Working RE Magazine - Issue 66

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Real Est at e A pprai s ers

Fall 2024, Vol. 66

The Great Debate on Appraisal Fees From Panic to Profit: An Appraiser’s Story Push to Regulate Property Data Collectors The Future of AI in Real Estate Appraising

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Fall 2024, Vol. 66

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From the Publisher Readers Respond

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The Great Debate on Appraisal Fees

by Isaac Peck, Publisher

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From Panic to Profit: One Appraiser’s Story of Survival and Growth

by Tony Jones, Senior Editor

Push to Regulate Property Data Collectors

by Isaac Peck, Publisher

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AI in Real Estate Appraising: Embracing the Future Together

by Jim Amorin, McKissock Learning

30

TAF Under Pressure: New President Takes the Reins

by Tony Jones, Senior Editor

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How a Chink in Your Armor Can Create an Ugly Outcome

by Richard Hagar, SRA

36

Why Report a State Board Investigation or Complaint

by Isaac Peck, Senior Broker at OREP.org

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NAR Settlement Opens New Business Opportunities

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

by Kern Slucter, MS, MAI, SRA

Mission

Publisher

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

Isaac Peck isaac@orep.org

Senior Editor

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Comments & letters are welcome! All stories without attribution are written by the editor.

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Editor

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From the Publisher

Appraisers Are Speaking Up

by Isaac Peck, Publisher

This is a pivotal moment for apprais-

ers. For the last several years, appraisal industry pundits (including myself) have heralded “change” as the key word for the appraisal industry to focus on.

The talking point has been: Things are changing, so we all better adapt, take action and “get with the program,” or be left behind.

There’s definitely truth in that.

Things are changing. I’m sure you’ve noticed. For many appraisers, the last two years have been incredibly difficult. Historically low transaction volume has led to much less work for appraisers, and the pain has been compounded by a notable cut in fees paid to independent appraisers by many appraisal management companies (AMCs). Meanwhile, many appraisers see Fannie Mae, Freddie Mac and the largest AMCs as seemingly taking market share from appraisers through the use of appraisal waivers and unlicensed property data collectors.

In the face of all this external “change” in our industry, it has been refreshing to see appraisers speak up and take responsibility to change things themselves. Appraisers are 4 Working RE Fall 2024

working together—with other appraisers, with the Appraisal Institute (AI) and other national associations that truly believe in protecting the public, with strong state appraiser coalitions in Washington, North Carolina, South Carolina, Ohio, Utah, Illinois, Texas, Virginia and more, as well as with interested stakeholders in the appraisal industry like the National Association of Realtors (NAR)—to direct policy and influence what happens to the future of the appraiser profession and the valuation industry’s service to the public.

This issue of Working RE highlights two important topics where appraisers are speaking up and influencing things: (1) the movement to separate the appraisal fee and the AMC fee on consumer mortgage disclosures, thereby bringing increased transparency to all industry stakeholders (see pg. 6), and (2) the effort to regulate and license property data collectors (see pg. 18).

While some AMCs have been heralding the virtues of free-market dynamics for years—specifically in relation to the fees being offered to appraisers—a fundamental question is

finally being asked: Where is the free market for AMCs? Most AMCs are not competing directly with each other by quoting a specific AMC Fee to lenders (or consumers) as a separate line item.

They’re quoting an “appraisal fee,” hiring an appraiser, and keeping the difference. Even the National Association of Realtors has come out and said that this lack of transparency is affecting “market efficiency.”

Meanwhile, there are concerns about unregulated property data collectors encompassing a variety of topics including consumer safety, data privacy, quality of data, liability, and, of course, their encroachment on already licensed professionals such as appraisers and home inspectors.

I encourage you to join your local chapter or coalition of appraisers. Join a national association that is fighting to protect the public on valuation issues.

And if you’re already a member of an association, get involved!

The voice and opinion of the independent real estate appraiser matters.

I encourage you to share yours. WRE

Readers Respond NAR Settlement: What It Means for Appraisers An exceptional article by Mr. Peck!

Granted, forever we appraisers accepted the 1%-3% seller paid commission to the Buyer’s Agent as typical. Ha ha. The lawsuit evidently came because sellers finally wised up and saw that the listing agent’s commission included payment to the “enemy.” Yes, apparently, as things once worked, exposing a home on the MLS and to buyers was thought to be the norm. But! Listing Agents also coyly didn’t say much about how part of the seller’s MONEY was going to pay for that exposure. I have contended that all of us appraisers were fools. The commission sellers paid to a buyer’s agent is a concession! Yeah sure, again, it was perceived as a “normal course of business.” Well then explain why there are FSBOs? To AVOID any commission.

The fact sellers were led to believe (and lied to) that they HAD to offer compensation to a buyer’s agent DOESN’T make it normal. Bottom line—this is now a total mess, and we appraisers had better look damn closely at what types of hidden “compensations” are going to be dreamed up. The lawsuit made it very clear: Sellers finally figured out how their agents duped them into believing a buyer’s agent commission was just normal. It really never was. We appraisers just didn’t think about it hard enough.

—Fred Vander Wal

 What’s Happening With Appraisal Fees? New Survey Seeks Answers What is ignored is what the borrower is paying for an appraisal. The fee to the borrower has not changed or been reduced. Same total fee, but less to the appraiser and more to the AMC. —Ann M Sampson

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Valuing Appraiser Professionalism: A Blueprint For Survival What an excellent article. However, it is too little too late. Even after 22 years of appraising, I still fight the headwinds of having to be the fastest and cheapest appraiser in the market. So, I don’t. I gave up, many years ago, the pursuit of the business of valuing the most important asset of most people’s lives using the lender methodology—because of the AMC model that will forever be a parasite on this once so-called profession. Now, it has turned into a commodity market on a race to the bottom. It has become a sideline gig for the shallow end of the labor pool. I know people earning more money driving for Uber than I could make working for AMCs. The expertise and experience I have gained along the way have not gone to waste, as I have evolved into a super appraiser specializing in litigation work. In that world, there is no room for anything less than “real” professionalism.

The Attack on Single-Family Zoning I just wanted to say this was a very good article. Every appraiser should take a few minutes to read it, understand it and be active in planning and zoning in their marketplace. I live in California and see the effects of rezoning every day. More government-subsidized housing projects are being approved in single-family neighborhoods. More ADUs are being constructed daily without concern for parking, adding strain to the existing utility infrastructure. Many of these ADUs are being built not as a place for family members to live (mom & dad) but rather for the increased cash flow the homeowner expects to receive. These are no longer single-family homes but commercial enterprises. And now I hear that homeowners may be permitted to “sell off” ADUs on the same parcel. How is that going to work? —Scott A. Runtzel

So, there is hope, but don’t call being an appraiser a profession because that ran into the ground with the advent of AMCs. The reports I see from AMC appraisers are not only low quality—many of them are unacceptable. There seems to always be room for the “McDonalds” business model—which is to be fast and cheap and sell a lot—but that model never seems to put the quality approach to business out of business. Interesting. There is always room at the top for high quality, but it’s not easy to attain that level. I refuse to subscribe to the “another day, another dollar” approach to business. This is supposed to be important work that we do, but it’s not. It’s one big “mill” with the blind leading the blind. Still, for a gig, it’s right up there near the top. What a sad state of affairs. Does anyone think this article will change anything, even as good as it is?

Not a chance. —Richard W Stillman

 Discrimination Lawsuit Update: Baltimore Case Carries On Thank you, Isaac, for writing such a bold letter. I am a residential fee appraiser and I appreciate that you listed Mr. Lanham’s GoFundMe, enabling me to help him with his case. Most disturbing is that any ROV is now prompting a discrimination investigation into appraisals associated with LoanDepot, which will most likely be a trend with other AMCs. Also, I was unaware of the Plaintiff’s attorney’s connection with TAF. This type of lawsuit and harassment hinders my ability to comply with USPAP. We all fear being questioned and investigated for any reason a borrower does not like the estimated opinion of value. Thank you again for bringing this lawsuit to my attention.

—Claudette Fitzgerald WRE Fall 2024 Working RE

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The Great Debate on Appraisal Fees

by Isaac Peck, Publisher

The appraisal industry is abuzz with a

“From the comments submitted to the CFPB, it appears that many industry stakeholders feel strongly that a free market requires transparency.”

discussion about appraisal fees.

The Consumer Financial Protection Bureau (CFPB) recently issued a Request for Information Regarding Fees Imposed in Residential Mortgage Transactions [Docket No. CFPB-2024-0021] in which it solicited feedback from the public and industry stakeholders on the fees charged to consumers by mortgage providers and related settlement services. The CFPB framed it as an inquiry into “junk fees” in the mortgage space, writing that it wants to “understand why closing costs are increasing, who is benefiting, and how costs for borrowers and lenders could be lowered.”

“The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders,” said CFPB Director Rohit Chopra.

The real estate appraisal profession responded—with nearly 100 comments submitted that addressed appraisal fees in some way. Appraisers spoke up, alongside many of the national appraisal organizations, highlighting the need for regulatory action and greater transparency around appraisal and appraisal management company (AMC) fees.

Specifically, a key point of contention is how the current TILA-RESPA Integrated Disclosure (TRID) allows for a “bundled appraisal fee” that includes both the AMC’s fee and the appraisal fee. Many believe this bundled fee is one of the main reasons there is so much

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

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animosity between AMCs and appraisers; and that it has a seriously negative effect on market transparency, free market competition, appraisal quality, and the total cost to consumers.

Separating the AMC fee and the appraisal fee on consumer mortgage disclosures is something several national appraisal organizations have been trying to accomplish for the last 15 years, arguing that it would bring much needed transparency for all stakeholders and remove the incentive for an AMC to seek the cheapest appraiser it can find for an assignment instead of properly focusing on the “appraiser’s qualifications and credentials.”

Now, the CFPB’s request for comment has sparked a national debate on what can or should be done to address appraisal fees and the current AMCappraiser dynamic. There is a sense that regulators are finally looking closely at the issue.

Additionally, many other professional groups are weighing in. The National Association of Realtors, the Collateral Risk Network, mortgage brokers, credit unions, lenders, more than a dozen state mortgage bankers associations and, of course, AMCs all chimed in.

Here’s an inside look into the arguments being made.

Appraiser Pain, Consumer Cost Appraisers are currently in a difficult spot. During the peak of the mortgage market in 2021 and 2022, appraisers saw their fees increase due to growth in demand for appraisal services. Conversely, demand for appraiser services

has declined substantially in 2023 and 2024, leading to a dramatic decrease in the fee amounts being paid to appraisers for their services.

In their letters to the CFPB, many appraisers point out that while the fees AMCs are offering them have fallen steeply—sometimes by up to 50 percent compared to a few years ago— the cost to consumers has not declined proportionally (if at all). This will likely be something the CFPB pays close attention to since it is trying to figure out why consumers are paying more than ever at mortgage closings and what can be done to lower costs.

Desiree Mehbod, a certified residential appraiser in Virginia, argues that appraisers have seen their income plummet, in part, because AMCs are engaged in a “race to the bottom” and “driving down compensation for the actual valuation work while simultaneously increasing their own fees charged to lenders and consumers.” Mehbod includes in her letter several different fee split examples indicating AMCs retained as much as 70 percent of the total appraisal fee paid by the borrower, which prompted her to stop working with AMCs because of the lack of transparency.

