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Summer 2013 Volume 33
From the Publisher Readers Respond
Stiffed Appraisers Go After Chase by Isaac Peck, Associate Editor
Interview: Appraiser Who Brought Down Countrywide
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by Isaac Peck, Associate Editor
Curing Scope Creep by David Brauner, Editor
Estimating Functional Obsolescence by Philip Spool, ASA
Stop Stealing My Services by Bryan Reynolds
How to Report Building Areas Accurately (and avoid measurement mistakes) by Mark S. Langhamer
Closer Look for Home Inspectors: Silent Sentries: Understanding Smoke Alarms by Rick Bunzel
Are You in the “Relationship” Business? By Melissa Dittmann Tracey
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From the Publisher
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“That was a great webinar. Very informational!” —Mike Opielowski
Flip & Zoom
When the State (Board) Comes Calling By David Brauner, Editor
Like being in the middle of a paintball free-for-all, messy things are com-
ing at appraisers from all sides these days. In addition to lenders trying to pin buybacks on the backs of appraisers (while seeming to ignore the Wild-West underwriting practices that floated the bubble), state boards also are bringing complaints against appraisers in record numbers. But there are critical differences between lender lawsuits against appraisers and state board complaints, and it’s vital to understand the differences. I’d like to share something that was raised The state does in a recent OREP/Working RE webinar on the subject: Complaints: What to Do When not look for the State Board Comes Calling—designed value, since to show appraisers how to prevent and value is an respond to state board complaints. In the run up to the webinar, an opinion. The appraiser asked presenter Tim Andersen, state looks at MAI, whether it is true that state boards don’t consider value when evaluating how well you complaints. Andersen says it is true that developed the the state’s concern is not the value concluvalue opinion. sion per se, but how the appraiser arrives at that value. “If you can’t prove from the workfile that you followed USPAP, then the appraisal is wrong,’” Andersen says. He continues, “The state does not look for value, since value is an opinion. The state looks at how well you developed the value opinion. That is why it is so important to have a complete workfile with the derivations of all of your adjustments, conclusions, and opinions. For example, if you make a $1,500 adjustment for the fireplace, somewhere in the workfile must be the justification for that adjustment.” We hope this helps. For more on this recorded webinar visit page 37 or WorkingRE.com (click webinars). For more on how to properly develop a workfile to insulate you from liability, visit WorkingRE.com (Library, Volume 25, What’s in Your Workfile?) WRE 4 Working RE Summer 2013
Appraiser Who Brought Down Countrywide Thank you Mr. Lagow for having the courage to speak up to help society. Your efforts were not in vain. Although mortgage work is tempting and easy at times, these types of situations force us (appraisers) to look at who we are and what is important. Life is short. Make it count! —Lore Thank you, Mr. Lagow. I have been reading about you for several years now and you are my hero. I did not know about the cancer and pray that you are or will be cured soon. I began appraising in 1989 and have seen this fraud perpetuate throughout my entire career. I have always stayed the course and have made an average income but lost so many clients for “killing the deal,” I can’t count them all. There are some who want to see change. I personally was involved several years ago with an FBI investigation that brought down a local appraiser and investment ring. I performed forensic reviews and consulted the agents on questions to ask the appraiser. He went to jail and I commend the FBI for their work. The problem is there are 10 more for every one of these cases, so I, too, feel that not much can be done. At least we can sleep at night. —Jim
AMC Fails: Appraisers Stiffed Again This AMC cost me—or nearly cost me—the roof over my head, my vehicle, credit, personal relationship and most of all, my sanity. I am willing to do anything to help fellow appraisers get justice and get paid, and would like to see people in this often solitary, unrepresented industry become united, even if just for this cause. —Maureen M. Jungers
Why You Should Check Your Online Licensing Information You can bet your bottom dollar that licensing fees will increase dramatically to fund state compliance. After completing my taxes, I realized that it takes more than 25 percent of my income to pay all the expenses necessary to be an appraiser. The shortage of appraisers is already here. I just had a client raise my fee above the fee increase I implemented the first of the year. I’ve had to decline five or six requests just this week because I can’t get the work done fast enough. —Jim Woodring
“Checkbox Chimps” and Review Appraisals Your article HIT THE SPOT! Some of the AMCs are driving me NUTS. I have been a Certified General Appraiser for over 20 years and I find it offensive to have a local AMC reviewing appraisals when they do not have even one licensed appraiser on staff (Oklahoma law). The company in question has two staff reviewing appraisals. One has taken a class on standards and a seminar on “reviewing appraisals.” The other is in the process of taking appraisal classes. He grew up and studied in Hungary. — Bernerd E. Thompson
Why Appraisers Get Sued This article is dead-on! I’ve been appraising for over 25 years and just had a complaint filed on a 2nd home with a contract price of $1,100,000. I didn’t appraise the home for the contract price, and the disgruntled real estate agents and the mortgage company filed a complaint. The real estate agents lost a $60,600 commission and the mortgage broker lost his fees. Now I’m going through hell. Very good article—exactly what was required by the state board. Keep a good, complete workfile. —JMW
Texas Fee Survey Unpacked Appraisal fees still do not reflect the cost of providing a property valuation. On a regular basis, I receive “broadcast” offers for appraisal assignments with fees as low as $200. These fees do not reflect my cost of doing business: gas prices are up, licensing costs are up, scope of work is increasing to unreasonable levels—the parties who are to rely upon my valuation are growing. With 25 years of appraisal experience, I am now working toward leaving the industry. Note to bank investors: get out now, as the liability resulting from poor valuations will be on the rise. —M. Alley I am unaware of anyone around here making what they used to make before Dodd-Frank. —Steven Bergen, Dane County WI
Expert Witness Subpoena: How Not to Work for Free Oftentimes appraisers are called as a fact witness in lieu of an expert witness. This type of trickery is often successful in getting you in the hot seat to state what you did, without your being qualified as an expert witness. Many times if you point out to the judge that you’re not being paid and can demonstrate that you’re not there as an expert, he/she may order your fee paid. —Bryan S. Reynolds
Survey Results: How Reasonable Are Turn Times I find it unsettling that, according to your survey, 10 percent of the time most of the appraisers would turn in reports that are diminished in quality due to lessthan-ideal turnaround times. This type of behavior could not only get them in trouble but could harm the market for all appraisers. If the client requests too quick of a turnaround, appraisers need to decline the assignment, as quality should not be compromised under any circumstance. —Ronald Rubinstein, MAI I appraise in an extremely rural area and in the past few years the real estate market has practically gone to zero. There were seven appraisers in the county three years ago; now I’m the only one left and I, too, am looking to change professions. There are only two online databases we can use and the rest is oldfashioned legwork. And it just can’t be done in 48 hours from time of inspection. I tell AMCs upfront that turntime is five days minimum and I don’t work weekends or holidays (most of the time). I’ve said for years regarding AMCs: we make their living, not the other way around. If it weren’t for the field appraiser producing a quality product for the AMCs, they would have no business to offer their clients. —JB
AMCs—Looking for Good Appraisers? “Thank you for your services! The advertisement is working great and we have been busy adding new appraisers to our panel. Thanks!” —Brian Weeks, Nations Valuation Services
Working RE Magazine Summer 2013 Working RE
Stiffed Appraisers Go After Chase by Isaac Peck, Associate Editor
The settlement agreement by Chase allows the bank to avoid any future claims.
January, Evaluation Solutions/ES Appraisal Services (ESA) declared bankruptcy, leaving thousands of real estate appraisers, agents, and brokers with unpaid invoices for work performed. With millions of dollars in unpaid invoices for appraisals and broker price opinions (BPOs), it is the worst of a growing number of appraisal management company (AMC) failures that have left appraisers stiffed and steaming. The fallout has been extensive. According to the bankruptcy documents filed by Stutsman, Thames and Markey P.A., the law firm handling the bankruptcy proceedings, over 10,000 individuals and firms are listed as debtors, making it the most devastating and farthest reaching AMC bankruptcy in recent history. Since Working RE first reported on this in early 2013, the appraisers and agents affected have been pressuring Chase, the lender who hired ESA for most of the work, to make good on the AMCâ€™s unpaid debts. Many appraisers have filed complaints with the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB). So far, regulators have been indifferent to the problem.
Chase Tries to Settle Chase is directing inquiries to Brian Reese, a Regional Manager of the WaMu-Chase branch in Florida. Nicholas Conteduca, an appraiser owed over $30,000 and founder of Esappraisalscam.com, a place for
Isaac Peck is the Associate Editor of Working RE magazine and Marketing Coordinator at OREP.org, a leading provider of E&O Insurance for appraisers, inspectors, and other real estate professionals in 49 states. He received his bachelorâ€™s degree in Business Management at San Diego State University. He can be contacted at Isaac@orep.org or 888-347-5273.
6 Working RE Summer 2013
appraisers with unpaid fees, reports that Reese told him that Chase will not make any decisions about paying unpaid fees to appraisers until the bankruptcy proceedings are over. The lawyers handling the case told Conteduca that the bankruptcy could take 12â€“18 months to complete. Reese did not respond to numerous phone calls from Working RE. However, a legal maneuver set to be ruled on June 4, 2013, that is part of the bankruptcy proceedings, could eliminate any chance of appraisers collecting their fees. Chase is seeking to settle its debts with the now defunct ESA to the tune of $2,316,000. However, that money will not go to pay fee appraisers and agents. All but about $100,000 is earmarked for a secured debtor of the AMC, Summit Financial Resources, L.P., a hard money lender. Consequently, there will only be about $100,000 remaining to cover the estimated $9 million in unpaid fees to appraisers, agents, brokers, and other vendors. This is the equivalent of paying a little over one penny on the dollar for the work that appraisers and agents completed on behalf of Chase. Worse for appraisers and agents/brokers is that the settlement agreement by Chase allows the bank to avoid any future claims. Included is a Notice of Bar Order which bars all related claims and lawsuits once the secured debtor is paid. This order prevents appraisers, agents and brokers from taking any action against Chase as a means of collection, including taking the bank to small claims court, filing liens on properties where they performed work, or filing any other claims for their unpaid fees. For this reason, many appraisers and agents are working together to block the Bar Order.
Appraisers Fight Back The deadline to object to the motion to approve the Settlement Agreement and Bar Order was May 24, 2013. At press time, a handful of appraisers and agent/brokers filed the initial objections to stop the Bar Order. On June 4, 2013, an evidentiary hearing on the motion to approve the Settlement Agreement is scheduled in a Florida court. The notice specifically states that “any party opposing the relief sought at the hearing must appear at the hearing or any objections or defenses may be deemed waived.” Nick Conteduca is working with other appraisers and agents/brokers who have contracted with lawyer Breck Milde, an expert in both real estate and bankruptcy law, whose law firm will appear in court in Florida to oppose the Bar Order. Milde also has filed a class action lawsuit against Chase alleging that the bank is responsible for the unpaid fees due to appraisers and agents/ brokers. “We do not believe that the Bankruptcy Court has the authority to adjudicate the rights of the real estate professionals who performed services for the benefit of J.P. Morgan Chase Bank, N.A., and that it is appropriate for that Court to abstain from adjudicating such matters,” says Milde. To help pay for Milde’s $5,000 retainer fee to stop the Bar Order, Conteduca set up a donation page and asked appraisers to contribute toward the retainer. Within a day of Working RE first reporting the story, many appraisers had contributed to the cause, including Dave Biggers, founder of a la mode, who personally donated the entire $5,000 retainer fee in a show of support for appraisers. Biggers says that he donated the money because he worries about the legal precedent that will be set if the case is not pursued. “I want the case to not be the reference for all future bankruptcies of this nature, if it can be avoided. The $5,000 gets a lawyer’s retainer paid so that the class action can
be filed. I have no dog in this hunt other than seeing that the people who pay me aren’t legally deprived of a course of action in the future which could make them financially whole again (or partially), when stiffed by an AMC acting as an agent of a lender. Under the Dodd-Frank Interagency rules, a lender is responsible for the actions of its AMCs,” says Biggers. In addition to opposing the Bar Order, Breck Milde will also be filing a class action lawsuit on behalf of appraisers and agents, with the lawyer fee contingent on the amount collected. For those interested in joining the class action lawsuit, Conteduca says the following are required: Proof you worked for ESA. It can be a written contract or an email trail of orders from the AMC. And the amount owed to you. You need to furnish order numbers and amounts owed. Email receipts are acceptable. So are screen shots from Evaluation Solutions’ website.
