Hybrid Appraisal Created by Appraisers?

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Alternative Valuation/Hybrid Appraisal Created by Independent Appraisers?

Hybrid Appraisal Created by Independent Appraisers?

Hybrid appraisals/alternative valuations is the most polarizing topic in the profession these days. With AMC’s all rolling out their new alternative valuation products, wouldn’t it make sense for independent appraisers to come together and create OUR own hybrid/alternative product? This is our opportunity to compete directly with AMC’s and regain control of our profession. The blueprint for this hybrid/alternative valuation model is already in place. We just need to come together, create a better one, and market it to the same investors that are already using them. If independent appraisers got together and did this, every other hybrid product would become obsolete.
The hybrids I’ve done work like this: an “inspector” is sent out to a property to shoot a few photos. The inspector is usually a real estate agent or other “qualified” person. The inspector then uploads the photos, marks approximately 10-15 yes/no check-boxes, then makes general remarks regarding positive and negative influences in the neighborhood. It’s about a 10-minute process— plus however long it takes to drive to the property. The inspector report is called a Property Condition Report (PCR) or something similar. The PCR is then sent to an appraiser to aid them in a desktop appraisal. The sales pitch for these hybrid products is that once the appraiser gets comfortable with the process, they should be able to knock out an assignment in about an hour. The fees are pretty brutal, but sometimes you can get them close to your typical hourly rate. If we cut out the middle-man and deal directly with the client, then we could get reasonable fees for these types of assignments.

Appraisers should be doing both sides of the hybrid. Getting control of the inspector/property condition side of the hybrid appraisal is a business opportunity for us. Appraisers could make a living just doing the inspector part. There is a massive market for field inspectors that appraisers aren’t tapping into. Just do an internet search of “field inspection companies” and it will blow your hair back with all the opportunity that exists in that field. In addition to that, I don’t think most appraisers realize that appraisals only make up 20-25% of the entire valuation industry. We need to be getting this other business. Who’s better equipped to perform property observations and valuations than an appraiser?

Creating a hybrid/alternative valuation product is the perfect starting point for us to cut out the middle man and tap into these other business opportunities. If we independent appraisers start working on this product now — market it at the local level — then we could launch a national product by Appraiser Fest 2018.

Again, the blueprint for this product is already there for us, and lenders want to use it. We already have desktop forms provided by our software companies, and it would be simple to create a standard form for the observation part. One thing we could add that’s not being done is: create a form that the lender sends to the homeowner that asks them to verify a few property characteristics, and to list all the recent updates made. The homeowner could even shoot a few interior photos of the house and send those to the appraiser. We’re in this together. We spend too much time bickering and throwing each other under the bus— we need to be collaborating.

By Jerin Harper, Independent fee appraiser, certified (residential) in Washington and Oregon; started Harper Certified Appraisals, after working for a firm in Seatle. Licensed real estate broker, member of NAIFA (National Association of Independent Fee Appraisers) and Clark County Association of Realtors®, and President of the Vancouver Appraiser Breakfast Club (VABC)

Image credit flickr - Joe Crimmings
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53 Responses

  1. Mike says:

    Jerin, Thanks for sharing your thoughts. I am not sure I am understanding what you are proposing. Are you suggesting the appraiser inspect the property then complete the appraisal, like we currently do for a URAR? Or are you suggesting appraisers complete the property inspection for another appraiser to complete the actual appraisal report?  If you are suggestion the latter, that gets into appraisal services and significant assistance that must be disclosed. If you are suggesting the former, I am confused as to how it is a hybrid? Can you please clarify what you are suggesting? 

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    • Jerin says:

      Mike, I’m suggesting the latter… The significant assistance and scope of work of both appraisers can and should be clearly disclosed— just like the third-party inspectors assistance is disclosed within the hybrid reports that are already being used.

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      • Diana N. says:

        Jerin, One appraisal, one report, one appraiser.

