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Spring 2011, Volume 27
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Spring 2011 Volume 27
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From the Publisher Readers Respond
8
Fed Board Update: Customary and Reasonable Fees By David Brauner, WRE Editor
12
Power of Many: State Appraiser Coalitions By Mike Antoniak
16 22 24 30 32 34 36
State Watch: Regulating AMCs By Mike Antoniak
Notes from Busy Appraiser By Diane Blomfelt
Appraiser as Expert Witness By Phil Spool, ASA and Jason W. Holtz, Attorney at Law
Behind Curtain at State Boards by Timothy C. Andersen, MAI
Industry News
Survey
Customary & Reasonable Fees
Professional Marketplace
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Appraiser Reality Absurd, Isn’t it?
Readers Respond
By David Brauner, Editor
D
riving to work early this morning I passed a scene familiar to most of us: a small group of laborers pouring cement for a neighbor’s new driveway. As I noted the contractor driving up in his new F-150 truck, I wondered if the powers that be in Washington D.C. or the American citizens they are elected to serve understand what is happening in this profession and what it means to them. It would be like, overnight, by edict of the Attorney General of a single state, say New York for example, this contractor in San Diego and every other contractor nationwide would be prohibited from working directly with any homeowner for any remodeling, repair, building or construction job. Contractors would no longer be able to interact directly with any home or business owner. This means no more work from referrals, no more direct advertising for clients, no more “regular” clients or repeat business based on past performance and the quality of the job done. From now on, contractors would be required to “bid” for jobs through a handful of large, national construction management companies (CMCs). Homeowners would have to engage these CMCs directly. Costs to homeowners would increase, of course, in some cases by 30 percent or more. Contractors would be offered about half of their “customary” fees for jobs, with the rest remaining in the pockets of the CMCs. Homeowners would not be able to shop contractors to compare fees and would be unaware, because of a lack of transparency in the invoicing, that a substantial portion of the “contractor” fee listed in their billing statement would not be going into materials or skilled labor but to the order-shuffling CMC. Eventually, large corporations that control lumber and other building materials might begin purchasing these CMCs or starting their own subsidiaries, realizing that they could roll into the bids increases for lumber, nails, flooring and so forth. They could add it to the “contractor fees”: the less the contract will take for his/her services, the more room there is to markup everything else. Contractors would be hired for the remodel and construction work by CMCs, based not on past performance or particular expertise but on the lowest bid and quickest completion time estimate. The CMCs would handle billing and the details of the job, though some would be slow to pay. Some might turn out to be fly-by-night and not pay at all. The staff they hire to administer and oversee the jobs would be inexperienced in the building trades, in some cases, causing confusion. Some CMCs would shift the administration duties to off shore personnel. Despite making about half as much, contractors would remain responsible for making sure all building, safety and municipal regulations are met and that other construction details are taken care of, as it is still their licenses that are page 408
4 Working RE Spring 2011
Flip & Zoom
AMCs/Customary and Reasonable Fees WRE has received many hundreds if not thousands of comments from appraisers posted to its surveys and blogs, with many also emailing us directly discussing AMCs, customary and reasonable fees and the state of the industry. These are representative of many. – Editor This AMC is complaining about a fee for a rural appraisal in Creek County outside the Tulsa (OK) Metro area. Before AMCs dominated the Tulsa market, lenders were widely accepting $350 to $425 for this type of appraisal in this area. I know because I did many such appraisals in this market since 1989, before AMCs monopolized the market. AMCs scoff at a $275 fee for an appraisal in this area. Where fees of $350 to $400 were widely accepted, I have been told by AMCs that my greatly discounted fee of $275 is not “competitive.” The fees I am being forced to accept are 25-35 percent of what they were before the AMCs controlled this market, without exception. I have been forced to either lower my fees (that were customary and accepted as reasonable by lenders before the AMCs dominated this market) or face the prospect of being forced out of the appraisal business. HVCC was so concerned about the lender interfering with the appraiser’s objective process of the appraisal. But the AMC “bidding war” practice is becoming just as dangerous to the appraisal industry, in my opinion. I have never seen anything as threatening in the 34 years of my appraisal profession. —Wishes to remain anonymous.
AMC Talkback I don’t think it is possible any longer to do good quality mortgage appraisal work and earn a decent living. I have been an appraiser 25 years and I am completely out of mortgage origination work and glad to let it go. Whenever I get a call from a young person asking about this profession, I advise them to stay away from it. My niece wanted a job in real estate and I wouldn’t even give her my residential business I spent 25 years building. I closed it instead. I would not wish such misery on someone I love. -—GD CRP, SRA Joe, I have been running my own appraisal firm for over 10 years. As most appraisers will agree, we all had our own clients until they started using AMCs like yours. I produce quality reports that I will defend in court if necessary. AMCs are nothing like an “appraisal shop” because I don’t need someone going over my reports with a fine toothed comb and giving me additional stipulations. That is why I am a certified appraiser and not a trainee. If I needed someone to hold my hand, then I would consent to a fee split. Give me back my clients, I’ll get the full fee from them and we’ll call it even. —Posts to the HVCC Talkback Blog are anonymous
Interim Final Rule I plan to write to my congressional representative about the low fees that are more in line with 10 to 15 years ago than what is customary and reasonable in today’s market. This is an issue that was specifically addressed by the law and should not be occurring. I think writing to the federal agencies that are supposed to be handling complaints will result in months of delays. Let your representative help with this. Let’s all make a landslide of letters to Congress about these violations of law and the antitrust monopoly that the AMCs have over the market. —
Customary and Reasonable Fees: Fighting Back I still don’t understand what we do if we receive updates from AMCs, etc. about their new fees and it they are below market. Where do we report them and how? I just received an updated fee schedule from (huge AMC) and it is ridiculously low. They state their new schedule is based on what they have been “customarily” paying over the past year. BS! — Joseph M. Kavanagh, CREA
Editor: See Fed Board, page 32
UAD Am I the only person who finds it ironic that Fannie Mae, while being investigated by the government for its inability to figure out how to do its own work effectively is, once again, going to tell appraisers how to do their work? —James Lett
Non-Permitted Buildings Appraisers must understand that “as is” does not mean “as something else.” The job of appraising becomes something of a crap shoot when they start applying “what ifs.” “What ifs” are by definition departures from fact. —Edd Gillespie
Giving Clients What They Want I am starting to wonder if the line is being crossed by lenders between the Summary Appraisal Report, that the Standard 1004 form is labeled as, and a Complete Appraisal. With all the additional photos, regression analysis (1004MC form), aerial photos required by some lenders, inclusions of research results and various other lender specific requirements, are we not approaching the reporting level of a Complete Appraisal? —Elizabeth G. Roth
Depositions and Court Testimony The story offered some valuable tips when performing expert witness testimony. I am pursuing more of this type of work in order to offset the dwindling mortgage work of recent months. I have been “on the stand” in property settlement cases a couple of times and appreciate the tips that you offer. It certainly is not a pleasant experience the first couple of times due to nervousness, but I was able to work through the testimony due to being well prepared. Thanks again for your help! —Gary J. Hollingsworth
Home Inspector Safety Great advice about letting someone know when you’re alone in a home. I usually try to call the listing agent or buyer’s agent to let them know when I’m starting and when I finish. I’ve always believed that’s important info for the record. However, I think I will be more vigilant in making sure someone always knows when I’m starting and when I expect to be finished. Thanks for sharing. —William A. Zoller, CRI, U.S. Inspect, LLC (Story first published in Working RE News Edition for home inspectors. See page 36.)
Customary and Reasonable Fee Survey Hello, I see you have undertaken a survey of customary and reasonable fees for appraisers. We are looking to integrate survey data into our appraisal management platforms to give our vendors an end to end solution for defining their product offerings. I’d like to setup a meeting with someone from your team to discuss the possibilities (of getting the data). – from an AMC (not willing to be identified)
Editor: Please participate in the survey if you have not—it’s working. WRE
Posts to the HVCC Talkback Blog are anonymous
Winter 2011 Working RE
5
An Appraisal Report So Good You’ll Want To Frame It! REAL ESTATE COLLATERAL VALUATION REPORT
SUMMARY APPRAISAL REPORT Client TerraForma Lending
4811 Kingston Avenue
Borrower James Rogers City Littleton
A d dre s s 4811 Kingston Avenue
City Highlands Ranch
Phone (303) 875-5677
Owner Kim Jones
STCO
Zip 80126
County Douglas
APN 2231-18-2-10-013
R.E. Taxes $ 1,960.41
Property Interest Appraised:
Fee Simple
Tax Year 2008
Other
Highest and Best Use:
SUBJECT
Legal Description LOT 392 HIGHLANDS RANCH # 120C 0.093 AM/L Year Built 1998
Total Rooms 3
Bedrooms 3
Design (Style) 2-Story
Stories 2+B
Baths 3
Car Storage G2
GLA 1680
Basement 464
Site Area 3920
PhotoDate 03/15/2009
Bsmnt Finished
Appraiser Source Pictometry
Comments: The subject property is a typical improvement for the neighborhood. Given the diversity of the Highland's Ranch neighborhood, it represents a newer home within this area.
Location Built-Up Growth
Urban
Suburban
Over 75% Rapid
25-75% Stable
NEIGHBORHOOD
Tr en d s Median List Price
Median Sale Price List to Sale Ratio
Last 3 Mos. 299,900 235,000
Rural Under 25% Slow Property Values Increasing Stable Declining
96.25
Price($000) 185
Low 3
450
High 35
Over Supply
Appraiser’s Opinion of Value. The appraiser’s opinion of value and the effective date of the value are indicated.
Over 6 mths
Sales Prices Listings Price
250,000 10-12 Mos
7-9 Mos
4-6 Mos
0-3 Mos
Neighborhood Description and Market Conditions: The Highlands Ranch neighborhood is located proximate to Highway C-470, between Interstate 25 and Santa
Fe Drive in the southern tier of the Denver Metropolitan area. The neighborhood consists of more than 20,000 housing units and is considered to represent one of the more desirable neighborhoods in the area. Housing stock varies widely in this neighborhood, with home prices ranging from $200,000 to more than $1,000,000. 185,000
Neighborhood Sales Price Range: $ Average Neighborhood Sale Price: $
380,000
to $
450,000
249,576 Indicated Value from Regression: $ 249,574 to $ 249,579 Indicated Value Range from Regression: $ Based on the defined Scope of Work, Statement of Assumptions and Limiting Conditions, and Appraiser's Certification, my opinion of the 12/01/2009 , which is the effective date of this appraisal, is $ 252,500 market value of the subject as of . 0
-2.22 3 Mos -3.33 6 Mos -4.44 9 Mos -5.55 12 Mos
-2
FORECAST
-4 -6 -8 3 Mos
6 Mos
Forecast Source Veros
9 Mos
$ $ $ $
12 Mos
$
Market Value 252,500 Next 3 Months 246894.5 Next 6 Months 244091.75 Next 9 Months 241289 Next 12 Months 238486.25
Comments: The forecast for the suject market is for continued declines.
Date 02/05/2010
Appraisal Sentry (TM)
Signature Date 02/11/2010
Name Sample Appraiser
Company Bradford Technologies Address 302 Piercy Rd City San Jose State License #
CA5778
CA
Zip 95138
Certification # Other #
Identity Authentication. The identity of all CVR Certified appraisers has been authenticated by Appraisal Sentry using “out of pocket” credentials.
12-Month Value Forecast. Using economic data, the value of the collateral is forecasted for 90,180, 270 and 360 days out. A trend chart for a better understanding of the anticipated values is shown.
Appraiser Identity and Data Authentication by
APPRAISER
Value Reconciliation. The value ranges in the market area, the indicated value by regression and the range are shown in one place for easy reconciliation of the overall values in the market area.
Market Area Graphically Illustrated. The market area is graphically illustrated on a map showing the subject and surrounding area.
Neighborhood Boundaries
Age (Yrs)
380 Pred 12 Marketing Time Demand/Supply < 3 Mos Shortage 3-6 mths In Balance
300,000
% Change
Market Trends. The trends for sales and listings for the market area are graphically shown for easy and better interpretation of the activity in the market area.
Neighborhood Name Highlands
VALUATION
Neighborhood Demographics. The standard neighborhood demographic information typically found on a 1004 is also found on the CVR.
Property Photo. The subject photo is on the front page. Makes it easy to view and ensure it’s the correct property being used for collateral.
ST CO Zip
A d d re s s 2445 Septimus Drive Contact Sample Appraiser
Photo Date and Source. The date and source of the photo is indicated to ensure relevancy and reduce fraud.
File No.
Ref No. 00001563
CLIENT
Executive Summary. The Collateral Valuation Report was designed so that the first page presents an executive summary of your market analysis and value conclusion.
Expiration Date 01/01/2011 Inspection:
No Inspection
CVR Executive Summary
State CA Exterior Only
Interior and Exterior
Date
Copyright 2009-2010 AppraisalWorld, Inc. 866-445-8367 All Rights Reserved
Page2 of 12
THE NEW COLLATERAL VALUATION REPORT Produced by appraisers trained in real estate regression analysis Learn how you can profit with this new report.
Call Today 866-455-8367 CompCruncher, AppraisalWorld, CVR are trademarks of Bradford Technologies, Inc.; Other brand and product names are trademrks of their respective owners.
Report Fraud Prevention Using “On Document Verification” technology, this data matrix contains all the pertinent data about the appraiser and the report. This is similar to technology used by the postal service to prevent mail fraud.
Statistically Supported Appraisals. Distinguish Yourself and Profit. Local Market Analysis File No. 4811 Kingston Avenue Ref No. 00001563
NEIGHBORHOOD DESCRIPTION AND TRENDS Property Address
4811 Kingston Avenue
City Highlands Ranch
County Douglas
State CO
A r ea L o c at i o n Map
Zip Code 80126
Nei g h b o r h o o d B o u n d ar y
Area: 14.815 sq miles Sq Miles
Market Area. Graphically defined on a map to visually illustrate the market boundaries and surrounding landmarks.
