Appraisal Scoop

How far away can an appraiser be?

How far away can an appraiser be? - That's the question Charles W. Elliot Jr., MAI, SRA asked in his article Value Nation: How far away can an appraiser be?

"This question reminds me of the question of how long a man’s legs should be. U.S. President Abraham Lincoln is reported to have answered that question by saying, “Long enough to reach the ground.”

"In appraisal distances, an analogy may be made that it varies with the person and the circumstance. Not to trivialize the issue, there are distances and locations that individual appraisers will find excessive to travel in order to provide professional appraisal service."

"Having said that, some circumstances will warrant further distances than others and there can be no hard and fast rule. The circumstances that matter most in addressing the question, in my opinion are, the number of appraisers available to serve a specific location at a specific time, the geographic experience and competence of the appraiser, whether the assignment is commercial or residential and the availability of sales data."

A couple of examples of some real-life issues relating to the above are:

■ The property is located in a rural county and there are only two appraisers serving the area. One has a reputation of providing poor service and the other is located 50 miles away from the subject property. The latter does good work, has access to all market data and has time in his schedule.

■ A known and trusted appraiser has served a radius of 60 miles for 20 years successfully, has performed many appraisals near the subject, has access to all MLS data, but lives 43 miles away from a subject property requiring evaluation. The bank assigning the appraisal is not able to confirm the availability of any other competent appraiser; however, there are a number of other appraisers located near the subject.

Click here for the complete article

Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889.

NAHB delvers testimony on Hill: Appraisal and AD&C problems hampering housing recovery

July 23, 2009 - The National Association of Home Builders (NAHB) told Congress today that inappropriate appraisal practices and the acquisition, development and construction (AD&C) lending crisis that has choked off credit for home builders threaten to prolong the current housing and economic downturn.

 

Testifying before the House Small Business Subcommittee on Finance and Tax, NAHB Chairman Joe Robson, a home builder from Tulsa, Okla., said these two issues “are placing enormous pressure on home builders’ bottom lines and, for many, endangering their ability to survive the economic downturn. Additional credit resources could be extremely helpful to them and other small businesses to bridge the divide and survive to the eventual economic recovery.”

 

While there are several signs that the housing market may now be at or near bottom – new and existing home sales have stabilized, the inventory of unsold homes continues to fall and single-family housing starts have posted four consecutive monthly gains – Robson said the appraisal and credit crunch problems are headwinds that continue to buffet any significant housing recovery.

 

“The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices and forestalling an economic recovery,” he said, citing a recent NAHB survey that found 26 percent of builders are losing sales because appraisals on their homes are coming in below the contract sales price.

 

These appraisal practices are a major contributing factor to the current AD&C credit crisis. Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans.

 

NAHB is calling on housing and federal financial regulators to adopt clear, concise regulatory guidelines that will allow appraisers to develop realistic valuations based on sales that are truly comparable.

 

To maximize the ability of the Small Business Administration (SBA) to help home builders and other small businesses to gain access to credit, NAHB recommends increasing funding and the loan size for the America’s Recovery Capital loan program. This program offers small businesses guaranteed deferred-payment, interest-free loans of up to $35,000 that can be used to pay principal and interest on existing loans; qualify small business debt, including mortgages; and for other purposes. The $255 million program continues through Sept. 30, 2010 or until the funding is exhausted.

 

NAHB also supports proposed improvements to the SBA 7(a) program, which provides capital for a range of purposes, including construction and supplies, to increase the participation of  non-traditional lenders in SBA programs.

 

Finally, Robson commended the committee’s proposal to establish a supplemental loan assistance program to complement the lending initiatives currently administered by the SBA. A primary objective of this program would be to target businesses with capital needs in excess of $10 million.

 

“Like all small businesses, home builders vary in size and many would find much greater benefit from a program that would expand and increase loans for businesses with higher capital needs,” said Robson.

 

Source: NAHB.org

Appraisers with Revoked Licenses Still Profit in Real Estate Industry

A Center for Public Integrity investigation of the appraisal industry in California and Florida, two of the states hardest hit by foreclosures, found that since 2005, one in six appraisers whose licenses were revoked or surrendered kept their real estate sales or broker’s licenses. The violations that led to these appraisers losing their licenses ranged from simple incompetence to fraud committed for personal financial interest. Yet they slipped through the cracks of a loosely maintained system of state oversight, which allowed them to continue working in the real estate industry negotiating sales to home buyers, who likely know little about their pasts.