“I took umbrage with the contractual clauses imposed by these companies, which prohibited the disclosure of my fee to the borrower & the inclusion of my invoice in the appraisal report. By keeping the borrower in the dark about the true cost of the appraisal, the AMCs are able to charge exorbitant prices & pocket the difference, exploiting the consumer’s lack of knowledge” [CFPB-2024-0021-0431].

Jereme Chervenak, a certified residential appraiser in Ohio, shares the painful struggle many longtime appraisers are facing nationwide due to AMC fee pressure, writing, “After 20+ years in the appraisal industry, I find myself barely making ends meet working full time.” Chervenak goes on to explain how the status quo has led to stagnant

pay for appraisers while consumers are actually being charged more. “[The] fees the actual appraiser receives [have] not changed in 20+ years, but the cost to the consumer has doubled or more.

I am constantly asked to ‘bid’ (mass emails sent to every appraiser in the area) on typical/non-complex appraisal assignments, even though there is already a fee structure in place ... I usually have less than a minute to accept or decline an assignment before it is accepted by another appraiser. How can I possibly review a property? The bid requests appear to be simply designed to see whom will perform the assignment for less, regardless of qualifications or any other professional metric,” writes Chervenak [CFPB-2024-0021-0043].

Pat Turner, a certified residential appraiser who has served on the Virginia Real Estate Appraisal Board and is president of the Virginia Coalition of Appraiser Professionals, writes that consumers are being sorely misled about the true cost of appraisal services. Turner argues that the total cost to consumers for AMCs is in the billions. He notes he has a copy of a full appraisal report that indicates the appraiser collected $205 while the consumer actually paid $834 and was shown that amount listed as the cost of the appraisal on their closing statement. “Every engagement letter by these egregious AMCs instructs the Appraiser not to include their invoice with their reports delivered to them. Why? The borrower is deceived into believing that the appraiser’s bill was that amount,” writes Turner [CFPB-2024-0021-0954].

Kyle Engel, a licensed real estate appraiser in Texas, says he works with few AMCs because of the low fees offered and the way charges confuse consumers. “[When I do AMC work] I will routinely be confronted by borrowers with the line of ‘I am paying $950 for the report! Better be worth it!,’ only to have to bite my tongue because I [am] getting paid $450. [Many say] appraisals cost more than ever!

But why is that? Is that because the average appraisal fee is the same level it was 20-years ago? Or is it because there is another entity which is inflating appraisal fees and increasing costs without providing substantial benefit to the overall system? … Most AMCs I have [worked with] disclose that they are being paid between $825-$1,200 to obtain an appraisal on behalf of their client, only to offer a fee of $350-$400 to the appraiser who is actually responsible for producing the report and the liability involved with its use,” writes Engel [CFPB-2024-0021-0970].

Josh Tucker, chairman of the Appraisal Regulation Compliance Council (ARCC), a non-profit organization that describes itself as being dedicated to fact-based, non-partisan research, wrote a spirited letter to the CFPB raising myriad concerns about TRID and AMCs, including the dominant position that many AMCs have in the appraisal marketplace, the lack of transparency around appraisal fees, large AMCs’ use of their own staff appraisers to fulfill up to 35 percent of their client’s orders, and the fact that some AMCs are taking 70 to 80 percent of the fee that is charged to the consumer as the “appraisal fee.” Tucker submitted a variety of evidence, including over 30 examples of AMC bids and orders for appraisal products in which the AMC’s portion of the total fee ranges from 61 to 84 percent. “Appraisals exist to protect both the safety and soundness of our banking system and consumers. We are not able to fulfill this function with the lack of accountability and oversight of AMCs and lenders with the current regulatory environment,” writes Tucker [CFPB-2024-0021-0973].

State Mortgage Bankers Associations The mortgage bankers associations of 10 different states, including Massachusetts, New Hampshire, Connecticut, Rhode page 8 8

Fall 2024 Working RE

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Island, Maine, Arkansas, Louisiana, Missouri, Oklahoma and Tennessee, wrote different letters but included the same general message to the CFPB about separating appraisal and AMC fees: “The Association(s) would also like the Bureau to consider itemizing the cost of an appraisal …We should ensure that regulated institutions are fully cognizant of the practices of AMCs they hire. By disclosing the appraisal fee breakdown on the mortgage disclosures, we believe that it will be easier for an institution to monitor the practice of appraisal selection and track the amount that the borrower-paid fee goes towards the appraisal” [CFPB-2024-0021-0385 and CFPB-2024-0021-0841].

MBA National The Mortgage Bankers Association (MBA), which is the national organization for the real estate finance industry, chose not to weigh in on the appraisal fee issue directly. Instead, it simply asserted that lenders do not have much control over appraisal pricing and that “attempts to ask appraisers to lower the cost of an appraisal on the borrower’s behalf may impinge on appraiser independence” [CFPB-2024-0021-0850].

Appraisal Organizations Speak Up The Appraisal Institute (the largest association of appraisers in the nation), the American Society of Appraisers (ASA), the American Society of Farm Managers and Rural Appraisers (ASFMRA) and MBREA issued a unified statement calling on the C F P B to do away with the “Bundled Appraisal Fee” and exercise its authority under Section 1475 to separate the two fees [CFPB-2024-0021-0040].

These esteemed organizations, collectively representing more than 20,000 appraisers nationwide, succinctly shared many of the concerns voiced by independent appraisers.

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“Lower fees paid to the appraiser do not benefit the borrowers by reducing the fee they are charged—these remain static regardless of what the AMC pays.”

Here are some excerpts from their letter highlighting the problems associated with bundling the appraiser fee and AMC fee together: •

•

•

•

Distortion of Free Market: “Lower fees paid to the appraiser do not benefit the borrowers by reducing the fee they are charged—these remain static regardless of what the AMC pays the appraiser.”

Harm to Consumers and Lenders: Bundling the fees “paid to appraisers and those paid to AMCs is directly harming consumers and lenders.”

Consumer Confusion: “Borrowers are being misled into believing the appraisal fee disclosed before and at closing is being paid only to the appraiser, with little to no understanding of the presence of AMCs in the transaction.”

Appraiser Quality: “The process involves … seeking the lowest appraisal fee and fastest time … often with no emphasis on the appraiser’s competence or qualifications.”

REVAA Fires Back The Real Estate Valuation Advocacy Association (REVAA), an organization that represents the largest AMCs in the country, submitted a 19-page letter [CFPB-2024-0021-0419] which directly attacks the Appraisal Institute’s (et al.) letter, dismissing their arguments for separating the appraisal fee and AMC fee as “unsubstantiated” and charging that they “provide no evidence to support consumer confusion or harm with respect to current disclosure practices.”

Answering complaints about increasing consumer costs, REVAA ar-

gues that the free market determines the bundled appraisal fees, writing that “when the price a consumer pays for a product or service is based on a properly functioning free market, consumers generally pay the lowest reasonable price for a quality product or service.”

In response to concerns about appraisal quality, REVAA argues that an AMC is responsible for selecting appraisers based on “quality of past work, skill set, education, experience, geographic competency” and more.

REVAA also goes on to dismiss any connection between appraisal quality and appraisal fees by pointing to Customary and Reasonable (C&R) Fee provisions in Dodd-Frank, writing that “appraisers are uniquely protected under federal law by the pricing floor established by the C&R fee requirements imposed upon lenders and AMCs.” Interestingly, REVAA goes on to share its interpretation of C&R fee regulations: “Determining what is a C&R fee for an appraisal is a transactional process, not a ‘catch-all’ representative number found on a chart or in a fee survey.”

Here, REVAA seems to be suggesting that a protective “pricing floor” exists for appraisers while simultaneously suggesting that a C&R fee is whatever fee a panel appraiser will accept on a “transactional” basis.

CRN Says Cost-Plus Joan Trice, CEO of the Collateral Risk Network (CRN), an influential networking group of chief appraisers, page 10 8

Amplify Your Voice Become a member of the only association advocating for appraisers at federal, state and local levels.

With full-time staff in Washington, D.C., our team advocates for the interests of our members and the profession, focusing on issues critical to residential, commercial and review appraisers.

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collateral risk managers, regulators and valuation experts, dedicated much of her letter to the CFPB quoting a 2016 article written by Ernie Durbin, the current chair of the CRN Government Affairs Committee, titled “Customary & Reasonable Fees, the Elephant in the Room” [CFPB-2024-0021-0434].

In his article, Durbin echoes many of the points made by individual appraisers and the national appraisal associations, writing: “We all know that appraisers have been bearing the burden of the cost of outsourcing. From the lenders point of view, it doesn’t get any better than free. Ironically, fees increased to the consumer, which haven’t trickled down to the appraiser … The truth is, the rank-and-file appraiser began to pay for the lender’s responsibility to manage the valuation process out of their own pockets.”

While written in 2016, Durbin’s point is particularly salient in today’s market. Fees have increased for consumers—particularly in the last few years—but many appraisers today are facing seriously depressed fees.

Durbin also addresses a conflict of interest in bundling together the appraisal fee and AMC fee: “AMC margins were exacted from appraisers’ overall fees. AMCs were faced with the misaligned incentives of seeking the cheapest appraiser, allowing them to earn the best yield.”

Finally, Durbin argues that these “misaligned incentives,” and the low fees that result from them, have an irrefutable effect on appraisal quality. “Fee compression affects overall appraisal quality. Many will argue that appraisers are responsible for providing good quality reports regardless of the fee involved. After all, USPAP [Uniform Standards of Professional Appraisal Practice] requires an appraiser to produce a credible report without discussion of the amount of the fee. This argument makes sense theoretically but not practically. The reality is appraisers 10 Working RE Fall 2024

“The reality is appraisers are required to produce more work product in the same amount of time in order to earn the same dollars as a result of fee compression.” are required to produce more work product in the same amount of time in order to earn the same dollars as a result of fee compression. Even the best appraisers, under operational pressure, make mistakes. Paying customary reasonable fees will allow appraisers to spend more time in development of the valuation and make the same dollars they have been accustomed to previously.”

The solution, according to the CRN’s board, is a cost-plus AMC fee model. As Durbin explains in his article: “AMCs would compete for business, based upon their value-add to the lender alone. Their margins would be based on their service, not on managing the cost of appraisals. Those who could perform compliant appraisal management at the lowest cost with the best service would win the business. Lenders would pay for services that they have traditionally paid for in-house and still enjoy the outsourcing benefits of elasticity during market change. Appraisers could charge their customary and reasonable fees and negotiate different fee levels based on the amount of work required by the assignment. And in the spirit of the mission of the CFPB, the consumer would be protected from paying for fees that should really be the lender’s responsibility. Everyone wins.”

CRN believes this uncomplicated cost-plus model can be accomplished by the CFPB issuing a “clarification of the rules stating a consumer may not pay for outsourced services required by the lender for the closing of the loan. This would rectify many of the issues surrounding customary and reasonable fees, AMC, Appraiser relations,

and most importantly, protect the consumer in the process,” writes Trice.

