Appraisal Scoop

Assuring Accurate Appraisals, Part II: What's A Consumer To Do?

According to Broderick Perkin's first article article Assuring Accurate Appraisals Part I:

"During the height of the housing boom, appraisers were pressured to up the value of homes. Now, during the housing downturn, appraisers are being pressured to lower the value of homes."

In the follow-up article, Assuring Accurate Appraisals, Part II: What's A Consumer To Do? , Perkins says:

"Appraisers are typically hired by the lender to protect its stake in a home buying transaction. That means the appraiser is beholden to his or her employee -- the lender -- not necessarily the buyer nor the seller.

However, both the seller and the buyer can play a role in the appraisal process through a process of due diligence known as looking over the lender's shoulder."

 

Click Here for the full Realty Times article by Broderick Perkins

Next Week: What's a consumer to do? How consumers can play a leading role in the appraisal process.

Arizona Court Rules Appraiser Owes Duty to Buyer/Borrower

In an April 30 decision, the Arizona Court of Appeals has ruled, for the first time in an Arizona published opinion, that an appraiser hired by a lender owes a duty to the buyer/borrower in that transaction. In its decision, the Court focused on the reality that the buyer would likely never hire a separate appraiser. For that and several other reasons, the appraiser owes a legal duty of care to the buyer/borrower.

"Finally, adopting Blagg’s contention that an appraiser retained by a lender owes no duty to the buyer/borrower would mean that a prospective homebuyer who seeks to rely on a prepurchase appraisal must contract separately with an appraiser for that purpose.

In the purchase in this case, as is not uncommon, the buyer was obligated to reimburse the cost of the appraisal ordered by the lender. Even if we were to assume such an arrangement were not the general rule, we see no reason to impose on the parties to a transaction the burden of paying twice for the same information simply so that the buyer may join the lender within the scope of the appraiser’s duty of care.

Public policy and common sense compel the conclusion that when a lender to which a prospective homebuyer has applied for a loan contracts for an appraisal of the home, the appraiser the lender hires owes a duty of due care not only to the lender but also to the homebuyer."

The decision was rendered in a Sage v. Blagg Appraisal Company, in which the buyer/borrower sued the appraiser for overvaluing the home because he used the incorrect square footage, among other things. The trial court had dismissed the action concluding, under two prior Court of Appeals decisions, that an appraiser hired by someone other than the buyer/borrower did not owe any duty to the buyer/borrower. In its unanimous decision, the Court of Appeals disagreed and allowed this case to proceed.

The case opens the door for buyers to sue appraisers even when the appraiser was hired by the lender.

Daphne Reaume of Berk & Moskowitz, P.C. argued the appeal for the buyer/borrower. For a PDF of the court’s decision, visit www.berkmoskowitz.com/documents/CV080331.pdf .

Wells Fargo and Rels Valuation's Home Appraisal Practices and Inflated Fees Under Investigation

SEATTLE, Jan 16, 2009 (BUSINESS WIRE) -- Hagens Berman is investigating Wells Fargo and its appraisal subsidiary, Rels Valuation, based on reports the companies allegedly engaged in a rigged appraisal process designed to boost profits at the expense of homeowners and independent appraisers.

The firm is investigating claims that the company forces homeowners to use its appraisal firm, Rels Valuation, which then turns around and subcontracts the work to independent appraisers while charging homeowners an inflated fee for the work.

The practice, if proven, damages homeowners as Wells Fargo and Rels Valuation control the appraisal market, a profit-boosting move that allows the companies to control third-party appraisers.

"The real estate industry and lending practices in this country put homeowners at the mercy of companies like Well Fargo and others controlling the marketplace," said Steve Berman, managing partner of Hagens Berman Sobol Shapiro.

"We recently filed a lawsuit against Countrywide claiming the giant rigged its appraisal process and it's not surprising to us that other lenders may mirror Countrywide's practices."

The firm is investigating additional claims against Wells Fargo, including the use of strong-arming tactics with independent appraisers, pushing them into low-ball pricing guidelines. Some claim if appraisers don't comply with Wells Fargo's fee structure, the company adds them to a blacklist and refuses business with them in the future.

"If the claims are correct and Wells Fargo and others inflate appraisal fees the damage to homeowners could run into the hundreds of millions of dollars," said Berman. "That doesn't even take into account the abuse and loss of business independent appraisers may be experiencing."

