Appraisal Scoop

A Comprehensive Blueprint for Residential Appraisal Reform - And the Winner Is?

 

GUEST 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. He can be reached at [email protected]  Look for the Outside The Boxes category for a collection of Patrick's articles on Appraisal Scoop!

 

For years, Joan Trice via her Collateral Risk Network has promoted the concept of improving the appraisal process. Recently, Joan participated in a whitepaper with the National Association of Homebuilders (NAHB) entitled “A Comprehensive Blueprint for Residential Appraisal Reform”.

Among the findings and recommendations were:

• Streamlining the process (including USPAP) and ensuring effective oversight and enforcement
• Creation of a national real estate data superhighway accessible to all
• Better education and credentialing for appraisers
• Establishing consistent rules, guidelines and standards for appraisers
• Developing procedures to address faulty appraisals

The other day in the Appraisal Buzz, Joan invited appraisers to participate in “improving the appraisal process”. She wants our thoughts, ideas and anything we feel will make a difference and improve the appraisal process.  Regardless of whether or not you agree, or disagree with her direction, you have to respect her effort.

Leading means doing what needs to be done and Joan is leading. She took time and made the effort to assemble movers and shakers along with “inside the beltway folks” that are in a position to reshape the appraisal process. She also has the attention of the NAHB, and the “Collateral Risk Network”, a 300 person “members only” group of chief appraisers, regulators and industry experts, who (according to the article) “are focused on resolving the many challenges facing our profession”.

To that end, I wanted to make some observations and give Joan some thoughts on the appraisal process and ways I think we could make it more effective for appraisers and those that rely on appraisal services. I hope that each of you will do the same.

Definition of the Problem

In my opinion, the form and the process could be improved.  However, I do not believe it is the form or the process that stands as an impediment to a healthy housing market. When you examine what is wrong with housing and the system, changing the appraisal form is not going to fix the problem.

While USPAP has been adopted by the users of appraisal services, its underlying tenets and fundamentals have not been intergraded into the lending system that appraisals support or into the mindsets of those that use or rely on appraisal services. Therein is the problem. 

We are required to develop opinions “objectively” within USPAP compliance. At the same time, those wanting to “make a deal”, often want us to view the value opinion from outside USPAP or lending guidelines. When we do not, we are the problem and we are the ones impeding “housing’s recovery”.
despite the obvious.

Lenders and users of the appraisal have different motivations from those providing appraisal services.  The appraiser does not stand to benefit from the deal. Often the client (lender) or the client’s client (builder, agent, buyer, etc.) does. Appraisers are not incented to come in high or low. We are paid the
same, regardless of the value opinion. We have every incentive to make the deal and avoid the consequences.

On the other hand, builder’s, lenders and other market participants, have skin in the game. They do not earn a commission or a profit if the deal does not close. When the deal is at risk of not closing, due to the value not being there, the debate ensues.

Is it a fair debate, with all parties trying to find the right value for the subject or is it a little one-sided, with some of the participants promoting a value opinion via “their comparables” that, “believe it or not”, supports the deal and a commission earned or profit realized?

Personally, I think USPAP, market value and a long list of appraisal related issues (including the forms), better training, accountability, etc., should be addressed. However, none of this will matter unless we change the system. As long as market participants have a financial incentive to close the deal, any impediment to closing the deal, will be considered counter-productive and will come under attack.

We have changed the form and the appraisal process many times over my 40+/- years in the business. Tell me, what has changed when it comes to users of appraisal services and those that rely on the appraisal, when the appraisal does not close the deal?

Do lenders, agents and builders pat us on the back, saying wow, were glad you came in a little low and saved us from making a high-risk deal? Are they quick to say to their clients, “You should be happy Mr. and Mrs. Smith, that appraiser just saved you from paying too much for the property that I sold you?”

Over the past five plus years, lenders, homebuilders, agents and secondary market investors went out of business and homebuyers lost their homes, when loans did not perform and the effects rippled through our economy. Ask a few simple questions to these same individuals and businesses.

“If you could go back in time, knowing what we now do, would you be willing to pay the appraiser twice as much to hear the truth? Would you give him or her more time complete the assignment, without pressure, and develop a more reliable value opinion? Would you listen to the appraiser and adjust your loan to avoid housing’s collapse? If you could erase the massive loans losses, by merely listening to an objective voice, as opposed to those with skin in the game, would you?”

