WorkingRE Magazine - Issue 53

Read Working RE Online – Keep up with the latest news – workingre.com

Real Est at e A pprai s ers

Summer 2020, Volume 53

APPRAISING DURING A PANDEMIC Interview with VA’s Chief Appraiser Building an Appraisal Niche: High End Appraisal Work Insurance IQ: Reading Your Policy

TAT

E OF T H PAGE

E

S

Reconsiderations of Value and What to Do About Them CORONAVIRUS SURVEY IND

14 HOURS FREE CE SEE PG. 37

Working RE 6760 University Ave., #250 San Diego, CA 92115

38

USTRY

APPRAISERS...THE PRICE IS

PREMIUMS START AT $401

PLUS: Enjoy 14 Hours of APPROVED CE–FREE Yes, you read that right. 14 hrs. of FREE continuing education is included with OREP membership— designed to help you earn more and reduce your risk in a changing landscape. Complete coverage for appraisers plus valuable business support, including free education, training and Working RE magazine. Get quoted online in minutes. Fully automated & fully staffed. OREP is here for you and your business. (Coverage varies by program, ask your OREP agent.)

SERVING APPRAISERS FOR 18 YEARS

The Experience,Support, and Service You Deserve—

RIGHT!

COMPLETE COVERAGE FOR REAL ESTATE APPRAISING I am learning so much that is helping me improve in my appraisal practice and increase the quality of my work, thus reducing my exposure to lawsuits. The education is a great complement to your insurance business. I will be back at renewal time! –Bruce Kauth

(Save $238)

COMPLETE PROTECTION, LOW RATES • • • • • • • •

Minimum Premium: $401 Free BIPD/Premises Coverage Zero Deductible Free Pre-Claims Assistance AMC Extension Coverage Free Board Complaint Consulting FREE 14 Hours of CE (Members) Coverage for Individuals, Large Firms and Trainees • And much, much more!

Endorsed by the NAA

—Over 100,000 Policies Issued

CALL TODAY • 888-347-5273 or VISIT OREP.org

OREP–Organization of Real Estate Professionals Insurance Services, LLC. Calif. Lic. #0K99465

Published by

Serving Real Estate Professionals

E&O Insurance Experts (www.orep.org) OREP–Organization of Real Estate Professionals Insurance Services, LLC. Calif. Lic. #0K99465

Summer 2020 Volume 53

4 4

From the Publisher Readers Respond

6

Appraising in a Pandemic Isaac Peck, Editor

12

Interview with VA’s Chief Appraiser Isaac Peck, Editor

16

Building an Appraisal Niche—High End Appraisal Work Isaac Peck, Editor

22 24

Insurance IQ: Reading Your Policy David Brauner, Senior Broker at OREP

AMC Licensing Law Changes Everything Isaac Peck, Editor

28 30

Reconsiderations of Value and What to Do About Them Danielle Lopez

Appraisers Speak Out: Full Bifurcated Appraisal Results David Brauner, Publisher WRE

34 37 38

Wisdom of Crowds

Scott Cullen, Solomon Adjustment Calculator

Professional Marketplace

CHECK OUT: OREP’S LIVE CHAT at OREP.org. Reach us 9 am to 8 pm EST, M-F.

Industry News

Mission

Publisher

Working RE

Working RE is published to help readers build their businesses, reduce their risk of liability and stay informed on important technology and industry issues.

David Brauner dbrauner@orep.org

Subscribe Today! Print, Premium Content, Savings

Ariane Herwig ariane@orep.org

6760 University Ave, #250 San Diego, CA 92115 (888) 347-5273 Fax: (619) 704-0567 subscription@workingre.com www.workingre.com

Editor Isaac Peck isaac@orep.org

Assistant Editor & Designer

www.workingre.com (click subscribe) Subscription included with purchase of E&O insurance from OREP. Your comments and letters are welcome!

All stories without attribution are written by the editor.

2 Working RE Summer 2020

Working RE is published quarterly and mailed to real estate appraisers, agents and other real estate professionals nationwide. The ads and specific mention of any proprietary product contained within are a service to readers and do not imply endorsement by Working RE. No claims, representations or guarantees are made or implied by their publication. The contents of this publication may not be reproduced either whole or in part without written consent.

WRE Online Opportunity (and News) Await!

Opt In at WorkingRE.com Lock-down selfie (week four).

From the Publisher

Word to the Wise

by David Brauner, Senior Broker at OREP.org

I should have told you about this already. And I know, we’ve been through a lot with the pandemic: loss of business—in some cases the tragic loss of life—as well as the simple absence of normalcy and routine, which we probably didn’t appreciate enough until it was gone—all of which probably calls for some reflection...but for now, I want to try to save you some money and some heartburn.

I know more and more of you are using independent contractors from sites like Upwork and Fiverr. Last year, we had a very unpleasant experience with a software development firm we found (and vetted) on Upwork. To make a very long and unpleasant story short: they didn’t do the work they promised to do— not even close—while blowing through the very top end of their budget by over 30 percent, and then holding us hostage when we refused to pay more.

The project was our now-completed OREP Insurance Portal on which insureds can quote and bind in minutes. (Visit OREP.org/appraiser-form)

When this mid-sized and established U.S. developer was “selling us” What they didn’t on their services and character, they divulge is that proclaimed that, of course, they do Upwork allows these what they say they will do and until we are satisfied—if they didn’t, the bad bad actors to delete reviews on Upwork would sink them. bad reviews.

Right? And sure enough, the reviews on Upwork were uniformly stellar. What they didn’t divulge is that Upwork allows these bad actors to delete bad reviews.

You’ll never see them. They protect bad actors—why? Because Upwork gets a “taste” of every job—these rogue developers are “earners.” Yes, I took that from The Sopranos.

Furthermore, when you use Upwork, you put money in an “escrow account” and agree (in the fine print) that when you “release” money to a contractor, you are acknowledging that the job is completed to your satisfaction. If the milestone is not reached before you release any money, you’re taking a risk because you have no recourse. Your payment or down payment is actually their guarantee, not yours.

For this to work, it means the contractor will have to work on spec (unfunded), which most will not. Most want some money to get started and to be funded regularly as they make “progress.” If you fund before full completion of the job or milestone, you are taking a risk. We did and it cost us a very large bundle. A savvy Googler could probably find more details on this or you can call/email me so you don’t make the same mistake with this particular developer. As more and more of you are outsourcing, this is a very serious word to the wise.

From the OREP family to you—wishing you and yours are staying safe. WRE 4 Working RE Summer 2020

Readers Respond Coronavirus (COVID-19) Discussion I am a homeowner and facing an interior appraisal for a refinance. I’m so uncomfortable with it. The bank will not allow FaceTime or photos… they insist that the interior appraisal is required. I’m seriously afraid for my family’s health as well as for that of the appraiser. We’ve been given no information about what precautions, if any, the appraiser has taken with previous homes, so who knows what they have already been exposed to. Any advice on how to get the bank to be more flexible? It is not a government-owned mortgage. Hang in there everyone and put safety first! —Kristen

 Entering occupied homes during a pandemic is dangerous. I think lenders need to adapt to loans that can be done with exterior inspection appraisals to prevent the spread of this virus. I don’t know why a homeowner would allow an appraiser to enter their home, or why lenders think it’s ok to ask us to.

—Lee Fullerton

 Hello, I am a Registered Nurse (RN), former loan officer, and Realtor® I am currently collaborating with a seasoned appraiser in Florida and assessing a way to safely do interior inspections. Through this assessment period I have considered the risk to the individual appraiser, the occupant of the property, and the possibility of cross contamination. COVID-19 is by far highly contagious, by both

droplet and airborne transmissions.

The droplets can be detected 72 hours later on hard surfaces. You can go to a property, take your pictures, leave and wash your hands. But, if the shoes you wore were not covered, and the occupant had just finished coughing and then opened the door, and you walked right through that unseen cough cloud that was sitting in the living room. Now you take whatever droplets stuck to your shoes on to the next property. Nobody wants to be the disease vector. I highly suggest you ask screening questions when setting the appointments and then call again 24 hours prior. Wear a mask, gloves, put your shoe covers on at the thresholds, and have the doors open and lights on. When you leave, take the shoe covers off prior to getting in your car, place them in a sealed bag or container, take your gloves and mask off, then wash or disinfect your

hands. It’s a lot but with habit it can be done; again don’t be the vector. If any client gets sick after you have been there and the appraisal is the only anomaly, it is not difficult to trace back.

—Christina Collins

 The majority of our clients are EXTREMELY worried about their appraisers. I do believe we have an awesome client base. The majority of our clients are completely backing us up when following the generally recommended protocol and have had one client notify customers that if the appraiser shows up and anyone presents with sick symptoms they will be charged a trip fee. Everyone please keep safe and follow the protocols. I hope that we will transition to exterior inspections with video/photo support from homeowners. —Kristin

 Appraiser’s (Changing) Role Appraisal is called a profession by many, and yet in the world of residential mortgage appraisers, it is approached as a vocation. The educational requirements are less than those of other professions, most of which require post graduate degrees or credentials. Professional appraisers are not controlled by demands of speed and cheap fees (all at the same time). Professional appraisers charge for billable hours, usually working off of an advance fee retainer. Professional appraisers tell the client what their work queue is, when they can start the assignment, and how long it will take to complete. —Steven R. Smith WRE

Summer 2020 Working RE

5

Appraising in a Pandemic

by Isaac Peck, Editor

Editor’s Note: At press time, COVID-19 is sweeping the nation posing a significant threat to millions of Americans. Due to the rapidly changing environment created by the virus’s accelerated spread, we don’t know what things will look like as you read this. But here are the issues and the struggle.

Appraisers today find themselves in

“Like everyone here I have been put in the impossible position of having to choose between the health and safety of myself and my family and maintaining my livelihood.”

unprecedented, dangerous times.

As the “eyes and ears” of the lender, the majority of appraisal assignments have traditionally required both an interior and exterior inspection of the subject property, often with a talkative (sometimes pushy) homeowner trailing close behind. But since the outbreak of the COVID-19 pandemic, the interior inspection has morphed from a routine facet of the appraisal process into a gauntlet that places appraisers, their loved ones, and even the property’s occupants in harm’s way.

The irony of this crisis, of course, is that despite the relentless push by the lending community to minimize and replace appraisers via automated valuation models (AVMs) and bifurcated appraisals, when the rubber meets the road with COVID-19, lenders and regulators continue to insist on interior appraisal inspections, never mind doing away with appraisals entirely. And it’s appraisers who are objecting to the completing interior inspections.

Even though the Government Sponsored Entities (GSEs) as well as agencies like the USDA and HUD/FHA now allow for exterior-only and desktop appraisals, in lieu of a traditional interior-inspection appraisal, interiorinspection appraisals are still the “preferred” valuation method in this pandemic (See pg. 39 for more ). More than

Isaac Peck is the Editor of Working RE magazine and the Vice President of Marketing and Operations at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 50 states.He received his master’s degree in accounting at San Diego State University. He can be contacted at isaac@orep.org or (888) 347-5273.

6 Working RE Summer 2020

just being preferred, interior inspections are being required for a number of loan types and scenarios across the lending spectrum, over the objections of many appraisers who resent having to choose between feeding their family or putting their family at risk: many wonder why the 2055 desktop appraisal is not good enough during this crisis.

Perhaps there’s a silver lining in the message this sends about the value of the appraiser’s role, however disagreeable and reckless some may believe it to be in the present moment.

Here’s a snapshot of the challenges faced by appraisers and the valuation industry as a whole.

Lender Preference Despite flexibilities that allow for alternative appraisal methods, initial reports indicate that many lenders are continuing to pursue full 1004 appraisals, including the interior inspection. That’s the good news and the bad news.

Michael Tedesco, Chief Executive Officer of Appraisal Nation, a national Appraisal Management Company (AMC), confirms that many of his clients prefer to receive an interior inspection appraisal report, even if the GSEs will accept a lesser product.

“Fannie and Freddie’s guidelines say to get a traditional interior inspection appraisal if available, so in many cases we’re ordering an interior inspection appraisal as the first order of business. Of course it is location specific.

