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.

The Valuer in The Mirror

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

Maybe I am crazy, but I think all of us deserve a better profession as appraisers than what we have presently within the mortgage and lending world.  We are in an era where the profession is changing fast.  We have many players out there that want to limit or possibly eliminate real estate valuations for residential lending and to some degree on the non-residential side of things as well. The profession should be aligning itself to battle this, but we seem more fractured now than we have ever been.  There is too much in-fighting and disagreement among key players in the profession.  This ranges from the individuals that have appeared as leaders and with the organizations that make up the professional trade groups and professional membership organizations for real estate appraisers.

man-looking-in-mirror

The Valuer in The Mirror

The profession is fractured.  We need to take a long hard look at ourselves in the mirror.  We need to do it as individuals and as part of the various organizations out there.  We need to start seeing ourselves as we really are, warts and all.  There is not one organization out there that is going to save the valuation profession.  There is no one organization that is to blame for all the issues we deal with as a profession. Humans love to separate into groups and then immediately set upon the other groups out there as being somehow inferior to your group.

We have reached a point where we need to stop and take stock of what the profession needs.  We are at a point where the fractures are weakening what we can be as a profession.  When I was speaking on the leadership panel at AppraiserFest last year, that was the one thing I tried to get across.  Stop with the tribalism and fracturing into groups.  Stop trying to say your team is the only viable voice out there.  All valuation voices matter.

I think the answer is to start by being open to all the various groups out there and seeing the positives in each rather than the negatives.  Every professional group out there adds some positivity to the mix.  Whether you, as a valuation professional, are a member of a group or not we must see the value in a unified front.  Remember, that what we do for the US Economy is a thankless job.  One of our biggest user groups, lenders, are also one of the biggest groups that see what we do as an inconvenience rather than a protection of the public trust.  It seems with all the alternative valuation products that are constantly being pushed over traditional appraisals that they would rather see us replaced than to deal with us.

Within the organizations themselves the jockeying for individual position holds the organizations back from being truly great. The politics are cut throat and reward those seeking personal gain more than profession-oriented growth. Most of the long tenured organizations are a political nightmare that are more leadership driven than membership driven. I truly do not understand what one gets from hurting others in their jockeying for a position.  All this type of behavior does is make individual appraisers not want to participate, thus weakening both the organizations and the individuals.

What should we be doing?

The worst thing any of us can be doing is not participating in the profession.  Many, many folks are vocal on forums and social media yet have no membership or involvement with any organizations.  What good does it do to complain but do nothing?  There are lots of folks that want change to happen but that means you must get plugged in somewhere.  Anywhere.  Join a state coalition or one of the national organizations.  Sitting on the fence and complaining will get the profession, and you, nowhere.

If you have the time attend the meetings and add your voice to the mix.  Be opened minded when you are at these meetings and be open to changing your mind about some things.  Many of us that use social media get hard-headed about somethings and forget to listen.  What I notice with in-person meetings is that social graces tend to come back.  People are not so myopic in person (usually) and we tend to be politer in person.  On social media folks can sometimes lose their connection with manners.

Not one person reading this, or the knuckle-head writing this, knows everything.  If you are not open to discourse in a professional manner, then you may want to reassess yourself.  I have found myself feeling very strongly on certain things, only to find out later that I probably should have looked at it differently.  This is true of being a member of an organization.  No organization is perfect, and they all mess up time to time. All these organizations are run by people and people make mistakes.

Any valuation organization out there worth the cost of their membership should be doing multiple meetings with the other valuation organizations out there several times a year.  While we cannot expect them all to agree on all things, they need to be exchanging information and ideas.  Some sort of valuation congress.  Even the largest organizations have weaknesses that another organization can help with.  Some organizations are residentially focused where others are commercially focused.  That’s fine.  But each organization needs to accept that

What Should We Not Be Doing?

We are an opinionated lot.  We get paid to tell others our opinions, and we dig in like a tick when we make up our minds.  Many of us are great appraisers but we lack a true understanding of other things. We are a group of professionals that excel at market research that leads to supportable conclusions yet lack the same set of skills when it comes to the larger profession. I cannot tell you how many times I speak with colleagues that have some strong opinions about something related to the profession.  Then I find out that they have never read about or researched the topic at hand but had come to their seemingly strong opinion based on conjecture.  Often, they have heard another’s opinion on the topic and drawn a conclusion from hearsay. We must treat opinions from others like we do comparable sales data. Research it and find support for it, don’t just take the opinion as fact.

