Appraisal Scoop

"Old School Appraising" - Are you STILL searching for the BEST comps?!

Re-blogged ActiveRain article "Great News For Appraisers", with permission from Mike Lay

I am very excited today because I found out that we NO LONGER NEED TO FIND AND USE THE "BEST" COMPS IN OUR REPORTS! Nope, it looks like that old, outdated method of choosing the most comparable sales is going the way of the woolly mammoth. From now on, the only important attribute of a comparable is that it MUST HAVE SOLD IN THE PAST THREE MONTHS.

Think of how much easier our life is going to be now! We don't have to worry about stupid little things like proximity, or similarity of quality, age, condition, lot size, age, or even size. So feel free to go off the charts with your adjustments, because that is okay now! As long as they sold in the past three months, they are automatically now your best comps.

  Of course you are thinking, "Mike, you're losing it. The most recent sales are not automatically the best sales. That's crazy talk! Often sales that are older are much more similar and much better indicators of value. Who would think that a 3,000sf house built last year is the best comp for a 60 year old 1,900sf home just because it was a recent sale? You just need to make sure that the area has not experienced a decline in values, or is experiencing extended marketing times which may adversely affect the Subject as compared to those older sales."

That, unfortunately, is 2008 thinking. You need to bring yourselves up to date! There is a new paradigm now! At least according to the underwriters I have been dealing with lately, who refuse to accept an appraisal with 2 recent sales and three over 6 months (but less than 9 months) that were the EXACT SAME FLOOR PLAN, and after I had provided extensive data that sales were increasing, sale prices were stable, average cost/sf was stable, etc. (I've now had this discussion about 4 different appraisal reports with 3 different lenders.)

There I was, stuck in my old ways of picking the most similar comps and providing statistical analysis to show why they should be given most consideration. All I had to do was stick in 2 more sales that sold in the past 3 months, regardless of size and age differences, and everything was fine and the file was through underwriting!

Fortunately, I am now enlightened to the new ways, and am looking forward to just searching an ever-expanding search area without regard to similarity until I can capture 3 or 4 sales that occurred within the past 3 months. It will be so much easier, I now look forward to each new day with such enthusiasm I can hardly stay in bed! No more dreary old research and analysis for me! Join the wave!!!!

PS - For those of you unable to recognize rampant sarcasm when you read it, I am just kidding. There is no new method, no new paradigm, just me venting a little. Sorry to have gotten your hopes up...

AUTHOR: Mike Lay, Appraisal House - Austin Office: Serving Austin, San Antonio, Houston, and Dallas/Ft. Worth.  (800) 497-2660 X-3  Cell - (512) 785-5149

Comp Searches are for Suckers * - Appraiser "Lollipop Guild"

Re-blogged from Sara Goodwin's ActiveRain blog:

Regardless of if and when the HVCC will be placed into existence (in January 2009, March 2009, July 2009? Ever?), many appraisal management companies have done their due diligence of marketing to lenders that they will have to go through a middle-man such as themselves in order to conduct business in 2009.

‘And why not start today?' they will say to their potential new clients. And their potential new clients will say ‘Why not?'.

Once the lenders start their contracts with these management companies they will discover that what they are used to might be a thing of the past. ‘No comp searches? Really?' the lenders will say.

This is when these lenders will search out you and me.

We are the potential* suckers that will give them the ranges of values that they seek... that bit of confidence that will push them forward with the appraisal process. But will you and I receive the order for our troubles? Heck no. They now have a contract with this appraisal management company who will dole out the appraisal request that should have been ours to one of their desperate minions.

Will we turn into these desperate minions? Perhaps (let's face it, these are tough times). But in the meantime why give away the milk for free?

‘And what if this is a lender that has not signed on with an AMC... a potential new client?' you say. Just require an appraisal order prior to any work on a property is done. Many of us have made that our practice for years.   Source: click here

* I am not accusing any of us of doing free comp searches or being suckers in general.

Author: Sara Goodwin - Ashcroft & Associates - Portland, OR - Profile

Appraisal Standards Board's July Q&A incorporates new "Comp Check Assignment" terminology

T.J. McCarthy, of T.J. McCarthy & Associates, Tinley Park, IL has the following assessment of the ASB's most recent Q&A.  The following is being reprinted from an Illinois Coalition of Appraisal Professionals (ICAP) alert. 

