Robust & Precise Inspections – Hybrids V

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George Dell

Owner of Valuemetrics at Valuemetrics
George Dell is the owner of Valuemetrics and author of the Analogue Blog. He is a graduate of San Diego State University with extensive post-graduate work in Economics, Statistics, Mathematics, Finance, and Information Systems, Certificate level work in Environmental Management and Geographic Information Systems (GIS). George has earned the MAI, SRA, and ASA designations.
George Dell

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Get Those Pesky Appraisers Out of the Way! Hybrid Appraisals Part 5No more pesky appraisers blowing up sales commissions & bonuses & salaries…

A “hybrid” appraisal is a new name for where the property inspection is separated from the analysis and appraiser’s certification. It is faster and cheaper and…

This is Part 5 of a (soon to be, so far) six part discussion of Hybrid Appraisals. Part OneTwoThree, and Four are behind these links.

Many years ago, I had several trainees, and as each gained experience and competence going out with me, I first let them inspect homogeneous neighborhoods, with me driving by on the outside to check on locational and optimal use issues. In time, they did complete appraisals on their own (although I always internally reviewed and signed). Both the appraisers and I learned more and more about the markets and how features related to each other and needed adjustments.

An important part of appraiser training was the field work. The most important part of the training was there, in the field. Looking at a house is quite different from looking at a checklist box on a Fannie Mae form. Driving a neighborhood is quite different from statistics describing it. Both are needed.

Today.

Today we are told that the inspections can be performed in a “robust and precise” manner by “highly trained inspectors.” But no one seems to know how this training magically appears.

The essence of data science, and EBV (Evidence Based Valuation©) is that 80% of the needed effort and expertise is getting the data right.

It appears to me that those who care about collateral risk should care the most about the data. The data that matters the most is on each individual property, and proximate influences, and pricing indexes and forecasts. Do they? Or do they care the most about making the deal, the commission, the salary bonus for volume on short-term profit maximization, rather than long-term benefit to shareholders, consumers, and the overall public trust?

The illusion of public trust was shattered ten years ago. And twenty years ago. And every ten to fifteen years back at least to the Great Depression of the 1930’s.  Homes sat vacant. Foreclosed. Families lived in cars. Driving west to the next greed-induced crash. No problem.

No problem. It’s only a few hundreds or millions of families damaged. A lost sense of safety in young people. Distrust. Emotional and psychological damage. Carried forward. No problem. It’s just consumers who lose their homes to overvaluation pressure. No problem it’s just consumers who pay the taxes. The taxes easily bail out the system. A failed system.

The system also fails to provide the greedy “sufficient” gain. The darn government keeps trying to impose rules and regulations to protect the consumer. And the system gets worked. Every time and this time.

This time, let’s get those pesky appraisers out of the way once and for all. Let’s put trained and robust and precise inspectors out there. Then have the “appraiser” fill in the form. In fact, no need for a form. Data is data. We got it. Problem solved. No more pesky appraisers blowing up sales commissions and bonuses and salaries. No more appraisers with the expenses of license fees, MLS memberships, professional dues, appraisal software, records verification, and state-approved classes. Super savings all around.

Then comes the next economic meltdown. We must fix the cause.

Let’s license the house inspectors…

Image credit flickr - David Blackwell
George Dell

George Dell

George Dell is the owner of Valuemetrics and author of the Analogue Blog. He is a graduate of San Diego State University with extensive post-graduate work in Economics, Statistics, Mathematics, Finance, and Information Systems, Certificate level work in Environmental Management and Geographic Information Systems (GIS). George has earned the MAI, SRA, and ASA designations.

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22 Responses

  1. Avatar Advocate says:

    Agreed George. Many States are seeking legislation that does require the inspector to be licensed. Fannie and Freddie may not care about accuracy and public trust, but state regulatory boards and law makers do.

    These hybrid appraisals will not end well for the appraiser signing them, the lender, nor Fannie and Freddie. I foresee huge lawsuits forthcoming for all involved in the near future. Attorneys are already gathering evidence.

