Appraisal Scoop

They Can't Handle The Truth! - Publishing market statistics in a declining market can hurt your appraisal business

The Bakersfield Californian reports that real estate appraiser Gary Crabtree, SRA of Affiliated Appraisers will no longer provide news media with monthly reports that examine the local real estate market, saying that his business has been damaged because "industry insiders don't want to hear the truth" about a troubled market.

To learn a little more about Gary, I "Googled" him!   I found out that besides providing market analysis for clients and consumers, he's been working with the FBI to document a practice called "cash out at closing" that frequently uses overstated property valuations as the starting point.

The basic scenario, said Crabtree, involves realty agents who have listed houses that aren't selling. To move the properties, they entice buyers - or friends - to "submit an offer [for the home] that is $30,000 to $100,000 above the current list price," with the promise that they'll get substantial cash at closing.

No good deed goes unpunished!  As it turns out, some of Gary's lender clients aren't too happy with his market analysis though. For the past two years, Crabtree, who runs Affiliated Appraisers, has been providing reports that compile single-family home market statistics, including unsold inventory, existing home prices and new home prices.

According to Gary's "Open Letter" (click here for a copy):

As a result of my cooperation with the media, my business has suffered greatly. My conclusion is that industry insiders (Realtors ©, Lenders, Underwriters) “don’t want to hear the truth”. As long as the market performed at record levels, everyone wanted my information and opinions. Now that the market has entered a “correction phase”, my information and opinions have become less popular.

Gary says "

I have not received an appraisal assignment from a local lender for over a year. Local lenders have their own “stable ” of “preferred” appraisers whose license has been issued in the past four years, and have not experienced a market correction in their professional lives or that are “willing to work with the lender”.

Read Gary's Complete "Open Letter" (click here for a copy):

Examples of the types of reports Gary provides:

• Bakersfield Housing Market Characteristics
• Bakersfield Market - Buyer Profile Study

Related Stories - Gary Crabtree

Appraiser to stop releasing reports - http://tinyurl.com/2h2pwk

Appraisers seek curbs on lender pressure - http://tinyurl.com/yrrpzx

Slow Real Estate Market Hinders Valuations - http://tinyurl.com/2h7e8z

Overstated home valuations bring fraud, foreclosures - http://tinyurl.com/yt7esj

Appraisal Review - Avoiding "Reviewer" Liability

Author: Todd F Stevens is a partner in the law firm of Keeney Waite & Stevens in San Diego. He specializes in real estate litigation with an emphasis on the defense of real estate professionals. His telephone number is 619-238-1661. Mr. Stewns is the immediate past-president of the San Diego County Bar Association.

Here's a trend in real estate law: attorneys are waking up to the potential liability of review appraisers. Couple this with the common misunderstanding among review appraisers that their risk is less than the author of the original report, and you get a burgeoning new area of litigation.

Here's how to protect yourself . . .

Why Reviewers Get Sued

In my practice review appraisers increasingly are being named as defendants in lawsuits. In the typical transaction, the review appraiser has a contractual relationship with the lender while the appraiser retained by the mortgage broker to perform the original report does not. Lenders usually include language shifting some of the risk of loss to the reviewer. Lender/reviewer contracts often contain provisions permitting the party prevailing in a lawsuit to recover court costs as well as the fees paid to lawyers.

Carefully read any contract you are asked to sign by a lender who is hiring you for review work. You may be able to negotiate out some of the more onerous provisions. As a rule, lenders tend to insist that appraisers on their approved list be covered by errors and omissions insurance. When a loan defaults, the lender, armed with the contractual language just discussed, sues the appraiser, confident that insurance coverage exists for the claim.

I frequently hear the common myth, "If I didn't have E & O insurance the lender would not sue me." Wrong. I often get calls from uninsured appraisers who have been sued. In fact, until you are sued, the lender cannot be absolutely sure whether coverage exists for the claim.

In my opinion, the need for E&O coverage has never been greater. The real estate market is strong in most areas of the country with non-performing loans being relatively rare. This being the case a lender may litigate even if the loss is modest.

Reviewer Liability

Another big myth is that reviewers have less liability than the original appraiser. In fact, I have heard some attorneys argue that reviewers have more liability than the original appraiser since reviewers have the "last" opportunity to correct any problems with the report.

Click below to continue reading . . .

Population and Housing Analysis - "But that's not on the FORM?!"

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139

Once as a bank chief appraiser when reviewing a form appraisal of a home in Woodside, CA, I called the appraiser and asked him - "Where is the San Andreas Fault Line in relation to the subject property?"