Industry insiders believe the number of these former appraisers still in real estate is in the hundreds nationwide, but an accurate figure is elusive given the patchwork of agency oversight. “There’s a lot more that you are never going to find,” said Pamela Crowley, who runs the website Mortgage Fraud Watch List. “Those of us who have been active in trying to police our own have come to the conclusion that our policing agencies don’t want that.”

In several cases, banned appraisers also remained in the appraisal industry, taking high-level positions in appraisal management companies, the increasingly prevalent and often unregulated third-party companies that link lenders with independent appraisers.

California and Florida authorities concede they dropped the ball: in most cases, they say, a violation serious enough to lead to an appraisal license revocation should also result in a lost realtor’s license. Yet the dual-licensing bureaucracies did not always exchange violation information. And when they do, the process of taking a license is not automatic — violations against each license must be investigated independently.

Click here to read Joe Eaton's FULL article!

Celebrate Appraiser's Independence, Not Yet!!!

[Editor's Note: I've been taking a little time off from Appraisal Scoop and so apologize for not keeping up with the "normal" flow of articles.  This article by Bryan Reynolds is a little late getting posted but is still great food-for-thought!]

Celebrate Appraisers Independence, Not Yet!!! by Bryan S. Reynolds, AQB Certified USPAP Instructor

The 4th of July is around the corner and millions of Americans will celebrate their Independence.   However should the appraiser be celebrating their appraiser independence as a result of the HVCC or any other pending or proposed legislation?

Although the number of requests to “hit the number” may be fading, appraisers are certainly shackled by the client dictating requirements many of which are unreasonable and unfounded. Yet when clients demand appraisers to jump it appears many appraisers typical response is How High?

It's time for appraisers to stand up, become truly independent and learn to say no! Let’s have the tail quit wagging the dog. When you are asked to do something you should not do or something perverse have the courage and backbone to say no.

Recently I appraised a property on 13 acres with a portion of the site being in a flood hazard zone. The client received a flood certification indicating the improvement was not located in the flood zone. After repeated requests, which turned into demands, to have me change the first page of the URAR to check the box no under flood zone I was successful in speaking directly to the underwriter. If you get to speak with the underwriter I have found most are pretty reasonable people. After providing her with the Fannie Mae Guideline, as listed below, she said thank you and nothing further was needed from me.

Special Flood Hazard Areas

Fannie Mae’s appraisal report forms provide an area for the appraiser to indicate whether the property is located in a Special Flood Hazard Area that is identified on the Federal Emergency Management Agency’s (FEMA) Flood Insurance Rate Maps. Flood insurance is required if any part of the principal structure is located in the following Special Flood Hazard Area zones: A, AE, AH, AO, AR, A1-30, A-99, V, VE, VO, or V1-30.

If the first page was changed to reflect no when a portion of the “property” was in fact in a flood hazard area a misleading report would have been prepared. A portion of the site was in the flood zone, the house was not, make the loan and leave the appraiser alone.

When you educate yourself, having the tools and resources at your disposal is very powerful. The published Fannie Mae Appraisal Guidelines are the underwriters’ guideline for review of appraisal reports. If you are familiar with them, when asked for things that are not required you can respond with no and can quote them their guidelines for reviewing appraisal reports.

For instance did you know that for appraisal reports delivered to Fannie Mae:

1. an interior floor plan is only required if the subject suffers functional obsolescence attributed to the layout
2. photos of comparable rentals and listing are not required
3. comparable sales over 12 months are acceptable sales
4. you may exceed the 15% and 25% adjustments
5. mls photos are acceptable

Now for one you didn’t want to hear about. Minor conditions including holes in window screens must be reported. My first thought was all windows screens have a whole bunch of little holes in them. Fannie Mae does want them reported and considered in the overall condition rating but do not require repair.

One area appraisers routinely simply check the box is with regard to Highest and Best Use. This is one of the most critical areas of the appraisal process. How do you know what is comparable until a proper H+B Use analysis is conducted? The answer is you don’t.

