Appraisal Scoop

Runt Rants - Back to Business

My, my, my!  What a wonderful place Appraisal Scoop has become!  So many excellent columns: highlighted by Patrick Egger's great "Outside The Boxes" additions.  I’ve read every one of Pat’s words and learned so much to apply to my business!   And the active commenting that has developed, centered on “they who cannot be named”, but now branching out to create an interesting dialog on so many issues!  A rich tapestry has been spun here, all to Brian Davis’ ever lasting credit.  I knew he could do it: never had a doubt.

My posts have been limited of late.  I think now is a good time to return.  I think I can contribute.  We’ll see.  You be the judge as always.  My original Runt Rant was an introduction….of me, my background, my biases, my limitations.  It also stated my objectives for the space I’m taking up here.  I’m a business owner first and foremost.  That is also my limitation.  I try to give perspective of managing a business, and only that.  Luckily, managing a business, especially an appraisal business, allows so many excursions into back avenues and dusty trails, into ideas and ideals, into managing change.  And managing change is my strong suit; by nature and by experience. 

Today we'll talk about some aspects of management of change.  As always, it gets a little personal, I don’t like that, but my experience is really all I have to share.  I’ll suffer the discomfort if it helps others. I have Leukemia.  Specifically Chronic Lymphocytic Leukemia, aka CLL.  Diagnosed eight years ago.  As cancers go, it’s a good one to have. 

Click here to continue reading . . .

FHA Appraiser Roster Requirements - Appraiser Testing No Longer Necessary - Effective 2/7/2008

According to HUD document 24 CFR Part 200 "FHA Appraiser Roster Requirements" - FHA appraisal requirements now conform to those of conventional mortgages, it is no longer necessary to test FHA Appraiser Roster applicants for knowledge of FHA specific requirements.

HUD has also concluded that the examinations required by the AQB criteria are acceptable indicators of applicants’ knowledge and competency to perform accurate appraisals, including those for FHA-insured transactions. Download 24 CFR Part 200 08-8.pdf

SUMMARY: This final rule explicitly conforms the eligibility requirements for applicants to the Federal Housing Administration (FHA) Appraiser Roster to longstanding HUD practices, as well as to existing nationwide industry practice. Only appraisers on the roster may perform required appraisals of properties that are to serve as security for FHA-insured single-family mortgages. Among other requirements, the current regulations require that an applicant must be a state-licensed or state-certified appraiser and pass a HUD examination on FHA appraisal methods and reporting. This final rule codifies HUD’s longstanding practice and the nationwide practice that such certification or licensing comply with national criteria for education, experience, and passage of a state administered examination. This final rule also eliminates the requirement for applicants to pass a HUD test on FHA appraisal methods and reporting, because the test has become duplicative of the national examination requirements for state licensure and certification and, therefore, unnecessary.

1. HUD recently undertook a review of the appraisers listed on the FHA Appraiser Roster and determined that the credentials of all currently listed appraisers comply with the applicable AQB criteria. As a result, the provisions in the May 16, 2003, final rule for a 12-month phase-in period are no longer necessary.
2. HUD has also determined that no State in fact ‘‘grandfathered in’’ appraisers who had been licensed prior to establishment of the AQB criteria, a concern at the time of the publication of the May 16, 2003, final rule. Consequently, today’s final rule does not contain these unnecessary provisions.
3. This final rule also eliminates the requirement for applicants to pass a HUD test on FHA appraisal methods and reporting - effective February 7, 2008.

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2008 National Uniform Licensing and Certification Examinations

The Appraisal Foundation has published some very helpful information on their website (click here) regarding the effectiveness of the examinations used for state licensing and certification purposes.

The AQB made minor enhancements to the Criteria over the years, but the revisions that will become effective on January 1, 2008, significantly increase the hours and the specificity of education required to become a state licensed or certified appraiser. Appraisal education, beginning in 2008, will require, for the first time that the total hours be attributable to specific topic areas, known as a Required Core Curriculum. And each educational topic area in the Required Core Curriculum requires successful completion of an exam.

Since specific appraisal topics will be taught and tested within the education requirement, the 2008 state licensing and certification examinations can focus on a candidate’s ability to apply the knowledge learned rather than simply testing a candidate’s ability to recall information learned in coursework.

