Data and Verification Sources Are Critical
The genesis for this essay began when I heard from another appraiser that a VA report reviewer rejected the comparables “DOC Number” on the Verification Source(s) line. The reviewer said the “DOC Number” was not acceptable as a Verification Source.
In fact, VA has said in a newsletter to appraisers that “… Assessor’s File Number may never be used as a Verification Source.” I disagree with that position, and this essay explains why. It also explains what appraisers should do to provide credible Data and Verification Source(s) in reports. Caveat: I don’t do VA assignments.
I decided that a deeper dive into these two different line items on the forms was necessary, and could be helpful to appraisers. Over the years I’ve seen incorrect entries on the Data and Verification Source(s) lines (shown below) in many reports done by other appraisers.
The first item to keep in mind is Source(s) can be plural because of the (s). That means more than one source can be revealed in the report… and probably should be.
Secondly, the purpose for indicating Data and Verification Source(s) is to provide the report user with supportable, researched proof that the various property characteristics and transaction details in the report are valid, and the comparable actually did sell.
Third, both of these items should be researched from multiple Sources. Property details are not always correct in just one Source; cross checking is vital for accuracy.
One problem in our work is the availability of accurate Source(s), especially in the many non-disclosure states. Later in this essay, I provide info about that.
While Verification was the trigger for this essay, let’s examine Data Source(s) first, because that’s the first item required on the report form. Probably the best place to gain better understanding of these items is from the forms creators (the GSE’s) themselves… FNMA primarily because their Selling Guide (Section B4-1.3-07) seems to be written somewhat better than FrMAC’s. Other report users, such as VA, tend to use FNMA guidelines as the de facto standard for report content.
Per FNMA, Data Source(s) are considered to be, but not limited to:
- MLS listings (& the listing number + DOM)
- deed records
- tax records
- appraiser’s files
- other third party sources and vendors
> To the above I will add Assessor, Recording Office, County Treasurer records, and articles in local publications
These must be specific in reports, not generic (such as just ‘public records’), and reliable for where the property is located. Per The Appraisal of Real Estate, 13th Edition, we might call the ‘Data Source(s)’ “raw data” until it is actually verified by someone connected to the transaction.
Keep in mind that for UAD (Uniform Appraisal Dataset) reports, the current reporting protocol for comparable property Data Source(s) is to indicate only the MLS listing number, and the DOM (Days on Market). That doesn’t leave room for much else in that form field, even abbreviated. In fact, due to the UAD form design and character space limitations, nothing else may be allowed on that grid field. Therefore, you should include a section in your report Addendum that describes the Data Source(s) you used.
Basically, Data Source(s) are just that… data. Raw. The specific details about a property found in or from the various Source(s) you use, whether it be on-line (like from a web site) or found in some printed document, a prior appraisal, chats with interested parties, etc.
Again, turning to FNMA, they say Verification Source(s) can be, but not limited to:
- Listing and Selling agents
- Closing Documents
To that list, I would add Auditor File Number, Recording Number, Deed Document Number, Instrument Number, Excise Number… or whatever the actual legal number for that sale is called in your area when the sale is technically closed and transferred, and the keys are handed to the buyer. That number is applied to the Deed when the Deed is recorded by the jurisdiction. This is the document the Title Company uses to show the chain of title, and verify that a transfer was made from and to. It’s why I got a bit perturbed when the VA reviewer (and the VA newsletter) said the ‘Doc Number’ was not acceptable.
It seems to me that VA is taking a hard-line approach, believing that the “Doc Number” is ONLY a Data Source. It is not (in my view). That number VERIFIES that the sale actually happened. Anyone can tell you ‘yeah, it sold.’ But the “Doc Number” actually proves it did.
But there’s more, as the info commercials say. Per FNMA, the verification process involves not just the legal property transfer, but the examination of conditions of sale, financing concessions, physical characteristics and the type of transaction (arms length or other). This is a process many appraisers skip.
Thus, Verification is more than just noting the Doc Number to prove the sale. (This was what the VA reviewer reacted to, because no other Verification Source was identified.) To verify the data means you actually need to talk with one or more parties involved with the comparable property sale.
Now, I’ve always scratched my noggin about this next part in the FNMA Selling Guide:
“It is acceptable to obtain comparable sales data from parties that have a financial interest in either the sale or financing of the subject property; however, the appraiser must verify the data with a party that does not have a financial interest in the subject transaction. For example, if the real estate agent of the subject property has provided comparable sales data, that information must be verified through another disinterested source.”
I had to read that three times, out loud, to figure it out. Pixy dust applied to my forehead also aided the process! Actually, using bold type and underlines help more!
What it means is if the property listing or selling agent supplies the appraiser with comparables for your subject property, then the appraiser must verify the comparable data with “disinterested” sources for those comparables.
