Observations of a Review Appraiser

Review appraiser - adjustments

Adjustments appeared to come from some List or Automated…

Recently I had the opportunity to work on a Class Action case. The case settled, and there are confidentiality agreements for both sides, so I cannot reveal any details. I will summarize the allegations and findings, as well as the scope of work performed.

I should say also that before being hired, I was interviewed, and vetted. Every reference provided, was contacted, as well as a records check and background check. What they were looking for was a combination of a clean reputation for being unbiased, as well as depth of experience at review appraising. I worked on this case for about 18 months.

The result of my work came down to the following:

Los Angeles Metropolitan Statistical Area (MSA):

Of 198 appraisals, 5 were undervalued, and 165 were overvalued by 5% or more. The highest was overstated by 45%

San Bernardino/Riverside MSA:

Of 77 appraisals, 1 was undervalued, and 74 were overvalued by 5% or more. The highest was overstated by 39%

The way the reviews were approached was to read the report, then check the accuracy and veracity of the Neighborhood, Site and Improvements for each Subject, from Value Trend, Supply/Demand, Exposure/Marketing Time. Then, Site characteristics were checked based on a combination of on-line information including the MLS, Realist, NDC, Google Earth, etc. Next were the Improvements, using the same databases.

In the majority of instances we found that the Neighborhood factors were not reported correctly, and that that section of the report was almost universally misleading.

Similar things were found in the Site and Improvements sections. Often, negative factors were omitted or whitewashed.

When it came to the Market Data section, we searched for data by Location, Site, and Improvement characteristics, making a List of Market Data or Market Data Array. That would represent the most retrievable, most similar properties.

Next, we looked to see if the data used in the report was on the list. If not, then we looked to see why they may have been picked, often by Price.

Whether or not the data presented was appropriate, the next step was to check the reasonableness of the Adjustments.

Universally, there were no Time adjustments. Every market in every report was Stable in 2007 according to these reports. Sadly, it was very easy to check the value trends and document the direction and magnitudes of the declining values.

Many of the sales were 100% financed, often with an 80%-20% loan. Often the 80% loan was shown, but the appraisers omitted the 20% loan. It has been my experience from the time I started making loans on houses in the late 1960’s, to selling them in the 1970’s, to appraising them, that the Low Equity Buyer will typically pay more than those who saved up a down payment. Sub Prime borrowers with no down payment, are particularly subject to being Preyed Upon by the agents and loan agents, essentially Packed Into Property.

There had been no published articles in any appraisal related journal or magazines warning appraisers about this Low Equity Buyer, issue. There had been in the past recessions, articles on Cash Equivalency which means if the seller gave the buyer cash back or personal property or allowances, we needed to make a downward adjustment to the Sales Price. I was once involved in an $8,500,000 sale that included $5,000,000 in personal property in the form of furnishings, original art work, antiquities, etc.

When Sales Prices are being Propped Up by the Stilts of Concessions, appraisers are supposed to make adjustments for Cash Equivalency. This was not done

Location adjustments, though sometimes warranted, were usually woefully inadequate, or not made at all. Sometimes the Market Data came from a Country Club or superior location that was not adjusted or mentioned at all. Other times it was that the Subject had a negative location factor that was omitted or under adjusted.

Pretty much universally, the other adjustments appeared to come from some List or Automated, as there was little if any relevant written analysis. None that indicated the appraiser did anything to develop the adjustment from the Marketplace.

In other words, there would be comments like Site adjustments were made at $5.00, SF adjustments at $50, Pools at $10,000, etc. I know when I was trained I was given a List of Adjustments. I questioned them the first day, because I had just come from selling real estate and knew they were woefully inadequate or just wrong. And, yet, there seems to be a large number of appraisers who use a List, that they may not even know where it came from or when it was created. And they use it in every Location, Price Range, Size Range, Quality, etc.

Granted, using a List and then automating it in a forms program, makes things go faster. But it has nothing to do with the Marketplace.

The lawsuit was against the partners of a failed lender, which included a title company and AMC. The allegations were that they either pressured appraisers to inflate value or used appraisers who would.

The settlement was in the millions of dollars. I can imagine now, that they are going to be looking at suing the same appraisers that their people had pressured to inflate values and write misleading reports.

Many of those whose reports were reviewed, may not have had any idea there was actual liability that comes from being licensed. Most civil lawsuits against appraisers for their work product, comes down the lender pipeline. We should always think of the Stream of Commerce through which our reports might flow, and who down the line, will be the entity that relies upon it. It might be the investor or mortgage insurer. Under Tort Law, we are responsible to those who, in the normal course of business, come to rely upon our report. Which is separate from Certification 23.

Working fast and cheap, is not a good thing for a licensed appraiser. Slowing down, and charging for more time to research, verify and analyze the Market and the Market Data, as well as the Subject, is a goal I set for myself many years ago. Even though I was trained to do 3 per day. I can’t do 3 per week now even with more experience and course work. And I don’t want to. I would rather do one report for $4,000 and not have time pressure, than to do 10 as fast as humanly possible. But, then, that is just me.

By FREA’s guest author, Steven R. Smith, MSREA, MAI, SRA, AG2123. The Foundation of Real Estate Associates (FREA) has specialized in providing Errors & Omissions Insurance to appraisers and home inspectors since 1993. As a membership organization with over 6,000 members, FREA is one of the largest and most well respected professional associations in the country, providing E&O Insurance for appraisers and inspectors as well as educational opportunities, member benefits, and legal support.

