Pat Turner, the Man with a Plan Valuer’s Dozen

by Woody Fincham, SRA, AI-RRS, RAA Member of RAC

pat turner

 

I have known Pat Turner for many years.  My first introduction to him was from attending a Virginia State Board meeting.  I had attended to give public commentary about the problems I saw with regulatory oversight in the commonwealth.  Pat and I struck up a conversation outside the meeting in the hallway where we discussed my disappointment with how the board looked at enforcement.  I explained to him that I was rather passionate about it.  To which he replied, ” Woody, if you have half the fight in you that I do about this profession, you will make some changes happen in the profession.”  If you know Pat at all, you know how true to his nature that reply really is.  Pat has led the charge in trying to advocate for the appraisal profession for many, many years. When I received my SRA designation Pat is the man that handed it to me, at my request.  That is how much think of him, and I know many that think highly of him as well.  I am proud to get the chance to share the Valuer’s Dozen with you, as Pat is one of my mentors and one of my friends.

VN:  How long have you been in the profession?

PT: 46.5 years

 

VN: What is your favorite thing about the profession?

PT:  I love the research and analyzing the actions of the market.

 

VN: Who are your mentors and idols within the profession?

PT: My mentors were:
Jim Faulconer, Chesterfield Assessor
Dick Farmer, Assessor of Henrico County and instructor for the Society of Real Estate Appraisers
Bob Barton, MAI and an instructor and friend
Woody Aaron, MAI, instructor and friend

 

VN: What are some of your passions inside the profession?

PT: My passion is to do the best I can in all that I undertake as an appraiser.  As you know, I am passionate about consumer protection and the appraisal profession as a whole.

 

VN: What are some passions of yours outside of the profession?

PT: My wife, children, grandchildren.  University of Richmond. My close friends because they know my many faults and like me anyway.

 

VN: Where do you see the profession in 3 years?  5 years?  10 years?

PT: In 3 years we will have new Fannie and Freddie reporting vehicles, if they are still viable.
In 5 years we appraisers better be getting more and better education because the mortgage part will be dissolving as we know it.  Take the best educational classes offered.  Be prepared for legal work, IRS work, work from accountants, etc.

 

VN: What is one thing about your personal business that you are most proud?

PT: Reputation and longevity, despite all the bumps along the way.

 

VN: If you could change one thing about your business model what would it be?

PT: Ban AMCs or at least make them more transparent regarding C & R fees.

 

VN:  What are some present goals for you and what you do are doing in the valuation space?

PT: My present goal is to assist my daughter to obtain her licenses.

 

VN:   If you could change one thing in valuation, what would it be?

PT: What would I change?  The lack of enforcement, which is due to insufficient knowledge of our profession, in my opinion.

 

VN:  What advice would you give someone just getting in the profession?

PT: Get the best education available.  Please use the LIVE classroom.  Join the American Society of Appraisers as they are rapidly becoming the representative for residential appraisers.

 

VN: This last one is for you to discuss or talk about whatever you would like.

PT:  Finally, I would recommend that people get involved.  Not only with our profession, but also social and civic activities.  Your personality and knowledge impress more people than you know.  Be a leader.  But if you can’t be a leader, then follow, or get out of the way.

30 State Appraisal Organizations are Opposing an Increase in the Appraisal Threshold

Written by Woody Fincham, SRA, AI-RRS, RAA
teamwork

The Virginia Coalition of Appraiser Professionals and the remaining “network” of appraiser collations (30 in total) hired council to format and send a comment letter to the Board of Governors of the Federal Reserve System, the FDIC and the Office of the Comptroller of the Currency regarding the Comments in opposition to the Notice of Proposed Rulemaking (“NPRM” or “proposed rule”).  Of course, to you and I that means the collations have comments regarding the proposed de minimis increase from $250,000 to $400,000.  The letter can be viewed here.

There is some good stuff in this letter.  Here are some excerpts (underline emphasis mine):

“The Appraiser Organizations believe that the issues raised by the NPRM have broader implications for consumers and residential mortgage sector participants beyond the relatively small number of federally related transactions to which the exemption directly applies.  Rather, the outcome of the NPRM will signal to lenders and purchasers of residential mortgages the relative importance of appraisals versus evaluations in the mortgage process, leading those participants to increase their own de minimis exemptions or to increase the use of appraisal waivers.”

“While the NPRM asks a series of questions regarding the proposal to raise the existing exemption by $150,000, the NPRM’s justification for the increase is flawed in two significant ways. First, the agencies ignore the statutorily protected interests of home buyers by assessing the merits of the increase primarily in terms of the NPRM’spotential impact on financial institution safety and soundness, essentially as an exercise in portfolio risk management for individual institutions and for the mortgage sector. From this perspective, the exemption is merely an inflation adjustment that likely would have limited impact on portfolio risk.”

“This approach ignores the consumer-focused provisions added to the residential mortgage origination process by the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (“Dodd-Frank Act” or “Dodd-Frank”) amendments to the Truth-in-Lending Act (“TILA”) and related amendments to the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”).”

