Working RE magazine - Issue 61

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Real Est ate A pprai s ers

Winter/Spring 2023, Volume 61

SURVIVING THE SLOWDOWN The Danger Zone Sins of the Past Are Back to Haunt Appraisers Recession Proof Your Business

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Winter/Spring 2023, Vol 61

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From the Publisher Readers Respond

CHECK OUT: OREP’S LIVE CHAT at OREP.org. 5am-5pm PST, Monday-Friday.

6

Surviving the Slowdown Kendra Budd, Editor

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What’s New at the VA? Interview with VA’s Chief Appraiser Isaac Peck, Publisher

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The Danger Zone Scott Cullen, MNAA

18 22

Market Update: How Slow Are We Really?

Isaac Peck, Publisher

Sins of the Past Are Back to Haunt Appraisers

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Richard Hagar, SRA

Recession Proof Your Business Kendra Budd, Editor

30 34

The State Appraisal Board Wants to Throw Me Under the Bus, Right?

Barry Phillips and Tim Andersen

Appraisal Quality: 6 Tips for Success in 2023 Ken Folven, Senior Director of Appraisal Quality Assurance

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Appraisal Disciplinary Levels and Their Consequences Kendra Budd, Editor

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Industry News Mission

Publisher

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

Isaac Peck isaac@orep.org

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Ariane Herwig ariane@orep.org

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

2 Working RE Winter/Spring 2023

Editor Kendra Budd kendra@orep.org

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Working RE 6353 El Cajon Blvd, Suite 124-605 San Diego, CA 92115 (888) 347-5273 Fax: (619) 704-0567 subscription@workingre.com www.workingre.com

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From the Publisher

The Obstacle Is the Way

by Isaac Peck, Editor

Right as the COVID-19 pandemic was

hitting in early 2020, I sat down and read “The Obstacle Is the Way,” a book

by Ryan Holiday that I would recommend to anyone who is struggling to make sense of our new market reality.

As we collectively face the challenges of the slowing real estate market, including the decline in our business revenue, the uncertainty about the future, and the economic contractions (and inflation!) in the larger economy, I think back to the lessons I’ve learned over the last few years. It’s important to maintain perspective and realize that no matter the difficulty or challenges ahead, there is a way forward. There is opportunity in every adversity. For example, a study by the Kauffman Foundation found that 57% of all of the companies on the Fortune 500 list were started during a recession or bear market.

One of the stories that Holiday retells in his book is that of Dwight D. Eisenhower in World War II. The Nazi’s, who had used their infamous blitzkrieg tactics to roll through France and repeatedly overwhelm Allied forces, were now threatening to throw U.S. forces back into the sea. In the face of his deflated and nervous generals, Eisenhower declared: “The present situation is to be regarded as opportunity for us and not disaster.” And so, Eisenhower saw that the Nazi’s strategy contained within itself the path to America’s victory. As Holiday puts it, the Allies were then able to see 4 Working RE Winter/Spring 2023

“the opportunity inside the obstacle rather than simply the obstacle that threatened them.” What was the Allies’ winning response? To bend, not break.

When the Germans launched their allout blitzkrieg offensive, the Allies bent just enough to allow tens of thousands of German soldiers and panzer tanks to rush headfirst into a trap, or as Patton referred to it, a “meat grinder.” They bent but did not break.

Holiday also tells a rarely mentioned story of Thomas Edison’s life. No, not the one where he failed over 1,000 times while perfecting the lightbulb and persevered until he finally succeeded; although that’s a good one to keep top of mind. At the age of 67, Edison’s entire factory and laboratory caught fire and was unable to be saved. Standing in front of the blaze with his son, he said excitedly, “Go get your mother and all her friends. They’ll never see a fire like this again.” He wasn’t emotionally devastated, nor did he throw his hands up in defeat. He immediately accepted

what had happened and began taking action to rebuild. He was quoted in the New York Times as saying, “Although I am over 67 years old, I’ll start over again tomorrow.” Despite losing over $1 million in the fire, Edison proceeded to get his factory back up and running within weeks and his business grossed over $10 million that same year ($240+ million adjusted for inflation).

These are valuable examples for us to consider as we face our own challenges and obstacles in today’s trying times.

There are many things in life we can’t control, but we can control our attitude, our perception, and the actions that we take in response.

I hope this issue gives you some ideas and practical actions you can use to help navigate the troubled waters that we’re facing—so your business comes out stronger than ever before. If there’s anything I can do to be of service, please reach out to me at isaac@orep.org.

To your success! WRE

Readers Respond Killed by Carbon Monoxide: Appraiser Blamed I was very disturbed by this article.

How many times have I inspected a house, and the occupants literally have the smoke alarm hanging or removed because it bothers them when they cook?! Is the appraiser responsible 18 months, or even a single day after inspection? Can I control the idiocy of the occupants? if the battery dies or is removed, or whatever they do with it after I leave, am I as the appraiser still responsible? Regardless of what is written in the report, we cannot be held accountable for what happens months later. It is on the owners to be responsible for their wellbeing, not the appraiser. This really bothered me, and I would like to hear what other appraisers think. —Maya I have often wished that smoke alarms had a pink ring around the shell of the unit and that carbon monoxide alarms had a green ring around them.

That way, appraisers and inspectors can accurately know the alarm they are looking at—especially if they are mounted on a tall ceiling or at the top of a high wall. There could be both a pink and green rings around units that have dual functionality. —Margo For many years, lenders and the FHA have tried to push the appraiser into the role of the home inspector. This is foolish, and the appraisal industry needs to push back on this scope creep. The purpose on an appraiser’s home visit is to gather the units of comparison needed for the selection of comparable sales. Appraisers have expertise in valuation. To expect the appraiser to be an expert on home inspections and construction, when

that is not what we are trained to do, will inevitably lead to tragic situations like this one. The home inspector on the other hand blew it and should be held responsible. —Bruce

 VA as a Model for the Industry The one thing that I would add is that VA supports and respects the appraiser and their opinion. As long as the report is well written, explained and compliant with VA’s requirements—as any “good” appraiser typically does, you do not need to respond or comply with some of the checkbox underwriting requests. The SAR’s reviewing the work, don’t typically ask for these and they are also a large part of the success of the program. —Benjamin N. I have been a VA appraiser in the CA Central Valley area for approx. 10 years. I would like to add that the VA Regional Appraisal staff is also exceptional. When you call the VA Regional office for questions or advice in most cases you will be talking to a former Fee Appraiser. I know of (2) local fee appraiser who have joined the Dept. of VA staff. This makes a huge difference when non-traditional properties are involved. —Cal L.

 Indemnification Clauses: What Appraisers Should Know AMCs and others are now providing a floor plan to the appraiser that is to be included in the appraisal report.

The AMC and/or floor plan company want the appraiser to sign an agreement that includes an “indemnification

agreement” that the appraiser holds them harmless. I would think that this should be the other way around; they should agree to hold the appraiser harmless for the work that they provide to the appraiser. —John P.

 Questions Appraisers Have on Desktop Appraisals This is insanity. We have to first look at the real reasons why desktops are being used. To get rid of those pesky appraisers and their exorbitant fees. This story declares that Desktops are no different than standard 1004s. However, ANSI guidelines are required in 1004s but not yet for Desktops. Appraisers have always questioned why we can accept sales information from multiple listing services but we cannot use those comp photos. We must take our own pictures. However, now we can use other photos from other sources, like Zillow?! The main issues, though, are credible results in our reports. We must stand by a sketch that we did not measure, submitted by others who obviously have a vested financial interest. We are asked to verify that measurement, but I cannot imagine how without measuring ourselves. Why are we being accused of creating subjective impressions when we sketch, but the sketch that will be provided to us cannot have subjective impressions? If those measurements given to us are trusted, why are our personal measurements not trusted? We are professionals. Above all, we are not allowed to include any assumptions, even though we are basing values founded on information that we did not collect. Let the lawsuits begin. I have been doing this for 22+ years and I cannot be happier that I am retiring in 2 weeks.—Nate WRE

Winter/Spring 2023 Working RE

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Surviving the Slowdown

by Kendra Budd, Editor

Interest rates are up and appraisal work

For the 30,000+ appraisers who have built their businesses exclusively around traditional residential mortgage work, things are getting bad.

is down. “Real estate is cyclical,” is the adage often repeated by appraiser oldtimers. Buckle up, they say, here comes the downswing.

While the actual volume of appraisal work has only declined to the equivalent of a slow month in 2018 or 2019 (See Market Update: How Slow Are We Really?, pg. 18), the volume of appraisals has declined over 60 percent from the busiest month in 2021 compared to the later (slower) months of 2022.

The experience of appraisers also varies widely. Some local markets and some appraisers are still fairly active.

Meanwhile other appraisers report they’re only doing one or two appraisals per month! The variance between local markets and individual appraisers is stark.

The result is a general panic amongst appraisers—especially those appraisers who are getting nearly no work at all.

Even the larger appraisal firms (with deep pockets) who’ve spent the last few years aggressively training and recruiting appraisers, acquiring small appraisal firms, and rolling up their competitors have rapidly changed their tone.

Layoffs. Budget cuts. Retraction.

Appraisers’ sentiment is showing up in forums, Facebook groups, and personal conversations across the U.S. Some appraisers are even looking for other jobs while waiting for work to “pick back up.” One appraiser on Facebook writes: “My son just finished his training and is now working as a

Kendra Budd is the Editor of Working RE magazine and the Marketing Coordinator for OREP, a leading provider of appraiser E&O insurance—trusted by over 10,000 appraisers. She graduated with a BA in Theatre and English from Western Washington University, and with an MFA in Creative Writing from Full Sail University. She is currently based in Seattle, WA.

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security guard. Hoping things pick back up and he will want to get back in it, but right now there’s not enough work for both of us.”

Another appraiser suggests driving buses as a viable solution for his peers who are struggling, “Every school district in the nation is short of bus drivers.

You can make good part-time income and have summers off. They train too!”

For the 30,000+ appraisers who have built their businesses exclusively around traditional residential mortgage work, things are getting bad.

Commercial appraisers are feeling it too, but to a lesser extent.

The question is: what can appraisers do to survive the cycle? Do they have to venture outside of appraising to put food on the table—or are their other ways to utilize their skills?

Diversification A common trait for the many appraisers who are not seeing a major slowdown right now, is that they made the decision early on to diversify their client base and the type of work they do.

In a prominent Facebook group, one appraiser explains: “Interest rates went from 3% to 6%! Slowdown will happen if you’re doing lending work.”

Another appraiser commented in agreement that the problem wasn’t necessarily the slowdown, it was the AMCs and lender work. They wrote, “I got rid of almost all AMC work about seven years ago and most lender work in the last couple years. Private work, litigation, estates and other work is very busy because of the closing and slowdowns of the courts during COVID.” Ryan Lundquist, a Sacramento appraiser who focuses exclusively on private appraisal work and author of

LundquistAppraisalBlog.com, reports that demand for divorce appraisals skyrocketed during and after COVID-19.

Unfortunately, being in constant close proximity to one’s significant other didn’t strengthen every relationship.