Stories from the Field William Furney, whose appraiser firm is owed over $70,000 by ESA, says he believes that appraisers and agents have a strong case against Chase. “Chase is listed as the client on all of my appraisals,” says Furney. He has been in contact with appraisers and agents who have been affected. “There are a lot of agents who are owed money for BPOs,” Furney says. “Many are afraid to go after Chase because they still work for them. I can see their point because Chase is still a source of income. How do you sue your employer and still expect to work for them?” Furney has also filed complaints with the OCC and the CFPB but so far has received no response from regulators. “They acknowledge receipt but do not respond. Chase responds, saying that they’re looking into the situation. Chase sent me the same letter maybe six or seven times, telling me to contact Brian Reese,” says Furney.
“I think that we’re just stuck, and until something changes with the regulations for AMCs, there is nothing to protect appraisers from this happening again (see the story, AMC Recovery Fund to Help Appraisers, pg. 37). People are saying don’t take work from Chase. But what if I have to feed my family from AMC work? After the crash, every mortgage company that I worked for went under. I had to adjust and I did. And I picked up AMCs, lots of them, and that’s how I make my living.” Diana Nytko is another appraiser who is negatively affected by ESA’s bankruptcy and who says she also filed complaints with the OCC. “The OCC hasn’t done anything. In November, I filed a complaint here in Connecticut with the State Banking Commission and never got a response. It’s ridiculous,” says Nytko. There is little question in Nytko’s mind about who is responsible. “WaMu Chase is responsible. They are the ones who received all my reports and they are the ones who benefited from my work. Through the law of agency, they are responsible for paying me,” says Nytko. She plans to take Chase to small claims court and to file liens on the properties she appraised. “I’m going to attach the properties and I’m going to file in the local small claims courts. I plan to file next week; I just need to make sure that Chase has taken over some of these properties. There are a couple that I did right in my own town. One that Chase foreclosed on, so they won’t be able to resell it until they pay me,” says Nytko. Nykto says this isn’t the first time her clients have failed to pay her, nor is it the first time she’s had to file property liens. “It’s legal in my state for an appraiser to file a lien. I’ve taken people to small claims before and filed an attachment against their property and won,” says Nytko. (Learn more about property liens on page 37: Collection Techniques.) page 138
Summer 2013 Working RE
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Summer 2013 Working RE
Story first appeared in WRE’s email edition Opt in at WorkingRE.com
Interview: Appraiser Who Brought Down Countrywide by Isaac Peck, Associate Editor
Editor’s Note: A little-known fact is that the original whistleblower at Countrywide Financial, the man whose suit sparked an investigation that culminated in a one billion dollar settlement between BOA and the Department of Justice, is real estate appraiser Kyle Lagow.
Countrywide started a train and laid the tracks that ran the industry off the edge of a cliff.
10 Working RE Summer 2013
he U.S. housing bubble and the corresponding real estate market crash of 2007–2008 brought about one of the most severe economic downturns in America since the Great Depression. The fallout was extensive: banks failed; established companies declared bankruptcy; the net worth of American households plunged; and millions of Americans lost their homes and jobs in a great recession that quickly spread globally, submerging the economies of Europe, Asia, and the developing world. Among the many firms and individuals who acted irresponsibly, and maybe criminally, perhaps none did so with such flair and recklessness as Countrywide Financial. Before its rescue-sale to Bank of America (BOA), Countrywide was the largest mortgage lender in the United States. Countrywide became a “leader” of sorts in the lending industry, according to numerous lawsuits filed by the Department of Justice, by adopting reckless lending practices, encouraging fudged loan applications, and violating appraiser independence in order to gain market share. A move that, some say, led to other lenders lowering their standards to compete. A little-known fact is that the original whistleblower at Countrywide Financial, the man whose suit sparked an investigation that culminated in a one billion dollar settlement between BOA and the Department of Justice, is real estate appraiser Kyle Lagow.
Kyle Lagow Lagow was an appraisal manager and assistant vice president at Landsafe, Inc., the appraisal subsidiary of Countrywide, a position which gave him an inside look at the practices which caused the downfall of the largest mortgage lender in America. For his part, Lagow sees Countrywide as being at the heart of both the housing bubble and the real estate crash. In his words, Countrywide “started a train and laid the tracks that ran the industry off the edge of a cliff.” This is his story.
How It Began Kyle Lagow of Plano, Texas, says he was an appraiser running his own firm for 14 years when he was contacted in 2004 by Landsafe and offered a position as an appraisal manager, responsible for building an appraisal division to span several states. “The third time they called, they made the opportunity attractive enough and told me that I would be able to build a staff of quality appraisers. So I told them that as long as we do it right, I’ll run it,” Lagow says. At Landsafe, Lagow was tasked with hiring and training a division of staff appraisers spanning multiple states whose primary purpose was to appraise a growing volume of Countrywide loans. Ultimately, Lagow helped open new markets for the company, expanding Landsafe’s appraiser panel into Utah, Colorado, Arizona, Louisiana, Texas and Oklahoma.
Fraudulent Appraisals Lagow says it didn’t take long for him to realize that Landsafe’s executives weren’t interested in quality appraisals. The original suit filed by the DOJ alleges that in early 2005, a Landsafe executive called a meeting of appraisal managers and made it clear that (1) they needed to quit thinking of an appraisal as a separate unit; (2) that Landsafe appraisers were there only to “help facilitate closing,” and; (3) that they needed to change their “thought process, (You can find the suit at WorkingRE.com, Sidebar Information (left column), Lagow vs. Countrywide Original Complaint.) “An appraiser would turn in his or her appraisal. If it was low or didn’t meet value, it went to a reviewer. If the appraiser didn’t meet value, the reviewers were instructed to go and look at the market to see if he/she used the
best comps and to try to discredit the appraiser. The kicker is that I have an appraiser whom I trusted, hired and put on my fee panel because I believed he/ she would do a good job. But at Landsafe, the entire review process was designed to ensure the appraisal came in at value. If one of my appraisers didn’t meet value, he/she was blacklisted. Our own company would turn them in to the state and call them bad appraisers,” says Lagow. Unfortunately, extreme internal pressure to meet value and the blacklisting of quality appraisers was just the tip of the iceberg. In 2005, Lagow learned of a joint venture between KB Home and Countrywide, wherein Countrywide would provide the loans for new construction developments of KB Home. Lagow was tasked with hiring appraisers to complete that appraisal work. However, Lagow says that when his staff appraisers showed up at KB’s
developments to appraise properties, they were turned away and told that KB had an agreement with Countrywide where it alone would decide who did the appraisals. Lagow soon learned that a separate appraisal manager at Landsafe was handling all of the KB appraisal assignments; the work went to a small number of hand-picked appraisers. The DOJ suit alleges that in Houston, the appraiser chosen by KB Home completed over 400 appraisals in a single month by himself, all at a price of $450 per appraisal. Shortly after Lagow realized what was happening, he began sending notifications to upper management, even though he had been warned against putting his concerns in writing. On September 7, 2005, Lagow wrote the following: “In summary: We have a clear attempt to control the market—utilization of one appraiser, page 128
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a refusal to supply data with outside appraisers, and the appraiser of choice is being paid a fee abnormally higher than what we pay everyone else for the same work. Add in the fact that recent appraisals from outside appraisers have come in low, and I could make a fairly strong case for market manipulation and appraisal fraud. Even if it is not intentional, it looks bad.” At the end of his email, Lagow warned that the problem would spread if nothing was done to fix it: “I also want to caution anyone who cares to listen, that if we allow this in Houston it will spread through the KB Home markets.” Lagow says that he personally inspected many of the appraisal reports completed by the Houston appraiser. “I looked at the appraisal orders. I could tell you when the inspection appointments were scheduled. One day, one was set for noon and the next one at 12:01 P.M. It was a total fraud,” says Lagow.
See No Evil Lagow’s words of warning fell on deaf ears as Landsafe executives proceeded to institute a “production-based” pay system where staff appraisers were forced to radically increase their appraisal volume in order to earn the same income, according to the complaint filed by the DOJ. Lagow says that Landsafe also facilitated a channel whereby Countrywide’s own loan officers could request target “audits” of Landsafe appraisers who were not meeting value. The original suit filed against Countrywide by the DOJ lists over half a dozen appraisers who were “audited” at the direction of loan officers who were upset that the appraisers were not meeting value. According to the suit, one of the appraisers that Lagow hired to add integrity to the appraisal process was told point blank by a KB Home sales manager that KB would no longer require his services if his appraisals came in below contract price. When he refused to go along with the fraud, the appraiser was blacklisted from completing appraisals on any Countrywide loans. 12 Working RE Summer 2013
Frustrated at the apparent fraud he was witnessing, Lagow sent this chilling email to his supervisors at Countrywide Governance in February 2006: “At the risk of losing my job, I am forwarding this email to you and want to relay my deepest concern for the situation addressed. I report directly to you but I am also forwarding this to (a superior) because she and I have talked about general concerns in the past. I have spent considerable time looking over the KB Home situation in Houston, Texas, and took some time to drive to a couple subdivisions this weekend and look around. As you are aware, one appraiser controls the orders and the values…I believe that (name redacted) and KB Home are engaged in a fraud to manipulate the local market. In looking at the appraiser’s reports, when he needs to, for value, he goes outside the market to access superior sales to bump up the market and then uses the same sales in future sales, thus establishing and manipulating the market. The appraisal reports I have examined have a continual characteristic of selective manipulations of the market data in an effort to pump up the market. It is my opinion that, based on very limited data, we could be making 115% loans in the markets and if you examine some KB Home subdivisions you see significant foreclosure rates. I believe that by allowing the situation to continue we are condoning the activity and placing at risk the jobs of our employees at Landsafe and Countrywide. I am even more concerned, and I do not have any supporting data other than the logic that an order has to come from us, that the individuals who mandated that only one appraiser be utilized may be a Countrywide employee and could be implicated in a conspiracy to defraud both the homeowners and the stockholders. We are charged with the responsibility of protecting our client’s assets. If I am correct on any of this, and if it blows up, the blame will rightly fall on us for failing in our task. This has the potential to be a lightning rod for the demise of Landsafe and we will need to act to make sure every effort has been made to safeguard against this…” Nothing changed as a result of the email, Lagow says. Finally, in 2008,
Lagow says he sent an email directly to Angelo Mozilo, CEO of Countrywide, urging him to stop the fraudulent practices and warning him that his executives were not reporting the facts to him. “I really wanted Mozilo to have not been aware of this. I wanted to believe that a guy who spent 40 years building this company wouldn’t want its legacy to be that we ran an industry off a cliff and that we gave our industry a bad name. I couldn’t believe that he could have known about it; I went to everyone else before I went to Mozilo,” says Lagow. Lagow explains that Mozilo sent someone down to, in his words, “put on a show.” He was even contacted by several of Countrywide’s top executives who seemed concerned, but the “conclusion” of management was that Lagow’s concerns were unfounded.
