Appraisal Scoop

Appraisal Institute Applauds NAHB "Guidelines to a Stronger and More Productive Relationship with Appraisers"

The Appraisal Institute commends the National Association of Homebuilders for creating guidelines to foster increased cooperation and information sharing among professionals that play a key role in the home buying process.

NAHB recently announced guidelines to enhance builder communication with appraisers and lenders to help ensure reliable, credible valuation of newly built homes.

The guidelines suggest that builders meet with the appraiser at the home site and provide direct support for the asking price with whatever relevant information is available. Builders are asked to provide the appraiser with all appropriate comparable sales, market and absorption data, property specifications, materials used within the property and why they were chosen, buyers’ reaction to products selected and sales information.

The NAHB warned builders that not providing enough data to an appraiser is one of the most significant errors they could make.

The guidelines advocate that homebuilders insist that their lenders use qualified, designated appraisers who are experienced in their local area and who understand new construction and green building values. Appraisal Institute members can earn MAI and/or SRA designations, which are considered to be the gold standard in the valuation profession.

While many lenders have relied on appraisal management companies in recent times, the NAHB guidelines reinforce that it is in the best interest of consumers and industry professionals to have a local appraiser with the necessary knowledge and experience assigned to provide a reliable opinion of
value for homes in their area.

View the guidelines

Source: Appraisal Institute

A Reality Check for the Appraisal Industry - Embrace Collaboration

GUEST AUTHOR: Ron Stickelman, Jr., MRICS, SRA -  President of Stickelman, Schneider & Associates, Founder of the Ohio Coalition of Appraisal Professionals (OCAP)

 "It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change." Charles Darwin

A few weeks ago I visited an old appraiser friend at his office in a nearby city. Like me, he owns and operates a moderately successful regional operation. This office, once the spawning ground for some the best appraisers in the state is now virtually empty. The only occupants are a small team of processors and my friend who sits behind a massive computer monitor, talking into a headset while the stock prices run silently on a TV in the background. Wondering through this office in search of a cup of coffee I came across the “appraiser workroom.” Battered metal filing cabinets lined the walls, between shelves lined with ancient MLS books, long-expired flood maps, defunct binding machines and standing proud in the middle, a vast tall solid wooden table. The table was scarred, chipped, etched, colored and marked by time; a symbol of collaborated individualism that was and may never be again.

The Hybrid Appraisal Firm

The appraisal “firm” I visited that day no longer “employs” appraisers. The company is owned and operated by a state certified and nationally designated appraiser. The company “contracts” with all the appraisers that perform appraisal assignments for the company. Several of these “contract” appraisers have been with the firm for over 20 years and some less than six months. All are state licensed or certified, some designated but all work independently and non-exclusively for my friend. He employs no trainees or non-certified appraisers. The company is an example of the new “hybrid” appraisal firm, both AMC and Appraisal Firm. The evolution of the Hybrid Appraisal Firm is a direct result of, not only economic forces, but the potentially destructive individualism that pervades our industry.

Outsourcing

The business model of “outsourcing” labor is common to many industries: it provides a buffer to economic cycles permitting a readily liquid work force; reduces the costs of labor and goods; contains the costs of real estate; allows growth and shrinkage to occur with minimum interruption and minimizes the expense of management. Independent contractors are free to diversify their work with multiple clients; operate on flexible schedules; individually own and operate a company and expand and contract as work flow demands. But this is a short-term fix to a long term problem.

In reality, most independent appraisers will never grow their business because of insurmountable economic barriers. For many, appraisal is a lifestyle and not a profession; an opportunity to work “around” the demands of life. Work schedules expand and contract based upon the demands of their clients, not as a result of business planning or development. Few independent appraisers employ office support, other appraisers or appraiser trainees. They operate from a home base, take minimum continuing education and have little or no contact with their peers.