The common thread is that those appraisers that do private work aren’t feeling the same effects of the slow down. They never relied on one type of business or client as their main source of work.

Weening Off “Mortgage” Dependence In the old days of appraising, before the real estate crash of 2007/2008, appraisers were much more likely to network with other real estate professionals, hand out business cards, and build direct relationships with mortgage brokers, local banks, and even real estate agents.

“The real estate appraisers of

old used to network more, market their services, and sell themselves more than today’s modern appraiser,” remarks Mark Skapinetz, an independent real estate appraiser in Georgia who operates a 100 percent nonlender appraisal firm.

However, Skapinetz theorizes that the business model of appraisers changed substantially after the 2008 real estate crash in a post Dodd-Frank and HVCC world. “Anybody who came into the profession after the crash came into what we call a ‘nameless and faithless business.’ AMCs had taken over the mortgage-lending work.

All appraisers had to do was fill out a sign-up form on an AMC’s website, give their credentials or coverage area, and their fees—then they started getting work. There’s no relationship there,” Skapinetz explains.

The result was that many appraisers became conditioned to sign up for

AMCs, then sit and wait for orders to come in. “Instead of constantly selling their services, marketing their business, and looking for new clients, appraisers that came after the crash only know AMCs, because that’s all they were taught. When AMCs and lenders stop sending orders, appraisers don’t know where to find other business. They don’t know how to get private work, so a lot of them are scared to do it. Many don’t want to get involved in divorce work either, which is very lucrative.

Appraisers just don’t know where to start,” Skapinetz says.

The biggest obstacle in an appraiser’s way, is themselves, argues Skapinetz. “You see it all the time on message boards and on forums, where appraisers are screaming about the lack of work. It’s not 1990 anymore; we have the internet. There’s a lot page 88

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more ways to find work out there.

When your main marketing in the last 10 years has been filling out sign-up forms with AMCs and checking your email waiting for orders to come in, it can be daunting to explore business outside of the traditional mortgage model,” Skapinetz states.

Non-Lender Work Once an appraiser decides they want to build a truly diversified business, there’s plenty to learn and do.

First, Skapinetz suggests that appraisers look to their colleagues.

“There are a lot of great appraisers who are killing it in the private sector right now. It’s great to look at what other appraisers in your area are doing.

How are they keeping their business afloat? How do they interact with other clients? What services do they offer? You want to do your research,” Skapinetz recommends.

The best way to start non-lender work is to begin challenging yourself. “Find your niche, find something that no one else in your area is doing.

During this tumultuous time in the industry, you’re going to want to find ways to make yourself stand out. If you’re not putting in the time and effort to diversify your business, then you’re falling behind. You need to be seen in order to start getting that work,” Skapinetz advises.

There are many different types of non-lender work you can do, such as, tax rebuttal, pre-purchase, pre-listing, divorce, estate, and IRS-related work—just to name a few. Learning how to do these other types of appraisals can be the difference for your business during a recession. “Learn how to do other types of appraisals, like high-end luxury homes and farms if they’re in your area. Learn how to do divorce work, and litigation work to go to court. Learn how to work with consumers and real estate agents.

There are so many niches that even I 8 Working RE Winter/Spring 2023

am still learning the ins and outs of them,” Skapinetz tells us.

Some niche non-lender work that appraisers can pursue include: • Property tax consulting and appeals • IRS settlement appraisals • Divorce appraisals • Estate appraisals • Prelisting appraisals • Home measuring services • Floorplan services • Relocation appraisals • Bankruptcy appraisals • Eminent Domain appraisals • Right-of-Way appraisals • Department of Transportation appraisals • Cash/investor appraisals • Probate appraisals • Bail bonds appraisals • Rent schedule assignments • Title Companies and collateral appraisals • And more!

In terms of how to get these assignments, Skapinetz recommends a combination of networking, sales, marketing, and of course, you need a website. “My advice is that appraisers need to do their research, but also you have to put yourself out there. You have to have a good website and you need to know how to talk to people.

You can’t just perform an appraisal and hide behind the narrative of you “have to speak to a lender.” With private work, you need to take responsibility to talk to your client. You need relationship skills and you need to position yourself as the expert in your market,” recommends Skapinetz.

Optimizing Your Lender Work Of course, many appraisers will opt to continue working for AMCs, lenders, and credit unions. For those appraisers, Business coach and Chief Evangelist at True Footage, Blaine Feyen, says that building relationships is absolutely key.

“The downside of the AMC business

models is appraisers really make no effort to develop relationships within that AMC. They often don’t get to know anybody, they don’t collaborate, they don’t know any names. They just take the orders and complete them.

They’re operating in a transactional mindset,” Feyen says.

The solution? Appraisers need to focus more on relationships. Relationships matter everywhere; they’re especially important in non-lender work, but they’re still important—yet often discounted and ignored—in the AMC and lender world. Those appraisers who built strong relationships with their AMC and lender clients, who returned phone calls promptly, never “went dark” with their clients, always turned their assignments in on time (or early)—they are the ones who are still getting orders even when times are slow. “If you want to be treated as a nameless, faceless appraiser who just accepts and completes orders, then don’t be surprised when orders stop coming when things slow down. If the people working at the AMCs, local lenders, and credit unions know your name, are familiar with you, and like you, then you’re more likely to get work. Pick up the phone and call them and introduce yourself. Build the relationship,” Feyen suggests.

While many AMCs are bidding out assignments to appraisers and shopping for the lowest fees, that is not the case with all AMCs or lenders. All other things being equal, you will be more likely to be a preferred vendor if you are actively building relationships with your clients and the staff at the AMCs, lenders, and credit unions you do business with.

Relationships Matter Relationships are even more important when it comes to non-lender work.

Feyen has seen time and time again where appraisers seem to go wrong in their way of thinking. “If you’re comparable in some way, then you’re also

replaceable,” Feyen articulates. That is exactly why it is important for an appraiser to diversify their business in a variety of ways, he argues.

One of the challenges for appraisers is that non-lending appraisal work requires a vastly different skillset. “Appraisers need to have an open personality as well as sales skills, especially when they’re talking to a homeowner or agent directly,” Feyen explains. He suggests appraisers even need follow-up skills in order to differentiate themselves from their competition. “Lots of private work is referral based, so one client refers you to another, and so on. Instead of getting a constant stream of business, you have to provide great service to each client and follow up and ask for referrals,” advises Feyen.

So, why is the non-lending side more relationship based than the lending side? Well, Feyen theorizes because appraisers aren’t required to do anything except perform on the lending side. “Lending and non-lending are two sides of the same coin; however, they require two different types of

personality and sales skills. You don’t have to do follow-up on the lending side, you don’t have to send out ‘thank you’ cards or have a personality at all.

You especially don’t have to have any sales skills,” Feyen illustrates. This is all easier said than done, so Feyen even has something he calls the “Mindset Spectrum” to help appraisers challenge their current mindset in order to garner more business (Read Recession Proof Your Business Using the Mindset Spectrum on page 26).

Appraisers should be looking to form these relationships on all levels, especially if they want to diversify their business. Skapinetz also echoes this same advice, “People that worked prior to the crash had to build relationship skills and use them to find mortgage brokers, to find lenders. We built friendships with our clients. In the private side you go back to that relationship building aspect.”

The appraisal profession is not often conceptualized as one built around friendships and relationships (at least not anymore), but perhaps those bonds will serve as an appraiser’s

biggest ally during the slowdown.

Final Thoughts With mortgage transactions declining, interest rates rising, and AMCs starting to carve as much as they can out of appraisers’ fees, it is now more important than ever for appraisers to (1) build relationships and (2) diversify their business in any way that they can. However, simply pursuing private and commercial appraisal work is not all that is necessary to succeed—your success is also going to rely heavily on your tenacity as an appraiser.

Both Skapinetz and Feyen think appraisers need to start doing more research, marketing, and forming strong bonds within the business if they want to succeed in the appraisal business generally, and especially in the non-lender arena. This is definitely a frightening time for a lot of appraisers, but learning new skills and increasing your capabilities as an appraiser is the first step in making your business more sustainable and surviving the slowdown.

Stay safe out there! WRE

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What’s New at the VA? Interview with VA’s Chief Appraiser

by Isaac Peck, Publisher

T

If an appraiser wants to help serve the Veterans who have served us all by becoming an appraiser for VA, we strongly encourage them to apply for our fee panel.

he appraisal industry is abuzz with changes and challenges—appraisal volume has slowed, desktop and hybrid appraisals are becoming available options for Veteran buyers, as appraisers face fee pressures from AMCs who are taking extraordinary measures to make up for the low volume they’re facing.

In the midst of all this, the United States Department of Veteran Affairs (VA), is known throughout the valuation community for respecting the work of appraisers and maintaining reasonable fee schedules.

James Heaslet, Chief Appraiser at the VA, sat down with Working RE to share his thoughts on some of the changes in the appraisal industry.

Heaslet is a retired United States Marine Corps Veteran, and a second-generation appraiser who began his valuation career as a trainee at his father’s office in 2007.

In July 2022, VA published procedures for Alternative Valuation Methods, Circular 26-22-13. This procedure allows desktop appraisals on purchase transactions when a lender is approved to participate in the Lender Appraisal Processing Program, the purchase price does not exceed the conforming loan limit for the jurisdiction, the property is a single-family home, and the Veteran is making a down

Isaac Peck is the Publisher of Working RE magazine and the President of OREP, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of free CE for OREP Members (CE not approved in IL, MN, GA). Visit www.OREP.org to learn more. Reach Isaac at isaac@orep.org or (888) 347-5273. CA License #4116465.

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payment of at least 20% of the purchase price or the appraisal request has been unassigned for over 7 business days.

Question: Fannie Mae and Freddie Mac are making desktop appraisals a permanent fixture in their valuation offerings. Is the VA looking at these types of valuations and what are some of the considerations?

Heaslet: As mentioned, VA issued procedures for expanding desktop appraisals in July and also made clarifications regarding how appraisers can effectively use the Assisted Appraisal Processing Program (AAPP). We see it as a tool in our toolbox. The VA assists service members and Veterans throughout the country, including those living in some very remote rural locations where fewer appraisers are available. To bridge this gap in capability to serve our borrowers, VA assesses that a desktop product might help us provide better service. VA’s focus is on how to best serve all of our Veterans and service members. So, in markets where we don’t have access to a lot of appraisers, we can see a use for this desktop approach.

One of the primary considerations on where VA might deploy this desktop tool is in how VA determines the need.

For example, in Southern California, there are plenty of appraisers available.

As interest rates continue to rise, these appraisers are eager to work. So, I don’t think we’d need a desktop valuation in a major metroplex or an area where we’ve

got enough appraisers. In any market where we’re seeing longer turn-times or a lower valuation capacity, the desktop tool is one way we can address that.

