Back To Basics - How Do We Make Appraisals More Reliable?

In the wake of the mortgage meltdown, new policies and requlations aimed at enhancing the reliability of appraisal reports, are being leveled primarily at real estate appraisers. Some of the changes that are being suggested are:

• Creating a so called “middleman” or "firewall" between the appraiser and the mortgage broker that will eliminate pressure and fraud. Hence the HVCC
• I have heard some talk that HUD will increase the licensing requirements for appraisers that want to provide FHA appraisals.
• Increase on the so called education level of the appraiser.
• Increasing license requirements

I would like to remind everyone that appraisers have been around longer than there have been licensing requirements and USPAP. Although there has always been pressure on the appraiser to come to a predetermined value we had this level of a problem before now.

So the question is: How do we make an appraisal more reliable?

Some of the more seasoned appraisers can look at the changes over the years and see that two things have been happening.

• We are getting about the same fee we got 20 years ago
• We are doing less work than we did 20 years ago

What has happen? Have we changed our priorities from being concerned with determining an accurate fair market value to meeting the minimal requirements of USPAP?

Meeting minimal USPAP requirements is just that, meeting minimal requirements.

For this discussion, I propose extending our analysis beyond these minimal requirements, which will increase the reliability and there for the final conclusion.

There are several other factors that I feel are important to recognize and justify this statement.

1. I believe that appraisers that have obtained their license over the 10 years are getting less and less training before they go out on their own. The grapevine mythology of teaching you pupil less than you know continues to escalate the lack of knowledge each proceeding appraiser gets.
2. Meeting minimal standards for providing an appraisal is fine for ethical appraisers but fraudulent appraisers can take advantage of these minimal requirements.
3. The industry has been consumed by fast and cheap services.
4. Appraisal organizations have not stepped up to the plate to substantiate what they teach actually has merit.
5. Politics got involved in something politian’s know nothing about.

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From a practical stand point these factors will not change anytime soon. However extending our scope or depth of study can change rather quickly and be done at a grass roots level. If we simply make clients aware that exceeding the minimal standards would increase the reliability of appraisal reports and decrease the so called fraudulent appraisals.

Let me give an example of why I feel this statement is correct.  Let us say we have four appraisers appraising the same property for four different intended uses.

• The first appraiser does a BPO
• A second appraiser does a drive by appraisal and simple sales approach,
• The third appraiser does a full URAR maybe two approaches to value and some current listings.
• The forth appraiser provides a large narrative analysis with three approaches to value in conjunction with AVM, graphs and demographics.

While each appraiser may or may not come to the same conclusion, the reliability of such conclusion is increased with the depth of study each sequential appraiser provides. Even from a layperson’s point of view, a person would conclude that there a higher reliability factor associated with the appraisal analysis in which the depth of study is greater.

Through all this talk, debate and conversation, appraisers nor their organizations have found or suggested a solution to solve the problem.

My suggested solution is getting back to our principles, get back to being concerned with estimating fair market value and not just meeting the minimal requirements of USPAP.

Author: Jeff Patterson, owner of Residential Appraisals - Has been providing residential appraisals for most of southern and central Maine for the past 25 years.  Jeff's clients range from private appraisals to working with brokers, banks, litigation support and expert court testimony.

477 Mouse Lane

Alfred, ME 04002

www.e-rallc.com

jpatterson@e-rallc.com