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JUNE 2011


co nten ts

table of contents


| contents |






Diving Deeper into Dodd-Frank Beyond customary and reasonable.

I am truly amazed to hear there are those who still question if appraiser pressure actually ever existed. Even worse, I know firsthand that it continues to this day. I do not need to point the finger at one specific group – honestly, I already did that several times in previous articles.


your monthly valuation publication


LVM06.11 14



Up Front 14

Diving Deeper into Dodd-Frank

Best Practices


Time is money.

Appraiser Independence

Ke l ly McClain & T odd Rasmu ssen

Departments 6

Publisher’s Note 8

Contributors 10

Staiger on Stats 46

Voices of Valuation 48

CoreLogic Stats 49

Directory 50

For What It’s Worth


Keep Fighting for Your Independence c h u c k mu reddu

PMI and the Housing Industry Reliable and credible appraisals


are critical.

Mandatory Reporting

A Dangerous Area of Dodd-Frank

adam jo hnston , sra

j ef f dic kstein


The Hot Seat


Featuring Jerry Yurek

Dispute Resolution

Se ni o r V i ce Presiden t, Collateral

There Are No Dumb Questions?

R i sk Manager of PNC Ban k

tim f orsyth e

Inside This Month



Valuations Other Than Appraisals

Toy Guns & Rubber Bullets

don kelly


What you don’t know can hurt you. Jo se ph palu mb o

june 2011


 . B E Y O N D

Diving Deeper into Dodd-Frank

Beyond customary and reasonable.

28 JUNE 2011



R E A S O N A B L E .





Today every major social media outlet has pages, topics or forums that are dedicated to appraisers and valuation topics. LinkedIn, Facebook,

Twitter and forums all

have multiple outlets for appraisers to voice their

opinions and collaborate

on industry news. As I have been perusing these

A letter from the Publisher

outlets, I have noticed that the main topic of

nothing has changed. With the vast majority of discussion around customary and reasonable

fees, other important sections of the bill have been essentially ignored.

Inside this mammoth legislation are many other

concerns that will affect appraisers on a day-to-day basis. This month in LiveValuation Magazine we

focus on the issues “beyond” the customary and

reasonable topic. Appraiser independence, brought to the forefront by HVCC, is codified inside of Dodd-Frank. The bill also requires mandatory

reporting of USPAP violations; lenders are required to inform state regulators of these deficiencies.

Also, out of the limelight is dispute resolution;

discussion is the implementation of customary

and reasonable fees as outlined in the Dodd-Frank bill. Most posts are directed at whether AMCs

and lenders are implementing presumption one

or presumption two, while other posts decry that

Dodd-Frank mandates that appraisers listen to concerns from borrowers, lenders and others

involved as intended users. Much to the chagrin of appraisers (and appraiser organizations),

the bill also defines a place for BPOs and AVMs in the valuation space. All of these issues are

overshadowed by the discussion on customary and

meet the team

reasonable fees.


I understand why the customary and reasonable fees clause is the hot topic. I have been in the appraisal business for 29 years, personally

experiencing the fee compression within the

1. Publisher | Ernie Durbin II, SRA, CRP

industry. As I stated in my publishers note last

2. Editor-in-Chief | Emily Vannucci 3. Copy Editor | Kersten Wehde


month, I do not think that the “customary” fees that are currently paid are “reasonable” for the

scope of work required in today’s marketplace.

4. Creative Director | Traci Knight

It’s an important topic and we will return to it in

5. National Sales Rep. & Marketing Coordinator | Kate Sheehan

the July/August issue of our magazine. The July/ Printer | Ovid Bell Press


Advertising Information | P : 858.832.8320 | E :

Editorial |

As valuation professionals, we need to dive deeper

Web | 4



into the additional issues affecting our industry inside of Dodd-Frank. There’s a lot below the

surface that will affect the way we do business

© 2011 LiveValuation Magazine.


different perspectives including appraisers, lenders and AMCs.

Subscription |

All rights reserved. LiveValuation Magazine is a California limited liability company and is the publisher of LiveValuation Magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of LiveValuation Magazine, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, LiveValuation Magazine is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to LiveValuation Magazine, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127

August issue will focus on the topic from several

for years to come. We look forward to hearing

your comments on these important aspects on our 5

webpage at 6

| Publisher |

Ernie Durbin II, SRA, CRP

JUNE 2011






tim forsythe

Jeff dickstein

Jeff Dickstein, Pro Teck’s Chief Appraiser, is responsible for the detail oriented culture that is at the core of our work. His diverse twenty-nine year industry background and problem-solver mentality give him a unique perspective on the future of our trade. Dickstein is a member of REVAA, CRN and is the Current Chair of the Appraisal Foundation’s Emerging Issues Task Force. He has had multiple meetings with the Government Accountability Office (GAO), the new Consumer Financial Protection Bureau (CFPB) and the Joint Fraud Enforcement Task Force/HUD regarding DoddFrank.

Tim Forsythe, CEO of Forsythe Appraisals, LLC, has served on boards for several influential appraisal industry organizations. Forsythe Appraisals was founded in 1940 by Tim’s grandfather, and is the nation’s largest independent appraisal firm. Forsythe’s brother, John, is President, and two of his sons are branch managers, marking four generations in the family business. Forsythe presently resides in Colorado.


adam johnston, SRA

Adam Johnston has been an appraiser for 20 years. Currently, he is Chief Appraiser of Genworth Financial’s U.S. mortgage insurance business. Genworth Financial is a Fortune 500 global financial security company. Previously, Johnston was Chief Appraiser at a nationwide settlement services provider. Earlier in his career, he was a bank staff appraiser and founded his own appraisal company. He was a police officer for 10 years and previously served in the United States Marine Corps. | 800.334.9270


Don Kelly

Don Kelly, Executive Director for REVAA, manages the operations of the Association: an alliance of real estate companies involved in the development and delivery of real estate valuation products and services. Kelly is an author and contributor on industry panels and a member of the Board of the Bollinger Foundation, a non-profit dedicated to helping families in need.

contr utors | contributors |





Kelly McClain

Kelly McClain is Vice President of Client Relations for Metro-West Appraisal Co., LLC. McClain began her real estate career in March of 1991 and currently holds an Associate Broker Real Estate License. She is a member of the local real estate board in Michigan and a member of the Mortgage Bankers Association. McClain is a graduate of Michigan State University.


chuck mureddu

Chuck Mureddu is currently EVP of business development for Quality Valuation Services, a national appraisal management company promoting quality, integrity and transparency. Mureddu began his career in the early 80s, and has been Chief Appraiser for 3 national lenders and served as a subject matter expert for the appraisal qualifications board (AQB) participating in the development of the Certified General Appraiser exam. | 800.693.3521



joseph palumbo

Joseph Palumbo is currently the Director of Valuation at Weichert Relocation Resources. Prior he was a First Vice President at Washington Mutual Bank. Palumbo has spent 25 years in the real estate industry. Palumbo holds an SRA designation from the Appraisal Institute; he is AQB certified and a State Certified residential appraiser in NJ. Palumbo is on the NJ State Appraisal Board. Palumbo attended Rutgers and University of Maryland. He has traveled to teach appraisal courses in Asia.


todd rasmussen

Todd Rasmussen is Regional Director of Appraisal Services for Metro-West Appraisal Co, LLC. Rasmussen has spent the last 22 years as an appraiser with many of those spent in management and appraisal review. Rasmussen is a State Certified Appraiser in Arizona. Rasmussen frequently teaches classes and is a guest speaker at local real estate schools and industry events.


michael Vincent John Spaziani

Michael Vincent John Spaziani is a graduate of Harvard University Graduate School of Design in Real Estate Development (AMD) and the University of Florida Master of Arts Business Administration in Real Estate (MABA), a program sponsored by the Appraisal Institute. Spaziani is a State Certified General Real Estate Appraiser RZ1167 and a Licensed Real Estate Broker with over 27 years of commercial and residential appraisal experience.



Roger Staiger III is Managing Director for Stage Capital, LLC. His areas of expertise are commercial and residential real estate portfolio investing, corporate business; and strategic planning, forecasting, valuation, financial modeling, asset repositioning and risk mitigation through financial hedging for physical assets. He holds positions at Johns Hopkins, Georgetown, and Loyola universities.

jerry yurek


Jerry Yurek is an avid motorcyclist and scuba diver who has supported his need for speed and compressed air by working in the real estate valuation industry for over 25 years. In Jerry’s current role as SVP - Collateral Risk Manager at PNC Bank in Miamisburg, OH, he is responsible for appraisal and collateral policy. Yurek’s previous roles include FVP - Chief Appraiser at OneWest Bank (fka IndyMac Bank) in Pasadena, CA; SVP Chief Appraiser at Aegis Mortgage Corporation in Houston, TX and AVP - Chief Appraiser at Provident Bank in Cincinnati, OH. JUNE 2011




As a graduate student I studied privatization at Moscow State University. “Study” is a bit of a stretch as

shortly after arriving in Moscow I met Polina on the Arbat, the main

market area in Moscow, and spent the majority of my time selling

Matryoshka dolls with her (I blew off most lectures and braved the

Industry’s latest stats

Roger Staiger III

Moscow streets each morning

to be with Polina rather than in

lecture). At the time, I worried my

professors would have issues with

my lack of studying, but they never

expressed disapproval. Rather, they would occasionally ask about how “sales” were going.




Generally, American tourists were conspicuous. Polina would offer

one of the smaller dolls for a dollar and the American would want

two. When Polina agreed to two, the American wanted three. The

traditional Europeans, while they haggled, were not extreme, never

expecting something for nothing. I

asked Polina about this one evening while eating (I would have taken

Polina anywhere she wanted to go in Moscow but she always chose

McDonald’s) and she told me, “You American greedy. You want big

house, many car, lot stuff. You want all for free.” This was not directed at me but a general statement in which I did find some validity.

Americans are materialistic; in general

How does it affect real estate?

2011, only 25 percent of the residential

rather than later, and for a low price.

It is significant as all rates are quoted

growth rates exceeding inflation. In

The U.S. populace has largely achieved

Capital Asset Pricing Model [CAPM]

we do want more, and we want it now

the “more” goal through credit, i.e.,

borrowing, and leveraging equity with cheap capital from abroad. The U.S.’s

ability to excessively borrow was due to

global perceptions of the risk-free nature of U.S. investment and the U.S. dollar

as the global reserve currency. In April 2011, all of this was thrown in doubt. For the first time since Standard &

Poor’s began its outlook designation

in 1991, the U.S. has been downgraded from “stable” to “negative.” This translates to a 1 in 3 chance of a downgrade in the next six to 18

relative to the risk-free rate (think

from business school). A downgrade could significantly increase not just

the borrowing rates for the U.S. and its citizens but also the quantity

of borrowing and the currency for

borrowings, i.e. the U.S. has unlimited ability to sell debt denominated in

dollars, however, this could change.

Noting that the U.S. borrows 40 cents

compounded rate of about 3 percent

for the period. An equivalent amount of MSA had TOTAL growth over the

period of 1 percent or less, i.e., a house

purchased in January 2000 has had little to no price appreciation as of February 2011.

2011 was, ironically, Detroit. The

are extremely important for real estate values and for U.S. corporations.

achieving historic norms. Real estate, in

ceiling increase! Why is this important?

in the Case-Shiller index, had an annual

residential mortgages, borrowing costs

in the mainstream and financial media, congressional budget approval or debt

aggregation of all individual 20 MSAs

The high point for the Case-

borrow 80 percent for most new

Further, the realistic outlook on

it could be more significant than a

fact, the composite-20, representing the

of each dollar spent and Americans

months. While the significance of the

downgrade has received little attention

MSAs achieved compounded annual

residential real estate in the U.S. is

the long term, is an inflation hedge; it

increases at the rate of inflation. For the period from January 2000 – February

Shiller data published February only MSA to post a monthover-month gain was Detroit, which has

experienced the

most significant

price destruction since January

2000 (a loss of >> JUNE 2011


more than 31 percent). Nationally, the U.S., as measured by the

In a year-over-year basis the DC-MSA has maintained its

even the venerable DC-MSA posted a loss of approximately

2010 – February 2011. The rest of the nation, as measured by the

composite-20, lost slightly more than 1 percent in value, and 15bps.




position of prominence, posting a 270bp gain from February

composite-20, lost more than 330bps during the same period.

