The Story About “Hybrid” Who Does What
WHO actually fills in the subject info in ‘hybrid reports…
This is a long message… grab a cold one and settle in!
Last Wednesday, (yah, bad on me!), I sent out a message asking appraisers who have done, or are doing, the new ‘hybrid’, ‘alternative’, ‘bifurcated’ or “easy squeezie” desktop reports promoted by some AMC’s and others, what the actual process is concerning WHO actually fills in the subject info in ‘hybrid reports’.
A number of appraisers took time to answer via email that afternoon. Among the responses, I actually CALLED and talked to 4 appraisers who are from different areas in the US, and who had different experiences with these reports. I really appreciate the time they took to explain the process they have witnessed.
What I learned, and I think I’m the only one who has done this on a national scale and reported findings, is that there is massive confusion about the Scope of Work actually performed by two separate individuals (and perhaps other unknown contributors) in these reports. I have learned that some of these new-fangled reports actually do allow an appraiser to be in compliance with USPAP, while others can be considered serious contenders for non-compliance if an appraiser completes them.
To stress the point, as others have done, it’s the APPRAISER who must adhere to USPAP – no one else. None of the ‘forms’ we use are defacto compliant with USPAP. All ‘forms’ have to be supplemented with additional info the appraiser provides to allow the appraiser to be USPAP compliant when using a ‘form’ report.
By the way, when I say in compliance with, or adhere to, USPAP, I mean the CURRENT version in effect at the time of the assignment. An appraiser I respect who has a national following via mindful groups, podcasts, forum posts, etc., recently spent countless keystrokes trying to justify these ‘hybrid reports’ by quoting a USPAP version that does not yet apply to our responsibility. Why that was done is baffling to me.
Highly non-compliant issues for appraisers arise with alternative reports when the subject info in the report is actually filled in by a ‘field inspector’ who is not supervised or even really known to the appraiser. There is at least one known ‘hybrid’ product where this is done. This is considered to be APPRAISAL PRACTICE by someone acting as an appraiser. It is APPRAISAL PRACTICE because that unlicensed field inspector is acting as an appraiser, making decisions about what subject details to include, and perhaps exclude, and most often include photos taken by that ‘field inspector’ in conjunction with the filling in of subject info. I strongly encourage appraisers to steer clear of this pre-filled product.
A second non-compliant version has ‘suggested’ sales, assumed to be comparable properties, provided to the appraiser at the time of assignment offering to the appraiser. This is a veiled attempt to influence the appraiser into accepting someone else’s APPRAISAL PRACTICE decision, which can have a direct bearing on the opinion of value determined by the appraiser… if no research and analysis is done to evaluate those. That is a direct violation of USPAP. The preliminary offering of suggested sales is far different from that same process allowed by Dodd-Frank AFTER a report has been submitted to the client. With this kind of assignment, appraisers should inform the client that in no way should any ‘suggested’ sales be submitted by the client at the time of assignment, and they should be removed from assignment consideration. If they won’t do that, decline the assignment.
A third type of ‘hybrid’ product has a field inspector examining the subject, taking photos, and writing comments about the subject property and the surrounding neighborhood. This info is provided to the appraiser in a separate document, which the appraiser is allowed to review, with parts incorporated into the actual ‘hybrid’ report. I say this kind of process allows the appraiser to be marginally compliant with USPAP, in that the appraiser makes decisions about what data to use and incorporate. The appraiser can (and should) do their own subject research so that the provided data is corroborated with other sources. Some promoters of these ‘hybrid reports’ promote this activity as being little different than an appraiser incorporating MLS or ‘public’ info. Well, maybe – or not.
The Scope of Work in all ‘hybrid reports’ I have seen, and which are written about in the trade press, e-newsletters, blogs, etc., all incorporate vast statements about Extraordinary Assumptions the appraiser is allowed to incorporate. The point here is “why should we need to?” The real reason is because of the cost structure associated with ‘hybrid reports’, which at this writing, is far lower than any other type of ‘drive by’ assignment appraisers typically do, demands incorporating Assumptions about the subject property the appraiser has not personally examined. All these SOW’s say that info provided by someone else is considered “complete and accurate” – when in fact it may not be – even though it’s ‘relied on’ for the purposes of the report.
My contrarian commentators will point out that an appraiser does not have to make a physical inspection of the property as part of the appraisal report assignment. That’s true. But it’s the basic fall-back position ‘hybrid’ report promoters take when discussing these and attempting to ‘sell’ them to appraisers to complete. They don’t mention anything about APPRAISAL PRACTICE. It’s also the primary reason many appraisers won’t do these ‘hybrid reports’ – because they take their charge as being part of “public trust” demanded by The Appraisal Foundation, etc., seriously.
