I have had numerous appraisers, both residential and general certified, ask me about various elements of competency. Some are questions regarding levels of certification and property types. On other occasions, the questions have to do more with geographic coverage. Finally, the concept of competency as it relates to various special use property types is the most complex topic I typically discuss with fellow appraisers.
First, I will start with residential versus general certification and the common and ongoing concern appraisers have in Missouri. USPAP itself does not dictate what is residential and what is commercial. It simply requires an appraiser to “Be Competent.” This can be found in the 2012–2013 edition of USPAP on page U-11. In order to be competent, the appraiser is required to have:
- The ability to properly identify the problem to be addressed; and
- The knowledge and experience to complete the assignment competently; and
- Recognition of, and compliance with, laws and regulations that apply to the appraiser or to the assignment.
It all comes down to the highest (more…)
In a recent Mortgage New Daily article, Brian Coester with Coester VMS writes, “I completely disagree with the article not just based on owning an AMC, but on the basis of being an appraiser and being on both sides of the table. The reality is that appraisals are more accurate than they’ve ever been.” He even repeats himself, “in the short term there will be issues to work out, however appraisals are better than they’ve ever been.”
Next, he talks about the lack of quality in the appraisal industry. So, appraisals may be better than they’ve ever been, but there is still a huge lack of quality; at least according to Brian. Let’s look at his logic.
“The reason for the appearance of lack of quality, is now we have the ability to check appraisals against relevant data like an AVM, Automated scoring, UCDP and variety of other tools that weren’t available before.”
Stop the presses! So, now we can check to see if appraisals are accurate by checking them against Automated Valuation Services? (more…)
Competition, in a free market, is a fierce catalyst: one that can effectively sort out the bad apples from the bunch. Capitalism works, it is simple when left unfettered and when all parties are ethical in their approach to business. It works until politicians, however well meaning they try to be, step in with a”solution”. Through the Dodd-Frank reform and the Andrew Cuomo created Home Valuation Code of Conduct that predates Dodd-Frank, congress effectively went anti-small business again. I liken this profession’s recent undermining by congress to how they saw to sort out the small-family farmers by paving the way for companies like Monsanto and ConAgra.
Competition is fierce in the valuation profession these days. For competition to work, it does require a level playing field. Presently, in residential valuation, there is no such thing as a level playing field. There are still lots of mortgage-use reports to do, but these reports are being filtered through appraisal management companies (AMCs). The AMC model chooses the cheapest appraisers competency is a distant second to cost, and like most things, you get what you pay for.
The quality of appraisal reports ordered thorough AMCs is getting bad enough that members (more…)
When a lending institution loses confidence in an appraiser’s work, the bank or AMC will put them on a “do not use” list, also known as a blacklist.
In some cases, this means an appraiser has made a costly mistake. However, some banks are taking blacklisting to an extreme by treating appraisers as guilty until proven innocent without cause or reason why.
If unchallenged, this practice can be devastating because being blacklisted even once can have permanent detrimental effects on an appraiser’s career, income, and reputation.
By engaging in blacklisting lenders are trying to insulate themselves from future risks when doing business with Fannie Mae and Freddie Mac. However, there is no formal review process in place to ensure these “do not use” decisions are justified. In an attempt to prove accountability to these government-sponsored enterprises (GSEs) big banks in particular are demonstrating a repeated and ongoing lack of accountability to the appraisal profession. (more…)
Thursday, February 27, 2014, DPOR is holding a public hearing on the proposed Initial Appraisal Management Company Regulations. The hearing will begin at 9:00AM in the DPOR meeting room at 9960 Maryland Dr, Richmond.
The new regulation establishes definitions, qualifications, fees, and standards of practice and conduct for appraisal management companies. The new regulation is required to implement Chapter 405 of the Acts of the 2012 General Assembly, which resulted from HB 210. The goal of the regulation is to establish qualifications, fees, and standards of practice and conduct for the licensure and regulation of appraisal management companies in Virginia pursuant to HB 210.
This is the only public hearing scheduled for this issue. NOW is the time to attend and voice your constructive comments on this very important issue. The comment period will end on 03/28/2014.
The VREAB needs our presence and support on this issue. I do not know this for a fact, but I anticipate AMC reps to be (more…)
Try this method of “price fixing” in any other business and see what happens!
