Is This Something You’d Do?
An AMC for a lender contacted a residential appraiser with the request that the appraiser “appraise only the second floor residence” in a two story Live-Work building within a commercial district, where SFR’s are allowed by zoning.
Ground floor area of this Live-Work building is an ice cream & gift shop. The second floor is a fully finished & functional residence. Entire property is being sold.
There are numerous legitimate Live-Work buildings in Seattle (and likely elsewhere also). They are properly zoned as such, are listed that way, appraised by using similar type sales – and mortgaged. Typically these are 2-3 story buildings, with the commercial use on the ground level.
The case study property is NOT zoned for Live-Work. It is a commercial building which just happens to have a residence up top.
Is this something that you’d do?
I received numerous responses from colleagues.
A Certified General appraiser who has appraised that property three times in the past responded. The building is ‘grandfathered’ in terms of its dual use as a commercial storefront, and an upstairs residence. This appraiser has not, and would not, appraise only the second level residence – in this present configuration. The appraiser said that the jurisdiction is semi-lax on code/zoning enforcement and may or may not allow the building to become ‘just’ a residence with main level rec room, etc., without any commercial use, due to where it is located in a popular commercial area.
Many folks said if the building was a ‘condominium’, then the second level could possibly be appraised separately. The case study building is NOT a condominium. There is no known effort to convert its ownership to that type.
Other folks said that if the property had two separate parcel numbers, had separate utilities, and was taxed as separate entities, then it ‘might’ be possible to appraise only the residence portion. But there is only one hunk of dirt to apply to the structure, so that scenario is questionable.
The majority of opinions were, since the structure has two uses: 1) a commercial ‘mixed use’ appraisal would need to be done, and 2) a separate appraisal of just the residence should NOT be done, especially by a Certified Residential appraiser. An appraiser mentioned that if done, this would be a good way to lose an appraiser license when a state appraiser regulatory Board found out about what was done!
No amount of hypothetical conditions or extraordinary assumptions can alleviate the problems with the proposed assignment! And if for regular mortgage financing, an hypothetical condition in the report would be rejected by the GSE’s, and likely the ‘investors’ also. A Lender who portfolios their loans might allow this, but I suspect most would not. They would want the entire building encumbered by any loan against it – not just the top level.
One more key important point, at least three Certified Residential appraisers, who responded to me, were contacted about this assignment by the AMC. They all rejected the grand opportunity they were given. Kudos!
But you have to understand that it’s not “the AMC” who tries to place screwy assignments. It’s a low level clerk (in many cases) at the AMC who probably doesn’t know squat about real estate, let alone the responsibility appraisers have when doing assignments for lenders. All the clerk cares about is getting the Lender’s requested assignment off their desk, by finding the fastest and least expensive appraiser who’ll dance over hot coals just to earn peanuts, so that another case of Top Ramen can be bought at wally world for next week’s dinners.
The next thing to understand is Lenders just want to ‘sell’ loans to borrowers. The loan officers (salespeople) often don’t know everything about a property. Yet, they’ll process a loan request for nearly every borrower to fog a mirror. As one other appraiser commented: “Lenders are often very uneducated, and then appraisers turn reports into pretzels just to appease them.”
It’s up to appraisers to dig out the details, and to do reports correctly.
So there you are, your case study education for the day!
Dave Towne on e-AppraisersDirectory.com
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For this article it’s cut and dry, you can’t appraise half of a property under this setting. What if that individual amc clerk was individually licensed and we could hold them accountable for trying to ‘manage’ appraisers in a way which is unethical, possibly illegal, and clearly irresponsible? This is why lenders use amc’s, they appreciate the degree of separation so they are not personally held responsible for anything. Amc’s, the long arm of predatory lenders.
Its not cut and dried for the Attorneys, a buyer, investor, etc. Only for a mortgage lender.
Appraisers are called upon to help in all kinds of solutions. I bought a 1/4 lot with a bungalow on it which was located at the corner of two alleys. My interest was for a profit, and limited to an option for a faulted trust deed. That buyer refurbished the house, and resold it FHA. just up the street from that the redevelopment agency foreclosed on a 15′ lot which couldn’t be resold, the set backs precluded building. many times cal trans sells illegal lots to adjoining owners or an investor.
