Appraisal Waivers and Hybrid Appraisals
The fallacy of those who endorse Hybrid appraisals is their assumption that the appraiser’s field work is less valuable, less important, than their analytical work behind a computer. They feel the task of inspecting the property and driving comps is best farmed out to someone else with less training. The real truth is that the field work is critical! There is no way an appraiser can credibly analyze a property through the eyes of another…
In a previous post entitled The Need for Speed, I explained that lenders and Appraisal Management Companies are on a mission to shorten the loan processing time to boost their profits.
Many lenders argue that long processing times are the result of an appraiser shortage. They believe the solution to the appraiser shortage and to reducing processing times is to embrace the use of more appraisal waivers and Hybrid appraisals. By eliminating the appraisal, they can shorten the loan process and boost profits. Hybrid appraisal could be produced more quickly at a big cost saving. Hybrids would shorten processing time and boost profits.
There are numerous errors in this rationale:
- The false narrative from some lenders and AMC’s that there is a shortage of qualified appraisers
- The presumption that buyers, sellers and Realtors want quicker processing (closing) times
- That waiving the appraisal serves the Public Trust
- That Hybrid appraisals serve the Public Trust
- That Hybrid appraisals offer the best solution to shortening appraisal turn times
- That Hybrid appraisal offer the same level of quality
- That the cost savings of Hybrid appraisals would benefit the consumer
- The presumption that consumers are comfortable when no appraisal is done or that a Hybrid appraisal of inferior scope and quality will satisfy the consumer.
Let’s take a close look at these issues:
Is there a Shortage of Qualified Appraisers?
No, there is no shortage of qualified appraisers. There is a shortage of appraiser who are willing to work for low fees and deal with the unreasonable demands of some lenders and AMC’s.
Rocket Closings in 5 to 10 days?
I suspect that few buyers, sellers, and Realtors really want to shorten the closing time frame from the typical three to six weeks to five to 10 days! Is that really practical?
Fannie Mae’s and Freddie Mac’s Programs to Waive Appraisals
If I were a prudent investor, or a credit rating service, I would no longer put any faith in Fannie and Freddie’s promise that they can protect the public trust, and my investment, by underwriting loans without an appraisal. I would not risk my money, or my client’s money, on two companies who failed, are in a conservatorship, and are again loosening their lending standards.
Do Hybrid Appraisals Serve the Public Trust?
Appraiser George Dell likens a Hybrid appraisal to a mule… a cross between a donkey and a horse. A Hybrid appraisal is produced on a short form by a certified appraiser who sits behind a desk and uses the results of a report filled out by a 3rd party, marginally trained, inspector in the field. There are a myriad of hybrid appraisal forms in use by lenders and AMC’s and none of them are USPAP compliant. Unlike the URAR 1004, there is no standardized hybrid appraisal form. Hybrid Appraisal are not the best solution for shortening appraisal turn times!
There are a number of reasons appraisals take time:
- Many Realtors wait until the results of the home inspection are in before allowing the appraiser to inspect the property. This adds days to an appraiser’s turn time. Realtors do not want to obligate their buyer for an appraisal fee on a home that may not close.
- AMC’s shop appraisers for the lowest fee and shortest turn times. Surveys have shown that some AMC’s waste 3 to 5 days trying to find the appraiser with the lowest fee.
- Lender stipulations, that now run 2 or 3 pages, have increased the appraiser’s scope of work. “Scope creep” has increase appraisal turn times.
- Revision request from the lender or AMC after the appraisal is submitted, can take days to satisfy. Many add nothing to improve the quality of the appraisal report.
- Add it all up and the typical appraisal report now runs 25 to 35 pages long and can take weeks to be delivered to the consumer.
Hybrid Appraisals Do Not Provide the Same Level of Quality
The fallacy of those who endorse Hybrid appraisals is their assumption that the appraiser’s field work is less valuable, less important, than their analytical work behind a computer. They feel the task of inspecting the property and driving comps is best farmed out to someone else with less training. The real truth is that the field work is critical! There is no way an appraiser can credibly analyze a property through the eyes of another.
Is it Really the Time and Cost Savings?
