Appraisal Scoop

NAHB Calls for Overhauling the Appraisal System

Its “blueprint” for reform focuses on streamlining standards and their enforcement, expanding education and training, and upgrading real estate data.

By John Caulfield - John Caulfield is senior editor for Builder magazine.

A “dysfunctional” appraisal system can be fixed only if its regulatory framework is streamlined, its credentialing standards are made uniform, and the criteria used to ascertain real estate valuations are based on a combination of cost, income, and sales comparisons.

Such are the findings of a white paper released by NAHB on January 24, which spells out the association's “blueprint” for appraisal reform including a host of recommendations formulated last year by a working group comprised of builders and officials from the financial and appraisal sectors.

The goal of reform, NAHB states, is to “rebuild the nation’s housing finance system …, restore confidence in the real estate market, and establish a foundation for sustainable growth in the U.S. economy.”

The working group broke down its recommendations into four areas:

• Regulatory framework and oversight.
• Data and technology.
• Professional standards.
• Practices, processes and procedures

Click HERE for the complete article

 

 

Reference:

Major Overhaul of Appraisal System Long Overdue, White Paper Says [11/7/2011]

“Reengineering the Appraisal Process Redux

 

 

Appraisal Institute Helps Appraisers Perform Evaluations for Lenders

CHICAGO (Nov. 14, 2012) – The nation’s largest professional association of real estate appraisers published guidance today to help appraisers learn what evaluations are, when they are used and who can prepare them.

The Appraisal Institute’s “Guide Note 13: Performing Evaluations of Real Property Collateral for Lenders” addresses how appraisers should prepare an evaluation for a lender and comply with the Uniform Standards of Professional Appraisal Practice.

The Guide Note states, “Federally insured lending institutions in the United States are subject to regulations regarding real estate appraisals. For lending transactions involving real estate, a lender must obtain an appraisal from a state licensed or certified appraiser. There are 12 exemptions from this requirement. For three of these exemptions, in lieu of an appraisal by a licensed or certified appraiser the lender may obtain an evaluation.”

Evaluations, per the Interagency Appraisal and Evaluation Guidelines, are market value opinions that may be provided by individuals who are not state licensed or certified appraisers. However, state licensed and certified appraisers may provide them, according to the Appraisal Institute’s Guide Note. The interagency guidelines also state that an evaluation must be based on a valuation method that is appropriate for a transaction rather than the method that renders the highest value, lowest cost or fastest turnaround time.

The Appraisal Institute’s Guide Note states that USPAP allows an appraiser to adjust the scope of work for a valuation assignment as long as the resultant value opinion is credible, given the intended use. When preparing an evaluation, the appraiser may consider narrowing the scope of work as appropriate. According to the interagency guidelines, a lender may obtain an evaluation in lieu of an appraisal when the loan transaction:

• has a transaction value equal to or less than $250,000;
• is a business loan with a transaction value equal to or less than the business loan threshold of $1 million, and is not dependent on the sale of, or rental income derived from, real estate and the primary source of repayment, or
• involves an existing extension of credit at the lending institution, provided that:

- there has been no obvious and material change in market conditions or physical aspects of the property that threaten the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies; or

- there is no advancement of new monies other than funds necessary to cover reasonable closing costs.

Click here to download the Appraisal Institute’s six-page “Guide Note 13: Performing Evaluations of Real Property Collateral for Lenders.”

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The Appraisal Institute is a global membership association of professional real estate appraisers, with nearly 23,000 members in nearly 60 countries throughout the world. Its mission is to advance
professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in
accordance with applicable federal, state and local laws. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. Learn more at www.appraisalinstitute.org.

NAR Adopts Broader Valuation Policy

From Appraisal Insight Blog author Jerome Nagy on Feb. 16, 2012:

The National Associaiton of REALTORS^® (NAR) continues its holistic approach to valuing real property with the adoption of its Responsible Valuation Policy. The document is the culmination of NAR’s efforts to consider all methods of valuing real property. NAR previously hosted two valuation summits and two working groups were convened. Members from across NAR’s policy structure had input in the document and included representation from the Professional Standards, Real Property Valuation/Appraisal, Federal Housing Policy, Conventional Finance and Lending, Commercial, and Business Issues Committees. Input was also provided by RPR.