Note that statement doesn’t reference comparables found by the appraiser alone, without assistance from the subject’s listing agent. So ‘disinterested source’ does not specifically apply to appraiser-found comparables.
Who exactly are disinterested sources?
If you take a look again at the lists for Data and Verification Source(s), almost all are INTERESTED parties to the comparable transaction. The only DISINTERESTED sources (in my view) is the person who applies the “Doc” number to the deed at the time of recording, or the person at the county Treasurer’s office who applies the Excise Number to the property record for tracking purposes for the transfer fee payments.
Therefore, the ‘Doc Number’, or any other name as I mentioned on the previous page, is the most reliable Verification source for the actual property sale and transfer. The other parties are useful to provide the additional verification information for conditions of sale as noted above.
What I believe VA is really saying is they want ‘more’ than just the “Doc Number” in the Verification field for each comparable. They want to know who else you talked with to ‘verify’ the transaction components, etc. What applies to VA assignments (in this case) also applies to every other type of assignment we do.
For form reporting purposes, I’d recommend using the ‘Doc Number’ as the first item on the Verification Source(s) field, followed by ‘Listing Agent’** for each comp. You may need to abbreviate Listing Agent due to space. Elsewhere in your report, you should include a list of additional Verification Sources that you used for each comparable. I’d also recommend that you explain what the ‘Doc Number’ means on the form grid page.
** I mention Listing Agent because in some MLS associations, only the Listing Agent can modify the listing after sale to show the Seller Concession.
Note that the MLS Listing Number is NOT a Verification Source for the sale. Do not put that number on the Verification line! Also, do not use Public Records as that Source.
Now that we have examined what Data and Verification Source(s) are, we need to examine the process to obtain the necessary information in more detail.
This comes down to where in the country you work, and the state laws involving real property transfers you have to know and use.
If you are working in a ‘disclosure’ state, verify the Sale Price from two or more Source(s), and talk with parties with first-hand knowledge of the transaction and conditions of sale.
Non-disclosure State Verification:
Most of the US states and territories are ‘full disclosure’ for all transactions. The ‘raw’ data is relatively easy to obtain, including the comparable Sale Price. Verification of that data, and the transaction info is relatively accessible, depending, of course, on the willingness of human Sources to discuss the details.
But there are 15 states which are considered to be ‘non-disclosure’ – which generally means the Sales Price is not publicly revealed. These are:
- New Mexico
- North Dakota
When doing research for this essay, I asked appraisers in non-disclosure states how they obtain the necessary info for appraisal reports. These folks have far more hassles than those of us in full disclosure states!
Some states are semi-full disclosure, in that property sale data and sale price is available, but the appraiser must access a specific web site, or physically visit a ‘recording office’ to look at the recorded deed. Sometimes, data is available from a paid subscription Legal News service, which some appraisers use.
In rare cases, some counties don’t even have any records available for an appraiser to look at in person, and thus also don’t have any info on-line. The appraiser who mentioned this has discontinued doing appraisals in those areas because data are lacking. Using multiple Extraordinary Assumptions about data in reports may not build lender confidence in the reported value either (except for Texas, noted below)!
Obtaining the actual Sale Price is the biggest hurdle faced by appraisers in non-disclosure states. One appraiser reported the best way to get that data point is to obtain a copy of the actual closing document used by the escrow agent. It would seem prudent that developing good relationships with escrow agents and the real estate agents who work with them would be beneficial. Having a ready source of chocolate kisses candy to hand out would probably help!
Sometimes you can determine the actual Sale Price by getting the excise tax amount paid at the time of transfer, and multiplying (or dividing) that figure by the percentage factor number used to calculate the excise tax. The appraiser would have to talk with the jurisdiction recording department staff to get the factor number. But, as one appraiser pointed out, this may not always be accurate due to non-realty items, such as livestock or machinery, included with the sale (which needs to be verified).
It appears to me that Texas is the worst in terms of obtaining accurate and credible data, and to verify that information. Texas state laws are specifically designed to thwart the ability of ANYONE to find the Sale Price and other significant data about real property transactions. Recorded Deeds normally don’t have the Sale Price shown. Realist data, etc., can be hog-tied and redacted. Sale Prices are often ‘extrapolated’ by appraisers from limited info. This is one state where EA’s are commonly used by appraisers, and the MLS reported ‘Sale Price’ is used. Appraisers in Texas can obtain a copy of the closing statement from a Title Company – but only if the real estate agent(s) allow that to be forwarded to the appraiser. Talk about doing appraisals while blindfolded, with wrists handcuffed to ankles, and mouths duct taped! Only occasionally, usually with REO properties, Texas property deeds prepared from out-of-state title companies will show the Sale Price.