If we concentrate and expend energy on the negativity out there, we are taking energy away from doing something positive.  Those that seek to make money off us as professionals benefit form the distraction in-fighting creates.  While we spend time finding more reasons to fracture apart further, they continue making money off our work.  Some also are using that advantage to try and replace us.  It is okay to agree to disagree, it is not okay to try and attack someone just because they disagree with you.

Once you are involved with an organization do not put yourself before the whole.  Trying to earn a position at the expense of a colleague is not a good thing.  I have seen some colleagues turn into bullies and try to use politics to hurt others to gain a position or to unseat a colleague.  If that is your M.O. you are better off not getting involved.  Many need to ask themselves, “Are you trying to help out or is what you are doing going to hurt what the organization is doing?”

 

In the End

We are a small group of professionals.  There are, by my account, approximately 75,000 professionals nationwide.  We do not have the same lobbying power as the lenders out there.  To be honest, the only reason that we have lasted this long is that some legislators see the benefit that we add to protecting the national economy.  Since we are so small it is imperative that we cease the fracturing from within.  Find an organization that you can support and work with them.  Volunteer and stay involved.  Organizations cannot work against their members if the members do not become passive.  Passiveness is what has hurt the profession more than anything.  Well that and bad business practices, but that is another blog post for another time.

Find an organization, or a couple of them, to work with and volunteer to do some work.  Do not wait for someone else to try and solve your problems for you.  Sitting back and watching what others do will not work at all.  Between the different organizations out there look for ones that align with your thoughts and ones that seem open to you and your views.  Not every organization for everyone, and even after you lock into one, over time, you may find that someplace else ends up being a better place for you, for that time.

If you have limited time, find an organization that you can support and join.  Like anything, not everyone can always get really involved, but your support of the organization makes funds available to help the profession.

 

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

Valuation Cowboy

andy
Courtesy of A. Arledge

I have known Andy Arledge for 4 or 5 years now.  He is the creative force behind Appraiser Genie.  The genie is a tool that he sells to a appraisers that assists with data importation, analysis and report writing.  I have spent enough time with Andy to know that he is a man of integrity and one that loves the valuation profession.  He lives in Abilene, TX.  I hope that you enjoy getting to know Andy Arledge.

VN:  How long have you been in the profession?

AA: I started out in 1981 when I got my real estate salesman license, was a broker for 10 years and now an appraiser for 14 years. I’ve owned a brokerage firm, the largest property management company within 150 miles, developed real estate, built new construction and owned many rentals. I have a wide range of real estate experience.

VN: What is your favorite thing about the profession?

AA: I enjoy meeting people, solving the problem of the appraisal. Complex assignments intrigue me.

 

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

AA: That’s hard to say, there are a lot of good appraisers that have joined the ranks of AMC’s. I enjoy listening to the boots on the ground appraiser who’s still in the field tackling the actual problems of the industry. I respect Mark Skapinetz for leading the charge of trying to get appraisers to come together as one voice.

 

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

AA: My current passion is writing software that perform analytics on large datasets from MLS exports. I like helping the boots on the ground appraiser perform a more analytical approach to appraising by using tools that greatly increase their productivity, rather than just being a form filler guessing at adjustments or just pulling them out of thin air. The appraiser of the future must have support for their adjustments/analysis.

 

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

AA: I love flying small planes and getting back to nature in the mountains, hunting and fishing.

 

VN: Where do you see the profession in

AA: 3 years?

Having now lived through 2 real estate downturns, I see the current market as overheated and I expect another real estate correction in the next 2 years. If the correction is large enough, the profession might gain credibility again if the appraiser’s stick together and become a cohesive voice. Our industry is so fragmented, we don’t have a good voice to get Congress’ ear when new laws are implemented. The big banks could care less what we think, so it’s our job to band together and get the lawmakers to listen to the appraiser’s experience. I believe the desktop push that is currently being pursued by the GSE’s will run it’s course and prove to not be reliable enough to be a good lending tool.

5 years?

I see more and more automation in the appraisal process due to technology advancements. By automation I mean the more mundane clerical processes will be automated to allow the appraiser more time to do the actual research and analyzing their professional expertise requires to build a credible report. The appraiser that engages technology into his business should prosper.

10 years?

Artificial intelligence is advancing so rapidly, it’s difficult to project this far in the future. What we know as advanced technology today will be antiquated within 10 years. 10 years ago, cell phones weren’t taking photos and didn’t have the power to load mobile inspection apps. I still see the appraiser as an integral part of the loan making process, since the appraiser is the only one bringing common sense to the loan process, provided the appraisers become a unified voice with representation in Congress with the decision makers.