I encourage everyone one to read a book, take a class with substance by seeking out meaningful education instead of the closest, fastest and cheapest. Challenge yourself; try to complete your next assignment on note book paper instead of a preprinted form you are currently utilizing as a crutch.

Light a sparkler and celebrate Independence Day but considered becoming a truly independent appraiser by not succumbing to client demands that makes little sense or that could place you in inauspicious situation. Let’s bring some Common Sense back to this business.

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 31 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  

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.

Feds Propose Nationwide Mortgage Licensing System and Registry Database (S.A.F.E. Act)

Federal Agencies Propose Rule to Implement S.A.F.E. Act Mortgage Loan Originator Registration Requirement

WASHINGTON — The Federal financial institution regulatory agencies (the Agencies) are together issuing for public comment proposed rules requiring mortgage loan originators who are employees of Agency-regulated institutions to meet the registration requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act).

The S.A.F.E. Act requires the Agencies to jointly develop and maintain a system for registering residential mortgage loan originators who are employees of Agency-regulated institutions, including national and State banks, savings associations, credit unions, and Farm Credit System institutions, and certain of their subsidiaries.

These mortgage loan originators must be registered with the Nationwide Mortgage Licensing System and Registry (Registry), a database established by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators by the States.

As part of this registration process, mortgage loan originators must furnish to the Registry background information and fingerprints for a background check. The S.A.F.E. Act generally prohibits employees of an Agency-regulated institution from originating residential mortgage loans without first registering with the Registry.

The proposal, which is being issued jointly by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, Farm Credit Administration, and National Credit Union Administration, establishes the registration requirements for mortgage loan originators employed by Agency-regulated institutions as well as requirements for these institutions, including the adoption of policies and procedures to ensure compliance with the S.A.F.E Act and final rule.

As required by the law, the proposal also requires these mortgage loan originators to obtain a unique identifier through the Registry that will remain with that originator, regardless of changes in employment. When the system is fully operational, consumers will be able to use the unique identifiers to access employment and other background information of registered mortgage loan originators.

Pursuant to the S.A.F.E. Act, the proposal further requires these mortgage loan originators to provide their unique identifiers to consumers in certain circumstances and Agency-regulated institutions to make them available to consumers.

Because modification of the Registry to accept Federal registrations involves complex technical issues, the proposed rule provides for a delay in implementation of the registration requirements until 180 days after the Registry becomes operational and available for initial Federal registrations.

The Federal Register notice and proposed rule are attached. The proposal will soon be published in the Federal Register and the comment period will end 30 days thereafter.

Source Document:  http://www.occ.treas.gov/ftp/release/2009-58a.pdf  

OCC News Release: http://www.occ.treas.gov/ftp/release/2009-58.htm

Fannie Mae Announcement 09-14 Requires Submission of Electronic Appraisal Reports in MISMO XML Standard

In Announcement 09-14, New Data Delivery Requirements, Fannie Mae announced changes to the loan delivery file and the Uniform Residential Loan Application (Form 1003) to accommodate new data elements required by the Federal Housing Finance Agency (FHFA).

Download Fannie Mae Announcement 09-14-Electronic Appraisal Reports

These changes are intended to result in enhanced identification and accountability of key parties in the mortgage transaction and are another step in Fannie Mae’s ongoing efforts to improve loan quality.

In the coming months, Fannie Mae will announce a series of other policies intended to improve loan quality, including the implementation of a robust collateral valuation analysis process, enhanced credit policy guidance, improvements to Fannie Mae’s quality control processes, and additional guidance on lender quality control activities.

In support of the loan quality initiative, this Announcement includes information about the following:

• Submission of Electronic Appraisal Reports
• Enhancements to the Loan Delivery File Format
• Mortgage Fraud Reporting

 

Sarah Vetault of Tucson, AZ - www.ComplineGroup.com asked on the WinTOTAL Users Group:

"I just got this announcement from Fannie Mae requiring submission of electronic appraisal reports in MISMO XML format by 2010.  I wonder what this means from our end.  Is the good old industry standard emailed PDF going bye-bye, forcing us to use slice/dice/rip-the-data portals for mortgage work?  Or will the lenders rip the data themselves out of our pdf files for submission to FNMA?  We are definitely living in interesting times. "

What are YOUR thoughts?

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 .