Under AAPP, the appraisal report may be completed based solely on information gathered by a person with whom the VA fee panel appraiser has entered into an agreement for such services. In some parts of the country, there are shortages of appraisers. This is an industry-wide concern that is not unique to VA. This program will help promote the training of more appraisers. We also believe it will reduce appraisal timeframes. This tool can be leveraged on most appraisals, however complex assignments, new construction, and properties valued at over $1 million are excluded from the AAPP. Veterans are protected as the appraisal must still meet the Uniform Standards of Professional Appraisal Practice (USPAP). We’ve had it active for over two years now and are collecting data on how it is being used, exploring the pain points, and assessing any necessary modifications we can make to improve it for all VA stakeholders.

Ultimately, the goal is to expand it and make it more user-friendly.

Question: Great point! What kind of feedback have you received about AAPP so far?

Heaslet: So far, we are pleased with the results from appraisers who have been using AAPP and we think it’s a great way to encourage trainees.

However, we continue to see lenders who opt-out of allowing the appraiser to use it. We try to educate lenders and explain how they can enjoy greater flexibility with AAPP and they typically are very receptive to those conversations, as they know that the appraisal will still meet all VA guidelines as well as USPAP and that the experienced VA fee appraiser is still accepting full responsibility for the appraisal report.

So, VA is looking to build on the AAPP initiative and get better expansion in the rural markets. We want to make it easier for appraisers to build their businesses, bring on trainees, and not just be a solo-operator.

Question: There’s been a lot of buzz about measuring homes to ANSI standards in the appraisal industry–what can you tell us about the VA’s stance on ANSI? Do you anticipate requiring ANSI on VA appraisals in the future?

Heaslet: ANSI has definitely bifurcated the appraisal industry! Half of appraisers are following ANSI and the other half are not. The VA exists to serve Veterans and Loan Guaranty Service (LGY) administers the VA home loan benefit to those service members and Veterans who have earned the benefit through their service to our country. VA prefers local appraisers report how their local markets see properties.

One concern is that if a local market recognizes a home as being 1,200 sq. ft., and an appraiser comes in and says they’re no longer going to call this a 1,200 sq. ft. home, that creates confusion in the market and makes things difficult for our Veterans. The appraiser is here to report what the market is doing and what the market is saying. If the appraiser’s square footage is different from how the market sees it and is different from the square footage of how the comps are reported, I see concerns. We’re not the data aggregators like the GSEs are, we’re not trying to develop our own AVMs. We’re providing quality loans in the market the way we’ve always done.

Question: There is a lot of concern about discriminatory appraisals—what is the VA doing to protect Veterans from discrimination and what are your thoughts on the topic?

Heaslet: The VA has been part of the Property Appraisal and Valuation Equity (PAVE) Interagency Task Force and has also been involved in many of the PAVE working groups. The biggest issue surrounding this topic is the ability for the industry to benchmark an acceptable measure for the appraisal industry. VA has a plethora of data on VA appraisals and loans, but can’t compare that to properties using other loan types.

While there is some data and some of the aforementioned research type reports, including the Brookings report, there are also reports such as the one published by Ed Pinto at the American Enterprise Institute (AEI) which contradicts the conclusions of Brookings.

And of course, the GSEs publish their own reports.

Our goal at VA is to determine the most probable home price for a Veteran.

There have been instances where Veterans who believe they got a lower appraisal value due to their race have notified VA. We review these complaints carefully. Nothing is more important to those of us working in LGY than ensuring equal Veteran access to their hard-earned VA home loan benefit. Often, these complaints are filed under our Reconsiderations of Value (ROV) process. We’ve seen an increase in ROVs. VA works to address each request received. If the Veteran filing the complaint requests an ROV, VA reviews the allegations made in the complaint. We interview the appraiser as well as the Veteran borrower.

Have we seen appraisers come in low because they made errors in their report? Yes. If an appraiser didn’t recognize a feature of the house or give it an appropriate valuation, we can look at our data and at other sales. For example, it’s possible in some instances that an appraiser didn’t recognize or value the solar panels correctly, or the appraiser perhaps didn’t properly value page 128

Winter/Spring 2023 Working RE 11

7page 11

the site, or made a mathematical error. If we believe the appraiser needs further training, VA will counsel the appraiser to note a deficiency and to improve their performance.

We may recommend changes in their practices or flag their work for oversight. VA has not identified any evidence of systemic appraisal bias.

Two key advantages of VA appraisals are the “Tidewater” process and the ROV process. The appraiser will ask for any additional market data to be considered through the Tidewater process if it appears the appraised value will be less than the sales price and allow 2 days before completing the appraisal. After a Notice of Value has been issued, the Veteran may request an ROV. The appraisal, any market data submitted, and market data available to VA through its Appraisal Management System will be reviewed by VA staff. Positive outcomes result in some cases when an appraisal comes in below the sales price and the Veteran is able to renegotiate a lower price, or the Veteran decides to look at additional homes for sale and decides to purchase a different property.

Question: What’s new at the VA? Any final thoughts?

Heaslet: In the past two years, low interest rates and limited inventory created excessive competition between conventional cash buyers and investors, leaving Veterans struggling to compete with these buyers who would pay more than the value of the home. So, one of the things VA has been focusing on is how we can make our loan program more competitive for Veterans using the VA loan guaranty to purchase their home. We’ve placed more emphasis on outreach with the National Association of Realtors® (NAR), and we have done outreach and communications campaigns to help further educate Realtors® and real estate professionals about the VA home loan process and how important it is that Veteran buyers can close on the home they have chosen to buy for their family.

VA is also currently reviewing our appraisal fees and turn-times. During the COVID-19 national emergency, we had to address VA appraisal fees comparative to conventional and FHA markets, and the volatility of those rising fees has subdued somewhat. Turn-times are also significantly reduced as well.

VA stepped up its fees during the COVID-19 low interest rate environment. Now that the market has begun to cool down, those fees may not stay at that rate. As an example, El Paso TX was an extremely tough market for the VA. There are only so many appraisers working in the El Paso area.

Conventional and FHA markets were also paying a premium for appraisers. So now that the fees at these agencies are coming down, we are reviewing VA fees as well.

Timeliness is LGY’s main priority in valuation, and it’s 12 Working RE Winter/Spring 2023

the performance measure we’re held to at VA. How does the VA measure against the market? When we look at turntimes from our lenders and AMCs, we’re outperforming the market in about 37 out of 50 states.

Appraisers perform well for VA, and VA is a priority client for them.

The last thing I want to mention is that VA is always recruiting appraisers. If an appraiser wants to help serve the Veterans who have served us all by becoming an appraiser for VA, we strongly encourage them to apply for our fee panel. Those appraisers wanting to apply for our VA fee panel can do so here: https://www.benefits.va.gov/ HOMELOANS/appraiser_fee_app.asp. At the moment, rural markets are where we need the most help. We really value our relationship with appraisers. In some cases, VA appraisers are multi-generational, and I am a great example of this. My father was a VA appraiser. Our appraisers love to serve Veterans and meet them, hear their stories, and play an important role in their mortgage process. Most of all, the satisfaction of helping Veterans close on the home they’ve chosen for themselves, and their family is not duplicable in any other environment. Serving those who have served is another reward of working for VA. WRE

Winter/Spring 2023 Working RE 13

The Danger Zone

by Scott Cullen, MNAA

The danger zone is anytime within a

Grouped data worked well because comparing medians at two points one year apart made sense when the trend was up for the past few years.

twelve-month period when the market changes. USPAP is clear on the appraiser’s responsibility. According to SR 1-3 lines 515 and 516, “An appraiser must avoid making an unsupported assumption or premise about market area trends, effective age, and remaining economic life.” Use of the cost approach to support effective age and remaining economic life has not changed. But we need to get better with market area trends.

Real estate market trends are often analyzed with year over year comparisons. “The median price in the subject neighborhood has increased 1% from the prior 365 days to the current 365 days,” says Elliot’s Brief Blog from November 1st 2022 (see Figure 1).

The advantage of a bar chart with one-year periods is that it eliminates seasonality from the market. Where I work in Minnesota, there is a seasonal trend with market peaks around June, steady through early fall, and down from there until the following spring.

My uncle John, a seasoned real estate agent summed it up as “nothing happens between Thanksgiving and the Super Bowl.” I have seen this to be true.

This seems to align with the 1004 assumptions shown on page 2 where we report closed sales over the past 12 months. But should we be using the 12-month assumption on page one of the URAR where we report Property Values in the One-Unit Housing Trends?

If my subject market is stable year over year, but down since June, do I report

Scott Cullen is a Certified Residential appraiser from Eagan, MN who is a partner in the development of the Solomon Adjustment Calculators, designed to quickly evaluate the tradeoffs encountered by residential appraisers, including the depreciation / site value dilemma. There is a free 14-day trial and you are welcome to contact me for a demo over the phone using live examples from your market: www.solomonappraisal.com.

14 Working RE Winter/Spring 2023

Median Price Year over Year $400,000 $300,000 $200,000 $100,000 $-

$305,000

$308,000

2021

2022

Figure 1: Median Price Year over Year

stable? Do I say declining because my comps came under contract and closed while prices were declining? Should a normal seasonal decline affect my interpretation of the market? Year over year things are fine. But I see storm clouds ahead. Maybe this time the downturn is both seasonal and rate driven.

Check out this quote from economist Elliot Eisnberg PhD on 11/1/2022: After rising monthly since 2/12 and peaking in 3/22 with an appreciate rate of 2.1%/month, home prices have now declined for two consecutive months. Moreover, the most recent August decline of 0.86% M-o-M is the largest decrease since 2/10. On a year-over-year basis, after peaking in 3/22 at 20.8%, appreciation declined to 15.6% in 7/22 and 13% in 8/22, with this most recent 2.6 percentage point decline [being] the largest ever.

Here is more from S&P Case-Schiller Home Price Indices. Case-Schiller uses monthly comparisons that are seasonally adjusted. As I write this in early November, the data is current as of August. It shows August 2022 at 231.34, up 7.7% from August 2021 at 214.87.

But here is the catch: Case Schiller seasonally adjusted is down six tenths of 1% in the most recent monthly interval. Could this be due to a rise in interest rates and the effect of interest rates on affordability?

Affordability $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0

Last Year

Figure 2: Affordability

Now

Market Change

450000 400000 350000 300000 250000 200000 150000 100000 50000 0 S-21

D-21

M-22

J-22

S-22

D-22

Figure 3: Market Change 450000 400000 350000 300000 250000 200000 150000 100000

y = -515.52x + 2E+07

50000 0 A-22

A-22

M-22

J-22

J-22

J-22

A-22

A-22

S-22

O-22

Figure 4: $/Day Change Since 5/1/22 Rates for a 30-year conventional mortgage for the week of October 27, 2002 were 7.08%. One year prior they were 3.14%. Rates have more than doubled. See Figure 2, the effect on afford ability is drastic.

Let’s say a buyer had 5% down and

bought a $400,000 house one year ago.

Payments including PITI and PMI came to $2390. How much house could this buyer purchase with the same $20,000 down payment and a $2400 per month payment at 7% interest?

The answer is $275,000. PITI plus

PMI of $2400 borrows $255,000. Add the $20,000 down payment and you have $275,000. Affordability drops 31% from $400,000 to $275,000.

