I’d Be Better off at McDonalds

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Hybrids Indicated Value & USPAP Coup de Grace, Better off at McDonalds…they provide no documentation as to how their algorithm produces this indicated value…

I had to “jump in the pool” and see what these bifurcated appraisals are all about. The names have been withheld to protect the guilty.

I recently completed a “bifurcated” report for one of the AMC’s providing this type of service. The form is to be completed on their site and they recently upgraded to the “new and improved” report on their portal as of January 1, 2019.

The subject is sited in an urban location and while not an anomaly per se, does display features such as being one of the largest Ranch style dwellings, significant lower level finish and a considerably larger site amongst properties in its immediate market area. Client expectations are rather typical: 3 closed sales, preferably within 6 months, that bracket all of the subject’s value-related features. While this could be done, it produced an indicated range of value slightly greater than I prefer. However, this specific form only allows 3 comparables. Even though I actually added 5, only 3 could be used to reconcile value. While I need 3 specific sales to bracket, I’d have added an addition 1 or 2 in further support.

Of additional significant note is that during the cursory analysis and, according to MLS and tax records, the subject last sold over 3 years ago and was stated as such in the report. The field report provided, stated the subject to be in “average” condition with external negative influences for being sited within 3/4 of a mile from railroad tracks and an interstate. Imagine that in an urban location? Based upon readily available data, the subject was considered a Q4, C4 with no external obsolescence for purposes of my report. This specific report allows for value-related adjustments and produces its own indicated value. Because they provide no documentation as to how their algorithm produces this indicated value, I chose to weight the adjusted sales and override their indicated value with my own. I chose to add additional verbiage that I believed made me as USPAP-compliant as possible. They weren’t crazy about it, but didn’t request I remove it either.

This report paid $75. It wasn’t terrible and took approximately 1.5 hours to complete. I suspect if I was familiar with the software, the subject was in an urban location and I had “canned statements” relative to USPAP-compliance, prior services, etc. that it could been completed in 1 hour +/-. Not necessarily terrible, but no one’s retiring on these. And so, I thought it was the end.

Underwriting came back stating they found a recent sale somewhere online. I questioned the underwriter as to where this data was found. It took them 2 days to respond that “Sorry for the late reply. I’ll have to get back to you”. When processing was screaming for me to complete the “revisions” I told them of this correspondence. It was elevated to a “senior” reviewer who cited a recent sale of $XXX found online but, again, provided no information relative to where it was found. An online search found the subject with photos on some goofball site like Trulia, but it never stated it was listed nor for sale and no FSBO data could be found either. A search of the WI DOR Transfer Return Site did reveal it transferred recently, although no verifiable proof it was exposed to the open market could be found. The sale was so recent that the local assessor hadn’t analyzed it as of yet for arm’s length validity. They also wanted to know why my indicated value was well below their inflated and inaccurate assessed value provided, and suggested I adjust my condition from C4 to C3.

Long story short, I had no evidence of exposure to the open market and recent arm’s length sale, and appropriately discounted the recent sale. I also pointed out the almost 30% higher and inaccurate stated assessed value and the fact they could provide no significant data warranting changing my conditional rating coupled with the fact they suggest the field observations be extraordinarily presumed accurate. With the additional 2.5 hours I’d now be better off at McDonalds.

But it doesn’t end there. In an unbelievable twist I’m sure Mr. Ford would appreciate, the “new and improved” system doesn’t allow you to retain a copy of your work (can you say RECORDKEEPING violation). I questioned the senior appraiser about this. He stated the system was originally set up to deliver a PDF of your report directly to your email. However, an appraiser’s email account was recently hacked and they discontinued this practice. But, there’s a repository of your work accessible from your portal and you can download your reports from there. When I pointed out the fact that actually, there isn’t, or at least no links to said repository within the portal: Crickets.

As if the forms aren’t questionable enough and “revisions” are as much, if not more rampant than typical AMC field work, the fact you can’t retain a copy of your own work for recordkeeping purposes is the USPAP coup de grace. At least, for this AMC it is.

By Mark Ziegler, certified residential appraiser and owner of LandMark Valuation based in Two Rivers, Wisconsin.