The 600bp spread between the DC-MSA

economics, an increase in supply with

and composite-20 remains.

a corresponding decrease in demand is further evidence of future price

Most significant is the futures

declines as the market searches for a

market for real estate pricing, which experienced the largest changes in

futures values with many of the indices experiencing a 50bp futures price

reduction for 2012. The timing for

the bottom of the residential market

remained unchanged at mid-2012, but it became deeper and more pronounced. Two additional important statistics

developed in April 2011 and directly relate to future residential pricing.

Home foreclosures are increasing and

household formation is down from 1.3m in 2007 to 0.4m in 2011. The reduction in household formation is significant

as it relates to a significant reduction in

housing demand. Foreclosures relate to

an increase in supply. From basic college

new equilibrium.

The high point for the Case-Shiller data published February 2011 was, ironically, Detroit. The only MSA to post a month-overmonth gain was Detroit, which has experienced the most significant price destruction since January 2000 (a loss of more than 31 percent).

The current price corrections in U.S. residential real estate, “negative” outlook for the U.S. by Standard

and Poor’s, and expansive growth in foreclosures place greater focus on Polina’s comments regarding American greed. Polina and her

family had a simple flat just outside of Moscow. The flat’s furnishings were spartan but the family experienced no noticeable loss of happiness.

Perhaps the current price corrections in residential real estate are a larger sign

for American “values”; not the “value” of the home, but rather the “value” of happiness. 6

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JUNE 2011



up front a report and shipped it

work on the other. Use

want to have to touch the

checklist. Nothing takes up

to your client, you do not file again for revisions or missing items within the

report. Our goal is to help

all appraisers be proactive

rather than reactive and to be at the forefront of the

appraisal industry. We can

the engagement letter as a

more time than going back to revise a report. This is

especially frustrating when it is something that was specifically listed in the engagement letter.

all find ways to save time,

increase quality and become more efficient.

AMCs offer a fee for a service. The less

time you spend on that service, the

more money you

will make. This is

simple math. The

more efficient you

are as an appraiser,

the more appraisals

you can do. Start with

Best Practices Time is money.


K elly M c C l a i n & T o d d R asmusse n

ime is money. We have all heard this bit of wisdom time and again. Let’s explore this relationship as it relates to the appraisal profession. Whether you are receiving customary

and reasonable fees (congratulations!) or not so much, you will only be paid once for each engagement. We are all finding that

the simple things. Don’t

try to reinvent the entire

Get a GPS. Many of us

feel that we would never

need one. Some appraisers have been working and appraising in the same

area for several years. This wonderful little box can

reroute you based on the

traffic in certain areas. You

would not be able to do that by looking at a map book

or Google Maps. This will

save you countless hours on the road.


Know how your multiple If you don’t have two

monitors, stop reading

this article right now to get online and buy an

additional one. Much of what you are typing on

your reports can be cut and pasted into other areas.

This will save you time and eliminate typographical

errors. You can also have

your client’s engagement letter open on one side

while you review your

listing service (MLS)

systems work. Some of

the old-school appraisers have been searching for

comparables the same way for many years. Most MLS

systems across the country have new and additional

features that they did not

have just two or three years ago. The training classes are usually free; some

MLS systems offer them as webinars as well. Another

thing to do is to export your

clients want more information and they want it in less time and

sometimes for less money. Learning to appraise faster and more

efficiently will help you flourish. We would like to share with you

some tips to help save time and money. Once you have completed 14



Learning to appraise faster and more efficiently will help you flourish.

paperwork and listing tickets

will be some of the most

saves you from wasting time

in recent and not-so-recent

from the MLS to a PDF. This

printing. It also saves a lot of paper and ink, which saves you money.

challenging and exciting If you can manage it, hire an assistant or trainee to help you save time

and concentrate on your

appraisal reports. A clerical Have a good camera.

Cameras are an extremely

important tool for appraisers. If you haven’t upgraded

in the past two years, you are losing time. There are

good digital cameras for less than $100. They download at twice the speed of older models. Get a camera just for work use. Set it to the

lowest quality. Many reports these days can include more than 50 photos just to meet the requirements listed on

the service agreement. The lower-quality setting will speed up the download process and will not

adversely affect the quality of the pictures in your report.

assistant can help set up your appointments, map out your day and send status updates to your clients. Some AMCs want a status update every

day. This may require logging into two different systems for an update: your own

internal tracking system and

the website for the client. An assistant can also help with other tedious duties such

as filling out applications

for new clients or AMCs. In addition to or instead of an

assistant, a trainee could be a

big help. If you have the time and patience to work with

someone, a trainee is useful to help you increase the

quantity of reports you are sending out to clients.

They can assist with pulling Ask questions! Nearly all AMCs or lenders have a

way to contact them in the

engagement letter or order

form they send you. Use their services. Ask questions if you are not clear about what they

data and helping you during the inspection. Another set of eyes on your report can

help reduce errors. You may find that you can grow your

appraisal practice by adding

either an assistant or trainee.

memory. There are amazing

AMCs will be the driving force in our industry for years to come. Lenders and clients have a need for their services. That being said, not all AMCs are created equal. There are vast differences. Some use a QUEUE system to disperse orders. Others use the blast technique. And still others use the oldfashioned telephone. Pick the clients that best fit your needs and style.

are requesting. They are not

AMCs will be the driving

to serve us as well as the

years to come. Lenders and

And still others use the

services. That being said, not

Pick the clients that best fit

There are vast differences.

appraisal and valuation

to disperse orders. Others

The next 12 to 18 months

the enemy. They are there

client and end-user. A simple five-minute phone call could

save you an hour of problemsolving.

new products that will

completely change the way an appraisal looks and the

way the report is developed. Some are designed to save

time and others are designed to bring more business to

our profession. Why not take

advantage of the time-saving methods available? Your

income and future depend on it. If you do not learn

to evolve, you will become extinct. These days, time is money. Carpe diem! 6

Every time you touch a file, it costs you money.

Time-saving Tips: 8 Two monitors 8 GPS

force in our industry for

use the blast technique.

clients have a need for their

old-fashioned telephone.

all AMCs are created equal.

your needs and style. The

Some use a QUEUE system

landscape is changing.

8 Multiple listing service 8 Camera 8 Ask questions 8 Hire an assistant or trainee

JUNE 2011



up front Mortgage insurance

The private mortgage

industry with minimal

game” and thus effective

seemed like a distant

impact on or interaction with the appraisal

profession. However,

as Chief Appraiser of the

the collateral is fundamental

business, I was surprised

at the extensive utilization of appraisal services by a wide variety of business

functions. These business functions rely upon

appraisals as a fundamental and vital part of risk

management. Rather than

marginalizing the role of the residential appraiser, I have witnessed an environment

F 16



or most of my appraisal career, the topic of mortgage insurance rarely entered my conversations and most certainly remained fairly unimportant to me.

understanding the value of to understanding the loan risk. As stated in a recent paper by authors John McCrocklin, The Real

Estate Center at Texas A&M University, and Realtor

Property Resource, “The

value of a non performing

loan, apart from mortgage insurance, is determined

largely by the value of the property collateral.”

where the expertise of

While sufficient credit

is both appreciated and

vital to loan risk, accurate

a competent appraiser

A d am J o h n s t o n , S R A

management are vital.

As you might imagine,

U.S. mortgage insurance

Reliable and credible appraisals are critical.

risk assessment and risk

when I joined Genworth Financial two years ago

PMI and the Housing Industry

insurer has “skin in the

valued. In short, reliable and credible appraisals

are important to our daily business. For example,

appraisals are a critical part of our mortgage insurance underwriting process. In

addition, appraisal services are utilized by Genworth’s claims, investigations and

homeownership assistance functions.

As a refresher for those who may not be familiar with

private mortgage insurance, the industry is most

commonly involved with

residential mortgage loans

having loan-to-value ratios exceeding 80 percent. A

portion of the loan amount

will be insured against loss

associated with foreclosure.

and capacity are certainly collateral valuations are vital to understanding

the equity position of the mortgagor (aka “skin in the game”). Moreover,

ongoing monitoring of

collateral value provides

meaningful benefits to risk management.

As the market for low

down payment mortgages continues to evolve in

reaction to recent housing market events, prudent

lenders are able to utilize

private mortgage insurance to reduce their exposure to risk, and to help the

growing number of buyers

who want to take advantage of lower rates and home prices, but lack the

Rather than marginalizing the role of the residential appraiser, I have witnessed an environment where the expertise of a competent appraiser is both appreciated and valued. resources for a 20 percent down payment. In contrast to private mortgage insurance, government backed mortgage insurance is offered through FHA. Historically, the FHA has served a countercyclical role, expanding its market share when the housing market faces challenges. In recent years, FHA has insured a significant percentage of mortgages originated in America. As the government scales back its role in the housing market, private mortgage insurers will continue to fulfill a vital role in helping borrowers achieve homeownership. As an added benefit, some mortgage insurers offer job

loss protection. In the event of involuntary job loss, this protection (offered on some products by some insurers) may pay mortgage costs of up to $2,000 per month for up to six months. This gives the borrower some “peace of mind insurance” and provides the borrower valuable financial assistance. In addition to the role of private mortgage insurance in furthering homeownership, the private mortgage insurers work closely with mortgage servicers in foreclosure prevention programs. Since private mortgage insurance companies have their own capital at risk in a firstloss position, they have a clear incentive to mitigate losses by taking action to

WALL We know you’ve been there – do stupid requests leave you pulling out your hair!? Well feel free to let loose on our Wall of Shame. Everyone remains nameless so no one gets hurt - it’s just a good ol’ venting session. Submit your Wall of Shame-worthy comments to We promise, you’ll feel better after you do!

avoid foreclosures. For example, Genworth Financial completed nearly 40,000 workouts in 2010. Most of these loans were successfully cured, enabling borrowers to avoid foreclosure and remain in their homes. The private mortgage insurance has helped more than 25 million families achieve homeownership, according to the Mortgage Insurance Companies of America. The private mortgage insurance industry enables lenders and investors to mitigate their risk on low down payment residential mortgages while protecting borrowers from foreclosure. A number of factors enable private MI companies to mitigate risk. Because a company like Genworth

operates nationwide, we provide geographic diversification to reduce the effect of local or regional market declines. We also offer lender diversification to decrease the impact of lender-specific operating issues. And, because MI companies are experienced in understanding risk in a highLTV market, this experience can benefit lenders. While I don’t anticipate that this article will result in mortgage insurance being an urgent topic at your next social gathering, I am hopeful that some of the information is helpful in providing a basic understanding of the important role of private mortgage insurance in the housing market. 6

SHAME M I had a client that wanted me to write a letter

stating that the subject property had not sold within past year. The report clearly stated that the property had not sold in past 12 months, so I had to send them a letter explaining that 12 months equals 1 year.

M An AMC just called looking for a fee quote for a

purchase upwards of $3,000,000. When I quoted my fee the contact said our lender needs 2 appraisals and will only pay $475. I laughed and said good luck with that. (To her credit she did says thanks I’ll need it.) I should keep this email link on my desktop!!

JUNE 2011



up front


20 questions - things you need to know or may have been wondering JUNE 2011

the hot seat From the best purchase he’s ever made to his outlook on the future of real estate valuation, we get the personal and professional facts from Jerry Yurek, Senior Vice President, Collateral Risk Manager of PNC Bank, in our monthly edition of The Hot Seat. 18





The biggest challenge to >  You can’t always be working. Take time to enjoy life, too! the appraisal/ PN C Bank Senior Vice President, valuation >  My favorite website is I’m addicted to motorcycle road Collateral community is Risk Manager racing at the premier level. It’s like NASCAR for motorcyclists! ourselves! We have to become >  My favorite magazine (besides LiveValuation) is Motorcyclist. Keeps me up to speed on my more orgafavorite thing besides real estate valuation. nized when it >  Every morning I get up and I can’t wait to get to work (except weekends). I really love my job! comes to creating appraisal >  I can’t go without Diet Dr Pepper – it really does taste like regular Dr Pepper! regulations >  My parents taught me how to do just about EVERYTHING! Parents never seem to get all the credit and openthey deserve! Thanks, Mom and Dad! minded to new valuation >  I’ve never ridden a motorcycle cross-country or been to the Ducati motorcycle factory in Bologna, methods and Italy, but I plan to do both! services we >  I always look for ways to incorporate motorcycle riding into my daily activities. can provide our clients. >  The best lesson I’ve ever learned is the harder I work, the luckier I get!