The next section is one of my favorite quotes from the document, as appraisers protecting the public trust is our big reason to be around. I love that mention of low-income and first-time homebuyers are highlighted as these folks have ENORMOUS risk in this kind of situation.

“This concern for harm to individual borrowers is the antithesis of the portfolio risk management approach that permeates the NPRM.  In the Dodd-Frank regulatory environment, the agencies’ analysis must assess the number and characteristics of the potential homebuyers who will be excluded from the protection of an appraisal, e.g., low-income and first-time buyers.  But the agencies’ contrary focus on portfolio-risk management is made clear in the NPRM’s statistical assessment which shows that, although the number of exempt federally-related mortgage transactions would grow by 18 percentage points to 72 percent of such transactions, only 35 percent of the cumulative dollar amount of such transactions would be exempted.  Because this number was less than the dollar-

amount volume exempted in 1994, the agencies conclude in the NPRM that the $400,000 exemption would “be less likely to impose a safety and soundness risk” than was the case in 1994.”

Second, and just as importantly, the agencies assume that an “evaluation” of a home’s value, under Open-ended and nearly non-existent standards could somehow be a meaningful substitute for an appraisal statutorily required to be compliant with the Uniform Standards of Professional Appraisal Practice (“USPAP”)”. 

The document goes on to cut the throat of the evaluation debacle:

“Indeed, an evaluation can be completed by a “bank employee or by a third party. Given the lax requirement on who performs the evaluation, it is not inconceivable that a bank, or other interested party in the home’s valuation, could distort the value through the evaluation process.  In contrast, the regulatory oversight of the appraisal process ensures that such conflicts of interests are minimized.”

“Moreover, there is no consumer recourse for a faulty evaluation.  In the event a potential homeowner or lender receives an inaccurate appraisal, that individual or entity may file an official complaint with a state’s appraiser board.  Upon review of the complaint, the board may penalize the appraiser, and in some instances, revoke his or her license to appraise residential properties.  In contrast, there is no independent review for faulty evaluations.  Instead, consumers are left without remedy and cannot seek judgment from a state or federal agency.  Therefore, by increasing usage of evaluations over appraisals, the proposed rule diminishes consumer protection over the home purchasing process, and in particular, limits consumer protection on many middle to low-income home purchasers in favor of appraisals for only high-value residential properties.”

There is even some language in the document that addresses the added cost for Appraisal Management Companies (AMCs):

“Moreover, the true cost to the consumer is not just the cost of the appraisal but also includes the fees associated with the lender utilizing third parties —AMCs—to manage the appraisal process.  In their role as the intermediary between the lender and the appraiser, some AMCs charge consumers significant management fees for their retention of the appraiser to conduct the valuation of the home.  In fact, these fees can nearly double the cost to the consumer, even while the appraisal fee remains unchanged.”

This document is from a large contingency of appraisal organizations and it is a meaningful document hat focuses on what really matters:  the American consumer.  Public trust should be at the forefront of the discussion of valuation and whether appraisals should be required for lending purposes on residential homes.

 

Bravo to the Appraiser organizations.

Is Smartexchange resulting in USPAP Non-Compliance?

Written by Woody Fincham, SRA, AI-RRS, RAA 

This blog is likely going to stir up controversy. It is likely going to have a few folks calling me a loyalist to a la mode, or other similar things.  Am I a loyalist?  I do not see myself as such, but a la mode has been the only software that I have used in my career for residential form reporting.  I do use ACI in the corporate setting as a reviewer and manager in my firm. I like and consider many of the staff at a la mode to be my friends, and I have had long relationships with them because of my time as a customer.  I will always have an affinity with those folks, but that does not make me a supporter of CoreLogic one way or the other.  I am agnostic when it comes to CoreLogic.  They exist and as such I have no choice but to deal with them on some level. They  are too big of a company in the real estate and valuation space to not deal with them on some level.   The whole point of this piece is to discuss the acceptability to standards when dealing with sharing comparable property data.  It is not a barometer for what CoreLogic means to valuation.

With all the social media chaos over the CoreLogic acquisition of a la mode, there has been some very loud commentary coming from appraisers. CoreLogic is not looked at in a positive light by many in the valuation profession, but that is not what this article is about.  I wanted to deal with the issue of USPAP compliance and their comparable data sharing product, SmartExchange.  I have seen and read many posts from others that claim it is not USPAP-compliant to share comparable property data among one another. I must disclose up front that yes, I did at one point receive compensation as part of the a la mode Labs group between 2007 and 2009.  I am no longer a paid employee or contractor with the company.  I am offering my opinion on the product  to discuss and look at the issue of standards compliance.

What is SmartExchange?  This is what a alamode posts on their site:

“SmartExchange is a nationwide appraisal network that puts property data back in your control by giving you immediate access to pure, UAD formatted appraisal data. This level of data is unprecedented and is unlike anything you’ve been able to gather from MLS systems, public records, and other sources. It’s going to improve the quality and consistency of your appraisal reports.”[1]

smaertexchange

Image Courtesy of CoreLogic

When UAD was pushed out by Fannie Mae several years ago, they let us all know that they would be monitoring and tracking what we used for condition and quality ratings to compare against other “appraisers in” the same market.  In other words, they wanted to see if appraisers were materially misrepresenting data to support bias.  a la mode has created a tool that will allow all participating appraisers using their software to share the ratings used so that one may look at what the peer group is saying in their reports.  It is possible to opt in to the program or opt out.

