Appraisal Scoop

The "Right Start" - Step 3 - Association

AUTHOR:  Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. Click on Outside The Boxes for a collection of Patrick's articles on Appraisal Scoop!

For those that read the first two parts of “The Right Start”, we are about to enter “uncharted waters”. With the advent of the HVCC (Home Valuation Code of Conduct), once again we are hearing calls for “unionization”, “guilds”, etc. It is not that I think that unions are bad; it is simply that I have never been much of a joiner. I don’t want to be on a picket line or signing up new recruits. I would rather be watching a game and drinking a beer.

Since we already have numerous “professional associations”, do we need another or perhaps just something different? The problem is not the lack of associations, but rather the absence of “one association”, that represents “all residential appraisers”. By different accounts, there are more than 100,000 licensed residential appraisers in the US. When you add the number of trainees, I would expect a 50% or greater increase.

The memberships of the AI, ASA, NAIFA, etc. include residential and commercial (personal property and retired appraisers as well) and likely total less than half the number of active licensed appraisers, leaving the vast majority under-represented or without a voice. This is not about forming a “competing association” for “professional designations”; this is about “organization” to provide an “umbrella” that covers residential appraisers under one banner.

Copy the leader – the Power of One

Nationwide there are millions of real estate agents and the overwhelming majority are members of the National Association of Realtors. NAR members also join other organizations (Chamber of Commerce, Better Business Bureau, etc.) and sub-organizations (local MLS, Women’s Council, etc.). Many have designations (CCIM, GRI, etc.) from different groups, however all are members of “one organization”, NAR and that is the point.

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The "Right Start" - Step 2 - Tariffs

AUTHOR:  Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. Click on Outside The Boxes for a collection of Patrick's articles on Appraisal Scoop!

To me, the word "tariff" conjures up thoughts of Sherwood Forest, the Sheriff of Nottingham and Robin Hood. After all, tariff means "tax" or "levy" and the sheriff imposed and collected both. On the other hand, there was Robin Hood, well known for relieving the good sheriff of his "collected fees" and returning same to the rightful owners.

While I am not suggesting we form a "band of merry men", over the past decade, the cost of doing business has risen considerably and fees have remained flat. When you consider the "tariffs" charged by the AMCs (Appraisal Management Companies), along with the "required turn times", for many it is difficult to survive, let alone have the time to take the steps necessary to verify the data and develop a reliable opinion.

I read somewhere, that if you take the "pre-FIRREA" average appraisal fee and index it (adjusting for inflation and reporting requirements), today's average would be $700-$900 for a standard URAR, far from what is being paid by typical AMC's and well below that paid by most clients. 

Since borrowers "pay the fee" for "our objectivity", it would seem to be in the lender's interest to work closely with us, exchanging information on the market, keeping their staff up to date with issues and seeing we are paid well to "protect them". This should not be an adversarial relationship (yet often it seems to be). Clients should recognize and protect our role of "protecting them".

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Wachovia slashes dividend, jobs, to shut mortgage unit after $8.86B loss in second quarter - Pick-a-Payment blamed - Closes Wholesale Mortgage Lending Business

CHARLOTTE, N.C. (AP) By Ieva M. Augstums, AP Business Writer -- Wachovia Corp. lost $8.86 billion in the second quarter, and said Tuesday it was slashing its dividend and cutting 6,350 jobs after losses tied to mortgages soared.  Click here for the full article

The so-called "Pick-a-Payment" loans, which Wachovia inherited from Golden West, have proved a headache for the bank and a lightning rod for shareholders, defaulting at higher rates than other mortgages.

Wachovia recently discontinued offering the "Pick-A-Payment" loan option, which allows customers to pay a less-than-full interest payment on all new home loans. The bank also had hired The Goldman Sachs Group Inc. to conduct an analysis of its loan portfolio and advise it on strategic alternatives.

