AMCs:
The Good, the Bad &
the Oligopoly Ken Verrett, p24
DO YOU KNOW
WHO IS REVIEWING
YOUR
APPRAISALS? p32 LOW APPRAISALS:
THE BLAME
GAME
3
p14
WAYS TO INCREASE
BUSINESS
FROM THE NET p18
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LiveValuation
, the Bad & the
december 2010 / january 2011 | table of contents
OPOLY
FEATURE:
24
AMCs: The Good, the Bad & the Oligopoly There are benefits of working with
AMCs if you play the game right. Ken Verrett
“The haircutpricing model is the single major problem the appraisal profession faces today. Eliminate that and AMCs could become a boon to both lenders and appraisers.”
6
10
Staiger on Stats
49
8
48
50
Publisher’s Note Contributors
Voices of Valuation
Directory For What It’s Worth AMCs: Pay As You Go
w
DECEMBER ‘10 / JANUARY ‘11
THE LOW PURCHASE A ome things never change. In
18
[
mid- to late 2010, the real estate inconsistent ways of surprising
us. Appraisers were asked to consider
the additional effects of tax credits and
foreclosure moratoriums. These were
“new” market factors, including but not
limited to oversupplied and declining
markets. The good news is that most
appraisers can handle the oversupplied
32
and declining part. The bad news is that
always simple to interpret. Determining
price and value is not as easy as one may
M
Bryan Knowlton
De Beers vs Black-Scholes Roger Staiger III
32
The Appraisal “Review” Who is reviewing your appraisals?
Charlie Gress / Michael Lund
40
the relationship between an agreed contract
they do.
bring you more orders.
The Engagement Ring
USUAL SUSPECTS
and changing, and those signals are not
reasons these transactions end up the way
30
the
with. Still, some markets are improving
this occurs, but there are some justifiable
Low-cost to no-cost techniques that will
Reaching Out to Your Peers
Forming a local appraiser group contributes to the
even experienced appraisers don’t deal
as conservative or not competent when
Joseph Palumbo
Internet Marketing for Beginners on a Budget
36
and their impact on value are things that
40
18
36
tax credits and foreclosure moratoriums
think. It is easy to label the appraiser
The usual suspects and the market realities.
30
market continued its consistently
The Low Purchase Appraisal:
14
[
S
14
44
professionalism of appraisers. Steve Papin
and the
Observations of a Home Inspector
The Improvements section of the URAR:
MARKET REALITIES. 44
Interiors, Part VI. Michael Connolly
Survival of the Fittest
Can a traditional appraisal company survive Post-HVCC and Dodd-Frank? Michael R. Massa
LiveValuation december 2010 / january 2011 | publishers note
THIS WAY IN.....
The year 2010— like the year 2009—was a year of monumental change in the valuation space. In 2010 we saw the
sunset of HVCC and the passage of the
Dodd-Frank Bill. New
phrases and acronyms
dominated our discussions, such as “customary
A Letter from the Publisher
and reasonable” fees, UAD and MISMO. At
Evaluation Guidelines. These guidelines have not been updated since 1994 and become
effective immediately. We can expect some
discussion of these guidelines in future issues
as our community digests them. As with 2009, 2010 was no “normal” year for the valuation industry.
Will 2011 be a “normal” year for appraisers?
I don’t think so. There is unfinished business from 2010 and lots of new business items on
the agenda for 2011. The final interim rule from
the Dodd-Frank Bill moved the implementation date to April 1, 2010 (yeah, April Fools’ Day).
the very end of the year, on December 9,
In the first part of April we will begin to see
2010, the OCC, FRB, FDIC, OTS and NCUA
how “customary and reasonable” fees play out
issued the final Interagency Appraisal and
in the marketplace. Let’s be honest: We won’t know till the last minute. On December 15
Fannie Mae and Freddie Mac released a revised schedule for the implementation of their data standardization and collection process. The
meet the team
Uniform Loan Delivery Dataset (ULDD) and the Uniform Appraisal Dataset (UAD) are going to 1
debut in 2011. The first deadline is September 1, 2011, when the recent GSE directive states,
“All appraisers must complete the appropriate
1. Founder | Aman Makkar
appraisal forms as required by the Uniform
2. Publisher | Ernie Durbin, SRA, CRP 3. Editor-in-Chief | Emily Vannucci
2
4. Copy Editor | Kersten Wehde
Appraisal Dataset (UAD).” This means software vendors will be working to meet this deadline and appraisers will need to adapt to the
5. Creative Director | Traci Knight
required enumerations of the data set. More
6. National Sales | David Peck
change is in store in 2011 for sure. 3
Printer | Ovid Bell Press
LiveValuation Magazine will be covering these
Advertising Information | Phone : 858.832.8900 / Email : david@livevalmag.com
and other timely topics with our 10 issues
Subscription and Editorial | Phone : 858.217.5332
throughout 2011. Be sure to follow our webpage
Email : emily@livevalmag.com / Web : LiveValMag.com 4
© 2010 LiveValuation Magazine. All rights reserved. LiveValuation Magazine is a California limited liability company and is the publisher of LiveValuation Magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of LiveValuation Magazine, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, LiveValuation Magazine is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to LiveValuation Magazine, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127
at livevalmag.com for news updates between the published issues.
We at LiveValuation Magazine hope our readers have a restful holiday break with their family 5
and friends; and as we approach 2011, we wish you a happy and prosperous new year!
6
| Publisher |
Ernie Durbin, SRA, CRP
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LiveValuation december 2010 / january 2011 | contributors
pg
pg
40
bryan knowlton
Michael Connolly
Michael Connolly has over 30 years’ experience in the real estate industry and is owner of Smart Move Inspections in Cincinnati, Ohio. He is a member of the American Society of Home Inspectors (ASHI) and holds their highest designation of Certified Home Inspector (CHI). He has evaluated more than 8,000 residential homes for home buyers, attorneys and lending institutions. He holds licenses for radon testing and wood destroying organisms inspections and is a HUD fee inspector. mike@smartmoveinspections.com
18
pg
32
charLIE gress
Charlie Gress is the Vice President of Quality Control for Metro-West Appraisal Co., LLC. He is a statecertified appraiser. Charlie has been with Metro-West since 1998 and held various management positions. He has been instrumental in the development of our collateral risk analysis and reconciliation divisions. cgress@metrowestappr.com
Prior to becoming a real estate appraiser in late 2000, Bryan was a professional Internet marketer, helping small companies get their company websites listed in the search engines and providing search engine optimization services. Since 2007, Bryan has been sharing his online marketing experiences with follow appraisers and providing immediate “Appraiser Alert” emails when companies are hiring appraisers throughout the country. You can find more information at Appraiser Income, appraiserincome.com. appraiser@quickerservice.com
pg
michael lund
32
Mike Lund is the Chief Compliance Officer for Metro-West Appraisal Co., LLC. He is also a state-certified appraiser. His wealth of knowledge in residential real estate appraisals and unique and complex properties make him an asset. He is a Northern Michigan University alumnus. Mike continues to update Metro-West’s QC staff on changes and industry standards. mlund@metrowestappr.com
Contr tors
pg
44
michael R. massa
Michael R. Massa is the Founder, Managing Partner and Chief Appraisal Reviewer of CADRE Group, LLC. He is a state certified residential appraiser in both Connecticut and New York, where he has worked over the past 18 years. He is also an associate member of the Appraisal Institute and was recently appointed to the Board of Directors for RAC. mmassa@cadregroup.com
pg
steve papin
36
Steve Papin has been a residential appraiser since 1976 and owns Papin Appraisal in Cincinnati, Ohio. In 2005, Steve was one of 3 founders of the Appraisal Group of Cincinnati, a casual trade group, and in 2009, he accepted a 3 year term as a director for the Ohio Coalition of Appraisal Professionals. steve@papinappraisl.com
pg pg
14
joseph palumbo
Joseph Palumbo is currently the Director of Valuation at Weichert Relocation Resources. He spent seven years at Washington Mutual Bank where he was a First Vice President. Mr. Palumbo holds an SRA designation, is AQB certified and he is a State Certified residential appraiser licensed in NJ. jpalumbo@wrri.com
Bob rosing
50
Bob Rosing is President and CEO of Dwellworks, LLC, a leading provider of support services for relocation management companies and their corporate clients. Bob has over 25 years of experience in the relocation and mortgage lending industries. He holds a master’s degree in business administration – finance from Cleveland State University and a B.S. in natural sciences from Xavier University, Cincinnati, Ohio. bob.rosing@dwellworks.com
ribupg
10, 30
ROGER STAIGER III
Roger Staiger III is Managing Director for Stage Capital, LLC. His areas of expertise are commercial and residential real estate portfolio investing, corporate business; and strategic planning, forecasting, valuation, financial modeling, asset repositioning and risk mitigation through financial hedging for physical assets. He holds positions at Johns Hopkins, Georgetown, and Loyola universities. rstaiger@gwmail.gwu.edu
Ken Verrett
pg
24
Ken Verrett is owner of Acorn Appraisal Associates, a midsized appraisal firm in Houston, TX for the last 25 years. CEO Banking Division of Major Regional Financial Services Conglomerate, Retail branch network statewide, Commercial Banking. Involved in several start up ventures, most current is Zone Data Systems, LLC where he is a member of the Managing Committee. kverrett@oak-acorn.com
LiveValuation december 2010 / january 2011 | stats
STAIGER on STATs Industry’s latest stats
Roger Staiger III
Nine point eight percent! 9.8%! No matter how it is written and/or shown, the number does not get better. The nation’s unemployment rate rose 20bps in November and short- and medium-term abatement does not seem probable. The last time the nation was singing “Kumbaya” around the proverbial campfire was the beginning of 2007. Unemployment in 2007, while
not at a historic low, was in the fours and there seemed to be a job for every person willing and able; competency was an added bonus for employers. Fast forward four years and the nation leaves 2010 with an unemployment rate 500bps higher, $10,000bn poorer in home asset value reduction, a deficit exceeding $1,300bn, and a nation’s debt that is close to 100%. Happy holidays, patriots!