His response was "It runs right through the Master Bedroom."

I then asked why he had not mentioned it and he said; "There is no check Box on the Form for that."

By then my opinion of him began to change, as I knew the fault Line ran through town. All of the comps were from the neighboring town of Atherton, across the freeway a couple of miles from the subject.

When asked why no sales from Woodside were used, he said; "After the Loma Prieta Earthquake, no one will buy in a town that has a fault running through it."

I then asked if the appraisal was subject to moving the home to Atherton and told him we needed it appraised "As Is - Where Is" under the market conditions that prevail as of the date of value.

"The point being, there are things that should be considered and analyzed in every appraisal because they have an impact on value.  Population changes are an important factor.  Embrace the data that follows and use it to make your self look like a stand-out in a sea of Licensee's. "

We try and use fresh Population and Housing information and in between the 10 year Census data. In doing so, we utilize the Department Of Finance (DOF) Population and Housing Report info that is published each year. It just came out for January 2007. Which means that all we have to do now is to up date it through this week.

Click below to read on . . . 

Put Me In Coach! - Appraisal Coach® announces a new training program for appraisers

Do you feel as though you hit the ground running as an appraiser without all the necessary skills or knowledge? 

Would you like to learn how to make the most of your appraisal career?

According to Edward L. Miano, SRA, "Appraisal Coach® was conceived for appraisers who have a desire to be the best they can be.  Appraisal Coach® was created to help mentor, inform, educate and guide appraisers."

Ed says, "We can help you develop your professional skills and empower you with the confidence to succeed and excel in the appraisal profession"

AppraisalCoach® is meant to supplement traditional appraisal education and experience, not a substitute.  They believe you need 

1. A good Education.  Education is the key to a strong foundation. Choose the best courses you can afford. 
2. Experience.  Like many things, you learn from your mistakes.  There is no substitute for practical experience. 
3. A Mentor – A good mentor will help you make sense of all you have learned. A good mentor can help accelerate your learning curve and help you maximize your potential.

"You may be able to become a better appraiser without any one of these components, but it will take you longer.  We believe in proper balance, like a 3-legged stool." 

AppraisalCoach® is designed to be affordable but it is not a mass-market product like a piece of software or a book.  It is individualized, personal, one on one attention. 

According to Ed Miano, "For the equivalent cost of maybe 1 or 2 assignments, you may be able to increasing your earning power by 10, 20, 50 maybe 100%."

Getting started is simple. Interested appraisers and trainees can visit their website at www.AppraisalCoach.com    Ed will also be editing a monthly Q & A column in AppraisalBuzz.  It will be a “Dear Abby” of sorts for appraisers.  A forum for appraisers and trainees to get answers to current questions.  Questions for the column may be submitted to Ed by email at [email protected]

Runt Rants - The Zaio Concept Conclusion

The author 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

[This is the third post in series a by Ken Verrett of Acorn Appraisal and Thomas J. Inserra, SRA of Zaio.  The first part Zaio and Me - The Business Model Examined described Ken's perception of the Zaio business model as an outsider looking in.  The second part Zaio's Response - The Business Model Examined was an effort byTom to clarify possible misconceptions about Zaio. In this final segment Ken looks at Zaio from an Insider's (Zone Owner) point of view.] 

When we started this column in 2006 objectives were defined in quite limited terms.  See the introduction here. http://tinyurl.com/ohcsz

I'm no expert in anything but my business. Brian asked me to contribute here, and he lets me choose my subject matter. I generally confine myself to my humble roots. So most of my posts have been my personal perspective, and the insiders view of my business, shared for better or worst when it relates to my image and ego. A chronicle of a business journey; the good, the bad, the full Monty. In that sense, Runt Rant's may be unique.

I share my closet, all for the common good. At least that is my intention. Whether I achieve that is for you to judge.

The one or two frequent readers of Runt Rants (there would be more, but my mother and father are long deceased) will recall columns in which I have detailed Acorn's history. We did a six part series on growing an appraisal business based on Acorn's experience. See http://tinyurl.com/yra4sa. For those short of time, Acorn is a twenty plus year old company that seven years ago embarked on an expansion plan. Then it was a one man shop. Now we have nine employees and are seeking a tenth addition.