Regression Analysis File No. 4811 Kingston Avenue Ref No. 00001563
REGRESSION STATISTICS DETAIL Property Address
4811 Kingston Avenue
City Highlands Ranch
County Douglas
State CO
Zip Code 80126
Predicted Values to Actual Sale Prices 340,000
Neighborhood Name Highland Location
Census Tract 0141.18 Suburban
Rural
Built-Up
Over 75%
25-75%
Under 25% south-central Denver Metropolitan area. This planned neighborhood provides excellent
Growth
Rapid
Stable
In Last:
Description:
linkage to employment centers, retail/shopping and other amenities.
Slow
3 Mos.
4-6 Mos.
7-9 Mos.
10-12 Mos.
Total Listings
266
224
112
89
Median List Price
299,900
259,900
239,900
229,900
Total Sales
53
74
36
44
Median Sale Price
235,000
243,000
229,900
265,000
Days on Market
2
6
34
2
Sale Price / SqFt
146.1
145.06
131.26
137.81
Low Sale Price
195,000
193,000
209,500
204,000
High Sale Price
450,000
387,500
385,000
385,000
96.63
94.68
94.55
Absorption Rate
17.67
Months of Supply
4.33
List/Sale Price Ratio
96.25
Supply/Demand
Shortage
Marketing Time 3.0
Sales and Listings Prices
In-Balance
Over-Supply
Months
have remained stable with sales and listings generally in balance.
10-12 Mos
7-9 Mos
4-6 Mos
Total Sales and Listings
Increasing
10-12 Mos
7-9 Mos
4-6 Mos
0-3 Mos
Increasing
40 30 20 10
Stable
Decreasing
2 10-12 Mos 34 7-9 Mos 6 4-6 Mos 2 0-3 Mos
10-12 Mos
7-9 Mos
4-6 Mos
0-3 Mos
Increasing
Stable
Decreasing
94.55 10-12 Mos 94.68 7-9 Mos 96.63 4-6 Mos 96.25 0-3 Mos
0
7-9 Mos
4-6 Mos
-2.22 3 Mos -3.33 6 Mos -4.44 9 Mos -5.55 12 Mos
-2 -4 -6
0-3 Mos
Value Trend Forecast Next 3 Mos -2.22% $ 246894.5 Next 6 Mos -3.33% $ 244091.75 241289 Next 9 Mos -4.44% $ Next 12 Mos -5.55% $ 238486.25
-8
Increasing
Neighborhood Value Trend and Impact on Subject Property:
Decreasing
12-Month Market Trends Sales and listing activity for the last 12 months is graphically displayed.
100
Days on Market (Sales)
NEIGHBORHOOD VALUE TREND
9 Mos
Stable
200
10-12 Mos
% Change
0-3 Mos
12 Mos
Source
Stable
Decreasing
280,000 260,000
240,000
220,000 200,000 180,000 195,048
Components of Value. Appraiser driven regression can identify the components of a property that contribute to its overall value. The value, its significance and whether it is acceptable is indicated in the table.
227,556
260,064
292,572
325,079
Actual Sale Price
357,587
249,576
Indicated Value from Regression: $
Regression Output Statistics R Squared
Total Sales Total Listings
110 100 90 80
6 Mos
Decreasing
Sales Prices Listings Price
Listings to Sales Ratio
3 Mos
Stable
250,000
0
Market Conditions: Given the nature of this neighborhood, market conditions
Increasing
300,000
300,000
Statistical Measure
Total Properties Sold within Boundary 207
The subject is located within the Highlands Ranch neighborhood, in the
Urban
320,000
Predicted Value
Regression Metrics and Scatter Plot. The measure of accuracy is shown in the table. The correlation of actual to predicted sales is illustrated in the scatter plot.
Adjusted R Squared COV COD
Standard Error
41.34%
Model Output
Acceptable
39.48% 6.94% 5.67% 5.16%
Components of Value Component
Most Likely Value
Sale Price
Acceptance of Variable
Accepted Accepted Accepted Accepted Excluded Insufficient Data Accepted Insufficient Data Accepted Accepted Insufficient Data Insufficient Data Accepted
High Medium Low
Medium Medium Low
Top 10 Sales
Ad dr ess
(Most relevant to Subject and Market)
Significance of Variable
$194,659.64 $23.77 $6,344.95 $.7 Excluded Insufficient Data $12.57 Insufficient Data -$1,096.78 $668.6 Insufficient Data Insufficient Data -$135.47
Base Neighborhood Value GLA Total Baths Site Area SF Garage Spaces Carport Basement Area Basement Finished Year Built Fireplaces Pool Spa Sale Date (Monthly)
Confidence
Acceptable Very Good Very Good Very Good
Low
$8.14to$17.00 -$1,314.59to-$4,900.71to$
-$379.28to$108.34
(Most relevant to Subject and Market)
Date of Sal e
GL A
Site Area
Bdrms Baths Distance
10081 MACKAY Dr , 80130 4849 Kingston Ave , 80130
$240,000 $250,000
11/16/2009 09/30/2009
1,677 1,691
5,662 SqFt 3,920 SqFt
3 3
3.00 3.00
0.27 mi 0.03 mi
4916 Waldenwood Dr , 80130 4914 Collingswood Dr , 80130 4851 Collinsville Pl , 80130 10338 Rotherwood Cir , 80130 5559 E Wickerdale Ln , 80130 9882 Aftonwood St , 80126
$252,500 $249,900 $243,000 $273,000 $268,000 $232,300
10/05/2009 08/31/2009 08/24/2009 09/17/2009 08/26/2009 10/15/2009
1,649 1,677 1,708 1,768 1,678 1,513
8,276 SqFt 6,534 SqFt 4,356 SqFt 5,662 SqFt 6,969 SqFt 4,791 SqFt
3 3 3 3 3 3
3.00 3.00 3.00 3.00 3.00 4.00
0.34 mi 0.41 mi 0.11 mi 0.37 mi 0.86 mi 0.39 mi
9689 Adelaide Cir , 80130 10086 Cairns Ct , 80130
$258,000 $279,000
09/29/2009 09/25/2009
$185,417.34to$ $19.92to$27.63 $3,809.84to$ $.20to$1.19
1,678 1,707
5,662 SqFt 6,098 SqFt
3 3
3.00 3.00
0.37 mi 0.11 mi
Evaluation of Data and Analysis
Number of Observations Very Good (228) Data Quality Acceptable
Comparison of Subject to Dataset
Veros
Acceptable
Overall Agreement with Model Output High Overall Agreement with Model Accuracy Acceptable
The forecast for the subject market is for continued declines.
Co m m en t s : There was a sufficiency of sale data to produce an appropriate indication of value from the regression analysis. With 177 sales, this dataset was appropriate and rich enough to provide ample evidence of value. The R squared and Adjusted R squared were both
CVR Neighborhood Summary
Copyright 2009-2010 AppraisalWorld, Inc. 866-445-8367 All Rights Reserved
Page 3 of 12
12-Month Value Forecast Using economic data, the value of properties in the market are forecasted.
adequate for a well-designed model. The measures of dispersion in the COV and COD, in tandem with the Standard Error at 5.16% were
both determined to represent a highly predictive valuation with minor error.
Copyright 2009-2010 AppraisalWorld, Inc. 866-445-8367 All Rights Reserved
Page 4 of 12
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Fed Board Update: Customary and Reasonable Fees by David Brauner, Editor
Editor’s Note: In a story first published in Working RE’s Online News Edition, Federal Reserve Board attorneys shed light on the Customary and Reasonable Fee provision of Dodd-Frank. Survey data may be important.
As
Someone can rebut the presumption(s) of compliance with evidence that a fee is not reasonable or customary for a reason other than a condition addressed in a presumption of compliance.
implementation of Dodd-Frank takes effect, the Federal Reserve Board shed light regarding the implementation of the customary and reasonable fee provision of the legislation. The Federal Reserve Board, tasked with implementing the landmark DoddFrank Financial Reform legislation passed last year, laid out its guidance in the “Interim Final Rule” (IFR) published in October 2010 (find it at WorkingRE. com, Sidebar: Interim Final Rule, 2010). Since then, appraisers have been struggling to understand how the customary and reasonable fee directive will be enforced. Authors of Dodd-Frank clearly and specifically include language guaranteeing “customary and reasonable fees” for appraisers as a vital element for assuring appraisal quality. How this will be accomplished, however, remains murky. To date, appraisers have reported a few instances of appraisal management companies (AMCs) raising fees- for whatever reason. In general, appraisers report a disparity of fees paid- some fairer than others, depending on the AMC and various market factors. Some appraisers say certain AMCs have always paid “fairly,” though what is “fair” is a contentious issue among appraisers. The Board, in the IFR, addresses the customary and reasonable fee directive by providing two distinct presumptions of
David Brauner is Editor of Working RE magazine and Senior Broker at OREP.org, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 49 states (OREP.org). He has covered the appraisal profession for over 20 years. He can be contacted at dbrauner@orep.org or (888) 347-5273. Calif. Insurance Lic. #0C89873.
8 Working RE Spring 2011
compliance, saying that AMCs, lenders and others can meet the customary and reasonable fee standard by satisfying either presumption, without having to meet both. The first presumption outlines “customary,” which seems to mean “recent” or the current fees paid to appraisers by AMCs; the status quo in other words. The second presumption, which outlines “reasonable,” calls for the use of independent fee studies which specifically exclude fees paid by AMCs. So not only do the two presumptions of compliance contradict each other, by making compliance customary or reasonable, but by enabling the status quo, the spirit of Dodd-Frank is missed. This is where we are until recently.
New Light In an interview with WRE just before the April 1 implementation date, a Federal Reserve Board spokesperson indicates that the Board is well aware of the continued controversy surrounding customary and reasonable fees, as evidenced by the feedback they received during the public comment period, which ended December 27, 2010 (to view comments, visit WorkingRE.com, Sidebars: Link to IFR Comments). The spokesperson said the Board is analyzing the comments and that no decisions or changes have been made (Federal Reserve Board policy does not permit staff to be quoted by name). The Board staff attorneys did provide some clarification to WRE which seems to point appraisers toward an appeal process if they feel AMCs are failing to pay customary and reasonable fees.
According to the Board spokesperson, “Someone can rebut the presumption(s) of compliance with evidence that a fee is not reasonable or customary for a reason other than a condition addressed in a presumption of compliance. What evidence supports an allegation depends on the facts and circumstances of a particular case. The rule addresses compensation paid in a particular geographic market.” The appeal process and the hefty fines to be imposed for violating this section of the regulation, may be intended to encourage greater self-regulation by AMCs. (For more on the appeal process and where to direct your complaints, see Fed Board Gives Direction on Challenging Low Fees in Industry News, page 32).
Survey Data One potential source of data that appraisers may be able to use to challenge low fees is the OREP.org/Working RE Customary and Reasonable Fee Survey, which is approaching the 14,000 mark. The survey includes 365 Metropolitan Statistical Areas nationwide plus rural areas for each state; eight products/ services, including reviews and FHA reports, and turnaround times. Pressure for unrealistic turn times remains a sore point for many appraisers who complain that it is hurting appraisal quality. If you have not contributed your fee data, it is not too late. The survey is ongoing. The results are available and free to all (visit WorkingRE.com for results and to take the survey). In addition to fighting for fair fees, it’s good business to know what other appraisers in your area report. The Board spokesperson made it a point to underline the following from the IFR, suggesting that fees currently paid by AMCs are not to be considered customary and reasonable by virtue of their acceptance in the marketplace, regardless of the first presumption of compliance. This notion that current fees satisfy Dodd-Frank by virtue of their acceptance by appraisers
(i.e. customary), is what many AMCs hang their hats on these days when defending low fees. This language from the IFR seems to put that argument in question: “[T]he Board understands that some AMCs have begun requiring fee appraisers to agree that the fee is ‘customary and reasonable’ as a condition of obtaining the appraisal assignment. In these situations, the Board believes that an appraiser’s agreement that a fee is ‘customary and reasonable’ is an unreliable measure of whether the fee in fact meets the statutory standard.”
Authority Transfer The Board spokesperson also points out that under the Truth in Lending Act, enforcement of Dodd-Frank transfers from the Federal Reserve Board back to the Inter Agencies (OCC, FDIC, etc.), who can then offer further changes. The designated date for “transferring authority to implement the Truth in Lending Act and other ‘enumerated consumer laws’ under Title X of the Dodd-Frank Act (see page 1597) currently is July 21, 2011.”
Good Working RE has received several requests from AMCs for nationwide results from the OREP.org /Working RE Customary and Reasonable Fee Survey (results by state can be downloaded free at WorkingRE. com). This Chief Appraiser was not granted permission from corporate to have the company name published but his request says, “I am sending you via email a request for the full nationwide Working RE ‘Reasonable & Customary Fee Survey’ (results). We are a nationwide appraisal provider and have decided to further review and use your data in setting industry fee schedules.” And there’s more evidence fees are rising. Reader Lore DeAstra notes that the new Landsafe fee schedule (March 2011, Washington state) is “a huge improvement” over what they had been paying. “In our area, we were paid $265-$325
depending on the size, location, etc. The new schedule range is $345-$495 and is evidence that the customary and reasonable fees paid by Landsafe have dramatically increased,” DeAstra said. (Find the fee schedule posted at Working RE.com, Sidebar: Landsafe Fee Plan - Wa.) One can only hope this is a trend.
Bad More typical is the back and forth exchange between a reader and the principal of another very large AMC regarding customary and reasonable fees summarized here. This appraiser does not want to risk losing business so has asked to keep all players anonymous. The email correspondence shows this appraiser writing to the AMC indicating that he had received plenty of work for over two years from the AMC but that, “I have noticed that since I have requested more customary and reasonable fees the work has basically stopped. I am a seasoned appraiser and you have never had issues with my reports. I can offer your clients accurate, thorough, realistic valuations. However, for the time and effort that I put into each report, I need to be paid what I typically charge my other clients.” The appraiser goes on to say that they have the results of the OREP/Working RE fee survey and asks, “With the Dodd-Frank Bill in place, do you plan to increase the appraiser’s fees to what is customary and reasonable for the area?” The principal at the AMC, a veteran appraiser, responds, “All of the appraisals were fine and your work was certainly among the best.” And goes on to say that, “We would like to do more business with you but your quoted fees were consistently higher than your competitors.” The fee appraiser who sent WRE the correspondence concludes, “(The AMC) sought me out when they needed coverage in my area. I guess they were willing to pay me more until they found page 108
Spring 2011 Working RE
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others willing to do appraisals for less. After a while I started requiring fees that are closer to my customary and reasonable fees…then the work stopped. This AMC proved to me that fees trump quality. And also that AMCs are trying to convince us that C&R fees are based upon what the appraisers on their panel are accepting under pressure.”
