Magazine >> October 2010
| FEATURE | ZAIO‌ The Long and Winding Road The rise, fall, and reinvention of a valuation technology company. Brad Stinson pg. 20
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Contents 12
16
Learning from Markets Abroad Spain mandates the use of AMCs.
20
Santiago Herreros de Tejada
16
New Legal Risks for AMCs Passing the liability buck. Peter Christensen
20
FEATURE:
ZAIO…The Long and Winding Road
The rise, fall, and reinvention of a valuation technology company.
26
Brad Stinson
30
26
Appraiser in Realtor Clothing Appraisers and Realtors: the common ground. Steve Ferguson
30
Observations of an Inspector Part IV The “Improvements” section of the URAR. Michael Connolly
7
10
36
8
34
38
Publisher’s Note
Industry Stats July 2010
Contributors Voices of Valuation
Directory For What It’s Worth
Tunnel Vision Bill Waltenbaugh, SRA
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Publisher’s Note It is my pleasure this month to introduce you to our new Editor-in-Chief, Emily Vannucci. Emily joins us after the successful launch of our magazine under the leadership of Erica English. We certainly wish Erica all the best in her new ventures in publishing outside of the valuation space. Erica is a fine friend and a consummate professional who will do well at whatever she puts her hand to. That being said, I am excited that Emily has taken the reins of our magazine. This will be our largest issue with an even larger issue coming next month. We have great plans for the future of this magazine and Emily’s leadership will see these plans to fruition. This month’s feature article tells the story of ZAIO. Brad Stinson, the founder, recounts his personal journey as an appraiser and technologist, beginning in the late 1970’s through today. Brad shares the implementation of technology and valuation that resulted in taking ZAIO public. The winding road seemed to come to a dead end on “Z-Day” in 2009 when investor capital and revenue sources dried up. At the end of that paved road, continued a path of reinvention. Brad lays out ZAIO’s path of reinvention from that fateful day. I have known Brad for a long time and always admired his tenacity and passion for technology. He has a “never say die” attitude and an interesting perspective on valuation that we can all learn from. Be sure to read our Voices of Valuation section this month. We have had a tremendous response online to our previous articles and daily news summaries. LiveValMag.com provides an opportunity for our readers to interact with our authors online. The back-and-forth debate is vibrant with hundreds of contributions from our readers and also responses from our authors. In Voices of Valuation we only have room to publish a few highlighted comments. I encourage you to visit our website and tell us what you think; maybe your response will be highlighted in next month’s issue. Please stop by our booth at Valuation 2010 in Las Vegas next month. I look forward to meeting our readers personally and introducing Emily Vannucci and others that make this magazine a success.
Founder
Aman Makkar
Publisher
Ernie Durbin, SRA, CRP
Editor-in-Chief
Emily Vannucci
Copy Editor
Kaitlin Dershaw
Creative
Traci Knight
Director National Sales
David Peck
Printer
Ovid Bell Press
Advertising
Phone : 858.832.8900
Information
Email : david@livevalmag.com
Subscription
Phone : 858.217.5332
and Editorial
Email : emily@livevalmag.com
Web : LiveValMag.com
© 2010 LiveValuation Magazine.
Ernie Durbin, SRA, CRP
Publisher ernie@livevalmag.com
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
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Stats
| Highlights as of July 2010 |
+4.3%
+4.5% Maine
s.dakota
+3.7%
+3.0%
california
New York
+2.6% virginia
[
The top five states with the highest appreciation in July, including distressed sales.
] -12.6% idaho
-4.3%
washington
-9.7%
-4.8%
alabama
oregon
-5.6% Utah
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[
]
The top five states with greatest depreciation in July, including distressed sales.
[
[]
Stats
| CoreLogic* Data |
July HPI for the Country’s Largest Core Based Statistical Areas (CBSAs):
July 2010 12-Month HPI
“Although home prices were flat nationally, the majority of states experienced price
CBSA
declines and price declines
Change by CBSA
are spreading across more
Single Family Combined
geographies relative to a few
Single Family Combined Excluding Distressed
months ago. Home prices
fell in 36 states in July, nearly
Chicago-Joliet-Naperville, IL Philadelphia, PA Phoenix-Mesa-Glendale, AZ Dallas-Plano-Irving, TX Atlanta-Sandy Springs-Marietta, GA New York-White Plains-Wayne, NY-NJ WA-Arlington-Alexandria, DC-VA-MD-WV Los Angeles-Long Beach-Glendale, CA Houston-Sugar Land-Baytown, TX Riverside-San Bernardino-Ontario, CA
twice the number in May and the highest since last
November when national
home prices were declining,” said Mark Fleming, chief
economist for CoreLogic.
-3.8%
oregon
-9.9% idaho
-2.9% -2.7% -1.6% -0.3% 0.6% 2.4% 2.6% 3.3% 3.3% 6.9%
-2.8% -2.9% -4.5% 0.6% -1.5% 2.9% 3.1% 3.5% 1.6% 2.8%
* Source: CoreLogic HPI as of July, 2010.
+5.1%
s.dakota
-6.7%
michigan
-4.8% nevada
+3.4%
new york
+4.9%
District of columbia
+2.8%
california
-5.6%
arizona
| Highlights as of July 2010 |
+2.8%
mississippi
• Excluding distressed sales, the top five states with the highest appreciation in July were: District of Columbia, South Dakota, California, Mississippi, and New York.
• Excluding distressed sales, the top five states with the greatest depreciation in July were: Nevada, Arizona, Michigan, Idaho, and Oregon.
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Contributors | Featured Authors |
Santiago Herreros de Tejada
Peter Christensen
Brad Stinson
Steve Ferguson
Mr. Stinson is the
Steve Ferguson started
Peter Christensen is
founder of Zaio. He
his career in real estate
Santiago Herreros de
the general counsel of
began photographing
as an appraiser for
Tejada is Managing
LIA Administrators
entire cities from the
20 years, starting in
Director of ST
& Insurance Services.
street in 1995 while
Cincinnati, Ohio. In 2004
International, an
LIA provides E&O
operating a successful
he closed the appraisal
international division
insurance to more than
residential appraisal
chapter in his career and
of Grupo Sociedad de
24,000 appraisers and
business. He was a
continued his formal
Tasación. ST minimizes
is endorsed by the
mortgage underwriter
education in economics
risks and operational
Appraisal Institute. As
prior to his appraisal
where he began
costs, automates
LIA’s general counsel,
career. His appreciation
applying statistical tools
workflow, and increases
Peter responds to
for appraisal accuracy
to the field of real estate.
the quality of valuation
the claims, lawsuits
and speed fostered some
He currently is the lead
reports. Before working
and disciplinary
of the industry’s earliest
Realtor working for a
at Grupo Sociedad de
matters affecting LIA’s
appraisal software.
medium size firm in
Tasación, Santiago was
insured appraisers
In 1984 his appraisal
Indianapolis, IN where
International Director
and investigates and
team was completing
he lives with his wife
of Planner Reed,
researches emerging
appraisal reports in
and three children.
company member of
legal issues related to
the field utilizing early
steve.ferguson@
Reed Exhibitions and
appraising.
laptop computers and
livevaluation.com
previously at the Global
mobile printers. Mr.
Corporate Banking of
Stinson’s vision has
Citibank International
always been providing
Plc in Madrid. Santiago
exemplary service to
holds a MBA from the
mortgage lenders and
Instituto de Empresa.
others.
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Contributors | Featured Authors | Michael Connolly Michael Connolly has over 30 years’ experience in the real estate industry and is owner of Smart Move Inspections in Cincinnati, Ohio. He is a member of the American Society of Home Inspectors (ASHI) and holds their highest designation of Certified Home Inspector (CHI). He has evaluated over 8,000 residential homes for home-buyers, attorneys, and lending institutions. He holds licenses for Radon testing, wood destroying organisms inspections, and is a HUD fee inspector. Mike@smartmoveinspections.com.
Bill Waltenbaugh, SRA Bill Waltenbaugh, SRA is a certified appraiser of 20 years. During these years, Bill witnessed and experienced first hand the many changes that occurred in the appraisal industry, from the advent of licensing to the implementation of HVCC. Currently, Bill is the Chief Appraiser at AppraiserLoft, a nationwide Appraisal Management Company, and writes a weekly blog called, “For What It’s Worth”.
Peace-of-mind is just one of the advantages we offer. In addition to our unsurpassed real estate appraiser E&O program, we offer coverage for: n AMC Professional Liability (E&O) coverage, worded by LIA specifically for AMCs n Bonds for appraiser client contracts and state regulatory AMC requirements – extremely competitively priced n General Liability coverage for real estate appraisers including additional insured options required by HUD and other clients n E&O insurance for high risk real estate appraisers n Health insurance for appraisers and their families through the same exclusive program endorsed by the AMA for its 400,000 physician members – includes 3-year rate guarantee options LIA’s products are in response to requests made by real estate appraisers and other valuation professionals, seeking to meet the day-to-day challenges of the appraisal industry. In addition, LIA remains to be the leader in loss prevention and appraiser liability education. For more information, visit our website at www.liability.com, or contact: Robert A. Wiley, Asst. V.P. robert@liability.com, 800-334-0652, Ext. 128
Serving the Appraisal and Valuation Industry since 1977 CA License #0764257
Administrators & Insurance Services
Peter Christensen, General Counsel peter@liability.com, 800-334-0652, Ext. 148
16oo Anacapa Street, Santa Barbara, CA 93101 Ph: (800) 334-0652 Fax: (805) 962-0652 www.liability.com lia@liability.com
I
I
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Learning from
markets abroad Spain mandates the use of AMCs.