Runt Rants - Highly Honed Powers of Observation and Analysis Make Us Different

I don’t really know where it started. Maybe born into a family of mental giants, where the only option for the runt is to observe and listen.

Maybe it’s a small town environment, lots of experience with outdoor life learning to observe, listen, drawn conclusions.

Maybe it was the years in correspondent banking traveling to those same small towns in six states, chatting with the grocer, the barber, the gas station attendant, picking up clues, signs along the way…so that when I walked into the bank president’s office I knew more about the commerce of the town than he thought I should, and because of that we could do business, help each other.

I do know that when I came late to the appraisal profession I took all the AI courses that were available in a five year span, all they offered really.

When I began those courses I was already trained to observe, to listen, to accumulate random facts and compose a picture…a hypothesis.

The AI courses built on that base and made me better at it. All appraisers taking the good courses in appraisal theory, learned those same skill and applied what they learned in the field to develop and hone those same skills.

It’s part of what sets appraisers apart, what makes them a professional, part of the skill set that brings value to business transactions. It’s part of what we are expected to provide, why we are paid.

I’ll bet you haven’t thought about that in weeks…maybe even months!

But it happens every day, even if you don’t consciously think about it. A typical sample of that in operation occurred with me the last couple of days.

The nation is in turmoil, many markets have been in recession for a couple of years. Houston hasn’t had that problem…not until recently. Houston is an oil town. It’s much less so than in years before, but still an oil town. West Texas Light at $150 last summer created a boom in the oil patch and in the oil service business. That same West Texas Light is now in the $40-50 range, and the oil services businesses are beginning to hurt.

Houston housing markets have been in balance for the last ten years…good solid value growth in the 3-5 percent range each year. But the clouds are building and it is not just what is being reported in the newspaper…that statistic that one in three Houston houses sold in January were distress sales. That’s certainly not good, but heck! It was 24 percent distress in January 2008.

I saw clouds building as I drove to an appointment recently. Established small strip centers one after the other, all with one or two suites vacant. Three closed bank branches…now vacant.

Yet big dirt is being moved…a 50 acre commercial site to the right in vacant land that I thought would stay vacant for another couple of years. To the left a 75-100,000 square foot shopping center with a large anchor…the anchor not yet announced. That’s another one I thought would be delayed another couple of years…but there it is…tilt wall already in place!

A highway overpass gave me bird’s eye views of two large businesses on either side. To the right was an equipment rental business with a yard full of equipment. To the left was an auction house with its yard also full of equipment. Good for the auction company…bad for the companies that could no longer afford that equipment. Bad for the equipment rental business…when the lot is full the equipment is not earning revenue.

Both those yard statuses mean the unemployment rate is going to tip up in a month or two…the yards are leading indicators.

Click here to continue reading . . .

First Impressions of the 1004MC: Part 5 - "Closing Thoughts"

Having completed several "1004MC Workshops", read numerous forum posts and talked to many appraisers, one thing is clear, confusion reigns! Most do not see the merits of the 1004MC. They see the problems, including opposing opinions, various interpretations, and few immediate solutions given the limitations of their MLS data services.

At question is not the concept, but rather the execution. While many believe this to be a step in the right direction of mandating a standard for measuring trends, the format is a "time-consuming problem" versus a "problem solving solution". The unintended consequences over-shadow any potential benefit.

The 1004MC is not about medians, totals, percentages, and ratios, no more than it is about the neighborhood. The form is about "the collateral" and "the trends related to the collateral". While market conditions and neighborhood trends are important, the trends of properties similar to the subject are critical.

Lenders are not making a loan to the market area or the neighborhood; they are making a loan on the subject property, the collateral. As goes the trend for properties similar to the subject, as goes the value of the collateral securing their loan.

Highs and lows

The 1004MC gets an "A" for effort and the focus on the subject verses the neighborhood, "C" for layout and "F" for format and function. I understand the need to "standardize trend analysis", however, the format is such that the numbers may mislead more than "make transparent".

It does get a high mark for two factors, first for attempting to replace opinion with statistical fact, limiting subjectivity and secondly, it requires the analysis to focus on "competitive to the subject from the buyer's perspective", removing the influence of lesser or better properties in the neighborhood that do not compete with the subject.

Click here to continue reading . . .