The year-over-year price change for the national composite-20 index for September 2010 demonstrated a slight increase at 0.59%. This was down from the previous month, which posted a 1.67% increase. The commercial index, for the first time in approximately two years, demonstrated a positive year-over-year price change. Interestingly, the slopes of both relationships are almost negative reciprocals, indicating they
are moving in completely opposite directions. Corporate balance sheets are strengthening, equities are improving and workers are being asked to do more with less. All of this benefits the commercial real estate asset class composite but bodes negatively for residential real estate. Until there is wage growth and employment increases at a rate greater than the value of new entrants into the workforce, residential pricing will continue to drag at the bottom. >>
A comparison of the yearover-year pricing for each MSA and the commercial asset classes demonstrates a strengthening of the commercial sector and a weakening of the residential. This follows the historic relationship of residential leading commercial by 16 months on average. Most shocking is the 15%+ increase in year-over-year pricing for the apartment class in commercial. Despite the foreclosure moratorium in the United States, there is an obvious demand for apartment units, as demonstrated by pricing strength. There is a certain demographic shift from for-sale properties into apartment units, which will only strengthen as the economy continues its sputter and unemployment remains at or near 10%.
The bottom of the residential market continues to be demonstrated as mid-2011. A double dip in real estate is expected and real estate values are still quantified as approximately 10% to high on a national basis. While the futures market has, on average, only a 5% reduction priced in the market, this author quantifies the correction as closer to 10%. Please note that the bottom of the last residential housing recession was 1992 but house prices, as published by Case-Shiller, did not begin to escalate for another four years, i.e. 1996. Therefore, residential home prices are predicted to bottom out next year but price rises are not expected until at least 2015, if not further out.
Finally, quarterly asset pricing is published for commercial asset classes by MIT-CRE. Therefore, this article will detail the quarterly trends for each commercial asset class, i.e. industrial, apartment, retail and office. For the data ending September 2010, it is important to compare the current data with the benchmark starting point of the asset pricing indices, e.g. December 2000. When the raw data is demonstrated, it indicates that all real estate returns prove the adage that real estate is an inflation hedge, and in the long term, real estate escalates NOT at double digits but rather at inflation. Perhaps real estate is not about location, Location, LOCATION but rather timing, Timing, TIMING?! n
[
mid- to late 2010, the real estate
market continued its consistently inconsistent ways of surprising
us. Appraisers were asked to consider
the additional effects of tax credits and foreclosure moratoriums. These were
“new� market factors, including but not limited to oversupplied and declining markets. The good news is that most
appraisers can handle the oversupplied
and declining part. The bad news is that tax credits and foreclosure moratoriums
and their impact on value are things that even experienced appraisers don’t deal
with. Still, some markets are improving
and changing, and those signals are not
always simple to interpret. Determining
the relationship between an agreed contract price and value is not as easy as one may think. It is easy to label the appraiser
as conservative or not competent when
this occurs, but there are some justifiable
reasons these transactions end up the way they do.
[
S
ome things never change. In
Josep
h Palu
mbo
When an appraisal conclusion is lower
It is clear that despite the market,
contest their appraisal. In turn, appraisers
be in jeopardy unless there is a loan-
are closing. Maybe closings are not taking
in the proper forum, with subject matter
than the sales price, the transaction may to-value ratio that can accommodate
the gap without going beyond lender
requirements. Examining the cause of the
“low purchase appraisal” can reveal some justifications in this current environment. Specifically, the first challenge the
appraiser has is that real estate markets
that are changing or correcting do so the
same way they were transformed: slowly and often at different, nonlinear rates.
In other words, if you were to graph the
changes, they may look like a zigzag. On
the surface, this zigzag represents volatility or no well-established “static” market behavior.
properties are being purchased and loans place at a rate that we all desire, but they
are still taking place. Another challenge the appraiser has to deal with in conjunction
with the market issues are the changes to
the lender’s appraisal process. The lender in 2010 is different from the lender of
years past. A colossal mortgage meltdown will tend to slow down the close-‘em-
all mentality. The previous aggressive, production-hungry lender is now 180
degrees opposite. Most lenders are at or near what one would call conservative.
Closing every loan where an application is taken is not the goal. Even loans that are approved are second-guessed at
the last minute. Minor stipulations can
become major obstacles. Lenders are very
concerned with the overall loan “package” and want all the pieces in a vanilla
arrangement. In the lender’s defense, they too have been subjected to the “investor’s requirements.” These secondary market
loan purchasers have turned the appraisal
into a list of “investor requirements” rather than an analysis and opinion of the value. As a matter of misunderstanding the
requirements of the HVCC, many smaller lenders have removed aggregated and outsourced the arbitration mechanism
so applicants can do little or nothing to
don’t get to clarify or justify their analysis experts. The conservative lender attitude permeates the appraisal community, like it or not. No matter how objective one
is, these types of energies can translate
into a conservative way of thinking. That thinking works like this: “I might as well escape the liability because no one will
believe my appraisal anyway.” Questions
regarding the appraisal are often handled
in an administrative capacity and not with
the assistance of subject matter experts like in-house licensed appraisers.
There are other specific challenges of the lender’s appraisal in a purchase transaction. One of the realities of the real estate market is that it does work. The market is living and breathing no matter how bad the market conditions are. Properties are exposed to the market and buyers, builders, tenants and speculators view the competition to determine where or if it fits. Negotiations take place and property is leased, sold or developed. Appraisers will then be asked to consummate these negotiations based on their view of the market. Here is where it gets tricky: Market participants look at macro market information. Appraisers do not have that luxury. The valuation >>
process has and will always work based on the major principles of the market factors: supply, demand and substitution. While these principles naturally apply in today’s market, they are more difficult to “interpret” because of the market volatilities and influences. As an example, a property may be exposed as it normally would be to market participants, using MLS (Multiple Listing System) in the case of a home. After a reasonable exposure period, a potential buyer will offer a price based on the macro data that was available through their search process. This includes making visual comparisons of homes and seeing houses based on what price they can afford. The seller will negotiate to the price that is acceptable to them. At this point in time we don’t know what the value is yet because all we have is an agreement and a price. Along comes the appraiser, who has the task of interpreting what the market is saying regarding the relationship between value and price. The appraiser will look at marketing history, exposure, inventory, absorption, market statistics and direct competition, among other things, to determine if the price is at a level with the value. Let’s examine price and value as defined by Appraisal Foundation via USPAP (Uniform Standards of Professional Appraisal Practice): “Price” is defined as the amount asked, offered, or paid for a property.1 (Author’s note: Once stated, price is a fact, whether it is publicly disclosed or retained in private. Because of the financial capabilities, motivations,
or special interests of a given buyer or seller, the price paid for a property may or may not have any relation to the value that might be ascribed to that property by others.) “Value” is defined as the monetary relationship between properties and those who buy, sell, or use those properties. (Author’s note: “Value” expresses an economic concept. As such, it is never a fact but always an opinion of the worth of a property at a given time in accordance with a specific definition of value. In appraisal practice, value must always be qualified; for example, market value, liquidation value, or investment value. Since appraisers are bound to USPAP by law in a federally regulated transaction, this holds true in all cases. The problem is that in a correcting or changing market it may not be so easy.)
The fact that two parties agreed on a price after normal market activities does not in and of itself indicate that value is at that same point in the market. Yes, it is a good start and a strong indicator.
[1] Uniform Standards of Professional Practice, 2010 The Appraisal Foundation 1155 15th Street, NW, Suite 1111
Earlier I referred to tax credits and foreclosure moratoriums as “new” ingredients in the market soup. One thing that has become evident in many markets is the positive effect that the tax credit had on prices during the period the credit was applied. This four-to-seven-month spike in prices provided in many markets a “false positive” trend, if it was a trend at all. Still, the appraiser can only look to the data when completing an analysis of the market. The fact that two parties agreed on a price after normal market activities does not in and of itself indicate that value is at that same point in the market. Yes, it is a good start and a strong indicator. There are many influences on buyers and sellers in the residential housing market, including the most problematic: emotion. While residential properties satisfy utility, they are often purchased because of the
emotional connection to a functional or aesthetic feature, amenity, or specific location within a community. Some but not all of these factors are measured and determined by supply and demand. This adds to the complexity of determining how much value can be attributed to relevant characteristics versus how much impact the got-to-have-it factor has. All factors aside, a purchase price that cannot be justified by an appraiser can be part of the market indicating a “correction,” defined as “the reversal of a previous price trend.” This reversal can be very nominal or gradual. I am a firm believer that there should be a good reason why in a normal setting, even in declining markets, a buyer and seller’s agreement cannot be justified. There must be sound evidence and logic and a depth of due diligence before reaching the conclusion that the purchase price is not “within the market.” The appraiser should, when available, review the contract of sale, study the exposure of the subject property including the method and duration, analyze direct competition and ask themselves the question: “Why this home at this price in this market?” Still, even after due diligence, there will be those cases where value cannot be justified at the sale price. If the sale price is within the adjusted range, one must be prepared to deal with the appearance of conservatism. While I am not advocating conservatism as an overall philosophy, I do realize there is a time to be conservative. Appraisers take blame for a lot of things, some justified, some not. Before someone labels you the usual suspect on a valuation assignment where the conclusion is not at the agreed price, ask them to consider all that is happening in the market, as well as an understanding of price and value. Point out to them that it says “new price” on the Realtor’s sign when prices get reduced, not “new value,” because value has not been established yet. n
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< Bryan Knowlton >
INTERNET M@RKETING for Beginners on a Budget < DIV >
Low-cost to no-cost techniques that will bring you more orders. < / DIV >
P
rior to becoming a real estate
is a very simple step to increasing your
Internet marketer, helping small
You can increase the exposure of your
appraiser in late 2000, I was an companies get their business listed in the search engines
and providing search engine optimization services for companies with existing
websites. When the Internet bubble burst in 2001, I decided to change professions
and become a real estate appraiser. I have been applying the skills I learned as an
Internet marketer to maximize my Internet orders, which account for approximately 20% of my income. I want to share my
online presence and won’t cost you a dime. listing by providing as much information as possible about the areas you serve and detailed explanations on the services you to provide reviews on your services to increase your popularity.
2
Optimize
an Existing Website or Build a New One
If you have an existing website that is not
need a little more business.
primary search terms or if you are thinking
These are tried and true techniques that will improve your bottom line: < DIV >
1. Get listed in the local search results in all the top search engines.
ranking well in the search engines for your of making a new website then you need to brush up on some key concepts that
will help to increase how your website
is ranked in the search engines. If your
website does not show up in the top 10 results for your primary search terms, most of your potential customers will never find you.
2. Optimize your existing website or
Billboards in the Desert
3. Post your services to free online
Just throwing a website up on the Internet
create a new one. classifieds.
< / DIV >
1
Go Local and Get More Orders
without proper optimization for the search
engines is like putting up a billboard in the middle of the desert. Eventually someone
might come along and find it, but it won’t likely be a potential customer.