Late Monday, Wachovia announced plans to leave the wholesale mortgage lending business. And beginning Friday, the company will no longer offer mortgages through brokers, joining other lenders making similar moves to exit the troubled sector.

Click here for the full article

Appraisal Standards Board Issues Comp Check Q&A's - You are now entering the ASB Zone. . . Where questions are answers and answers are questions

The Appraisal Standards Board (ASB) has just issued their July 2008 USPAP Q&A - Download July_2008_QA.pdf with the following questions/topics:

• Electronic Report Delivery
• Can Appraisers Perform "Comp Check" Assignments?
• Can Appraisers Perform "Comp Check" Assignments for Free?
• Is Disclosure of a Free "Comp Check" Assignment Required?

The following is a lighthearted, but serious, review of the "Comp Check" Q&A's provided by George Dodd, SRA and originally appeared on the WinTOTAL Users Group forum:

It is "a dimension not only of sight and sound but of mind", "a place of things and ideas", "between the pit of Man's fears, and the summit of his knowledge". (Rod Serling).

You are now entering the ASB Zone. . . Where questions are answers and answers are questions.

1. You cannot do a comp check with the purpose of receiving an order for appraisal on the same property. However you can do comp checks for the purpose of maintaining a business relationship with a client in the attempt of getting business. (see the difference?)

2. You can do a comp check and get an appraisal order for an appraisal on the same property as long as you didn’t do a comp check for the purpose of getting the order. And you can continue to do comp checks as long as you are not doing comp checks to get specific appraisal requests. (see the difference?)

3. If you did a comp check and then received an appraisal request for a property you did a comp check for, but you didn’t do the comp check in order to get the appraisal assignment, then you don’t need to disclose that you did a comp check because the comp check was not done for the purpose of getting the appraisal request. However, if you did the comp check for the purpose of getting the appraisal request than you cannot do the appraisal because it was conditioned on doing the comp check. However, if you did the comp check for the purpose of getting the appraisal report and then received the appraisal report as a result of doing the comp check then you need to disclose you did the comp check in the appraisal you can’t do.

Of course this does not answer the question: If I do comp checks for a client on a regular basis in the course of receiving work, or the client otherwise expects comp checks to be done in order to receive appraisal requests, does that evade the specific property comp check and appraisal request dilemma?

One must concede the ultimate humor with these Q&A from the ASB. Who else could answer a question so directly and specifically and provide guidance for us grunts. In the end it is up to each of us individually to do right and maintain our own ethics.

It is unfortunate that others will subvert the USPAP rules to their own ends. But the USPAP is not created to protect appraisers, its purpose and function is to protect the users of appraisal services and provide them the maximum amount of latitude in demanding appraisers do what they want.

AUTHOR: George Dodd, SRA.  Mr. Dodd can be reached by email at:  [email protected] or by phone at          (804) 746-2270       .

VA Appraiser's eMail Collects Past Due Invoice

The following is an email sent by Don Lee, IFA, an appraiser in Belleville, IL, to his client, an east coast lender. The mortgage broker was local and the Invoice was 3 months past due.

I have filed a complaint with the Veterans Administration and have forwarded on, this email to them. In the next several days I will be contacting my Attorney and my Collection Agency regarding an outstanding Invoice. I'm in amazement regarding Mr. (mortgage broker) and your organizations Business Attitude regarding payments to the Appraiser. Tell me what other companies in America pay their Vendor services only when and if the company gets paid?

Please be reminded that the Lender is required to collect the Appraisal Fee at the time of application, Line 37, form 26-1805-1 and forwarded on the Appraiser on receipt of "Certificate of Reasonable Value". ( I have just started inserting this language on all VA Invoices)

I'll be contacting the Illinois Department of Professional Regulation and file a complaint on (Your Mortgage Company) and (your mortgage broker), where you are both licensed to do business in the State of Illinois. I will advise them of your business practice of only paying Appraisers, if and when you get paid.

bcc: Southwestern Illinois Appraiser Users Group

Don received an email within hours from the mortgage company, saying "the check will be in the mail tomorrow" and has now received the check.

