Appraisal Scoop

Video: Comp Checks, Look-sees, Pencil Searches and other nonsense

I attended the Illinois Coalition of Appraisers (ICAP) update seminar in Springfield, IL yesterday. 

In attendance were such notables as, Debra Brown from the Anti-Fraud Division of Fannie Mae, Joan Trice from Appraisal Buzz and Brian Weaver, our new Illinois Director of Real Estate Appraisal.

Brian Weaver has been an active appraiser and it really shows in his animated depiction of the various "Comp Check" calls that residential appraisers field on a daily basis.

Click Here: Comp Checks - Values Made To Order

Ultimately, Brian concludes that "If the requester wants you to filter data for a specific property-type or address . . .then you've performed an appraisal!"  He also stressed the requirement to retain a workfile for all appraisals, including Comp Checks. 

Brian cautions, "Your worst guess at value . . .holds the same liability as your best full-inspection appraisal!"

Comp Checks: Shifting Liability to Appraisers?

Why all the comp check requests? In case you are not aware, a loan can be funded with a list of sales under desktop underwriting guidelines.

1. The lowest equity and worst credit borrowers get a URAR appraisal.
2. The ones with more equity and better credit get the drive-bye appraisal and the ones with even better equity and credit get an AVM.
3. Next is the list of sales.
4. Last but not least is the “golden borrower” who is completely liquid and can obtain a loan with as little as a list of assessed values from the area.

So why do appraisers get stiffed on comp checks? Because they don’t know any better. The lending world must be laughing all the way to the bank.

Here’s why: a loan can be funded and points and fees collected with a comp check (or less) and no appraisal order.

The borrower may be charged for an appraisal but no appraisal fee is paid. So, who gets the money? It is split between the loan agent and their company. Loan agents are often paid up to half of all the extra fees they can pack into a deal, plus half of the overage that they get on the points. This is what RESPA is all about. Regulated lenders have paid out millions of dollars in fines for RESPA violations. Loan brokers are not regulated.)

Appraisers are so easily hood-winked into inflating values and enabling everything from property flips to predatory loans because they lack knowledge and understanding about the real estate and lending markets and the multiple levels of players in them.

We have no problem with comp checks. For $50, we will respond and do a residential search to the selection criteria the client provides and give them the results. This can be done by a clerk with no appraisal skill required. The trouble with most appraisers is that they do the search and select the criteria to be used. Now they are required to be in compliance with USPAP, which of course, they are not. So if a complaint is filed, these appraisers are in trouble.

Shifting Liability - Why do lenders even bother with a comp check or other appraiser input if they don’t need it to close the loan? I believe it is for reasons of liability. They want the appraiser to do the filtering and actually look for the sales that will make the deal work.

They certainly could call a title company and get a list of sales any time they want. So why call an appraiser, unless they want and need your special skills to help them out?

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139

Can an Appraiser get in trouble over a List of Sales or a Verbal?

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139

This morning I received a private email with an excerpt from a post on an appraisal forum. The following is the post:

I know of an appraiser who was doing the same thing - merely reporting sales to his "buddy" LO all with the clear understanding it wasn't really an appraisal-they just want to know the properties "range of value." The LO used the comp searches to fund loans, without the appraisers knowledge. Several deals went south and the appraiser was named a party to a civil action. He never received a dime. It will cost him several thousand dollars to either defend himself or buy his way out the the action and may be subject to disciplinary action by the state regulatory agency.

My contact wants to know -- Is there any veracity to the story?  I recall this took place in Southern Cal.  Comp checks have been used as a valuation tool to fund loans - true or false. True, not false.

I replied privately and then thought to make the topic public.  So, I will try and write from memory what I said in response, with some new thoughts thrown in to boot.

With the advent of Desktop Underwriting and the technologies available, loans can be funded and sold to FNMA and FHLMC with an array of valuation products or documentation in file.

Remember, the Seller/Servicer may originate directly or through loan brokers, package and then sell a pool or loans at a certain yield rate to the Secondary Mortgage Market which includes FNMA/FHLMC and other firms, including Wall Street firms.  Each player in the Secondary Mortgage Market may have their own set of rules in terms of valuation documentation. I'll bet Zillow would suffice in some cases, fewer than 10,000 per month though, not a lot.

Seller/Servicers buy Commitments from the Secondary Mortgage Market players to buy pools of loans in $100,000,000 to $1,000,000,000 blocks.---

Entities from mortgage bankers like Countrywide to big banks like WAMU will put together a pool and sell it at a net price, keeping the additional Fees (Fees are good for Stock Prices and Bonuses. Management likes Fees. Fees make Stock Prices go up and Bonuses go up. Fees is good even if RESPA is violated. Fees is good).