The document will serve as the foundation for NAR’s policy position on the various methods of valuing and pricing real property – including appraisals, broker price opinions (BPO), and automated valuation models (AVM). The policy document also includes language from NAR’s Code of Ethics as a reminder to members that REALTORS

SOURCE: Appraisal Insight

 

Taking Stock of the 2055 "Exterior Only" Appraisal Form

Guest Author:  Ken Shure, Certified Residential Appraiser in the Los Angeles, California area.  Contact: [email protected]

The 2055 form issued by Fannie Mae is a common vehicle for the reporting of an appraisal. The form includes a pre-printed scope of work indicated as the minimum needed to properly complete the assignment. This scope of work sets the minimum required inspection of the subject as a viewing of the exterior from the street. This minimum inspection requirement has provided some appraisers that complete reports utilizing the 2055 with a false sense of security as to their liability and overall responsibilities, particularly since the edits to this form that occurred in 2005.

Readers will note that the 2055 is designed to report appraisals of one unit properties or one unit properties with accessory units while the 1075 form is designed to report appraisals of a unit in a condominium project or a condominium unit in a planned unit development. While the focus is on the 2055 form the following discussion pertains to both forms, each of which are labeled as "Exterior Only Inspection" reports and have the intended use of evaluating a property for a mortgage finance transaction.

The scope of work section of the form includes the following paragraph:

The appraiser must be able to obtain adequate information about the physical characteristics (including, but not limited to, condition, room count, gross living area, etc.) of the subject property from the exterior-only inspection and reliable public and/or private sources to perform this appraisal. The appraiser should use the same type of data sources that he or she uses for comparable sales such as, but not limited to, multiple listing services, tax and assessment records, prior inspections, appraisal files, information provided by the property owner, etc.

Based on this paragraph the appraiser is expected to obtain proper levels of information that allow for a credible comparison of the subject to the comparable sales and per certification #10 due so without relying on unverified information provided by parties with a financial interest in the subject such as the property owner.

The data available to the appraiser for establishing the physical characteristics of comparable sales typically includes information as to the condition and quality of the interiors of these properties. The appraiser that is unable to verify the interior condition of the subject property while remaining true to certification #10 is therefore often in the position of having far better documentation for the interior condition of the comparables than for that of the subject. If interior condition and/or quality are factors with an effect on value for the particular assignment of interest, the information available regarding the interior of the comparable sales mandates an exercise of comparison for this parameter between the subject and these properties in order to provide a credible result.

Per USPAP, a properly incorporated extraordinary assumption with regard to the condition and quality of the interior of the subject property would be a compliant manner in which to proceed when one has highly relevant information regarding the interior of the comparable sales. However, the language within the 2055 form does not provide for making an extraordinary assumption while the "as is" box (CB1) is checked within the reconciliation section. This presents some level of difficulty for the appraiser attempting to properly make use of an extraordinary assumption regarding the interior condition and/or quality of the subject property when using this form.

While appraisers utilizing the 2055 form are certainly satisfying the specified minimum level of work by only completing an exterior inspection from the street, this does not remove them from any subsequent due diligence regarding the interior of the subject property.

Many appraisers have concluded that they have the ability to incorporate an extraordinary assumption into the report regarding the interior condition and submit the report with CB1 checked.  Per the form language, that cannot be altered in cases where the report is to be utilized in transactions heading to Fannie Mae or Freddie Mac, additional assumptions cannot be made beyond those already accounted for within the form's format. An extraordinary assumption can only be incorporated via the proper mechanism located within the reconciliation section.