Revenues have grown at an average annual rate exceeding forty percent each year during that expansion. Quality and customer service as measured by internal indexes has improved. The staff all earn incomes in the upper tier of their peers according to surveys we subscribe to at Salary.com. Employee benefits have continually increased; a group health and life plan has been established with Acorn contributing more than thirty percent of the cost for each employee. NOI for the company has risen at a faster rate than revenues as we continually use technology to increase productivity and efficiency while at the same time enjoying the significant benefits of economies of scale.

Last year was in many ways a watershed year for Acorn. Major gains achieved in gross revenues. Even larger gains achieved in NOI. Fat City! Time to reap the profits from the last six years of hard effort? Hardly! Business environments change daily. It's a competitive, Flat World out there. To rest on one's laurels is to risk being over run. We all know that. We've all been run over once or twice. Innovation and change are part and parcel of business these days if you intend to survive.

So it is in Acorn. We are always looking toward the future; to get more efficient, to be more productive, to find business opportunities that compliment our core business.

In December of 2006 I did a review of one of the new business concepts to hit the market recently: this one being the Zaio Corporation. That review can be read here http://tinyurl.com/y3sxy3 . I thought the review was quite favorable, but concluded that it didn't meet the financial performance standards in my business. Tom Inserra, the CEO of Zaio, responded privately to my column. His response was eventually posted on Appraisal Scoop. You can read those comments here http://tinyurl.com/tz993 .

At the end of Tom's response was an invitation to attend one of Zaio's Webinars to learn more. That I agreed to do, reasoning that to be fair I needed to learn more and if it changed my opinion, then I should so note that in a subsequent column of Runt's Rants.

A series of private emails were exchanged between Tom and myself, discussing different market trends and business philosophies. Like a rose opening, each additional piece of information changed the picture slightly, and none of those pieces were on the web site. That discussion led to Tom directing changes be made to the web site to provide more clarity.  That was impressive....a corporation willing to accept input and change accordingly.

Click below to read on . . .

Appraisers Bristle Over Ideas To Battle Low Valuations

Lew Schelman's article for MarketWatch begins -

"My recent response to a reader on how to attack a low appraisal registered a 7.7 on the Appraisal Richter Scale."

"Mostly, the large number of appraisers who wrote back said I missed the mark a bit when I said most house valuation experts limit their search for "comparables" to the local multiple-listing service."

"But some went further, asking that I be hung on the nearest yardarm." See previous Realty Q&A.

Click here for the complete article.

eAppraiseIT Subpoenaed By N.Y. Attorney General - Appraiser Pressure

According to Bloomberg.com New York Attorney General Andrew Cuomo issued a subpoena to the real estate appraisal unit of First American Corp. in his investigation of whether mortgage brokers pressured appraisers to inflate property values.

First American's eAppraiseIT LLC, which values up to 15,000 homes a year in New York, was asked for information about appraisals performed throughout the state, the president, Anthony Merlo Jr., said in an interview yesterday.

The attorney general has issued subpoenas to appraiser Mitchell, Maxwell & Jackson Inc. and broker Manhattan Mortgage Co., the companies said on May 18. "It's a very good thing, what the attorney general is doing," Mr. Merlo said. Mr. Cuomo's office was focused on "who's exerting the pressure" on appraisers, he said.

The First American unit, based in Poway, California, does about 50,000 valuations a month nationwide, said Merlo. He said the company is cooperating with the attorney general's request for information. ``Our preliminary meeting and responses were very favorable,'' Merlo said.

Cuomo's office is also seeking information on appraisal rebuttals, in which consumers, loan officers or real estate agents try to get the stated values of homes raised, said DeAnna McCann, chief marketing officer at eAppraiseIT.

"Those requests aren't improper provided they come with evidence that the valuation was incorrect, such as comparable home sales that an appraiser missed", McCann said.

The attorney general's office also is seeking information on how appraisal orders are placed.

Click below for related articles:

New York Subpoenas First American Appraisal Unit

NY AG Investigating Mortgage Fraud; Focus On Illegal Pressure On Appraisers

Appraising the Assignment, Appraising the Client: Risk Managment

The following article is by Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors,  The opinions expressed are the author's and do not necessarily represent those of the Appraisal Scoop blog.

In response to the Declining Value thread on the Inland CA Appraisers forum I thought I'd post on a topic I have written and given speeches about before.

For appraisers who have not majored in real estate, or have not studied mortgage banking, real estate finance or the secondary mortgage market . . "Having a license is a distinct disadvantage as they may not know the context of why we were licensed and what kind of risks await those who write inflated or misleading reports."

