Should We Raise the Deminimus to $2 Million?
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Bank regulators are nearing a decision to raise residential real estate transactions appraisal threshold to $400,000 from $250,000, for certain transactions.
Perhaps it should be set to $2 Million, or $5 Million.
It strikes me that we have two separate taxpayer regulatory/administrative/quasi-governmental organizations working in opposition. On one hand we have the Appraisal Subcommittee and The Appraisal Foundation (TAF), and 50+ state organizations attempting to regulate, license, and control the education of appraisers. USPAP, (Uniform Standards of Professional Practice) is promulgated by the Appraisal Standards Board (ASB) of the TAF. USPAP compliance is required for federally related transactions. USPAP comprises two parts:
1) Integrity Standards, (such as ethics, record-keeping, and competency) and;
2) Performance Standards (such as credibility, errors of omission/commission, or careless/negligent work).
On the other hand, we have the OCC, the FRS Board, and the FDIC, proposing to eliminate the requirement for appraisals below these levels. Any valuations could then be performed by individuals not subject to USPAP, performing ‘Evaluations’ (not requiring a state-licensed appraiser). The reasons given for raising the threshold are:
1) Evaluations are generally less expensive than appraisals;
2) Evaluations can be completed faster;
3) Last year there was a “shortage” of appraisers in a couple of states for a while.
So, taxpayers are paying for these opposing intents. One to improve public trust and economic security, the other one to reduce bank or borrower costs (Perhaps as much as $100 – $200 per house).
To simplify this discussion, let’s note two facts: Appraisers can perform ‘evaluations’, normally using the same scope of work as an unlicensed “evaluator”. What’s the difference? It appears to me that there is one key difference. The question is then: Which part of the service is not required? Is it the integrity/ethics, or the performance (such as using the right data and analysis)?
It appears to me that since unlicensed persons can charge less, have less tax/fee burden (for licensing, education, and errors/omissions insurance) the less ethical, less responsible ‘evaluator’ can always outbid the licensed appraiser every time.
So, what would happen if we simply raise the deminimus threshold to say $2 Million? Licensed appraisers could still be used for all levels of work. The only criterion left would be clear: What is the integrity and performance level of the person doing the valuation?
Wow! Only the integrity and good practice? Why, what would happen? Banks would again have to make all collateralloan decisions on the basis of the competence and ethics of the valuer. What a concept!
What a throwback. We would go back to the days before “the great recession”. Banks would have to evaluate the competency, ethics, education, experience, and perhaps even the professional associations and designations (such as the MAI, SRA, ASA, ARA, CRE…). What a throwback.
It’s basic economics. The stringent regulations and requirements made due to banks screaming and pointing blame at appraisers is the same group of people attempting on the other end to do away with appraisals all together. So once the government quits listening to the big lenders and just provides some basic ethical and valuation techniques that are simple and not all a bunch of gray areas, then we can meet the demand that the banks need. The unique issue we have is Fannie Mae who is a government entity is also the biggest lender in country. The bifurcated process will be a huge mess and will only cost more time and money for everyone. Provide a simplified form for all lenders and lets get on with it. Quit this political bs where everyone is in a race to be on top of the process. That’s what this is all about. It’s about control. Everyone wants to be the one on top at the end of all this with their process being the one that is used to provide Fannie Mae with their needs. Let’s make a crisis so we can capitalize on it. If they really wanted to get serious about fixing the issue we need to get the appraisers working for the AMC back in their own offices doing appraisals and banks have staff underwriters and USPAP to provide a simplified ethical and reasonable set of basic practices that do not have any gray areas. Get appraisers appraising again instead of from filling to meet CU which is a big cause of the drag down. Get the crap out of the process. Let’s get back to appraising.
Here is a copy of what I just wrote in a discussion about millenials are getting into the profession by taking tests in tomorrow’s issue of Appraisal Buzz:
NOT ONE POSITIVE COMMENT ABOUT THIS ARTICLE FROM PEOPLE WHO APPRAISE FOR A LIVING AND WHO HAVE BECOME LICENSED AND WHO HAVE WORKED IN THE PROFESSION, doing what we are trained to do. I don’t care how many degrees this author has, she doesn’t know one thing that would qualify her to comment on our profession, just like the amc, gum chewing 19 year olds who run our reports through a computer then tell us what to do to “correct” our appraisal. Wake up people, this magazine is part of the problem, shoving lies into our work, promoting their incompetent, destructive opinions about how to PROVE an opinion. It is to sell insurance and other gadgets to appraisers. I’ve appraised for 40 years and hold the highest designation and have done complex appraisal work, testified in court on my opinions, on large and small properties, and I try to advocate for people with less experience, but I can see we are all screwed, and it started with appraisers who can’t do this challenging work, developing some computer analysis that is totally irrelevant, then selling it to us and making more selling junk than actually doing work. The millenials who are getting into our profession are not going to satisfy the actual experience they need from mentors because there is no financial reward for doing it. We are not in the business of offering charity for anyone attempting to replace us and our role in protecting both the borrowers and the bank by being objective and professional. I only read this rag to see what residential appraisers are up against, and it is corporate bs to think amcs are not working in the interest of the lenders. Get a grip people! Stop doing work for peanuts, and consider joining a union and working together to stop being used for pennies, just because zillow makes some think this is an easy, quick way to provide USPAP, well-documented opinions and reports. That the forms are beefed up so computers can deal with us, that realtors hate us and think they can do our job after a one week course, and we have the toothless quasi-governmental ASB and TAF and there is AARO, we are all on death row!
So, your comments here please, how long do we keep scratching our heads while going down the tubes?
Great points George. Aside from the pretense that anything TAF is doing ‘promotes the public trust.’
One item missed is that while FIRREA (Public Law 103) allows for use of Evaluations it specifically prohibits their being called “appraisals.” With TAF’s more than ready willingness to redefine appraisal terms or change USPAP at their commercial sponsor’s whims, maybe that limitation will disappear too. Many USPAP changes predate the organized efforts to have the laws that are constrained by them modified.
Another item. IF designation were a warranty of ethics and integrity we wouldn’t have any MAI (or other) owned/managed low ball fee national appraisal factories. Nor would we have had the ongoing push for alternative standards.
Anyway George your central question remains. Why not raise the limits to amounts that are only slightly more ridiculous than the amounts being proposed now?
Follow the money.
It’s a novel concept, the bar set so high that almost all would fall under that umbrella, all calamities could be attributed to the lenders decisions on how to approach compliance. It might be easier to yank the FDIC insurance and wind down the GSE’s. After all, absent of taxpayer backing and fractional reserve lending, if lenders had to loan their own money and actually faced repurchase orders without insurable backing, they’d be knocking down appraisers doors begging for quality service. “We’re from the government and we’re here to help.” Be careful what you wish for.
Yes. Get back to the beginning