Fighting from the Corner By late 2008, Lagow learned that he needed treatment to combat cancer and he was subsequently fired from Landsafe. “I fought inside the company for a long time to stop what was going on. When I left I told them, look, I’m going to fight to fix this either inside the company or outside the company,” says Lagow. Leaving Landsafe wasn’t easy for Lagow. “At the time, I was pretty defeated. I built their market for them. They took my model and applied it to the east and the west coast. They didn’t have a clue how to hire and manage a staff appraiser division,” says Lagow. Lagow says he wasn’t even planning to file suit. “I had cancer when they fired me. I just wanted to make it through that fight. I honestly didn’t want to go this route—I was on the list to do work for Bank of America. But then I received a letter from a BOA attorney saying that they were not going to put me on their fee panel list,” says Lagow. At that point, Lagow said he had no choice. “I had to fight, there was nothing left. I was broke. I couldn’t do work for them, I didn’t have any money. After all that
they put me through, I was ultimately deprived of this little bit of dignity of being able to do appraisal work. I got mad. I picked up the phone and called up some lawyers who were filing a class action lawsuit. I said how can I help?” The rest is history. In late 2009, Lagow filed a whistleblower complaint under seal, charging that Countrywide had committed fraud and violated the U.S. False Claims Act. But things got worse for Lagow before they got better. “Once the lawsuit was filed I couldn’t talk to anybody, not even my family. You go out there to try to help an industry, and no one even knows you’re fighting the fight. Your kids look at you like a failure, you can’t get any work. You’re fighting cancer. I lost everything, I had repo people knocking on my door,” Lagow says. Lagow’s complaint was among at least five other whistleblower complaints that were rolled into the $25 billion settlement between regulators and the nation’s largest banks in 2012. Lagow’s complaint was also critical to a one billion dollar settlement between the Federal Housing Administration (FHA) and Bank of America in 2012. For Lagow, his eventual victory is bittersweet. “As far as being a whistleblower, I wouldn’t wish it on anyone. I got lucky. Without my lawyers, Tom Loeser, Shane Stevenson, and Stevie Berman, who were courageous enough to take the case, I’d be sitting in a house in default.” For his share of the settlement, Lagow will receive $14.5 million for his role as a whistleblower. Lagow is thankful but says that it isn’t as much as people might think. “By the time the government takes its share, and the attorneys take theirs, it’s not as much of a windfall as everybody thinks. If I were working for the rest of my life, I would earn more than that,” says Lagow.
Present and the Future Appraisers may not be surprised to learn that Lagow doesn’t think much
has changed in the industry, even after all he has struggled for. “I don’t think I made much of a difference. Everybody likes to say that there have been big changes. The only change right now is that there aren’t as many loans being done. If you had stolen one billion dollars at gunpoint, would you still be typing on your computer? I don’t think so. Yet the same people who were in charge when this fraud took place are still here. My supervisor at Landsafe, the area manager, is still there. The appraiser who was completing 400 appraisals a month in Texas still has his license. So you tell me, what’s changed?” “You still have staff appraisers who know that if they don’t meet values, their name is going to show up on somebody’s do-not-use list,” Lagow continues. “Volume corrupts because the biggest problem that we had back then was that loan officers who did the biggest volume would say, ‘If you don’t get rid of so-and-so, I’m going to go somewhere else.’ So loan officers had tremendous weight and influence, and they still do. You have the same infrastructure in place so once loan officers start doing millions of dollars of loans again, the same thing will happen.” “What these criminals did, committing fraud and inflating values, was a felony before and it is a felony now, yet we haven’t put any of the big players in jail—so nobody’s afraid,” Lagow says. “Go out there and look and see how many people have been indicted from small private mortgage companies. Look and see how many have been indicted and tried and put in jail from the largest mortgage companies. You will find that there are numerous individuals in the private sector but when it comes to the big companies, the regulators don’t go after them. Let’s start putting some people in jail and see how quickly the rules start getting followed. Unless there is a profound movement in the industry as a whole, they’re going to do it again. And they’ll put the burden, and the blame, on the appraiser.”
Lagow’s message to other appraisers is simple: do good, honest work. “My message is to do the numbers, do the best appraisal reports you can. If somebody doesn’t like your work, if your values aren’t there, walk away. Have the dignity and self-respect to walk away and go find another client, everything else will take care of itself.” WRE 7Stiffed Appraisers page 7
In contrast to other appraisers and agents who are worried about a backlash from Chase for speaking out or fighting back, Nytko says she now refuses to complete appraisals where Chase is the client. “I have closed all my bank accounts with Chase and I honestly don’t understand how some appraisers would still want to work for Chase after this. If Chase wants to pay me up front to do appraisal work, I’ll do it, but I won’t let this happen again,” says Nytko. If you’re interested in joining the class action lawsuit, Nick Conteduca can be contacted at Contact@ EsAppraisalScam.com. ________________________________ For the latest on this story, keep an eye out for Working RE’s Online Edition, delivered to over 70,000 appraisers via email. (Opt in at WorkingRE.com.)
2013 AMC Guide UPDATED!
Find the Best AMCs to Work for & Fire the Rest Visit WorkingRE.com click 2013 AMC Resource Guide Summer 2013 Working RE 13
Curing Scope Creep by David Brauner, Editor
Editor’s Note: What seems to bother appraisers most these days are what they consider to be “unnecessary” challenges to their reports by AMC staff who, in many instances, appear to be less than qualified.
Scope Creep is another of those recently coined phrases— like checkbox chimps—born from appraiser frustration at doing more work for less money and diminished professional respect.
14 Working RE Summer 2013
cope Creep is another of those recently coined phrases—like checkbox chimps—born from appraiser frustration at doing more work for less money and diminished professional respect. The reasons and remedies vary. What seems to bother appraisers most these days are what they consider to be “unnecessary” challenges to their reports by AMC staff who, in many instances, appear to be less than qualified. Appraisers say this bogs down the process and negatively affects their efficiency and profitability; not to mention delaying or killing deals. Some of the behavior is in violation of state and federal regulation, according to experts. Appraisers complain of being inundated by “irrelevant” requests, like instructions to re-label photographs, requests for additional alternative street scenes or having to explain the obvious—like whether a porch is covered. “Bracketing of unadjusted comps around final appraised value is one of my favorites,” said appraiser David L. Phillips, SRA. “This would require you knowing what the appraised value is before you even do the work.” Phillips “likes” this request too: a minimum of three comps and two competitive listings on each report. “If I have competitive listings, I put them in but if I don’t, there is no reason to just fill in the grid with meaningless properties,” says Phillips. Appraisal management companies (AMCs) defend their quality control requests, arguing that if appraisers did their jobs correctly the first time
there would be no back and forth; good appraisers don’t have this problem they say. They say the profession suffers from an army of appraisers who never get proper training. Observers surmise the additional “stips” (stipulations) are coming straight from lenders who are tightening oversight to avoid problems from zealous regulators, who themselves are under pressure because of Dodd-Frank. Longtime appraiser Jo Ann Meyer Stratton, IFA, SRA, has this take: “The biggest reason for scope creep today, compared with the past, is that before the rise of AMCs, underwriters who comprehended appraisals were reading the actual reports and asking logical questions. Now we have ‘checkers’ (not reviewers or experienced underwriters or appraisers) comparing a list to just parts of the report and not bothering to read the comments in between. Prior to AMCs, I only heard from underwriters about every three to five years. As soon as AMCs were inserted into the system, with their minimally trained ‘checkers,’ I started hearing questions for things already in the report. Or they wanted the information stated twice or asked for information that was not applicable to the appraisal assignment. I have always written very detailed reports, so 99 percent of the time the information the ‘checkers’ are looking for is right in front of them,” Stratton says. Stratton says her reply to these requests typically reads something like: See paragraph two on page two of the page 168
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original Expanded Comment Section under Sales Comparison Report or see the exhibits, sketch and photos in the original report. Darwin Ernst, SRA says, “The increase in the scope of work from the lending industry for residential mortgages is unyielding and without any consideration for additional compensation to the appraiser. I wonder why many lenders and their brokers (AMCs) now think that they must dictate what is required to produce a credible appraisal report, rather than allowing the supposed ‘independent’ appraiser to choose what to include. How long will appraisers be required to grid listings in the sales comparison approach, when they are not a part of a SALES comparison approach to value? Most appraisers know when to analyze listings and pending sales to support their concluded opinion of value, but the trend by lenders and their brokers to request the additional listing data for every assignment, regardless of its contributory value to the concluded opinion of market value, is a contentious issue among professionally licensed appraisers. The increased scope of work is extremely labor intensive for appraisers and yet there is no additional compensation even considered by the lender or their brokers.”
Review of Additional Sales A common issue for appraisers is a request from an AMC to review additional sales. The report has been reviewed already by the AMC and compensation paid. Appraisers ask themselves two questions when this happens: shouldn’t they get paid for the extra work and, in certain cases, isn’t telling an appraiser how to appraise unlawful under new appraiser independence laws? Some appraisers receive additional fees for these after-the-fact requests— the key they say is to ask. But many appraisers say they don’t have a choice, depending on the AMC they are working for. Many AMCs require compliance with language, such as the following, in 16 Working RE Summer 2013
their engagement letter: Appraiser will agree to answer/fulfill all requests with ANY questions from the Client by accepting this assignment. Some appraisers try to preempt the problem by including language of their own, such as: I selected and used comparables that are locationally, physically and functionally most similar to the subject property. No reasonable sales that are closer or more recent are available, and requests for additional comps will not be complied without additional compensation to the appraiser. Any provided would not be more comparable regardless, since the best comps have already been provided. Another complaint is that these onerous “stips” are not stated upfront when the appraiser accepts the assignment. This causes confusion, according to appraiser Deborah Gedney. “If there are specific lender requirements about the type of comps the lender needs to meet their underwriting qualifications (i.e. two minimum, within 90 days, within one mile, etc.), then for Pete’s sake, tell us upfront in the assignment contract when we still have the option to decline the order,” Gedney said. “Most of us will do everything we can to meet those criteria if at all possible. But telling us after the fact and then expecting us to waste our time working for free, to meet criteria that should have been defined upfront, is scope of work creep that is costly to us, annoying, and completely preventable.” Talk to AMCs and you’ll hear the other side of the story—they rail about a lack of professionalism among appraisers: not showing up for appointments, not completing conditions for weeks, not communicating and worse. AMCs are not the only ones with “do not use” lists, however. More and more appraisers have lists of their own and refuse to work for less than reasonable fees or in too short a timeframe (Read Survey Results: How Reasonable Are Appraisal Turn Times? at WorkingRE.com, Library, Volume 32). Like so many issues, appraisers are considering the quality of the relationship when
deciding customer service issues such as what fees to accept, when to say yes and when to say no to underwriting requests. While the need to make tough business decisions isn’t new, appraisers say it was much less risk to fire clients in the old days than it is today because recent consolidation of lenders/AMCs has left far fewer appraisal order sources.
But Is It Legal? Richard Hagar, SRA, says that most of the additional comparables his appraisal firm is asked to consider appear to have been selected based on their value and are extremely biased towards a higher value conclusion. This is an issue that many appraisers immediately recognize as an attempt at influence, but the requesting party often doesn’t see it that way. In many cases, the client’s request to analyze additional comps is coming from someone who is not a licensed/ certified appraiser in the state where the property is located. “We’re talking about underwriters or others who don’t have appraisal expertise and yet insist on getting involved in the appraisal process. They are attempting to perform the appraiser’s job,” says Hagar. Hagar, who presents the OREP/ Working RE webinar, Appraisal Review and the Law (visit WorkingRE.com and click on webinars), covering these issues, says that it is very rare for a request for additional comps to include any properties that he hasn’t already considered, but when there is a legitimate comp that he missed, he’s happy to consider it. For the vast majority of other cases he refuses to play their game. “For comp requests, I usually tell them directly that their suggestions are not comparables so I won’t consider them. Or that they were already considered in the original scope of the assignment, and they aren’t comparable,” says Hagar. “I don’t need to write out long explanations. They ask a simple question, so I give a simple answer, in writing!”
Ernst, who served six years as Chair of the Montana Real Estate Appraiser Board’s Adjudication Panel, says that each state regulatory agency has the responsibility to license and adjudicate complaints against AMCs, and they will be the final judges on whether the AMC is adhering to its state’s AMC law. Most of the current AMC laws follow the appraiser independence provisions within the Truth in Lending Act, as amended by the Dodd-Frank Act, very closely, he says. “I would advise every appraiser to take the time to check his/her state’s AMC law (if there is one) before making a decision of what is (and what is not) appropriate for a lender to ask of their panel appraisers. Personally, I believe every time the appraiser perceives pressure from the lender (or its agent, the AMC) to alter his/her opinion of value, there is a potential for a legitimate complaint from the panel appraiser to the AMCs regulatory agency. However, make no mistake about it, the AMCs regulatory agency will be responsible for deciding whether the complaint has any merit, and if it does, which action(s) they might take against the AMC,” says Ernst. Hagar concludes, “Sometimes the request is legitimate. If, for example, a photo isn’t relevant to the appraisal, then the appraiser should comply with the request to remove it. But if the appraiser thinks that it’s a legitimate photo that is relevant to his/her report, then the response to ‘remove the photograph’ should be ‘no.’ The client doesn’t get to tell the appraiser how to do his/her job. Attempting to mold the appraisal report to tell the appraiser how to alter it is in violation of state and federal law,” says Hagar. “If the lender or client has particular needs about what photos they require, then that should be made clear upfront, in the scope of work agreement before the appraisal is created or delivered. However, the majority of additional requests to alter a report
after the fact are clearly attempts at influence and coercion.” WRE ___________________________________________ Recorded Webinars: In these OREPsponsored webinars, Appraisal Review and the Law and Lender or AMC: Who’s Responsible for Paying Appraisers?, Richard Hagar, SRA shows appraisers what they need to know to stay out of trouble and how to respond
properly against illegal requests. Hager also sets the record straight on what the lender’s responsibility is to the appraiser when it comes to collecting fees. Find the webinars at WorkingRE.com, click on “Webinar Series” image.