National Association of Realtors On behalf of the 1.5 million members of the National Association of Realtors (NAR), Kevin Sears, 2024 president, weighed in on the appraisal fee debate, offering strong support for separating the AMC and appraisal fees on the closing disclosure: “When appraisal fees are listed in the closing disclosure (CD), fees for third-party AMCs are bundled with them … Thus, the figure reported in the CD is an amalgam that masks the true cost of the appraisal and third-party fees paid by consumers. Worse, the opaque nature of the true appraisal fee prevents competition in the appraisal industry and inhibits regulators, analysts, and consumers’ ability to evaluate price discovery for appraisal and AMC services. This opacity opens the door to an adverse selection issue where AMCs may provide low quality or poorly matched appraisers without a market or regulatory mechanism to correct it. It also confounds the ability of regulators and the industry to determine whether appraisers’ compensation is reasonable, and customary as required under the §1026.42, the Valuation Independence Law. REALTORS® believe that for regulatory oversight and enforcement purposes, transparency, and market efficiency, fees charged by AMCs should be identified separately from those charged by appraisers. To this end, REALTORS® urge the CFPB to amend the current structure of the CD to mandate that lenders stipulate separate line item for the appraisal fee and AMC fee” [CFPB-2024-0021-0843].

Free Market?

NAR’s reference to “market efficiency” is really a nod to free-market dynamics.

One of the points valuation industry stakeholders consistently make in their comments is that while the fees paid to appraisers have remained stagnant or declined in many markets, the amount billed to the consumer as the “appraisal fee” has actually increased substantially.

As NAR suggests, this dynamic begs the question about how free the market for appraisal services really is.

CRN’s Trice and Durbin also address the free market as it exists for AMCs today. In unbundling the appraiser fee from the AMC fee and moving to a cost-plus model, they see a world where “AMCs would compete for business, based upon their value add to the lender alone. Their margins

would be based on their service, not on managing the cost of appraisals.”

Today, the vast majority of AMCs are not competing directly with each other by quoting a definite AMC fee to lenders (or consumers) as a separate line item. They’re quoting an “appraisal fee,” hiring an appraiser and keeping the difference. In many states, consumers never find out what the AMC’s profit on an appraisal order is, and lenders generally only find out the exact amount after the fact.

From the comments submitted to the CFPB, it appears that many industry stakeholders feel strongly that a free market requires transparency.

appraisal fee and the AMC fee need to be separated on consumer disclosures.

For many appraisers, it is no doubt refreshing to see so many voices within the valuation space, as well as the real estate industry at large, join in this call to the CFPB to take action on this important issue.

If the CFPB chooses to address this chronic appraisal-profession concern, it would arguably be a huge step in the right direction for appraisers and consumers alike. As Desiree Mehbod puts it: “Restoring transparency around appraiser compensation is a crucial step in addressing these longstanding issues and ensuring a healthy, functional real estate market.” WRE

What Happens Next?

There appears to be broad consensus on the solution to this issue: the

To read full copies of the letters sent to the CFPB by these industry stakeholders, please visit WorkingRE.com/CFPBletters.

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From Panic to Profit: One Appraiser’s Story of Survival and Growth

by Tony Jones, Senior Editor

The first time Mitchell Simonson expe-

“Instead of worrying about the market and the negativity that was coming at me from the real estate space, what could I do proactively that was in my control?”

rienced an extreme slowdown as a real estate appraiser, he experienced a linein-the-sand moment that profoundly altered the course of his personal and professional life. This was in 2009 in the throes of the Great Recession. Simonson was just five years removed from college working as a junior associate for a commercial appraisal firm, with aspirations to someday own his own business.

He began working at age 11 doing part-time jobs, and for 14 straight years his income had increased. “I always thought that everything just went up and up,” recalls Simonson.

But in 2009, Simonson bought a house. He and his wife had a 1-year-old and 2-year-old, with No. 3 on the way.

His firm was doing a lot of bank work at the time, but then fees started to compress and demand for appraisal services slowed way down. Sound familiar?

On a hot July day in Minnesota, with his two sons nearby on the floor, Simonson sat on his couch contemplating his income—which had fallen about 30 percent—and decided to take matters into his own hands.

“I remember sitting on that couch,” says Simonson. “I was kind of scared, and for whatever reason, something triggered inside of me. I told myself that the one thing I could control was my actions and moving forward. So, I committed to better health, reading a lot of books and

Tony Jones is Senior Editor of Working RE magazine, published by OREP, a leading provider of E&O insurance for real estate professionals. Based in San Jose, California, he has nearly 30 years of business publishing experience and graduated with a bachelor’s degree in journalism from the University of Arizona. To reach him, email tony@orep.org.

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changing my mindset. Instead of worrying about the market and the negativity that was coming at me from the real estate space, what could I do proactively that was in my control?

“That was when I really dug deep and started talking to more people,” he continues. “I committed to reaching out to my network and really stepping out of my comfort zone of just being an appraiser and relying on the work coming to me. I wanted to be able to have better control over the opportunities that were coming my way because it felt like early in my career, I was always relying on other people.”

That commitment to investing and betting on himself changed the trajectory of his career and set him on a path to business success.

Today, Simonson is the owner and CEO of Minneapolis-based Simonson Appraisals, which specializes in commercial valuations and helping banks, financial institutions and attorneys representing property owners make prudent investments and solve real estate issues. He leads a team of nine, including seven appraisers, two of whom carry MAI designations.

The journey Simonson decided to take himself on that fateful afternoon built a foundation, work ethic and business network that has allowed him to steer through the current slowdown with plenty of work and a fraction of the angst and consternation he felt in 2009. Working RE recently sat down with Simonson to get his perspective on how appraisers who are feeling the weight of page 148

7page 12

current market downward pressures can flip their script.

Visualize Success One reason Simonson took the path he did was thanks to some early seeds planted with the help of his Aunt Brita, who sent him to see author and motivational speaker Zig Ziglar when he was 19. That kickstarted a love for personal development that included reading books on business, mindset and selfimprovement. He also took a four-day Dale Carnegie course to learn how to speak in front of others. In 2010, he completed an eight-week program called “Design the 10 Best Years of Your Life,” which helped him identify his core values and set goals, including his desire to earn his MAI designation, which he did by 2011.

As an avid reader of Success Magazine, Simonson says he became a big believer in former publisher Darren Hardy’s stance that the way to carve your own path was to first establish a life plan and then build a business with that goal in mind.

“That’s what I’ve been really committed to,” says Simonson, “and I think it has helped me sustain through busy times and slow times. When you’re taking care of your health, creating time and making memories with your family and friends, it gives you that deep resolve, strength and ability to overcome the cyclical nature of the business.”

When appraisal work slowed when he was a junior associate, Simonson pushed to find appraisal opportunities rather than wait for work to be assigned to him. He adopted a proactive, entrepreneurial spirit that helped the company he worked for win new business as well as begin to sharpen his relationship-building and networking skills.

This included bringing in two national banks based in Minnesota that wound up being his first two clients when he launched his own business in 2012 with a local partner in the Twin Cities.

14 Working RE Fall 2024

“Even if the market’s down, I’m of the belief there’s always opportunity, especially if you’ve got a strong appraisal skill set.”

“I also continued to invest in myself,” he explains. “I think that’s the important part, even if it’s in a down market.

Obviously, things can tighten up on the financial side, but what are you doing to make investments in your career?

What do you want to create, not just for your business, but for your lifestyle?”

Marketing and Self-Promotion For Simonson, investing in his career has meant keeping up with continuing education as well as honing skills that have improved his visibility and outreach.

“Where we’re at today, all appraisers have to take continued education, but it’s so heavily based on the technical skill set,” explains Simonson. “I’m of the belief that if you’re a professional appraiser and you’re committed to the industry, you know how to do a nice job of appraising property. To move forward, it’s really about developing outside the technical side and creating a business mindset.”

This includes learning how to market yourself as well as market and run a business. You don’t have be in charge of a company to adopt an entrepreneurial frame of mind. In fact, Simonson says simply pursuing his MAI designation increased his productivity because it helped him solve problems much more quickly and efficiently.

Learning how to market himself and his business was the key to gaining visibility and professional contacts. Having already gone through a market downturn, Simonson knew he couldn’t rely on two core bank clients to sustain his new business, so he leveraged technology, social media and email marketing to build an online presence.

“People do business with those they know, like and trust,” says Simonson.

“Content marketing helped me build trust with people who didn’t really fully know me.”

His visibility helped expand his client base, growing methodically from two to five to 15 clients and now, many more. As an early adopter of LinkedIn, Simonson says the key to social platforms and outreach is to provide value to those in the market who may become a customer or refer you to a prospect.

“Appraisers are experts at providing opinions of value,” notes Simonson.

“How can we take our knowledge, share it and provide additional value to other people in the marketplace beyond just the appraisal report that we send out the door to one client? Maybe it’s some of the market research that you’ve compiled or specific data points or insights and perspectives from talking with market participants.

“I’ve talked to appraisers across the country, and one of the big challenges I hear is that it’s scary to step out and promote yourself,” he continues. “I still remember trembling on that first email I sent out. There were about 2,000 people on our list. It was just an article on real estate and property values and how we can help. But if you can view it as providing value to other people and coming from a place of true service and helping others solve problems and achieve goals as it relates to real estate and value, then it becomes less about you and more about helping others. That was a big shift for me.”

Networking At the same time that he began to gather steam with his content-marketing strategy, Simonson also made a concerted effort to network one-on-one with prospective leads including, real estate brokers, banks and attorneys. He also selectively attended tradeshows and large networking events to try to gain contacts.

In his commercial appraiser space, Simonson says he winds up getting leads from brokers and real estate attorneys to help business owners who need valuations performed for partnership buyouts, estate planning, deaths in the family, tax appeals and other circumstances. He gains assignments through attorneys in constructiondefect litigation to try to solve for diminution in value as well as condemnation and eminent-domain work. His

company also works with landowners and government agencies.

Within a year of content marketing and sending monthly or quarterly emails, Simonson began receiving speaking invitations from the Minnesota Bankers Association. He taught six workshops through the Small Business Administration and spoke at different commercial brokerage offices.

He also wound up doing an hourlong presentation in front of 30 to 40 real estate attorneys for a continuing legal education event. Those early engagements generated leads and led to more speaking engagements, which continue today.

The idea is to remain top of mind for likely clients and referrals, so that when markets slow or shift, you’re in the best position to capitalize on local opportunities that still exist.

“Being front of mind with people is a key distinction,” explains Simonson.

“How can you be front of mind to where people are thinking, ‘Boy, this person is always helping and providing value.’? When people think of the word ‘appraisal,’ whether it’s an accountant, an attorney or a broker, I want them to think of me. That’s my goal. If I’m providing enough value, I’ll be front of mind enough for that referral to come back at some point in the future.”

Simonson acknowledges that spreading tentacles of value is playing the long game. It’s about building a reserve of goodwill that he can tap into when business slows. Through 2022, he says bank work was through the roof due to feverish buying and refinancing activity, but since then, bank assignments have dropped off significantly, page 168

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with commercial transactions for some property types falling as much as 70 percent year over year between 2022 and 2023, and remains slow this year.

“It’s planting those seeds,” says Simonson. “Sometimes it takes a few years for that to bear fruit, but I always approach it with the long game in mind—that I’m going to be around for another 20 or 30 years, so the more that I can get in front of people and help them, it’ll come back in time.”