 The best purchase I’ve ever made was my first motorcycle. It gave me a sense of freedom and

excitement long before I was old enough to drive a car.


 The most difficult property I ever appraised was the first one! I still remember it 25 years later. A new two-story

log home in a subdivision full of 30-year-old brick ranches! No comparable sales anywhere.


 The biggest challenge to the appraisal/valuation community is ourselves! We have to become more organized

when it comes to creating appraisal regulations and open-minded to new valuation methods and services we can provide our clients.


 The future of real estate valuation is bright because of the technology currently available and being developed to

aid appraisers in offering additional valuation services that compete directly with broker price opinions (BPOs).


 The biggest technological leap for appraisers was being able to access public records and market data on the


 The greatest setback for appraisers was and still is, in my opinion, licensure without adequate enforcement.

Internet. I guess I’m dating myself with this one.

Many state appraisal boards still lack sufficient funding to quickly investigate complaints and enforce appraisal regulations.


 My biggest pet peeve with appraisal reports is the lack of sufficient “analysis” of the prior sales of the subject

property. Just stating that the subject property sold previously is not enough. Tell me why there is a difference between the prior sale price and today’s value estimate.


 The most ridiculous thing about the valuation industry is the low fees that many appraisers are willing to accept

compared to the amount of time necessary to produce a credible assignment result. What is your time really worth?


 The most fascinating thing about the valuation industry is we get paid for our opinions! How cool is that?!


 Before I entered the valuation industry I was attending college and working at a bank as a teller.


 Chief appraisers are invaluable. Every financial institution involved in real estate lending should have one! JUNE 2011



Executive Summary. The Collateral Valuation Report was designed so that the first page presents an executive summary of your market analysis and value conclusion.

4811 Kingston Avenue

Borrower James Rogers

Address 2445 Septimus Drive


City Littleton

Contact Sample Appraiser

Phone (303) 875-5677

Address 4811 Kingston Avenue

City Highlands Ranch

Owner Kim Jones


Zip 80126

County Douglas

APN 2231-18-2-10-013

R.E. Taxes $ 1,960.41

Property Interest Appraised:

Fee Simple

Tax Year 2008


Highest and Best Use: Legal Description LOT 392 HIGHLANDS RANCH # 120C 0.093 AM/L


Photo Date and Source The date and source of the photo is indicated to ensure relevancy and reduce fraud.

File No.

Ref No. 00001563

Client TerraForma Lending

Year Built 1998

Total Rooms 3 Bedrooms 3

Design (Style) 2-Story

Stories 2+B

Baths 3

Car Storage G2

GLA 1680

Basement 464

Site Area 3920

Appraiser Source Pictometry

PhotoDate 03/15/2009

Bsmnt Finished

Comments: The subject property is a typical improvement for the neighborhood. Given the diversity of the Highland's Ranch neighborhood, it represents a newer home within this area.

Market Trends. The trends for sales and listings for the market area are graphically shown for easy and better interpretation of the activity in the market area.

Neighborhood Name Highlands Location Built-Up Growth



Over 75% Rapid

25-75% Stable


Tr en d s Median List Price Median Sale Price List to Sale Ratio

Last 3 Mos. 299,900 235,000

Rural Under 25% Slow Property Values Increasing Stable Declining


Price($000) 185

Low 3


High 35

Neighborhood Boundaries

Age (Yrs)

Pred 12 380 Demand/Supply Marketing Time Shortage < 3 Mos In Balance 3-6 mths Over Supply

Appraiser’s Opinion of Value. The appraiser’s opinion of value and the effective date of the value are indicated.

Over 6 mths

Sales Prices Listings Price

300,000 250,000 10-12 Mos

7-9 Mos

4-6 Mos

0-3 Mos

Fe Drive in the southern tier of the Denver Metropolitan area. The neighborhood consists of more than 20,000 housing units and is considered to represent one of the more desirable neighborhoods in the area. Housing stock varies widely in this neighborhood, with home prices ranging from $200,000 to more than $1,000,000.

Neighborhood Sales Price Range: $


Average Neighborhood Sale Price: $


to $


249,576 Indicated Value from Regression: $ 249,574 to $ 249,579 Indicated Value Range from Regression: $ Based on the defined Scope of Work, Statement of Assumptions and Limiting Conditions, and Appraiser's Certification, my opinion of the 12/01/2009 , which is the effective date of this appraisal, is $ 252,500 market value of the subject as of .

% Change



-2.22 3 Mos -3.33 6 Mos -4.44 9 Mos -5.55 12 Mos

-2 -4 -6 -8

$ $ $

3 Mos

6 Mos

Forecast Source Veros

9 Mos

12 Mos


Market Value 252,500 Next 3 Months 246894.5 Next 6 Months 244091.75 Next 9 Months 241289 Next 12 Months 238486.25

Comments: The forecast for the suject market is for continued declines.

Date 02/05/2010

Appraisal Sentry (TM)

Signature Date 02/11/2010

Name Sample Appraiser Company Bradford Technologies Address 302 Piercy Rd City San Jose State License #


Zip 95138


Certification # Other # Expiration Date 01/01/2011

Identity Authentication. The identity of all CVR Certified appraisers has been authenticated by Appraisal Sentry using “out of pocket” credentials.



No Inspection

CVR Executive Summary

State CA Exterior Only

Interior and Exterior


Copyright 2009-2010 AppraisalWorld, Inc. 866-445-8367 All Rights Reserved

Page2 of 12

The New Collateral Valuation Report Produced by appraisers trained in real estate regression analysis Learn how you can profit with this new report.

Call Today 866-445-8308 20



12-Month Value Forecast. Using economic data, the value of the collateral is forecasted for 90,180, 270 and 360 days out. A trend chart for a better understanding of the anticipated values is shown.

Appraiser Identity and Data Authentication by


Value Reconciliation. The value ranges in the market area, the indicated value by regression and the range are show in one place for easy reconciliation of the overall values in the market area.

Market Area Graphically Illustrated. The market area is graphically illustrated on a map showing the subject and surrounding area

Neighborhood Description and Market Conditions: The Highlands Ranch neighborhood is located proximate to Highway C-470, between Interstate 25 and Santa


Neighborhood Demographics. The standard neighborhood demographic information typically found on a 1004 is also found on the CVR.

Property Photo. The subject photo is on the front page. Makes it easy to view and ensure it’s the correct property being used for collateral.

CompCruncher, AppraisalWorld, CVR are trademarks of Bradford Technologies, Inc.; Other brand and product names are trademrks of their respective owners.

Report Fraud Prevention Using “On Document Verification” technology, this data matrix contains all the pertinent data about the appraiser and the report. This is similar to technology used by the postal service to prevent mail fraud.

Statistically Supported Appraisals. Distinguish Yourself and Profit. Local Market Analysis File No. 4811 Kingston Avenue Ref No. 00001563


4811 Kingston Avenue

City Highlands Ranch

County Douglas

State CO

Area Location Map

Zip Code 80126

Neighborhood Boundary

Area: 14.815 sq miles Sq Miles

Market Area. Graphically defined on a map to visually illustrate the market boundaries and surrounding landmarks..

Regression Analysis File No. 4811 Kingston Avenue Ref No. 00001563


4811 Kingston Avenue

City Highlands Ranch

County Douglas

State CO

Zip Code 80126

Predicted Values to Actual Sale Prices 340,000

Neighborhood Name Highland Location

Census Tract 0141.18 Suburban


Over 75%


Under 25% south-central Denver Metropolitan area. This planned neighborhood provides excellent





In Last:

3 Mos.

4-6 Mos.


linkage to employment centers, retail/shopping and other amenities. 7-9 Mos.

10-12 Mos.

Total Listings





Median List Price





Total Sales





Median Sale Price





Days on Market





Sale Price / SqFt





Low Sale Price





High Sale Price





Absorption Rate


Months of Supply


List/Sale Price Ratio




Marketing Time 3.0

Sales and Listings Prices




Sales Prices Listings Price

300,000 250,000 10-12 Mos

7-9 Mos

4-6 Mos

0-3 Mos


Total Sales and Listings



100 0 10-12 Mos

96.63 In-Balance


94.55 Over-Supply


Market Conditions: Given the nature of this neighborhood, market conditions have remained stable with sales and listings generally in balance.

7-9 Mos

4-6 Mos

Days on Market (Sales)

0-3 Mos



40 30 20 10


2 10-12 Mos 34 7-9 Mos 6 4-6 Mos 2 0-3 Mos

10-12 Mos

7-9 Mos

4-6 Mos

0-3 Mos


Listings to Sales Ratio



94.55 10-12 Mos 94.68 7-9 Mos 96.63 4-6 Mos 96.25 0-3 Mos

110 100 90 80 10-12 Mos

7-9 Mos

4-6 Mos

0-3 Mos



-2.22 3 Mos -3.33 6 Mos -4.44 9 Mos -5.55 12 Mos

-2 -4 -6

Value Trend Forecast Next 3 Mos -2.22% $ 246894.5 Next 6 Mos -3.33% $ 244091.75 241289 Next 9 Mos -4.44% $ Next 12 Mos -5.55% $ 238486.25

-8 3 Mos

12-Month Market Trends Sales and listing activity for the last 12 months is graphically displayed.

Total Sales Total Listings


Increasing 6 Mos

9 Mos

Neighborhood Value Trend and Impact on Subject Property:

12 Mos




300,000 280,000 260,000 240,000 220,000 200,000 180,000 195,048


Components of Value. Appraiser driven regression can identify the components of a property that contribute to its overall value. The value, its significance and whether its acceptable is indicated in the table.





Actual Sale Price


Indicated Value from Regression: $

Regression Output Statistics Statistical Measure

Total Properties Sold within Boundary 207

The subject is located within the Highlands Ranch neighborhood, in the




Predicted Value

Regression Metrics and Scatter Plot. The measure of accuracy is shown in the table. The correlation of actual to predicted sales is illustrated in the scatter plot.

Model Output


R Squared



Adjusted R Squared

39.48% 6.94% 5.67% 5.16%

Acceptable Very Good Very Good Very Good

COV COD Standard Error

Components of Value Component

Most Likely Value $194,659.64 $23.77 $6,344.95 $.7 Excluded Insufficient Data $12.57 Insufficient Data -$1,096.78 $668.6 Insufficient Data Insufficient Data -$135.47

Base Neighborhood Value GLA Total Baths Site Area SF Garage Spaces Carport Basement Area Basement Finished Year Built Fireplaces Pool Spa Sale Date (Monthly)

Sale Price

Acceptance of Variable $185,417.34to$ $19.92to$27.63 $3,809.84to$ $.20to$1.19

Accepted Accepted Accepted Accepted Excluded Insufficient Data Accepted Insufficient Data Accepted Accepted Insufficient Data Insufficient Data Accepted

High Medium Low

Medium Medium Low


Top 10 Sales Address

(Most relevant to Subject and Market)

Significance of Variable

$8.14to$17.00 -$1,314.59to-$4,900.71to$


(Most relevant to Subject and Market)

Date of Sal e


Site Area

Bdrms Baths Distance

10081 MACKAY Dr , 80130 4849 Kingston Ave , 80130

$240,000 $250,000

11/16/2009 09/30/2009

1,677 1,691

5,662 SqFt 3,920 SqFt

3 3

3.00 3.00

0.27 mi 0.03 mi

9689 Adelaide Cir , 80130 10086 Cairns Ct , 80130

$258,000 $279,000

09/29/2009 09/25/2009

1,678 1,707

5,662 SqFt 6,098 SqFt

3 3

3.00 3.00

0.37 mi 0.11 mi

4916 Waldenwood Dr , 80130 4914 Collingswood Dr , 80130 4851 Collinsville Pl , 80130 10338 Rotherwood Cir , 80130 5559 E Wickerdale Ln , 80130 9882 Aftonwood St , 80126

$252,500 $249,900 $243,000 $273,000 $268,000 $232,300

10/05/2009 08/31/2009 08/24/2009 09/17/2009 08/26/2009 10/15/2009

1,649 1,677 1,708 1,768 1,678 1,513

8,276 SqFt 6,534 SqFt 4,356 SqFt 5,662 SqFt 6,969 SqFt 4,791 SqFt

3 3 3 3 3 3

3.00 3.00 3.00 3.00 3.00 4.00

0.34 mi 0.41 mi 0.11 mi 0.37 mi 0.86 mi 0.39 mi

Evaluation of Data and Analysis Number of Observations Very Good (228) Data Quality Acceptable Comparison of Subject to Dataset Acceptable Overall Agreement with Model Output High


Overall Agreement with Model Accuracy Acceptable

The forecast for the subject market is for continued declines.

