Appraisal Scoop

Appraisal Standards Board issues October Q&A's - Workfiles, Appraising Business Interests, and Income Approach Only Valuation

The Appraisal Standards Board (ASB) has issued their October 2008 USPAP Q&A - 

Download Oct2008_USPAP_QA.pdf

Question: In the course of preparing my appraisals, I often research Multiple Listing Service (MLS) and other data sources. I use this information to develop conclusions regarding neighborhood value ranges and market trends. Is it necessary for me to include copies of this information in my workfile? Alternatively, can I simply reference the data sources in my workfile?

Question: I am an appraiser in a firm that performs valuations of business interests and assets (both tangible and intangible) for financial reporting purposes in accordance with Financial Accounting Standards Board (FASB) standards. Does USPAP apply to valuations for financial reporting purposes?

Question: An investment firm hired an appraiser to abstract leases, input the data into a lease-by-lease analysis software program, estimate market rents and expenses, estimate the discount rate, run ten discounted cash flows, and provide a value using the Income Capitalization Approach. The appraiser completed the assignment, including providing a conclusion of market value, and delivered the electronic lease-by-lease analysis file to the client. Should this service comply with USPAP?

Click here for the answers: Download Oct2008_USPAP_QA.pdf

Downturn in Market Leads to Upturn in BPOs - May not be legal!

According to the Appraisal Institute's newsletter article: "Inside the Beltway: Downturn in Market Leads to Upturn in BPOs" -

Over the last year, there has been a tremendous increase in the use of broker's price opinions (a.k.a. comparative market analysis, broker's estimate of value, etc.) that are being performed by real estate brokers and salespeople, in lieu of appraisals. While BPOs were previously used for very limited purposes, they are now being used as valuation products in the finance arena, primarily for the review of distressed properties prior to short sales or foreclosure. They are also being used in areas previously unimagined several years ago, including segments of the commercial market. However, the BPO work being done by brokers and salespeople may not be legal...

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Zaio Closes Its Doors in the US Today!

 

Click here for the complete letter: Download Zaio_Notice_Appraiser.pdf

Appraisal agency's new chief quits after first day

According to the latest article by Mitch Weiss - Associated Press Writer - click here:

"Government e-mails turned over to the Associated Press last week revealed that the new executive director of the agency charged with regulating real estate appraisers quit hours after the AP exposed widespread problems with the agency on Aug. 18."

"It was Linda Nessi's one and only day on the job at the Appraisal Subcommittee, and she left without warning or explanation, according to the e-mails, which were obtained by the AP after a request under the Freedom of Information Act."

The performance of the Appraisal Subcommittee was among the subjects detailed in a six-month AP investigation that identified key failings in the nation's regulation of appraisers.

"The AP found that since 2005, more than two dozen states and U.S. territories have violated federal rules by failing to investigate and resolve complaints about appraisers within a year. Some complaints sat uninvestigated for as long as four years and as a result, hundreds of appraisers accused of wrongdoing have remained in business."

Click here for the complete article.

The URARS: Part three - One step back before two steps forward!

When I came up with the concept of the URARS (Uniform Residential Appraisal Reporting Standards), it was "all about communication", between us and the clients, readers, reviewers and underwriters. I thought that if we had better communication, we would have fewer problems, so I proposed such things as "de facto standards" to replace "subjectivity with objectivity".

I also proposed that we enlist "a la mode, Inc." to once again "step up and help us help ourselves", similar to what they did with the HVCC petition. Both suggestions met with favorable responses, but with some raised eyebrows as well, as so before we take a step forward, I want to take a step backward and do what I originally set forth to do when Brian Davis and I created the "Clarification of Scope of Work Addendum" (COSOW) , "clarify what we should be doing and why". 

The "de facto standards" I am advocating will not be similar to Wayne Brady’s Las Vegas act, "Making $%# Up", which seems to be the opinion of some. We won’t be pulling "de facto standards out of the air" so that appraisers can use them to justify actions or procedures that are contrary to good judgment or inappropriate for the requirements of the assignment.

Since I am advocating "de facto standards", let’s revisit the meaning of "de facto".