In New Jersey or New York, I don’t page 88

Summer 2020 Working RE

7

7page 6

think anyone should be doing interior inspections, but in places like North Carolina where we’re headquartered, there is less risk because the number of cases aren’t as high,” says Tedesco.

Appraisal Nation also has a number of private lender clients that hold loans in their own portfolio, and Tedesco reports those clients are much less inclined to accept an exterioronly or desktop in lieu of an interior inspection report.

Tedesco says his firm has a procedure in place if an appraiser has concerns related to COVID-19. “If the appraiser accepts an order and doesn’t feel safe, we will go back to the lender and see if an exterior-only is acceptable, if it falls within the guidelines.

We also have a questionnaire that goes to homeowners where we ask questions about the health of the occupants, if any of those questions indicate illness, we’re not going to go into that property,” says Tedesco.

Currently, Tedesco says that less than 25 percent of his firm’s orders are exterior-only or desktops, but he sees that potentially increasing as time goes along.

Cash-Out Refinances Complicating matters further is the fact that both Fannie Mae and Freddie Mac require a traditional interior-inspection appraisal for cash-out refinances, which are quickly becoming a significant segment of the mortgage market.

While cash-out refinances represented just a small fraction of the mortgage market as recently as a few years ago, Freddie Mac’s Quarterly Refinance Report (March 13, 2020), indicates that “cash-out” borrowers—those who increase their loan balance by at least five percent, represented 83 percent of all conventional refinance loans. Freddie writes that this is the “the highest share since the third quarter of 2007.”

John Smith (name changed for privacy), a Chief Appraiser at a regional 8 Working RE Summer 2020

AMC, says that the result has been very little relief on interior inspections for refinance transactions. “When Fannie and Freddie came out with their announcement last month, we had a lender who had 600 refinance transactions in their pipeline. Out of those 600 transactions, we determined that 463 still needed interior inspections. You might disagree with it but cash-out refinancing is an American tradition. The market needs cash out refis,” says Smith.

In terms of why Fannie and Freddie are not allowing exterior-only and desktop products on cash-out refinances, Smith believes that it comes down to risk. “A lot of the purchase transactions are eligible for an exterior-only or desktop product. With purchase transactions, you’ve got a Realtor® who did a competitive analysis, a buyer looking at other homes and selecting the subject, negotiating the price, lots of MLS photos, etc. You’ve also got market exposure and the principle of competition. So I think the GSEs are thinking that they’re taking less risk with purchase transactions than with cash-out refinances. Not that the purchase price always equals market value, but on a refinance it can be a complete crapshoot,” says Smith.

Deciding Not to Inspect Like so many other appraisers, Thomas Peevler, a Certified General appraiser in Prescott, Ariz. with more than 33 years of appraisal experience, made his decision to forgo interior inspections mid-March after the first few cases of Coronavirus in his area started to become public. But what got him thinking about it was a call with a borrower. “I had a conversation about COVID-19 with an older woman who was trying to refinance her home. She told me that she was older and has a history of respiratory issues. It really got me thinking! I’m 73 and also have a history of respiratory issues, and I don’t know that I’d be comfortable going

into her house or anybody else’s for that matter,” says Peevler.

Since then, Peevler has declined all orders that include an interior inspection, which has been every order that has come his way to-date. Peevler says he still has the woman’s file on his desk and he told her that he would wait to hear from the lender to see if they would allow an exterior-only valuation. So far, he says the lender hasn’t contacted him again, suggesting that they may prefer to forgo the woman’s business rather than accepting less than a full appraisal on her property.

Peevler says that since the GSEs issued their temporary guidance on March 23, he has continued to receive from six to eight traditional interiorinspection 1004 orders every day from his clients as of this writing (mid-April).

“In the last few days I have received 15–20 orders from my AMC clients and I have turned down every single one of them. Some of my clients are a little unhappy with me for not accepting the new assignments, but none of the orders have been desktops or exterior-only assignments,” says Peevler.

As of mid-April, Peevler says the only assignment he’s worked on in the last several weeks has been the appraisal of a manufactured home that included an interior inspection, but he says he only accepted the assignment because the property has been vacant for months.

In a comment left on OREP/ Working RE’s Coronavirus (COVID19) Appraiser’s Discussion and Resource Page (March 20), appraiser Richard Hurtig expresses what many appraisers are likely feeling when faced with the choice of doing interior-inspections or being unable to provide for their families: Like everyone here I have been put in the impossible position of having to choose between the health and safety of myself and my family and maintaining my livelihood. It is absolutely insane that we are being asked to perform interior inspections in the middle of a worldwide pandemic. I can’t afford not to work so I am taking

every precaution I can: pre-inspection screening of homeowners, mask, gloves and sanitizer. I don’t even enter my house with the clothes I was wearing in the field, changing in the garage, washing them immediately and showering as soon as I get back from the field. Any one of us can be exposed in one property and then spread the virus to every other home we enter, which could literally kill someone, not to mention ourselves or someone in our family. (Visit WorkingRE.com/covid to read what appraisers are saying and join the discussion.)

Appraiser Diagnosed with COVID-19 The reality of our collective circumstances hits especially close to home when we hear that one of our own, a fellow appraiser, contracted the virus. Bryan Reynolds, a popular national appraisal instructor, owner of Fine Point Valuations, and a Partner at Appraiser eLearning, revealed via

LinkedIn that he had been hospitalized with the Coronavirus and had just been released. In an emotional six-minute video, Reynolds thanked everyone who showed him support through his recovery. Reynolds revealed that he had been quarantined alone in a hospital room, adding that he wasn’t really alone as God was watching over him, and then thanked God for his recovery.

Reynolds urged everyone to be careful, saying “it doesn’t affect some people as much as others, but it can affect some people greatly.” Reynolds revealed another gentleman who was checked in at the hospital at the same time passed away from the virus. “My heart and prayers go out to his family; I don’t even know him.”

Reynolds revealed that his daughter was also sick and is on the mend. “I promise you, you probably know someone who has been impacted by this and it’s

very, very serious. So please take it seriously and do your part,” says Reynolds.

Survey Results At the time of this writing, the OREP/ Working RE survey—Coronavirus: State of the Appraisal Industry, had over 1,800 responses from appraisers around the country. Nearly 40 percent indicate that they have stopped performing interior appraisal inspections because of the Coronavirus pandemic, with 60 percent reporting that they are still performing interior inspections while taking precautions.

Based on the survey data, it appears that many lenders have already begun allowing alternative appraisals, with the majority of appraisers, 55 percent, reporting that at least some of their lender clients are now allowing desktop or exterior-only appraisals in lieu of page 108

AIM HIGHER With Online Education from the Appraisal Institute Appraiser CE on your schedule.

• Convenient • Self-paced • Developed and taught by AI designated professionals

Find the program that’s right for you.

Book it today. Take it today.

7 and 15-Hour 2020/21 USPAP courses NOW available online.

APPRAISALINSTITUTE.ORG/AIMHIGHER

Summer 2020 Working RE

9

7page 9

traditional interior-inspection appraisals. That leaves roughly 45 percent of appraisers, like Peevler, who report that their clients are still ordering interiorinspection assignments, with no allowance for alternative products. (To read the full survey results, see pg. 38.)

With the situation rapidly developing, the adoption rate of interior-inspection alternatives is likely to increase, but will vary widely across the country depending on how many appraisers are willing to do them, along with the severity of the Coronavirus outbreak in a given locality, state laws, and even the willingness of the homeowners to allow an appraiser onto the property.

Gathering Data for Exterior-Only For those appraisers who are performing exterior-only and desktop assignments in lieu of traditional interior-inspection assignments, a number of creative methods are being used to gather information from the homeowner or real estate contact. Some appraisers are using FaceTime to do a real-time walkthrough of the property with the property occupant so they can still observe the interior of the property. Appraisers are also interviewing the homeowner and using those interview notes to make a determination about the property condition. In many cases, such practices are being encouraged by the appraiser’s clients.

To help appraisers gather critical information without entering the property, real estate technology company Clear Capital has launched

OwnerInsight, a new homeownerenabled appraisal inspection tool. The no-cost tool allows the home’s occupant to transmit information about the home as well as high-quality and images of the interior and exterior of their homes to the appraiser.

The appraiser has the ability to send a text message or email to the home occupant or real estate contact, inviting them to use the web-based application. The home occupant is then guided through questions about the property and given clear photo prompts to ensure complete and accurate results. Once complete, the report is immediately delivered back to the appraiser. The tool can also be used

by AMCs and lenders. “OwnerInsight provides critical efficiencies for lenders and appraisers to access information that is indispensable to the appraisal process, especially during COVID-19,” says Jeff Allen, executive vice president of valuation strategy at Clear Capital.

“OwnerInsight helps homeowners and appraisers avoid a cumbersome and confusing back-and-forth, trapped in email and phone calls with unclear requirements and no fraud mitigation.”

Bradford Technologies developed its own homeowner property collection tool called Onsight™, free to the industry until June 1, 2020. The tool guides the homeowner step-by-step through the information and photo collection process. The idea of using these new applications is that the more information the appraiser gathers and analyzes,

even if delivered by a homeowner, the more accurate the appraisal will be.

In other words, by going beyond the minimal requirements of a simple exterior-only or desktop assignment, the appraiser can develop a more credible value opinion.

Looking Ahead The guidelines issued by the GSEs and other government departments like HUD/FHA stipulate that the allowance for alternative products in lieu of an “interior inspection” appraisal is to be rescinded (or at least revisited) on May 17, 2020. However, it remains uncertain whether appraisers will be able to return to business as usual by May 17.

Predicting the future is impossible, now more than ever, but it’s likely that challenging times are ahead.

So far, the data shows that even in the face of a deadly pandemic, traditional “interior inspection” appraisals continue to be required in a variety of circumstances by the “powers that be,” and many lenders continue to pursue them even when an alternative report may be acceptable. In the meantime, many appraisers are still working, being very careful about the interior inspections they accept and trying to gather as much information as possible when performing exterior-only or desktop assignments.

Appraisals are an “essential service,” after all. But what a bittersweet message that is, given the risks involved.

Stay safe out there. WRE

Appraisals Are Essential Services At press time, nearly 40 states have passed Stay-at-Home orders, with many of those orders exempting appraisal services and/ or declaring them “Essential Services.” Bill Garber, Director of Government and External Relations at the Appraisal Institute, shared a State by State Report that outlines how appraisal services are classified for most states that have issued State-at-Home orders as of late March. (To read the report, visit WorkingRE.com/essential.) The majority of states provide an exemption for appraisal services. Several states, California included, cite Homeland Security/Cybersecurity and Infrastructure Security Agency’s (CISA) list of 16 Critical Infrastructure Sectors (Visit WorkingRE.com/CISA for a full list). On March 29, CISA published a FAQ titled “Guidance on the Essential Critical Infrastructure Workforce” that confirmed “Residential and commercial real estate services, including settlement services” are essential services. Currently three states, PA, NJ, and VT, have asked appraisers not to do interior inspections under any circumstances.

10 Working RE Summer 2020

VA Backs Appraisals for Vets – Interview with VA’s Chief Appraiser

by Isaac Peck, Editor

Editor’s Note: This interview took place prior to the Coronavirus outbreak At press time, in the midst of the Coronavirus lockdown, the VA has allowed appraisers broad discretion to perform exterior-only appraisals with enhanced assignment conditions that include the property’s occupant taking photographs and providing information to the appraiser.

Last June, the Blue Water Navy Vietnam

“I don’t believe it’s good for our veterans or for the VA’s program to depend on unlicensed and untrained individuals to perform such an important aspect of the valuation process.”

12 Working RE Summer 2020

Veterans Act of 2019 passed, including a provision mandating the Departmet of Veteran Affairs (VA) to allow a bifurcated appraisal process—but the story does not end there.

The provision in question took much of the industry by surprise, with some appraisers speculating that it had been added quietly in the final hour as a result of lobbying efforts by special interests. Many appraisers feared that their relationship with the VA, which has a longstanding reputation of encouraging appraiser independence and paying customary and reasonable fees—with the goal of protecting veterans, would be degraded and short-circuited by AMCs proffering bifurcated solutions.