 

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

AA: Taking a private appraisal practice and using that experience that experience to develop Appraiser Genie from an idea into a national presence is what I am most proud of. It’s been 4 years of hard work, but with our new version coming out very soon, Genie will be the most advanced software supporting the appraiser in today’s market.

 

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

AA: I would’ve developed more private work earlier, where I didn’t do as much AMC work.

 

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

AA: I’m planning on continuing development of Appraiser Genie where it becomes more the norm for appraisers.

 

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

AA: I’d say it was time to move back to a more lender/appraiser relationship, recent studies have shown this to be more effective and less costly than the current model.

 

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

AA: For the past 10 years, I’ve advise anyone who called me NOT to get into this profession. With the recent rise in fees and the advancement in technology, I would advise a trainee to gain as much technology experience as possible. Technology will drive the future of the industry.

 

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

AA: I would strongly encourage every appraiser to join their state coalition or a national association. Appraisers are so independent, it’s like herding cats, none of them will go in the same direction at once. It’s no wonder we are the whipping boys of the industry. Until we band together as one voice, the appraiser profession will continue to be at the bottom of the food chain. With one voice we will be heard, and our profession will continue long into the future.

 

****

There you have it folks.  A little insight into another professional in our field.  I have to echo Andy’s sentiment on the profession.  Get involved.

 

Moving to a New Market

 

moving-truck

I have seen several folks on social media asking what it takes to pick up stakes and move to a new market.  I am surprised at the advice and lack of GSE and FHA/USDA understanding out there regarding such a thing.  While Fannie Mae, Freddie MAC, FHA and USDA do not prohibit an appraiser from moving to a new market, they do prohibit one form doing any work in the new market until the appraiser becomes competent.  Each entity requires that competency already be established when talking on a new assignment.  In this blog, we are discussing a specialized competency: geographic competency.

Over my career, I have moved four times where I required to become market competent.  I was careful in each case to do so by working with offices that could help me become competent. It was not an easy task, but one that I knew was required.  Yes, it meant taking less fee for a bit, but I wanted to be bullet proof from a possible complaint. I will add that each experience served as rewarding one.  If you move you must retool your processes for each market.

When I moved to Charlottesville (Blue ridge Mountains), I came from a coastal plains area (Hampton Roads).  When I lived in Hampton Roads there was almost no such thing as a basement except in rare cases.  I had no choice but to learn about this and many other things that were common to a Piedmont location.  That meant doing case studies to prove contributory values, etc.  Thank goodness I had experience with Excel and other tools like Regression+ to help me do my job well enough.

GSEs and Agencies

Many would argue that USPAP allows one to become competent, which it does.  But the issue with the GSEs and agencies is that they require demonstrated competency. So, there is an assignment condition which makes that flexibility found in USPAP not applicable to the assignment. This what they say about it:

Fannie Mae Selling Guide B4-1.1-03

Knowledge and Experience

Lenders must use appraisers that

  • have the requisite knowledge required to perform a professional quality appraisal for the specific geographic location and particular property type; and
  • have the requisite knowledge about, and access to, the necessary and appropriate data sources for the area in which the appraisal assignment is located.

Appraisers that are not familiar with specific real estate markets may not have adequate information available to perform a reliable appraisal. Although the Uniform Standards of Professional Appraisal Practice (USPAP) allows an appraiser that does not have the appropriate knowledge and experience to accept an appraisal assignment by providing procedures with which the appraiser can complete the assignment, Fannie Mae does not allow the USPAP flexibility. (emphasis added)

 

FHA 4000.1 I-B-1-b

(B) Competency Requirement

The Appraiser must be knowledgeable of the Uniform Standards of Professional Appraisal Practice (USPAP) and FHA appraisal requirements. The Appraiser must meet the competency requirements defined in the USPAP prior to accepting an assignment. The Appraiser must be knowledgeable in the market where the assignment is located. (Emphasis added) (this applies to USDA as well since USDA requires adherence to FHA protocol)

FHA 4000.1 I-B-1-d-ii

The Appraiser assigned to provide the appraisal must be able to complete an assignment for the property type, assignment type, and geographic location of the subject Property.

The Appraiser must comply with the USPAP, including the Competency Rule, when conducting appraisals of Properties intended as security for FHA-insured financing.