"De facto is a Latin expression that means "of the fact" or "in practice" but not ordained by law. It is commonly used in contrast to de jure (which means "by law") when referring to matters of law, governance or technique (such as standards) that are found in the common experience as created or developed without or contrary to a regulation. When discussing a legal situation, de jure designates what the law says, while de facto designates action of what happens in practice. It is analogous and similar to the expressions "for all intents and purposes" or "in fact". The term de facto may also be used when there is no relevant law or standard, but a common practice is well established, although not universal".

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Half-Built Subdivisions - Modern-Day Ghost Towns

In keeping with the upcoming Halloween weekend, I thought this Wall Street Journal video about modern "Ghost Towns" was appropriate. 

According to the Wall Street Journal: "Across the U.S. the first to move into new subdivisions in recent years find themselves all alone." WSJ's Alex Roth looks at a suburb of Georgia in which new homes sit empty and how the few residents there live isolated existences.

The URARS Part 2: What steps to take and which direction to go?

In "You've ALWAYS Had The Power! Creating Uniform Residential Appraisal Reporting Standards (URARS), I suggested we start with the "Clarification of Scope of Work Addendum" (COSOW) as a template for the URARS for several reasons. First, the Scope of Work within the URAR is broad and unspecific and second, the COSOW defines many terms and states the appraiser’s actions in a format that is "uniform".Download COSOW.pdf

Uniform implies consistency and that is what is needed for the URARS. Regardless of the property’s location, physical attributes or local custom, the URARS (and the appraiser’s action) must be the same.

Does this mean the URARS will not allow for flexibility if needed? Absolutely not, the URARS is not about being "inflexible". It is about providing a framework or standard for analysis of common as well as unusual situations.

What will make it different?

The URARS doesn’t remove the appraiser’s ability to exercise judgment for a unique assignment, only that in employing a technique, it must be consistent with the methodology that other appraisers would use in a similar appraisal problem.

Through "uniformity" your definition of urban, suburban or rural will be same as my definition. When you define a neighborhood, it will be described using the benchmarks and guidelines that I would. Uniformity removes subjectivity via "de facto standards".

Through the URARS, those that rely on the appraisal (underwriters, clients, regulators, the secondary market, etc.) will have reference to and common understanding of the same terms, techniques and applications. As a result, appraisals will be measurable and verifiable.

More importantly, the URARS will provide a defensible document, one that is representative of "the actions of our peers" and "generally accepted appraisal practice", the same standards of performance identified within USPAP and by the secondary market.

If we build it will the come?

Appraisers are skeptics by nature and given what the industry has gone through since FIRREA (the document that was to solve all of our problems) it is reasonable that they should be. FIRREA and USPAP did solve some problems, but they also created some "intended consequences".

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You've ALWAYS Had The POWER! Creating Uniform Residential Appraisal Reporting Standards (URARS)

Most of us remember The Wizard of OZ, the characters, their plights and the journey that served as a lesson to be learned. The Scarecrow wanted a brain so he could think of great things, the Tin Man desired to be more human with a heart, the Cowardly Lion needed courage to face his challenges and Dorothy was looking for a way back to Kansas.

In the end, each realized that what they wanted, they had all along. The journey merely served the purpose of letting them discover what they hadn’t to that point, similar to what appraisers haven’t discovered to this point. Like the characters in the Wizard of OZ, we have the power to effect the changes desired, we simply need to band together on a journey to discover it.

In the series "The Right Start", I wrote of things we could accomplish by working together. The theme was simple, "what if", something I borrowed from an old TV commercial. "What if" represents the possibilities when we abandon preformed conclusions, no longer seeing the glass as "half-full or half-empty" by opening our minds to possibilities.

Objectivity allows us see the glass differently, neither "half-full nor half-empty", but rather twice as big as it needs to be to hold the same amount of water, which leads to new thoughts and possibilities. We have lived with a foregone conclusion that Fannie Mae or Freddie Mac must take action or that USPAP must apply to all to resolve the issues, overlooking the possibilities of our own action to "fix that which is broken", at least to some degree.

What can or should be done?

A good place to start would be to consider appraisal fundamentals and the types of issues taken for granted by many professionals, but confusing or points of debate with others we deal with. The mortgage industry lacks consistency in application, definitions and comprehension of what we do and how it should be done.