The proper route for doing so on the 2055 and certain other Fannie Mae forms such as the 1004 and 1025 involves checking the fourth box in the reconciliation section (CB4) and requiring a subsequent inspection for confirmation. By checking CB1 and incorporating an extraordinary assumption into the narrative of the report one could be accused of producing a misleading report. This is due to the fact that the presence of an extraordinary assumption within the narrative is in direct contradiction to what is present in the reconciliation section when CB1 is checked rather than CB4. Contradictions such as this are not to be considered beneficial elements within an appraisal report and could be used as a means to discredit the appraiser that allows them to be present in their work product. This issue is discussed further in a prior article: You Can Write an Appraisal on a Napkin..... But you probably just didn't

Click HERE to continue reading this article

NAHB says "Flawed Appraisals Killing Home Sales, Hampering Housing Recovery"

December 8, 2011 - One out of three builders are reporting losing signed sales contracts during the preceding six months because appraisals on their homes are less than the contract sales price, according to a recent nationwide survey conducted by the National Association of Home Builders (NAHB).  

“The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices, killing home sales, causing more workers to lose their jobs and delaying a housing and economic recovery,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. 

Too often, due to faulty appraisal practices, brand new homes with sparkling appliances and interior upgrades get compared to a distressed property that has been sitting vacant and in disrepair. The result, in many cases has been that the new house winds up getting appraised at less than the cost of construction. 

That is precisely what is occurring in today’s marketplace, according to the NAHB survey, where a full 60 percent of respondents reported they were experiencing appraisals coming in below their contract sales price. 

"Of those reporting that they had encountered this problem, 53 percent said the appraisal amount was actually less than the cost of building the home."

“This is not only unfair and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, harms local economic activity and acts as an obstacle to the recovery of the housing market,” said Nielsen. 

These appraisal practices are a major contributing factor to the current acquisition, development and construction (AD&C) lending crisis that has choked off credit for home builders and threatens to prolong the current housing downturn. 

Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans. 

Since Sept. 2009, NAHB has held four appraisal summits in Washington with representatives of federal banking regulators, the appraisal industry, the housing finance industry, the real estate and housing sectors and others to find solutions that will allow appraisers to develop realistic valuations based on sales that are truly comparable. 

The need to give top priority to addressing the complexity of property valuations in distressed markets and impediments to the flow of appropriate information on homes between appraisers and interested parties was discussed during the most recent summit, which occurred on Oct. 19. 

“Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and don’t contribute to price volatility or harm aspiring home owners and move-up buyers,” said Nielsen. “We will continue to work with all stakeholders in this debate to find solutions.” 

With the decline in home prices appearing to have ended or be coming to an end in most parts of the country, resolving the appraisal and credit crunch issues remain a top priority for the association. 

NAHB’s latest Improving Markets Index has shown modest signs of improvement in scattered housing markets where employment is gaining and distressed properties are not as numerous. 

New-home construction stands ready to serve as an engine for economic recovery. Building 100 single-family homes creates more than 300 full-time jobs and provides $8.9 million in federal, state and local tax revenues. 

“Resolving inappropriate appraisal practices and restoring the flow of credit to home builders will not only help to put America back to work, it will provide badly needed tax revenues that is essential for local governments to support schools, police and firefighters in communities across the land,” said Nielsen. 

Source: NAHB

Carnac The Magnificent (with envelope to forehead) Reveals the Answer: 319 a month!

Then, blowing into the torn envelope, Carnac reads the question:

How many appraisers are leaving the industry every month?!

According to the Appraisal Subcommittee, the # of appraisers reached its peak in 2007 with 121,407 active appraisers nationwide. From 12/31/07 to 12/31/08 there was a small decline of 856 appraisers. From 12/31/08 to 12/31/09 there was a decline of 3,760 appraisers. From 12/31/09 to 12/31/2010 there was a decline of 6,879 appraisers. From 12/31/2010 to present (9/11) we have a decline of 2,697 appraisers.

Download 1992-2010 Appraiser Statistics

That is 14,192 appraisers that have left the business since December 31 2007. 319 appraisers every month are being driven out of business by the AMCs. When will this insanity stop?

We have 107,215 active as of today. At the current rate of decline we will be at 2005 levels within 120 days. So much for growth in the industry.