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      • Mike says:

        Thanks for clarifying.  In my market, and I am sure in others as well, there are different levels of appraiser and experience levels. There are the low end form fillers, who will check boxes, placed canned comments, and ignore relevant facts. Then there are the appraisers with good intentions, but had poor training and do not know what they do not know. Then there are the honest appraisers that have integrity and seek a better client. I fall into the latter category. I can not speak for others, but I have seen way too many reports by the low end form fillers to trust any part of their report. If I, the appraiser do not trust the person performing the inspection, how can the public trust the appraiser or the appraisal  process.  Our license is about public trust, not what a lender wants or helping an amc trying to reduce costs to be profitable.

        I agree appraisers need to be part of the solutions. I do not agree hybrid appraisals are good for the profession or public trust.

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  2. Chris says:

    God almighty, Will this never end??? As loans get fewer and fewer these days, They want every deal made!!! They NEED every deal made!!! And we appraisers are in THEIR way. 

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  3. Eric West says:

    Jerin, do you know how much property inspectors get paid for the inspection and report?

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    • Jerin says:

      Approximately $25, give or take. I’ve done them off and on for the past year or so. It’s a nice side hustle when you’re already out taking comp photos and seeing houses anyway.  I’d have to think that if there wasn’t a middle-man and we could get this inspection work direct, then an appraiser could get around $40-50 for simply shooting a few photos, checking some boxes and writing a few remarks.

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      • Advocate says:

        Well there you go he said it himself… “it a nice side HUSTLE”

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      • Xpert says:

        I charge $150 for a final inspection and I only need to mark 1 checkbox. I don’t leave the office for less than that.

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        • Jerin says:

          Can’t deny how good the 1004D’s are. If someone wants to pay you $25 or $30 bucks to grab a photo while you’re already out taking comp photos, then why wouldn’t you do that? If there was no middle-man, you could get $50 for taking a photo. It takes 10 minutes.

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          • Bill Johnson says:

            I’ll spent more time and energy trying to collect on that their past due invoice as compared to some $30 to $50 payout their offering.

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          • JM2C says:

            For the same reason that I won’t discount a second final inspection to $20 or $50 just because I’m already out, or discount a second appraisal by 60-70% just because I’m already out doing another appraisal.

            Also, you wrote in your post “an “inspector” is sent out to a property to shoot a few photos… inspector then uploads the photos, marks approximately 10-15 yes/no check-boxes, then makes general remarks regarding positive and negative influences in the neighborhood. It’s about a 10-minute process— plus however long it takes to drive to the property.”

            Like I said, I mark 1 checkbox for a final inspection and charge $150. Why would I do more work for less? That’s just bad business.

            You’re welcome to ALL of it.

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  4. John Pratt says:

    You state that that appraisals only make up 20-25% of the entire valuation industry. This depends on what you consider the “evaluation industry”, if you include Zillow, Housecanary and other online sites like this you may be correct. Most appraisals, those completed by appraisers, are for purchase loans, refinance loans or mortgage servicing. This probably makes up 80% of all appraisals completed by licensed appraisers, the remainder, 20%, is Estates, Trusts, divorces and other litigation. These Hybrid appraisals you are talking about are mainly used in loan servicing and are not the major source of income for appraisers. Any appraiser that thinks they can make a living on doing Hybrid appraisals is living in fantasy land. Even if Hybrid appraisals paid $150 there is not enough work to support the current number of appraiser to make a living wage in the market. The only reason that the AMC and Lenders want the appraisers to complete Hybrids is to reduce the cost and get the signature of an appraisers with his/her License and E & O insurance. 

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    • Jerin says:

      John— there was an appraiser coach podcast episode (#244) where Dustin interviewed Mike Brunson about Evaluations. In the episode, Mike surmised that appraisals only make up about 1/5 of the entire valuation industry. I don’t believe he was including AVM’s like Zillow, housecanary, etc. I did my own research and I believe Mike’s numbers to be relatively accurate…. Regarding my comment about an appraiser being able to make a living off inspections only: There are already “inspectors” that make a living doing field inspections for various purposes— I’m just saying that there is a huge market for inspectors that apprasiers could tap into; because, who better to do field inspections and property condition reports than an appraiser?