The Bill read: “The Secretary shall permit an appraiser on a list developed and maintained under subsection (a)(3) to make an appraisal for the purposes of this chapter based solely on information gathered by a person with whom the appraiser has entered into an agreement for such services.”

However, in November 2019, the VA published guidance outlining the rules for its Assisted Appraisal Processing Program (AAPP). The VA’s guidelines surrounding bifurcated appraisals have been heralded as a common sense approach to the valuation process that allows appraisers flexibility while serving and protecting the veteran community.

Working RE sat down with James Heaslet, Chief Appraiser at the VA, to learn more about the agency’s new bifurcated appraisal rules. Heaslet is a United

States Marine Corps veteran, as well as a second generation appraiser who started as an appraiser trainee at his father’s office in 2007.

Appraisers and Trainees Only The first thing that stands out about the AAPP program is that the VA panel appraiser must contract directly with the individual performing the property inspection, as part of any bifurcated appraisal. Additionally, any person the VA appraiser contracts with to gather information is considered to be acting as an agent for that VA appraiser, with the VA appraiser responsible for paying that individual’s fees.

The VA rules also require that the outside individual contracted by the VA panel appraiser to gather information be another licensed appraiser or appraiser trainee. Specifically, that individual must be “an individual who may perform appraisal-related work in compliance with VA policies, USPAP, state, and local laws,” such as “another VA fee panel appraiser licensed in that jurisdiction, a non-VA fee panel appraiser licensed in that jurisdiction, or an appraisal trainee/apprentice registered or otherwise authorized to provide valuations in that jurisdiction.”

Heaslet says this rule was essential because the VA recognizes the experience and training that appraisers bring to the process. “Instead of looking at the subject inspection as only ‘data gathering,’ the inspection of the collateral

being appraised is actually one of the most important parts of the valuation.

We want to keep the subject inspection under the appraiser umbrella and have someone with experience and training inspecting the property. Even a trainee is getting valuation training, learning USPAP, and learning to recognize value-producing features of a home. I don’t believe it’s good for our veterans or for the VA’s program to depend on unlicensed and untrained individuals to perform such an important aspect of the valuation process,” says Heaslet.

Opportunity for Trainees The result is more flexibility for the VA’s appraisal panel as well as more flexibility for appraisers to work with other appraisers and to bring on trainees, according to Heaslet. “Working within the Congressional mandate, we’ve made it much easier for VA appraisers to bring on trainees and integrate them into their business model.

The response we’ve received from the appraisal community has been overwhelmingly positive. I’ve gotten many text messages and phone calls praising the VA for taking a step in the right direction. People have told me that they never wanted to take on a trainee, but now they are considering it. We are allowing trainees to actually inspect the properties and sign on the report, with the VA supervisor accepting the responsibility,” Heaslet says.

Some lenders are still resistant to the AAPP process but Heaslet reports that many are coming on board and will allow a trainee inspection. “We do allow our lenders to opt out of the AAPP process because we want to make sure they feel comfortable working in our space. On a positive note, we see a good mix of lenders allowing it. They are monitoring it carefully but as long as it’s a USPAP-compliant report, credible, timely, and worthy of belief, then a trainee can be part of the process. A trainee is still an

appraiser; I do find it odd that some lenders will accept a Property Data Collection (PDC) performed by an unlicensed third-party who goes into the property, but they have trouble understanding that a trainee can do the same thing,” says Heaslet.

Some states still preclude a trainee from inspecting a property on their own. Heaslet argues that it is unfortunate that some states don’t have faith in their trainees to do that kind of work, especially with some industry stakeholders pushing for unlicensed personnel to perform the PDC. “Our hope is that state regulators and lenders will take note of what the VA is doing.

Appraisers working with other appraisers and trainees goes back to the foundation of what appraisers have always been able to do since the profession began. I hope this gives the opportunity to bring new blood into our profession. It’s hard to bring people into the industry if they can’t do work. I believe this program will allow appraisers to work with Trainees and convert Trainees into Certified and Licensed Appraisers.” Heaslet says.

Primary Appraiser Responsible Another unique item about the AAPP program is that the VA appraiser remains fully responsible for all loss, damage, or other harm caused by the person who they hire to gather information. Additionally, the VA appraiser must include and sign a statement in each appraisal report that contains the following language: I participated in VA’s Assisted Appraisal Processing Program to complete this appraisal report. The final opinion of value for the subject property is based upon my supervisory status and analysis of all available information. The person who provided information to me to assist in the opinion of value is: Full name (First/Middle/Last), license number, date of expiration, state of issuance of the person.

I take full responsibility for any errors in and/ or omissions from this appraisal report.

Heaslet says that this policy is primarily about protecting the veteran in the transaction. “Our number-one mission is to take care of our veteran.

In the event someone is going into a veteran’s house, we want to be sure we understand who that person is. It would be reckless if we didn’t. We do a background check on our VA panel appraiser, and so by holding them accountable, they are putting their relationship with the VA at risk depending on who they select to go into that veteran’s home,” says Heaslet.

One of the requirements of the AAPP program is that, if questioned by the VA, the VA appraiser must provide the agency with all relevant information concerning the person they contracted with to gather information, including “a copy of the agreement and all evidence relied upon in determining that such person met the ethical and moral character requirement.” In a further effort to protect veterans, the AAPP program also stipulates that in any instance where the VA panel appraiser is not performing the inspection, they must communicate to the contact person (real estate agent, Veteran, homeowner, etc.) who is conducting the site visit and that that person is working on their behalf. Additionally, in any case where Tidewater is invoked, the VA appraiser must make a site visit to the subject property, if they had not, at no additional fee to the lender or Veteran.

Limitations and Turn Times The VA indicates that “to reduce risk of the program and to ensure quality, VA may limit the VA fee panel appraiser on the quantity of weekly appraisal assignments or on geographical areas covered.” In other words, the volume of each individual VA appraiser will be monitored and limited per the VA’s discretion as well as based on VA need and “other issues that could adversely affect Veterans, the Government, or page 148

Summer 2020 Working RE 13

7page 13

individuals who are indirectly affected

by AAPP (e.g., a homeowner who is in a contract to sell a home to a Veteran).”

Heaslet says the intent is to avoid a sweatshop environment where a single appraiser is just rubberstamping appraisals without doing the proper analysis.

“We want to ensure that we have control measures in place, while also taking into account the needs of the VA, and the geographical competence of the appraiser. For example, in the state of Montana, we don’t want a new appraiser go, sign up to service the entire state, not be geographically competent, and then hire five trainees. We believe that would be reckless, putting our veterans and our program in harm’s way. However, if an appraiser is in Montana and wants to expand from five orders a week to 10 orders a week, that helps out our veterans and it helps our program,” says Heaslet.

The VA has struggled in some rural areas where appraisers are few and turntimes long, so the hope is that these new rules will allow appraisers in those areas to scale up their businesses to meet demand. “In rural, remote areas, our new AAPP rules allow appraisers to be able to expand and provide coverage where it is hard to get appraisers to work. But it can also be used in larger cities to cut down traffic time. You can have one appraiser perform the inspection and the other do the analysis. We hope to see faster turn-times as a result of this change,” Heaslet reports.

Working with VA – Five Stars While Heaslet says that the VA is “always hiring,” they have some specific needs for panel appraisers in Maine, Colorado (southeastern areas) and parts of Montana, Texas and Alaska. “The common denominator is that all lenders are having trouble in the rural communities, but we always accept applications in all areas. We always want the best appraisers out there. Most of the applications that we get are in highly populated areas.

14 Working RE Summer 2020

We have plenty of appraisers in Dallas, Atlanta, Phoenix and San Diego; it’s the rural areas where we really need them,” says Heaslet.

In terms of why an appraiser might want to work for the VA, Heaslet says the VA has a longstanding and welldeserved, positive relationship with appraisers. “We support complete appraiser independence; that’s the cornerstone of the program. We don’t want favoritism. We put a lot of trust and faith in our appraisers to do what they do best. Once an appraiser joins our panel, it takes them a while to break out of the Fannie Mae funk, the unwritten guideline rules that everyone used to go by, like—you can’t have sales older than 180 days and you can’t go more than five or 10 miles away for a comparable. All we ask is that you give us a solid and credible reason for doing what you did,” Heaslet says.

Full Fees The direct relationship between the VA and the appraiser—with no AMC—also translates into higher fees. “We are the client and the fee goes straight to the appraiser. VA appraisal fees are some of the best in the industry and when combined with the way we treat our appraisers, this is the best program to be involved with. On top of that, you get to meet some of the greatest Americans out there. I’ve heard many stories from our panel appraisers about how they get to share time with a WW2 or Korean War veteran, and how they sometimes find themselves just listening or talking to them for 20 to 30 minutes. It’s a very enriching experience for our appraisers,” says Heaslet.

Appraisal Waivers With Fannie Mae and Freddie Mac issuing appraisal waivers on an estimated five to 10 percent of all purchase and refinance mortgages, appraisers are likely eager to hear about the VA’s

thoughts on the issue. Heaslet says that while the VA doesn’t have any immediate plans for waivers, it is something that is being explored. “One of the questions being asked is: if a veteran has a 50% Loan-to-Value (LTV), or a very low LTV, do we really need an appraisal? Why does the veteran have to pay a premium fee for an appraisal, and wait that extra time, when the risk is so low to us? One reason is that the appraisal allows us to make sure the home is safe, sound and sanitary, which is part of our Minimum Property Requirements. But we are looking at ways to better serve our veterans who are doing a refinance with a very low LTV,” asks Heaslet.

However, Heaslet insists that the VA continues to view appraisals as a cornerstone of a good loan. “The last thing we want is a veteran to be upside down in value. The cornerstone of a good loan is getting the value right. AVMs and data can be accurate sometimes, but we still put our faith in the appraisers because they are independent.We want honest values,” says Heaslet. WRE

FREE 14 HOURS

OF APPROVED EDUCATION for OREP Members ($238 value) OREP members can now enjoy these two 7-hour courses:

How to Raise Appraisal Quality and Minimize Risk (7 Hours CE) FHA Appraisal Standards (7 Hours CE) Online Coursework—At Your Convenience Shop OREP today and get free CE + Comprehensive Coverage.

See pg. 37 for details. Not approved in all states.

Email info@orep.org or call OREP at 888-347-5273 to learn more.

Summer 2020 Working RE 15

Building an Appraisal Niche— High-End Appraisal Work

by Isaac Peck, Editor

There

Even though I was only doing basic residential appraisals, I did every assignment like it was high-end work.

16 Working RE Summer 2020

has been a fair amount of doom and gloom in the appraisal industry, especially among residential appraisers. With all of the fanfare about bifurcated appraisals, as well as the fact that both Fannie Mae and Freddie Mac are now issuing appraisal waivers on roughly 10 percent of all residential refinance and purchase mortgage applications, appraisers who are currently relying on traditional 1004 appraisals for 100 percent of their work would seem to have a valid reason for being concerned.

And yet, there continues to be a subset of the appraiser community who have enjoyed success weaning themselves off residential 1004 assignments and who consistently encourage their fellow appraisers to diversify and do likewise. The path that each appraiser takes to build a diversified appraisal business and carve out their own niche varies but in each case, the diversified and/ or specialized appraiser is typically rewarded with better clients, higher fees, and more rewarding, challenging work.

Jason Fischman, SRA, AI-RRS, ASA, IFA, AGA, RAA, MNAA, HMS, GREEN and Chief Valuation Officer at Appraisal Evaluations, Inc. is one such appraiser who has developed a niche of appraising high-end, luxury property. With an office based in Beverly Hills, Fischman works right in the heart of Los Angeles’s luxury real estate market. In 2019, Fischman says he appraised more than $1.5 billion in real estate in aggregate value. Here’s

his story.

Getting Started Fischman started his appraisal career as a staff appraiser in 1989 and went on to hold a variety of senior roles at a handful of local, regional and national appraisal firms before going into business for himself in the early 2000s.

With a partner, Fischman built a profitable appraisal firm with a number of appraisers working for him. However, in 2008, as real estate values were decimated and the market came grinding to a halt, Fischman’s firm followed suit and he was forced to start over.

