Alternative Evaluations… Good or Bad
All of these "alternative evaluations" are an attempt to reduce the fee of the appraiser…
All this talk about alternatives to a full appraisal needs some common business sense added to the conversation. At the end of these comments I will include some of my background and you can make your decision if you think I am qualified to put my 2 cents in this discussion.
I have said this before and I will say it again, the lenders (AMC included) just want an Appraisers signature and their E&O insurance with a value and they want it as cheap as they can get it. Mortgage loans are the major asset of all mortgage lenders probably over 95% of their value and the only party involved in their funding of the loan that does not have a financial interest in the completion of the transaction is the appraiser. The value of their major asset is the appraisal report. Think about that, 95% of the value of their assets is based on Appraisal reports. Of all the businesses (individuals) that are involved in the loan transaction, be it a sales or a refinance, the appraisal fee is the smallest fee paid by the borrower and now the mortgage industry want to reduce the fee to the appraiser even more. Why don’t they reduce the AMC fee which is added on to and included as a part of the appraiser’s fee or reduce the loan officer’s fees, real estate agents fee and mortgage company’s fees. The appraiser is the only one in the mix that has a fixed fee based the complexity of the work and that is not based on completion of the loan or sale and is not influenced by the value of the property.
If I were the CEO (Chief Executive Officer) or CFO (Chief Financial Officer) of a Mortgage Loan Company I would want an accurate unbiased evaluation of the company’s major assets (loans) and I would be more than willing to pay a reasonable price for that service from a qualified individual.
If it is quicker turn times, eliminate the requirements that appraisal report include the Legal description (it is already in the loan package in at least 3 places), photos of the interior and every building on the property, review and comments on the Sales Contract, listing and comments on prior sales of the subject and comps, comments and photos of CO, Smoke Alarms and strapped water heaters, allow uses of MLS photos of comps, eliminate the MC form, FEMA map info, Cost Approach and many other items. This would speed up the appraisal turn time. Note: Alternative evaluations do not have any of these requirements and they use untrained individuals to complete most of the reports, they just need an appraiser’s signature to make it appear creditable.
I believe what the Mortgage Lender really wants is an unbiased “value” of the property and they should be willing to pay for that evaluation from a qualified professional. All of these "alternative evaluations" are an attempt to reduce the fee of the appraiser for his/her appraised value of the subject property.
Conclusion:
If alternative evaluations become a major portion of the appraisal reports for the mortgage industry there will be a mass exodus of appraisers due to their inability to earn a living wage. Most of the ones that I have explored want to pay between $35 and $75 for a report. Secondly if an appraiser can complete 4 – 6 of these in a day this would reduce the need for appraisers by over 80%. How many appraisers will there be within 5 years and how many new appraisers will be coming into the appraisal business. What we are headed for is a computer completing the appraisal report with the help of a clerk at minimum wage and an appraiser signing the report to provide some appearance of validity.
John Pratt is a certified residential appraiser in California with 18 years’ experience and he has trained over 10 appraisers in that time. He has over 20 years’ experience in lending in the Banking industry
- Changes from Fannie Mae - February 3, 2022
- AMC Reviews of Appraisals - November 27, 2019
- New CA Law Negative Effect for Appraisers - November 8, 2019
Finally some common sense!
I actually don’t have a problem with this in cookie-cutter subdivisions, the owner has a 750+ FICO score and is putting a MINIMUM of 20% down. That is actually a pretty small subset of the mortgage market.
Cookie cutter subdivision- end lot on the street that rears to the local community sewage treatment plant may be problematic. A variance from an already flawed AVM could easily absorb that 20% ‘cushion’, and then some.
Maybe another one rears to the freeway, or a relatively small street that carries all the rush hour cross town traffic, and higher than posted speeds. Or, how about that cookie cutter neighborhood being full of gang graffiti?
Better yet, how about that cookie cutter neighborhood being in the Porter Ranch massive gas leak incident area? The same neighborhood that has sloughing hillsides and soil movement street surface separation going on. That one’s probably my favorite by the way.
AVMs (not t be confused with AAVMS) have no business being used anywhere, anytime for anything requiring a market value conclusion.
Alt. valuation products is almost going back to no-Doc loans, or Stated Income. Remember them for 2005-2008 ?What happened after is the recession of 2009-2013. Lenders started it.lenders again have no skin in the game if it’s VA or FHA, so what the hell let’s see how we can make more money.