The Appraisal Standards Board (ASB) has just issued their July 2008 USPAP Q&A - Download July_2008_QA.pdf with the following questions/topics:

• Electronic Report Delivery
• Can Appraisers Perform "Comp Check" Assignments?
• Can Appraisers Perform "Comp Check" Assignments for Free?
• Is Disclosure of a Free "Comp Check" Assignment Required?

This is the most controversial Q & A I have ever read. (click here)  You can be assured that ICAP, the Illinois Appraisal Board and DPR will be reviewing the wording in this Q & A carefully.

Of special concern is the ASB's incorporation of new terminology found no where in USPAP;

“Comp Check Assignment”

“Full and Traditional assignments”

The Illinois Appraisal Board has made its position on comp checks very clear at past ICAP seminars.  They MUST COMPLY with USPAP.  The word comparable means a thought process must be implemented by someone to determine what compares.  If it’s the appraiser, that's filtering folks! 

A comp check is not the same as providing raw market data.  An appraiser should be able to provide data to a client based on specific parameters provided by the client.  In that case the word comparable could even apply, but it must be clear that it is comparable based on the client's parameters, not the appraiser's.  If there is a value conclusion, whether it’s verbal or written, then you have just made an appraisal.

The second question in the July Q & A reads as follows:

I’m a residential appraiser and have been asked to perform a "comp check" (or "pre-comp") assignment, where a client wants to get an idea of the value of a home prior to proceeding with a mortgage financing transaction. Does USPAP allow me to perform this type of assignment?

How is the highlighted part of this question not a predetermined value issue?  I feel the correct answer to this question should have been, “No, that’s not a comp check, that’s an appraisal”.  I have no problem with the ASB providing direction to appraisers regarding services to clients, but the way this answer is worded will only add fuel to the COMP CHECK fire, not suppress it. 

I have spoken with Brian Weaver, Director of the Appraisal Division of DPR, Bob Gorman, MAI, Chair of the Illinois Appraisal Board and Mike Maglocci, MAI, President of ICAP regarding the July Q & A.  They also expressed their concerns regarding the wording in this document.

I would like to make it clear that the opinions in this alert are those of TJ McCarthy, SRA only and not ICAP, the Illinois Appraisal Board or the Department of Professional Regulation.  Call it editorial privilege as webmaster.

Click on the following link to read  the July Q & A - Download July_2008_QA.pdf 

ICAP would like to hear from our members regarding these questions.  You can send your opinions and comments to tj@tjmccarthy.com and they will be forwarded to the ICAP Board and the Illinois Appraisal Board.

TJ McCARTHY AND ASSOCIATES, LTD.
Real Estate Appraisers and Consultants
7903 West 159th Street, Suite B
Tinley Park, Illinois 60477

Email: appraisal@tjmccarthy.com
Phone:          (708) 614.7200      
Fax: (708) 614.7228

Appraisal Standards Board Issues Comp Check Q&A's - You are now entering the ASB Zone. . . Where questions are answers and answers are questions

The Appraisal Standards Board (ASB) has just issued their July 2008 USPAP Q&A - Download July_2008_QA.pdf with the following questions/topics:

• Electronic Report Delivery
• Can Appraisers Perform "Comp Check" Assignments?
• Can Appraisers Perform "Comp Check" Assignments for Free?
• Is Disclosure of a Free "Comp Check" Assignment Required?

The following is a lighthearted, but serious, review of the "Comp Check" Q&A's provided by George Dodd, SRA and originally appeared on the WinTOTAL Users Group forum:

It is "a dimension not only of sight and sound but of mind", "a place of things and ideas", "between the pit of Man's fears, and the summit of his knowledge". (Rod Serling).

You are now entering the ASB Zone. . . Where questions are answers and answers are questions.

1. You cannot do a comp check with the purpose of receiving an order for appraisal on the same property. However you can do comp checks for the purpose of maintaining a business relationship with a client in the attempt of getting business. (see the difference?)

2. You can do a comp check and get an appraisal order for an appraisal on the same property as long as you didn’t do a comp check for the purpose of getting the order. And you can continue to do comp checks as long as you are not doing comp checks to get specific appraisal requests. (see the difference?)

