Appraisal Scoop

AMCs: Prepare for Appraisal System to Change, Fees to Rise

GUEST POST: Reposted with permission of Elizabeth Ecker of Reverse Mortgage Daily  http://reversemortgagedaily.com/ .  Click here for the original article.

Changes across the appraisal industry including a declining supply of appraisers in the market stand to put pressure on this segment of the mortgage process. Those in the industry say something has to give.

Barring change that could include an increase in fees paid to appraisers, turn times could rise substantially, making for an even longer process—application to closing, they say.

Both mortgage professionals as well as consumers need to prepare for these potential changes, says Erik Richard, CEO of reverse mortgage appraisal management company (AMC) Landmark Network.

“Supply of appraisers is low and demand is high and it will only get worse,” Richard says. “We already see a significant number of our orders get hit with fee increase requests from the field. Building this cost in upfront will speed up the appraisal process.”

The AMC fee has not increased of yet, Richard says, but others in the appraisal business agree that a rise in the cost to consumers is one very realistic outcome.

“Fees are going to go up, and we are actually switching to a flat fee model as there’s just too much going on for things to remain the same,” says Brian Coester, CEO of Coester VMS. “Appraisal fees are going up not just because of regulatory cost but the requirements that lenders have on appraisers.”

The pressure is twofold: There are not only fewer appraisers than there once were due to an aging work force, but heightened regulation is also putting some additional pressure on AMCs and individual appraisers.

Through Dodd-Frank’s implementation, states have new rules and regulations regarding appraisals, and no longer can trainees conduct appraiser work, and thus there are fewer trainees at the same time many longtime appraisers are retiring.

“If we can increase appraiser happiness with higher fees, we can start to change the narrative and squelch the appraiser complaints,” Richard says. “Higher fees also make it more likely appraisers will see [an upside] in the job and will allow current appraisers the margin to bring on trainees.”

The actual cost may remain in question, but the increase looks to be inevitable, says David Stroop, regional vice president for Mortgage Information Services.

“Prices will probably continue to rise,” he says. “There are a lot of factors for this, including new regulations and less appraisers, but there are others out there as well.”

The model is broken, Richard says, and needs a solution to prevent long-term effects.

“As an industry I think we should fix the pricing model,” he says. “It’s currently flawed and without a drastic fix we are certain to experience short term frustrations but the long view is far worse.”

Written by Elizabeth Ecker 

 

GUEST POST: Reposted with permission of Elizabeth Ecker of Reverse Mortgage Daily  http://reversemortgagedaily.com/ .  Click here for the original article.

275 Websites for Property Assessment and Valuation

Property tax consultant Richard Sanderson has had more than 30 years experience in property tax administration and has valued some of the most complex properties for tax purposes over the years.  He
has just compiled and released a 24 page resource guide for property assessors, appraisers, tax professionals, and others interested in property valuation and tax policy.

Entitled “Selected Internet Resources for Property Assessment Administration and Tax Professionals” the guide includes more than 275 websites that are very useful to: 

• Academics in the field of local government administration and tax policy
• Appraisers
• Assessors
• Bankers, lenders, and mortgage loan specialists
• Commercial real estate developers and investors
• Property tax administrators
• Tax agents and corporate tax representatives
• Tax specialists

The full-text resource guide is free when you sign up to receive Property Assessment e-Alerts, a monthly e-mail to subscribers that notifies real estate appraisers, assessors, and others interested in property valuation of items of interest. 

A sample of the resource guide can be viewed by clicking here.   

Or click here to sign up and receive your free list of over 275 websites within the next 24 hours.  Of course you can unsubscribe at any time and the resource guide is yours to keep.

If you like the list let your friends and colleagues know about it.

 

About the Author: Richard L. Sanderson is a senior property tax consultant with Local Government Services International.  He is the former city assessor for the cities of Alexandria, Manassas Park (both in Virginia) and Midland (Michigan). He can be reached at [email protected] or at www.assessmentadmin.com.

 

The (potential) fiction of the Sale Price/List Price [SP/LP] Percentage

GUEST AUTHOR: Dave Towne, Certified Real Estate Appraiser - Towne Appraisals.  16422 Britt Rd., Mount Vernon, WA  Phone: 360.708.1196   eMail: [email protected] Web: http://www.TowneAppraisals.com

On the FannieMae/FreddieMac Market Conditions (MC) Form there is an entry for the ‘Median Sale Price as % of List Price’ at the bottom line of the top grid section.  In other parts of a report, clients and lenders often ask appraisers to use this SP/LP percentage to ‘adjust’ listings to predict the eventual sale price.

So what is that percentage anyway?

The SP/LP percentage is a sales and marketing scheme designed to show how close a Sale Price comes to the List Price of a property.  The math is simple: Sale Price divided by List Price, converted to a percentage.  On the surface, acceptable.   However, it’s not really useful for market statistics if it’s not done correctly. 