F
~ Santiago Herreros de Tejada ~
For more than ten years, I have been
that methodologies, procedures, and
although there is still an oversupply of 1
involved with the international real estate
technology in the Spanish regulatory
million properties on the market, which
industry, and am currently Managing
model (which has been reproduced in
would need to be absorbed so the real
Director of ST International Company,
other places, such as Mexico), offer safety
estate market can fully recover.
which belongs to Grupo Sociedad de
and security to the mortgage market.
Tasacion. Due to this involvement, I have had the opportunity to attend several real
The Real Estate Market
The Appraisal Profession Due to the oil crisis of 1973, the Spanish
estate and valuation seminars as well as The key forces of the Spanish economy
government decided to regulate the
have been tourism and real estate. During
mortgage market. In 1982, the mortgage
During these years, I have been able
the time between 2001 and 2006, Spain
market law was established, which
to verify how concerns regarding the
experienced a real estate boom with very
included appraisal management
valuation industry have increased
high growth in bank credits, low interest
companies as a key element between
substantially. Industry professionals
rates, and high rates of employment.
lenders and appraisers, and addressed
have spent a great amount of time in the
In 2003, more than 450,000 homes were
the compulsory use of them in the
past searching for a solution that would
constructed in Spain, versus the 900,000
mortgage market. There are actually 53
offer security to the mortgage market
new homes that were constructed in
Appraisal Management Companies in
and quality in appraisals. Now, after the
the USA that same year. Spain has a
Spain currently under the regulation and
financial crisis, there is an even greater
population of 46 million, while the USA
supervision of the Bank of Spain. The top
need for a change in procedures and
has a population of 350 million. In 2006,
5 AMCs hold 50% of the Spanish market
methodologies in order to ultimately
more homes were constructed in Spain
share alone, with the leading independent
achieve excellence and stability in the
than in Germany, UK, and Italy combined,
AMC being Sociedad de Tasación. The
industry once again.
and more than 1.8 million loans as well as
AMCs develop appraisals done by
appraisals were delivered. Unfortunately,
independent professionals (appraisers)
At ST International, we have in
the economic downturn has also affected
who collaborate with them.
depth knowledge about the appraisal
Spain’s economy. Nowadays, it seems
They offer value to the process as they
business and we strongly believe
as if the situation is slowly recovering,
investigate and develop the technical,
sessions of congress worldwide.
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formal, and IT aspects of the full appraisal
lenders; their responsibility is with
appraiser (controller) at the AMC,
process (from ordering to invoicing).
the Appraisal Management Company.
who acts as a quality controller and
Through the process, the comparables
Appraisers are subject to a technical
also as a consultant for the appraiser.
(which are introduced by the appraiser)
control done by the AMCs. Those that
The review appraiser is available
are grouped in one unique database.
work for Sociedad de Tasación (ST) work
before, during, and after the appraisal
AMCs also train and provide courses for
exclusively with ST due to high fees,
to resolve any doubts or questions the
appraisers and lenders, so that all of this
free leading technology, and continuous
appraisers may have.
knowledge and expertise is provided to
support in the appraisal process.
•
everyone. There is also a control team that
Easy-to-use software that guides the appraiser through the report.
reviews the appraiser’s reports, and the
Appraisers under the umbrella of the
appraisal is not delivered to the lender
AMCs benefit from the following:
appraiser and they are protected by
until the report is ratified by the team
•
•
ST guarantees payment to the
Methodologies, compliance, technical,
insurance issued by the AMC except
(controllers). The AMCs are responsible for
and urban aspects, etc. are normalized
in cases of gross misconduct.
the appraisals delivered through them to
by the AMCs’ technical departments,
ensure value and security is offered within
which keep appraisers updated in
100% and appraisers are paid monthly
the mortgage market.
regards to new rules, and eliminate
by the AMC (no need to worry about
possible mistakes due to lack of
claiming payments at the banks).
The Appraisers
knowledge. •
•
•
The lenders invoicing is managed
Offers the appraiser an enormous
Allows appraisers to develop uniform
shared database, which is infinitely
Appraisers in Spain are also required
standard appraisal reports, which
better than an independent appraiser
to be architects or engineers. The law
facilitate the lenders’ understanding,
database (ST groups more than
made the use of AMCs compulsory for appraisals linked to the mortgage market
knowledge, and familiarity with them. •
The AMCs develop market and
500,000 comparables yearly). •
Appraisers operate on a municipal
and therefore appraisers
technical control over the appraisals
level so that they can guarantee
where forced to
and comparables introduced by their
perfect knowledge about the market,
collaborating appraisers.
the urban area, the real estate
work for the AMCs. Appraisers act in
•
an independent manner, giving
agents of the area, the developers
classrooms and online).
of the area, the contractors, and the
• Appraisers receive orders directly via
their opinion about value without
Appraisers receive training (in
macroeconomic factors that influence
the Internet (no commercial effort). •
The appraisal rates are already
the economy of the area. •
At our group, although it is not
having any
assigned and negotiated by AMCs
regulated by the Bank of Spain,
pressure
with lenders (no negotiation effort).
we internally make sure that our
The billing management is done 100%
collaborating appraisers work in
by the AMC, therefore appraisers
a specific zone (each appraiser
don’t spend any time in the charging
works over a ratio of 40 km). In
process.
cities, appraisers are even zoned by
from the
•
• Each appraiser is assigned with
districts.>>
a general or specialized review
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The Market Regulation
the fluent transmission of information
main goal of offering security and quality
to the appraiser, with the existing issues
control tools to the mortgage market.
The Bank of Spain, which is the equivalent
detected, and allow him to complete the
to the Federal Reserve, is the organization that supervises the appraisal management companies and the financial institutions in the Spanish market.
needed modifications.
Technology
There are several factors that imply risk
ST International has been investing in
and should be avoided. Some of them are:
smart progressive valuation technologies
•
Heterogeneous criteria between the
since the 1990s and nowadays our state of
different professionals involved in the
the art technology is being used in Spain
valuation industry.
by the AMC and by the leading financial
Heterogeneous content in the
institution in Mexico. The technology
valuation reports.
processes an average of 250,000 appraisals
Non-existent independent quality
yearly in both markets.
Below are the most important laws that regulate the appraisal profession: •
Ley del mercado hipotecario (RD 685/82). Modified por RD716/2009: (Regulates the Mortgage Market). This law created the Appraisal Management Companies and made them compulsory for any appraisal linked to a loan that is intended to be sold on the secondary market.
•
Orden ECO 805/2003: Guidelines give an opinion of value, how the appraisal should be done, and the information that the report must have.
•
RD 775/1997: This law provides requirements to register as an AMC, how to be authorized, and sanctions
• •
control over the valuation reports. •
Unaudited databases.
The valuation programs developed by ST
•
Unstandardized information.
International generate reports adapted to
•
Monopoly of valuers in several areas.
the Spanish legislation, European valuation
•
Non-automated processes.
standards (TEGOVA), International
•
Manipulable PDFs.
Valuation Standards, Mexican legislation, and are currently working on a US version
All of those factors create systematic risks
called ST Appraisal.
in the valuation market, which prevent an efficient quality control of the valuations
The core offering of ST Technology is the
linked to mortgage loans.
real estate appraisal preparation platform. This unique approach combines the
In order to achieve security in the
professional judgment of the licensed
mortgage market, it is key to achieve
appraiser with intuitive scripts that drive
optimum control over the valuation
information gathering specific to the
Quality Control
products. In my opinion, the combination
characteristics of the subject property,
of strict regulations implemented
location, and the type of appraisal
The Bank of Spain specifies the type of
by governmental authorities with
assignment.
to AMCs. It also addresses appraiser incompatibilities, etc.
QC that should be done, and all AMCs must assure the following: •
The appraiser has used all of the necessary documentation.
•
The appraiser has completed all of the necessary steps required when doing the appraisal.
•
The technical proceedings (calculation methods) to do the appraisal have been completed.
•
The information specified by law is included.
The use of intelligent control systems as a tool to achieve quality and productivity in the appraisal process is key. It is essential that the control process is fast, therefore the technology used must allow
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technologies that allow statistical and numerical analysis in the valuation process
Once the form is created, the Appraisal
is essential.
Management Company’s QC department, the QC department of a lender, or even
Additionally, in markets with high
the QC department at a governmental
volumes of valuations, it is virtually
organization can receive the form, plus all
impossible to conduct the business in a
of the information which has been used
secure way without the use of specialized
to develop the form electronically. All
software that manage and automate the
of the appraisals (reports and appraisal
process of the valuation work. If you are
certifications) are received via the Internet,
a valuer or a valuation firm, the workflow
so all of the data is electronic, and all
process must include technology which
possible mistakes in the appraisals are
will allow you to receive orders, highlight
highlighted through electronic tools
important deadlines, track the status of the
provided in the program. The lender
report, and assure that compliance is being
receives a PDF, which includes all of the
met. Additionally it will assure that the
information on the property (more than
criteria, procedures, and methodologies
180 parameters from each appraisal), and
used are appropriate, as well as check the
can file appraisals electronically with full
coherence of the certified values with the
legal approval.
main characteristics
•
It has a smart screen progressive process that varies depending on the typology of the appraisal. Screens must be completed correctly in order to move to the next screen.
•
9 0% of the fields are prepopulated fields and each of them has a help button in order to avoid mistakes in the answers due to lack of knowledge.