While running his larger appraisal firm prior to 2008, he was mainly reviewing his staff’s work and managing the office, but as work slowed he was forced to reinvent himself as an appraiser. “I ended up starting a new company in 2008 and began signing up with AMCs. I submitted my first report and got my first revision request back. The AMC sent me back eight to ten items that they wanted me to revise. I was a little taken aback at first. I had seen underwriting conditions but never something this arbitrary,” says Fischman.

However, instead of refusing to comply or swearing off AMCs, Fischman took it as an opportunity. “I saw it as an opportunity to raise my standards. I created a running checklist of things that came back with revision requests and I set a goal of not having any revision requests in a particular week, and then I’d try to go a month without a revision request, and so on. I created a list for every client, so I was really trying to

deliver on my clients’ requirements. I treated the most basic assignments like they were multi-million dollar properties,” Fischman says.

The result is that clients began noticing Fischman’s high quality of work and trusting him with highervalue assignments and more specialized work. “Even though I was only doing basic residential appraisals, I did every assignment like it was high-end work.

Little by little, reviewers and assigners noticed and I gradually began getting assignments with higher complexity and higher-end properties. There was a bit of a learning curve but as I got into it, it started to make more sense on a dollar per hour basis,” says Fischman.

High-End Niche Today, Fischman has built up another successful appraisal firm that includes an operations manager, two assistants, offshore support and six appraisers. While Fischman’s firm does a variety of work, including traditional residential mortgage work, he is focused almost exclusively on high-end, residential properties. His average appraised value is roughly $8 million, but he says he’s open to assignments ranging from $1 million to well over $100 million. “My primary coverage areas are Beverly Hills, Brentwood, Bel Air, Holmby Hills, Malibu, Santa Monica and other affluent sections of Los Angeles. My personal client list ranges from banks, hard-money lenders, attorneys, trusts, CPAs, individuals, and a handful of specialized AMCs,” says Fischman.

One of the things that Fischman likes most about the type of work that he does is the variety of the properties he gets to see, and of course, all of the features that come with high-end real estate. “Each property is very different and there are a lot of nuances in each neighborhood that I need to be familiar with. I have always been a fan of architecture and I’m always amazed

at the different styles of each property. I get to be in homes that most people only get to see on television.

It is amazing to be entrusted with that kind of high profile work. I also like the analysis part of it, trying to solve the problem. I’m very passionate about giving the client the answers they’re looking for,” says Fischman.

In terms of a typical assignment, Fischman says they do take much longer but the fees are comparatively a lot higher as well. “I spend a lot more time (comparatively) on the subject inspection and the report. The total aggregate square footage that I measured in 2019 was roughly one million. I take all the measurements on my phone using mobile software. I’ve spent five to six hours at a single property measuring a 40,000+ sq. ft. mansion. On the most complicated reports, it can take me 40 hours to complete a given assignment. Sometimes I’ll bring someone with me if the property warrants it,”

says Fischman.

While Fischman was careful not to discuss his specific fees so as not to alert his competitors, he said he believes that $100 per hour is a good target for appraisers to shoot for, and in his experience, higher is definitely possible.

Client expectations are also different from the typical residential appraisal. “Clients for this type of work want detail; they want a full understanding of what the property is and how it compares in the marketplace.

Oftentimes they will hire two appraisers, get two independent opinions of value, then reconcile the reports to make sure the obvious things are in alignment. They also expect white glove treatment. They want to get value for their dollars spent. They don’t want to chase you down for status updates.

When they send you an engagement letter, they expect you to read it. If they ask for something out of the ordinary, page 188

Available Online/from Home

7 Hours Approved CE Discount for OREP Insureds

HIGHER FEES WITHIN YOUR REACH Identifying and Correcting Appraisal Failures Richard Hagar, SRA outlines many of the most common failures flagged

by Collateral Underwriter, appraisal reviews, and AMCs and lenders; and helps you prepare for what is next.

Learn to build stronger reports that will reduce the call-backs, hard stops and the need for corrections and make your clients happy.

Hagar shows you proven techniques to help you become a “Tier 1” appraiser who can command higher fees, stay out of trouble, and get the best assignments.

Online Course $119 / 7 hrs CE

Sign up at OREPEducation.org or call 619-546-5702 Summer 2020 Working RE 17

7page 17

we deliver it. As long as it is legal, moral and ethical, we deliver what the client wants,” reports Fischman.

For appraisers hoping to get away from the 1004, high-end properties may present some disappointment. Fischman reports that many high-end properties are still done on a 1004 appraisal form.

“For very, very high-end work where the values get really up there, I typically recommend to the client that we do it on a narrative form,” Fischman says.

Some of the jumbo mortgages are sold to Fannie Mae, Fischman believes, but many are also kept in the lender’s private portfolio, depending on the size of the mortgage. “For some of the larger, customized loans being done, the lender can’t just say goodbye to it, so they definitely look at the loan and the property very carefully,” Fischman reports.

Just like when Fischman started working with AMCs, he says he still uses checklists to make sure he’s meeting all the clients’ needs. “We have a checklist for every client that we work with.

We record anything they like to see, or specific requirements. I may miss something the first time, but it won’t happen twice. The work that we’re entrusted with is a privilege, I always treat it like a privilege,” says Fischman.

Advice for Appraisers In terms of his advice to other appraisers who are looking to develop a niche or specialization outside of routine 1004 appraisal work, Fischman says it starts with doing your very best work for your clients. “In any work that I do, I always give it my best. I always approach everything with that mindset. Anytime you’re doing any type of niche work, when you receive requests for clarifications or revisions, I would look at those requests as an opportunity to improve, to communicate better and to become a better appraiser,” says Fischman.

An example that Fischman offers 18 Working RE Summer 2020

is a client he was working for around Thanksgiving 2019. “I was appraising a very high-end property, nine figures plus, and the client had some concerns and a long list of things they wanted me to discuss,” Fischman says. “I told them that we needed to get on a phone call. I went point by point and explained to them what the situation was; I followed up with that in writing, dealing with all their concerns. It was a five or six hour process, but they got the answers they were looking for. They said some very complimentary things after that and were very pleased with my work,” says Fischman.

Because Fischman gradually transitioned into his niche of high-end homes, he says he never did any proactive marketing into the space, but that once he realized that he was establishing himself in the niche, he began to promote it. “All of our marketing has been word of mouth—telling anyone who would listen—appraisers, clients and potential clients; putting it on my resume, website, email signature, and everything intended for the public eye. I use aggregate valuation when I’m talking to clients and Realtors®— I track the total value of how much real estate I’m appraising. Realtors® always talk about their annual sales volume, so when I tell people I appraised $1.5 billion in 2019, people take notice,” reports Fischman.

These same types of metrics can be translated to other types of work too, according to Fischman. “For the appraisers doing relocation work, they might talk about average variance from eventual selling price and promote that as their eventual metric. Speak in terms that the client will understand and communicate it in a way that will impress them,” Fischman advises.

Lastly, appraisers looking to expand their horizons and find higher paid, more fulfilling work should look to their own professional development

and try to be constantly learning.

“There are a lot of potential niche areas in appraising; I just have one.

Whatever you pursue, I recommend that you learn everything that you possibly can pertaining to that niche. Start with the state where you’re licensed, but always do more than what the state requires for continuing education. I do two to three times more education than the state requires. Secondly, network with other appraisers who have a similar niche, either your local competitors or maybe appraisers farther away who you can speak more freely with,” says Fischman.

One way that Fischman began networking with appraisers is by joining appraiser Dustin Harris’ Mastermind Group. “As my friend Dustin (the Appraiser Coach) says, I needed to ‘get out of my appraiser cave.’ So I started working with Dustin several years ago and he really helped me get clarity on some of the things I was doing.

He has been tremendously helpful as a coach and as a friend. I really absorbed the types of things he was doing with technology and human resources, and it inspired and helped me to build my own appraisal firm with other appraisers, office assistants, and even remote help. My business has come a long way and is thriving after working with Dustin. Networking with other appraisers and changing your perspective can work wonders in your business,” says Fischman. WRE

BUSINESS SLOWING? FIND THE BEST AMC CLIENTS QUICKLY! AMC GUIDE—OVER 200 AMCs LISTED! Discount for OREP Insureds

MONEY BACK GUARANTEE Visit WorkingRE.com/AMC or email your request to subscription@workingre.com

Thank you to the appraisers, notaries, abstractors and attorneys on our network for your unwavering support during this crisis.

We appreciate all that you do to support homeowners at a time when they need it most.

THANK YOU

TRUSTED BY THE NATION’S LARGEST MORTGAGE LENDERS Valuations | Title and Settlement Services

Visit us today: solidifi.com | Follow us on LinkedIn For a list of AMC Registration Numbers for Solidifi U.S. Inc., go to solidifi.com/registration-numbers

Your appraisal office everYwhere

Meet titan In an ideal world, you’d have your appraisal business everywhere you go. Formfilling, TOTAL settings, unlimited and secure file storage, accounting and billing — all at your fingertips. Now you do.

The Titan lineup is an integrated suite of cloud products that work hand-in-hand with TOTAL. And because Titan Reports looks and acts like TOTAL on the web, you’ll dive in head-first with no learning curve. So, whether you’re driving to your next inspection, on the road for a business trip, or relaxing with the family, your office is easily accessible everywhere you are.

Titan Office

Titan Analytics

TiTan RepoRTs

TiTan office

Our new online formfiller is the companion to TOTAL that gives you immediate access to your reports for quick edits and revisions when you’re outside the office. Simply log in from any web browser on your laptop or computer.

Streamline your office’s workflow by cutting the clutter from your back-office operations. With one tool, you’ll manage all your accounting and billing, from order generation to payment completion.

TiTan dRive

TiTan anaLyTics

Connect your files and settings across all platforms making your appraisal business available from anywhere. Auto-upload and download files between TOTAL and Titan Reports, backup your files, and recover your databases from any disaster.

Quickly and easily analyze market data and provide proof for your conclusion of value. Titan Analytics makes even the most in-depth analysis clear and concise, regardless of what type of assignment you’re working on.

ToTaL foR MobiLe

TiTan seaTs

TOTAL for Mobile is the leading appraisal inspection app.

Once integrated with Titan Drive, files uploaded from the field will automatically appear in your desktop TOTAL application, or Titan Reports in the cloud.

Assign different levels of role-based collaboration to your employees. Whether you’re assigning and scheduling orders in Titan Office, or working with a remote data assistant using Titan Drive, Titan Seats will connect you to the right person.

Titan Reports

Titan Drive

TOTAL TOTAL forfor Mobile Mobile

remarkablY powerful, shockinglY intuitive Visit www.alamode.com/titan for more information or give us a call at 866-292-0594. And be sure to download our cloud eBook at alashort.com/Titan. adcode: dpWRe1219_a1 a la mode and its products are trademarks or registered trademarks of coreLogic | a la mode technologies, llc. other brand and product names are trademarks or registered trademarks of their respective owners. all prices, terms, policies, and other items are subject to change without notice. ©2019 coreLogic | a la mode technologies, llc.

Insurance IQ: Reading Your Policy

by David Brauner, Senior Broker OREP

Why is reviewing your E&O insurance

policy important? Isn’t that my job as your agent?

Yes, it’s OREP’s job to review your policy and Declarations Page for accuracy as your insurance agent, and we do, but you can help yourself too. Let me give you a couple of real life reasons why reviewing your policy is important, no matter who your agent is.

Retro Date

Somewhere along the line, these appraisers let their policy lapse/didn’t renew in time and they lost their prior acts.

At the very least, make sure your retroactive date is correct. This concerns how many years back your coverage goes, which is important for an appraiser because claims can happen many years after the date of the report.

About three years after opening OREP I was renewing my own E&O policy, which I need to operate my business just like many of you.

Without it, I can’t do business. At that time, I had three years of continuous coverage, meaning my Retroactive Date (retro date), also referred to as a Prior Acts date, should have gone back three years, meaning my coverage should have gone back three years for all the work I did over that time. When I reviewed my own Declarations Page that year after receiving my policy, I noticed the retro date was gone!

