Will the Madness Ever Stop???
Review Appraisers Need to be the Voice of Reason
Having spent the day commiserating with my fellow appraisers, I have to admit the policies and procedures of most reviewers, underwriters and lenders have finally crossed the line from insane to inexplicable. It was bad enough, 23 years ago when an appraiser was asked to document two independent sources of data or to provide interior photographs to show each room. Then not to long ago some appraisal management companies started to believe that when FHA asked for two photos to show an oblique view, they actually meant the appraiser had to take four photos one showing the front, one side (A), the back and one side (B).
But now appraisers are asked to provide exterior photos, interior photos, multiple views of rooms (for instance if all appliances are not shown in the view of a kitchen, take a second photo to show the dishwasher). But one appraiser called me today, because he provided the second photo of a kitchen to proactively show the dishwasher only to have the lender bounce the report because the sketch and report failed to discuss the second kitchen.
I am sorry, when does alternative view of kitchen constitute a dwelling with two kitchens? I am completely for appraisers presenting a document that is clear, well supported, and correct. I am all for having the appraiser present a detailed summary of the search criteria that was used, and perhaps even a one line listing of the alternatives that were available at the time of the report. But what was the point of the appraiser providing all of this data? Was it so that some nit-wit reviewer (like me) can then beat the appraiser about the head and neck with the extraneous data that was reported?
What happened to a time, when the clients were careful to only use real estate appraisers who had established their reputations for excellence and accuracy? Yes, I understand to find this time you are forced to go back several decades, beyond when my career started. But it used to be enough to do business with people of character, then when they said yes – it meant yes. Should they say no, it was because they were unable to find market support. This system of trust, of course is unrealistic, because there are entirely too many ways to cheat the system and hundreds of billions of dollars can corrupt the hearts of men. So this brings me full circle. We now have a system of review that forces the appraiser on the immediate defensive and without the ability to provide a detailed body of evidence the appraiser is left hanging.
Independent, impartial, and objective, wasn’t that suppose to be the mantra? Today’s legislation has forced appraisers to take all of their business and place it into the hands a few management companies. In turn, if you upset one client, the management company may take you of off their list which then means you could be excluded from the other 35 companies (or more many more) that the management company represents. The character of an appraiser is being tested more now than ever, and I believe that review appraisers need to begin to be the voice of reason within their respective companies. So what’s the problem? The problem is that appraisal management companies are not formed as buffer between the client and the appraiser. They are not formed to protect the interest of the public. They are formed because there is a very large profit to be made. The company that can successfully produce real estate appraisals that please the client will continue to get the work, and when you are representing a nationwide data base of every available appraiser it is not a problem to sift panel until you find those individuals who are willing to give you the product you seek.
Okay, time out!!!! Am I suggesting that in our attempt to make things better, we simply traded one set of task masters for another set? Well, frankly that is exactly what I am suggesting. Do not misunderstand this post, there are reputable appraisal management companies, and reputable lenders who are simply trying to make a profit and keep their employees busy and, well, employed. There are just as many reputable real estate appraisers who are doing their jobs well and holding up the standards that is to say Uniform Standards of Professional Appraisal Practice (USPAP) with pride. The concern that I have is that we have once again set up a system where a few can dictate the livelihoods of many. This very system places pressure on those who are mandated by law to be Independent, Impartial and Objective.
Okay, so this is the system we have. How do we proceed? For some of us, it is simply time to move over and let younger, stronger, smarter leaders prevail. For others, it is time to engage and to talk and write to anyone who will listen about how systems of production and appraisal need to change so that the client has the ability to receive prompt professional appraisals and the appraiser has the flexibility to produce a well supported opinion of value without the client being able to dictate the predetermined results.
For now – suffice it to say this. Review appraisers, (whether they work for the lender, investor, auditing firm, criminal investigations (like the FBI, or IRS), or they work for an appraisal management company), need to remember that they are bound by the same laws as independent fee appraisers with regard to independent, impartiality and objectivity. At the end of the day, we are the ones who are charged:
- to have common sense
- to promote and protect the interest of the general public
- to use those methods of appraisal that have been tested and proved to be reliable indicators of market reaction
- to accurately and objectively analyze the market data to determine value
- and present our findings in a clear, easy to understand manner.
and as the reviewers, we should make sure the appraisal was presented in a way that reflects all of the above.