Co m m en t s : There was a sufficiency of sale data to produce an appropriate indication of value from the regression analysis. With 177 sales, this dataset was appropriate and rich enough to provide ample evidence of value. The R squared and Adjusted R squared were both

CVR Neighborhood Summary

Copyright 2009-2010 AppraisalWorld, Inc. 866-445-8367 All Rights Reserved

Page 3 of 12

12-Month Value Forecast Using economic data, the value of properties in the market are forecasted.

adequate for a well-designed model. The measures of dispersion in the COV and COD, in tandem with the Standard Error at 5.16% were both determined to represent a highly predictive valuation with minor error.

Copyright 2009-2010 AppraisalWorld, Inc. 866-445-8367 All Rights Reserved

Page 4 of 12

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& | joseph palumbo |

toy guns

rubber bullets

What you donâ&#x20AC;&#x2122;t know can hurt you.




You may have heard

the cliché,

“What you don’t know won’t hurt you.” O b v i o u s l y , th at i sn ’ t t ru e a l l o f t he t im e .

As we continue

to spin the perpetual let’s-try-to-fix-the-realestate-market wheel, some self-serving, shortsighted



b e en pro po sed. Some of these solutions involve changing laws. Four states recently proposed legislation that would prohibit appraisers from

using REO and/or short sale properties

as comparable sales in appraisals. Those states are Illinois, Maryland, Missouri and Nevada. First we had the HVCC (Home Valuation Code of Conduct),

then licensing of appraisal management companies (both appraisal process

related changes), and most recently the

proposed interference with the appraisal itself (the latest proposal was actually telling us “how” to do our analysis).

What’s next? Do we tell lawyers what kind of evidence to use? Do we tell

doctors to examine us and properly

and accurately diagnose, but only do a

cursory exam? Fortunately for all of us, as of this writing, these bills are dead

or stalled. Two bills missed procedural deadlines, one has been amended and

the other was withdrawn by its sponsor. Still, I believe it is worth the effort to

explore why these bills would not have been a good thing for the profession or the public.

education and 2,000 hours of practical

required due diligence? Of course there

cannot be gained in less than 12 months.

can show you how many of those lost

experience. The practical experience Anyone who has

are, but any homebuilder sales office

deals exist compared

recently gone

to the anemic

down this road

demand overall.

knows that the

The foreclosures,

criteria and the exam (which

was made more challenging in

2008) are not easy to conquer. The understanding

and development of what the

valuation process is and what it

takes is not an

overnight reading exercise. Looking

distressed sales

What’s next? Do we tell lawyers what kind of evidence to use? Do we tell doctors to examine us and properly and accurately diagnose, but only do a cursory exam?

at appraisals over several years as

and short sales

these laws were

seeking to prohibit from being used

in appraisals were

sown in the gardens of the builders and

Realtors who believe these laws are the

panacea for all U.S. housing woes. It wasn’t long ago

when the builder’s

increase adjustment was the fill-in-the-

a builder, lawyer, Realtor, underwriter

gap solution for making sense out of

expert on appraisals, just as working in

Remember when the Realtor would

or loan officer does not make one an

a garage does not make one a mechanic. Photos, sketches, market grids and

commentary are not indicative of what the appraisal process is.

These proposed laws were being

brought forth by builders and Realtors who just can’t adapt to the new world. Noteworthy sources have published

article after article detailing why people can’t afford new homes and why they

the inferno-like price appreciation. meet you at the property and say,

“Good luck with this one; it sold higher than anything in town”?

Moving away from the root cause, let’s

look at the practical and legal premises behind these flawed bills: the market,

existing USPAP (Uniform Standards of

Professional Practice) requirements and common sense.

are losing their homes. I won’t say the

Here is a very practical reason involving

reality is that the entire mechanism

Many markets, including the real estate

dynamics of why are simple, but the of lending, selling, investing and

building is forever changed. Are there appraisals that contain less than the

supply, demand and economic theory. market, work on the basic premise of

substitution. Substitution means that the market will gravitate to the best >>

Let’s look at several areas of this

pragmatic solution. The Appraisal

Qualifications Board of the Appraisal Foundation (AQB) criteria to become a licensed appraiser is 150 hours of

JUNE 2011


substitute property at the lowest price.

conditions. Using the indicators (sales

definitions of market value that contain

market is to acknowledge reality. Forced

Further, it is arguable that the current similar criteria are still subject to

interpretation. For example, two items

extracted from the definition of “market value” state: 1

and listings) available in the defined

Lenders seek a market value appraisal,

the current definition of “market value”

a sale, but the appraisal should still

will create a false market picture using via the Federal Register required by

be constructed as if it would be tested in the relocation business. 95 percent the actual sale of the property. These relocation appraisals, which are not


market value but contain some similar

Both buyer and seller are acting in what they consider their best interest “Well advised”? “Best interest”? These terms can mean different things. Are

we saying here that buyers and sellers aren’t advised (i.e., consult experts)?

And in selling, while not at the desired price, are they not acting in their best

interest at any point in time? Surely they can try to sell at a different price, wait out the market or even counteroffer.

When the prevailing economic situation is not favorable, sellers are motivated by the need to sell and a specified

time period can affect the net result. Well advised can be taken to mean

many things for both the buyer and

seller, but the bottom line is the sellers generally know market conditions are favorable or unfavorable. Regardless,

they want the most they can get for their property. By logical extension, the buyer is motivated by similar forces on the

opposite side, which is to not pay too

Mandating that appraisers exclude certain types of sales from their analysis is like giving our soldiers toy guns and rubber bullets. They look good and take on the appearance of what they need, but in reality they don’t work.

force. Market activity takes place and the appraisers interpret the activity.

The fact that prices drop as a result of

buying and selling is a result of market

elements of the market value definition, need to be especially accurate because these homes will be out there among the competition. It is a common

misconception that the use of sales and listings of short sales and foreclosures in appraisals are unfair benchmarks

at face value. Here is why this is not

practical thinking: Buyers see prices of

homes sold and expect the same prices; they do not care how the prices were

achieved. Prospective buyers also see listings and sales and negotiate the

best price they can regardless of the

seller’s situation. As long as all sales

and listings are exposed in the market

through the same mechanism (i.e., MLS, open to the masses, willing buyers, and willing sellers), everything becomes

relative, and market forces will prevail. Short sales or foreclosures not exposed in this manner should be analyzed to

determine if they should be discarded just as sales outside the market norm should be.

In the end, it is the appraiser’s job to interpret what the market is, not to

make the market. The appraisal process

much. This dynamic is an immovable


which in reality, is never tested without

of all appraisals will be tested via

typically motivated or well



exclusion of some of these indicators

Both buyer and seller are


fantasy valuation that is useless when

lenders. Simply put, either you want an

analysis that accurately reflects what the true value of the home is or you want a

involves analysis of large amounts of

data, some relevant and some not. In the end there may be several sales that are not used for many reasons. To exclude

Looking at appraisals over several years as a builder, lawyer, Realtor, underwriter or loan officer does not make one an expert on appraisals, just as working in a garage does not make one a mechanic. 1 Federal Register- Volume 73 No 224 11/19/08 page 69661 Office of the Comptroller of the Currency (OCC), Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA).


these sales exclusively based on the reason they are being sold or listed is nothing more than adverse selection. Especially


since distressed sales, foreclosures and short sales account for 34 percent of total market sales2.

Now let’s look at the messy legal argument that would force


with the Uniform Standards of Professional Appraisal Practice


appraisers to break the law. Appraisers are required to comply in federally related transactions. If these bills were enacted into law, appraisers would be put in the difficult position of having to choose which law to violate. USPAP Standard Rule 1-4 (a) mandates that appraisers “must analyze such comparables sales as are available.” The standard cannot be voided by a

state or local government. Not following USPAP could subject the appraiser to action taken against their license. Appraisers

would have to decide to commit a USPAP violation – which in

Relocation Appraisers & Consultants RAC is a nationwide organization of Independent Appraisers who are trained professionals in relocation appraising.

the case of federally related transactions would be a violation

of state law – or to violate the law prohibiting the consideration of distressed sales as comparables.

Also important is the issue of credible results. Appraisers have

What distinguishes RAC from all other appraisal organizations l

Our exclusive focus on relocation appraising and consulting.

discretion in choosing data and performing their analysis. But

the responsibility of the end product is that the results must be credible.




activities are devoted to education, research, and client outreach.

as defined by the Appraisal Foundation is:

Worthy of belief3.

The majority of our organizational


Credible assignment results require support, by relevant

evidence and logic, to the degree necessary for the intended


Each of our select group of members is considered the relocation appraisal experts in their respective markets.

use. For those who think the alternative is a value based on a hypothetical condition, think again because those need to:

Fall into one of the acceptable categories for valuations with hypothetical conditions (see USPAP Standard Rule 1-2 (g). Be credible like all valuations. A valuation not based in reality, absent of being done as part of a legal mandate is hardly credible. So I ask you, how believable is a value determination of a

property using only certain types of data and ignoring others? It looks good on the surface but in reality, it is likely to be

flawed because it is nothing but a façade. Mandating that >>

2 Bloomberg News, November 24, 2010. 3 Uniform Standards of Professional Practice, 2010 The Appraisal Foundation 1155 15th Street, NW, Suite 1111.

For more information visit our web site at:

JUNE 2011


appraisers exclude certain types of

appraiser, a simple phone call or

our soldiers toy guns and rubber

is passed that requires the appraiser

sales from their analysis is like giving

discussion could take place. If a law

bullets. They look good and take on the appearance of what they need, but in

reality they don’t work. Just so we are

clear, I am not advocating the arbitrary use of distressed sales in a valuation.

I am merely suggesting that the entire

data set is examined and the best data is used and ultimately decided by the appraiser. The scenario of “just use

certain data” is not a new one to the

appraisal business. The difference this time is that the request to exclude or include certain data in the past has been a client-imposed assignment condition. If not acceptable by the

to forgo impartiality and objectivity,

The bottom line here is

the appraiser would have to adhere to

that taking the impartiality and objectivity out of the appraisal is creating an unacceptable assignment condition.

Assignment Conditions, which severely

such a law creating an Unacceptable

Assignment Condition. Unacceptable limit the scope of the assignment and

prohibit the appraiser from rendering

credible results, exist in other situations. A list of a few examples can be found in USPAP in Advisory Opinion 19.

The bottom line here is that taking the impartiality and objectivity out of the appraisal is creating an Unacceptable Assignment Condition.

The Solution

An Assignment Needs

that many lenders/investors

a property inspection,

are these investors anyway

Since the recession started, there have been several attempts

a quality and condition rating

at fixing the appraisal industry. It started with the HVCC (Home Valuation Code of Conduct) and the licensing of

appraisal management companies was next (see LiveValuation Magazine article “The Fool’s Gold of AMC Licensing,”

April 2010). From there, the Dodd-Frank legislation was the

solution; I guess fixing the appraisers will last for a while. As a problem solver, I always try to bring a solution to the table.

Solution No.1: Pass a Federal Law that allows any appraisal user to take an existing appraisal, cross out the conclusion and make one of their own. Of course they would be the liable party. This is a great idea for those perpetual second-guessers.


Solution No.2: Change the way loans are underwritten so the lender can make a decision based on the adjusted value range. No single value point would be selected by the appraiser.


Solution No.3: :



Get rid of appraisals as we know them today and ask the appraiser to fulfill an Assignment Needs Request.


Request would include measurement of the property,

and it would supply sales that meet certain lender-defined

criteria. This new Assignment

Needs product would contain no value conclusion or range of value and would not

are seeking these days. (Who and what planet do they live on?) The lender/investor

would then have to make

their business decision (how much to lend) based on the

information provided in the Assignment Needs Report.

involve the judgment of the

In conclusion, it is clear that

no selecting or determining

are all still challenged with

appraiser. There would be

comparability or any analysis

of the sales, just a listing of the features as described on MLS. An analysis of comparability would have a net effect of

producing an appraisal, so it would have to be avoided. The Needs Assessment

Report form could include the 1004MC- type data without any trending conclusions.