State appraiser licensing and certification examinations offered prior to January 1, 2008, essentially test a candidate’s ability to recall information learned in qualifying educational offerings. The National Uniform Licensing and Certification Examinations offered as of January 1, 2008, will test a candidate’s ability to apply the knowledge (and possibly experience) they have obtained.

This difference may be best illustrated by looking at examples of the type of questions that could appear under each exam (Click Here)

Appraisal Firm Caught Allegedly Recruiting Appraisers Through The Internet As A Ruse To Steal Their Personal Identity

The Real Deal blog posted this story:

"A Whitestone real estate appraisal company and its CEO have been indicted for allegedly stealing identities of appraisers and inflating property values. D & T National Appraisals and CEO Donato Odato, 54, are charged with forgery, falsifying business records, identity theft, scheming to defraud and conspiracy.

Odato allegedly recruited appraisers through the Internet as a ruse to steal their personal identity and then allegedly forged their names on appraisals filed with residential mortgage applications. The alleged scheme was discovered after the appraisers were accused of inflating property values and lost work."

Now . . .I don't normally repost appraisal fraud stories, as there are usually plenty of folks that love to take shots at appraisers and there's no need for me to pile on so-to-speak.  But in this case, the appraisal firm was alegedly harming other appraisers! 

Mortgage Fraud Blog, indicates that these appraiser creeps were indicted on not one, not ten, not 100 but 397 counts! of the following: Click here

• second- and third-degree forgery
• criminal possession of a forged instrument
• first- and second-degree falsifying business records
• first- and third-degree identity theft
• first-degree scheme to defraud
• fifth-degree conspiracy

The alleged scheme came to light when financial institutions began reaching out to the appraisers who allegedly had their identities stolen and advised them that their services would no longer be needed due to their inappropriate and highly inflated valuations of properties based on falsified data. The appraisers, in turn, contacted the Queens District Attorney’s Office to report the identity theft.

Click here for the Queens DA Press Release: Queens Real Estate Appraisal Firm And CEO Indicted In Alleged Scheme That Inflated Real Estate Value

Thanks to Patrick Egger for this story tip!

Appraisal Report Writing: Finding your own style!

The other day, in response to a question on the WinTOTAL Users Group (WTUG) forum, I posted a Jing video showing how I build a text addendum in my residential appraisal reports.  Critical to that process is a collection of small paragraphs that can be selected on-the-fly and applied when needed.  That process eliminates the one-size-fits-all boilerplate addendum that is so common in residential form reports.

Having seen that video, one of the forum members contacted me privately.  Here's part of his question:

As I watched your Jing video I was especially impressed with the amount of comments you have acquired over time.  I wanted to ask if it would be possible to review or look at some of the comments you have come up with for different situations.  This would not be a situation of simply copying your comments but I would mainly use them as an aid to help inspire me to come up with good comments to help fit my particular area and market.  As a junior appraiser I think I would find it beneficial to review good comments from an honest and ethical appraiser with verbiage that not only sounds professional but adequately explains certain situations.

My response:  YOU my friend have a WONDERFUL writing style . . . .and honestly I wouldn’t want to ruin it with my old-timey appraisal writing style! 

Rather then just doing a “dump” of my text comments let me offer these suggestions (it’s what I do) - Click here.

A whack on the side of the head: Four "Hints" that Fannie Mae wants ANALYSIS!

Having spoken with many, many appraisers regarding forms development, specifically those forms produced by Fannie and Freddie such as the URAR, I get the feeling that the subtle hints intended to catch our attention were not fully realized.

You see, when Fannie rewrote the forms and released them to a captive appraiser audience effective November 1, 2005, they really, really tried to provide clues about what they wanted us (the appraisers-at-large) to consider. My guess is they “hid” these hints to avoid insulting our intelligence and that, once revealed, actually become quite obvious. Here’s a listing of a few of the bigger hitters:

Hint #1: The “Subject Listing History” was moved from an obscure, obsolete form known as the Multi-Purpose Supplemental Addendum (the MPSA for you ACI users) to the front page of each residential appraisal form. Now, what items make it to the front page of anything? Unless you’re reading a newspaper from cold-war era Russia, the front page is generally reserved for those items perceived as the most important, agreed?