The appraisal process is not perfect and nor are the appraisers. I have taught nationwide and met 1,000’s of appraisers. Generally, they are good people who do not know what they do not know. This we can fix with better training. On the other hand, you cannot fix an “incentive based” housing market with a new appraisal form.

Real Estate is “Imperfect” ... stop shooting the messenger

Defining the appraisal problem and fixing nit is really quite simple. Real estate is imperfect, as are its participants. There are many sides to “housing”. However, only one side or two sides have adopted a
definition of market value and a set of standards and criteria that must be followed to determine what market value is, the appraisal profession under lending guidelines.

I agree with homebuilders, real estate agents, loan officers, lenders, secondary market participants, investors, property owners, etc., that the appraisal process should be more transparent. However, I
disagree that “changing the appraisal process or forms” will solve the problem or that it is “one step” towards a possible solution.

This country depends on housing. Housing and its related industries are a considerable contribution to the GDP of the US. Over the past decade, we witnessed firsthand, the importance of housing and the financial systems and related industries that support it and our economy.

Everyone was made acutely aware of what happens to the economy when you disregard the measures in place to prevent pressure and unfair advantages. Market participants want a better “appraisal process” and one that is transparent. I for one agree that it should be and they should have it.

To that end, we do not need to change the appraisal process or the forms. We simply need to have the participants adopt the same rules we have. We need all of “housings participants” to play by the same rules, to be governed by the same principles and subject to the same consequences.

We can start by having the National Association of Home Builders, the National Association of Realtors, and others adopt a modified version of USPAP or Dodd Frank that incorporates many value related principles and the same definitions (including value and how it is determined), that we have.

When builders and agents set the price, those prices should be supportable as market value, using the same criteria we have to. Those involved with the sale (that depends on financing), refuse to recognize the rules adopted (USPAP and Appraisal Guidelines) by those that control that same financing.  

We can edit USPAP to make it easier to comprehend and Congress can adopt it as “Federal Law”, (just like the speed limit), that applies to all housing market participants. This way, it is the law of the land and
anyone violating its principles and provisions are now subject to the same consequences.

We can also adopt a “national market value definition” and “criteria” that will be transparent and that all market participants must follow. If we all know the rules, and those same rules and consequences apply
to us equally, there would no longer be an “appraisal problem”.

Closing thoughts

Housing is multi-sided, complex and vital to the economy. Housing depends and financing and financing depends on a transparent and verifiable appraisal process. At the same time, we cannot have one part of housing subject to rules and consequences the other participants are not.

Our tax dollars support Fannie Mae, Freddie Mac, HUD, VA, etc. If we are taking the risks of funding housing, we need to minimize the opportunity for housing to derail, a result of, “unintended consequences”.

If tax dollars support housing, there should be transparency for the process, the data that supports the process and the rules. Remove the privacy laws and give appraisers access to the data in places where they do not have it.  Share knowledge and common goals and all ships rise with the tide.

My suggestion, invite the homebuilders and agents (and anyone else with skin in the game) to be a part of changing the appraisal process. Give them a say and have them take the pledge to promote and support whatever comes out of this process and to force Congress to modify Dodd Frank and make it the law of the land, applicable to all of housing’s “market participants”, equally.

Your opinion matters

Housing’s health is vital to the US economy. Each of us, have a stake in seeing a vibrant housing market. To that end, there are no acceptable reasons for any market participant to have an advantage or any other one to be disadvantaged, as appraisers have been for many years.

Homebuilders and other participants make valid observations. Appraisals often are not consistent and at times, this will cost the builder or consumer. At the same time, it is easy to point a finger from the stands and tell others what must be done, when you do not have to follow the same rules and you are not subject to the same consequences.

Several years ago, in response to the HVCC, Dave Biggers and Alamode collected more than 30,000 signatures in support of sensible changes (as opposed to what was on the table at the time) and forwarded them to Fannie Mae, Freddie Mac, HUD and others. This effort had an impact and the “powers that be” listened. We need to repeat this effort, this time with Joan Trice.

Tell Joan and the CRN the problems you see and share your thoughts as to how they could be and should be addressed, with new regulations, or modifications to existing ones, better forms, systems and accountability for all.

Joan is leading and like or not, industry participants are looking to her for answers.  Let her know
how you feel and give her and the CRN the chance to hear what you have to say. If the NHAB really has a “blueprint for change”, let us make sure to include them and all the others in the plan.

