Working RE Magazine - Issue 59 by Working RE Magazine

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Summer 2022, Volume 59

GRAPPLING WITH DESKTOP APPRAISALS Desktop Appraisals: Interview with Fannie Mae First Discrimination Lawsuit: What It Means for Appraisers Profiling an Up-and-Coming (New) Appraiser

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DESKTOP / HYBRID SURVEY RESULTS

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Summer 2022, Volume 59

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Editor’s Note

Readers Respond

Grappling with Desktop Appraisals Isaac Peck, Editor

Desktop Appraisals: Interview with Fannie Mae Isaac Peck, Editor

First Discrimination Lawsuit: What It Means for Appraisers Isaac Peck, Editor

Profiling an Up-and-Coming (New) Appraiser Isaac Peck, Editor

28 32 34

Time Is of the Essence

Blaine Feyen, Head of Community at True Footage

If You Call a Dog’s Tail a Leg Hal Humphreys, Appraiser eLearning

Prepare for Change 2022–2023 Richard Hagar, SRA

36 38

Industry News: Desktop and Hybrid Survey Results

Appraiser Comments: Desktop and Hybrid Survey Results

Professional Marketplace

Mission

Editor

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

Isaac Peck isaac@orep.org

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www.workingre.com (click subscribe) Subscription included with purchase of E&O insurance from OREP. Comments & letters are welcome! All stories without attribution are written by the editor. 2 Working RE Summer 2022

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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 in whole or in part without written consent.

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Editor’s Note

Looking Ahead by Isaac Peck, Editor

I was brought up in the appraisal industry by a man who served appraisers

for nearly 30 years. My mentor, David Brauner, started The Communicator in the early 1990s for FREA, an organization many of you may remember. Then, just over 20 years ago, Brauner went on to start OREP Insurance Services (OREP.org), now one of the largest providers of appraiser E&O insurance in the country and launched Working RE magazine, which you now hold in your hands. One of the many lessons David taught me is that there has never been a shortage of people declaring that “the sky is falling” for appraisers and for the appraisal profession. And yet, appraisers are still standing and continue to be a valued part of the real estate process. I was recently looking back at some of the first issues of Working RE from the early 2000s and I was captivated to find an article espousing the advantages of using Adobe PDF software in one’s appraisal! But even back then, people were predicting that Automated Valuation Models (AVMs) would do away with appraisers. And yet, appraisers are busier and more profitable than ever. So as I put this issue together and contemplated the challenges and changes facing our industry—appraisal waivers, desktop appraisals, allegations of systemic discrimination, ANSI, and the list goes on—I am encouraged by the incredible staying power of the “boots-on-the-ground” appraiser. I just returned from the ACTS conference in Charleston, SC, where I had the pleasure of speaking with several appraisal trainees who are just entering this profession, including Sierra Alden (read her story on pg. 24). I’ve also recently had conversations with senior folks at both Freddie Mac and Fannie Mae (the GSEs), who have reiterated what we all know to be true: appraisers are an important and vital part of the United States’ mortgage and finance ecosystem. Apparently, there are some deep pockets that agree, evidenced by the recent flurry of acquisitions in the industry—with Class Valuation acquiring MetroWest and DataMaster, and TrueFootage buying up a variety of smaller appraisal firms nationwide. What all of these folks have in common is that they see a future for the appraisal professional. As we look to the future, there’s no doubt that the technology, methodologies, and techniques that appraisers use will continue to change. But appraisers will continue to adapt, survive, and thrive—just like they’ve done over the last 30 years. If there’s anything that OREP, Working RE, or I personally can do to help you along your journey, you can reach me at isaac@orep.org. Here’s to what lies ahead! P.S. If you want to know what David is up to these days, please visit his Faith, Hope and Music blog at DavidBrauner.substack.com. WRE 4 Working RE Summer 2022

Readers Respond Desktop Appraisal to Become the New Norm If I have to work with a property owner or Realtor to use an app to generate a sketch with walls I might as well inspect it myself because I will be able to do it faster. —Joanne W. I’m trying really hard not to be negative about this but there are just so many reasons not to be positive here. Personal liability will rise while incomes will undoubtedly fall because they aren’t going to want to pay the same fee if we aren’t personally inspecting the subject & comps. However, this won’t be a quicker product and only someone who has never worked in the field as an appraiser would think it would be. This is really not a very well thought out idea for the industry and if implemented, it could end it once and for all. I think the people who are in a position to make these types of decisions for the industry need to ask themselves what they are going to do when there are even fewer experienced appraisers in the field because this will certainly force a lot of us out. It’s probably exactly what they want though. SMH (shaking my head). —Gary B.

 ANSI: I’ll Tell You What You Can Do with This ANSI Stuff! Best thing to ever happen! They need to pass it along to the Realtors & start charging them with fraud when they blatantly lie about square footage GLA—they simply get out an addenda & have ignorant buyers sign them, where they simply guess what the square

footage of the property is. But that is why they hire me; I have been measuring to ANSI standards since I started in 2000. There is no guesswork; you have to support what you say. I worked for a Steel Company, making sure the measuring devices met ANSI Standards for 16 years—it’s very important. You need to know what you’re buying: BE EDUCATED. If you are not competent you’re in violation of USPAP, simple as that. —Brian L. A few years ago, my statewide MLS decided to use ANSI as the required method of determining GLA. They offered a course and required a four question test for real estate licensees. Passing the test was required in order to disclose the GLA in the MLS listings. The uproar was overwhelming. It was so great the MLS retreated, saying it was only a “suggestion”, not a requirement. And the ANSI requirement died.

I do feel ANSI is a good way to go. But with some flexibility. Ceiling height is a problem. If a justification could be made for the use of areas under seven feet in height, that would be acceptable. —Dudley T.

 First Discrimination Lawsuit: What it Means for Appraisers The house is the lender’s collateral for the loan. Every appraiser should ask themselves the following: If the property I’m appraising becomes an REO how is the market going to value it, what factors will the market consider? This is where the rubber hits the road. The case arguments against current appraisal methodology are absurd & illogical, and if adopted, would result in chaos and have catastrophic consequences, making the last credit crisis look tame by comparison. Obviously someone made a mistake

here, but be careful not to make an early judgement till we know WHERE the comparable sales are located in all three appraisals. —Mike How come we do not know where all the sales are located. And it is not the appraiser’s job to ignore sales in the same neighborhood. That is exactly how a property is misrepresented when an appraiser ignores sales in the subject neighborhood in order to inflate the value. Anyone who has done extensive review work sees that way too many times. —George H. The facts are that there is no discrimination in this case...the only thing we have is perceived discrimination because the appraisal came in under the borrower’s expectations. This happens every day regardless of race. My two cents! —Charles W. WRE

Summer 2022 Working RE

Grappling with Desktop Appraisals by Isaac Peck, Editor

March 19th, 2022 marked the official

When it comes to appraisers relying on data they retrieve from the MLS, Fannie Mae has indicated the appraiser has broad discretion in how they verify the information.

date that Fannie Mae started accepting desktop appraisals—a date that will perhaps signify a monumental shift in the appraisal industry as we look back at the industry one day. Just how many mortgages will these changes affect? Fannie Mae’s criteria is fairly straightforward. All mortgages which meet the following criteria will qualify for desktop appraisals: • Purchase transaction • Single family; one unit • Primary residence • LTV of 90% or less According to data provided by the American Enterprise Institute (AEI), when analyzing 2021 loan numbers for both Fannie Mae and Freddie Mac (GSEs), purchase mortgage transactions made up roughly 34 percent of all mortgage transactions in 2021 (See Figure 1, page 8 for full details). Of those transactions, roughly 11% of purchases had an appraisal waiver used, and an additional 44% of those purchase transactions would be eligible for a desktop appraisal. Projecting the new desktop requirements onto 2021 GSE mortgage numbers, the result is that 40 percent of 2021 loans used an appraisal waiver, and an additional 14 percent of 2021 mortgage activity would have qualified for a desktop appraisal (See Figure 2, page 8). This leaves traditional 1004 appraisals

Isaac Peck is the Editor of Working RE magazine and the President of OREP, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of CE for OREP Members at no charge (CE not approved in IL, MN, GA). Visit www.OREP.org to learn more. Reach Isaac at isaac@orep.org or (888) 347-5273. CA License #4116465.

6 Working RE Summer 2022

making up only 46 percent of all real estate valuations procured by the GSEs. Of course, how the ultimate percentages and product mix ends up from year to year will depend on a variety of factors, including purchase versus refinance activity (driven by interest rates), the volume of cash-out refinances, appraisers’ willingness to perform desktop assignments, lender preference with respect to valuation products, data availability to perform desktop appraisals, and the list goes on. Setting aside the multitude of factors that will influence valuation product mix going forward, it is clear that a sea-change has occurred in the appraisal industry when compared to just a mere three years ago. In 2019, over 90 percent of GSE valuations were traditional appraisals. Going forward, it is highly likely that less than 50 percent of all valuations procured by the GSEs will be traditional, full appraisal assignments. Appraisal waivers have taken a significant market share of cookie-cutter, no-cash-out refinance activity, and desktop assignments will further erode the traditional appraisal model. So what does all this mean for the appraiser going forward?

Redefining the Appraiser’s Role This official GSE acceptance of desktop appraisals represents a clear move to shift the appraiser further into an analyst role, instead of the traditional “in-the-field” market resource that old-school appraisers have long identified with. page 88

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Share Traditional Appraisal Waiver Used GSE loans in 2021 Not Eligible for Eligible for Desktop Appraisal Desktop Appraisal All Loan Purpose 40% 14% 46% Cash Out 36% 0% 64% 65% 0% 35% No Cash Out Purchase 11% 44% 45%

Total Count 8,629,844 2,289,047 3,544,379 2,796,418

Figure 1: Analyzing GSE Loans in 2021 (Data provided by AEI) Percent of Total Mortgage Transactions (2021 Model)

Traditional Appraisals 46.0%

Appraisal Waivers 40.0%

Desktop Appraisals 14.0%

Figure 2: Valuations as Percent of Total GSE Mortgage Transactions (Assumes 2021 Numbers) Most appraisers are currently one-person shops and do everything themselves: administration, scheduling, driving to and from the property, inspecting and measuring the property, taking pictures, data entry, data analysis, developing an opinion of value, proofing, billing, and more. Proponents of desktop and hybrid appraisals see a future where appraisers are more specialized and spend the majority of their time performing “valuation specialist” tasks, instead of spending part of their day as a driver, part of their day as a scheduler, part of their day as a property inspector, and part of their day as a data and valuation analyst/specialist.

