Who’s REALLY Completing Hybrids?
Who’s REALLY completing bifurcated/hybrid appraisal reports?
This essay has been “rattlin’ around my cranium” for a few months from the time I acquired two ‘case study’ report examples in early 2020. I’ve recently received a third bifurcated report, which has similar appraiser data. So now is a prime time to spill the beans, so to speak.
Especially since FHFA, the conservator of Fannie and Freddie, is currently on a mission to “modernize the appraisal process.” They are seeking input from appraisers and other stakeholders who use appraisals.
But first, as the infomercials say, there’s more! One ‘more’ concerns appraiser obligations under USPAP. It is my contention, based on evidence, that both lenders and appraisers are disregarding those responsibilities with these highly-touted bifurcated/hybrid reports. Yes, lenders don’t have to adhere to USPAP, but appraisers do. Therefore, by extension, compliance falls back on the lenders who choose to disregard a key element in the “big book” in their employment of appraisers across the country.
What’s the key element? It is GEOGRAPHIC COMPETENCY, baked into the Competency Rule in USPAP, pages 11 and 12 in your book. This rule exists because the intent of USPAP is for appraisers to be very familiar with the subject’s location and/or market area. It’s part of public trust, the backbone of USPAP. It means the appraiser should live in the area, or reasonably close by, be cognizant of local activity that may affect property values, the laws and regulations affecting properties, and a whole host of other factors that adds to the ‘head knowledge’ appraisers should have… to be geographically competent.
USPAP does allow for an appraiser to “acquire” or to take steps to gain competency before completing a report. But please, don’t argue that an appraiser can do that in the minimal number of days for report turn times. For bifurcated assignments, those are likely within 24-36 hours of receiving the ‘inspection report.’
Geographic Competency is being ignored often in the bifurcated/hybrid appraisal process, which the case studies will reveal. Because it’s a Rule in USPAP, that’s a serious violation.
The second part of the ‘more’ is the number of reciprocal licenses states grant to one licensee appraiser. The individual states don’t keep track of which other states have granted licenses to a particular appraiser. They are just happy to take the registration dollars, and hand over a reciprocal license good for at least two years.
I understand why an appraiser might want to have one, or maybe two reciprocal licenses in adjoining states where the appraiser actually physically does work. Perhaps that appraiser has a house ‘here’ and one way over ‘there’ and spends time ‘there’ often enough to know the area – like snowbirds. Or maybe the person is a review appraiser who must have a license in the state where the subject is located before a USPAP technical, non-administrative review can be done. Those are legit. But in checking the ASC Appraiser Registry, it’s evident that many appraisers have reciprocal licenses in many states far removed from their home base, not in reasonable proximity.
So who is actually doing these two-part reports?
Well, we know that the first part, the actual property inspection with photos, is being done by ‘someone’ unknown to the appraiser. In some cases the actual inspector is not named, thus is not included in the report commentary. In other cases, the inspector is named, by name only, but with no additional credential or experience info so that a report Intended User and the appraiser would have a better understanding of who actually hopped, skipped and jumped in front of the subject property. A property condition report with photos is forwarded to the appraiser, who ‘relies on it’ under an Extraordinary Assumption stated in the report.
The second part of bifurcated reports is done by a licensed appraiser, with a state license where the property is located. Is that someone who’s in the same general area of the subject property? It is my contention, based on evidence, that these reports probably are not being done by your acquaintance appraiser in your vicinity near the property. Rather, they are being done by… well read on for more info.
Countless surveys have been done to find out if appraisers want to do these kinds of reports. The overwhelming majority of appraisers say nope, nada, no thanks. But the truth is, thousands of bifurcated reports are being completed every month across the US… by certain appraisers.
Case Study #1
Property is in SW WA State, reported as being in a suburban area even though inside city limits of a major urban city in that area, and has public utilities. The home is a 1 story ranch, built in 1952, on 1.26 acres. The actual property inspection was done by a ‘named person’, without any further identification or type of experience noted in the report. The ‘comps’ in the report (provided by the appraiser) are two 2 story homes, and one 1 story. Guess where the signing appraiser is home-based? I’ll wait. No, you’re not far enough away! The appraiser is actually from a southern state bordering the Atlantic Ocean, living 2 hours inland from the beach! That’s what the appraiser’s license says, which is in the report.
This report was done on the FNMA 1004P form. It was bad enough, after corrections were requested and the original reported value was reduced by $10,000, that the lender ultimately rejected the report and hired a LOCAL appraiser to complete a second report for lending purposes.
Out of curiosity, I researched the appraiser and found that this person has three active Certified Residential licenses. One in the home state, another in Oregon, and the third in WA. Another appraiser with the same last name at that address has Certified Residential licenses in a total of 7 states on the east coast.
I mentioned the license in the report. An oddity is the signing appraiser shows the ‘company address’ in the report on the signature page as a place in Seattle. I actually went there. It’s a private mailbox service business next to the famous Pike Place Market. That seems very questionable to me, and could be considered fraud because the appraiser probably may not frequent this area at all, if ever. The appraiser used to have a private mailbox company “address” at a business in the current home state city, but now operates out of a home on a city street, along with the other appraiser mentioned above.
If you’ve read this far, you might be thinking two appraisers with a total of 10 state licenses is no real oddity. Yes, they ‘might’ be review appraisers for a lender. If that’s the case, why did this report get completed by one of them? It is my contention that these appraisers have home state plus reciprocal state licenses precisely so that bifurcated/hybrid reports can be done for lenders who cannot find a local appraiser to “git ‘er dun.”
