The Devil is Always in The Details

Michael Ford

Michael Ford

General Certified Real Estate Appraiser at Michael F. Ford Appraisal
Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory
Michael Ford

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Evaluation NOT required to Meet USPAP - AGA Views on Legislative BillsAn evaluation is NOT required to meet USPAP requirements…

I went over the bills VaCAP requested action on (see VaCAP Legislative Call to Action) and wanted to share my views as it appears they were interested in individual views.

HB 1453 Real estate appraisers; changes definition of evaluations.

Introduced by: R. Lee Ware

SUMMARY AS INTRODUCED:

Real estate appraisers; evaluations. Changes the definition of "evaluation" from an analysis, opinion, or conclusion relating to the nature, quality, value, or utility of specified interests in, or aspects of, identified real property to an opinion of the market value of real property or real estate that may be utilized in connection with a real estate-related financial transaction where an appraisal by a state-certified or state-licensed appraiser is not required by the state or federal financial institution’s regulatory agency engaging in, contracting for, or regulating such real estate-related financial transaction or regulating the financial institution or lender engaged in or about to engage in such real estate-related financial transaction. The bill requires that an evaluation meet the format requirements of the federal Interagency Appraisal and Evaluation Guidelines, include sufficient information in clear and understandable language to allow a person to understand the opinion of the market value of real property or real estate, and contain the statement: “This is not an appraisal performed in accordance with the Uniform Standards of Professional Appraisal Practice.” [emphasis added by me]

The devil is always in the details. I look at this in the context of the current national trend (and there actually IS one) to ‘legislatively legitimize’ “Evaluations” … whatever they are.

An evaluation is NOT required to meet USPAP requirements despite TAF..My understanding of the Federal Interagency Evaluation Guidelines (FIEG) is that there ARE NO meaningful guidelines. An evaluation is NOT required to meet USPAP requirements despite TAF coming up with ways in which an evaluation could hypothetically be prepared under USPAP (see “Interagency Advisory on Use of Evaluations in Real Estate-Related Financial Transactions“).

I looked for more recent versions and admittedly this was a cursory search. I wanted it to be data from a federal agency rather than reinterpreted information distilled though some unknown self-serving third-party lenses. Anyone reading this should check to assure this is the most recent iteration, (OCC circa March 2011)

As near as I can tell there are no meaningful standards; just unenforceable guidelines. (WELL DONE CONGRESS!!! Grease those old economic collapse skids up!).

Now unless you are an appraiser in one of those backward states that adopted USPAP for ALL transactions and appraisals performed by licensed appraisers. It appears there really is nothing meaningful that you have to comply with in performing an evaluation.

It appears some form of lip service is to be paid to Dodd Frank AIR provisions but there is no mention of Dodd Frank C&R provisions. It appears federal ‘guidelines’ (remember there ARE NO STANDARDS) are selective in the parts of other legislation you should comply with.

You ARE supposed to superficially ‘consider’ (and presumably just as quickly reject) all three approaches. Most evals are boilerplated to claim cost and income approaches though considered, were deemed to be inapplicable for any spurious reasoning the report author chooses.

Keep in mind that these do NOT require appraisers to complete (so WHY do them?).

They are supposed to be limited to transactions of $250K or less but rest assured that limit won’t survive long once the practice of evals gains a foothold.

Commercial limits are a million dollars (I guess a million dollars is now petty cash or chump change). Hmmm. If a million is chump change for a commercial deal, then shouldn’t it also be chump change for everything?

AGA would normally have opposed this legislation (strongly); but it appears to be a nationwide trend being promoted by behind the scenes interests that have already persuaded federal and state legislators.

I see no viable way of opposing it in all 50 states. We beat it in California a couple years ago (AB624) only to see it resurrected as State SB70. Appraisers have decided to either embrace it, or oppose it only on individual state levels rather than nationally. AGA is not supportive of further wheel spinning on it and meaningless gestures with no end game in sight.