RESPA Violation, Anti-Trust Appraisers continue to note that the fees paid by consumers and identified as “appraisal fees” on closing documents are typically much higher than what they (appraisers) are paid for their services and wonder whether this is a violation of the transparency requirements of the Real Estate Settlement Procedures Act (RESPA). Many, like this appraiser responding (anonymously) to last issue’s WRE, also question whether the control exerted by a handful of very large AMCs crosses the line into anti-trust. “The required use of the AMCs has violated anti-trust laws in my opinion. We can no longer compete based on qualifications, reputation and the quality of our reports. We can only compete based on how low our fee is. It’s bad enough that they are getting away with violating RESPA (HUD $500 appraiser fee— appraiser only receives $250- splitting fees is a violation of RESPA). Preventing appraisal companies from competing is a violation of the anti-trust laws. I wonder what consumers think about paying top dollar for an appraisal and receiving the cheapest appraisal report that the AMC could find?” The Board spokesperson would not comment on either issue. Bill Garber, Director of Government and External Relations, Appraisal Institute, told WRE that Dodd-Frank authorizes the HUD-1 to separate the appraisal management fee from the appraisal fee and that moving forward the HUD-CFPB should do exactly that. Garber said, “HUD’s current interpretation of RESPA requires the AMC fee to 10 Working RE Spring 2011
be listed on the HUD-1, hiding from consumers what is paid to the appraiser. With this, banks have essentially passed through backroom appraisal management operations onto the backs of consumers. We believe HUD’s (current) RESPA policy actually contributes to cramdowns in appraisal fees. Consumers deserve to understand what they are paying for and whether it’s for the actual service or something else, such as loan processing or administrative charges,” Garber said. Over a year ago the appraisal organizations addressed this and other issues important to appraisers in a letter to Shaun Donovan, Secretary U.S. Department of Housing and Urban Development (find the April 2010 letter at WorkingRE.com, Sidebar: Appraiser Organizations’ Letter to HUD). The letter says in part: “We are concerned the current interpretations found in the ‘New RESPA Rule FAQs’ contributes to a significant problem facing real estate appraisal companies and independent real estate appraisers today – forced fee reductions and widespread ‘cramdowns’ in fees to appraisers, by as much as 50 percent. We believe such adverse circumstances are, at least, partially the result of RESPA policy interpretations that mistakenly allow AMC fees to be reported as appraisal fees on Line 804 of the HUD-1 Settlement Statement, instead of their correct grouping as appraisal processing and administrative fees (reported on Block 1 of the Good Faith Estimate and Line 801 of the HUD-1).” The letter, sent by the Appraisal Institute, American Society of Appraisers, American Society of Farm Managers and Rural Appraisers and the National Association of Independent Fee Appraisers, also touches on the anti-trust issue saying, “Adding to the urgency, enactment of the Home Valuation Code of Conduct (HVCC), effectively has caused a sudden and dramatic shift of approximately two-thirds
of the residential appraisal process to AMCs (according to an AMC operator). Historically, appraisal management companies have held a 15-to20% market share. Pressure is mounting daily, and without HUD clarifying the appraisal and appraisal management roles, we fear the soundness of the residential loan origination process may be diminished.” Commenting on the anti-trust issue last year, a Senior Attorney at the Federal Reserve Board told WRE that while anti-trust language is written into Dodd-Frank, it is a very difficult violation to prove. She indicated that this battle may be fought by State Attorney’s General, who have greater enforcement power under Dodd-Frank. “Half Fees” Customary and Reasonable? Many appraisers wonder how the fees they are receiving can be considered customary and reasonable if they are lower, sometimes half, of what consumers are actually paying for “appraisals.” “I recently appraised a condominium (using a 1004 MC) in the greater Seattle area,” said Robert Mossuto. “Several days after submitting this report the condominium owner sent me a copy of the report sent to her from the lender. The lender was kind enough to attach the invoice for the appraisal. The invoice amount was $445. The amount I was paid was $250. My standard fee for condominium 1004 MC is $450. So the AMC received $195 just for processing the appraisal report. It seems to me that if the AMC is charging $445 for a condominium appraisal with 1004 MC, which was all clearly stated on the invoice, then the fair and reasonable fee is $445. That’s the data that should be collected and a fee that should be paid the appraiser.” Mossuto notes that many AMCs he works with do pay close to full fees. The following comment, also sent in response to last issue, is similar to page 408
Power of Many: State Appraiser Coalitions By Mike Antoniak
Editor’s Note: State appraisals coalitions are effective tools for promoting the profession and the professional interests of appraisers.
Trying to catch the ear of your state
“Professionals in the real estate, mortgage and banking industries all understand the value that comes from being organized and in a group and we should too.”
legislators? Consider joining a coalition of like-minded appraisers if your state has one; if none exists, start talking up the idea and get things rolling to launch a statewide coalition. “There’s strength in numbers,” observes residential appraiser Michael Brunson, president of the Coalition of Appraisers in Nevada (CAN) (NVappraisers.org) and partner in BrunsonJiu, LLC, Las Vegas. “Professionals in the real estate, mortgage and banking industries all understand the value that comes from being organized and in a group and we should too.” he says. “It’s the only way to get a seat at the table during the legislative process.” Randy Neff, SRA, Neff Evaluation Group, Peoria, IL, and past-president of the Illinois Coalition of Appraisal Professionals (ICAP) (ICAPweb.com) agrees. “When you talk to your state legislators, they want to know who you represent,” he explains. “When you can say we, as a group, represent appraisers throughout the state, that really gets their attention and they will listen to what you have to say.” In his work with ICAP, Neff advocated launch of the National Coalition of Appraisers (NAC). The intent was to create a national network of state real estate appraisal coalitions and develop a website to serve as a resource for states interested in starting one. “We looked for a way to encourage those
Mike Antoniak is a freelance journalist and author, with special emphasis on real estate, technology and business, based in Dowelltown, TN.
12 Working RE Spring 2011
in other states to get organized, and offer some services that could assist them,” he says. The NAC website (NationalAppraisalCoalition.org) includes a directory of coalitions currently running throughout the country, an invitation to contact the group for advice and links to templates for creating a state coalition website. Jean McCarty, McCarty Appraisals, LLC, Ridgeland, MS, and president of the nascent Mississippi Coalition of Appraisers (MSCapp.org) contacted the group last year while researching startup plans for a collation in her state. She called a meeting in September which drew 20, including several who volunteered their talents to create the coalition. “We came up with our to-do list: formalize the group, write bylaws, get our tax ID and register with the state,” McCarty recalls. When the group officially registered in December 2010, it had 17 dues-paying members. At last count, there were more than 100. Early this year, the group hired a lobbyist, a decision which has helped establish its credibility, and the coalition held its first CE class for appraisers in April. McCarty is currently exploring the feasibility of a state conference and developing a broader program of CE classes. “We’ve come a long way in a very short time,” she says, eager to spread the word throughout the state. “Once appraisers hear our story and see all we are doing on their behalf, paying the $50 in dues to become a member doesn’t seem to be much of a problem.”
State Specific Requirements Although goals and processes can vary by state, a few general principles always apply. “Someone has to take the initiative and leadership to say what the issues are in your state and what you can do about them,” advises Rick Lifferth, Market Data Service, Layton, UT. He helped create the Utah Association of Appraisers (UtahAppraisers-uaa.com) in the early 1990s. It functions as a coalition of Utah’s appraiser associations, promotes the profession and lobbies on behalf of their shared legislative concerns. “People come alive when you bring them together and start talking about the things which concern their careers.” Conversation starters include topics like reasonable fees, education requirements, AMCs and BPOs. “It’s amazing how much you can accomplish just by sitting down together and talking about the issues,” he says. “Even with AMCs, when you start talking about common interests, there’s a lot you can accomplish.” In North Carolina Archibald “Baldy” Williams, owner of Triangle Appraisal and Real Estate School, Wilson, NC, and president of the North Carolina Professional Appraisers Coalition (NCPAC.org), says successfully organizing a group begins with a simple admission. “It’s the realization that if we don’t do something to protect and promote our interests no one else will,” notes Williams. “Nearly all the legislation that affects us is at the state level, so you’ve got to have a state-wide organization.” He estimates NCAP members now number between 600 and 800 with committee members representing all 100 North Carolina counties. “When you represent people across the state, and each of them talks to their local legislator, you can get something done politically,” he notes.
a few at start-up. Nevada’s group began after two appraisers were invited to serve on a task force evaluating the need for BPO legislation, and realized the impact a group could have on the legislative process. Williams says NCAP started when five or six appraisers began getting together and talking about shared concerns. “Once you know there’s interest in a group, you have to determine what your goal is, what you can accomplish and how you can go about it,” he says. “Someone has to be willing to make the sacrifice and put in the time and effort to get things going.” Neff agrees: “The biggest initial challenge can be finding that leadership, someone willing to take the ball, organize and come up with a plan to keep it going.” Early decisions can have long-term impact: issues like non-profit status, whether the group’s primary purpose is to promote the profession or serve as a political action committee, all impact how the group registers and operates. Sources of funding need to be decided. Until the group is formalized someone may need to put up seed money to cover start-up costs on the promise of repayment later. Outreach to appraisers, explaining
the coalition’s purpose and goals is critical at every stage of development. “The challenge in the beginning is the same as it is today, convincing people that if they are going to be a professional appraiser, they should be a member of page 148
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Processes that Work But what does it take to get to that point? Again and again, a similar process plays out. Initially the coalition is nurtured by Spring 2011 Working RE 13
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this group.” says Williams. “You’ve got to energize appraisers to get involved and show them all you’ll be able to do as part of this group,” adds Lifferth. With today’s communications options, that outreach can be easier and have more immediate impact. Don Clark, Clark Realty Services, Virginia Beach, VA has been working with Perry “Pat” Turner, SRPA, SRA, P.E., and others to establish the Virginia Professional Appraiser Coalition now being organized there. The effort was launched with a post on the Virginia section of the AppraisersForum.com. “Someone suggested it would be a good idea to have an appraisers’ coalition in Virginia,” Clark says. “A few of us talked back and forth about the idea online and it just snowballed from there. Appraisers from across the state started expressing interest. An initial exploratory meeting was timed to coincide with the quarterly meeting of the Virginia Appraisal Board in Richmond this past February. It was open to all interested appraisers and promoted by email and personal networking. More than 100 showed up. The only real challenge we’ve faced so
far is that everyone is in a great hurry to get this done but it takes time, effort and some money.” They also invited representatives of NCAP, including Williams, to address the gathering to explain the benefits of a coalition. Attendees named a steering committee to draft a mission statement and bylaws. These were circulated to potential members in April as the next step toward formalizing the group. Once feedback is received, dues will be set, necessary paperwork will be filed, elections held, and the membership drive for a formal coalition will intensify. Dues alone will not carry a group’s efforts. Lifferth, for instance, notes the lobbyist employed by his group runs about $15,000 a year. With or without a lobbyist, there are other costs even in start-up phase. Creating a legal entity entails paperwork and legal fees. “You’ve got to have a website,” advises Brunson, underscoring the importance of another long term operating expense. “It’s the best way to disseminate information about who your group is, what it does and explain why someone might want to become a member.”
In most cases, coalitions look to continuing education programs and conferences as long term income streams. “One of the ways ICAP is funded and growing is through seminars,” notes Neff. “Along with dues, they are important to keep the group going financially.” “It has to be a combination of dues, and something else,” agrees Brunson. “We offer classes that are open to all appraisers, we’re not an educational provider but we look for places where we can fill gaps in continuing education to help members and give them more value from the organization.” Building an effective coalition to benefit the profession poses many challenges, short and long term. Fortunately, that work has been done and proven, giving start-ups many models on which they can build. “I’d advise anyone considering putting together a coalition to get started by contacting a successful organization in one of the states that already has one, and take a look at their bylaws,” says Williams. WRE
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State Watch: Regulating AMCs By Mike Antoniak
W
AMCs were the only entity in the entire real estate valuation process that was not subject to any federal or state oversight.
hen the Home Valuation Code of Conduct (HVCC) became law May 1, 2009 it had unintended but far-reaching consequences for professional appraisers. “The HVCC, and its perceived need for financial institutions to separate the origination and the appraisal ordering function to preserve appraiser independence, resulted in an explosion in the percentage of residential appraisal assignments being outsourced through AMCs,” says Appraisal Institute (AI) President Joseph C. Magdziarz, MAI, SRA. “The AMCs were the only entity in the entire real estate valuation process that was not subject to any federal or state oversight. If an appraiser had an issue with an AMC, they had nowhere to turn.” Appraisers found themselves facing an unregulated adversary which could make unreasonable demands, drive down fees, and undermine their professional reputation. Forced to respond, they banded together, petitioning state legislatures for new laws to protect their careers and consumers from some of the worst practices of AMCs. Early on, the Appraisal Institute provided model legislation on which they could build (Find the AI model legislation at WorkingRE.com. click Sidebars). “Most state legislators have never heard of appraisal management companies,” says Magdziarz. “Our hope was to provide an outline as to what level of regulation was appropriate, what issues needed to be addressed in legislation.... providing model legislation gave appraisers and the AMCs the comfort there would be some level of uniformity from state to state.” To date, the AI model has figured in
Mike Antoniak is a freelance journalist and author, with special emphasis on real estate, technology and business, based in Dowelltown, TN.