A few months ago, I asked a friend in the mortgage business about affordability. He said many of their borrowers were using adjustable rate mortgages. My mind flashed back to 2007 when ARMs were being used to refi out of prior ARMs which were like ticking time bombs. It was good for refi volume but a bad idea long term for borrowers and lenders.

It does not take much of an imagination to see how this may affect appraisers a few years down the road.

We may see a repeat of the 2010 foreclosure peak. Some of those foreclosures were blamed on inflated appraisals and appraisers got sued.

How do you protect yourself?

The first step is to recognize the risk of not properly applying market time adjustments. We need to get out of the year-over-year mentality until we have passed the point at which the market changed. We also need to think critically about the 1004MC. The GSEs no longer require this but some lenders still want to see it. In my market, there are usually too few sales in the 3-month ranges to compare medians and analyze trends. When using the 1004MC, be sure to comment in the space provided about other methods to support your findings on market conditions.

We need to “up our game” on workfiles. Proper support for market condition findings needs to be documented. Within the past year, I have been using Excel mostly as a way to keep screenshots of what I see on screen. As Josh Wallitt says, “if you see it, save it.” Excel was not designed for this purpose but it is ideal because the space to paste screen shots seems limitless. I subscribe to Microsoft 365 which includes Excel, Word, page 168

Winter/Spring 2023 Working RE 15

7page 15

PowerPoint and OneDrive. OneDrive automatically saves my Excel based workfile. It is a single document that can also be saved to the workfile section of most forms software.

You don’t need to know the first thing about spreadsheets to use Excel as a screenshot archive. But now is a good time to learn Excel for market conditions support. To start with, your MLS probably exports data as a CSV file that will open in Excel. Any search of properties can be exported to Excel for analysis, such as close date and close price of competitive properties for a time period you specify in a geographical area of your choice allows you to analyze price trends, for example.

Case-Schiller price index data can be imported to Excel from FRED, Federal Reserve Economic Data. The problem with the Case Schiller data is that it is not specific to your subject property characteristics, and the data

16 Working RE Winter/Spring 2023

you need is not available for a few months after you need it.

The best way forward is to learn time series analysis as taught by George Dell and Craig Gilbert. Learn best practices for selecting MLS data. Learn how to configure an export in your MLS to get the data you need into a spreadsheet. Learn how to insert a scatterplot with your own personal style preferences saved as a template. Feel the satisfaction of preparing well designed graphic communication of your findings. Interpret the resulting chart to see when the market turned.

In this case (Figure 3, pg. 15), the black line shows the market as stable over the past year. The red line shows a market decline around May 1st.

Now select a subset of data from your original export that starts when you know the market turned (Figure 4, pg. 15). Create another chart focusing on the crucial recent data that will show

you the dollars per day to adjust comparables that closed back when the market was higher. In this case -$516 per day.

Most of us learned how to adjust on the way up in our recent, low interest rate seller’s market. We could not ignore time adjustments any longer.

Grouped data worked well because comparing medians at two points one year apart made sense when the trend was up for the past few years. But times have changed rapidly. In today’s market, you need to know how to spot a turn in the market and how to support adjustments no matter which direction the market moves.

Many of us are in a danger zone because our markets are changing too fast for our old way of calculating market time adjustments. We are at risk of over-valuing properties that may be under water a year from now if rates stabilize at historic levels. WRE

Market Update: How Slow Are We Really?

by Isaac Peck, Publisher

W

Across social media, some appraisers have reported a 90-95 percent decrease in their work, while other appraisers have seen a slight slowdown, but still report being very busy.

18 Working RE Winter/Spring 2023

e get it! The market is slow and appraisal volume is down—way down in some areas. But just how slow are we really?

Here are some statistics and graphs to help answer that question.

This data is based on information reported by Fannie Mae and Freddie Mac (the GSEs) over the last six years.

Appraisers should keep in mind that this data doesn’t capture the entire appraisal landscape, namely, VA, FHA, and private lender appraisal work, but the GSEs handle over 60 percent of all mortgage transactions—which means that the data is largely representative of the market as a whole.

Looking at the appraisal volume numbers from both Fannie and Freddie in 2022, we can see that volume has been cut by nearly 50 percent, from nearly 400,000 appraisals in January to roughly 200,000 in September and 175,000 in October 2022 (See Figure 1: GSE Monthly Appraisal Volume—2022). Please note that these numbers represent actual human appraisals and do not include appraisal waivers, which continue to take up between 15 to 20 percent of all mortgages run through the GSEs. From peak to trough, the GSE data shows a “Peak” of 544,000 appraisals in the month of November 2022. (Some journalists report the peak numbers as between 800,000 to 900,000, but this author believes those figures include waivers, which accounted for over 45 percent of “valuations” during the peak times). At 175,000 appraisals in October 2022, we’re looking at a decline of 67 percent. In other words, today we have just 33 percent of the monthly volume that we had in late 2020.

Contextualizing the Numbers Taking a longer view and looking at appraisal volume going back to early 2017 (six years ago), this is not the first time that appraisal volume with the GSEs has dipped to the 200,000 level (See Figure 2: GSE Monthly Appraisal Volume: Last Six Years). In the early months of 2017, 2018, and 2019, the total monthly appraisal volume came very close to the 200,000 level, and in February 2019 it actually dipped to 170,000 appraisals.

Additionally, the average monthly appraisal volume for 2018 was 257,500 appraisals, and for 2019 it was 282,600 appraisals per month. Taken as an average, September and October 2022 numbers are 27% below the monthly average for 2018 and 34% below the monthly average for 2019.

It’s also worth noting the local nature of real estate. Across social media, some appraisers have reported a 90–95 percent decrease in their work, while other appraisers have seen a slight slowdown, but still report being very busy. In other words, some markets appear to have slowed down significantly, while others remain fairly robust and healthy.

However, going back as far as the GSEs have been reporting appraisal data (over a decade), 2022 marks the slowest September and October months the industry has seen to-date. Assuming the trend does not reverse, we are likely in for the lowest volume winter months this industry has seen in decades (or ever).

Desktops and Hybrids?

One question that springs to mind when looking at these numbers is: how many of the actual “appraisals” being reported by the GSEs are traditional 1004s or

reports were performed in July, 586 reported in August, 1143 in September, and 940 performed in October. One can only assume that these “property collections” are a form of hybrid that the GSEs are testing with a few select partners.

Total Appraisals AVG

400,000 300,000 200,000 100,000 0 Jan ‘22 Feb ‘22 Mar ‘22 Apr ‘22 May ‘22 Jun ‘22 Jul ‘22 Aug ‘22 Sept ‘22 Oct ‘22

Figure 1: GSE Monthly Appraisal Volume - 2022

400,000 200,000 0

Jan ‘17 Mar ’17 May ‘17 Jul ’17 Sep ‘17 Nov ’17 Jan ‘18 Mar ’18 May ‘18 Jul ’18 Sep ‘18 Nov ’18 Jan ‘19 Mar ’19 May ‘19 Jul ’19 Sep ‘19 Nov ’19 Jan ‘20 Mar ’20 May ‘20 Jul ’20 Sep ‘20 Nov ’20 Jan ‘21 Mar ’21 May ‘21 Jul ’21 Sep ‘21 Nov ’21 Jan ‘22 Mar ’22 May ‘22 Jul ’22 Oct ‘22

Total GSE Appraisals AVG

600,000

Figure 2: GSE Monthly Appraisal Volume: Last Six Years

GSE Waivers as Percentage

50.00% 40.00% 30.00% 20.00% 10.00%

Ja n Fe ‘ 21 b M ‘ 21 ar A ‘ 21 pr M ‘ 21 ay Ju ‘ 21 n ‘ Ju 21 l‘ A 21 ug S ‘ 21 ep O ‘ 21 ct N ‘ 21 ov D ‘ 21 ec Ja ‘ 21 n Fe ‘ 22 b M ‘ 22 ar A ‘ 22 pr M ‘ 22 ay Ju ‘ 22 n ‘ Ju 22 l‘ A 22 ug S ‘ 22 ep O ‘ 22 ct ‘2 2

0.00%

Figure 3: Appraisal Waivers as a Percent of All Valuations “full” appraisals, and how many are desktops or hybrids?

The unofficial word from the GSEs is that hybrids and desktops are not accounting for any significant share of total appraisals. Hybrid appraisals, they say, are still in beta (test) mode and are

only being deployed in select markets by a few of their closest partners.

On that note the GSEs have begun reporting an additional category in their appraisal data called “Onsite Property Inspections.” The GSEs report that 486 of these “Onsite Property Collection”

Waivers The use of appraisal waivers has been drastically curtailed over the last two years—dropping from nearly 50 percent of all GSE mortgage transactions and now hovering around 15 to 17 percent (See Figure 3: Appraisal Waivers as a Percent of All Valuations). This is explained, in part, by the drastic reduction in rateand-term (No Cash-Out) refinancing.

From a high of over 500,000 rate-andterm refinances in November 2020, the GSEs saw less than 9,000 rate-and-term refinances in October 2022.

There are two other key data points to note regarding waivers. The first is that use of waivers on Purchase transactions is at an all-time high amongst the GSEs. Roughly 15 percent of Purchase transactions received a waiver–up from an average of 10 to 12 percent during 2020 and 2021.

Takeaways The key takeaways here are that appraisal volume is down, but should be read in context. The slowest months we’ve seen so far in 2022 are not the slowest months appraisers have seen in the last 5 years (See February 2019).

The use of waivers is down substantially overall, but has been creeping up with respect to Purchase transactions.

One bit of good news is that desktop and hybrid appraisals are not yet taking up any significant share of “human” appraisals.

Appraisers can likely expect to see low volume for the foreseeable future, but we’ve seen similar slowdowns before. The market is cyclical and one thing is certain—everything changes. It won’t be like this forever. WRE Winter/Spring 2023 Working RE 19

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Sins of the Past Are Back to Haunt Appraisers

by Richard Hagar, SRA

Fannie Mae and Freddie Mac have a

list of appraisers who have had their reports submitted to the Collateral Underwriter by various lenders. As you can see in Figure 1, there are 38,805 names on their list (the yellow line).

These appraisers were responsible for creating upwards of 800,000 appraisals per month during the “boom” months of the last two to three years. There were times when the number of appraisals vastly exceeded the number of appraisers, resulting in long turn-times and the use of appraisal waivers for upwards of 47% of all loans submitted.

Since 2018, the demand for appraisers has been massive and lenders flooded appraisers with business, which led to people yelling about an appraiser “shortage.” Once Tier 1 appraisers were backlogged 3+ weeks, lenders and AMCs were forced to use their less desirable Tier 2 and Tier 3 appraisers. In other words, if you had a license and could fog a mirror, you could make money in this business.

Even with the Collateral Underwriter program review, appraisers were overwhelmed. Every lender and AMC were seeking and hiring review appraisers to keep up with demand.

Due to the shortage of review appraisers (exacerbated by low fees and time pressures), tens of thousands of poorly created appraisals were accepted without receiving adequate review. Unfortunately, because many appraisals were rarely rejected or required corrections, appraisers developed the false notion that poorly crafted appraisals

were okay to turn in. Many appraisers were bragging about their ability to fill out two or three appraisal forms daily and receive no call-backs from lenders. However, time and time again, we’d review appraisals that were accepted by lenders, but had failures such as: • No highest and best use analysis (as if vacant and improved).

