Appraisal Scoop

Getting the monkey off OUR backs . . . Appraisal Portal "Hold Harmless" Clause

Appraisers continue to express concern to us about potential indemnity obligations under the AppraisalPort user agreement. Short of seeing the indemnity provision taken out, appraisers have asked if we (LIA) can suggest any language for use in their reports relating to this issue.  (reprinted with permission)

We have developed the language below. Appraisers may consider including this language in reports they deliver via AppraisalPort if they are concerned about the technology and potential liability under the user agreement. This approach is far from ideal, but it is designed to decrease the likelihood of claims by lender/clients for which AppraisalPort might claim indemnity from the appraiser.

The reason this approach is not ideal is that AppraisalPort/FNC would likely contend it does not constitute a change of the user agreement. The primary intent, however, is to reduce the likelihood of a claim and its possible success.

The lender/client has directed that the appraiser transmit the content of this report via AppraisalPort. Pursuant to its user agreement, FNC/AppraisalPort has disclaimed any warranty that AppraisalPort will be error free, has advised that information reported to and by AppraisalPort may be subject to transmission errors, and has indicated that use of AppraisalPort is at the user's sole risk. Accordingly, the lender/client should make its own determination as to the accuracy and reliability of AppraisalPort for its use. The appraiser makes no representations and specifically disclaims any warranty regarding the accuracy or portrayal of content transmitted via AppraisalPort or its reliability. The appraiser uses such technology at the specific direction and sole risk of the lender/client. At its request, the lender/client may obtain a true copy of the original report directly from the appraiser via email (PDF), mail or other means.

As we have said before, to this date, we have not received a claim against one of our appraisers relating to use of AppraisalPort or received any report of AppraisalPort demanding indemnity from an appraiser. The indemnity provision in the user agreement has existed for several years. Thus, the risk to appraisers appears to be very low.

Nevertheless, it is FNC that is in the best position to gauge the risk, and it has included the broad indemnity language in the user agreement. It is also worth pointing out that the indemnity provision in the user agreement applies to all users of AppraisalPort, not just appraisers -- thus, AppraisalPort/FNC could conceivably demand indemnity from a lender or AMC using the service.

Cick here for the source article

Source: Appraiser Legal Defense and Insurance Blog

First Impressions of the 1004MC Market Conditions Addendum - Part Two

It's been a week since the announcement of the new 1004MC Market Conditions addendum. My first thoughts generated a lot of responses, so I thought I would take a closer look. The 1004MC is required for appraisals with an effective date of April 1 2009, however you can expect (and we have already heard of cases) that lenders will be requiring it long before that date.   Download MCA_Appraisal_Report.pdf

The replies to my post pointed to some of the short-comings or conflicts and raised the possibilities of even more, depending on your location Multiple Listing Service, etc. While the form is only one-page, the appraiser "must also provide support for the conclusions". Considering the questions and the limited space provided, I would expect the final product will be several pages.   New FAQ PDF from Fannie Mae regarding form 1004MC and other items.

After a trial run, even with the availability of a "statistics feature" in my MLS, the typical user will have to make multiple searches to provide the answers. If you share my view that "competitive to the subject" isn't always reflective of "neighborhood trends", you'll need to do the job twice to get both sets of answers. What about other issues? 

Inventory Analysis

What caught my attention was the layout and time periods for the data. There are three time periods specified, the first a 6-month period, while the other two are 3-month periods. With one being twice the size of the others, logically the number of sales in the first column will be larger as compared to the others. 

Imagine the "underwriter calls" you'll get when the first column shows 18 sales and the second and third columns show 9 sales and 10 sales. Do you think someone, somewhere, will want to know why sales have dropped from 18 to 9 and 10 and why you selected stable? 

Click here to continue reading . . .

Mortgage Lenders Demand More Thorough Home Appraisals

From the New York Times story "Suddenly, Stricter Appraisals" by Lisa Prevost

Mortgage lenders determined to stave off additional losses are demanding more thorough home appraisals and carefully reviewing valuation figures. If an appraisal is deemed too thin on supporting data, lenders may reduce the loan amount for the property, or not make the loan at all.

And there is little room for arguing with banks about a valuation.

“The banks are much less willing to make any exceptions at all,” said Bob Grace, a broker with Anchor Mortgage, in Westport. “They are looking for ways to squash a deal, as opposed to finding a way to make it work.” Mr. Hastings recalled one lender who walked away from a deal involving a “really strange contemporary” because the company wasn’t convinced there were any properties that compared with it for valuation purposes.

Click here for the complete New York Times article.