This new valuation product would allow the appraiser

to provide the highly sought after (Utopian) data report

going into summer 2011, we the new economic reality.

Appraisers, builders, Realtors and tax assessors all work

together in many areas. Does anyone out there believe the

appraisal community is happy to see 34 percent of the sales

data available in a distressed

category? In working together there needs to be a regard for

professional core competency. Let’s work together to make

the new economic reality into an understood reality. 6

JUNE 2011


The Dodd-Frank Issue A pprai s e r I nde pe nde nce



Mandatory report in g


Dispu t e Resolu t io n


Bpos & avms


Apprais er I n d ep en d en c e

Diving Deeper into











1. Chuck Mureddu Keep Fighting for Your Independence











2. jeff dickstein A Dangerous Area of Dodd-Frank


Mandat ory r e port i n g


n r


Dispute R e sol ution


B pos & avms


Appraiser In depen den c e




M an dat ory reporti n g

d e





3. tim forsythe There Are No Dumb Questions?



4. don kelly Valuations Other Than Appraisals

JUNE 2011


The Dodd-Frank Issue A ppraise r In de pe n de nce


Appraiser Independence



Chuck Mureddu

Apprai s e r I n d e p e n d e n c e


Apprai s e r I n d e p e n d e n c e

Keep Fighting for Your Independence Dodd-Frank empowers appraiser independence.

Appraiser independence has been a topic of conversation for many years before HVCC and DoddFrank were ever conceived, and why not? After all, independent

pressure on appraisers will continue.

institution shall take appropriate steps

industry has been inundated with

independent judgment and that the

foundations of our profession. Yet

to see that Dodd-Frank and the Interim

Since the mortgage meltdown, our

regulatory reforms that in some cases make good sense and in some cases

do not. HVCC was a good start and

analysis and reporting is one of the

although it has sunsetted, I am happy

we continue to struggle to convince

Final Rule support the spirit of HVCC.

job independently, without coercion,

As I mentioned earlier, appraiser

pressure was practiced almost

been around for some time. They first

agenda. In the end, this compromised

Federal Regulations Title 12 – Banks

truly amazed to hear there are those

of FIRREA. This section requires that

actually ever existed. Even worse, I

of the lending, investment and

day. I do not need to point the finger at

say that if the only qualified persons

did that several times in previous

involved in those functions of the

others that appraisers need to do their control or undue influence. Appraiser

independence requirements have

routinely in order to satisfy one’s

popped up in 1990 under the code of

the integrity of our economy. I am

and Banking chapter 5, section 564.5

who still question if appraiser pressure

a staff appraiser must be independent

know firsthand that it continues to this

collection functions. It goes on to

one specific group – honestly, I already

available to perform an appraisal are

articles. But I do feel strongly that

regulated institution, the regulated




to ensure that the appraisers exercise appraisal is adequate. It also states

that if an appraisal is prepared by a fee appraiser, the appraiser shall be engaged directly by the regulated

institution or its agent, and have no direct or indirect interest, financial

or otherwise, in the property or the transaction. Again, this section had very good intentions, but let’s face it, it was significantly abused and

its enforcement was almost absent. In order for any regulatory code to be effective it must be enforced. In

the case of Dodd-Frank, I believe the enforcement may finally have some

teeth, as there are now civil penalties

involved. As much as I believe pressure will always exist, I also believe that

these penalties may finally deter many from the act.

It is always

interesting to get a


historical perspective


on a topic that is

challenged constantly. A topic that is easily

In the case of

In reviewing old

enforcement may

times are good.

textbooks to see how

finally have some

Estate Appraising

teeth, as there are now civil penalties involved. As

Third Edition,

much as I believe

decided to look for

exist, I also believe

published in 1978. I

pressure will always

anything that would

that these penalties

remotely touch

may finally deter

on independence.

many from the act.

The Code of Ethics section references

in 1984 was described in the Real Estate

but I would bet that

affiliation to one of

I believe the

Encyclopedia of Real

It’s a scary thought,

not tied to any code.

some direct or indirect


the years, I found my

in any of the text, but it was definitely

many appraisers had

forgotten when

they changed over


they were most likely

these organizations

at the time. Reading this section, I could only find two

paragraphs that can

be tied to promoting independence. The first reads: “When

performing a real estate appraisal assignment,

a member must render his professional

services without advocacy for his

client’s interest or the

codes established by several appraisal

accommodation of his own interest.”

with us today in one form or another.

to accept an assignment to appraise a

organizations, most of which are still Uniform Standards were not written yet and would not be until 1987. If

an appraiser was not a member of a

professional appraisal organization,

Another section states, “It is unethical property for which his employment or fee is contingent upon his reporting of a predetermined conclusion.” I could

not find the word “independence” once

implied. The definition of “appraiser”

Appraisal terminology revised edition as one who conducts appraisals;

specifically, one who possesses the

necessary qualifications, ability, and experience to execute or direct the

appraisal of real or personal property.

In 1985 and 1986, hearings held by the House Subcommittee of Consumer

and Monetary Affairs regarding faulty and fraudulent appraisals found that

between 1983 and 1985, the real estate portfolios of more than 800 federally insured thrifts, and 25 percent of all

such institutions were found to have “significant” appraisal deficiencies. It was found that as much as 40

percent of the VA home loan guaranty program’s $420 million loss in 1985

was caused by dishonest or inaccurate appraisals. Much of this was tied to

users of appraisal services and pressure on appraisers. Soon after, although

always expected, the requirement for appraiser independence was clearly brought to light and added to the definition of >>

the history of appraiser independence ?

1984: Appraiser: one

Soon after: Appraiser

who conducts appraisals; specifically, one who possesses the necessary qualifications, ability, and experience to execute or direct the appraisal of real or personal property. -Real Estate Appraisal terminology revised edition

independence was added to the definition of “appraiser,”: “One who is expected to perform valuation services competently and in a manner that is independent, impartial and objective.”


Effective date of the original USPAP.

1985 & 1986:

House Subcommittee of Consumer and Monetary Affairs found that between 1983 and 1985, the real estate portfolios of more than 800 federally insured thrifts and 25% of all such institutions were found to have “significant” appraisal deficiencies.

percent of the VA home loan guaranty program’s $420 million loss in 1985 was caused by dishonest or inaccurate appraisals. Much of this was tied to users of appraisal services and pressure on appraisers.

1989: Appraisal

Standards Board unanimously approved USPAP and adopted it.

Fast forward to present day


Dodd-Frank was proposed and passed within months and signed into law.


Governors of the Federal Reserve Board published an Interim Final Rule designed to ensure that real estate appraisers use their independent professional judgment in appraising homes without influence or pressure from parties interested in the loan transaction.

JUNE 2011





The Interim Rule implements amendments made to the Truth in Lending Act (TILA), which was enacted as Section 1472 of the Dodd-Frank Wall Street Reform and Consumer Protection to establish new requirements for appraisal independence for consumer loans secured by a consumer’s principal dwelling.

“appraiser,” which is simply: “One

increasing at a very rapid rate; in

to “doing the right thing.” Morality

services competently and in a manner

new conforming product. New exotic

taught at a young age.

who is expected to perform valuation that is independent, impartial and objective.”

The bottom line is that it took the thrift crisis of the mid- and late 1980s to

discover that appraiser independence broke down. As a result, the most

significant change to our industry is the creation of the Appraisal

Subcommittee (ASC) pursuant to Title

XI of the Financial Institutions Reform, Recovery and Enforcement Act of

some instances, subprime became the loan products were being introduced

almost daily. Who in their right mind

Fast forward to present day.

in a no-income, no-asset, 100 percent

starting in 2007, the most significant

thought that taking a calculated risk LTV loan made sense? I still cannot

believe it today. Looking back during my chief appraiser days, the lack of

independence was not only an issue

for appraisers but it was clear that loan processors and underwriters were pressured as well.

1989 (FIRREA). The ASC monitors

I remember sitting in a meeting when

activities, and organizations structure

that an underwriter should be fired

and reviews the practice, procedures, of the Appraisal Foundation.

The effective date of the original

USPAP was April 27, 1987. In 1989, the Appraisal Standards Board

unanimously approved and adopted

it. It is now developed, interpreted and amended by the Appraisal Standards

Board of the Appraisal Foundation. As for independence, USPAP requires the

appraiser to perform assignments with impartiality, objectivity, independence and without accommodation of

personal interest under the Ethics Rule. You would think that we learned

our lesson in the 1980s, but here we

go again in the early and mid-2000s. Mortgage lending was becoming

more aggressive again. Brokers and

correspondents were becoming more abundant and many were loosely

regulated at best. House prices were 32



and ethics are easy concepts to learn if

a senior level sales manager insisted for not ripping up a W-2 income

statement that disclosed half of what

the borrower was reporting. The loan was supposed to be a no-income

verification product and the sales

manager felt that it was completely legit to still make the loan on the

higher amount. Everyone was being pressured to get that deal closed.

Those who know me can imagine the

choice words I used that morning and I am very happy to say that we did

not close the loan. More surprising,

the same sales manager kept his job

and continued to constantly pressure whomever they could to get the next

deal closed. Of course, those of us on the risk side kept fighting the fight,

acting as the internal watchdog. Did we act more appropriately, like the

parent teaching their child right from wrong? After all, it all comes down

Responding to the mortgage meltdown change affecting almost every aspect of the nation’s financial services industry was signed into law. Dodd-Frank was proposed and passed within months and signed into law July 21, 2010.

Furthermore, on October 28, 2010, the

governors of the Federal Reserve Board (FRB) published an Interim Final Rule (the Interim Rule) designed to ensure that real estate appraisers use their

independent professional judgment in appraising homes without influence or pressure from parties interested

in the loan transaction. The Interim

Rule implements amendments made to the Truth in Lending Act (TILA),

which was enacted as Section 1472 of the Dodd-Frank Wall Street Reform

and Consumer Protection to establish new requirements for appraisal

independence for consumer loans

secured by a consumer’s principal

dwelling. The Interim Final Rule is also broader as it does not limit coverage to closed-end loans and includes Home Equity Line of Credit. It should also be noted that the Interim Final Rule

applies to persons that provide services without regard to whether they also

extend consumer credit by originating

mortgage loans. They include creditors, appraisal management companies,

appraisers, mortgage brokers, realtors,

title insurers, and other firms that provide settlement services.

The Interim Final Rule requires lenders to have the valuation management

functions independent of the lending, investment and collection functions.

Valuation management functions are defined as, recruiting, selecting or

retaining an appraiser, contracting

with a person to prepare a valuation,

managing or overseeing the process of preparing a valuation, and reviewing

or verifying the work of a person that prepares a valuation.

There is a mandatory reporting

requirement. Creditors or settlement service providers who have a

reasonable basis to believe that an appraiser has not complied with

USPAP or ethical or professional appraiser requirements under

As you can see, although HVCC is

So what is independence? The

the Interim Final Rule are consistent

very gracious to allow me to quote

now sun-setted, certain provisions of with HVCC. In fact, Dodd-Frank and

the Interim Rule strengthen its original purpose by establishing the Consumer Financial Protection Bureau, which

will provide a hotline for complaints and will be tasked to investigate

those complaints. It will also have the

authority to assess substantial penalties for non-compliance. Those penalties are significant to the tune of $10,000

per day for the first offense and $20,000 per day for subsequent offenses. The

jury is still out to see if function of the

Consumer Financial Protection Bureau

will be effective but this is the first time I’ve seen something that may finally have teeth.

contributors of Tin Can Films were their definition. Their website reads, “For us it is the desire and ability

to freely create, not without input,

not without teamwork, but with the freedom to tell a story the way we

think it is meant to be told.” This is

such a simplistic way to communicate a strong message that I believe is the

right one. The need for independence

should be a no-brainer and frankly, we

should not need regulations to promote and enforce it. Nevertheless, the

reality is unfortunate, as we do need

regulations based on past experiences. Dodd-Frank moves us in the right direction. 6

The Interim Final Rule Prohibits:

federal or state law, must report such a failure to the appropriate state

licensing agency, where it is likely

to significantly affect the valuation.

Unfortunately, the timing to report a

violation is somewhat vague. “Within a reasonable time” can be open to interpretation.

Lastly, the rule does not prohibit a

person with an interest in a real estate transaction from asking an appraiser to consider additional appropriate property information, including

information regarding additional

comparable properties to make or

support an appraisal. A person can also ask the appraiser to provide further

detail, substantiation or explanation

for the appraiser’s value conclusions

or correct errors in the appraisal report. I understand why this is allowed but I also think that there needs to be a

standard policy, process, and even a

standardized form for Reconsideration of Value (ROV). This may be a good future topic.