What Appraisers Are Saying So far, appraisers have had a mixed response. Nearly 2,000 appraisers responded to Working RE’s Desktop and Hybrid Appraisal Survey, with the results showing a whopping 54 percent of appraisers saying “No,” they will not 8 Working RE Summer 2022

be performing desktop appraisals, 30 percent of appraisers saying that they aren’t sure, as they need more information, and only 16 percent of appraisers indicating that they are willing to do these types of assignments. The survey also asks appraisers the same question about hybrid appraisals, with nearly identical results—except that more appraisers answered “No” and slightly fewer appraisers indicated a willingness to perform the assignments. For those appraisers who say they will refuse to perform desktops, they cite as their primary concerns: • Liability concerns related to incomplete or inaccurate data from other parties • Don’t want the headache of dealing with buyers, sellers, and Realtors to collect my data • Absence of field work will compromise my geographic competency • Believe it’s bad for the profession • Inadequate fees Appraisers may simply need more

time to evaluate desktop appraisals. While only 16% of appraisers are willing to do desktops now, 30% of appraisers are still undecided. Given the uncertainty currently surrounding desktops, it’s fair to predict that appraisers may warm up to desktop appraisals and that their adoption by appraisers and lenders may take months, and likely years, before they are fully integrated into the mortgage market. (To see the full results of Working RE’s Desktop and Hybrid Appraisal Survey, see page 36.)

Desktops an Opportunity? Mark Walser, President of Incenter Appraisal Management (IAM), believes that this is a turning point for the appraisal profession. “The authorization of desktops signals a clear movement to more technology-based valuation solutions and makes it likely that an expanding number of loan types may, in the coming years, be eligible for these types of valuations,” says Walser. “The record-breaking mortgage volume has led to extended appraisal turn-times in areas across the country. This is an amazing opportunity for appraisers to step into the gap to provide faster valuations—while freeing up capacity to have appraisers be involved in having more of the valuation pie. Instead of physically driving to the property, appraisers can cut down on windshield time and help lenders and consumers get appraisals faster. It’s a chance to adopt new technology and be part of moving the industry forward,” opines Walser. Floor Plans and Methods One of the things that makes the GSEs’ conception of the new modern desktop appraisal different from old-school “desktops,” is that the GSEs are requiring appraisers to include a floor plan with interior wall partitions in their report. It is worth exploring this distinction further.

The GSEs have explained that the reason they’re requiring floor plans is because of the need to assess the functional utility of a home, and that the “flow” of a home has a notable impact on its value (See page 14, Desktop Appraisals: Interview with Fannie Mae for more details.) But just how are appraisers supposed to get a floor plan? Walser believes that the original intent of the GSEs was NOT for the appraiser to bear the burden of creating the floor plan. “Ideally, real estate firms should be having the home measured professionally and including that information with the right kind of floor plan on the MLS. Then the appraiser simply needs to verify the floor plan provided, just as they might verify any other data, using virtual inspection technology or other 3rd party data. Even before the GSEs greenlit desktops we were seeing larger real estate firms providing floor plans as part of their listing package. With desktops being accepted

by the GSEs, it’s reasonable to expect that practice to increase and it is definitely the ideal way for the mortgage company to get the floor plan to the appraiser upfront,” says Walser. When it comes to appraisers relying on data they retrieve from the MLS, Fannie Mae has indicated the appraiser has broad discretion in how they verify the information. Walser reports, that for now at least, appraisers prefer to see the property via a virtual inspection. “The majority of appraisers we’ve spoken to say they’d prefer to do a virtual inspection instead of looking at MLS pictures or public records. A virtual inspection is a direct way for appraisers to verify the property is still standing on the effective date, that the layout looks like the floor plan that was provided, talk to the homeowner, ask questions, and so on. It provides appraisers a direct way to verify the data without a 3rd party data collector, and it’s what most appraisers are comfortable with at the present time,” says Walser.

Virtual Inspections IAM has developed a proprietary app called RemoteVal that allows appraisers to work with a homeowner or real estate agent to virtually inspect the home. RemoteVal allows an appraiser to view the home in real-time and perform a virtual walk-through while instructing the person holding the phone in the home. Appraisers can capture and upload time-stamped and geographically verified photos, videos and closeups, and can verify measurements of walls. RemoteVal can be used for full floor plan generation, if the appraiser was not provided a floor plan from the get-go. Or it can be used for simple floor plan verification—the appraiser can do a quick walk-through inspection to verify the data in a floor plan that was provided. Prior to the GSEs allowing desktops starting in March 2022, IAM had been using its RemoteVal tools page 108

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to provide desktop appraisals to private lenders for the last year. Based on IAM’s experience with RemoteVal, Walser says the average RemoteVal inspection is between 20–25 minutes long for a full inspection where a floor plan is generated, but can be much shorter if the appraiser is simply verifying the data. It is also very simple for a person walking through the property to use the 3D scanning to create a floor plan. Ultimately, Walser says that virtual inspection technology gives appraisers increased flexibilities and advantages in their businesses. “Think of the ways this might help with rural properties or underserved neighborhoods. Instead of spending one or two hours driving each way in a rural area, an appraiser can do a virtual appraisal inspection and cut three or four hours off the assignment. The consumer in rural areas is typically paying $900 or even over $1,000 for the appraisal, even though the average home value is only $300,000. The same kind of discrepancy can apply to underserved neighborhoods with few appraisers nearby, including those largely populated by minority groups. This can lead to another inadvertent form of bias, as these fees are passed along to prospective buyers. Whereas in an affluent suburban area, the home values could be double but the appraisal fees might only be $500 or $600,” reports Walser.

Scheduling Virtual Inspections Scheduling a virtual inspection can be done just like the appraiser schedules a regular inspection. “Just like a traditional appraisal, when the order comes in it will have a primary contact, whether it’s the homeowner or a real estate agent. The appraiser can call up the primary contact, greet them, and then schedule a 30–45 minute block of time and tell them: ‘I’ll call you at this time and/or text you a link and we will start a virtual inspection of the property.’ It usually 10 Working RE Summer 2022

goes very smoothly—invites are simple for an appraiser to send and once the session starts it’s very similar to being on a FaceTime call with them,” says Walser. The virtual inspection tools create a careful and considered inspection, according to Walser. The appraiser is able to spend some time with the homeowner and ask plenty of questions. The homeowner might turn lights on and off, turn on the garbage disposal, and the appraiser can observe whether appliances work, ask about the age of various home systems, ask about recent upgrades to the home, when the roof was done, and so on. “Every home is different and appraisers are really good at putting together a list of questions on each home. RemoteVal is great at getting those conversations to happen between appraisers and homeowners and agents,” Walser reports.

The Future The adoption of desktop appraisals will take time, Walser predicts, as appraisers get comfortable relying on third-party generated floor plans and learn more about virtual inspection technology. “Right now the vast majority of appraisers will likely want to use a remote inspection tool to verify any floor plan they are provided, but that may change over time. More seasoned appraisers out there have told us they would rather see the property via the virtual inspection, too, as they’re mastering the technology. They want to have confidence in what they’re doing. Younger appraisers might be more willing to do these in a more streamlined way, and appreciate being able to complete more appraisal inspections in a given day while being provided with data from third parties. We’re committed to transparency and want to show appraisers ‘how the sausage is made’ so to speak. The appraiser is responsible for adhering to USPAP and they need to make sure the appraisal they produce is credible,” Walser says.

Walser compares the adoption of new technology to when we first started sending emails on our mobile phones. “In the beginning of mobile email, you’d type a message, hit send, and wonder if it was sent. Did the network break? Did the email actually get sent? Now when we press send from our phones we have great confidence in the process, device, software, network and so on. The use of third-party data in appraisals may be similar. Once appraisers understand how the floor plans and measurements are being derived, they will be more comfortable. They could compare the floor plan they received from a third-party and do a quick five minute virtual inspection to verify the floor plan and ask a few questions of the homeowner, and then they’re done with that part of the appraisal,” Walser opines. Appraisal fees are a huge concern for appraisers, of course. Traditional “desktop” appraisals that have been ordered in the years past have been a mere fraction of traditional appraisal fees, typically half. However, Walser says that IAM is currently paying desktop appraisal fees at the same fee as the traditional 1004, “because it’s an appraisal, and they should be paid the same and if the assignment can’t be completed as a desktop, we don’t have to ask the lender for additional fees, we can just move forward.”

Desktop Equals Hybrid? Clear Capital, a real estate valuation and technology company which also operates an appraisal management company, is taking a hybrid approach. Kenon Chen, Executive Vice President of Corporate Strategy at Clear Capital, reports that because there isn’t a critical mass yet of real estate agents providing floor plans on the MLS, Clear Capital is currently offering its lender clients a hybrid appraisal model in order to deliver the desktop product. page 128

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In other words, Chen says that lenders may be wary to order a desktop if they aren’t sure a floor plan is going to be available to the appraiser, or if the appraiser will have enough data. The solution to this is to send a property data collector to the subject property, according to Chen. “To create certainty for lenders, a bridge has to be created in the shortterm, which means having a nonappraiser go out and get the data that is needed, then providing it to the appraiser. That’s why we’ve launched Clear Capital’s Desktop Appraisal and Desktop Data Collection products—we provide certainty to the lender that the appraiser will have a floor plan to complete the desktop appraisal That way when the lender orders the desktop, they’re not waiting and hoping that it will work out. They have certainty,” says Chen. In other words, in the (many) cases where the MLS doesn’t have a floor plan that the appraiser can use, Clear Capital will send out a real estate professional to collect one. “If a floor plan isn’t included in the MLS, Clear Capital has a network of licensed real estate agents and brokers who can inspect the property using CubiCasa’s mobile scanning technology, which will create a floor plan that includes interior and exterior measurements of the property in about five minutes. The CubiCasa technology will also provide measurements per ANSI standards,” reports Chen. Clear Capital has worked closely with the GSEs over the last few years testing hybrid appraisals on purchase and refinance transactions. Over that time period, Clear Capital has procured over 200,000 hybrid appraisals for the GSEs. “Our close relationship with the GSEs has helped us build a panel of appraisers that are comfortable doing appraisals from their desks. Specifically, where a non-appraiser is doing the data collection and the 12 Working RE Summer 2022

appraiser is doing the appraisal at their desk. The hybrids we’ve done are very similar to the desktop product. Additionally, when we include a property data collector in the process, we’re actually giving the appraiser a lot more data than if they are just relying on a floor plan provided on the MLS. We have close to 5,000 appraisers that regularly do desktop appraisals for us as part of the hybrid process and we believe we are uniquely positioned to help lenders who are interested in these products,” says Chen. In terms of the cost to the consumer, Chen says that it remains to be seen over the long-term where the cost will be, but in the short-term he expects the costs to be similar to a standard appraisal. “Another thing that we’re offering lenders is price certainty around desktop appraisals, even though fee increases are often standard, we’ll be providing price certainty options for our lender clients,” reports Chen. For those appraisers that are interested in doing desktop appraisals, Chen says Clear Capital welcomes them. “We have really been thoughtful about the types of tools we provide with appraisers—so they can have as much data as possible at their desks. Our staff have been doing hybrid appraisals at scale nationwide for several years so they have a lot of great information to help appraisers transition to these products. Our goal as a company is to provide appraisers with revenue earning opportunities so they can earn just as much or more revenue from a desktop appraisal approach as a traditional approach. We are seeing appraisers quadruple the number of appraisals they are able to do, based on being able to stay at their desk and have more time capacity. We want to see the growth of the appraisal profession and give appraisers additional revenue making opportunities. We understand that the appraiser’s role is changing a bit, but

this is not a new concept. Desktops have been around for quite a while,” says Chen. WRE

