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.

Agencies Release Revisions to Interagency Questions and Answers and Proposed New Questions Regarding Flood Insurance

The federal bank, thrift, credit union, and Farm Credit System regulatory agencies today released revised interagency questions and answers regarding flood insurance and requested public comment on several new ones.

The Interagency Questions and Answers Regarding Flood Insurance (2009) supersedes the 1997 interagency questions and answers document and supplements other guidance or interpretations issued by the agencies and the Federal Emergency Management Agency (FEMA). The Interagency Questions and Answers Regarding Flood Insurance (2009) consists of 77 questions and answers, which were revised based in part on comments received during the public comment period.

The agencies are also proposing for public comment five new questions and answers on determining insurable value in calculating the maximum limit of coverage available for the particular type of property and the timing of force placement of required flood insurance by lenders. After receiving and considering public comment on the five new proposed questions and answers, the agencies intend to incorporate them into the Interagency Questions and Answers Regarding Flood Insurance (2009).

The Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, Office of the Comptroller of the Currency, Office of Thrift Supervision, and Farm Credit Administration invite comment on the five proposed questions and answers and, more generally, on other issues and concerns regarding compliance with the federal flood insurance statutes and regulations.

Comments specific to the proposed questions and answers regarding determination of insurable value and force placement of required flood insurance are requested by September 21, 2009. The Federal Register notice is attached with instructions on how to submit comments.

Best Practices: Appraisals - Freddie Mac Single-Family Guide Bulletin 2009-18 Highlights Requirements and Best Practices for Sound Mortgage Underwriting

Although Freddie Mac has seen improvements in credit quality over the last few months, we are still seeing a number of deficiencies in the underwriting process. To address this concern, we are issuing Single-Family Seller/Servicer Guide (Guide) Bulletin 2009-18 to help you enhance your underwriting processes and controls, and mitigate the risk of defaults and repurchases.

With this Guide Bulletin, we are announcing changes to our underwriting requirements, providing additional guidance and emphasizing existing requirements for underwriting a borrower and appraisals, and sharing underwriting best practices that will help strengthen the quality of the mortgages you deliver to Freddie Mac.

Today's Guide Bulletin is aligned with our efforts to work with you to rebuild a strong mortgage finance system. By promoting responsible lending standards that withstand market fluctuations, we can work to ensure that you and your borrowers are successful throughout the entire life of a mortgage.

The revised underwriting requirements announced in today's Guide Bulletin are effective for all mortgages with applications dated on or after October 1, 2009, and settlement dates on or after January 1, 2010. While the new requirements are not effective until October, we strongly recommend that you begin underwriting mortgages with these new requirements to help strengthen your origination processes and enhance the quality of the mortgages you deliver to Freddie Mac.

We encourage you to thoroughly review the Bulletin to learn more about the requirement changes and best practices.

Underwriting appraisals. We recognize the challenges that current market conditions pose in connection with determining accurate property values. To help you address these challenges, we strongly recommend that you become familiar with our appraisal requirements detailed in Guide Chapter 44 and the best practices outlined in today's Bulletin.

Our reminders include information about selecting qualified appraisers, maintaining qualified staff to underwrite appraisals, and ordering appraisal reviews. We recommend the use of Home Value Explorer®, Home Value Calibrator® or other validated and tested automated valuation models (AVMs), as well as other collateral valuation tools, to assess the quality and accuracy of appraisals.

 

 

"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

The URARS: Part three - One step back before two steps forward!

When I came up with the concept of the URARS (Uniform Residential Appraisal Reporting Standards), it was "all about communication", between us and the clients, readers, reviewers and underwriters. I thought that if we had better communication, we would have fewer problems, so I proposed such things as "de facto standards" to replace "subjectivity with objectivity".

I also proposed that we enlist "a la mode, Inc." to once again "step up and help us help ourselves", similar to what they did with the HVCC petition. Both suggestions met with favorable responses, but with some raised eyebrows as well, as so before we take a step forward, I want to take a step backward and do what I originally set forth to do when Brian Davis and I created the "Clarification of Scope of Work Addendum" (COSOW) , "clarify what we should be doing and why". 

The "de facto standards" I am advocating will not be similar to Wayne Brady’s Las Vegas act, "Making $%# Up", which seems to be the opinion of some. We won’t be pulling "de facto standards out of the air" so that appraisers can use them to justify actions or procedures that are contrary to good judgment or inappropriate for the requirements of the assignment.

Since I am advocating "de facto standards", let’s revisit the meaning of "de facto".