Summer 2013 Working RE 17
Estimating Functional Obsolescence by Philip G. Spool, ASA
Editor’s Note: Second of a three-part series on estimating physical deterioration (depreciation), functional obsolescence and external (locational and economic) obsolescence. Find part one, Estimating Physical Deterioration at WorkingRE.com, Library, Volume 32
Does this mean that as appraisers we insert our interpretation and opinion as to whether a property has functional obsolescence or is it determined by the potential buyer of a property?
was the last time you indicated a functional obsolescence in the cost approach? Did you also reflect it in the sales comparison approach? Would you? Should you? These are questions we rarely, if ever, consider. Perhaps we even avoid the issue when we think the house we are appraising has functional obsolescence. In order to prepare for this article, I read and re-read many appraisal books regarding functional obsolescence and how it is determined. The more I read, the more I realized how complicated it can be. You will notice that some of my sentences end with a question mark (?). This is because functional obsolescence is probably the most complicated obsolescence to calculate mathematically, and so, I question whether it is really necessary to do any calculations at all. Here’s what I mean.
What Is Functional Obsolescence? According to the Dictionary of Real Estate Appraisal, Fifth Edition (Appraisal Institute), functional obsolescence is “the impairment of functional capacity of a property according to market tastes and standards.” The Appraisal Institute’s (AI) book The Appraisal of Real Estate—Thirteenth Edition states, “Functional obsolescence may be caused by a deficiency or a superadequacy. Some forms are curable and others are incurable.”
Philip G. Spool, ASA, is a State-Certified General Real Estate Appraiser in Florida, appraising since 1973. Formerly the Chief Appraiser of Flagler Federal Savings and Loan Association, he has been self-employed for the past 18 years. In addition to appraising, he is an instructor with Miami Dade College, teaching appraisal courses and continuing education. He is also the Vice President and Chairman of real estate programs with the Greater Miami Chapter of the American Society of Appraisers. He can be reached at firstname.lastname@example.org.
18 Working RE Summer 2013
Does this mean that as appraisers we insert our interpretation and opinion as to whether a property has functional obsolescence or is it determined by the potential buyer of a property? In my opinion, the answer is yes to both. The potential buyer of a property ultimately determines whether or not a property has functional obsolescence. Also, any person with experience in the real estate market can possibly determine if the property has functional obsolescence by observation. However, determining the dollar amount of the obsolescence is another issue.
Types of Functional Obsolescence Functional obsolescence is the result of defects within a property. This may be in the building, the building itself, or on the site but not in the building. It may be the result of a superadequacy or a deficiency. It may be curable or incurable. There are two types of functional obsolescence: superadequacy and deficiency. A superadequacy is something that exceeds what is typical for the properties in the area and does not contribute to the overall value in an amount equal to its cost. A deficiency is basically the lack of something that other properties in the subject’s neighborhood have. A superadequacy or deficiency can be either curable or incurable. Examples of Functional Obsolescence A superadequacy can include an overimprovement to the structure. An example would be a house in a relatively new development that the builder used as a model, including many extra features that
are not in other houses. It could be converting an adjoining bedroom for purposes of creating an oversized walk-in closet for the master bedroom or making it into one very large master bedroom—something that is not typical of the other houses in the area. There are many other examples. A superadequacy is typically associated with features that are above and beyond what is considered normal for the neighborhood. A deficiency can be too few bathrooms given the number of bedrooms, or the lack of a bathroom that has easy access to a swimming pool (sometimes referred to as a cabana bathroom). It can be a house that has wall air conditioning units instead of central air. If a property requires an addition in order to be functional or if the property requires some form of modernization or renovation(s), such as a new kitchen, bathrooms or flooring, these are examples of a deficiency. What about a poor floor plan? An example of a poor floor plan is a bedroom that can only be accessed through another bedroom. More than likely this would be a deficiency. There are many other examples. A deficiency is associated with the lack of features that are associated with what is typical in the area.
Curable or Incurable The key difference between curable and incurable functional obsolescence is whether the cost to cure results in an incremental increase in value. If it does it is considered curable. An example of curable functional obsolescence would be if renovating a kitchen would result in an increase in the overall value of the house greater than the cost to renovate the kitchen. Most curable functional obsolescence are deficiencies. An example of incurable functional obsolescence (deficiency) would be if the cost to add an additional bathroom exceeds the incremental value it would gain by adding it, especially if there is no space available for the additional bathroom. However, if adding the additional
bathroom generates more value than it costs, then it would be considered a curable functional obsolescence (deficiency). Think of a four-bedroom/one bath house versus a four-bedroom/two bath house as an example. A superadequacy in a house may be an oversized swimming pool or a custom kitchen that is not typical of the neighborhood. The cost to cure would be the cost to remove the existing superadequacy (oversized swimming pool or the custom kitchen) and replacing it with a standard size swimming pool (typical 15’ x 30’) or a non-custom kitchen. Both of these are examples of an incurable functional obsolescence (superadequacy). It would be an extremely rare situation for a superadequacy to be curable—there are none that I know of. It is more likely that the sale of the house with a superadequacy would not generate an amount equal to what it cost. Calculating Functional Obsolescence in Cost Approach Regarding a functional obsolescence deficiency that lacks something, the calculation is the difference between the reproduction cost with the curable item and without it, as of the date of appraisal. Note that this is reproduction cost and not replacement cost. Functional obsolescence is the excess cost of adding the item in question, such as an additional bathroom or the new kitchen, to the existing house compared to what it would have cost at the time of construction. Since it is an added item, only the cost new is utilized. Regarding a functional obsolescence deficiency that requires modernization (kitchen, bathroom or flooring), the cost to cure is based on the same principle as above, with the exception that the depreciated cost of the existing item must be deducted as most likely it will not be salvageable. Regarding a functional obsolescence superadequacy (most likely incurable), if the appraiser calculates the replacement cost in the cost approach, the functional obsolescence is eliminated. In regard
to the oversized swimming pool or a custom kitchen in a neighborhood not needing a custom kitchen, it would be the cost to eliminate or remove the existing item and replace it with an item considered acceptable for the area. But this would be ludicrous because unless the superadequacy causes additional expense (heating an oversized swimming pool for instance), the appraiser would not do any calculation for functional obsolescence—superadequacy. Again, if the appraiser considers replacement cost new of the swimming pool, it would be a typical size pool and not the oversized swimming pool. An alternative approach to measure functional obsolescence would be to apply the rent loss difference between the house with the deficiency (i.e. the monthly rental rate of a four-bedroom/ one bath house versus an acceptable four-bedroom/two bath house), and then apply the gross monthly rent multiplier to this rent loss, attributable specifically to this deficiency. This is also difficult to do but is certainly better than trying to perform a paired sales analysis to compute the functional obsolescence.
How Is Functional Obsolescence Treated in Sales Comparison Approach? FannieMae Form 1004 has line items regarding Design, Quality of construction and Functional utility. An adjustment for any of these line items is difficult to determine. All textbooks lean toward using a paired sales analysis. This is easier said than done. Design is based on the style of the house, such as a onestory versus a two-story or a ranch house versus colonial or Mediterranean. This may be a matter of preference or taste, unless the subject’s design is out of place for the neighborhood. A good example of this would be a two-story house in a predominately one-story neighborhood. Note that quality of construction should not be confused with condition of the page 228
Summer 2013 Working RE 19
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building. A good example of quality of construction is different roofing materials. A house with a slate or cement tile roof would probably be considered superior to an asphalt shingle roof. Sometimes the quality is based on the cost differential between the two materials, but again, in this situation, cost does not equate to a difference in value. Functional utility is probably the best location to place an adjustment for functional obsolescence, but how can it be quantified?
Calculating Functional Obsolescence in Sales Comparison Approach (or do you?) Functional obsolescence as a form of depreciation is not calculated in the sales comparison approach, only in the cost approach. Functional obsolescence is “hidden” in adjustments in the sales comparison approach, such as outdated kitchens, bathrooms, old-style wallpaper and carpeting (remember shag carpets?). Line adjustments made in the sales comparison approach, for design, condition, etc. are, in essence, adjustments for functional obsolescence, but it is not referred to as such in the sales comparison approach. There is no line
item for poor floor plan, superadequacy or deficiency. Even though calculating the functional obsolescence of the subject is plausible, the purpose of the sales comparison approach is to compare the subject with sales of properties similar to it; any difference between the subject and the comparable sales would reflect an adjustment. A comparable sale would reflect the functional obsolescence in its sales price. Other than the obvious—such as too few bathrooms given the number of bedrooms (four-bedroom/one bath house), how would you know if the comparable sale has functional obsolescence unless you either appraised the property or have firsthand knowledge of it? Most likely you wouldn’t. Design, quality of construction and functional utility, which was briefly discussed above as possible functional issues, cannot be determined in the comparable sale unless the appraiser has firsthand knowledge of that property. Any adjustment you intend to make regarding functional obsolescence to the comparables, in comparison to the subject, is almost impossible to support.
Instead of trying to calculate the amount of functional obsolescence in the sales comparison approach, consider going toward the lower end of the range in your adjusted sales price when reconciling and state why you went toward the lower end of the range. One explanation you can give is to recognize that, more than likely, functional obsolescence exists in your subject property which would make the comparable sales superior to the subject, but that quantitative adjustment is difficult to support; therefore, a market value closer to the lower end of the range would be considered appropriate. In conclusion, if your subject property has functional obsolescence, an adjustment for it in the cost approach could be made and supported. But it is difficult and nearly impossible to support an adjustment for functional obsolescence in the sales comparison approach, as the only logical method to use would be the rent loss method. This would require rental comparables for the subject with the functional obsolescence compared to a rental without the functional obsolescence— a near impossibility. WRE
One Simple Step to Avoid Putting Your E&O Coverage in Jeopardy by David Brauner, Senior Broker at OREP
e are hearing from appraisers and inspectors about long delays and frustrations in getting their E&O insurance renewed at other programs as well as steep rate increases. We’ve been able to help many of you over the last few months get the right coverage at the right price. The best way to ensure a smooth renewal process is to shop early. One month ahead of your policy expiration gives you plenty of time to shop and compare quotes so you will not feel pressure to buy something that feels overpriced or run the risk of losing your prior acts because of a lapse. This is especially true if your program is in transition. For appraisers, shopping early means not having to give up orders from vendors/AMCs who want to see the new policy docs ahead of time. Shop early and shop well to avoid stress and give yourself choices. And shop OREP for rates, coverage and service. Call or visit us today to see the difference: OREP.org, email@example.com, (888) 347-5273. WRE 22 Working RE Summer 2013
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Stop Stealing My Services by Bryan Reynolds
Editor’s Note: USPAP instructor Bryan Reynolds offers solid advice on making the best of what can be a difficult situation: dealing with an attorney and going to court.
