Appraisal Scoop

Nice Guys Finish LAST! Clients file complaints after getting appraisers to "Second Guess" their own appraisals.

T.J. McCarthy, of T.J. McCarthy & Associates, Tinley Park, IL has the following assessment of the AMC and Lender practice of making post-closing calls to appraisers to question how some of the adjustments were made and get appraisers to second-guess their original appraisal process.  The following is being reprinted from an Illinois Coalition of Appraisal Professionals (ICAP) alert.  

Good afternoon Appraisers,

I am writing to our residential members regarding a growing problem that ICAP is concerned with regarding lenders and AMC’s filing complaints against appraisers.

THE SETUP:  You receive a call from a lender or an AMC who wants to talk to you about an appraisal assignment you recently completed for them.  The call usually comes from the QC Department at the post closing stage of the loan.  They start questioning you on your line item adjustments.  All the comparables are on smaller lots then the subject property and they feel your adjustment for lot sizes seems a bit high.  You want to be a good little appraiser and not upset your client so you agree that pe rhaps they could have been a little lower.  While they have you on the phone, they also ask you if you think your time adjustments were a little aggressive.  Again, not wanted to upset a good client, you tell them that maybe you were a little aggressive (even though you really don’t think you were…you’re just trying to appease them), and you state that you will try to find another public data source in the future that is more conservative.  Your client thanks you and even tells you to have a nice day.  You hang up the phone thinking you handled that rather well. (The following is simply a hypothetical situation used to get a point across)

FAST FORWARD:  A month later you receive a letter from the Department of Professional Regulation – Appraisal Division.  Your great client filed a complaint against you stating that you openly admitted to them in a phone conversation that you falsely inflated the value of your appraisal by using inappropriate site adjustments.  You also stated that you often use non-traditional data sources to intentionally report market trends that are lower than normal to arrive at higher value conclusions.  YIKES!!

THE REALITY OF THE SITUATION: This is really happening to appraisers and since the Dodd-Frank Act more and more lenders and AMC’s are sending in complaints on appraisers. 

MORAL OF THE STORY:  There is no question that the appraiser is getting slammed here for trying to be a “stand up” guy, attempting to clear up gray areas in their report.  They’re engaging in what they perceive to be an honest dialogue with the QC department (long after the loan has been funded). Unfortunately, at the post-closing stage, the lender isn’t looking for you to have a change of heart on your final opinion of value. There are no changes that should be made, but now you have given the QC department ammo for a state complaint.

Also, you should never change parts of your appraisal because you think it will make your client happy.  They don’t drive the process.  Perhaps you don’t even realize that you are giving someone a reason to file a complaint against you when you agree to the slightest alteration or allow someone elses opinion to dictate how you will complete your assignment.  In the meantime they are on the other end of the phone writing down everything you are saying as they prepare to turn you and your report into the state.

DISCLAIMER:  I certainly am not telling you to ignore errors and omissions on your reports when a client discovers them and asks for corrections.   Nor am I telling you to be unethical.  But, by trying to be accommodating, you could be creating a problem for yourself where one never existed.

I can assure you that the State of IL is receiving these types of complaints.  I can’t tell you [which] lenders or AMC’s are filing these complaints.  Also, I am not saying that all lenders and AMC’s support this type of practice. 

It’s getting pretty scary out their folks.  We don’t have to make it harder on ourselves by reverting to a submissive position every time an angry client calls.  We are appraisers not pacifiers!

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

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

2012-13 Edition of USPAP Released

October 13, 2011 WASHINGTON, DC—The Appraisal Foundation, a congressionally-authorized nonprofit organization dedicated to the advancement of professional valuation, announced that the 2012-13 edition of the Uniform Standards of Professional Appraisal Practice (USPAP) has been released. USPAP is the generally accepted standards of practice for the appraisal profession in the United States. 

The 2012-13 edition of USPAP will be valid for two years, effective January 1, 2012 through December 31, 2013. As with the prior edition, the new edition includes the standards of professional practice for all appraisal disciplines as well as guidance from the Appraisal Standards Board (ASB) in the form of USPAP Advisory Opinions and USPAP Frequently Asked Questions (FAQs). 