A fourth type of ‘hybrid reports’ has the ‘field inspector’ completing a Property Condition (or Inspection) Report. This is submitted back to the client, but is not forwarded to the appraiser. The appraiser’s SOW in the desktop report is to find subject data from available sources, fill out a subject grid with that, and complete a sales comparison grid. Some report grids are ‘qualitative’ only (no adjustments), while others are ‘quantitative’ – meaning dollar adjustments are made. Both ask the appraiser to state a value conclusion. This kind of ‘hybrid’ report allows the appraiser to be USPAP compliant, because it’s only the appraiser who completes that report.
Something appraisers may not know is per current federal lending regulations, any time a loan is made on a home (real property), the subject home must have ‘eyeballs’ placed on it – for at least a few seconds. There is NO requirement that the eyeballs must be those of an appraiser. That’s the driving force behind the proliferation of these new low cost ‘hybrid reports’.
A fifth type of “alternative” report is an actual exterior-only totally done by a licensed appraiser, who adheres to USPAP. Millions of these used to be done on the 2055 form. But lenders DO NOT NEED ALL THE DETAILS on that outdated GSE form for the intended use they have when doing HELOC, second mortgage, asset monitoring, etc. The lenders don’t want to pay high dollar amounts just to have simple property info verified and provided. So lenders, and their agents – the AMC’s, have designed multiple different versions of ‘hybrid reports’ now floating around.
There… FIVE different versions of these new products. I strongly urge appraisers to get sample reports from clients who request your service. Examine the SOW in them, and ask tough questions about ‘who’ completes the subject info, and ‘when’ it’s filled in. Ask if you can ADD additional Assumptions and Limiting Conditions as necessary. If the clerks who call don’t have the answers, escalate the call to a person at the client with more knowledge and authority. If they won’t do that, tell the clerk you cannot help them.
You have to be extremely (USPAP) careful with these ‘hybrid’ products as currently constituted. Due to my research, and the kind assistance from the appraisers who talked with me last week, we now have a better understanding of what we appraisers need to be aware of before accepting or outright rejecting the potential ‘hybrid’ assignments.
But, there’s “more to the story.” We appraisers can do a better job meeting needs of clients. While writing this, I determined that further discussion about this kind of work is necessary. I’ll do that in a follow-up message. Stay tuned.
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Who in their mind would do hybrid appraisals and how can appraisers rely on anonymous 3rd party inspections and call themselves professionals?
Would you want your diamond examined and graded by an expert/gemologist or by the fastest and cheapest “3rd party inspector”? There are no hybrid/desktop appraisals for jewelries for good reasons.
There are lots of reasons to do hybrid appraisals.
1) divorces when the the other party does not have access.
2) third party mortgage sale when the beneficiary does not have access.
And may more. The issue is not access, most time its more difficult to verify enough information for a creditable report. That what we seek isn’t it.
I have to wonder if Don is an appraiser. My guess is not based on his commentary: “…most time its more difficult to verify enough information for a creditable report.” Huh???
A divorce is probably the least appropriate time to consider a hybrid. It’s a use where disputes of value, condition and other appraisal related findings are almost always disputed by one party or another. A hybrid??? Get real, you’ll be laughed out of court, right after the opposing side produces a real appraisal and eats you for lunch.!
IF a mortgage beneficiary couldn’t care less about the accuracy of data, then I don’t mind them losing their assets due to their own sheer stupidity.
Absence of access has never been a legitimate basis for not complying with USPAP. Not ever. Also remember there is no such thing as a uspap compliant hybrid…outside of a TAF hypothetical discussion. The challenge has been out for quite some time for ANYONE to post a verifiable, uspap compliant typically priced hybrid appraisal online here – no takers so far, because it DOES NOT EXIST!)
Well before the advent of Form 2055, we used to routinely do full appraisals on an exterior basis, specifically identifying the extent to which we inspected the property and determined conditions affecting its value, marketability or purported habitability. The 2055 though specifically for exterior appraisals also tried to pretend it was something it was not. It was a discounted fee appraisal where many appraisers got the impression because there initially was no inspection, that a lot of short cuts were acceptable. Then (brilliant example of institutional idiocy) came the drive by appraisal (2055) with interior inspection! Say WHAT!?
Hybrids are just the latest attempt to push down appraiser fees with a product that no appraiser truly believes is a real appraisal; while at the same time eliminating those pesky appraisers calling out significant property condition defects.