16 Working RE Spring 2011
AMC laws adopted by 20 states, according to Magdziarz, with bills pending in 15 more. The Federal Dodd-Frank Act requires all states have such laws on their books within the next five years. “AMCs have become more and more active on state legislative proposals,” points out Magdziarz, “capitalizing on their relationships with banking institutions to enlist the support and assistance of banking industry lobbying organizations. In most states, the bankers’ groups are very strong and very influential with state legislators. While appraisers can support our positions, the influence of the bankers is difficult to overcome.” But as the successes of appraisers in the four states briefly outlined here show, AMC regulation can be achieved through a unified effort, perseverance and an effective lobbying campaign.
Connecticut By early 2009 an independent group of residential appraisers proposed a bill they hoped would stop detrimental AMC practices in Connecticut. As chair of Legislative Affairs for the Connecticut Chapter of AI, Ralph Biondi, Biondi and Rosengrant, Waterbury, CT, was called before legislators to testify about AMCs and appraisers’ concerns. “That first bill had troublesome language and never made it out of committee,” he recalls. “We realized we could do better.” “We” included representatives of the state’s AI chapter and associations representing Realtors and homebuilders. In October 2009, their representatives started work on a new proposal, based on AI’s model. They also scheduled meetings with the chair of the legislature’s Insurance and Real Estate Commission, Attorney General, Real Estate Appraisal Commission and
Department of Consumer Protection. “Part of our job was to explain what AMCs are, and how HVCC changed the dynamics as one of its unintended consequences,” Biondi says. A bill proposal was ready for submission in early 2010. Then, lobbyists for the banking and mortgage industries and AMC trade group TAVMA (Title Appraisal and Vendor Management Association) voiced objections. Over the next three months, stakeholders in the proposal negotiated a final version of a bill acceptable to all. “There was a lot of give and take, back and forth,” says Biondi. “The Appraisal Institute draft gave us a good model.” In April, their proposal was submitted to the Legislative Commissioners Office for a final vetting to ensure consistency with state statutes and finalize language of the bill. Once all involved signed off on that, the bill was approved by the Insurance and Real Estate Committee and passed in both state houses. Gov. M. Jodi Rell signed it in May 2010, effective the following October. “I now have a much better understanding how the legislative process works,” says Biondi. “We would not have succeeded without a professional lobbyist who could deal with the other groups’ lobbyists and work the bill through the process.” He considers the bill, as adopted, a win for appraisers on many fronts. “The issue that did not make it is third party
liability (hold harmless clauses),” he admits. With that, he sees many important gains: staff requirements include the appointment of a compliance manager licensed or certified in at least one state equal to Connecticut’s certified residential status to handle substantive appraisal review and revision; the fee breakdown between appraiser and AMC, which the banks fought, and defining the process for removal of an appraiser from the AMC roster.
Arizona By mid-2009 Arizona appraisers were complaining about AMCs but had nowhere to turn. They learned there were no applicable laws on the books, no regulations to protect their interests. Sue Miller, SRA, Miller Pipher, Inc., Phoenix decided to try and change that. That fall, she asked appraisers to join what would become Coalition of Arizona Appraisers (COAA). “We emailed all the appraisers we could find, inviting them to join a non-profit organization specifically so we could make legislative changes on issues affecting us,” she recalls. Once the group registered with the state and IRS, Miller solicited donations to support the effort. When COAA started work on its AMC legislation, it consulted bills already passed in Nevada, Utah, New Mexico and Washington and the AI model. Members reviewed and revised a first draft before final language
was approved in September 2009. Then, COAA hired a lobbyist to coordinate with the lobbyist for AI’s Phoenix chapter to guide the bill through the legislative process. In December, Senators Jay Tibbshraney and Barbara Leff, and Rep. Michele Reagan, agreed to sponsor the legislation. By then, it also carried endorsements from the Tucson Chapter of AI, Real Estate Appraisers of Southern Arizona, the Phoenix chapter of National Association of Independent Fee Appraisers, and Arizona’s Realtor and mortgage broker associations. As soon as it was introduced in the legislature, representatives of national AMCs LSI and RELS stepped up to protect their interests. “They fought the bill very hard and fought every issue,” says Miller. “They wanted similar rules for all states and fought to water down the bills.” For several months, the sides haggled toward an acceptable bill. Appraisers’ concerns included educating AMC employees about the Uniform Standards of Professional Appraisal Practice; payment in a timely fashion; ensuring reviewers are geographically competent and that appraisers under contract be familiar with the area. COAA conceded one priority, the hold-harmless clauses AMCs want appraisers to sign. Theirs was the last bill read and passed on the final day of the legislative session in April 2010. It required AMCs to start registering that July but regulations they will be subject
Spring 2011 Working RE 17
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to aren’t due until April 2011. “You need a lobbyist with a good track record and reputation who can open all the right doors and get things done,” Miller advises appraisers in states working on AMC legislation. “Have people at the helm of your group or coalition who are good teachers so they can educate lobbyists and legislators about what we do and why this legislation is so important to our profession.” Miller expresses “disappointment” that two items on the appraiser’s want list didn’t make it into the final bill: full disclosure of financial interests or relationships between AMCs and the financial institutions contracting their services and stipulation that appraisers cannot be required to sign third party liability (hold harmless) agreements. Gains include background checks and disclosure of AMC principals; posting of a surety bond as a requirement of registering with the state and full disclosure to consumers of the fee split between appraisers and AMCs. “We now have that they cannot prohibit the appraiser from disclosing our fee in our reports,” she says.
Washington State “We started hearing from appraisers about AMCs the summer after HVCC took effect in May of 2009,” recalls Justin Slack, SRA, president of the Appraiser’s Coalition of Washington (ACOW). “They were calling us, the real estate commission and licensing board with complaints about fees, being asked to sign hold harmless agreements, even requests from AMCs for passwords to their forms software.” That October, representatives of ACOW, its lobbyist, Washington’s Real Estate Appraisal Commission and Department of Financial Institutions, and two AMCs based there— Appraisal Management Services Northwest and American Reports Company— began work on a draft bill. “We wanted the local AMCs involved because we wanted a bill that 18 Working RE Spring 2011
would be acceptable to all parties,” Slack explains. In December, Sen. Steve Conway introduced the bill. Representatives of national AMCs soon suggested a counter bill. In response to ACOW’s 17 page legislation, the AMC’s representatives floated a four-page alternative “completely gutting our bill,” according to Slack. “The legislators told us if we wanted something passed in 2010, we had to work together on a new bill, or they would have to take the time to study the issues. That could mean another two or three years before any bill.” From January through March, representatives of all concerned parties worked toward some consensus. Sticking points included fees— “We had to concede no fee language in the bill,” says Slack and demands that AMCs post a $100,000 surety bond when registering with the state. “The representatives of the national AMCs didn’t understand appraisers were concerned about getting paid by some of the smaller AMCs which had cropped up after HVCC,” he notes. As a compromise, they agreed on a $25,000 bond. “They ended up being good partners to work with, very professional and knowledgeable,” he says. In March, the revised bill was submitted, approved and signed, taking effect July 1, 2011, with mandatory licensing of AMCs beginning Jan 1, 2012. Work on the rules regulating AMCs is currently underway. “In the end this worked out pretty well,” says Slack. “When we first submitted our draft legislation, the AMCs came out with their guns blazing. It’s a perfect example how, through a process of negotiations and trying to work things out, you can achieve something acceptable for all involved. It also showed our appraisers how, through a grass roots effort, and working with an effective lobbyist, we can protect our interests and get things done.” According to Stan Sidor, ACOW president when the legislation passed, its adopted form addresses appraisers’
concerns on several key issues: requiring AMCs to post a bond when registering in Washington; disclosure of appraiser fees in appraisal reports; timely payment and that appraisers cannot be required to sign third party liability agreements. “AMCs (now) have to comply with some of the same USPAP standards as appraisers, such as record-keeping retention standards and use of certified/licensed appraisers who have state geographic and property competence to do reviews,” he says. “Otherwise AMCs are not appraisers and are not otherwise held to USPAP standards; but, they cannot force an appraiser to violate USPAP standards.”
Florida Florida could have been an early leader in regulating AMCs. In January 2009, draft legislation was drawn up and submitted by a coalition representing several state AI chapters, the National Association of Fee Appraisers and the American Society of Appraisers. But, it failed to attract a sponsor. That setback resulted in the better bill introduced by Rep. Matt Hudson and State Sen. Lee Constantine in the legislature’s 2010 session. “We worked to craft a bill focused on protecting the public from some unscrupulous practices, not just protecting appraisers,” says Frank Gregoire, IFA, RAA, and a past chairman of the Florida Real Estate Appraisal Board who helped spearhead the effort. “We started with the Appraisal Institute model legislation and massaged it a bit.” Priorities in Florida included requiring that AMCs abide by the same ethical standards as appraisers; that AMC owners submit to criminal background checks and disclose any prior criminal convictions and that consumers be informed if a company contracting with an AMC has any financial interest in its business. “We were looking for legislation that would guarantee total transparency for all involved,” says Gregoire. While the legislation had merits, it was
the active endorsement of the Florida Realtors Association, and the additional push given by its lobbyist, which proved instrumental in winning passage in the 2010 session. “We would not have been able to get this done without the help of the Florida Realtors,” says Joni Herndon, SRA, Real Property Analysis, Tampa, FL who worked with Gregoire on this campaign. “Once they gave their seal of approval, they allowed their lobbyist to work on our behalf. He knew who we should target, which legislators were appraiser or real estate friendly, who understood HVCC.” That’s not to suggest this bill sailed down Easy Street. Proponents had to first convince sponsors why more regulation was needed, then negotiate an acceptable proposal with those protecting the interests of AMCs. “It was a real battle at times,” says Gregoire. And, an enduring battle: even after the
bill passed both Florida houses in April 2010, opponents continued to lobby for a veto until Gov. Charlie Crist signed the bill last May. “One of the things we had to give up is the effective date agreeing not to implement the bill until July 2011,” says Gregoire. This winter members of the Florida Real Estate Appraisal Board (FREAB) were finalizing regulations the new law requires, including rules to guarantee the security of an appraiser’s signature on appraisal reports. “You have to mount an effort on all fronts,” says Gregoire, outlining the strategy which brought meaningful AMC legislation in Florida. Even then, compromise remains an integral component of the legislative process. Although he relishes the win, Gregoire says he is not entirely pleased with the bill in its adopted form. “If I am disappointed in anything, it’s the fact the legislation is much more complicated than I hoped
for,” he says. “In my opinion, the statute regulating real estate brokers, salespersons and real estate companies provided a workable model, and has been tested. My suggestion was to model the appraisal regulations on that so we did not reinvent the wheel. The FREAB will have a lot of new ground to cover as a result of the law the legislature passed.” Nevertheless, the bill brings real gains for appraisers: “The most significant feature of the Florida bill is that the registrant AMC must, at the time of application, file an irrevocable consent that suits and actions may be commenced against the appraisal management company in any county of the state in which a plaintiff having a cause of action or suit against the company resides,” Gregoire points out. “It’s nice to know that AMCs cannot hide just because they happen to be in another county or state.” WRE
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Real Stories: Q & A with Jeff Putnam Jeff Putnam is a professional appraiser in Niles, Michigan. He switched to TOTAL in 2010 and hasn’t looked back. We spoke with Jeff about his experience transitioning to TOTAL. What made you decide to switch to TOTAL? I had been getting sales calls from your company for probably a couple of years. I was with ACI. My contract was up for renewal with ACI so I called them with the intention of renewing. So I said to the guy, “I’m thinking about doing some checking around.” And what I wanted to hear from him was, “We really appreciate your business and we’d appreciate it if you’d stay with us.” If he would have said that, I had my credit card out and everything and would have renewed. But he said, “go ahead.” So I thought, “Well if you don’t want or appreciate my business or make any effort to keep it, then I will go ahead.” You guys were the first ones who came to mind because you had been calling me. So I called and found out what you had and the price and decided to go ahead and make the switch and give it a try. How was the transition from your last formfilling software over to TOTAL? It was a lot easier than I thought it would be. One of the reasons I hated to change software providers was because I didn’t want to go through that learning period, but we got it downloaded and started trying to work with it. I think I only needed to make one call to your support and, other than that, everything was pretty user-friendly. What do you like best about TOTAL? There are several things. For instance, I like the search function when I open up and get the list. I can search by address, by filename, or owner’s name. The search process is just really easy and simple with TOTAL.
I like the fact that your forms have color on them so it breaks up the monotony of the screen. It’s easier to look at. I like the fact that if I want to print a couple of pages off of the appraisal your software will automatically print it in an 8.5 x 11 format, while on ACI I had to go and convert it to a PDF and then print it to an 8.5 x 11, otherwise it would print it on a legal-sized form. So there were extra steps involved there. The other thing I like is that I don’t have to convert it to a PDF before I send it. With ACI, if I wanted to send something to somebody I had to go in, create a PDF, save it in a folder, then I had to open an e-mail and set it as a PDF attachment. Whereas with your software, you can click deliver and it gives you the options – and one of them is send PDF – so all I have to do is click that and type in the address, so that saves steps. And I like the photo part of it where I can go in and click on a photo and I can reduce the size of the photos. Your software makes it a lot easier to do that. With ACI, everything was just a couple of extra steps. What would you tell appraisers considering TOTAL? I think TOTAL is just far ahead of the ACI product I was using. When I need to go back to the old forms to pull out some appraisals now and then, I don’t even like to go in there. It just seems like it’s so far behind the product that you have. Is there anything else you’d like to add? Every time I’ve had to deal with you guys, everybody’s been really easy to deal with and pleasant so that’s been good too.
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Notes from Busy Appraiser by Diane Blomfelt
I
I work for AMCs predominantly and I have not had a problem receiving my regular fees or turn time.