"De facto is a Latin expression that means "of the fact" or "in practice" but not ordained by law. It is commonly used in contrast to de jure (which means "by law") when referring to matters of law, governance or technique (such as standards) that are found in the common experience as created or developed without or contrary to a regulation. When discussing a legal situation, de jure designates what the law says, while de facto designates action of what happens in practice. It is analogous and similar to the expressions "for all intents and purposes" or "in fact". The term de facto may also be used when there is no relevant law or standard, but a common practice is well established, although not universal".

Click here to continue reading . . .

 

 

AppraisalPort® User Agreement becomes effective 9/13/2008. E&O providers offer some insight on the "Hold Harmless" issue!

We all have read the recent announcement that FNC/AppraisalPort® emailed to appraisers regarding the upcoming changes to their Users Agreement.  Specifically the change to the Hold Harmless Agreement that they are requiring all of AppraisalPort® users to sign, effective 9/13/2008. (See Appraisal Scoop)

It reminds me of Angelo Mozillo's posts last year in which he stated that Countrywide was going to take over the world and it was in great condition, don't worry about Countrywide. It was all spin, spin, spin. While he was "spinning" he was selling hundreds of millions of dollars of Countrywide stock he owned.

So now we're supposed to believe that there are no problems with AppraisalPort's Agreement. I have been in close contact with my E&O carrier, and my own attorneys, and there are significant issues about which we have to be aware.

Included below is the text of the response I received from my E&O carrier that presents ALL parts of this issues - even the ones AppraisalPort does not want us to be aware of.

The response from my E&O Company is as follows:

"FNC is trying to put your mind at ease by telling you their agreement does not affect your E & O. But they are obfuscating the issue. Of course it does not affect your E & O, because your E & O is governed by the terms of your policy. The problem, which FNC does not address is that your E & O does not cover you for promises made to third parties."

"You can promise your next door neighbor that if you get sued you will buy him a new car, but that does not obligate your insurance carrier to pay for that car . You will be on the hook for it."

"FNC is asking you to pay for their defense costs and any award which may be made against them, anytime they are the recipient of a claim over anything which involves your appraisal. So they are correct when they say their agreement does not affect your E & O, but it certainly would affect YOUR bank account in the event you have to pay to defend them against a lawsuit, because your E & O won't pay it. One wonders why they are trying to hoodwink you into believing otherwise."

Click here to continue reading . . .

Expert Advice or Expert Spinning? FNC responds to buzz about their new "User Agreement"

Today the appraisal industry was given the latest edition of the Appraisal Port Newsletter. It is dealing with Neil Olson’s opinion of FNC’s new user agreement. It is six questions and Mr. Olson’s answer to those questions.   Download appraisalport_qa_memo.pdf

Corporations, as is usually the case, try to spin everything that they do in a positive light. That makes sense in many cases. I am not a lawyer, nor would I ever attempt to pretend to be one, but using common sense all of us small business owners/appraisers have to make up our minds as to how we feel about the user agreement.

I have included Mr. Olson’s questions and answers (screen shots) with my own musings following each. I will leave it up to you, the reader/appraiser to make up your own mind regarding FNC’s Newsletter.

FNC is clear that they don’t want an open court room battle. They would rather take their chances with a third party expert, than let a judge or possibly a sympathetic jury decide a case. Arbitration does allow for faster decisions, something that is very important to a company that wants to go public, and won’t with a pending class action lawsuit underway.

It is suspicious that a company is only willing to undergo any proceedings within a geographic location that is proximate to its sphere of influence. Additionally, this waives the appraiser’s right to a trial by jury.

This is a typical pro-corporation agreement that does its best to reduce the rights of an industry that is traditionally small business centric. Placing a dispute in front of an “expert arbitrator” places the appraiser at the mercy of someone that is traditionally pro-corporation, in most instances.

Click here to continue reading . . .

ERC's Unique Property Database - BETA!

Appraisers and brokers often are challenged with determining an appropriate value/price estimate for properties that are so unique that there are few if any other similar properties to compare them to. This approach is especially challenging when there are simply either no or few similar sales to analyze.

The ERC Unique Property Database is not intended to replace the appraiser’s or broker’s research and analysis but, rather, to supplement it—to act as a sanity check, especially in those instances in which the appraiser/broker had so little market information on which they could base their analysis of the market reaction to the unique feature.

Click Here to search by physical features, functional, locational, and/or historical anomalies. You can search on more than one category

The database includes case studies with the following:

• High-tension wires near or on the subject site
• an adjacent landfill causing odors
• a historical feature such as a home built by an "important architect"

The goal is to have as many quality case studies as possible in the system to aid relocation professionals in their jobs. Currently, data is being contributed on an ongoing basis by relocation management companies and appraisers.

If you have a property that would be a good addition to the Unique Property Database please submit your information here and the ERC will contact you with further instructions.