John, your comment…….”I believe what the Mortgage Lender really wants is an unbiased “value” of the property and they should be willing to pay for that evaluation from a qualified professional. All of these “alternative evaluations” are an attempt to reduce the fee of the appraiser for his/her appraised value of the subject property.” IMO, it really is not a predominate opinion with the mortgage lending industry. If is was, the efforts to implement alternative evaluations would not be growing in numbers and efforts by the mortgage industry. Bottom line, IMO, is that some how, some way, some time, the appraisal profession needs to regain some control and influence of the “lending” appraisal process. To date, there has been some successes in regaining control, but not enough.
Accountability has a direct relationship to responsibility. As long as the taxpayer is backing risky lending decisions, that will remain as arguably a primary root cause of fast and loose lending mentality. The notion the base difficulty is easy is a fantasy not based in reality. For Erick’s comments I disagree. It is the people whom are in safe positions who deserve and may require competent valuation services the most. They’re in strong responsible positions because they make careful smart decisions, not because they cast off checks and balances systems. Takes a lifetime to get in a positive position, but hell, I need to save a day and save a dollar here, let it ride. Red, Go Red, Red, Red, Red, dammit, black. Oh well, I gave it a shot, better start over I guess. That’s not how responsible people operate. The guy with 20% or even 50% equity needs a competent valuation service more than the guy who is letting the lender and subsequently the taxpayer, shoulder all that risk. Quality investment knowledge does not happen out of thin air, you need to meet with professionals to acquire that information and skill set over a long period of time. Meeting with people like, just guessing here, competent real estate appraisers whom don’t rush in and out in 10 minutes with runners?
I can’t argue with truth. I think the appraiser “death clock” is around 73,000+ right now. If congress agrees that there is no need for appraisers, then let them attach their names to a vote saying so. When the upcoming collapse hits, we’ll have a documented record of who endorsed it.
Amen, however recourse lending will slow mortgage activity, and what would congress give to get votes.
Truth
“If it is quicker turn times, eliminate the requirements that appraisal report include the Legal description (it is already in the loan package in at least 3 places), photos of the interior and every building on the property, review and comments on the Sales Contract, listing and comments on prior sales of the subject and comps, comments and photos of CO, Smoke Alarms and strapped water heaters, allow uses of MLS photos of comps, eliminate the MC form, FEMA map info, Cost Approach and many other items. This would speed up the appraisal turn time. Note: Alternative evaluations do not have any of these requirements and they use untrained individuals to complete most of the reports, they just need an appraiser’s signature to make it appear creditable.”
We are saddled with multiple redundancy and insane wastes of our time to produce a report while they will accept a PIW or AVM for many loans. Then add in the waste of replying to multiple “reviewers” explaining our explanations. Appraisers need to be allowed to compete with these products and still do our jobs credibly. We can be much faster, cost effective and quicker – JUST GET OFF MY DAMN BACK and allow me to have the resources to get the job done (hire some staff and/or trainee) !! It’s a very simple solution really – Simplify the process – get rid of the wasteful Middleman and hire a decent sheriff. Anyone caught manipulating data gets busted.
Bomb the AMC model and all GSE work goes through a state-rotation panel similar to VA. Boom
Manipulating a bunch of highly questionable Big Data is only going to bring less Reality to Real Estate.
I just received my VaCAP newsletter. Great informational links.They were writing about Clarocity.
As often happens when I start reading linked articles, I got side tracked. Clarocity owns ZAIO! I thought that particular misleading, deceptive, non USPAP compliant ‘service’ died out long ago.
Additionally, It shouldn’t have been a surprise that Clarocity also has their own FlimFlamValuation automated guestimate software too.
Now, based on the past reputation of ZAIO alone, I would never have anything to do with the parent company OR any subsidiaries, but the one that really annoyed me is that this dual-nation based company (Canada and USA) had the gall to call one of their companies ValuedVeteran.
Clearly they have no shame. I don’t have a lot of tolerance for commercial companies that try to capitalize on some phony appreciation of Veterans.
If they really value veterans then quit trying to make money off them!
VaCAP did not suggest anyone not work for them. They wisely leave that decision completely up to individual appraisers.
IF any readers are owed money and if those same readers are among those purportedly offered stock in lieu of payments due, please do your homework.
The stock they offered in Canada is not authorized for legal offering or sale in the USA. Their own press release states they have not registered under the U.S. Securities Act.
If they never registered or complied with the Act, then how are they able to ‘offer’ stock in lieu of fees due?
SEC should take a look at these folks-though they use one of the Canadian exchanges.
Clarocity Corporation Issues Shares as Interest Payment on Credit FacilityClarocity Corporation Announces Closing of First Tranche of Debt Facility
*Linked announcements don’t refer to stock in lieu of appraisal fees. They deal with other in lieu of payment offerings.