Changes to the document include:

• Revisions to DEFINITIONS of “Client,” “Extraordinary Assumptions,” and “Hypothetical Condition,” as well as a new definition of “Exposure Time”;
• Creation of a new RECORD KEEPING RULE and related edits to the Conduct Section of the ETHICS RULE; 
• Revisions to Advisory Opinion 21, USPAP Compliance; and, 
• Revisions to STANDARDS 7 & 8: PERSONAL PROPERTY APPRAISAL, DEVELOPMENT & REPORTING.

While the effective date for this publication is January 1, 2012, The Appraisal Foundation is encouraging appraisers to familiarize themselves with the changes now. To assist appraisers in this regard, earlier this summer the Foundation released a video featuring the Chair and Vice-Chair of the ASB discussing the changes to USPAP. The video, A Preview of Changes to the 2012-13 Uniform Standards of Professional Appraisal Practice (USPAP), is a 23-minute interview with the 2011 Chair and Vice-Chair of the Appraisal Standards Board, J. Carl Schultz, Jr. and Barry Shea, respectively.  Please visit the following link to access the video on the Foundation’s eLibrary:

CLICK HERE TO VIEW THE VIDEO ON 2012-13 USPAP CHANGES 

Copies of the 2012-13 edition of USPAP are now available for purchase via the Foundation Store at http://www.appraisalfoundation.org/.   The 2012-13 edition of USPAP is available in printed, spiral bound copy for $75 and the electronic PDF download for $60.  

In the coming weeks, USPAP will be available in Flipbook format and for eReaders including the iPad, Kindle, Nook and the Sony Reader. 
 

* Alternate Link for Video:  http://www.globalpres.com/mediasite/Viewer/?peid=ae8192ef41804f23a498bf7b30458189 

* Alternate Link for Foundation Store: https://netforum.avectra.com/eweb/Shopping/Shopping.aspx?Cart=0&Site=TAF

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About The Appraisal FoundationThe Appraisal Foundation, a Congressionally authorized non-profit organization established in 1987, is dedicated to the advancement of professional valuation.  The Foundation accomplishes its mission through the work of its three independent Boards:  the Appraisal Practices Board (APB), the Appraiser Qualifications Board (AQB) and the Appraisal Standards Board (ASB).  More information on The Appraisal Foundation is available at www.appraisalfoundation.org.

To verify or not to verify? There is no question.

To verify is to establish the truth, accuracy, or reality of something. Verified information is fact.

Guest Post: The author, Edd Gillespie, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work.

The 2010-2011 Uniform Standard of Professional Appraisal Practice [USPAP] Standards Rule SR 1-4 says the real property appraiser must verify all information necessary for a credible result.

SR 1-4 encapsulates a substantial portion of the USPAP scope of work requirements for real property appraisal and implies techniques about which volumes are written. The rule is loaded with terminology that an appraiser must understand in order know whether he or she is complying with USPAP, but for now I am focused on to verify.

What is verification? Verification is an activity an appraiser must undertake in development of the appraisal and it means that the information the appraiser uses in analysis is fact.

 For example consider the address of the subject property. An address is commonly used in identifying the subject property and is therefore information necessary to a credible result. Usually the client tells the appraiser what the address is. At that point the address is collected information. Now the appraiser must verify the information. It must be confirmed. It must be checked out. The pervasive theme in USPAP is that the appraisal NOT BE MISLEADING.   [Reference FAQ 243. Property Address]

Does that theme have a bearing on how the appraiser goes about verification? If the appraiser were confirm the address by calling the client back and asking is there a chance for error? Would it be better to check out the address with a reliable independent source such as the public record? The way an appraiser chooses to go about verifying information can build assurance that the appraisal is NOT MISLEADING.

Another example: 

Most of us have had assistance from a home owner during inspection and may have heard that the house down the street sold for such and such. Let’s say you were well prepared for the inspection and you have information from the MLS that the house down the street did indeed sell for that price.  But then, you notice that the MLS listing says all of the furniture and a hot tub is included in the price and that the house sold for the full listing price. Is the price verified by the comparing the home owner and the MLS? Technically yes, but there now additional information that you have that is unverified and you have a potential adjustment to the price for the furniture and hot tub. If the sale is information necessary to a credible result and you neglect to verify whether the value of the furniture and hot tub was included in the transaction price your appraisal may be MISLEADING.