22 Working RE Spring 2011
was reading the Working RE survey results and have a few thoughts. The story states that many appraisers have gotten out of the profession due to lack of business. I’m curious why they have a lack of business. I’m currently a Certified Residential Appraiser. I’ve been doing appraisal work for 30 years. I started doing assessment work for my township back in the 1970s then moved into appraisal work. I live in a small town 8-15 miles from the commercial-industrial areas in central Wisconsin. I work from home. I started working for AMCs (appraiser management companies) about 15 years ago, along with mortgage brokers. The big banks in the nearby cities hardly ever ordered an appraisal through me because they felt somehow that an appraiser with an office in the city is better. That left mortgage brokers and AMCs for business.
Mortgage Brokers and AMCs I did okay with mortgage brokers but most would try to press for value and try to impress me with how many brokers they had in their office and how busy I would be if I could work with them. I soon discovered that that meant they needed a value to get the deal done. I read a good article advising appraisers to “fire” such mortgage brokers. That made sense to me, since my appraisal fees are not large enough to put my certification in jeopardy. I fired a few. I also worked with excellent mortgage brokers who made sure that they never suggested a value other than the one on the appraisal report. I’m not sure why but I’m currently completing all of those appraisals in the nearby cities that I wasn’t doing before. For most reports, they want you within 20 miles of the subject if it’s residential and 30 miles if it’s rural.
Fees I work for AMCs predominantly and I have not had a problem receiving my regular fees or with turn time. I only use one online referral listing. These AMCs just called me out of the blue. My regular fee for a 1004 interior/exterior report is $350. The FHA report is $365. I refuse to work for less, with the exception of a very good customer and if the client is not willing to pay more. That doesn’t happen often. Most of my work is for Nations Valuations & Streetlinks. I love working with them. Each firm has a very large number of qualified appraisers who review each appraisal. Out of necessity they need to stay on top of any and all changes in requirements on the reports, and of course, the appraisers are the first to find out what they are. I thought after all these years that I had it all figured out but working with the excellent review appraisers at these two firms has taught me a lot. I feel fortunate to be working with them. If I have time I will accept work from others. I do receive calls from other AMCs that have very low fees. I reject these orders and tell them what my fees are. I figure there’s no sense doing this work for no compensation. I’m pretty sure that I’m not on any lender’s “do not call list.” That makes it easy for the AMCs. They know it’s safe to send me the order and that it will not be rejected because of the appraiser. I have been given several assignments that had been completed by another appraiser who was not accepted by the lender. We have plenty of appraisers in the area.
Turn Times My typical turn time is two days after completing the inspection. That’s not page 39 8
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Appraiser as Expert Witness By Phil Spool, ASA and Jason W. Holtz, Attorney at Law
Editorâ&#x20AC;&#x2122;s Note: One area of diversification is forensic appraisal, i.e. providing attorneys expert appraisal advice and testimony for litigation purposes.
While many appraisers are still strug-
gling along doing appraisals for lenders and AMCs, some are branching out into other areas within the appraisal field, such as reviewing appraisals for lenders and appraising for estate purposes and divorces. Notably, one area that has not been widely explored is forensic appraisal, i.e. providing attorneys expert appraisal advice and testimony for litigation purposes. Several types of legal actions focus on the appraised value of property, the credibility of an appraisal and compliance with the Uniform Standards of Professional Appraisal Practice (USPAP), including condemnations, foreclosure related deficiency actions and professional liability claims. This article discusses forensic appraisal and the skills and preparation necessary for effective forensic appraisal practice.
Deficiency Judgments The volume of residential and commercial foreclosures is a recurring topic in print, radio and television journalism. However, there is a related topic that has been largely unreported: deficiency judgment actions. A deficiency judgment is the difference between the amount owed on a mortgage and what the fair market value of the property at the time of foreclosure or short sale. This amount may be strictly the balance of the mortgage but more than likely will include any late fees and attorney fees. Those who are affected are
primarily the borrower (mortgagor) and sometimes the appraiser, if the original appraised value was considered unsupported. Appraisers who have errors and omissions insurance are fortunate to be covered for the financial loss of the lender. But they still need representation. The E&O insurance company typically picks the attorney or law firm to represent them. But many times the attorney or law firm does not have an expert in the appraisal field to act on their behalf representing the accused.
Engagement Letter Prior to seeking assignments with attorneys or banks, consider preparing a generic engagement letter in advance. The engagement letter should spell out your hourly or flat rate and explain what the fee represents (see Doing It Right: Engagement Letters at Working RE.com, Library, Issue 24). Remember, if your assignment is to prepare an appraisal and perhaps testify later, give a quote for the appraisal report and another quote for the expert witness portion. If you prefer, you can prepare a generic engagement letter to present with your qualifications (curriculum vitae or CV). When your client decides to engage your services, you can convert that generic engagement letter and specify your client and other intended users. Make sure that the engagement letter is signed and dated by you and your client. Donâ&#x20AC;&#x2122;t perform services until it is signed and either the original or copy of the engagement letter
Philip G. Spool, ASA, is a State-Certified General Real Estate Appraiser in Florida, appraising since 1973. He is an instructor with Miami Dade College and Vice President and Chairman of real estate programs with the Greater Miami Chapter of the American Society of Appraisers. He can be reached at pgspool@bellsouth.net. Jason W. Holtz is an associate with Kevin F. Jursinski and Associates with eleven years of litigation experience. His practice includes real estate and business litigation including professional liability and administrative actions before the Florida Real Estate Appraisal Board (FREAB) and the Florida Real Estate Commission (FREC). He is a former Senior Attorney for the Florida Real Estate Appraisal Board and the Florida Real Estate Commission. He can be reached JasonH@KFJlaw.com.
24 Working RE Spring 2011
is in your possession. Do not prepare the engagement letter as an email with your electronic signature. If time is of the essence, scan the engagement letter you signed and send it as a PDF to your potential client with the expectation that the client will sign, date and return it as a PDF. Also request either the original or a copy of the engagement letter to be sent back to you in the mail. If a retainer is requested, wait until the retainer is received and deposited into the bank account before starting your work assignment. Your client can either be the plaintiff (lender suing the appraiser) or the defendant (either the E&O insurance company or the appraiser). Find out who will be paying for your expertise. Will it be your client, the E&O insurance company or the appraiser?
Reviews Prior to accepting any appraisal review assignment, read the 2010 USPAP Standards Rule 3 very carefully. Standards Rule 3 was rewritten significantly and reflects the form and content of the other standards. Basically, Standards Rule 3 was divided into two sections: development and reporting requirements. Role as a Review Appraiser: when your client or one of the intended users is the lender, your role will likely be as a review appraiser. As a review appraiser, knowledge of the types of appraisals you plan on reviewing (residential or commercial) is essential along with understanding the different appraisal forms and addendums. As a review appraiser, you are more interested in whether the choice of comparable sales is appropriate. Knowledge of USPAP is essential as you will be using one of the appraisal review forms that ask for comments if each section of the appraisal report was completed properly. Knowledge of Fannie Mae guidelines are preferred but remember they are just guidelines.
Find out what the lender’s guidelines are. While USPAP and Fannie Mae do not require the comparable sales to be within the past three months of the effective date of appraisal and within a certain radius to the subject property, the lender may have their own guidelines. (Many appraisers are of the erroneous belief that Fannie Mae requires the comparable sales be within a one mile radius of the subject property—it does not.) You need to know their guidelines and differentiate between the lender’s requirements and those of USPAP and Fannie Mae. Fees for reviews are usually a set amount and not as generous as those for expert witness work.
Role as Expert Witness There are two situations where an appraiser can be effective as an expert witness. One involves performing an appraisal for the client (eminent domain, estate planning, divorce, mitigation, etc.) and then testifying about the appraisal
you perform. The other is as an expert witness when your client or intended user is either an attorney representing an insurance company in a lawsuit against an appraiser, and you are hired to defend the appraisal report, or just the opposite; you are hired by an attorney representing their client (possibly a lender) in testifying why the appraiser was wrong in his/her value conclusion. In the latter case, your role will be considered as an expert witness testifying on someone else’s appraisal report. As an expert witness, knowledge of all aspects of appraisal theory, USPAP and Fannie Mae guidelines are essential. While the chances of settlement are greater than going to trial, in either case, you have to be prepared and preparation means not only being familiar with the subject property and the comparables but also having the ability to effectively explain your reasoning as to why the appraised value, methods and techniques were correct or wrong, depending on whose side you are on.
Qualifying as Expert Witness There may be times when opposing counsel requests that you be accepted as an expert witness without your having to state your qualifications. You want to make sure that your attorney is allowed to ask you about your background as an expert witness so that the judge knows exactly your qualifications, especially if you are very familiar with appraisal theory and USPAP. Your credibility must be established through your testimony and for that reason it is important to thoroughly state your training, education and work experience. Educating Counsel It is important that you and the attorney or the client’s attorney you are representing have a good understanding of your testimony. Keep in focus the scope of work in your engagement letter. If you are going to testify on a value you concluded or discuss the value page 268
25 Spring 2011 Working RE 25
7page 25
conclusion of the opponent’s expert witness, you have to be self assured and not waiver in your testimony. This is where you and the attorney need to be on the same page. If you are asked to be an advocate for your client, you have to clarify what that means. Being an advocate for your value conclusion is what is expected. Being an advocate for your client, such as hitting a number to make a deal work, is totally wrong and violates USPAP. This has to be spelled out in the very beginning of your relationship with your client and attorney.
Educating Judge and Jury When you are testifying on the witness stand, it is your responsibility to make sure that the jury (jury trial) and/or judge (bench trial) have a general understanding of what you are trying to get across to them. Remember, they are not fellow appraisers and you cannot talk over their heads. Try to explain the appraisal process, the three typical approaches to value, which one(s) you select and why and which one(s) you believe are not reliable indicators of value. If your property has functional or external obsolescence, don’t lose them in understanding what you are trying to say. Keep it simple yet come across as believable and an expert in your field.
Preparing Your Attorney with Questions Whether your attorney is going to depose the opposing side’s expert witness or you are going to be on the witness stand, it is important that you help your attorney by preparing questions. You can be of tremendous help to the attorney, especially if they are not familiar with appraisal terminology, by preparing questions to ask the opposing counsel’s appraiser or questions to ask you as the appraiser expert witness. Some of the questions your attorney should ask the opposing counsel’s appraiser (the appraiser either defending his/her appraisal or as the expert witness for the opposing 26 Working RE Spring 2011
counsel), include but are not limited to their qualifications, any complaints filed against them, how long they have been a certified appraiser and number of appraisals performed in the immediate neighborhood of the appraisal in question (geographic competency). It is critical to understand your attorney’s case theory and strategy in order to help the attorney in preparing questions for your expert testimony on the witness stand. While it is assumed that any testimony you give will be truthful, an expert witness should focus his or her responses on the themes that develop the overall legal theory, and consistently highlight these concepts. In order to do this effectively, the appraiser must have a thorough understanding of the case’s theme. A forensic appraiser should also practice both direct and cross examination in advance of trial or deposition testimony. This will enable the appraiser to testify simply, directly and confidently and will enhance the credibility of the evidence making the appraiser a more compelling witness. Without adequate preparation, a skilled cross examining attorney will identify equivocations and inconsistencies and focus on these weaknesses to undermine the expert’s opinion. It is important to understand that the hallmark of an expert witness is the ability to testify to an opinion regarding a specific subject. Therefore, the credibility of that opinion is paramount to the effectiveness of the expert. Furthermore, expert witnesses cannot bolster their opinions through the use of books or other collateral resources. The weight that a judge or jury gives an expert’s testimony must be established through the testimony itself. For this reason, confidence and consistency are indispensable qualities of an expert. As a last point regarding credibility, every case has a weakness and an expert appraiser must acknowledge these weaknesses with candor and then articulate the accuracy of their opinion in spite of the issue. One of the easiest ways to discredit any witness,
including an expert, is to make them appear unreasonable or not credible for failing to acknowledge a clear point. Discuss the basis for your opinions and conclusions and make reference to the specific data and analysis that helped form your opinion. Be certain to address the points that were identified as significant in your pre-testimony preparation. Your attorney/client wants to create a factual record from which to argue, so respond to the questions in a way that highlights your opinion and develops the case strategy. If at all possible, avoid responding to your attorney/client’s question by saying, “I don’t understand your question.” This will make it appear that the attorney’s case lacks clarity and credibility. Instead, if you do not understand a question, respond as best as possible, and say, “Does this completely answer your question?” This will open the door for follow up if any is required. The most important tool is preparation. A shared understanding of the appraiser’s professional conclusion and the attorney’s case theory will create persuasive testimony and a successful presentation of the evidence. This will make every court appearance as professional and effective as possible, and maximize the contribution of the forensic appraiser. In conclusion, your role as an expert witness is very important and can also be financially beneficial. Consider contacting local attorney organizations to see if you can speak to their group on the role of the appraiser as an expert witness. Bring USAP with you and occasionally hold it up to them, indicating that this is the appraiser’s guidelines that we must abide by. Have business cards ready to hand out. Also contemplate joining a business group that refers business to its members. You might want to consider contacting forensic accountants so that you can be of service to them. There are many ways to get your foot in the door but it won’t happen until you take the first step. WRE
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Behind Curtain at State Boards by Timothy C. Andersen, MAI
Editor’s Note: What you don’t know about how state boards handle enforcement issues may surprise you. Appraiser Tim Andersen, MAI takes you behind the curtain.
Like most real estate appraisal boards,
Florida’s Board publishes an annual summary of the cases it finalizes against its appraisers. Florida’s Real Estate Appraisal Board (FREAB) does not intend these summaries to be lengthy analyses of “what went wrong” or something law students might study for insight. They are merely summaries of the charges the state brings against appraisers, why they bring them and the outcomes, as the state’s sunshine law requires. The website is public record, listing names, dates, certification numbers and so forth, as is common in most states (find link at WorkingRE.com; Sidebars: FREAB Annual Summary). We have included summaries here with appraiser names redacted. What is important is not the respondents’ names but the charges laid against them, as well as the charges that are not. This issue is important to all appraisers no matter where they live.