•
The appraisal residential program therefore intuitively guides the appraiser throughout the appraisal process with a permanent QC during the process of developing the report.
•
of the system
•
It provides appraisers with a flexible operating platform, where un-biased validation of appraiser quality is a true differentiator.
•
The property valuation market is evolving with this program, which includes technology driven data capture, valuation, review, and risk assessment solutions.
•
•
There is a focus on solutions that increase the quality and speed of property valuations by bringing transparency and independence to bear.
The program assures that the data is introduced only once. The program supports the appraiser’s development of a personalized data source from his own work, his participation in peershared data resources, and third party data integrated into the system. In Spain, for example, we have a database of 2 million data and 300,000 new data are introduced yearly by the appraisers who use the technology.
•
The criteria, methods, procedures, and techniques used depending on the typology and legal characteristics of the subject properties are appropriate.
•
I t automates and preserves complete work files of each assignment for the appraiser, eliminating cumbersome offline systems for record retention.
•
Compliance is integrated into the program.
•
Addendums and empty answer boxes are generated automatically as a result of the scroll-downs that appear at 90% of the fields.
•
«
•
The report is multilingual, independent of the language in which the appraiser has completed the screens. The demo version produces the reports in English and Spanish for a better understanding among the Hispanic population in the USA or the Hispanic investors in RE, which do not understand the official existing forms.
•
Each property has a family and the system recognizes if it has been appraised previously even if the legal aspects of the property have changed (urbanism, etc.).
•
The system adapts to hundreds of specific client requirements.
The system generates the official form required as well as another much more comprehensive form, which we believe is organized much more coherently.
Appraisals must include photographs,
is reduced substantially. It will be able to
security and safety to international
maps, and any other materials needed
achieve homogeneous technical criteria,
mortgage markets. It is necessary to make
for the appraisal certifications and
homogeneous reports, make sure that the
the industry aware that it is extremely
can be received at different locations
appropriate quality controls are produced,
profitable in terms of security to invest in
at the same time (financial institution
and include shared and audited databases
quality and automation of the valuation
headquarters, bank office, mortgage office,
as well as standardized information which
process in order to achieve productivity
risk departments, etc.). This technology
will allow a better analysis of the valuation
and profitability.
reduces the number of QC people needed
works.
in an organization by 70% due to the
Never before has it been more important
integration between the valuation program
The valuation market in each country has
for a new, viable system to be inserted in a
and the QC program.
its own characteristics but we have been
market place that restores the appraiser’s
able to prove that the methodologies,
ability to improve his efficiency and
Through the implementation of an
procedures and technology that are used in
accuracy, offering much more security to
effective regulation, and through the use of
Spain are 100% adaptable and exportable
the mortgage market, lenders, investors,
intelligent valuation technology platforms,
to diverse legal and socioeconomic
and international global markets.
the mortgage market will see how the risk
environments. We can help to offer
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15
New
Legal Risks for
AMCs
Passing the Liability buck. Peter Christensen
16
| LVM
/ October 2010
A
Appraisers and appraisal management companies share the same lifeboat these
We see lenders doing this in several ways:
going to avoid sinking in the whirlpool caused by the mortgage crisis. This is becoming more evident as AMCs become visible to the public and subject to greater regulatory control. We’ve been advising appraisers for years about the claims and litigation that affect them and on strategies to reduce their risk. The information here is for AMCs and highlights a few of our current concerns about the risks they face.
AMCs Should Be Careful With What They Promise to Clients One pronounced recent development we have observed in the relationships between AMCs and their lender clients is that many lenders have become more focused on contractually shifting valuation liability risks to AMCs. Lenders are demanding that AMCs accept financial and legal
• Requiring AMCs to make more representations and warranties with respect to appraisal delivery performance, value accuracy and USPAP/ regulatory compliance. In some lender/AMC contracts, the AMC is then required to pay liquidated damages to the lender for any breach of its reps or warrants. They must also agree to pay the lender’s costs and losses associated with any appraisal-related issues such as mortgage repurchases or mortgage insurance rescissions. Lenders are essentially mirroring the reps and warrants they’ve been making to the GSEs for years – promises that are now causing them to have to repurchase billions of dollars of mortgages.
Appraisers and appraisal management
companies share the same
lifeboat
these days when it comes to their liability risk...
winning the work. However, in the current legal environment surrounding appraisals, this is a risky approach. Lenders know the cost of the risk they are passing on to the AMCs far better than the AMCs. They simply know their own default rates, appraisal-related losses, and mortgage repurchase problems better. Some of the lenders who are trying to shift the most risk are lenders who are predisposed to litigation about appraisal issues and who have recent histories of treating appraisals essentially as guaranties of value, not professionally developed opinions. Prudent AMCs should carefully evaluate proposed risk transfer provisions in their lender contracts: •
Can the risk transfer provisions be more fairly negotiated? Some lenders are willing to revise the language they initially demand.
•
If the provisions cannot be fairly negotiated, then the cost of accepting
responsibility for appraisal quality and compliance.
requirements like these without thought or negotiation. Their focus is simply on
days when it comes to their liability risk and they must row together if they are
Many AMCs execute contracts containing
• Requiring AMCs to agree to onerous, one-sided indemnification provisions under which the AMC must promise to indemnify and defend the lender for any and all claims, losses, expenses, attorneys’ fees, etc. relating to appraisals or other valuation products delivered by the AMC to the lender – regardless of fault in some cases.
that risk versus the benefit of doing business with the lender should be weighed. Thus, what is the lender’s history with respect to appraisalrelated claims and litigation? Key indications of a lender more likely to make demands under rep and warranty provisions are: a recent history of claims against individual appraisers or AMCs, and a high level of mortgage repurchases. An E&O carrier with relevant market knowledge can help assess these
• Demanding that AMCs carry extensive insurance coverage not only for professional and general liability risks but also for less commonly covered risks like intellectual property infringement (i.e., patent and copyright claims).
factors.>>
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17
AMCs Should Be Careful With What They Require Appraisers to Promise
This is very one-sided. Under such a
law, for example, states: “An appraisal
provision, an AMC could contend that
management company shall not require
the appraiser must indemnify the AMC
an appraiser to indemnify the appraisal
for liabilities or damages, and even fines
management company against liability
The common reaction that many AMCs
or penalties assessed against the AMC
except liability for errors and omissions by
relating in any way to appraisals delivered
the appraiser.” Similar prohibitions exist
to the AMC by the appraiser – even if
in the AMC laws of at least the following
the alleged problems are the result of the
states: Minnesota, Tennessee, Utah and
AMC’s own conduct or wrongdoing.
Washington. Very one-sided provisions
have to lenders requiring them to agree to onerous reps and warrants as well as one-sided indemnification provisions is to try to pass on these potential liabilities to their panel appraisers. It is, of course, prudent to use independent contractor agreements to clearly spell out the performance standards, payment terms, and other aspects of the relationship between AMCs and appraisers. Trying to pass on all of an AMC’s potential liabilities to its appraiser panel in such agreements, however, does not work well in practice, may violate various states’ AMC laws, and can result in an appraisal panel that is lower in overall quality. It’s usually fair and practical that each party
are also often unenforceable under more Another example of one-sided
general statutory or common law in many
indemnification language in an AMC-
states.
appraiser agreement is: A second concern, based on years of Appraiser shall further indemnify,
observing appraisal claims, is that when
defend and hold [AMC] harmless
an AMC utilizes an agreement that is very
from and against any and all claims,
one-sided or commercially unreasonable,
losses, liabilities, costs and expenses
the overall quality of its appraiser panel
attributable to any allegation of
declines due to the loss of appraisers who
intellectual property infringement
choose not to do business under such
arising out of this Agreement.
agreements. This exposes the AMC and its clients to greater liability risk from poor
Under this provision, the AMC is requiring
appraisal performance. Appraisers who
the appraiser to indemnify the AMC
have the ability to make a choice about
for patent or copyright infringement
whether they do business with certain
in relation to any appraisals delivered
AMCs, on average, are more experienced
the individual appraiser.
by the appraiser – whether the alleged
and knowledgeable and have greater
infringement is the fault of the appraiser,
economic stability than appraisers who
We often see indemnification provisions
the AMC or some third party, such as a
feel they must accept the one-sided
technology provider.
terms of some contracts. Of course, good
to a contract will be responsible to the other for its own acts or omissions, but it’s quite another thing to shift the risk of all liabilities, regardless of who is at fault, to
like the following in AMC independent contractor agreements: Appraiser shall indemnify, defend, save and hold harmless [AMC] from and against any and all liability, claims, damages, losses, fines, judgments, penalties suits, decrees, costs and expenses . . . in any way related to . . . any appraisal report submitted to [AMC] by Appraiser.
“
appraisers do work for AMCs that have There are several issues and problems
unfair agreements but they generally do it
with including provisions like these in
only when they don’t have alternatives.
independent contractor agreements. First, AMCs need to be aware that some of
Finally, as a practical matter, we almost
these provisions will now violate various
never see AMCs actually enforcing the
state AMC laws and subject the AMCs
one-sided provisions in their agreements.
to investigation, potential monetary
An appraiser’s professional liability
sanctions, and possible loss of their
insurance is not going to cover any
registration status. New Mexico’s AMC
liability that the AMC tries to shift for its own conduct. Relatively few individual appraisers have the financial ability to
“
The common reaction that many AMCs have to lenders requiring them to agree to onerous reps and warrants as well as one-sided indemnification provisions is to try to pass on these potential liabilities to their panel appraisers.