• Failure to make appropriate time/ market adjustments (positive or negative).

• Only a single approach to value.

• Incorrect land values.

• Square footage costs and depreciation based more on opinion than reality.

• Unsupported adjustments (adjustments based on “my 30 years in the business” instead of facts).

• Failures to personally inspect and photograph comparables.

• Failure to measure the subject (relying solely on county information).

• Writing in all capitals.

• Inclusion of prohibited words and descriptions.

The list of sloppy appraisal practices is almost endless, and over the past few years was tolerated. Why? Because banks, borrowers, and agents were screaming that slow appraisal turn-around times “harmed” their buyers (and the agent’s commission).

But now our world has changed.

One of Many Changes Federal law states that all appraisals must be reviewed and to that point, Fannie

Richard Hagar, SRA, is an educator, author and owner of a busy appraisal office in the state of Washington. Hagar now offers his legendary adjustments course for CE credit in over 45 states through OREPEducation.org. The 7-hour online CE course “How to Support and Prove Your Adjustments” shows appraisers proven methods for supporting adjustments.

Learn how to improve the quality of your reports and defend your adjustments! OREP members save on this approved coursework. Sign up today at OREPEducation.org.

22 Working RE Winter/Spring 2023

Mae recently sent out a notice “reminding” lenders of their requirement to perform post-closing appraisal reviews.

Personally, I believe they should have reviewed appraisals before funding the loan but…clearly, I’m not in charge here. Their “reminder” included a ninepage worksheet that provided questions and directives such as: • Confirm that the appraiser received the full contract with all counter offers.

• Is the original contract date prior to the appraisal’s effective date?

• Were concessions listed and was their potential impact on value considered?

• Confirm that nonconforming and illegal land uses were specifically addressed, and the report included information regarding the impact on market value.

• Is the subject’s land better suited for commercial or residential use?

• Were the most appropriate quality and condition ratings provided?

• Look at the photos. Confirm that the quality ratings of the comparables meet the rating definitions.

• Were all apparent safety and soundness or structural issues noted?

• Confirm that the property is free of structural issues that could impact [loan] eligibility.

• Did the appraiser provide (more than simple comments but) actual support for how the adjustments were derived?

• Compare the appraisal adjustments vs. the model adjustments provided by the CU; are there concerns?

• Do the adjusted and unadjusted prices of the comparables support the final value?

• Does the sketch meet ANSI requirements?

130,000

900,000

120,000

800,000

110,000 100,000 90,000

600,000

80,000 500,000

70,000 60,000

400,000

50,000 300,000

38,805 40,000

36,176

Active Appraisers

Appraisal Submissions

700,000

30,000

200,000

20,000 100,000 10,000 0

0 2014

2015

2016

2017

2018

2019

Figure 1: Appraisal submissions (values shown on left) to active appraisers (values on right), 2014 to 2022 • • •

•

Were all CU warning messages addressed by the lender?

How were the messages/warnings resolved and explained?

Do aerial images confirm that all external influences (external obsolescence) were identified and addressed by the appraiser?

Check that the appraiser is not on Fannie Mae’s AQM list.

And a final instruction: If the reviewer identifies material errors in the appraisal report that invalidates the appraiser’s opinion of market value—the lender must self-report to Fannie Mae. Under Federal law, if a lender, Fannie Mae, or any other person becomes aware of USPAP violations likely to impact the value conclusion, then the appraiser must be reported to appropriate state licensing agencies.

The above is a partial sample of FNMA’s concerns they would like lenders to recheck in a post-closing review. In other words, they are getting out the microscope and looking deep at our work. So, what will they do if Fannie Mae or the lender spots a problem? Well, they are going to turn the appraiser into the state as a way

of protecting themselves if the loan goes sideways. This way lenders can shift blame, forcing the appraiser to pay for the lender’s losses. So, imagine an arrow that’s been fired at the lender, who ducks and lets it strike the appraiser looking in the other direction. I’ve been warning appraisers for a long time that this was coming. How does that fast production of sloppy appraisals feel now?

To quote from a Jeremy Bagott press release, “A regulator in Ohio told one appraiser that the Ohio state board was receiving about 40 new complaints monthly from the mortgage giant, each one requiring a separate investigation that can last up to one year.”

Saddle up pilgrim; they’re coming for us.

FNMA indicates that their 2022 lending volume is down 47% from 2021 and is expected to drop by another 50% in 2023. So, it’s pretty safe to state that the “appraiser shortage” of yesteryear is over and reviewers now have more time. Which appraisers will survive when the loan volume is down 75-85% and the poor appraisals of the past are catching up with the appraiser

2020

2021

2022

today? Well, for the most part, it’s based on the quality of the appraisals delivered to lenders over the past five years. Do you believe that the quality of your work ranks you as a Tier 1 appraiser or do you have a little concern about your rating? Tier 1 appraisers have little to fear but Tier 2 and 3 appraisers…

Solutions Today, you likely have more time on your hands, so slow down and take more time to improve the quality of your work. Superior quality appraisals can set you free. Stop using MLS photographs, drive-by and take original photographs of the comparables (because that’s what you’ve attested to in your limiting conditions anyway).

Learn how to determine adjustments accurately. Follow the ANSI standard when measuring the subject (even if you disagree with the method—it’s the requirement). Take more classes! Don’t stop taking classes just because you have enough CE credit to meet your next renewal; that mentality is for the bottom tier of appraisers.

I typically obtain double the CE credit hours necessary to renew my certificate…double! Why? Because I page 248

Winter/Spring 2023 Working RE 23

7page 23

want to do things better, obtain higher fees, and survive the purge that is coming. Lenders have more choices, and you need a way to stand out from the bottom tier and low fee appraisers.

Hop over to my website and look at my resume, noting all the classes I take; this is what good lenders are looking for. Low-quality lenders only want lowfee appraisers—that is not who I want to work for. Besides, with a 75 percent downturn in the lending business, many low-quality lenders and AMCs will also be out of business in the next six months. You need to get noticed by the surviving lenders and AMCs that want the higher-tier appraisers.

I strongly recommend that you take my class provided by OREP Education Network: Identifying and Correcting Appraisal Failures. The class points out the most common failures flagged by the Collateral Underwriter and demonstrates how to make simple corrections to increase

24 Working RE Winter/Spring 2023

the quality of your work to Tier 1 status.

If you don’t need the CE credit, take the webinar version Identifying & Correcting Persistent Appraisal Failures, or watch numerous other webinars I designed to help appraisers create superior appraisals and get paid more (Visit WorkingRE. com, click Webinars).

If you get called on the carpet by a state, a great defense is to tell them that you are improving your knowledge, you are trying to become a better appraiser, and as a result you are better than in the past. Based on my experience in helping defend appraisers, this alone can go a long way in convincing a state that you are worthy of retaining your license. Education is a great way to outrun the sins of the past and when the appraisal business flows back, which it will, you’ll be able to leverage it into higher fees.

I’m trying to keep you safe out there. WRE

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Recession Proof Your Business Using the Mindset Spectrum

by Kendra Budd, Editor

The pandemic is slowing down, along

It can be difficult to change your mindset when you’ve been so used to the same tactics for the past couple of years or even decades...

with the housing market—confronting appraisers with the reality that a recession is upon us and mortgage work is grinding to a halt. This looming scenario has left appraisers with one important question: How is my business going to survive?

To help answer that question, business coach, appraiser, and Chief Evangelist at True Footage, Blaine Feyen says it’s time for appraisers to study the mindset spectrum and discover where they and their business fall on it. This spectrum is derived from the milliondollar mindset, which outlines opposing views—where the left side are negative traits and the right side are the positive ones you want to enlist in your business.

Feyen believes your success is largely determined by your mindset, and your tenacity will be your greatest defense in recession proofing your business.

Having the wrong mindset can be disastrous for your business. In fact, you may believe you’re on the correct side of the spectrum, only to discover your mindset is askew.

Scarcity vs. Abundance What makes a great appraiser stand out above the rest? Well, Feyen argues that part of it comes down to scarcity vs. abundance. Nowadays, it seems as if everyone is operating on the mindset that if someone has something, then you have no chance of obtaining the same thing— this is scarcity. Feyen explains that, “if 26 Working RE Winter/Spring 2023

you’re locked into the scarcity mindset where you believe there isn’t enough to go around, you’re going to have trouble growing and seeing opportunities.”

Basically, you’re too focused on what others have—you have to be the best otherwise you’re failing. But that mindset will only hinder you, not motivate you. Think of it this way: “If you were a professional boxer and you chose all of your opponents from an elementary school playground, you would think you were the best boxer in the world. In the last 10 years, everyone has been the best appraiser in the world by that standard,” says Feyen. Essentially, abundance can motivate you, because it also challenges you to do better.

A scarcity mindset is well on its way to taking over the appraiser industry because of the recession there—will be less business. Feyen argues that simply isn’t true. “There is enough to go around.

More pies can always be made. So, if I have a slice, it doesn’t take away from you getting a slice too. We can all grow and have enough.” Rather than focusing on bitterness, jealousy, and fear, appraisers should instead be focused on how to make the industry better as a whole—not just as an individual.

Past vs. Future Business has two seasons, seed planting and harvesting. If you’re only harvesting, without continually planting seeds then nothing will grow. “We have been in a 10-year harvest, so what does that mean?

No one has been seed planting. You have to plan for the future even when things are going great,” Feyen explains.

There are times where we get so stuck and wrapped up in our past that we neglect our future altogether. Feyen articulates how he sees this often in business, especially in the appraisal industry.

This is because when someone is “past minded” they are using past information to dictate their future, rather than growing with new information as it arises.

“Many people get stuck in the past, and have trouble growing due to prior information. Whereas someone who has a mindset on their future growth is more open to opportunities,” Feyen says.

Transaction vs. Relationship Often times, appraisers can view their clients as more of a commodity, and less as human beings. Feyen explains this a huge problem because, “If I were to commoditize an industry, the first thing I would do is make everything similar.

My appraisal looks like yours, like his, like hers. I would reduce any perception of customer service.” This type of approach doesn’t make a client feel special in the slightest—so what would be the odds they’d refer you to a friend, or use you again? Slim.

Creating a strong relationship with a client is going to bring you a lot more referrals in the future, which is the best way to recession proof your business.

Appraisers need to de-commoditize their business to see better success.

Feyen articulates that those who practice the relationship mindset see more success because, “We’re focused more on the relationship that each transaction brings. We know the value of the client is far more important than the transaction.” A client can easily tell when they are just another transaction and that’s off-putting to them. “As humans, we are always seeking to be in communion and fellowship with other human beings,” says Feyen. If you’re not connecting with your clients, you

might as well never count on them to come back to you—let alone give you a referral.

Security vs. Opportunity Depending where you fall on this spectrum could potentially alter where you fall on the above mindsets. The security mindset is centered around staying safe, secure, and being constantly familiar of your surroundings.