Meaning that to the carrier, I had no back coverage. I remember verifying at the time that I had filled out my

Lock-down selfie (week four).

David Brauner is Publisher of Working RE magazine and Senior Broker at OREP, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 50 states (OREP.org). He has provided E&O insurance to appraisers for over 25 years.

He can be contacted at dbrauner@orep.org or (888) 347-5273. California Insurance License #0C89873. Visit OREP.org today for comprehensive coverage at competitive rates.

22 Working RE Summer 2020

application correctly, including my Prior Acts date. The agent made the error. I had to resend (fax in those days) the previous Declarations Page to prove my case. If I had missed their error and a claim had arisen from those prior years, it would have been a mess for me to prove I had coverage without an accurate Declarations Page. This is one reason why it pays to check your retro date when you receive your policy.

We get questions from appraisers switching to us from other agents, more often than you’d imagine, that go something like this: They say, “I’ve been with (the other agency) for ten years; I have prior acts going back that far.” But when we review their Declarations Page it may go back only three or four years.

What? Somewhere along the line, these appraisers let their policy lapse/didn’t renew in time and they lost their prior acts. When they “renewed” late (after letting their policy lapse) maybe the previous agent didn’t catch it or chose not to poke a hornet’s nest.

At OREP, we take your prior acts coverage very seriously, issuing many reminders via email and phone as your insurance expiration date approaches, to the point of annoyance for some of our insureds, I’m afraid to say (sorry). We remind our insureds frequently to renew on time, if they intend to continue appraising or risk losing their prior acts.

This is job one at OREP. You can switch to another agent/ program and keep your prior acts as long as 1) you bind your new policy before the policy expiration date and 2) the new policy includes prior acts for free, like at OREP.

Overcommunicate With insurance, if not in life, it’s best to over communicate (right?). Many of us renew our E&O without ever speaking to our agent. Many times, there is no reason to. At OREP, you submit a slot-rated application online and in five minutes you’re done for another year.

Even if the application is not slot rated and requires some underwriting, if you answer all the questions completely, the next you hear from us is the quote.

Frictionless as they say, but…

Here is another real-life scenario: an insured completed an application intending to get combination coverage for appraising and real estate sales.

This is like two policies for the price of one—a money-saving option for OREP insureds. However, because they indicated no previous or estimated future sales revenue, they got no coverage for sales. This particular application (created by the carrier) has a glitch in my view, because it had no checkbox to clearly indicate a desire for sales coverage.

One of our agents caught the mistake at renewal. When I called the insured to follow up, they indicated they had wanted coverage for both appraising and sales, just in case they did one

or two sales transactions during the year.

They thought they had coverage for sales but a year later we realized they did not. They filled the sales revenue column with zeros and had failed to communicate their wishes to the agent.

And, of course, the application was deficient because it lacked a clear “yes” or “no.” Luckily for our client, they had done no sales that year so there was nothing to worry about. We fixed the application. But this underlines why it’s a good idea to overcommunicate with any agent you transact with.

Reading Your Policy The Exclusion Portion of the policy in question reads as follows: Services performed for others in the Insured’s capacity as a(n): Real estate agent or broker; broker Leasing agent or Property manager; Auctioneer of real property; Real estate consultant or counselor; Short term escrow agent, or referral agent.

So there it is in black and white.

If the insured had read the “Exclusions” portion of the policy (what’s not covered) they would have realized right away that it wasn’t the coverage they wanted. Agents can ask the right questions; we can anticipate your needs, but we can’t read your mind.

This is not a complete list of everything to review in your policy of course.

If your name/company name is wrong, or if your coverage amount (“Limit”) or deductible is not correct, that’s important too. Getting insurance at OREP can take as little as five minutes, so you have time!

Review your policy when you get it, especially the Exclusions section, and verify your Retroactive Date at a minimum. If you have a special coverage request, let it be known up front. Thanks for reading and don’t forget that OREP provides its insureds/members with 14 hours of free risk management, approved continuing education (approved in 46 states. 21 hrs. of approved CE in Calif.). WRE

Opt In online at

www.workingre.com

60,000 Appraisers Nationwide

Breeze through FHA’s 4000.1 Requirements!

“The new FHA e-Book is easy to reference, and is a true time saver for anyone needing current and accurate information regarding HUD’s new appraisal guidelines.

It is well worth the cost compared to the time it will save.”

Make FHA appraising faster, easier and safer!

The FHA Appraiser Inspection eBook and Checklist gets you up to speed and more efficient at FHA appraising. The eBook saves you time and money by summarizing and organizing the material you need for FHA appraisals. The Checklist serves as a Field Guide for completing your reports. Used by thousands of appraisers, the new FHA Guide is ready for download now!

—Tim Herndon, SRA

Discount for OREP Insureds Money Back Guarantee!

Only $49!

Find it at WorkingRE.com/FHA or email your request to subscription@workingre.com.

Summer 2020 Working RE 23

AMC Licensing Law Changes Everything

By Isaac Peck, Editor

It really is a wish list for appraisers.

“NAR is one of the largest non-profit lobbying groups out there and they can get you in the door with your local, state, and national representatives. Politicians listen when NAR comes knocking,” says Jones.

24 Working RE Summer 2020

In April 2019, new legislation regulating Appraisal Management Companies (AMCs) took effect in the state of New York that can be a model nationwide. New York Senate Bill S9080 is widely lauded by boots-on-theground appraisers as a boon for them and consumers alike, because it includes numerous protections for both.

In the blogosphere and at conferences, appraisers are holding up the New York law as a model for other state appraiser coalitions to pursue. And there’s good reason. Some of the key provisions in the original law include: 1. Requires AMCs to comply with federal law and pay customary and reasonable fees.

2. Prohibits AMCs from removing appraisers from rotation without just cause and prior written notice.

3. Requires AMCs to pay appraisers within 30 days of appraisal delivery.

4. Prohibits AMCs from ordering a second or subsequent appraisal or automated valuation model unless there is a reasonable basis to believe that the initial appraisal is flawed or tainted and such basis is clearly and appropriately noted in the loan file.

5. Make it illegal for an AMC to “require” an appraiser to indemnify the AMC or hold it harmless.

6. Makes it illegal for AMCs to prohibit appraisers from recording the appraisal fee they receive for an appraisal assignment.

7. Prevents AMCs from including “management services” in any amount it charges the lender for the appraisal.

8. Mandates that AMCs separate

the fees they charge lenders for appraisals and “management services.”

9. Makes it illegal for an AMC to “hire, employ or engage, or in any way contract with or pay a person who is not licensed or certified as a real estate appraiser,” unless the work being performed is a comparative market analysis (CMA).

This is one provision that was “clarified” in the follow-up Amendment A8024.

One key provision of the law, that would have protected the public by requiring a licensed appraiser, was “clarified” (i.e. removed) via a follow-up amendment pushed through by the AMCs. That amendment passed the Legislature and was signed into law in late 2019.

Still, what remains of the legislation is very good news for consumers and appraisers.

Mark Schiffman, the Executive Director for the Real Estate Valuation Advocacy Association (REVAA)—the most powerful lobbying group for AMCs nationwide, says some of the provisions in the law are common and can be found in other state AMC licensing legislation, but two provisions stand out as unique to New York: (1) The requirement for AMCs to separate the fee for appraisals and “management service” and to include a copy of the appraiser’s invoice in the appraisal report, and (2) Preventing AMCs from hiring non-appraisers to perform valuation services.

Schiffman said, “Operationally, having the appraiser include an invoice in every one of their appraisal reports created a lot of challenges for appraisers and AMCs. Some appraisers aren’t accustomed to preparing invoices for AMCs. So we needed to talk to the New York Department

of State (DOS) on how to implement this appraiser requirement and how to properly disclose that information.”

The second unique provision in the NY law, that the AMCs managed to get removed, was the restriction on who an AMC can hire. Specifically, Section 160-jjjj, which states: An appraisal management company that applies for a certificate of registration shall not knowingly employ, utilize, or engage, for any real estate appraisal, valuation service or appraisal review assignment, a person who has had a license or certificate to act as an appraiser in this state or in any other state denied, revoked, or surrendered in lieu of possible discipline unless such license has been reinstated.

This restriction of who AMCs are allowed to hire has been widely read as a potential conflict with the Property Data Collection (PDC) part of hybrid/bifurcated appraisals, including Fannie Mae’s new 1004P form

(See Bifurcated Appraising for more).

Meaning, the language in this law may have prohibited AMCs from hiring a nonappraiser to do the property data collection. Amendment A8024, discussed below, made sure this part of the law was neutered.

There were concerns whether AMCs could hire real estate agents also. Rebecca Jones, MNAA is one of the appraisers who was integral to the crafting and passage of the Bill.

She says that rumors began circulating shortly after the Bill became law that Realtors® were no longer going to be allowed to perform Broker Price Opinions (BPOs). Shiffman says that REVAA went back to the New York DOS and asked for clarification. “Bill S9080 is very limiting to who an AMC could work with,” Schiffman says. “For example, a valuation provider who is also an AMC wouldn’t be able to work

with a Broker for a BPO. BPOs were being ordered in the state before the AMC law was effective, so that would have had to stop. A huge concern for AMCs, Mortgage Bankers and the Bankers Association and Realtors® in New York is how this confusing and broad restriction was going to be interpreted and enforced,” says Schiffman.

Jones says that the characterization that Realtors® could not perform BPOs is simply not true. “Shortly after the law passed, certain organizations started scaring the bejesus out of state agents/brokers, giving them my direct cell number and telling them it was my fault. When I got a call from them, I gave them the facts and information. I was able to build relationships. I only hold an appraiser license but I’m also a member of National Association of Realtors® (NAR),” says Jones. page 268

Summer 2020 Working RE 25

7page 25

After the initial confusion, the DOS in New York issued a guidance document (Guidance for Appraisal Management Companies) that explained that the law allows AMCs to: 1. Hire a real estate agent or broker to provide a BPO to provide a postfunding analysis following closure for internal review; 2. Hire a licensed real estate broker or salesperson to provide a comparative market analysis for a potential loan modification;

3. Hire a licensed real estate broker or salesperson to provide a comparative market analysis to determine the possible loss to a lender/bank; 4. Hire a licensed real estate home inspector to prepare a home inspection report under Section 444-b(4) of the New York Real Property Law; and 5. Hire an unlicensed assistant to provide clerical and/or administrative support to handle general office activities.

Jones explains that there is no mandatory licensing in New York for appraisers and that is why the law was needed in the first place. “There are pre-funding BPOs and post-funding

BPOs. The only kind of BPO that this law restricted was a pre-funding BPO. I’ve been to meetings and after discussing this with the Realtors®, not one agent or broker complained about losing business. They still can do BPOs, it’s just post-funding, not prefunding,” reports Jones. But Amendment A8024, that clears the way for non-appraisers to perform a property inspection or property evaluation, was passed regardless.

Amendment: A8024 REVAA and other interested parties got amendment A8024 passed in May 2019 for additional relief from the provision. This amendment to the original law allows AMCs to hire licensed appraisers, licensed real estate brokers/ salespeople, and licensed home inspectors to perform “a property inspection or property evaluation.” Schiffman reports that REVAA was happy with the amendment to the law but that it remains a bit more restrictive than what they would have liked. “There is still some uncertainty around the Property Data Collection initiatives of

At OREP, you can rest easy knowing that if you ever receive a state board complaint, you have an expert in your corner.

OREP Insureds/Members receive a free consultation with Bob Keith, MNAA, IFA, and Former Director of the Oregon Appraiser Board, and 25% off any consulting services if needed. Plus, you also receive a free webinar, Fighting Appraisal Board Complaints: An Expert’s Advice, presented

by Keith.

VISIT OREP.ORG TODAY FOR “A” RATED COVERAGE AND UNRIVALED PROFESSIONAL SUPPORT. OREP- Organization of Real Estate Professionals Insurance Services, LLC Calif. Lic. #0K99465

26 Working RE Summer 2020

the GSEs and where they are heading, so we would have liked more flexibility because we don’t know what the future workforce might look like,” says Schiffman.

Amendment A8024 passed unanimously by the state Congress and was signed by Governor Cuomo in December 2019.

