Appraisal Scoop

Appraiser Liability - Dodging The Bullet!

William (Bill) D. Cobb, IFA of Accurate Valuations Group, http://www.getfastvalue.com recently attended the Appraisal Institute Liability Management For Residential Appraisers: Dodging The Litigation Bullet Seminar in Pearl, MS.

Bill says: "Why I would highly recommend this 7 Hour Appraisal Institute Seminar? In the 15 years of my appraisal experience, I have attended many seminars. Very few have been practical. Most have only been theory. The main reason I highly recommend the seminar is that it presents case studies which really address every day issues that appraisers experience."

(Much of the information presented is directly from the handbook provided at the seminar and the notes taken by William during the seminar - with permission.)

The purpose of the seminar was to help residential (home) appraisers become a less attractive legal target and thereby avoid being the subject of litigation.  The seminar handbook explains that there are several ways to deal with appraiser liability:

1. Avoid it. Make yourself a less attractive target.
2. Transfer it. Shift the liability to another entity, such as the client or the other intended users.
3. Manage it. Understand and use the legal system to your advantage; create a relationship with a competent Lawyer who will assist you in your business affairs to pre-avoid liability. Have Errors & Omissions Insurance from a reputable company that will defend you with local contract attorneys.
4. Accept it. Acknowledge the fact that it exists and insure against it, such as with E & O insurance.
5. Ignore it. Pretend it doesn’t exist and hope it goes away.
6. Leave it. Change your career to one that is less adversarial.

According to the instructor, these are the Common Reasons for Home Appraiser Lawsuits and Litigation and Some Possible Remedies:

• Failure to discover and report improvement and site defects.
• Incorrect calculation of gross living area.
• Failure to report roof leakage, settlement or foundation cracks, wet basements, termite infestation and mechanical defects.
• Overvaluation or Undervaluation of a property.
• Appraisal of wrong property.
• Failure to verify, period.
• Defamation

Click below to continue reading . . .

Fishing For Appraisers - The Comp Check "Bait & Switch" Technique

Show me an appraiser that has not been asked to do a free "Comp Check" for a lender, and I'll show you an appraiser that's been in business less than a week!   The pressure to do "Pre-Comps" or provide "Ballpark Numbers" for lenders has been around for decades.  Appraisal Scoop has posted several stories in the past about the practice. 

Here's a quote from one of my earlier posts: "Can you check comps for me? I want to know if I should order an appraisal"

That's a common question that is asked of appraisers every day. Lenders and borrowers don't want to waste their time and money on loans that won't "Appraise Out". Comp Searches (pre-appraisal market value opinions) may also seem like good "Customer Service". 

That may appear to be true on the front-end, but those "searches" back-up appraisal production on the back-end (causing delays in appraisal delivery) and generally it's expected that the appraiser will not be compensated for THEIR time!.  Also . . Did you know that checking "comps" and providing an "estimate" of a home's value prior to receiving the appraisal order MAY put the appraiser in violation of the Uniform Standards of Professional Appraisal Practice (USPAP) and jeopardize their state license?

Now that homes sales volume is down, re-fi fever has cooled and some markets have softened, mortgage brokers (and lenders) are trying even harder to get their target value in advance of hiring their appraiser. 

Just yesterday I received no less than three calls from mortgage brokers wanting me to provide a "Comp Check" value in advance of receiving the appraisal order.  What's going on?!

Historically, Internet-based mortgage companies will call . . . fishing for appraisers.  They're usually from out-of-town and "their appraisers" always check values for them to be sure that the loan will go through.  The faster they talk . . .the shorter the conversation with me will last!  Most appraisers won't even consider such requests because if they can't match the number once they've inspected the house, they know they'll find themselves battling with the mortgage broker, owner, and borrower!

What happens when I turn them down?  They go fishing for another appraiser until they find one that will :

• Do the Comp Search
• Provide a value that meets the lender's "Target Loan-To-Value".

As appraisers, we think that the broker is just trying to get a "Free Appraisal" upfront so that he's sure that his loan will go through.   But is that ALL there is to the story?

Click below to read the latest Mortgage Broker "Bait & Switch" tactics and how your "Comp Check" enables them to con consumers . . .

Title Insurance: Actions Needed to Improve Oversight of the Title Industry and Better Protect Consumers

The GAO's investigation of competition in the title industry report has been released, and its results are staggering. The 74-page report digs deep into the competitive issues surrounding the real estate industry, with title insurance serving as a jumping-off point for a detailed discussion of affiliated arrangements and referral practices among all of the players.

The report also looks at enforcement from the state and federal level and finds it to be lacking. Click here to look at what changes the GAO is recommending to Congress and HUD and how RESPA is at the heart of them all.

• Click here for an Abstract of the report.
• Click here for the complete report.