However, this mindset traps you into your current situation and leaves no room for growth. “The opportunity mindset focuses on a direction we’re unfamiliar with, where opportunity exists with willingness to step outside of our comfort zone,” says Feyen.

Without an opportunity mindset you can’t have a future, relationship, or abundance mindset either. Everyone should be focusing on opportunity, rather than safety and security. It can be daunting to take risks, but remember, there is always a reward within a risk.

Competition vs. Collaboration The appraisal industry is one that can be highly competitive, but Feyen argues that needs to change. “We think competition is a race to the bottom, one in which you’re always comparing yourself to somebody else or another company,” Feyen explains. This type of thinking is not only considered unhealthy, but it traps you in an endless exhausting cycle of self-doubt and jealousy. Wouldn’t you much rather work with another appraiser, than against them?

This is not to say we have to do away with all competitive aspects in the field; there is nothing wrong with trying to be the best at what you do— but it can end up hurting the appraisal business as a whole if you’re not willing to collaborate. Not only that, but how do you expect to learn anything new? “Collaboration says regardless of competitive aspects, there is always opportunity for collaborating with

others. When you share with someone else, they share with you,” Feyen points out. Collaboration allows you to grow, whereas a competition mindset stunts that growth.

Work Ethic vs. Wealth Ethic There is nothing inherently wrong with being a hard worker, but when your whole mindset revolves around work ethic, then your business could be suffering. “The mindset revolves around the thought process of ‘the harder I work, the more I make.’ It locks us into the number of hours we have in the day, and the amount of energy we have to apply to those hours, and when we get exhausted, we’re done,” says Feyen. If that’s your sole focus, then you have to ask yourself what are you striving for? What is your end goal?

The wealth ethic doesn’t refer to learning how to make the most money by doing less work, but rather refers to the recognition of the concept of leverage. “We are always looking to create opportunity for new avenues of wealth and growth—not just for ourselves but others. It opens up the opportunity to bring in people to help, as opposed to it being all left up to you,” explains Feyen. Having a wealth ethic mindset helps you set goals, which motivates you to better yourself and your company. If you’re working for no reward then your work ethic will eventually burn out.

Hero vs. Trusted Advisor We all have our own story, one in which we’re the main character or the hero—but in everyone else’s story you’re just a side character. Feyen says appraisers tend to have a hero-based mindset when it comes to client relationships. “The hero mindset refers to the idea that ‘I have to be the hero in the story for all my clients,’” Feyen page 28 8

Winter/Spring 2023 Working RE 27

7page 27

iterates. However, the best thing for your client relationship is to actually be their guide, rather than their savior.

Think of it this way: every great hero usually had a teacher, or trusted advisor. Frodo had Gandalf, Spiderman had Uncle Ben, and Buffy had Giles—all tremendous heroes who wouldn’t have been able to succeed without the help of their advisor. That’s what you want to be for your client. Feyen explains, “The trusted advisor mindset says make your clients the hero—become the guide to their journey.” This allows your clients to feel more involved in the process of an appraisal, this leads to a better relationship, which leads to better referrals.

Cost vs. Investment How many times have you found yourself arguing for the pennies instead of the dollars? Or how about how many

28 Working RE Winter/Spring 2023

times have you viewed people as merely a dollar sign in your business? If it’s often, then you have a cost mindset. This goes back to a transactional mindset, and many businesspeople view clients as ways to make their money. However, Feyen says that these clients need to not only be treated like individuals, but as investments rather than a dollar amount.

“People are not costs, they are investments. How can we help them grow? How can they help us extend our wealth and relationship opportunities?” By having an investment mindset, you are constantly thinking and enacting ways to better your business practices. Someone, even a client, can always help you grow by investing in their future.

Final Thoughts As an appraiser, market changes are

bringing a ton of new challenges your way. The United States is officially in a recession, and the mindset spectrum is a great example of what you should and shouldn’t be focused on when keeping your business afloat. It can be difficult to change your mindset when you’ve been so used to the same tactics for the past couple of years or even decades, but even just attempting to lean toward the right side can improve your business significantly.

The most important thing to remember during this time of uncertainty is your relationships with your clients, because they are the ones that keep your business running. Focus less on fear, money, and competition, and more on how your clients are feeling, and you will see great improvement in your business.

Stay safe out there! WRE

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The State Appraisal Board Wants to Throw Me Under the Bus, Right?

by Barry Phillips and Tim Andersen

D

The wise appraiser summarizes the market evidence showing that an adjustment was necessary, as well as summarizes the processes by which they determined the quantity of that adjustment.

espite what a lot of appraisers conjecture, the workings of a state appraisal board are public record. Meaning workings are open to the public (unless state law allows otherwise). All the state’s evidence, and all the respondent’s evidence is available for public scrutiny too. Therefore, upon proper request, if a state appraisal board has publicly sanctioned an appraiser, you can look at the contents of that appraiser’s workfile, the appraisal report, the results of the state’s investigation, the logic and reasoning behind the state’s conclusions, and so forth. This openness can be a great learning opportunity.

While there are those who would declare the workings of a state appraisal board to be a star-chamber, this simply is not true. This means you, as a member of the public, are free to see these files and whatever is in them (with some exceptions of course), because the records are open to all who are willing to engage in the research. The rest of us can receive help from one appraiser’s misfortune.

In line with this opportunity to receive help from one appraiser’s bad luck, this article takes a short look into some of the questions a state investigator will ask the appraiser. As you consider them, realize that none of them centers on the value in the appraisal. This absence is simply because an appraiser’s value opinion is

Tim Andersen (pictured left) is retired and, in addition to teaching, writing, consulting, and podcasting, does whatever his wife tells him to do. He helps Barry on Mondays with Appraisal Trainee Talk. On Tuesdays at 4:00 PM EST, Tim and Barry host Tuesdays with Tim on Clubhouse.

Contact Tim at tim@theappraisersadvocate.com. Barry Phillips, a licensed real estate appraisal instructor in North Carolina serves the real estate appraisal profession as an active member of the National Board of Directors of the National Association of Appraisers (NAA). Contact Barry at barry@phillipsappraisals.net.

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just that—an opinion. Simply put, there is no way to measure the accuracy of an estimation.

So, what do the investigator and the state board look for as part of their investigation? Again, simply put, the investigator and board look to see if the appraisal meets the requirements of USPAP’s Standard 1, and if the report meets the requirements of USPAP’s Standard 2. Everything else in such an investigation is merely an elaboration of the answers to these two questions.

Nevertheless, there is a warning due here. Increased numbers of state appraisal boards are looking at complaints against appraisers from the standpoint of the consumer, rather than that of the client and/ or the intended user(s). This, to a great extent, is a function of the current political climate. As all appraisers are aware, the consumer has no standing with the appraiser (assuming the consumer is not the named client or intended user).

Nevertheless, state boards tend to favor the consumer (the complainant) over the appraiser (the respondent).

Part of the investigation includes what our legal friends call “interrogatories.” In other words, to prepare its case against the appraiser, the other side (i.e. the state) asks the appraiser to answer a series of questions. Much of the state’s decision whether to dismiss the complaint or elevate the complaint to a formal charge, rests on the appraiser’s answers to these questions. Unfortunately, this is the point in the process where the appraiser’s knowledge of USPAP (or lack thereof), formal and informal training, and past supervision and mentoring come into

the cold, harsh light of what the state expects and what the appraiser did.

You are about to read a series of questions from state investigations. Each state requires the appraiser, via an oath or affirmation, that the answers to these questions be true and complete. In other words, once the appraiser has signed these answers, and then sent them to the state, there are no do-overs, unless there is a scrivener’s error to correct. Those answers are there forever, for all to see, until the end of time.

Consider these 10 questions, as well as how you would answer them (note the numbering protocol is the authors’): 1. “Please describe the process(es) by which you chose your comparable sales, as well as show, from the data in your workfile, how and why you chose them. Please indicate how and why you chose these sales but not others. Please indicate the filters you applied to choose these sales, as well as how and why you chose those filters.

Please point out where in the workfile you maintain the details of this process (these processes).”

2. Please show, from the data in your workfile, the protocols and/or analyses by which you concluded it was necessary to make the adjustments you made to the comparable properties. From the same source(s), please show the analyses by which you arrived at the dollar amounts of your adjustments.

3. You chose to omit the cost approach from your analyses, thus from your value conclusion as well.

From the data in your workfile, please show the process(es) by which you arrived at the conclusion the analyses of the cost approach were neither applicable nor necessary to the formation of a credible value conclusion. a. Since you chose to omit the analytics of the cost approach from your appraisal, there is no indication

of value of the subject site as if vacant. This means you also chose not to analyze and then form an opinion of the subject site’s highest and best use as if vacant. From your workfile, please show the market support you have for this decision. b. Even though you chose to not value the subject site as if vacant, you made size adjustments to the comparable to the sites of the comparable sales as if they were vacant and available to be put to their highest and best use. Please show, from the data in your workfile, the following: c. Since you adjusted the comparable sales’ sites for their differences in size from that of the subject, please show the process(es) etc. By which you arrived at the value of each of the subject sites as if they were vacant and available to be utilized to their highest and best use. d. Since you chose not to conclude a value to the subject site as if it were vacant and available to be used to its highest and best use, from the data in your workfile, please show the process(es) by which you concluded how much to adjust the comparable sales to bring their values into line with the subject’s value as if vacant, etc. e. In the cost approach you made a $X per square foot adjustment for GLA differences. From the data in your workfile, please describe and explain the process(es) by which you arrived at this adjustment.

4. Please show where in the workfile are the market data and analyses supporting the subject’s effective age of X-years.

5. Please show where in the workfile are the market data and analyses supporting your conclusion that the subject has X% accrued depreciation as of the appraisal’s effective date.

6. Please show where in the workfile

are the market data and analyses supporting $X per square foot or replacement cost.

7. You chose to omit from your appraisal the analytics of the income approach. a. Please show where in the workfile are the market data and analyses supporting this omission. b. Please describe from the data in the workfile, the process(es) by which you concluded the analytics of the income were neither applicable to, nor necessary for, the formation of a credible value opinion.

8. On p. 1 of the appraisal report, you indicated the highest and best use of the subject property as improved was in its present improvements.

Nowhere in the report is a summary of the support and rationale for this conclusion. a. Given such a summary is a requirement of USPAP’s SR2-2(a)(xii), please explain how the omission of this summary, etc. results in a credible value conclusion. b. Please describe and explain from the data in your workfile the market support you have for your highest and best use conclusion.

9. In your appraisal report you indicated that from the oldest sale to the most recent sale first mortgage interest rates had increased by approximately 25%. Nevertheless, in the report’s narrative there is no discussion on how this increase might have affected market value.

From the data in your workfile please indicate the process(es) by which you concluded that such an interest rate increase did not affect market values over the time between the earliest comparable sale and the most recent comparable sale.

10. In your reconciliation, you indicated you gave greatest weight to comparable sale #Z and least weight to comparable sale #Q. page 32 8

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7page 31

a. From the data in your workfile please describe and explain the market support you have for giving these two sales these weights. b. Despite this statement about the weight you gave to each of the comparable sales, the final value conclusion is the average of the postadjustment sales rounded upward to the nearest $100. From the data in your work file please explain this potential inconsistency or explain why it is not an inconsistency.