18
| LVM
/ October 2010
personally satisfy the monetary demands made in such claims, which may be tens of thousands or hundreds of thousands of dollars. Thus, in general, AMCs are not getting any benefit from including the provisions but are suffering from loss of appraiser quality and potential regulatory scrutiny.
Indemnification provisions are not the
the subject of significant current litigation
awkward position of being required
only contractual clauses that may cause
and arbitration. If review work performed
to file complaints alleging USPAP or
regulatory scrutiny for AMCs or cause
by a certain AMC for MI or repurchase
other violations against their own panel
their panel quality to suffer. Another
purposes is contaminated by these kinds
appraisers, while in some cases being
example is the following provision –
of practices, that AMC will have potential
obligated to indemnify their lender clients
wording similar to this appears in many
liability across a wide spectrum (magnified
for losses caused by such violations.
AMCs’ current contractor agreements:
by any indemnification provisions it has
Appraiser may not disclose the appraisal fees paid for services under this agreement to any third party. Provisions like this potentially violate
agreed to) and, moreover, will quickly see
We are also concerned about the effect of
demand for its services to evaporate.
new AMC laws which contain provisions requiring AMCs to have in place a system
Future Liability Issues under Dodd-Frank and State AMC Laws
for ensuring that their panel appraisers’ work product complies with USPAP and in some instances appear to suggest a duty on AMCs to ensure USPAP compliance.
new state prohibitions against AMCs prohibiting appraisers from disclosing
As AMCs busy themselves preparing to
Attorneys for consumers will likely
their fees in appraisal reports. California’s
comply with the initial TILA elements
contend that these requirements establish
emergency AMC regulations, for example,
of the Dodd-Frank Act and new AMC
a legal duty of care owed by the AMCs to
provide that “[a]n Appraisal Management
laws, we are busy trying to determine
borrowers – if this occurs, we will see more
Company cannot prohibit a contracted
the additional liability risks that both
consumer claims against AMCs.
appraiser/client from disclosing the
appraisers and AMCs will face.
fee paid to the appraiser/client for an appraisal assignment in the body of the
We are most concerned about effects from
appraisal report.”
the mandatory disciplinary reporting of
A Risky New Form of Appraiser Pressure
appraisers under the Dodd-Frank Act (and the eventual complaint “hotline” that will later exist). In short, Dodd-Frank mandates that mortgage lenders, AMCs, and other parties report an appraiser to the
anymore relating to valuation pressure
applicable state licensing agency if there
from AMCs or lenders in connection with
is a reasonable basis to believe that the
current appraisals for loan origination
“appraiser is failing to comply with the
purposes. We do, however, receive reports
Uniform Standards of Professional
and see the results of pressure by some
Appraisal Practice, is violating
personnel employed by AMCs in the
applicable laws, or is otherwise
business of delivering “forensic” review
engaging in unethical or
work for mortgage insurance and loan
unprofessional conduct.”
repurchase purposes. In recent months, for
This will mean many
example, we have received confidential
more complaints to
reports of AMC personnel instructing
state boards and,
appraisers in writing that they must
correspondingly,
deliver forensic review appraisals with
an increase
value opinions lower than the origination
lawsuits
appraisal and must identify errors in the
against
origination appraisals under review. It’s
appraisers and
been reported that these AMC personnel
AMCs because
threaten the appraisers with being cut
certain percentage
off from further review work. This is a
of such complaints
potential business and legal disaster for
evolve into civil
these AMCs. Mortgage insurance denials
litigation. AMCs
and mortgage repurchase demands are
also will be in the
in
a
“
The common reaction that many AMCs have to lenders requiring them to agree to onerous reps and warrants as well as one-sided indemnification provisions is to try to pass on these potential liabilities to their panel appraisers.
“
We do not receive many reports or claims
LVM |
19
20
| LVM
/ October 2010
“
“
I have known Brad for a long time and always admired his tenacity and passion for technology. He has a ‘never say die’ attitude and an interesting perspective on valuation that we can all learn from. -Ernie Durbin, Publisher
LVM |
21
technology changes everything, especially for the appraisal industry. This is the story of how ZAIO’s vision came to be, based on my personal perspective as the founder and as a fee appraiser keeping pace with technical advances over the past 30 years. It’s about the rise of a simple concept that will enhance the appraisal profession and provide the collateral risk industry with valuation clarity in real-time, while also separating the appraiser from all undue value pressure.
My appraisal career began as a Canadian
open houses, studied market trends in
highly unique back then. I would print
mortgage underwriter when I was 19.
advance, and provided the accuracy
the report while sitting in the lender’s
Back then, bankers drove long black
everyone was looking for. Unfortunately,
parking lot and then glue on that
sedans, mortgage loans were a privilege,
I was naïve and that was not how the
Polaroid photo. It didn’t take more than
not a right, and underwriters often wrote
industry would unfold. There was
a month for lenders and competing peers
their own appraisal reports by hand. The
certainly no time or method to actually
to notice a major change in the industry.
year was 1979 and the Olivetti typewriter
study market conditions between orders,
was on the cutting edge of technology.
and the business volume quickly began
I sold my software to a few appraisal
flowing toward those appraisers who
firms in the mid 80s, but by 1990, larger
In the early 80s, mortgage rates were
always supported the necessary number.
and more dedicated software developers
like price tags. They just kept rising
I still believed integrity would rule the
had entered the market. I had my CRA
with inflation, until they reached the
day and better service could win.
designation (equivalent to an SRA)
apex of insanity at 22%. At the bank,
and I was running a busy appraisal
we filled our days with back-to-back
With a Tandy 100 laptop and my own
business called Blueprint Appraisal
games of Cribbage and began to talk
new custom software application, I hit
Services. Our software was really only
about a cool new desktop appliance
the streets as a high tech appraisal shop
custom designed for our appraisal
called a PC. As mortgage rates eased,
that delivered speed but not always the
firm, and we focused on helping our
a new world emerged—a world filled
requested number. I trusted that turn-
clients provide prompt service to their
with mortgage money and loan officers
around time and service would keep the
borrowers by trying to carve minutes
living in a constant state of panic, waiting
orders flowing, even when the required
off the turnaround cycle and never
for independent appraisers to deliver
values weren’t really there.
compromising quality. We had to provide
reports. Mortgage lending had suddenly
better service because we didn’t always
become a new and highly competitive
The Tandy 100’s monochrome screen
industry. From my perspective inside
only displayed 200 characters, 50
the bank, it was easy to see how faster
characters wide and 4 lines high. The
On the front line of technology in 1990
service would mean plenty of business
reports were saved onto a separate audio
was the cellular phone. The cell phone
for an appraiser. What if an appraiser had
cassette player by pressing play/record
companies told me it was illegal for us to
a computer that prompted the questions
and save on the Tandy at the same time;
transfer appraisal data over radio, but I
and then printed the appraiser’s response
there was no floppy disk yet. With my
knew the oil and gas industry outside of
right onto the form? Eureka! In 1983 I
printed sales books in the back seat,
Calgary, Alberta, was transmitting data
left the bank, hired a programmer and
a power generator, and a daisy wheel
logs by wireless every day. Why couldn’t
rode boldly into the new frontier. I had
printer, I was able to turn an appraisal
an appraiser log onto the MLS or transfer
visions of becoming this highly informed
around in 2-3 hours and personally
appraisal files by cell phone? “AT X19 -
appraiser that completely understood
inspect all of the comparables. Inspecting
enter” turned out to be code that would
what every home was worth, visited
comparable sales was overkill and
tell a modem to connect with a squealing
22
| LVM
/ October 2010
support the value our client needed.
modem on the other end. This was cool
photographed Calgary’s 300,000 homes
competition then wanted to partner with
stuff…until the MLS website became
in 1996. When the Internet became
us and we were happy to oblige if it took
graphical and the page load times
mainstream in 1997, our photo database
us national and could help fund the very
jumped to 5 minutes at the pathetic 300
raised eyebrows and questions from the
expensive data collection.
baud rate our modems could maintain
privacy commissioner. After a few radio
over a cell phone. The competition didn’t
interviews and a 30-minute television
By 1998, with the help of a large national
mind our little technical setback and they
debate, the excitement over privacy
partner, we had become Canada’s largest
were beginning to dislike our technical
rights abated. Lenders could suddenly
appraisal management company. Our
ways. We bought faster modems and
see any Calgary home from the street
appraisal contract expanded nationally
more comfortable cars and carried on.
through their computer screen. Banks
as did our national photo shoot. Lenders
were centralizing their operations and
could see any home instantly, but now
Exclusive appraisal contracts were
our goal became the task of centralizing
they wanted the appraised value along
unheard of, and considered unfair for
the appraisal supply and data on their
with that photo. We began to focus our
the competition, but lenders wanted
behalf. We wanted to be faster, better, and
technical development on a database
what we had, so I signed one of the first
allow appraisers to spend more time on
structure that would help an appraiser
contracts in Canada for the entire city
real valuation research while transferring
organize market data and research values
of Calgary. We posted and distributed
the clerical mechanics of production into
even before an order was received. That
orders through our private Bulletin
the burgeoning world of information
naïve idea about >>
Board Service (BBS) because the Internet
technology on the Internet. We had 12
didn’t yet exist. Our appraisers logged
appraisers, all with complete briefcase
onto our BBS from their vehicle and the
office systems on the passenger seat
company grew very quickly even though
of their car, and our quick turnaround
our appraisers rarely met each other at
time with higher quality research had
the central office. As technology settled
a markedly positive impact on our
in, we began to imagine the tremendous
client’s market share for
potential of electronic data interchange.
mortgage origination.