4Any person directly or indirectly to engage in coercion, bribery, extortion, inducement, intimidation, or other similar actions designed to cause appraisers to base the appraised value of properties on factors other than their independent judgment.

4A creditor from extending credit based on a valuation if the creditor knows, at or before consummation, that coercion or other similar conduct has occurred or that the person who prepares a valuation or who performs valuation management services has a prohibited interest in the property.

4Mischaracterizing or suborning any mischaracterization of the appraised value through misrepresentation, falsification, alteration or inducement.

4Influencing an appraiser or otherwise encouraging a targeted value to facilitate the making or pricing of the transaction.

4Withholding or threatening to withhold timely payment for an appraisal report or for appraisal services rendered when the appraisal report or services are provided for in accordance with the contract between parties.

4A person preparing a valuation or performing valuation management functions for a consumer loan secured by the consumer’s principal dwelling from having a direct or indirect interest, financial or otherwise, in the property or loan for which the valuation is or will be performed (called “a prohibited interest”).

JUNE 2011


The Dodd-Frank Issue M a n datory re portin g


Mandat ory report ing



Man datory r e porti n g

jeff dickstein


Ma n datory r e porti n g


Ma n datory

A Dangerous Area of Dodd-Frank Mandatory reporting raises concerns for everyone involved.

State appraisal agencies and the Appraisal Subcommittee (ASC) have been tasked with a large and

important assignment as a result of

the passage of Dodd-Frank: to make

sure that appraisals reflect the actual

value of a property, as well as market

They include:

Lenders, bankers, brokers, real estate

4Title XIV: the Mortgage Reform

companies should all be concerned

and Anti-Predatory Lending Act

4Subtitle F: Appraisal Activities 4 Section 129E: Appraisal Independence Requirements

brokers and appraisal management

about the mandatory reporting section of the act. Most concerning is that as we come closer to the one-year

anniversary of the passage of Dodd-

Frank, rules are still confusing and/or

conditions and condition of the subject

Section 129E addresses appraiser

incomplete as written.

an important “C” in the three of

of interest, mandatory reporting, no

The original draft of the

and one of the most important

portability, customary and reasonable

reads as follows:

home ownership. Without confidence

penalties for violations. While


entire housing market comes into

been given most of the attention, it is

mortgage banker, real estate broker,

of any item in this act carries the same

of an appraisal management company,

$10,000 for first violation and not more

estate transaction involving an appraisal

property. The appraisal is once again

independence, prohibitions on conflicts

lending: credit, capacity and collateral,

extension of credit, appraisal report

documents in the lending of funds for

fees, the sunset of HVCC and outlines

in the appraisal, the finances of the

customary and reasonable fees have

Any mortgage lender, mortgage broker,


important to point out that a violation

appraisal management company, employee

The Dodd-Frank Financial Reform

penalty of a fine of not more than

or any other person involved in a real

Within the act are a number of changes

than $20,000 for subsequent violations.

in connection with a consumer credit

Act was signed into law July 21, 2010. that impact our profession.

mandatory reporting section

transaction secured by the principal dwelling of a consumer who has a

reasonable basis to believe an appraiser 34



is failing to comply with the Uniform Standards of Professional Appraisal

Practice, is violating applicable laws, or is otherwise engaging in unethical or

The Interim Final Rule attempted to define the statute as passed, however did ask for additional comments be submitted to the

that approximately 20 percent of all

complaints are filed by a borrower/

homeowner. Another 45 percent come from regulators or lenders, including

Federal Deposit Insurance Corporation,

unprofessional conduct, shall refer the

board on:

certifying and licensing agency.”

“…whether reporting should be required

Comptroller of Currency, mortgage

the value assigned to the consumer’s

appraisers for banks. Appraisers

that would have been assigned had the

complaints and the remaining 15

Office of Thrift Supervision, Office of

matter to the applicable State appraiser

The first feedback I saw from the

appraisal community on this issue was the concern around “unprofessional conduct.” What

would be considered

principal dwelling to differ from the value

file approximately 20 percent of the

D ic k s t

conduct”? How

appraiser wears

brokers, loan officers and review

J e ff


is it defined? If an

only if a material failure to comply causes

e in

Lenders, bankers, brokers,

shorts to inspect a

real estate brokers and

dwelling, would

appraisal management

that be considered unprofessional? If

the appraiser didn’t

companies should all be concerned about the

take off his shoes

mandatory reporting

while completing an

section of the act.

interior inspection,

or if dust was spread when inspecting an attic, would those instances be

“unprofessional” enough to warrant reporting the appraiser to the

applicable state appraisal agency? Mortgage lenders, brokers, bankers, real estate brokers, appraisal

management companies and others

would have to wait until the Interim Final Rule were released to see how

the board would define this section of the act.

In December 2010, the Interim Final Rule for section 129E was released. The Interim Rule implemented

Section 129E of the Truth in Lending Act (TILA), which establishes

new requirements for appraisal

independence for consumer credit

transactions secured by the consumer’s principal dwelling. This set of rules went into effect April 1, 2011.

material failure to

percent fall into the “Other” category.

by more than a certain tolerance, for example

California frequent allegations include:


4From Borrowers/

comply not occurred

by 10 percent or


It would appear the

Property description errors; errors

setting a tolerance

errors in valuation; payment disputes;

failure, but couldn’t

obnoxious behavior/rudeness; and

board is considering

in comparable sales information;

level for material

non-delivery of pre-paid appraisal;

a material failure

untimely delivery or non-delivery of

also be a USPAP

violation and have to be reported


4From Brokers/Lenders

regardless of tolerance levels?

Unwillingness to correct errors in

The Interim Final Rule does go further

provide operating income statement;

to define reporting required, reasonable basis, examples of material failures to comply, coverage of reporting

report; altered license; failure to and failure to return phone calls.

4From Appraisers Failure to recognize professional

requirements and timing of reporting.

assistance by others; signing reports

“Reporting required” is defined as

over-valuation; and fraud.

failure to comply with USPAP, or of

without reviewing them; competency;

an ethical or professional requirement

As you can surmise, mandatory

statute or regulation, only if the failure

number of challenges. I have spoken

likely to significantly affect the value

currently performing forensic field


and GSEs. Because the act states

California is one state that publishes

estate brokers, AMCs and “any other

found in complaints filed against

covered transaction” are responsible

the items outlined in mandatory

state licensing boards, >>

under applicable state or federal

reporting as it currently stands has a

to comply is material – that is, if it is

with many appraisers who are

assigned to the consumer’s principal

review work for lenders, servicers

that creditors, brokers, bankers, real

a table of most frequent allegations

persons providing a service for a

appraisers that might fall outside

for reporting appraisers to appropriate

reporting in the rule. California states JUNE 2011


many are confused about when to get

If appraisers wish to perform appraisals

appraisal under review that contains

real estate-related transactions, appraisers

involved. Is the reporting of a historic material failures the responsibility of the reviewing appraiser, the lender, servicer or GSE that requested the

review, or all parties responsible? Also,

in such federally related transactions and can choose to become certified/licensed and submit to the state’s regulatory jurisdiction.

by a creditor on or after April 1,

actions and enforcement from state to

performed today for foreclosures and

state. Some states require additional

loan buybacks, when one uncovers

education based on infractions, some

the value assigned to the consumers’

States that are shown to be voluntary are:

overstated” in an earlier appraisal, appropriate state agency if the credit

4Alaska 4Iowa 4Massachusetts 4North Dakota 4Oklahoma 4Wyoming


That being said, some of these

The other challenge will be the actual

license or certification in these states.

appraisers might not have a valid

the various state agencies. As we all

The other challenge in reporting to

have the number of resources needed

most creditors, brokers, AMCs and

know, most state agencies do not

to effectively enforce regulation and

investigate enforcement issues within their states. This was addressed in

an open letter from the Association of Appraiser Regulatory Officials

(AARO) to Chairman Christopher

Dodd on June 14, 2010 ( SenatorDodd.pdf).

It should also be noted that per

the appropriate state agency is that servicers operate on a national level

in all American states and territories.

Currently there is no consistency in the reporting criteria for each state, and

these national companies do not have

the resources to keep up with all state and territory reporting requirements.

Some examples of the differences between states

the Appraisal Subcommittee State


are still a number of states that operate

4Texas Two copies of the

Operations and Requirement, there on voluntary license/certification programs.

appropriate complaint form as well as any documents that assist the board need to be compiled and submitted.

Voluntary status is outlined as follows:

4California A five-page complaint form with detailed information and data needs to be filled out and

Certified/licensed appraisers not required

for any appraisal/evaluation assignments. 36



agreements, closing statement,

There is also an issue on disciplinary

2011. With so many appraisals being

reporting of these occurrences to

agreements, listing/management

form and any judgment/civil lawsuit.

mandatory for all applications received

application was dated before April 1,

checks (front and back), lease/rental

correspondence, agency disclosure

Final Rule, states that compliance is

does it have to be reported to the

limited to: sales contract, canceled

repair bills, monthly statements,

Compliance Date in the Interim

principal dwelling to have been

documentation including but not

multiple listing printout, appraisals,

item V, Effective Date and Mandatory

“material failures which contributed to

must be submitted, along with


4Florida A complaint form

states simply fine the appraiser, and others do both.

State agencies have been given access to grants through higher fees paid to the Appraisal Subcommittee by

appraisers and AMCs. We can only hope that the states will be able to

properly staff and respond to these changes. Only time will tell if state agencies will see an increase in

reporting and if there will be any consistency in enforcement and

disciplinary actions if violations are uncovered.

State appraisal agencies as well as the

ASC have to make sure that appraisals reflect the actual value of a property.

Most good appraisers, AMCs, brokers and lenders have no issue with the

tighter rules – most have been doing

it right for many years. Unfortunately, after the financial meltdown, we will

all need to “do it right” to bring back confidence in the market.

Here’s hoping that through a

combination of more consistent appraisal practices, increased

enforcement, education and some

long-needed economic good news, the housing market will soon once again be the engine that drives our economy. 6

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CA License #0764257

The Dodd-Frank Issue Di s p u te Re solu tion


D isput e Resolut io n


D isput e Re s o lu tio n

* |

tim forsythe

D i s p u te Re s o lu tio n


D i s p u te Re s o lu tio n

There Are No Dumb Questions? The new bill says questions can be asked.

Dispute resolution is a complex topic that is full of land mines for appraisers, lenders and AMCs. The purpose of this article is to clarify and simplify the subject of dispute resolution so that appraisers can feel safe as they follow new guidelines.

On the other hand, appraisers will try to “hide” behind recent regulations:

Dispute resolution has always been a challenge for

“How dare you question my value? I’m


trying to get me to change my value.”

Before we look at recent regulations

Appraisers are becoming overwhelmed

acknowledge that dispute resolution

starting to ‘feel pressure’ that you are

with the number of changes in the

industry. We have more regulations and changing interstate guidelines,

and more analysis is required on every

It is no wonder appraisers are angry

report. My heart goes out to the sole

Many appraisers feel that they simply

up on all these challenging changes;

they are asked to provide 10; if they

like a secondary goal. Fortunately,

comps, they are asked to discuss the

often have chief appraisers; smart guys

appraisal fees and the tendency of

safe by carefully monitoring all the

report and nitpick appraisers with silly

resolution is on the short list of things

that impact dispute resolution, let’s has always been a struggle for

appraisers. This will never change. My grandpa started Forsythe Appraisals

71 years ago and I contend that dispute resolution probably caused him hair

when it comes to dispute resolution.

proprietor appraiser who needs to keep

can’t win. If they use eight comps,

earning a living must sometimes feel

carefully explain why they selected the

those of us with larger appraisal firms

comps they didn’t use. Between lower

that can keep an appraisal company

AMCs and investors to tear apart every

moving parts of our industry. Dispute

In fact, they don’t even want to be

requests for more addenda, how does

causing stress in the appraisal industry.

reputation for being stubborn and bull-

an appraiser make a sustainable living today? 38



loss (he was bald by the time I was

born). There are a number of reasons

why appraisers have always struggled with dispute resolution.