Income Generating Activities The combination of continuous marketing and networking formulates the core of what Simonson calls Income Generating Activities (IGAs), actions he can take to stay top of mind and drum up business.

“If you’re a solopreneur or running an office with five appraisers, it can be feast or famine,” notes Simonson. “So, one thing I always do is commit to income generating activities whether it’s sending out an email, making a social media post, calling a couple of real estate connections or calling past clients— people I haven’t talked to in a while to check in with them, try to provide value and perhaps invite someone to lunch.

“If you do that consistently, you’re constantly pumping the well,” he continues. “Consistently take action in a way that helps you stay front of mind and moving forward vs. always reacting.”

Simonson believes a pitfall appraisers sometimes fall into is thinking of appraisal reports as their sole IGA. The problem with that is it tends to be passive, which leaves you more at risk when demand for services slows. “What I’ve seen on the commercial side is you can certainly become more of a Walmart where you’re competing on price and timing,” he notes. “At times it feels like a race to the bottom. How fast can you get it done and for how cheap?”

That may work well when a market is strong, says Simonson, but during a slowdown it can force appraisers to 16 Working RE Fall 2024

take whatever jobs present themselves and for low fees. “I’m of the mindset that I want to have more opportunities coming my way, where I can be selective,” he says.

For this reason, Simonson recommends having a set of ideal customers in mind and targeting those segments with your outreach. If a particular attorney, broker, etc., seems like they’d be a good fit with your operation, examine how you might be able to help them and vice versa. Reach out to book a coffee or a lunch meeting, just to get to know them, he says, noting that as you develop rapport, don’t be afraid to ask for business or a referral.

“If I’m creating income generating activities on a consistent basis throughout the year, even when we’re busy, then it helps keep the pipeline full and we can be more selective on which projects we want to take on,” explains Simonson. “We’re not desperately grabbing anything that comes in the door.”

Keep Pushing Forward It should be noted that none of this came naturally for Simonson, who still prefers one-on-one networking to trying to work a large room of people.

What’s key is pushing yourself outside your comfort zone, figuring out what works well for you, and then being diligent and consistent in your approach.

Self-confidence ultimately comes from creating opportunities and then delivering when called upon.

“When that line-in-the-sand moment happened, I vividly remember writing down that I was going to continue to train the rest of my career, so that no matter what happens, when the next market downturn occurs, people are going to know me,” recalls Simonson. “Even if the market’s down, I’m of the belief there’s always opportunity, especially if you’ve got a strong appraisal skill set.”

“You might have to broaden the market. You might have to broaden

your reach,” he continues. “When the markets started to shift in 2022, I went back to that 2009 moment and said, ‘I’m pulling the boots back on; I’m going to work harder than I have before; and I’m going to start providing a deeper level of content and educating my clients and prospective clients.”

Now a 20-year industry veteran with 11 kids, Simonson continues to double down on the principles and motivations that have fueled his success. Equally vital to investment in his business and professional development, he says, is striving for optimal health and strengthening personal relationships to sustain a rewarding lifestyle.

“And, you know, this year, we’re working on several large portfolios of assignments,” notes Simonson. “These are projects I could only dream about taking on many years ago. They’ve been amazing, incredibly rewarding assignments, and it’s been a really good time. It’s about continuing to have that resolve to see what you can do to push the envelope of possibility.” WRE

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Push to Regulate Property Data Collectors

by Isaac Peck, Publisher

P

“Today, a loan officer can lose their license if they try to influence an appraiser.

But you can’t lose your license for trying to influence a PDC.”

18 Working RE Fall 2024

roperty data collections have been a slow burn.

For the last five years, powerful interests within the valuation industry have been arguing for mass adoption of hybrid appraisals and property data collections in lieu of traditional appraisals.

So far, that hasn’t happened. While some lenders have adopted property data collection practices to value their internal portfolios, the latest reports issued by the American Enterprise Institute (AEI) indicate that roughly 3,000 property data collections are being completed each month by Fannie Mae and Freddie Mac combined. This is roughly 2 percent of all governmentsponsored enterprise (GSE) valuations in a given month.

Nevertheless, strong advocacy for property data collections continues. At an appraiser conference Working RE just attended, one of the leading presenters (an appraiser himself) shared his vision of appraisers sitting on a beach and “inspecting” a home using virtual reality goggles—walking through the home virtually after a property data collector (PDC) had presumably scanned the home.

While the GSEs have set basic requirements for lenders that PDCs undergo annual background checks, meet the GSEs’ independence requirements, be “professionally trained,” and “possess essential knowledge to competently complete the property data collection,” the GSEs have offered little specifics in terms of what constitutes professional training.

For their part, appraisers have raised questions about appraisal management companies’ (AMCs) and lenders’ diligence in their selection and training process.

There are safety concerns around having unlicensed individuals enter consumers’ homes. There are privacy concerns, too—what happens to the data, pictures and floorplan data after this unlicensed individual collects it?

What about liability? Are PDCs going to be required to carry insurance?

At an appraiser conference in 2023, the CEO of one of the approved PDC vendors with Fannie Mae approached this author (not realizing my association with Working RE magazine) and openly declared that the PDCs they were hiring wouldn’t purchase insurance if he tried to require it because “it’s not a full-time job” and “these guys are just Uber drivers doing some data collections on the side.” (This vendor is not an AMC.) In the face of these concerns, many appraisers believe that some type of regulation is needed around property data collections and PDCs individually.

Appraisers in Mississippi, Utah, Illinois and Washington have been working to introduce legislation and regulations to address these dangers. While each appraiser group has taken a different approach to the issue, it’s clear that—at least some appraisers—believe additional guardrails are needed to protect the consumer public and valuation professionals alike. And they’re taking action.

Here are the factors at play on this important issue.

NAR Concerns In May 2023, the National Association of Realtors (NAR) conducted a survey to gauge members’ experience with PDCs and their thoughts on the issue. The results provide a great summary of some

of the main concerns on the topic.

Here are some of the highlights:

the PDCs be licensed and functionally held to the same standards as appraisers.

Impersonation: 30 percent of respondents reported that a data collector had given them the impression that they were the appraiser or had a role other than merely collecting property data.

Safety: 51 percent of respondents had safety concerns about unlicensed property data collectors.

Data Privacy: 65 percent of respondents expressed concerns regarding the data collected and data privacy.

Disclosure: 63 percent of the participants stated that they were not made aware of any thirdparty privacy policies or disclosures during their experience with data collection.

Data Quality: 76 percent perceive the quality of property data collected by PDCs to be lower than that collected by appraisers.

Licensing: 90 percent of respondents believe there is a need for property data collector licensing.

Utah Vern Meyer, a certified residential appraiser who is involved with several appraiser organizations in Utah, including memberships with the Utah Association of Appraisers (UAA), the Utah Coalition of Appraising Professionals (UTCAP) and the state chapters of the Appraisal Institute (AI), has been working with the Utah Division of Real Estate (UTDRE) and the Utah Appraisal Board for several years to address the PDC issue.

Meyer explains that several years ago, UTDRE put together a committee, which included AMC representatives, banking representatives and a few independent fee appraisers, to evaluate the issue and make recommendations on how to approach unlicensed property data collectors. After two years in committee, no official report was ever issued, but the UTDRE did publish updated rules that defined a property data collector and required that AMCs provide the PDC’s name to the appraiser—with no requirement for contact information.

Meyer has been regularly attending UTDRE and Utah Appraisal Board meetings, urging them to revise their policies and add additional requirements for AMCs and PDCs. In his testimony to the Utah Appraisal Board on Aug. 28, Meyer shared the following: “It boggles my mind that an individual (appraiser trainee) who, after successfully completing the UTDRE-required 75 hours total of Qualifying Education (QE), completing 35 appraiser-accompanied residential property inspections, passing a background check and maintaining participation in the FBI’s RapBack program, and have supervisory approval over every appraisal inspection assignment, isn’t the minimum required qualification for residential property

•

•

•

•

•

•

Based on this data, NAR, as well as its state associations, may be a potential ally to appraisers interested in regulations for PDCs.

Mississippi Mississippi was one of the first states to propose regulation of any kind for property data collectors. Shane Barnett, a Mississippi state representative and himself a certified residential appraiser, introduced HB 1663 into the state house in February, but the bill died in committee in late March.

What exactly stopped the bill remains unknown, but some critics point out that the bill’s text was rough. Over 90 percent of the bill was a copy/paste of the Mississippi Appraiser Licensing and Certification Act, with a definition of a PDC written in and a requirement that

inspections. Compare that with the current training, education, aptitude, security, experience, and oversight requirements for AMC-selected property data collectors—NONE! There currently is no DRE oversight of these individuals nor any oversight requirement placed on AMCs.” Meyer also argues that AMCs should be responsible for the people they’re engaging. “Just like an appraiser who utilizes an uncredentialed individual for clerical duties, if the individual mistypes the appraiser’s notes and comments into the appraisal report, transposes numbers or any action which results in a non-credible appraisal report, it is the appraiser who is held liable. AMCs who don’t properly manage and oversee individuals they engage for property inspections should likewise be held accountable for individuals (entities) that they employ or engage,” says Meyer.

In his interview with Working RE, Meyer points to the fact that if an appraiser relies on an incorrect property data collection report, it is the appraiser who will be investigated by the UTDRE and disciplined by the Utah Appraisal Board. “We’re seeing horrible information coming back. We have appraisers who have used that data and have been sanctioned by the state for not having a credible report.

But no AMC has yet been investigated, let alone sanctioned, for their part in the breakdown of credibility,” reports Meyer.

One of the challenges in Utah is that the UTDRE does not license home inspectors, so they’ve tried to take a “hands-off” position. But Meyer and the appraisal organizations that make up the UAA are not giving up. “We continue working with the UTDRE and encourage them to engage with the state legislature. We feel very strongly that our statutes require inspections to be done by page 228

Fall 2024 Working RE 19

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7page 19

licensed appraisers and that additional AMC accountability or updated regulation is needed,” says Meyer.

After his presentation on Aug. 28, the Utah Appraisal Board committed to placing the topic on the agenda for the next meeting.

Illinois In Illinois, the Illinois Coalition of Appraisers (ICAP) is currently working on legislation to ban the use of PDCs that contribute to a hybrid appraisal.

This will be a very narrow piece of legislation because the majority of PDCs are used today in conjunction with appraisal waivers, and this law will only apply to hybrid appraisals. The bill is expected to be introduced in early 2025.

Washington In Washington state, the Appraisers’ Coalition of Washington (ACOW) has been working for several years to communicate their concerns with state regulators. At a hearing of the House Consumer Protection & Business session of the Washington Legislature on Feb. 27, Dallas Kiedrowski, MNAA, testified on behalf of ACOW and raised serious concerns regarding the lack of regulation around PDC activities.

“If the report misrepresents the subject characteristics or location … or if there is evidence of bias and/ or discrimination in the report, there appears to be no recourse [for the consumer]. In contrast, if there is an issue with a report completed by a licensed appraiser, there are multiple paths for the consumer to seek recourse at the state licensing level as well as at the federal level through HUD,” testified Kiedrowski.