Accordingly, while we at The Guild aren’t fond of evaluations in general, we do like that this one requires verbiage saying what it is not; “This is not an appraisal performed in accordance with the Uniform Standards of Professional Appraisal Practice.” We wonder how long that inconvenient language will survive?

It would be nice if it added “therefore anyone not in a position to completely gamble away the funds involved in the associated transaction should NOT rely on it.”

As near as I can tell these are no good for use in court. Aside from any civil suits arising from it’s use, I don’t see a great amount of liability or obligatory accountability for their use. Frankly it’s difficult to see any really beneficial use except to facilitate fraud and other deception.

So, as noted AGA has NO formal position on this bill other than to strongly suggest that Virginians either recall or not vote in the future for any legislator that votes for this or similar bills.

They are proving by a vote for this bill that they do not give a damn about protecting taxpayers against loss, or consumers against fraud.

We simply cannot see how these foster protections for the American Public or preserve trust in professional real estate appraisal. Most consumers will assume these are just like a real appraisal.

Appraisers, don’t worry. There are some in this profession that don’t think you should ever be called out for doing one of these. In fact, they would argue narrow mindedly that no appraiser should ever be ‘outed’ (by name) for a grossly deficient or misleading appraisal report.

But, these are not appraisals, are they? (In my professional world, if it is not compliant with the minimum adopted federal transaction standards, it is NOT an appraisal).

PS: A new and evolving appraisal business opportunity exists. While these ‘Evals’ appear to have few meaningful standards, they should be exceptionally easy to rip apart by expert witness appraisal testimony when lenders; Eval  prepares and their AMCs are sued for unsupported, incorrect and misleading values. Maybe that’s the intent all along. Most legislators are attorneys, aren’t they?

SB 655 Appraisal management companies; cap on fees, disclosure.

Introduced by: Jeremy S. McPike

SUMMARY AS INTRODUCED:

Appraisal management companies; cap on fees; disclosure. Caps the markup that an appraisal management company adds to the cost of an appraisal conducted by an independent appraiser at 20 percent. The bill also requires the appraisal management company to fully disclose to the client the actual fee that is charged for the services provided by the appraisal management company.

The American Guild of Appraisers would have hoped normal market forces would have dictated fair compensation arrangements for all appraisal services. The fact is that it has not.

Banks and their AMCs enjoy an effective monopoly over the fees that an appraiser can charge by having those fees covered under TRID. This means that a loan application interviewer tells applicants what their appraisal fee will be based on costs predetermined between the bank and their AMC. While appraisers may charge what they wish, IF their fee does not fall within the amount already quoted by the AMC, they are not going to get any work.

The illusion that appraisers are free to set their own fees in GSE transactional loan work for 1-4 units is pure deceit on the part of anyone making that claim. It is a blatant falsehood.

Banks and their AMCs are allowed to push appraisal fees so low that in some, if not many instances, they actually are lower than minimum wage hourly equivalents if the appraisers still do USPAP compliant work despite inadequate fees. Virginia has already recognized why minimum fees are required to assure quality work based on adequate compensation.

Banks circumvent this by quoting ‘appraisal fees’ of $650 to cover Virginians minimum fee law, but then AMCS are allowed to push the portion the appraiser receives down to $300, $350 or $400 in order to maximize THEIR profits.

Accordingly, the American Guild of Real Estate Appraisers supports SB 655 only with the following additions:

The 20% cap may not further reduce the appraisers net below 80% by additional AMC service charges for quality assurance; use of big data add on services or any other charges that would reduce the appraisers net fee from “Total minus 20%”