If inaccurate, what good is it?

If it’s not accurate, or is calculated improperly, and an appraiser uses the inaccurate percentage to
justify market evidence or make an adjustment, then you have potentially violated USPAP by producing a report (or at least part of one) that is not credible.

The rub comes in the methodology used by the various MLS systems around the country to calculate the SP/LP%.  Some of the private ‘MC Form’ generating spreadsheets that are based on MLS info automatically downloaded to the spreadsheet worksheet are based on the ‘most recent’ List Price, not the Original List Price.

The first dirty little secret is most MLS systems base the SP/LP% on the ‘most recent’ List Price verses the eventual sale price.  The % is fine if there has been no List Price change during the listing period, or no re-listing after its Original List Date with a different List Price.

The second dirty little secret is that most often MLS systems track the Days on Market from the ‘most
recent price change date’, not the Original List Date.  (Thankfully the Northwest MLS serving my area is a bit more honest.  Any re-list using a new listing number within 90 days has the original listing added to the new listing – to show the Original List Price, and the Original List Date in the listing to compute the CDOM.  However, they calculate the LP/SP% from the ‘most recent’ List Price.)

The third dirty little secret is the fact many agents are in on the ruse.  Some will re-list a property within a short time of original expiration using a slightly different street address to try to fool the MLS tracking system.  This helps them ‘puff the numbers’ to their benefit.

If a MLS system does not track and report the Original List Price based on ENTIRE days on market
(typically named CDOM – Combined Days on Market) as of the Original List Date, but only tracks the ‘most recent’ List Price, you will probably find that the SP/LP% will show a higher percentage figure based on the most recent List Price change.  Similarly, the Days on Market will be shorter.

This SP/LP% percentage figure should be calculated from the Original List Date and Original List Price
instead of the most recent List Price change date.

Unfortunately, if CDOM and Original List Price are not shown on the current MLS listing you may have to
examine the listing history to make the calculation.  But if the info is shown on the listing sheet you use (on screen or printed), then you should use the Original List Price, and also the total (or combined) days on market (CDOM).

Here’s an example of three properties from a large MLS system:

The inaccurate methodology used by the MLS systems is designed to ‘puff’ the percentage figure and shorten marketing times so that the results look more appealing to consumers and give bragging rights to the RE Agents.  But that does not mean we should use them when doing appraisal reports.  You can see by the examples above that the correct SP/LP% is lower by 3.1% to 11.5%.

When including Listings in reports, this appraiser REFUSES to adjust those for the SP/LP% - because we don’t really know for what price the listed property will sell.  As the example above shows, the percentage is somewhere between 86.8% and 100% - but more accurately 86.8% to 94.4%.  But it could be above 100%.  So what figure should the appraiser use?  I have a statement on the report Listings page that states why I don’t use this percentage figure.  Only one underwriter has ever challenged this procedure – ‘because everyone does it.’  However, when the U/W read my explanation the U/W realized why using the fictional SP/LP% is improper.

Some people will claim that the methods MLS systems use to calculate the SP/LP% using the ‘most recent’ info is more accurate because that demonstrates the “realistic” market at play.  I say boloney.

RE Agents are sales people and advocates for their clients.  They list properties for the price they are told to, or for a price they figure will generate interest.  They try to sell for the highest price possible in order to generate the maximum commission.  In some cases the list price is too high for the current market.  If that’s the case, the Original List Price and Date still become the statistics we appraisers should use.  Again, the examples above prove my point.

GUEST AUTHOR: Dave Towne, Certified Real Estate Appraiser - Towne Appraisals.  16422 Britt Rd., Mount Vernon, WA  Phone: 360.708.1196   eMail: [email protected] Web: http://www.TowneAppraisals.com

Who Has Been Suing the Most Appraisers? Two Names You Know. Two Names You've Probably Never Heard.

GUEST POST: Monday, October 8, 2012 - Who Has Been Suing the Most Appraisers? Two Names You Know. Two Names You've Probably Never Heard - By Peter Christensen

These are four of the parties who have been suing the most appraisers in 2011-12.  I suspect most appraisers won't recognize two of the names, unless the appraisers are defendants in one of their cases.  The parties are in no particular order, but the last one does file the most lawsuits. 

LSF6 Mercury REO Investments.  This is an investment fund of a private equity company named Lone Star.  LSF6 bought discounted mortgage debt from bankrupt CIT Group in 2008.  In late 2011, LSF6 began suing appraisers in New York as part of what appears to be an experiment with mass appraiser litigation to recover damages from appraisers relating to the defaulted mortgages.  Most of the mortgages and appraisals at issue date to 2005 to 2007.  So far, LSF6 has sued at least 50 individual appraisers and small appraisal firms in New York.  LSF6, however, has lost some of its early New York cases or been forced to abandon others.  Its masterminds made some obvious legal mistakes.  Perhaps seeking a new testing ground, LSF6 filed one of its most recent lawsuits against an appraiser in a Western state.  If LSF6's experiment with mass appraiser litigation pays off for its private equity investors, the appraisal industry will have a dark future of voluminous appraiser litigation. 
 