Customary and Reasonable Fees

As appraisers, it seems that we cannot open an e mail without being barraged by yet another “fee survey” on what is a customary and reasonable fee for appraisal services. Since the first mention of this concept in the Dodd-Frank Act, appraisers have clutched to this phenomena as the great savior for the industry. But, appraisers are mistaken if they believe that Dodd-Frank will be the proverbial goose that lays the golden egg.

The recent Interim Rules are very clear that “the marketplace should be the primary determiner of the value of appraisal services and hence the customary and reasonable rate of compensation for fee appraisers.” The rule specifically excludes a fee appraiser (or organization) paying another fee appraiser (a state-licensed or state-certified appraiser). But, what constitutes a fee appraiser or organization under the rules and more importantly within the business model that hybrid appraisal firms operate?

The Interim Rules define fee appraisers (organizations) as entities that “employ” state-licensed or state-certified appraisers to perform appraisals. The definition of an appraisal management company includes the terminology, “recruit, select, and retain fee appraisers” and “contract with fee appraisers to perform appraisal services.” Furthermore, there is no minimum size requirement for an AMC under the rule. Consequently, the same mandate for customary and reasonable fees applies to an AMC that contracts with a panel made up of a single appraiser or one with a thousand appraisers. By definition, the fee appraiser that “contracts” with a hybrid appraisal firm should be paid a customary and reasonable fee.

In reality the definitions of Appraisal Firms and AMCs has very little to do with the reality of customary and reasonable fees set in the marketplace. For example, and this is controversial, I believe the “true billable appraisal fee” for a URAR residential appraisal report in most markets is between $200 and $250.

My friend’s company will receive a $350 fee for an appraisal and pay the appraiser a 65% split ($227.50) that represents the true cost for appraisal services. The company gets paid for and bears the expense of managing the service (managing, reviewing, processing, delivering etc); the appraiser gets paid for performing the appraisal service and bearing cost of performing the service (data sources, E & O, software, licensing, education etc.).

My company (that employs over 50 staff appraisers) may receive a fee of $350 for an appraisal assignment, we in turn could pay an employee a 50% split ($175). Again, part of the fee is for management but we bear the cost to employ the appraiser (health care, workmen’s compensation, retirement etc) and perform the appraisal (data sources, E & O, software, licensing, education etc).

An appraiser who performs appraisal services for an AMC may receive a $200 to $250 fee for appraisal services they bear the cost for those services and not management. In reality, and on the presumption that it takes approximately 5 hours to complete a URAR, the billable rate for residential service is approximately $40 an hour. That compares to $75 per hour for a plumber or contractor and $150 an hour for an accountant.

Change

I believe this disconnect is a result of the default structuring of our appraisal industry and how we do business. It is unrealistic to expect the federal government to legislate fees that will compensate appraisers for their competency, ethics, experience and education. Fundamental change must occur in how we operate, organize and master our business. Appraisers will survive if they shrug off the cloak of individualism and are willing to embrace collaboration.

This can be achieved in two ways:

1. Through a dynamic shift in business practice that challenges the hybrid appraisal firm, contracting of labor and splitting of fees.
2. Through willing and active cooperation in appraisal organizations, groups, and coalitions.

The business model for the appraisal industry has always revolved around a “lump fee” and how it is carved up or “split”. Few other industries or professions operate in this capacity. Appraisal firms and talented professional appraisers must re-examine the dynamics of employment structure, costs, profit and time-management. Eliminating the concept of fee-splits will liberate the appraisal professional and allow them to consider compensation in terms of scope of work and billable hours.

Traditional appraiser-client relationships have changed and the appraisal profession must adapt to a restructured monopolist and anonymous client base. .Appraisal firms hold the key to maintaining and preserving an appraisal profession faced with the reality of extinction through attrition and alternative, cheaper methods of valuation. Appraisal firms provide mentoring and training to new appraisers; guidance, benefits and services to existing appraisers and a career-path that allows appraisers to grow in their profession.