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Desktop Appraisals: Interview with Fannie Mae by Isaac Peck, Editor

With Fannie Mae and Freddie Mac

officially accepting desktop appraisals, it is clear that change has come to the appraisal industry. Working RE sat down with Lyle Radke, Senior Director of Collateral Policy at Fannie Mae, to better understand how Fannie Mae will be rolling out this product and what Fannie sees for the future of appraisal.

The appraiser has broad discretion in how they verify the information. The appraiser should be asking: does this information make sense?

14 Working RE Summer 2022

Question: What are some of the advantages Fannie Mae believes that desktop appraisals have over traditional appraisals? Lyle Radke: The desktop product removes the fieldwork requirement. So, the primary advantages are that it has the potential to alleviate capacity concerns and lead to faster appraisal turntimes. While we don’t track appraisal turn-times and fees, we do hear feedback on what’s happening out there. We’ve heard in some parts of the country, it can take a long time to get an appraisal completed. Question: How can desktops help alleviate appraiser capacity? What percent of traditional 1004 assignments will qualify for desktop appraisals? Lyle Radke: We believe desktop appraisals may alleviate capacity constraints since they eliminate the fieldwork requirement, meaning that appraisers no longer have to spend hours driving from house to house or inspecting the subject property in the field. There is a case to be made that the highest and best use of appraisers is as market analysts, not performers of fieldwork. If appraisers are able to do this efficiently, it will save time. To your second question, our eligibility requirements are very straightforward. The desktop appraisal is an

eligible option for purchase transactions where there is a single unit, single-family home, and the loan is for a primary residence at an LTV of 90% or lower. This is the criteria we are using to determine eligibility. We don’t have hidden rules that draw on urban versus rural, or tract home versus custom built, et cetera. If a property meets these simple criteria, it is eligible for a desktop appraisal. Within the purchase bucket, this would mean that roughly half of conforming purchase transactions may be eligible for desktop appraisals. We certainly hope that lenders and appraisal management companies (AMCs) will help the process. This doesn’t need to be entirely on the appraiser’s shoulders to determine whether or not it’s going to work. I could see a big lift for rural assignments. If you’re having to drive all over, this could be a real efficiency boost. When I was appraising, I did a lot of rural work. I did 100 miles every day, on average. If I could have cut that in half, I could have saved a lot of money and a lot of time. Lenders and AMCs could do prework to see if necessary information and exhibits are available on a property. We know there is currently a lot of discussion amongst appraisers as well. We’re going to watch, see how this works, tweak and adjust it over time based on what we see. Question: Why are you requiring floor plans? How does Fannie Mae anticipate appraisers will get access to the floor plans of the homes? Lyle Radke: We want to make sure that appraisers have all the information

they need to formulate a credible opinion of value. If they don’t understand the functional utility of the property, that may prevent them from accurately performing the assignment. Those around the appraiser, the lender, the listing agent, they are the ones who are going to have to step up and provide the floor plan. It’s intended to be something to help the appraiser to have enough information to do their job. Functional utility refers to the flow of the floor plan. Is the function of the floor plan useful? Let’s say, for example, you’ve got a house where you come in the garage and as you enter the garage you’re stepping into the bathroom. That would have an effect on the value. Functional utility absolutely impacts value. People pay more for houses that flow well. How do you get from the garage to the kitchen? What kind of privacy do you have in those situations? These questions are important to establishing a home’s value. Appraisers already adjust for functional obsolescence. It is a longstanding requirement for all Fannie Mae appraisals. In fact, we already require appraisers to provide a floor plan in cases where they identify functional obsolescence. Question: One of Fannie Mae’s requirements is that data “provided by parties with a financial interest in the sale or financing of the subject property must be verified by a disinterested source.” How will this work with MLS data and video walk-throughs? If the appraiser is looking at the camera on a livestream with the listing agent, does that count as verification? Lyle Radke: When we talk about the source of the floor plan, there are a number of different companies with app-based phone technologies that will allow the user to generate a floor plan through photos taken and measurements taken in the home. In cases where the app is generating the floor

plan and the data is coming from the app itself, the Certification 10 obligation to validate or verify interested party information wouldn’t apply. We are also intending for the appraiser to rely on MLS data. Some of that may come from the assessor and it may come from a real estate agent. Verification should not be confused with recreation. We are not asking the appraiser to recreate the data from an independent source. The appraiser has broad discretion in how they verify the information. The appraiser should be asking: does this information make sense? Examples of how appraisers can verify the information include: (1) third-party websites that provide aerial or street level photos; (2) floor plans or imagery generated by third-party applications; and (3) with the remote viewing tools available today where the appraiser can view the property with their own eyes. The appraiser is responsible for producing credible assignment results and we are leaving it up to the appraiser how to verify the various data points. The appraiser has broad discretion and can decide which points of information they are concerned about and which data points need further investigation and verification. Fannie Mae is not going to prescribe to them precisely how to verify everything. The intent is not to make this any harder than it has to be. On a typical assignment where there is enough information in the MLS and public record, an appraiser might pull data from the MLS, pull data from public records, and gather that information at their desktop. If the information fits, they can complete the assignment. If there are points the appraiser is uncertain about, then they could take additional steps. They may contact the homeowner, real estate agent, or another party to the transaction. They can take additional steps to verify information and answer key

questions on an as needed basis. It will be up to the appraiser to decide whether or not the public re-cord is sufficient. If the appraiser believes the public record is reliable, there is no need to go any further. Fannie Mae is not mandating or requiring a remote inspection. Appraisers do this all the time with comparable sales. The appraisal industry has a long history of reconciling disparate data sources, being detectives and figuring out where the gaps in the data are. We do this with comparables all day, every day. Here is one more example: Imagine that the appraiser receives a floor plan from the MLS as an exhibit. Hopefully that floor plan gives an indication of where it came from, but the appraiser could research where it came from, what company did it, what quality controls they have, and so on. If the property is X sq. footage, the room count matches, and I’m scrolling through photos and I see three pictures of different bathrooms—I can get a comfort level around this information. Question: Will interior pictures be required by Fannie Mae? Encouraged? Lyle Radke: The desktop appraisal requirement is exactly the same for all our appraisals. The Fannie Mae Selling Guide Section B4-1.2-01 is a great resource for appraisers. Here are the requirements: Exterior Photographs: Clear, descriptive color photographs showing the front, back, and a street scene of the subject property and the front of each comparable. The subject and all comparables must be appropriately identified. Interior Photographs: At a minimum, the report must include photographs of the following: • the kitchen • all bathrooms • main living area • examples of physical deterioration, if present, and page 168

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examples of recent updates, such as restoration, remodeling, and renovation, if present. These requirements are the same across all appraisal products, including the new desktop appraisals. Question: Fannie Mae has decided not to offer desktop appraisals for second homes, investment properties, cash out refinances, and 2–4-unit properties. Why has Fannie Mae made this determination? In what cases is a traditional 1004 preferable to a desktop appraisal? Lyle Radke: The first thing that drove our decision around the eligibility box is, if you go back to the pandemic, we had a temporary, non-technical solution. We asked appraisers to copy and paste an alternate set of certifications and Scope of Work. So, we have a desktop

appraisal form, rolled out in 2020 and we only have a URAR version, meaning we never created another version for other property types. For simplicity’s sake, we’re best prepared to do the single-family residence. Beyond that, there are some other issues. Regarding the question of purchase versus refinancing, if it is not a purchase transaction, you may not have current MLS data. For example, you may not have your primary data source available. Another aspect is with a purchase transaction, you generally have some market discipline around that contract price. That’s not to say the contract price is always supported, the market is comprised of the actions of the participants in that market, and that is reflected in the aggregate of the transactions. So, by definition, the typical purchase

transaction will be at or near market value. You will have outliers and exceptions, of course. But all of that goes away in a refinance. There is no market exposure and the appraiser is working from a blank slate. Now some of the other questions: Why not second homes or investment property? Part of Fannie Mae’s mission is to promote homeownership, so we’d rather start with desktop appraisals in a space where it best promotes the mission. The purchase of primary residences is also the cleanest transaction in terms of motivations. It’s less likely to be speculation or tied to a business venture, and has a more straightforward, simple risk calculus. So, a single family home that is a primary residence avoids higher risk influences such as non-owner occupied and business interests. WRE

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16 Working RE Summer 2022

First Discrimination Lawsuit: What It Means for Appraisers by Isaac Peck, Editor

As you likely already know, the first

The dilemma for appraisers is clear. If homes in a historically black neighborhood are consistently selling for lower prices than surrounding neighborhoods that are predominantly white—what is an appraiser to do?

discrimination-based lawsuit against an appraiser (at least the “first” in recent history) was filed in December 2021 against Janette Miller, an individual appraiser, and AMC Links, LLC, an appraisal management company (AMC), in the U.S. District Court of Northern California. The lawsuit was filed by a black family in Marin County, California and alleges that Miller, a white appraiser, undervalued the plaintiff’s home by nearly $500,000, that race was a motivating factor in her appraisal, and that she committed multiple violations of the Fair Housing Act. As the first formal lawsuit filed alleging discrimination, this case fleshes out some of the key accusations that are being leveled against appraisers and how these charges are interpreted by the courts will no doubt have far-reaching implications and have a critical role in how this issue continues to play out on a national level. Here is a deep dive on the details of the case and an analysis of the arguments being leveled against the appraisal profession. Trigger warning: this is a controversial subject.

an appraisal valuing the house at $1.4 million. Seeking to refinance again in 2020 because of lower interest rates, the Austins were expecting the appraised value of their home to have risen compared to the year prior. However, in 2020, Janette C. Miller, a licensed real estate appraiser hired by AMC Links LLC, appraised the Austin’s home for only $995,000, nearly onethird less than the appraised value the Austin’s had received the year prior. The Austins were understandably shocked and disappointed and decided to run an experiment. They took down their family photos, their African art, hid CDs, and concealed any other indicators that a black family lived there. Then they ordered a second appraisal to be done and they asked one of their white friends to pose as the homeowner. The Austin’s new appraisal came in at $1.48M—nearly a half a milliondollar difference. In response, the Austins filed a lawsuit against Janette Miller and AMC Links, LLC. In their lawsuit, the Austins were joined in their case by the Fair Housing Advocates of Northern California, a non-profit dedicated to fighting discrimination in housing.