The Realtor®/Appraiser Jones says it is important to work with your local and state Realtor® associations when trying to get similar legislation passed in your state. “NAR is one of the largest non-profit lobbying groups out there and they can get you in the door with your local, state, and national representatives.

Politicians listen when NAR comes knocking,” says Jones. “If you are an appraiser who is a member of a Multiple Listing Service (MLS), at least here in New York, you are a Realtor®. Being a Realtor® means you are a member of an organization that is there to advocate for your profession.” WRE

PUBLIC RECORD AND ON MARKET DATA NATIONWIDE ACCESS

To Property Data and Comparables

AVAILABLE ANYWHERE No software to install, accessible on any computer, laptop, phone, or tablet

DESIGNED FOR APPRAISERS More property data needed for appraisals than you can find anywhere else.

GeoData Plus has been a source of property data and comps for appraisers since 2000. Through our industry leading comparable search tool, you can easily identify the best comps for your appraisal. Public record data is aggregated, cross referenced and augmented against other data sources, to get you the data you need to complete your appraisals with confidence.

AUTOMATED UPDATES New sales, mortgages, listings, foreclosures and other updates made daily.

LOW MONTHLY SUBSCRIPTIONS Starting at $50 per month for an entire state.

Summer 2020 Working RE 27

Reconsiderations of Value and What to Do About Them

By Danielle Lopez

It is Tuesday morning and I have my day

There are procedures set in place (for reconsideration requests) that most appraisers do not even know exist.

planned and timed between reports that are due and morning inspections. I’m just about out the door when I receive an email notification for an appraisal I submitted last week. The notes indicate “Reconsideration of Value.” You know the drill, I’m sure.

Since I just completed this appraisal it was fresh in my mind. I recall the steps, time and attention to detail to locate the appropriate sales. I review my appraisal, and the unadjusted range of sales is $740,000 to $761,000, with adjusted prices of $740,000 to $756,000.

I utilized three closed sales and two active listings/pending sales to support my opinion of value. The sales comparison approach is tight, bracketed and the report has an additional forty-eight pages of supporting documentation and explanation for the reader.

I open the notes from the AMC that say: “Please review the attached sales and indicate why they were not utilized in the appraisal.” The first thought that came into my mind was that maybe I missed an integral and viable sale. The first sale I researched was in the same neighborhood but sold for $115,000 less than my opinion of value. It is important to understand that the subject is not located in a “cookie cutter” development and many of the dwellings, like my subject, are custom-built designs. Without even looking at the interior MLS photos, I immediately notice this property is inferior in quality as compared to my

Danielle Lopez is a Certified Residential Appraiser in New Jersey with 16 years’ experience.

She has been recently certified in Green Appraising and working toward her SRA designation and commercial certification.

28 Working RE Summer 2020

subject. The interior was also inferior in quality and condition of materials.

I am relieved to see that I didn’t “overlook” a viable sale, but also annoyed that I have wasted 15 minutes out of my busy schedule to prepare a rebuttal.

Most often rebuttals must be prepared on a separate Word document, and each sale in question must be explained in detail. My time is valuable and no additional compensation is granted for such time and research.

I create a new Word document and begin writing why the lender-supplied comparable sale is not considered a good indicator of value.

Before going any further, I would like to mention that the subject has a fully finished basement with a tiered seating home theater, wet bar, and an additional sitting area. The entire finished basement area was wired for surround sound to provide a theaterlike atmosphere; the lighting and the flooring reflected the same ambiance.

While the cost for the home theater exceeds the market return, it is an amenity and should be considered as it has some added value if it can be properly supported.

Next, I review the second lenderprovided sale which is on the same street as Comparable Sale 2 in the report. The supplied sale closed for $690,000 while Comparable Sale 2 sold for $740,000.

The lender-supplied comparable sale for reconsideration does not have a finished basement, while Comparable Sale 2 on the same street in the report has a finished basement and requires fewer overall adjustments. I return to my Word document and again explain why this

sale is also irrelevant, reiterating why the comparable sales in my grid supports my opinion of value.

This reconsideration of value has already set me back 30 minutes. The review and analysis of the lenderselected sales are completely irrelevant to the report and opinion of value.

Now do not get me wrong, I understand firsthand that we are human and in today’s “Amazon World” it is not unheard of to miss a viable sale. I have missed reliable sales just because the real estate agent did not properly geocode in the MLS, so when I did my initial map search it did not show all of the results. It happens and when it does I am more than happy to review the new data and add it to the report to further support value, or in some cases to reconcile a new value.

Let’s recall that the Dodd-Frank Act that was passed on July 21, 2010. I felt at that time this was quite needed to reduce and/or eliminate lender pressure. For a short period of time thereafter the number of requests for Reconsideration of Value had decreased. But today, more than nine years after this Act was passed, I am finding an increase in Reconsiderations of Value. In a time where the word collusion is part of most political statements I feel that appraisers are once again experiencing collusion in the form of lender pressure as most markets are increasing and house flipping is on the rise.

Under (Lender) Pressure The Dodd-Frank Act is not the only regulation that was put into place to protect the appraiser but also Fannie Mae Lender Letter FNMA LL 2015-02.

This letter states: “Before asking the appraiser to consider any alternative sales, it is imperative that the lender analyze the relevance of the sale and determine if the use of such sale would result in any material change to the appraisal report.”

There appears to be two issues.

The first is lender pressure and the second is the relevance of the sales suggested by the lender.

Since Fannie Mae began implementing the Collateral Underwriter (CU) I have also noticed an increase in requests for Reconsideration of Value.

CU is a web-based dataset that scores and provides possible overlooked sales within certain parameters. It is a tool to assist in verifying the quality of an appraisal. However, I feel some lenders have either become lazy or abuse this tool and do not do their own due diligence to determine the validity of the suggested sales. The problem begins when the sales suggested are not relevant to the appraisal report.

This is becoming a nuisance to all involved. It will in turn take the lender and borrower longer to close, and the appraiser is losing valuable time and money due to unnecessary research and analysis.

Has the banking industry forgotten that one of the primary principles of USPAP is public trust? Our signed certification in the 1004 attests that we “selected and used the best comparable sales that reflect the market’s reaction to the differences between the subject property and the comparable sales” and that we “have knowledge and experience in appraising this type of property in this market area.” Is our industry losing public trust or do lenders not understand there is also a process and steps they must take before handing off these reconsiderations?

What You Can Do So what can appraisers do to minimize these costly and time-consuming reconsiderations of value when the comparable sales supplied in the appraisal report are legitimate and pertinent to the analysis?

We must start by enforcing and reminding the requestor to submit these reconsiderations properly in terms of

FMNA Guidelines and even the VA Tidewater guidelines. It shouldn’t be as simple as sending over three to six comparable sales and forcing the appraiser to explain why he/she omitted these sales in the initial report. There are procedures set in place that most appraisers do not even know exist; they simply go along with the lender request to satisfy the needs of the client. The requestor must follow these rules: • No more than three sales.

• The requestor must explain why these sales are more applicable than the ones in the report and they must include a grid.

• They must attach supported docu- mentation/verification such as MLS sheets, maps and tax records.

I have received several reconsideration requests in the past with only one having an attached grid because most requestors neglect attaching the supporting documents. It almost seems too easy for them to do a quick search or use CU and send over these requests just so they cover their risk.

As a result, the appraiser spends valuable time answering pointless requests from the client while the sales are not even pertinent to the appraisal.

Appraisers must start to enforce Fannie Mae’s CU procedures before completing an absurd reconsideration of value. In addition, the appraiser should be compensated for his/her time.

Appraisers should start to set a fee for each comparable sale requested in the reconsideration because time is money.

If the appraiser overlooks a relevant sale that impacts the opinion of value, the appraiser should waive the fee.

If appraisers make it a business practice to enforce this procedure, lenders would rethink frivolous reconsiderations of value and over time, appraisers would see a reduction of this type of revision from the clients. WRE

Summer 2020 Working RE 29

Appraisers Speak Out: Full Bifurcated Appraisal Results

By David Brauner, Publisher WRE

In addition to the 4,000+ survey responses, over 2,000 appraisers took the time share their perspectives on this important issue.

Over 4,000 appraisers have participated in the OREP/Working RE Bifurcated Appraisal Survey to date. In addition to the 4,000+ survey responses, over 2,000 appraisers took the time share their perspectives on this important issue. Taken together, the results provide valuable insight on how this particular valuation innovation is perceived by the professional residential appraisers who currently specialize in this type of work.

While the Federal Housing Finance Agency (FHFA) has paused the testing and development of bifurcated appraisals that forgo the participation of licensed appraisers (Visit WorkingRE. com; search FHFA Puts Brakes on Fannie’s Bifurcated Program), Fannie Mae continues to test its bifurcated model that includes third-party, unlicensed inspectors.

In the last few years, we’ve heard from Fannie Mae and other advocates of the bifurcated appraisal model, but who better to ask than the boots-onthe-ground appraisers who are in the field, facing these issues every day.

Survey Responses Question 1: Have you done a bifurcated appraisal assignment as the Appraiser Analyst?

Yes Yes

17.21%

30 Working RE Summer 2020

82.79% 20% 20%

Yes

5.37%

No

94.63% 0%

20%

40% 40%

60% 60%

80% 100% 80% 100%

40%

60%

80% 100%

Question 3: Will you consider future assignments as the Appraiser/Valuation Analyst only?

24.98%

Yes

75.02%

No 0%

20%

40%

60%

80% 100%

Question 4: Will you consider future assignments as the Property Data Collector only?

Yes

25.39%

No

74.61% 0%

20%

40%

60%

80% 100%

Question 5: If the Property Data Collector/ Inspector is always a licensed Appraiser or Appraiser Trainee, would you be more likely to consider future assignments as an Appraiser/ Valuation Analyst only?

40.55%

Yes

No No 0% 0%

Question 2: Have you done a bifurcated appraisal assignment as the Property Data Collector?

59.45%

No 0%

20%

40%

60%

80% 100%

Question 6: Please select the reasons for not accepting assignments as the Appraiser/Valuation Analyst only: Liability concerns related to incomplete or inaccurate data from the property data collector.

78.69%

Difficulty in credibly appraising a property that I haven’t physically inspected myself.

73.89%

Inadequate fee for the amount of work.

70.23%

Difficulty in credibly appraising a property where I haven’t driven the neighborhood, and/or the comparable sales, due to the possibility of an unreliable market analysis and/or other factors.

70.14%

65.16%

Believe it’s bad for the profession.

Compromised geographic competency and comparable sales selection in the absence of field work.

55.05%

9.56%

N/A, I am open to assignments as the Appraiser/Valuation Analyst only.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90% 100%

Question 7: Please select reasons you will not consider assignments as the Property Data Collector only: Inadequate Fees.

71.82%

Believe it’s bad for the profession.

62.07%

Potential Liability.

56.71%

N/A, I am open to assignments as the Property Data Collector.

13.64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90% 100%

Question 8:Which do you agree are possible benefits of Bifurcated Appraisals?

N/A, there are no benefits to Bifurcated Appraisals.

Inadequate Fees.

71.82% 71.04%

Speed and cost advantage forgo Believefor it’sclients bad forwho themight profession. an appraisal otherwise.

62.07%

20.81%

Opportunity for appraisers to embrace advanced technology and Potential computer analytics that will be essential for Liability. them to remain relevant.

56.71%

12.26%

N/A, I am open assignments as the analytical Property Opportunity for appraisers to to focus on higher-level Data Collector. appraisal skills.

8.02% 13.64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90% 100% page 328

Summer 2020 Working RE 31

7page 31

Question 9: Do you believe that appraiseranalysts who do not visit neighborhoods/ properties are in danger of losing their ability to produce credible reports over time due to a loss of familiarity with markets, neighborhood influences and/or other factors?

Yes

88.80%

No

11.20% 0%

20%

40%

60%

80% 100%

Question 10: Do you believe that the bifurcation process will speed appraisal turn times?

19.10%

Yes

80.90%

No 0%

20%

40%

60%

80% 100%

Commentary Nearly half of those who completed the three-minute survey were compelled enough to leave comments after completing the survey—you can find a link to the comments below.