Local search is a fairly new feature that
If you don’t have a website that ranks well,
searching for business services in the
of thousands of dollars’ worth of annual
displays local businesses and a map when major search engines. Use the free service at getlisted.org to confirm if your website is properly listed in the top local search
sections of Bing, Yahoo, Google and others. Make sure to completely fill out all of the
requested information and provide a link to your website when possible.
Each account needs to be verified prior to the business listing being approved. Use phone verification for an instant
submission into the local directory. This
building services.
Important Steps
offer. You can ask your existing customers
most profitable marketing techniques with other appraisers and inspectors that might
specializing in industry-specific website
then you are missing out on possibly tens orders from potential clients. If you are a complete novice without a website, a
good step would be to find a reliable web
host that provides a default installation of
WordPress. With all the available tutorials
and documentation for WordPress directed toward new users, you should be able to
get your website up in no time at all. There are also service providers that will provide custom website building services. Search for custom appraiser websites or custom
home inspector websites to find companies
The most important step is to identify your primary search terms (keywords) and to build a website with good content relating to those search terms. Start by making a list of the counties, cities and communities you serve. Your next list will detail the services you offer and what your clients will most likely be searching for. Make the lists as long as possible; you will be able to narrow them down in the future. City / County list: San Diego County San Diego Del Mar La Jolla Pacific Beach Rancho Santa Fe My Services / Title: Appraisal Real Estate Appraisal Appraiser Real Estate Appraiser Divorce Appraisal Tax Reassessment Appraisal FHA Appraisal Set List Price Probate Appraisal Probate Appraiser Estate Appraisal Estate Appraiser Review Appraiser Measuring Services >>
When thinking of what most of my
terms to determine the website URL or
regular, organic search results.
primary search terms. You can narrow
engine results by having your primary
Your company is most likely not showing
URL. I try to follow this format: [city/
results unless you have already spent the
customers might search for, I selected my down terms by removing the phrases
you think your customers wouldn’t be searching for.
name. This will also help your search
search terms located within your website county name] + [primary service]. If the name is not available, you might need
to add something like “area,” etc. Again,
Narrow Your Terms Primary Search Terms:
you can make multiple websites using
this format targeting different areas and services.
up on the first page of search engine
time to set your website up properly or
have paid a professional to do it for you.
You can get ideas from your competition’s top-ranking websites on what to offer to your customers. The key is to give your
customers a good amount of information
about your services and make your contact
San Diego Appraisal
Website Design and Layout
San Diego Real Estate Appraisal
If you are building or modifying the
Most of my new clients never email or
template-based system, you will want to
the phone and call the number that is
San Diego Appraiser
San Diego Real Estate Appraiser San Diego Divorce Appraisal
San Diego Tax Reassessment Appraisal San Diego FHA Appraisal
San Diego Probate Appraisal
San Diego Probate Appraiser San Diego Estate Appraisal
San Diego Estate Appraiser
San Diego Review Appraiser
website with WordPress or a similar
create a layout on paper before you begin. This will make the process much easier. First go to Google or Bing to find out
where your website currently ranks for
your primary search terms and to get ideas
on what you would like to incorporate into
more specific areas of La Jolla, Del Mar,
Pacific Beach and Rancho Santa Fe, and
create additional pages within my website focusing on those areas, or create a new
website targeting each city/community. You can also use your primary search
use my online order forms; they pick up displayed in larger text near the top of
each page. Most people don’t have the
time or patience to read through all of your information and just want to pick up the
phone to ask for your fees, availability and turnaround time.
your website. Focus on your No. 1 search
After getting some ideas from the
[primary service/title]. After searching for
information you would like to place on
term, which is usually [primary city]
I would also replace San Diego with the
information stand out.
your No. 1 search term, you will usually
see a number of different results based on the search engine you are using. Along the top and right side of the page are
paid search and sponsored search results.
Usually below these results will be a map showing companies that appear in the local search directory, followed by the
competition, make a simple outline of the your pages. The more information that you can offer, the better. Content is always king when it comes to search engine placement. Your customers might not read all of it,
but the search engines do, and the more
relevant information you have about your
services and areas covered, the more likely you are to rank well for those terms.
A simple six-page layout would include the following pages:
1 2 3 Homepage: A quick synopsis of the services you offer, coverage areas, experience, address and your phone number prominently displayed. After you get the initial website up, you can always make changes.
Services Page: List all your services
on this page and provide a brief description of each of the services you offer. For an even better, more detailed page, add additional pages that are linked from this service page that describes each individual service on its own page. Try to use as many of your primary and secondary keywords in the service descriptions when possible.
Contact / Order Page: People just
don’t use online order forms anymore; they pick up the phone. If you don’t care about an order page I would put all of your contact information prominently at the top with some more information regarding your services and primary search terms.
4
Title Tags Are Very Important
Some key things to remember when
unique, interesting and authoritative.
Your simple layout will have the page
information; the data needs to be
names and title tags that match your
building your website: •
Make your phone number stand out!
primary search terms and the information
Put it near the top of every page and
page. The title tag is the text displayed
what they need on your website,
on a specific webpage. On your services
immediately.
that you would like to include on that
in the text. If they don’t find exactly
at the top of your browser when you are
they should be able to call you
page, your title might be something like
•
San Diego Appraisal Services, etc. Ideally, six or more pages with sub-pages linked
as a description of the page. You will
incorporate as many of your primary
not just a bunch of keywords. Here is
you would want to create a website with
Use your primary keywords as well
under them. On each page, you should
want this to be a readable sentence,
search terms into your writing.
an example of a title tag that I might
For example, if you think a large number
Diego Appraiser Provides Professional
for “San Ysidro Appraiser,” without that
Real Estate at 858.232.3348.
use on my homepage: Certified San
San Diego Appraisal Services for your
exact phrase located anywhere on your
•
unique to help your search engine
results. The more detailed information you can provide, the better you will •
Write a <TITLE></TITLE> tag for
each page that accurately describes it.
of your orders come from people searching
Do not copy other people’s
Try to use your primary and
rank.
Link to quality relevant sites and ask
for a link back if possible. Don’t worry if they don’t link back to you, you
will eventually find some that will. Inbound links from other relevant
websites are very important. If you know other professionals in your
industry, you should ask for a link to •
your website.
Another way of getting good links
coming to your website is to search for your primary search terms and go through all the links to find
websites where you can get listed.
website, your website might never show
secondary search terms in title tags
you already have “San Diego Appraisal”
keywords and phrases in a readable
webpages, because that is your No. 1
explanations. If you really want to
you might want to include the term “San
Diego Estate Appraisal, you can
* % > r b <
page and provide more detailed
This is one of the easiest things you can
Appraisal Services. You should focus
repeated on a weekly basis. You should
up in the results for those terms. Of course
and throughout each page. Use the
and “San Diego Appraiser” on all of your
sentence or as bullet points with
primary term, but on your services page,
rank well for specific terms, like San
Ysidro Appraisal Services.” You can also
link to that page off of your Services
service area. That would help as well.
information on your San Diego Estate
put “San Ysidro” on the page for your
< / DI
V>
&
•
on 500 – 1,000 words per page.
Title tags are very important, but
content is king. Your pages should be
There are a fair amount of directories, informational websites and online
classifieds where you can get a free link to your website.
3
do, and will definitely result in orders if post your services to craigslist.org and backpage.com. >>
4 5 6 Industry Information: Here you Industry Information: Here you
can describe why your clients need can describe why your clients need your services as well as the common your services as well as the common uses for your services. uses for your services.
Coverage / Areas Served: Coverage / Areas Served:
Here you want to list the cities, Here you want to list the cities, counties and communities you cover. counties and communities you cover. You can also provide a brief history You can also provide a brief history of the area with some of your primary of the area with some of your primary keywords mixed in. keywords mixed in.
Post Your Services to Free Online Classifieds
Resources: You can use this page Resources: You can use this page
to link to other services or government to link to other services or government agencies the customers might have agencies the customers might have interest in. If you give referrals interest in. If you give referrals frequently to other service providers, frequently to other service providers, make sure to provide a link to their make sure to provide a link to their website here. It wouldn’t hurt to see if website here. It wouldn’t hurt to see if they would do the same for you, but they would do the same for you, but don’t make it contingent on listing don’t make it contingent on listing them. If they know how to add a link for them. If they know how to add a link for you, then they might. you, then they might.
Make sure you post to the relevant
days for the Craigslist page to show up in
work to improve your visitors’ experience,
or Financial Services depending on the
popularity of Craigslist. When customers
By posting information regarding market
category weekly. I post to Real Estate
services I am offering. Choose a good title for the post, using your primary search terms. The body of the post will have
a detailed explanation of the service or
services you are offering, with your phone number prominently displayed. You can also include your physical and website address.
Although the classified post might not help your actual website rankings, the actual post might rank in the search
engines for the title you used. For example, prior to my website ranking well for my primary search terms, I made numerous posts using online classifieds targeting
San Diego appraisal services. It took only
some of the search engines because of the found the Craigslist post while searching for an appraiser in Google, most clicked
through to the post and called me for more information and to order an appraisal. You can still do this in many markets.
Now Get Started! By following these techniques, you will
get more orders off the Internet. Although it will take longer and require more work to get a top-ranking website for your
primary keywords, you can always focus on surrounding communities or counties to increase your business in a saturated
market. If you keep your website updated
Good health in 2011: Sometimes we make better commitments to others than we do to ourselves. Bryan Knowlton Appraise All Get over my fear of public speaking and speak at appraiser conventions to help appraisers with marketing their services. Bruce Fitzsimons AARO Wishing you all a joyous holiday season, and may your new year’s resolutions be reasonable and customary. Julie Friess IRR Residential Finally complete my SRA in 2011, and also delegate more responsibility to my office staff so I can spend more time with my family.
trends, depreciation and appreciation
rates, and community information, you
will help build your authority in the area. The key is to get started today. Tear out
this article; write the date next to each of
the three steps, noting when each one will be completed; and stick to it. You will be surprised at how much work you will
be able to bring in. In the past few years, almost 25% of my business came from
estate appraisals ordered off my websites.
This work has helped to keep my business going strong when the lending industry and appraisal management companies slowed down. n
with new information and services and
2011
Jordan Petkovski Title Source Simply stated, my goal for the upcoming year is increased attention to the details that make up my personal and professional life.
industry resolutions
Frank Lucco IRR Residential Man does not live by work alone take time out to smell the roses.