Backstory Tenisha Tate-Austin and Paul Austin, black homeowners, purchased their home, now nicknamed “the Pacheco house,” in 2016 and immediately began making improvements, including enlarging two rooms, updating appliances, adding a deck, and even a gas fireplace. The Austins had previously refinanced their house in 2019 and had received

Factors at Play As appraisers, industry stakeholders, homeowners, and the local and national news outlets discuss discrimination and bias within the appraisal profession, there are several distinct accusations that are leveled against appraisers: 1. Individual actors (appraisers) who are either consciously or unconsciously biased/racist page 208

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2. Lack of diversity in the appraisal industry (90%+ of appraisers are white) 3. Appraisal practices generally are racially biased and/or perpetuate discrimination Whether analyzing this particular case, or the dozens of other cases that have been covered by local and national news outlets over the last two years, part of the conversation centers around whether an individual appraiser in question is, in fact, consciously or unconsciously biased. With so many cases making the news in the last two years, some appraisers have publicly questioned whether an appraiser might simply be incompetent, instead of biased. However, the other part of this conversation revolves around the appraisal profession’s practices and processes themselves. If an appraiser is merely reflecting the market, is that biased? If an appraiser accurately reflects what a motivated buyer is willing to pay for a home on a particular street or in a specific neighborhood, does that perpetuate discrimination? In their lawsuit and in their comments to the press, the Austins have strongly suggested that Miller herself may have been consciously or unconsciously biased, but their legal arguments go well beyond simply attacking Miller as an individual appraiser. The core of the Austin’s lawsuit raises key allegations against long established techniques and practices of the appraisal profession today— such as defining neighborhoods boundaries and the use of the sales comparison approach. This article is going to focus primarily on exploring those allegations. Allegation #1: Prioritizing Comps from the Same Neighborhood = Racial Bias The Austin’s lawsuit advances an 20 Working RE Summer 2022

argument that is at the heart of many of the accusations being leveled against mainstream appraisal methodology. While the subject property (the Austin’s home) was located in Marin City, an unincorporated community in Marin County, the suit argues that because Miller used comparables primarily in Marin City, that in itself is evidence of racial bias. The suit reads: “Appraising a house located in Marin City, such as the Pacheco Street House, using comparisons of other property sales located exclusively or primarily in Marin City results in a skewed and race-based valuation of the property…Using Marin City sales as the primary source of comps is evidence of racial bias—i.e., that the appraiser believes that Marin City’s demographics make it so much less ‘desirable’ than surrounding areas that property in those areas cannot be used as comps.” In other words, the mere act of using comps from the same neighborhood is “evidence of racial bias,” according to the legal theories behind the Austin’s lawsuit. Let’s dig into the reasoning behind this argument. The lawsuit goes to great lengths to detail how the racial and economic composition of Marin City is the product of historical discrimination. The suit explains that housing was first developed in Marin City in the early 1940s to house workers who migrated to work in the Sausalito shipyards. “Many of the shipyard workers were black but they lived alongside whites and Asians as well. After the end of World War II, shipbuilding jobs weren’t as needed and jobs declined, so many workers ended up unemployed,” the suit reports. White residents moved away in search for better employment, aided by the FHA through bank loans that “were designed to move white residents to allwhite neighborhoods that would remain all-white through the use of raciallyrestrictive covenants,” i.e. redlining.

Most black residents had to stay in Marin City due to “housing discrimination, racially-restrictive covenants, redlining, denial of access to government-backed financing, and other forms of discrimination,” the suit reads. Today, black residents make up 35.8% of residents in Marin City. It is against this backdrop of historical discrimination that the Austin’s are advancing their argument. In other words, because the black residents of Marin City have been discriminated against and have been victims of redlining for the last 70 to 80 years, the values of houses in Marin City are a product of historical discrimination. And because the values of houses in Marin City are a product of historical discrimination, if an appraiser is appraising a property in Marin City and looks primarily to Marin City for comparable sales, that is an act that “perpetuates discrimination” and shows “evidence of racial bias.” This line of reasoning will undoubtedly leave most appraisers befuddled. After all, appraisers typically prefer to select comparable sales (comps) in the same neighborhood because those comps are the closest representation of what market participants are willing to pay for a property in that particular neighborhood, with access to those particular schools, with those specific neighborhood amenities, shopping centers, and so on. Appraisers are hired to provide an opinion of “market value,” which is defined by Fannie Mae as “the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.” The dilemma for appraisers is clear. If homes in a historically black neighborhood are consistently selling for

lower prices than surrounding neighborhoods that are predominantly white—what is an appraiser to do? After all, appraisers are hired to reflect the market. If the market reflects the impact of historical discrimination, or if the market continues to reflect ongoing discrimination and segregation, should the appraiser ignore what the market is saying? Allegation #2: Sales Comparison Approach is Racist The second key allegation in the Austin’s lawsuit is that the use of the sales comparison approach perpetuates discrimination. This argument builds on the critique of neighborhood boundaries above. Reiterating the history of redlining, the lawsuit explains how the history of housing discrimination had longstanding effects on black neighborhood home values. The lawsuit also points out that appraisal standards contained explicitly race-based valuation standards until the United States Department of Justice (DOJ) sued the American Institute of Real Estate Appraisers (AIREA) and related defendants in 1976 under the Fair Housing Act. But that didn’t fix the situation, the lawsuit argues. “The damage was already done. Property in black neighborhoods and racially diverse neighborhoods reflect these low valuations that appraisers were trained to make. Most appraisers continue to evaluate a house’s value by comparing it to houses in similar, proximate neighborhoods that have sold in the recent past (comps),” the lawsuit reads. Similar to their attack on neighborhood boundaries, the Austins argue that the historical discrimination that black and racially diverse neighborhoods experienced means that the use of the sales comparison approach perpetuates that discrimination.

The suit reads: “The continued use of the sales comparison approach recycles home values that were initially determined using explicitly race-based criteria, and compounds the effects of decades of undervaluation of homes in non-white areas. Likewise, some appraisers, including defendants, have continued to use race-based criteria in assessing property value, including limiting comparisons to houses within areas of similar racial demographics and valuing predominantly white areas more highly than other areas.” Just like the critique of neighborhood boundaries, this attack again turns appraising on its head. Normally, an exact model match that sold on the same street two houses down from the subject property would be considered the perfect comp. If using a comp on the same street as the subject property is “evidence of racial bias”—then the very foundation on which the appraisal profession is built is being questioned. What is an appraiser to do? Origin of Arguments The arguments being advanced by the Austins are not new. In fact, the allegations so passionately argued in the Austin’s lawsuit bear much resemblance to position papers that have been recently written by academics. While there has been much discussion over a report published by the Brookings Institute titled “The devaluation of assets in Black neighborhoods” by Andre Perry et al, it is actually one of the sources that is cited by Perry’s article that lays out the deeper arguments that have been leveled against the appraisal profession. One of the articles that Perry cites in his much debated report is: “The Increasing Effect of Neighborhood Racial Composition on Housing Values, 1980–2015,” by Junia Howell and Elizabeth Korver-Glenn. Published in 2020 by the Oxford Academic, Howell, a PhD candidate studying Philosophy, and Korver-

Glenn, an Assistant Professor with a PhD in Sociology, advance the following arguments: • “Using previous sales without correcting for the fact that these values had been derived under an explicitly racialized system ensured the historical hierarchy was preserved.” • “We conclude contemporary appraising practices contribute to ongoing inequality. We argue they do so in two ways. First, the continued use of the sales comparison approach after fair housing legislation meant appraisers used previous sales, which explicitly relied on neighborhood racial composition, to determine appraisals. Since no steps were taken to rectify the historic inequities, this approach has enabled such inequalities to per sist. Second, appraisers continue to use neighborhood racial composition to help determine which homes are comparable.” • “At the policy level, we propose swift, dramatic interventions to transform the existing appraisal landscape. New regulatory legislation should decouple neighborhood demographic characteristics from home values and appreciation rates.” Taken in context, portions of President Joe Biden’s housing policy positions, Andre Perry’s report, as well as large portions of the Austins’ lawsuit, seem to draw on, or at the very least, contain striking similarities to the arguments advanced in this article by two academics who specialize in philosophy and sociology. In fact, the Austin’s lawsuit appears to be a proving ground for the exact same arguments that were advanced by Howell and Korver-Glenn two years ago. Appraisal Changes/Reparations The dilemma facing appraisers is that page 22 8