The “marketplace” usually sets what is considered “customary and reasonable.” Imagine asking attorneys to base their fees on what some government official (who knows nothing about their business) decides is “customary and reasonable.” It would NEVER EVER work, and should not be part of the appraisal (or any other) industry. It’s absolutely price-fixing which I always thought was illegal.
The HVCC started all this focus on the appraisal industry and everybody is so busy trying to remake the appraisal industry, the banking industry quietly slips away, paying their billions in fines (for the problems that were discovered) and are still counting their billions in profits quietly behind the board room.
The appraisal industry did not need the change, especially not to be singled out. The whole idea of a “customary and reasonable” discussion now just adds insult to injury. Who is qualified to determine how much money any profession gets paid?
I remember the first time I ever saw a real appraisal report. No, I am not talking about a 1004, 2055, or even a 1025. I am not referring to a Fannie or Freddie form at all. I mean a real, living, breathing, monster of a report; the narrative!!! (insert collective gasp here) Early in my career, one of my insightful instructors brought one of his narrative reports to class. As I perused that 76 page beast full of words (not boxes), descriptions (not canned comments), graphs (not pre-filled MC Addendums), and pictures (oh, how there were pictures), I remember thinking, “wow, 1004s are for sissies.”
My next thought was something along the lines of “glad I will never have to write one of those.” I guess I figured, mistakenly of course, that if you are not a commercial appraiser, you would never need to know how to write such a monstrosity.
I was working on a case for litigation this past week. As part of the process of discovery, the other side sent over their appraisal report. Though I disagreed with the findings, I was impressed by the detailed, narrative report the appraiser had prepared. Rather than checking boxes and regurgitating phrases such as “The subject is in a limited market and therefore… (more…)
Fannie Mae and Freddie Mac failed to fully analyze data from the Uniform Collateral Data Portal and continue to take unnecessary risks when purchasing and guaranteeing single-family residential mortgages, according to a report from the Federal Housing Finance Agency’s Office of the Inspector General, Mortgage Daily reported Feb. 6.
The report indicated that the two government-sponsored enterprises are not taking full advantage of appraisal data collected through the UCDP that the Federal Housing Finance Agency directed the GSEs to use in 2010 in an effort to improve loan quality and risk management.
Mortgage Daily reported that the GSEs purchased and guaranteed six million loans valued at $1.3 trillion in 2012 alone. The UCDP was designed to make it easier for the GSEs to evaluate the large volume of loans that they are being asked to guarantee and purchase. The system notifies sellers if appraisals fail to meet Fannie and Freddie standards.
The OIG report (more…)
For many appraisers and also some AMCs (appraisal management companies), the only reason they purchase professional liability insurance (E&O) is because a client requires them to show coverage in order to receive work. The fact that some appraisers and AMCs only look at insurance as an “E&O ticket” leads to some unfortunate examples of fraud, which appraisers, firms, AMCs and clients should be aware of.
Before I get to the fakery, however, I’ll explain that our purpose in providing E&O, and also the reason that most of our insureds purchase it, is because E&O first serves the insured by providing a defense for covered professional negligence claims against the insured and, then, if legal damages are established or resolved against the insured, paying those damages for which the insured is liable. A big part of the value in this equation is providing access to knowledgeable, experienced legal counsel in connection with appraisal claims. In other words, E&O insurance exists for the primary benefit of the insured appraiser or AMC.
Outright “Fake” E&O
Nevertheless, the reality is that because (more…)
Welcome to life as an appraiser in 2014. It seems every appraisal has time constraints, distance constraints and knowledge constraints. I want to meet the lucky appraiser these days who is getting all
of the easy appraisals. Surely it can’t be lenders just getting an AVM. If lenders are using AVMs, the lack of quality comparables out there would lead to lenders just fooling themselves and relying on loss ratios again. You would think someone would say: been there, done that and got hammered. Unfortunately, some of the problems in the market with comparables are similar; mainly junk in, junk out. Another way of saying that would be: bad comparables in, then bad analysis out. In many of the market areas that I am in, it appears to have stabilized; however, these markets are still sluggish with few sales. We still don’t have the upward mobility in the market. The majority of people still don’t take the risk to sell their property and move to a larger home. Even the standard, arm’s length, conventional sales appear to have some distressed background.