 

GUEST 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. He can be reached at [email protected]  Look for the new Outside The Boxes category for a collection of Patrick's articles on Appraisal Scoop!

The Reality of Price Per Square Foot

GUEST AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc.  Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets.

As appraisers, we talk to realtors on a routine basis. Whether it’s to set up an appointment, verifying data or even just shooting the breeze, their insight can be invaluable as we analyze a property and its
market. There are however vastly different concepts between how realtors market properties and how appraisers observe market behavior. One such example is the use of price per square foot.

As an equation, price per square foot ($/SF) is simply the asking or selling price divided by the gross living area. It has become common lingo among many realtors but is it a reliable indicator of market reaction?

Now as an over-simplified reference point, we may not object to its use however it has been a growing rationale for agents, buyers, sellers and homeowners to establish value.  I must admit when I hear the price per square foot argument as a means to value, my inner-appraiser starts to rev up into high gear. Shakes, convulsions and a flushed face are quickly tempered as I remember that we must educate if we
intend to explain the weaknesses of the price per square foot methodology.

The primary fault with $/SF is that it encompasses every feature of the property and not just gross living area. Only calculating the relationship between size and sales price ignores all the considerations a
potential buyer may make. If we were comparing two properties that were identical with the exception of size, then it is rational that the larger of the two may sell for more and thus the $/SF could be an accurate indicator. On the other hand, if we had two identical homes in terms of size but one had a
larger wooded lot and sold for more, the equation would not be as reliable. As properties have more dissimilar amenities and features, the less reliable it becomes as a function of indicating value. This is simply because other factors are not directly related to gross living area.

The same issue exists for price per acre in residential (non-agricultural) sites. While one acre may sell for a specified amount, that does not necessarily mean two acres will sell for twice what the one acre parcel did. There may be a premium for the excess or residual land but not based on a simple multiplier
factor.     

That being said, price per square foot can be a tangible factor in considering cost. Builders and index providers such as Marshall & Swift do utilize $/SF for construction estimating but it is not a strongly supported methodology for market valuation. The grid technique that is commonly utilized in most appraisals (Fannie Mae 1004) as part of the Sales Comparison Approach allows individual analysis of key amenities for the subject and comparable properties. Market derived adjustments can then be made to comparables for superior or inferior features.  The Sale Price/Gross Living Area field that is a part of the grid section is intended to be a general indication of the overall similarity of the subject to the selected comparables and not a basis for value conclusion.

A few years back, I had a call from a buyer who questioned my method for obtaining the gross living area (GLA) of a property he was in the process of purchasing. After explaining my physical measurements, Fannie Mae Seller Guidelines and ANSI standard Z765, he eventually backed out of the contract because the appraisal reflected a smaller GLA than it was marketed as. This seemed to go against all that we typically assume. He was in effect making his decision largely based on perceived GLA and not based on the features and amenities that the property offered. While he was an anomaly, it is true that buyers have varied motivations for their purchasing decisions.

If price per square foot was truly a common buyer consideration, then it is fair to expect that purchase offers would be made in these terms. Rather than a lump sum price, buyers would submit offers based on the square footage of the property and not a flat price that reflects all features.

If properties become widely marketed on the $/SF premise, is it possible that buyer behavior could evolve? It is unlikely that a simplistic math equation will change the diverse motivations of buyers but it could skew initial listing prices and then filter down through purchase offers. In any case, all parties involved in the real estate transaction process should have a basic understanding of motivation and reaction factors and not implement an overly simplistic formula for price determination.       

AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc.  Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets. He served as a staff appraiser at several local firms before forming AM Appraisals, Inc. with business partner J.M. Massey.

e-mail:[email protected] web address: www.amappraisals.com

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A Flawed Plan: Squaring up to the obsession with price per square foot

Appraisal Complaint Web Site - ReferMyAppraisalComplaint.asc.gov

The  http://refermyappraisalcomplaint.asc.gov/ Hotline is an information resource to help complainants determine the appropriate legal authority to receive their complaint involving allegations of non-compliance with the Uniform Standards of Professional Appraisal Practice or appraisal independence requirements.

How it works:

You may contact the Hotline through the website, email, or call center. The Hotline provides referral information to complainants based on responses to a series of questions and drop-down menu selections. The complainant is provided with agency contact information for filing of a complaint. The website also offers tools and resources to enable complainants to determine the nature of their complaint, as well as other helpful information. If you seek to file a complaint against more than one party, proceed with a separate referral request for each party against whom you seek to file a complaint.

