who have this happen several times a year with the same agent.
More harmful to the appraiser, however, is to be completely removed from a lender or mortgage broker’s panel, as this can mean a significant loss of work. I spoke to an appraiser recently who reported losing between $10,000 and $15,000 in appraisal work per year after she “missed value” on a transaction between two powerful and successful real estate brokers. The two brokers immediately blacklisted the appraiser and she saw work from a few of her local clients completely dry up. To this day, if she ever receives an order where one of these brokers is involved in the transaction, it is subsequently cancelled and reassigned.
To make matters worse, this scenario is most common with real estate agents who are well-known locally and very successful in the area, as lenders and mortgage brokers are more inclined to aim to please (i.e. break the law for) the agents who are wildly successful and refer a high volume of business their way. This sets up the perfect storm for the appraiser as those agents who are doing the most transactions in an area have the most clout with the lenders and mortgage brokers, and consequently can cause more financial harm to the appraiser by blacklisting them.
Having an order cancelled and reassigned is sometimes the first and only indication to the appraiser that something fishy is going on, but some appraisers who abruptly stop receiving work from a client often don’t have to look far to figure out why. While “blacklisting” is sometimes more discreet, some appraisers actually have the real estate agent call them and tell them explicitly that they are going to actively prevent the appraiser from ever working on one of their transactions.
What the Law Says
Anyone, including a real estate agent, who blacklists or otherwise attempts to retaliate against an appraiser for a “low” appraisal value is in violation of Appraiser Independence laws. In 2010, the Dodd-Frank Act amended Section 129E of the Truth in Lending Act (TILA), establishing new requirements for appraiser independence, including making “coercion” of appraisers illegal.
(1) Coercion. In connection with a covered transaction, no covered person shall or shall attempt to directly or indirectly cause the value assigned to the consumer’s principal dwelling to be based on any factor other than the independent judgment of a person that prepares valuations, through coercion, extortion, inducement, bribery, or intimidation of, compensation or instruction to, or collusion with a person that prepares valuations or performs valuation management functions.
(i) Examples of actions that violate paragraph (c)(1) include:
(C) Implying to a person that prepares valuations that current or future retention of the person depends on the amount at which the person estimates the value of the consumer’s principal dwelling.
(D) Excluding a person that prepares a valuation from consideration for future engagement because the person reports a value for the consumer’s principal dwelling that does not meet or exceed a predetermined threshold; and Dodd-Frank’s interim final rule clarifies that the definition of “Covered Person” extends to real estate agents.
This, of course, is not news to appraisers. Attempting to influence, coerce, or blacklist an appraiser to “hit the number” is illegal. Furthermore, Fannie Mae, the Federal Housing Finance Agency (FHFA), and Freddie Mac developed the Appraiser Independence Requirements (AIR) which provides very detailed protections for appraisers and specifically forbid a real estate agent from “selecting” appraisers—which is an obvious conflict of interest. It follows here that any lender or mortgage broker who goes along with a real estate agent and assists in blacklisting an appraiser is also breaking the law.
One of the main problems that appraisers face in this situation is a lack of evidence. Years ago, Working RE reported on a case where a bank official sent around an email calling the appraiser a “BUTCHER” while demanding the appraiser be blacklisted (“Smoking Gun Allows Appraiser to Sue over Blacklisting”). Other appraisers report actually seeing comments placed directly into the MLS, with some agents even including a clause in the listing agreement that the seller must sign which states: “Appraiser XYZ is not allowed to appraise the property.”
In these cases, the bad behavior is obvious and explicit, but unfortunately gathering evidence of illegal activity isn’t always so easy. Did the real estate agent say anything to you directly, threaten you, or attempt to influence you before or after the assignment? If you have it in writing, that is even stronger evidence. Without a “smoking gun,” you can speak with the agent directly, speak with the lender, and interview other parties to gather information, but it is more difficult to fight back if you don’t have any direct evidence of being blacklisted.
Here are some potential actions an appraiser who has been blacklisted by a real estate agent might consider taking:
Contact the Agent and/or Managing Broker
Richard Hagar, SRA, and popular appraisal education instructor, says that he has seen this happen many times to both himself and other appraisers he knows. His recommendation is to try to be nice and educate the agent/broker at first. “In this business, you don’t want to be stepping on anyone’s toes, but you do want to explain to the agent that blacklisting an appraiser is problematic and in violation of federal law. The nicer you can be in explaining this, the better, because they are probably already pissed at you,” says Hagar.
For these conversations, Hagar advises to start documenting everything and taking notes of who you talked to and when.
If you don’t make any progress talking to the agent, Hagar advises going to the managing broker.” Usually the managing broker will shut it down. Take the same civil approach—be nice but list the federal laws being violated. It is illegal for agents to handpick appraisers. I’ve seen managing brokers fire agents over things like this,” Hagar reports.
If the managing broker doesn’t listen, or perhaps is the offender, Hagar recommends contacting the agency’s corporate office. If the agent is working under a big brand like RE/Max or Keller Williams, you can contact their Corporate Headquarters and let them know about the bad behavior that is happening at one of their offices.