Federal Regulators Encourage Institutions to Work with Mortgage Borrowers Who Are Unable to Make Their Payments

The federal bank, thrift and credit union regulatory agencies are encouraging financial institutions to work with homeowners who are unable to make mortgage payments. Prudent workout arrangements that are consistent with safe and sound lending practices are generally in the long-term best interest of both the financial institution and the borrower. Institutions will not face regulatory penalties if they pursue reasonable workout arrangements with borrowers.

Borrowers who are unable to make their mortgage payments should contact their lender or servicer as soon as possible to discuss available options. Examples of constructive workout arrangements include modifying loan terms, and/or moving borrowers from variable-rate loans to fixed-rate loans. Bank and thrift programs that transition low- or moderate-income homeowners from higher-cost loans to lower-cost loans may also receive favorable consideration under the Community Reinvestment Act (CRA), provided the loans are made in a safe and sound manner. Federal credit unions are exempt from CRA requirements.

The agencies want to remind their institutions that existing regulatory guidance and accounting standards do not require immediate foreclosure on homes when borrowers fall behind on payments. In addition, under the Homeownership Counseling Act, institutions are required to inform delinquent borrowers about the availability of homeownership counseling. Institutions should also consider working with reputable consumer-based organizations to help financially stressed borrowers avoid predatory foreclosure rescue scams.

Click here for the full statement: Statement on Working with Mortgage Borrowers

ACI Acquires Real Estate Exchange Depot

Palm Coast, FL. ACI, a leading innovator in technology for the valuation industry, announced today the acquisition of the Real Estate Exchange Depot™ (REXDepot™), an Internet-based management platform for appraisers. Click here.

Marking ACI’s fourth acquisition during the Microsoft Windows era, REXDepot™ rounds out an already robust product portfolio. REXDepot™ will continue to expand as a product under the guidance and control of ACI and will serve as a vehicle to further extend ACI’s leadership role in the appraisal technology industry.

“ACI is a dominant force in the world of appraisal software. REXDepot™ needed the vision, leadership, and commitment of an industry leader like ACI to reach the next level,” said Steve Smith, founder, REXDepot™. “As both the founder and as a customer of REXDepot™, I’m excited for my appraisal business and for all of the customers using the system.”

REXDepot™ was designed to improve operational efficiencies for appraisers and their clients. It boasts a complete, web-based, appraisal office management system, allowing appraisers to easily coordinate assignments, communicate with clients, track accounts receivables, prepare payroll reports, and more.

“REXDepot™ represents another exciting addition to the services that ACI provides to appraisers,” said Dave Roberts, President, ACI. “With this acquisition, we are committed to advancing the REXDepot™ platform for the benefit of both ACI clients, as well as non-ACI brand users.”

Interested parties may contact ACI Sales at 800-234-8727 for further information.

An Email from “Concerned Appraiser”

The Great Depression of 2006 blog has an interesting Point - Counterpoint discussion between an East Texas Appraiser and an Administrative Reviewer for a large Appraisal Management Company. Here's just a part of the original post and subsequent comment:  (click here for the source post)

Appraiser: I live in East Texas and the local appraisal districts do not have a single licensed or certified appraiser on their staff. The appraisal review boards have no licensed/certified appraisers on their board either. However real estate loans are being made based on the valuation assigned by these groups.

Many banks make loans on real estate based on the opinion of a real estate broker or loan officer. Many real estate brokers have never taken an appraisal course in their life. Their opinions are used because they are cheaper and faster than a "real" appraisal.  And, of course, everyone knows that real estate agents know everything about real estate.

Then there is the AVM's. Just give the size and zip code of your home and a computer will spill out the value. The computer will not know about the foundation problems or leaky roof.

Administrative Reviewer:   The number of incomplete, inconsistent and illogical appraisals I see on a daily basis is astounding.

The industry is littered with economic hacks that perpetuate simplistic concepts that are passed down from their mentors. The coursework to gain an appraisal license is laughable (in most instances). The mentoring process (experience) is a joke as well; as bad habits and rudimentary data analysis is ingrained into the apprentices (in most cases).

There is a strong aversion to complex statistical analysis that would make the appraisal process more 'science' than 'art' (appraisers like to talk about the process being a combination of art and science ?). Talk to an appraiser about even basic linear regression and r(squared) and your likely to receive a puzzled look.

Zillow told it needs an AZ appraiser's license

PHOENIX - The Arizona Board of Appraisal issued two cease-and-desist letters to company that operates the popular real estate Web site Zillow, saying it needs an appraiser license to offer its "zestimates" in Arizona.

"It is the board's feeling that (Zillow) is providing an appraisal," Deborah Pearson, the board's executive director, said Friday.

Zillow warns users the estimates it provides are not a definitive value but a starting point for consumers. Launched in February, 2006, the company claims it has 4 million users a month, including people wanting to how much their homes -- or their neighbors' homes -- are worth.

