Appraisal Scoop

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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The URARS Part 2: What steps to take and which direction to go?

In "You've ALWAYS Had The Power! Creating Uniform Residential Appraisal Reporting Standards (URARS), I suggested we start with the "Clarification of Scope of Work Addendum" (COSOW) as a template for the URARS for several reasons. First, the Scope of Work within the URAR is broad and unspecific and second, the COSOW defines many terms and states the appraiser’s actions in a format that is "uniform".Download COSOW.pdf

Uniform implies consistency and that is what is needed for the URARS. Regardless of the property’s location, physical attributes or local custom, the URARS (and the appraiser’s action) must be the same.

Does this mean the URARS will not allow for flexibility if needed? Absolutely not, the URARS is not about being "inflexible". It is about providing a framework or standard for analysis of common as well as unusual situations.

What will make it different?

The URARS doesn’t remove the appraiser’s ability to exercise judgment for a unique assignment, only that in employing a technique, it must be consistent with the methodology that other appraisers would use in a similar appraisal problem.

Through "uniformity" your definition of urban, suburban or rural will be same as my definition. When you define a neighborhood, it will be described using the benchmarks and guidelines that I would. Uniformity removes subjectivity via "de facto standards".

Through the URARS, those that rely on the appraisal (underwriters, clients, regulators, the secondary market, etc.) will have reference to and common understanding of the same terms, techniques and applications. As a result, appraisals will be measurable and verifiable.

More importantly, the URARS will provide a defensible document, one that is representative of "the actions of our peers" and "generally accepted appraisal practice", the same standards of performance identified within USPAP and by the secondary market.

If we build it will the come?

Appraisers are skeptics by nature and given what the industry has gone through since FIRREA (the document that was to solve all of our problems) it is reasonable that they should be. FIRREA and USPAP did solve some problems, but they also created some "intended consequences".

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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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Identifying and Understanding the Relevant Characteristics of the Subject Property of a Real Property Appraisal Assignment

Author: Cliff Odom, RAA, IFA - Cliff Odom Appraisal Services, Inc. is a residential real estate appraisal firm serving the Birmingham Metropolitan Area in North Central Alabama. Cliff Odom is a Certified Residential Property Appraiser providing timely, accurate residential appraisals to more than 30 mortgage lenders nationwide.

We as appraisers realize that each appraisal assignment begins with a “problem” which is an unsolved question. The term “solution” however refers to both the method for resolving the question and the answer. Every appraisal assignment begins with a question about value and involves a solution that is both a process and an answer. It is important to understand, however, that with respect to these two elements, USPAP addresses the method by which an appraiser arrives at an answer, not the specific answer itself.

The first step in the solution is called Problem Identification or what is sometimes referred to as Define the Appraisal Problem.

This step involves gathering specific information about the problem in order to identify what needs to be done to arrive at an appropriate and meaningful solution. In appraisal assignments there are certain factors that are included in Problem Identification.

They include:

1. intended use
2. intended users
3. the type and definition of value (these three are considered the drivers)
4. the property (as in the subject property)
5. relevant characteristics
6. effective date
7. assignment conditions (including assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions)

All seven combined . . . gives us the Scope of Work.

As we all began our appraisal careers, we attend USPAP courses and other type of educational courses each year for our qualifying education. I have set through many courses and I must admit that in many I was totally confused on some of the “terminology”, verbs, adverbs, nouns, pronouns, etc., which we all hear.

Relevant Property Characteristics of the subject property finally begin to flow to the top.  After attending many USPAP courses and constant study of USPAP terminologym, I finally realized that this was a very important subject and one that must be fully understood in order to complete appraisal assignments correctly.

This article is being written with reference to USPAP and Advisory Opinion 23 (AO-23), to help other appraisers who may have had (or still do) some misunderstanding and misconceptions of this subject article.

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The End is Just the Beginning - Virginia REAB Hears Petition To Prohibit Use of Appraisal Delivery Webportals That Transmit Altered Appraisal Reports

Appraisal Scoop reported previously (click here) on the May 22, 2008 Virginia State Board for Real Estate Appraiser's (VREAB) meeting to discuss among other things, a petition submitted by George Dodd, SRA.  Click Here to: Download Virginia_Appraisal_Board_Petition_052208.pdf

The petition was written to prevent online sites, or web-portals from changing or otherwise altering reports that appraisers prepare.  Web-portals would include such companies as: AppraisalPort, RELS, and other AI ready required companies. It also seeks to limit the illegal PDF stripping down, and programs that erroneously copy information from reports such as Lighthouse.