Also holding a Residential Evaluation Specialist (RES) designation from the International Association of Assessing Officers (IAAO), Kiedrowski pointed out to legislators that the GSEs data collection practices are substan22 22 Working RE Fall 2024

“There is no law that loan officers or AMCs can’t just call PDCs and tell them whatever they want. This creates a massive risk for consumers,” asserts Kiedrowski. tially lower than IAAO Mass Appraisal standards, which are codified into law in many states. In the assessing world, if a property data collector is involved, they must work with a licensed appraiser who has the responsibility to make the subjective decisions around property condition, quality, location, and so on. Kiedrowski argues that PDCs are “required to analyze and provide an opinion on the overall quality and condition of the property, as well as rate characteristics such as view and location.” Senior leaders at AMCs deny this assertion, but Kiedrowski says he has signed up on several PDC panels and seen the reports for himself.

The result, Kiedrowski says, is that “data collectors working for lenders can make key subjective decisions such as assigning quality or view, but a data collector working for an assessor’s office in the state cannot. To put this another way, the taxable assessed value of your home is determined by a regulated, licensed appraiser, while the market value for a loan, which may be the largest investment in your life, can be valued by an algorithm in conjunction with an unregulated, unlicensed person. This inconsistency has the potential to harm the public’s trust in the appraisal process.”

Independence and Professionalism Speaking to Working RE in an interview this summer, Kiedrowski says he is hopeful that ACOW can find sponsors for a bill and get PDC licensing legislation passed in the 2025 legislative session.

While the GSEs have published their own PDC independence require-

ments for lenders, Kiedrowski says that falls short of what’s needed. “There is no law that loan officers or AMCs can’t just call PDCs and tell them whatever they want. This creates a massive risk for consumers,” asserts Kiedrowski.

“The real estate crash of 2008 was a result, in part, because loan officers were not licensed. Before 2008, there was no National Multistate Licensing System (NMLS). We had a bunch of unlicensed people doing stuff that was unregulated. Today, a loan officer can lose their license if they try to influence an appraiser. But you can’t lose your license for trying to influence a PDC. We believe we’re heading into a similar situation unless we take action.”

Licensing for PDCs, Kiedrowski argues, is a way to guarantee there is a modicum of professionalism in the process. “There need to be real protections in place in terms of background checks and guaranteeing that these individuals have a certain level of training—that they take their jobs seriously. This will help move the process away from the Uber model; they have to get a license and E&O [errors and omissions] insurance, and so on. It ensures only people who are working towards that goal and have put themselves in that position can provide these services,” explains Kiedrowski.

Safety and Privacy In front of the Washington Legislature, Kiedrowski raised public safety and privacy concerns in his testimony: “What recourse, if any, would a consumer have if they were harmed by

a PDC, such as their property being damaged or their private information shared without their consent?”

In his interview with Working RE, Kiedrowski reports that legislators at the hearing were really concerned about the commodification of the consumer’s data. “We know that the data a PDC collects is being sent to the AMC and sent to the lender.

The PDC also has it on their phone.

What if the PDC starts selling those videos to criminals, so they can go break into your house? If this person has no license or reason to worry about discipline, that’s another risk the consumer is taking. Appraisers are regulated and have held to specific privacy standards, including the Gramm-Leach-Bliley Act, and this guarantees we’re going to protect consumer data. With PDCs, there are no such protections,” he argues.

Consumer Data Beyond the concerns about what an unlicensed PDC might do with detailed data about the interior of a consumer’s home, there are also questions around how this data might eventually be sold to third parties by AMCs and software companies.

Here, Amazon’s attempted acquisition of Roomba maker iRobot is instructive. The Roomba is a robot vacuum that uses internal mapping technology to learn the floor plan of a user’s home.

Although Amazon abandoned its acquisition efforts earlier this year due to antitrust concerns raised by the European Union, many data-privacy and antitrust experts were ringing alarm bells in the U.S. as well.

Here is a quote from Ron Knox, who spoke forcefully against Amazon’s acquisition efforts: “The most

advanced versions of Roomba collect information about your house as they clean. It knows where you keep your furniture, the size of each room and so on. This would allow Amazon, the company that wants to know everything about American consumers, to buy out a company with perhaps the most data on the size, shape and layout of the inside of our homes.”

The inference is that internal data collected in consumers’ homes could then be used to sell products to the consumer (among other things). If the vacuum goes around a dog, for example, dog food could be targeted to the consumer. This data could be used to market TVs, furniture, washing machines, and so on.

While the sale of PDC data may be solely aspirational today, it raises serious questions about who owns the data page 248

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7page 23

and what protections are in place for consumers. While some level of privacy regulations exist for appraisal data, do these protections extend to PDCs? And even if there are contractual obligations on the lender’s side around this data, what if the home scanning and measuring software used in the PDC (or the appraisal, for that matter) is owned by

a separate software company? Do those protections still apply?

Appraisal Institute Support The Appraisal Institute (AI) has quietly taken a role in supporting appraisers who believe PDCs should be regulated and has been advising various appraiser coalitions as well as AI’s state and re-

Home Inspection Licensing?

O

ne challenge for the PDC movement is that roughly 35 states across the country have home inspector licensing and require individuals who “inspect” homes to be a licensed home inspector. While proponents of PDCs are quick to argue that property data collection is not a home inspection, the wording of state laws makes it a murkier issue.

For example, Illinois’ Home Inspector Licensing Act defines a home inspection as follows: “Home inspection” means the examination and evaluation of the exterior and interior components of residential real property, which includes the inspection of any 2 or more of the following components of residential real property in connection with or to facilitate the sale, lease, or other conveyance of, or the proposed sale, lease or other conveyance of, residential real property: (1) heating, ventilation, and air conditioning system; (2) plumbing system; (3) electrical system; (4) structural composition; (5) foundation; (6) roof; (7) masonry structure; or (8) any other residential real property component as established by rule.

The argument would be that if a PDC is opining about the condition 24 Working RE Fall 2024

of the home and reporting any material defects—such as the structural composition, roof or foundation, for example—they are performing a home inspection. It’s worth noting that Illinois’ definition above is specific to inspections related to the “sale, lease or other conveyance” of real property and—if read in isolation—would not apply to refinance transactions.

While no public records are currently available, Working RE has spoken with several individuals who have verbally confirmed the existence of board complaints being filed against PDCs with home inspector licensing boards and commissions —presumably for performing unlicensed home inspection activity.

Some AMCs have already considered this potential issue. Our sister company, OREP Insurance, currently serves nearly 2,000 home inspectors across the U.S. and we’ve begun receiving coverage requests for property data collection activities from inspectors.

In a conversation this author recently had with an OREP-insured home inspector, the inspector was being offered four data collection assignments for a total of $500 ($125 each). Since home inspectors typically make $400-$600 per inspection, the inspector was not particularly motivated to meet the AMC’s requirements. WRE

gional chapters who have expressed interest in this issue. AI is rumored to be working on a piece of model legislation that could serve as the starting point and framework for language that would be considered by the state legislatures. It is believed to have made this template available to its chapters and several coalition groups in the hopes that they can use it as they work to develop their own bills.

While some states have proposed regulations that apply only to PDCs who perform inspections that are then passed on to an appraiser as part of a hybrid appraisal, the bill text the AI is reportedly working on would likely apply to PDCs in all types of situations—whether that is contributing to a hybrid appraisal or the PDC is just being submitted to one of the GSEs for use in underwriting the transaction (Fannie’s waiver + PDC program, for example).

There also would likely be a carveout for appraisers and trainees in any legislation. After all, appraisers are uniquely suited to perform this type of work.

While AI is not pursuing this issue directly in state legislatures, AI is reportedly doing what it can to support its chapters and sister organizations that have an interest in this issue.

Next Steps While discussions around hybrid appraisals and PDCs have been ongoing for years, their use is still not mainstream. However, the GSEs have been slowly increasing their usage over the last 12 months. As they become more popular, it is clear that appraisers, and even NAR members, share concerns around the potential dangers and pitfalls that exist for these currently unregulated, unlicensed actors on the valuation scene. Whether appraisers will be able to build momentum and address this issue with their state regulators and legislatures remains to be seen. We’ll find out in 2025. WRE

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AI in Real Estate Appraising: Embracing the Future Together

by Jim Amorin, McKissock Learning

T

“AI should not be considered a threat to appraisers but a powerful ally. By leveraging AI’s capabilities, appraisers can enhance their efficiency, accuracy, and overall service quality.”

he growth of artificial intelligence (AI) has sparked excitement and possibilities across various industries, and real estate appraising is no exception.

From image recognition and data analysis to automated valuation models (AVMs), AI’s capabilities present an opportunity to enhance the efficiency and accuracy of appraisal processes.

To help illustrate why, let’s explore how AI can complement and augment the work of appraisers. We’ll also address some common concerns and highlight the unique value that human expertise brings to the table.

Together, AI and appraisers can shape a future where technology and human judgment seamlessly coexist, delivering superior valuations and services.

AI as an Appraiser’s Ally AI technologies are rapidly evolving to offer powerful tools capable of streamlining and enriching real estate appraising. Let’s look at three areas of impact.

Image Recognition: AI can analyze property images to identify features and property conditions, and even estimate dimensions with remarkable accuracy. This technology can accelerate the inspection process, allowing appraisers to focus their expertise on more nuanced aspects of the valuation in which their experience and judgment are most critical.

Jim Amorin has been a real estate appraiser since 1988 and currently holds a certified general appraiser license in Texas. An appraisal instructor for McKissock Learning (www.mckissock.com), Jim specializes in property tax, litigation support and condemnation.

He’s also the author of The Generative Shift: Preparing Appraisers for Artificial Intelligence Models Like ChatGPT, a guide that outlines the details of AI evolution, specifically generative, large language models and their practical applications in real estate and appraisals.

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While some may worry about image recognition taking away from the appraisers’ skills, it is more useful to see it as a supplement to your own eyes.

The visioning capabilities of AI can reinforce your own observations. By using the generative capabilities of a large language model such as ChatGPT, coupled with the visioning tools, some of the narrative description of the property can be streamlined for the appraiser.

Data Analysis: AI algorithms can sift through vast amounts of market data, uncovering trends and patterns that might not be immediately apparent.

This capability empowers appraisers to make more informed decisions based on comprehensive market intelligence.

Automated Valuation Models: AVMs leverage AI to provide quick property value estimates based on data, such as recent sales, tax assessments and property characteristics. While AVMs offer a valuable starting point, they are elevated by the professional judgment and contextual understanding that appraisers bring to the table.

Addressing Appraiser Concerns It’s natural for appraisers to have concerns about the impact of AI on their profession. Let’s address some of these, while also highlighting how human expertise brings unique value.

Accuracy and Reliability: While AI can process and analyze data at incredible speeds, it is not infallible. AI systems rely on historical data, which may not always reflect current market conditions or account for unique property characteristics. Appraisers bring critical thinking and contextual understanding that AI cannot replicate, ensuring accurate valuations.

Human Judgment: Experienced appraisers draw on their knowledge, intuition and expertise to assess properties accurately. AI cannot replicate the nuanced judgment that comes from years of field experience and personal interaction with clients.