One of my first big jobs involved Developers left overs on a lot development. lot sales were open to buyers wishes and some buyers wanted an extra half lot so they could build a larger cabin.
Ain’t nothing impossible, think broader and do more business.
Baggs, use of an AMC provides ZERO cover for a lender. None. Jim Park of ASC has repeatedly said the “federal agencies see no daylight between a regulated lender and an AMC.” The AMC is ALWAYS acting as agent for the lender no matter how TAF rephrases ‘client’ definitions.
Every time an AMC screws up itis the exact same thing as if the lender screwed up…and they should be held accountable for the AMCs that the choose to employ.
Frequently Asked Questions (FAQs) – February 12, 2016
Will Fannie Mae accept a loan for which the lender has requested the appraiser to appraise only a portion of a larger piece of property?
No. Fannie Mae expects that the appraisal will reflect the value attributable to the entire property. It is important for the underwriter and Fannie Mae to fully understand the value of the entire property that is serving as security for the loan.
Go over to the appraiser coach’s site and explain to the merry band of cheerleaders that you might need to spend 30 minutes to an hour researching a property before potentially saying yes to the assignment/terms. There are plenty of appraisers who race to say yes, when they should slow down, seek the truth, and ultimately say no to such assignments.
Appraisers are fireman who are constantly putting out OTHER peoples fires, and plumbers who are at the bottom of the hill waiting for you know what to be sent our way. Look at every assignment, and assume they all have problems and or issues that someone, somewhere is trying to get by you.
Seek the truth.
Myself I would not have done it. I did have a client though that wanted a residential property appraised that was going into foreclosure (completed these before). I called the point of contact and she stated unfortunately the basement had flooded, she didn’t know how long ago, and there was what appeared to be heavy mold throughout the finished basement and up the stairs creeping into the kitchen. Informed the lender of the situation and they asked couldn’t I just perform a drive-by. Ugggh!
This is one reason why I keep all of the emails from the clients, If I get reviewed by the state, I want them to see what the lenders and brokers are doing. At least this broker was doing her job by giving you a heads up, the lender on the other hand was tap dancing with Mortgage loan fraud. This is why they want to remove the appraiser altogether. Anything to close the loan.
I had a client that wanted me to appraise a large metal building that was used as an auto repair garage on a 5 acre rural site (commercial with income). The LO said that it was a SFR because it had a kitchen and bathroom. I passed.
Given the purpose, etc., the assignment is not acceptable. However, it is possible to value fractions of property, vis-a-vis, leased fee and leasehold interests.
I liked the original question on this one Dave. Very happy to see all who responded to your original email (and above, here) know the assignment cannot be done as proposed by the lender.
There is no excuse for the AMC to have sent this out. It is their legally required responsibility to assure that USPAP compliant appraisal reports are delivered to clients. It is also their responsibility to assure that the appraiser assigned is competent. Neither of these conditions could have been met by any appraiser accepting the order as offered.
The AMC SHOULD BE TURNED IN TO THE STATE…right along the side of the lender being turned in to the feds if they are a federally regulated entity!
Because the individual clerk was not licensed, slap on the wrist, non public notation, small fine probably less than the rake for an hours worth of order placement considering scale. Back again to individual licensing and/or fines based on income. Like all that is rooted in business regulation, the company will consider the cost vs expense factor. Absent of any real incentive to hire qualified staff, nothing will change. If that was a request I fielded I’d have been on the horn with the mortgage manager. How to sell ethical service to people and companies with a negative motivation to do it right? The pressure against appraiser independence is built in. One wonders what less significant departures from expected ethic happens on an everyday basis for appraisers whom are in good favor with these sorts of companies. These companies don’t deserve individual complaints, they have earned the favor of complete and thorough national auditing on every level of their business practice. Cheers.
Despite my exceptionally low opinion of California’s BREA, I can attest that they WILL go after an AMC if they think they can bluff them into a $10,000 fine.
It is scary that some appraisers thought they could possibly do this scenario. $10k is an insufficient fine for this behavior. AND if we do NOT report things like this and attempt to protect ourselves and our profession, who will? The lack of being held accountable (AMC) is a portion of the reason these things continue to happen.
ABSOOOLOUTLTLY, an appraiser would only be involved in a bidding for a legitimate job which would inform the lender of the situation. Appraisers can appraise almost ANYTHING, but not on the 1004 form