3. If you did a comp check and then received an appraisal request for a property you did a comp check for, but you didn’t do the comp check in order to get the appraisal assignment, then you don’t need to disclose that you did a comp check because the comp check was not done for the purpose of getting the appraisal request. However, if you did the comp check for the purpose of getting the appraisal request than you cannot do the appraisal because it was conditioned on doing the comp check. However, if you did the comp check for the purpose of getting the appraisal report and then received the appraisal report as a result of doing the comp check then you need to disclose you did the comp check in the appraisal you can’t do.

Of course this does not answer the question: If I do comp checks for a client on a regular basis in the course of receiving work, or the client otherwise expects comp checks to be done in order to receive appraisal requests, does that evade the specific property comp check and appraisal request dilemma?

One must concede the ultimate humor with these Q&A from the ASB. Who else could answer a question so directly and specifically and provide guidance for us grunts. In the end it is up to each of us individually to do right and maintain our own ethics.

It is unfortunate that others will subvert the USPAP rules to their own ends. But the USPAP is not created to protect appraisers, its purpose and function is to protect the users of appraisal services and provide them the maximum amount of latitude in demanding appraisers do what they want.

AUTHOR: George Dodd, SRA.  Mr. Dodd can be reached by email at:  GeorgeDodd@comcast.net or by phone at          (804) 746-2270       .

Runt Rants - AMC "Additional Comp" Request - Pressure or Good Business?

AUTHOR: Ken Verrett is the owner of Acorn Appraisal Associates, a 22 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA.  Read all Runt Rants on Appraisal Scoop.

I had an interesting discussion with an appraiser in last week regarding AMCs. I thought we'd all benefit from his situation his view of the market, and his business decisions. Robert D. Mims IV owns 30-A Appraisal group, Inc. in Florida. He sent me the following email.

Ken -

I've read your articles and actually submitted to you an email last year from a broker that was pretty nasty. I subsequently passed it along to New York District Attorney. I was mentored by an MAI, I do commercial with an MAI, and take my SRA designation class in September.

Below is an email I received from an XXX rep when I asked for an additional $50 to consider two additional sales - after gridding 3 sales, 1 pending, and 2 actives for a total of 6 comps.

What alarms me is not that XXX is willing to pay additional $$$ for the additional scope of work, but that she said SSS will pretty much request additional consideration of sales whenever the purchase price is not met. So regardless of the quality, the number of comparables, Certification #7, etc. there will be an automatic request to consider additional sales to try and meet the purchase price?

Before I respond to XXX, I want your take. Am I overreacting here by interpreting this email as pressure to influence value? And a subtle threat that if I don't they'll will simply assign the work to other appraisers?

Here's XXX's response to the fee increase request I sent. What say you?

Click here for the REST of the story . . .

Promises . . .Promises: If you'll just do this ONE "Comp Check"!

Everyday appraisers across the country are called by potential clients with offers of work IF they'll just to this one FAVOR!

Yesterday I blogged about my call from a mortgage broker in Chicago.  She asked,

"What's your fee for an appraisal in Danvers, IL?"  I told her.  Then she asked, "How you you feel about charging an extra $100 so that I could make a little something-something on the deal?" 

Today I've got a great example of how one broker went Fishing For Appraisers.  As you read the letter below, ask yourself: Is the mortgage broker looking for a free appraisal or is he really just shopping for the appraiser with the highest Comp Check value?

After-all, he knows the appraiser ". . .can't hit every one" but if the value "looks good" the appraiser will qualify for their list.   Read on!

Dear Sir:

I am a mortgage banker with XYZ Home Loans and need QUALIFIED APPRAISERS ASAP.

We are a mid-sized lender performing just shy of 1 billion annually in loan volume and have just recently entered your state. We originate mortgages in half the country with over 150 mortgage bankers centrally located in Any-town, USA.

In addition we have just started a sister company XYZ Home Settlement Services that provides title and appraisal services for our company and a list of others.

We have just begun to market in your area, which means at present we do not have any appraisers in your area. We drop over a million pieces of mail on a monthly basis and to test your region we dropped 50K mailers last week with overwhelming response.

