The Story About “Hybrid” Who Does What

Dave Towne

Dave Towne

Certified Residential RE Appraiser at Towne Appraisals
AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003.
Dave Towne on e-AppraisersDirectory.com
Dave Towne

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Hybrid Reports - The Story About "Hybrid" Who Does WhatWHO actually fills in the subject info in ‘hybrid reports…

Appraisers,

This is a long message… grab a cold one and settle in!

Last Wednesday, (yah, bad on me!), I sent out a message asking appraisers who have done, or are doing, the new ‘hybrid’, ‘alternative’, ‘bifurcated’ or “easy squeezie” desktop reports promoted by some AMC’s and others, what the actual process is concerning WHO actually fills in the subject info in ‘hybrid reports’.

A number of appraisers took time to answer via email that afternoon. Among the responses, I actually CALLED and talked to 4 appraisers who are from different areas in the US, and who had different experiences with these reports. I really appreciate the time they took to explain the process they have witnessed.

What I learned, and I think I’m the only one who has done this on a national scale and reported findings, is that there is massive confusion about the Scope of Work actually performed by two separate individuals (and perhaps other unknown contributors) in these reports. I have learned that some of these new-fangled reports actually do allow an appraiser to be in compliance with USPAP, while others can be considered serious contenders for non-compliance if an appraiser completes them.

To stress the point, as others have done, it’s the APPRAISER who must adhere to USPAP – no one else. None of the ‘forms’ we use are defacto compliant with USPAP. All ‘forms’ have to be supplemented with additional info the appraiser provides to allow the appraiser to be USPAP compliant when using a ‘form’ report.

By the way, when I say in compliance with, or adhere to, USPAP, I mean the CURRENT version in effect at the time of the assignment. An appraiser I respect who has a national following via mindful groups, podcasts, forum posts, etc., recently spent countless keystrokes trying to justify these ‘hybrid reports’ by quoting a USPAP version that does not yet apply to our responsibility. Why that was done is baffling to me.

Highly non-compliant issues for appraisers arise with alternative reports when the subject info in the report is actually filled in by a ‘field inspector’ who is not supervised or even really known to the appraiser. There is at least one known ‘hybrid’ product where this is done. This is considered to be APPRAISAL PRACTICE by someone acting as an appraiser. It is APPRAISAL PRACTICE because that unlicensed field inspector is acting as an appraiser, making decisions about what subject details to include, and perhaps exclude, and most often include photos taken by that ‘field inspector’ in conjunction with the filling in of subject info. I strongly encourage appraisers to steer clear of this pre-filled product.

A second non-compliant version has ‘suggested’ sales, assumed to be comparable properties, provided to the appraiser at the time of assignment offering to the appraiser. This is a veiled attempt to influence the appraiser into accepting someone else’s APPRAISAL PRACTICE decision, which can have a direct bearing on the opinion of value determined by the appraiser… if no research and analysis is done to evaluate those. That is a direct violation of USPAP. The preliminary offering of suggested sales is far different from that same process allowed by Dodd-Frank AFTER a report has been submitted to the client. With this kind of assignment, appraisers should inform the client that in no way should any ‘suggested’ sales be submitted by the client at the time of assignment, and they should be removed from assignment consideration. If they won’t do that, decline the assignment.

A third type of ‘hybrid’ product has a field inspector examining the subject, taking photos, and writing comments about the subject property and the surrounding neighborhood. This info is provided to the appraiser in a separate document, which the appraiser is allowed to review, with parts incorporated into the actual ‘hybrid’ report. I say this kind of process allows the appraiser to be marginally compliant with USPAP, in that the appraiser makes decisions about what data to use and incorporate. The appraiser can (and should) do their own subject research so that the provided data is corroborated with other sources. Some promoters of these ‘hybrid reports’ promote this activity as being little different than an appraiser incorporating MLS or ‘public’ info. Well, maybe – or not.

The Scope of Work in all ‘hybrid reports’ I have seen, and which are written about in the trade press, e-newsletters, blogs, etc., all incorporate vast statements about Extraordinary Assumptions the appraiser is allowed to incorporate. The point here is “why should we need to?” The real reason is because of the cost structure associated with ‘hybrid reports’, which at this writing, is far lower than any other type of ‘drive by’ assignment appraisers typically do, demands incorporating Assumptions about the subject property the appraiser has not personally examined. All these SOW’s say that info provided by someone else is considered “complete and accurate” – when in fact it may not be – even though it’s ‘relied on’ for the purposes of the report.

My contrarian commentators will point out that an appraiser does not have to make a physical inspection of the property as part of the appraisal report assignment. That’s true. But it’s the basic fall-back position ‘hybrid’ report promoters take when discussing these and attempting to ‘sell’ them to appraisers to complete. They don’t mention anything about APPRAISAL PRACTICEIt’s also the primary reason many appraisers won’t do these ‘hybrid reports’ – because they take their charge as being part of “public trust” demanded by The Appraisal Foundation, etc., seriously.

A fourth type of ‘hybrid reports’ has the ‘field inspector’ completing a Property Condition (or Inspection) Report. This is submitted back to the client, but is not forwarded to the appraiser. The appraiser’s SOW in the desktop report is to find subject data from available sources, fill out a subject grid with that, and complete a sales comparison grid. Some report grids are ‘qualitative’ only (no adjustments), while others are ‘quantitative’ – meaning dollar adjustments are made. Both ask the appraiser to state a value conclusion. This kind of ‘hybrid’ report allows the appraiser to be USPAP compliant, because it’s only the appraiser who completes that report.

Something appraisers may not know is per current federal lending regulations, any time a loan is made on a home (real property), the subject home must have ‘eyeballs’ placed on it – for at least a few seconds. There is NO requirement that the eyeballs must be those of an appraiser. That’s the driving force behind the proliferation of these new low cost ‘hybrid reports’.