I believe that the real goal of many proponents of Hybrid appraisals is to create their own lucrative appraisal mills. They envision the field inspector earning about $25 per inspection and the appraiser earning about $40 to $50 per hybrid appraisal. I think that most proponents of hybrids salivate over the idea of robbing the appraisal industry of most of their revenue. They want to take over the functions of the appraiser and turn them into their own profit center capable of pumping Hybrid appraisal reports out in record time and numbers to produce record profits.
Will Consumers Be Satisfied With No Appraisal or a Hybrid?
I do a lot of appraisals for cash buyers who want the peace of mind of knowing what the property they are buying is really worth. They want the opinion of an unbiased licensed professional. Buyers want an appraisal! The jury is still out on whether Hybrid appraisals will gain widespread consumer acceptance.
What Do You Believe?
So let me ask you… do you really believe appraisal waivers and hybrids serve the public trust? Do you really believe these cost savings will flow to the consumer? Do you and your clients really want to close on properties in 5 to 10 days? Do you believe it is prudent for a real estate broker to advise a client to close with no appraisal or a hybrid appraisal of inferior scope and quality?
- The Greatest Recession - April 10, 2020
- Appraisal Inspection Procedures & Protocols - March 9, 2020
- Coronavirus Will Cause Our Next Recession - March 4, 2020
Not sure why not. I have other problems with this product, but someone else doing the field work is really one of the small issues. I have appraised many properties without even seeing it, because there is no legal access. As long as you say what you did, there should be no problems. Again, I have several other issues with this crappy product for sure.
Jon when you did uninspected property appraisals I’m guessing you disclosed what you did and did not do along with why. Something other than an SOW placebo comment.
We have all done desktops, no interior inspections etc.. It is the manner in which we do them; our HONEST disclosures and our property-specific assumptions coupled with other sound appraisal practices that produced credible results.
Not one of which was advertised as ‘taking from 10-15 minutes’ on average. Nor were we limited by proprietary software constraints about what we could or could not include.
You are not thinking ahead Jon, you should have a huge problem with the very thought of this product ever being used due to the fact this product opens the door to anyone writing a report from anywhere … if you want to see how fast they can move your job to india keep doing the bifurcated appraisal work.
Good article. Clearly stated, logical points.
Nothing states the truth more than the authors comment:
“No, there is no shortage of qualified appraisers. There is a shortage of appraiser who are willing to work for low fees and deal with the unreasonable demands of some lenders and AMC’s.”
I typically receive 5 to 10 requests for bid and turn times every week from AMC’s. I choose to complete work for the VA because they pay a reasonable fee and I receive very few ridiculous revision requests from the lender because there is one set of rules issued by the VA and I follow those rules.
With almost every AMC they each create their own set of rules which results in revision requests that sometimes border on insanity.
I choose not to work for most AMC’s for this reason. And the fact they typically offer less than 50% what I receive doing work for the VA or private work (such as attorney requests).
If AMC’s suggest there is a shortage or appraisers……it’s simply because most appraisers refuse to work with unreasonable fee’s and ridiculous revision requests that create additional unnecessary work we don’t get paid for.
I couldn’t agree with this article anymore. I complete over 500 appraisals per year. With over 20 yrs of experience in this business i have never received a qc which resulted in any material change in my analysis or value conclusion. The root of the problem is AMCs. AMCs provide no added benefit to the appraiser other than to skim over 50% of the appraiser’s fee. The easiest way to debunk appraiser shortages would be to question why AMCs broadcast assignments at below market rate. If there were truly an appraiser shortage the fee would be considerably higher than what I currently charge. The results of Fannie Mae’s poor business decisions will ultimately affect the investors. I can only urge anyone with a 401k or IRA to avoid investing in companies which invest in mortgage backed securities. The risk is way too high and the yield does not offset the risk. Unfortunately our tax dollars will have to bail the GSEs again. The taxpayers are going to pay the price for these poor decisions. The cumulative is a result of too many non-appraisers and corporations deciding what is best for the appraiser. I the appraiser assume the reputational and professional risk by accepting the GSEs poor decision making. I will not allow my profession to be dragged any lower. We are here to protect public trust and that is what I intend to do. Appraisers the fee is so pathetic to make it worth accepting any bifurcated work. If you are will to complete these scam bifurcated appraisals make sure you quote a fee that you are willing to lose your license over. My license is worth way too much to risk sanctions by the state or to aid in ruining our profession. The folks in DC need to pay attention as sitting idly by watching consumers being taken advantage of isn’t what’s best for our country and economy.