The site has been criticized by real estate professionals and others concerned about its accuracy.

A complaint was filed in October with the Federal Trade Commission by the non-profit National Community Reinvestment Coalition, alleging Zillow was misleading consumers and others with its estimates.

"We have responded to the letters from the Arizona Board of Appraisal and hope to engage in a productive dialogue with them," said Amy Bohutinsky, Zillow director of communications.

The Phoneix Real Estate Guy blog thinks - "This is just plain idiotic and asinine. "

Have cease and desist letters also been delivered to Coldwell Banker, Bank of America, Domaina (Lending Tree), Devenio, National Property Value, Homegain, Home Appraisals USA, RealEstate.com, or any of the other similar sites offering automated valuations that are scattered all over the Internet?

From the Bloodhound blog:

Further notice: Official Zillow.com response from David Gibbons:

Lloyd Frink, Zillow’s President asked me to convey this official response to you, Greg:

“We strongly believe that providing Zestimates in Arizona is completely legal (and in fact an important public service), given that Zestimates are the result of our ‘automated valuation model’ and are not a formal appraisal. The Arizona Board of Appraisals relies on USPAP, the national professional standards for appraisers, and USPAP Advisory Opinion to determine propriety of activities. Here is the relevant opinion on this matter (Advisory Opinion 18): http://commerce.appraisalfoundation.org/html/2006%20USPAP/ao18.htm As you can see, it reads: ‘The output of an AVM is not, by itself, an appraisal.’”

From Inman News: click here

"The letters just ask that they cease and desist from the appraisal activities, and if they don't the board will have to pursue injunctive relief," said Pearson. The letters, dated July 31, 2006, and Nov. 28, 2006, state that the Uniform Standards of Professional Appraisal Practice, a generally accepted national standard for professional appraisers, "define 'appraisal' as an opinion of value" and that Zillow is "not a licensed or certified appraiser in the state of Arizona."

Humor - Why would I want a Home Inspection?!

As appraisers, we run into a LOT of funny stuff, but can anything compare to what our "brothers" the Home Inspectors run into?   An appraiser friend of mine sent me a Powerpoint show that was compiled from a series of Home Inspection Nightmares on the This Old House web site : Download ThisOldHouse.pps (1167.5K)   

Below are just a couple  of examples! (click image to enlarge)

Details, details
Photo: Lon Grossman, Technihouse Inspections, Inc.

Flashing—who needs flashing?!

Another automotive heating system - Photo: Scott Sharp, Guardian Home Inspections LLC   You're looking at some fine Ozark engineering. Yes, that is an automotive radiator attached to floor joists with hot water piped to it. All the pipes and the wood-burning boiler were constructed of recycled components from who knows what. And this is only what I could see. The system never did function to their satisfaction. I wonder why?

Download ThisOldHouse.pps (1167.5K)

• Home Inspection Nightmares I
• Home Inspection Nightmares II
• Home Inspection Nightmares III

Sales Contracts - You're the "Appraiser", Why should you NEED the contact?

Samuel Miller, in his Matrix blog, has hit on a qustion that all appraisers must deal with . . .

Q: One of my pet peeves for years has been how appraisers are given the house contract before they appraise the house. Why is that, other than the fact he needs to make sure that his valuation comes in close to the contract price, otherwise the deal is off and he won’t get any more business from that real estate and/or mortgage company? Appraisers should be above this. -Timothy Murray, certified financial planner, Chantilly Va

Mr. Miller ran across that Q&A at MarketWatch: How fair are appraisers who already know home price? and "got very annoyed at the assumption made by the person posing the question, stirring up an already healthy dose of irritation at the predicament my industry is in."

Here just a few of the issues the Samuel Miller addresses in his full post:

• Do you think that the appraiser can’t find out what the sales price is without viewing the contract?
• Are you aware of the laws that mandate appraisers review contracts?
• Don't you understand that appraisers need to know who the parties are?

• Do you understand the possible "valuation precision" consequences when operating in a blind-sale scenario?

"So is the issue resolved by hiding the price from the appraiser? Of course not. It may make you think that you have made the appraiser unbiased. But that’s incredibly naive."

Click here to read the full post

Freddie Mac Economic & Housing Outlook Now Available in MP3 Format

Freddie Mac's Economic & Housing Outlook by Chief Economist Frank Nothaft, is now available in MP3 format. Subscribe to the regular feature with Podcast or though iTunes and receive monthly updates on the state of the economy and housing industry.

From a recent edition: "Among those borrowers who are choosing to refinance now, a large share are doing so to avoid an adjustment to their monthly payment as the initial period on their adjustable-rate loan expires or to extract equity through a cash-out refi. In the fourth quarter of 2006, 84 percent of borrowers who refinanced their prime conventional loans increased their loan balance by more than 5 percent, totaling more than $70 billion in equity extracted."

Click here to get started.