The Subprime Wolves Are Back - FHA-Backed Loans: The New Subprime

The same people whose reckless practices triggered the global financial crisis are onto a similar scheme that could cost taxpayers tons more. As if they haven't done enough damage. Thousands of subprime mortgage lenders and brokers—many of them the very sorts of firms that helped create the current financial crisis—are going strong. (see The Mortgage Standard)

Their new strategy: taking advantage of a long-standing federal program designed to encourage homeownership by insuring mortgages for buyers of modest means.

You read that correctly. Some of the same people who propelled us toward the housing market calamity are now seeking to profit by exploiting billions in federally insured mortgages. Washington, meanwhile, has vastly expanded the availability of such taxpayer-backed loans as part of the emergency campaign to rescue the country's swooning economy.

Podcast: The Subprime Wolves Are Back

To read the entire article - click here!

Who’s Measuring America? - Creating a Measurement Standard

Most real estate professionals (and homeowners) perceive real estate values based on a simple philosophy; price per square foot. The two amounts which provide this powerful number are the sales price and the size of a home. The sales price is a fact recorded at the county courthouse. The size or square footage is a number which has been taken for granted for so long, no one really thinks about where it comes from. The current trend (by real estate professionals, homeowners, insurance companies, and especially AVM’s) is to use the square footage information recorded in public records.

The property assessor uses a mass appraisal process and in most states never enters the dwelling. The errors in square footage should alarm us all. 50, 200, 500, many over 1,500 square feet, and mistakes are more often the rule, rather than the exception. Measuring and calculating square footage from the outside of a home is virtually impossible. The county assessor’s department is creating an estimate of size, for assessment purposes only. That information was never meant to be used as a detailed source of square footage. County officials have no liability (to homeowners or the real estate industry) in reporting square footage details and they don’t have to worry about errors and omissions.

The real estate industry is simply taking information, meant for use within the assessor’s department only, and trying to force that data to work in the real estate information system. Property values are being determined based on information which is wrong more often than it is right.

Automated Valuation Reports (computer generated value systems) base their values on some formula, which includes the square footage of the home. Any “value” conclusion based on faulty data can only provide unreliable results. Use of these inexpensive value services are gaining momentum among lenders, often due to the quality of the profits, not the quality of the product. Many consumers are now being forced to pay for an Internet based report as well as a traditional appraisal.

The Realtor® organization was founded (and grew to prominence), being the providers of real estate data. Known as providers of “the most trusted source of real estate information in the world,” agents have fallen prey to the easily accessible, free, and without personal liability, public record system. So, does this mean that public records are now the providers of the most trusted source of real estate information? Over the past five years, the use of public records within the real estate industry has skyrocketed. During the same time period a real estate crisis continues to grow.

After years of investigation, I believe there are two things which must happen to get the real estate industry back on tract. First, Realtors® must measure houses. This seemingly simple number, controls real estate loans and values across the country. Public records were never meant to be used for this purpose and cannot accurately provide this vital data. The second step is one that real estate professionals have been unable to agree on for over a century . . .

Click here to continue reading . . .

Yes Virginia, there is a State Board that cares - Converted Reports and AMC’s are on Notice

Time is measured, for the most part, around significant points in history. For example, our current reference time is centered around one person’s life time. History has been segmented before and after the birth of Jesus Christ. When historians study the past they will label blocks of time such as “Post-Reconstruction” or “The Industrial Revolution”. In the appraisal business we often refer to “Before Licensing” and “After Licensing”. Hopefully, we will now get to add another period of time: “Before AMC’s” and “After AMC’S”.

The State Board Web Portal Committee meeting occurred this past Monday, November 17. It was the most interesting meeting yet, and in all, it was the most important. We had several presenters that day:

Michael Watson Security Management Incident Director Virginia IT Agency (VITA)

George Dodd Certified Appraiser Petitioner

Stephen Nation E. Vice President Biometric Management Systems, Inc

Dave Biggers Chairman A la mode, Inc

George Dodd went first, and gave a very brief and informal presentation. Mr. Dodd was the original petitioner to the REAB, and as such was granted up to ten minutes to do so. Some highlights included:

• True Copy definition

• Data file reviews were fine for the backroom review processes done by mortgage companies or their third parties

• He underlined the importance of receiving an appraisal report as it was prepared in the intended format.

• He basically said the only true copy of a report could be the PDF as created by the appraiser or a paper copy that included all of the report prepared by the appraiser.

• Mr. Dodd also requested, once again, to allow a permanent special work group to be created for Technology

Immediately after Mr. Dodd, Pat Turner (a member of the REAB), asked for Carl Schneider, SRA to share with the board some documents that Mr. Schneider brought with him. Mr. Schneider is a CREA from Tulsa, OK and had in his possession several copies of reports that were in PDF form and in the AI Ready format. There were noticeable differences between what the appraiser had prepared and what was in the converted copy. One big difference was the depreciation in the cost approach was completely removed.