Guilty until Proven Innocent It is interesting to note that to violate a state’s appraiser certification law is not a crime, per se. It is not illegal, either, which means it is not “breaking the law.” It is unlawful, however, which means to do something in a manner the law does not authorize. Since violation of a state’s appraiser certification law is not a crime, the protection of our Federal Constitution—“innocent until proven guilty,” does not apply. When the state sends a letter it informs you that you are guilty of a violation of Uniform Standards of Professional Practice (USPAP) and/or state law. There are no hearings, no trial, no judge, no jury. You are guilty. You can defend yourself and the state may even drop some of the charges. However, you are guilty 30 Working RE Spring 2011
of something for no other reason than the state says you are.
Failure to Exercise Reasonable Diligence In the state of Florida, an omnibus charge leveled no matter what an appraiser does or fails to do, is that he or she “failed to exercise reasonable diligence” in performing that appraisal. Most states have a similar omnibus charge. It is also interesting to note the state of Florida does not, in its appraisal statute (FS 475, part 2) nor in its administrative code (FAC 61J1), define, explain, or elaborate on what the exercise of reasonable diligence means, how the state applies it, when the state may choose to apply it or what constitutes such a failure. Despite this lack of elaboration, the state of Florida chooses to level this charge frequently. Inspection of the 2010 Disciplinary Activity Report shows that of the 144 disciplinary actions listed, 96 (67 percent) specifically contain this charge. It is equally interesting to note that any of an appraiser’s omissions or commissions can result in this tacked on charge. Consider Case #20080608591 (names redacted). Here, the state charges the appraiser with violation of the Departure Rule, as well as with “failure to exercise reasonable diligence,” whereby one charge becomes two. In Case #2009017685, the respondent’s workfile failed to contain “[the] documentation to support the adjustments and conclusions in the Sales Comparison and Cost Approach sections of the report,” which is by definition also a “failure to exercise reasonable diligence.” Again, one violation becomes two by an action no more complex that the stroke of a pen. In Case #2008047867, “failure to exercise
reasonable diligence” includes a misstatement of the subject’s zoning (as if merely misstating the zoning was not enough, in and of itself, to justify a charge). Case #2009007431 illustrates the problem of charging an appraiser with “failure to exercise reasonable diligence”; the charge reads: “Respondent failed to reconcile the sales contract price of the Subject property with the opinion of value in the report. Respondent also had the incorrect depreciation amounts in [sic] the Cost Approach section of the report. Respondent’s work file [sic] lacked documentation to support the adjustments made in the Sales Comparison approach section of the report. Violation: guilty of having failed to exercise reasonable diligence in developing an appraisal report”; two charges become three. What is interesting is the state’s using “failure to exercise reasonable diligence” to convert an appraiser’s benign action, which is not a violation of statute or the USPAP, into a malignant violation. For example, USPAP does not require the appraiser to “reconcile the sales contract price…with the opinion of value in the report” as the charge states. SR1-6, the reconciliation standard, puts reconciliation in the context of “data available and analyzed within the approaches used” and “the applicability of the approaches, methods and techniques used.” Clearly, if there is a sales contract, the appraiser should analyze it and explain why the
final value opinion and the contract price vary (if they do). Nevertheless, USPAP does not specifically mention such reconciliation nor does Florida state statute. Yet with this added charge applied, the appraiser’s failure to take a step USPAP does not even require, this “violation,” is elevated to the same level as a violation of USPAP’s Ethics Rule. Inspection of the other cases the state closed in 2010 show that Florida equates “failure to exercise reasonable diligence” with numerous other violations, in addition to those this essay treats specifically. These additions are as diverse as improperly maintaining a workfile and/or failure to have within the workfile documentation of the derivation of adjustments2. The state also includes under this tent, the failure to include and/or calculate depreciation properly, as well as failure to reconcile discrepancies in data. This tent even includes a charge that the appraiser certified he completed the appraisal in compliance with USPAP, even though the state concluded this was not true. By contrast, were there any 2010 cases in which the appraiser did not “[fail] to exercise reasonable diligence”? In Case #2008052576, the charges against the appraiser state, “in June 2007, Respondent (name redacted) appraised a property in Apopka…relying exclusively on the developer’s sales office for data on the Subject Property [sic] and one Comparable Sale [sic], misstated the sales price for that Comparable Sale [sic] and failed to maintain in the workfile a fully executed copy of the sales contract for the Subject Property [sic].” Despite these omissions and commissions that prima facie seem as egregious as the others (supra), the state did not charge the appraiser with “failure to exercise reasonable diligence” in the preparation of that appraisal and report. Therefore, if an appraiser were to conclude that the state is not consistent in its charges and judgments, that conclusion would be difficult to refute from the data in the record. The state, as you might guess, is under no legal obligation to charge and judge equitably.
Implications If the state of Florida is a bellwether, and in matters such as these it usually is, it looks as if the states may be willing to negotiate away X-percent of the original set of charges against an appraiser but that the umbrella charge of “failure to exercise reasonable diligence” or something similar remains, even if there is only one substantive charge. While this term is clearly as ambiguous as the term “moral turpitude,” this is not enough to extinguish its use against appraisers by the states. What is at stake? When an E&O provider sees that an appraiser has been charged with “failure to exercise reasonable diligence,” red flags will go up and in some cases so will the appraiser’s E&O premium, even though the failure may have been a single one of a minor nature, requiring but a small state penalty. Also, if states do not uniformly apply the “failure to exercise reasonable diligence” charge, it leaves appraisers wondering under what circumstances failure to maintain a workfile properly is “failure to exercise reasonable diligence” and when such an omission is not. The appraiser has the burden of understanding his or her state statutes and administrative codes relative to real estate appraisal, their limitations on appraisers and how and when those limitations apply. Failure to understand the law will not protect appraisers from it. Enforcement Across States A common complaint is that USPAP is not enforced uniformly by the states. According to a recent story in Working RE (see industry News, TAF, page 32), the Appraisal Foundations (TAF) has the uniform enforcement of USPAP by the states on its priority list. The problem, however, is that each state is sovereign in the creation and enforcement of its laws, so the complaint of unequal enforcement is both true and irrelevant. While it is the appraiser’s job to conform him/herself to the law of the state(s) granting certification, it is not the job
of the states to conform themselves to what other states are doing. The following is a true story: an appraiser certified in both states X and Y recently shared an anecdote about the lack of uniform enforcement between the two states in which he works. State X charged him with various violations and applied a sanction. Since most states have, as part of their certification law, verbiage that discipline in one state can trigger discipline in another state as well, this appraiser told the authorities in state Y of the sanction by state X. The authorities in state Y asked him to send in the charges, etc. from state X. He complied knowing full well that it could result in his being sanctioned in state Y also. After looking at the case, the certification officials in state Y told this appraiser that not only were they not charging him with any violation, but that their state would never have even opened a file given the evidence. So what got him charged and sanctioned in one state was innocuous to another. Another case (details in author’s possession) shows a western state sanctioning a residential appraiser for violation of the COMPETENCY RULE. In the offending appraisal report the appraiser disclosed s/he was “not a home inspector and only performed [sic] a visual inspection of the site and this appraisal cannot be relied upon to disclose conditions and or defects in the property.” This is a common disclosure many appraisers use daily so their clients and intended report users more completely understand the scope of what an appraiser does and cannot do as part of an appraisal. A Stipulation and Consent Order is a document where both parties involved (state and respondent) agree to all the material and statements in the order and which binds them both to its stipulations and conditions. The Order in this case states that the “[r]espondent [also] failed to disclose this lack of competency prior to acceptance of the assignment.” In other words, in this western state, an page 398
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Industry News Uniform Appraisal Dataset (UAD) Free webinars Most know by now that, in a “quest to improve loan quality through more robust and uniform data,” Fannie Mae and Freddie Mac are introducing a new “language” called the Uniform Appraisal Dataset (UAD). The GSE’s are providing specific and mandatory guidance on how to fill out the 1004, 2055, 1073 and 1075 forms. The FHA and VA have signed on as well. There will be specific rules and verbiage required for the various fields in the forms. Unless the date is pushed back, as of September 1, 2011, all appraisers must complete the appropriate appraisal forms as required by the UAD. December 1, 2011 is the date by which lenders must collect the new Uniform Loan Delivery Dataset (ULDD) data points required for the first phase of implementation, as well as the UAD standardized appraisal data for new loan applications. There is much information available to help appraisers get up to speed, including two free webinars from Fannie and Freddie that have gotten good reviews (please visit WorkingRE. com, Sidebar: Fannie and Freddie Webinars). Most software vendors are in the process of integrating the changes. McKissock Education also has a course (online and onsite) which you can enjoy at a discount through OREP.org called Introduction to the Uniform Appraisal Dataset. For the discount: WorkingRE.com (sidebars/Introduction to Uniform Appraisal Dataset) or OREP.org (click Benefits, OREP Education Network and look for the course name in your state).
FHA Roster: Check your Name FHA expert Lore DeAstra suggests that FHA appraisers check their name on the FHA Roster occasionally to avoid being dropped inadvertently. “HUD has been making system updates and the lack of your birthday or other information may temporarily remove your name from the list,” DeAstra says. DeAstra is author of the FHA Checklist, Checklist Instructions and eBook (inside back cover). FHA Resource Center: info@ fhaoutreach.com. (800) 225-5342. To receive DeAstra’s free monthly FHA Update via email, opt in to the free Working RE News/Special Edition email list: subscription@workingre.com.
Fed Board Gives Direction on Challenging Low Fees Attorneys at the Federal Reserve Board point to where and how to challenge low fees (under Customary and Reasonable Requirement of DoddFrank). According to Federal Reserve Board attorneys, Section 312(c) of Dodd-Frank, lays out which agencies regulate which types of transactions- this is the “where” to properly file complaints. Example: ‘‘(1) the Office of the Comptroller of the Currency, in the case of— ‘‘(A) any national banking association; ‘‘(B) any Federal branch or agency of a foreign bank; and ‘‘(C) any Federal savings association.
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Section 1100 (A)(8) of Dodd-Frank sheds light on the authority under which provisions of the Act are enforced. Once you determine the appropriate agency (i.e. the Comptroller of the Currency (OCC), Federal Deposit Insurance Agency (FDIC), or Board of Governors of the Federal Reserve System), the agency website should have a place to file complaints. Several appraisers have indicated they received prompt and helpful responses to complaints filed by email or phone in the last week or so. It remains to be seen whether the complaint mechanism laid out in the Law will serve its purpose or be just another bureaucratic black hole. Find the complete story including the Dodd-Frank verbiage and links to the pages where complaints can be filed in the Working RE News Edition story: More “How to” Challenging Low Fees under the section: “Didn’t Make it to Print” at WorkingRE.com. You can opt in to the free Working RE News Edition as well and not miss anything! (Delivered via email every other week.)
Next C&R Fees Battlefield: State Attorney Generals? According to Appraiser News Online, published by the Appraisal Institute, in an April 22 letter, the Appraisal Institute joined the American Society of Farm Managers and Rural Appraisers in offering its services to the Presidential Initiative Working Group of the National Association of Attorneys General and the newly created Consumer Financial Protection Bureau. In the letter, the appraisal organizations praised the statement of principles signed by state attorneys general and CFPB as a “critical advancement for consumer protection, as well as sound implementation of the consumer mandates found in the Dodd-Frank Act” and pledged to assist with the accomplishing the goals of the joint statement. The letter also addressed two specific areas the appraisal organizations can be of assistance. They highlighted implementation of Section 1475 in the Dodd-Frank Act, which authorizes separate consumer disclosure of fees paid for administrative services provided by appraisal management companies and actual services provided by appraisers. They also noted correctly implementing the provisions related to appraiser independence and the payment of customary and reasonable fees, which became effective April 1. The appraisal organizations are working to ensure the implementation of the provision as Congress intended in the Dodd-Frank Act. The letter is available at WorkingRE.com; Sidebar: Consumer Financial Protection Bureau.
Challenging Low Fees Blog Information Exchange To help appraisers through the customary and reasonable fee appeal process, OREP.org/Working RE has established the Challenging Low Fees Blog as a place to exchange information and help galvanize change. It is where trailblazers can
share what they learn about the new processes and efforts at reform. Here is a post from late April (press time): “I will be meeting with Congressman Mike Fitzpatrick in approximately three weeks to ask for his support in stopping Banks and AMCs from stealing our appraisal fees and to make sure the consumer gets what they are paying for. The Congressman is on the Financial Services Committee. It is my belief that this is the final showdown for our profession and I am not giving up on something I worked so hard to build the past 20+ years. Therefore I am personally taking action. Nothing will be Sugar Coated in this meeting. You can help me?” Visit appraisertalkback.com (under Categories, top left, click “Challenging Low Fees”).
Appraiser Rater To provide an information exchange on working with AMCs, OREP.org/Working RE has established the Appraiser Rater Blog. There are no shortages of “do not work with this company,” such as the following: “Boy, are you right! I had to chase them for months for a check. We have friends that had to chase them for 120 days for $3,000+. They are supposed to be run by an ‘ethical’ appraiser but I think not! I did an appraisal for them, busted by rear to get it in in their turn time and then I got an email back saying they had cancelled it and utilized one of the appraisers in the area that does most of their work. I never got a cancellation email. So, I was out two day’s work and $375. Nice!” Learn what you need to know about working with AMCs at the Appraiser Rater Blog appraisertalkback.com (under Categories, top left, click “Appraiser Rater”).