Competent, professional appraisers perform considerable advance work before they visit the property. This work is by default prohibited contingent payment work meaning that if their due diligence turns up unexpected conditions that could affect the property value or marketability or acceptability within intended user guidelines and they notify clients as most engagements require, they find assignments cancelled and they are not compensated for their time. AGA recommends that all appraisers be paid the full fee amount at the time the order is accepted. The AMCs don’t typically wait on back payments as they claim. Payments are collected from borrowers directly by the AMC at the time they notify the borrower of who the appraiser is. Traditionally this is when appraisers used to collect their fee. Either by mail before the appointment; or at the outside upon arriving at the property someone was required to hand them a check for their professional services. There is absolutely no justification why the AMC should be allowed to use the appraisers fee ‘float’ to factor or subsidize their past appraisal assignments. If an AMC is so financially insolvent that they cannot cover their own start up overhead without relying on taking from future appraisers, they should not be allowed to practice in Virginia or anywhere else. The fee for a specific property must ONLY be paid to the appraiser that performs the service for that property, and not prior/different assignment appraisers that the AMC has not yet paid.

We do not believe escrowing appraiser fees for 14; 30, or more days is an acceptable alternative. Any escrow arrangement holds the appraiser fees hostage to the whims and further increased scope requirements of the AMC or lender in order to collect payment for work already performed. Many AMCs don’t consider a report delivered until after-delivery questions (or new conditions) are answered. They argue that “If we don’t hold back payments we have no way to force the appraiser to answer legitimate questions.” That is untrue. Before licensing all appraisers used to answer follow up questions. It can also be enforced via our licenses. We are professionally obligated to respond to legitimate follow up inquiries. The spurious ones are rejected; and legitimate ones considered. Allowing AMCS to hold back payments gives tacit permission for them to continue to coerce appraisers to make changes the appraisers otherwise properly resist making.

The American Guild of Real Estate Appraisers urges Virginia legislators to amend SB 655 as noted above.

SB 979 Appraisal management companies; clarifies definition, state-certified or state-licensed appraisers.

Introduced by: A. Benton “Ben” Chafin

SUMMARY AS INTRODUCED:

Professions and occupations; appraisal management companies. Amends the definition of appraisal management company and adds definitions for appraisal management services and appraiser panel. The bill also requires applicants for a license to provide the Virginia Real Estate Appraiser Board with information regarding ownership of any part of the appraisal management company has never had a license to act as an appraiser surrendered in lieu of revocation or revoked by the Virginia or any other state. Under current law, applicants must provide information only if they own more than ten percent of an appraisal management company that has had a disciplinary action.

The American Guild of Appraisers of the OPEIU AFL/CIO supports SB 979 in it’s entirety except as follows:

  • 54.1-2021.1. Appraisal management companies; license required; posting of bond or letter of credit D1 & D2.

When an AMC fails the defaulted amounts owed to appraisers for services already performed is rarely $100,000 or less. Typically, owed fees or unrecoverable fees are in the range of $1,000,000 to $5,000,000 based on most AMC failures analyzed to date.

Accordingly, the amount of Bond should be $1,000,000. Any alternative letter of credit must be irrevocable; be in the amount of $1,000,000 and have provision for mandatory notification to the Virginia Real Estate Appraiser Board in the event of cancellation of discovery of conditions that could render it invalid or uncollectable.

979 and 1506 appeared to be essentially the same.

As for consumer protections being eliminated I failed to see that. I could only speculate.

Virginia is the only state to codify in the past that independent appraisers had to be used.

The term is ambiguous since all appraisers are required to be ‘independent’ by definition. I think the term was intended to mean 1099 type appraisers (as independent contractors) as opposed to staff appraisers of an AMC.

We already have federal and state legislation that requires ALL appraisers to perform to certain standards.

Claiming or legislating that an appraiser employed by a bank, other lender such as a mortgage company or an AMC is eligible to work as an appraiser in Virginia is irrationally restrictive. Its probably legally unenforceable.

A bank is allowed under FIRREA and Dodd Frank to have their own staff appraisers. Legislation to prohibit this in unfair and anti competitive. It also prohibits an independent contractor appraiser from ever seeking the perceived security of becoming a salaried institutional appraiser; or even a government appraiser.