Loan Pools are sold Servicing Released or Servicing Retained.  They are sold with or without Buy Back Warranties or Guarantees. Some Loan Pools are enhanced, resulting in better pricing for the Seller, by providing assurance that All the Appraisers are Insured. {Let me know when you start to see Red}.

Another form of enhancement is to get Private Mortgage Insurance on all the loans. This may be one of the main reasons FNMA changed the Certification language last year, to make sure the PMI companies had a clear path to sue the appraiser. And they do, they usually sue in Federal Court. Why, because they are in some other state, other than where the appraiser is.

Servicing is merely another source of income for the lenders and is valuable.  The larger the Servicing Portfolio, the more valuable a company is.  A lender with billions of dollars worth of Servicing is a far more attractive target than one with none.

Back to Valuation.

The following is a list of products that are used in collateral underwriting and their rank.

Runt Rants - Comp Checks -- A "Legal" Opportunity?

The author is the owner of Acorn Appraisal Associates, a 21 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA

I was on an appraiser forum this morning and a frustrated appraiser posted the following....

"Thanks, got the usual call .......Comp check and if value is there they would send the request.  Has anyone ever told the LOs and Realtors that this is against the law???? and when you tell them it is, they don't believe us."

This is a pet peeve of mine. Comp checks are NOT against the law. They are NOT even against USPAP.   

USPAP is quoted below.

Research Illustration (AO-19)

The foregoing illustrations all include an appraisal assignment. In some situations, a client will request a service that is not an appraisal, appraisal review or appraisal consulting assignment as defined in USPAP. The service to be performed by the appraiser in the following illustration is:

* not an appraisal assignment (the appraiser does not develop a value opinion);

* not a real property appraisal consulting assignment (a value opinion is not a component of the analysis); and

* not a real property appraisal review (there is no appraisal to review).

The caller in this illustration is usually in the process of making a business decision and needs impartial and objective information but has not yet decided whether to pursue the matter at hand. The caller knows there is the potential for needing an appraisal, depending, in part, on what the sales data shows. The caller also believes that, if the data indicates that an appraisal is worthwhile, having that work completed by the appraiser in that subsequent assignment will lessen the time required to perform an appraisal. The prospective client may ask:

"We want you to check your data resources to see if there are sales within the past six months that are within one mile of [address]. If you find some, we may order an appraisal from you."

One possible response would be:

"If what you want is only the sales of properties shown in the databases available to me with the criteria you specified, I can do that research and send you the result. Then you can decide what you think your client’s property is worth. If I do only that, it is just research and is not an appraisal.

However, you need to recognize that there are risks if you decide to have the research done that way. If you decide to limit my work to just gathering the sales data using the research criteria you set, you are taking the risk that those criteria are both adequate and appropriate to find all of the market data relevant to your client’s property. You also take the risk that any appraiser’s analysis of that data would result in a value conclusion within the price range suggested by the sales data assembled using your criteria. There is no assurance that such would be the case."

It is perfectly understandable for a lender or a broker to pre screen a prospective borrower to make sure that the proposed deal is potentially workable before the lender or broker invests their time and the borrower's money. Wouldn't you expect that of your lending officer if you wanted a loan?

Click below to continue reading . . .

Comp Checks - Value Opinions Put Appraisers "On The Hook"

CNNMoney.com tackles the "Comp Check" issue in their latest series For sale: Scenes from a bubble. 

The The appraisers: Price estimates made to order segment tells a story of a 27-year old Californian that was convinced by his loan officer his home had appreciated $82,000 in 12 months, even though "everything he had read said the market in his area was cooling."

How did this happen?  As appraisers know, that scenario is all too common.

First, the loan officer sent a broadcast email to a number of appraisers looking for a target value.  (see Fishing For Appraisers - The Comp Check "Bait & Switch" Technique). 

Then, as soon as one of them took the bait, the loan officer called the borrower with the Good News! 

According to an appraiser MONEY hired, Kim's house is worth only $580,000 and was at the time he refinanced the house. Yes, different appraisers often have different takes. In Kim's case the appraisers disagree about whether an enclosed porch counts as part of the total square footage.

The article is rather unique in that MONEY interviewed the appraiser that prepared the final appraisal report.  He's quoted as saying, "Is there a problem out there? You bet there is." He adds, though, that he resists and that in Kim's case pressure wasn't an issue. "I never push values," he says.

"Appraisers who do comp checks know that they have to inflate values to get the order and get paid," says Pamela Crowley, a former appraiser who recently launched a site to catalog lending abuses, MortgageFraudWatchList.org.