Lehman Brothers Holdings, Inc.  This company hardly needs an introduction.  It is the financial services firm commonly blamed for the near destruction of our economy in 2008.  So, what's this former giant doing suing individual residential appraisers?  Well, one of Lehman's mortgage origination machines at the height of the real estate and mortgage bubble was its subsidiary Aurora Bank.  Lehman acquired mortgages from that subsidiary and packaged many for sale to other parties. Though it filed for bankruptcy in 2008 and remains in bankruptcy, Lehman began filing sporadic negligence lawsuits last year against appraisers who appraised for loans by Aurora back in 2005-2006.  These lawsuits have been filed or threatened against appraisers in California, Colorado, Florida, Georgia and Tennessee (to name a few states).  Lehman filed its most recent lawsuit against an appraiser last week in Michigan.
 
Heritage Pacific Financial.  This entity is an investment vehicle of some type that purchases defaulted mortgage debt for pennies on the dollar and then tries to recover some of the debt through creative means.  One of its strategies has been to sue the borrowers for fraud, not just breach of the debt instrument.  Because insolvent borrowers rarely fight in court, Heritage Pacific often obtains default judgments against the borrowers without a fight.  A judgment for fraud can be non-dischargeable in bankruptcy and thus potentially will remain collectible against the borrower forever (a judgment can be renewed perpetually in California) or as long as judgments are enforceable.  The judgments are then either collected on or sold to third parties according to marketing literature from Heritage Pacific.  In the last couple of years, Heritage Pacific also has tried suing appraisers for professional negligence and misrepresentation, contending that the appraisers are liable for the unpaid loan balances -- though Heritage Pacific may only have paid pennies on the dollar for the already defaulted debt.   

With respect to its borrower actions, Heritage Pacific is facing at least one class action for unfair debt collection practices.  Separately, it has been subject to state action for alleged securities violations concerning its investment offerings.  The Center for Investigative Reporting's California Watch published a report on Heritage Pacific earlier this year (link).

Federal Deposit Insurance Corporation.  The FDIC's tear against appraisers continues unabated.  From January 1, 2011 through today, it has sued approximately 140 individual appraisers and small appraisal firms relating to defaulted loans of failed lenders under its supervision as receiver.  It has identified approximately 400 additional individual appraisers by name as grossly negligent in its two lawsuits against national AMCs.  Most or all of those 400 appraisers recently received a document entitled "notice of claim" which purported to give notice that civil claims for damages would be made against them relating to the appraisals in the FDIC's two AMC lawsuits, but the notices do not appear to have come from the FDIC.  Almost all appraisals that the FDIC is suing over date to 2005 to 2007.  Some appraisers in high risk states now have E&O policies that exclude coverage for damages awarded to the FDIC. The FDIC, acting as receiver for failed Amtrust Bank, filed its most recent lawsuit against an appraiser in September in Ohio. 

 
The FDIC's litigation tactics against appraisers also have been questioned.  It has been using a law firm called the Mortgage Recovery Law Group to make demands on, subpoena and sue appraisers across the country.  The firm is staffed by personnel formerly employed by Indymac Bank, which itself failed and is under FDIC receivership. 

 

One attorney in the FDIC's law firm held the title "Director of Quality and Fraud Risk Management" at Indymac.  A non-attorney staffer formerly employed at Indymac held the title "Vice President of Fraud Prevention and Loss Mitigation."  In some cases, these law firm personnel play the role of a witness for the FDIC; in other cases, the law firm's lawyers represent the FDIC as attorneys.  Some might think the FDIC's utilization of former management insiders at the failed bank is clever, but other people may think it's repugnant that former insiders are now profiting from their management work in Indymac's pilothouse, while others are being sued for it.  In one of its cases (not handled by the Mortgage Recovery Law Group), the FDIC is suing two appraisers -- husband and wife -- over appraisals done years ago.  The husband appraiser is now deceased and the wife appraiser has dementia.  It really is the FDIC against "mom and pop."
 
I could add a few regular lenders to the short list above as suing a fairly high number of appraisers and a couple lenders do sue more often than others, but it's not really newsworthy that appraisers' named lender-clients sue them and the lenders actually don't sue very often as compared to their mortgage volumes.

Does it seem like commercial appraisers have been left out?  They should not feel that way.  First, in recent months, the FDIC and its outside law firms have begun suing and sending subpoenas to more commercial appraisers.  Second, the litigation described above is merely the most frequent, not the most severe.  As written about elsewhere in this blog, the three biggest appraisal negligence lawsuits currently pending concern commercial appraisal work.