Remember, when the law and USPAP bump heads— the law wins. If you are court-ordered to appear and testify you certainly are required to do so.
time ago, while teaching in Knoxville, Tenn., and having another sleepless night, I fired up the laptop and was surprised to see an email from a former student with a subject line reflecting an urgent need for help. Here it is. From: Jane Doe Subject: Need help please! Hi Bryan, I desperately need your help. I completed an appraisal for refinancing purposes seven months ago. Now the homeowners are divorcing and the wife wants to use that appraisal in court. In fact, I received a subpoena today demanding my testimony and a copy of the appraisal. I need to know if she can use the report, which was initially intended for mortgage purposes, which identifies the bank as the only intended user. Will I violate USPAP requirements if I go to testify on the appraisal without my client’s knowledge and/or permission? The court date is tomorrow at 10:00 A.M. Can you advise me on this one? Thank you for your time in advance. -Jane Doe (not her real name). (Response) From: Bryan Reynolds [firstname.lastname@example.org] I hate it when attorneys try to steal my services! First, what does the subpoena require? Does it mention your workfile? If it doesn’t, I would not produce it tomorrow at the trial. You must be honest of course. But I would not even look at the file. I can’t
Bryan S. Reynolds is a registered agent with the TN State Board of Equalization, Certified General Real Property Appraiser and an AQB Certified USPAP Instructor. Mr. Reynolds is an approved appraisal instructor in 31 states and is the owner of Reynolds Appraisal Service and a partner in the ad-valorem consulting firm The Bryclan Group, www.thebryclangroup.com. He provides residential and commercial valuation services, and litigation support services. He can be contacted at (270) 929-3088 or by email at email@example.com.
24 Working RE Summer 2013
remember what I had for dinner last night, let alone an appraisal I did seven months ago. As a result, they would probably be receiving a lot of “I don’t know” and “I don’t remember” answers from me. I am certainly not suggesting you become a hostile witness, but if I were you there is no way I would attempt to refresh my memory on this case when they are trying to steal your services. In fact, I may contact opposing council and ask if they would like to hire me. Remember, when the law and USPAP bump heads—the law wins. If you are court-ordered to appear and testify you certainly are required to do so. If you know the answer to the questions, you must answer honestly. However, it’s okay if you don’t remember and that is why I highly recommend you don’t take your workfile or reference it unless you have been ordered to do so. If they ask you about the quality of the other appraiser’s report, I would respond, “I can’t answer that question as I have not conducted a review.” If you answer the question you are performing a review on the spot which must comply with Standard 3 and you must create a workfile. Also keep in mind the attorney may know the law but you are the valuation expert. Don’t be intimidated!
Check Required A few years ago, I received a call from a local attorney (Mr. Smith) asking where they should send the subpoena. I answered, “What did I do now?” They indicated I had appraised a property some years ago and I was needed to testify in an upcoming divorce case. I responded that there is a right way and a wrong way
of doing things. I said, if you can find me to subpoena me and steal my services, I will have to participate and provide truthful answers, but I don’t remember what I had for dinner last night much less what I did two years ago. I will not even look for the workfile (unless it is required). I will probably not get much sleep the night before and may even go out for a couple adult beverages. While I certainly did not suggest that I would be a hostile witness, I did say I was unsure about how effective I might be. I said, on the other hand, if you engage me, I will find the workfile and take the time to refresh my memory. We will have prehearing conferences to discuss my report and I can even review the other witnesses’ report which most likely would assist you with cross examination strategies. I will get plenty of rest and a good breakfast and have my “A” game on. The attorney apologized
immediately and said he didn’t mean to offend: “Of course, of course we will engage you. Some appraisers require a subpoena.” I told attorney Smith, “I don’t require a subpoena, I require a check.”
Stressed Out Many years back a local appraiser called me in a panic. She had received a subpoena and was a nervous wreck. My first question was, “What did it say? Did it instruct you to appear or for you to also bring your appraisal report and workfile?” She said she was only required to show up. I said, great, don’t look at the report and don’t even begin to search for the workfile. She said she already had. After smacking my forehead, I explained to her this was a mistake because now that she had refreshed her memory, she would have to speak on those matters. First advice: never review anything. Then you can answer the tough
questions honestly with, “I don’t remember.” This will make the attorney look foolish when he/she asks if you brought the report or whether you had reviewed your workfile before appearing in court that day. After truthfully answering “no,” the attorney’s follow-up question is likely, why not? You can answer, truthfully, that you didn’t bring it or review it because you weren’t asked to. My next advice to this appraiser was to call opposing council to see if they would like to engage her as their expert. Well, my appraiser friend did neither and stressed about the hearing all the way up to the big day. After sitting in the courtroom for hours, she asked a clerk to see when the case would be heard. After a few minutes the clerk returned only to advise this stressedout appraiser that the case was settled two days before. Apparently, no one had page 268
Summer 2013 Working RE 25
bothered to inform her. It just goes to show what many attorneys think of you.
Duces Tecum Over five years ago, I received a SUBPOENA DUCES TECUM. What the heck is that? It looked very official and came by certified mail. It commanded me to provide some 15 documents to an
attorney with regard to a mortgage company being sued. I went to visit my good friend, George K. Cox, MAI, who, at that time, was probably the most knowledgeable valuation expert around and knew real estate law better than most attorneys. George asked if I was licensed in Indiana, where the case was being held. I was not. He asked if I
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had ever done any work in Indiana. At the time, the answer was no. Finally, George said he didn’t think they had any authority over me. I decided to also get a legal opinion. I spoke to three attorneys who all concurred the subpoena wasn’t worth the paper it was written on. Once again, another legal firm trying to steal my services. The truth is, if I had complied and simply packaged up the file and the requested documents, I may have been in violation of USPAP as it was not a directive of the court but a request of an attorney. After 30 days expired and I didn’t comply, what do you think happened? Did the Sheriff come and place some bracelets on me? No, I received another letter from this law firm indicating that I failed to comply with their commandant. I was in an airport going over my mail when I saw this and called their office. It is probably a good thing their office was closed. I left a “strongly worded” message telling them to cease all contact with me, to stop trying to steal my services, and to never send me another piece of mail, unless of course there is a check in it. Now, I am no attorney and I interpret things from a layman’s position only, so please don’t construe anything you read here as official or an opinion of law, but one day, I told this story in a class and a student, who is an attorney, enlightened us. He said a SUBPOENA DUCES TECUM is issued in lieu of a regular subpoena. If I didn’t comply they could issue a subpoena. Well, if this is the case, couldn’t regular letterhead suffice instead of sending a letter that looked like an official court order? And if the Indiana court had no authority over me and they wouldn’t have been able to enforce it, wasn’t it just a bluff, a trick to try to steal my records? “Good point,” the attorney/student said. WRE
Summer 2013 Working RE 27
How to Report Building Areas Accurately (and avoid measurement mistakes) by Mark S. Langhamer
Editor’s Note: At OREP, we see that incorrect measurements are the cause of many E&O claims. Here are some tips on staying out of trouble.
The whole key to and foundation of an accurate appraisal is the correct calculation of measurements and quantities.
appraisers and review appraisers, some of us have seen fellow appraisers relying on building area size data from leases, the local assessor’s office, property managers, developers, blueprints, etc. The whole key to and foundation of an accurate appraisal is the correct calculation of measurements and quantities. Outlined below are some ways to stay trouble free. Many appraisers rely on building area data as reported by their local assessor’s office to confirm and verify comp data, but too often, appraisers also rely on assessor’s data exclusively to report the Subject’s size. As long as an appraiser is physically at the Subject property, how long does it take to measure the Subject’s improvement? Why take on the liability of relying exclusively on somebody else’s measurements and quantities? Most of the assessor websites have disclaimers indicating that they are not responsible for inaccuracies. Who knows the experience and skill level of the representative(s) from the assessor’s office at measuring the Subject or even the comparable properties? What if the property representative provides the appraiser with blueprints, plans, specifications and/or a survey? What if the property manager, developer or listing agent provides their building area quantities? Should the appraiser still measure the Subject? Let’s review a few scenarios.
Mark Langhamer is a Certified General Real Estate Appraiser, Licensed Managing Real Estate Broker and Construction Estimating & Management Consultant. He can be reached at firstname.lastname@example.org.
28 Working RE Summer 2013
Scenario 1 What happens if the plans illustrate the Subject as a 50,000 square feet building? What if these plans do not include a 25,000 square feet addition that was added to the building after the date the plans were produced? What happens if there was a fire five years ago and a portion of the Subject was razed and never rebuilt? What if the appraiser is appraising a recently built property and the plans provided are not the final revised and approved “as-built” drawings, recorded in the local building department? Maybe there was a size reduction in the building for budgetary purposes. In all of these cases the appraiser could easily conclude an incorrect building size without measuring or at least spot-checking the size of the Subject, which could result in great liability.
Scenario 2 An appraiser is valuing a building where the tenant is paying rent for 10 years. The appraiser’s scope of work directs him to estimate the market value and market rent of the Subject for lease negotiation purposes. The appraiser reviews the lease, which indicates the size of the Subject as 77,000 square feet. The building engineer provides the appraiser with a set of original blueprints, which the appraiser reviews. The appraiser’s final calculations based on the blueprints are approximately 62,000 square feet for the Subject. Another appraisal that is completed a few weeks prior simply uses the 77,000 square feet quantity as reported in the
lease document. Obviously, this report is artificially inflated. The more careful appraiser figures everyone is going to be screaming when they open up his report, so he reduces the blueprints and inserts them into the report, with verified and confirmed field-measured dimensions. This shows all the individual areas that were used to calculate the building area quantities. After submitting the report there are no questions asked by anyone because the calculations and dimensions are provided to support the (careful) appraiser’s conclusions.
Scenario 3 I spoke to a few construction estimators and managers who have estimated thousands of projects from the following plan types: civil, architectural, structural, mechanical and electrical. They admit that the calculations from these documents are not always accurate. Simple items like measuring water and sewer lines are not correct. Architect’s building areas are also incorrect sometimes.
Scenario 4 Appraisers should be cautious when measuring a commercial condominium. A corner unit condominium with outside dimension measurements of 25 feet by 40 feet would equal a gross unit area of 1,000 square feet. The same corner unit with inside dimension measurements of 23 feet by 38 feet would equal a net unit area of 874 square feet, which accounts for a 126-square-feet difference in area. If the Subject’s unit value is $125 per square foot, this could account for a $15,750 or a 14.42 percent difference in value (based on a typical value in this area). Some appraisers may use the interior dimensions because the outside or party walls are considered common area and not part of the unit. Some appraisers may use the exterior dimensions because commercial areas are typically measured through the outside walls.
“A Brief Overview of the New BOMA Measurement Standards for Lawyers” by William B. Tracy, MBA, NCARB (January 20, 2011), recommends the following: “With condos, consider showing both Net & Gross unit areas.” Appraisers should consider providing both the net and gross unit areas of condos in their reports for clarification purposes. Also, consider verifying and confirming the unit’s area measurements and the measurement methodology used for the comparables included in a report. If the Subject is based on net interior measurements and the area of the comparables are based on gross exterior measurements, then this inconsistency in methodology can result in the incorrect application of the sales price per square foot of the comparables, as they relate to the Subject.
Scenario 5 An appraiser is hired to appraise an office condominium unit in a multitenant office condominium building. The lease is based on the developer and listing agent’s gross leasable and net leasable areas. The appraiser mea sures the unit and the common areas and finds the following: the actual net leasable area of the unit and the common core area are actually less than indicated by the developer and listing agent, and the pro-rata share of the common area of the Subject’s unit is incorrect. The cash buyers of the unit are not in the field of real estate but are grateful that the appraiser brought this to their attention, since a lender’s appraisal is not required. If these errors in the building quantities were not brought to the buyers’ attention, the buyers would have paid more than they should have, not only for the initial office condominium purchase but for the monthly assessments as well, which are based on a pro-rate percentage of the Subject’s unit, as it relates to the total area of the units within the condominium office complex building.