What do the Experts Say?

I even took the time to interview a USPAP instructor, Maureen Sweeney, SRA, AI-RRS, IFA, CDEI on the topic and she wrote me up this ditty (I use the word ditty on purpose, as anyone that knows Maureen knows that she likes to sing):

“Competency is competency, and it is not to be sliced up like a pie of different categories. You either have it, or you don’t, and it is not sliced into demonstrated or normal or abnormal; it just is. Credible assignment results are based on the appraiser’s total ethics and total competency. The assignment results either has it, or it doesn’t. USPAP is very specific in what Competency requires, how it is acquired, and what to do if you lack it.  USPAP required the appraiser to be competent when they sign the report.  Fannie Mae goes one step further.  They want you to be competent when you accept the appraisal assignment.  Per the Fannie Mae Selling Guide, dated June 24, 2014, page 549 under “Knowledge and Experience”: “Although the Uniform Standards of Professional Appraisal Practice (USPAP) allows an appraiser that does not have the appropriate knowledge and experience to accept an appraisal assignment by providing procedures with which the appraiser can complete the assignment, Fannie Mae does not allow the USPAP flexibility.”  Fannie Mae wants their appraisers competent when they accept the assignment.  The Selling Guide states, “Lenders must use appraisers that 1) have the requisite knowledge required to perform a professional quality appraisal for the specific geographic location and particular property type; and 2) have the requisite knowledge about, and access to, the necessary and appropriate date sources for the area in which the appraisal assignment is located.” https://www.fanniemae.com/content/guide/sel062414.pdf  For those who think FHA is going to give them a pass, too bad.  Per SF Handbook, I.B.1.b.i.(B) Competency requirement, “The appraiser must be knowledgeable of the Uniform Standards of Professional Appraisal Practice (USPAP) and FHA appraisal requirements.  The appraiser must meet the competency requirements defined in the USPAP prior to accepting an assignment.  The appraiser must be knowledgeable in the market where the assignment is located. Fannie Mae and FHA are making suggestions that appraisers should maybe be competent.  The say we MUST be competent PRIOR to accepting the assignment.”  https://www.hud.gov/sites/documents/APPR_ESSENTIAL_09-14-16.PDF There is no wiggle room around this requirement. If an appraiser doing work for Fannie Mae and Freddie Mac is not competent at the accepting of the appraisal assignment, and they hope to gain competency prior to signing the report, and this is your current practice, please stop.”

I also interviewed another USPAP instructor, Jim Atwood, SRA.  He takes it even a bit further, and states that if the FNMA 1004 is used at all, then because of certification-11, the appraiser must have demonstrated competency.  I agree with his summation.

cert 11 1004

“Certification -11, pre-printed into the Fannie Mae 1004 appraisal form, states: “I have knowledge and experience in appraising this type of property in this market area.”  When using this form for Fannie Mae, Freddie Mac, VA, or FHA purposes, the appraiser is indicating, by signing the certification, his or her pre-existing knowledge and experience (competency) regarding a particular property type or geographical area.  Although USPAP, assuming the client’s agreement, allows an appraiser, who is unfamiliar with a certain property type or geographical area, to perform the appraisal as long as he/she becomes competent prior to completing the assignment, this certification implies that the appraiser is to have sufficient prior knowledge and experience so as to perform the appraisal competently.   Certification #11 seems then to preclude accepting assignments for which the appraiser is not already competent.”

In Conclusion

I hope this was a meaningful post.  I am not writing this to sound pious, but to help my colleagues make pragmatic decisions.  This is an easy enough thing to overlook and I have seen several appraisers do it.  As the sergeant used to say on Hill Street Blues:

 

 

hill street blues
“Let’s be safe out there.”

The Queen of Green

July 6, 2018

 

sandy picture
Courtesy of Sandra Adomatis

Sandra K. Adomatis, SRA, LEED Green Associate, NAR GREEN Designee has been a meaningful member of the valuation profession for many years.  I first met Sandy when I was taking the last class and demonstration alternative for my SRA designation.  Sandy was the facilitator for that week.  I was immediately impressed with her knowledge, astuteness and love for valuation.  There was no doubt that she loves the profession and believes in doing it the right way.  She is a great instructor, one of the best there is in my opinion.