Joe Palumbo Weichert Relocation Resources, Inc.
your rankings will improve over time.
Ernie Durbin Publisher, LiveValuation To make no more promises to my Editor. EMILY VANNUCCI Editor, LiveValuation Not to trust my Publisher’s promises. Bill Garber The Appraisal Institute Find new markets for professional appraisers to successfully leverage their skills and expertise.
Scot Rose Urban Lending Solutions Run from rim to rim of the Grand Canyon… Drink beer, and run back the next day. lee trice The Trice Group I have my running unfulfilled list... go to the gym more often, have more patience, work on my golf swing, etc. But for 2011, my resolution is to submit an appraisal with 20 comps and see if the Underwriter asks for one more.
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n n n n n
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Serving the Appraisal and Valuation Industry since 1977
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CA License #0764257
AMCs: The Good, the Bad & the
OLIGOPOLY There are benefits of working with AMCs if you play the game right.
lenders
ken verrett
HUD AMCs
oligopoly (ol-i-gop-uh-le) a market form in which a market or industry is dominated by a small number of sellers
haircut-pricing model
p
r playe e r w s o
T
Two thousand words to state what should be the obvious, but clearly
isn’t. The ether is overloaded with news, opinions and views. Another year
of spin and bias overload. Can’t we cut to the chase for
once?!
first and second mortgage origination market.
Credentials
Our appraisal business is successful. In the
last 10 years we’ve been growing following
I’m an entrepreneur, the highest business
an expansion plan. Over that period we’ve
businesses over my 50-year career,
Fifty different AMCs represented 17,000 of
calling in our country. I’ve started several
performed 23,000 appraisals for 554 clients.
and I’m currently involved in another
those assignments.
appraisal professional. In my former life
I know the mortgage market, from the
division CEO of a major regional financial
I know the AMC business. When Acorn
services market.
personally handled all client relationships
The last quarter-century I’ve owned a
to handling most day-to-day client
business because it allows me to help my
My views are based on my personal
businesses provide both today. I’m located
and I believe representative of the market.
one: Zone Data Systems LLC. I’m an
I was a corporate guy, a banker, rising to
lender’s and the appraiser’s perspective.
institution. I understand the financial
began our expansion 10 years ago I in the first two years. I’ve returned
profitable appraisal business. I chose that
relationships for the last seven months.
community and earn a decent living. Few
experience, which is substantial, current,
in a major metro market. We focus on the
The Truth about AMCs Appraisal management companies have been around as long as I’ve been in the appraisal business. Their ascent began
in the 1990s. The major national banking conglomerates grew aggressively in the 1980s and 1990s by acquiring local and
regional banking institutions, made weak by the S&L crisis.
Shortly afterward, the majors began to
shed their overhead in the face of bloated staffs resulting from those acquisitions.
The majors created entities to outsource various services formally contained in their own profit and loss control, one of which was appraisal management companies.
Later those subsidiaries were
In the 17,000 AMC appraisal
Additionally, the AMC clients
integration of services that
over the last 10 years, I
economies of scale that result
expanded to create a vertical supported the mortgage
origination business, capped by the very profitable Title Services Companies. Very
assignments Acorn delivered can count on two hands
servicing companies under
market was our clear choice
exerted too much control over
the market. Divesture was legal but I suspect the majors still influence those entities.
The early years of dealing
with those major AMCs were
internally by hiring bright and energetic college graduates; one at a time, trained from
the ground up. We paid for all
training if it were done through the Appraisal Institute.
providers they engaged.
As we could handle more
AMCs held the appraiser in contempt, a potential deal
killer that the lender needed to control. I recall value
pressure and fee pressure
being common. As the AMCs matured, the attitudes of
those AMCs began to change. The handlers were exposed
to customer service training and rudimentary appraisal
theory. I could see the change
occurring in my dealings with
Acorn a volume spigot.
assignments, we called and
requested more. It happened almost instantaneously. If we became overloaded,
the same call and a request for less volume solved the
problem. Due to the lack of
value pressure, Acorn could
be assured that our appraisers,
well trained and intelligent but lacking years of experience, would not be exposed to
pressure-induced mistakes.
them; the same pressures from
The AMCs were almost perfect
but in softer, subtler, more
dominated by them, and still
their management was applied, informed approaches.
By 10 years ago the major
AMCs had matured in many respects. Regulators that had overseen the banksâ&#x20AC;&#x2122;
internal separation of lending and collateral assessment
may have realized the need to extend oversight to the lender-controlled AMCs.
Value pressure disappeared.
when an Acorn appraiser
does one field inspection. Our market covers six counties
and traffic is a problem. Travel
to cultivate. We expanded
The AMC market afforded
Clearly the majors and their
business. It is a rare occasion
its expansion, the AMC
fraught with conflict between the AMC and the appraisal
our large metro market-based
pressure.
When Acorn embarked on
regulatory concerns that they
in significant efficiencies in
the attempts to exert value
recently, the majors divested themselves of those vertical
have allowed Acorn to achieve
clients. Our business was
is. However, we added more AMC clients over time to
reduce the concentration risk.
They provide steady workflow. They provide steady and
reliable cash flow. Acorn has
written off a minuscule amount of receivables from AMCs,
none from the majors. There is absolutely no value pressure.
Those are significant benefits.
times are a big factor. We try
The major flaws are also apparent. The market is dominated by a few. An estimated 80% of the first and second mortgage originations flow through the top four or five lenders and the handful of appraisal management companies that service those lenders.
to organize staff membersâ&#x20AC;&#x2122;
fieldwork each day to a certain sector with two or three
assignments. The travel to
that sector is shared by two or three assignments, reducing
costs significantly. The AMC
segment of our business helps
us to achieve those economies.
Almost Perfect, But with Major Flaws AMCs provide advantages to the appraiser and to the appraisal business. They
provide the volume spigot;
cash flow consistency; and lack of value pressure. AMCs are
a good conduit that provides efficiencies and value added
to both their customer lenders
and to their appraiser vendors. The major flaws are also apparent. The market is
dominated by a few. An
estimated 80% of the first and
second mortgage originations flow through the top four or
five lenders and the handful of appraisal management
companies that service those lenders.
Those top AMCs employ
and a disaster for the real estate
all parties to the transaction
When the lenders outsourced
boon and the disaster continue
opinion of the value of the
the haircut-pricing model.
4
That handful represents an oligopoly. The characteristics of oligopolies include: High barriers to entry
the appraisal management
function decades ago, they
appraisal profession! Both the today.
imposed a pricing model that
What business or profession
at the same level as before
reduction in revenue for
kept their cost of the appraisal outsourcing.
How was that possible? Pretty simple, really: the major
instructed the captive AMC
to employ the power of their
market dominance and force
the independent fee appraiser
to accept a fee that was 30-50%
lower than they were receiving before the AMC was created.
Because the AMC was a power player, the appraisers were
The players need not fear others removing their advantage.
forced to accept the reduction
Few participants
haircut-pricing model was
Individual firm actions can influence all.
accepted.
The lender dictated an
Interdependence
to pay the same price for
or lose a significant part of
their business â&#x20AC;Ś perhaps the
majority of their business! The
could absorb a 30-50%
entrepreneurs, the bedrock of our country, the major source of jobs and innovation in all communities. They found
ways to survive, diversify, and continue on. But the
damage remains. The appraisal profession is seriously
weakened by that single issue: the haircut originated and
continued by the oligopoly
and applied by a significant
number of other AMCs, which
are following the leadership of the oligopoly.
Why Should Anyone Care?
to provide a service to my
and their handful of AMCs saw the advantages of the pricing model and all adopted it. The majors could do that because they created an
oligopoly. They took advantage
of the characteristics that define oligopolies in the market. The
tactic was a boon to the majors
licensed appraisal professionals as the only independent party
to provide opinions of value on the collateral they are using to secure the loans they make. It
matters not that the lender is a
mere conduit today, selling the loans to investors and using
the proceeds from that sale to make additional loans. If the
collateral is not well supported, the loans sold will incur
higher risk to the investor and therefore bring lower prices in the market. The lender
appraisers to issue credible
appraisal department, and
the AMC. The major lenders
The lenders depend upon
engaging licensed and certified
Long-run profits
appraisal cost received from
who created and perpetuate the
maximizes their revenue by
The fundamental reason Iâ&#x20AC;&#x2122;m
incurred no increase in the
collectively the country.
AMC haircut-pricing model.
appraiser. The lender reduced
They control the market, they can continue to maintain domination and profits.
hurts the community and
profession is composed of
consequences? The appraisal
appraisals as before, and
their cost by eliminating the
hurts my business ultimately
It also hurts the very lenders
Actions and counteractions are always a consideration of all market players.
cost of doing business on to the
property in question. What
services without severe
agreement with the AMC
required the AMC to pass their
will have an unbiased expert
in the appraisal business is
community. I maximize that
benefit to my community by
supporting the single-family residential loan origination
market. It is the largest sector of the lending market by far, dwarfing commercial real
estate lending. The housing
market is a foundation of our
economy. It is a major provider of jobs in every community.
My role as a professional real estate appraiser ensures that
value opinions. Hurting the
appraiser hurts the long-run interest of the lender.
The haircut-pricing model is the single major problem the appraisal profession faces today. Eliminate that and AMCs could become a boon to both lenders and appraisers.
In the spring of 2010 Congress took
enforced levels. AMCs will not be
the financial system overhaul. They
charge for their services. The haircut-
up the challenge when constructing
The Debate Today and Why Appraisers Will Lose … Again
adopted “reasonable and customary”
and unbundling of fees paid to the AMC and to the appraiser. FinReg passed
both Houses and was signed into law
Close on the heels of the HVCC taking
in the summer of 2010. Unbundling and
of the appraisal profession
in the law. Implementation was set for
effect in May 2009, HUD/FHA took notice
“reasonable and customary” survived
required to unbundle the fees they
pricing model will survive. The appraisal profession, important to our citizens, our
communities, our lenders and our country, will continue to incur damage and many
good appraisers will ultimately be driven to the brink of extinction.
October 18, 2010.