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    • Think about that Advocate. Appraisers are already licensed. Now states are thinking of a new separate category license for ‘partial appraisers’?

      The very concept that non-appraisers or appraiser trainees can credibly provide relevant inspection data for an appraisal is beyond ridiculous. Has everyone forgotten what trainee licenses were originally intended to be for?

      It was the lenders that PROHIBITED our using them for field inspection.
      It was the regulators who limited the number of them we could train at any one time – directly limiting our ability to incorporate them into any reasonably sound and profitable appraisal company scenario.
      It was also the regulators that started telling would be trainees NOT to obtain trainee licenses! (CA BREA), but to wait until they were fully licensed so they would not be subject to BREA oversight (while their supervisors were!).

      ALL levels of real estate appraisal should require a licensed or trainee licensed appraiser that is subject to state enforcement. The same applies to any company claiming to ‘manage’ appraisers. The persons assigning work; reviewing work and deciding on fee increase or turn time extensions should all be licensed in the state where the assignment is.

      They cannot ‘manage’ that which they don’t understand – including USPAP and state legal requirements.

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  2. Wayne Coltrane on Facebook Wayne Coltrane on Facebook says:

    Mortgage “collateral risk” has been shifted away from loan originators and the secondary market to non-consenting third parties (taxpayers). This results in a low priority for the credibility of collateral valuation.

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  3. Avatar CJK says:

    Appraisers need to check with the insurance company to see if the E&O will cover them for singing off on these “inspection.” No matter what FNMA says now, when the **** hits the fan FNMA, lenders, and borrowers will be all over the appraisers when these loans go into default. Many of the boilerplate disclaimers do not hold up in court, and the State Appraisal Boards generate income from the “discipline” placed on the appraiser’s, so they will always look for something to complain about. It’s a new day, enjoy the ride.

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  4. Avatar Cotton Cornell says:

    Any appraiser willing to sign these hybrids should have their certifications removed. Hybrids appraisals are harming the public trust and are not USPAP compliant. If you complete this type of work consider yourself the problem. Any hybrid report that comes across my desk will be sent off to the State. Good luck!

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  5. 99% concur…right up to the final sentence. Adding more unqualified licensee – inspectors to the appraisal practice isn’t the answer. These folks have no business being involved in a real estate appraisal in any way, shape or form. They are not real estate appraisers. If George meant to license them as appraisers, then we are in 100% agreement.

    FIRREA directed TAF to establish uniform license requirements and MINIMUM standards for real estate appraisals performed for federally regulated transactions. Despite a lot of gratuitous changes over the years, the standards worked reasonably well until the Scope of Work Rule encouraged everyone to reinterpret the other meanings and requirements of USPAP under SR1 and SR2. Now, these reinterpretations and selective parsing of English have resulted in products that by their very nature are at best misleading.

    Partly to blame is the adoption by some states or alternative standards (read that to mean pretty much do whatever you want as long as it’s generally addressed in scope of work).

    The ONLY acceptable solution to the so-called hybrids or third party issue is to require USPAP to be followed to the letter, and that ALL parties to the preparation of ANY appraisal (hybrid or otherwise) be licensed as appraisers. Still need ‘third party’ inspectors? Fine. Use trainee appraisers and let us decide how to train them. They also should be required to have trainee licenses. Some states trend to telling trainees they are shielded from complaints by remaining unlicensed is a mistake (CA-BREA).

    States should seriously consider a return to laws that forbid anyone that is NOT a licensed appraiser from opining about value, regardless of what other euphemisms are used to describe it. Either protection of public trust means something…

    Or, it doesn’t.

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    • Avatar merv Conlan says:

      I’m sure Mr Dell’s last sentence was sarcasm.

      But, it needn’t be! Let’s build on it. USPAP at TAF’s urging should install another SR, this time for Inspections. Poor, sobbing, thwarted Inspection has been too long left at the curb by USPAP.