Case Study #2
Property is a SFR on lakefront in NW WA State, near my location. Report is on a 1004P, via Mueller Reports. Property inspection was done by an un-named Mueller Reports ‘field inspector.’ Site section of report makes no mention of the waterfront location or the front footage at the water. Report signed by a Certified General appraiser from an adjoining state, who lives about 7 driving hours from the subject.
Three ‘comps’ were used, none of which were on lakefront sites. I researched the property and the local MLS and found 4 lakefront properties I would have used had I done the assignment.
The signing appraiser has two state licenses, one in the adjoining home state, and a reciprocal license in WA.
The fact that no lakefront sales were used in the report, even though they existed, demonstrates a significant lack of geographic competency.
Case Study #3
This one has more ‘plausibility’ than the first two. But the appraiser is not ‘local’ to the subject.
Subject is inside the fourth largest city (by population) in the largest state on the west coast. The signing appraiser is located in the central valley, 2+ driving hours away, in the thirteenth largest population area. The appraiser has two state licenses, in the home state showing an address in So. CA connected to one of the largest data amalgamators in the US, and a second reciprocal license in WA State showing the appraiser’s home address in this larger state.
This report is done on a proprietary form developed by one of the large AMC’s. Frankly, the form is well done, and comprehensive. Whoever designed this form report had a good understanding of appraiser’s obligations under USPAP, and for what lenders would need in the report. But oddly, the actual appraiser’s business company address is not included, probably on purpose to decouple the appraiser in the report from actual local geographic competency. The state license number is shown.
It has the property inspection done by a named Property Inspection Analysist, which includes a ‘certification’ similar to what we appraisers sign per USPAP, although the Analysist doesn’t actually ‘sign’ that part of the report. Their name and business association is shown.
Interestingly, this report has a section on its third page describing the appraisers “Geographic Competency.” I will include that info, because this is the primary concern of this essay. It says:
The appraiser’s competency, in this assignment, applies to factors such as, but not limited to the: property type, intended use, applicable laws and regulations, applicable client-driven and commonly known assignment conditions, and sales comparison methodology. Additionally, the reviewer’s expertise includes knowledge and experience similar to an Appraiser’s Peer (as defined in USPAP) for the same or similar type of assignment.
Geographic competency, in this assignment, has been acquired in various ways, including but not limited to:
- Analysis of local MLS data and or MLS-based analytics, market trending metrics, and comparative market analyses;
- Subject and comparable data sources, such as public record, visual and aerial imagery, and
- Market diagnostic products to assist in delineating neighborhood boundaries, market areas of comparable influence, and application of qualitative analysis based on the subject’s relevant characteristics.
Wow! That’s really impressive. And it’s deceiving, because it doesn’t say anything about the appraiser actually being ‘local’ or reasonably proximate to the property, other than “knowledge and experience.”
Now, step back, and re-read bullet point #3 again.
You’re a local appraiser in your market. How many of you access and use “market diagnostic products” to do what that paragraph says? I would bet nobody does! You drive around and analyze what you see, read local newspapers and business journals, listen to local radio, watch local TV and incorporate what you know and observe about your local area into the appraisal report.
That actually is a dangerous bullet item. Because if the appraiser does what that says, the appraiser darn well better have that documentation in the report work file. Wanna bet how many actually do that?
Licensing of appraisers by ‘borders’ is no different than getting licensed as a plumber, electrician, teacher, attorney or doctor. That has allowed the proliferation of bifurcated/hybrid reports because it appears few users (or appraisers) seem to care one whit about how USPAP narrows the ‘border’ to a local geographic area or region.
This essay has a few “take-aways”:
- Thousands of bifurcated/hybrid reports are being done annually in the US
- Those bifurcated/hybrid reports are being done by appraisers… operating out of their basement, comfortably in their Egyptian cotton bathrobe and fuzzy bunny slippers, having never stepped foot near the property in many cases, which of course is not required
- It is unknown how many of these bifurcated/hybrid reports are basically junk; if I have two, how many more exist?
- Actual verifiable geographic competency is being overlooked or disregarded by lenders and appraisers due to expediency of churning as many of these bifurcated/hybrid reports daily
- The licensing states don’t really know what’s happening because this known activity (among appraisers, lenders, the GSE’s and others) becomes a concern only when a lender submits a non-USPAP compliant report to the regulatory agency as a formal complaint
- The licensing process for appraisers, and the use of that license, is based on ‘state’ borders, rather than regional location and experience; that’s one reason why bifurcated reports have been able to proliferate dramatically
- Many appraisers in the US have multiple state licenses; some are for legitimate reasons, like being a review appraiser, but I’d guess many more are used to do bifurcated/hybrid reports in places other than the appraiser’s home state
- It’s actually easy to become a bifurcated/hybrid report specialist in a state far removed from your home state, or even many miles from your home location in a particular state – due to how licensing is done and accepted in this profession/industry
- States don’t know which appraiser from which part of the country actually does the appraisal – unless and until that report is turned into the state regulatory/investigative agency due to USPAP failures
The number of issued reciprocal licenses is why it is difficult to know precisely how many INDIVIDUAL appraisers there are in the US/territories; even the ASC can’t provide a precise number.
You have a choice: do bifurcated/hybrid reports outside your area of actual geographic knowledge and feel justified due to your perception of ‘helping the client’; or not, because you understand ethics and geo competency.