First, not bothering to consider the income approach was allowed-even on assignments where we were specifically required to do a rent survey. A boilerplate lie was routinely accepted. Next the hucksters created a false impression that the Cost Approach analyses were unnecessary. The only step remaining is to undermine the sole approach remaining. Lets either not inspect it at all; OR hire trained monkeys to do it.
Better yet, lets hire trained monkeys to do inspections; AND hire ethically challenged or too- stupid-to-know any better, starving appraisers to sign these”appraisals”.
I personally seriously question the integrity of ANYONE promoting these bastardized frauds.
57 years all phases of appraisals, until retirement this year. Been in court before opposing judges, juries, & competing appraisers. Divorce frequently had refused access by one of the parties. Always welcomed that refusal as the judge would consider a default judgement.
Beneficial interest in NOTES and trust deeds frequently sell and the note buyer uses both discounts and appraisals for the investors. Hybrid is a word defined by WEBSTERS, the Institute, nor the mortgage industry has an exclusive, BLACKS Law is the nearest publisher to define the words we use to defend ourselves as appraisers.
USPAP does not require a form or a format it does require standards as outlined in several publications starting with mc michaels,in 1935 the in smoots in 1937 and republished by the AIREA and subsequent reorganizations have addressed the issues of the 1995 USPAP.
The 1004 form report with the mortgage limitations are raw meat for the aggressive attorney. Consider the Forest Service requirements insisting on a timber cruiser’s information, the income report considering the soil, or the cow year long information. Consider the cost approach for a 1940’s residential subdivision in a changing neighborhood, consider a 1950’s home with numerous mods. These are examples of extra distracting information which can be controlled against the author that are not needed.
May of us have been called to appraise a house or property that has burned to the ground for insurance purpose. We can’t measure it, inspect the roof or judge the appearance. The insurance may have only been market based and not replacement value. We can make a creditably report using various other sources including interviews with the owner, renters, next door neighbors, etc. We must consider the ownership if a condo “will the allow the replacement, in the case of a higher use would the fire have created a benefit?
USPAP standards can and should be addressed in all files and are required in those files, not necessarily the report. Cooperation from all contributors are a requirement from both the historic and the current iterations of good appraisal practices.
There are many creditable definitions of Market value, including some that define differing problems. The states and the feds differ, and differing states differ. Some require an all cash with definitions some consider credit extensions.
The mortgage industry used to require discounting information the VA required an appraisal statement about dual pricing. Many appraisers don’t included any explanation of sales financing info except CONV, FHA, VA. I have had to explain 10-31 and resale, seller carry, Interest buy down etc.
Many appraiser started as trained monkeys, tellers at banks and S&Ls until summer business increased, they schooled themselves gained experience and helped the lender protect itself. That was when loan laws were tougher against the lender. The lender can still sell the loan without recourse, but not thru FNMA, VA has and does exercise recourse against the borrower.
The conscience of the appraiser is formed from many sources, The honesty is measured By how well he protects himself. Today the appraiser protects himself with third party insurance, and maybe the insurance of a job well done.
Lot of good responses in response post – Don.
Disagree re 1004 with adequate text supplement. By itself? Sure. It’s cannon fodder, but no more than a narrative is to another appraiser that can see right through it and focus on what has been omitted rather than the directive story being told.
Today the appraiser may or may not protect themselves with a job well done. 70% of Texas complaints are without merit and include many jobs well done, filed by dishonest people. It’s an increasing trend throughout the country.
The current meme of pro hybrid advocates is that it is the appraiser & his or her (workfile) and not necessarily the report that is USPAP compliant. In itself, it is a deflection. SR 2 requires that the report itself not be misleading.
It is NOT enough to say that the appraiser has ‘the option’ of adding whatever it takes to a $25 hybrid where he or she is expected or promised they can be completed in 15 to 30 minutes. THAT is deliberate deception.
I repeat my open challenge: Show us ONE completed & reviewable USPAP compliant hybrid completed in under an hour and I’ll concede the possibility these can be done without deliberately committing outright fraud.
Otherwise, I maintain that every single person performing these is complicit in gross negligence. A USPAP compliant bifurcated appraisal cannot be completed for $25 in the usual 15 minutes promised. Nor can it be completed in an hour.
My argument isn’t for a $25 appraisal. It is for a defensible appraisal. You’re absolutely correct good defensible work is expensive. Many appraisers incorrectly consider an hourly fee in comparing jobs. Hourly fees don’t compensate us for potential liability, E & O insurance doesn’t protect us from loss of our net worth, doesn’t protect our reputation. Anyone can file a suit against us (your narrative), we can only defend our work and integrity. USPAP is designed to protect the lender. E&O insurance to protect a client. Our appraisal businesses are broadly diverse. We can’t compete with all the other professions. Our systems are not in harmony, that’s what allows those systems to go forward, including ours. Lender, insurance companies, Lawyers, Judges, and our judicial system, and us protect usss.