Click here for Part 1 and for Part 2 and for Part 3

August 19, 2008 - Legislature and policy is one of those things that can baffle most people. I know that sometimes I can get downright angry at the inefficient ways government can work sometimes. Here we all are in Richmond, VA, the front lines to the fight for appraisal portal conversions.

On the 19th a decision was to be made as to whether or not appraisers were to be allowed to continue to do business with companies that require reports to be converted to formats that were not the true copy of the appraisers report. A victory would not be had by either side of this fight .

Neil Olson, Chief Legal for FNC, Inc was there to give presence to the companies who want to continue to require appraisers to submit limited reports. * See comments I once again applaud Mr. Olson for being the lone offense, as no one from First American was there, no one from Lighthouse, no one from any other company that would be even slightly allied with FNC’s struggles. There were no lenders there to support Mr. Olson’s claims from the lender’s side. Without a lender there to agree this is the only way they want these reports, Mr. Olson appears to be painting with broad strokes when he insists they do.

George Dodd, SRA was there to thank the board for their time looking at and considering his petition. This same petition asked that no companies that required the practices of conversions of reports be allowed to do business in the Commonwealth of Virginia.

The committee was required to recommend that the petition be rejected. It was simply not written in such a way that was enforceable. The petition sought to limit an industry that it did not oversee. The Board’s opinion was to leave the committee open to further discussion and allow it to look even deeper into the entire process.

Mr. Dodd humbly accepted that decision, as if he knew it was coming. He seemed pleased to get the opportunity to continue on to help shape what is ultimately going to be an important step in the re-establishment of appraiser’s independence.

Over the last several months there are some things that should be taken into account that cannot be just coincidence. When the Board originally met in the late spring I began this series of stories. The first one seemed well received. The second one was followed by something I did not expect. Within a day of the second story being published Fannie released a statement:

"Since relocating our appraisal ordering process to AppraisalPort in April, we have discovered limitations within various appraisal software providers using the AI Ready format when trying to send the level of documentation that the NUC requires."

I have no clue if yours truly had anything to do with it. I do hope that I had a small part in it. Within this same time frame AppraisalPort released something that they had never offered prior in their previous several years of operating. They finally made a PDF converter available for their ENV format.

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Virginia REAB Holds "Special Meeting" on Appraisal Delivery Web Portals: Part 3 of 3 - FNC's Chief Legal Officer Responds

Appraisal Scoop reported previously (click here) on the May 22, 2008 Virginia State Board for Real Estate Appraiser's (VREAB) meeting to discuss among other things, a petition submitted by George Dodd, SRA.  Click Here to: Download Virginia_Appraisal_Board_Petition_052208.pdf

The petition was written to prevent online sites, or web-portals from changing or otherwise altering reports that appraisers prepare.  Web-portals would include such companies as: AppraisalPort, RELS, and other AI ready required companies. It also seeks to limit the illegal PDF stripping down, and programs that erroneously copy information from reports such as Lighthouse.

Click here for Part 1 and for Part 2.

July 23, 2008 - Richmond, Virginia

Mr. Olson, Chief Legal Officer for FNC, did in fact take several minutes to discuss some points, many of which are similar to the comments he had made at previous meetings.  Download Neil_Olson_FNC_Response.pdf   He did not prepare or use a power point presentation this time. He chose to sit at the Board’s table and comment and answer questions as they were asked.

Much of what was said can be summed up in a few sentences.

“The ENV file that is submitted is the true copy. Many recent improvements to the AI Ready format were made that allow for inclusion of more images. The limitations of the presentation and formatting of the reports in the ENV are done so because that is the clients’ wish for the reports to be presented in such a way. He did also say that the security given by the system is the biggest advantage of Appraisal Port.”

Personally, I must say that I respect Neil Olson, any one that is willing to travel this many times and essentially defend his company the way he has done, gets a pat on the back. The lack of interest, or perhaps the lack of presence by the other companies that convert reports, and the lenders that are allowing or requesting it, leaves Mr. Olson there to defend the concept all by himself.

The point he made regarding the lender/client’s wish to have the reports in such a format, I do think this needs to be examined closer. I think a more accurate statement would be that this is the system that Appraisal Port sells to lenders on the merits of rule set reviewing and quality control. The system essentially reads the file and if any of the data in the fields is outside of an established tolerance (example: greater than 10% line adjustment) it is flagged. What I assume happens from there is that a reviewer or otherwise trained person looks over the report and decides if further appraisal review is needed, or if the report properly explains the variance.

One can surmise from the absence of the lender/clients and the fact that the programs are so limited to exclude the appraiser’s intended forms and presentation; it may not really be the lender/client that wants the reports in such a manner.