Image credit flickr - Mr. Blue MauMau

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29 Responses

  1. Baggins Baggins says:

    Awesome writing. My standard is 6, and almost all the time that’s what I need to bracket everything on both the high and low side. Price, adjusted value indicator, style, age, size, site size, bed & bath count, parking, include 2 active or uc’s, hopefully include 2 in 90, and with a stroke of luck, also bracket the basement size if applicable. A quality detailed workfile alone takes 1 to 2 hours or more before pen ever touches paper.

    Bravery points for trying but when it comes down to it, a form is not compliant in itself. Ethical compliance is the appraisers sole responsibility. If the SOW is felt to be too restrictive for credible valuation results, no engagement can be reached. I’ve trained my parrot to repeat; predetermined value!, because I was tired of saying it myself. FNMA FAQ on AIR: Q22. Q52. (among others…) FNMA AIR Fact Sheet, Points: 5, 6, & 9. (among others…)

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  2. Kathy Hubbard Bright on Facebook Kathy Hubbard Bright on Facebook says:

    Collective eye roll. Unfortunately we know.

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  3. Kimberly Pugh DeFilippis on Facebook Kimberly Pugh DeFilippis on Facebook says:

    Love the article and thanks for writing it, but you left out one pertinent piece of information…the name of the AMC.

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    • Avatar Mark Ziegler says:

      Like I said Kimberly, “names withheld to protect the guilty”. I would love nothing more than to share. However, at this point I’m pondering turning them into the State Board (AMC’s have only been licensed here for less than a year). In essence, while we all unquestionably know the myriad of violations, I’d prefer a little “validation” to avoid a “he said – she said” situation and ensuing **issing match.

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  4. Ross Grannan on Facebook Ross Grannan on Facebook says:

    I would never work on a report that doesn’t originate from my own PC. There are numerous USPAP violations, never mind just smart business practices. And this borders on the appraiser being an employee. Also maybe not McDonalds but a good bar tending gig will fill the financial gap.

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    • Baggins Baggins says:

      I stopped by Total Beverage last year and they had a sample table. Copped a free sample of top shelf tequila. Talked to guy serving it to me, what do you do? Answer; Mortgage broker. After learning I was an appraiser, he volunteered to me an additional free shot. You can’t make it up.

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  5. Avatar chris says:

    I would definitely say the appraiser is an employee !!! What a joke !!! thanks for sharing…..

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    • Avatar Mark Ziegler says:

      Interesting take Chris. I got into it with the IRS over independent contractors that worked for my assessment (revaluation) firm a number of years ago. They were actually paid piecemeal on a “per parcel” basis based upon the amount of properties they inspected during the week. The thing that saved my bacon was that I didn’t dictate the hours they needed to work. Great for the IRS, but the demise of the company. Apparently I paid too well and when they’d get paid, no one wanted to show up for days at a time. I couldn’t bid on additional projects without some degree of confidence in my appraiser’s, and I hate employees.

      That said, the fact the AMC dictates the turn time could be argued as an employee situation, although the fact the contractor accepted the assignment with an agreed upon completion date would be similar to contracting to build a home. Either way, I’d prefer not to deal with the IRS.

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  6. Avatar Koma says:

    All this and you received a whopping $75. Don’t sign me up! I will be there for the attorneys that call me when this mess gets called into court.

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    • Avatar chris says:

      Yup !! I will be calling every lawyer I can to get this type of work, Can’t wait !!! Investors are going after appraiser 10 years after writing the report !!! Can you imagine these reports ….lol

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      • Avatar Mark Ziegler says:

        Couple things here Gents. Acceptable fees have, are and will continue to remain an individual business decision. For my part, I’d find $75 an hour with no windshield time reasonable. However, this obviously depends on what you’re doing for that $75 and sometimes, the only way to find out is to do it. This wouldn’t be the first time I’ve effectively “lost money” on an assignment, but it’s exceptionally rare.

        I’d expect a Statute of Limitations defense could reasonably be argued after 10 years, although this obviously would vary from state to state. However, the fact it takes someone 10 years to recognize damages likely wouldn’t fly.