Appraisers don’t want to admit when they are wrong

questioned. Many appraisers have a

headed. On the other hand, I contend

that appraisers are courageous. Every

time they do an appraisal, they put

decisions when it was time to “fire a

their conclusions are wrong, they could

I’m guessing most readers heard

their neck on the chopping block. If

It is understood that the appraiser

client” in order to stay ethical.

must always have control over the

lose credibility and their reputation

statements similar to this from a

dispute resolution response. To share

could lose a good client and future

you give great service and

could be damaged; if this happens they business. An appraiser could even be

put on a “do not use” list (a black hole for appraisers).

We are human and we make mistakes. We need to teach appraisers that it’s

OK to be wrong. We remind them that we are already “sold on them” or they would not be working for us. When someone questions an appraiser’s

analysis or the quality of the appraisal,

appraisal and to have final say in the

mortgage broker: “We love you guys, great quality, but this


you’ve ‘come in low’

going to work with you anymore.” Thankfully

these conversations seem to be a thing of the past.

The appraisal industry is still

at our company: Forsythe


is the second deal

this month so we’re not

an idea that has been very successful

It is no wonder

when it comes to dispute

a healthy balance


spend too much energy supporting

While we all celebrate

been a lot quicker to take a fresh

industry is better when

is too short. We have seen appraisers a shaky analysis when it would have look and respond in a detached, professional manner.

Even after a thoughtful analysis and

thorough support, good appraisers will sometimes be wrong. This was true 71

years ago and it is true today. Forsythe Appraisals, like good appraisal firms everywhere, is committed to ethics

and quality. However, one of our core values and beliefs is “We are human and we make mistakes”.

The appraisal is a critical step in the

underwriting process and developing a

the fact that the

an appraiser can give

feel that they simply can’t win. If they

undue pressure, we still

provide 10; if

need to have a process

they carefully explain why they selected the comps,

additional support or a

they are asked

crying foul or claiming

comps they

better analysis without

to discuss the

they’re being pressured

didn’t use.

to change their value.

appraisers have a tendency to be bull-headed and will

find data that supports their

original opinion. Sometimes

use eight

opinion of value with no

to ask for clarification, or

works in the same

respects. Even the best

are asked to

that a client has the right

another appraiser who

peer that the appraiser

comps, they

Let’s start by agreeing

resolution process. Our

feedback from an unbiased

a well-documented

for dispute resolution.

as part of our dispute

neighborhood to provide


attempting to find

“committee approach”

participate and invite

are angry

We are all too busy, and frankly, life

is very effective to do a

chief appraiser will



let’s not waste time being defensive.


Appraisals found that it

a peer taking a fresh look is beneficial.

We at Forsythe Appraisals have also found that it is helpful to send the

client our Appraisal Data Concerns Request. This

provides a structure for the

client to provide their input and concerns in writing.

The readers are welcome to use this document.

If we want better dispute

professional and ethical way to handle

Let’s also agree that it is human nature

resolution, we are going to need

process is going to work.

the opinion that he or she worked so

industry, underwriters, appraisal

dispute resolution is important if that

Less pressure since HVCC Clients have always questioned

appraisals and until HVCC, mortgage brokers were often very aggressive in their attempts to pressure appraisers to change their value. Most good

appraisal firms have occasionally made

for an appraiser to find support for

hard to support in the first place. Part

of being a professional is being honest and willing to admit when we are

wrong. We owe it to the borrower, the

loan officer and the bank to effectively and professionally participate in the

dispute resolution process and to admit when we are wrong.

participation from the appraisal

management companies and Wall

Street investors. Everyone agrees that there are too many “touches” and

too many addendum requests. The

redundancy borders on the ridiculous.

Any good appraisal firm has a real live human being do a line-by-line review

as part of their internal quality control process. The appraisal then >> JUNE 2011



The proper response for effective


dispute resolution is to include an

analysis that explains why you feel

different sales or different adjustments to the original appraisal would lead to a more accurate value estimate.

The key is to provide a thoughtful

If you find material discrepancies in the appraisal report and you can supply information to Forsythe Appraisals that indicates an Appraisal Data Concerns Request is appropriate, please provide that relevant information below. Please note: In order to ensure the appraisal was obtained in a manner compliant with Appraisal Independence Rules, no expression of value is to be communicated to the appraiser.

analysis of the data. For example,

if comparables used were from an

adjoining neighborhood, an analysis of MLS data may suggest that over

1. PHYSICAL DESCRIPTION Specifically note items felt to be inaccurately stated in the appraisal, what you believe to be the correct information and your source (i.e., tax records, blueprints, pictures, etc.).

the past two years, the neighborhood sold for 8 percent less than the

subject neighborhood. As a result, the indicated adjustments for the

2. COMPARABLE DATA Supply data for up to three comparable sales for consideration below (sales should be

neighborhood difference are $15,000.

Underwriters would welcome this type

at least as proximate and recent as used within the appraisal):

Address City Distance from Subject Sales Price Date of Sale Age Above Grade sq. ft. Basement # of Garages

of response from appraisers. It would be far more effective than simply

coming back with an endless number of comparables, none of which are

as meaningful as the ones that were originally used. Adding layers and

layers of more data, more comps, and

3. OTHER (Note objective, factual errors and what is believed to be correct.)

more current listings is not nearly as

effective as a thoughtful explanation of the appraisal analysis. gets sent to an appraisal management

so an appraiser has to do each report

Finally, the report is sent to the

many pages of instructions to the

Act is an attempt to level the playing

“boilerplate,” but if the appraiser does

It gives the SCC the broad authority to

meet minimum guidelines and they

arbitration agreements and to design

more frustration, and of course, more

satisfies the demands of investors

company where it is reviewed again.

investor and they do their own review. That’s three separate reviews; each time an individual is being paid to

pick apart the report and to question a beleaguered appraiser. To make

matters worse, each investor has their

own list of instructions to the appraiser

differently, and there are sometimes

Recent legislation in the Dodd-Frank

appraiser. Much of the instruction is

field to litigate disputes with brokers.

not read it carefully, the report will not

prohibit or limit the use of mandatory

will fail. The result is more addenda,

a dispute resolution mechanism that

dispute resolution.

for fairness as well as the desire of

industry participants to arbitrate rather than litigate in court.

Per the Dodd-Frank Wall Street Reform and Consumer Protection Act, any person with an interest 40



in a real estate transaction can ask the appraiser to provide a response to one or more of the following:

4Request that

4Request that the

appraiser consider

the appraiser

appraiser correct

additional property

provide further

errors in the

information and/

detail, support or

appraisal report.

or comparable

explanation for their



4Request that the

A dispute resolution policy

policies for a dispute resolution process

for your appraisal firm

Recently, TAVMA, the (Title/Appraisal

â&#x20AC;˘ A  ppraisal firms should encourage their appraisers to make reports of inappropriate contact on the part of clients to appropriate regulatory authorities.

Vendor Management Association), wrote a list of policies that a good

AMC should follow. I feel that with

some editing, this list is applicable for

appraisal firms. Following these bullet points is a good start for a dispute

resolution process for an appraisal

â&#x20AC;˘ A  ppraisal firms should spell out what actions on the part of their clients are not acceptable and would result in a decision to terminate a business relationship with that client.


Because appraisers are human, dispute resolution will never be easy. An

appraiserâ&#x20AC;&#x2122;s fears and insecurities will always be a challenge. In addition, the clientâ&#x20AC;&#x2122;s requests often seem

unreasonable and silly; following a

â&#x20AC;˘ A  ppraisal firms should only utilize dispute resolution processes outlined as part of an agreement with their appraisers.

thoughtful and well-defined dispute

resolution process structure eliminates some of the frustration and keeps appraisers safe. 6


â&#x20AC;˘ Appraisal firms should attempt to resolve disputes through an internal rather than public process whenever possible. â&#x20AC;˘ Appraisal firms should ask clients to provide written notice to their appraisers if they are subject to possible removal from an approved appraisal panel. â&#x20AC;˘ Appraisal firms should permit any of their appraisers who have been identified for possible removal from a lenderâ&#x20AC;&#x2122;s panel to respond in writing.

Appr aisal


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The Dodd-Frank Issue B pos & avm s


Bpos & avms


Bpo s & avms


Bpo s & avm s

* |

don kelly

Bpos & avm s


Bpos & avm s


Bpos & avm s

Valuations Other Than Appraisals Dodd-Frank says BPOs and AVMs have their place.

“No tree grows to Heaven.” - Ancient Persian proverb

alternatives to business as usual and

are demanding valuation techniques and approaches that deliver greater

Innovation was needed; efficiency was imperative.

In a meeting with the Federal Home

efficiency and reliability.

The Real Estate Valuation Advocacy

Doug Lovell commented prophetically

Dodd-Frank anticipates valuations

by innovative real estate valuation-

tree grows to the sky.” He was referring

credibility to Automated Valuation

values which ultimately lead to the

Opinions (BPOs). The law allows

1990s. I’ve always remembered that

than origination loans on a primary

given the prediction it unveiled.

BPOs rose to prominence during the

Today we have our new or latest

facility to meet the need for valuation

has played a central role in facilitating

mortgage delinquencies. Financial

Not surprisingly, collateral valuation

need to adapt to changing regulatory

hopeful recovery underway. But this

criteria. The record is that the old ways

investors and regulators are looking for

to be inadequate in their great test.

Loan Bank Board officials in 1986,

to those of us in attendance that “no

other than appraisals as it gave

to the dramatic increase in real estate

Models (AVMs) and Broker Price

collapse of the “Thrift Industry” in the

BPOs to be used in transactions other

observation, albeit with mixed feelings

residence. Even before Dodd-Frank,

financial crisis, owing to their special

Association (REVAA) was formed related companies committed to improving the entire valuation

industry. These companies deliver alternative valuation services, as

well as appraisals, that address the

weaknesses revealed by the mortgagedriven financial crisis of 2008. REVAA

promotes high ethical and professional standards conducive to a flourishing

real estate valuation industry including

financial crisis and real estate valuation

services required by the surge in

the incredible escalation that occurred.

institutions increasingly realized the

From the outset, however, REVAA had

is playing an important part in the

requirements and due diligence

that, with its AMC members, it was

time around, financial institutions,

of doing things showed themselves




fee appraisers.

to address those who were convinced designed to lower the compensation of traditional appraisers, if not

eliminate them entirely. Dodd-Frank’s


alternatives for

k e l ly

determining customary

and reasonable appraisal fees seem to some

The reality is that the

plot. The reality is that

had changed.

the environment had changed. Efficient, reliable value and

price assessments are

in high demand. Bank


reliable value and price assessments are in high

rely on the efficient


institutions need and delivery of valuation services provided by

innovative companies

in today’s marketplace. Such efficiency benefits

demand. Bank and financial institutions need and rely on the efficient

financial institutions and

delivery of

as it is the consumer


ultimately consumers

that pays for the various services attendant to any given mortgage transaction.

Valuation professionals

more work than they can handle. In

the situation to the

chagrin of the dedicated

professionals. Even without were overwhelmed by

demand they could not

meet fast enough. Consider the numbers. Only a tiny

companies in today’s marketplace.