A fifth type of “alternative” report is an actual exterior-only totally done by a licensed appraiser, who adheres to USPAP. Millions of these used to be done on the 2055 form. But lenders DO NOT NEED ALL THE DETAILS on that outdated GSE form for the intended use they have when doing HELOC, second mortgage, asset monitoring, etc. The lenders don’t want to pay high dollar amounts just to have simple property info verified and provided. So lenders, and their agents – the AMC’s, have designed multiple different versions of ‘hybrid reports’ now floating around.

There… FIVE different versions of these new products. I strongly urge appraisers to get sample reports from clients who request your service. Examine the SOW in them, and ask tough questions about ‘who’ completes the subject info, and ‘when’ it’s filled in. Ask if you can ADD additional Assumptions and Limiting Conditions as necessary. If the clerks who call don’t have the answers, escalate the call to a person at the client with more knowledge and authorityIf they won’t do that, tell the clerk you cannot help them.

You have to be extremely (USPAP) careful with these ‘hybrid’ products as currently constituted. Due to my research, and the kind assistance from the appraisers who talked with me last week, we now have a better understanding of what we appraisers need to be aware of before accepting or outright rejecting the potential ‘hybrid’ assignments.

But, there’s “more to the story.” We appraisers can do a better job meeting needs of clients. While writing this, I determined that further discussion about this kind of work is necessary. I’ll do that in a follow-up message. Stay tuned.

Image credit flickr - Michael Sheehan
Dave Towne

Dave Towne

AGA, MNAA, Accredited Green Appraiser – Licensed in WA State since 2003.
Dave Towne on e-AppraisersDirectory.com

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5 Responses

  1. Xpert says:

    Who in their mind would do hybrid appraisals and how can appraisers rely on anonymous 3rd party inspections and call themselves professionals?

    Would you want your diamond examined and graded by an expert/gemologist or by the fastest and cheapest “3rd party inspector”? There are no hybrid/desktop appraisals for jewelries for good reasons.

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  2. Julie Hoffman says:

    I would like to see what the appraisal management company would be charging the homeowner for one of these products. To be honest I think this is only an attempt by the AMC’s to divide, conquer and ultimately control the industry and do away with the professional appraiser. It’s about the money and nothing more.

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  3. Dave, as always well thought out an insightful article…though surprisingly I have found a few thin argument areas to poke a stick into.

    Options 1 & 2 are pure garbage and I think we all agree. Option three stinks but may not be complete garbage. The devil is in the details. We all know the appraiser has the obligation to be USPAP compliant. All of the samples of these formats I’ve seen even have small print stating that nothing in the directions prevent the appraiser from supplementing the report as they deem to be necessary. (Picture the imaginary conversation lenders attorneys will have before Congress, state regulators and others when it all goes south…”We told them they had free rein to do whatever was necessary in their opinion to produce credible, USPAP compliant analyses and reports…we did all we could to encourage compliance. What more could we possibly have done? Outside of reasonable fees and completion time that is.”)

    Gee whiz! They will permit me to do the extra day or two’s work that’s needed to try to make the pigs-ear report version into a silk-purse USPAP compliant version… and all for $65! Aren’t they just ‘special’?

    Dave respectfully, options 4 & 5 are self defeating. We aren’t talking about who fills in a form. We are talking about analyses and the extent of the analysis at all steps and levels of the appraisal process.

    What lenders want (and think its all we do) is a ‘comp check’ signed by an appraiser. If that’s what they want, then call it that and get the feds ok for us to do that type of service. Stop all the pretense of calling it any kind of an appraisal. Stop asking for appraiser opinions about market conditions, neighborhoods, adverse influences, etc. and using language like appraiser considers sources credible. Tell them it is only an educated crap shoot by experienced players.

    The problem is that they still need to be able to lie to investors while keeping a straight face telling them that they have “appraisal” supported values for all the loans included in a specific investment portfolio or ‘bundle’.

    There is NO WAY anyone can do a fully USPAP compliant $65 to $75 hybrid ‘leveraging Big Data’ like FNMA does, or using ePixieDust like the pimps suggest, in the 45 minutes to complete models being hyped. TAF does a disservice offering classes saying that ‘evaluations’ can be USPAP compliant. They ignore the 600 pound gorillas which are fee and turn time. ANY appraisal can be made compliant.

    I challenge anyone at all to send me one (even one that is redacted to protect the naive, and unintentionally non compliant) of these along with an honest start to finish time verification, and fee disclosure. Include any upload fees that may reduce that whopping $65 base fee please.

    Is there JUST ONE appraiser in America that thinks their version of these $65-$75 wonders is USPAP compliant? How about one promoter, or software supplier? Alamode? ACI? Anyone?

    …..or will we only hear crickets?

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  4. Eric West says:

    We all know why they are pushing hybrid “appraisals”. In my area they pay $50 to $75 per report and I assume the field “inspector” is getting between $15 to $25. So the real costs is around $75-100. And we all know the consumer is probably paying 4+ times that amount.

    Weren’t consumers charged over $300 for $50 worthless BPOs?

    This is not about benefiting borrowers but increasing profits. Hybrids are being advertised to fit this false narrative that it will help borrowers by reducing cost & turn time.

    It’s all about $$$$ in their own pockets. It’s not about protecting the public or lowering the cost!

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  5. Koma says:

    Yea, I had an instructor from a class recently taken and he was pushing that we should be doing this type of report. He stated his son makes over $90,000 a year doing just these…Wonder what he was smoking before class…lol not that I’m against smoking Pakalolo!

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The Story About “Hybrid” Who Does What

by Dave Towne time to read: 6 min
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