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the academic critique of the historically racist policies in the United States, ultimately conclude with a call for reparations—which is defined by the Oxford Dictionary as: “the making of amends for a wrong one has done, by paying money to or otherwise helping those who have been wronged.” Here it is in Howell’s and KorverGlenn’s own words: “Policymakers need to consider how we can collectively offer reparations for explicitly racist housing policies that contributed to the systemic hyper-valuing of white neighborhoods and de-valuing of neighborhoods of color (especially between the 1930s and 1970s). Such considerations should also grapple with the dramatic divergence in home appreciation rates observed in the last 35 years: since 1980, homes in white neighborhoods appreciated $194,000 more than comparable homes in otherwise comparable communities of color.” California actually has recently convened a “first-in-the-nation” Reparations Task Force that is charged with “recommending how California will issue a formal apology, how to eliminate discrimination in existing state laws, and determine how any potential compensation should be calculated for the descendants of enslaved persons in the U.S. and who would be eligible.” In case there was any doubt about its relation to this case in particular, the California Reparations Task Force invited Paul Austin, one of the plaintiffs in the lawsuit, to be one of the keynote speakers at a recent Reparations Task Force meeting. When asked what it meant to him to be sharing his story of appraisal discrimination with the California Reparations Task Force, Paul Austin replied: “It’s such an honor. But what’s most important, I think, is we might actually be able to see some real tangible change.” This idea of reparations, or “right22 Working RE Summer 2022

ing the wrongs of the past” was also addressed in Bill H.R.2553—Real Estate Valuation Fairness and Improvement Act of 2021. After outlining that the government is, in part, responsible for “harmful consequences of discrimination,” the Bill proposes, as the solution, the creation of a national Task Force to right these historical wrongs. Among other things, the Task Force would create specific definitions for limited or inactive housing markets in which comparable sales are “limited or unavailable over a certain period of time.” Once defined, the Task Force will “establish greater flexibilities and guidance for appraisals and any underwriting processes associated with appraisals conducted in such markets, such as the ability to consider market evidence for similar properties in other geographic areas or utilizing a range of value.” In other words, the Bill as written would mandate alternative guidelines for appraisers to encourage them to (1) ignore neighborhood boundaries, and (2) significantly alter the definition of a “comparable sale”—all with the goal of addressing the wrongs of the past. Reparations is no doubt an incredibly contentious, polarizing issue in the United States. But whether you agree with the idea of reparations, the trouble with framing appraisers as the problem and then posing reparation as the solution, is that it places the burden of reparations solely at the feet of appraisers. Many appraisers feel that placing the responsibility of righting the many wrongs of America’s historically racist past, squarely on appraisers’ shoulders is not fair—and perhaps more importantly, it’s just not realistic. The old adage, appraisers don’t make the market, they just report it, might be worth revisiting. What about USPAP? Another dilemma that appraisers face

is that they are being asked to simultaneously provide reparations to black and racially diverse communities, while also being tasked with not seeing or using race at all. For example, in the Austin’s own lawsuit, when naming AMC Links, LLC, the AMC responsible for placing the appraisal order with Miller, the Austins point out that California law requires an AMC to “review the work of all…appraisers with whom it contracts to ensure that appraisal services are performed in accordance with [USPAP].” In other words, the AMC has liability in this case, the Austins argue, because they are responsible for ensuring compliance with USPAP under California law. The Conduct Section of the Ethics Rule in USPAP states that an appraiser: • Must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value. On the one hand, appraisers and AMCs are being asked to follow and uphold USPAP, but on the other hand, the underlying criticism of appraisal methodology that is taking place in academia as well as in Congress, is a philosophical critique that ultimately calls for reparations. But how are appraisers supposed to avoid the “use” of or “reliance” on conclusions relating to race or color if they are also being expected to provide reparations for the discriminatory housing practices of the past? If appraisers are not allowed to use race at all, how do they know when to eschew the use of the sales comparison approach or neighborhood boundaries and when those methods are allowable?

Conclusion The issues raised in the Austin’s lawsuit, as well as those raised by Bill H.R.2553, admittedly create more questions than answers for the appraisal profession. Based on the suit, the facts of this case show the following: • In 2019, the Austin’s home was appraised for $1.4 million • In February 2020, Miller appraised the Austin’s Home for $995,000 • In March 2020, a third appraiser appraised the Austin’s home for $1.48 million So, Miller is definitely in the “minority” (excuse the pun) as far as accurately valuing the Austin’s home. Her appraised value contains a large discrepancy between two of her peers. Why did Miller’s appraisal vary so widely from the opinions of two other appraisers? As far as the larger critiques of appraisal methodology, much depends

on how the courts interpret the Austin’s claims and whether Congress manages to pass sweeping legislation that will come up with alternative valuation methods and mandate appraisers to “consider market evidence for similar properties in other geographic areas.” Without significant changes in appraisal standards and/or national laws, appraisers seem to be caught between a rock and a hard place. On the one hand they are being told to follow USPAP and never to use race in their appraisal, and on the other hand they’re being told that when they’re appraising in black or racially diverse communities, that relying primarily on comparable sales which are in that community “perpetuates discrimination.” The issues of racial discrimination in appraisal, the lack of diversity in the appraisal industry, and the prospect of biased and/or incompetent individual appraisers are incredibly important, but

DON’T PUT ALL YOUR EGGS IN ONE BASKET

difficult, problems that the industry will continue to struggle with. In the meantime, appraisers will be watching with bated breath how the Austin’s lawsuit plays out in court and whether Congress decides to take action—potentially changing appraisal standards as it relates to racially diverse communities. This is a developing story. Visit WorkingRE.com to hear about the response from the attorneys for Janette Miller, the appraiser defendant in this case. WRE

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Profiling an Up-and-Coming (New) Appraiser by Isaac Peck, Editor

For an industry that has long predicted

“Appraisers will retire and we need new appraisers to continue the work. My message to other trainees is that this is an amazing industry to get into and don’t let roadblocks deter you.”

its own demise, it is a pleasant surprise that appraisers have actually been busier than ever—more in demand than ever—over the last two years. Against this backdrop of increased demand for appraisal services as well as a changing environment for valuations within the industry itself, a brave few who see a future in this industry and seek to join its ranks have stepped forward. One such appraiser trainee is Sierra Alden. You could say Alden caught the appraising “bug” from her parents, and not just one, but both of her parents have built their careers in the appraisal profession. Her father, John Dingeman, is the Chief Appraiser at Class Valuation and Whitney “Blair” Dingeman, is now the Vice President of Compliance at Class Valuation. Both of Sierra’s parents have and do work as independent fee appraisers as well as holding positions for a variety of appraisal firms and AMCs. And while some appraisers will woefully remark: “I’d never let my kids get into this profession”—that clearly wasn’t the case with Alden. Working RE sat down with Alden to hear more about why she wants to become an appraiser and how she expects the industry to change in the years ahead. Why Appraisal Alden started as an appraiser trainee in 2021 and is now over a year into her trainee process. She says she got into the profession because she had recently had her first child, a boy, and was drawn

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to appraising for the same reason many appraisers are. Realizing that a nine-tofive job wasn’t going to work for her, she wanted something flexible that would allow her to pick her own hours and be partially home when she needed to be. When she told her parents about her decision, she says they were both very supportive. “I really love appraising. I know I have a leg up in my career because both of my parents are appraisers and I’ve been put in contact with so many leaders in the industry,” says Alden. What makes appraising special for Alden? “I love that it is never the same. I worked in banking and insurance for a long time and felt like once you learned everything, you knew everything. I really enjoy learning and problemsolving—and there’s so much of that in appraising. Every time I walk into a house or do a report, there’s always a problem I need to solve. There’s also so much learning—because appraising is all about your opinion of value—there are a billion ways to analyze the problem. And there’s so much to learn from other people to make myself better,” Alden observes. Like many children that follow in their parents’ footsteps, she says she never thought she’d end up as an appraiser. “Both my parents were appraisers and I grew up helping them in the office, helping them set appointments, but I didn’t think it was something that I wanted to do. But the more I saw what they were doing, how they got to be their own boss, how they got to be involved in this career where their opinion was really valued, how they did

all this research and were specialists in their field—I decided I wanted that for myself too,” reports Alden. Not only is there flexibility in terms of when her work can be done, but there’s also a diversity of the types of work. “I love that I can go out and do an inspection with my supervisor and get out of the house and then work at my computer and finish a report late at night. I also like all the people I get to meet. I do really enjoy the flexibility as well to include working from my desk when I cannot be out in the field. I also like being able to stop what I’m doing, shut off at night, and work my own schedule—that was really important to me,” says Alden. Helping Other Trainees As a trainee herself, Alden has gotten involved in helping other trainees as the Co-Chair for the Trainee Committee of the National Association of Appraisers (NAA). “I feel very lucky to have my parents and have all the contacts that I do, so it’s really important to me to help other individuals who want to get into appraising. I got into the profession pretty easily compared to what others have to go through so I want to be able to make it easier for others and share the resources and knowledge that I’ve picked up along the way,” says Alden. Her motivation for helping other trainees is what led Alden to get involved with the NAA’s Trainee Committee. “Being on the Trainee Committee has been an amazing and rewarding experience—we’re trying to make a community where trainees can get their questions answered, like how they can get their classes, find a supervisor, and more. I realized how many people there are out there trying to become an appraiser and hitting all these roadblocks,” Alden reports. The result is that the NAA’s Trainee Committee held an event at the Appraisal Summit in November 2021 and had over 80 attendees, with many

potential appraisers traveling from out of state, hoping to learn more about the industry or to find their supervisor. In addition to teaching would-be appraisers about the industry, the event also served as a matchmaking service. Sierra excitedly reports that some trainees actually found their supervisor appraisers at the event. “I got involved with the Trainee Committee and the event because (1) I want to help others and give back in the same way that so many have helped me, and (2) it is clear that something needs to be done for trainees because the appraisal profession is losing appraisers. Appraisers will retire and we need new appraisers to continue the work. My message to other trainees is that this is an amazing industry to get into and don’t let roadblocks deter you. Participate and be patient,” advises Alden. Parent’s Perspective With both her parents in the profession, Working RE sat down with John Dingeman, Alden’s father, to see how he feels about his daughter joining the ranks of appraisers. Acknowledging that many appraisers would’ve tried to talk their child out of being an appraiser, Dingeman says he encouraged Alden. “I remember I asked her ‘Why’ when she first told me. And she explained that she had seen how her mom and I loved what we did and were able to raise a family, along with the flexibility we had, and the opportunity of running your own business and how she had done the research on the profession. It was really cool—when she called me she had already signed up for the classes,” reports Dingeman. “I told her, ‘Great, what can I do to support your journey?’ And I’m really excited to see her learn and grow into an appraiser. She’s so smart and she’s good at it. We try to support her however we can. While she has a primary supervisor, we made her a partner in

our company and will accept assignments and work with her on those assignments from start to finish, offering a different perspective and process,” John Dingeman says. Future of Profession If you are going to dedicate yourself to a new profession such as appraising, you would of course want to have an idea about the future of that profession! Alden acknowledges that a lot of appraisers are worried about the future of the profession but personally believes the appraisal profession will be around for a very long time. “Giving an opinion of value is not something a computer can do; at least not well. As long as you’re willing to adapt with the new technology and the new programs and software that are available to you, I think we will be around for a really long time. A lot of appraisers want it to be the same way that it has always been and I think those people are going to get very frustrated. We have to see that there are a bunch of new technologies and software that are available to us. Scanning programs make it easier than just sketching the whole house,” Alden points out. As a “new” appraiser who has parents who have been in the profession for decades, Alden says it puts her in an interesting position when it comes to the old adage: that’s the way we’ve always done it. “Every appraiser does things so differently so it’s very hard for me to criticize specifically what one appraiser is doing—especially when we’re making adjustments. I really try to ask a lot of questions about why we do things a certain way, and so on. I know there are multiple right ways to do things, but I always want to be able to explain why I do things,” says Alden. While her parents do not serve as her primary supervisor, they are working with her on two or three appraisals every month. Alden says she still calls page 26 8