We didn’t know it at the time, but what
Real estate agents soon
we had imagined soon arrived in the
knew where they could
form of the Internet. We were gaining
get quick mortgage
market share while the competition was
approvals and where
growing more unsettled with us every
NOT to send fraudulent
day. Lenders loved us.
deals. Our lenders were winners on both accounts.
Digital signatures were next on the
A separate company called PhotoInfo
horizon in the mid 90s, along with
Digital Photography Inc. was formed
those binocular-shaped digital cameras.
and we began to generate interest
We bought 26 Logitec™ cameras and
from appraisers in other cities. The
NEXT ? YEARS
LVM |
23
at a time. Appraisers had to become local
public in 2004 with a small IPO at 30
order was on the table again. The risk
market analysts even before the order
cents, we had completed most of the
manager at one of our lender clients said,
was received. The appraiser needed to be
photography in Spokane, St. Louis and
“Our sales department wants to issue
more than just a person who could tally
Denver, and we had the rudiments of
mortgages as quickly as a credit card
up the physical assets of a house and
GeoScoring. GeoScoring crystallizes
transaction, while I need to make sure
find three comparables that sold near the
qualitative words like “good” and “fair”
we maintain a quality appraisal.” Things
suggested value. They needed to become
into meaningful and consistent numbers
were still too slow and clients seemed to
professional market analysts for local
on a scale of 1 to 10. The vision for an
always want the report yesterday. Those
market conditions and value trends,
appraiser-backed valuation database
scary black sedans from the 70s would
and they needed to do it better than a
was clearly on the road ahead. With seed
soon become black box Automated
real estate agent, tax assessor, or the
financing, we developed the first version
Valuation Models (AVMs) that would
dreaded AVM. We could feel statisticians
of our valuation software and
attempt to determine a home’s value
breathing down our necks. On the flip
pre-appraised most of the homes in
instantly or simply risk rate the loan and
side, those AVMs had data errors and
Spokane, Washington. Within days, we
not conduct any valuation at all.
were inaccurate 30-40% of the time and
were instantly delivering the original
>>
doing market research in advance of the
1979 1980 1990 1990s 1996 1998 My appraisal career began as a Canadian mortgage underwriter when I was 19…the Olivetti typewriter was on the cutting edge of technology.
Mortgage rates
The cellular phone
were like price
was on the front-
tags. They kept
line of technology.
rising with
Cell phone
inflation until they
companies said
reached the apex of
it was illegal to
insanity at 22%.
transfer appraisal data over radio.
We began to imagine the potential of electronic data interchange. What we had imaged soon arrived in the form of the Internet.
We bought 26
We had become
Logitec ™ cameras
Canada’s largest
and photographed
appraisal
Calgary’s 300,000
management
homes.
company.
Our best client had been predicting a
we knew appraisers could do a much
2055 appraisal form to a few small local
doomsday for all residential appraisers
better job if they had the tools. It was at
lenders. The valuation research had
unless appraisers could somehow learn
this critical juncture that our Canadian
taken months, but the lender could
to analyze more than one house at a
business partner would decide to buy
receive it instantly. However, the larger
time. Lenders needed neighborhood
us out, leaving me with a non-compete
lenders with most of the market share
trends and statistical data to manage
agreement for Canada. We entered the
felt they needed national coverage before
risk, while the mortgage sales side
US market in January 2000 and ZAIO
they could really play ball, and the
needed those same statistics for better
was born (Zone Appraisal and Imaging
middle of a refi-boom was not exactly
service and marketing. Black box
Operations). We were right on time for
ideal for lenders to re-tool their existing
AVMs would become the appraiser’s
the tech wreck, AKA the Dotcom market
appraisal supply chain. It was a Field of
archenemy. Trying to carve another 10
crash. I had to re-invest every dime
Dreams scenario. “If we build it they will
minutes off an appraiser’s turn time was
from the Canadian sale and refinance
come…”
no longer the question. In fact, the whole
my home for the second time, but the
question had changed for the appraiser.
company survived.
It was no longer “What is this house
This would be a very steep uphill curve. Photographing and GeoScoring
worth?” but “What are these houses
It was hard to know where this
a large portion of America would cost
worth and where is this particular
long and winding road would lead,
millions unless appraisers liked the
market going?” Loans were securitized
especially when the capital markets
concept enough to purchase a software
into mortgage pools to reduce risk and
and investors had the jitters too. ZAIO
license for a specific geographic area.
appraisers were becoming outmoded.
had to unite US appraisers with photo
In 2006, with a new CEO and an office
Clearly, the key was to help the appraiser
and data collection, and it needed
in Phoenix, we launched an aggressive
measure value on more than one house
capital. When we took the company
Zone Sales program. Appraisers would
24
| LVM
/ October 2010
own rights to a geographic area called a
and investor capital, when industry
and accelerate GeoScoring and database
Zone. A Zone contained approximately
icons like Bear Stearns and Lehman
growth. The solution was for Zone
10,000 properties and the Zone Owner/
Brothers toppled. When lenders hit the
Owners to unite under their own banner
Appraiser would research all the homes
brakes, all revenue sources and investor
and for ZAIO to issue one national
in detail, fixing errors in the property
dollars for ZAIO vanished and our US
software license to this new entity. That
data, selecting comparables and
subsidiary was closed and dissolved.
new company is Zone Data Systems LLC
analyzing the value of every home in the
Zone owners dubbed that fateful day as
(ZDS). Independent valuation research is
database. Appraising in advance of the
“Z-Day”.
the future for appraisals. Whether the
order would ensure pure independence,
final product is a desktop, drive-by, or
geographic competence, and adequate
ZAIO’s Board of Directors managed to
full interior appraisal, knowing the valid
time for quality research, while the client
keep the public parent company alive
comparables and market trends up front
would receive real-time delivery, quality,
and out of the ditch. Dedication to
makes complete sense for everyone
and cost efficiency. The appraiser’s
preserving the investments from Zone
involved. The ability for local appraisers
local research would be the most critical
Owners and shareholders carried the
to accurately track property values every
aspect of the entire value proposition.
company through 2009, saving its critical
month will add an entirely new and
2000 2004 2006 2008 2009 2010 ZAIO was born
We took the
With a new CEO,
Stress fractures
ZAIO’s Board of
ZAIO issued a
when we entered
company public
we launched an
began to appear in
Directors managed
national software
the U.S. market in
with a small IPO at
aggressive Zone
the business fabric.
to keep the public
license called Zone
January.
30 cents.
Sales program.
Bear Stearns and
parent company
Data Systems.
Lehman Brothers
alive and out of the
toppled.
ditch.
the
long and winding road
Appraisers caught the vision and
assets for a better day; saving it for days
necessary dimension to the appraisal
purchased software rights for one third
like today, when market research and
and collateral risk industry.
of metro USA, and those selected Zones
valuation clarity is really taking center
encompassed half of the country’s
stage. By keeping the faith, shareholders
As the country continues its effort to
strategic lending footprint. With ZAIO’s
and Zone Owners would emerge from
clean up and restructure America’s
stock price soaring as high as $5.60, the
this economic disaster stronger than ever
mortgage woes, and leaders in lending
company then found itself in acquisition
before and the database would grow
and government have that deer in the
mode. ZAIO purchased appraisal
again.
headlights look, they need to know that
management companies, software
technologies such as, ZDS and ZAIO
development companies, photography
The crisis proved to be an ideal
are coming down the road with a major
networks, and even Appraisal.com.
opportunity to revisit the business
helping hand. Real-time valuation clarity
Some of the best known names in the
relationship with local appraisers.
will inspire new investors to absorb the
appraisal industry were happy to lend
Between economic change and
troubled loan and REO portfolios, and
their expertise and join the management
technological advancement,
accurate value tracking in the future
team. The concept was solid, but there
perspectives can change overnight,
will foster better lending programs and
were still a few sharp turns in the
making a company’s willingness to
mitigate fraud. The entire lending and
road, and in early 2008 stress fractures
reinvent itself a major asset. Zone
collateral risk industry reside on this
began to appear in the business fabric.
owners wanted to mitigate risk and
long and winding road, and I think we
Operational costs were high and it
needed more control. They wanted
all know where this road leads.
became difficult to see the road. We
higher revenue potential. ZAIO felt a
were running mainly on revenue from
strong need to unify the Zone Owner
traditional appraisal services, Zone sales,
network, reduce capital expenditures,
LVM |
25
o
appraiser realt r I in
CLOTHING
Appraisers and Realtors: the common ground.
Steve Ferguson
I have been involved in some form of the real estate industry for the better part of my life, from
construction with my father as a teen, to appraising and loan originating, and now as a Realtor. Even when I decided to go back to school in the early part of the decade to pursue an education
in economics and leave the business, I saw more opportunity and application in real estate than anything else. The study of economics has allowed me to create models to simplify the complex, and recognize there are problems that cannot be explained rationally: perfect for real estate. It is from this background, specifically my experience appraising real estate, that I have gained a significant foundation as a Realtor.