The Hotline includes:

• This website with an online email and complaint referral process
• Toll free number: 877-739-0096

The Hotline will:

• Refer complainants to the appropriate legal authority to receive complaints of alleged non-compliance with the Uniform Standards of Professional Appraisal Practice, commonly referred to as USPAP, or appraisal independence standards, including improper influencing or attempted improper influencing of appraisers or the appraisal process.

The Hotline will not:

• Initiate complaints
• Act on your behalf
• Arbitrate
• Assist in appealing the outcome of complaints
• Follow up on referrals previously provided

Real Estate Appraisal in the US Industry Market Research Report from IBISWorld has Been Updated

Excerpt from the IBISWorld industry Report:

The top five firms in the Real  Estate Appraisal industry account for less than 15.0% of industry revenue  with the largest having a market share of just 6.2%. The larger participants in  the industry are generally subdivisions of large multinational property,  brokerage, and global real estate service firms. The vast majority of companies  operating in the industry are small, independent firms with few employees or  single-owner operators.

According to the US Census and IBISWorld estimates,  75.3% of establishments are nonemployers. From 2008 to 2010, the total number of  establishments in the industry was decreasing. The number of nonemployer  establishments was decreasing at a faster rate than employer firms. This trend,  however, has reversed recently.

According to Jose, the total number of  enterprises began increasing in 2010, and the number of nonemployer firms is  projected to grow at a faster rate than employer firms over the next five years.  This shift will likely result from mergers and acquisitions as well as a trend  of appraisal professionals leaving firms to become independent contractors as  demand for their services is increasingly filtered through appraisal management  companies.

For more information, visit IBISWorld’s Real Estate Appraisal in the US industry report page.

Follow IBISWorld on Twitter: https://twitter.com/#!/IBISWorld
Friend IBISWorld on Facebook: http://www.facebook.com/pages/IBISWorld/121347533189

Read more:  http://www.digitaljournal.com/pr/1134732#ixzz2NzuQ9x1V

LIA "Claim Alert" Newsletter: Revisiting The Fannie Mae/Freddie Mac 2005 URAR Form Ambiguities and Liabilities

Excerpt from LIA "Claim Alert" Newsletter:

It has been eight years since the URAR form was revised. From 2005 to mid-2008, the real estate market experienced a boom and a bust the likes of which we have never seen before, and we are finally seeing a slow recovery. Also during this period, the economic recession and poor lending practices lead to new regulations in both the appraisal and banking industries. Based on the new regulations, Fannie Mae/Freddie Mac mandated appraisers to add more information to the URAR form.

As of March 2009, the Market Conditions Addendum to the Appraisal Report required appraisers to research and analyze the general market conditions. In September 2011, Fannie Mae mandated that appraisers employ the Uniform Appraisal Dataset (UAD) as part of the URAR form. The goal was to standardize information supplied by the appraisers on the forms, especially as to descriptions of
quality and condition of the subject property and comparable sales. Another directive was that whenever adjustments are made to an appraisal for the year the dwelling was built (actual age) vs. the effective age, the appraiser must provide an explanation for the adjustments. Finally, Fannie Mae also dictated
that the proximity of comparable sales to the subject must be stated in miles and include the "applicable directional indicator". Many of these changes were a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

These dizzying changes make the appraisal process more difficult than ever. Those appraisers who fail to keep up with these new regulations risk potential liability. We asked our national claims counsel to highlight a few areas of concern for appraisers.

Appraisal Dataset (UAD)

The UAD is a significant change on the URAR form that could create more liability for appraisers. Instead of vaguely stating the property is in "average" condition, appraisers must select the UAD code which reflects the condition of the property as defined by Fannie Mae. By having to select a unique
code with a specific definition, any adjustments made for the selection of a different code for the comparable could be a minefield mainly because of the preciseness of the code.

Let's say, for example, the appraiser decides that the subject property's condition falls under C2, i.e., the improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. However, the appraiser then notes that Comp 1 condition is C3, i.e., the improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Let's also say the appraiser makes a $50,000 adjustment to reflect these differences. The report should explain this adjustment and the work file should provide support for this adjustment...perhaps paired sales, or
other appraisals reflecting similar adjustments of property in that approximate
location.