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Back To Basics - How Do We Make Appraisals More Reliable?

In the wake of the mortgage meltdown, new policies and requlations aimed at enhancing the reliability of appraisal reports, are being leveled primarily at real estate appraisers. Some of the changes that are being suggested are:

• Creating a so called “middleman” or "firewall" between the appraiser and the mortgage broker that will eliminate pressure and fraud. Hence the HVCC
• I have heard some talk that HUD will increase the licensing requirements for appraisers that want to provide FHA appraisals.
• Increase on the so called education level of the appraiser.
• Increasing license requirements

I would like to remind everyone that appraisers have been around longer than there have been licensing requirements and USPAP. Although there has always been pressure on the appraiser to come to a predetermined value we had this level of a problem before now.

So the question is: How do we make an appraisal more reliable?

Some of the more seasoned appraisers can look at the changes over the years and see that two things have been happening.

• We are getting about the same fee we got 20 years ago
• We are doing less work than we did 20 years ago

What has happen? Have we changed our priorities from being concerned with determining an accurate fair market value to meeting the minimal requirements of USPAP?

Meeting minimal USPAP requirements is just that, meeting minimal requirements.

For this discussion, I propose extending our analysis beyond these minimal requirements, which will increase the reliability and there for the final conclusion.

There are several other factors that I feel are important to recognize and justify this statement.

1. I believe that appraisers that have obtained their license over the 10 years are getting less and less training before they go out on their own. The grapevine mythology of teaching you pupil less than you know continues to escalate the lack of knowledge each proceeding appraiser gets.
2. Meeting minimal standards for providing an appraisal is fine for ethical appraisers but fraudulent appraisers can take advantage of these minimal requirements.
3. The industry has been consumed by fast and cheap services.
4. Appraisal organizations have not stepped up to the plate to substantiate what they teach actually has merit.
5. Politics got involved in something politian’s know nothing about.

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Countrywide's "Field Review List" is a Black List according to latest class-action lawsuit

SEATTLE - A group of Idaho appraisers today filed a class-action lawsuit against Countrywide (NYSE: CFC) claiming the company used strong-arming tactics to intimidate appraisers to generate reports in line with Countrywide's business objectives. Download Capitol_West_vs_Countrywide.pdf

The lawsuit, filed in U.S. District Court in Seattle, claims Countrywide forced appraisers to use improper appraisal techniques that benefit the lender and punished those who did not participate by blacklisting individuals and companies for up to a year, denying them work.

One of the plaintiffs, Capitol West, saw its monthly revenues fell by $8,000 as a result of being on the Field Review List and a Countrywide employee told the business it will remain on the list for at least a year, according to the lawsuit and a Seattle PI.com article.

Countrywide, the largest home mortgage lender, has the reach and influence necessary to affect an appraiser's business if they fail to follow the company's guidelines, the suit claims.

The lawsuit claims Countrywide's actions caused substantial damage to thousands of appraisers on top of distorting real estate prices in the marketplace.

"The integrity of real estate appraisals is more important than ever and time and time again Countrywide is showing its customers and partners that it only cares about profits and market control," said Steve Berman, managing partner at Hagens Berman Sobol Shapiro. "The bottom line is our nation's at a breaking point where we can't take anymore corporate dishonesty in the home market - a role Countrywide's becoming notorious for."

The lawsuit claims Countrywide's interest lies in property passing appraisals its way, rather than determining whether an appraisal is fair and accurate and in accordance with industry standards (Uniform Standards of Professional Appraisal Practice or USPAP).

"We believe if an appraiser doesn't 'play ball' with Countrywide and produce a report affirming the value Countrywide expects, it places the appraiser on its 'Field Review List,' or blacklist, which it then sends to mortgage brokers who hire appraisers," said Berman.

As of Aug. 28, 2008, more than 2,000 appraisers appeared on the Field Review List and Countrywide's been using the blacklist practice for more than four years, according to the complaint.

If you or your company is on the list, HBSS would like to hear from you. You can contact HBSS by clicking here, e-mailing [email protected] or calling (206) 623-7292.

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