26
| LVM
/ October 2010
As an appraiser, I had respect for some
market value. I have found that many
with how appraisers estimate value. It was
of the Realtors in the field, but largely,
Realtors throw around the price per square
early April; I did not want to see anyone
my perception was that they were paid
foot statistic more than appraisers. Taking
lose a deal and cost a client $8,000 and
a lot of money to turn a key; I will not
something so complex and reducing it to
possible litigation. I had approximately
even tell you what most Realtors think
one all encompassing figure is dangerous
thirty Realtors in the training group and
of appraisers. Even though I am not an
and violates the axiom of each property
started with USPAP definition of market
appraiser now, I still become defensive.
being unique. I am sure it is used because
value and moved into neighborhood
I figured that with my background in
most buyers and sellers can relate. I still
definition and comparable selection. All
valuation, it would be a snap to adapt to
look at contributory value as the way to
was going well until I discussed matched
this part of the industry. Keep in mind I
advise clients, which makes me feel more
pair analysis. To be fair, this systematic
was an appraiser, then became a Realtor
confident. When determining a list price
approach to valuation is in many ways
during two very different and distinct time
for a house and sometimes purchase price
like learning a new language. For good
periods of my career. Believe it or not, the
for a buyer, I will run a multiple regression
measure, I have been in many appraisal
job of a Realtor can be very demanding,
and do a modified appraisal on the
courses where the slightest hint of algebra
especially for a closet introvert. It turns out
property. At the very least, I will complete
brings panic to appraisers. The intent
I have learned quite a bit as a Realtor—
a truncated appraisal using sales from the
of the exercise was to borrow some best
things that I did not know or consider as
neighborhood and from time periods in
practices from the appraisal world in order
an appraiser.
which marketing influences are somewhat
to help them think in an organized and
similar (remember this mess started in
systematic way. My conclusions were that I
There are many similarities to our two
August 2007). I do use older sales (12
shouldn’t have had such high expectations
sides of the business, including client
months plus) in order to stay within the
while giving them a crash course in
relationships as well as valuation and these
confines of a neighborhood rather than
everything I had learned over the course
two similarities take on different forms.
extracting an adjustment for differences
of 15 years inside of a two-hour training
For instance, we as Realtors need to get to
in amenities and location. Again, this is to
session. I also concluded that the average
know our clients very well as it pertains to
protect the interests of my clients, not for
personality of a Realtor is not conducive to
their lifestyle and even finances. It is not
an underwriter. I realize I am not doing
thinking in a linear way (cheap shot). We
uncommon for personal relationships to
an appraisal by today’s standards but it is
did manage to close all deals from April
spawn out of a business relationship, to
the way most appraisers would operate if
and only had one “low” appraisal for the
know names of kids, and to have common
given the freedom.
month.
especially now, you may not even know
Perhaps a story would be useful
Even though many Realtors do not
anyone at the mortgage company/bank
in illustrating how our worlds are
methodically look at contributory value
you are charged with protecting. However
different. In my office, my experience
the same way, after looking at so many
the same client confidentiality applies to
as an appraiser comes in handy and is
properties in a specified market, the value
both.
especially centered on training other
of a specific property almost becomes
friends and hobbies. As appraisers,
Realtors. Recently, I became concerned
visceral. From my experience working
The valuation techniques were, I believe,
with the April 30th expiration of the
with buyers, this is particularly true.
the best tools I learned through the years
buyers incentive specifically as it relates
Buyers, whether they are thinking or
as an appraiser. There are many appraisers
to appraisals—low appraisals. I wanted to
feeling, can organize data and come pretty
and Realtors who are good at estimating
bring Realtors in line, if only temporarily,
close to market value, in somewhat of a>>
“
“
As an appraiser, I had respect for some of the Realtors in the field, but largely, my perception was that they were paid a lot of money to turn a key; I will not even tell you what most Realtors think of appraisers.
LVM |
27
qualitative manner. Translation: whatever
I believe it is my duty to protect my client
their ideas are of the market, they
The best way I found to model
and earn the commission I am to be paid. I
price-adapt quickly once they have
the real estate market is through
also believe I am helping the appraiser do
developed their own set of priorities or
a form of regression. It is a
his job and to protect his client relationship
bundle of needs. Will they pay more for
rigorous approach to observing
by making sure I can justify a purchase
a full fenced rear yard? Deck? In-ground
and smoothing out contributory
price. Entering into this downturn, there
pool? My experience tells me it depends.
value. In the example with the
were probably many appraisers who
If they did not have it in their bundle of
pool, deck and fence it can infer
were aware there was a growing crisis.
needs and it is an added feature to the
a value point and then also
Maybe we could not have predicted the
house they have selected, they may be
a range of values within the
magnitude of the downturn but there
inclined to pay a little more for the added
upper and lower 95% confidence
were enough warning signs that lead to
feature. For those buyers who had to have
interval. There are at least three
concern. The rise in LTVs since the mid
an in-ground pool, or a fenced rear yard,
downsides to this approach.
1990s and the concerns within Fannie
well, they wouldn’t be looking at that
•
Mae even going back to 2004 were only
the first is that you will need
a couple of the problems. Mentioning
me to the question: is there one price that
plenty of observations, 30 plus
anything about over supply or decreasing
a pool, fence, deck or house is worth? This
sales, listings or pendings, but this
values was career suicide for an appraiser.
one is hard to pound into the heads of the
can be done at light speed with
Being on this side of the industry for a
secondary lending market, but the answer
the right program; on the more
good portion of the run up of appreciation,
is no. There is a range of values or multiple
obscure features you will need
I can see why we reached a critical mass.
demand curves. In the first example where
even more.
Almost every client I worked with prior to
property if it were not included. This leads
the buyer was not necessarily interested in
•
the collapse chose the most house he/she
the second downside is that
could afford. So predictable was this that
buyer is more in control of the contributing
you should be trained. You should
it was unusual for a client to buy a house
value. In the second example where the
know how to select the features
that was less than the limit of the pre-
buyer had to have a deck, the seller is more
that are important in the market
approval. Greed is part of human nature
in control of the value so long it does not
place, be able to convert data or
and has been talked about and studied
exceed the cost of installation. Of course
have a program that will, and also
from the beginning of time. This of course
this is hard to observe unless it is part
be able to interpret data.
puts more pressure on me, their Realtor, to
a deck, but the house had one, it seems the
of the transaction. I have witnessed the
•
find something that is a solid investment.
the third and final downside
Appraisers tend to be the scapegoats of
different than the way I thought it behaved
is that it will absolutely change
most real estate crises, but in this case it
as an appraiser.
all the canned adjustments
was, in my opinion, unchecked greed. This
most appraisers use in their
greed was not only on the part of lenders
report—$500 for a half bath on
and secondary market (they did quite
a $200,000 home will be history.
well), but on the part of the general public.
The benefit I have found to this
Remove, change, or alter credit guidelines,
approach is that regression takes
allowing more people to own homes and
all the information objectively
it will skew demand. Buyers will always
and gives back what is important
want more if they are not restrained by
to buyers and sellers in that sub
guidelines. What else is an appraiser to
market by giving a coefficient and
do but follow past supply and demand? I
also standard error.
witnessed more zero down loans to people
market working first hand and it is slightly
...appraisers
could improve
their business and
understanding of
that could barely hold their credit together
the market by
Leaning hard on my clients’ bundle of
long enough to close the loan. HVCC
shadowing a
needs and also the ability to use statistical
and FinReg, I am sure, are well intended
tools have kept me from having problems
but not the answer. Fraud, coercion of
with appraisals. Of course, being a former
appraisers, is only a small part of the
appraiser does not hurt either, which leads
problem. If you could barely pull together
me back to the beginning.
$500 or $1,000 (FHA minimum amount
Realtor for a day or two...
purchaser had to contribute) to purchase 28
| LVM
/ October 2010
a home, how long would you stay around
Can the buyer not make some of these
there will always be a need for human
when your home just lost 5-10% of its
decisions, especially in an economy where
interaction. We can stick to our old ways
value? Add to that the sub prime market
saving $30-$50 may make a difference
or adapt to new more efficient ways to do
and it was clear to see we were just
to an individual? If there is a correlation
business for what I believe to be the good
borrowing money for an unsustainable
between well water and mortgage default,
of the industry and consumer.
lifestyle. Taking the homeownership rate
I have not been made aware. To clarify, I
from 65% to 69% of the American public
am referring to a functional well in good
In my years of appraising, the systematic
could not be done by corporate greed
working order. What if the buyer was
approaches to highest and best use,
alone. Homeownership has gone from
interested in the property in spite of, or
income capitalization, etc., have all made
being a dream to being portrayed as a
because of a so-called deficiency? I know
me a stronger Realtor. Realtors could
right. Rest assured it will be fixed by the
this sounds a little old fashioned and
benefit if we attended a class or two on
same organization that created HVCC and
utopian, but we now have more checks
appraisals to expand our knowledge in
FinReg.
in the system than ever: public access to
the valuation methodology, so we as a
MLS, home inspections, and Realtors and
group could understand what concerns the
I may be cutting my own throat, but the
appraisers are more educated. I recognize
appraisal side has in the process. On the
answer to this is obvious: larger down
it is not easy, if not impossible, to uncover,
other hand, based on what I have learned,
payment and lower LTV. This flies in the
research and resolve all issues as they
appraisers could improve their business
face of the right to homeownership and
relate to an assignment based on an hour
and understanding of the market by
also the ability of the secondary market
long (sometimes less) site inspection,
shadowing a Realtor for a day or two, or
to have such control over the origination
especially in isolation from the rest of the
at least be a part of a small business group.
process. Analogous to this is the health
industry. That is why the very least we can
We deal in the same industry, we both
do as Realtors is protect our clients’
encounter similar problems in the
“
“
Appraisers tend to be the scapegoats of most real estate crises, but in this case it was, in my opinion, unchecked greed. This greed was not only on the part of lenders and secondary market (they did quite well), but on the part of the general public.