Adjustments now must be precise and must be fully supported by specific numbers to avoid USPAP violations. If the subject report ends up in a lawsuit, testifying that the $50,000 adjustment between the
subject's C2 condition and Comp 1's C3 condition is based on your "experience" or on vague "market conditions" will likely not be enough to convince a judge or jury. The definition of each UAD code is too precise; your adjustments have to be just as precise and have to be consistent within that neighborhood and for similar housing.

Finally, because of UAD, it is now more important than ever for you to review your report before transmitting it. Be sure that the UAD codes you selected were correct... was that really a water view or did you mistakenly select that code when you meant to say no view? If you selected C2 and your comps are all C3, have you made adjustments that can be supported? Or, did you select the same condition for your subject and your comps to avoid making adjustments?

Reliance issues

Although it was a hard fought battle before the 2005 URAR form was finalized, no one could convince Fannie Mae that Certification #23 was a Pandora's Box. As we suspected, and as was stated in our
claim alert of November 2005, Certification #23 has indeed increased liability for the appraiser. No matter how many times in the appraisal the "intended user and use" is stated, the claimant will argue that the wording in Certification #23 creates a duty to and allows reliance by the borrower. The question then comes down to, "for what purpose may the borrower rely on the appraisal?" We argue that if the court decides Certification #23 takes precedence over the intended use/intended user language then it should be decided that reliance can only be as to value. It is not reasonable to assert that a borrower can rely upon the appraisal for information about the property's condition because that is not the purpose for which the appraisal was prepared. In order to strengthen that argument it is still recommended that the appraiser continue to include language in the report that states...

"...the appraiser is not a home inspector and the appraisal report is not a home inspection. The appraiser only performed a visual observation of accessible areas and the appraisal report cannot be relied upon to disclose conditions and/or defects in the property."

The reliance issue is still complicated because of certain software problems. Some appraisers continue to use software that indicates the appraisal is for "Client/Borrower". If your software still shows this on the top of many of the addenda (photo pages, maps, etc), contact your software dealer and demand they change the program or switch to a software program that does not have that misleading information. Due to this problem many courts have sided with plaintiffs who argue that this language proves the appraisal is prepared for the client/borrower, so the borrower can rely on the report, for any purpose.

Misuse of URAR Forms

Another issue that we often see is some appraisers are still using Fannie Mae/Freddie Mac URAR forms for private party work. The 2005 URAR form is only to be used for federally-related financial transactions. The untouchable boilerplate language set forth in the limiting conditions, assumptions and
certifications refers specifically to "the lender". The appraiser using this form for other purposes such as divorce, tax reductions, estate appraisals, etc., is risking liability for creating a report that is misleading to the reader. This is especially important if your report is submitted to your state licensing board in conjunction with a complaint, and we have seen discipline imposed as a result.

Conclusion

It is the continuing responsibility of every appraiser to keep current as to new developments, including which forms to use in connection with which assignments and how to best convey all necessary information about the property that is being appraised so as to assist the client with whatever decision is
being made. You should check with your software company or your state licensing board for residential forms for non-federally related transactions. Ignorance is not bliss; ignorance leads to missteps, which lead to liability.

Click Here for the complete LIA "Claim Alert Newsletter"

Fannie Mae’s February 2013 National Housing Survey results are IN!

Americans Expect Home Prices and Mortgage Rates to Increase

Attitudes About Economy and Household Finances Remain Flat

WASHINGTON, DC – Consumer attitudes toward the economy and housing continue to diverge this winter, according to Fannie Mae’s February 2013 National Housing Survey results. On the one hand, consumers continue to express strong positive attitudes toward housing. On the other hand, sentiment about the economy and household finances is stalled. Average 12-month home price expectations and the share of consumers who believe home prices will go up over the next year both rose to record highs, and the percentage of Americans who say mortgage rates will rise reached its highest level since August 2011. At same time, Americans’ views on their personal financial situation, household income, and the direction of the economy fell or remained flat.

“Despite fiscal headwinds and political uncertainty, consumer sentiment toward housing is robust and continues to gather strength,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “We expect home prices to firm further amid a durable housing recovery, gradually reducing the population of underwater borrowers and helping to boost the share of consumers who say that now is a good time to sell."

“Since reaching its trough last September, the share of consumers expecting mortgage rates to rise has trended up,” continued Duncan. “However, despite historically low mortgage rates, nearly half of borrowers have never refinanced their mortgage. Combined with the scheduled year-end HARP deadline, rising rate expectations should prompt some borrowers to refinance soon to take advantage of more favorable mortgage terms and add to their disposable income, helping to offset ongoing fiscal drag.”