These questions are merely examples of the questions an appraiser could be asked to answer as part of the complaint process. There are at least two takeaways from these questions of which we appraisers need to be aware. First is that every one of these questions required the appraiser to answer it based on nothing more than the research, data, and information that was already in the appraisers workfile. The answers to these questions must come from the workfile cementing the importance of having a complete and thick workfile. Framing the questions in this manner shows the importance the state is going to put on the contents of the workfile.

If the appraiser cannot show that the answers to these questions are already in the workfile, then the state is

going to charge the appraiser with a violation of the RECORD KEEPING RULE. The RECORD KEEPING RULE requires the appraiser to keep in the workfile “...all...data, information, and documentation necessary to support the appraiser’s opinions and conclusions and to show compliance with USPAP...” In addition, Standards Rule 2-3 requires the appraiser to certify that the statements of fact contained in an appraisal report are both true and correct. To show these qualities requires the appraiser to have verified backup data in the workfile. If not, the state may choose to elevate the complaint to a full charge, rather than to dismiss it.

Second of the takeaways is the emphasis of these questions to demonstrate, show, and explain. If the appraiser had demonstrated, shown, and/or explained in the appraisal report all the procedures, processes, and protocols covered in these questions, the state would not need to ask for them as part of the interrogatories since their answers would be obvious.

So, do state appraisal boards exist to throw appraisers under the bus? Frankly, the jury is still out on that question. Nevertheless, there are times when the appraiser, due to

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32 Working RE Winter/Spring 2023

action or inaction, inclusion or omission, makes that process far too easy.

Learn from these two takeaways.

Maintain absolutely every piece of paper, every text, every e-mail, every field note, every photograph, every phone conversation, etc. in the workfile. Then, avoid such meaningless boilerplate statements such as “...the comparable sales are as shown.”

This statement is intellectually empty and is misleading because it does not lead the client and/or the intended user(s) anywhere. State appraisal boards take notice of omissions that are misleading.

Rather, it is the wise appraiser who summarizes how and why they chose the comparable sales in the report. The wise appraiser summarizes the market evidence showing that an adjustment was necessary, as well as summarizes the processes by which they determined the quantity of that adjustment.

When a state appraisal board does throw the appraiser under the bus, it may or may not be fair. However, in many cases, if that appraiser did not take advantage of the two takeaways we covered, the appraiser made it all too easy for the board to take disciplinary action. It is our job as appraisers to give state appraisal boards the least possible amount of ammunition. WRE

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Appraisal Quality: 6 Tips for Success in 2023

by Ken Folven, Senior Director of Appraisal Quality Assurance

H

I have identified these simple yet effective strategies while leading Quality Assurance teams and collaborating with national lenders, banks, and GSEs.

ow do you feel when an appraisal revision request pops up in your inbox in the morning? Frustrating, right? You already painstakingly checked your appraisal report the previous night before hitting “send,” and now you are on your screen the next day, revising the same report under a tight deadline!

As an appraisal quality leader, and former field appraiser, I know firsthand that working in the real estate appraisal industry can be a wild ride sometimes.

In recent years, due to soaring volume, turnaround times may have been a primary focus. While appraisal quality has always been essential, as market trends shift again at the end of 2022, we are witnessing a rise in revision requests being sent back to appraisers from lenders.

In a lower volume environment, it is becoming more common for banks, lenders, and Appraisal Management Companies (AMCs) alike to conduct more due-diligence efforts around valuation quality. Not only are the intended users of the appraisal report looking for reassurance on the accuracy of the value conclusions, but they are looking to minimize repurchase requests from the Government Sponsored Enterprises (GSEs). This creates a competitive market environment for all industry participants. Understanding that post-delivery revision requests add an average of approximately five days to the underwriting process, stakeholders are routinely working to minimize these delays. As a result, it is important for us, as appraisers, to adapt to the new norm to increase our

Ken Folven is a Senior Director for Quality Assurance at Clear Capital, he is responsible for delivering an exceptional client experience, inspiring high-performing teams, and expanding the use of progressive technologies. Ken is a member of the Minnesota Real Estate Appraisal Advisory Board where he represents Residential Appraisers in MN. He holds an active Certified Residential Real Estate Appraisal license in MN and has spent the last 20 years devoted to the industry.

34 Working RE Winter/Spring 2023

due diligence efforts and improve the credibility of the appraisals we complete.

The most common revisions we receive are based on inconsistencies in the report, lack of explanation to support the adjustments, and missing information in the report.

To overcome those hurdles, consider adopting a few quality practices to make your reports error-free. These proactive measures will undoubtedly save you time and help improve the borrower experience for your customers!

1. Measure Twice, Cut Once Before beginning the assignment, go through the letter of engagement in detail, which highlights customer-specific information.

Take your time doing your preinspection homework. Underwriters should review online listings, subject property photos, and interior photos of comparable sales to see if the assigned ratings and adjustments make sense. Review aerial maps to identify any external influences of the subject or comparables. Any inconsistencies or inaccuracies that do not match online data sources will likely result in a revision request.

2. Use Technology and Templates to Save Time Many handy digital tools can help appraisers save time and stay organized. Mobile applications like CubiCasa streamline field appraisals by standardizing the data collection and digitizing the property information for an appraisal report.

This translates into faster inspection times, fewer revision requests, and increased productivity. For example, with CubiCasa*, an appraiser can

scan a complex property in roughly five minutes using a mobile device.

The app then generates an ANSIaligned Gross Living Area (GLA) floor plan with measurements, which can integrate into a report.

Several of the leading appraisal forms vendors allow an appraiser to develop and personalize templates for loan products and types of appraisals, including conventional, Federal Housing Administration (FHA), etc. Cloning an appraisal report can take more time and create greater potential for revision requests than welldeveloped templates.

3. Be Concise in your Commentary Have your template comments grown like weeds in an attempt to fend off the dreaded recurring revision requests? Unfortunately, this strategy usually backfires because the reader cannot quickly locate critical information.

Revision requests caused by inconsistent and unnecessary commentary are also on the rise. While some template commentary is required, aim to keep them separate from comments specific to the assignment. Consider organizing the supporting commentary by adjustment category rather than by a comparable number. Briefly explain your comparable selection process.

4. Explain “How” not “Why” The most common frustrations arise when the appraiser focuses more on the type of adjustments made while the reader generally looks for how the adjustments are determined and supported. Do not leave the “‘how” part out while applying “market-based” adjustments. For example, suppose an adjustment was applied to the sales

grid. In that case, the reader wants to know the characteristics that support the comparable as superior or inferior to the subject. Explain the market data used to determine the applied adjustment. A little diligence goes a long way!

5. Explain the Final Value Conclusion After all the hard work spent developing an appraisal and crafting an appraisal report, from market conditions to comp selection to supporting adjustments, the reconciliation is the appraiser’s chance to “bring it home” and provide a conclusion that requires no instant replay from the client. A strong reconciliation can proactively address many questions a reader may have. The appraiser’s comments have (literal) meaning. It is a good habit to discuss in the final reconciliation statements that disclose the weighting of sales and why.

Descriptive comments to precisely guide the reader to the property value conclusion. If “most weight” is given to Comp 1, the reader should expect the value conclusion to resemble the adjusted value of Comp 1. For example, if secondary weight is then given to Comp 2, the reader should expect the value to slide gently toward the direction of Comp 2.

Federal National Mortgage Association (FNMA) guidelines prohibit the use of averaging techniques which lack sufficient explanation. For example, “equal weight is given to all sales” deprives the reader of necessary insight into the comparable selection and valuation process.

Instead, appraisers should provide a clear and definitive statement that specifies: 1) Which sales are most relevant; and 2) The characteristics which make them

most relevant. For example: “Most weight is given to Comp 1 due to being most proximate, with secondary weight given to Comp 2 due to being most recent.”

6. Run a Quick Check before Hitting “Send” Spend a moment to glance over the report at the end to ensure your report is complete. Go through your report page-bypage and ensure that the sketches, floor plans, maps, and photos are included and consistent throughout the report. Eliminate grammatical and spelling errors by running a check on the content.

Be sure everything you type is easy to read, key content is easy to find, and the writing is errorfree. Make it a habit to review the pre-delivery rules displayed during the appraisal submission and upload process. Surprisingly, this last small step can drastically cut down on revision requests.

I have identified these simple yet effective strategies while leading Quality Assurance teams and collaborating with national lenders, banks, and GSEs. As a Certified Real Estate Appraiser myself, I have been fortunate to have seen appraisals completed by thousands of appraisers across the country and for a diverse group of intended users. Navigating industry changes is never easy, but with the right approach, there are no barriers to success. Embracing these tips can help drive more assignments toward you and improve your customers’ confidence in your work.

Have specific questions on ways to reduce appraisal revision requests? Contact us via email at appraiser.relations@ clearcapital.com (*Cubicasa is an affiliate of Clear Capital.) WRE Winter/Spring 2023 Working RE 35

Appraisal Disciplinary Levels and Their Consequences

by Kendra Budd, Editor

Years ago, the appraisal industry used

It is your responsibility as an appraiser to make sure that you’re not only following your State’s standards of practice for you and your business, but for your clients as well.

to be an unlicensed and vastly unmonitored business. Nowadays, that is far from the case. Years ago, it was decided that States needed a standard of practice, but how were they going to determine those standards? That’s when the States began adopting USPAP. The Uniform Standards of Professional Appraisal Practice (USPAP) soon became the generally recognized ethical and performance standard for the appraisal profession in the United States. States began to immediately enforce USPAP, with each state deciding the level of sanction based on the facts and circumstances of each case.

Decades later, the “Voluntary Appraiser Disciplinary Action Matrix” was offered to the states. These were created to discipline appraisers as needed, based on the level of their violation. Many states do not use the Matrix.

In his CE course, Learning from the Mistakes of Others, attorney and educator Mel Black explains the appraisal disciplinary levels and the consequences that follow once an appraiser is in violation of them. It’s important for appraisers to aware of these disciplinary actions, so they know how to best avoid potential mistakes.

Here’s what we learned.

The Ethics Rule The Ethics Rule as described by USPAP is: “An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics.”

36 Working RE Winter/Spring 2023

Meaning that an appraiser must comply with USPAP when required by law or regulations, or by agreement with a client.

The Ethics Rule is divided into three sections: • Conduct The conduct portion of the Ethics Rule refers to the fact that, an appraiser must perform assignments without impartiality, objectivity, and independence—all without accommodation of personal interests. “An appraiser must not perform an assignment with bias; must not advocate the cause or interest of any party or issue, must not ac-cept an assignment that includes the reporting of predetermined opinions and conclusions,” explains Black.

This section even goes into detail that an appraiser must not engage in criminal conduct.

“The conduct section is simple,” Black explained, “Be independent, impartial, and objective in everything when acting as an appraiser and focus on appraising the property and not the people. That’s it.” Essentially, the conduct section is put into place to make certain that appraisers are always conducting themselves in a professional manner.