Sandy has been a thought leader in the profession, most notable in sustainable residential technology.  She is the foremost authority in valuing residential solar PV systems and has been crucial in assisting the Appraisal Institute in developing the Residential Green and Energy Efficient Addendum.  She has also authored a book, Residential Green Valuation Tools, which is a must have for any valuer’s library. She is also a developer and course writer for several classes including the green series.  I have had the pleasure to work with her on a team that she led that focused on extracting a premium for PEARL home certifications which was published in a report here.

On a personal note, there are few valuation professionals that I hold in a higher esteem.  I am thankful to her for being a mentor to me, and for helping me along in my career.  Just to share one quick story about what a good person that she is:

My wife and I have a son that has some special needs.  Sandy met my two youngest children (twins, a boy and a girl) and my wife when she came to Charlottesville to teach the green classes a few years ago.  My twins have since nicknamed her “Sandy Starfish”. Our son has been in a facility moist of this year to help with some of his issues and when Sandy found out she started sending him correspondence by mail.  That meant the world to him, and to my wife and me.

So that is the setup for a Valuer’s Dozen that I am most proud to publish.  Ladies and gentlemen, the Queen of Green, Sand Adomatis:

 

VN:  How long have you been in the profession?

SA: I started appraising in 1981 after two years working for a builder, 1 year for a retrofit contractor, and 1 year managing an appraisal business.

 

VN: What is your favorite thing about the profession?

SA: Appraising is a puzzle that offers a new picture and challenge with each assignment.  As a certified general appraiser working many years with my MAI husband, I had the privilege of inspecting a wide variety of properties from nudist camp, farms, adult toy store, railroad right-of-way, 16,000 sq ft houses on the Gulf to 800 square foot cookie cutters.  How many people can say their job is that diverse?  Not only have I learned much about appraising methodology but have also met many interesting people and learned lots about businesses.

 

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

SA: My biggest mentor is my husband, Richard Adomatis, MAI.  He has been retired for more than 25 years but has a great mind and has not forgotten the business.  I can still discuss an appraisal problem today and get direction or suggestions that lead me in the right direction.

I don’t have any idols in the profession, but I have several people I truly respect and admire.  They are all Appraisal Institute members and to name a few – Maggie Hambleton, SRA; Tim Runde, MAI; Kathy Coon, SRA; Scott Robinson, MAI, SRA; Donald Boucher, SRA; and even you Woody.

 

 

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

SA:My passion for the profession is to see more young people come into the profession with a desire to be the best they can be.  That means learning as much as you can and looking to be more than a mortgage lending appraiser.  There is so much work out there that pays well outside the mortgage lending world.

Appraisers that specialize in mortgage lending work have a challenge going forward with low fees, increasing regulations and guidelines, and automated valuation models that will take away the easy assignments.

My passion is to see more appraisers learn about the green features that are beginning to become code in many markets on the residential and commercial side.  I’ve been on this track of learning all I can about the buildings science and dedicating much of my time in sharing what I’ve learned.  Our professional is so slow to move in a direction that is not the norm and sometimes don’t see the train until it is upon them.  I’ve recently been engaged in working with appraisers in three states that are very green and learned that we still have lots of education needs to bring our profession up to speed.

 

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

SA: My passion outside of the industry include photography and spending time with family.  Photography is a hobby and I enjoy doing photo shoots for high school graduates that do not have the funds to buy the expensive photographs from the school.   I’ve done prom pictures for some of these students as well.  Little kids are really a pleasure to photograph.  My children and grandchildren are getting older now, but they gave me lots of joy in photographing them as they played.  I did the formal event photographs for the Charlotte Harbor Yacht Club for about 10 years.  (My photography is all volunteer because I love it.)

 

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

SA: In 3 years I do not expect major changes in the profession.  In 5 year, we will begin to see more AVMs taking the simple assignments for the mortgage lending work.   We’ll begin to see more appraisers leaving the business due to age and loss of mortgage work if they have not prepared for other client types.

In 10 years, the databases will be incredibly different, larger, and yet still lacking important data needed to truly understand the more complicated property types.  This means appraisers with skills in complex assignments will always have a space in the real estate transaction.

 

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

SA: My personal business has flourished over the last 25 years.  I’ve seen some appraisers in my market move to other areas or take government jobs because they could not survive during the lean years.  Fortunately, my mentor taught me to  diversify and have a variety of clients.  He also taught me to find a niche that no one else is filling and be the champion.  That is how I gained the title “Green Queen.”

 

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

SA: If I could change my business model it would be to have brought a couple trainees along 10 years ago.  I’ve worked with assistants that were very good and made a difference in the work I could handle.  As I move toward the winding down years of my career (last 10 years) I could see another 10 beyond that if I had a couple trained appraisers that were younger and dedicated.

