Hybrid Assignments, the Consequences
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The concept of a third party providing one or more functions in an appraisal assignment is nothing new. Back in the 1970s and 1980s there were plenty of appraisers who used somebody else to do the sketch or to take the pictures or to pull comps. The “appraiser” put all of the pieces together and signed the report.
Then came USPAP in 1989. Licensing followed shortly thereafter. Today, there are a number of lenders and AMCs who believe that they’ve invented something no one else has ever considered. The bifurcated or hybrid appraisal process.
To be clear, we’re not talking about “drive-by” reports where nobody leaves their vehicle to inspect the subject property or pure “desktop” reports where nobody leaves their office to see if the subject property even exists. What we are discussing in this article are assignments where an unlicensed third party reports to the licensed appraiser, the quality and/or condition of a supposedly, fully inspected subject property.
On March 29, 2018, the ASB issued a Q&A regarding this topic. The question involved whether an extraordinary assumption should be employed when a third party was used. The response was dependent on whether the third party’s information was complete enough and reliable.
Let’s unpack that.
It is the appraiser who must determine just how reliable third party information is before committing to it. Not the client.
When should an appraiser determine, as required by USPAP, that a third party inspection was adequate or not? Before the assignment? During the assignment? After the assignment?
If it’s before the assignment then the appraiser wouldn’t rely on it at all. How would an appraiser find out during the assignment? After the assignment is the most likely time an appraiser would discover any inadequacy. By then, it’s too late. The third party inspection starts out and ends up as additional risk to the credential holder.
What is it that a third party inspector provides?
One prominent player in this space writes:
“A trained, local inspector conducts a review of the property. Photos are time/date-stamped and geo-coded to ensure validity.”
Trained? In what? By whom? What is meant by review of the property?
Another entity promotes:
“…a hybrid appraisal that combines a boots-on-the-ground inspection with a local, appraiser-completed desktop valuation.”
AMCs and lenders who create proprietary forms for hybrids are careful to craft an elusive SOW that boxes in the appraiser and places the responsibility for selecting reliable information, squarely on the appraiser…not the “inspector”.
In Illinois, here’s what an unlicensed “inspector”, trained or not, can confidently provide to an appraiser:
Improvement Quality? —No.
Improvement Condition? —No.
Room Count? —Even appraisers can’t agree on room counts (attics, add-ons, three-season rooms), or whether certain rooms are bedrooms or not (pass-throughs).
Improvement Size —Appraisers can’t come together on how to properly measure a structure. Are they rounding to the nearest foot? Half foot? No rounding at all?
In Illinois, filtered data needs to come from a licensed appraiser.
What about hybrids and AMCs in Illinois?
Registered AMCs certify to provide the following:
(225 ILCS 459/40)
Sec. 40. Qualifications for registration.
(6) a certification that the applicant will utilize Illinois licensed appraisers to provide appraisal services within the State of Illinois;
If it is clear that unlicensed inspectors are providing filtered data to appraisers, an appraisal service, then AMCs have breached this section of the Act and are subject to enforcement action.
In its simplest terms, third party “inspectors” can tell an appraiser what they see; not provide their opinion of what they see.
In short, we’re not telling anyone not to provide hybrid reports; we’re just spelling out the consequences.