      This will take time, perhaps by SR78 and AO322 we can have directions on how to do inspections: for ex, No Vans, golf shoes OK cause they have good gripping; no aluminum flex ladders (electric danger); OH, and ‘alternative’ evaluations for below threshold reports are excused, because, well, you know, the lenders, AMC’s, TAF, and what have you think they should be excused….and below threshold properties are purchased by trash that don’t spend a dime on really important folks like congressmen.

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  6. Avatar CJK says:

    The Colorado Department of Regulatory Agencies just sent this out today:

    So they appear to be saying it’s just fine don’t worry, but when the loans go into default, the hammer will come down hard on the appraisers, by the very same people who are basically now saying “whats the issue.”

    FNMA form 1004P looks just like the current URAR, I will not be doing these new reports for $125.

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    • Baggins Baggins says:

      I listened to that meeting about hybrids at the DORA office, through the minutes you posted. None of the decision makers did any homework and just fell back on their standard, all rules apply to the appraiser line. People whom could have protected the public trust, not even bothering to look into the issue and instead accept a 2 minute summary from a single person whom inadequately described the issue, regarding the influence of an entire lending community whom are pushing forward with these programs by the hundreds of thousands of instances. Clearly, the decision makers are not on the front lines actually completing mortgage lending work like we are. They could have at least printed some of our articles here. The answer to hybrids is already located in the QA section of the ethics book, really?

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      • Avatar CJK says:

        They may view this as the new cash cow for the State. After all, they will be making a killing with the fees from USPAP violations. So much for protecting the public. The talking heads now say it’s okay, don’t worry, be happy. Until the loans go into default, or the Realtors, buyers and sellers start with the complaints over the appraisal. The question will be: How can he say my property is worth $***,*** when he never even looked at it? The answer from the regulators will be: He does not need to look at the property, but don’t worry we will get him on something else. We need to investigate that appraiser, pull his work files for the last 12 months and let’s see how much we can get out of him. 2 – 5 more years and I am done.

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    • John, determination of whether a room is a bedroom or a den based upon local codes and use custom IS a professional opinion. SF based upon measuring IS a professional appraisal, architectural or engineering opinion. Doing it correctly requires professional knowledge of what is or it not living area. Determination of either neighborhood or competitive market area boundaries is also a professional appraisal opinion. Condition rating is a professional opinion.

      Lastly, knowing the specific background and qualifications of a field inspector is critical to determining whether they may be competent.

      The form and format of the 1004P MAY potentially be made credible.
      The form and format of the Mueller Reports currently making the rounds, ARE NOT credible…to the point of being likely to induce or promote fraud.
      The form and or format of the ClearVal products and all similar products are NOT credible, and like the Mueller reports are highly prone to fraud.

      Pretending such formats from so called “settlement services” companies is misleading to the public. There is no ‘negotiation’ of scope. They are a take it or leave it type assignment.

      NONE of the latter credibly provide reliable results.

      A 1004P may fall into what you describe. NONE of the others currently being broadly marketed do. They are garbage, and should not be performed by anyone calling himself an appraiser

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  7. Avatar don says:

    Years ago I accepted an assignment which included report from a recognized economist. This was before licensing. The Property was a 1920’s Citrus packing House converted to a plastics manufacturing plant. The economist report had the basics for assignment of deprecation to all the parts of a cost approach and lots of other stuff.

    My assignment was for current value in trade. My report treated the cost approach as an useless academic exercise. There were like sales and rents, which were identified as comparable. My report mentioned the economics of the first report and the studies made and made use of those economics. My Values were supported by my report.

    HYBRED?, or completed as contracted?

    ALSO some time ago VA accepted an application for a loan on a equestrian rental home and business on ten acre citrus grove. I measured the 1925 house, counted the trees, evaluated the irrigation system and discussed the source. However the barns, corrals fencing, equipment were leased and under a contract which I included the report.

    Hybred? I did not create a summation of the RE and Leases

    The lenders have their obligations as do the other contractors. We make our contract going into the job, not making excuses for the job once done.

    We had those obligations before licensing and due to past and current laws we still do

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    • The inclusion of EXPERT reports has always been a valid appraisal process. It’s not a ‘hybrid’ appraisal.