• Management Management is set in place to ensure an appraiser must disclose that they paid a fee or commission, or gave a thing of value in connection with the procurement of an

•

assignment. According to USPAP, said disclosure “must appear in the certification and in any transmittal letter in which conclusions are stated.” However, the amount paid to the appraiser is not required to be disclosed.

Furthermore, Black emphasizes, “this clause means an appraiser must not accept an assignment, or have a compensation that is contingent on the reporting of a predetermined result, the amount of a value opinion, or a direction in assignment results that favors the cause of the client, etc.” This section even applies to an appraiser’s advertisements that might be false, misleading, or exaggerated.

Confidentiality Finally, confidentiality is pretty self-explanatory in nature. An appraiser not only must protect the confidentiality of the appraiserclient relationship, but also must act in good faith with regards to the legitimate interest of the client, as well as have a complete understanding of confidentiality and privacy laws applicable with an assignment.

This includes that an appraiser must not disclose any confidential information or assignment results to anyone other than the client, or parties they have specially authorized, state appraiser regulatory agencies, or any third party authorized by law.

An appraiser must take all reasonable steps to safeguard all confidential and assignment results, and to make sure that their employees are aware of the prohibitions on disclosure of the information as well. “If an appraiser’s activity is in conflict the confidentiality section, they not only risk getting punished by the State, but may also face civil liability as well,” Black informs us.

The Competency Rule The Competency Rule refers to much more than an appraiser just obtaining a license, that’s only one of many aspects you’ll need. According to USPAP the competency rule, “requires than an appraiser both identify the problem to be addressed and to have the knowledge and experience to complete the assignment.” Meaning that an appraiser must be properly trained, and continue their education as rules and regulations are updated.

Your competency as an appraiser could be challenged if you don’t take the necessary steps to keep developing your skills. USPAP urges appraisers to continuously improve their skills so they may remain proficient in their reviews. “There are constant changes in finance, law, technology, and even society that can impact an appraiser’s profession—it’s important for an appraiser to stay current when these changes occur,” says Black.

This includes utilizing the necessary data and tools, to make sure you’re always procuring the most accurate results for an appraisal. “It can be frustrating to keep up with the never-ending changes in the appraisal profession, but there are so many sources of information to help appraisers maintain and increase their competence,” Black iterates.

Levels of Discipline There are five total levels of violations according to the voluntary matrix.

“The level of a potential appraisal violation is dependent of the severity of the action, and may be impacted by aggravating and mitigating factors,” says Black. These levels were put into place to make sure that an appraiser receives the appropriate amount of punishment, while also remaining impartial and fair.

This allows an appraiser to understand the severity of their violation clearly and concisely.

• Level 1: Minor Violation The first disciplinary level is a

•

minor violation that does not break the Ethics Rule or Competency Rule. “This level of violation typically means that a very minor mistake was made on the part of the appraiser. An example of this could be an appraiser working in state that has a state law or rule that requires license/certification numbers in all reports. The appraiser affixes their signature to an appraisal report but fails to include their certification number. The appraiser just missed it and can issue an amended report,” Black explains.

The sanction placed upon an appraiser in this case is very mild.

Possible sanctions include a letter of warning, censure, corrective education (CE or QE), a small fine, or a combination. If you are required to take CE or QE, then you will have to pay out of your own pocket as well. Although these punishments could be considered light, they can still be costly.

Level 2: Technical Error Level 2 refers to technical errors or carelessness by an appraiser. This is when an appraiser would benefit from education and that does not involve a violation of the Ethics or Competency Rules. “An appraiser who made adjustments but failed to have support for the adjustments in the workfile could find themselves facing a Level 2 violation,” says Black.

Sanctions for Level 2 include, a formal reprimand, corrective education (which cannot be used for CE for renewal, unlike a Level 1 violation), short probation, monitoring, a small fine, or a combination.

Unlike Level 1, Level 2 provides no warnings. “In the appraisal profession, your punishment is based on the adjudged level of your violation, which can vary greatly state to state,” Black clarifies. page 408

Winter/Spring 2023 Working RE 37

Industry NEWS Discrimination Lawsuit Settles

FHFA Makes Freddie and Fannie Appraisal Data Public

by Kendra Budd, Editor

The

Federal Housing Finance Agency (FHFA) wants to provide greater transparency into real estate appraisals. Their solution?

To have Freddie and Fannie Mac make their appraisal data public.

This comes after the continuing conversation about combatting bias in the appraisal industry.

The announcement was made at the Mortgage Bankers Annual Conference in Nashville by FHFA Director Sandra Thompson.

More than 23 million statistics on single family home appraisal will allow the public to better monitor industry trends, compare appraisal gaps in minority communities, neighborhoods, and metropolitan areas, as well as gain better understating for how appraises values differ among neighborhoods and housing features. The data is compiled on single-family properties from 47.3 million valuation records collected during the second quarter of 2013 to 2022 in a way that protects borrower privacy. FHFA is now offering the UAD Aggregate Statistics Dashboard on its website to provide a “user-friendly” view of this new available data. The hope is that by providing this data, finding accurate comparables will be much easier for appraisers, helping to reduce appraisal bias as well as common human errors.

If you have any questions regarding the FHFA UAD Aggregate Statistic Data File or Dashboards, you can email them at statistical_products@fhfa.gov. WRE

A settlement has officially been reached with AMC Links LLC, one of the parties named in a lawsuit addressing racial bias allegations in a Marin County home appraisal. In December of 2021 the federal lawsuit was brought by homeowners Tenisha and Paul Tate-Austin, who made headlines after complaining that their house was undervalued because of the color of their skin. The Austin’s came to this conclusion after ordering a second appraisal in which they “white-washed” their home and had their white friend show it to the second appraiser—who appraised the property nearly $500,000 higher than the first appraiser.

Terms of the agreement with AMC Links LLC is confidential, and is likely to stay that way.

However, the case is ongoing against the other defendants—appraiser Jannette Miller and her company Miller and Perotti Real Estate Appraisal Inc. Miller’s attorneys filed an answer in mid-September to an amended complaint, denying the allegations altogether and calling for a jury trial. The trial is set for Fall of 2023, nearly a year away. Until then the agencies are still investigating the Austin’s claims. WRE

Working RE Announces New Editor: Kendra Budd Working RE is pleased to announce that Kendra Budd will be taking over as Editor for the publication, with longtime Editor, Isaac Peck, moving into the Publisher role. In her second year at Working RE, Budd is passionate about making sure appraisers receive the latest news, information, and advice in the pages of Working RE. “Kendra has proven herself to be a true journalist—curious, determined, and brave enough to explore the difficult issues.

I’m very pleased to promote her to Editor of Working RE and I look forward to working closely with her as we continue to serve appraisers as the #1 source of news in the profession,” said Isaac Peck, Publisher of Working RE. Kendra will continue her hard work at providing appraisers with both relevant, entertaining, and un-biased news. “I am thrilled to take this next step with Working RE. I hope that appraisers will continue to enjoy the stories I bring forward, including those that haven’t had much light shone on them in the past. I want to thank everyone for reading Working RE,” said Budd. WRE

38 Working RE Winter/Spring 2023

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7page 37

•

Level 3: Minor Violation of Ethics or Competency Rules This is the first violation level that involving the Ethics or Competency Rules. However, it can also mean other violations rose to the level of affecting the credibility of an assignment. “Let’s say that an appraiser had a lack of familiarity with the market area and with the type of property being appraised, and did not disclose this information to their client at the time of the assignment, this should be evaluated under the Competency Rule,” Black reports. The appraiser did not conduct themselves in a professional manner, and was also geographically incompetent.

The sanctions put into place of this violation include, a formal reprimand, corrective education that cannot be used for renewal, short suspension, medium probation, monitoring, restriction on scope of practice, area of practice or ability to supervise, a moderate fine, or a combination of above.

Additionally, with a Level 3 violation, the cost of an investigation falls solely on the appraiser.

Meaning not only could you potentially be losing business due to a potential short-term suspension, but you could also be losing a significant amount of money.

• Level 4: Significant Violation If you find yourself facing a Level 4 violation, that means you have made a significant violation, including violation of the Ethics and/ or Competency Rules. “A case example is an appraiser engaged to appraise a Bed and Breakfast on over 100 acres, and located in a rural area. The clients requested that the subject be appraised as a singlefamily residence and reported on the Uniform Residential Appraisal Report. Unfortunately, the appraiser

40 Working RE Winter/Spring 2023

did as he was told and used singlefamily houses as comps with few and inadequate adjustments and issued a report with a highest and best use rationale that was not credible. One of the important things to determine when handling this case is whether the appraiser is a liar or completely uninformed,” Black tells us. “If the appraiser knew how to appraiser this property properly and chose to nefariously give the client what they wanted despite the truth, the appraiser has some serious ethics issues. If the appraiser simply did not know any better, well that’s a problem too…a Competency Rule problem.”

The sanctions become much more severe in this situation.

Punishments include, a formal reprimand, significant amount of corrective education that cannot be used for CE renewal, significant suspension, significant probation, monitoring, restriction on scope of practice, area of practice or ability to supervise, a large fine, downgrade of a credential, successful completion of the national exam, payment of restitution and costs, or any combination. “This level of punishment could not only significantly affect an appraiser’s business, but their reputation.

Some of these suspensions could even last several months or years,” warns Black.

• Level 5: Significant Willful Violations A level 5 violation means you have significantly violated the Ethics and/ or Competency Rules, or have committed a willful violation. “A willful violation means that an appraiser acted with intention,” Black clarifies. An example of this violation is an appraiser allowed a non-certified appraiser to use their electronic signature. The non-certified person completed several appraisal

properties over an 18-month period.

Black continues, “Once discovered, the appraiser was questioned at a board hearing where they testified they knew their actions were wrong, tried to stop, but then kept collecting monthly payments.” This is both a willful violation and Ethics Rule violation, plus it put several home appraisals at jeopardy.

Level 5 violations nearly always end in revocation, a long term suspension or voluntary surrender in lieu of disciplinary action. However, it could also include a large fine, and payment of restitution and/or costs.

Black warns, “While possible, it is unlikely for an appraiser to have their appraiser certification reissued after a revocation.’

Final Thoughts Laws, rules, and regulations are constantly adapting and changing in the appraisal industry. While following USPAP alone isn’t a guarantee that you will never face a state board complaint, it’s your best defense if you ever have a complaint filed against you. As an appraiser, it is important to familiarize yourself with your state’s appraisal laws and regulations, and to frequently follow updates, Black argues. It is your responsibility as an appraiser to make sure that you’re not only following your State’s standards of practice for you and your business, but for your clients as well. Policy, truth, and integrity should always be at the base of an appraiser’s work.

Mel Black is an attorney who specializes in administrative and occupation licensing law, both as a regulator and as an attorney in private practice.

A native of North Carolina, Mel is nationally known as a subject matter expert in the areas of real estate and real estate appraisal. To learn more about Black, visit https://www.eghlaw. com/professional/mel-black/ .

Stay safe out there! WRE

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