It is likely that the lender/client was solicited on the benefits of the rule sets and review features. They are not here defending the right to do so, they are leaving that to FNC. I believe this is a reasonable assumption to make regarding Lighthouse and AI Ready. This means that it is likely that the lenders using these types of services may not realize that the reports they are receiving are in many cases, limited in what they can contain. If the lender/client is aware it can be assumed that no consideration is given to the appraisal process when a business decision like this is made.

This may also explain why there has been resistance from Mr. Olson when asked about allowing the lender to receive a PDF, then converting the PDF into an ENV. This would certainly prompt a lender to ask, “Why do WE need to do this?”, and I am sure the credibility of the converted report would then be at question.

There is a loop hole here that is being used to force appraisers to convert formats and then the appraiser be held accountable for what is essentially two different versions of a report. Most appraisers do not understand that the reports are limited, and from many I have spoken to, they do not read the converted report and compare it to the report in their forms package.

Is This What the Lenders Really Want?  Click here to continue reading . . .

Virginia REAB Holds "Special Meeting" on Appraisal Delivery Webportals: Part 1 of 3

To Convert or Not to Convert!  Is That a Real Question?

Appraisal Scoop reported previously (click here) on the May 22, 2008 Virginia State Board for Real Estate Appraiser's (VREAB) meeting to discuss among other things, a petition submitted by George Dodd, SRA.  Click Here to: Download Virginia_Appraisal_Board_Petition_052208.pdf

The petition was written to prevent online sites, or web-portals from changing or otherwise altering reports that appraisers prepare.  Web-portals would include such companies as: AppraisalPort, RELS, and other AI ready required companies. It also seeks to limit the illegal PDF stripping down, and programs that erroneously copy information from reports such as Lighthouse.

Woody Fincham has developed this series to chronicle his first hand account of the 7/23/2008 Virginia Real Estate Appraiser’s Board meeting.  These are the author's own opinions. They are not intended as an attack on FNC, INC or any one listed in the article. The article is intended to inform the general appraisal public of the landmark Virginia State Appraiser's Board policy process.

Virginia Real Estate Appraisers Board

July 23 2008

Special Meeting Regarding Web Portals

Today marked the second and final special committee meeting by the board.  The meeting was called in order to allow all the interested parties to make a case for their respective points of view.  George Dodd, the petitioner was there and gave a presentation.  Neil Olson from FNC, INC was also present to speak to the board and the gathered attendees.  Rob Fraiser, an appraiser from Core Logic gave a presentation regarding the data standard MISMO.  Strangely absent was anyone for ACI regarding their conversion software or and lenders who utilize conversion capable platforms. 

Mr. Dodd started off the meeting with a short presentation supporting his stance on why conversion software should not be allowed. (See below for downloads)  He had prepared a power point presentation that included some interesting information.  The highest ideal Mr. Dodd referred to was the Board’s job to protect the public trust, the very same being a part of the Commonwealth’s regulations.

He very clearly stated that the single most significant act an appraiser does is to place the appraiser’s signature on the report.  This is easy to concur with in that when one thinks about it, an appraiser states upon signing the report that all conclusions, statements and work are true and accurate.  It is the glue that makes the report stick. 

He also states that the appraiser has to have complete control to attach, control or affix the signature.  This is affirmed by the State Regulation that states “The signing of an appraisal report or the transmittal of a report electronically shall indicate that the licensee has exercised complete direction and control over the appraisal“in accordance with §54.1-2011 C of the Code of Virginia.

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Download Appraisal_Board_Presentation.pdf

Download presentation_to_appraisal_board.ppt

What’s in Your Appraisal File Memorandum? - The integrity of our profession relies on THREE approaches to value

The real estate appraisal process is based on considering three approaches to value when providing an opinion of value for a specific portion of real estate. Cost, Income, and Sales Comparison. Yet, what is consideration without verification that an approach was indeed considered and deemed viable or not in the final conclusion of value?

Here's the fundamental question:

"Do the principles of our profession, regardless of USPAP, allow us to totally dismiss the income and cost approach without verification that the conclusion made by the appraiser can be substantiated?"

Let’s review USPAP

Standard Rule 1-4 In developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results.

(b) When the cost approach is necessary for a credible assignment results, an appraiser must: etc.

(c) When the income approach is necessary for a credible assignment results, an appraiser must: etc.

Standard Rule 1-2(f) states “identify the scope of work necessary to complete the assignment;

Comment: The scope of work is acceptable when it is consistent with:

• The expectations of the participants in the market for the same or similar appraisal services; and
• What the appraiser’s peers’ action would be in performing the same or a similar assignment in compliance with USPAP.

It continues to say:

An appraiser must have sound reasons in support of the scope of work decisions and must be prepared to support the decision to exclude any information or procedure that would appear relevant to the client, an intended user, or the appraiser’s peers in the same or a similar assignment.