States serve the crucial

residential market. In 2009, more than ten million

BPOs were called for to fill the pressing demands of

areas, where qualified

critical for buyers, sellers and lenders to fall through for the lack of timely valuation.

desired pre-determined value or lose

and alternative valuation products are especially useful in this work, deftly

identifying value trends and property

characteristics consistently and reliably. A static or even declining number of qualified appraisers have struggled

to meet the surging demand brought by the housing collapse. Inept or

shocks inevitably are producing a more varied array of valuation tools must

respond fast to an impatient market. There is no reason that AMCs, BPOs

and fee appraisers cannot all benefit by cooperating in a resurgent American real estate industry. It will take time

and experience for the marketplace to work things out, as it always does.

regulations as well as the demand in

must deal with the troubled assets,

losses rather than making gains. BPOs


need for time-sensitive

Appraisers have long complained

even though that amounts to cutting

expertise that well-qualified appraisers

With the recognition of alternative

finally revving up, the

to ensure that the disastrous mischief

of recent years cannot be repeated. We

responsibility mandates the kind of

generally. With activity

and delayed transactions

alike. No one wants a good transaction

but also on designing new processes

for the integrity of their products. This

but it bedeviled markets

eruption that engulfed the worldwide just on recovering from past disasters,

AMCs are responsible to their lenders

Advocacy for BPOs… State Activity

appraisers are spread thin,

alternatives becomes progressively

economy. We need to concentrate not

appraisers—to succeed in their work.

responsive marketplace, where a more

their way through a mountain of

toxic assets; debris remaining from an

credentialed, highly educated, ethical

appraisers in the United

licensed or certified

sparsely populated rural


fact, AMCs need good appraisers—

Our recent bad, though less violent

was especially acute in

provided by

appraisers often find themselves with

portion of the 100,000

the market. The shortfall


today are chipping

provoke the crisis in the

many of whom helped

the crooks, appraisers


agencies and financial

Far from facing extinction, good

first place—exploited

conspiracy theorists to be part of this alleged

unscrupulous operators—

of pressures to “come in” with a

business. The recent legislation has

sought to contain such real abuse, but

valuation in federal law and

the marketplace, pressure for the states to refine outdated restrictions on BPOs

has increased. Enactment of the federal Dodd-Frank law has spurred the states to respond with their own regulations and legislative activity. REVAA

has developed and offered model legislation, which has influenced

many states in their consideration of

alternative valuation methodologies.

the pressure is often subtle and hard

Here is where matters stand at this

leads some to take alarm at the

state authorities realized that their

to prove. Perhaps that experience

implementation of the Dodd-Frank

mandates as unwittingly containing

another invitation for abuse. Yet, the reliance upon objective data makes

subtle skullduggery comparatively easier to document.

writing: Upon examination, many

codes were unrealistically outmoded, offering safe harbors for real estate professionals providing brokerage

related BPOs, but ignoring the issue regarding lien-holders and third

parties. Arkansas, Minnesota and >> JUNE 2011


Mississippi responded with laws that

for lien-holders, and thirty-five others

as for lien-holders. The law lists the

of BPOs in most contexts other than

third parties or otherwise broadly

and provides rules for their electronic

adopt the Dodd-Frank recognition

as the primary basis for residential loan origination. New Mexico was considering a similar bill when its legislative session had to adjourn.

Only in Connecticut was comparable legislation killed in committee.

Nevada, in 2009, as well as Nebraska, in 2010, passed permissive BPO

legislation in advance of the federal

law, allowing BPOs for a wide range

of transactions unrelated to brokerage or listing purposes. Other states acted quickly in response to Dodd-Frank.

Thus, by the end of the 2011 legislative session, 43 states and the District of

allow for BPOs to be performed for

permit their use. Seven states provide for safe harbor protection for BPOs in a brokerage context, but are silent as

to their permissibility for lien-holders.

contents necessary for a valid BPO submission. The new Nevada law

clearly addresses the current needs of the market relative to valuation.

One factor in this diversity is that

State legislative sessions are usually

the financial crisis magnified the

year. Nonetheless, states will continue

most state laws were enacted before importance of BPOs. The real estate

crisis of the 1980s prompted licensing

for appraisers but that system proved inadequate to address or anticipate

the current mortgage meltdown. The

Dodd-Frank current-crisis legislation

and new state laws reflect awareness of the use of BPOs in a restructuring real

short. Some occur only every other

to respond to the need to adapt, and as the opportunity unfolds, those

state legislatures that have not already modernized their regulations will be well advised to consider the Nevada

approach. Clearly, the tide is running

in favor of broad acceptance of BPOs.

estate industry.

The Dodd-Frank landscape; the success

sanctioning or allowing BPOs for

One of the states hardest hit by the

crisis and draining the toxic swamp;

purposes. Broad recognition of the

responded promptly to ensure that

Columbia will have laws broadly

lien-holders, third parties and other utility of BPOs and similar instruments obviously resonates throughout the nation.

State laws vary in details. No states have authorized BPOs as the sole

basis of value in loan origination yet; and, the current demand is on the â&#x20AC;&#x153;servicingâ&#x20AC;? side of lending where

BPOs are most useful. Nine states

explicitly allow BPOs to be performed

435 States Broadly Allow for BPOs: Alabama, Alaska, Arizona, Colorado, District of Colombia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, New Hampshire, New York, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin




mortgage crisis was Nevada, which the outdated law did not retard its recovery. Eager to meet the crisis,

the Silver State did not wait for the

federal statute. Effective since 2009,

the stateâ&#x20AC;&#x2122;s broadly permissive revised law authorized licensed real estate professionals to prepare BPOs for

existing or potential buyers and sellers of real property, for third parties

making decisions or performing due

diligence for potential listings as well

49 States Allow BPOs for Leinholders: Arkansas, California, Hawaii, Minnesota Mississippi, Nebraska, Nevada, New Jersey, Oregon

BPOs enjoy in addressing the mortgage and the precedents in various states

offer a strong impetus to reformers in

those states where pre-crisis laws have yet to be amended. REVAA continues

to work constructively with real estate professionals, financial institutions,

consumer groups and other interested

parties in the 2012 legislative sessions. Updated and modernized state laws

sanctioning realistic and appropriate

use of BPOs are needed to help emerge from our current mortgage crisis. 6

47 States Provide a Safe Harbor for BPOs in Brokerage Context: Connecticut, Delaware, New Mexico, North Carolina, Pennsylvania, Rhode Island, Wyoming

BPO Information by State

Earn Your Residential Accredited Appraiser (RAA) or General Accredited Appraiser (GAA) Designation and Show Your Customers Exactly What You’re Worth. What Is Becoming an NAR Designated Appraiser Worth to You?

Residential Accredited Appraisers (RAA)

• The opportunity to build a more selective client base

and General Accredited Appraisers (GAA)

• Marketplace positioning as an appraisal expert

are the only designated appraisers backed

• Sound credentials backed by the strength and tradition

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• Access to information via the largest concentration of real estate material in the country • More referrals from an expanded network of colleagues

To find out how to become a RAA or GAA designated appraiser, visit

JUNE 2011




VOICES OF VALUATION Last month’s articles sparked a lot of debate. Here are some responses from our readers.


The Hunt for Credibility

“Good article. Had a lot of good reminders that many of us have either forgotten, slipped out of their use, or just didn’t think about it. I’ve gone back into my templates and entered note blocks for myself to make sure I address the simple things that you mentioned that can keep me from conditions later. Nice job of summarizing.” - mallen



do you have something to say? 8

The Key to Local Search Marketing

“Thanks for the great tip. I saw the mapped listings so many times and was never sure how it all got submitted. In a week or so I should have my own places listing thanks to you.” - phil kline “Great article Bryan. Now please don’t talk about this anymore business is tough enough as it is... shhhh!” - terrenence P. kelly

Best Practices - Working with AMCs

“The reason for the new forms is so it can be scanned and read by a computer program. You won’t have underwriters anymore and the whole business is gone. Appraisal Management Companies have done this and the appraisers have let them. If anyone is left they will be form fillers. I think the lenders and their clients should realize that they will get what they pay for and nothing else. Of course the appraisers have been working for nothing for a long time.” - gerryc_2000 46







an aircraft parked on the front lawn to a run-in with a bear, appraisers come across many photo-worthy sights on a day-to-day basis. We are

bringing back the section Things Appraisers See to feature your personal bear and aircraft moments. So shoot us your photos at or simply log on to our website to upload them under Things Appraisers See and look for them in an upcoming issue.


mike reed

david hoffer claudia conger JUNE 2011




march highlights 2011 alaska


north dakota





-11.9% maine

+0.4% idaho


new york

+3.5% West Virginia






Including distressed sales, the five states with the highest appreciation were: West Virginia (+7.7%), North Dakota (+4.1 %), New York (+3.5%), Alaska (+2.4%) and Maine (+0.4%).

Including distressed sales, the five states with the greatest depreciation were: Idaho (-13.3%), Arizona (-12.3%), Michigan (-11.9%), Florida (-10.6%) and Illinois (-10.6%). alaska


North dakota





-6.6% new york



-8.8% nevada

-8.9% arizona

West Virginia


+11.5% mississippi

Excluding distressed sales, the five states with the highest appreciation were: West Virginia (+11.5%), New York (+4.5%), Mississippi (+4.4%), North Dakota (+4.1%) and Alaska (+4.0 %).





Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-8.9%), Idaho (-8.8%), Arizona (-6.6%), Maine (-6.6%) and Minnesota (-5%).

march HPI for the Countryâ&#x20AC;&#x2122;s Largest Core Based Statistical Areas (CBSAs):

| Cbsa |

march 2011 12 month hpi changed by cbsa



excluding distressed

Phoenix-Mesa-Glendale, AZ -12.0%


Atlanta-Sandy Springs-Marietta, GA -11.1%


Chicago-Joliet-Naperville, IL -10.5%


Los Angeles-Long Beach-Glendale, CA



Riverside-San Bernardino-Ontario, CA -3.3%


Houston-Sugar Land-Baytown, TX -2.7%


Philadelphia, PA -2.6%


Dallas-Plano-Irving, TX -1.8%


Washington-Arlington-Alexandria, DC-VA-MD-WV



New York-White Plains-Wayne, NY-NJ








Bradford Technologies


PNC Bank






Pro Teck Valuation Services

Michael Vincent John Spaziani




Forsythe Appraisals

LIA Administrators & Insurance Services

Quality Valuation Services

Metro-West Appraisal Co., LLC



Relocation Appraisers and Consultants

Weichert Relocation Resources


Genworth Financial 800.334.9270

Global DMS







Stage Capital, LLC




TSI Appraisal



JUNE 2011






This law was passed subsequent to the

achieved, experience, sample appraisals,

Licensing and Certifications to combat

Membership in a nationally recognized

Federal Government requiring State

the public’s perception that appraisers were not educated enough and lacked supervision from the government.

Although both the Federal and State Governments passed these laws,

discrimination continued within the appraisal field. Federal and State

Governments and their subsidiaries such

Michael Vincent John Spaziani

with designations extra points on their applications to do business with them.

Review appraisers, who most likely were designated members of the Appraisal

Institute, would in turn give preferential job opportunities to their members (MAIs).

Appraisers who were not designated consistently complained to these

government entities and placed pressure on these groups to stop the blatant

assignment under these criteria.’’

So there are some questions that remain unanswered:

decade and now it’s not?

government requires in order for

appraisers to perform assignments, such as additional education,

experience, etc., that are offered by the organizations, then why aren’t these factors part of the licensing of the appraisal profession?

3) H  ow can government agencies

and banks regulate the appraisal

requirements when the government does not have oversight of these

independent appraisal organizations?

discrimination. Numerous calls to the

There are thousands of independent

were often fluffed off by the attorneys

members and believe this is a blatant

FDIC describing this discrimination

the appraisers wanting to perform the

appraisals were often eliminated from the Banks’ appraisal lists.

of the Federal Reserve System passed

The new Dodd-Frank Bill was recently

that, “Financial institutions may


from consideration for an appraisal

Section 1122(d) of the Financial

lacks membership in a particular

Enforcement Act of 1989 (12 U.S.C.

hold a particular designation from an

not exclude’’ and all that follows through


the following: ‘‘may include education

SR92-13, which specifically states

passed in July 2010; page 823 states

not exclude a qualified appraiser


assignment solely because the appraiser

Institutions Reform, Recovery, and

appraisal organization or does not

3351(d)) is amended by striking ‘‘shall

appraisal association, organization, or

the end of the subsection and inserting


sole bar against consideration for an

2) I f there are important items that the

quoting the discrimination, and in turn,


of membership therein shall not be the

Internal Revenue Service, Department of

they would send an email to the banks


be a criteria considered, though lack

1) W  hy was it discriminatory for over a

Protection, Water Management Districts,

who represented them. In some cases,

In April 1992, the Board of Governors

professional appraisal organization may

as the Department of Environmental

Transportation and Banks gave appraisers

Dodd-Frank Bill HR 1473 Promotes Discrimination

and references from prior clients.

appraisers who were once designated display of discrimination. They have all worked hard, obtained college

degrees, satisfied the required appraisal classroom hours, and passed their work experience as well as a State

Certified test. The government lending

institutions are adding additional points for designations even though this was a

form of discrimination and punishable by law for over a decade. The Dodd-Frank

Law should be repelled to represent the proper appraisal qualifications and to

exclude any mention of designations in

the bill unless the government is willing

to oversee these private organizations. 6

Appraisers: Make compliance laws work FOR you not AGAINST you




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 1816 West Point Pike, Suite 210, Lansdale, PA 19446

Visit us at LIVEVALMAG.COM | 51 or *call 1-877-891-2620

JUNE 2011

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LiveValuation Magazine June 2011  

A publication for the valuation space.

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