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      • Jerin says:

        I hear ya, John.  Maybe these appraiser’s would do a better job if they only had to focus on shooting a few photos and making some general observations. I also suggested that the home owner or lender provide information and photos of the subject property… My whole premise is that these hybrids are already being utilized, so why wouldn’t we provide a better product and profit from it?

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  5. Seneca says:

    “appraisers to come together” That’s the trick.

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    • Jerin says:

      Haha, exactly. We seem to be so threatened by each other.

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      • Seneca says:

        I wouldn’t call it threatened by each other but it’s more about not meeting and talking to other appraisers regularly. 70% of appraisers are a one person show and are grinding every day on their own. There is no everyday common grounds like a realtors at the office or teachers at school. Especially now that education is online. A handful might meet once a month at the regional coalition just to be disappointed that the discussed topics are hindsight. Appraisers are loners by the nature of the business and its model. It’s been tried for 15-20 years to have one main voice just to fall tremendously short. I am not sure it’s possible to ever have one main structure representing our industry that anyone in banking or government would take seriously.

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        • Jerin says:

          Yeah, it’s too bad we can’t get more organized and unite like NAR. I think coming together locally is a start though. We’ve seen a lot more of these state coalitions forming, so maybe the mindset of appraisers is changing.

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          • Seneca – hope you got the apology post re not thinking you were an appraiser.

            Jerin, we HAVE organizations ‘like’ NAR. American Guild of Appraisers; State Coalitions and National Organization of State Coalitions. What we DONT have is nearly as many people joining all of these organizations as should be. So, when ‘we’ (AGA, Peer Groups and coalitions) DO come up with ideas to try to solve all or some problems, we immediately run into the most opposition from our own fellow appraisers! Fighting AMCS and regulators is relatively easy compared to convincing appraisers that like to argue for the sake of argument itself.

            Im also an appraiser Realtor(r) and have been trying to ‘crack into’ NARs appraisal policy makers for about two years. Some limited success but they are almost as cumbersome as the government is to get through. I had good rapport in my limited contact with the former NAR President but he was one of a kind.

            From the survey NAR asked me to complete today, I can tell you they ARE concerned with a lot of the issues we care about…and a host of others. Of course that’s not the same as saying that they share our views.

            By the way – consider this. NAR has about 3 million members (I think). AFL-CIO has over 13 million. You want national clout? Join AGA.

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            • Jerin says:

              It does seem like AGA has moved to the forefront regarding appraisal organizations. I am considering joining them too. I’m with NAIFA now— it will be interesting to see how the merger with ASA goes. I wonder if that will make make us the largest organization of appraisers?

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              • Jerin we would welcome your membership. As for NAIFA merging with ASA we think it was a brilliant idea. For us, it was a missed opportunity, but that doesn’t mean we don’t applaud the positive actions that both groups ultimately decided on. .

                For NAIFA members and ASA I think the move was using just good, plain old fashioned common sense.

                While size is important in terms of effecting influence the real strength of both ASA and NAIFA has been their members and leaderships commitment to fighting for appraisers interests actively.

                We believe we at AGA bring something else to the table. Not just the strength of OPEIU and AFL-CIO behind us on national issues (which is very important), but our absolute willingness to go toe to toe with ANYONE that is promoting ideas that run contrary to the best interests of appraisers; or that is/are directly abusing individual appraisers.

                We first look for win win solutions but if it takes public humiliation or formal complaints to regulators we are more than willing and able to pursue those avenues too. If you are interested please contact Jan at janbellas@appraisersguild.org .

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  6. Fritz Vogel says:

    I get the vibe, your right, lenders and AMC’s spend millions of man hours trying to create new wave products that would be faster and cheaper, and then another 100 selling them to Lenders. It’s not our business per se, but then 1/2 of the URAR was not our biz 20-25 years ago. Including FHA regs for checking if appliances were working LOL. I’m up to it, I’ll help create and test, not like the naysayer J.Pratt who’s only post was to argue the % of appraisers in the industry and how we will all starve doing Alt. products. Yes we can’t make a living doing short cut reports, but we can A) keep a foot in the game and B) make some money left on the table. for something we already do. (ON A FORM OF OUR OWN!!!)