Hagens Berman is looking for anyone who's purchased or refinanced their home through Wells Fargo and Rels Valuation. You can contact attorneys at wfc@hbsslaw.com. You can learn more about this investigation at www.hbsslaw.com/WFCappraisals.

Join the Wells Fargo Home Appraisals Investigation!

Pre-Listing Report Form Selection - Think Outside the "Check" Box

Most everything changes. If you don’t believe that look in the mirror. Appraisers were very concerned when the new Fannie Mae appraisal forms initially hit the street and now after three years most appraisers utilize them routinely without much consideration. There are times these preprinted forms are not appropriate and should be avoided.

Intended User - The Appraisal Foundation and the Association of Appraisal Regulatory Officials (AARO) have indicated that in order to set forth the appraisal in a manner that will not be misleading; the appraiser must provide a clarification with regard to the intended users. This needed clarification is a result of Certification #23 which indicates a host of others that may rely on the appraisal report.

Although Fannie Mae indicates you can not add, change, delete or modify their certification or limiting conditions, they don’t mention clarifying. In Fannie Mae’s Revised Appraisal and Property Report Forms – FAQs dated 11/1/05 they indicate that they would accept the following statement when the appraiser believes the client is the only intended user.

“The Intended User of this appraisal report is the Lender/Client. The Intended Use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated Scope of Work, purpose of the appraisal, reporting requirements of this appraisal report form, and Definition of Market Value. No additional Intended Users are identified by the appraiser.”

Intended Use - The preprinted forms also indicate the intended use is for mortgage finance transactions, so without any change to this form, utilizing it for any other reason would create a misleading report. How many of you appraise real property for owners thinking of selling their property, pending divorces, estates, etc? THERE IS NOT A MORTGAGE FINANCE TRANSACTION as you are stating by signing the certification and limiting conditions. Use a different form, a narrative report format, a brown paper bag, just not the Fannie Mae preprinted 1004 form!

Most software companies offer a substitute form such as ACI’s General Purpose Appraisal Report commonly known as the GPAR.

 Keep an open mind for a moment. Think outside the “check” box. If you have been hired by a homeowner thinking of marketing their home, do they really need a picture of their own home? Do they need a floor plan they walk every day, a copy of a map, or a copy of their deed? They probably have the original deed. How about providing them what they need - a credible, ethical, unbiased professional opinion.

Think for a minute about when you go to the doctor with an aliment. What happens? Perhaps there is a discussion of the problem, an examination, maybe an ex-ray? Then it’s off to the lab for some blood work. Then you go home and wait by the telephone. When the doctor calls with the results do you say, “Wait! I want a 43 page written report!” Of course not, you accept their professional diagnosis or opinion via the phone.

Remember the appraisal and the appraisal reports are two different things. The Appraisal Development is covered under Standard 1 while the Appraisal Report is under Standard 2. There are four report options consisting of three written and one oral. Whether you prepared a Self-Contained, Summary or Restricted Use they can be narrative or form reports.

A Restricted Use report option is most often overlooked by appraisers but very often is the perfect option for many clients. Consider providing options for different clients who have different problems that need to be solved instead of forcing a URAR down their throat.

Regardless of which option you choose, beware of using the Fannie Mae preprinted forms as a catch all. They were not intended for that reason.

 AUTHOR: Bryan S. Reynolds is a Certified General Real Property Appraiser and an AQB Certified USPAP Instructor. Mr. Reynolds serves as an adjunct faculty member of The Columbia Institute, and is an approved appraisal instructor in 30 states.

Reynolds is the owner of Reynolds Appraisal Service in Owensboro, KY, providing various residential and commercial valuation services, consulting and litigation support services throughout the area. He can be contacted at (270) 929-3088 or by email at bryan@reynoldsappraisalservice.com .

An Appraiser Bites Back!

Mike Lefebvre, a licensed real estate agent and certified residential real estate appraiser recently reviewed a very controversial Real Estate Radio USA interview with Realtor Jennifer Allan. 

I've listened to the entire interview (click here) and overall the investor-interviewers were very pro-appraiser as the interview turned from "How do you justify your listing commission?" to "How do you price a home to sell?"   Kudos to Mike for trying to set the record straight!

Here's a small portion of Mike's article:

The conversation eventually turned to pricing properties and appraisers and then the fangs came out. To be honest, I wasn’t prepared at all for what I was about to hear. It was appraiser hate-speak! I’m sure Jennifer would tell us that “some of her very best friends are appraisers” but I certainly wasn’t feeling the love yesterday afternoon.