SURVEY HIGHLIGHTS

Homeownership and Renting

• The average 12-month home price change expectation increased 0.5 percent over last month to 2.9 percent, the highest level since the survey’s inception.
• At 48 percent, the share who believe home prices will go up in the next 12 months also reached a survey high, while the share who believe home prices will go down held steady at the survey low of 10 percent.
• The percentage who think mortgage rates will go up increased by 4 percentage points to 45 percent, the highest level since August 2011, while those who think they will go down held steady at 7 percent.
• Twenty-five percent of respondents say it is a good time to sell a house, the highest level since the survey’s inception in June 2010.
• At 3.9 percent, the average 12-month rental price change expectation increased 0.2 percent over January.
• Fifty percent of those surveyed say home prices will go up in the next 12 months, holding steady from January at the highest level since the survey’s inception.
• The share of respondents who said they would buy if they were going to move increased by 2 percentage points to 67 percent.

The Economy and Household Finances

• At 38 percent, the share of respondents who say the economy is on the right track has held steady over the past three months.
• The percentage who expect their personal financial situation to get better over the next 12 months fell by 2 percentage points to 41 percent.
• Twenty-one percent of respondents say their household income is significantly higher than it was 12 months ago, a 2 percentage point decrease from last month.
• Thirty-one percent report significantly higher household expenses compared to 12 months ago, a 7 percentage point decrease and the lowest level since June 2010.

The most detailed consumer attitudinal survey of its kind, the Fannie Mae National Housing Survey polled 1,008 Americans via live telephone interview to assess their attitudes toward owning and renting a home, home and rental price changes, homeownership distress, the economy, household finances, and overall consumer confidence. Homeowners and renters are asked more than 100 questions used to track attitudinal shifts (findings are compared to the same survey conducted monthly beginning June 2010). Fannie Mae conducts this survey and shares monthly and quarterly results so that we may help industry partners and market participants target our collective efforts to stabilize the housing market in the near-term, and provide support in the future.

For detailed findings from the February 2013 survey, as well as a podcast providing an audio synopsis of the survey results and technical notes on survey methodology and questions asked of respondents associated with each monthly indicator, please visit the Fannie Mae Monthly National Housing Survey site. Also available on the site are quarterly survey results, which provide a detailed assessment of combined data results from three monthly studies. The February 2013 Fannie Mae National Housing Survey was conducted between February 2, 2013 and February 21, 2013. Interviews were conducted by Penn Schoen Berland, in coordination with Fannie Mae.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

Fannie Mae enables people to buy, refinance, or rent a home. We play a leading role in America's economic recovery today and in building a better housing finance system for the future.

Follow us on Twitter: http://twitter.com/FannieMae.

Survey Finds: Dodd-Frank Appraisal Requirements Putting Strain on LO Annual Income

"The 2012 Loan Originator Survey has been released by Mortgage Daily, providing insight into issues impacting mortgage loan officers. The survey was sponsored by StreetLinks Lender Solutions and co-sponsored by Champions School of Real Estate."

"According to survey finsings, nearly 60 percent of the originators who participated in the survey indicated they earn at least $100,000 annually. Many said that they would have earned more if it weren't for the Dodd-Frank Act—though a small share has actually profited from the law. Appraisal requirements appear to be putting an even bigger dent in income." 

 Click here for the complete article on National Mortgage Professional.

ASA, NAIFA Send Letter to Appraisal Subcommittee Urging Delay in Rollout of National Appraisal Complaint Hotline

Also Meet With Representatives of ASC; Urge Delay of March 29th Go-Live Date

On February 6 ASA, along with the National Association of Independent Fee Appraisers (NAIFA), sent a letter to the Appraisal Subcommittee (ASC) urging them to delay the planned March 29th implementation of the national appraisal complaint hotline, as required by the Dodd-Frank Act.

In pushing for the delay, ASA and NAIFA pointed to several issues regarding the hotline’s formation:

• That the hotline was created in a closed process, without adequate stakeholder exposure or input;
• The hotline, as proposed, violates Congress’s intent and the clear language of Dodd-Frank;
• The hotline has morphed from a tool for appraisers to report instances of undue influence into a “catch-all” tool where anyone can file a complaint against an appraiser for any alleged violation of USPAP, regardless of whether it is legitimate; and,
• The open-ended cipher design of the hotline will greatly increase the volume of complaints against appraisers, impose undue, excessive burdens on them and on state appraiser licensing agencies, and possibly gum up the mortgage loan processing system. Ironically, the open-ended hotline is likely to increase pressure on appraisers to come up with market values that will make a mortgage transaction appear to be safely collateralized.