Appraisers often maintain that the information they use is error free. Does SR 1-4 permit the appraiser to use information without verification?

WHAT DO YOU THINK?

• What is a fact?
• Can I use information that I tried to verify but could not confirm?
• Is an extraordinary assumption as reliable as a fact?
• Is verified information more reliable for use in appraising than unverified information?
• If clients won’t pay me enough to take the time to verify how much time should I spend verifying information?

The author, Edd Gillespie, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work.  Contact Info: 590 N. Matt Dr. Pueblo,CO 81007 Phone 719-252-7624 E-mail eddgillespie@yahoo.com  

A common-sense way to mend the draconian appraisal process? - Washington Post

Harvey S. Jacobs, real estate lawyer in the Rockville office of Joseph, Greenwald & Laake, wrote the following in his Washington Post article - A common-sense way to mend the draconian appraisal process .

"If federal regulators are truly concerned about the quality and independence of home appraisals - a cornerstone of sound mortgage lending - why don't they simply prohibit appraisers from learning the contract price before they perform their assessment of a home's value?

Instead of this commonsense solution, regulators continue to come up with schemes that govern how appraisers are chosen - and which simultaneously drive up prices to consumers while cutting the income of appraisers.

On April 1, a new regulatory scheme called Appraiser Independence Requirements, will go into effect. This AIR replaces the much-maligned Home Valuation Code of Conduct but does little to improve it. Both AIR and HVCC were designed to ensure that the home valuation process conducted by appraisers is conducted in a strictly independent manner. Unfortunately, in practice AIR continues the legacy of HVCC, causing borrowers to pay more for their appraisals and appraisers to earn less for their work."

While the article does a very good job of chronicling the history of the HVCC, AMCs, and the AIR, I'm not so sure that his answer to the problem will solve all of the problems that he thinks it will. 

For one thing, it assumes that all mortgage appraisals done for lenders result from sales.  What about the gazillions of refinance appraisals for which there are no "contract prices"?   

Without access to the contract, how would the appraiser be able to learn ALL of the terms, conditions, and concessions involved with the sale?   Doesn't USPAP require appraisers to view and analyze the current contract?

 

Does the author REALLY think that the contract is the only place that appraisers would learn the sales price?  Even IF the sales price were to be redacted from a contract, don't you think that the buyer, seller, agent or someone involved in the transaction would let that figure "slip"?   Wouldn't it be BETTER to have something that actually documents the factual sales price?

What do YOU think of this author's fix to the "draconian appraisal process"?

 

 

Can Appraisers Compete With Automated Valuation Models?

VALUE ADDED As a Practical Matter, Can Appraisers Compete With Automated Valuation Models?

Guest Post: The author, Edd Gillespie, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work.

Does USPAP Standards Rule SR 1-4 Actually Define Appraising? USPAP Standards Rule SR 1-4 lays out the required process to develop the appraisal. “In developing a real property appraisal, an appraiser MUST collect, verify, and analyze ALL information necessary for credible assignment results.”

Last week the Fifth Circuit Court of Appeals breathed life back into HAROLD H. HUGGINS v. FNC, Inc. [Download OPINION_FNC_Case-Opinion_24Feb2011] where the issue is about FNC, Inc. opening appraisal reports delivered via FNC’s AppraisalPort and then incorporating the data and conclusions into FNC’s National Collateral Database. The objective being to compete with appraisers. The appraisers’ attorney highlighted what it is that appraisers bring to the process of appraising that Automated Valuation Models (AVM) do not. He said appraisers bring “… experience and judgment to bear on providing services no database can replicate: inspecting the premises, reporting on recent renovations, identifying damage, and verifying the continued accuracy of existing information.” I think he nailed the very essence of USPAP compliant appraising that AVMs will never duplicate.

The attorney’s comment had currency with the court, but where does what he said fit into USPAP? To comply with USPAP Standards Rule SR 1-4 real property appraisers “…MUST collect, verify, and analyze ALL information necessary…” 

Three of the things the attorney told the court has to do with collecting information, “inspecting the premises, reporting on recent renovations, identifying damage.”

Appraisers say they are often criticized by home owners for not spending enough time in inspection, and residential appraisers often respond that they are NOT home inspectors. But, if the information that could be collected in an in-depth inspection is relevant to value, then where is an appraiser going to get it if he or she doesn’t get it through personal inspection?