I predict that in April 2011 the status quo will remain. The major lenders will keep their cost of appraisal services at the oligopolyenforced levels. AMCs will not be required to unbundle the fees they charge for their services. The haircut-pricing model will survive.
condition and announced their intent
FinReg also turned interpretation and
Hopefully I’m wrong. Hopefully we’ll
appraisal process, and to support
the various regulators. It now depends
interference that has gone on long enough.
paid to the appraiser. The announcement
This time the phrases in question
support the summer
“unbundled.”
noticed and applauded
The major lender lobby went to work. By
2009 Conference
progress. October 18 was moved to April
HUD/FHA had
study “reasonable and customary,” among
to support unbundling of fees in the
implementation of the new law over to
“reasonable and customary” fees being
on another version of what “is” means.
didn’t receive much
are “reasonable and customary” and
of 2009, but I certainly
it. By the fall Valuation
the time October 18 arrived they had made
in New Orleans,
2011 to give the regulators more time to
backed away
from the idea. The major
lender lobby was the reason.
other things. Coincidentally, it gives the major lender lobby time to apply their considerable pressure to dilute the
interpretation of what “reasonable,”
“customary,” and “unbundled” mean. I predict that in April 2011 the status quo will
remain. The
major lenders will keep
their cost of appraisal
services at
the oligopoly-
use this opportunity to correct market
Many AMCs prosper with unbundled fee structures and paying “customary
and reasonable” fees to the appraisers.
Acorn focuses on that niche, and limits the amount of business we accept from the
oligopoly. But many others don’t have that option and need our assistance.
We should all care. We should support
“customary and reasonable” fees and the unbundling of AMC charges from the
appraisal fee, and the elimination of the
oligopoly-enforced haircut-pricing model. Make those two changes and the AMC
has a supportable niche in the market, the lenders will be paying the proper fees for the services identified, and the appraisal profession will begin to recover while
continuing to serve their communities. n
The
En agement Ring: De Beers vs Black-Scholes
Roger Staiger 111
O
ne of the true benefits to
soldiered on. Jessie was to be my example!
Black-Scholes? Do you think real estate
University’s graduate school is
Looking at Jessie, I said, “Take Jessie
contract according to Black-Scholes? They
challenge of the student body.
not a European call option on all her
lecturing in Johns Hopkins
the exposure to and constant
One evening, while reviewing real
estate derivatives, a student challenged the usefulness and appropriateness of understanding them. He asked how often derivatives are traded and by
whom. My response startled him, as I
stated that derivatives are omnipresent in
today’s society and are used by everyone, unbeknownst to most. His response was immediate: “Prove it!”
After a moment of pause, I spied Jessie in
the second row. Jessie was a new bride and still beaming with happiness. We had had several conversations about her marriage and her husband’s current studies at Wharton. While potentially treading
on hallowed ground, I took the saber
of knowledge, the high road of intellect and professionalism, and with some
trepidation of administrative disapproval,
for example: Is her engagement ring
future earnings? Is not an engagement ring simply the option price on a land
purchase, i.e., wedding Jessie?” The class shifted in their chairs, Jessie hid her ring,
and finally the aha! moment was achieved; comprehension had taken hold. I followed with a rhetorical, “Do you think that Tom, Jessie’s husband and soon-to-be-graduate of Wharton, sized the ring according to
developers size the option for a land
should!” With the understanding intact
and the challenge met, I continued with the discussion of synthetic real estate
derivatives, promising to author an article (this article) fully demonstrating the
qualitative, real-world example from class.
(Please note: I kept a watchful eye on Jessie to ensure she was not, at least visually,
upset with the use of her engagement ring as a European call option example.
Looking at Jessie, I said, “Take Jessie for example: Is her engagement ring not a European call option on all her future earnings? Is not an engagement ring simply the option price on a land purchase, i.e., wedding Jessie?”
She later gave me permission to pen this article.)
Black-Scholes (B-S) is an option pricing model developed by Fischer Black and
Merton Scholes and published in a 1973 paper. The B-S model is widely used
to price European call and put options. A European call option is a financial
derivative instrument that provides the holder/purchaser (groom) the right
to purchase (wed) an asset (Jessie) at a
specific point in time (wedding date) in the future. The transaction (proposal/ engagement/wedding) is graphically depicted below.
the wide applicability of derivatives
and understanding the market and
understanding of the inputs and outputs
value (exercise price) for Jessie’s future
exercise price were equated, the present
and pricing. Now that we have an
earnings must exceed $325,000 for Tom to
for the option pricing model, we can
marry Jessie. With the engagement ring,
return to Jessie’s engagement ring.
Tom therefore has just “purchased” a
Taking the assumption that Tom followed
year (engagement period) to quantify the
De Beers’ metric for engagement ring
present value of Jessie’s future earnings,
sizing, i.e., two months’ salary, and
i.e., in real estate parlance engagement,
understanding the starting annual salary
study period.
for Wharton graduates is approximately $110,000, Jessie’s engagement ring was
therefore “sized” at $18,300. Given that
Now, two data points suggest that the
ring) is known, the object was to
will exceed $325,000: (1) Tom did
present value of Jessie’s future earnings
the “price” of the call option (engagement determine the exercise price (present value of Jessie’s future earnings) for Tom to call
engagement
marry Jessie and Tom is happy with the
“transaction”; and (2) my calculations for
P/(L)
( 1 Year )
ring ( $ Cost ) ( Paid at Proposal )
I DO! I DO! proposal
(Jessie says, “YES!”)
wedding
(Jessie/Husband say “I DO!”)
The B-S model requires five inputs to
(wed) Jessie. (Please note this is exactly
The five inputs are as follows:
option contracts. However, land purchase
determine the price for a call/put option.
S: Spot price: current price of asset (present value of Jessie’s future earnings in today’s
the same process for sizing land purchase option contracts replace land with Jessie
and option price with engagement ring.)
market)
The spot price and exercise price were
of the call option will “call” the asset (wed
consider Jessie at-the-money. The risk-free
K: Exercise price: price at which the owner Jessie)
r: Risk-free asset: 4% was used as proxy, i.e., twice the Fed’s inflation target
σ: Price volatility: volatility of Jessie’s future earnings
T: Time: length of time before exercise
taken as equivalent, as I believe it fair to
asset was assumed (as stated above) at 4%,
Jessie’s future earnings as a 30-year-old
Johns Hopkins MSRE student working to age 65 are conservatively $2.5 million. De
Beers may state the size of the engagement ring to be two months’ salary, but BlackScholes sizes the engagement ring for
Jessie at 15 months’ salary of a first-year Wharton graduate, i.e., $140,000. Tom
must go home every evening knowing
the “value” he married in Jessie! Tom’s
return on investment (ROI) is therefore
$140,000/$18,300 or 765% (where else can returns like this be achieved in the overthe-counter derivatives market?!).
Perhaps Tina Turner was truly onto
30-year treasury rate and the time was the
“What’s Love Got to Do with It.” Perhaps
σ, of Jessie was assumed to be twice the typical engagement period of one year.
Given that the call price of the engagement
A complete explanation for the B-S model
graduate’s first-year salary, $18,300), the
the focus here is the understanding of
Market
i.e., twice targeted inflation. The volatility,
(length of engagement, i.e., one year)
is beyond the intent of this article. Rather,
{
something in 1984 with her hit song,
the sequel could be, “Derivatives, Baby, Derivatives!”
ring is known (two months of a Wharton
Best of luck, Tom and Jessie, in your
“value” of Jessie’s future earnings must
the article! n
be quantified. With the above parameters,
future! Thank you for the inspiration for
the
APPRAISAL “REVIEW”
Charlie Gress Michael Lund
As we embark upon a new year we are still cleaning up our files
to have the right mix of quality QC reviewers, appraiser analysts,
helpful advice from an “appraiser analyst.” Our hope for 2011 is
others do not. In some cases, the prerequisite for the position of
with the vast array of senseless reviewer requests, addenda and
that with all of the sweeping regulatory changes, our industry can agree to some fundamental requirements for the appraisal and
quality control review processes. It’s shocking that in an industry where you need a license to
and licensed appraisers in place to help make lending decisions;
QC reviewer could be as minimal as a high school diploma and a
clean drug test. The Appraisal Institute offers classes on appraisal review. NAIFA (the National Association of Independent Fee
Appraisers) offers certification
appraise, show the home,
write the loan and even drive a car to the inspection, the
person who is responsible for determining the quality of
the appraisal report could be unlicensed and unregulated.
Furthermore, a reviewer may
have limited or no knowledge of the appraisal process.
Is the Quality Control Reviewer Qualified? Appraisers are engaged to
for appraisal review. However,
Residential appraisers working for lender clients often feel they are at the mercy of AMCs and whatever review processes they have in place. Who are these reviewers? What are their qualifications?
produce a well-reasoned and supported report in
this is geared towards certified
appraisers and does not apply to the QC reviewer. Our industry needs to implement similar
qualifications for the QC reviewer.
Are They Licensed? Make it a point to visit the
offices and operations of your clients. By doing so you will have an opportunity to see
who is reviewing appraisals for banks, AMCs, credit unions,
mortgage companies and other lending institutions. Through
compliance with applicable lender and secondary market
our efforts, we have discovered the actual people who have
Fannie/Freddie form is only part of the challenge. With the
certified appraisers, CPAs, underwriters, former loan officers
guidelines. Meeting these guidelines within the context of a independence of appraisers regulated by the Dodd-Frank Wall Street Reform Act and HVCC leading to the increase in AMCs, we now need to jump through the hoops placed by AMC
review teams as well. The Interagency Appraisal and Evaluation
your appraisals on a screen for review vary from: state-licensed/ and temporary office workers to high school graduates with no
appraisal experience. Currently, there is not a regulated license or formal designation for quality control reviewers.