The task is daunting, yes, but if we are truly honest with ourselves this entire process is the same process that was supposed to be in place, and for a very large part was in place to start with. So why did it fail? Because key components, checks and balances if you will, were removed from the process and more importantly the character and capacity of the loan was radically changed. As appraisers we are trained to evaluate the collateral, the collateral valuation should be the same whether or not a borrower has a dollar or several million of them. The very idea of “making business decisions” should never have included the review appraiser. By design the underwriters and reviewers were kept apart in doing someone could go to the underwriting manager and say “the collateral is sound, please make an exception on this file” and at the same time go to the review manager and say “the borrower is strong, please make an exception on this file”. Pushing both sides of the deal and creating pools of non-performing loans.
Ok that was then, this is now. How do we keep from making these same mistakes? Simple, pull the power from the all-star sales managers. Keep the operations, underwriting and appraisal managers all on the same page so that everyone understands and knows the level of risk that is being proposed and make sure the loan is priced at a level that accurately reflects its risk.
What has not be discussed, is the investors who purchase this bad paper. There has been some kick back, but I anticipate the ramifications are yet to be felt.
Rather than a post, this is more of a ramble – or a rant. Either way, I feel better.
Please everyone, as i understand from my lender, this statement is required starting 11/01/2013,
The appraiser certifies and agrees that this appraisal was prepared in accordance with the requirements of Title XI of the Financial Institutions, Reform, Recovery, and Enforcement Act (FIRREA) of 1989, as amended (12 U.S.C. 3331 et seq.), and any applicable implementing regulations in effect at the time the appraiser signs the appraisal certification.
It seems that banks who hold onto the loans they make have a greater degree of respect for the appraiser. I have a few small local banks as clients and they are a dream to work with. They keep all the loans they make and so they are only interested in one thing: “What is the property worth?” They do not waste my time with numerous status checks via email or phone calls. They do not ask my to correct tiny insignificant errors. They do not send an order with ten pages of boiler plate instructions. These bankers live in the communities of their clients. Yes, they want to grow their portfolios, but they also don’t want to risk making a bad loan, either. There is a balance in place with banks who keep their loans. Now the AMC’s and large lenders I work with are an entirely different story. Things are so out of whack that the problems you have described are likely just the beginning.
It seems to me that the bail-outs allow many lending institutions to take risks that they otherwise would not. I think the precedent that bailing-out a failing institution sets leads to riskier practices across the board. Since these loans are now bought and sold, often many times over, the originator has little incentive to do anything but close the loan. Quality and common sense are impediments to this. They see the appraiser as a formality. They do not respect or value the appraiser’s expert opinion because the decision to lend has already been made by them. Funny enough, that decision always happens to be YES, YES, YES! Speed and volume are all that matter, not the substance of the appraiser’s report.
I would say the remedy for this is to repeal most of the banking regulations and get back to basics. My mother has worked for small community banks for over 30 years in a loan documentation role. She spends 90% of her day complying with meaningless regulations which do nothing to actually protect any party involved.
The solutions: We need a Constitutional Amendment which clearly and specifically states that bailing out banks – or any business really – is strictly forbidden. These banks are not ‘Too big to fail’, they are Too big to succeed.
Then the FDIC should be eliminated as people no longer care about the safety of their bank, the way they once did. Safety used to be a bank’s greatest selling point. If a bank was too cautious, they would not provide a decent return to their depositors. If they were too reckless, they would lose money on bad loans and they also would not provide a decent return. Banks must be allowed to find the balance between risk and reward that they were once free to achieve. Now, since the customer’s deposits are guaranteed by the feds, the depositors only care about things like the number of ATM’s nearby, who has the best banking app and who gives out the nicest pens. And with the current FDIC regime in place, why would we expect anything different?
Back to reality: Since these ideas have absolutely zero chance of being implemented, we can expect to watch as our profession is further assaulted by banks and brokers who think they are invincible. The current cycle we are in of jumping from crisis to crisis will likely lead to more government oversight, not less. This means that the last vestiges of common sense will be regulated right out of existence in the banking world.