 

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

SA: I have a goal of writing another book in 2019.  I’ve got a start on it and hope to have one finished by end of next year.

My current work locally is appraising for estate, divorce, listing, or consulting clients.  I do some governmental work for right of way projects as well.  My consulting falls into the space of builders and real estate agents that need help in marketing, preparing for an appraisal or challenging an appraisal of a high performance (green) property.

Much of my time is spent writing courses, seminars, and teaching or speaking on high performance properties or features.  Some local appraisers hire me to do the solar PV valuations because they have not taken the classes and need the assistance.

 

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

SA: The image.   There are 77,000 licensed appraisers in the US and far too many do not present a professional image to the people they serve.  We are in a service business and we must take the time to do our work well and to serve the people we call our clients.  If we tell them we’ll have a report in 5 days, do it.  Why do appraisers think they only need to take the number of classes needed to get the required CE?  What does this say about our dedication to be the best we can be?

 

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

SA: If you plan on making this profession a career, take quality education and work under an appraiser with a good reputation.  Take pride in your work and find a space where you can specialize and learn everything you can about it.

Network with other professionals and organizations that will add to your knowledge base, skills, and potential clients.  Attending meetings and educational offerings by right of way organizations, attorney education, and building science classes are just a few of the ways I’ve found were most helpful in gaining a presence in the space I wanted to serve.

 

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

SA: I love my profession and I want to see everyone in this business love it like I do.  We need to work together to make it what we want it to be.  The low fees we accept can only be changed by appraisers.  Charge what you are worth.  I am not on sale today and I am not a .org.  Keep that in mind when the next client calls.

*****

I hope that you all enjoyed this one.  I am getting lots of great feedback on this series and I consider it a success already.  Please keep the suggestions coming.

Real estate Agents and Appraisers

Real Estate Agents and Appraisers

July 5, 2018

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

 

cville

I live in a wonderful community.  I love Charlottesville, VA.  We got some bad press last year because of a bunch of outsiders using our community as a match to set off a flame.  This area has a very diverse group of people from all over the world.  The University of Virginia attracts some of the best and brightest from all over, and the locals are accepting and friendly for the most part.  Because of the diversity we have some great ethnic restaurants in addition to the myriad of farm to table and haute cuisine from the region.  This diversity also offers lots of great professionals in the real estate profession.

The spark for this blog has come from my interaction with agents and brokers here in Charlottesville.  I have worked in four distinct markets in my career.  I have found that since I have been here in Charlottesville that the agents that I work with are a bit stand-offish.  I do not mean that in a negative manner, as they are very polite and professional but pretty much steer clear of the appraiser. In every other market I have worked in the agents were very interactive with the appraiser, in some cases almost too much so; like anything there is a balance.   This is problematic in many ways and I think the reason why I say that will be evident in the following narrative.

 

Before I dig too deeply into the purpose of this blog, I want to make something clear.  I have nothing but respect for professional real estate agents and brokers.  They represent an important function in the real estate transaction.  I have tried myself to work as an agent and learned quickly that it is hard work and requires a set of skills that must be honed.

 

 

Why is the Relationship Between Agents and Appraisers Important?

 

I teach residential valuation classes for the Appraisal Institute.  This means that I facilitate and lecture education for those starting out in the profession, those that are seeking continuing education and those seeking the prestigious SRA and AI-RRS designations.  I mention this because every class that I do facilitate, I inevitably talk about the psychology of the real estate transaction. This requires discussing the importance of an open, honest and transparent communication between valuers (appraisers) and agents and (brokers).

 

Valuers analyze data and legally are required to maintain an unbiased position within the transaction.  This means that we are not able to consider emotional reasons or circumstances to influence what we do, or we can face lots of trouble. Why do I mention this?  Because, with residential real estate, there is often lots of emotions tie d up in the transaction. This, after all, will be someone’s personal residence; their castle.  This can include purchases of vanity homes, homes to raise children in, very simple homes etc.

 

Appraisers do not normally deal directly with the consumers that are buying and selling real estate directly. Often, we are dealing indirectly with consumers through the lens of the agents that were involved with the sale, both the selling agents and the listing agents. Therefore, the relationship is important.  I have a requirement to verify sales information like concessions, buyer and seller motivations, and other things that relate to confirming if the transaction was arm’s-length.