Ironically the Appraisal Management Business is booming.  Streetlinks is opening new offices in new states, Corelogic is hiring staff appraisers nationwide, LPS is hiring on such a massive scale, that I have never seen in 13 years of appraising. 

A hiring rep for LPS recently told an applicant that: "This is the new business model for the industry. If you want to make a living appraising today, you need to be an employee of an AMC. Independent appraisers will no longer exist".

I have also learned that some AMCs are intentionally capping the # of reports an appraiser can receive in a months time. Intentionally keeping the appraisers income low enough to keep him or her desperate. A starving appraiser will be more easily pressured or manipulated.

Today we have reduced fees, scope creep, no loyalty from AMCs to the appraiser, increased costs, increased liability, reduced turn times, new regulations, new formats, increased demands from AMCs for content, no trainees allowed, waiting 60 days or more to be payed.

Perhaps the 14,192 that have already left were right?

GUEST POST: ANONYMOUS -  Article Submission - Name witheld by request

Appraisal Buzz: Anatomy of A Real Estate Bubble by Thomas J. Inserra

Thanks to Appraisal Buzz for publishing a great new article by Thomas J. Inserra.  Mr. Inserra covers the historical aspects of the Real Estate Bubble as well as his view of that should be done in the future.  Here are some of the topics he covers:

• Bubble Participants
• Bubble Participant Common Traits
• Connecting the Dots
• Advocacy Leads to Unsustainable Price Increases:Valuation Advocacy
• The Seed & Root Cause of Real Estate Bubbles
• Who “Appears” to Benefit from Valuation Advocacy?
• How Can We Eliminate Bubbles or Reduce Their Adverse Effects?
• Why Did the Check & Balance Fail?
• The Solution

His 15 point solution policy would;  " . . .  would reverse the abusive, unsustainable policies adopted in the 1990’s.  The objective is to require, preserve and protect Valuation Independence and non-advocacy at the federal and state levels"

Click here to read the complete article

About the Author:   Thomas J. Inserra, MBA, MAI, SRA resides in Scottsdale Arizona and is CEO of www.WeValueAmerica.com and CEO of www.PinnaclePeakAppraisal.com 

You Want It WHEN!? - How Long Does it Take To Complete An Appraisal?

How Long Does It Take to Complete the Development of an URAR USPAP Compliant Appraisal After the Assignment is Accepted?

Guest Post: The author, Edd Gillespie, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work. 

And the answer of course is, “It depends.” Appraisers have different amounts of the necessary information needed to complete any given assignment, but let’s look at a situation where the appraiser deems it necessary to investigate and analyze everything about a non-complex assignment.

USPAP Standards Rule SR 1-4 lays out the required process to develop the appraisal. “In developing a real property appraisal, an appraiser MUST collect, verify, and analyze ALL information necessary for credible assignment results.”

It is clear there is no option for real property appraiser to do other than as SR 1-4 says. The real property appraiser MUST follow the rule with respect to ALL of the information necessary for a credible result.

1. Collection of Information: 6 hours

Where do you collect the initial information and how long does it take? The tax assessor usually describes most of what the appraiser needs to know about the subject in order to begin the development of the appraisal. That information is downloaded. The local MLS contains a wealth of information. Appraisers look there for market trend information, but most surely for comparable sales. At this point the appraiser begins to make choices since analyzing all of the sales is rarely necessary for credible assignment results. What would you do?

Many appraisers report that at this point they begin to eliminate all MLS sales that do not share some value-significant attributes with the subject. At the end of this initial research the appraiser has a handful of comparable sales identified and downloaded. I estimate the review of the MLS for collecting initial information consumes about two hours of time.

Next, additional information is collected from the public record or perhaps other proprietary sources. Assuming the subject is in one of those areas that search consumes an additional two hours. Then there is the collection of information about the subject which is most often done during inspection. The inspection of the subject consumes two hours, including driving time in inspecting the subject.