One of the first things one needs to do in my opinion is to appraise what type of client they want to have.  Not knowing one from another is a BAD thing,  BAD for the appraiser. An appraiser telling the truth is difficult whether the market is rising or falling when their client base does not want the truth per-se.

I fired an S&L once when their Chief Appraiser told me I had to take out Time Adjustments in a market that was going up double digits. We agreed that he would never call me again,  and he has honored my request for 20 years. I saw him at a luncheon last month and he nodded and smiled at me, not speaking. We know where we stand. He is in the pocket of the loan department. I am and independent appraiser.

Loan originators are advocates for getting loans approved, by definition. They will lie to appraisers to get them to bend to their will on issues that will allow a loan to be approved. Having a client base of loan originators ordering appraisals is the highest pressured, highest risk aspect of being in the appraisal business.

FIRREA, 1989, was supposed to put a firewall between lending and appraisal at the regulated lender level (any FDIC insured institution). It has been circumvented for the most part. Mortgage Brokers and even Mortgage Bankers are NOT regulated at all and can do anything they want to, anything they can, to do business and book loans. 

Mortgage Bankers, like Countrywide and Wells Fargo Financial do more loan residential volume than banks. In terms of the reported loan funding statistics. They make money funding  loans, with all the points and fees collected and they make money servicing loans. They make money every month on every loan they service. The goal is to increase the amount of servicing. Such is the nature of Mortgage Banking.

Records are kept on who is the biggest in the servicing sector, just as it is for loan originations. A lender, regulated or not, that is servicing a loan portfolio, may sell their loans and retain the servicing, or create Mortgage Backed Securities (MBS) that are sold via Wall Street, to investors, based on their yield.

Grandma's and Grandpa's all across America and beyond, buy financial investment instruments for their stated yields. They may buy dividend paying stocks and bonds too. I know, I am a Grandpa.

Unfortunately,the perceived Risks of MBS's may have been wrong, so very, very wrong.  Many investors are likely to end  up with no YIELD at all, the underlying collateral may have been miss-valued, over-valued in fact. A financial crisis is brewing and the underlying problems will be blamed on over-inflated and misleading residential appraisals.

Click below to continue reading . . .

Significant Appraisal Assistance - May USPAP Q&A

Question: In preparing an appraisal assignment, I talk with many different people. I know the report certification must identify individuals who provide “significant real property appraisal assistance.” What is significant appraisal assistance?

Response: USPAP does not include a definition of significant appraisal assistance. However, aspects of this phrase can be explored to clarify its meaning.

First, the term “significant” means that the contribution must be of substance to the development of the assignment results. In other words, the individual must contribute to the valuation analysis in a noteworthy way. An individual who merely collects or provides data for use in the analysis does not provide significant appraisal assistance.

Secondly, the reference to “appraisal assistance” means that the contribution is related to the appraisal process or requires appraiser competency. One misconception is that nonappraisers who provide assistance should be identified in the certification. This is incorrect because the certification requirements in USPAP apply only to appraisers. Thus, only appraisers sign the certification or are identified as providing significant appraisal assistance. For example, the use of an environmental expert to determine wetland boundaries would not be considered significant real property appraisal assistance.

Examples of contributions made by appraisers that constitute significant real property appraisal assistance include the identification of comparable properties and data, inspection of the subject property and comparables, estimating accrued depreciation, or forecasting income and expenses.

Source Document: May USPAP Q&A

Appraisal Foundation Announces Availability of 2008 Criteria Implementation DVD Video Stream

Appraisers can now view the 3-hour DVD produced by the Appraiser Qualifications Board (AQB) by visiting the foundation's website.  Listed below are the different chapters of the Implementation of the 2008 Real Property Qualification Criteria video.

You can either choose to view the video chapter by chapter, or, if you prefer, you can download the video in two parts to your local computer for later offline viewing.

• Chapter 1 - Introduction
  (Length: 3:41 / Size: 9.22 MB)
• Chapter 2 - Overview of The Appraisal Foundation
  (Length: 9:27 / Size: 23.6 MB)
• Chapter 3 - The Real Property Appraiser Regulatory System
  (Length: 6:50 / Size: 17.1 MB)
• Chapter 4 - Appraisal Subcommittee
  (Length: 4:21 / Size: 10.8 MB)
• Chapter 5 - State Appraiser Regulatory Agencies
  (Length: 22:12 / Size: 55.5 MB)
• Chapter 6 - Association of Appraiser Regulatory Agencies (AARO)
  (Length: 4:39 / Size: 11.6 MB)

Click below for more . . .