For any new area we break into, we must find competent appraisers. Since we do not have any appraisers in your area, you could be the first approved appraiser in XYZ APPRAISAL NETWORK, which could mean anywhere between 10 to 25 appraisals per month.

However, let us go one-step at a time. Let us start by running a comp check.  If it looks good, we will go forward.

I also need a copy of your current E&O, appraiser's license, W-9 tax information, area of coverage, and contact information.

If you can legitimately get some values and of course, we know you cannot hit every one but if it looks good, we can get you in as an approved member of XYZ APPRAISAL NETWORK.

Once that happens then all 150 Mortgage Bankers that have workups will call you first because you will be the only one approved in your area.

So let me give you the name and address of the property in "ANYWHERE" County where I already have a deal:

123 Your Street

Any Town, USA

I look forward to doing more business with you in the future.

Have a great day,

John Doe

Author: Brian J. Davis, RAA - Brian Davis & Associates - Brian has over 23 years of appraisal experience in Central, IL and hosts the Appraisal Scoop blog and the WinTOTAL Users Group an email forum for appraisers.

Comp Checks - Appraisal investigation changes the way ONE firm does business

According to the story Mitchell Maxwell Revises Appraisal Rules Amid Probe (Update1) by Sharon L. Crenson,

"Mitchell, Maxwell & Jackson Inc., the real estate appraiser subpoenaed in a state mortgage industry probe, said it won't provide preliminary values on homes it hasn't seen or allow customers to include their own estimates on orders."

"The appraiser, which valued about 9,000 Manhattan properties last year, won't do quick valuations based on comparable homes nearby, the New York-based company said in a note to clients on its Web site. It also won't accept orders from mortgage brokers or lenders that include estimated values. Such practices have come under scrutiny in several state investigations."

``Value, comp checks, or pre-comps of any kind (written or verbal) will not be performed prior to us being engaged for that assignment,'' Mitchell Maxwell said in its client note. ``Although most are used for legitimate purposes, some individuals use them to `fish' for the appraiser with the highest value estimate.''

Mitchell Maxwell wanted to address the issue to set an example for the industry, said Y. David Scharf, the company's attorney.

`Bad Business'   ``We decided, if that's an industry problem, we should address it,'' Scharf said. ``We didn't do it for other reasons, for other business reasons. We thought it was bad business to do that.''

Click here for the complete article

Related Appraisal Scoop Stories:

• Comp Checks: Shifting Liability to Appraisers?
• Runt Rants - Comp Checks -- A legal opportunity -- Update
• Runt Rants - Comp Checks -- A "Legal" Opportunity?
• Fishing For Appraisers - The Comp Check "Bait & Switch" Technique
• Comp Checks - Value Opinions Put Appraisers "On The Hook"
• Value Checks, Comp Checks, Compouts: An Understandable Desire, But a Bad Idea
• "Can you check comps for me? I want to know if I should order an appraisal"

Video: Comp Checks, Look-sees, Pencil Searches and other nonsense

I attended the Illinois Coalition of Appraisers (ICAP) update seminar in Springfield, IL yesterday. 

In attendance were such notables as, Debra Brown from the Anti-Fraud Division of Fannie Mae, Joan Trice from Appraisal Buzz and Brian Weaver, our new Illinois Director of Real Estate Appraisal.

Brian Weaver has been an active appraiser and it really shows in his animated depiction of the various "Comp Check" calls that residential appraisers field on a daily basis.

Click Here: Comp Checks - Values Made To Order

Ultimately, Brian concludes that "If the requester wants you to filter data for a specific property-type or address . . .then you've performed an appraisal!"  He also stressed the requirement to retain a workfile for all appraisals, including Comp Checks. 

Brian cautions, "Your worst guess at value . . .holds the same liability as your best full-inspection appraisal!"

Comp Checks: Shifting Liability to Appraisers?

Why all the comp check requests? In case you are not aware, a loan can be funded with a list of sales under desktop underwriting guidelines.

1. The lowest equity and worst credit borrowers get a URAR appraisal.
2. The ones with more equity and better credit get the drive-bye appraisal and the ones with even better equity and credit get an AVM.
3. Next is the list of sales.
4. Last but not least is the “golden borrower” who is completely liquid and can obtain a loan with as little as a list of assessed values from the area.