The commentary overwhelmingly suggests that appraisers believe that the bifurcated model and the use of unlicensed, untrained and unaccountable contractors for key elements of collateral assessment will adversely affect the health and welfare of the housing finance system, increase their own liability and damage the public trust. The vast majority of appraisers taking the survey say they don’t want any part of it.

Read over 2,000 comments from appraisers at http://www.workingre.com/ orepwre-bifurcated-appraisal-surveyappraiser-comments/. WRE

OREP/Working RE Coronavirus (COVID-19) Discussion and Resource Page To help appraisers stay up-to-date and connected, OREP/Working RE has established the Coronavirus (COVID-19) Discussion and Resource Page where you can share your thoughts, experiences, advice and challenges with fellow appraisers.

Join the discussion at WorkingRE.com/COVID

STRONGER TOGETHER.

If You’re NOT Saying Something Like This to Your Insurance Agent...

18 years, over 100,000 policies issued…

Today, Stronger than Ever.

for the speedy service. You guys are top notch!

—Scott H.

You’re probably NOT with OREP! “I was a long time (another E&O program) client and recently switched to OREP. I had fully intended to stay with (competitor), but their renewal process this year was frustrating, slow and unresponsive. OREP was quick and proactive. They were also significantly cheaper. Like all insurance one maybe never really knows who is ‘best’ as no one ever hopes to use them, so knock on wood, but a number of appraisers I know and respect use OREP so why not give them a try.”—Rob Bobkin

Visit OREP.org Today!

888-347-5273 • info@orep.org • California Insurance License #0K99465 32 Working RE Summer 2020

(Enjoy 14 Hours Free CE)

Take some time for yourself Build Your Appraisal Skills and Advance Your Career with Cutting Edge Continuing Education.

If you only take one class this year, make it this one.

Appraisal Adjustments II: Solving Complex Problems 7 Hours of CE - $119 - (OREP Members: $99)

By Richard Hagar, SRA Appraisal Adjustments II dives deeper into regression analysis, matched-pair, and “big data” approaches to value. Richard Hagar shows you how to solve complex adjustment issues using proven, real-world techniques.

Additional Coursework (7 Hours CE): • How to Support and Prove Your Adjustments • FHA Appraisal Standards • How to Raise Appraisal Quality and Minimize Risk • Identifying and Correcting Appraisal Failures

• USPAP and Lender Requirements for supported adjustments and how classifying and bracketing the subject’s important components can lead to superior appraisals.

• Mathematical terms that are applicable to the adjustment process and measuring the market’s response to various market components.

• How to Measure the quality of the output derived by the process.

• How the order in which adjustments are made impacts adjustments and the final value conclusion.

• Matched-pair analysis even when properties are less than the “perfect” pair for comparison.

Online courses that never expire, take at your convenience!

Sign Up Today at

OREPEducation.org

(619) 546-5702

Wisdom of Crowds

by Scott Cullen, Solomon Adjustment Calculator

In their book “Survey Methodology”

- Second Edition (John Wiley & Sons, Inc. 2009), the authors describe how the Bureau of Labor Statistics (BLS) gathers, analyzes and disseminates two numbers that reverberate through the economy. On the first Monday of each month, the BLS releases the unemployment rate and jobs count.

Within an hour, trillions of dollars move in and out of markets around the world because decision-makers believe numbers that are based upon survey data.

“Survey Methodology” was written to address the question of when survey data is credible and when it is not. It is my goal to apply credible survey methods to the field of residential appraisal.

In January 2020, I completed an appraisal of a single family residence in an older part of St. Paul, Minnesota where I work as a Certified Residential Real Estate Appraiser. The subject is 108 years old, has newer siding and windows and fits well into the neighborhood.

This was not a “cookie cutter” assignment. There are no model matches, and after 100 years of occupancy and fighting the elements, there is wide variation in the condition of houses in the comp pool. After refining the comp pool, shooting exterior photos and viewing interior photos, I was ready to load the grid and work methodically toward an indication of value.

I used the depreciated cost method to develop adjustments for GLA, bath count, basement size, basement finish, porch and garage count. I used survey data as a basis for location, quality, condition and bedroom count adjustments.

The properties shown are Comp 4 under contract at $200,000 and Comp 5 which was active at $180,000. Notice the adjusted sale prices of $183,100 and $184,500. The difference is $1,400 which is less than one percent.

It seems as though the adjustments work together to explain the difference in the adjusted values of these two properties. I use the term “value” loosely because these are not closed sales. At the time these properties were on the market, buyers were paying 100 percent of original and final list price (Chart 1).

When we look at the closed sales used as Comps 2 and 3 we find similar results. I adjust seller concessions in this market because concessions never occur in cash transactions, and they frequently impact the offers that buyers make to sellers (Chart 2).

The only adjustments based on survey results are bedroom count. The reason they differ is that Comp 2 sold for $175,000 and Comp 3 sold for $207,250. As I state in the Summary of Sales Comparison Approach, “Other adjustments are developed from survey data as a percentage of sale price.”

Scott Cullen is a Certified Residential appraiser from Eagan, MN who is a partner in the development of the Solomon Adjustment Calculators, designed to quickly evaluate the tradeoffs encountered by residential appraisers, including the depreciation / site value dilemma.

There is a free 14-day trial and you are welcome to contact me for a demo over the phone using live examples from your market: www.solomonappraisal.com.

34 Working RE Summer 2020

Survey results and depreciated cost adjustments narrow the range of adjusted values.

Prior to adjustment, the difference is $32,250 ($207,250 – $175,000).

After adjusting for concessions, cost categories and bedroom count, the difference is $550—much less than one percent (Chart 3, page 36).

Do these adjustment techniques always work this well? In a word, no. There is no perfect adjustment method. But the results are helpful in moving our analysis in the right direction. Here are the subject and Comps 1-3: the range of adjusted sold values is $180,500 to $194,050 or $13,550, which is over seven percent. The subject was under contract at $181,900 with concessions of $5,457.

In the Summary of Sales Comparison Approach I wrote: “GLA is reconciled between MLS and assessor data. Comps 4 and 5 are the most similar competing properties not adjusted for sales / list ratio per the attached MLS charts. Adjustments for building characteristics are developed with the depreciated cost method.

See Adjustment Calculations and the Depreciated Cost Adjustments summary attached. Other adjustments are developed from survey data as a percentage of sale price. The opinion of value is developed within the range of adjusted sales price of the comparables at the level of support found in the competing listings.”

If the adjustments worked perfectly, all five comps would have adjusted to the same number. My opinion of value was $183,000, low in the range, but supported by the currently competing comps which adjusted to $183,100 and $184,500.

Survey results and depreciated cost adjustments narrow the range of adjusted values. Together they work well to move us toward a well-supported opinion of value. Over the past two years I have had similar results time after time to the extent that I want to tell the story of developing sales grid adjustments with survey results.

Chart 1

Wisdom of Crowds My interest in the survey method began with a television program called Brain Games. As I watched with my two youngest children, 20 volunteers were asked to estimate the number of gumballs in a large gumball machine. Their estimates were recorded, totaled and divided by twenty. The estimates range was from 100 to 11,986. The average of all the estimates was 2,425 gumballs.

The actual number of gumballs was 2,447 which is within one percent.

This got me interested in learning more about a phenomenon called the Wisdom of Crowds. The best presentation I have seen is by Marcus du Sautoy, a British mathematician, author and public advocate of science and mathematics. His credentials include the Simonyi Professorship for the Public Understanding of Science at the University of Oxford. His five-minute video was produced by BBC. (Visit www.WorkingRE.com/wisdom to watch the video.)

Du Sautoy tells the story of Sir Francis Galton and his discovery of what has become known as Wisdom of Crowds. Galton’s contributions to science are far reaching so we will focus on only a few in the field of statistics.

Questionnaire: Galton was the first to use a questionnaire to document survey results.

Chart 2

Standard Deviation: The concept that two sets of data may have the same mean value, but could differ in their variation around that mean. page 368

Summer 2020 Working RE 35

7page 35

Chart 3 Regression: Galton was first to use the regression line and chose the letter “r” to represent the correlation coefficient.

Wisdom of Crowds: The setting for Galton’s discovery was a livestock fair.

An ox was on display and people were buying tickets to enter a contest to guess the weight of the slaughtered ox carcass.

Estimates of the weight were written on the tickets. The tickets were seen

by Galton as a survey questionnaire.

The idea of the contest organizer was to award the prize to the person who most closely estimated the actual weight of the carcass.

Galton had a different idea. He had a scientific experiment in mind for the tickets. He wanted to prove that commoners were not able to guess the weight of an ox carcass, much less 36 Working RE Summer 2020

manage the affairs of society. The politics of Elizabethan England included debate about preserving the monarchy in a world that was seeing the emergence of democracy. He proved his hypothesis. Nobody could estimate the weight of the carcass. But Galton was a scientist who didn’t end his inquiry when there was the possibility of learning more from the results of the survey. His analysis showed that the “middlemost estimate expresses the vox populi” (voice of the people). Every other estimate was either too high or too low, as judged by the majority of those who participated. Middlemost is another way of saying median, which is a term also originated by Galton.

The middlemost estimate was 1,207 pounds. The actual weight of the ox carcass was 1,197 pounds. This is within one percent. Upon further

analysis, Galton found the mean of all tickets to be 1,197 pounds. Zero error!

I have tried to follow Galton’s example of Wisdom of Crowds to develop survey-based adjustments for features unrelated to cost such as bedroom count and influences, such as busy road, backing to a freeway, power lines, rail tracks and pipeline right of way. I have to admit that I want the survey method to work. It saves lots of time in the appraisal process. To guard against bias, I want to remember this quote from the Bureau of Labor Statistics website.

“Is the glass half empty or half full?

At BLS we see an eight-ounce glass containing four ounces of fluid.”

In keeping with this quest for objectivity I have studied the work of James Surowiecki. In his book “The Wisdom of Crowds,” Surowiecki lists four conditions page 408

Professional MARKETPLACE CHECK OUT: Insurance Services, LLC California License #0K99465

OREP’S LIVE CHAT at OREP.org. Reach us 9 am to 8 pm EST, M-F.

Free BIPD, Zero Deductible Appraiser E&O Insurance: Save with OREP If you’ve been with the same E&O provider for years (and years) expecting that you still enjoy the best rates and coverages available, you may not. OREP has been serving appraisers over 18 years and now is the best time to shop. Many appraisers save with OREP—sometimes $100 or more. And now OREP is offering 14 hours of free continuing education to its members, saving OREP members over $200. Available in most states, OREP members can enjoy 14 hours of free ONLINE CE. Call us now—we answer the phone! (888) 347-5273.

Valuable Support: OREP members enjoy Working RE magazine, over 10 Hours of Free Training Webinars, discounts on the new FHA Checklist and eBook, the AMC Guide, the Expert’s Guide to a Defensible Workfile, and more! Each is designed to help you grow your business and sharpen your skills. OREP members save!

Combine E&O: Appraiser and RE Sales One low premium covers both your appraising & sales/brokering work. Pay for one policy instead of two. Visit OREP.org for details or call (888) 347-5273. WRE

Like us on Facebook Coverage for AMCs: Many national AMCs are finding the comprehensive and affordable E&O coverage they need at OREP. Call OREP for more: (888) 347-5273. $10,000 Life Insurance Included OREP insureds in California enjoy group access to several medical plans, including certain Kaiser Permanente and Anthem Blue Cross plans. The group plans provide benefits not available to individuals, plus a $10,000 life insurance policy is included at no extra cost. If you are a California resident and an OREP insured please email info@orep.org for more information.