All you have to do is read an AMC’s employee reviews to see how poorly their operations are run. It’s become way too easy for a soon to be fired/laid off, disgruntled AMC reviewer to take out their frustrations on the independent appraiser with endless scope creep and BS revisions. When you see appraisal conditions roll in late in the day on a Friday afternoon…… it’s pretty obvious they want to ruin your weekend.
Have you read this letter written by lawyers?
https://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/real-appraisal-comments-83-fed-reg.pdf
It is a comment to raising the deminimus, but it shows that “the people” do care about appraisals,
Here’s some highlights:
The agencies need data comparing the foreclosure rate for loans originated with appraisals versus evaluations.
Without independent data on the actual cost of appraisals and evaluations, cost savings cannot be a rationale for increasing the threshold.
There is a dearth of independent data on how often appraisals delay mortgage transactions and whether using an evaluation instead would have eliminated the delay.
There is no data comparing the accuracy of appraisals, AVMs, and evaluations.
There is no data on the impact of the recent adoption of 12 U.S.C. § 3356.A 2018 amendment to FIRREA created a new exception to the appraisal requirement for loans of $400,000 or less. It appliesonly to properties in rural areas if the originator cannot obtain a timely appraisal after contacting at least three appraisers in the area. The agencies cite an appraiser shortage in rural areas as one reason for the threshold change,37and the new statutory threshold matches the threshold proposed by the agencies. Therefore the impact of section 3356 will be directly relevant to the proposed rule. The agencies should collect data on the loans made under section 3356 before granting a broader exemption to all regulated lenders.
Reliable appraisals are important for consumers and the economy
None of the factors underlying the 2017 conclusion have changed.
Consumers should not be expected to buy their own, separate appraisals.
and more.
It’s a good, easy read, and should alert appraisers there are consumer groups that value the work of appraisers.
Great read. Thank you.
But you know how it plays out.
Banksters get what banksters want.
They are above the law and nobody will ever go to jail for mortgage fraud.
We’re on our own.
Picked the wrong career again.
I totally disagree, the analytical part can be done by computer. That’s what is going to happen, eventually the analytical part will be done in house by the lender with a computer. The only part of the report that can’t be done with a computer is the inspection, the most important part of the report. The analytical part isn’t worth the paper its printed on without a knowledgeable person doing the inspection.
Herb the analytical part absolutely cannot be done by a computer. There is not one single example of any AVMs being cross-checked with other systems AVM where the results come within 10% of each other on the same atypical subject property. Not one.
I have used 4 different AVMs on such a property and got 4 extreme range results of a $630k property. They ranged from $430k to $790k. 1 came within 10% but not 5%.
The first problem with automated analytics is they are only able to analyze about 70% of value related characteristics. It means that 30% is simply reapportioned among the factors they can analyze thereby tainting those factors as well. The next problem is that every such system relies purely on unscreened, “public record data from assessors; OR from Corelogic which reinterprets data and misses hugely important items such as site size on a consistent basis. Zoning is usually wrong, as are site influences.
No such system can yet analyze the degree of view as perceived in a market or its impact. The same applies with external factors. These systems are currently in use as so called value verifiers or fraud preventers, resulting in numerous appraisers being turned into state agencies WITHOUT ANY BASIS IN FACT of having violated USPAP. When carefully reviewed, based on AGA’s cases reviewed every single such alleged non-compliance of the appraiser by the AVM was found to be unsupported.
We have already been replaced by such systems for PIWs and appraiser review. They factor in hybrids as well. That’s one of the many reasons hybrids are so poorly considered.
That we will be replaced by such systems is not surprising. FHFA already signaled in their original white paper on the topic that despite their own evidence to the contrary, that AVMS will be the future. This isn’t the first time the Feds and GSEs have micromanaged appraisals to the detriment of the public trust and the profession. The UAD itself; HVCC and 1004MC are only the three most recent examples.
FNMA has a long history of turning market values into some other form of value. Remember 155 and 25% net and gross adjustments? Nonmarket limits imposed by FNMA until February 2015 Lender Letter. Same with the perceived 10% line item limit and the perceived 1-mile distance “rule” that was imaginary but never definitively refute by FNMA until 02/2015.
Real appraisers may be replaced by GSEs as you note, but that’s only about 40% of total appraisal work. Those of us that adhere to principles will shift our business to consumer side purposes and litigation.