Brian L. Trotrier
Latest posts by Brian L. Trotrier (see all)
Image credit flickr - Sebastien Wiertz
Brian L. Trotrier

Brian L. Trotrier

A former practicing attorney with more than 30 years experience in real estate and risk management. The Foundation of Real Estate Associates (FREA) has specialized in providing Errors & Omissions Insurance to appraisers and home inspectors since 1993. As a membership organization with over 6,000 members, FREA is one of the largest and most well respected professional associations in the country, providing E&O Insurance for appraisers and inspectors as well as educational opportunities, member benefits, and legal support.

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8 Responses

  1. Avatar bill johnosn says:

    Not related to this article, but to those who care I’ve had a back and forth conversation with Joan trice on Appraisal Buzz. See “Let me tell you about Valuation Expo” – 4/18/2016.

  2. bubba jay / Retired Appraiser II bubba jay / Retired Appraiser II says:

    i think this article is a great example of why the mortgage appraisal profession is totally screwed up and needs to be completely erased and started over from scratch.

    oh how i miss the days of lawsuits against appraisers for doing things on purpose like fraud, and prosecuting appraisers for things like lying about not taking CE, or being members of scams against banks.

    with most of that behind us, i suppose some people now have to justify their paychecks by re-focusing on ambiguous things like neighborhood descriptions, and whether or not someone explained in infinite detail each of the hundreds of things that are in a 40-page appraisal report nowadays, right?

    i am not saying every report that was reviewed in this article was perfect, but properties that were under-valued or over-valued by 5%? the average cost of a house in my entire area is around $100,000. what were the values of the houses being reviewed? if it was around $100,000, that means the difference was only $5,000. i must have missed the memo, but when did real estate appraising become an exact science and every appraiser now comes to the same conclusions?

    the other reason i think why the mortgage appraisal profession is totally screwed up and needs to be completely erased and started over from scratch, is because of the review process itself. look at who is doing the reviewing! often it is someone who is a MSREA, MAI, SRA, MAG2123, Certified General, etc., or even sometimes the person can be an attorney too! WELL, GUESS WHAT? if that Certified Residential Appraiser does know as much as, or know MORE than, the reviewer who has all those credentials, then they dont EVER stand a chance against any review that is done on any of their reports! i guarantee you, anyone with the credentials i mentioned, will ALWAYS be able to find enough things somewhere, in ANY REPORT, that could add up to be numerous violations of USCRAP, and get that Certified Residential appraiser in hot water if the reviewer really wanted to.

    does the Certified Residential appraiser with say 10 or 20 years experience know as much as the reviewer who is a MSREA, MAI, SRA, MAG2123, Certified General, or even sometimes an attorney? no, most probably not. how about the new Certified Residential appraiser, or one with only 5 years? oh hell no. but they are held to the same high review standards arent they?

    here’s and example – a ready-to-graduate college student turns in an English paper to an English Professor at a major University, who lets say has a Masters Degree in English. the professor reviews the students work. if that professor was overly and unnecessarily aggressive and unreasonable, how many mistakes could that professor find in that report? (oh, and keep in mind here that English isnt NEARLY as ambiguous as real estate appraising!).

    that new Certified Residential appraiser better be charging $10,000 for an appraisal, because their liability is much higher than someone who has 15 or 20 years experience.

    this is also another great example of why appraisers should never be accepting any work for the peanuts they are accepting every day. i dont care how great you think your work is, all it takes is ONE overly and unnecessarily aggressive, over-educated and unreasonable reviewer, to ruin your day and/or your business, and/or an entire bank account, and/or your professional life if they really wanted to. and i dont care if that Certified Residential appraisers report is right either, the “reviewer” is always right just because they are the reviewer, right?

    let it all implode. i think it needs it.

    the bleeding continues . . . . .

  3. Avatar bill johnson says:

    If Dustin Harris claims to do 3-8 appraisals in a day and states his fees have gone up 600% in the past 20 years, then I think we have thousands of reports that need to be reviewed. Wow!

    • Retired Appraiser Retired Appraiser says:

      Don’t underestimate the typing skills of his outsourced typist team and answering service:

      Divya, Suhani, Ishita, Priya, Anjali, Shivanji, Isha, Aswini, Anusha, & Sam.

      Also don’t underestimate the skills of his chauffeur team (all former state police officers) and his pit crew.

      And then there is Casper (his ghost writer).

      • Baggins - Vote today! Vote early! Baggins - Vote today! Vote early! says:

        This new Make America Great Again promotional hat just arrived in my mailbox today. Vote with your wallet, it is the only vote that matters in the end.

  4. Baggins - Separation from mortgage production Baggins - Separation from mortgage production says:

    There are to be no more delays regarding lenders bringing forth current fees and presenting adequate turn time to perform a competent thorough appraisal. Systemic abuse of the assignment system continues. Systemic abuse of typist services, outsourced appraisal fulfillment services, and promotion of improper time saving developmental methods continues on in the software realm as well. I’m most interested in the quantity of appraisers and ratios of appraisers per total orders reviewed, boilerplate appraisal presence or not, along with the difference between the consumer fee and the appraisers fee. These are possibly confidential informational points, but are likely to be highly informative pieces of information. These chains of abuses often occur because the distributor of the appraisal service request assigns the orders based on their personal interests or to appease the lenders interests, rather than selecting the vendor properly via most qualified servicer in a truly unbiased distribution setting which is set apart from mortgage lending production interests. Standard high fees and rotational distribution with long term appraiser panel members whom cannot be removed at the whim of the lending brokers is an instant solution to these issues, but many of these distributors are not that bright and they fail to adopt such distribution policies. Those distributors are often the only ones whom buy into the legitimacy of ‘performance grading’, because astute appraisers do not prioritize turn time and fee over quality and defensible report development. The broken record skips on.


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Observations of a Review Appraiser

by Brian L. Trotrier time to read: 5 min