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 Nope, it looks like that old, outdated method of choosing the most comparable sales is going the way of the woolly mammoth.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

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 . . .

Credit Crunch - Are Lending Policies Killing the Markets?

AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc. Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets.

The days of common sense lending have been long gone for many years and in retrospect were replaced by an aggressive feeding frenzy that subsequently drove home ownership to record levels. Now the lending industry finds itself knee deep in a fear-based climate at the opposite end of the spectrum.

With most of the large financial institutions following Fannie Mae and Freddie Mac’s lead, quality borrowers are more frequently finding themselves the victim of the mortgage fallout rather than the beneficiary. After being told that unqualified borrowers and over-inflated appraisals were some of the primary contributors to the financial crisis, it seems as though their prescribed remedy is to scrutinize well qualified borrowers while first time and low down payment borrowers skate through the same process.

My practice has seen a dramatic increase in underwriting conditions on appraisals where the borrower had a high credit score and more than adequate equity. One particular case involved a high credit score borrower applying for a refinance on a property with nearly 50% equity. Yes, the appraisal was solid and yielded a conclusion that was in the mid range for the market and cited current listing activity. Only after three addendums and a plethora of supporting market data, was the loan reportedly granted.

I am not a lender and do not profess to know every aspect of that field, but this simply makes little sense. What would be logical and justified is a tightening of loan to value ratios or perhaps revised quality control measures even if it resulted in less loans being completed.

Recent policies have been adopted that change LTV ratios if an area is reported to be in a declining market or there is an oversupply of properties but tightening down on “good risk” borrowers seems to be a waste of resources that should be focused in areas which caused the mortgage meltdown in the first place.

Click here to continue reading . . .

   

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 . . .

Runt Rants - Back Talk Looks At the Sub Prime Crisis

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

Runt Rants has written several times on the Sub Prime Crisis. Its an old story now, winding down through the system, taking its toll on the various parties, some deserving, some simply caught up in the market adjustment.

We've talked about the folks that were the worst players in my view; the Investment Banking Firms. (Wow! Such a moniker! No wonder they changed it from Snake Oil Salesmen. Much better ring to that new title. However, something about a tiger not being able to change it's stripes comes to mind.)

Investment Bankers either knew what they were selling was junk and didn't care, or they didn't know what they were selling was junk and didn't care.  Same result: disaster for the buyer, disaster for the market.

Now, one of my favorite blogs, Back Talk, has taken on the Sub Prime Story and decided to research it.

I couldn't wait to read his thoughts and conclusions! I mentioned last week that I have been reading Back Talk for a number of months, and I have been impressed with his research skills, his relatively balanced assessments, his ability to back his conclusions with facts, often presented in easy to decipher charts.

Back Talk doesn't trust the media. He preaches that we shouldn't either, that it is our responsibility to do our own research, look at all sides of an issue, and decide for ourselves. That's my view of the appraisal profession, and my goal in Runt Rants. Present some facts, perhaps alternate views, and let you conclude what you will, which will then allow you to make the best decisions for your business.

I wasn't disappointed in Back Talk's assessment. Its worth your time. Here are some excerpts.

"Economic growth in the United States is expected to slow to a crawl of just 0.5 percent this year, which would mark the worst pace in 17 years, the global finance body said. The United States won't fare much better next year; the IMF projected the U.S. economy will grow by a feeble 0.6 percent in 2009, when measured by an annual average."

Click here to continue reading . . .