Guidelines that went into effect on December 10, 2010 include the
Are They Temporary Help?
their appraisals. Residential appraisers working for lender clients
This question relates to the fact that to cut costs, several
processes they have in place. Who are these reviewers? What
countries. A person reviewing a file overseas exacerbates the
requirement that lenders utilize competent reviewers to evaluate often feel they are at the mercy of AMCs and whatever review are their qualifications? What makes an “appraiser advocate”
(aren’t those two terms oil and water in the USPAP lexicon?) or “appraiser analyst” more knowledgeable about the appraisal than the “boots on the ground” appraiser? In our dealings
with clients we often find ourselves at odds with a reviewer
whose computer program or cheat sheet does not allow for the complexities of a real-world situation. Although the scope of a
quality control review is not the same as a USPAP review, some level of familiarity with appraisal principles and methodology
should be possessed by the reviewer. Simply running a computer program with a keyword search function does not provide a QC reviewer with the necessary understanding to make decisions
regarding the worth of an appraisal prepared by a state-licensed
or certified appraiser. Some banks and lending institutions appear
companies are outsourcing their review process to foreign
difficulty in completing a competent quality control review. As
interest rates fluctuate, many banks, lenders and their respective AMCs’ staffing needs fluctuate as well. In many cases, help is needed immediately and temps are hired. Certainly, you can
see the potential problems that arise from a temp who spent the
previous month working in a dental office and is now reviewing
your appraisals. Recently, we had a conversation with a reviewer regarding an appraisal that was completed in Florida. The
reviewer asked our appraiser if the word “foreclosure” meant
four closed sales. This is an example of the competency level of someone who has been hired to review the appraisal of a statecertified, designated appraiser. Obviously, there is a need for minimum standards for a QC reviewer in our industry. >>
Quality – There is Plenty of Blame to Go Around Our company is inundated daily with samples from appraisers seeking employment with our firm. Reviewing thousands of samples has allowed us to get a very broad sense of the appraisal quality spectrum across the country. Only 10% of these appraisers are actually invited for a first interview. One would think that an appraiser would put their very best reports forward when supplying their work for consideration. We routinely see spelling and grammar errors, inconsistent data, missing exhibits, and unsupported reconciled values and conclusions. Clearly, the average residential field appraiser has created a strong need for a competent QC reviewer. The continued flight to quality demanded by the industry is on the correct path. However, the blind leading the blind will derail the quest for quality. Stiffening licensing requirements and higher industry standards for appraisers are leading to a higher-quality product. These same requirements and standards should be demanded from the QC reviewers as well.
The Need for Written Guidelines Not all appraisers have been trained and mentored in the same fashion. In an effort to provide guidance, we created a manual for all of our staff appraisers and QC reviewers. The manual is an outline of applicable standards, reasoning and methodology provided as guidance for appraisal production within the organization. This is the code to which all of our appraisers and appraisals are held. The manual mirrors all Fannie, Freddie and HUD-specific guidelines delivered to our employee’s thorough mandatory training meetings. The purpose of the training is to make our staff aware of all of our expectations when it comes to fundamentals and methodology. The manual takes the appraiser and QC reviewer through each
section of applicable forms and provides them with a breakdown of various scenarios that may arise in the field. The manual also provides some examples of acceptable comments and reporting needed to produce a credible assignment. This information is critical to ensure that we are producing high-quality appraisal reports for all of our clients. We suggest an in-house manual as the minimum amount of training that should be required of a QC reviewer. State licensing and formal education in appraisal practices is really the answer to safeguard the competency of the QC reviewer.
Is There Bias When a Licensed or Certified Appraiser Reviews a Competitor’s Report? State licensing and formal education for QC reviewers is not the only solution. It is evident that not all licensed/certified appraisers know how to complete a review appraisal. Attending classes offered by the Appraisal Institute or NAIFA can help the licensed appraiser understand the requirements for completing an appraisal review. However, not all appraisers have had the opportunity to take these classes. In the aftermath of the mortgage meltdown and the addition of federal requirements for lenders to complete random reviews of appraisals, there has been a subsequent increase of forensic review appraisals. In this new era of appraising, it’s evident that when an appraiser receives an order for a “field” or “desk” review, the immediate assumption is there is something wrong with the original report. Forensic reviews force an appraiser into an appraiser assassin’s role whether they want to be a sniper or not. The review appraiser may not have an intentional bias but they may feel that they need to justify their service and their fee. In this environment, forensic review appraisers are often taking appraisal reports from 2005 and 2006, finding the lowest three REO sales (that may only be a small percentage of the overall data pool) at the time of the original appraisal, and then cutting the original
value significantly. This may result in the originating appraiser being placed on the lender’s DNU(Do Not Use) list. To add insult to injury, the lender is now required to report any potential USPAP violations to the state regulatory board. Unfortunately, there are appraisal reports that may not pass the due diligence test and these appraisers should be held accountable. However, at the same time, some very good appraisers who had solid comparable sales to reconcile a value are now being removed from approved vendor lists. What is wrong with this picture? As appraisers we are bound by USPAP to police ourselves in the way of these “review” assignments. Are we all playing on the same field? Has a reviewer ever had a higher value than the original appraisal? Are reviewers intentionally pulling the lowest sales in the neighborhood and cutting the value accordingly? If so, this type of approach is not at all credible when trying to pin a foreclosure on an appraiser for an “inflated” value. The challenge to the review appraiser is to go back in time and use only the knowledge that was available on the effective date of the appraisal. Hindsight is always 20/20. Until our industry develops a set of standards for QC review, we will continue to see additional work and revision requests that do not add any value or clarification to our original appraisal reports. We are all working on the same team and working toward the same goal: that of providing solid appraisal reports with a methodology that is understandable to all. Although there are some highly qualified QC reviewers, there remains no minimum standards agreed upon by all members of the appraisal and lending communities. Forensic reviewers need to remember that they were hired and engaged to review the report provided by the lender and that they are not applying for a position with that lender. Our hope for 2011 is that the industry implement minimum standards for quality control reviewers. n
REACHing OUT to Your
Peers Forming a local appraiser group contributes to the professionalism of appraisers.
Steve Papin
T
here has been much attention given to the concept of getting appraisers together again. In recent years active chapters from the large associations have struggled to find attendees, and many no longer meet. The story of the Appraisal Group of Cincinnati (AGC) shows the need for local groups and may provide a blueprint for starting a group in your area. The objective of this article is to provide the â&#x20AC;&#x153;storyâ&#x20AC;? that led to the formation of the AGC and the original concepts of the organization.
This article will also bring each of the original concepts up to date in order to demonstrate how they
worked and what we have changed. Finally, I
hope this article speaks to the No. 1 concern appraisers have about gathering with
their peers: How do you share your experiences and protect your
business interests at the same time?
The AGC started
with a simple
phone call. Larry
Larry and I met and made an outline of our vision. The
following covers the six points from our outline, used in
the original meeting, and how they have evolved since our first meeting in May 2005.
1
Purpose
The purpose of the group was to create a peer-to-peer
network of working appraisers who would contribute
to problem-solving and improving professionalism for appraisers.
This goal has remained unchanged, and has been
consistently achieved. Many appraisers are isolated, working from home with little interaction with other appraisers.
Appraisers that are active in the AGC communicate with
one another at the meetings and privately with appraisers
they have grown to respect, and we often find an email exchange with the entire group is being shared.
Many appraisers now have someone to talk to when
they are problem-solving. You have a lot in common with other appraisers, and it is a good basis for a friendship.
2
Organizational Structure
Our original goal was to have an informal
organization with minimal cost. To date, that has also
remained the same. There is a core group that serves to
organize meetings, and a larger group that is willing to
take on tasks (such as preparing to lead a discussion on Benken
had been
attending
meetings in a city
north of Cincinnati for
some time. Attendance
at those meetings was
dwindling, cost of participation
was high, and the benefit of attending
was waning. Larry called me and asked
if I was involved with a local group. My
answer was, “No, but I have been thinking
there is a need and maybe we should start one.” I
called Paul Dotterman, another long-term appraiser
and a past president of Cincinnati’s once vibrant Appraisal
Institute chapter. With the three of us convinced that this was a good idea, we set forth to create a local group.
a topic). We have no officers and those of us that manage just consider ourselves volunteers. A key to your group
is that there needs to exist a small but dedicated team of
appraisers willing to plan, schedule and map out events of the organization.
The AGC has collected no money over the years. To be a
“member,” one has only to fill out a short membership form and attend at least one meeting per year. In exchange for your membership there is one benefit: You are identified as a member on the Word document we use to advertise
the meetings, which allows you to claim membership in a
professional organization. On my statement of qualifications I refer to myself as a founding member of the AGC.
There is a downside to the fact this group has no income.
Without income, other ideas that have a small cost are not
accomplished. As an example we have no website or roster for sharing. >>
I would describe the lack of cost as wildly popular, and the fact that the meetings are free brings in appraisers that may not involve themselves otherwise.
3
Affiliations
The group was formed to be independent of any other group. The reason we included this in our original
outline was our feeling that we would be able to keep the meetings casual and low-cost if we remained independent.
This is the area in which we have made the
most significant change. In 2009 the Ohio Coalition of Appraisal Professionals
was formed. This is a formal group providing a voice to the Ohio
Appraiser, based on the concept that an organization protecting
the interest of the Ohio real estate
consumer would go hand in hand
with an organization representing the
best interests of Ohio appraisers. Rather
than compete with OCAP for members and
meetings, we decided it would be best to have
joint meetings.
OCAP is a structured nonprofit with a membership fee of $100 per year. This affiliation has allowed the AGC
access to additional speakers and appraisal experts from the entire state. It has also improved our opportunities
for continuing education. Through volunteer instructors and course authors there have been very affordable CE
fresh â&#x20AC;&#x201C; a significant break between meetings makes attending more appealing and interesting.
This served our group well for the first few years and
some appraisers had nearly perfect attendance during this time. Eventually we found there was a consistent need to add meetings. The evolution of the schedule is that we now meet nine times a year. The meetings
are monthly with no meetings scheduled for the three summer months.
One positive evolution is the location of our meetings. When we started we had 10 appraisers meeting in the
back room of a local restaurant. The location was in the southwest corner of Greater Cincinnati. This was very convenient for the three of us that started the group,
but became less favorable as the group size increased
and appraisers from all over the region began to attend.
Currently we meet in a classroom at the Cincinnati Area Board of Realtors office on the third Tuesday of the
month. This permanent meeting location and time has improved our credibility and keeps the meetings at a central location.
5
Membership Target
The goal was to make membership attractive to all
appraisers, with an environment favorable to everyone, from the trainee to the 40-year veteran. Our original concept was based on the premise that we needed
attendance of 10 appraisers at meetings to make the group viable and sustainable.
classes written and instructed by OCAP members. OCAP
Our goals in this area remain the same and we have been
to become part of a larger organization working on big-
to attend. The
also allows appraisers seeking more than a casual group picture items such as state legislative issues.
Of interest on this point is that joint attendance has had no impact on the meetings. There are several original
AGC members that have also joined OCAP. There are
also several that have not chosen to join OCAP at this time, but are regulars at the meetings.
4
Schedule
The original concept called for five meetings a year (January, March, May, September, and November).
This schedule is adequate and avoids summer vacation
season. This schedule also keeps the meetings somewhat
able to keep the group open to all appraisers wishing 10 appraisers
attending the first meeting
by invitation
has grown to
an email roster of 120 with an
average meeting attendance of
25 and a record crowd of 55.