The HUGGINS attorney also said the appraiser’s significance is in, “…verifying the continued accuracy of existing information.” Even though USPAP recognizes quality, credibility and misleading in appraising it gives us no instruction about the process of verification.

Some appraisers report that verification can be accomplished efficiently by comparing the information contained in different data bases, for example; the public record and MLS or Realist and Realquest. But, can’t an AVM easily be programmed to compare data bases and be in compliance to some extent with USPAP?

On the other end of the spectrum are appraisers who maintain that verification should come from a person who is personally familiar with the property and transaction. This depth of verification has logistical obstacles and objectivity issues, but assuming some of those can be overcome it is a technique that AVMs will never use and remain fast and inexpensive.

An appraiser who does not have a complete picture of condition or is analyzing unverified information is in exactly the same position as an AVM.  Neither the AVM nor the appraiser who skips inspection or verification advertises their shortcomings, but the AVM doesn’t have to be USPAP compliant and the appraiser does.

What do YOU think?!

• Should appraisers who can’t afford to be USPAP compliant quit appraising?
• Should AVMs and other “valuation” products be USPAP compliant?
• How can appraisers do what they are required to do by USPAP and compete with the speed and price of AVMs?
• Why should clients pay more for an appraisal than for an AVM that does the same thing?
• What do you think the difference is between what an AVM does and residential appraisers who compete with them are doing?
• Do you agree that an USPAP compliant appraisal requires in depth property inspection If you completed the in-depth inspection and verification implied by the HUGGINS attorney, how much time would it consume and what would you charge?
• Should USPAP be amended to eliminate the stringent requirements of USPAP Standards Rule SR 1-4?
• Should appraisal inspections be on a par with those of a home inspector? Should appraisers be better trained to collect and verify necessary information?

Prior Article - Similar Topic:  You Want It WHEN!? - How Long Does it Take To Complete An Appraisal?

• Download NOTICE_FNCCase-Notice_from_Court24Feb2011
• Download OPINION_FNC_Case-Opinion_24Feb2011

The author, Edd Gillespie

, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work.  Contact Info: 590 N. Matt Dr. Pueblo,CO 81007 Phone 719-252-7624 E-mail eddgillespie@yahoo.com  

 

You Want It WHEN!? - How Long Does it Take To Complete An Appraisal?

How Long Does It Take to Complete the Development of an URAR USPAP Compliant Appraisal After the Assignment is Accepted?

Guest Post: The author, Edd Gillespie, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work. 

And the answer of course is, “It depends.” Appraisers have different amounts of the necessary information needed to complete any given assignment, but let’s look at a situation where the appraiser deems it necessary to investigate and analyze everything about a non-complex assignment.

USPAP Standards Rule SR 1-4 lays out the required process to develop the appraisal. “In developing a real property appraisal, an appraiser MUST collect, verify, and analyze ALL information necessary for credible assignment results.”

It is clear there is no option for real property appraiser to do other than as SR 1-4 says. The real property appraiser MUST follow the rule with respect to ALL of the information necessary for a credible result.

1. Collection of Information: 6 hours

Where do you collect the initial information and how long does it take? The tax assessor usually describes most of what the appraiser needs to know about the subject in order to begin the development of the appraisal. That information is downloaded. The local MLS contains a wealth of information. Appraisers look there for market trend information, but most surely for comparable sales. At this point the appraiser begins to make choices since analyzing all of the sales is rarely necessary for credible assignment results. What would you do?

Many appraisers report that at this point they begin to eliminate all MLS sales that do not share some value-significant attributes with the subject. At the end of this initial research the appraiser has a handful of comparable sales identified and downloaded. I estimate the review of the MLS for collecting initial information consumes about two hours of time.

Next, additional information is collected from the public record or perhaps other proprietary sources. Assuming the subject is in one of those areas that search consumes an additional two hours. Then there is the collection of information about the subject which is most often done during inspection. The inspection of the subject consumes two hours, including driving time in inspecting the subject.

2. Verification of Information: 3 - 10 hours

Where and how does the appraiser verify the initial information and how long does it take? Even though USPAP recognizes quality, credibility and misleading in appraising it gives us no instruction about the process of verification. USPAP simply requires verification of ALL of the information that is necessary to a credible assignment result mandatory for a real property appraiser. So, what does verify mean?