On February 7, government relations representatives for ASA and NAIFA met with Jim Park, Executive Director of ASC, along with senior staff, to further discuss the letter’s contents and to request an opportunity for the two organizations to be heard by the full ASC board.

You can read the full letter sent to the ASC by clicking here. 

Scott A. Austin, IFA sent along these excerpts: 

The bottom line: 

“What is almost certain to happen – if the hotline website and system permit complaints involving alleged violations of any and all USPAP provisions – is an influx of large numbers of complaints that are spurious or fundamentally mistaken – complaints which will, nevertheless, raise questions about the professionalism of the appraiser complained against, occupy his or her time and attention and force state or federal agencies to review them. These are likely, but very unwelcome, outcomes that
the ASC should want to avoid..."

“While our organizations strongly support the hotline system for the purpose intended by Congress, we do not support a complaint system that permits individuals to trigger an investigative process that is unrelated to appraiser independence matters. We also do not support a process which excludes stakeholders from having a say in the implementation of a unique federal program, like the hotline program, which impacts our members in vital ways.  Congress unambiguously intended the hotline to concern itself solely with appraiser independence issues; and the complaint system designed by the agencies should clearly reflect that fact.”

 

Appraisal Institute’s New Guidance Helps Real Estate Appraisers Analyze Exposure Time

CHICAGO (Feb. 12, 2013) – The Appraisal Institute, the nation’s largest professional association of real estate appraisers, published guidance today to help appraisers understand exposure time and how to incorporate its analysis into an appraisal.

The Appraisal Institute’s “Guide Note 14: Concept of Exposure Time” addresses how appraisers should link exposure time to their value opinion and comply with the Uniform Standards of Professional Appraisal Practice. Exposure time refers to the time a property remains on the market.

The Guide Note states, “An analysis and opinion of Exposure Time is required for appraisals where the definition of value is tied to a reasonable or stipulated exposure time. A discussion of Exposure Time
allows the intended user(s) to put the appraiser’s value opinion into context.  It also serves as the foundation on which appraisers describe market conditions, analyze comparable sales, and reconcile an opinion of value to the actual sale price.”

As defined in The Dictionary of Real Estate, 5th Edition (Appraisal Institute, 2009), exposure time is “the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based on an analysis of past events assuming a competitive and open market.”

According to the Appraisal Institute’s Guide Note, USPAP requires that “when an opinion of reasonable exposure time has been developed in compliance with Standards Rule 1-2(c), the opinion must be stated in the report.”

The Guide Note states that exposure time is not a fixed period and can differ for various types of property and under diverse market conditions. It is a function of price, market conditions and property characteristics, and the basis for an opinion of exposure time should include one or more of the following:

• statistical information about days on market for similar types of property;
• information gathered through sales verification;
• interviews of market participants;
• market information from data collection services.

 

Click here to download the Appraisal Institute’s seven-page “Guide Note 14: Concept of Exposure Time.”

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Value.

The Appraisal Institute is a global professional association of real estate appraisers, with nearly 23,000
professionals in almost 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. Individuals 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.

AMC Declares Bankruptcy: What Appraisers Need To Know

GUEST AUTHOR: Ramir Rodriguez is a business development officer for Treasure Valley Factors.  He helps real estate appraisers understand what factoring is and how it can help grow their business.  He has a B.S. in Business Administration with an emphasis in Management from Eastern Oregon University. For more questions about factoring accounts receivables, please email him at [email protected] or visit our blog www.factoringhelps.wordpress.com or our website www.treasurevalleyfactors.com

 

You received a letter in the mail informing you that your client has filed for bankruptcy.  It is this moment you realize that this bad news just became your problem.

Many of us are familiar with the recent bankruptcy filings of Evaluation Solutions and its subsidiary ES Appraisal Services.  Peter Christensen, attorney and general counsel to LIA Administrators & Insurance Services, shared in his blog that the total unpaid fees to appraisers, agents, and brokers as listed in bankruptcy documents is $11,048,411.97!  This is a remarkable amount.  Evaluation Solutions’ bankruptcy documents accounted for $9,349,612.97 of the total amount and a separate filing of its
subsidiary was for $1,698,799.

I Received A Notice… Now What?

