Hybrid Assignments, the Consequences
- Hybrid Assignments, the Consequences - February 7, 2019
- Bankers Concerned About Appraisals - October 18, 2017
- Third Party Blues - July 19, 2017
The concept of a third party providing one or more functions in an appraisal assignment is nothing new. Back in the 1970s and 1980s there were plenty of appraisers who used somebody else to do the sketch or to take the pictures or to pull comps. The “appraiser” put all of the pieces together and signed the report.
Then came USPAP in 1989. Licensing followed shortly thereafter. Today, there are a number of lenders and AMCs who believe that they’ve invented something no one else has ever considered. The bifurcated or hybrid appraisal process.
To be clear, we’re not talking about “drive-by” reports where nobody leaves their vehicle to inspect the subject property or pure “desktop” reports where nobody leaves their office to see if the subject property even exists. What we are discussing in this article are assignments where an unlicensed third party reports to the licensed appraiser, the quality and/or condition of a supposedly, fully inspected subject property.
On March 29, 2018, the ASB issued a Q&A regarding this topic. The question involved whether an extraordinary assumption should be employed when a third party was used. The response was dependent on whether the third party’s information was complete enough and reliable.
Let’s unpack that.
It is the appraiser who must determine just how reliable third party information is before committing to it. Not the client.
When should an appraiser determine, as required by USPAP, that a third party inspection was adequate or not? Before the assignment? During the assignment? After the assignment?
If it’s before the assignment then the appraiser wouldn’t rely on it at all. How would an appraiser find out during the assignment? After the assignment is the most likely time an appraiser would discover any inadequacy. By then, it’s too late. The third party inspection starts out and ends up as additional risk to the credential holder.
What is it that a third party inspector provides?
One prominent player in this space writes:
“A trained, local inspector conducts a review of the property. Photos are time/date-stamped and geo-coded to ensure validity.”
Trained? In what? By whom? What is meant by review of the property?
Another entity promotes:
“…a hybrid appraisal that combines a boots-on-the-ground inspection with a local, appraiser-completed desktop valuation.”
AMCs and lenders who create proprietary forms for hybrids are careful to craft an elusive SOW that boxes in the appraiser and places the responsibility for selecting reliable information, squarely on the appraiser…not the “inspector”.
In Illinois, here’s what an unlicensed “inspector”, trained or not, can confidently provide to an appraiser:
Improvement Quality? —No.
Improvement Condition? —No.
Room Count? —Even appraisers can’t agree on room counts (attics, add-ons, three-season rooms), or whether certain rooms are bedrooms or not (pass-throughs).
Improvement Size —Appraisers can’t come together on how to properly measure a structure. Are they rounding to the nearest foot? Half foot? No rounding at all?
In Illinois, filtered data needs to come from a licensed appraiser.
What about hybrids and AMCs in Illinois?
Registered AMCs certify to provide the following:
(225 ILCS 459/40)
Sec. 40. Qualifications for registration.
(6) a certification that the applicant will utilize Illinois licensed appraisers to provide appraisal services within the State of Illinois;
If it is clear that unlicensed inspectors are providing filtered data to appraisers, an appraisal service, then AMCs have breached this section of the Act and are subject to enforcement action.
In its simplest terms, third party “inspectors” can tell an appraiser what they see; not provide their opinion of what they see.
In short, we’re not telling anyone not to provide hybrid reports; we’re just spelling out the consequences.
I can see that AMC’s would eventually remove the local appraiser from doing hybrid write-ups in favor of a cheap appraisers based elsewhere who will complete the report. I can see the future. An appraiser working out of California could appraise a property in Michigan on Monday and in Tennessee on Tuesday. All they have to be is licensed in the states they supposedly work in and have an inspector’s report on the subject property.
Stop feeding the beast. It’s that easy. Repeating this since 2009.
They are expecting the appraiser to assume all of the liability for an “undisclosed third party.” IMHO, they are dumping this BS on us because we will take it! Just say, NO!
But there is a brand new, like, sort of rule, something. Another vague prohibition which will focus on penalizing individuals not companies. Easy targets.
They will never learn….just wait for us to do our jobs ! Not enough appraisers to give 5 day turn time during peak sales seasons, hmmm…..I wonder why ??? LOL They get what they deserve !!
Don’t forget to live stream the ASB Third Exposure Draft Live Stream tomorrow at 9:00 am MT
I fell asleep just thinking about it. It’s easier to talk about real estate, update something, sacrifice a few lambs, call it a day. That’s what they all do. Nobody is going after amc’s.
Brought to you by the state that will yank any and every license available if you don’t pay your state taxes, student loans, or child support on time… Look through their monthly enforcement roles, they’re on the front page.
IDFPR is so on the mark with this!
As an aside the 1970’s and 1980’s ‘third party inspections ‘ (usually trainees) were (1) pre USPAP, (2) with the knowledge and consent of the lenders involved (3) Trainee/ novice associate signed on left; mentor signed on right and indicated whether or not they inspected. MY mentor inspected about 1 in 4 from the street and about 1 in 10 in and out. He took his ethical obligations seriously. Bad practices or sloppy work was nipped before it became bad habit.
Third party non licensed inspectors is one thing, but what about licensed appraisers ? Can a licensed appraiser only inspect and sign on the left while another appraiser does the entire report and signs on the right ? Can this be done on a 1004 or 1073 report ?