2. Verification of Information: 3 - 10 hours

Where and how does the appraiser verify the initial information and how long does it take? Even though USPAP recognizes quality, credibility and misleading in appraising it gives us no instruction about the process of verification. USPAP simply requires verification of ALL of the information that is necessary to a credible assignment result mandatory for a real property appraiser. So, what does verify mean?

In the context of the Rule, verify is a verb, it is something an appraiser MUST do. The meaning of verify is to establish the truth, accuracy, or reality of something. Although the appraiser may encounter new information while verifying, it is clear that the objective of verification is confirmation. And how is it done?

Although USPAP does not require inspection of properties employed as comparables, it is common practice for appraiser to at least drive-by, which is a form of verification. Many appraisers report that they have a standard set of questions they ask to verify the transactional and physical information they already have. Other appraisers report that if they have collected information from the MLS they verify it with the public record or vice versa.

Most likely appraisers verify information from three to five sales and that can take from three to ten hours depending on the extent of verification the appraiser completes. It takes longer to verify information with parties to the transaction or their brokers. Frequently, conflicting or additional information is collected during the verification process, which triggers the need for additional verification. Once all of the necessary information is verified and the appraiser is assured that what he or she knows actually exists or actually happened, the information is ready for analysis.

3. Analysis of Facts: 9 - 16 hours

How long does it take to analyze the necessary information? Although the principle of substitution is applied to much of appraising, real property is not homogenous and often the data is not “clean.” Because of that appraisers spend as much time analyzing the verified necessary information as they do in collecting and verifying it. Analysis in residential appraisal includes market trend study and comparison and adjustment of the information from each sale. Seldom is all of the information necessary for adjustment included in the sales selected for comparison, which creates the need to collect and verify additional information as a part of the analysis.

4. Finishing the report: 1 hour

Appraisers say that the URAR report is for the most part completed as the development proceeds. They spend additional time filling in empty blanks and proof reading and estimate that takes about 1 hour.

The amount of time spent complying with SR 1-4 ranges from 18 to 32 hours. The mid-range estimate to complete the development of a non-complex residential market value appraisal is 25 hours.

What Do YOU think?!

• Do you agree that it takes 25 hours to complete a USPAP compliant development of a non-complex market value residential appraisal?
• How long does it take to complete the development required by SR 1-4?
• Do you think the requirements of SR 1-4 are excessive?
• If it takes 25 hours to complete the development of a USPAP compliant market value residential appraisal, are clients allowing sufficient time and paying a sufficient fee?
• Should USPAP be amended to eliminate the stringent requirements of SR 1-4?
• Should appraisers be better trained to understand what collect, verify and analyze mean?

 

The author, Edd Gillespie, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work.  Contact Info: 590 N. Matt Dr. Pueblo,CO 81007 Phone 719-252-7624 E-mail [email protected]  

Mortgage snags ahead as appraiser ranks dwindle

The ranks of the appraisal profession are shrinking fast. For home lenders, that spells higher costs, longer turnaround times and poorer appraisal quality in future years.

While there's less appraisal work to go around these days than there was a few years ago at the height of the housing market boom, lenders fear that when the market does rebound, there won't be enough qualified appraisers available to do the job for them.

A dwindling appraiser population would lead to an "absence of local expertise," said Kurt Noyce, the chief executive of the Providence, R.I., lender Embrace Home Loans.

  Source: American Banker

Video: Appraisers Hurting Housing Market? - Fox Business News

Prudential Douglas Elliman Real Estate Vice Chairman Dolly Lenz discusses why appraisers' low-ball offers are hampering the growth of the housing market with David Asman on Fox - America's Nightly Scoreboard.

Watch this video and let us (and them) know what you think of this story!!?  

Dolly says . . "Nobody wants things low and slow." referring to appraisers' impact on the real estate transaction.

When asked what could be done to fix the problems she says:

"I think for one, they should have to provide comparable sales.  So an appraiser saying this property is worth $300,000  . . .you have to provide numbers why.  Not when "requested".  Should "have to provide"."

Where in the world has Dolly been for the past 40-50 years?!  Does she REALLY think that appraisers aren't providing support for their values?