It’s a poorly worded way to attempt to achieve a noble goal: that of prohibiting AMCs using pressure against ANY appraiser, to circumvent  USPAP or other Virginia state appraisal laws. We think any opposition to SB 979 or 1506 should be very specific, and not seek to exclude any licensed appraiser from obtaining work.

Opponents should either make a legitimate case why only independent contractor type appraisers may be used or at least show the specific language they want inserted instead. Unsupported comments abut reduced consumer protections are just that-unsupported.

AGA cannot support sloppy legislation or legislation that is merely argued to be ‘better than doing nothing’. We urge others to take a little time and make the case for any specific provisions. We’d prefer to be fully supportive than working at cross purposes.

Michael Ford

Michael Ford

Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory

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17 Responses

  1. Author’s corrections (and apologies for errors) RE 1453 in 15th paragraph bolt type – sentence should read ‘not in a position…should NOT rely…’ I made several minor typos in each of the subsequent articles. Apologies, though I believe most can still follow the intent. Late night work – no excuse. Consider this an addendum.

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    • Corrected. If you see anything else, let us know.

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    • Jeff says:

      Mike this is off the subject but a new and important subject. AMC’s and Mercury Network are now trying to schedule appraisers inspections for them. Can we put a stop to this and get the word out that appraisers are not going to tolerate this. The AMC will ask the borrower for 4 available dates which will work for them. What they do not realize is that as we have to travel in larger counties that we typically schedule multiple appraisals at the same time and this idea is not thought out and just an attempt to move the appraiser to an employee. I get so mad at this crap

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      • Baggins Baggins says:

        Like many other efforts and technical approaches, Mercury could favor the appraiser, but they consistently as a rule of thumb, advocate for lenders first. They could have our schedule online the lenders could comply with, but do not. They could disclose fees, but do not. They could offer options to avoid all broadcast orders, but do not. Mercury consistently positions as an advocate for the lenders interests. They wont’ inform clients how many orders appraisers have, that might bring fair balance to distribution. The lady told me they are just a technical servicing company and ethical concerns are not their concerns. They don’t work weekends. Whatever the technical staff dreams up becomes the ethical future for appraisers, mind you they are not bound by ethics what so ever.

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      • Jeff, I think you just got the word out.

        Each appraiser has to decide for themselves whether or not they want to be an inadequately compensated employee of Mercury or any other AMC that sets their hours for them.

        There are attorneys all across the country just chomping at the bit to file labor law suits against these jokers. Additionally, I understand state and federal tax authorities may have an interest due to inadequate withholding of necessary sums for employees.

        Just calling someone an independent contractor is no longer enough. They must actually BE independent contractors. AMCs set the fees under TRID. All pretenses to the contrary have been disproven. AMCS set the due dates and impose penalties if they are not met. Now, if AMCS also schedule the appointments controlling the appraisers working hours I think we will see a lot more litigation.

        Appraisers have been suing for overtime and getting it retroactively dating back many years. Thank you Landsafe; Solidifi and any others of that ilk.

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        • Baggins Baggins says:

          Retroactive accountability? That’s never going to happen for the majority of us. I find it detestable that the worst appraisers who worked for amc’s are getting access to class action and the wise appraisers whom refused to go so low are not represented in similar fashions. Lawyers, always chasing the deep pockets so hopefully perhaps some correction will occur. Wake me when fee and turn times are not the predominant factor in distribution trends. Amc or not, it does not matter, virtually all distributors treat appraisers like employees. If you don’t comply, you lose access to work virtually immediately. If I could claim retro billing for overtime, I should be able to capture about 10 years worth of underpay and overtime wage from about 300 different companies. Never going to happen.

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  2. JM2C says:

    Mike you have a done a tremendous job posting information concerning these bills which seemed a little ambiguous and contradictory. Thank you Mike for your constant efforts to promote the appraisal industry.

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  3. Jason says:

    Thank you Mike for being on top of this!