Concluding Advice Field measuring and/or verifying dimensions from surveys, plans, blueprints, leases or other documents, indicating building area sizes and dimensions, are extremely important to reduce the liability of appraisers. Buildings are razed, new additions are built, and the skill and experience level of those providing quantities are always in question. Measure or at least spot check dimensions from plans. It is all about providing a quality product for our clients, intended users, and reducing our liability. Provide the client the information and inform him/her of any inconsistencies, then it is up to the client to decide exactly what to do from there. WRE
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Silent Sentries: Understanding Smoke Alarms by Rick Bunzel
Editor’s Note: Most homeowners take smoke and carbon monoxide (CO) alarms for granted but they are important pieces of safety equipment that we as real estate professionals need to be aware of.
ost homeowners take smoke and carbon monoxide (CO) alarms for granted, but they are important pieces of safety equipment that we as real estate professionals need to be aware of. A properly installed and maintained smoke or CO alarm is one of the only things in a home that can alert a family to fire or carbon monoxide 24 hours a day, seven days a week. Whether the occupants are asleep or awake, a working smoke or CO alarm is constantly on alert, sniffing the air for CO, fire and smoke. Unfortunately many smoke or CO alarms are over 10 years old, damaged or missing their batteries. According to the National Fire Protection Association, almost twothirds of home fire deaths result from fires in properties without working smoke alarms. A working smoke alarm significantly increases the occupant’s chances of surviving a deadly home fire. As real estate professionals we can make a difference by calling out old or non-functioning smoke alarms. Smoke alarms were first widely available in the early 1970s, and by the 1990s were required in every bedroom and the hallways of homes in the United States. Out of all the systems in the home, smoke alarms have more oversight than any other. Here is a partial list of agencies or consumer groups that oversee smoke alarms: • U.S. Fire Administration (USFA) • Consumer Products Safety Commission (CPSC) • National Fire Protection Association (NFPA) • National Institute of Standards and Technology (NIST) • Underwriter Labs (UL) Rick Bunzel is the Principle Inspector at Pacific Crest Inspections in Anacortes, WA. He has 38 years’ experience as a firefighter in New Jersey, California, Colorado and Washington State. He is currently a Lieutenant with the Mt. Erie Fire Department. Rick Bunzel can be contacted at PaccrestInspections.com.
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• NEC • National Association of State Fire Marshals • International Residential Code • Most Building Departments
Smoke Alarm Technology The two most common smoke detection technologies are ionization smoke detection and photoelectric smoke detection. Ionization smoke detection is generally more responsive to flaming fires. Ionizationtype smoke alarms have a small amount of radioactive material between two electrically charged plates, which ionizes the air and causes current to flow between the plates. When smoke enters the chamber, it disrupts the flow of ions, thus reducing the flow of current and activating the alarm. Photoelectric smoke detection is generally more responsive to fires that begin with a long period of smoldering (smoldering fires). Photoelectric-type alarms aim a light source into a sensing chamber at an angle away from the sensor. Smoke enters the chamber, reflecting light onto the light sensor, triggering the alarm. It cannot be stated definitively which is more effective because each is better at detecting distinctly different, yet potentially fatal fires. Because no one can predict what type of fire might start in a home, the USFA, NFPA and Underwriter Labs recommend that every residence and place where people sleep be equipped with both ionization AND photoelectric smoke alarms, OR dual sensor smoke alarms, which contain both ionization and photoelectric smoke sensors. AC/DC and interconnected smoke alarms were introduced into the building codes starting in 1989. AC/DC alarms still need their batteries changed on an annual basis but with lithium batteries being approved for use, we are now page 328
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Home Inspectors Closer Look 7page 30
seeing smoke alarms marketed with lifetime batteries. Lithium batteries installed in a smoke alarm will last over 10 years.
outside of bathrooms or within 20 feet of the kitchens to reduce false alarms. In homes with vaulted ceilings the smoke alarm should be installed near the top of the ceiling.
Inspecting Smoke Alarms First and foremost, look at the alarm to judge its age. The NFPA and most manufacturers recommend that any alarm over 10 years old should be replaced. Most alarms start out white/beige in color but as they age, they take on a yellow appearance. If you suspect it’s greater than 10 years old, then it should be replaced. The sensors on smoke alarms are easily contaminated by paint, grease, etc. If the alarm has any paint or grease on the cover I assume the sensors are compromised and I recommend replacement. Most AC/DC alarms have a light that indicates it is operating. I look for the light before I hit the test button. Most “battery only” alarms do not have indicator lights so the only way to know if it’s operational is to hit the test button. Most homes built after 2000 have interconnected smoke alarms. As part of the test, you should hold the test button long enough to trigger all of the other alarms. The current NFPA requirements call for smoke alarms in each bedroom and on each level (including the basement) and in the hallways. Smoke alarms should not be installed directly
32 Summer 2013 Home Inspectors Closer Look
Carbon Monoxide Alarms Carbon monoxide (CO) is odorless, tasteless and invisible, and a leading cause of accidental poisoning deaths in North America—it’s a silent killer. Anything that burns fossil fuels is a potential source of CO. CO can drift in from the outside and sicken the occupants. Cars warming up on a cold day in a garage are a major source of CO. Twenty-five states now have statutes that require carbon monoxide detectors in certain residential buildings. A listing by state can be found at WorkingRE.com (Sidebar, CO State Regulations). In addition, Virginia allows tenants to install carbon monoxide detectors in rental properties if they believe it is necessary to ensure their safety. Texas requires carbon monoxide detectors in certain day-care centers, group day-care homes, and family homes. Connecticut and Maryland require installation of carbon monoxide detectors in schools. In some states the requirement is only if there are fossilfueled devices in the home or an attached garage. Other states, such as Washington, require it regardless.
Inspecting CO Alarms Most states will defer to the manufacturer’s installation instructions but generally CO alarms can be mounted low or high and can be plug-in or battery. They should be installed near the bedrooms in a hallway but away from the bathrooms. You should have one on each level of the home. CO alarms will have a test button and it should alarm when pressed. All CO alarms are dated and should be replaced after five to seven years or according to the manufacturer’s schedule. Generally speaking, if you see an alarm that is older than eight years, it should be replaced.
Are Ionization Smoke Alarms Faulty? Every few years an alarm is sounded that ionization detectors are “bad.” Approximately 98 percent of detectors installed today are ionization. This assertion has been extensively studied and isn’t supported by any of the research on smoke alarms. This issue started back in the ‘90s when there were some smoldering fires that ionization detectors were slow to detect. Texas A&M did a study and identified some scenarios where a photoelectric alarm would go off quickly and an ionization alarm could take as much as 200 percent
longer to sound the alarm. If you look at the single scenario there would be no argument; however, homes are made of many different materials, some that smolder and some that will burn very quickly. In fact, most synthetic materials will burn quickly. The NFPA, CPSC and NIST went back and studied this issue. To paraphrase their results: “different technology ‘alarms’ at different rates, depending on the material burning, but both would alarm and allow occupants time to escape.” The state of Ohio, Maryland, and California State Fire Marshals all formed independent task forces to study this issue and came to a similar conclusion. I have consolidated links to all the reports on my website (www.paccrestinspections. com/smoke alarms.htm). NIST did note that lightweight construction and modern interior furnishing tend to burn faster (which favors the ionization alarm technology) and allow less time for occupants to escape. To ensure the occupants have the greatest amount of time to exit the structure, each home should be equipped with a mix of smoke alarm technology installed to the NFPA specifications. With the costs of smoke alarms dropping it now makes sense to purchase dual sensor detectors. WRE
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Home Inspectors Closer Look
Are You in the “Relationship” Business? By Melissa Dittmann Tracey
Editor’s Note: This story, written for real estate agents, shows small businesspeople—appraisers and inspectors included, how to expand their client base and showcase their skills and services most effectively.
Are you an attractor or a seeker? If you want to make it in
real estate sales, it pays to know the difference. An attractor casts a wide marketing net—using the Internet or direct mail—and then waits for a prospect to bite. A seeker proactively builds and manages a base of friends and acquaintances with an eye toward doing business down the road. The condition of your local housing market dictates which approach will ultimately lead to more sales. Research from the Keller Center at Baylor University shows that in healthy markets, a mix of 60 percent attract-oriented and 40 percent seek-oriented activities delivered the highest lead generation conversions. In weak markets, just the opposite is true. There, a 60–40 emphasis on seek strategies— phone calls, networking, and acquiring referrals—yield more appointments and, ultimately, closed transactions, says Chris Pullig, who conducted the 2008 study of about 1,200 real estate professionals.
from the January/February 2013 issue of REALTOR Magazine by *Reprinted permission of the NATIONAL ASSOCIATION OF REALTORS. Copyright 2013. All rights reserved.
34 Summer 2013 Home Inspectors Closer Look
Pullig’s research demonstrates that in these still-dodgy times for the real estate industry, it’s vitally important to be proactive in your quest for customers. But creating pathways to successful relationships depends on far more than email blasts or depleting your supply of business cards at a cocktail party. “Consumers continue to be more knowledgeable as a result of all of the information they have available to them,” says Pullig. “You need to be able to demonstrate value.” And in this modern age, value is often measured in intangibles, he says. “It comes from forming a solid relationship and by being true, genuine, and honest,” said Pullig. Read on for more enlightening research, as well as great ideas from your peers, on how to build a thriving and sustainable business—one relationship at a time.
Step 1: Building Bonds Every day holds new possibilities for creating connections. When you find people with whom you have something in common, relationships are likely to sprout. They can occur over shared interests—butterfly gardens, Bundt cake recipes, bike riding—or shared friends. “If you and I have someone in common or a common interest, that makes me like you a little more and want to chat more,” says Michelle Tillis Lederman, author of The 11 Laws of Likability (AMACOM, 2012). “When we discover similarities, we form deeper and more lasting connections.” Eventually, those connections may lead to business—but they don’t have to start there. Tip: Turn every interaction into a business-building opportunity. Allen “Al” Rusca, ABR, e-PRO, wears his “Diane Turton, REALTORS®” name badge around town. “That badge opens many doors for me when the inevitable question arises: ‘How’s the real estate market these days?’” says Rusca, a salesperson based in Ocean Grove, N.J. “I’ve gotten business from the local coffee shop, the barber shop, the dry cleaners, the grocery store, the gas station, the doctor’s office, the bank, my church, the local senior center, and more. Being visible and active in the community is the best way to find new business.” Formal networking or referral groups, such as chambers of commerce or BNI, can help you expand your reach too. BNI is an organization with chapters across the country. Only one person per professional specialty joins each chapter. The
reason: pros from different fields network and swap referrals. You can find success through routes that fit your particular interests too. Diana Baylor, a sales associate with RE/MAX Masters in Covina, Calif., builds relationships through the California Women’s Conference and charity events benefiting cancer prevention programs. Tip: Connect deeply via online social networks. If you’re going to spend time on online social networks, do it with a keen understanding of what each network delivers. Pinterest, for example, has been called a “woman’s social network.” The site—which enables you to pin Web content you like to your personal or business page and share it with your Pinterest followers—has an audience that’s more than 82 percent female. Because women are big influencers in home purchase decisions—and “home” is the No. 1 category of “pins” on Pinterest, according to a study by R.J. Metrics—it may be a good play for making meaningful connections with female buyers. (Pinterest recently added the ability to create business pages and created separate terms of service for businesses.) Tip: Strengthen your reputation in an environment where there’s no sales pressure. Bryce Fuller, a broker with Coldwell Banker in Northbrook, Ill., hosts a neighborhood open house each year. It’s a way to meet the neighbors and establish himself as the local expert with a vested interest in home values. Fuller provides each family that attends with a neighborhood market analysis. “The BBQ allows people to approach me, get to know me, and ask questions,” he says. “As they spend more time around me, their comfort level increases. That comfort level and trust coupled with my listing signs and activity in the subdivision is a one-two punch that can’t be beat.”
Boylan, productivity coach at Keller Williams Consultants Realty in Dublin, Ohio, teaches agents for keeping in touch. The program centers on the idea that people need to be exposed to something eight times before they remember it—and that “it” includes you. The forms of contact will differ (for instance, phone, email, postcards, and so on) and should be tailored to that person (such as potential first-time home buyer or seller), Boylan says. The content could include anything from a “thinking of you” card to mortgage information to a market comparison of the person’s neighborhood. WRE _________________________________________________ Find the rest of the story in the Premium Content Area of WorkingRE.com.
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Tip: Have a “wingman” sing your praises. Boasting about your own sales record and accomplishments can come across as arrogant, says Kurt W. Mortensen, author of The Laws of Charisma (AMACOM, 2010). But if you can get others to say it for you, it’s powerful. Getting friends to introduce you to their peers, for example, gives you built-in credibility, Mortensen says. Testimonials on your website or LinkedIn account can be just as powerful. “Written reviews from satisfied customers enable trust to be formed more quickly,” says Michael Davenport, a broker-associate with King Realty Associates LLC in Sarasota, Fla.
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Industry News Scope Creep Relief
What to Redact on Sample Reports
Here is Addendum language shared by appraiser Laurie Richards.