• Jennifer claims that appraisers can or do not factor in things like “appeal, smells and the ugly house next door.”
• She also said, “The appraised price is irrelevant to the market value of a home.”
• Jennifer went on to say, “An appraisal is a justification of the sales price.”
• “I don’t think appraisers have any business pricing homes for market.”

You'll want to read Mike Lefebvre's full blog post (click here) as he Bites Back!

Mike Lefebvre, The "Uncommon Agent", is a Massachusetts licensed real estate agent with Century 21 Commonwealth, New England's largest C21 firm. In addition, he is also a certified residential real estate appraiser and the owner/chief appraiser at MeetingHouse Appraisals. Mike wields a double-edged sword, combining his appraisal expertise with his sales and marketing prowess to maximize benefits and profits for both his buyer and seller clients.

10 Keys To Successful Tax Assessment Appeals - Twelve Part Series

John Simpson, MAI has authored 4 books with the Appraisal Institute and 12 Appraisal Journal articles, but that’s just a part of his monologue. He helps run an appraisal firm, and has been an active day-to-day commercial appraisal for almost 2 decades.

John Simpson, MAI has done an excellent job of identifying many of the key rules of successfully appealing property in his recent 12-part series - Simpson's Keys to Successful Tax Appeals - on his Appraisal Matters blog.

As a commercial appraiser for a township assessment office in Illinois, I can attest to the validity of his remarks!   Although his series of articles focus on commercial property appeals . . .the same rules will apply to residential income properties and even single-family homes. 

Here's a brief summary of his series:

Keys to Successful Tax Appeals - Part 1 - With the current well-publicized real estate problems, tax appeals have become more viable for commercial property owners.  The bottom line is a lower property value, yet real estate tax assessments have not been reduced accordingly.

Keys to Successful Tax Appeals - Part 2 - Key 1 – Know the Rules Before You Play -
Although this may seem cliché, not knowing the jurisdiction’s tax assessment and appeals rules can derail a tax appeal well before it even has a chance to be heard.

Keys to Successful Tax Appeals - Part 3 - Key 2 - Avoid “Protective” Appeals - In the last few years, it has become more common for clients to file protective tax appeals on all owned properties. This is a practice that can severely backfire

Keys to Successful Tax Appeals - Part 4 - Key 3 – Know Your Market and Submarkets - Although you may not be an expert, you can call upon experts to learn about your market. Brokers have their fingers on the pulse of the market and they are often more than happy to provide you with truly comparable properties for comparison . .

Keys to Successful Tax Appeals - Part 5 - Key 4 – Always get the Assessor’s worksheet - The Assessor’s worksheet is a document that shows how the Assessor arrived at the market value a property. Many times, the addresses of the comparable sales are included and sometimes operating expense comparables and capitalization rate comparables are shown.

Click here to continue reading . . .

Money from Home: A Guide to Understanding Reverse Mortgages

Today’s seniors, who make up the fastest growing segment of the population, can now enjoy the benefits of having their home pay them back for all the years they spent paying their mortgages. 

According to FannieMae's "Guide to Understanding Reverse Mortgages":

"Reverse mortgages enable eligible homeowners to access the money they have built up as equity in their homes. They are primarily designed to strengthen seniors’ personal and financial independence by providing funds without a monthly payment burden during their lifetime in the home. If you are a homeowner age 62 or older, you might be interested in talking with a lender or counselor about reverse mortgages."

Reverse mortgage products offer a way to borrow against one's home equity to create a regular and tax-free source of income or a significant source of ready cash, while they continue living in their home. And, they don’t repay any part of the loan as long as they occupy their home and don’t violate any terms and conditions of the reverse mortgage — unlike regular home loans.

Click Here to Download money_from_home_fnma__reverse_mortgage.pdf

According to HUD/FHA's Appraisal and Property Requirements (Sec. 255)

Home Equity Conversion Mortgages (Reverse Mortgages, a.k.a. HECM) allows a borrower aged 62 and older to borrow against the equity in a property that has limited outstanding debt. The subject property under this program must be an existing one-to four-unit dwelling in which the mortgagor occupies one of the units. It may be a condo if it is in a FHA approved project or it may be a manufactured home if the home complies with outstanding FHA guidelines for manufactured homes.