        Nevertheless, I can tell you from countless hours working with attorneys and providing expert testimony the overwhelming majority of attorneys, and judges for that matter, aren’t exceptionally knowledgeable when it comes to Real Property issues. This isn’t to remotely say they don’t exist; Simply that they’re rare.

        Conversely, I’ve personally seen a report of this nature with an “as is” and “as repaired” value on a duplex completed by an appraiser 3 states away (although reciprocally licensed) for the whopping fee of $25 that is now a matter of pending litigation (as it should be). If this is the kind of work some appraiser’s are willing to do, someone who passed the Bar yesterday could litigate this one.

        It’s not necessarily difficult, if you know what you do for a living, to make these reports compliant in all requisite ways. It’s simply that you must personally do it in addition to developing a credible and supportable report. For me, my limited experience reveals it’s akin to a McDonalds wage, if not worse. I conduct all my work as if I have to defend it in court and making these reports defensible is artwork not worthy of the fees.

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    • Baggins Baggins says:

      Chris, I was just about to say that. Give it about 10 years. Thousands of appraisers have already had their ticket pulled because they completed this type of work, they just have not yet been alerted to this fact.

      One of two things needs to happen. Amc’s get massive insurance policies which exceed the cumulative total of all the appraisers insurance policies which they work. Or appraiser based insurance companies need to specifically remove hybrids from covered product policies. Hoping for EO insurers to chime in here one day.

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      • Avatar Mark Ziegler says:

        Baggins, I’ve concurred and said so regarding E&O. Since 2003+ we’ve been nothing more than a walking E&O Policy. That said, I’ve heard but can’t verify the following Insurer’s rational:

        “Well, someone will step up and insure these hybrids and we’ll be forced to follow suit”. I’ve also seen that, for the most part all E&O Carriers are currently insuring these type products. I suspect all it will take is a sufficient number of claims for them to wake up, but that won’t happen overnight.

        I’m open to logistics but, as I see it the Insurer’s need to see (feel) the risk and, should they so choose to provide coverage, price it at a point that makes completing these type assignment financially unfeasible. One can only hope.

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        • Baggins Baggins says:

          My special contribution note on the matter of EO insurability with hybrids. It should be an additional rider and additional optional cost for appraisers. It is and will remain completely unfair for my policy costs under umbrella group coverage to include such exponential risks for services I refuse to provide.

          Just on the face, basic math pertaining to this. When completing hybrid valuation services products; The base home values do not change. The base insurable EO amount does not change. Yet volume of instances of vendor service exponentializes greatly, passing the risk to everyone else in that same pool. Not to mention the increased room for omission error by the appraiser whom hurriedly completes these products, and possible likely multiplier that would need to be applied to the final number to properly capture this specific risk exposure, which I have not included below.

          If one completes 6 hybrids a day, 30 a week, x estimated 48 weeks = 1,440 a year. Meanwhile typical full service appraisal volume is highly variable but let’s just put something out there as a reasonable baseline. Full service at 4 a week (more than I can provide but many do provide that and more), x estimated 48 weeks = 192 full appraisals a year. 1,440 yearly hybrid vs 192 yearly full service = 7.5 x exponential increase in insurable exposure for individuals completing hybrid and bifurcated appraisals.

          My yearly EO, having risen consistently despite no complaints and me still claiming a rock bottom cost yearly, is $740 a year. $740 x 7.5 x exponential insurability risk = An anticipated real world insurance cost of $5,550 a year for an individual EO policy for appraisers whom complete hybrids under group insurance as most EO policies are currently structured.

          Amc’s are going to have to beef up the hybrid appraiser panel onboarding staff substantially to pull that sale off. What’s the average claim amount? What’s the average civil liability appraisers have actually faced because sometimes let’s face it, due to a variety of possible non covered actions and errs, they are sometimes simply not covered in the end. Let’s multiply those by 7.5x as well for even better perspective?

          Then let’s compare the ratio of increased risk appraisal insurers take on in order to allow amc’s to rake so much unearned income, comparing the exposure against the amc income for providing these products. Undoubtedly it would then appear as if the insurance companies are offering special favors to amc’s and are actually covering their risks via individual appraisers, despite the amc’s having walked away with the majority of the loot and not having carried the insurance themselves. What’s the current split for amc vs appraiser income on these products again? Past 1 yr disclosure on this site indicates amc’s may be getting $250+ for hybrids, despite paying appraisers a variable range of $25 to $100 dollars or thereabouts. 2.5k minimum difference for equality of insurance cost vs appraisers actual income. I know little about insurance but it appears that failing to act by insurers equates to a very special pat on the back for amc’s.