But, as to not offend, Fannie gave us a little check-box that states we checked the Listing History. A large majority of Lenders have written underwriting guidelines that clearly state: “We will not fund a loan on a property that has been listed in the last 12 months.” Have you checked your Subject’s listing history lately? What happens if the loan funded using an appraisal in direct violation of stated underwriting guidelines defaults? Got E&O? (see Analysis of Sales Contracts and Listing Histories)

Best Practices: Run the MLS on the Subject property before releasing your report and use wild card characters in the search. There are some pretty sneaky MLS users out there that will from time to time use the “property correction” form to “correct” one or more digits in the listing’s property address that can cause a listing to vanish. Imagine now, months or years later when this listing agreement signed by the homeowner and a licensed Realtor suddenly appears in court?

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Transactional Analysis: Terms, Motivations, Concessions, Cash-Back

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors,  Redlands, CA, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support.  All opinions expressed in this post are the author's and may not reflect those of the Appraisal Scoop blog.

During the past boom period, mistakes from unverified data were masked by market price increases.  Today, many markets are experiencing steep declines in value and those types of mistakes are beginning to see the light of day!

The Motivations of the parties, the Concessions or Cash Back are not published.  It requires primary research and is part of the "good appraisal procedures" that USPAP refers too. Transactional analysis is now the most important thing for the residential appraiser to verify. 

Here are some clipped comments from a Florida Realtor's article on "Transaction Terms":

"Contrary to popular belief, the bottom line in contract negotiations is not always the bottom line. Obviously, how much you're going to pay for or gain from the sale of a house is on the top of the spreadsheet; however, there are a certain percentage of contracts that fall apart because of the terms or non-sales price parts of the contract, rather than the financial bottom line."

"Let's take a $350,000 offer on a house listed at $350,000. You would think that's it. Full price contract, what more is there to talk about? Well -- seller subsidies, sale of home contingency, settlement date, financing, earnest money deposit, inspections (and who's going to pay for them), appraisal, third-party approval, just to mention a few."  Click here for the complete article

"As you can see, it's not always about dollars and cents. Many times, it's about dollars and common sense."

The FNMA form actually asks us for the name of the person we verified the sales comparables with, not just the source of our information.  In our office we list the sources and the person with whom we verified the transaction terms and motivations as well as the Physical aspect of the property we are relying on as a comparable.

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Business Ethics - Get in the habit!

For those of us that are old enough, we probably got our first lessons in ethics from a BUG! 

That's right . . . a BUG!   Jiminy Cricket is a fictional character who first appeared in the 1940 Walt Disney animated film Pinocchio. He was appointed by the Blue Fairy to serve as the official conscience for Pinocchio.  He laid our foundation for "Ethical Thinking".

For appraisers our official conscience is a book appointed by the Appraisal Foundation - USPAP. 

"Appraiser Ethics" are tested daily. 

We are constantly pressured (directly or indirectly) to do things that ilegal or unethical according to USPAP.  How is it that some appraisers can take the high-road and others cannot.  Do those that fail those daily ethical tests need to take yet another USPAP Course? 

Can Ethics be taught? 

Scott Jura, SRA, General Certified Real Estate Appraiser from Fresno, California decided to tackle the question . . . 

The trouble with the ethics stuff (as I see it) is that you have habits (and if you have bad habits, you can slip over the edge, even accidentally -- especially if work is real busy, you don't have someone reviewing your reports, etc.).   

Then you've got perspective.  Ever try to convince someone his religion or politics or whatever has serious errors?   They'll actually understand words to mean darn near the opposite of what they mean to hold their perspective.

Then you've got, "You don't know what you don't know."    Ignorance of the law is no excuse, but it will get you good play in the media to some extent. It won't keep out out of fines, penalties, lawsuits, etc.

Then you've got some people without a conscience.   It absolutely doesn't register that their action will harm someone, or if it does register, they flat out don't care.  (We probably have a lot more people with wounded consciences, who see a lot of bogusness happening around them and go 'teenager' on you,  "Well... EVERYONE else is doing it!!!"  "The regulators never complained, never said THAT, never busted anybody for that, etc... "   "I'm not hurting anyone." or simply never recognized the bogusness/weakness/error for what it is.)