care insurance that most have. When
interest. The appraisal is only one pillar
industry, and it would be beneficial to both
offered full access to doctors without any
when building a quality loan file. There
sides if we “cross-trained” to the other
type of co-pay, demand is much higher
are credit, title, and income (and its source)
side. We are in a unique time and we need
than when there is even a small $10 co-pay.
of the buyer as well. The appraisal is only
to share ideas, information, and support
As a consequence, the group insurance
ordered when the first three pillars are in
each other’s efforts toward stabilizing the
premiums are much lower when there is a
place. As we all know, a three-leg table,
market.
co-pay. The patient is vested in that doctor
if all legs are strong, should be able to
trip and will not waste their own money
stand on its own; the fourth leg is there to
Lastly, Realtors look out for Realtors.
over a hangnail.
provide extra stability equal to the other
We get to know each other through our
legs, should one fail.
dealings in the market; we sit across the
Lenders and the secondary market are
table from each other and even develop
asking appraisers to know more than ever
Realtors and appraisers will probably
friendships. There is competition but
while receiving an unfair portion of the
never think exactly the same way and
there is also a set of ethics that require us
blame; the lenders will probably get part of
I consider the lessons I have learned as
to explicitly treat each other fairly, and
the blame for holding the current market
a Realtor invaluable. We have a lot of
by nature agree to work together. The
static. Part of the responsibility to educate
common ground, we share an enormous
strength of the local, state and national
is that of the lenders and Realtors—both
amount of data, and we are experiencing a
boards create a cohesiveness that I did
buyer and seller need to be properly
time where banked technology is changing
not witness as an appraiser. It is from this
informed or advised, and to act in their
the way in which we do business.
unity that we have developed strength in
own best interest. What happened to
Change is inevitable in any industry.
the market and with our PAC. Like many
buyer beware? As an example, FHA will
As professionals from both sides, there
blogs I have read before, I would suggest
not allow the buyer to purchase a home
will always be a need for interpretation
appraisers do the same. There is strength
on a well when city water is available.
between real estate and technology, and
in numbers.
LVM |
29
Mich
ael C
Inspector
A
The “Improvements” section of the URAR.
1
IV Part
OBSERVATIONS of an
onn olly
As you would expect, the “Improvements”
mandated by a professional association
section of the URAR form is where
like the American Society of Home
the largest cross over exists between
Inspectors (ASHI). These standards of
appraisers and home inspectors. The
practice require the inspector’s description
appraiser is asked to describe the
and inspection of specific areas and
improvements and generally advise
improvements in the home.
on the condition, needed repairs, and
The home inspector goes into much more
soundness, or structural
deficiencies of the property. The appraiser
detail and analysis than an appraiser
integrity?
is asked if the property conforms to the
would, but is ultimately asked to
neighborhood in terms of functional utility,
conclude by answering the same three
style, and condition. Most home inspectors
questions as indicated at the end of the
follow “standards of practice,” often
“Improvements” section of the URAR:
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| LVM
/ October 2010
2
3
Describe the condition of the property. Are there any physical deficiencies or adverse conditions that affect livability,
Does the property conform to the neighborhood?
In this installment, I will follow along with the URAR form in the “Improvements” section and touch on a few methods and protocols home inspectors use to evaluate the improvements (house) and ultimately answer these three questions.
General Description If a home is attached to another unit or building, the inspector should closely evaluate the common wall. The common walls should provide privacy and separation from a neighboring unit. However, a common wall’s most important purpose is to provide adequate fire stopping between adjoining units. It should be examined for any breaks or penetrations in the wall. If there are any breaks, these need to be adequately sealed to prevent the migration of fire. This common wall should also extend up into any attic spaces. If a wall has penetrations that are not sealed or a separation wall is missing in the attic, this should be mentioned in the report. If a home is new construction, the home inspector should look for any signs of municipal inspections and permits. Every municipality has different procedures for posting their inspections. These are usually in the form of stickers or tags placed on the main electrical panel (electric inspection) and on the water heater or main soil stack (plumbing inspection). If no inspection notifications are present and no occupancy certificate is present, the builder should be asked to present proof that the home has been inspected and approved by the local public building department. The design and age of a home can dictate many common problems and areas of concern for homes. The scope of this article does not allow for a full exploration of the unique attributes of each design of a home, as well as age related issues.
Foundation
over dirt floors should be in place and
There are three basic designs for slab
moisture vapor in the crawl space which
foundations: monolithic, floating and supported. It is often difficult and outside the scope of an appraisal to identify the design of the slab, but this is required of a
continuous to prevent the build up of can lead to mold and fungus growth. The very nature of crawl spaces makes them an undesirable place to visit. Most
home inspector.
homeowners ignore the crawl space
Most slab homes of the Midwest, where
inspect. Moisture and insect penetration or
I am from, are supported slabs where the floor rests on a poured foundation that is deeper than the frost line. In other parts of the country, based upon the climate and soil conditions, the slab can be monolithic and placed on grade, as the soils are more stable. Most garages and patios are a floating slab, which means they are independent of the foundation walls (sometimes tied into the foundation with
of their home and may never enter to plumbing leaks can occur for years before being discovered (usually by a home inspector). By the time they are discovered, the damage to the structure can be extensive. A crawl space is the most likely place one will find issues, defects and deficiencies in a home. It should not be overlooked! I once inspected a crawl space in a thirty-year-old one story home that had a pin hole leak which had developed
steel rebar).
into a 1/2” water line running under the
Slabs can crack and settle. When walking
sort of leak, but a fine mist spraying out
through the home, be aware of uneven floors, cracks beneath the finished floor coverings and gaps, or separation between the floor and the outer perimeter walls (foundation). Most slabs have the load bearing walls resting on the foundation, and the floors are not load bearing. However, any noticeable cracks or settlement of more than 1/4” should be noted and evaluated further by a
bathroom. This leak was not a “drip drip” from the pipe spanning nearly a 10-foot radius. This misting of the crawl space had been occurring for at least 9 months (this time frame has been estimated, since the pipe had ruptured from freezing, which must have occurred in the winter; the inspection was in the summer). The misting caused rotting of the floor joists and subfloor as well as extensive mold growth over half of the crawl space area.
qualified contractor or engineer.
The owners had to remove the finished
Crawl spaces are generally shallow and
and bathroom areas to effect repairs, which
uninhabitable areas under the main floor. These crawl spaces should provide access of at least 18”x24” to allow for inspection of the under floor area. If mechanical equipment is present in the crawl space, the minimum opening should be 30”x30.” Wood framing members such as floor joists should be more than 18” above the floor of the crawl space to minimize the possibility of termite infestation. The crawl space should be adequately ventilated (usually to the exterior, or it can be opened to the interior of the home and conditioned with the HVAC system). A vapor barrier
floors and subfloor in all of the bedrooms were over $30,000! Always inspect the crawl spaces or make sure that if you cannot inspect the crawl space that this limitation is mentioned in your report. Full basements provide the best opportunity for moisture penetration. Most basements are 8-to-10 feet below grade. A hole that is 10 feet in the ground will, at some time, have moisture penetration. This could be a chronic issue or a one-time occurrence such as a flash flood or plumbing leak. There are a number of clues that may >>
LVM |
31
“
“
A crawl space is the most likely place one will find issues, defects and deficiencies in a home. It should not be overlooked!
inside a house. Subterranean termites live in the ground and only forage for food (wood) inside the house. Mud tunnels extending up a foundation or wall from the ground are a sign of subterranean
indicate moisture penetration such as rust
area is filling with water. Sump systems
termites. Any signs of termites warrant
stains on the carpet or flooring, which can
are usually connected to underground
further evaluation by a licensed pest
be indicative of prior water penetration.
perimeter drain tiles that collect ground
control technician.
Staining from water penetration can
water around the foundation and direct
often be seen on the baseboards (push the
it to a sump crock, then an operable
Dampness in a basement or crawl space
carpet down to look at the bottom of the
pump evacuates the water from the crock
can represent a significant issue in a
trim). If possible, view any drywall from
(usually out to daylight somewhere in
home and could impact the habitability
the unfinished sides of the walls. Water
the yard). However, when the pump is
as well as the structural stability of the
will stain the paper on the drywall and
inoperable, the drain tile is still collecting
house. Mold and fungus can seriously
it is usually not painted to cover up the
ground water and filling the crock. A
affect the health of the occupants, so any
staining. Floor drains in the basement
house with an inoperable sump pump will
noticeable signs of dampness should be
(which are connected to public sewers)
flood much faster than a basement without
further investigated by a professional.
will be the first drains to back up if there
drain tiles and a sump crock. For this
The most likely cause of dampness in the
is a back flow or blockage in the sewer
reason, all sump pump systems should
below grade levels is water penetration
connector pipe (between the house and
have a secondary or back up system.
past the foundation walls. This is
the public sewer). Always look for signs
attributable to poor soil grade around the
of moisture penetration around the floor
Some houses may have a sump pump and
house and inadequate management of
drains, as this is usually the lowest place
an ejector system. A sump pump system
water draining off the roofs.
in the basement floor. Look for any stickers
handles clean ground water, while an
from local plumbers and drain cleaner
ejector system handles either gray water or
Settlement is often a term used to describe
companies (usually found on the water
sanitary wastewater. The sump discharges
any sort of crack in a foundation or
heater or on a soil stack); this may be a
to daylight while an ejector system will
walls, which is associated with building
sign of chronic blockage or past water
discharge to the sanitary drain system
movement. A house can just as easily
penetration.