We all are aware of the three primary approaches to value: the cost approach, the sales comparison approach and the income capitalization approach. But there is also a very real fourth approach to value, and that is metaphorically sitting on the curb across the street from the property after your analysis is done and really thinking about the property and what impacts it. Did your analysis cover everything? This is the value of the human agency on valuation that artificial intelligence models cannot replicate.

Complex Property Valuations: Certain properties, such as those with historical significance or unusual features, require a level of discernment that AI cannot provide. Appraisers are skilled at evaluating these complexities and making informed adjustments that AI might overlook.

Job Displacement: While conducting research for my book, The Generative Shift: Preparing Appraisers for Artificial Intelligence Models like ChatGPT, I found that the fear that AI might replace jobs, particularly within the appraisal industry, has been prevalent for decades. As early as 1995, The Appraisal Journal highlighted these concerns, noting: “Residential appraisers in particular are anxious that they may lose their main source of income. This anxiety is driven by the widespread

belief that AI-powered software could take over their roles.”

Even today, these worries are pertinent as AI’s skills in recognizing patterns, analyzing data and predictive modeling continue to advance. Nevertheless, the challenge for real estate appraisers is to embrace AI as a tool to boost their efficiency and precision, rather than viewing it as a competitor in their field.

Frankly, if you can be easily replaced by artificial intelligence models, you are likely not doing a very professional job as an appraiser.

Potential for Bias: AI systems, particularly those involving machine learning, learn from large datasets to make predictions or assessments. If these datasets contain biased information or page 288

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reflect historical inequalities, the AI could inadvertently perpetuate these biases. In real estate appraising, this could manifest as discriminatory practices in valuation that could adversely affect minority communities, reinforcing economic disparities.

For instance, an AI model trained primarily on data from neighborhoods with certain demographic characteristics might undervalue properties in ethnically diverse or economically disadvantaged areas. This is where the experience and practical knowledge that an appraiser brings to bear on the appraisal process can add real value that computer models simply cannot replicate.

AI as Powerful Assistant Rather than replacing appraisers, AI can serve as a powerful assistant, augmenting their capabilities and elevating their services. For example: •

•

•

Efficiency: AI can handle timeconsuming tasks such as data collection and preliminary analysis, freeing up appraisers to focus on detailed evaluations, client interactions and value-added services.

Accuracy: By providing appraisers with comprehensive data and insight, AI helps reduce human error and enhances the precision of valuations, ensuring clients receive the highest quality assessments.

Market Trends: AI can quickly identify and analyze market trends, offering appraisers valuable information that supports their decisionmaking process and allows them to provide clients with the most up-to-date market intelligence.

Here are two real-world ways in which appraisers have unlocked the power of AI as a collaborative tool: •

Streamlined Appraisals: In one case, an appraiser used AI to pre-

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“Appraisers who embrace AI tools will find themselves better equipped to deliver accurate, efficient and insightful valuations, while maintaining the personal touch and professional judgment that clients value.”

•

fill forms with data from public records and recent sales. This streamlined the appraisal process, allowing the appraiser to spend more time on site inspections, client consultations and delivering personalized insight.

Enhanced Reports: Another appraiser leveraged AI tools to generate detailed market analysis reports.

These included data visualizations and trend analysis that provided clients with a deeper understanding of the market, which ultimately enhanced the appraiser’s service quality and client satisfaction.

The Future As AI technology continues to evolve, its role in real estate appraising will likely expand, presenting new opportunities for innovation and growth.

However, the partnership between AI and appraisers will remain essential.

Appraisers who embrace AI tools will find themselves better equipped to deliver accurate, efficient and insightful valuations, while maintaining the personal touch and professional judgment that clients value.

There are multiple, industry-related platforms that harness the power of AI to create comprehensive property profiles. By seamlessly integrating diverse data sources, these resources offer an unparalleled, 360-degree view of real estate assets. This holistic approach empowers buyers, sellers and industry professionals with deeper insight and more informed decisionmaking capabilities.

For quality assurance, some vendors are leveraging AI to elevate the standard of appraisal reports. These advanced systems meticulously review each report and are designed to not only ensure pinpoint accuracy but also full compliance with industry regulations. This application of AI technology can instill greater confidence in the appraisal process and uphold the highest professional standards.

The commercial real estate sector is also reaping the benefits of AI advancements. Some platforms are revolutionizing strategic planning using predictive analytics. By forecasting property sales trends and maintenance requirements, these tools equip investors and property managers with invaluable foresight, enabling them to navigate market dynamics with unprecedented precision.

AI is also refining specific tools used by appraisers. Some AVMs, for example, serve as a reliable cross-verification method, complementing traditional valuation techniques. This integration of AI-driven AVMs with human expertise represents a significant leap forward in achieving more objective and accurate property valuations.

Efficiency gains are another hallmark of AI’s impact on the appraisal profession. Some innovative solutions are streamlining workflows, allowing appraisers to complete their tasks with greater speed and accuracy. These productivity enhancements not only save time but also improve the overall quality of service provided to clients.

While these examples showcase the transformative potential of AI in real estate appraisal, they represent the tip of the iceberg. From advanced analytics to improved project management and enhanced client engagement, AI continues to open new horizons for innovation in the field.

Conclusion AI should not be considered a threat to appraisers but a powerful ally. By leveraging AI’s capabilities, appraisers can enhance their efficiency, accuracy and overall service quality.

The unique judgment, expertise and contextual understanding that appraiers bring to their work are irreplaceable. Embracing AI as a tool helps ensure that appraisers will continue to play a vital role in the real estate

industry, delivering unparalleled value to clients and shaping the future of real estate appraising.

Forward-thinking professionals are expanding their skill sets beyond traditional appraisal techniques, exploring areas such as data analytics, critical thinking and advanced communication strategies. By mastering these new AI tools, appraisers can unlock their full potential and maximize the benefits of this groundbreaking technology.

The path to success in the AI era requires a proactive approach. By embracing and adapting to AI technologies, appraisers can deliver services that are not only faster but also more precise, providing exceptional value to their clients. The future holds immense promise for those

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who evolve in tandem with these technological advancements.

However, striking the right balance is crucial. While excessive resistance or pessimism can hinder progress, a measured approach that acknowledges both the challenges and opportunities presented by AI is most beneficial. By maintaining this equilibrium, appraisers can navigate the AI-enhanced landscape of real estate valuation with confidence, uncovering new avenues for professional growth and innovation.

In this transformative era, those who adapt, learn, and leverage AI effectively will be well-positioned to thrive, leading the way for a dynamic and exciting future of real estate appraisal. WRE

Written by Lore DeAstra, SR/WA, MRICS, SRA

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Fall 2024 Working RE 29

TAF Under Pressure:

New President Takes the Reins

by Tony Jones, Senior Editor

After more than three decades under

“The time for divisiveness is over. We need to come together and show that we can work together to tackle the big issues that are out there.”

30 Working RE Fall 2024

the leadership of David Bunton, The Appraisal Foundation (TAF) has a new president. But the appointment of Kelly Davids wasn’t without controversy. With a hot lens on the appraisal profession in general, particularly regarding charges of bias and discrimination, some government and industry observers saw the transition to a new president as an opportunity for the foundation to bring in some fresh blood and an outside perspective at the top—until it didn’t.

Davids’ ascension as an internal candidate from her position as senior vice president is not particularly unusual since she was already serving in a chief operating officer role and had been on staff with TAF since 2013 as well as a member of the Board of Trustees (BOT) for about a year and half prior to that. But her hiring in March still raised eyebrows in part because it came at the conclusion of a search process that began in 2022 after Bunton informed the BOT that he would retire when his contract expires at the end of this year.

As part of that process, the BOT brought in a search firm, Association Strategies Inc. (A S I ), to interview stakeholders, including the Appraisal Subcommittee—the federal agency that monitors and reviews TAF’s work— board members and staff, to “develop a candidate profile to identify the next organization president,” according to a TAF press release. Then, in July 2023, the BOT’s CEO Search Committee “decided to pursue an internal candidate search first to determine if any candidates met the criteria laid out in ASI’s candidate profile.”

The internal search identified Davids, who was unanimously advanced

as the committee’s recommendation, following “background and reference checks, three rounds of interviews and a presentation,” according to TAF. Among the detractors of the search process was Rohit Chopra, director of the Consumer Financial Protection Bureau and designated executive sponsor for the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council. During a hearing before the ASC about a week before Davids was named president, Chopra gave a harsh, wide-ranging critique of TAF including what he characterized as a lack of transparency in its processes.

Regarding the president search, Chopra indicated that the ASC members who participated in the search firm’s exercise to develop a candidate profile had “stressed the importance of a broad search that included consideration of external candidates.” He also testified that TAF hadn’t given the ASC “access to deliberations or any role in reviewing candidates” and referred to an earlier hearing in which Bunton “opined that The Appraisal Foundation would not seek ratification of its new president from the ASC.” “The Appraisal Foundation’s failure to fully disclose basic details or meaningfully involve the ASC in this process gives no reason to be confident in the leadership selection process,” Chopra told the subcommittee.

Welcome Aboard In fairness to Davids, she wasn’t in control of any part of the process. Other than participating in the staff interviews that ASI used to craft a candidate profile, she purposely stuck to the sidelines because of her interest in the position.

the Board of Trustees. “Kelly’s innate ability to inspire and guide is unparalleled, and she possesses a rare blend of vision, determination and strategic thinking,” Boyer said in the same release. “Her passion for advancing the field of appraisal is contagious, and I am convinced she was destined to lead The Appraisal Foundation.”

Interestingly, when she became chief regulator in Ohio, its appraiser regulatory program was one of seven such state programs that was on a watch list of the Appraisal Subcommittee for failing to meet requirements. Davids says she and a team of appraisers pulled the program out of the doghouse and transformed it into a model for other states nationwide. “In my mind, if we failed to meet their requirements, we were failing appraiser professionals as well,” she notes.

That circumstance ultimately led her on a path to TAF, first as a trustee

Her résumé outside of TAF is also extensive and rounds out her experience with the foundation.

Prior to joining TAF in 2013, she had a long history of public service.

She’s been the mayor of LaRue, Ohio, and held senior-level positions for two Ohio governors of different political parties. Notably, she was superintendent of the Ohio Division of Real Estate & Professional Licensing and served as chief regulator for Ohio’s appraisers.

“We are thrilled to have such a qualified person as Kelly Davids to lead the foundation’s next chapter,” said Board of Trustees Chair Tracy Johnston in a released statement. “With Kelly’s thoughtful and inclusive vision for the organization, I have complete confidence that Kelly will meet and surpass the Board of Trustees’ initial expectations.”

She also received a glowing review from Tom Boyer, a member of the CEO Search Committee and a past chair of

member before resigning that position to join the foundation staff to work on strategic initiatives.

Though it’s not unusual for an internal candidate to be favored for any position, the appearance of foregoing an external search and examination of a large pool of potential candidates is a legitimate eyebrow-raiser even if the search committee and board thought they had the perfect candidate already in the building.