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them from time to time with questions or just to discuss particular parts of her appraisals too. She is also actively testing new technologies and has even gotten her appraisal supervisor to adopt some new tools as well. As far as desktop and hybrid appraisals, Alden says she hasn’t worked with them too much yet, but is looking forward to learning more. “I really love the scanning software that I’ve worked with and I’ve seen a lot of the hybrid appraisals online. I think if done right and if appraisers have enough information, these products have potential. In the past, the issue was that appraisers never had enough information about the house without actually being there. With scanning technology and other tools that are being developed, I think

John Dingeman, Sierra Alden, Blair Dingeman

these products will be a good solution for appraisers who don’t want to go into people’s homes—or homeowners who don’t want somebody else in their house. Of course, it may take some time for everyone involved to get comfortable with these other products,” Alden remarks. Ultimately, Alden says that while the role of the appraiser may change, and the forms may change, and the types of valuation products may evolve over time, she believes that the appraising profession will endure. “I think appraisers that are willing to adapt, embrace new technologies, and continue learning will be around for a long, long time. That’s why I made the decision to become an appraiser today.” WRE

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Time Is of the Essence by Blaine Feyen, Head of Community at True Footage

“

Without the pressures placed on the system as a whole, appraisers would have no reason to grow and change how they go to market.

Houston, we have a problem!”, has

become a popular phrase and meme over the years to indicate something hasn’t gone as planned. The phrase stems from the 1970 Apollo 13 mission where the astronauts experienced an onboard explosion that crippled the aircraft. The actual phrase was, “Ok Houston, we’ve had a problem here,” but it’s been coopted by time to be tighter and more useful as a meme. If you ever hear the phrase, you know instantly something isn’t right and some kind of course correction is in order. I think of this phrase anytime I see or hear appraisers railing against the changes they’re experiencing in the industry. Whether it’s around data collection, software, hybrids, desktop appraisals, ANSI standards, venture capital, AMCs, or any of the other evolutions and iterations of this industry. One of the first questions I ask new appraiser coaching clients is, “what makes you different?”, and “why would anyone do business with you?” Can you guess what most of the answers sound like? “I’m the best at what I do!” or “My appraisals are better than my competitors.” “I do more research than most,” and “my opinions are better supported than the others I see.” The answers typically come from a place of pride, if not hubris. Good appraisers are hardworking researchers and analysts. They deliver high quality reports to their clients, and they’re proud of the reputations they have in their markets.

Blaine Feyen has been appraising for 20+ years, has built several appraisal companies, is a sought-after appraisal business coach, host of two of the industry’s top podcasts, and is the Chief Evangelist for national appraisal and data analytics company, True Footage. Learn more about Blaine at www.RealValueCoach.com, contact Blaine at Blaine.Feyen@TrueFootage.tech or www.TrueFootage.tech.

I know this to be true because I’m one of those appraisers. For 20+ years I’ve been developing opinions of value on residential real estate in my market and I used to say the same things when asked those questions. However, something changed in 2008-09’ when things changed for everyone. One of my own business coaches asked me that same question: “Blaine, why would I do business with you?” I proceeded to give one of the programmed responses noted above. His quick one-word response shocked me out of my sleepy state: “BS!” The business coach I’m referring to also happened to be one of my top lending clients at the time and one of the most successful lenders in the country (still our top client today). What he said to me was, “What you’re really selling is your processes and systems, your customer and client service, your communication, your ability to leverage technology, your production line, the efficiencies you’ve built into your business that allow you to complete the appraisal in considerably less time than all the other appraisers, and with more accuracy, better data, and a more well supported opinion of value.” Those of you who still think you’re being engaged by clients because you’re just such a good appraiser, think again. That may be one of the reasons, but it’s just one of many. The big problem I see with the appraisers we talk with every day is that they all tend to think they’re the best appraiser in their market based on how intelligent they believe themselves to be and how many orders they’re turning down daily. The ones who think super highly of themselves tend to also be the slowest, the most backed up, the ones booked out a month, and the page 308

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ones patting themselves on the back for doing so. This is a huge problem in the appraisal industry right now and the vast majority of appraisers think this is somehow a good thing. It’s simply one more piece of evidence of just how out of touch some industries can be from understanding their markets, their clients and customers, and their ability to read the writing on the wall. Let me start with a brief analogy of what I see happening right now in the appraisal industry. Imagine for a moment a local gas station convenience store patting itself on the back for always being out of bread, or cigarettes, or worse yet, gas! You drive up wanting to fill up your tank and pick up some bread for the kids’ lunches only to find signs on the gas pumps saying, “Sorry folks, we’re so popular and in demand that everybody bought up all our gas! Come back in 2 weeks and maybe we can serve you, and maybe for .25 cents more per gallon!” You think to yourself, ‘well that sucks, I need gas now!’, but you’re there anyway so you amble into the store to at least get some bread only to find the shelves bare. You ask the attendant what’s up and she says, “that’s just how popular we are! People want to buy bread from us so badly that we just keep running out. Come back in a few weeks and maybe we’ll have some bread for you.” You’re not a hero for not being able to provide your product and service when people want it, and more importantly, need it! You need gas when you need it! You need bread when you need it! You don’t appreciate the gas station taking such a selfcongratulatory approach to not having what you need when you want it and need it. In fact, you get a bit resentful and you vow to look for another place to give your money to. Over time, that gas station convenience store that was so convenient for you slowly starts to lose its most precious commodity. No, its customers aren’t necessarily 30 Working RE Summer 2022

its most precious commodity; it’s their trust and loyalty. Without that, the gas station only has a commoditized product or service that their customers will happily go somewhere else just to save a dime. Not only that, but drivers of gas-powered vehicles start to look for ways to mitigate that issue from happening in the future. What do they do over time? They start to buy electric vehicles. Over time, they start to think about the bread issue and find ways to mitigate that situation from limiting them in the future. What do they do? They have several options available to them: they can eat less bread, they can buy a bread maker, they can go somewhere else for their bread, or they can become their own distributor of bread to be better than the gas station. Appraisers are in high demand at the moment and that’s a great thing. We can raise our fees, book out weeks in advance, and finally start being paid what we’ve always felt we were worth and have probably been complaining about on social media forums for years without ever changing anything internally. Now, because of the current market conditions, you don’t have to change anything and you can finally do what you’ve been hoping to do forever. You can stick it to those pesky lenders who give you so much hassle, those annoying Realtors who bug you at all hours of the day and night, those aggravating attorneys throwing money at you to handle that divorce or estate deal they’re working on. You’ve probably heard it before and from others, this won’t last. Every market including the real estate market, the real estate industry, mortgage industry, and the appraisal industries are going through changes. Some of those changes are being driven by the current market conditions, some of the changes are simply due. Some of it is being driven by advancing technology, artificial intelligence capabilities,

better data collection techniques, and some of it is being driven at the highest levels we may not agree with or even understand. But the bottom line is that it’s happening whether we like it or not. One of the first lessons you learn in real estate is the phrase: time is of the essence. This means that some obligation needs to be fulfilled within a specific time frame or the contract becomes null and void, or one party must comply with something in the contract and execute the agreement. Time is important in the real estate, the mortgage, and the appraisal industries because there are a lot of moving parts. There are interest rate locks that cost the lender and borrower money and will expire, there are inspection deadlines written into contracts, there are deadlines for the actual contract, and there are trillions of dollars being transacted throughout the world in the real estate markets. Time is of the essence! Anything that threatens those timelines and deadlines, or holds up the money being transacted, is being scrutinized more deeply and is ripe for disruption. Adam Contos, the CEO of ReMax said that, “disruption is really just the market telling you that you haven’t been taking care of business or your customers.” There is massive disruption globally in many industries and without the pressures of faster turn time demands and lower fees being paid to appraisers, many of us probably wouldn’t have looked for ways to be more efficient, faster, and more profitable within the demands that system required. Without the pressures placed on the system as a whole, appraisers would have no reason to grow and change how they go to market. Time is of the essence and if your model doesn’t allow you to produce and deliver your product or service in the time frame needed by those you serve, no amount of kicking, screaming, hand wringing, or proclaiming you’re the best will save you from the

python of progress. You will either figure out how to produce high quality appraisals in considerably less time than you are now, or you will slowly be squeezed out of the market. This won’t necessarily happen overnight, but it’s happening already, and in every industry connected with real estate, lending, title, and appraisal. If you’re still the person accepting orders, researching those orders, entering those orders into your system, starting the file, inspecting the property, picking the comps, entering the data, writing the narrative, and doing all aspects of the report, you may want to consider revising your processes a bit at some point. I won’t preach doom and gloom and call you a dinosaur; the market is already doing that. I’m just telling you there is a way for you to remain relevant in a rapidly evolving industry and a rapidly evolving world. It really just requires a mindset and paradigm shift in how you were taught to do things, and, subsequently, how you’ve likely been doing them for as long as you have.