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  4. Mike,The Evaluation effort has been an ongoing topic for over a year in Florida. House Bill 927 (HB 927) passed the Legislature last year, was signed into law, and became effective October 1, 2017. The Florida Real Estate Appraisal Board (FREAB) now has the task of trying to make sense of it, despite clear contradictions with existing law. The FREAB meets tomorrow. My comment letter to the FREAB is posted HERE. 

    Links to the FREAB Agenda and additional documents are posted on Appraiser Active. Hint: Take a long look at the USPAP Ethics Rule.

    Thanks!

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    • Baggins Baggins says:

      Thank you Francois. A very excellent letter. Recommended reading. Force evals under the regulatory umbrella. Now, how can we force distributors raking hundreds of millions a year to comply with ethic? I say force all of them to be licensed with appraisers licenses for matching congruent rule application. Amc’s are powerhouses whom wield more influence than all of the licensed individuals combined. The time to regulate the workers individually is also now. The technical people are running the show, completely unlicensed, completely unaccountable, redirecting the billions of earnings of an entire industry into a select few pockets. If the distribution industry needs technical specialists, those specialists must also carry valid appraisers licenses.

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    • Hi Gregoire, It’s an excellent letter. It may have too much in it for them to consider though. You pretty much have to lead regulators by the hand.

      In the end I think we are all going to have to insist that one single federal agency be responsible for setting ALL FRT appraisal policies in America. That would have to include USPAP and all license enforcement.

      Florida’s example is yet another of the Heinz 57 Flavors of regulations appraisers are going to be expected to follow. States that already are incapable of uniform USPAP enforcement now won’t be able to tell the difference between an evaluation and any of the so called hybrids that DO call themselves appraisals.

      The dumbest thing Feds; TAF and all the other appraisal organizations ever did was to pretend calling an appraisal by another name (Evaluation) made it an exception to USPAP somehow.

      Florida wrongly thinks that declaring an evaluation is not an appraisal it will somehow clarify anything. It won’t. Those that want to side step USPAP and reasonable fees will just give “valuations” a proprietary name such as “ClearVal Appraisal”, and sidestep Florida regulations by saying they are conforming to Federal guidelines.

      Wouldn’t it be nice if we had ONE set of appraisal guidelines, principles and standards for all appraisers in America that was uniformly interpreted and enforced? Something written by and interpreted only by other appraisers? Something where ‘principles’ were treated as a core foundation rather than dirty underwear that has to be changed on a regular basis?

      Just an idea, but maybe we could call it The Uniform Standards of Professional Appraisal Practices? You know, a derivative of the old AI / SREA principles and practices that predated FIRREA.

      I’ll send separate PM to inquire how we can help your efforts.

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  5. Baggins Baggins says:

    Let me simplify all of this for you on a national scale. Every single person in distribution must carry an appraisers license. There, fixed it. The existing rule sets are sufficient ‘for appraisers’. Seeking to craft rules for the unregulated non qualified persons is going to be a living document which will eventually bend to the will of those with the most power and influence. You can’t regulate away greed, only ethic can control that.

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  6. Francois, I tried to address you through your website comments but my anything to do with google just defaults for my daughters older brothers account – so it looks like it comes from him. FREAB is meeting today (tonight?) so there is no time for a letter, but I think if you show them the Indian “BPO” which is not a BPO at all but a hybrid; and the “ClearVal Appraisal” they will have a much clearer idea of how the lending industry intends to treat ‘evaluations’. It only adds to confusion when Florida (and others) pass a law saying that we can do what we had been allowed to do all along. Except they have now decreed something that was an appraisal no longer is. They have opened the floodgates for every single larger lender or AMC or software company account holder to write their own forms, calling them whatever they want from evaluation to Proprietary Named Appraisal or Value indicators or whatever they want ad the only ones who will know the differences are the appraisers called on the carpet for doing them when it turns out NONE of these products are USPAP complaint. Best of luck to you. I hope they will read your letter carefully.

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The Devil is Always in The Details

by Michael Ford time to read: 10 min