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    • Jerin says:

      I appreciate that…  It’s like I said in the post, we already have desktop forms we can use, so we don’t have to figure out all these other forms created by AMC’s— and, we can do it our way.

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    • Fritz and Jerin both – you should know by now that no matter what form we come up with and with what necessary disclosures and limitations, lenders will come up with their own forms that eliminate our limitations and tries to add language to make the product appear to be much more like an appraisal than it really is.

      Perfect example is the old 704 drive by compared with the current 2055.

      No one should be making loan decisions based on a $25 non appraiser field inspector. Sending non appraisers or even appraisers out with no standards required is simply a recipe for disaster. It will become a meaningless exercise. IF we are just going to do desk appraisals then lets not pretend they are anything else than glorified comp checks.

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  7. MFV says:

    Its so simple. FNMA , AMCs, etc, etc already have most of the raw comp data, aerial pics and are getting more all the time they insist is better than ours. Everyone wants a value yesterday and as cheaply as possible. Real estate agents for a small fee, like with REOs, will go out and take a current pics of subject for half of nothing. So why would they need a cheap hybrid from us, when they can continue on the route they are heading on? So the appraisal profession, as we know it for lender work, is nearly  doomed. So my friends, my aging peers and I will soon be winding up our last job at “Mahogany Ridge”. In unison we will be singing that time honored song we dearly love: Frank Sinatra and the  words for “My Way”

    “And now, the end is near
    And so I face the final curtain
    My friend, I’ll say it clear I’ll state my case, of which I’m certain
    I’ve lived a life that’s full
    I’ve traveled each and every highway
    But more, much more than this
    I did it my way”……. (the rest of the lyrics are in Google)

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  8. Chris says:

    I just cut a sale by 33%, almost 100K. Good thing I walked through the house, measured it, saw how small the kitchen and rooms ACTUALLY are. Drove the comps. The further away ones are worth more because of flat lots. Then I spent a few hours saying to myself “value Is not there”, spent another few hours making sure I was right!!!

    Informed the lender this morning of my results that took 8 hours to complete.

    Wait…and they want US to do this in under 1 hour and NOT inspect the houses we appraise……

    Seriously???? You got to be stupid to even get involved with these idiots!!!

    Grab some money to inspect???? How bad of an appraiser are you if you can not get a few deals a week to make a living….???

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    • Fritz Vogel says:

      We get to control WHAT is inspected and how, form A, B or C. all at diff. price points, all with VERY diff liability issues. Guess your not reading this right. BTW, I kill deals all the time, PITA, takes more time and agrivation. Lot’s of idiot’s on the playing field. But If we create the field, the forms and liabilities associated with each it’s our gave on there field.

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  9. JM2C says:

    Jerin, there is a simpler solution!

    The reason for these hybrids is fee and TAT. You say we need to cut the middle-man aka AMCs for these types of assignments. I say cut the AMCs altogether to reduce fees, TAT and appraisal delays.

    We wouldn’t be discussing this, if every appraiser refused to accept these type of assignments.

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  10. Fritz Vogel says:

    MY own wife takes the low $$$ deals for AMC’s I tossed away years ago, but she has nothing better to do, sad. I just say no.

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  11. Dan says:

    Hi Jerin;

    Thanks for your thoughts about this process. I certainly find no disagreement that appraisers ought to be the ones involved in all these conversations about things affecting us.

    It is my humble opinion, that doing alternative formats in an appraisal process would be a good fit in some instances. But I feel that somebody who has been trained by me (trainee, or assistant) would be the perfect person to do the inspections. 

    It’s hard on the DNA of a true analytical personality to trust somebody unknown with a PCR to be honest.  I think that’s why so many of our piers resist. Appraisers have been known to get a little cranky about subjects like this, and I believe that’s the reason. I’m from the world of finance originally, so I understand both sides of the desk.

    Those who have been trained by me will view a property more closely to the way I would. And with a product that allows others to inspect, and the appraiser to do the ultimate analysis, I think that would be a more logical path for consideration that everybody could agree upon. Again, just one fee but a more limited format and a process which can be split without violating something, somewhere, somehow…..  For limited purposes. Seems logical to me.