Guy Kawasaki is one of the early Apple employees responsible for the first Macintosh computers. He’s a successful venture capitalist, an author, and the Chief Evangelist for Canva. He speaks about progress with an example of how ice was first harvested from frozen lakes in the 1800s. He called it ice 1.0. Ice 2.0 was the advent of ice factories that began popping up to serve the growing customer base of people who wanted to keep their food and houses cool. Ice 3.0 was the advent of the refrigerator and portable freezer to bring ice making inside the homes of the customer and change the experience of the end user. The interesting point of the story is that the original lake ice harvesters never became the ice manufacturing businesses, and the ice manufacturers never became the refrigerator factories. The harvesters went extinct, along with the ice manufacturing facilities, when something new and better came along. More importantly, the curve of extinction tells the story. That curve followed a very predictable path and

that was in the direction of a better and more convenient end user experience. We tend to judge the experience and needs of our customers and clients based on the way we know how to do things. We define ourselves by what we already do instead of how they could be done. The process used by the vast majority of appraisers could be something we might call valuation 2.0. We’re certainly beyond 1.0, but maybe not quite to 3.0 yet, but it’s screaming at us from every corner. You WILL speed up or you won’t. By the way, for those who think that I am advocating speed over quality, I’m not in any way suggesting that. In fact, Fannie Mae and Freddie Mac are going to be requiring even more support for adjustments, more clear commentary, and overall superior data support than most have in reports now. Time is of the essence! If you find yourself being overly self-congratulatory because you’re booked out 3 or 4 weeks, or worse, 6–8 weeks, enjoy this time—it won’t last forever. WRE

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If You Call a Dog’s Tail a Leg by Hal Humphreys, Appraiser eLearning

There is a place in Spain, in the outer

You may have to adjust in the grid or explain the difference in your analysis, but in reality, the new reporting does not impact our valuation analysis.

regions of the Basque country—that area surrounding Pamplona, where the coveted Hondarribia Zuri and Hondarribia Beltza grapes are crafted into Txakolina—with love and reverence. In this market, the farm dogs that guard the various livestock that occupy the spaces between vineyards are special. These Great Pyrenees are highly valuable and much sought after. In this region, the locals say, “El perro tiene cinco patas.” The dog has five legs. You see, long ago, before the days of Cardinal Richelieu and the Spanish Inquisition, the plucky purveyors of pre-phylloxera vines were allotted land based on an unusual accounting of canine stock. The idea was that a farmer who had more dogs, obviously had more sheep, pigs, etc. This odd, regional, some would say colloquial, accounting system was simple, one hundred hectares of land per 20 legs. The supposition was a farmer could work a good solid 100 hectares with 5 dogs (4 legs per dog x 5 dogs = 20 legs). This was all administered by the government of Spain and was strictly enforced. The regla de veinte patas, as it was known, was the law of the land for centuries. It, of course, ended when Franco came to power, but some of the more rural areas of the country still keep

Hal Humphreys is founder/lead investigator of [FIND] Investigations, a PI agency in Nashville, TN. Mr. Humphreys is a Certified General Real Estate Appraiser, A Certified Fraud Examiner, and a licensed private investigator. He serves as a hearing officer for the Davidson County Board of Equalization and is a contract investigator for the State of Tennessee Department of Commerce and Insurance. Hal is educational director at PIEducation.com and executive editor of Pursuit Magazine. Reach Hal at hal@storyboardemp.com.

32 Working RE Summer 2022

track of their dog-stock using the regla de viente patas. Here’s where it gets interesting. In this notoriously obstinate region of Spain, the farmers petitioned a local monsignor to bless dog’s tails as an additional leg. Thus, “El perro tiene cinco patas,” the dog has five legs. You can see the benefits. Dogs with five legs would get you 100 hectares with four dogs instead of five. Call the tail a leg and you’ve got yourself a five-legged dog. To this day, if one wants to buy a Great Pyrenees herding dog in remotest regions of Basque country in Spain, the terms of the deal are based on five legs. It’s just how they do it. To be a dog breeder in this area one must have geographic competency. One must know that a dog’s tail is considered a fifth leg. This story is pure fiction. It does, however, illustrate a point. Different markets accept different physical attributes as being relevant to valuation. In Humphreys County, Tennessee, lake front lots are marketed based on water frontage. The size of the lot has little bearing on the valuation. That said, Fannie Mae still requires us to report the site size in their 1004 form. Below grade areas, what many of us call basements, are no different. In Perry County, TN a basement is considered just that, a basement. It may have similar finish and may, possibly carry a similar weight in valuation, but they call it a basement. In the Crieve Hall neighborhood of Nashville, a basement is usually considered part of the Gross Living Area (GLA). Most of the

homes have walkout basements that are of equal finish and value. Furthermore, they are marketed with the below grade area included in GLA. ANSI requires us to articulate finished areas as above grade and below grade. There’s a good chance that the international canine association might require people in the Basque region of Spain to report a dog’s appendages accurately. If it’s a tail, call it a tail. Does either change the value of property or dog? No. All the new ANSI standard is trying to do, is make sure we’re reporting the finished area as above grade or below grade. That’s it. Just report above grade and below grade finished areas as such. If, in your market, like the Crieve Hall area of Nashville, people recognize below grade area as GLA, then address that in your sales comparison approach summary.

If I’m appraising a lakefront lot in Humphreys County, I’m going to report the site size on the 1004 form in the Site Analysis section. That’s what’s required. Then in my analysis, I’m going to point out to the reader that in this area, sites are valued based on water frontage. The better analogy would be that dreaded second (or third) floor room with sloped ceilings. ANSI says for this area to qualify as finished area it must be at least five feet high and at least half of that must be seven feet or more. In my market we’ve been valuing these second-floor rooms, regardless of the five-foot rule (“la pared tiene cinco pies.”), as finished area. Now, we’ll have to report finished area using the five foot/seven-foot rule. Does that mean the remaining area has no value? No. It just means we can’t call a dog’s tail a leg anymore. Just explain that in your area the math is based on total square footage, not just the five/seven rule.

You may have to adjust in the grid or explain the difference in your analysis, but in reality, the new reporting does not impact our valuation analysis. I realize that ANSI is new. It’s a change for some of us appraisers. Change can be difficult. That said, I think Fannie Mae is just trying to get everyone on the same page and have square footage be reported the same across the board. This in no way will impact valuation. You’ll still appraise properties as you always have. You’ll consider what the market participants are doing and you’ll apply the appropriate analysis to derive a market-based indication of value. That’s why you are so valuable, you provide the analysis to explain how the market is behaving. I’m thinking of getting a dog. Our golden passed away several years ago. If you try to sell me a dog, I’d very much appreciate it if you called its tail a tail. Just so we’re on the same page. WRE

Summer 2022 Working RE 33

Prepare for Change 2022–2023 by Richard Hagar, SRA

In my career I’ve been through four

major changes in the market and our business, so what’s about to happen isn’t my first time to the rodeo. I’m going to point out some things that will make a few people angry, however I’m trying to help by pointing out how you can become better and profit from the change.

As things slow down this year, the easy appraisals of yesterday will become fewer and fewer due to the appraisal waivers.

What’s Causing the Change Interest rates: The Federal Reserve has stated that it plans on increasing interest rates two to six times this year, and a few more next year. With each increase in lending rates, the number of people qualified to buy or refinance a home declines. The result is fewer appraisals will be ordered. While this has happened before, this time there’s more issues that will impact our business than simple interest rate hikes. We are about to be hit with a quadruple whammy. Waivers Both Fannie and Freddie allow “appraisal waivers” (loans where no appraisal is required) and in the past waivers were limited to fewer than 5% of the loans they purchased from lenders. However, over the past year their waivers have increased to over 40% of their loan purchases. Imagine that—over 40% of the loans no longer require an inspection or appraisal. That’s a mindboggling number (for more details read Working RE’s Massive Expansion of Appraisal Waivers on www.WorkingRE.com).

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34 Working RE Summer 2022

Prior to 2022, Fannie Mae’s UAD system was “reviewing” approximately 20,000 appraisals a day produced by approximately 40,000 appraisers. This indicates that appraisers were providing one appraisal every other day. Now consider that waivers reduce the rate to an appraisal once every 4 days. Ouch. Their excuse for waivers is a “lack of appraisers.” I agree there is an appraiser shortage in some areas however, in other areas the “shortage” is due to lenders being unwilling to pay an appropriate fee. Numerous times a day we receive appraisal requests offering $475–$550. Our starting fee is $850, and we go up from there, and are booked out 3 weeks. There’s no reason to accept that low fee when we have clients paying more. In my opinion, this shortage is self-fulfilling, brought on by lenders unwilling to pay the going rate. Then they claim a shortage which in turn allows them to obtain appraisal waivers from Fannie Mae or use other types of appraisals that aren’t as finicky about a property. AVMs Automated valuation modeling (AVM) is where a computer takes all of the information appraisers have supplied over the years to lenders and Fannie Mae, runs the data through artificial intelligence (AI) and out pops a value. For the most part, these AVMs can be accurate but not for complex properties that involve waterfront, view, outbuildings, conflicts with zoning (a highest and best use issue), sub-dividable acreage, wetlands, “mother-in-law” units, etc. Over the years, these AVMs have become more accurate and are used by lenders on a regular basis for reviews and annual loan portfolio analysis. While an

appraiser was used in the past, the AI of today is reducing the need for appraisers for many of these simple valuation questions. Desk Appraisals Both Fannie and Freddie announced that in March 2022 they will start allowing “desk appraisals” instead of the full inspection 1004 appraisals of the past. According to them, this step will allow fewer appraisers to complete more appraisals. Some estimate that an appraiser will be able to create twoplus appraisals a day. Before there was a need for 40,000-plus appraisers, but at this new rate the system will need fewer than 20–30,000 appraisers. And while not stated, you and I both know this means lenders will be pressuring appraisers for lower fees for houses that are simple to appraise. However, desk appraisals won’t work on new construction, “fix & flip” homes or complex properties. The only saving grace here is the fact that many lenders won’t use the desktop option for their loans so I might be over-stating the impact. Reason for Waivers, AVMs and Desk Appraisals Many lenders (as well as Fannie Mae, Freddie Mac, the VA, and FHA) are tired of paying for appraisals where the appraiser has lied about performing the required scope of work. Examples include: • Appraisers certifying that they have driven by each comparable and taken “original” photographs, when they haven’t, then turn around and use an MLS photograph in reports. Fannie Mae has an incredible system that knows when MLS photographs are being used instead of original photographs. They know when they are being lied to and it has been tolerated due to the large volume of loans. • Appraisers certifying that they have measured the house, but the draw-

ings match exactly what is in the county records. I’ve measured hundreds of homes, only three times did the drawings and measurements match the county records. The odds of a drawing matching the county assessor is hundreds to one. Since the Collateral Underwriter keeps track of every appraisal it knows when something’s fishy. In the case of a complex house in Prescott, Arizona, eight appraisers have identical incorrect drawings and use the incorrect square footage supplied by the county. However, one new appraiser to the area takes the required step and measures homes and provides accurate square footage (Wow, what a concept). The accuracy of this appraiser has made it clear that eight other appraisers are inappropriately using the county information. The CU knows who’s doing the job right. And, by the way, I did confirm the accuracy of the lone appraiser’s work. • Appraisers measuring homes and rounding to the nearest foot or two, and not properly accounting for areas below grade, or stairs. Appraisers then justify their rounding method by stating that using the county’s square footage makes makes the house like the comparables and the value more accurate. So, in their world, inaccurate SF of the subject coupled with inaccurate SF of the comps makes a value more accurate? • Appraisers failing to list problems that impact the subject: Never mentioning that the subject is next to a gas station, unfinished basements shown as finished or above grade, C6 homes being listed as C3, undervaluing ADUs, adjustments based on an appraiser’s opinion instead of being properly quantified, and the list goes on. In other words, lenders, and the Government Sponsored Enterprises