Appraisers remain unconvinced and ambivalent about the necessity of belonging to a professional organization or coalition. Until they change, appraisers will never realize their true professional potential. Traditional appraisal organizations such as the Appraisal Institute provide excellent education and guidance. Designated appraisers (rather than just state-licensed or state-certified) command the highest fees and professional respect. Grass-root organizations have successfully lobbied state legislators for the passage of appraiser-friendly legislation. Appraiser Coalitions sponsor education, seminars, and chapter meetings. Appraiser blogs, forums and message boards are available 24 hours a day for guidance and discussion. As Appraisers we must be active participants in our own profession.

 It is time for our profession to evolve from individualism towards unity, strength and cooperation. Only dead fish go with the flow.

AUTHOR: Ron Stickelman Jr., MRICS, SRA President Stickelman, Schneider & Associates, LLC 1130 Channingway Drive Fairborn, OH 45324  Phone: 937-879-6900 (office)  eMail: [email protected]  Website:  http://www.stickelman.com

Become a FAN of Appraisal Scoop on facebook and Twitter!

Some of you may have notice the new facebook and Twitter widgets on the right side of Appraisal Scoop?  The Appraisal Scoop facebook and Twitter accounts include links to most all of the posts on Appraisal Scoop but also many stories and ideas that are of interest to real estate professionals . . but couldn't be developed into a full-blown post or article.

They also allow you to join in on the social networking aspect of our industry.  Some find commenting on Appraisal Scoop a bit daunting.  Our facebook Fan Page should allow you to join in on the conversation with ease from your computer or phone.

URARS Sidebar - Focus on the "Common Ground"

The Right Start was about the "possibilities", collective action to move the profession ahead as opposed to going backwards or standing still. That led to The URARS, ways to convey the message, enlist the support of appraisers and get the process started. While I anticipated debate, I also expected a spirit of cooperation. After all, the URARS was about "improving our lot in life" so to speak something all would benefit from.

 After witnessing (and participating in) a conversation on the WinTotal User's Group regarding "effective age", I had to take a step back and rethink our course of action. While the discussion was (for the most part) constructive, a simple question prompted 80+ responses. To be honest, I don't think there was a clear consensus in the end, although I do believe most involved (and those lurking) have a far better comprehension of the issues surrounding effective age and the use of the term in the URAR.

Having watched Brian Davis, Lee Hill and others "get busy" with the topic, my observations led to a few fundamental conclusions. Appraisers are in the "opinion business", so like other things, we all have one (or more), often we are quick to give it (asked for or not) and when we do, we defend it vigorously (right or wrong). 

What starts as a simple question or observation can quickly become "sport" and in doing so, all bets are off and we lose perspective. This is a key point for the URARS and the state of the appraisal profession. At times, we are so quick to take a position that we lose objectivity and become indifferent to the views of others.

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The URARS Part 5: Making the List: Key Reference Sources of Appraisal Procedures Definitions and Techniques

Have you read a few good books lately? Perhaps all of us should read a little more. When I was teaching the Housing Market Analysis class at the "a la mode regional conventions", I would ask the audience, "how many of you have read The Appraisal of Real Estate"? To my surprise (and shock) at several locations, only a few hands were in the air.

For the many years I have been in this profession, most I know have always considered "The Appraisal of Real Estate" as the "bible of appraising" and perhaps the most definitive and authoritative source on appraising currently in print. That's not to say that there aren't other good appraisal books out there, only to make a point. Many of those in the profession have yet to read and study the most widely referenced book on appraising.

If that is the case (and I have no reason at this point to believe otherwise) would appraisers have a better understanding of the principles, techniques, applications, etc. (outlined within The Appraisal of Real Estate) if they did? If The Appraisal of Real Estate was "required reading" for appraisers, users of appraisal services, underwriters, loan offices, agents and others, would some of the issues fade away?

For the URARS addendum, should we have a section that lists key references by title and edition? If so (and given the number of books and publications available), how much is enough? Should we limit the list to several that are comprehensive or should a few specialty references be added? Listed below are a few of my choices. What other publications (they must be in print and widely available) would you suggest or is this list adequate?