Customary and Reasonable Fee Survey 14,000 You can join 14,000 appraisers by participating in the Working RE/OREP.org Customary and Reasonable Fee Survey. Results are available now. To learn what appraisers in your area consider customary and reasonable fees (CRFs) for a variety of reports, including FHA appraisals, visit WorkingRE.com; click Survey Results (top center column). This Customary and Reasonable Fee Survey includes 365 Metropolitan Statistical Areas nationwide plus rural areas for each state; eight products/services, including reviews and FHA reports. You will also find turnaround times surveyed, which is unique to this report. It’s good business to know what other appraisers in your area are reporting. This report is free. The survey is ongoing and will be updated regularly, so it’s not too late to participate if you have not. Survey data are important for higher fees for several reasons. One goal of the survey is to support appraisers when negotiating fees with appraisal management companies (AMCs), lenders and others. Fees paid by AMCs are fluid and negotiable. Knowledge is power and greater data is harder to dismiss. A number of AMCs have contacted Working RE requesting nationwide survey results in an effort
We're on Twitter! http://twitter.com/workingremag to set fair fees. The hope is that these survey results, considered with others, will help establish baseline fees for appraisers to which they can hold fast, add a premium for their perceived expertise and experience or discount as business dictates. Appraisers are also using the survey data. The following is from a press release by the Arizona Association of Real Estate Appraisers (AAREA): “It has been determined through a survey conducted by the largest Arizona based appraiser association, the Arizona Association of Real Estate Appraisers (AAREA), that the Arizona customary and reasonable fee for the basic residential appraisal report used for lending purposes ranges from $350 to $375. This fee applies to the basic residential report for a single family home and does not apply to complex properties, FHA reports, VA reports, or other report forms or assignments. This fee is also supported by various national surveys that have been conducted since the passage of the Dodd-Frank financial reform act which includes the survey published in Working RE in January of 2011.” Read more at WorkingRE.com; Sidebar: AAREA press release. The survey also stands as a record of non-AMC fees for use in resolving the issue of Customary and Reasonable Fees under Dodd-Frank. See Fed Board Update: Customary and Reasonable, page 8 for more.
Customary and Reasonable Fee Petition www.petitiononline.com/CnR2011/petition.html (Case sensitive.)
Catch up with Working RE’s Online News Edition If you aren’t subscribed to WRE Online Edition you missed the following stories. You can read them at WorkingRE.com (top left), click Working RE Online Story Digest. • C&R Fees: Winds of Change? The winds of change may be shifting with respect to customary and reasonable fees for appraisers. Here’s why. • More “How to” Challenging Low Fees: Learn more on how to challenge low fees. • Challenging Low Fees: Attorneys at the Federal Reserve Board point to where and how to challenge low fees. • Customary Fees: Good, Bad and Uncertain: With implementation of Dodd-Frank and customary and reasonable fees, there is good, bad and some still uncertain news to report. • Appraising Outside the Banks: Public Projects: The goal is to help appraisers stay in business, broaden their client base and expand their expertise. And, says author and appraiser Sue Hoell, to help meet the current and anticipated demand for competent appraisers for public projects in rural areas, small towns and urban areas. • Your Future: Appraisal Foundation Raising the Bar: John Brenan of the Appraisal Foundation discussed plans to raise the bar a bit higher for appraisers.
• Insurance: Insight and Advice from the Inside: In this interview, Senior Insurance Broker David Brauner (OREP.org) provides insight and advice from the inside on rates, claims, disciplinary actions, coverage and more. Learn what you don’t know about insurance.
About Working RE Online WRE Online reaches over 62,000 appraisers twice a month and 16,000 home inspectors once a month. If you’re not reading it, you’re only getting half the story. You can opt in to either edition at WorkingRE. com or email subscription@workingre.com with “appraiser” or “inspector” in the subject and not miss anything! Special Offer Editions: In addition to timely industry information, in the past few months, you could have gotten updates on FHA appraising from resident expert and author Lore DeAstra, learned about a la mode’s UAD update, Bradford’s CompCruncher- bringing the power of regression analysis to the appraiser’s desktop, ACI’s integration with S.M.A.R.T.™ (Statistical Market Analysis in Real Time)- enabling ACI appraisers to interact with local MLS data to better identify and report on activity in the local market, APEX’s Sketch version 5, the latest from the Appraisal Institute and the American Society of Appraisers, and the McKissock online course Essential Elements of Disclosures and Disclaimers offered at cost ($15.64).
Not Smart: Canceling E&O Insurance/Giving Up Priors Acts to Save Money If you are considering letting your errors and omissions (E&O) insurance policy lapse (not renewing or canceling) to cut expenses or thinking about switching to a company that does not provide “prior acts” coverage for your past appraisals just to save money, you should think again. Appraisers are being sued in record numbers today- even the careful ones. Appraisers are taking fire from all sides: lenders who have had to take back properties are in some cases coming after appraisers for inflating values. Homeowners upside down in their properties are suing, claiming they never would have purchased had they known the true value. Others, trying to refinance or sell, are suing and filing complaints with their state appraisal boards charging appraisers with incompetence for “coming in too low.” In some states anyone can dash off a complaint using an online form in minutes with little thought or evidence. Many complaints and legal suits we see these days are ill-conceived, emotional responses to the dramatic loss in equity many homeowners are suffering. No matter the merit, appraisers have to spend time and resources defending themselves- even if they did nothing wrong. As most claims involving appraisers take several years to surface, letting your Claims Made insurance policy lapse, cancelling midterm or willingly giving up your prior acts coverage to save a
few dollars, even a few hundred dollars, could be very costly indeed should a claim arise from the past and you have no coverage. For a typical appraiser, it might boil down to 50 cents per appraisal to protect one year’s worth of work. If you have two years of prior acts, it’s twenty-five cents per appraisal to cover those years and so forth. Call your insurance agent to find out what is really at stake. For more on E&O insurance issues, see Insurance: Insight and Advice from the Inside, an interview with OREP.org Senior Broker David Brauner, who has been point of sale for appraiser E&O insurance for 20 years. Find it online at WorkingRE.com; Didn’t Make it to Print.
FHA Appraising Made Easier, More Efficient FHA work is booming. Here’s an opportunity to make your FHA reports easier and more efficient. The FHA Appraiser Inspection Checklist, Checklist Instructions and eBook is designed to get you up to speed and more efficient at FHA appraising. The Checklist serves as a field guide for completing your reports. The Instructions explain how to complete the two-page checklist line by line. The eBook saves you time and money by summarizing and organizing the material you need to know. Author/appraiser Lore DeAstra says, “We reviewed more than 450 pages of HUD materials and spoke with several HUD officials to compile the FHA Appraiser Inspection Form, course materials, and eBook. It will save you time and money.” The guide was recently updated with the following: Formatting updates for improved ease of use: more concise information in an easy-to-follow eBook searchable by topic; web links to topics for easy access; symbols and pictures included by topic for at-a-glance comprehension to FHA Checklist; FAQ from appraisers and lenders by topic with detailed index by page; over 10 new ways to access information and contact FHA to check competencies and get help fast! (Updates are provided free for one year after purchase.) For more, see the inside back cover or go to WorkingRE.com and click FHA Checklist, Instructions and eBook (top left column). The latest update includes answers to the following topics: What should you take pictures of if you suspect Hydrogen Sulfide Gas?; What’s important regarding Conditional Commitments?; Economic life vs. Effective Age?; Fannie Mae Form 2055? “Differentiating yourself from others improves your business and marketing efforts,” says author Lore DeAstra. “These revised materials will help you obtain additional avenues of income pertaining to your FHA expertise now and into the future.” (See the inside back cover for more.) WRE
More at WorkingRE.com
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Professional Marketplace
$1,000,000 / $2,000,000
$650.00
$500,000 / $1,000,000
$573.00
The course provides an overview of the UMDP and specific information on the requirements of the UAD. The reasons behind the creation of UMDP are explored, and the benefits to appraisers are enumerated. Key terms will be defined, including the many acronyms that are associated with the UMDP. General information about the UAD will be addressed, including its implementation date, types of loans that require UAD compliance, report form types included in the initiative, and USPAP obligations related to intended users and report content. Finally, the specific requirements of UAD are addressed in depth, with reference to specific Fannie Mae and Freddie Mac publications and guidance. Examples of compliant and non-compliant language in reports will be provided. The course is offered at a discount to OREP insureds and others at OREP.org (Click Benefits and follow link to Mckissock/OREP website for description, signup an discount or email info@orep.org with UAD in subject.)
$300,000 / $600,000
$501.00
Continuing Education at Cost
info@orep.org (888) 347-5273 David Brauner/David Brauner Insurance Services
Appraisers minimum premium: $501 (certain states)
Individual Appraiser E&O Rates Per Claim/Annual Aggregate
Most States
Please Note: 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. A standard deductible of $500 per claim/$1,000 aggregate is included with each policy. 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 • Combine Appraising, RE Sales and Brokering: One low premium covers both appraising/sales & Brokering. Firm coverage including all appraisers/ agents: $429–$600 (most states). • 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 firms are switching to OREP. 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.
Uniform Appraisal Dataset Coursework at a Discount McKissock Education has created a continuing education course on the UAD, called Introduction to the Uniform Appraisal Dataset, for both online and onsite delivery.
49 hours of CE Required for Appraiser Licensing
“The class was great and the price was even better. Please let me know if you have any other discounted classes.” Thanks, Eric Appraisers and Agents: Online McKissock course, Essential Elements of Disclosures and Disclaimers ($79/5 hrs. approved continuing education in most states), is available to OREP Members/Affiliates for administrative costs ($15.64). The purpose of the course is to provide appraisers with the tools 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? This course provides the essential elements of disclosures and disclaimers in appraisal reports. Every appraiser will benefit from this course. (Visit OREP.org/benefits.asp and click on OREP Education Network) Inspectors: Online Mckissock course Home Inspection Safety ($45/3 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). See page 36 for more information from the course inspector/author by Peter Hawley. 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 un-permitted additions and more. (Visit OREP.org/benefits.asp and click on OREP Education Network or email info@orep.org.)
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 8 years and is a leader in the field. If you’d like a quote, please call or visit OREP.org, (888) 347-5273.
Continuing Education Bundled Packages 3 Convenient (online) 3 Group discount through OREP/Mckissock 3 Open to all appraisers, agents and inspectors in 49 states For course information, visit OREP.org (click Benefits, Education) info@orep.org
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Professional Marketplace: Insurance, Education, Information and More. Happy Birthday Working RE and OREP.org Working RE and OREP.org now in our 10th year. Thank you for your business.
FHA Appraising Quiz: What Do You Know? 1. What is FHA’s primary program for rehabilitation and repairs of singlefamily properties? 2. If you are a home inspector, how can you use your skills to become an FHA consultant? 3. Which section allows a homeowner to borrow against the equity in their property that has limited outstanding debt? 4. What is the purpose of declining urban areas? 5. How do you appraise foreclosures for HUD? 6. What should you take pictures of if you suspect Hydrogen Sulfide Gas? 7. What’s important regarding Conditional Commitments? The FHA Inspection Course, Checklist and eManual provides the answers and much more. (For answers, go to WorkingRE.com and click FHA Quiz or scan the following bar code with your smart phone.)
Inspectors: $1,250 Covers One or Multiple Inspectors New Streamlined Application “Thank you very much for your very efficient and professional service. I can not believe how quickly you put this together. It has been a pleasure working with you.” —Joel Kunkel, Home Star Inspection Services If you haven’t shopped OREP, chances are you are paying too much for E&O insurance. The policy is offered by an “A” Rated carrier and covers all inspectors in your company, including independent contractors. Save money and time with OREP! Coverage Includes: Additional Insured Endorsement for Agents and other referring parties, termite and radon coverage, coverage for commercial inspections, pool, septic and new construction/code compliance! Includes coverage for energy auditing. Financing is available. Prior acts for qualified applicants; low-cost Premises Liability and General Liability are available. Before you write your check for E&O this year, you owe it to yourself to shop OREP. Join the hundreds of inspectors
who have switched to OREP. Call or visit for details and a quote: (888) 347-5273 or www.orep.org. Agent David Brauner, Calif. Insurance Lic. #0C89873. Texas Inspectors Special Program: Minimum Premium $975. Call OREP for details (888) 347-5273.
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/Benefits or email info@orep.org with medical benefits in the subject. A qualified agent will call to go over the options.
2011 Appraisal Management Company Resource Guide Updated Guide authored by an appraiser for appraisers and marketed through Working RE/OREP.org. Over 300 Verified AMCs. First 40 listed send 90% of the author’s work. National management companies. Verified companies that send orders. The author personally verifies and signs up to each company listed and calls to verify immediate need for appraisers. Vendor specific errors to avoid are listed so you make fewer mistakes from the beginning and get more repeat orders. Author emails customers with new companies when added. Top techniques to generate more revenue included. Appraiser Marketing Guide included: Guide lays out all the details on how to get signed up with the appraisal management companies and information on creating top ranking websites. Order the guide today and receive a free search engine optimized website built by internet marketing specialists. For more and to order, see WorkingRE.com, top left column (click: AMC Resource Guide) or email subscription@workingre.com with AMC guide info in the body or subject. WRE
Low E&O Rates, New Policy Servicing Department…and Yes, We Still Answer the Phone! (just press 2) Appraisers E&O Min. Prem. $501 (varies by state) Inspectors E&O Min. Prem. $1,250 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 info@orep.org 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). If you get an automated greeting, simply press “2” to speak to one of our 10 agents/staff. The new system speeds up policy-servicing requests.
Business by the Golden Rule Our mission at OREP is pretty 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: info@orep.org. OREP publishes Working RE magazine. WRE
OREP now in our 10th year! back: (L-R) Kevin, Ashley, David, Clark, Michael front: Lori, Maria, Mary, Carolynn, Cary, Chantel
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Spring 2011 Working RE 35
Home Inspectors Closer Look
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Home Inspection—Staying Safe Out There Editor’s Note: Inspector Peter Hawley reminds us how important safety concerns are. Reprinted from WorkingRE Online News Edition.
A few years ago, in my hometown, I was surprised to learn
that a home inspector friend of mine had died. It was shocking and surprising because he was a fairly young man and still in good health. When I asked what he passed away from, I was expecting an answer like a car accident or an unexpected and sudden health issue. Imagine my amazement when I was told he died on the job as a home inspector because of a failure to maintain routine safety measures. This particular incident motivated me to be more careful and to examine the practices and routines that I had settled into so comfortably. I learned that one of the reasons my friend died was very preventable. He had gone to a vacant home to do an inspection where the agent and client were not present. For most of us, this is an ideal situation but he forgot one simple rule: nobody knew where he was. Nobody knew what time he was going to be there. Nobody knew what time he was expected to be finished. Because no one knew where he was, when he injured himself, and I say injured, not killed himself, nobody was there to help. My friend slipped and fell through a garage ceiling while inspecting the attic and crashed onto the concrete garage floor. During the fall he struck his head and fell unconscious. He was still very much alive and probably would have survived if he had gotten help quickly. Unfortunately, no help was coming because no one knew he was injured. He lay on the floor of the garage for an estimated four to five hours until somebody finally came looking for him and discovered his lifeless body on the floor of the garage. This brings me to my most important safety point; always make sure somebody knows where you are and what time you will return. Better yet, have someone with you whenever possible. This can be your agent or client, the seller or simply your spouse waiting in the car for you. Make sure you answer your phone when being checked on. This is just one example of how a simple safety measure can save your life.