          I’m missing the complexities of this analysis as insurers probably look at that differently to be sure, but it provides reasonable perspective.

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          • Avatar Mark Ziegler says:

            This does, in fact, provide reasonable perspective. And be it a rider, or “baked into” the policy based upon coverage, I concur there should be an obvious premium for this type coverage.

            In industry jargon, it’s “actuarial science” which is fancy vernacular for the measurement and management of risk and uncertainty. I wouldn’t say they’re wittingly aiding and abetting AMC’s but, at minimum, I’d say they are unwittingly.

            Obviously, insurance companies aren’t in the business of losing money (look for the largest building downtown in any city). I simply believe they haven’t familiarized themselves with the inherent risks and/or haven’t paid enough claims as of yet. But their model is rather obvious.

            If you screw up in a vehicle, your premiums go up. If you own a “sports car”, your premiums go up. If your younger, your premiums go up.

            Conversely, if you’re older, your life insurance is higher. If you smoke, drink, fart, your life insurance goes up.

            I’d posit, although only supportable data would tell, that appraiser’s engaged in completing these type reports are engaged in “riskier” behavior in insurance speak. And based upon their typical rational, we don’t care (how many miles you drive, you’re healthier than a horse) how many appraisals you complete, it’s still riskier behavior. Kind of like I only skydive once a year, so what could happen?

            I clearly don’t have the answers nor purport to know what it would take to get Insurer’s to “see the light”. And I’m quite sure some peers would argue there’s absolutely nothing “risky” about completing these type reports.

            Whatever angle works in this instance, “Those who ignore history (and recent I might add) are doomed to repeat it.” As true as this may be, try and “out lobby” the banking industry.

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  7. Thanks for this well written summary of your experiences. It just reinforces my decision to never do one of these bifurcated appraisals. I work on MY software using MY MLS access and if I want to rely on the work of a 3rd party inspector, I want it to be someone in MY appraisal office or MY trainee.

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    • Baggins Baggins says:

      Benefits of being a one man show with no outsourcing what so ever. I barely have time for 3 fulls a week. And that’s overtime if I run across tough requests.

      Nobody will ever be able to sell me on the merits of being tied to a desk all day. Sure may be good for elderly, a time and place for everyone, strictly desk work is not a healthy decision for young and middle aged people though. If appraisers have not personally visited hundred or possibly thousands of properties and dealt with every industry related trick in the book which comes with that, it’s difficult to imagine they could perform strictly desk based work with the necessary degree of learned competency through experience. Also, I still hold firmly to the senior appraiser needing to be there. Just talking about the daily inspection, realty and lending situations involved, that’s perhaps the strongest educational point available for appraisers. They should cherish the available time to train and co inspect, to learn and grow, to both have trained and train others to become truly qualified.

      What’s your next article going to be Abdur? Inquiring minds want to know…

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      • Avatar Mark Ziegler says:

        I’m a one man show (well, my wife works with me). And, by AARP and Social Security Standards, I’m “elderly” as well. Between assessment and appraisal work over the past 30 years I’ve inspected and valued literally tens of thousands of properties in the markets I cover.

        I wouldn’t think strictly desk work is good for anyone of any age, appraisal or otherwise, and it’s not specifically why I entered this profession. Personally, I simply had to see what this whole “bifurcated” fuss was about for myself, so I could speak first hand.

        I have 4 field reports this week, 2 of which were inspected yesterday and 2 remaining which are a field review and vacant land appraisal and both of which pay significant 4 figures due to complexity. I’m fairly well known in my market areas for appraising complex properties and have completed 3 reports this year already paying 4 figures. I typically put from 600 to 1,000 miles a week on my vehicle. While considered a “Senior”, I’d say I’m anything but tied to a desk. And while 4 figure reports are clearly more the exception than the rule, I’d have to do at least 27 if not more of these desktops to generate that kind of income.