It is rewarding to see the
The No. 1 concern appraisers have about gathering with their peers: How do you share your experiences and protect your business interests at the same time?
interaction between appraisers, and
the upscale homebuyer. In November
are here to build a peer-to-peer
As an “old-timer,” I find it interesting that
review, with thoughts on how to write
interact with professional appraisers
interesting to be a part of that interaction. I am not only in a position to share with the less experienced appraisers in the
room, but that I learn so much from talking shop with my peers.
6
Meeting Agendas
This was an item we left open on our
original outline. We were unsure if the
group would prefer a casual environment
where you knew your peers and met at the same breakfast restaurant for a morning meeting or a pub after hours, or if we
the meeting was based on appraisal a review and how to respond when
you are the subject of a review. We have had meetings on various “hot topics” and industry trends such as working with AMCs. Speakers have included
Joan Trice, publisher of the Appraisal
Buzz and host of the annual Valuation Conferences and county tax auditors.
important to attendance. If there is not a
is that they don’t want to
topics at our meetings.
Examples of speakers include Ernie
Durbin, Publisher of this magazine,
speaking on the Dodd-Frank bill during
a recent stop in Cincinnati. In September 2010 we did a review of Fannie Mae announcement 2010-09 with local
appraisers taking the time to study the document and lead discussion. Mike
Viola, a certified USPAP instructor and often a contributor to our meetings,
gave a presentation on how to be sure
an appraisal update on the 1004D meets USPAP requirements.
The October 2010 meeting was based
on the “Think Like a Buyer” concept, with three agents serving as a panel of experts on the thought process of
I have only had one appraiser who
premise. By and large, the appraisers attend to become better appraisers.
The benefits of a casual group are many.
The No. 1 concern
a guest speaker or discussion of current
idea.”
appraisers.
speaker” meeting. It did not take long to
attend is diminished. Thus, we now have
appraiser list, you have the wrong
Benefits
Training Your Competition
good topic or speaker, the motivation to
to get on his best clients’ approved
original six-point outline. The success
year, from having a speaker to open
determine that the meeting agenda was
ask the appraiser next to you how
needed a quiet reminder of this
drew our largest crowd.
is measured in the involvement of
discussion to what we called a “no
the right idea. If you are here to
election, Congressman Steve Driehaus
item at the first meeting and it took some
We tried every type of meeting the first
challenges that you have, you have
With more than five years of meetings,
improved attendance. Shortly after his
The above is a summary of the
time for the answer to become clear.
that have the same issues and
The result of a strong meeting agenda is
would need to invite speakers for a more
structured meeting. This was a discussion
network, to problem-solve and to
appraisers share with me be a part of an appraisal
organization as they will be training the competition.
There are two things that
are important to note here.
First, even with great effort on your part to create a
local group, only a small percentage of appraisers will attend, and I can
promise you one key thing about those people: They
are the appraisers you do
Building a peer-to-peer network of
appraisers provides those key relationships you can
Building a peer-to-peer network of appraisers provides those key relationships you can count on for advice on a tough appraisal...
not mind competing with.
count on for advice on a
tough appraisal; a referral
network among appraisers
with different specialties or serving different locations;
and a group to lean on when you need help with details
on comparables, rentals, or
project data. Shop talk with your peers can sharpen
your skills, and you can
discuss key items such as
fee ranges in your market
(yes, I willingly discuss fees with my peers, but I never conspire to fix fees). Your
network can reach beyond
appraisal issues to business
issues (Who do you use as an
It is to your benefit to compete with
accountant?) or technical issues (Who is
motivated to do a good job, and you
of camera works best?).
appraisers that are competent and
will find the peers that join you will be
your favorite computer tech? What type
quality appraisers.
There is one more benefit that you will
Second is a tagline I repeat at least once
great friends with people with whom
per year to our group: “If you
enjoy the most. You will make some you have much in common. n
Michael Connolly
observations of a The Improvements section of the URAR: Interiors
Part
home inspector
Vi
A
n appraiser wrote one of the first books I ever read about inspecting homes. He talked about inspecting with your feet. When I read this, I thought he was a little bit crazy. How can you inspect with your feet? Over the years, I have come to realize just what this meant. When I enter a home I am keenly aware of my footing. Not my fashionable footwear, but how the finished floors, stairs and even basement floors feel. I wear a thinsoled shoe that allows a tactile feel of the surface that I am walking upon. I can tell when a floor is soft and deflecting. I can sense if the floor is out of level and even tell which way it is sloping. I know that just about everyone can tell if a floor is steeply sloped. However, I can tell if a floor slopes as little
or bottom chord of the truss system. The
the carpet padding is worn out, I feel the
that covers the joist or truss. Slipping off
as one-quarter inch in 10 feet. I can tell if
seams in the sub-floor under the carpet. In
the basement, garages and other concrete flat work I can feel and hear if there are hollow sections under the slab. I am not claiming
to be Obi-Wan Kenobi or using the “force“ – I am saying: Try it. Practice feeling with your feet and senses. Many times, I have
uncovered major defects in a home by first being alerted to the issue by my feet.
Walls are best viewed with a flashlight at
an angle other than perpendicular. Viewing walls at a shallow angle with a bright
flashlight will reveal most imperfections in the wall’s finish as well as waves and
prior repairs. If you don’t currently use this
technique, you will be amazed at its efficacy. Attics are a required inspection area for
footing is small and unsure due to insulation the truss or joist can result in damage to the property and personal injury. My policy is
to only walk through attics when someone else is in the home (to allow for help or
rescue in the event of a fall) and only walk
in the attic sections that have a room below them (a ceiling-to-floor height of 8 feet or less). In my local area, many homes have
two-story entry foyers. Once, while walking in the attic of one of these homes, one of
our employees slipped and fell through the ceiling. He caught himself at his armpits,
which prevented him from falling almost 20 feet (would have resulted in severe injury
or death). It was precarious to extract him
from this area and the bill to pay for all the damage was over $5,000. Be careful!
home inspectors and many appraisal clients
While in the attic, look at the condition
inspection of the attic is preferred over
stained, moisture vapor is probably
require inspection of the attic. Physical viewing from the attic access (scuttle).
However, if there is no floor in the attic,
there is no more dangerous place in a house. An inspector must step on the ceiling rafter
of the roof sheathing. If it is dark or condensing on the sheathing. This indicates inadequate roof/attic
ventilation and may also indicate
excessive moisture vapor in the >>
I am not claiming to be Obi-Wan Kenobi or using the “force“ – I am saying: Try it. Practice feeling with your feet and senses. Many times, I have uncovered major defects in a home by first being alerted to the issue by my feet.
basement or crawl space. It is
Hot water baseboard systems fall into two
Fuel sources for most heating systems are
chronically damp basement or water
water boilers and some ground source
Each type of fuel has its advantages,
not unusual to see a home with a
in the crawl space to have moisture
vapor and mold growth in the attic.
Moisture vapor is a gas that can pass
through many building materials and can migrate into an attic space all the way from a basement. Rust stains on the sheathing or on the insulation
indicates excess moisture vapor. This moisture vapor will condense on the roofing nails
basic systems: hot water and steam. Hot
heat pumps heat and circulate hot water through radiators placed in each of the rooms. These are easily identified by
two pipes servicing a radiator (inlet and outlet). The radiators are usually small
and have fins to help dissipate the heat.
Steam-based systems can have one or two pipes extending from the radiators. These steam radiators are usually large devices with a bleed valve on
and then drip
the side of the radiator.
down onto the insulation.
Heating There are
numerous types and
styles of forced warm-air
systems. These systems will
have a means of supplying
warm air to the house
(supply) and
collecting air in the house to be
heated (return). A modern
system will
have supply
Steam systems are older
Propane is heavier than air and as such can be more dangerous than natural gas, which is lighter than air. Propane can leak and flow downward like a liquid and since pilot lights for water heaters and furnaces are down low there is some likelihood of ignition of leaking gas.
registers in
each room near an exterior
and have given way to hot water systems that can provide a much more uniform and
controllable heat. It is
common to see an old
steam system that has been converted into a hot water system,
leaving the old large
steam radiators. These systems are generally not as efficient as
systems designed for
electric, fuel oil, natural gas or propane.
mostly economic based on area. Electric systems do not require a flue or other
means for venting burnt fuel gasses. These typically have a lower cost of installation. Fuel oil provides the hottest heat as
fuel oil produces a higher B.T.U. output
than fuel gases. Fuel oil usually requires
storage tanks. In some areas, these tanks are buried and could leak into the soil.
Buried fuel oil tanks should be evaluated by a qualified contractor. Propane gas is
similar to natural gas and many heating systems can burn either gas with only
minor modifications to the gas valves.
Propane is heavier than air and as such
can be more dangerous than natural gas,
which is lighter than air. Propane can leak
and flow downward like a liquid and since pilot lights for water heaters and furnaces are down low there is some likelihood
of ignition of leaking gas. Natural gas is lighter than air and will rise. It is more
likely to be smelled by someone as it is
rising and because there are fewer ignition
sources up high, it is less likely to combust.
hot water.
Cooling
Radiant electric
Central air systems have an average life
electricity to heat an
determined by reading the manufacturerâ&#x20AC;&#x2122;s
baseboard heaters use element covered with
fins inside a baseboard radiator. These
radiators are usually controlled by an
individual thermostat
of around 12 years. Often the age can be tag on the side of the unit. The date of
manufacture can be found printed in this area or can be deciphered from the serial number, as the first several digits in the
serial number are usually the date code. This is also true of furnaces and water heaters.
wall with a return air register on the
(one in each room). The advantages of the
system. Older houses have this system
can easily be zoned and are inexpensive to
Amenities
installed on an exterior-facing wall, it is
Many amenities are outside the scope
as drapes away from the electric baseboard
exception of fireplaces and patios or decks.
interior wall. This is called a perimeter reversed, with the returns on the
exterior walls and supply registers on the interior walls. Some less efficient systems have supply registers in the rooms but only one or two centrally located return air registers.
electric baseboard heaters are that they
install and replace. Since these are usually
important to keep window coverings such heaters to prevent fire.
of a typical home inspection, with the
Decks are structural components and if
improperly constructed can lead to failure
and injury. A Google search on the day this
Car Storage
of death or injury from a deck collapse or
Driveways should be evaluated to
article was written resulted in 232 articles
the door’s direction when the photocell
detects an obstruction. The condition of the
determine if they are sloped in such a way
fall from an elevated deck.
as to direct water away from the garage
An elevated deck should be closely
and home. A driveway that slopes toward
evaluated for any departures from
commonly accepted building practice. One of the most common issues found with
decks are weak handrail and guardrails. Generally, a railing should be able to
withstand a concentrated load of 200 lbs
in any direction along the top of the rail. Furthermore, the railing height should
door hardware, especially the cable drums, torsion or extension springs, which offset the weight of the door, should be noted.
the house (as they might with built-in
Carports are often supported by columns
surface water toward the house, resulting
columns should be examined for prior
garages) can direct large amounts of
that are in danger of strikes from cars. The
in moisture penetration and damage to the structure. In colder climates, ice can build
up on poorly draining driveways, creating fall hazards.
car strikes as well as moisture and insect damage that could weaken or cause a
failure of the carport. Many carports have
flat roofs that are prone to leakage. Always look up at the ceiling or roof for signs of
be a minimum of 34” to 36” in height.