In the context of the Rule, verify is a verb, it is something an appraiser MUST do. The meaning of verify is to establish the truth, accuracy, or reality of something. Although the appraiser may encounter new information while verifying, it is clear that the objective of verification is confirmation. And how is it done?

Although USPAP does not require inspection of properties employed as comparables, it is common practice for appraiser to at least drive-by, which is a form of verification. Many appraisers report that they have a standard set of questions they ask to verify the transactional and physical information they already have. Other appraisers report that if they have collected information from the MLS they verify it with the public record or vice versa.

Most likely appraisers verify information from three to five sales and that can take from three to ten hours depending on the extent of verification the appraiser completes. It takes longer to verify information with parties to the transaction or their brokers. Frequently, conflicting or additional information is collected during the verification process, which triggers the need for additional verification. Once all of the necessary information is verified and the appraiser is assured that what he or she knows actually exists or actually happened, the information is ready for analysis.

3. Analysis of Facts: 9 - 16 hours

How long does it take to analyze the necessary information? Although the principle of substitution is applied to much of appraising, real property is not homogenous and often the data is not “clean.” Because of that appraisers spend as much time analyzing the verified necessary information as they do in collecting and verifying it. Analysis in residential appraisal includes market trend study and comparison and adjustment of the information from each sale. Seldom is all of the information necessary for adjustment included in the sales selected for comparison, which creates the need to collect and verify additional information as a part of the analysis.

4. Finishing the report: 1 hour

Appraisers say that the URAR report is for the most part completed as the development proceeds. They spend additional time filling in empty blanks and proof reading and estimate that takes about 1 hour.

The amount of time spent complying with SR 1-4 ranges from 18 to 32 hours. The mid-range estimate to complete the development of a non-complex residential market value appraisal is 25 hours.

What Do YOU think?!

• Do you agree that it takes 25 hours to complete a USPAP compliant development of a non-complex market value residential appraisal?
• How long does it take to complete the development required by SR 1-4?
• Do you think the requirements of SR 1-4 are excessive?
• If it takes 25 hours to complete the development of a USPAP compliant market value residential appraisal, are clients allowing sufficient time and paying a sufficient fee?
• Should USPAP be amended to eliminate the stringent requirements of SR 1-4?
• Should appraisers be better trained to understand what collect, verify and analyze mean?

 

The author, Edd Gillespie, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work.  Contact Info: 590 N. Matt Dr. Pueblo,CO 81007 Phone 719-252-7624 E-mail eddgillespie@yahoo.com  

Geographic Competence Not Clearly Understood

GUEST 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.

 It seems as though a recent trend with some clients (primarily AMC’s) has been a concern over the appraiser’s ability to work in certain markets. After all, if we have never or rarely worked in a specific locale then obviously we are not qualified to work there; right? Well before jumping directly into USPAP we should clear up some things.

The reason why this is a growing trend is most likely due to the level of complaints lenders and AMC’s are receiving about “low” appraisals. Homeowners and realtors have been concluding that appraisals are coming in under the true value because the appraiser was not from the area or did not know the market. In fact, many of my own realtor friends have largely based their stand against HVCC on this argument and I have consistently stated my opposition to this line of logic. There are numerous strong points against HVCC but geographic competency is not one of the stronger ones. 

If geographic competence was really a growing issue, realtors and homeowners must realize that it would not only be reflected in under-valued appraisals but inflated ones as well. A lack of competence in any market will always lead to erroneous and unreliable reports. In my opinion, HVCC has not been a good policy but I don’t believe it has caused a rise in the number of appraisers working in unfamiliar territories. Of course some rogue appraisers do occasionally violate the requirement to be knowledgeable in whatever market they are completing appraisals but no significant pressure to do this was brought about by HVCC alone. 

Rather than discussing the finer points of this debate, we do have a binding requirement that is literally recorded in black and white. The Competency Rule of USPAP is very clear on this issue.

Prior to accepting an assignment or entering into an agreement to perform any assignment, an appraiser must properly identify the problem to be addressed and have the knowledge and experience to complete the assignment competently; or alternatively, must:

1. disclose the lack of knowledge and/or experience to the client before accepting the assignment;
2. take all steps necessary or appropriate to complete the assignment competently; and 
3. describe the lack of knowledge and/or experience and the steps taken to complete the assignment competently in the report. 