        All compliance issues aside, I simply couldn’t afford the pay cut doing desktops all day. And from what I’ve heard from others, work volume is spotty and inconsistent at best (obviously depending upon your market(s)). In my rural area, I suspect doing these wouldn’t amount to beer money annually.

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      • Baggins Baggins says:

        If anyone even mentions cutting into my beer money, engagement off!

        When I started they regaled me with tales of $80k+ yearly income performing only desktops. I entered at the end of that previously long standing standard. Strictly desk review still does pay that much, but too many peoples hands are in the cookie jar these days, despite them taking everything and contributing nothing. My mom is disabled and tried to work bifur’s. They provided her both the comps and the value expectation. People whom actually go for this may very likely expect what is verified by some appraisers to come immediately afterwards; A call or note indicating the next guy in line is doing them for $2 less and they’ll need to compete if they want sustained work flow. And don’t blame the management company, they are merely dealing with pre populated vendor lists via third party distribution platforms which automatically places lower priced vendors at the top of the list.

        Betcha a pepsi that cost savings from reduced costs of appraisal services are not returned to borrowing consumers. Gotta love technology, or at least that’s what they tell me. Still not buying it.

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        • Avatar Mark Ziegler says:

          Interesting Baggins. Seems you have a much deeper insight into this than I. I don’t drink Pepsi, but I know a losing bet when I hear one.

          I don’t remotely blame management companies, as it’s just good business practice. I do blame my peers for accepting assignments of this nature for less than (I don’t know if I can say this, but it’s true) what crack whores charge and at similar professional risk(s).

          Anyone who ever said this profession is easy never worked in it. But I never envisioned the day I’d call it “sad”.

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          • Baggins Baggins says:

            This site needs more regulars, and are always very much appreciated. Last year some dog walker trainer tried to quote me like a hundred dollars an hour. I picked the wrong career again and am looking into a new career as a dog whisperer. It’s a miracle to get an electrician or hvac guy over for less than $600 a day.

            “I blame technology.” (GOW4 reference)

            How I feel about amc’s, with helpful voice tracks. I’m never turning back, not while there are other options.

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  8. Avatar Bill Johnson says:

    According to the appraiser coach it’s bull crap that we all haven’t had a raise in 20 years. Working several hours for $75 before expenses, and years of liability, no thanks. In CA the minimum wage is $12, and it’s set to increase every year by a dollar until it reaches $15.

    Seek the truth.

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  9. Retired Appraiser Retired Appraiser says:

    Aestimatis: Quod botrum portassent irrumabo “professionis”

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  10. Herb Martin on Facebook Herb Martin on Facebook says:

    The only part I liked was the inspection

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    • Avatar chris says:

      Ditto, the only fun I have doing appraisals is doing the inspections !!!

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      • Herb Martin on Facebook Herb Martin on Facebook says:

        Maybe there is an opening for me, I’ll do inspection all day long for $100, I’ll even send it electronically. Then I wouldn’t have to put up with an outdated, redundant and antiquated form, plus I would have to put up with endless, ridiculous revisions from people that have no clue about appraising.

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  11. Avatar Mark Ziegler says:

    I found this significantly interesting. While I haven’t completed a report for this company subsequent to the aforementioned debacle, they contacted me out of the blue today asking if I would consider an assignment. It’s an odd duck in its market and I’m sure they won’t find anyone to complete it for what they pay, but that part is almost insignificant.

    They did attach a copy of the property inspection report that displayed, quite prominently on page 1, the following:

    General Comments: If this inspection is to be used by an appraiser to develop an appraisal or appraisal report, any statements herein expressing the inspector’s opinion should not be incorporated into the appraiser’s work. Instead, the appraiser should make an independent evaluation of the facts reported herein in arriving at any opinions rendered in the appraisal or appraisal report consistent with the requirements of USPAP.

    This is an inspector employed by a “subsidiary” inspection company of the AMC and you want me to rely on a 3rd party inspection that effectively says “don’t rely on it” or, at minimum, “don’t sue me, I’m just the inspector”.

    Seems there may be a little trouble in paradise.

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I’d Be Better off at McDonalds

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