In the garage, the firewalls (walls adjoining
is another common area of concern. The
closely evaluated for any holes or other
This concludes the Improvements section
of fire from the garage into the wall cavity
articles. I hope that through these articles
Attachment of the deck to the structure
deck should not rely on nails to secure it
to the house. It is ideal to secure the deck with carriage bolts, lag bolts or specially
designed screws. If a deck is simply nailed to the house, it should be pointed out in
the report and the client advised to seek the opinion of a structural engineer.
the living area of the house) should be
penetrations that could allow the spread or into the home. A defective or poorly maintained overhead garage door can represent numerous hazards. Always check to see if the door is fitted with
non-contacting sensor systems to reverse
leakage.
of the URAR form and this series of
you have gained one or two gems of
knowledge concerning evaluating the
condition of a house and are a little closer to your cousin in real estate: the home inspector. n
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16oo Anacapa Street, Santa Barbara, CA 93101 Ph: (800) 334-0652 Fax: (805) 962-0652 www.liability.com lia@liability.com
I
I
Michael R. Massa
L’S I V E D E TH LS I A T E D IN THE
It is difficult to disagree with the well-meaning intent of this document; yet there appear to be several areas of the HVCC that have had unplanned long-term consequences...
So, now we have a moderately sized appraisal services company that lost some 40% of its client base overnight! How do the operators make up for the revenue loss? Well, here are some suggestions: Diversify! As previously stated, this company has taken the word â&#x20AC;&#x153;Appraisalâ&#x20AC;? out of its name. Providing widely diversified evaluation products to others is a must. There are a host of new (and old) evaluation products that may not have been the particular niche for the traditional appraisal companies. Many times these companies specialized in appraisals whose end users were mortgage lenders.
Diversity should not be looked at as only relating to the products provided, but also to the clients they are provided for. Expanding the end user to other entities is a must. There are many varied consumers: relocation management companies, attorneys (foreclosures and divorce cases), financial planners, the public and many others.
(Collateral Risk Valuations), AVMs, AVM hybrids and many other forms of evaluation products. Just as the markets continue to diversify and change, so does the need for alternative valuation products.
As to products, evaluation services other than the traditional 1004 appraisal must be taken into consideration. There are many consumers of evaluation products other than those traditionally provided to lenders and thirdparty relocation companies. There is an emerging market for BPOs (Broker Price Opinions), CRVs
to change, so must our approach to
In summary, it can be stated that one
of the few constants we experience is
change, particularly in this profession.
Needless to say, as the landscape continues alternative valuation products. If one is
going to survive in this atmosphere, one
must have the ability to change and alter our approach to business. There is no
business-as-usual in our industry. The only successful business model is a business model that has the flexibility to change
with new clientsâ&#x20AC;&#x2122; ever-changing needs for alternative products. n
LiveValuation december 2010 / january 2011 | voices of valuation
Do you
VOICES OF VALUATION
The Dawn of a New Era in Appraising
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United We Stand, Divided We Fall
Jfriess That comment that getting appraisers to agree is like herding cats, appears to ring true in many ways. We formed the greatest coalition here in Arizona, and most of the groups get along, and then along comes someone who requires and needs notoriety and recognition and starts throwing wrenches every which way just to gain attention and divides the State just for their own self interests. Instead of focusing on the funds sweeps, lack of regulation and enforcement and AMC laws, the organizations are focusing on battling each other and the battle of the wills takes precedence.
fron t an a
cs ly ti
Eddgillespie This profession has got to come to terms with what it takes to be a professional. Picking three comps and doing some kind of adjustment supposedly derived from matched pairs has got to go. The “market analysis” I see being done amounts to an inventory of info (not always fact) from various sources such as the Chamber of Commerce, Census and City-Data with little or more frequently, no analysis whatsoever.
2
www.livevalmag.com
up
Last month’s articles sparked a lot of debate. Here are some responses from our readers.
have something to say?
Hjeckiehydie Perhaps, like the National Association of Realtors, we need a National Standardization of continuing education requirements, regardless of what state we live in. I hold another license for which I can practice in any state. Why should my appraisal license be any different, as long as I take a required number of CE classes? As I hold Certified Residential Appraiser licenses in two states, why is it that Florida is the biggest bugger of all? They want you to sit for the exam all over again? Am I correct?
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Training – A Responsibility of theo Profession no Matt
ata o l lect i n
inter p r e t a ti
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ar g fl
Because the roles and regulations we must follow that are stated in the certification, how is it profitable or reasonable to hire a trainee? The certified appraiser must inspect the subject property and comparable sales. Data entry can be done with a click of a button using current technology and the rest of the evaluation must be done by the certified appraiser. What is left for the trainee, answer phone calls and schedule appointments? In my state when appraisers get into trouble it usually involves a trainee.
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LiveValuation december 2010 / january 2011 | directory
PRIDE.
DIRECTORY ACI
800.234.8727 www.aciweb.com
Acorn Appraisal
713.681.8878 www.acornappraisal.net
Appraise All
858.232.3348 www.appraisalmanagement companies.com
CADRE Group
203.368.2000 www.cadregroup.com
Dwellworks
216.682.4200 www.dwellworks.com
Intercorp
800.640.7601 www.intercorpinc.net
LANDY
781.292.5417 www.landy.com
LIA Administrators & Insurance Services 800.334.0652 www.liability.com
Metro-West Appraisal Co.
PASSION. PROFESSIONALISM.
888.676.9237 www.metrowestappr.com
Papin Appraisal
513.451.1600 www.papinappraisal.com
Relocation Appraisers and Consultants 972.658.9216 www.rac.net
Smart Move Inspections
Relocation Appraisers & Consultants RAC is a nationwide organization of Independent Appraisers who are trained professionals in relocation appraising.
What distinguishes RAC from all other appraisal organizations l
appraising and consulting. l
www.smartmoveinspections.com
202.640.8912 rstaiger@gwmail.gwu.edu
The majority of our organizational activities are devoted to education,
513.896.5434
Stage Capital, LLC
Our exclusive focus on relocation
research, and client outreach. l
Each of our select group of members is considered the relocation appraisal experts in their respective markets.
TSI Appraisal
877.762.5342 www.tsiappraisal.com
Weichert Relocation Resources 877.882.1290 www.wrri.com
Woodfinn
760.410.1210 www.woodfinn.com
For more information visit our web site at: www.RAC.net
LiveValuation december 2010 / january 2011 | for what it’s worth
FOR WHAT IT’S WORTH AMCs: Pay As You Go
Bob Rosing
There is certainly no shortage of debate around the provisions of the Dodd-Frank Act as the details become known and the ramifications more clearly understood. The operating and financial models of the various market participants impacted by this financial reform legislation hang in the balance. With so much at stake, tensions run high and it is difficult to separate self-interest from commonsense provisions. So much of the conversation has centered on the “customary and reasonable” provision. For this article, we would like to move the conversation to the topic of registration fees and offer an alternative view. The proposed registration fees to be paid by appraisal management companies (AMCs) are worthy of further discussion, as the current proposal has the potential to be detrimental to appraisers and smaller AMCs alike. Layering this on top of the individual state licensing requirements increases the burden of cost and effort to be compliant to unprecedented levels, particularly for smaller participants in the market. As the provision is currently structured, AMCs will pay a registry fee of $25 (perhaps as much as $80) for each appraiser on their panel. These fees, in combination with those paid annually by individual appraisers, will be the primary source of funding for the Appraisal Subcommittee (ASC). The ASC deserves the industry’s full support as they continue their oversight role and take on expanded responsibility for regulatory enforcement of the appraisal provisions of Dodd-Frank. Specifically, we understand and support the need to provide proper funding to the ASC to continue to: • Oversee the appraiser regulatory programs established by the states; • Monitor appraisal standards for federal financial institutions; • Maintain the national registry of statecertified and licensed appraisers, and AMCs; • Support the efforts of state agencies’ disciplinary actions, license/ certification suspensions, revocations and surrenders; and • Promote and proliferate education across the appraisal industry.
Having said that, the proposed appraiser registration fee has the potential to: • Significantly reduce the number of appraisers an AMC will include in their network. This cost-saving measure will limit the opportunities of small appraiser firms and sole proprietors in the market; • Cost appraisers additional funds as many AMCs will likely pass-through this cost as additional panel membership fees; • Drive smaller AMCs out of business, concentrating further power and leverage in the largest AMC providers. In the long run, this will ultimately reduce the funding available for the ASC; • Cost the consumer additional money in the end as the progression of cost flows downstream; and • Be difficult to administer and monitor compliance. As an alternative, a “pay as you go” fee per appraisal seems to be a logical option. Simply, AMCs would report their monthly volume and pay a fee per appraisal to fund the ASC’s efforts. This method would: • Not limit an appraiser’s opportunities by affording participation in as many AMC networks as they qualify for and desire, without concern for membership fees; • Level the playing field for all AMC participants. The smaller and middletier companies will not be paying a disproportionate share of the regulatory costs relative to their revenues in this structure; • Provide transparency of the costs to run the ASC and spread those costs over the appraisals completed. Annual resets would ensure that the ASC could operate a balanced budget and provide the support articulated above; and • Be simple and auditable. Registered AMCs would report volume monthly and remit payment (e.g. $2/report). Non-compliance and/or misstatement of volume would result in suspension or revocation of license to operate as an AMC. The need to support and fund the ASC’s efforts is indisputable. Estimates of the combined cost of state licensing and ASC registration run as high as $500,000 per year for the typical AMC. The proposed method is not proportionate to the volume of business an AMC will process. For what it’s worth, leveling the playing field for AMCs seems to be a sensible and fair approach. n
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Appr aisal
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