So, is this something that appraisers can and should use?  I have reached out to several USPAP experts and walked through a series of questions with them and with other practicing appraisers.  I have also done my own research to come to my own opinion. Much of social media is asking an important question about this type of technology:  Is comp data shareable or does it fall under assignment results which would be deemed confidential?  Let’s look at some definitions:

ASSIGNMENT RESULTS: An appraiser’s opinions or conclusions developed specific to an assignment.

Comment: Assignment results include an appraiser’s:

  • opinions or conclusions developed in an appraisal assignment, not limited to value;
  • opinions or conclusions, developed in an appraisal review assignment, not limited to an opinion about the quality of another appraiser’s work; or
  • opinions or conclusions developed when performing a valuation service other than an appraisal or appraisal review assignment.

Physical characteristics are not assignment results.[2]

CONFIDENTIAL INFORMATION: Information that is either:4

  • identified by the client as confidential when providing it to an appraiser and that is not available from any other source; or
  • classified as confidential or private by applicable law or regulation.5[3]

What we have above are two definitions central to this discussion.  The first, Assignment Results, essentially draws one to understand that assignment results are opinions or conclusions that the appraiser supports through the course of the assignment.  The obvious question is then, “Aren’t condition ratings and quality ratings assignment results?”  On the surface I felt that they may be but have further talked with others and looking at all the language in the definitions.  The reason I initially felt that the ratings might be assignment results is that assigning a property a rating requires judgment, and as such judgement is an opinion or some type of conclusion as we use the words.

After speaking with a few experts on this very issue, I changed my opinion.  Most importantly, what I was drawn to is the last line in the definition of assignment results:

“Physical characteristics are not assignment results”.

When it comes to comparable data, we are all using third-party sources to assign the condition and quality ratings for each property.  A couple of the experts, many being residential practitioners, go back to the definition for condition and quality that Fannie Mae developed.  Many felt that there is little room for opinions of even conclusions, that the ratings are -defined, and all the appraiser is doing is assigning to the most obvious tier.   So, the sharing of comparable data that is supported through MLS databases and other third-party sources, readily available to our peer group, does not violate USPAP.

Where we did get into some interesting discussions revolved around the subject property. There is certainly confidentiality involved when dealing with the subject property.  Let’s say that we are doing a refinance transaction.  There would be no way to support assigning ratings other than an onsite inspection where the information gathered was only available to the appraiser as part of the assignment.  What made the conversation interesting was that something came up that I never thought of before.  What if you find out something about the subject that could create a misleading situation to the client?

Let’s say that you do a divorce use report.  3 months later the home goes up for sale and sells.  The MLS data indicates that the home is in much better condition than you saw when you did the inspection.  Upon further research to use it as a comp, you learn that the MLS listing incorrectly indicates it is a C3 versus the C4 that you felt it should be from the previous information that you have.  Or, the square footage is wrong.  What should you do now that you are faced with what you know to be reality versus what a normal peer would be left to conclude form the data available? What I gleaned from these conversations was that we should not be using information that only we have privy to through a previous assignment.

USPAP requires that we do not mislead in our reporting, but it also says that we must stay beholden to assignment confidentiality.  This a bit of a conundrum.  If the difference in information is enough affect assignment conditions, can we take on that assignment?  If we do, how do we report what we know is contrary to what the overall market accepts as fact?  I think the correct answer is that one must recuse themselves from this situation.

Getting back to smartexchange, this led me to contact a la mode and ask the question of whether subject data was being shared or not.  What I was told is that it is only comparable property data.  That the shared database contains only the comparable properties, and that our local database (meaning available only to you and your office) contains your subject data but that is not shared with the users of smartexchnage.

Is this really any different than calling up your appraiser colleague across town and asking if they have used a comp and what they considered it?  I think the answer to that is both yes and no.  It is not different in that colleagues are sharing info, it is different in that the users have no idea where the data comes from.  When I call a colleague, it is normally someone that I respect and have a relationship with.  With respect comes trust, but without being able to see who supplies the data, it does make me uneasy.  I can see multiple uses of the data though, so I am able to see if there has been consistent codification of the comp over several users.  At least I can qualify my own rating and write something proactively if I am using a different code level.

In conclusion, is smart exchange a problem from a standards perspective?  I do not think that it is if it is simply dealing with comparable property data. It certainly can be helpful if the appraiser using it wants to compare the condition and quality ratings over a market area.  Beyond that, it could save some time with data input, but that is something that the user needs to vet carefully and fully every time, and honestly, by the time I do that I am better off just entering that myself.

[1] https://www.alamode.com/smartexchange/

[2] USPAP 2018-2019 The Appraisal Foundation

[3] USPAP 2018-2019 The Appraisal Foundation