Contact the Lender and/or AMC
Discussing the issue with the lender or the AMC is the next step to escalate the situation. It’s best to ask to speak to the Chief Compliance Office or the Chief Appraiser. If the appraisal assignments are going through an AMC, you can contact both the lender and the AMC.
Hagar advises notifying the lender in writing. “Notify the lender that there’s been a direct attempt to influence the appraiser. Send them a letter, not an email. If you send an email, it’s easier to just delete, but a physical letter is not as easy for a bank to rip up and throw it away. A written letter carries more importance and more weight; and if you want to add even more legitimacy, then send it Certified. It will get their attention. Mail it specifically to a senior official at the bank or AMC who oversees appraisals and/or compliance,” advises Hagar.
Many states have requirements to notify the appraiser if they have been removed from a panel, so if you’ve completely stopped receiving work from a client, you can inquire if you were removed from their panel. Try to be respectful and non-accusatory while explaining the situation, but you should be clear that you believe a violation of appraiser independence has occurred and that the lender/AMC has a legal obligation to not “play along” with the real estate agent. This is a conversation you want to approach with care, especially if you are still doing work for the client in other areas, as taking an accusatory stance with a current client can harm the relationship.
File Complaints with Real Estate Commission
Coercing, intimidating, and/or blacklisting appraisers are all activities that violate appraiser independence and are illegal in all 50 states. Consequently, if you decide to fight back directly, you can file a complaint against the agent/broker with your state’s Real Estate Commission. This is where you will need evidence because without it, the complaint is unlikely to stick. Working RE has reviewed several state board complaints from appraisers against real estate agents dealing with this issue (Stay tuned for follow up stories exploring them!).
File Complaints with the Realtors’ Association
This approach only works if the real estate agent/broker is also a Realtor®, but most active agents are Realtors®. Breaking the law and attempting to influence the appraiser is against the Realtors’ Code of Ethics and is something the local or state Realtors’ association might investigate and “sanction” a Realtor® for. A few years ago, Sehar Siddiqui, the National Association of Realtors’ (NAR) regulatory policy representative, spoke publicly about this issue and reminded agents that it is an ethics violation to interfere with the appointment of an appraiser. NAR has publicly stated on numerous occasions that it “strongly supports the independence of appraisers and the appraisal process.” It is admittedly rare for Realtors® associations to get involved in these types of complaints, but it has happened.
Furthermore, Article 15 of Realtors’ Code of Ethics states that: “Realtors shall not knowingly or recklessly make false or misleading statements about other real estate professionals, their businesses, or their business practices.”
Hagar reports that he’s personally witnessed a case where an agent, who had previously been very vocal about one appraiser’s “egregious” errors, was forced to make a public retraction/clarification after the matter went before the local Realtor association.
File Complaints with GSEs, FHA, and VA
Depending on the type of loan in question, appraisers can also file complaints with Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veteran Affairs (VA). Each organization has their own guidelines that protect appraiser independence. Fannie Mae, for example, encourages appraisers to call the Appraisal Complaint National Hotline (877-739-0096) or use the “Contact Us” form on the Appraiser Page on its website to report deviations from its policies.
File Complaints with State and Federal Regulators
If all else fails, a more nuclear option is to file complaints against the lender in question with the Federal Deposit Insurance Corporation or the Office of the Comptroller of the Currency, and report the incident. The Appraisal Subcommittee has also built a tool called Refer My Complaint which directs to you the appropriate regulatory authorities to file complaints regarding violation of appraiser independence. (Click here to access “Refer My Complaint”.)
In these cases, you are not filing complaints against the real estate agent directly, but against the AMC or lender involved. You can also contact your state’s banking regulator with your complaint against the lender. If an appraisal management company (AMC) is involved, you can report them to your state AMC enforcement agency. In many states this will be your local appraisal board, but AMCs are regulated by different boards/commissions in some states, so check who regulates AMCs in your state.
Each step of the way, Hagar advises appraisers to try to educate (and be nice) at first, whether you are dealing with an agent, managing broker, lender, or AMC.” Not everyone is aware of just how serious it is to attempt to ‘handpick’ appraisers and have real estate agents involved in the appraiser selection process. So, when you have those first conversations with the agent and your AMC/lender clients, your goal should be to inform and educate. But if they don’t change their behavior then it’s time to push back and fight back. Agents and banks will try to push appraisers around and bully them because they don’t expect the appraiser to fight back—so you’ve got to stand up and fight back when necessary,” says Hagar.
To learn more about how to maintain independence and fight back, check out Working RE’s webinar How to Limit Liability, Maintain Independence, & Fight Influence, presented by Richard Hagar.
About the Author
Isaac Peck is the Editor of Working RE magazine and the Vice President of Marketing and Operations at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 50 states. He received his master’s degree in accounting at San Diego State University. He can be contacted at email@example.com or (888) 347-5273.
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