Don asks; "Why are some VA Lenders so lax that they require us to remind them to collect fee at time of application, when we make calls for payment?  I live next to Scott Air force Base, so 60% of my business is VA. "

Don M. Lee, IFA

Lee Appraisals

Belleville, IL 62223

Ph.          618 397-1082      

Fax 618 397-1092

What’s in Your Appraisal File Memorandum? - The integrity of our profession relies on THREE approaches to value

The real estate appraisal process is based on considering three approaches to value when providing an opinion of value for a specific portion of real estate. Cost, Income, and Sales Comparison. Yet, what is consideration without verification that an approach was indeed considered and deemed viable or not in the final conclusion of value?

Here's the fundamental question:

"Do the principles of our profession, regardless of USPAP, allow us to totally dismiss the income and cost approach without verification that the conclusion made by the appraiser can be substantiated?"

Let’s review USPAP

Standard Rule 1-4 In developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results.

(b) When the cost approach is necessary for a credible assignment results, an appraiser must: etc.

(c) When the income approach is necessary for a credible assignment results, an appraiser must: etc.

Standard Rule 1-2(f) states “identify the scope of work necessary to complete the assignment;

Comment: The scope of work is acceptable when it is consistent with:

• The expectations of the participants in the market for the same or similar appraisal services; and
• What the appraiser’s peers’ action would be in performing the same or a similar assignment in compliance with USPAP.

It continues to say:

An appraiser must have sound reasons in support of the scope of work decisions and must be prepared to support the decision to exclude any information or procedure that would appear relevant to the client, an intended user, or the appraiser’s peers in the same or a similar assignment.

An appraiser must not allow assignment conditions or other factors to limit the extent of research or analysis to such a degree that the resulting opinion and conclusions developed in an assignment are not credible in the context of the intended use of the appraisal.

Does USPAP allow us to make the statement that an approach to value is not applicable without any substantiation?

Which brings rise to another question: What is in your file memorandum? Do we need to have support that substantiates that an approach is not applicable?

I believe that part of the problem with appraisals that misrepresent the fair market value is in part due to the appraiser not utilizing three approaches to value to insure there are checks and balances to support the final conclusion.

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The "Right Start" Step One - Standards

AUTHOR:  Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. Click on Outside The Boxes for a collection of Patrick's articles on Appraisal Scoop!

What would make things better for housing, lenders and appraisers?  I am not talking about "quick fixes" for long-standing issues, FIRREA (Financial Institutions Reform Recovery and Enforcement Act) and USPAP (Uniform Standards of Professional Appraisal Practice) have proved such idealistic wishes only address the symptoms and do not provide the cure for what ails the appraisal industry.

For the symptoms, we could save millions by prescribing aspirin instead of taxpayer dollars. "Appraisal pressure, take two of these and call me when the scamers have left the mortgage business". "HVCC too focused on appraisers and not focused on the underlying issues, take two of these and call me when the market corrects".

The past several years proved that FIRREA and USPAP failed to accomplish what they set out to do nearly 20 years ago. While well intended, they were misguided, as they applied to only "appraisers" and "regulated institutions" and as they left loopholes that allowed the players to "sidestep the intent".   

Like the gems above from the "powers that be", the HVCC and IVPI are well intended, but pose more potential harm than good. It remains to be seen, what changes may take place before the details arrive, but from many perspectives, they are both more "aspirin" when we need a "miracle drug".

So, if we could get a "do over", starting today, what changes could be made to better protect "the public's trust"? What steps in a different direction might better assure John (and Jane) Q. Public that the "American Dream" is safeguarded by the appraisal industry, something envisioned by the authors of FIRREA and USPAP so many years ago?

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USPAP Q&A (Jan - June 2008): Scope of Work, Jurisdictional Exception, MLS Photos and more!