 

Because we need to understand the psychology of the transaction, we must have communication with those that were party to the transaction.  Often enough this will be the agents.  We certainly like to speak to sellers and buyers but that is often not feasible or even possible.  We email and call the agents to confirm what we can.  But this is not just limited to the comparable sales and listings that we use, it is equally important to discuss with the agents on a property that we are valuing for a pending sale.

 

Agent and Appraiser Interaction on a Mortgage Transaction

 

When I am working on a file that is a sale involving a lender, I really like to have the agent(s) available to answer questions. It is imperative that the listing agent make themselves available at least vie phone or email.  I love to have the listing agent present at the appraisal observation on site.  It allows me to discuss the listing history, price changes, and even market reaction.  Feedback from showings can be extremely important as is the motivation from the seller as to why they are selling.  This is important because the appraiser must determine if the sale is arm’s length or if it may have some form of duress that affected the price.

 

I also like to discuss how the property was priced.  I find that in the appreciating markets that we are currently under, it is useful to be able to see how the property was priced.  Of course, I do my due diligence and locate and utilize sales that I believe to be the best and most representative in comparison to the subject. But I do like to get input form the agent, as it helps me tell the story of the listing history and motivations.  If there are multiple offers, escalation clauses, etc.  These things can show pent up demand and it is important to let the appraiser know these things.

 

Some Agents Have a Negative Perspective of the Valuation Process

 

Having read several blogs lately from agents discussing the problems that they have with appraisers it seems some really dislike having to deal with appraisers.  I get it.  To many agents the appraisal is just a box to check.  In all honesty, that is a common perception for loan originators as well and they are the client of the appraiser writing the report.  But appraisals are more than that, they require a full-blown research process followed up by supportable analysis based on market reaction.

 

Many reports that I write take anywhere from 8-20 hours in total file time.  It is not a simple undertaking in many respects.  To use familiar terms to an agent, it is like taking a CMA (comparable market analysis or BPO, Broker price opinion) and adding the requirements to measure the property, take lots of pictures, address any needed problems or repairs, be familiar with lending guidelines such as Fannie Mae, Freddie Mac, VA, FHA, USDA, various investor requirements and interagency guidelines.  Not to mention the myriad of client additional requirements. There is much more to the appraisal than just what is typically seen at the property observation. In fact, on many files that I do, the data collecting that I do at the property observation is the easiest part of the assignment.

 

My point here is that appraising for lending institution is not easy.  It has lots of moving parts and requires specialized knowledge to do it.  And this is in addition to understanding how to value a home.  There are many hours of education and many pages of books devoted to this topic.  Even simple homes require lots of work to just value it.  For the agents and brokers that I work with here in Charlottesville, please ask questions.  Please attend the appraisal site visit if you can.  Please share notable information.  Your involvement and communication to the appraiser is key to our abilities to do our jobs the right way.

Some Appraisers Have a Negative Attitude Towards Agents

 

The only advice that I can give to valuation professionals on this is to stop.  Agents and brokers can and are required to advocate for their clients.  This can be frustrating to appraisers but that is their job.  I understand frustration, but I see some vitriolic comments and less than professional attitudes out there.  And while I sometimes share in the less than positive experiences, I try to live by this mantra: “I may not agree with you, but I will do everything that I can to explain to you why my opinion must be different”.  We are not in the appeasement business, we are in the appraisal business.  Sometimes we are not going to make folks happy, but it is better to respectfully disagree.

 

Thanks for Reading

 

I appreciate that you have read this blog and I hope that it serves as an informative piece.  While I want to communicate with agents and brokers how important their availability is to the appraiser, I also want to remind my valuation colleagues that we need to be talking with and engaging with agents and brokers.  In these hot markets that we all are dealing with (agents and appraisers) open and professional dialogue is needed.

 

I have also linked to this blog the National Association of Realtors:  Residential Appraisal Process – FAQs for Agents

 

Tom Horn, a colleague and fellow blogger put this out on his blog Birmingham Appraisal Blog.

Ryan Lundquist who publishes Sacramento Appraisal Blog has a great article on challenging an appraisal.

 

 

Please feel free to reach out and let me know if I can help you in any way.

 

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

wfincham@valucentric.com

 

Valuer’s Dozen: Rachel Massey

 

Rachel Massey, SRA, AI-RRS, IFA and a member of RAC, is not just a colleague but a friend.  I have now known Rachel for at least 5 years.  We have written many blogs together and share conversations via telephone many times a year.  Rachel is a well-respected residential appraiser.  She cares deeply about the profession and is always willing to try and help whether it’s with a simple question from a colleague on social media or volunteering her time with various appraisal and real estate organizations.