HUD Appraisal & Conditions

The appraiser must perform the appraisal with the same standards and forms expected in an FHA single-family appraisal. This includes noting the same deficiencies and repair items. In certain instances, the borrower is not required to treat any defective paint surfaces after closing for properties built before 1978.

Please see: HUD Handbook 4235.1, Rev-1, Section 3 for Reverse Mortgage (HECM) requirements of appraisal and property.

Click here for more . . .

Runt Rants - A Tale of Two Loans - "It was the best of cases . . it was the worst of cases."

Tired of Sub Prime news yet?  Well, it's a story that's three years in the making.  Hope you're not bored by it yet!  We’ve discussed the Sub Prime Crisis several times since August. We’ll continue that theme as it seems appropriate.

Today we have two actual case examples . . Best and Worst Case scenarios.

THE BEST CASE

Michael Gordon a Florida Appraiser provided this example of a Florida ARM set to increase payments by 37% for a borrower who had also experienced a business reversal related to the real estate crunch. The borrowers contacted the lender, explained the situation, and a few days later received a Fed Ex delivered letter informing them the ARM portion of the loan contract was rescinded, and converted to a fixed rate at the original rate. Crisis resolved.

The homeowners contacted Countrywide per my suggestion. As far as the situation with Countrywide, they were very excited to get the great news that Countrywide was going to drop their interest rate back down to 6.5% which is what it was at the origination of the loan. They had unfortunately chosen an adjustable rate that went up after 2 years.

In June 2007 (the 2 year anniversary of the loan) their rate jumped up to 8.5%. Their mortgage jumped from approximately $1,750.00 up to $2,400.00 (these figures include escrow numbers as well). That was really hard on them because the homeowner just had a situation happen with a Painting Contractor he had been subbing work that did not pay on $30,000 in work and he lost that business as a source of income as well.

Several months later, they fell behind on the mortgage. The homeowners called Countrywide and asked for help. They forwarded the call to the Relief and Recovery Department of Countrywide. The representative told the homeowners that they would have to gather paperwork (bank info and debt info) to prove their situation before Countrywide could help them.

Before the homeowners had time to gather all the paperwork, they got a letter from Countrywide via Fed Ex and it basically said they were going to drop their interest rate back down to 6.55 percent and they didn't have to do one single thing to make that happen. They said the new mortgage rate and payment would go into effect Jan 1, 2008.

In this situation both the borrower and the lender are better off. Exactly what Runt Rants suggested in the Thought Experiment. There are many, many circumstances where this solution could be adopted for the benefit of the borrower, the lender, the community, the economy.  Well done Countrywide!

Click here for the WORST CASE . . .

Cost VS. Value Report 2007 Online

The 20th Cost vs. Value Report is now available online, and offers a host of great features: Easily compare data by toggling between geographic regions; find information about 29 different remodeling, replacement, and addition projects, as well as detailed descriptions to help you better understand what the data means and where it came from. Click here.

Possible Class Action Lawsuit - HBSS is investigating claims that Washington Mutual conspired with First American Corporation to artificially inflate housing appraisals

SEATTLE, Nov. 1 Hagens Berman Sobol Shapiro (HBSS) is investigating claims that Washington Mutual (NYSE: WM), the country's largest savings and loans institution, conspired with First American Corporation to artificially inflate housing appraisals.

If proven, the charges mean that homeowners could have overpaid for homes, and consequently are paying artificially inflated mortgages.

On November 1, 2007 the Attorney General of New York filed a lawsuit making similar allegations.

HBSS is investigating the filing of a class-action lawsuit in Seattle, headquarters of Washington Mutual, seeking proper appraisals, restitution for overpayment and damages for those affected if the allegations prove true.

According to media reports, First American Corporation provides real-estate appraisal services to savings and loans, banks and other lending professionals through First American eAppraiseIT, an appraisal management company. The company allegedly allowed WaMu to control appraisal prices and apply pressure to appraisers to get the housing value estimates that would help close loans.

Reports also claim First American allowed WaMu -- its largest client -- to hand pick appraisers the company knew would bring in appraisal values high enough to permit WaMu's loans to close.

The attorneys at HBSS would like to hear from consumers who took out a home loan from Washington Mutual and had the home appraised by First American since 2006. You can reach HBSS at 206-623-7292 or e-mail info@hbsslaw.com. 

SOURCE Hagens Berman Sobol Shapiro