So if you do get a standard home to appraise, it becomes difficult to find the quality comparables to justify value. Get used to it, because our profession might be dealing with it for a long time. The only method of protection for the appraiser today is (more…)
Legislation that would have significantly expanded the ability of New Jersey real estate brokers and salespersons to offer broker price opinion services did not become law because of a Jan. 21 “pocket veto” by Gov. Chris Christie. This is the second time Christie has vetoed BPO legislation.
The legislation (S. 3058) was passed by both houses of the New Jersey legislature Jan. 6, and was presented to Christie for his consideration. However, because the bill was passed by the legislature during the last 10 days of the 2012-13 legislative session (which ended Jan. 14), the governor only had seven days in which to sign or veto the bill or it would fail to become law. Christie did not sign the bill nor return it to the legislature with an absolute or conditional veto. Therefore, the legislation failed to become law when the seven-day consideration period ended Jan. 21.
This is the second time during the 2012-13 legislative session that Christie has vetoed BPO legislation. Similar BPO legislation was vetoed by the governor Aug. 19, 2013. In his veto message at that time, Christie noted his concerns about “consumer confusion,” and the impact on “sellers struggling to determine when and why to use (more…)
In helping real estate professionals find the right professional liability (E&O) insurance policy, one of the most common issues we come across is whether someone you hire to help with your intermittent workload is an employee, a subcontractor, or an independent contractor.
The IRS perspective vs. the insurance perspective
This is often confusing because what you intended to do may not be what you actually end up doing. There are a number of reasons for this. First and foremost is the fact the IRS will view this question in a different way than the insurance industry will. So, even if you get solid tax advice about which is which and why, you may find your E&O provider looks at the same situation and reaches a different conclusion.
Next, an errors and omissions provider is not concerned with tax treatment or revenue sharing issues or even with whether someone does or does not share office space with you. E&O providers are only concerned about whether they might have to defend you and pay a loss on a claim even if someone other than you did most of the work on a project. Many people think this cannot happen if the person they give a project to has their own E&O policy (more…)
The U.S. Department of Housing and Urban Development will require new appraisals on some real estate-owned properties financed by the Federal Housing Administration, Mortgage Daily reported Dec. 10.
Historically, when buyers of REO properties utilized FHA financing they had been able to use the appraisal originally ordered by HUD. However, the updated requirements will require new appraisals in situations where a direct endorsement underwriter decides there is a material deficiency in the original HUD REO appraisal. HUD also will require new appraisals in the instance of an “as-repaired” appraisal being used when a borrower is applying for a 203(l) loan.
The agency also will require new appraisals when an REO sales contract is not ratified within 120 days of the HUD-REO appraisal’s effective date and when a HUD-ordered appraisal is no longer valid.
The updated guidelines also specify that when a contract sales price is higher than the HUD-ordered appraisal, the FHA loan will be based on the lower of the sales price, the new appraisal or the initial list price, Mortgage Daily reported.
HUD further stipulated that when a new appraisal is ordered, the servicer cannot use the original HUD appraisal (more…)
Even though the redirection of blame is an ancient approach to avoid taking responsibility for ones one actions, this seemingly innocuous tactic has become the leading downfall to the financial industry today.
Consider, the consequences of shifting blame:
- The actual party who has made poor lending decisions escapes taking responsibility, and often times will even get promoted. Thus the initial behavior does not change.
- Since the poor decision has not been corrected, the pattern will continue.
- Redirecting the blame combined with the continuation of the faulty decisions expands the direction of investigation, because now a larger pool of appraisers appear to be at fault – even though the initial behavior was to blame.
- Much time and money was devoted to the regulation and education of real estate appraisers, but no actual safeguards were put into place to ensure the soundness of the lending decisions.
Therefore, the consequence of improper decisions only (more…)
There was a time when appraisers popped three sales onto a grid, made adjustments, concluded an opinion of value then moved on to the next assignment.
Today, appraisers routinely include five or six closed sales, plus a couple of listings or more.
There was something to be said for the old Goldilocks approach. Three sales, if you chose wisely, bracketed your subject neatly.
Even if you had six closed sales, you could still bracket pretty cleanly.
But listings. What to do with them?
Some appraisers will actually toss them on to a grid and make no adjustments to the list price…no matter what.
This would be fine if we were in an over-heated market with plenty of full-price offers. (more…)