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URARS Part 4: Three Basic Rules - Patience Persistence and Compromise

Getting back to the original story, Dorothy, the Tin Man, Scarecrow and Lion arrived at OZ with great expectations. After all, the Wizard was known for his powers, however they quickly discovered that he wasn’t about to grant their wishes without some showing of worthiness on their part. He gave them a test to measure their patience; their persistence and in the end, their willingness to compromise.

The same holds true for us. To be successful, we will need patience with others (and trust on both sides), we will need to be persistent (continue to get appraisers involved) and we will need to recognize that in the end, compromise will be necessary to develop a version of the URARS that will be acceptable to a widespread group of professionals. 

The Basic Setup

The original intent of the URARS was to compliment the URAR – Uniform Residential Appraisal Report by specifically addressing reporting requirements related to residential mortgage transactions as opposed to a more comprehensive addendum that would cover a wide range of issues related to residential appraising in general.

To get us started and as a general direction to take, the focus here will be on Fannie Mae, Freddie Mac, HUD and VA appraisal guidelines along with USPAP, to develop both the URARS addendum and to create the URARS.org website.

• The URARS addendum can serve as a general outline of what the appraiser did and did not do (clarifying the scope of work), cite general definitions and reference material used in development of the report and direct the reader to the URARS.org website for more specific and definitive references (along with examples, publications, etc.), to provide the users of appraisal reports with "the actions of our peers" and "generally accepted appraisal practices" that are "verifiable and measurable"

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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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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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"What if" ... Oh the Possibilities!

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!

In the The Right Start I talked about a few "what ifs" and my grand scheme to change things. The real questions for many appraisers was "is this doable" and if so "why should I as an individual get involved"? Essentially, what’s in it for me since it will take a lot of "collective effort" to get it going along with perseverance and patience.

It doesn’t take much of an imagination to conjure up a "few perks" that "the association" may yield but to satisfy idle curiosities, here are a few things to think about.

Data and Map Sharing

While we have public non-disclosure rules, what are the rules for a shared database via a professional association?

• Could key data from appraisals be shared among members of the association?
• Would verified data in non-disclosure and disclosure states make a difference in your everyday work?
• What other information could be shared such as market graphs, map mash-ups (see Windows Live Maps) with data overlays for neighborhoods where members could link and share map data, builder brochures, hazard locations, etc.?

Does a national level database make sense?

If say, 25,000 appraisers join "the association" and contribute data, maps, etc., are there users outside of the association for parts of these products?

• Verified sales data base.
• Shared graphs on neighborhoods trends, etc.
• Market reports sold to real estate agents.
• Real estate maps with hazard layers, neighborhood information, graphed trends, etc.

There are many websites providing market data that is misleading. Does a "realty reality" based website make more sense to those looking to finance purchase or sell a home?

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The "Right Start" - Epilogue

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 some, "The Right Start" represented good ideas and to others, well, it was just Patrick on his soapbox again. Both have merit. I do not have all of the answers. Most of the time, "its just me thinking out loud" and you being polite enough to listen.

The Appraisal Scoop and various forums, serve as "quasi-mentors", providing news, commentary and direction to appraisers. With Web 2.0, we found a "missing link", one lost when the profession left the financial institutions to become a cottage industry of sorts.

While the quasi-mentors serve appraisers, there is still a "disconnect" and as a result, we still have "blind men describing the elephant differently".  We all have views and opinions. After all we are in the opinion business. The problem (one that generates the "but my other appraisers don’t do that") is that while we have a "uniform appraisal report" we lack a "uniform perspective and application". [Blind Men and an Elephant]

Where do we go from here?

I began with "what if" and it will end with the same thought. "What if" does not represent the questions; it represents the possibilities and the answers. "What if" is an exercise for the mind imagination and spirit, designed to recognize the problem, conceive a solution, while developing enthusiasm to energize thought into action.

I suggested "a la mode, inc." as an ally in our quest to shift direction and control (to some degree) our destiny. Some have written, suggesting that I am drinking "a la mode’s kool aide", far from it. Dave Biggers and a la mode "stepped up and took a swing", when the others we not even on the field.

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