Potential clients often request that appraisers send a sample report to demonstrate their competency and work style. Given that appraisal reports contain confidential information, the question arises – what should the appraiser redact from the appraisal report before forwarding it to potential clients? Judy Lazar, an appraiser from Illinois, advises appraisers to “Redact anything that identifies the client, borrower and address of the property, including the PIN and maps. Be careful if you use a black Sharpie; sometimes you can still see the information if you scan it as a PDF.” To make sure she gets all of the confidential information, Lazar says she searches throughout the document for specific words. “I typically pull up the report I want to use and open it as a new file labeled ‘sample report.’ To make sure I catch it all, I’ll do a search for the borrower name, subject address and client name/address and replace that information with ‘sample report; information redacted,’” Lazar says. Richard Hagar, SRA, says that appraisers must redact “everything that anyone can use to determine the location of the subject property and the client and anything that could be considered ‘confidential information,’ including the cost of construction, depreciation, land value, market value and final value conclusion.” The problem, Hagar points out, is that by the time appraisers redact all of the confidential information, the report becomes unreadable. At that point, anyone receiving the report cannot perform a proper ‘review’ and check the facts. Paul Charron, an appraiser from Massachusetts, says that his company seldom sends sample reports for precisely this reason. “I don’t like to send samples and rarely do. I usually tell them to send me an order and they can see a sample of my work,” says Charron. “But if a sample is absolutely necessary I always have a sample appraisal with my own home as the subject. I update it once a year. If that doesn’t work, forget about them!”
MODIFICATIONS TO A SUBMITTED ORIGINAL REPORT: The client or lender must submit in writing (email is preferred) any request for additional information or modification to the appraiser. This information will be retained in the appraiser’s workfile. The appraiser recognizes that persons who have a relationship with the lender or a financial interest in the property are allowed to request additional information from the appraiser concerning comparable properties in this report. However, additional properties submitted to the appraiser for consideration must be appropriately comparable per the Dodd-Frank law. Report users are cautioned that “sale price” may not make another property appropriately comparable to the subject property. Furthermore, costs paid for renovations, remodeling or maintenance may not totally upwardly influence the market value reported herein. Any modification, revision, or change to a signed and submitted report will be done via a dated and signed Addendum attached to and incorporated in the revised report, or by a dated comment on a form page where space allows. USPAP requires ethical conduct by the appraiser. Modifying an existing report at the request of any User or even by the appraiser, and resubmitting it as if it is the original without explanation, is considered to be unethical. This Addendum (or dated comment) will include verbatim or paraphrased change request information that is given to the appraiser by the Lender, the Client, or any other identified User as noted in the original report, and may include the name and employer of the individual requesting the modification. If the appraiser made an inadvertent error which is discovered after the original report submission, that will be identified and whatever change is necessary will be done. A new signing date will be applied to the revised report. The appraiser reserves the right to review the desired change information submitted by a report User, to report that information per the above Addendum procedure, but to make no other change to the original report if that is considered the correct application. This procedure is in compliance with USPAP Standard 2 to prepare and submit a report that is not misleading, and the Ethics Rule of USPAP. The appraiser is the only person ultimately responsible for the report content, and this appraiser intends to comply with USPAP requirements regardless of Lender, Client or other User communication that may be considered in conflict with USPAP. EXCEPTION TO REPORT MODIFICATION: The appraiser is required to report observed conditions with the property at the time of inspection that have an effect on value, or that are safety, security or salability issues. Those conditions may be described in writing in various places in the report. Photos of those conditions and other photos may be included that can help the client or underwriter understand property conditions and characteristics. Therefore no written information or photos that document those conditions will be removed from the report after the original report is delivered to the client. POTENTIAL ADDITIONAL FEE AFTER REPORT SUBMISSION: Requests for additional information, including but not limited to additional comparables, the cost or income approaches to value when not applicable, reliable, or necessary to form a credible opinion of value etc., or when not included in the Client’s original assignment order, may result in additional fees commensurate with the amount of additional work required to satisfy the request for additional data. More Helpful Boilerplate The level of detail requested is beyond the scope of work required for a summary report. These items would be contained in a self-contained report. If these details are required, please order a self-contained report and the fee will be adjusted accordingly.
Third Party (AMC) Liability Coverage Now Available
Do You Need General Liability Insurance?
Many appraisers have to make a painful choice: sign a third-party indemnification agreement with an AMC that could result in huge liability, or refuse to sign and miss out on the work. Today, many AMCs require all the appraisers who work for them to sign an indemnification agreement (third-party coverage), that places a great deal of liability on appraisers. OREP now has a policy available that can provide contingent appraisal management company coverage as an option. The endorsement option can only be added to certain policies OREP offers, so please ask your OREP agent for details: (888) 347-5273.
Do you need general liability insurance? You just might. Business Owner’s/General Liability Policy has been compared to a homeowner’s policy for your business. Coverage includes but is not limited to Property Damage to others, Bodily Injury, Business Interruption and Loss of Income coverage, Personal Property Coverage (computers, client records, buildings) and employee dishonesty. Inspectors, appraisers and real estate agents/ brokers need this coverage. Minimum premium is $500. Workers Comp also available. Call OREP. org for details and a free quote (888) 347-5273 or email: firstname.lastname@example.org with your request.
36 Working RE Summer 2013
2013 AMC Resource Guide The 2013 AMC Resource Guide has over 200 verified AMCs listed, with the first 50 sending over 90% of the author’s work. Expand your business and find the AMCs that pay fairly and know how to treat an appraiser professionally. Visit WorkingRE.com or email your request to email@example.com.
New Working RE Home Inspector Edition The new Home Inspector edition of Working RE is dedicated to home inspector issues only. Find a link to the PDF magazine at WorkingRE.com.
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“That was a great seminar!!! I learned some new cool ways to save time and be more efficient. Keep up the great training!” —M. Maddox
Appraisal Review and the Law Presenter: Richard Hagar, SRA “I just wanted to let you know I really enjoyed the webinar. It was very informative.” —B. Eastman Ever wonder if the “Review Appraiser” you’re talking to is behaving legally? Knowing the law will help appraisers respond properly against some of these illegal requests. Hagar shows appraisers what they need to know to stay out of trouble, respond appropriately, and protect themselves.
Mobile Appraising: Saving Time and Money Presenter: Dustin Harris, “The Appraiser Coach” “Wow! Wow! Wow! The seminar was very helpful and encouraging in timesaving mobile applications!” —J. Weseman See technology and techniques that can keep your business profitable and competitive. If you think you’ve heard it all before, you haven’t. Dustin does it successfully and enjoys showing others how.
Complaints: What to Do When the State Comes Calling Presenter: Tim Anderson, MAI “That was a great webinar. Very informational!” —Mike Opielowski New Regulations have AMCs and Lenders turning appraisers in to their state boards for alleged violations of USPAP and other applicable laws, sometimes even when the appraiser has done nothing wrong. See how to protect your license and your livelihood if the state ever comes calling. Find more at WorkingRE.com, click Webinars.
Broker/Agent E&O Insurance Coverage, Price and Service: why settle for less? Brokers and Agents looking for Errors and Omissions or General Liability insurance can stop their search with OREP. Serving real estate professionals for over 12 years, OREP offers Brokers/Agents complete Professional Liability coverage along with a variety of incidental coverages in the Minimum Premium, including Open House Coverage, Seller’s Defense Coverage, Regulatory Boar Defense, Lockbox Coverage, Prior Acts, Asbestos, Fungus/ Mold, and Lead Coverage, and much more! General Liability is also available. Minimum Premium $369. Varies by state. Call OREP.org for details and a free quote (888) 347-5273 or email: firstname.lastname@example.org with your request.
Save Time – Go Mobile Mobile Appraising Training Package Visit WorkingRE.com
AMC Recovery Fund to Help Appraisers Kentucky is the first state to create a fund specifically intended to reimburse appraisers who have suffered financial harm by AMCs who have shut their doors. According to Larry Disney, Executive Director of the Kentucky Real Estate Appraisers Board (KREAB), the new recovery fund is fair to all concerned—borrower, lender, appraiser and AMC. The fund is underwritten by an $800 per year surcharge on each AMC registered in the state. It has a cap of $300,000 that will be replenished if funds become depleted. According to Disney, the bill requires the following conditions be met before an appraiser can request past due payment(s): 1. The AMC must cease to be registered in Kentucky either voluntarily or involuntarily; 2. The appraiser must receive a final judgment in a court of competent jurisdiction within the Commonwealth; and 3. No viable alternative for full restitution is available, as determined by the Board. According to Disney, if each of the tests are met, the amount paid to the appraiser shall
equal the actual amount of appraisal fees that are proven to be owed to the appraiser by the AMC, plus all reasonable and appropriate court costs associated with determining the final judgment. The recovery fund does not address instances of an AMC failing to pay for an appraisal that is prepared competently and ethically, in compliance with USPAP, or because of excessive turn time. Those problems are addressed by administrative state regulations set by the Board, Disney says. “It took a lot of consistent and constant work, talking to legislators, making them aware of the federal requirements, the definitions, and other issues that every state agency faces or will face,” Disney says. Find the complete story, first published in the Working RE Online Edition, at WorkingRE.com.
Collection Technique Shelli Jones, an appraiser in Indiana, has been appraising 20 years and says that she has only lost $50 to AMC non-payment issues. “Like many appraisers after HVCC, I ran into payment issues with some notable AMCs who were slow to pay, or simply refused to pay for appraisals that I delivered. I would give them 30 days after I delivered the appraisal to pay and then I would email them notification that a lien would be placed on the homeowner’s property that was appraised,” Jones said. “I also sent notification to the homeowner stating that because their lender hired a company to handle the appraisal and the appraiser fee was not paid, a lien would be placed on their property for the amount of the fee plus any late fees and filing fees. I gave them all 30 days to respond.” Jones says the threat of a lien isn’t always enough to get paid, however. “Several times I actually had to file the lien. I sent a certified letter letting them know that a lien was filed with the county courthouse and that it would not be lifted until my fee was paid, plus an extra 10 percent every 30 days for late fees,” says Jones. In some cases, the person who paid the fee wasn’t even the AMC. “When I would file a property lien, twice the homeowner paid and a few times the lender did. One time only, did the AMC ever pay me,” Jones says. Jones says she feels for the homeowners. “What’s bad is that the homeowners have paid for the appraisal; the lender collects that fee and I think the lender ought to be responsible for whom they hire. The homeowners are usually livid, since they had to pay all those fees to the lender upfront.” Jones explains that in her state of Indiana, it is very simple for an appraiser to file a lien on a property. “You go to the county courthouse and file something similar to a mechanic’s lien. You can actually put a lien on the home. So if it is ever sold or refinanced the lien would have to be settled,” Jones says. Jones’s approach is not an option for all appraisers, as the laws vary by state. “In Indiana, they call them a mechanic’s lien. My appraisal service was performed at the property, so it qualifies,” says Jones.
Summer 2013 Working RE 37
Professional Marketplace 2013 AMC Resource Guide—Author Comments email@example.com (888) 347-5273 David Brauner/David Brauner Insurance Services
Appraisers E&O Insurance: Minimum Premium $501 Rates vary by state. Commercial rates are slightly higher. Please call or visit www. orep.org for more (888-347-5273). Zero deductible available in certain states. Prior acts coverage is provided free for qualified applicants (call for details). Beginning appraisers/trainees qualify. If you would like an application for this program or a quote for a multiple-appraiser firm or for sales/brokering, please call or visit OREP: (888) 347-5273, www.orep.org. Subscription to Working RE magazine included. Financing available.
Appraiser E&O Options • Policies with no FDIC Exclusion and AMC Third Party Coverage Available. • Combine Appraising, RE Sales and Brokering: One low premium covers both appraising/sales & brokering. • Appraisal Firm Coverage: If you are experiencing an increase in rates, a decrease in coverage or new exclusions that seem unreasonable, it pays to shop OREP when your firm’s E&O policy is expiring. Many appraisal firms are surprised to learn how much they can save by shopping OREP. • AMCs: Many appraisal management companies are forming in the wake of HVCC. If you need this coverage, OREP can help. • Retiring: If you are retiring from appraising, ask your insurance agent about purchasing Extended Reporting Period or “tail” coverage. Without it, you are exposed for any liability that may arise from past appraisals. Premiums range from one to one-and-one-half times (100%–160%) your last year’s premium and can provide coverage forever into the future for past appraisals. Each program is unique. Call your agent for details if you are planning to retire.