Specialty AMC businesses are transitory. Not every loan needs to be appraised by a licensed appraiser. Appraisers, and lenders will be blamed for the bad reports, they will be blamed for the reports made at an economic change, and for other situations. Some justified some not.
all little letters, i am only a cog, theirs another more important “Don”
I would like to see what the appraisal management company would be charging the homeowner for one of these products. To be honest I think this is only an attempt by the AMC’s to divide, conquer and ultimately control the industry and do away with the professional appraiser. It’s about the money and nothing more.
Dave, as always well thought out an insightful article…though surprisingly I have found a few thin argument areas to poke a stick into.
Options 1 & 2 are pure garbage and I think we all agree. Option three stinks but may not be complete garbage. The devil is in the details. We all know the appraiser has the obligation to be USPAP compliant. All of the samples of these formats I’ve seen even have small print stating that nothing in the directions prevent the appraiser from supplementing the report as they deem to be necessary. (Picture the imaginary conversation lenders attorneys will have before Congress, state regulators and others when it all goes south…”We told them they had free rein to do whatever was necessary in their opinion to produce credible, USPAP compliant analyses and reports…we did all we could to encourage compliance. What more could we possibly have done? Outside of reasonable fees and completion time that is.”)
Gee whiz! They will permit me to do the extra day or two’s work that’s needed to try to make the pigs-ear report version into a silk-purse USPAP compliant version… and all for $65! Aren’t they just ‘special’?
Dave respectfully, options 4 & 5 are self defeating. We aren’t talking about who fills in a form. We are talking about analyses and the extent of the analysis at all steps and levels of the appraisal process.
What lenders want (and think its all we do) is a ‘comp check’ signed by an appraiser. If that’s what they want, then call it that and get the feds ok for us to do that type of service. Stop all the pretense of calling it any kind of an appraisal. Stop asking for appraiser opinions about market conditions, neighborhoods, adverse influences, etc. and using language like appraiser considers sources credible. Tell them it is only an educated crap shoot by experienced players.
The problem is that they still need to be able to lie to investors while keeping a straight face telling them that they have “appraisal” supported values for all the loans included in a specific investment portfolio or ‘bundle’.
There is NO WAY anyone can do a fully USPAP compliant $65 to $75 hybrid ‘leveraging Big Data’ like FNMA does, or using ePixieDust like the pimps suggest, in the 45 minutes to complete models being hyped. TAF does a disservice offering classes saying that ‘evaluations’ can be USPAP compliant. They ignore the 600 pound gorillas which are fee and turn time. ANY appraisal can be made compliant.
I challenge anyone at all to send me one (even one that is redacted to protect the naive, and unintentionally non compliant) of these along with an honest start to finish time verification, and fee disclosure. Include any upload fees that may reduce that whopping $65 base fee please.
Is there JUST ONE appraiser in America that thinks their version of these $65-$75 wonders is USPAP compliant? How about one promoter, or software supplier? Alamode? ACI? Anyone?
…..or will we only hear crickets?
We all know why they are pushing hybrid “appraisals”. In my area they pay $50 to $75 per report and I assume the field “inspector” is getting between $15 to $25. So the real costs is around $75-100. And we all know the consumer is probably paying 4+ times that amount.
Weren’t consumers charged over $300 for $50 worthless BPOs?
This is not about benefiting borrowers but increasing profits. Hybrids are being advertised to fit this false narrative that it will help borrowers by reducing cost & turn time.
It’s all about $$$$ in their own pockets. It’s not about protecting the public or lowering the cost!
Yea, I had an instructor from a class recently taken and he was pushing that we should be doing this type of report. He stated his son makes over $90,000 a year doing just these…Wonder what he was smoking before class…lol not that I’m against smoking Pakalolo!
You may want to reconsider taking any more classes from that clown. At $25 a pop, thats 3,600 a year. I suspect the percentage of USPAP compliant reports in that batch is not real high. Even at $65 a pop, thats 1,385 a year.Latter is 4 a day every single day of the year. 16 a day at the high volume low fee end of the scale assuming only 220 work days per year. CHURN them out at a rate of 1 per half hour all day all year. Im sure everyone had a valid HBU analysis as vacant AND as improved.
Remember the instructors last name. High probability you will see his sons name in the revoked licenses list for your state; or numerous lawsuits down the road.