An appraiser must not allow assignment conditions or other factors to limit the extent of research or analysis to such a degree that the resulting opinion and conclusions developed in an assignment are not credible in the context of the intended use of the appraisal.

Does USPAP allow us to make the statement that an approach to value is not applicable without any substantiation?

Which brings rise to another question: What is in your file memorandum? Do we need to have support that substantiates that an approach is not applicable?

I believe that part of the problem with appraisals that misrepresent the fair market value is in part due to the appraiser not utilizing three approaches to value to insure there are checks and balances to support the final conclusion.

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Virginia REAB Hears Petition To Prohibit Use of Appraisal Delivery Webportals That Transmit Altered Appraisal Reports

Author: Woody Fincham:

This article is a first hand account of the 5/22/2008 Virginia Real Estate Appraiser’s Board meeting.  These are the author's own opinions. They are not intended as an attack on FNC, INC or any one listed in the article. The article is intended to inform the general appraisal public of the landmark Virginia State Appraiser's Board policy process.

May 22, 2008 - Real Estate Appraiser’s Board, Richmond, VA: Today the Virginia State Board for Real Estate Appraisers met to discuss among other things, a petition submitted by George Dodd, SRA.  Click Here to: Download Virginia_Appraisal_Board_Petition_052208.pdf

The petition was written to prevent online sites, or web-portals from changing or otherwise altering reports that appraisers prepare.  Web-portals would include such companies as: AppraisalPort, RELS, and other AI ready required companies. It also seeks to limit the illegal PDF stripping down, and programs that erroneously copy information from reports such as Lighthouse.

The fight to protect appraisal data was front and center in Richmond.  There were several people there to watch and learn, including Chief Legal Officer for FNC, Neil Olson and Mark Chapin, Vice President, Zone Sales and Business Development for ZAIO. Within the galley were several appraisers from across the Commonwealth of Virginia. From one-man shops to multi-appraiser/multi-area shops, everyone wanted to watch as Virginia bravely looked to change the playing field for the industry.

The meeting was mostly formal business as usual, licensing sanctions and the typical stuff. Traditionally, public comment is limited to 5 minutes. A motion passed to hear Mr. Dodd's petition and up to speak first was Mr. Olson. He spoke well and politely, agreeing that the issue was indeed serious in nature, and that appraisal report delivery has changed since the days of typing a report and sticking photos in the report and dropping it off at the bank.  Download Neil_Olson_FNC_Response.pdf

• He made it very clear that the conversions were done by the appraiser. It seemed he was very determined to make it known that essentially the liability of the conversion rested with the person initiating the conversion: the appraiser.
• He also compared the PDF format and the AI format as being relatively the same. Mr. Olson discussed how the major component of the AppraisalPort site was to check for viruses.

Many of you may be wondering why that is an issue. Really, it has always been the appraiser’s responsibility to make sure that all reports are sent in secure manners. There has always been the requirement that appraisers have complete control over signing their reports. So why should we be concerned with things as they are enough to try and see that a state board requires non-licensed companies to stop their business practices?

It has to do with the requirement of many of these companies to force an appraiser into either doing these things with their reports, or be forever blacklisted from receiving work.

They are asking appraisers to send in work in a format that essentially allows them to unlock your data, use it how they see fit. The data is essentially pulled out into sections, including your signatures.

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Outside the Boxes: Part 14 - 12 Tips To Increase Your "ODDS" ... Observe, Disclose, Disclaim & Specify

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] 

As licensed professionals, appraisers are required to "promote and protect the public trust" in our profession. Clients and the public have a right to expect ethics, competency and consistency from all appraisers, even when many of those same clients contribute to problems in the market.  We are expected to provide a "credible appraisal", one that is "worthy of belief".

Over the next several years, "odds are the profession will change", perhaps dramatically. During this time appraisers will become the "odd man (or woman) out" as some of the blame for market conditions will be laid at our doorstep and rightfully so as many in our profession were willing participants of "housing gone wild".

The initiatives and actions we take from this point forth will determine the trust placed in the appraisal profession by clients and the public. The real estate industry that we are part of has lost credibility and to restore the confidence, we need to be pro-active and using the "ODDS Rule" will help. 

• Observe the property and the market.
• Disclose to the client what you did and did not do.
• Disclaim that to which you are not qualified to evaluate.
• Specify your reasons and logic.

Often, clients, underwriters, loan officers, buyers and sellers have questions. Some are reasonable and some are absurd, however all are important. We can't become a "culture of no". We must take the steps necessary to respond appropriately since our responses reflect on our profession as well as ourselves. 

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