Then you've got people who were never trained, or worse were trained poorly.   They're good people between that 'wounded conscience' category and 'don't know what you don't know' category.   They kinda sorta heard what's right and what's wrong, but they didn't hear it repeated, didn't hear it in context, or got overwhelmed with distractions the single time they did hear it and wound up with the idea that, "THAT is not important."

I agree that ethics can be developed, learned, and bad ethics abandoned.  But I suspect it ain't easy if you don't have a good foundation, didn't good exposure to the concept as you were learning the trade, and got sloppy in the busy boom times.

A serious loss, lawsuit, arrest record, or fine/penalty is not the way to start learning ethics, but I bet it will be the way that many start to improve theirs -- and they will also be the way that many will exit the field.

AUTHOR: Scott Jura, SRA: General Certified real estate appraiser in Fresno, California. SRA designation from the Appraisal Institute eMail: sjura@giura.com  Web: http://www.giura.com

Where can I find a GOOD appraiser mentor?

I am writing this in response to several posts on appraisal forums by Trainee's lamenting the lack of a Mentor.  See the Appraisal Scoop's Supervisor/Mentor category.

The word mentor is thrown around a lot in appraisal forums, without most even knowing what it really means or entails.  And, without a lot of thought of the costs to the mentor to take on someone new. Putting together the education and skills worthy of allowing one to be Mentored is the point of this writing.

Some of the best appraisers I know learned by boot-strapping their education, on their own, every night reading, reading, reading books on appraisal.  You can go to Amazon.com and get lots of used books cheap. Prices start at $0.01 plus S&H.   I have found good used appraisal books in antique stores, used book stores and even at the Goodwill store.

Getting together with a group of appraisers once a month to discuss issues, problems, techniques; is a good thing. Try forming a local group, like a self help group.  I know lawyers who meet once a month to do exactly that, help each other with what they learned or encountered that was a sticky wicket.

Our own family lawyer invited me to speak to her group. She had been meeting with the same group ever since law school. It was a self help group that started out as a Study Group.  We can all form one of those for ourselves. No one else is going to come to our aid, why not try and help ourselves.

Once you have devoured about 10-12 books on Residential appraisal, Highest and Best Use and Market Analysis; you will have a vocabulary that will help make you more trainable. Without a vocabulary, one cannot really be mentored.  Without a vocabulary it is like throwing water on a duck.  Gaining ones own vocabulary is one of the keys to being trainable.

Check out the Appraiser Matrix . The Appraiser Matrix is an Excel spreadsheet that allows you to score yourself and see where you stack up against your peers. The Matrix gives points for everything we could think of and hold education and transferable skills in high regard, more so than a license.  Put together the MS Office skills, and a real Real Estate Education that would make you more valuable to a professional office.

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Appraiser Survial Tips: Building Additional Lines of Income

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

For those residential appraisers who do not have a wide client base, or who have been relying on loan broker work over the last five years; new types of business or lines of income will be needed to survive the next five.

Some appraisers have already returned to what they had been doing, others have found part time or other fee type things to do to make a living. Here's a short list of things I have heard or seen appraisers doing in the last six months:

• Real Estate Photography for Listing Brochures and web pages. 
• Measuring Buildings for Listing Brochures
• Appraising property to get the Listed Price down to Market Value
• Date of Death Appraisals
• Property Inspections
• Notary Loan Signings
• Cost Estimating for Contractors
• Cost Estimating for Insurance
• Property Inspections for Title Companies
• Property Management
• Real Estate Leasing
• Real Estate Sales
• Webinars, writing and delivering
• Seminars, writing and delivering

In my local newspapers and even in the major Los Angeles Times, there essentially have been no appraisal job openings in years. And there is not likely to be in the next several years either.

Regardless of where one came from, they might be able to go back. Or, they might springboard off of what they learned while appraising into a related job.

For appraisers, there will not be enough work to support all who are licensed.  Before things get real bad, maybe a skills assessment could be done and a plan made to either transition or move into another field.

For those with transferable skill-sets and real appraisal education {not cram courses}, as well as MS Office skills; there may be an opportunity to transition into a commercial appraisal office.  Think in terms of the utility value you might have.  Don't worry about writing Narrative reports, think about what you do know.  If you need to take writing courses, do so, or Excel or Word, or basic keyboarding.

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