(GSEs) know when they’ve been lied to, so why should they pay full price to an appraiser that isn’t doing the job as required by the agreed upon scope of work? If they can’t trust the information from an appraisal inspection, why pay for the inspection? So now we have desktop appraisals which will likely be as faulty as full inspection appraisals, but delivered faster and for less money. Now looking back, has the failure to measure correctly or inspect and photograph a comparable led to more money or the downfall of 1004 appraisals and lower fees? While we can try to blame AMCs and lenders, sloppy appraisal practices are the appraiser’s fault not theirs. The Change OK so there is going to be less work for appraisers due to increasing rates, more waivers, desktop appraisals, and AVMs—we brought it on ourselves with help from lenders and AMCs who used appraisers producing poor quality work. There are going to be fewer appraisals ordered for properties located in subdivisions and places where a computer or desktop appraisals can be used. As things slow down this year, the easy appraisals of yesterday will become fewer and fewer due to the appraisal waivers. So, What Can You Do About It? AVMs, appraisal waivers and desk appraisals won’t work for: complex properties: waterfront; view; acreage; C5 and C6 homes; properties with extra buildings like barns, and accessory dwelling units (ADU). Appraisers that have the ability to appraise complex properties will be in high demand and garner higher fees. As an example, our fee for a waterfront home with an ADU is triple our normal bank appraisal fee—you can earn this fee as well, even in Los Angeles, Phoenix, or Missouri. Sweet! page 408

Summer 2022 Working RE 35

Industry NEWS Desktop and Hybrid Survey Results Nearly 2,000 appraisers have shared their opinions on desktop and hybrid appraisals. Are you planning to do these assign-

ments? Do you need more information on desktops before you make up your mind? Find out what other appraisers are saying. Continue reading on page 38 for comments. WRE

Q1 Do you to do Desktop Reports? Q1 Dointend you intend to do DesktopAppraisal Appraisal Reports?

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Summer 2022 Working RE 37

Comments: Desktop and Hybrid Appraisal Survey Nearly 1,000 written comments were left on Working RE’s Desktop and Hybrid Appraisal Survey. Here is just a small sampling of what appraisers are saying:

Considering the GSEs are requiring more detail than ever before in the appraisal report and have stated that unverified data from an interested party was unacceptable and MLS photos were unacceptable—plus they are now requiring ANSI-compliant sketches (which we should have always been doing but we know Realtors are including areas in the GLA that we cannot, thus skewing the data we rely on), it’s now OK to accept as fact “data” from homeowners and/or realtors, MLS photos and reliance on the homeowner to measure their property for us. As has always been true, you can have speed, accuracy or a cheap product but you cannot have all three. I’ve completed desktop products in the past, but they did not require an interior floor plan and they were located in areas that I was very familiar with and was comfortable with the higher risk but I won’t be completing these products with the new standards.

I have done some but I feel that the records & MLS is not accurate and sometimes not true.

It will only shave roughly about 1–2 hours off my total time to complete a regular 1004 because I will still have to spend time getting and verifying the information that I will rely upon. Therefore, based on a per hourly basis, I could only afford to reduce my fee by around 10%.

38 Working RE Summer 2022

I am probably looking at these in a different light than my peers. I recently injured my lower back, making inspections & measuring painful & intolerable. (I have had my legs go out during a couple inspections.) Therefore, I am seriously considering doing the hybrids. I do have concerns regarding the liability, though. Especially if the market turns and values go down. Then today’s buyers start complaining about how they overpaid for their home and the appraiser didn’t even look at it.

I do not know the liability or fees, either one can prevent me from completing these assignments, but if they iron out the liability, and the fee is decent, like $500 plus to start—I will explore the opportunities.

If fees are insufficient, I’m holding out. As an expert with 24 years’ experience, my hourly fee must be equal or higher than what I’ve worked so hard to attain. I’m at the top level of those who I compete with in my field and my current fees proves this. Expertise does not come cheap. I’ll retire before I work for inadequate fees.

I believe this will lead to a repeat of the crash we had in 2008.

I truly believe it’s going to prove to be bad for the entire industry due to unreliable sources for most important information. Also if I’m liable for all information on my report I will not decrease my fee. They will pay someone else for the information I would normally collect such as measuring the property and want to decrease my fee for same. All appraisers have had ANSI classes years ago and again this year so all are competent in measuring, but now they want to turn that responsibility over to someone incompetent? No I do not believe I will do desktop appraisals for one cent less.

Don’t take away the funnest part of the job.

Every month of the last 20 years in appraising, I encounter listings with the incorrect pictures. What is to stop someone from taking pictures of the outside of a subject property and submitting interior photos of a better condition property?

It seems this is where the appraisal profession is headed. Don’t mind working from home. The price of gas is a concern, clients won’t increase fees to offset.

I am open to doing desktop and hybrid appraisals as long as the fee is adequate.

The main roadblock to desktops is the floor plan sketch. No floor plan sketch, no desktop.

Like so many others I believe these forms are a mistake. I currently have several clients who allow me to send my seasoned trainee to perform the site inspection. That is his only job. So he inspects them within 24 hours of the order being assigned and then sends me the inspection portion of the report with some basic subject data completed. At that point I put in the comps, apply market adjustments, and reconcile. Every single one of these reports is finished and back to the client within 72 hours of them placing the order. THIS is a far more reliable and accurate method than these desktop/hybrid reports will be where we often do not know who is inspecting it, and how they are trained. The issue with the cost and timeliness is not with the majority of appraisers, it is often the AMC who runs a delayed review process and takes up to 50% of appraisal fees. They need more regulation, a fee cap, and faster review requirements.

I have done desktops for non-lending work for years. Hybrid reports save an appraiser unnecessary time in the field. We are experts in analyzing the market not to see if roof needs repair; that’s the home inspector’s job.

Considering I’ve been completing appraisals for over 25 years, I am nearing retirement. However, desktop and hybrid appraisals give me the ability to keep working, without the added burden of driving so much and measuring.

Golden Rule: Those with the gold (Lenders) make the rules. Time to get on board or find other types of work outside of lending.

Adding these products as part of our menu of options will help us stay competitive with the Alofts, TrueFootage, Accurity, and other staff-based firms. Our clients are screaming for shorter turn times which for us has meant adding trainees to become fully qualified appraisers, along with backend clerical support. These products are a part of our future—refusing to participate does not help the overall industry.

When the market has a correction, how many investors will rely on these type of appraisals? The investor looks to a competent professional for their expertise, who is knowledgeable with their perspective markets. How does a competent professional farm out his duties while still providing a reliable and credible report? Who ultimately will pay for the carelessness with these types of appraisals being completed and how much liability will the appraiser who was given this assignment face if the market has a significant correction?

What needs to be stressed to lenders and AMCs is that the appraiser’s risk increases with these reports, and as a result, their risk is increased. So, assuming the lenders/AMCs are anticipating a reduction of fees on the appraiser side of this new equation— that is an unreasonable expectation given the added risk. Are these reports in alignment with USPAP’s purpose to maintain public trust? Maybe not! Is it a good idea to send an unlicensed, albeit trained person, into the home of an unsuspecting borrower? The borrower is expecting a trained, licensed, professional appraiser. We know the “inspector” will likely present themselves as the “appraiser,” as has been reported in the past. Is that “maintaining the public trust?” No, it’s not. I think this is the fly in the ointment that will backfire in the lender/AMCs faces when these borrowers realize they let some unlicensed person into their home. I’m willing to give it a whirl, but I’m not willing to sell my soul or dramatically reduce my fees so the lender can close 5–10 days sooner.

At the end of the day, no matter which form you are using, the client is compensating the appraiser for their opinion of value. I do not expect the fees to be much lower than they are right now.

In my opinion, it is important to respond positively to industry changes, as long as experience and expertise continues to be rewarded. One would hope that only very experienced appraisers would be selected to do these types of assignments. If not, and these new appraisal types are simply an excuse to demand faster and cheaper, the whole idea would be counterproductive relative to minimizing risk and enhancing lenders’ positions. WRE

Summer 2022 Working RE 39

7page 35

How to Profit Appraisers will have to determine individual adjustments for site size, topography, neighborhoods, outside influences, and view. Learn how to measure homes using the ANSI system and be accurate down to the inch. Learn the system and use new tools to properly measure homes; take classes that teach how to properly determine adjustments, stop using MLS photographs and use your own original photographs, learn how to properly determine the value of ADUs (they add more value than you think, and desktop appraisals won’t do it right). Learn how to value waterfront and view properties and brush up on the requirements of highest and best use, “as if vacant” and “as improved” —because that’s going to be one more requirement on FNMA’s new form. Appraisers that learn how to value complex properties will be the winners next year, and beyond. I want you to be

among the winners, so go take classes that help you become better at your craft. I created the following classes to help you become better and thrive through what’s coming: • Identifying and Correcting Appraisal Failures (7 Hours CE) • Valuing Accessory Dwelling Units (7 Hrs CE)

HIGHER FEES ARE IN YOUR REACH THIS YEAR Online Course $119 / 7 hrs CE OREP Members Save 10%

How to Support and Prove Your Adjustments (7 Hours CE) • Appraisal Adjustments II: Solving Complex Problems (7 Hours CE) • Determining Market Value and Adjusting for Concessions (4 Hours CE) I’m trying to keep you safe and profitable out there. WRE •

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

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40 Working RE Summer 2022

Coverage for AMCs: Many national AMCs are finding the comprehensive and affordable E&O coverage they need at OREP. Call OREP today at: (888) 347-5273. Discrimination Exclusions Are Bad News for Appraisers The bad news for appraisers is that when it comes to professional liability (E&O) insurance for most professions, the majority of policies come with an exclusion for discrimination related issues. This is especially concerning given the discrimination related complaints and lawsuits that appraisers are increasingly facing. The good news is that OREP has been closely monitoring this issue and proactively worked with its primary carrier to address it. OREP’s appraiser E&O policy, for example, now includes $100,000 in coverage for any claim brought against appraisers alleging discrimination. Including $100,000 of coverage for discrimination claims makes OREP’s primary policy uniquely positioned to keep appraisers protected in today’s litigious climate. Not every OREP policy includes the coverage, so please ask your agent to ensure the coverage is included. If you’re not insured with OREP, you can visit OREP.org/appraisers to learn more and get a quote in less than 4 minutes (most cases). Stay safe out there! WRE

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