In Idaho, appraisers have to work to get the closing document, typically from the Agent(s) involved. But that’s not always guaranteed.
For appraisers working in non-disclosure states, including a statement in reports about Data and Verification Source(s) should be prominent, so that the client understands the situation. One of the appraisers I have been communicating with provided two such statements which you might consider using:
1) “(State) is a non-disclosure state and recollection of details and anticipation often fade with time; as such it is not always possible to obtain exact details from a respective transaction.
Additionally, since (State) is a non-disclosure state, details of comparable property sales or leases are presumed to be accurately portrayed by the parties to the respective agreements; in lieu of cooperation by the parties (or in some cases, where parties have no recollection of such details), assumptions and/or reasonable approximations are sometimes necessitated.”
2) “(State) is a non-disclosure state. This means essential information like grantor, grantee, sale prices and sale dates for real estate transactions are not listed in public records. Hence, appraisers must gather key details from parties involved who have no incentive to cooperate. Often appraisers are compelled to obtain the information from secondary sources. This lessens reliability of the data. [Appraiser] discloses s/he made reasonable attempts, within the context of the scope of work, to obtain all key information from seemingly reliable sources; but common sense suggests some data may not be completely accurate.”
So, what are the ‘takeaways’ from this essay?
- Data and Verification Source(s) are different items, and need to be defined and reported separately
- Data is basically ‘raw’ info in written form obtained from several Sources and then cross checked
- Verification includes verbal discussions with transaction participants. But in my view, a Verification Source can also include the Deed Recording Number (or whatever it is named in your area) and should be shown on the Comparables report form grid field because it is the legal evidence that a transfer occurred; i.e., the property actually sold
- Appraisers in non-disclosure states have extra due diligence requirements to obtain data and to do verification
Appreciation to Mr. Timothy Andersen, MAI for editing suggestions.
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In Oregon, about 2 decades ago, an attorney for OAR told the organization that under Oregon statute terms of the transaction, conditions of sale and concessions are confidential data. Therefore concessions are not included in the MLS data. My experience is 40 percent will confirm data I already know and disclose concessions. 15 percent lecture me, remind me it’s confidential or indicate their client does not authorize that information. The rest just simply will not respond. There is a lot of misunderstanding. I get “We can’t talk to the appraisers.”
It would be great if some of our national organization/peer groups would work on educating the NAR members on the importance of verifying data with the appraiser and that it is not a violation of Dodd Frank.
Thanks Dave. On a completely different note, I just received the following.
Please let me know if you might be able to help us out with a 1004 at the property below. The client has offered us a fee of $340 and a due date of 11/20. Thank you!
5366 Calumet Ave LA Jolla, CA 92037.
That’s right, this $6,223,878 (Zillow) ocean front assignment is due in 5 days, and can be yours for a fee of $340. If we’re talking about verification, how about our clients verify the properties characteristics and complexities before they quote an appraisal fee on our behalf.
Welcome to California where all of the assignments are cookie cutters.
Seek the truth.
No they expect you to do that before accepting the assignment and for free to boot.
To approve your $5,000,000 cash out refinance Mr. Smith, just sign right here authorizing and approving the appraisal fee of $340. Just to confirm, at a rate of 4.5%, your $5,000,000 loan results in monthly payments of $25,334.27, and or give or take with all other fees will run around $30,000 per month, $1,000 per day, and or $41 per hour. Do you agree to these terms or would you like to negotiate for a lower appraisal fee?
Seek the ugly truth.
Sounds like a very familiar client of mine. Always telling me what their client is willing to pay. In reality their staff appraiser’s have refused to do the appraisal due to complexity so they are looking for a sucker to say yes at below market rate. This scumbag company is known as Proteck. Expose this fraudulent company for what it is. Complete scam artists. Every appraiser needs to avoid this company. Their Chief appraiser was caught in a pedophile ring. So sad!
TOP to BOTTOM ProTeck is a complete DISASTER. Dysfunctional illiterate employees work in their pajamas from home. Reviewers have College degrees in “Golf Course Management”.
Get an appraisal condition while on vacation? YOU ARE SUSPENDED WITHOUT NOTIFICATION.
I just got a $3M yesterday for $400…
I told them $1500 or lose my #…
I guess they lost my # !! LOL
Dave, when those among us claim to do and coach others to do 4 to 9 appraisals a day while working 4 days a week with a single office visit and allotting as little as 30 minutes to review a file, who has time to verify anything.
“In Idaho, appraisers have to work to get the closing document, typically from the Agent(s) involved. But that’s not always guaranteed.”
“But there are 15 states which are considered to be ‘non-disclosure’ – which generally means the Sales Price is not publicly revealed. These are: Idaho…”
Seek the truth.