Beware Deceptive Emails OREP insureds and all appraisers are cautioned to be on the lookout for deceptive email solicita­tions to “renew” their E&O insurance from any source other than OREP (or your agent of record if not OREP). This is true even if you recognize the name of the person/sender in some cases. OREP insureds are advised to only respond to insurance renewal solicitations with an email that ends in OREP.org. Any email you receive from other third-parties that reference your insurance renewal is potentially fraudulent and malicious. Appraisers should be careful to only open email and attach­ments from trusted sources. If you are an OREP insured and receive such an email solicitation, please disregard and forward to info@orep.org for further action. WRE

OREP Offers Free Risk Management Continuing Education for Members (14 Hrs./most states) OREP, a leading provider of appraiser insurance nationwide, announces two free continuing education courses (14 hours of approved CE) for OREP members, designed to help them improve their professional skills, lower their liability risk and protect their businesses. OREP members now enjoy the following online courses FREE:

How to Raise Appraisal Quality and Minimize Risk (7 Hours CE) Presented by: Tim Andersen, MAI Learn the common charges brought against appraisers, with real world examples of specific civil and regulatory cases. Andersen shows you how to avoid potentially risky situations with time-tested steps to “bulletproof” your appraisal reports and workfiles. Learn proven techniques to protect yourself from state regulators and plaintiffs, while reducing your liability and exposure.

FHA Appraisal Standards (7 Hours CE) Presented by: Lore DeAstra, MBA, MRICS, SRA, CDEI Lore DeAstra unpacks the LATEST 4000.1 FHA Standards and shows you what to look for on an FHA appraisal, including how to handle complex assignments and the forms to use for unusual situations.

“OREP has always been committed to providing its members with the latest news, information and risk management education via Working RE, so offering free continuing education is a natural next step for us,” said David Brauner, Senior Broker at OREP. “We chose veteran appraisers and renowned authors and educators to share with insureds their proven and effective strategies on how to limit liability, follow appraisal standards and protect themselves. The benefit for our members is twofold—it makes them more careful, more successful appraisers and lets them keep a little more hard-earned money in their pockets, saving them over $200 in education costs.”

Details The classes are online, allowing appraisers to take the coursework at their convenience.

Current OREP members, please email info@orep.org for enrollment details. Appraisers interested in OREP membership can visit OREP.org for low rates, broad coverage and free CE! OREP.org: 888-347-5273. Courses not approved for CE in all states.

OREP members also enjoy guaranteed delivery of Working RE magazine, discounts on approved continuing education (find bundles up to 39 hours at OREPEducation.org), free consulting on how to effectively handle state board complaints from Bob Keith, former Executive Director at the Oregon Appraisal Board, and much more. WRE

Summer 2020 Working RE 37

Industry NEWS

Coronavirus: State of the Appraisal Industry At press time, over 1,800 appraisers have participated in the OREP/WRE Survey—“Coronavirus: State of Appraisal Industry,” which is still open. Also available is the OREP/Working RE Coronavirus (COVID-19) Discussion and Resource Page. Visit WorkingRE.com/covid to read what appraisers are saying and join the discussion.

1. Has your appraisal business slowed 20% or more overall due to the Coronavirus?

42% - Yes 40% - No 18% - No, Business is Increasing 2. Have you stopped performing interior appraisal inspections because of the Coronavirus pandemic?

40% - Yes 60% - No 3. What precautions are you taking in light of the Coronavirus pandemic?

(Select all that apply) 58% - Wearing gloves, mouth cover, and other protective gear while performing inspections 36% - Calling ahead to homeowner/Realtor® and requesting that no one be in the house while I’m inspecting 33% - Stopped performing any interior inspections 26% - Seeking review, desktop, and remote assignments 5% - None, it’s business as usual 4. What percent of property occupants are refusing to let you on the property?

53% - None, everyone is accommodating 15% - 5% of property occupants 6% - 10% of property occupants 8% - 10%–25% of property occupants 7% - 25%–50% of property occupants 10% - 50%+ of property occupants 5. How do you expect the Coronavirus to affect the Demand for Appraisal Services over the next 6–12 months? Do you think the demand for appraisal services will: 30% - Decline Slightly for a few months but will return to normal by the summer 24% - Decline Significantly due to “Shelter in Place” advisories and a frightened public 16% - Remain steady 19% - Increase due to lower interest rates 11% - Decline Drastically: we’re headed for a recession 6. Are your lender clients allowing Desktop or Exterior Appraisals in lieu of traditional (interior inspection) appraisals?

55% - Yes 45% - No Share your experience and feedback by taking the survey today! Visit WorkingRE.com/ COVIDsurvey to take the survey. WRE

38 Working RE Summer 2020

+ OREP Endorsed by National Association of Appraisers (NAA) OREP, a leading provider of appraiser E&O insurance nationwide, has been endorsed by the National Association of Appraisers (NAA) as the preferred provider of E&O insurance for NAA members. OREP is the proud publisher of Working RE magazine and has served real estate appraisers’ insurance needs for over 18 years.

The NAA is an appraiser organization with over 2,000 Members dedicated to uniting appraisers for the purpose of exerting a beneficial influence upon the profession and advocating for appraiser interests. “I feel very comfortable with our first alliance of this kind because the focus of both organizations is the same—supporting and helping appraisers,” said OREP/WRE founder and Senior Broker, David Brauner. Craig Morley, 2019 President of the NAA, says, “We are pleased to have OREP working with NAA to provide information, education and professional liability insurance (E&O) to our membership.

NAA is an association that is intended to be a low-cost professional association that likewise provides information to its members and representing our membership at both a state and national level in an effort to benefit the typical appraiser.” WRE

Federal Banking Agencies Defer Appraisals for 120 Days On April 14, the federal banking agencies (the Agencies), which include the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, issued an interim final rule to temporarily defer real estate-related appraisals and evaluations under the Agencies’ interagency appraisal regulations. The Agencies write that such a move is necessary to address “challenges relating to appraisals and evaluations for real estate related financial transactions affected by COVID-19.”

Instead of waiving appraisals outright, the Agencies are deferring certain appraisals and evaluations for up to 120 days after closing of residential or commercial real estate loan transactions. In other words, lenders would still be required to obtain an appraisal performed to USPAP’s standards, but would be able to close the loan and order the appraisal after the fact.

The Agencies’ guidance applies to all “federally related transactions” as per FIRREA, but the actual effect it will have on the appraisal industry will be minimal. This is because all loans sold to or guaranteed by Fannie Mae, Freddie Mac, FHA/HUD, and the VA are all exempted from FIRREA and operate outside of the Agencies’ requirements already. In a report issued by the Agencies in December 2018, they estimated that over 91 percent of all mortgages originated in the United States are not subject to the Agencies’ current appraisal requirements. However, the shift in policy does indicate the key decision makers within the Federal Government are paying attention to the appraisal industry and the challenges appraisers are facing.

The Interagency Statement that was issued quotes a recent FAQ issued

Fannie, Freddie Respond to COVID-19 As COVID-19 spread rapidly across the country in early March, appraisers began ringing alarm bells regarding interior inspections, arguing that it placed both themselves as well as the property’s occupants in harm’s way. It took regulators weeks to respond, but on March 23, Fannie Mae and Freddie Mac issued guidance that allows for desktop and exterior-only appraisals in a variety of circumstances when a traditional “interior inspection” is not feasible because of COVID19 concerns. The Department of Veteran Affairs (VA), the Department of Housing and Urban Development (HUD/FHA), and the US Department of Agriculture (USDA) all followed suit on March 27, issuing guidelines with their own set of standards and requirements for appraisers to follow. However, traditional interior-inspection appraisals are required in a number of circumstances. For example, Fannie Mae still requires a traditional appraisal for all cash-out refinances, all limited cash-out

by Appraisal Standards Board, which indicates that “when an interior inspection would customarily be part of the scope of work, a health or other emergency condition may require an appraiser to make an extraordinary assumption about the interior of a property.” The Agencies’ highlight the allowance for exterior-only and desktop products that Fannie Mae and Freddie Mac have implemented and remind lenders that “Both desktop appraisals and exterior-only appraisals can fulfill the requirements of USPAP as long as the analysis is credible.” WRE

Quality Coursework Wanted OREP Education is conducting a national search for quality education coursework to add to its roster. The course should be current, top–notch and designed for online delivery. Please email Isaac Peck at Isaac@orep.org or call 888-347-5273. WRE

Trainee E&O Now Added Seamlessly OREP now offers coverage for trainees as an inexpensive, checkbox add-on to its E&O program. This keeps the coverage simple, quick and inexpensive.

Also available is third party coverage for AMCs—also at the click of a checkbox. Please call OREP with any questions or visit OREP.org/appraisers.

You can call 8–5 PST 888-347-5273. WRE

refinances where the loan is not currently owned by Fannie, and all purchases of second homes where the LTV is higher than 85%.

Freddie Mac will continue to require traditional appraisals for cash-out refinancing of investment property, for no-cash-out refinancing of investment property where the mortgage is not already owned by Freddie, and for purchase of new construction. FHA requires a traditional FHA appraisal interior inspection on new construction, construction to permanent, and 203(k) purchases. In terms of appraisal waivers, Working RE asked Fannie Mae to clarify whether it will be expanding the use of appraisal waivers in response to Coronavirus, and a Fannie representative directed us to Fannie’s March Lender Letter, bolding this section for emphasis: “We are continuing to monitor the impact of COVID-19 and will evaluate additional appraisal waiver flexibilities if the situation warrants such action. For their part, HUD/FHA, VA, and USDA are not currently offering any appraisal waivers in response to COVID-19. Freddie Mac, however, announced that they will expand eligibility for their automated collateral evaluation (ACE)

appraisal waivers to include certain cash-out and no-cash-out refinances. All no-cash-out refinances of primary and secondary residences where the LTV is equal to or less than 90% will now be eligible for an appraisal waiver. And cash-out refinances of a primary residence with an LTV equal to or less than 70%, and secondary residences with an LTV equal to or less than 60%, will also qualify for a waiver. A senior official at Freddie Mac cautioned Working RE when interpreting these numbers, saying, “there are a LOT more factors that go into a waiver offer; these percentages only show a small sliver of what is considered.” WRE

Appraisal Management Companies Find Your Bonds and E&O Insurance Here Complete Coverage, Competitive Rates

OREP.org / info@orep.org (888) 347-5273 (toll free) California Insurance License #0K99465

Summer 2020 Working RE 39

7page 36

that characterize wise crowds. Each of these conditions must be met in order to have credible survey results.

“The (stock) market was smart that day because it satisfied the four conditions that characterize wise crowds: 1) diversity of opinion (each person should have some private information, even if it’s just an eccentric interpretation of the known facts), 2) independence (people’s opinions are not determined by the opinions of those around them), 3) decentralization (people are able to specialize and draw on local knowledge), and 4) aggregation (some mechanism exists for turning private judgments into a collective decision).

If a group satisfied those conditions, its judgment is likely to be accurate.

Why? At heart the answer rests on a mathematical truism. If you ask a large

enough group of diverse, independent people to make a prediction or estimate a probability, and then average those estimates, the errors each of them makes in coming up with an answer will cancel themselves out. Each person’s guess, you might say, has two components: information and error.

Subtract the error and you’re left with the information.”

Diversity of opinion, independence, decentralization and aggregation. These are the four characteristics at the core of the surveys I have originated over the past few years. The aggregation mechanism is a website designed for this purpose called PeerConsensus.com. Presently, the website archives a wide range of surveys of appraisers. The results have been very useful to me and hundreds of others. But it would be more credible

to have surveys of market participants like agents.

I cannot imagine a more willing survey participant than the listing agent who gives you access to the house you have been assigned to appraise. You are their new best friend in the real estate business! At least long enough for them to fill out a quick survey.

Over time, my hope is to develop surveys of real estate agents. Localized surveys will become possible as participation grows. Growth depends upon the usefulness of the survey results and how many people are helped by them.

I believe that Galton’s example can be useful, just as his other innovations have proved to be: median, standard deviation, regression, and the questionnaire. All from the prolific mind of Sir Francis Galton. WRE

50% SOFTWARE DESIGNED TO SAVE YOU TIME

SALE

OFF

SIDEKICK

Use code 50OFF

SAVE TIME WITH GRID ADJUSTMENTS USING SIDEKICK Depreciated Cost Adjustments

Survey Based Adjustments

Enjoy peace of mind with adjustments supported by recognized methods and licensed cost data

BONUS:

FREE crash course on Depreciated Cost Analysis.

PURCHASE SIDEKICK:

SolomonAppraisal.com/Sidekick 40 Working RE Summer 2020