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    • Jerin says:

      Dan, I think we’re saying the same thing here. I also agree that alternative formats in an appraisal process are a good fit in some cases. One fee that is split is basically what I meant— just goes to two different appraisers.

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    • Dan they will only do so as part of training for a higher level license.

      If it ever becomes a case of just maximizing income by completing more ‘in and out’ rapid  inspections a day thats what will happen. (lets just call them quick photo ops – there isn’t going to be any meaningful inspection anyway).

      Folks I SAW this happen pre crash with BPOs! Broker L.Os in mortgage company I was inside of started taking on $125 side work…then it dropped to $90. They sent out picture takers for $25 a pop thinking they’d make money ($65 each) just cranking them out… until they realized they had no report writing software, no real knowledge of comp selection and no in house appraiser willing to help them! I’d just wave and smile anytime they asked – though in the interests of even further economy I only used one finger when waiving.

      All other reasons aside, the main reason it doesn’t work is that no one can assure these hybrid providers even 5 a day let alone the 10 a day it would take to earn a decent living. So if we ALL start doing them, the competitive demands drop fees down to what $10 each?…and they still wont be able to guarantee enough work to warrant it. Why would anyone think volume would be higher than they normally used to get doing full appraisals?

      I WILL NOT stand by where federal law required me to be licensed and to adhere to minimum standards (USPAP), while non licensees steal my livelihood, and don’t have to meet ANY standards!

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  12. Jerin, I disagree with you. The concept sounds nice but the problem has never been ‘just’ the form. Banks and lenders have always sought a cheaper product ever since FIRREA was passed. When a cheaper service is developed, some individual lender like Wells Fargo or Chase comes along and say “That’s nice, but we want it tweaked for our particular needs…just a little.”

    The whores (er excuse me-prostitutes) at ACI or alamode are always willing to give them what they want. The revised versions are carefully parsed to make them look USPAP compliant, though absent tremendous amounts of non form based narrative they are not.

    Remember the original 704 Drive by for around $125-$150+- in the early 1990’s? Not perfect, it at least provided what lenders claim is all they are asking for today. Its major drawback was that it was used universally for property that was not suitable for a drive by (like something not visible from the road). It also asked stupid questions like room counts, family rooms, patios, air conditioning, etc. All items not visible from the street.

    Lenders didn’t like all the disclosures added to explain what it was NOT.

    Then we got the 704D, then the 2055 Drive by, and my all time favorite 2055 With Interior inspection and sketch!I’ll save you some time.

    Here is what lenders want. “I think the value is $500,000.” “This is an appraisal” Sign it, date it and charge $50. They wont be happy about the 6 or 7 extra added pages of disclosures and discussions about how such limited scope assignments produce results that are not any more credible than BPOs and man on the street opinions. No matter what is produced to give them what they say they want, they will modify it to make it look like it is more than it is.

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  13. John Pratt says:

    There are several problems in the appraisal industry, I could write a thesis on them, however appraisers are never going to solve all of them. A recent study shows that the average annual income of appraisers is $ 50- 55,000. This is supported by another study for 2016 which shows there were approx. 8,600,000 mortgage originations in the U.S. and there are approx. 96,000 credentialed appraisers, this does not include trainees. If California is an indicator there is approx. 72% Residential and 28% General Appraisers. If half of the General appraiser complete Residential appraisal report that would work out to approx. 80,000 appraisers doing residential appraisals, divide that into the 8,600,000 loans and you come out with 107 mortgages originated each year per appraiser. A recent nationwide study by OREP shows most appraisal fees for a full 1004 is between $ 400 -$ 500 with an average of approx. $ 450. This works out to about $ 48,000/yr. Another source of income is from Loan Servicing appraisal requests, some of these are for full appraisals and some for Drive-by reports which range in fees from $ 300 -$ 400 per the above cited survey. These are limited mostly to seriously delinquent loans, REO and Reverse Mortgage closeouts. If appraisers succumb to completing Hybrid appraisals for $ 50 – $ 75 for these requests it will have a severe negative impact all appraisers’ income. Remember the Lender wants the appraisers signature for 2 reasons, to give validity to the property value and his/her E & O Insurance. The AMC’s main focus is to reduce the appraiser’s fee to increase their profits.