I hope you all enjoy learning more about my colleague and friend, Rachel Massey:

 

masssey

Courtesy of Rachel Massey

VN:  How long have you been in the profession?

RM: 29-years and counting.

 

VN: What is your favorite thing about the profession?

RM: Solving problems. I really enjoy looking at what the problem to be solved is and tucking in and doing so.

 

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

RM: My early mentors were a handful of local SRAs, Jim Miner, Tim Somers and Marlene Consiglio, who all were willing to spend the time helping me understand the process and what I needed to do to solve problems. Recent mentors and idols include Denis DeSaix, George Hatch, Maureen Sweeney and countless others, all of whom are willing to provide time and expertise to assist others, and to do so without judgement and without leading the appraiser to feel inferior. To me, this is the mark of a true mentor, and true professional.

 

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

Writing, review, and relocation appraisal work. If I could figure out a way to make a living as a writer, I would strongly consider it, but short of that, I have found an abiding passion for doing review work, as well as relocation work. Now if I could just marry the two, and combine it with writing, then my appraisal world would be complete 😊

 

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

RM: There is no doubt that the mortgage appraisal side is changing. Technological advances are everywhere, including the valuation side, and unless appraisers step forward and provide something that cannot be provided by an algorithm, we are likely to have a lessened role in the future, even within three years. That said, if the market melts down again, I see us back in the role of truly being the eyes and the ears of our clients.

We, as a profession, need to be able to tell our customers and clients exactly what we see and what we have analyzed, without the fear of being removed from panels and turned into the state licensing boards because people do not like our answers. If we present reasoned, supportable analysis in a manner that is easy to understand, we should be valued by those who hire us, regardless of whether they like our opinion of value or not. In order to continue to be a profession, we have got to be able to be honest and forthright without losing business. This is an ongoing problem with the field, that has not lessened due to changes after the Great Recession.

So, in short, we could continue being viable if we collectively have a backbone, and if not, we are likely to go the way of travel agencies.

 

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

RM: My seminal achievements personally have been obtaining my SRA designation and becoming an AQB Certified USPAP Instructor. Both taught me a tremendous amount about the valuation process, and about critical thinking.

 

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

RM: It would be to marry the passions I have into a perfect job. That would be to be a lead appraiser with a relocation company, writing the occasional review within the appraisal and relocation industry, and writing guidance and doing education within the organization. Otherwise I am very happy with my current trajectory as a post-funding reviewer for a mortgage lender.

 

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

RM: My current goals revolve around more teaching and developing of small educational offerings, writing articles and being available to help others. Immediate goals include learning about Green Valuation, something I see as upcoming, although it has not hit my area with any significance yet, it will and I need to be prepared.

 

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

RM: Quality over quantity. Slow down a bit and do not cut corners and be rewarded for going beyond the minimums. In the mortgage arena, good enough is good enough. No one wants poor quality, but there is no reward for excellence within much of the mortgage field (there are exceptions, but those tend towards the private client group realm). This is not solely an appraisal issue, but is an issue with business in general, where good enough is rewarded over excellence due to time and cost restraints. I wish I could change that, but it is not likely feasible, or desired.

 

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

RM: Be a sponge and soak up what everyone has to say. Do not be discouraged and surround yourself with those whom you admire. Try not to sink into negativity and try always to do your best work. Be proud of what you do, and let that pride speak through your written words, and through your professionalism in the field.

 

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

RM: Here I would like to make a plea to all appraisers to get involved in supporting the field. There are multiple organizations that are working on behalf of appraisers, some national and established, others state grass roots organizations. There are so many different avenues to get involved in the profession and to help it, that no matter what we are doing, something will fit. Just get involved, and while doing so, help everyone you can. Do not denigrate other appraisers or organizations. Just get involved in whatever way you can. This is an honorable and valuable profession and it needs all of us to be involved in advancing it. Doing so will benefit the public, and since appraisal is about protecting the public trust, we owe it to not only ourselves, but to everyone.

 

Editor’s Note:

There you have it, folks.

I want to emphasize Rachel’s last point.  Get Involved.  The amount of negative comments and trying to put one organization over another is not productive.  Find an organization that you like.  Hopefully the organizations out there will also start working together rather than trying to prove their worth is greater than any others.  Get plugged in and contribute.  We are a small profession but an important one.  The more divisive we become the more easily controlled we become by the users of our services.