New 7-Hour USPAP CE Online: Convenient, Affordable Enjoy an OREP/Working RE discount on Mckissock’s new 7-Hour USPAP online continuing education course, approved in most states. Taking this mandatory continuing education coursework is affordable and convenient with this new online course. Learn and earn (CE) on your schedule! Visit WorkingRE.com, then scroll down and click on “Proud Partner of McKissock” Banner (center column).
Working RE Magazine (print) “I want to say thank you as well for all of the important and current information you provide in the magazine. I look forward to reading each issue. There is always something there to learn and use in developing our appraisal business.” —Kent B. “Good Morning: Please re-instate my subscription. I had no idea how important your information on the insurance was. Thank you!” —Clifton Isnana To ensure you receive every issue, subscribe online at WorkingRE.com and save hundreds of dollars on webinars, education, AMC Guide, office supplies, group health (Calif.) and more.
38 Working RE Summer 2013
“Hi, all—The new 2013 AMC Guide is out! I completely updated the entire list—I removed deadbeat AMCs, the ones that never send work, and most of the companies that do not have online applications. I also re-organized the list so the top 50 companies send me the most work. Of these, 99 percent are national, so most likely they have work in your area. The top 10 are MY BEST CLIENTS!” —Bryan The 2013 AMC Resource Guide has over 200 verified AMCs listed, with the first 50 sending over 90% of the author’s work. Expand your business and find the AMCs that pay fairly and know how to treat an appraiser like a professional. You control who you work for instead of the other way around. The 2013 AMC Resource Guide helps increase orders so you can turn down low-fee AMC work, negotiate fees from a position of strength and confidence, and refuse to work for the AMCs that undervalue you with low-fee work and endless streams of unnecessary corrections and stipulations. Visit WorkingRE.com to order or email your request to firstname.lastname@example.org.
OREP Announces New Home Inspector Insurance Program
Complete Home Inspector Coverage: E&O + General Liability Coverage $1,250/$300k Aggregate Limit Home inspectors no longer have to pay more for the complete coverage they need. A new program from OREP includes most coverages in the minimum premium ($1,250), including General Liability. The new insurance program allows inspectors to have complete coverage and save money! David Brauner Insurance Services/ OREP has been servicing the insurance needs of home inspectors for 11 years. Program Highlights • Includes Errors and Omissions (E&O) and General Liability coverage, as well as most incidental coverages, such as termite, radon, and commercial coverage. • “A” Rated Carrier, Prior Acts, Additional Insured for Agents and other Referring Parties. • Convenient Self-Rating Application allows you to choose coverage and pay in minutes. Get back to work fast! • Admitted Carrier, No policy fee, no Surplus Lines taxes, no money down financing available. “Home inspectors who are paying extra for ‘add on’ coverages, or worse, going without the full coverage they need just to save money, don’t need to any longer. Broad coverage is included in the minimum premium, including E&O and general liability,” said David Brauner, Senior Broker at OREP. The minimum insurance premium is $1,250, which provides a coverage limit of $300,000 Aggregate/$100,000 each occurrence for E&O/General Liability. Choice of coverage limits and deductibles are available. Find details pg. 31. Visit OREP.org for more or call toll-free (888) 347-5273. Info@orep.org. David Brauner Calif. Insurance License: #0C89873
Group Health Care—No Application/Limitations for Pre-Existing Conditions California residents qualify for programs offered through Kaiser Permanente, Allied National and United Healthcare. These plans are available to real estate professionals on a guaranteed issue basis. Eligibility is accomplished by being a member/affiliate member of a real estate association/board. Kaiser Permanente offers eleven plans including the new Tax Advantaged Health Savings Account Plans. United Healthcare offers three HMO and four PPO plans, including a Tax Advantaged Health Savings Account. Allied National offers four Limited Benefit PPO Plans that offer highly affordable first dollar coverage including doctor office and emergency room visits and prescription drugs. These plans are available to California residents only through OREP (OREP membership not required). Please visit OREP. org, click Benefits or email email@example.com with medical benefits in the subject.
Professional Marketplace: Insurance, Education, Information and More How to Save on Office Supplies, Telecom and More Corporate Savings is a little-known but significant cost-saving benefit of being an OREP member/paid Working RE subscriber. Members and subscribers who take advantage of the program save money with Office Depot, Staples, Dell, FedEx, UPS, Sprint, travel, and more. OREP/Working RE saves well over $1,000 a year on office supplies alone. Rod Lopez, an appraiser from New Jersey, says that he saved over $100 recently on the discounts at Staples, Office Depot and on approved continuing education from Mckissock. Cynthia Traylor, from House Calls Home Inspections, in California, responded, “YES! We are saving 19% on our Verizon bill and I order all of our office supplies through the discounted Staples portal—they provide overnight, FREE shipping, even on Sunday orders! Lastly, we are considering the Six Flags discount. So, yes, yes, and yes. We are taking advantage and truly enjoying your program. Great job!” If you’re an OREP member, ask about these savings! If you buy your insurance elsewhere, consider a paid subscription to Working RE magazine. Subscription benefits also include corporate savings, discounts on continuing education, webinars and more, in addition to the print magazine. The savings easily pay for the cost of the subscription.
Calypso Approved Continuing Education Calypso is a new and innovative continuing education provider. These online classes include professional-produced video segments, interactive games and exercises, and more! Courses approved in most states. Email firstname.lastname@example.org to receive Discount Code. (Calypsocontinuinged.com or see inside back cover.)
Mortgage Field/Property Preservation Many appraisers and home inspectors are now providing mortgage field and property preservation services for bank-owned properties. OREP has provided E&O and GL insurance to this industry for over 10 years and is a leader in the field. If you’d like a quote, please call (888) 347-5273, or visit OREP.org.
Continuing Education at Cost: OREP Members and Working RE Subscribers “Thank you Isaac—This is a great perk for being a member” —Yvonne Rosenberg (OREP Member) “The class was great and the price was even better. Please let me know if you have any other discounted classes.” —Eric (OREP Member) OREP members and Working RE paid subscribers save on all online and live classes from McKissock. Additionally, the online McKissock course, Essential Elements of Disclosures and Disclaimers (5 hrs. approved continuing education in most states), is available to OREP members/Working RE Subscribers for administrative costs only ($15.64). Total savings on this course alone is over $60! The purpose of the course is to show appraisers how to meet their disclosure obligations, while at the same time protecting them from unintended liability through the use of appropriate disclaimers. How and where must an appraiser disclose prior services provided on the subject property within the prior three years? How should repair items be disclosed in an FHA appraisal report? How should significant real property appraisal assistance be disclosed? How can an appraiser protect himself or herself when there appears to be mold in the basement? Every appraiser will benefit from this course. Subscribe to Working RE today, or purchase your insurance through OREP, and enjoy this and many more discounts and savings! (Visit WorkingRE.com, click Subscribe on left-hand side and purchase a subscription.) Inspectors CE Education at Cost: Online Mckissock course Home Inspection Safety (3 hrs. ASHI, NAHI, NACHI approved and also by 15 states), is available at administrative costs to OREP members and affiliates (ASHI, NAHI, NACHI: $5.74; varies by state). The objectives of the course are to identify protective clothing that should be worn; recognize safety equipment used; understand limitations and exclusions; discuss general safety issues; recognize lead paint, asbestos, etc.; discuss electrical safety; understand heating and air conditioning precautions; recognize unpermitted additions and more. (Visit OREP.org, click Benefits and OREP Education Network. Email info@OREP.org for discount code.) WRE
Thank You! Great Service...Easy, fast, affordable! —Patti Tai, Certified Residential Appraiser
Low E&O Rates, New Policy Servicing Department…and We Answer the Phone! Appraisers E&O Min. Prem. $501 (varies by state) Inspectors E&O Min. Prem. $1,250 (E&O and GL) Real Estate Agents/Brokers Min. Prem. $429 (varies by state) OREP has a new policy servicing department to streamline insurance requests from our clients, including renewals. Simply email your policy-servicing request to email@example.com to get the assistance you need, usually same day. Whether you’re an existing client or someone calling for the first time, you can reach us by phone anytime during business hours (8–5 M–F Pacific Time).
Business by the Golden Rule Our mission at OREP is simple: “Business by the Golden Rule.” It means we treat you the way we want to be treated: with honesty, courtesy and efficiency. This is David Brauner, Senior Broker and Principal of David Brauner Insurance Services/OREP.org. Call us to see what you’re missing if you’re missing great rates, great service and business by the Golden Rule. Yes, with OREP you can have all three. Call toll free today: (888) 347-5273 or visit OREP.org. Policy servicing: firstname.lastname@example.org. OREP publishes Working RE magazine. WRE
OREP now in our 12th year! (L-R) Michael, Kevin, Lori, Isaac, Ashley, David, Carolynn, Clark, Maria, Cary
“WOW! Thank you very much. You are the fastest and most efficient insurance agent I have ever done business with !!!” —Aloha, James
David Brauner Insurance Services: Calif. Lic. #0C89873
Summer 2013 Working RE 39
Better Business: Using the “Conditional Decline” By David M. Burrup
Editor’s Note: One appraiser with considerable experience as an “ordering agent” for lenders—a kind of AMC, has practical advice for fellow appraisers on the effective use of the “conditional decline” to get more high-paying orders.
The number one worst thing for a business is not enough
work. The number two worst thing is too much work: quality and timeliness go down along with customer satisfaction, which all result in a recurrence of problem number one—not enough work. Only now, there are fewer potential customers to turn to for new business. Please use professional communication to avoid problem number two and you will see a corresponding decrease in problem number one; in other words, you won’t have to worry about a lack of work or profitability.
Please do NOT accept an assignment when you know your schedule or order complexity will not allow you to complete it on time. Please do not accept a fee that is less than what the order (and your market) justifies. Please do conditionally decline and respond with an appropriate fee and/or due date and brief explanation. Please do provide an appropriate level of communication—inspection scheduled, inspection completed, and any time the order will potentially be delayed. Following these simple business steps will result in a happy and profitable working relationship between appraiser and client, solving the extremes of either too little or too much work. WRE
Conditional Decline If you receive an offer from an appraisal management company (AMC) that does not seem reasonable or that you know you will not be able to complete by the requested due date, conditionally decline it back to whoever sent it AND explain why. Most of my days are spent helping to locate and assign appraisal orders to appraisers who are almost always in remote, rural areas. The lender I’m doing this for is under typical lender/closing/cost minimization/rate lock time restraints but they also understand that fees and turnaround times (TAT) are higher/longer now than even a few months ago, especially in remote areas with limited appraiser coverage. I believe that most lenders are aware of these issues. When an appraiser just rejects an assignment he/she has lost out on a potential well-paying job. In my particular experience, in roughly 80–90 percent of the instances where an appraiser requests additional time or money, it is approved if they also briefly explain why, and the request is reasonable. For any appraiser, but especially if you are in an area with very few other appraiser options, instead of rejecting an order, reply back with an appropriate fee and/or TAT along with an explanation why, and you’ll likely be very pleasantly surprised to learn that there are many lenders willing to pay a reasonable fee and extend to a reasonable TAT. David M Burrup, a Colorado Licensed Appraiser, appraises residential properties throughout the Colorado Front Range with a particular focus on south metro Denver. Most of his time is spent working as an ordering agent coordinating appraisal assignments in rural areas throughout the U.S. He has over 10 years’ experience in the stock and bond markets with Capital Group, PIMCO and at State Street where he was responsible for managing State Street’s multi-billion dollar subcustodian banking relationships throughout the Americas.
40 Working RE Summer 2013
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ACI is a division of Verisk Analytics (NASDAQ: VRSK), a leading provider of risk assessment solutions to professionals in insurance, health care, mortgage lending, government, risk management, and human resources. Verisk Analytics includes the holdings of Insurance Services Office, Inc. (ISO) and its subsidiaries, which provide essential solutions to the insurance, mortgage lending, and healthcare markets. For more information, visit www.verisk.com.
Published on Aug 1, 2013
Working RE is published to help readers build their businesses, reduce their risk of liability and stay informed on important technology and...