Appraisal Scoop

Verification of Data: Understanding Buyer-Seller Motivations

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.   

I received a private email this morning on the verification step of the Direct Sales Comparison approach and started to respond privately, then realized it was this type of question that spurred creating the InlandCAAppraisers Forum at Yahoo Groups. That, along with an encounter with an appraiser in denial about what the Housing Market was doing. That was 2-years and 19,930 Messages ago.

Here was this morning’s question: “I would like to pick your brain on some of the most informative questions to ask agents (market participants) during research and verification when doing a commercial property.”

There are two elements to verification, transactional, and physical. Transactional deals with motivations of the parties, terms and conditions.

Often when appraisers do verifications, they concentrate on Price Point verifications, not on the transactional aspects. Yet it is the motivations of the parties and understanding whether they were normal or one party was under some kind of pressure or duress that can make a large difference in the price.

We have seen properties sell at a discount because of the owners timing needs. I once had a man that I had been prospecting call me on a Monday and tell me he was ready to sell but he had to close by Friday. We did the deal, putting it in escrow that day at a 17% discount from what I thought it was worth. Other times it is as simple as the buyer being an adjacent owner that needed the property and paid a premium. We have seen more than 20% premiums paid by adjacent owners.

The point is that Motivations can make big differences in the Sales Price. Getting to an understanding of them, cannot really be done by reading our data sources.

Click here to continue reading . . .

 

OCC Head John Dugan Knocks Fannie, Freddie Appraisal Deal

  According to Reuters writers Patrick Rucker and Karey Wutkowski,

"Comptroller of the Currency John Dugan said the deal struck between the two mortgage-finance giants and New York Attorney General Andrew Cuomo in early March will not eliminate flawed appraisals and might unduly burden mortgage companies. The plan would prohibit Fannie Mae and Freddie Mac from buying home loans where the property value is determined by an in-house appraiser."

Click here for the complete article

Fannie Mae Agreement

Freddie Mac Agreement

Home Valuation Code of Conduct

The Fair Value and Independent Appraisal Act - Senators Casey, Martinez, Kanjorski, and Biggert

MARTINEZ: HOUSING APPRAISAL REFORM WILL PROTECT CONSUMERS AND LENDERS

April 15, 2008 - WASHINGTON - U.S. Senator Mel Martinez (R-FL) today joined with Senator Bob Casey (D-PA) in introducing legislation to reform the appraisal process for home purchases and deter appraisal fraud schemes. The Fair Value and Independent Appraisal Act is a move by Senator Martinez to continue his work towards reforming and strengthening oversight of the mortgage system.

“There are some truly bad actors out there posing as legitimate appraisers. The ripple effect has worsened the mortgage crisis,” said Senator Martinez, former Secretary of the U.S. Department of Housing and Urban Development. “There continue to be too many unchecked components in the appraisal process. This will protect both consumers and lenders by improving oversight and putting more checks in place.”

In cases of appraisal fraud, an appraiser and a mortgage broker work together to sell homes at higher prices than they are worth. An appraiser inflates the value of a property, which increase the size of the mortgage. While the unsuspecting homebuyer is stuck with an over-valued home and expensive mortgage, the scammers make out with more money from an inflated broker fee. These homeowners often end up in foreclosure and the lender is left with a worthless home.

“A disturbing byproduct of the increased rates of foreclosures is unscrupulous individuals trying to profit from other people’s losses,” said Senator Casey. “Stopping these flipping schemes will help give confidence to those buying homes that appraisals on their new homes are accurate and won’t come back to haunt them later.”

This legislation will:

• Require a physical property visit and a second independent appraisal for any high-interest, high-risk mortgage offered for a property sold at a higher price within 180 days of its last purchase;
• ensure appraiser independence by prohibiting interested parties from improperly influencing a property appraisal;
• ensure that appraisers are qualified and follow certain minimum standards;
• require a mortgage originator to make available to the credit applicant all appraisal valuation reports no later than three days prior to the transaction closing date;
• and set increased civil penalties for violating these provisions ($10,000 for 1st violation; $20,000 for 2nd).