Notice that it does not define competency by distance or a mile radius as is the growing standard requirement on some AMC requests. Some clients define the distance by the office location and some by where the appraiser lives. Both are faulty in premise and do not adequately qualify or disqualify the appraiser for an assignment. Conversely, just because an appraiser lives or has an office in a specific market does not automatically mean they are qualified to complete appraisals there. 

Many appraisal firms have expertise in numerous markets that may or may not be contiguous to their place of business or homes. Some may have qualified appraisers who specifically cover distant regions. For instance, our company has been working in a satellite market that is forty miles from our office and has been doing so for over fifteen years. We have weekly assignments there and are also members of that areas MLS and are well-known by many of the area realtors. Chances are that if an appraiser pays to be a member of an MLS, then they probably do enough work there to justify the ongoing expense. Some commercial appraisers do work for retail chains in different States and in addition to their individual State Certifications; they are bound by the same USPAP Competency Rule.  

Even in cases where an appraiser does not have the experience and knowledge, USPAP allows and requires that they become sufficiently knowledgeable to complete an assignment. Obviously the bigger debate would then be what the process is for obtaining that knowledge. The Competency Rule does propose several methods to accomplish this but it does not spell out an absolute protocol. 

If the trend of distance requirements continues to increase, it is possible that many affected will simply look for new ways to widen their coverage area. What is to stop appraisers from creating additional branch locations and re-registering those addresses with AMC databases? One-appraiser and home office operations who represent the largest segment of our industry could really feel a pinch if this happens. Until then, it is probably a good idea to have a statistical database of assignments to support your qualifications claims. 

Other Posts By Michael Armentrout:

• Properly Define “Declining Markets” - A Call To Mortgage Lenders
• Appraisal Independence at Crossroads, Again! 

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. He served as a staff appraiser at several local firms before forming AM Appraisals, Inc. with business partner J.M. Massey. e-mail: marmentrout@amappraisals.com  web address: http://www.amappraisals.com   

Runt Rants - A "Two Tier Pricing Structure" for Appraisal Services

AUTHOR: Ken Verrett: The author is the owner of Acorn Appraisal Associates, a 24 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities. Overview

We've had a good discussion of the volatile and emotional issue of the AMCs impact on the lending transaction and on the Appraiser Profession specifically.   Several appraisers have added their views.  At least two AMCs have provided their views.  Many of the comments challenged my views and assertions.

It's all good. 

Both AMCs and Professional Appraisers Are Important and Necessary

What I hope I've established is that the Appraisal Profession is a positive force in the local, regional, national, and now global communities.  Professional appraisers are one of only two unbiased participants to most lending decisions these days....the other being a Professional Realtor. 

There is arguement that the Realtor in this age of declining dual agency is no longer unbiased.  That has some merit.  However Professional Realtors have laws governing their conduct as well as a strong code of ethics to follow.  If they remain true to both, their position is largely unbiased and positive.

Professional Appraisers are unquestionably unbiased, they perform their duties admirably.  We only need look at the current discourse over the causes of the current credit credit crisis and note that no one even attempts to blame the appraiser.  Our job was done and done well.  We know from talking to our E&O Insurers that appraisers are being named in foreclosure suits at an alarming rate, but the majority of those are lawyers casting wide nets to bring all into the mess that they can.  Such is the weakness of our litigation system today.

We also contend that the AMC is a legitimate industry, has been around for decades, and serves a useful purpose...for both the lender and the appraiser.  Many appraisers dispute that, several here have voiced that view and I'm glad they contributed.  But those arguements don't carry the day in my view.  AMCs are here and will continue to be the principal conduit of appraisal ordering and therefore demand for appraisers working in the mortgage origination niche.

It's Not The AMC That Is The Problem

My view is that the problem is not with the AMC industry, but with the business model that many have adopted, driven by the top 5 representing over 80 percent of appraisal demand.  The problem with that business model is that the vast majority of the AMC volume operates by charging the independent fee appraiser for services that should rightly be charged to their client...the lender or broker.