Pamela says "When I started asking for the EVIDENCE of the pressures we appraisers are subject to on a daily basis, it was because all my loud mouthed activism was constantly being met with, “Where’s the evidence. We can’t do anything without the evidence.”   

That's when she got the idea for the Mortgage Fraud Watch List. MFWL is a database of addresses, submitted by real estate professionals from all 50 states, where a sale or refinance transaction has suspicious activity. 

I've been in contact with Pamela and hope that she'll share some of her experiences here on AppraisalScoop.com

Value Checks, Comp Checks, Compouts: An Understandable Desire, But a Bad Idea

The author is James Stein, Certified General Appraiser and principal of Stein Valuation, Inc.  He has focused on matters relating to commercial real estate appraisal since 1991. His experience includes appraisal analysis, highest and best use analysis, feasibility analysis, and due diligence reporting primarily in the Southern California five-county region, including Los Angeles, Orange County, Riverside County, San Bernardino County and Ventura County

We receive many calls from mortgage brokers and borrowers for value checks. In most cases, these requests are related to a refinance, a purchase money loan or a construction loan. In each case, it is typically stated that the borrower would like a “feel” for the property’s value before paying for a “full-blown appraisal.” Further, there is usually the dangling carrot of an appraisal assignment (either implied, inferred, or stated) at the end of the value check stick.

"While we understand the desire to have a comfort level that the appraisal will “come-in” at a desired value, value checks are simply bad for all parties involved."

The role of an appraiser is primarily that of an independent third party. But the concept of a value check fly’s in the face of such independence and can cause far more harm than good. The laws of most states recognize this and have made value checks ostensibly illegal through the adoption of the Uniform Standards of Professional Practice, USPAP.

Such illegality comes into play in several ways:

• first, USPAP makes it illegal to provide a value for a subject property without having inspected the property;
• second, USPAP states clearly that an appraisal may not be based upon a predetermined value;
• third, USPAP makes clear that if an appraiser states, writes, or otherwise transmits a value to another party, the appraiser is, in fact, reporting findings of an appraisal; which takes us to the fourth problem with value checks, reporting a value without having done the analysis is clear ethics violation.

Click below to read on . . .

Can you check comps for me? I don't want to waste my borrower's time or money!

How many times have we ALL received that call from an out of town lender or broker that's either shopping for a value or MAYBE (I'll give them the benefit of the doubt) just in need of a little help on qualifying a borrower?

Stuart Fearer SRA of Tamarac, Fl (electronicappraisers.com) gets lots of those calls too, but rather than just blow them off, he's taken the approach of EDUCATING the callers on how they can get the information they need more efficiently:

"Any time you can get the requester to perform the comp check themselves, (ie; sending them to Fastweb, the County Assessors web site or zillow.com and tell them to print the comps from the screen after the zestimate) you avoid any appearance of wrongdoing or USPAP violation. I usually "sell" them on this by pointing out that they can get instant gratification instead of calling up a bunch of reluctant appraisers."

"I point out the time they save on this and all future requests and how they will be "empowered" by pulling up their own comps. Then I tell them to call me if it's in the range of the comps to place the order or even if it is close. I have actually gotten orders from doing this."

Click below to read Stuart's "Zillow Comp Check Instruction" email . . .

"Can you check comps for me? I want to know if I should order an appraisal"

That's a common question that is asked of appraisers every day. Lenders and borrowers don't want to waste their time and money on loans that won't "Appraise Out". Comp Searches (pre-appraisal market value opinions) may also seem like good "Customer Service". 

That may appear to be true on the front-end, but those "searches" back-up appraisal production on the back-end (causing delays in appraisal delivery) and generally it's expected that the appraiser will not be compensated for THEIR time!.  Also . . Did you know that checking "comps" and providing an "estimate" of a home's value prior to receiving the appraisal order MAY put the appraiser in violation of the Uniform Standards of Professional Appraisal Practice (USPAP) and jeopardize their state license?

  "But ALL of my other appraisers do it!"

USPAP 2006 - Scope of Work Rule: New flexibility in assignment acceptance?

Effective July 1, USPAP no longer includes a Departure Rule, nor anything called "Complete" and "Limited" appraisals. In their place is a comprehensive new Scope of Work Rule, a set of minimum standards for all appraisal, appraisal review and appraisal consulting assignments.

Are you up to SPEED?

The Scope of Work Rule is perhaps best understood as a re-emphasis on the process of analysis and its requirements instead of conforming the reporting of your work to certain labels.

The new standards address what goes into your decision to conduct a certain level of analysis and the amount of research and diligence that needs to go into what you choose. The Departure Rule required that your client agree to the performance of a limited appraisal. . . .