To her credit, Davids doesn’t seem bothered by the naysayers or controversy, and seems determined to be a coalescing presence and roll up her sleeves on substantive issues affecting the appraisal profession. Working RE recently sat down with Davids to hear firsthand why she believes she’s most qualified to lead TAF forward and pick her brain on several topics. Here’s what she had to say. page 328

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On Why She Fits the Role Davids believes that her career pathway to the TAF presidency couldn’t have been designed any better, emphasizing her public service focus on executive and judicial operation as well as her understanding of the breadth of public policy implications that comprise a regulatory system she calls “strange, unique and wonderful.”

“It’s a complex and beautiful system that we have for appraiser regulation,” says Davids. “There are many different players with many different perspectives, and I think that my experience, temperament and positivity create the leadership that this profession needs to come together and help everyone understand that there is, under the foundation umbrella, a safe space to have really good, intellectually rigorous discourse about the big issues without being divisive or antagonistic against someone who has a different perspective.

“There’s plenty of space for all voices in this foundation, and I think that I’m a really good leader to make that happen, at least that’s what people are telling me.”

On Naysayer Noise Davids says she spent her first 100 days as president on a listening tour to hear a full range of perspectives, including many people who have been quite vocal with their concerns, on issues facing the foundation and the profession at large.

“To a T, the welcome has just been overwhelmingly positive,” she notes.

“I’m not really focused on the naysayers as much as I want to listen to every single perspective. But what I’m getting from all those listening sessions is that there’s just a huge thirst for working together and moving forward positively to really making the changes that are needed for this profession. I’m very pleased.”

On Scrutiny and Looking Forward Fair or not, the criticism heaped at the 32 Working RE Fall 2024

appraiser profession by the federal government, think tanks, media and public during the last four years has been substantial. Accusations of systemic bias and discrimination against the industry did not leave TAF unscathed and has resulted in the foundation and its independent boards—the Appraisal Qualifications Board and Appraisal Standards Board—pursuing several actionable items and initiatives designed to increase diversity in the profession and eliminate discrimination in appraisals.

Among the items pursued are the adoption of the 2024 edition of the Uniform Standards of Professional Appraisal Practice (USPAP), which includes a new, nondiscrimination section of the Ethics Rule, along with sponsorship of the Appraiser Diversity Initiative, creation of the Practical Applications of Real Estate Appraisal (PAREA) program, overhaul of its BOT governance structure and more.

Though these efforts began to take shape in 2020, prior to the December 2021 launch of an investigation by the Department of Housing and Urban Development (HUD) into TAF’s policies, practices and appraiser qualification criteria, Davids admits the scrutiny was “intense” for the foundation and all appraisers. (Note: TAF signed a conciliation agreement in July to conclude the HUD investigation without any findings.)

“Instead of hiding from it, we took it as an opportunity to really tackle issues head on,” says Davids. “I’m really pleased with how all of that scrutiny resulted in us—the foundation and the profession—being in a much better place now than we were when this started three or four years ago. “But as we look forward, I really think the profession will benefit from being more unified. And we have a focus on growing that next generation of diverse, educated, qualified individuals who join the ranks of the 80,000-plus appraiser professionals in this country.”

Davids believes meaningful growth can come from working within a more collaborative atmosphere of common purpose. “That environment has to be where there’s peace and stability and trust in this profession,” she asserts. “How do we build that? The time for divisiveness is over. We need to come together and show that we can work together to tackle the big issues that are out there.

“To do that requires collaboration … among all the different players within this ecosystem that involves valuation,” she continues. “That pressure that exists is a positive pressure to support innovation and not chaos.”

On Unease With Unfair Accusations The lack of an initial, forceful rebuttal by appraisal leadership organizations in response to the wake of bias allegations left many appraisers underwhelmed and feeling unsupported by the industry.

Though Davids acknowledges that the characterization against the profession has been too broad, she believes the best defense is for individual appraisers to adhere to USPAP, lean into education and produce top-tier work.

This includes additional training on fair-housing and valuation bias not because it’s an admission of any shortcoming but as a failsafe to prevent an incident from occurring since “one instance of discrimination is one too many,” she notes.

“I don’t like it when any group is painted with a broad brush. I think that does a disservice to any group,” says Davids. “And, so, I can understand fully how appraisers are concerned when they’re being painted with that broad brush, but I think the proof is in the response of what happened when that brush stroke happened.

“Appraisers are really doing what it takes to make certain that they are seen as trustworthy,” she continues. “And that’s what my message to them would be: Continue to work hard; continue

to put on that whole shield of USPAP; get your training and education; and continue to provide those trustworthy services for the people who hire you to do that.”

On Pressing Issues Davids believes the way to move the industry forward is to coalesce and tackle the issues head on. Key priorities are improving the pathways for entry into the appraisal profession and better educating consumers.

“Right at the top of that list to do is building the next generation of appraisers,” says Davids. “We’ve got an older population. Sometimes it skews older because it’s often a second career for many folks. They don’t tackle it right out of college or high school. So, that skews it old anyway, but it’s time for us

to really focus on the next generation and how we put those systems in place to create a seamless pathway for them.

“We also need to work immediately on building new resources for consumers and users of appraisal services. Many people don’t understand what appraisals are or what appraisers do. They just think, oh, you go on Zillow or some other algorithm and it spits out a price. That is the farthest thing from the truth,” she continues.

“So, we need to do a better job of really explaining what those consumers need to know. We need to put ourselves in their shoes, so they understand better what appraisal services really are all about.”

Davids also wants TAF to take a proactive lead on emerging issues and leverage the knowledge and experience

of stakeholders throughout the scope of the industry: “We’ve started that recently with panels on artificial intelligence and upzoning, bringing experts together in those new, emerging items or areas that are impacting appraisal services and lenders—having a good discussion and building our understanding about what that means and getting out in front of some of those things.

“We need to continue to use our network of brilliant people that are around those tables,” she continues. “We have 118 organizations now that are affiliated with the appraisal profession.

These are organizations of individuals that are really at the leadership roles from appraisers to lenders to technology people and beyond. We need to harness that power and bring people together as we move forward.” WRE

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Fall 2024 Working RE 33

How a Chink in Your Armor Can Create an Ugly Outcome

by Richard Hagar, SRA

W

“By not performing the appraisal correctly, you are allowing someone to come inside your world and look around.

What will they find?”

e’ve all been here before: The borrower doesn’t agree with your value conclusion, so like a spoiled brat stomping their feet, they complain to the appraisal management company (AMC)/client, pointing out all sorts of bogus issues. The AMC/client then performs a detailed review of your appraisal and adjustments.

This is the major inflection point between a good outcome or an ugly one.

If the appraisal was completed properly and included sufficient information, this problem would go away. However, in this instance, the reviewer reads generic statements regarding how the adjustments were determined such as, “Adjustments were based on a regression analysis, matched-pair analysis, depreciated cost, and/or the appraiser’s opinion based on 20 years of experience.”

OK, but did the appraiser really perform all of these methods in this particular appraisal, or is this (and similar statements) simply a generic, boilerplate statement that could apply to every appraisal ever produced? Which data and method were used in this instance to determine the square-footage adjustment? Which method was used to determine the location adjustment? And how about that ADU? If these sorts of questions are not answered within the appraisal, then the borrower and AMC/client have a legitimate reason to question the appraiser and ask for more information and clarity.

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Don’t get mad at them due to your failure to answer these questions in the appraisal. The AMC/client must waste time asking the appraiser for support for the adjustments. As the appraiser, you must stop what you’re doing and waste time answering the AMC. Everybody’s losing at this point.

Making a Bad Situation Worse Unfortunately, in many of these instances, the appraiser really hasn’t determined the adjustments using a valid method (your opinion or 20 years in the business are not valid methods).

In this example, let’s say the appraiser responds with more generic, meaningless statements such as, “The adjustments were $50 per square foot” or “The location was based on a matchedpair analysis.” The AMC/client isn’t asking you to state what is shown on the grid or the method, they are asking for specific information supporting the adjustments. Which propeties were used for the matched pair? Comps #1 and #2, or some properties that are not in the report? What are their addresses?

What data was used for the regression?

Show it to us! Let’s see the graph.

Way too often, this back and forth goes on, and then the appraiser becomes upset and says, “Take me off your list” or “Order an appraisal from someone else.”

A critical point has now turned ugly.

The appraiser has created a problem that can’t fade away. According to federal law, the AMC or lender can’t simply order a new appraisal; they must find fault with the first appraisal, then turn the appraiser into the state for disciplinary action. The AMC and lender have no choice in this matter.

Here’s why: Prior to 2010, most lenders would order appraisals again and again until they got an appraisal with “the right value.” To prevent this abuse, a federal law was passed that requires a lender to review the appraisal and find a Uniform Standards of Professional Appraisal Practice (USPAP) failure likely to impact the value conclusion before they can order a second appraisal.

And then—drum roll here—the AMC and lender are required to turn the appraisal into the state for potential license revocation. This requirement applies to the client, lender, AMC, Fannie Mae, Freddie Mac, Department of Veteran Affairs (VA), and Federal Housing Administration (FHA). They have no choice. By not performing the appraisal correctly, you are allowing someone to come inside your world and look around.

What will they find?

Chink in the Armor I just completed a review of an appraisal that had been turned into the state.

The complaint was, according to the client, “due to the appraisal not listing the correct construction date, resulting in an incorrect value.” This was a bogus issue since the original construction date and date of rebuilding the house didn’t impact the description or value; it was simply an excuse to attack the appraisal’s value conclusion. This slight flaw in the appraisal—a chink or hole in the armor surrounding the appraiser—has now allowed the state to dig into the appraisal and look for any issues, even if they are not part of the complaint.

We are not perfect. If someone digs deep enough into an appraisal, they will likely find a problem. In this instance, the appraisal contained generic statements regarding the adjustments. The state obtained a copy of the appraiser’s workfile, and guess what, there was no support/proof for any adjustment.

I then looked at the photographs of the comparables. Some were taken on a sunny day, others on a cloudy day. Well, that seemed suspicious.

After digging deeper, it turns out all the photographs matched the multiple listing services (MLS) photographs (a federal copyright violation). It was obvious the appraiser hadn’t inspected the comparables, a lie concerning the scope of work performed for the appraisal and indicative of an intent to mislead the lender. This is a major violation of Fannie Mae requirements, USPAP and federal law.

Hmm, wonder what else was missing from the appraisal or workfile?

The cost approach stated that the land value was based on sales. However, the appraisal didn’t list any sales, and none were found in the workfile— another black mark. Bouncing over to another part of the appraisal, did the appraiser check the Highest and Best Use box and really perform and summarize the steps taken or just skip over this requirement? In this instance, there was nothing other than stating that the zoning was “residential,” and the current use is the highest and best use. Where is the summary as required

by Standard Rule 2-2(a)(vii)(x)?

“The content of the appraisal report must … at a minimum summarize the information analyzed; the appraisal methods and techniques employed, and the reasoning that supports the analysis, opinion, and conclusions.”

Though I agreed with the appraiser’s value conclusion, the appraisal’s failures meant it wasn’t credible, and credibility is required by USPAP. A simple weakness, or chink in the outer armor, allowed someone else to poke all around the appraisal and methodology of the appraiser. Once a bullet gets past the outer armor, it can ricochet all around inside and cause extensive damage.

Graham Albertini, SRA, a good USPAP instructor who used to work in my office, once told me, “Appraisers

must convince a reader that the information and value conclusion are correct. Convince the reader, and your problems go away.” In this particular case, the appraiser didn’t convince the borrower, the AMC, lender or state.