If you received a notice regarding Evaluation Solutions/ES Appraisal Services’ (I will refer to them as ES) bankruptcy you may be wondering what the next step is to try and recover money owed to you.  Yes, a client’s bankruptcy can be costly for you, but most importantly, not adhering to the rules of the bankruptcy process can cost you significantly more.

Knowing the types of bankruptcy, how to play by the rules, and what you can (or can’t do) will help you understand the scope of your problem and ensure you don’t get in trouble. 

Types of Bankruptcy

There are lots of information you can gather from the bankruptcy notice from ES to help you understand the nature of this problem.  But first you must recognize the type of bankruptcy ES is filing.

Chapter 7 – This type of bankruptcy is the liquidation of remaining assets to distribute among its creditors.

Chapter 11 – This a financial reorganization of a business, which allows your client to function while they follow court ordered debt repayment plans.

Chapter 13 – Similar to Chapter 11, but rather than a business filing bankruptcy it is the individual reorganizing and following a debt repayment plan.

Ideally, it’s more favorable on your end if your client files for either Chapter 11 or 13.  These types of bankruptcy give your client a breather until they figure out how to repay.

If your client however files for Chapter 7, which is what ES filed, not only will your chances of getting
paid be reduced, but also you may be waiting a long time (even years) for this type of case to be completed.

Take A Number

At this point you are probably frustrated and would like to call someone to attempt to collect your money.  Stop right there!  Your actions can get you in deep waters.  If you attempt to make phone calls to ES’s accounting department, send nasty letters, or try to file a lien (which some appraisers have done in other instances and is not recommended), you will face penalties.

Assuming you do get some money owed to you, you will have to wait in line.  This is the second item you must understand.  Here’s the payment order:

1. Lawyers, administrative expenses, and other professional services that are involved with the work of filing the bankruptcy.
2. Secured claims, including mortgage holders.
3. Priority claims, including wages and taxes.
4. Unsecured claims, which is where you as an appraiser may be categorized.
5. Equity claims, including stockholders.

So curb your frustration because all you can do at this point is wait.

What Can You Do While You Wait

Sure you have to wait for ES’s bankruptcy process to take its course, but there are some things you can do in the interim.  Since this case can drag for a long period of time, you can do the following:

 

1. Consultwith your CPA about taking a deduction on your taxes for the bad debt.  If you manage to receive some money owed toyou after the bankruptcy case is settled you can claim it as income at thattime.  See your accountant for moredetails.
2. It doesnot apply in this case, but if you have a future instance where your client files for Chapter 11 or 13 and wants to continue a working relationship, it may be to your advantage.  Of course your immediate reaction is to quickly say “no way!”, but understand that Chapter 11 and 13 require debtors to stay current on all accounts moving forward.  This means you can add a fee to your appraisal fees to recover what was lost, stricter payment time frames, and
   maybe exclusivity as other appraisers may not take another chance.  Keep in mind that the best way to reduce or eliminate risks is to get paid up front.

Improve And Move On

Now that you’re somewhat familiar with the types of bankruptcy, payment pecking order, and what you may be able to do as the bankruptcy takes its course, it is important prepare for the future.  This means assessing your appraisal business and how to prevent this problem from happening again.

First, create a process on how to screen new clients by knowing their payment history.  There are many tools and resources you can use online that are free or for a small fee.  Second, improve your accounts receivable aging management procedures.  Just because they are still “current” doesn’t mean it does not require all of your attention.  Current receivables can quickly turn into problems if you don’t pay attention.  Last but not least, be persistent and tough but professional with your collections.

If you have an AMC bill in your state, read it and educate yourself on how it can help your appraisal
business.  There are sections in most AMC bills that require AMCs to pay by a certain time frame.  For example, Texas AMC bill requires AMCs to pay appraisers within 60 days.

Also consider resources available to you such as factoring your receivables where the risk of non-payment is transferred to the factoring company.  In this case, you can get paid quickly without the responsibility of collecting and liability of non-payments.

No small business is immune to the unexpected, but you can certainly minimize you risks as work towards a successful 2013.

GUEST AUTHOR: Ramir Rodriguez is a business development officer for Treasure Valley Factors.  He helps real estate appraisers understand what factoring is and how it can help grow their business.  He has a B.S. in Business Administration with an emphasis in Management from Eastern Oregon University. For more questions about factoring accounts receivables, please email him at [email protected] or visit our blog www.factoringhelps.wordpress.com or our website www.treasurevalleyfactors.com