So why do appraisers get stiffed on comp checks? Because they don’t know any better. The lending world must be laughing all the way to the bank.

Here’s why: a loan can be funded and points and fees collected with a comp check (or less) and no appraisal order.

The borrower may be charged for an appraisal but no appraisal fee is paid. So, who gets the money? It is split between the loan agent and their company. Loan agents are often paid up to half of all the extra fees they can pack into a deal, plus half of the overage that they get on the points. This is what RESPA is all about. Regulated lenders have paid out millions of dollars in fines for RESPA violations. Loan brokers are not regulated.)

Appraisers are so easily hood-winked into inflating values and enabling everything from property flips to predatory loans because they lack knowledge and understanding about the real estate and lending markets and the multiple levels of players in them.

We have no problem with comp checks. For $50, we will respond and do a residential search to the selection criteria the client provides and give them the results. This can be done by a clerk with no appraisal skill required. The trouble with most appraisers is that they do the search and select the criteria to be used. Now they are required to be in compliance with USPAP, which of course, they are not. So if a complaint is filed, these appraisers are in trouble.

Shifting Liability - Why do lenders even bother with a comp check or other appraiser input if they don’t need it to close the loan? I believe it is for reasons of liability. They want the appraiser to do the filtering and actually look for the sales that will make the deal work.

They certainly could call a title company and get a list of sales any time they want. So why call an appraiser, unless they want and need your special skills to help them out?

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139

Can an Appraiser get in trouble over a List of Sales or a Verbal?

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139

This morning I received a private email with an excerpt from a post on an appraisal forum. The following is the post:

I know of an appraiser who was doing the same thing - merely reporting sales to his "buddy" LO all with the clear understanding it wasn't really an appraisal-they just want to know the properties "range of value." The LO used the comp searches to fund loans, without the appraisers knowledge. Several deals went south and the appraiser was named a party to a civil action. He never received a dime. It will cost him several thousand dollars to either defend himself or buy his way out the the action and may be subject to disciplinary action by the state regulatory agency.

My contact wants to know -- Is there any veracity to the story?  I recall this took place in Southern Cal.  Comp checks have been used as a valuation tool to fund loans - true or false. True, not false.

I replied privately and then thought to make the topic public.  So, I will try and write from memory what I said in response, with some new thoughts thrown in to boot.

With the advent of Desktop Underwriting and the technologies available, loans can be funded and sold to FNMA and FHLMC with an array of valuation products or documentation in file.

Remember, the Seller/Servicer may originate directly or through loan brokers, package and then sell a pool or loans at a certain yield rate to the Secondary Mortgage Market which includes FNMA/FHLMC and other firms, including Wall Street firms.  Each player in the Secondary Mortgage Market may have their own set of rules in terms of valuation documentation. I'll bet Zillow would suffice in some cases, fewer than 10,000 per month though, not a lot.

Seller/Servicers buy Commitments from the Secondary Mortgage Market players to buy pools of loans in $100,000,000 to $1,000,000,000 blocks.---

Entities from mortgage bankers like Countrywide to big banks like WAMU will put together a pool and sell it at a net price, keeping the additional Fees (Fees are good for Stock Prices and Bonuses. Management likes Fees. Fees make Stock Prices go up and Bonuses go up. Fees is good even if RESPA is violated. Fees is good).

Loan Pools are sold Servicing Released or Servicing Retained.  They are sold with or without Buy Back Warranties or Guarantees. Some Loan Pools are enhanced, resulting in better pricing for the Seller, by providing assurance that All the Appraisers are Insured. {Let me know when you start to see Red}.

Another form of enhancement is to get Private Mortgage Insurance on all the loans. This may be one of the main reasons FNMA changed the Certification language last year, to make sure the PMI companies had a clear path to sue the appraiser. And they do, they usually sue in Federal Court. Why, because they are in some other state, other than where the appraiser is.

Servicing is merely another source of income for the lenders and is valuable.  The larger the Servicing Portfolio, the more valuable a company is.  A lender with billions of dollars worth of Servicing is a far more attractive target than one with none.

Back to Valuation.

The following is a list of products that are used in collateral underwriting and their rank.