Great “rant” and great commentary. I always tend to be the kid in the room with other appraisers as I have only been in the profession roughly 12 years, so I usually listen more than speak. When I first came to the profession, I felt an important responsibility was being set forth on my shoulders. I took my education seriously. Passed all of the exams on the first attempt including the “grandfathered” General Cert exam. Up until 2008, I really thought I was ascending as a Certified Residential Real Estate Appraiser. Worked 70 hours a week, sacrificed family time, vacation time and basically most of my free time to becoming the best appraiser possible. There were arguments with loan processors and what not, but generally speaking most folks understood my position as an appraiser and I could get on the phone with an underwriter or reviewer and discuss any issues which may be misunderstood or provide further explanation on the market issues. These days I’m dealing with disconnected voices on the phone. People who have zero understanding for real estate or valuation methodology. I get revisions on ridiculous issues which have absolutely nothing to do with the opinion of value. Now AMCs have started composite scores which penalize an appraiser for revisions and ETA. I am routinely given two due dates. The due date for the client and the obligatory 48 hour rule which states that the report MUST BE completed within 48 hours of the inspection unless the AMC is given notification within 24 hours of the due date and time with an acceptable reason even though the first “due date” is a week away. The fees have become laughable and the desire to have the “Yes man” appraiser is at an all time high. I don’t tell people I’m an appraiser any more as I grew tired of answering queries as to why so many appraisers don’t know what they are doing. When the market was booming, no one asked me questions about value. NO ONE complained when they thought the value was too high. Everyone just smiled and told the appraiser what a great person they were for providing a wonderful report. Same people six years later want to hang the appraiser because the value is too low to make the loan work and immediately associate the low market value as a sign of incompetence. One of the AMCs from which I receive work has been consistently warning appraisers about recognizing a market which is “increasing” in value with silly examples of shortened DOMs and so forth. Nothing in the memorandum addresses the reality which the appraiser is facing in the market regarding acceptable comparable sales, USPAP, etc. The same AMC will put a “Hard Stop” on any report which comes in lower than the selling price. The appraiser then has to call a rep and explain why the value is under the selling price. We are being pushed out of our own profession by people who do not do what we do professionally which is a travesty. When AVMs become the norm, what are the property owners going to do to refute the valuation? I don’t think the banking industry is going to give a damn. I’m savagely disappointed in this situation after 12 years of sacrifice and toil for what has become nothing.
Look at the bright side. You didn’t waste 20 or 30 years of your life building a business. We hauled 2 floors full of appraisal junk to the dumpsters when we bailed out of this crap business in 2009.
Art imitates life?
By some weird coincidence the Scope Creep(er) appears to emerge every 23 years…much like the Creeper does in the movie Jeepers Creepers.
Looks like the writer must have been an ex appraiser who was haunted by the Scope Creep(er) as well.
The appraiser’s life today is far more terrifying however; in fact it’s nothing short of a living nightmare. Today’s appraiser is hounded by both the Scope Creeper & The Fee Snark (AMCs). One consumes your time (your life) and the other consumes your fees.
There’s one way out of this nightmare boys. Grab your license, dip in in acid, burn any remains and bury the ashes in bucket full of concrete, and dump in into the sea (preferably the deepest spot on earth).
The solution is so simple, nobody wants to look at it. / Eliminate commission based lending, and move to salaried positions. If persons ordering appraisal service do not profit via preferential selection, there will be far less financial incentive to seek the most liberal or compliant valuators. / AMC’s should have a fixed cost of services, instead of profiting by depressing appraiser fees. / Let’s see, what else? Oh yeah, loan originators should bear absolute responsibility, regardless of who they sell the loan to. That should clear the air. And it will never happen, because the whole system is corrupt through and through. I’m no so optimistic that the system failed just because of a few bad apples. I’ll fall over backwards in my chair if a major lender or loan originator ever receives the 10k/20k daily fine for violating appraiser independence rules.
Thanks guy, you put into words all the thoughts that spin around my head. If we were employees of these companies we could go after them for what they are doing to appraisers. I have a knot in my stomach all the time and a head ache. Yes , we all know I could do something else. Ya , there are plenty of companies looking to hire a 58 year old!
Wow, I’m right with you. 15 yrs of hell. It gets worse every day. 58, think I may be able to still find another job? Wish I left when I was younger. Lots of rocks piling up in the shoes, now we can’t walk.
Can we get Uncle Zev to post some new articles?