Click here to continue reading . . .

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 . . .

a la mode Announces "Appraisal Press" Industry Newsletter

I'm at the a la mode Las Vegas convention this week participating in their "Real World" series of appraiser seminars. Patrick Egger (Outside The Boxes series) and I (Appraisal Scoop - Paperless Office) will be presenters on April 12-14.  The “Real World” series are courses are taught by a la mode customers and are designed to show real life examples of how technology can make a difference in your office.

One of the first announcements was the start of a monthly print and online newsletter called Appraisal Press. 

Dave Biggers, a la mode Chairman said, "We realized that producing this monthly print and online newspaper, instead of various printed and online advertising pieces and newsletters, was the best way to really affect the transformation and aid our customers. So, in here, you’ll find candid, first-person, timely, hard-hitting articles and op-ed pieces — usually delivered in irreverent and edgy style."

Dave also said, "So, why not just write a blog and go doubly green by saving a few trees? Well, blogs are cool, but they aren’t read by the majority of appraisers. By printing a real newspaper while also providing a true online destination (http://www.appraisalpress.com) with the printed articles and more, we reach more people and offer the best of both worlds. We hope you agree."

Click here for a sampling of timely articles and opinions....

Runt Rants - Making Good Business Decisions - Stupid Is As Stupid Does

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

We are in the midst of another decline cycle in our economy that inevitably follows an expansion period. "Irrational Exuberance" coined by Alan Greenspan years ago is the perfect concise phrase to describe our collective state of mind during those times of expansion.

Stupid Is As Stupid Does

We see ourselves so smart, so invincible, so impervious to risk that we make what in hindsight are stupid mistakes. Of course, we are no smarter, no dumber collectively during the good times or the bad times. We are simply caught up in the moment. We experience irrational exuberance.

The trick in both expansions and contractions as a business owner is to keep your perspective, to see the big picture, and to make decisions regarding your business and your market that are the right ones, not ones based on false perceptions. It is when we make decisions based on bad data that we threaten our future.

Just How Bad Is It Today?

Currently we read that our economy is tanking, that we have several economic crises coming together.  It is certainly true that we have some challenges ahead. The sub prime crises caught many of us by surprise. The Cuomo Agreements caught many of us by surprise.   We may even be in a recession. 

Unfortunately we are also in a major campaign period where a battle for our minds and votes is taking place between opposing sides, each vying for a short term edge, willing to twist facts and level charges that they will quickly abandon later if necessary. Confusing times!

Appraisal Markets Are in Process of Change

Amidst all of this we in the appraisal profession have to deal with the declining markets in many areas of the country, the sub prime crises, and now the Cuomo Agreements. Enough to give us all collective heartburn!

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FNC® Conference Call to Brief Appraisers on New Fannie/Freddie Agreement

FNC® held a conference call to discuss the new Fannie/Freddie agreement TODAY, April 4, at 11 a.m. CDT. This call was free and open to all who were interested.

Bill Rayburn, founder and CEO of FNC, Kathy Coon, SRA, FNC’s chief appraiser and director of Appraisal Quality Control, and Neil Olson, FNC’s Chief Legal Officer, addressed the following:

• The overall scope of the agreement;
• What the new policies and procedures mean for FNC’s appraiser customers;
• How FNC will help its customers comply; and next steps.

As part of the presentation, FNC provided the following supporting documents, a copy of the presentation and other related references.

• Conference Call Presentation (1mb)
• NY AG with OFHEO/Fannie (32kb)
• NY AG with OFHEO/Freddie (32kb)
• FNC Updates and Answers Newsletter (235kb)
• Home Valuation Code of Conduct (18kb)
• FNC Platforms Ensure Compliance Press Release (32kb)
• Rules on Providing Appraisal Reports (19kb)

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Alabama Real Estate Appraisers Board Issues Statement of "No Confidence" in Home Valuation Code of Conduct

Attached is a PDF copy (and text) of the Statement of "No Confidence" issued by the Alabama Real Estate Appraisers Board on April 1, 2008 regarding the Fannie Mae/Freddie Mac agreement with NY Attorney General Andew Cuomo. 