(sewer or septic system). The two systems
be rising or lifting rather than settling.
look similar so it is important to take a few
Expansive clay soil, when hydrated, has
Below grade areas with outside entries
minutes to evaluate and determine if you
enough force to lift foundations, piers, and
provide additional opportunity for
are looking at a system to handle ground
columns. Many people might see a crack in
moisture penetration into the lower level
water or wastewater.
a foundation or a wave in a floor and think
past the doorways. Many doors are not
the house has settled (sunk) when in fact
adequately flashed and elevated to prevent
Evidence of infestation can be difficult
a section of the foundation or a footer has
moisture penetration. If the surrounding
for an inspector or appraiser unless they
lifted due to expansive soils. Furthermore,
area of the basement is finished, the
have specific training in inspection for
a structure can settle or rise uniformly,
moisture penetration may not be readily
such animals or insects. As such, this type
often without noticeable evidence such as
visible, so closely check the adjoining
of inspection is usually outside the scope
cracks. Differential settlement is the term
walls, trim, and floor covering for moisture
of an appraisal or inspection, but some
used to describe uneven movement, which
penetration. Open the door and look at
home inspectors are trained and licensed
often results in cracks and out of square
the doorjambs and the sill for signs of rot.
to inspect for wood destroying organisms
doorways. When in doubt, it would be
Lots of small insects and worms around
(WDO). These would include termites,
prudent to recommend that a professional
the doorways is also a sign of moisture
carpenter bees, carpenter ants, powder
evaluate the structure.
penetration.
post beetles, and wood destroying fungus. The two main types of termites that can
In the next installment, we will finish up
Sump crocks and pumps are one of the
be found in homes in most of the United
the remainder of the “Improvements”
most overlooked systems in a home. Many
States are the subterranean and dry wood
section of the URAR.
owners never think about their sump
termites. Dry wood termites live in the
system until their below grade
wood and can be found in large colonies
32
| LVM
/ October 2010
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I
I
I
LVM | lia@liability.com
33
CA License #0764257
Voices of Valuation Last month’s articles sparked a lot of debate. Here are some responses from our readers.
Publisher’s Note
1
Aagc Nothing short of the individual appraiser setting his or her own fees for an assignment, AFTER reviewing available Subject data and establishing the Scope of Work, is acceptable in my opinion. Per the USPAP, the Responsibility for the SOW Decision rests squarely on the appraiser’s shoulders.
What Do I Do?
Beachappraiser The problem is: there are way too many appraisers practicing today with little or no formal education i.e.; Appraisal Institute Courses. The state licensing courses only make you dangerous!!! I recently had an appraisal review on three appraisals on the same property that ranged from $535,000 to $900,000!!!!!!
2
Bayhill Appraisers didn’t cause the last mess. Foreclosures are a result of people not being able to pay their mortgages due to bad loan programs, like 30/5, adjustables, ez qualifiers, & fraud. The mortgage industry caused this. Even if appraisers over appraised by a few thousand, or a few appraisers committed outright fraud, that didn’t bring real estate to its knees. AMC appraisals will.
34
| LVM
/ October 2010
Do you
have something to say?
www.livevalmag.com
Reasonable & Customary Fees
3
LGOrlando Jordan, I have technically known you for 10 years. You are an intelligent business minded professional. Always have been and became successful in the process. But I have to interject on the comment regarding “If your competitor is willing to complete the same assignment for a reduced fee – one that he/ she deems to be reasonable & customary – shouldn’t they have that right?” No they should not since this is why we got into this mess in the first place. Self-hating appraisers who do poor quality work. Millettw The lenders off loaded their appraisal management needs to AMCs. Now it’s time for them to pay for that service, not the appraisers.
Jim The lender is the AMC’s customer and will promise low fees and quick turnaround times to get and keep the lender’s business. This is a common business practice, competitive pricing and quality work. Until HVCC, fee appraisers did this as part of their business model. I know I did! I marketed my company and my product daily but the fees and product quality I promised were based upon what I knew was needed to stay in business based upon my expenses and to compensate us for our education and appraisal knowledge to the level of other similar professionals. The problem with this practice now is that the fee appraiser is expected to fulfill the unreasonable promises made by the AMC to it’s customer, the lender, with no regard to the appraiser’s expenses, education, experience and competence!
4
Granny on Valuation
Relocation Appraiser
Sherrielisa This is something maybe we should really consider. When I complete my reports I always note pending sales and then follow up to check on their closing status. It is a bit time consuming but it is a great help to train yourself for relocation reports. Forward thinking!
For What It’s Worth
Marc There are several AMCs, which I have encountered, that are professional, fair and courteous. Most of them, however, don’t fit into that category and are bottom feeders who resort to bullying tactics to keep appraisers in line and their cash registers ticking. I hope that this bill gets implemented and thins the herd of these slugs and sends their staffs scurrying back to the jobs they are best suited for such as being carnival barkers, used car salesman and crawl space inspectors.
James Amazing Roger. That generation was simply one of the most practical and consequently smartest we have known so far. Humble, family oriented and hard working. Thanks for sharing.
6
Ethan The 2nd most significant word in Roger’s essay (after “Granny” of course) is “Probability”; a term lost upon investors, home buyers, refi-consumers, lenders, appraisers and political decision makers through ignorance or willful neglect. These stakeholders twisted assumptions so that “Probability” was often replaced with “Certainty”.
“Certainty “ suggests a single point value when forecasting a future value (which for a continuous variable such as home prices or interest rates will always be incorrect), while the correct method of forecasting is around bands of probability, which would have resulted in the instinctively correct conclusion made by Granny.
Jerry Same typical comments reflecting how appraisers are going beyond local areas for work assignments. Rules are in place for appraisers not to accept assignments in areas or scope of work they are not familiar with - the rules also allows for professional appraisers to appraise anywhere providing they provide due diligence in making themselves knowledgeable for whatever particular assignment type or area. This appraiser receives orders outside general coverage areas often (ex. U.S. Marshals Office) due to quality of work. Someone please come up with a better argument as this one is played out and weak...
5
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35
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/ October 2010
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| LVM
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LVM |
37
For What It’s Worth | Tunnel Vision | My high-school football coach would always talk to his players about tunnel vision. In a medical sense,
Bill Waltenbaugh, SRA
tunnel vision is the loss of peripheral vision with retention of central vision, resulting in a constricted circular tunnel-like field of vision. However, my football coach used this term to describe a player that loses sight of what is going on around him by focusing too much on one thing. For example, a defensive lineman can become so focused on the quarterback and the ball that they don’t recognize the trap block coming their way or the screen play setting up behind them. In short, they are knocked off guard and taken by surprise because they were too focused on one thing and lost sight of what was occurring around them.
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| LVM
Ever since the passage of Dodd-Frank Bill, it seems everyone’s attention is focused on reasonable and customary fees. I understand this is a big issue for appraisers and others in the mortgage lending world, however there are other things in this bill that, if overlooked, have the potential of catching appraisers and their clients off guard. For example, things like mandatory reporting and the softening of the firewall between the appraiser and loan production staff definitely deserve more attention. The purpose of HVCC was to prevent undue pressure from being placed on appraisers to inflate home valuations. In short, a full communication firewall was put in place between loan production staff and the appraiser. It’s difficult to argue that this isn’t a good thing. Keeping the person who is paid when a loan closes from being in charge of ordering the appraisal needed for loan approval seems to make sense. However, in accordance with Dodd-Frank Bill, the HVCC is expected to sunset sometime in the mid part of October 2010 after the appraisal independence-related provisions of the Act are released. I totally expect the new regulations will maintain the firewall between loan production staff and the appraiser when it comes to ordering an assignment. However, there’s a provision in Dodd-Frank Bill that specifically states that an appraiser cannot prohibit anyone with an interest in a real estate transaction from asking them to consider additional information, to provide further support, or to correct errors found in the report. Those with an interest in a real estate transaction include the mortgage banker, mortgage broker, real estate agent, and consumer. In short, appraisers will still be protected from being punished if not complying with a loan officer’s demands, but the days of hiding behind HVCC and not entertaining additional information or answering specific questions from interested parties are quickly coming to an end. Although the ground rules have been set, the question remains, how do lenders and appraisers comply with these new rules, yet preserve the spirit of appraisal independence? How, under certain circumstances, does an appraiser comply with these new provisions and still maintain confidentiality under the ethics rule of USPAP? Looking back pre-HVCC, I think communicating with the loan production staff of my clients made me a better appraiser. To stand the scrutiny of a loan officer (LO), a report had better be well written, well documented and well supported. If the report wasn’t rock solid, you were certainly going to hear about it. If I had to defend my report from long time LO clients like Jim and Bill, I better have a solid case. However, I had longterm relationships with these guys. We didn’t always see eye to eye but we were always able to put the last assignment behind us and move on. Personal client relationships like this are few and far between these days. As such, when participants in the process are unhappy with the results, it’s a lot easier to be vindictive. Which brings me to the mandatory reporting provision of Dodd-Frank Bill that states: any person involved in mortgage related real estate transaction who has a reasonable basis to believe the appraiser is failing to comply with USPAP, is violating applicable laws, or is engaging in unethical or unprofessional conduct, shall refer the matter to the applicable state appraiser licensing agency. Although I agree with this statement, I believe it opens the door for abuse. One has to question, are the state licensing agencies ready to receive and process the flood of reports from mortgage brokers and real estate agents who feel the appraiser didn’t do an adequate job? Customary and reasonable fees are important. However, let’s not lose sight of other issues that, if not addressed, might catch us off guard and end up taking us by surprise when they happen.
/ October 2010
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