Mr. Schneider brought a few different versions of his reports, and one from another appraiser who will remain nameless to protect the appraiser’s wishes to remain private. This was a landmark example for the case of the appraiser’s as the appraiser sent a PDF of the file to the lender. What the lender ended up putting front of the underwriter to review was an AI Ready converted file. Understand this one point about this example: the appraiser did not convert the report. The appraiser had sent the report as it was prepared in the forms software in PDF format only.

In this case, the underwriter had called to ask for clarification on some issues I the report. In the course of the conversation the appraiser realized that some pages must be out of order or something of the nature. The appraiser asked for a copy of what the underwriter had and received the AI Ready version of the report. The mortgage company had an AI Ready format conversion done on the report.

Here is a list of things that were missing:

The above items could render a report misleading, There is no editorial spin in saying that moving around and rearranging information will result in the whether or not a document is changed in so far as the meaning and intent. We will touch back on that later in this article.

Click here to continue reading . . .

Appraisal Organizations say FDIC Loan Modification program is "misguided"

On November 14, 2008 FDIC announced a loan modification program that attempts to keep people in their homes at lower mortgage payments by extending the terms of loans and lowering interest rates. They appear to be relying heavily on BPOs.

The Appraiser Coalition has written a response stressing why this is a misguided procedure which violates the law in several states plus federal bank regulations.

Click here for the letter response to FDIC.

Warranty of Appraisal Quality - StreetLinks

While looking through the StreetLinks web site I noticed a couple of things that brought questions to my mind.

On their Valuation Tools page they say:

Estimating value prior to ordering an appraisal is critical to sales efficiency and customer credibility. Traditional methods of appraiser contact are already illegal in twelve states and many more states have pending regulatory plans to do the same. We anticipate that soon regulator and/or investor policies will impose strict fines and penalties on originators, appraisers and lenders that informally "collaborate" regarding values prior to completing an official appraisal.

Question:Can that be true? "Traditional" methods of appraiser contact are ilegal in 12 states??

Another section of their site deals with their Warranty of Appraisal Quality.  On the surface that sounds like a GREAT deal!  

"We back-up every appraisal with one simple commitment available nowhere else – in the unlikely event an Investor suffers a loss related to a proven defect in our valuation – we will pay it – period. "

 

 

Question: Are StreetLinks appraisers required to sign "Hold Harmless" agreements as part of a "Users Agreement?  I wonder if this warranty carries any additional recourse or unforeseen liability to the appraiser?

Maybe one of our readers or a StreetLinks representative can provide a link to the Users Agreement, if there is one.

The Sellers Frustration - Prospective Valuations

Real Estate values in numerous parts of the country are in a downward spiral with no end in sight. Sellers are feeling frustrated about setting their listing price accurately. Sometimes it helps to get a brokers price opinion (BPO), but not always.

If a seller takes it a step further and orders an appraisal, the value opinion is only valid as of the effective date. Most do nothing to project values. Even a prospective valuation may not be the right tool for the typical seller, because of the importance of present values.

 This may be the perfect scenario for utilizing consulting skills that will give the seller the knowledge needed to make educated decisions on how much to adjust the listing price of their home.

The last thing we want to do as Appraisers is to provide a worthless service.

In this market sellers are ordering appraisals more everyday. A single effective date valuation might not best serve the purpose of keeping their home competitive in the open market.

Measure the historic percentage of the decline and supply the rate of change that needs to be applied to the current “competitive” active listings. Instead of thinking in the traditional sense of adjusting for differences and giving one value, show a list of competitive listings (combined with showing only the most recent sales). Also show the seller historical decline rates at which the competitive listings should fall. This will enable the seller to have a realistic sense of how much to adjust the list price.

By giving our customers a service tailored to their circumstance, we can empower them to eliminate some of the frustration of selling their home in a downward market.

Author: Aaron O. Thomas, Certified Residential Appraiser. Aaron is owner of San Diego Appraisers, a real estate appraisal service provider specializing in residential properties located in the greater San Diego County area. San Diego Appraisers service mortgage brokers, CPAs, lawyers, businesses and homeowners.

ACI has recently acquired the assets of United Systems®, Day One®, and Appraisal.com.

I just received an email from http://www.ICAPweb.com announcing that:

ACI has recently acquired the assets of United Systems®, Day One®, and Appraisal.com. We are pleased to announce that we are re-opening operations and charting a new course for existing customers.

If you have questions about this announcement please contact ACI at: 800-234-8727 | www.aciweb.com