That charge is 30-40 percent of the fee that the appraiser receives for providing their professional services.   I've offered my opinion that I can see a 5-10 percent charge to the appraiser due to the efficiencies that the AMC can provide to the organized and professional appraiser or appraisal firm.  But that leaves 25 to 30 percent that is a gross over charge....appraisers are paying the price in the form of that haircut for services that the lender or broker client of the AMC are receiving. 

Let me state the problem in dollars.  If the typical appraisal fee is $350, the appraiser is forced to pay the AMC $105 to $140 for the privilege of working with that AMC.  If one accepts my view of a legitimate charge of 5 percent for services the AMC provides to the appraiser, ($17.50) then the appraiser is being over charged $87.50 to $122.50 on each appraisal they perform! 

The appraiser is being forced to subsidize someone one else in the transaction.  That someone else is the lender or broker client of the AMC.  In a competitive market that would not happen, it does not happen.

I've stated that there are two pricing markets in the appraisal process:  the One Off Market, and the AMC Market.  In the One Off Market the fee to the appraiser or appraisal business is $350.  In the AMC Market the fee to the appraiser is $350-140 or $210.

How Can Two Pricing Markets Exist?

Many appraisers, some commenting here, state that two pricing markets exist because of inexperienced, fraudulent, bottom feeding-corner-cutting appraisers allow it to exist.

The top five AMCs argue that the AMC Market IS the true price market by virtue of the fact that they demand and obtain the haircut from the appraiser. 

Both are empty charges in my view. 

The two tier pricing structure of appraisal services is a result of the Oligolopy Market that has been created by the top 5 AMCs who provide over 80 percent of the appraisal demand.   

In the One Off Market the fee for a typical 1004 mortgage origination appraisal is $350.  The One Off Market is a fully competitive market with many buyers and sellers of appraisal services.  The price settles in at $350.  If any buyer or seller attempts to influence that price...higher or lower...they are rejected.  That's the way free markets work.

The AMC Market fee for that same appraisal is $210.  The AMCs are able to obtain that fee because they are part of an Oligolopy.  Together the top five AMCs represent 80 percent of the demand for mortgage origination appraisals.  That is not a fully competitive market; that is an Oligolopy.  In Oligolopies the power shifts to the few who control demand.  They set the price. 

The appraiser in such a market can't afford to ignore 80 percent of his source of demand.  If the client requires such an ignomonious haircut the appraiser has no choice but to accept it.  That's a classical result of an Oligolopy!

The No Spin Wrap Up

Remember the old phrase "What's good for General Bullmoose is good for the USA"?  Originated in the Little Abner comic strip I think, and was a parody of what big business was claiming at one time in defense of the Oligolopy/Monopoly General Motors created and was using to abuse other market participants.

The last twenty years the claim could have been "What's good for the Financial Congolomerates is good for the USA."  The top five AMCs are creations of large Financial Congolomerates.  They created the Oligolopy Market, they set the prices to their advantage because they can.

But just as the General Bullmoose claim was false, so is this current claim.  We've seen what is good for the Congolomerates is not good for the USA.  The Credit Crisis worldwide is a result of short sighted business practices on Wall Street, aided by lax government oversight, ignored by legislators influenced by lobbyists.

HUD/FHA recognized that and is attempting to correct the situation by requiring unbundling of the fees reported on HUD 1 Statements to borrowers.  FHA is attempting to return to One Off Pricing for all FHA loan appraisals. 

HUD acknowledges that a healthy Appraisal Profession is vital to our local, regional, and national communities.  They recognize a healthy Appraisal Profession is even vital to the global economy.

Professional Appraisers agree.  They should be supporting HUD/FHAs courageous effort to correct the situation. 

The largest threat to the Appraisal Profession is the Pricing Structure created by the Oligolopy of the top AMCs, who were created by the large national financial institutions, and which force appraisers to pay for the benefits those same lenders receive from outsourcing their appraisal departments to the captive AMCs. 

Professional Appraisers have endured that Oligolopy enforced artificial pricing for long enough.  It has weakened the Profession which is vital to our local, regional, and national interests.  That Oligolopy has forced the appraisal businesses to accept fees which are below that necessary to maintain a competitive and profitable business.   

The Lenders themselves are damaged when the Appraisal Profession is weakened.  A healthy Appraisal Profession provides underlying value support for the CMOs that the golbal market invests in today, and those CMOs are vital to the continuing business of the national lenders and mortgage brokers.