    If we the appraisers support the use of Hybrid appraisals it will have a negative effect on the number of appraisers.

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    • Chris says:

      Well said !!!

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    • Agree.

      I don’t mind us doing ‘less than’ type products IF they are NOT represented to be appraisals. If a client needs or wants an appraisal – then it has to comply with all the applicable standards.

      Correction on the numbers – Nationally we are down to slightly more than 73,000 appraisers. California is down to less than 50% of what we had. That’s the excuse BREA is using to raise fees; along with increased fines.

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  14. I think this is a brilliant idea Jerin! Whether we like it or not, alternative valuation products like the hybrid appraisal are here to stay. The lenders and GSEs are demanding a change…why not be part of the solution? If a USPAP compliant product can be developed, I would be willing to add it to my list of available services. The key, in my opinion, is the fee. I have seen fee offers for the current hybrids of $50 to $100.  There is no way an appraiser can adequately analyze market/comp data and make a profit at these fees. My thought is a fee closer to but less than a driveby fee. Appraisers: Don’t give away your expertise and put your liability (E&O) on the line for these ridiculous fees!

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    • Theresa ” If a USPAP compliant product can be developed, I would be willing to add it to my list of available services”  (Me too!) That has always been the sticking point. Go online and look at the First American highly touted PACE PRO product (or read old articles here).

      It does not matter WHAT product we help create. The fact is that USPAP compliance is inconvenient for lenders and LOs and they are the ones usually trying to circumvent it. Price is the next factor.

      Go back to the old (original format) 704 and put it out between $250 and $300 and I’ll do them all day long…but let us write our own templated addendums so that there is no chance of it being misleading  within itself.

      Also recognize that  (in L.A. anyway) fully 40% of properties simply are unsuited for driveby analysis. What they become is a gate-picture analyzed on a desk top basis.

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  15. John Pratt says:

    Mike, I got my information on the number of active appraisers form the ASC site for acitve appraisers which shows 95,793.

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    • I wonder when it was updated last? Im referring to numbers that appear in regular posts from an Illinois regulator (IDLAB or something like that?). It would be interesting to find out for sure.  Thanks.

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    • PS – it includes same appraisers licensed in multiple states I think. Real numbers by almost all other sources are well under 80,000.

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      • Bill Johnson says:

        Regardless of the actual number of licensed appraisers Mike, I believe I saw an official figure of around 50,000 relating to the number of individual appraisers who have had there work go through the collateral underwriter (CU) system. Either way, tens of thousands of licensed appraisers have chosen not to participate under the current toxic environment.

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  16. Craig says:

    I like the way you think Jerin! I’ve been working Hybrid products for several clients for the past 3 years. I also agree that alternative products in our industry is the future and, if we can make our own product, why not? 

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  17. Betty C. says:

    You didn’t here all this chatter about “hybrids” and “shortsges” until AMC’s started to become regulated by the states and have gotten push back with regard to fees, scope creep, and abusive practices or fined. NOW, it’s all you here. These products are a tactacle move by the AMC”s to divide the scope of work, push the profesionals out and replace with millennials who will work for peanuts. Meanwhile, sell outs will do the paper work. Sign the reports, take on the liability and help the AMC’s until they to are too replaced. Suckers.

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  18. Pt says:

    For the last 45 years I have heard how all lenders would do away with appraisals overnight if they could.  t has been an incessant drumbeat. I agree with the basic premise presented here. Streamline the forms, allow openly the utilization of MLS pictures, etc. Most MLS’s have detailed interior photos as well. I find those much more informative than driving by and taking an exterior photo. God forbid I have a conversation with either Realtor. I agree we need to be controlling the conversation…& with attention paid to uspap and clients’/users input. I do not need people who own or run AMCs (many of which are Appraiser failures) driving this bus!

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Hybrid Appraisal Created by Appraisers?

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