Dave was that a typo in the article? There appeared to be a conflation between a “doc number” and an assessor’s parcel number-not remotely the same thing. If the VA Guru was unaware of that, it would help explain the peculiarity of the dispute.
I get that we are now supposed to do things differently than in the past, but let’s not toss our past completely.
1. Instrument recording numbers (doc numbers) were traditionally verifications that the sale did in fact take place and that the price was verified by reviewing the document recording transfer stamps (in disclosure states). ‘Public Records” was usually duplicative of this verification though some less than ethical or competent appraisers would attempt to treat two public record sources as if they were two sets of market data. To me, a doc number takes priority over an agent’s claim of closing a property every single time. Again, its importance is in disclosure, versus non-disclosure states where doc numbers mean nothing more than ‘something was recorded’.
2. Market terms and property-specific data from ‘an involved party to the transaction’ is being treated as if only a phone call to that agent/buyer/seller is acceptable. It is not the ony method of confirming information with a party to the transaction. The MLS is per the listing broker. In most markets, it’s updated post-sale closing with confirmation of the price and disclosure of any applicable concessions. No further involved party verification is required, or in so many cases practical. Is the involved party listing agent going to suddenly say (verbally) “Nothing I put in the mls was accurate?” In my work, I charge enough money and require 10 to 14 WORKING days turn around time so that I can have the luxury of speaking directly to involved parties, building officials, zoning officials, other agents, etc.
Appraisers that have been told work is due 48 hours after inspection do not have this luxury. It can easily take 24 to 48 or even 72 hours just to get a return phone call.
As micro-management becomes more and more intrusive common sense seems to become less and less common. A horribly inadequately designed form report has managed to finally conflate data (general property information) with confirmation that it closed as reported information (verification).
Some clients require the specific MLS name and listing number (Good luck getting the San Gabriel River Valley Multiple Listing Service and an mls number plus an agent’s name and number in the form box). Some clients like/require tax parcel numbers in the grid “someplace” and have improperly directed appraisers to put it up in the data and verification lines which may have given rise to this particular VA reps issue.
Licensed and certified appraisers know how to report information data and verification information.. As long as lender/AMC micro managers pretending to be ‘UWs’ stay the hell out of it.
Some of my first pleasurable experiences in the field were verifying sales form the home maker, (before wives all worked). Memorably I was invited in, offered Ice tea, and to watch SHEPARD’S SPLASH DOWN. Found many wives did not remember the details, it was easier to place words in their mouths- memories.
if appraisers associations had any power we might influence the states and various uncooperative counties to free up the public information. The Governments advantage, and The Realtors advantage are greater than Seemingly protecting it. Did any of you work on an appraisal where the salesman sold toooo loooow
Don, Non-disclosure states are horrible for appraisers to work in. I deal with Texas appraisers frequently. More so than most other states, though NM has also presented some interesting non-disclosure state-related issues.
Disclosure vs non-disclosure is a special interest policy. Take a state like Texas where privacy is important, self-reliance is promoted, & independence is more prized than in many other states. SFR owners (voters) are told it is their fundamental right to privacy that is at stake. What they are NOT told is that non-disclosure best facilitates preferential tax assessing in order to repay large donors out of the public eye.
In Los Angeles, the old ARCO Towers sold for many millions once with no reassessment. Its property tax should have increased about ten-fold after the sale. The ONLY way the loophole was discovered that allowed it to remain assessed at its old much lower rate was ‘public record’. Interested parties looked it up and brought it to the media’s attention.
In Texas, giant ranch owners may be assessed at much lower rates and even gross taxes than nearby smaller SFR owner’s property. It is possible, but not convenient to identify such cases. It would be MUCH easier and beneficial if residents could look up ANY property and assure it is being taxed fairly-the same as everyone else; OR that the reason for the variance is identified and understood.
One argument that is made (often by celebrities or government workers) is that property records available to the public should not indicate the owners names for safety reasons. This same argument (which has solutions other than complete non-disclosure) is used by huge commercial property owners to retain a system of reporting that facilitates their circumventing higher, appropriate taxes.
There is a good reason Certified Tax Protesters can earn a lot of money in Texas in challenging assessments.
Anyway Don, California has pretty good overall disclosure. Larger counties learned 10-20 years ago that it was to everyone’s advantage to accurately report sale price and owner-seller information. It’s better for agents; for NAR, CAR, appraisers, IRS, City and County Officials, and Legal Adjudication and process serving.
Civilized and ethical communities do not expect government to help them hide from legally entitled entities knowing property sale information. While WE are not one of those legally entitled entities, we are perhaps among the most benign of them. It would be faster and more convenient for all property owners seeking refinances or purchases if the sales data were disclosed.