FAQ – Unique Property Database

Special Thanks! to Danny Bordas - Senior Appraiser - http://www.smithrealtyadvisors.biz/ - Smith Realty Advisors

Most Common FHA Appraisal Report Compliance Issues

Anthony Blackburn, of Apple Appraisal, Inc., in Martinez, CA responded recently to a WinTOTAL Users Group forum question about common errors with FHA appraisals. The following was his response.  At the bottom of this blog post is a "bookmarked" pdf highlighting the references to his list.

"I'm reviewing a batch of about 25 reverse mortgage appraisals, post funding. Not a single one complies will all of HUD's guidelines!"

Most commonly, the reports that I review fail to:

1. Include patios, porches, garages, breezeways and other offsets on the sketch. Failure to state "covered" or "uncovered" to indicate a roof or no roof (such as over a patio).
2. Have the street scene photo include a portion of the subject site.
3. Enter a legal description of the property.
4. To state that the use of the appraisal is to support FHA's decision to provide mortgage insurance on the real property that is the subject of the appraisal; and intended users include the lender/client and FHA.
5. Clearly define the boundaries - north, south, east and west - of the subject's neighborhood. Providing a description of neighborhood boundaries by physical features such as streets, rail lines, other man-made barriers or well defined natural barriers (i.e. rivers, lakes, etc.) details the make up and understanding regarding neighborhood composition.
6. To adequately and accurately describe current market conditions in the subject's neighborhood.
7. List all dimensions of the site beginning with the frontage. If the shape of the site is irregular, show the boundary dimensions (85' X 150' X 195' X 250')
8. Describe the view from the property (None is not an acceptable response).
9. Include the CORRECT zoning
10. To correctly report the number of COMPARABLE sales in the past 12 months and active listings on page 2.
11. To correctly calculate time adjustments from the contract date of the sale, and report both the contract and closing dates when time adjustments are made.
12. Enter the name of the subdivision or PUD in the location field of the sales comparison approach.
13. Describe the view from the site on the sales comparison approach, i.e. similar homes, commercial area, water view, scenic view, etc. Such terms as "Average" or "Good" are only to be used as adjuncts, i.e. "Residential/Average", "Water view/Good".
14. To enter ONLY the actual age of the subject in the age field of the sales comparison approach.
15. To accurately report the subject's condition as "Fair" when it is indeed "Fair".
16. Research prior sales or transfers of comparable sales
17. To analyze and report the analysis of the subject's prior sales

Download 41502appdHSGH.pdf - This appendix to HUD's 4150.2 has been bookmarked to correspond to the list above.

Thanks to Anthony Blackburn, of Apple Appraisal, Inc., of Martinez, CA for compiling and sharing this list!

RUNT RANTS - Mr. Big and a la mode deserve applause!

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

I was a little surprised and disappointed at the lack of appraiser response to the David Biggers, CEO of a la mode, announcement that a la mode intended to create an order assignment feature on their web site at a very low fee for the service.  The announcement was featured here.  A La Mode Announces new feature

Mr. Biggers announced something BIG.  Something that could save appraisers thousands of dollars a year.  Something that could change the landscape for appraiser marketing if they choose to use it. Yet there were only five comments to that announcement here on Appraisal Scoop!

Maybe appraisers didn’t take the time to read what Mr. Big announced?  Maybe appraisers didn’t think through the implications?  Maybe…they don’t care?

Let's Look At The Situation

Let me see if I can illustrate the proposal in a different way….stick with me here…I’ll be short and succinct for a change.  Consider the following three models.

• Green is what the Fee Appraiser receives from his local clients currently. 
• Yellow is what the Fee Appraiser receives from the typical AMC currently. 
• Blue is what Mr. Biggers proposes to offer as an alternative to the yellow.

What Those Three Senarios Mean

If the Cuomo Agreements were to survive as currently written (a debatable assumption, but still we should consider it as a possibility) local lenders will be forced to find an intermediary to order appraisals for their loan applications. The most likely intermediary is an AMC. That’s the business they are in…to order appraisals for lenders.

If the Cuomo Agreements survive, there will be pressure in the next few months for your local clients to begin moving business away from you directly and instead through an intermediary.  (The drop dead deadline in early fall….that’s to allow for the pipeline…it takes around sixty to ninety days to process a loan in many instances, so an application taken in October will likely go to the lender after Jan 1^st at which time an intermediary will be required.)

Business that you currently get under the green scenario will begin moving to the yellow scenario.  You will be doing the same appraisal, you will be doing your same quality control, you will be proving the same service that you do now…but your fee will be $105 less….30 percent less!

Got that?! The same service, the same quality, the same appraisal, but your fee will have dropped from $350 to $245. Multiply that by the number of local lender assignments you receive monthly.

If that calculation gets your attention, you should re-read Mr. Biggers announcement.

Click here to continue reading . . .