Scott Austin
Austin Appraisal, LLC

Honorable Troy King
Alabama Attorney General

Dear Mr. King:

Download alabama_hvcc_no_confidence_ltr.pdf

This letter is to make you aware of the "agreement" approximately three weeks ago between OFHEO, Fannie Mae, Freddie Mac and New York Attorney General Cuomo. This agreement is known as the Home Valuation Code of Conduct (HVCC).

The Alabama Real Estate Appraisers Board requests that you reject any proposal by OFHEO, Fannie Mae and Freddie Mac to enter into this agreement on behalf of Alabama.

• Fannie Mae Agreement
• Freddie Mac Agreement
• Home Valuation Code of Conduct

The HVCC as written harms the very profession it is purported to protect. The HVCC is constructed in such a way as to inevitably drive the appraisal ordering process through appraisal management companies (AMC's). AMC's generally cut the fees of appraisers, which in turn we feel will result in poorer quality appraisals. Because most of the more experienced and highly qualified appraisers will not accept the lower fees, the HVCC will likely force many honest, Well-qualified appraisers out of the business.

Because this agreement has negative and unintended consequences for appraisers and is not in the best interest of the public, the Alabama Real Estate Appraisers Board has no confidence in the HVCC and is issuing the following comments on Mr. Cuomo's agreement:

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FHA Issues Second Appraisal Requirements/Limits on Cash-Out Refinances: Letter 2008-09

HUD/FHA Mortgagee Letter 2007-11, announcing the FHASecure initiative, also included information regarding appropriate appraisal practices in declining markets; those instructions remain in effect. 

"Now, with FHA in position to insure mortgage amounts greatly in excess of what has been its experience as a mortgage insurer, we believe it prudent to set forth additional underwriting and collateral assessment practices for “high-balance” loans."

Specifically, for mortgage amounts that will exceed the January 1, 2008 conforming limit of $417,000, FHA is establishing a second appraisal requirement for loans on properties in declining areas, and limiting the loan-to-value for cash-out refinances. 

These requirements are further described below (see attached) and are effective for all mortgages with FHA case number assignments made on or after the date of this mortgagee letter.

Download FHA_HUD_Mortgage_Ltr_08-09.doc

Click here for excerpts of Mortgage Letter 2008-09  . . .

Table Talk with Apella Blog Looks "Under The Hood" of the Home Valuation Code of Conduct

Shane Leady of Apella Real Estate Business Solutions, and author of the popular appraisal blog Table Talk With Apella, has completed his review of the Cuomo Home Valuation Code of Conduct. 

His "Under The Hood" look at the HVCC is unique in that he's analyzed both the pros and cons . . .and offered his conclusions on a section by section basis!

With Shane's permission, I've uploaded his complete analysis in RTF and PDF versions to the Appraisal Scoop's servers.  I've also included selected segments of his Table Talk With Apella blog post below.

From "Appella's Review of Cuomo - GSE Home Valuation Code of Conduct:

As of late February New York Attorney General Andrew M. Cuomo and Fannie Mae, Freddie Mac established an agreement that has been titled The Home Valuation Code of Conduct.

• Fannie Mae Agreement
• Freddie Mac Agreement
• Home Valuation Code of Conduct

The Home Valuation Code of Conduct is compiled of eleven sections. The HVCC holds much potential in effecting the appraisal industry and the parties that use appraisal services for loans that are sold to the government-sponsored enterprises. The Home Valuation Code of Conduct was welcomed and endorsed or commended by all major appraisal groups including the Appraisal Institute and American Society of Appraisers (ASA noted changes needed).

Apella has researched various key components of the HVCC and compiled his analysis with attention to both its strengths and shortcomings.   Apella cautions: "Readers will need to refer to the Home Valuation Code of Conduct for actual and complete section reading.

The intention of Appella's analysis . . "is to allow the reader to compile their own independent view based on truthful as possible information and non-subjective links, facts and history."

Download Apella_Cuomo_HVCC_ProsNCons.rtf

Download Apella_Cuomo_HVCC_ProsNCons.pdf

Click here to continue reading . . .