The time has come to change the AMC business model.  Charge a fair price for the services provided and charge it to those who receive the benefits.  Eliminate the haircut to the appraiser.  Charge the Client for those services.  Do that and the single most damaging problem in the mortgage origination market will be resolved. 

Next time we'll discuss the one remaining thing that must be changed in the current AMC business model in order to restore the Mortgage Origination market to a fully competitive state where all can participate and which supports our local, regional and national communities best.  (Hint...we identified that in the first of this series.)

AUTHOR: Ken Verrett: The author is the owner of Acorn Appraisal Associates, a 24 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities.

Wells Fargo's $55.00 RVS Desktop Appraisal Releases 2/13/2010 - Restricted Use Report for Lending?

 The original document has been removed at the request of RVS for the reason below, but can be found on FNC Inc.'s site - Click Here

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Here are a couple of appraiser comments from the LinkedIn USPAP Group:

Stephen G. De Castro: President, S.G. De Castro Appraisal & Consulting, Inc.

Wells Fargo is calling this a Restricted Use appraisal report. As per USPAP, a restricted use appraisal report can only be used when the client is the only intended user. This pretty much eliminates utilizing restricted use appraisal reports for mortgage lending purposes since there are more users then just the client.

There are also the regulators, the investors if the mortgage is sold, the borrowers have been told by FANNIE MAE that they are intended users. The work file must contain sufficient information to produce a Summary appraisal report.

The underlying concept of the restricted use appraisal report is that the client is intimately knowledgeable of the subject property and the problem to be solved. Hence does not require excess information that someone not familiar with the property and problem would require to understand the appraisal report and conclusions without the possibility of being misled. It does not shorten the amount of work required under Standard 1. It only saves on some paper, toner and typing and is meant for very specific situations. So there is your USPAP validation to tell them to stick it.

Donald J. Martin, SCRP, RAA, GAA, CDEI Owner, Martin Appraisals.com

Also, do not forget, when you do a "Restricted Use," USPAP requires you to have everything in your workfile to produce a "Summary Appraisal Report" without collecting anything else for the workfile.

Since you have to do everything in the workfile that you would do for a Summary, you have done the majority of the work for a Summary anyway, why would any that has done that many hours of work, do a job for $51.00, it makes no sense.

Forms are never USPAP compliant, it is the Appraiser that makes them USPAP compliant. I really hope are State regulators and Federal regulators take notice here and put a stop to the nonsense that Wells Fargo is doing, it really is a sad thing they have no respect for USPAP or the law and more importantly no respect for the public.

We welcome your comments here or on the LinkedIn USPAP Group!

Disclosing Appraisal Services For Prior 3 Years - See Changes in the January 2010 USPAP Q&A

The Appraisal Standards Board (ASB) has issued their January 2010 USPAP Q&A

Download January 2010 USPAP QA.pdf

2010-01: ETHICS RULE – CONDUCT
Question: If I have appraised a property multiple times within the previous three years, do I have to disclose the number of appraisal services? (e.g., “I have appraised the subject property three times during the previous three years.”)

2010-02: ETHICS RULE – CONDUCT
Question: If I have performed a service other than appraisal practice, such as acting as a general contractor within the prior three years, do I have to describe the specific service or merely state a service was performed?

2010-03: ETHICS RULE – CONDUCT
Question: The Comment to the Conduct section of the ETHICS RULE states, in part, “If an appraiser has agreed with a client not to disclose that he or she has appraised a property, the appraiser must decline all subsequent assignments that fall within the three-year period.” Does this really mean that the appraiser could not be engaged by this same client, on this property, within the three-year period?

2010-04: ETHICS RULE – CONDUCT
Question: I am a staff appraiser for a company and only complete appraisals for my employer’s (the company’s) internal use. Am I required to inform the company that I have previously completed an appraisal within the three-year period when the company is already aware of it?

2010-05: ETHICS RULE – CONDUCT
Question: I am aware of the new disclosure requirements in the Conduct section of the ETHICS RULE for the 2010-11 edition of USPAP that requires me to disclose any services I performed regarding the subject property within the prior three years. If I have not performed any such services, am I required to make that disclosure as well?

Click here for the answers:  Download January 2010 USPAP Q&A

See Also - Five changes in the 2010-2011 USPAP you should know about