June 2008 USPAP Q&A

• Uniform Act and Scope of Work
• Valuation Methods and Jurisdictional Exception Rule
• “Before Acquisition Value” and STANDARD RULE 1-4(f)
• Uniform Act and the Review of “Low Value” Acquisition Appraisal Reports

May 2008 USPAP Q&A

• Does Changing the Sale Price Result in a New Assignment?
• Is it Permissible to Use MLS Photos for Comparable Sales?
• Is it Permissible to Use MLS Photos for Active Listings?
• Can an Appraiser Disclose the Identity of Past Clients in an Appraisal Report?

April 2008 USPAP Q&A

• Does USPAP Require Identifying Appraisal Credentials?
• Which USPAP Standards Apply to Personal Property Appraisal Consulting?
• Providing Sample Appraisal Reports

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ERC's Unique Property Database - BETA!

Appraisers and brokers often are challenged with determining an appropriate value/price estimate for properties that are so unique that there are few if any other similar properties to compare them to. This approach is especially challenging when there are simply either no or few similar sales to analyze.

The ERC Unique Property Database is not intended to replace the appraiser’s or broker’s research and analysis but, rather, to supplement it—to act as a sanity check, especially in those instances in which the appraiser/broker had so little market information on which they could base their analysis of the market reaction to the unique feature.

Click Here to search by physical features, functional, locational, and/or historical anomalies. You can search on more than one category

The database includes case studies with the following:

• High-tension wires near or on the subject site
• an adjacent landfill causing odors
• a historical feature such as a home built by an "important architect"

The goal is to have as many quality case studies as possible in the system to aid relocation professionals in their jobs. Currently, data is being contributed on an ongoing basis by relocation management companies and appraisers.

If you have a property that would be a good addition to the Unique Property Database please submit your information here and the ERC will contact you with further instructions.

FAQ – Unique Property Database

Special Thanks! to Danny Bordas - Senior Appraiser - http://www.smithrealtyadvisors.biz/ - Smith Realty Advisors

The Ethical Aspect of Real Estate Appraisal

This article is contributed by Sarah Scrafford, who regularly writes on the topic of luxury homes for sale in Florida.

It’s a question of ethics again, as we ask what happens when those who are supposed to set the standards are tempted or coerced to break or bend the letter of the law for their own purposes. Real estate appraisers must be totally unbiased when evaluating properties that come under their scanner, but that’s not the case with the recent slump in the realty sector. The sub prime crisis is taking its toll not just on homeowners, lenders and investors, but also for real estate appraisers who are increasingly coming under pressure to bend to the will of lenders, mortgage brokers and sellers.

Appraisers are being asked to submit reports with predetermined values that are much higher than the actual market rates, with the promise of having more business sent their way. Mortgage brokers and lenders are using this tactic to ensure that prospective buyers go though on their loan agreements. The higher the loan, the more the interest paid, and thereby lies the lenders’ interest in the whole shady dealing. The mortgage broker takes a percentage of the loan amount as his share of the pie, and that’s reason enough to ensure that the loan amount is higher than it should be.

The issue of ethics in real estate appraisal will have serious repercussions on the market if not addressed with the importance it deserves because:

• Independent appraisers who are desperate for business in these lean times are dependent on the clients that lenders refer them to. If they are true to themselves and their clients and provide judgments on the true value of the property, they soon find that they are mysteriously running out of further clients, thanks to the notoriously close-knit community of mortgage brokers and lenders.
• The unchecked continuity of this kind of over-valuation will lead to an artificial inflation of real estate prices.
• The situation is being made worse by the current downward market and the sub prime crisis that has seen a sharp decline in the sale and refinance of homes in the US.
• With the rule stating that appraisers are required to know the contract price beforehand, it’s not uncommon for brokers to send the figure they want to more than one appraiser with the implication that the one who complied would get the contract, or to choose the highest appraisal and refuse to pay the others.

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