      Hybrids do not require and likely will never provide expert third-party assistance. They market themselves as having “robust” field inspections (whatever the hell those are).

      I don’t require ambiguously parsed qualifications. I require competently performed field inspections by professionally trained individuals under MY guidance and whom also have a fear of recourse from their state regulators to discourage unacceptable short cuts or carelessness.

      We used to call them ‘licensed trainee appraisers’.

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      • Avatar don says:

        Naturally pollinated v hybrid. Mules are hybrid, many brands or corn, maze, or peas are hybrids. Typically hybrid are specialists, expert at only a limited task. A mule, or henney is the product of a jack and a mare, or a stud and a jenny. They can’t breed themselves, specialty corn can’t reseed itself. Hybrids are the product of mass productions.

        Appraisers are broadly educated economically thinking independents who take on special tasks. Our values are in THE CLIENTS we serve. High volume assignment are still individual assignments negotiable (collectible) individually.

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  8. Avatar cotton says:

    Let’s face it the AMCs have become the new plantation owners! Don’t accept hybrid work. Appraiser’s who are willing to complete hybrids have demonstrated the fact they are willing to let the profession go to hell. If you care stop taking hybrids and the problem will go away! So effin simple!

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  9. Think about that Advocate. Appraisers are already licensed. Now states are thinking of a new separate category license for ‘partial appraisers’?

    The very concept that non-appraisers or appraiser trainees can credibly provide relevant inspection data for an appraisal is beyond ridiculous. Has everyone forgotten what trainee licenses were originally intended to be for?

    It was the lenders that PROHIBITED our using them for field inspection.

    It was the regulators who limited the number of them we could train at any one time – directly limiting our ability to incorporate them into any reasonably sound and profitable appraisal company scenario.

    It was also the regulators that started telling would be trainees NOT to obtain trainee licenses! (CA BREA), but to wait until they were fully licensed so they would not be subject to BREA oversight (while their supervisors were!).

    ALL levels of real estate appraisal should require a licensed or trainee licensed appraiser that is subject to state enforcement. The same applies to any company claiming to ‘manage’ appraisers. The persons assigning work; reviewing work and deciding on fee increase or turn time extensions should all be licensed in the state where the assignment is.

    They cannot ‘manage’ that which they don’t understand-including USPAP and state legal requirements.

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    • Avatar Advocate says:

      Yes, states are looking to make field inspectors licensed. It is one way the States can regulate those entering homes. It also will eliminate the entire concept of having 3rd party inspectors. Who will obtain a license to accept a $15 job?

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      • Avatar don says:

        Since the times if the Greeks, since the times of the Romans since the time of Christ. No One, NO One has been able the legislate honesty.

        Attorneys have gone to jail, accountants, bankers, have practiced beyond conscience, as well as the clergy.

        Our politicians make popularity by making new laws.

        Does that make our profession more honorable or do we the practitioners.

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        • Baggins Baggins says:

          You touch upon the original purpose of representation, lawyers, whatever they may have been called in that era.

          You can’t legislate honesty into any process but you can effectively dissuade quite a bit of immoral activity by way of effective deterrence, usually in the form of justice through fines or incarceration.

          The problem with regulation of lenders these days is that nobody goes to jail, fines are not based on income, resulting in a climate where it’s profitable to defraud people and the motivation to do so persists.

          If there is one important take away I’ve learned from being this close, is that debt is dangerous and there is no such thing as a ‘safe loan’.

          American citizens would be best advised to devise their own game plan to utilize mortgage lending services only as necessary, in order to achieve the fastest route possible to a complete unencumbered ownership position. Well, as unencumbered as may be possible given pervasive over taxation sweeping through our society as the size of government reaches epic new heights never before seen on this planet.

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    • Baggins Baggins says:

      It’s like the trainee license will now become its own permanent quasi licensing type.

      There might be an upside to downgrading our license status if hybrids really do take over. What do you suppose the requirements for that action would be?

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Robust & Precise Inspections – Hybrids V

by George Dell time to read: 2 min