Author and inspector Peter Hawley is a graduate of the Professional Association of Building Inspectors (PABI) Training Institute with over 145 credited hours of residential inspection procedures and technical training. He is a Licensed General Inspector in Nevada and has 20 years’ experience in residential maintenance, remodel and repair, 18 years’ experience as a residential contractor and 15 years of hydraulic leak detection. Hawley is a member of the National Association of Home Inspectors (NAHI) with a Certified Real Estate Inspector designation (CRI).
36 Spring 2011 Home Inspectors Closer Look
I know some people think that this is taking safety to an extreme but a death like this makes you realize that what is considered a mostly safe job can pose serious risks, and that to stay safe, certain procedures must be observed. We are always in an unfamiliar environment and sometimes that environment is hostile, particularly when the seller learns you are not there for their benefit or if we are forced to enter a place where our safety is in question.
What is “Safe?” I live and work in a state that provides licensing and guidelines for home inspectors (Nevada). This is a wonderful thing even though I cringe each time I have to renew my license. The guidelines very clearly state what is considered dangerous and that we are not required to put ourselves into dangerous situations. In addition to these guidelines, however, the state includes into the licensing codes the concept that the final decision as to whether something is dangerous or not is up to the inspector. This statement allows discretion by the inspector on site based on each individual situation. This concept is in the NAHI, ASHI and NACHI Standards of Practice and that of other organizations. I encourage all inspectors to keep this idea in the back of their minds when considering a potentially dangerous situation. The basic rule for safety is: never place yourself in any situation that will compromise your ability to continue working at the same level you are currently.
Hook and Ladder As home inspectors we are constantly on ladders: do you inspect your ladder on a regular basis? Most of us make sure the ladder functions correctly when we buy it but how many of us check to make sure all the parts are still where they need to be and working correctly? How many of us make sure the ladder is rated for what we do and is considered stable? When you are climbing the ladder, do you make sure it is on solid ground and angled properly to support your weight without slipping?
It’s Electric We are also inside electrical boxes with current that could easily kill or severely disable us. We must recognize the fact that many homeowners think they are electricians and modify the main electrical panel and wiring with alarming regularity.
Most of the time, these modifications are far from proper; add another unknown that we are forced to deal with. A simple check for electricity in the metal casing will prevent a shocking surprise. This check should be done on any metal disconnect or panel before you touch it. Another idea may be as simple as the screwdriver you use: is it rated for electrical work? Yes, they are more expensive but I promise you they are well worth it. How about gloves? We are all in such a hurry to finish that many of us don’t want the hassle of gloves. And every one of us has opened an electrical box while standing in a puddle of water from the previous night’s rain or sprinklers that just shut off. Having come from a family of electricians, I have seen many minor jobs have major consequences. There will always be a small element of the unknown in what we do and where we are expected to go and inspect. We climb over, move through, check behind and look under many things we take for granted. In our own home, we know what to expect but we are not in our own home and we do not have the comfort of knowing what is in that dark, dank space. Remember the last time you opened a cabinet door and a rat/mouse/spider surprised you and you jumped back to avoid it? Gloves would have provided at least a small amount of protection if you had been attacked by that critter. In addition, if you had simply positioned yourself to be able to move quickly if necessary, by taking notice of any objects in your immediate vicinity, you could avoid the possibility of injuring yourself by striking something in the room if you are forced to move suddenly.
be worn: remember all the nails that construction crews put in but do not remove when they miss the truss member when installing roofing material? How about the roof? How casual have you become because it is “just another roof”? I guess I should consider myself lucky because I have a fear of heights and therefore am very careful on all roofs. Again, we are in unfamiliar territory, this area is exposed to all the elements of weather and rarely checked on. Walk softly and carefully, be aware where the truss or framing members are and place most of your weight directly on the framing member. If the roof is soft, proceed very carefully and don’t walk where you feel it may not be able to support twice your full weight. Other considerations should be observed also. What is the pitch of the roof and is it safe for you to be on it? What is the weather? Is that aspect going to change the conditions enough to prevent me from doing my job safely? Can I obtain the same results from doing my inspections though binoculars or second story windows and other vantage points at the roof’s edge? If you get the same results, why endanger yourself and your livelihood? One of my favorites is when I enter a home and the first thing I’m asked is to remove my shoes. I always politely decline page 388
Crawlspaces I know little critters are a favorite of all of us who have to enter crawlspaces (not). I always save that task for last because I really don’t enjoy it and of all the places in a home, I think the crawlspace has the most potential for injury. There are so many situations that can occur in a crawlspace that you can be sure I am not going to be able to address them all. My favorite crawlspace story deals with my own unpreparedness. I entered a crawlspace and was at the far end from the opening when the battery in my flashlight died. I did not have a backup and had to crawl in pitch black darkness to the area where I thought the opening was. I was under that house for over an hour trying to get out. You can bet that now I carry a second light source at all times. In addition to the second light, proper attire is also essential: long-sleeved shirt, long pants, boots and even some sort of head protection. This can be accomplished by purchasing jumpsuits for use during the crawlspace inspection.
Attic Now we can address the other end of the home, the attic. Most of the same things that apply to a crawlspace apply to an attic. And yes even some sort of head protection should Spring 2011 Home Inspectors Closer Look 37
Home Inspectors Closer Look
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informing them it is against company policy. I am sure you are asking why decline such an innocent and harmless request, since many of us do this in our own homes. Again, I must remind you that you are in unfamiliar territory. You do not know the condition of the floor or any objects you will be standing on. One inspector in my company stepped on a nail that was protruding from a floorboard and spent the rest of the day in a hospital emergency room going through the very unpleasant task of getting a tetanus shot. This is the reason it is now against company policy to remove shoes. Always carry booties as a regular part of your toolbox. You stay safe and your client is not upset at your wearing dirty shoes in the home. This is the very definition of a “win/win” situation and good customer service.
Garage My last major area is the garage. This is such a distinct area of a home that building codes require different regulations than most other structures. We all have excess stuff in our garage that doesn’t belong in the house, like the half-full gasoline can that we use to fill our lawnmowers. We all take gas for granted but fail to realize that not only is gasoline explosive but the fumes from gasoline are explosive also. In a former career, I saw the results of this firsthand when an entire garage was gutted (with two cars and two motorcycles inside) when a homeowner was using gasoline to clean automotive parts and decided he needed a cigarette. Even though he was on the other side of the garage near an open door, it still ignited. We never know what we will run into.
Safety “To Do” List Simply put, we need to be aware of our situation and act accordingly. I cannot emphasize strongly enough that we are
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in unfamiliar territory when we are inspecting: we must be willing to explore but must do so with the utmost care and safety. Safety is in the back of our minds but rarely at the top of our “to do” list. So I challenge you to make a goal to re-evaluate your mindset and thoughts at least once a month. Think about what has happened in the last month and make adjustments for any errors you may have made. Make a pact with yourself to never make that mistake again. Do your own research into any incident you hear about within the home inspection industry no matter how minor. Inspect and repair all your tools at least once a month. Finally let me make a small list to be aware of for safety’s sake. This is far from comprehensive but still is important. • Dress appropriately. • Inspect all equipment regularly and replace anything that is defective. • Make sure you have the proper tools to do your job right. • Be conscious of your surroundings. • Make sure someone knows where you are and for how long. • Never enter any situation that you consider dangerous. • Never allow anyone to coerce you to do something you are uncomfortable with. In addition to all this, remember that this is your livelihood. Never do anything or go anywhere that will compromise your ability to provide for you and your family. If you follow that simple rule, you will have a long, prosperous and safe career in the home inspection industry. Pete Hawley is author of the online course Home Inspection Safety, offered by Mckissock Education ($45/3 hrs. ASHI, NAHI, NACHI approved and by 15 states). The course is available at administrative costs to OREP.org insureds ($5.74varies by state). WRE
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38 Spring 2011 Home Inspectors Closer Look
7 Notes from a Busy Appraiser page 22
7 Behind the Curtain page 31
appraiser must also be a competent home inspector in order to be a competent real estate appraiser, according to the stipulation and consent in this Order. In another Stipulation and Consent order from the same state, its certification authorities found that the appraiser violated the ETHICS RULE. Here is the quote from the Order: “The original client was (Bank X) but this was changed to (Bank Y) by altering the statement of the intended user of the report without full disclosure of the original client or why a new user appeared, which is misleading.” The key is the phrase “without full disclosure of the original client.” If one looks over the ETHICS RULE one does not find anywhere any requirement that the appraiser must disclose who the client was on a previous appraisal assignment. Yet, by signing the Stipulation and Consent Order, this appraiser agrees that such a failure to disclose is a USPAP violation. Indeed, had the appraiser so disclosed, that would likely have violated the Confidentiality provision of this RULE! Thus, the state made the appraiser stipulate to an admission of breaking a rule that does not exist, as well as consent to a sanction for so doing. One more anecdote is in order, this from a metropolitan southern state. To quote the state, the appraiser “[v]iolated USPAP by misreporting a date signed on an appraisal and failing to maintain a copy of all communicated appraisal reports within the workfile.” The problem is that USPAP does not require an appraiser to maintain copies of all communicated appraisal reports within the workfile. USPAP merely requires appraisers to retain such copies. USPAP does not state where those copies must be retained nor does it make an issue of the medium on or by which the appraiser retains them. The appraiser merely must have them and be able to access them when and if the need arrives. For failing to do what USPAP does not require appraisers to do, this appraiser received a
$750 civil penalty, as well as the requirements to take a 15-hour Site Valuation and Cost Approach course and a course in Residential Report Writing. Interesting sanctions for violating a rule that does not exist, aren’t they?
Summary The summaries here, which are not meant to be a scientific sampling of anything, show that the states are enforcing USPAP on a level more sophisticated and imaginative than most appraisers might expect. Since the only appeal to these state decisions is via the time-consuming and expensive circuit court, it behooves appraisers to be aware of these decisions and conform themselves to them. It is likely not necessary to maintain a fiveinch pile of paper in a manila folder for every appraisal assignment that comes in the door. However, having one CD for every report, with copies of every scrap of paper the appraiser generated during the production of the report, is likely the only acceptable response to state actions such as these. The CDs must be kept in a safe, easily acceptable place. In addition, the appraiser must have the technology to reduce all of the contents of that CD to paper easily, should that be necessary. As for the states, don’t stand on one foot waiting for any changes from them. The Appraisal Sub Committee and The Appraisal Foundation look to the states to enforce their individual appraisal statutes in a timely and vigorous way. States are lauded for bringing charges against their appraisers and then clearing those charges from their books ASAP. Because of the states’ essentially unassailable power to sanction and punish, state Boards must do a better job distinguishing between those circumstances that require serious sanction and those where education and counsel are more suitable. (see http://www.myfloridalicense.com/ dbpr/re/documents/2010FREABDARJanDec.pdf for 2010 data). WRE
unreasonable but if I’m swamped I tell them that it won’t be completed within that schedule. By the way, they always ask for it sooner. It’s an interesting world isn’t it? I do know that during and after the housing market collapse lenders started reviewing many of their old appraisals. I reviewed as many as I could stand. Many of those old reports, when under scrutiny, showed intentional misrepresentations on the appraiser’s report. Appraiser’s were placed on “don’t ever call this appraiser again” lists and sometimes it went farther than that. I wonder if this is why so many can’t get work from AMCs? I know several people who had the knowledge to be excellent appraisers but lacked the courage to tell mortgage brokers that the property wasn’t going to meet some higher value. I love the effects of HVCC. I work predominantly with two AMCs and I’ve fired a couple of them for being incompetent. The AMCs that I work with are excellent. WRE Diane Blomfelt bloomy@uniontel.net
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thousands of others collected in the last year or two, “The AMCs dictate what we are allowed to earn on any given appraisal,” said DF in central Oregon (wishes to remain anonymous). “I have no choice but to take the offers that AMCs say they will pay or go out of business altogether. I just had an appraisal customer ask me why I charged $700 for his appraisal. I could not tell him anything other than, ‘That is what the bank charges.’ I was paid $275 for that appraisal. The AMC made $425 and I am the one who did the work. What is wrong with this equation?” WRE
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on the line. Some of these large, corporate CMCs, with insurance of their own, would require the small contractors to indemnify them contractually as a condition of doing business, should any problem arise with any contracting job, no matter who is at fault. In the event of a problem, these contracts would likely bankrupt the small contractor should they ever be enforced. Still, many contractors, desperate for work, would sign anyway. If a contractor refused a low bid on a job or complained about it, he or she could expect being dropped by the CMC from the order roster because there are many other contractors eager for the work. Because of consolidation, there would be fewer and fewer CMCs handling more and more of all the remodel and construction jobs for homeowners, so if a contractor is dropped from one CMC, he or she could expect a considerable loss of work. Opportunity might open up for the newer, more inexperienced contractors with lower expenses; being eager for work they might step in to take the lower fee jobs that the more seasoned contractors know they can’t complete to their standards. As I continue my drive to work I think, wait, most politicians are attorneys, so if they can’t conceptualize the “contractor” analogy, they might understand a world where attorneys suddenly have to bid through large, attorney management firms (AMFs) for their work. They would compete for cases based on the lowest bid, regardless of their particular expertise or experience. They would make about half what they are accustomed to making with the balance going to the AMFs. As citizens they, and we, would pay more for our legal services and have to settle for the lowest bid representation we are assigned to defend our legal interests in everything from a divorce to a criminal proceeding. Sounds absurd, doesn’t it? WRE
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