I’m guessing one of the most common cases will be refuting AVM results in court in growing instances of systemic deception involving values.
Herb speak with real experts on the topic such as George Dell. Even George will tell you AVMs are only a tool in the arsenal of an appraiser. A tool that one has to know both how and when to use. It’s not universal.
Hey Herb,
Remember when the latest fads were: telephone jacks in every room of the house, speakers built in to walls and ceilings, Internet jacks in every room in the house, Shag carpets, Autumn gold appliances, All “quality” upgrades. How many exist as quality upgraded data in the databases today? All of them, because once there, the data isn’t changed.
How quick will the next fad of internet wi-fi appliances, heat, doors, window and alarms fade away? They will, just like all other fads.
How long will those quality upgrades remain in automated valuations after the fads have faded?
Forever.
But heck, no better way to get to feudalism 2.0 than government sponsored private entity monopolies telling you what your investment/property/shelter from the weather, is worth, and what someone else can borrow to be able to buy from you.
Refuse to participate, as I wish we all would. While I am invested in my profession as an appraiser, I would rather starve, or do any one of a thousand other more engaging & rewarding jobs- because that’s the proposition- a job, than participate in this bastardized process.
100% absolutely agree! Imho, none have said it better.
As an aside; the Head of the Georgia REA Board (appraisal section) D.S. Murphy recently cited a past common occurrence (re comp checks) “I need to get $250,000 for this property, can you do it?” “– We would be expected to answer then on the spot or at best get back to them within the hour. No amount of desktop research is possible for an appraiser to be able to answer that question. ”
If it is virtually impossible to provide credible, compliant information in an hour from a desktop, then how is anyone going to do it in the 15 minutes most often cited by promoters? Especially in proprietary formats that may limit one’s ability to add necessary data?
If promoters lie about the most fundamental aspect of these phony products (how long they take to properly compelte), then what else are they lying about?
Mike Ford, thank you also for your comments. There are so many issues with this concept, I hadn’t gotten as far as USPAP in my thinking- also since I am 100% resolved to Just say NO!
Lender orders “Property Observation” from AMC. AMC engages whomever is the fastes cheapest “Observer”. AMC fee + Observer fee. Input proprietary format and photos in to magical Fannie / Freddie Algorithm. Computer says they need the Appraiser. Lender orders the Desktop Appraisal from the AMC who then orders from the fastest cheapest Appraiser. AMC fee + Appraiser fee. Where is the time and $$$ money saving coming from? The AMC doubles its processing and fee I assume and now you have 2 fastest cheapest performers involved. We have already received calls from people (Realtors) that are being told “The Appraiser” is coming and it isn’t the Appraiser. The general public has NO idea what is going on or who is walking through their home. Craziness and to what end? Let’s shift the attention to Title Companies. Is Title Insurance really necessary? And from both buyer and seller!? Aren’t we insuring over the “Search” the Title Company did? Are these insurance policies being used? What percent of the time? Why are they so expensive? 6 to 7 times more than an Appraisal!
Colluding to defraud consumers has gone mainstream.
http://ronpaulinstitute.org/archives/featured-articles/2019/october/07/federal-reserve-s-latest-bailouts-more-proof-bad-times-ahead/
Fed continues to pump up the lenders economy. 75 billion digi cash injections a day while appraisers are told our greed and holding to traditional full fee service is hurting the lenders economy. How many full fee orders would 75 billion dollars buy? How many would that buy again tomorrow? Deminimis, waivers, hybrids, evals, it has nothing to do with cost and everything to do with control. People are starting to ask too many questions.
The field work is my favorite part! Who wants to be at a desk all day?!?
Jamie Humphrey That’s nice, but Irrelevant
Quality of life is a primary draw for real estate appraisers. We trade a great many other benefits away for the liberty to decide how our time is spent. If I’m going to be told the only way to make money is to sit at the desk all day long, I’m immediately demand a 401k, paid days off, and other beni’s. Totally relevant. If these products are so awesome why haven’t lenders built up internal departments with staff employees whom churn out the products day and night?
Totally agree!! Who would have taken this job in the first place if that is what it was going to be. Not me. Although I do get tired of staring at my windshield from time to time, I do appreciate being out.
Susan Layne not sure what you are talking about. I don’t do hybrids.