Solutions Remember, this all started with a minor problem: the value didn’t make the borrower happy. This happens! Expect it.

The report didn’t convince the reader that the appraiser was right.

The report contained generic statements about the adjustments, didn’t state which method was used for each adjustment or where the information came from. The appraiser said he inspected the comparables, so why was it necessary to use MLS photos instead of his own? There was no summary of the information used to reach the highest and best use conclusion. And the appraiser became upset with being questioned and told the client to “take me off your list and hire someone else.”

It was a minor problem that the appraiser could have prevented up front … in the appraisal. The report might have taken an hour longer to complete, but by trying to save an hour, the appraiser let a bullet enter and ricochet all around his world and ruin his future appraisal life.

Don’t let this happen to you. Stop being so defensive if your work is questioned. It’s the job of a good AMC to question weak appraisals. Besides, sometimes they are trying to help you.

Often, they are simply pointing out your failure, so correct it and move on.

I strongly recommend taking classes on how to determine appraisal adjustments, highest and best use analysis, photograph and inspection requirements, and report writing. These classes are designed to strengthen your armor. Do it now, and get ready for the next round of business because it will be here shortly. I tell these real-life stories to help you stay safe and earn higher fees. WRE Fall 2024 Working RE 35

Why Report a State Board Investigation or Complaint?

by Isaac Peck, Senior Broker at OREP.org

To say there is a high volume of state

“You don’t have to go it alone if the state board comes knocking. Seek help and report it to your insurance carrier.”

board complaints filed against appraisers is an understatement. Fannie Mae has admitted filing more than 1,000 complaints (they call them “tips”) with state boards and licensing commissions in a single calendar year. Even if we consider that Freddie Mac is filing slightly fewer complaints, the government-sponsored enterprises (GSEs) are easily filing over 2,000 complaints against appraisers per year.

If you take into account complaints filed by the general public, real estate agents, appraisal management companies (AMCs), lenders, and other appraisers, the true number of complaints filed against appraisers may be closer to 4,000 per year. Though not every complaint filed is investigated or even taken seriously by the state appraiser board or real estate commission, that’s still a lot of heat facing appraisers.

All of this raises an important question. What exactly should you do if you do receive notice from your state regulator that a complaint has been filed against you or that they are investigating you?

Here is some straightforward advice: •

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Don’t try to go it alone. Seek an experienced appraiser, Uniform Standards of Professional Appraisal Practice (USPAP) expert, or attorney who can view your appraisal and the complaint against you independently. You can also have them review your response prior to firing it off to the state board. Many appraisers are quick to respond to a

•

notice and may be emotional when writing their response letter. This is a mistake. It pays to take a few days (or a week!) and approach this with a level head. Seek professional help in reviewing your appraisal and your response.

You must immediately report the complaint or investigation to your insurance carrier. This is absolutely key. In some cases, the state might send a letter indicating that they’re “inquiring” about an appraisal or perhaps simply requesting a copy of an appraisal. Many appraisers think this isn’t something they need to tell their insurance carrier (“Why do I need to report such a simple inquiry? It’s not even a complaint yet!”), but you certainly should.

Here is wording from one of the main policies offered by OREP Insurance Services: The Company will reimburse the Named Insured for reasonable attorneys’ fees, costs and expenses incurred resulting from the investigation or defense of a disciplinary action first received by the Named Insured and reported in writing to the Company during the policy period by reason of an act or omission in the performance of Professional Services.

The maximum amount payable, regardless of the number of disciplinary actions, shall be $10,000 per Claim and $25,000 per policy period. The Company shall not be obligated to defend any disciplinary action, or pay any fine, penalty or award resulting from any disciplinary action.

In other words, the policy will reimburse you up to $10,000 of reasonable expenses, but you have to report the “investigation” during the policy period. If the state sends you a letter “inquiring” about an appraisal or asking for a copy, that is an investigation.

You might think this is harsh, but it drives home the point of how important it is to report any investigation or complaint to your insurance carrier right away.

This type of policy language is not specific to OREP either. The requirement is present in the vast majority of appraiser errors and omissions (E&O) policies. One of OREP’s largest competitors actually requires that appraisers report the investigation within 60 days of receiving notification for coverage to be offered!

So, if you want coverage and support from your insurance carrier with a state board complaint (and you should), then report it when you receive it.

We’ve seen plenty of cases in which appraisers report these matters six months, or even years, later and wind up upset when coverage is declined. I encourage you not to go it alone when the state board comes knocking.

As an aside, this advice also applies to claims as well. If you receive a demand letter, or if a real estate agent, buyer or seller threatens to sue you, or if anything happens that you think might be a claim, it pays to report it to your insurance carrier. Getting a potential claim on the record with your insurance carrier is the surest way to ensure that you will have coverage down the road if it does turn into a full-blown claim. Especially when it comes to claims, you don’t want to wind up in a questionable coverage position.

One final word of advice about state board complaints and investigations. The recommendations here apply even if the state is simply sending you an “inquiry,” a request for your workfile,

or is performing any kind of scrutiny into you or your appraisals. Note that the policy wording quoted above references an “investigation.” The word “inquiry” is found in the definition of the word “investigation.” If the state is inquiring about your appraisal, asking you questions, or requesting a copy of your workfile, that is an investigation, and it needs to be reported to your insurance carrier right away. Every appraiser E&O policy I’ve ever read has very similar language and a similar position.

Impact on Insurance Premiums?

Many appraisers do not report board complaints or investigations because they are concerned that their insurance carrier will increase their premiums.

This fear is not unfounded. In the years following the 2008 real estate crash, I have worked with insurance carriers that used to non-renew an appraiser’s insurance policy for reporting even a frivolous complaint!

Here’s the best way I can answer this concern: It depends on the insurance carrier. Some carriers continue to penalize appraisers for simply reporting a state board investigation—regardless of whether the complaint was frivolous or if it required a professional defense before it was dismissed.

As the appraisal insurance market has softened over the last decade, some insurance carriers have adopted more liberal approaches—increasing an appraiser’s premium only when more than $2,000 is spent on their defense, for example.

With OREP’s primary program (the one that we have underwriting authority for), we do not penalize appraisers for reporting a state board investigation. In the vast majority of cases, our insureds are able to receive professional support and assistance— with no increase to their premiums.

Of course, our underwriters review the legitimacy and allegations of each

complaint. We don’t like allegations of fraud, for example. But our general rule is that if the cost of your defense is less than $5,000, you will not experience an increase to your premium. If the cost of your defense exceeds $5,000, then it’s likely your premiums will increase by $100-$200 per year. In my experience, more than 90 percent of board complaints do not reach this threshold.

Conclusion You don’t have to go it alone if the state board comes knocking. Seek help and report it to your insurance carrier.

Even if you’re working with a carrier that will increase your premiums at the mere mention of the word “investigation,” it’s better than having your coverage denied if the state digs in and comes after your license. Don’t risk it.

Sticking with an insurance carrier like that might not be a good idea anyway.

Stay safe out there! WRE Serving Real Estate Professionals

Winter 2020 Volume 52

The #1 source of real estate appraisal information and appraisal news.

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Winter 2020 Volume 52

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Fall 2024 Working RE 37

NAR Settlement Opens New Business Opportunities

by Kern Slucter, MS, MAI, SRA

The world of real estate is undergoing

“We are at a watershed moment in the history of the real estate business.

It is time to upgrade the real estate business to a profession and serve the consumers first.”

tremendous change. In the realm of real estate appraisers and agents, the settlement of the Sitzer-Burnett et al. v. National Association of Realtors et al. class-action lawsuit leaves the commission structure and agent compensation in limbo until the final court action scheduled for November.

Under the National Association of Realtors’ (NAR) cooperating compensation rule, sellers were required to pay the buyer agent’s commission. Based on the median-priced home selling for $420,000 (Q1 2024, St. Louis Federal Reserve Bank), a 6 percent commission develops a transaction cost of $25,200 shared between the buying and selling brokers (and their respective agents).

That equates to $12,600 per side of the transaction. Of course, the brokers share that commission with their agents based on their agreed commission split.

As an example of the commission model’s failings, an agent reportedly posted on Facebook that she had shown a buyer 32 homes, and they went and bought from a For Sale by Owner (FSBO). Another agent was asked by a seller, “Why do I have to pay such a high commission at 6 percent?” The agent answered, “Because I have to make a living and work with so many people who pay nothing.” Clearly, the commission model subsidizes “tire kickers” at the expense of sellers.

Kern G. Slucter, MS, MAI, SRA, is author of Real Estate à la Carte (second edition) and CEO of the International Association of Real Estate Consultants. He has more than 30 years of real estate consulting, counseling, residential and commercial brokerage, teaching, and appraisal experience. His career includes teaching real estate and valuation courses nationally and internationally. For more information on fee-for-service or hourly consulting as envisioned in his book, visit www.iarec.org.

38 Working RE Fall 2024

Rethinking Fees One potential benefit of the NAR settlement is the opportunity to rethink various compensation programs, including fee-for-service, hourly fees, or a combination of both, thus providing an excellent revenue stream to the practice.

Using the previous example, the typical consulting fee for the same service will likely range from $5,000 to $7,600, saving consumers approximately $6,000 per side of the transaction. How can this fee structure be profitable for both real estate agents and real estate consultants? The answer lies in the efficiency of the economic model. The consultant is paid only when he works for the consumer. Under the commission model, the real estate agent may work for many buyers or sellers who do not buy or sell a home, and that time is unproductive.

Brokers and agents will earn more as consultants because, with reasonable time management skills, they will be paid for the majority of their hours worked. Of course, each consultant will be able to set their own hourly rate or fee-for-service schedule.

Appraiser as Consultant In the residential sector, the unique qualifications of a residential appraiser could position them as a valuable consultant for residential real estate buyers or sellers. This is due to the rigorous licensing requirements. Most would agree that appraisers have more hours of tested education, with some form of mentorship, and a nationally approved page 408

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exam to earn their license, unlike a typical agent who is licensed after an introductory course and state exam.

It’s important to understand the significant difference in education requirements between a typical real estate agent and an appraiser. A real estate agent must comply with state law and take between 30 and 90 hours of real estate education (depending on their state statute). In contrast, the minimum education requirement for a licensed appraiser is 150 hours. Further, a certified residential appraiser license requires 200 hours, while a certified general appraiser has 300 education hours.

In addition, appraisers must be mentored for 1,000 to 2,000 hours, depending on the license type.

Despite the proposed new mortgage report format and governmentsponsored enterprises (GSEs) pushing for fewer appraisal reports, the appraiser community is on the brink of significant opportunities. Although the number of licensed appraisers and necessary reports may have shrunk, this presents a chance for those remaining to thrive and substantially impact the consumer and real estate markets.

Appraisers seeking to add consulting to their business portfolios must research their state agent/broker licensing requirements. Be sure to inquire whether appraisal experience applies to upgrading to a broker level—some states allow that experience to be counted for all or part. Adding an agent or broker’s license is inexpensive and enables a significant expansion of the business practice and services offered.

Other Considerations In light of Sitzer-Burnett, appraisers, and agents must have a solid grasp of agency law. Understanding the duties of “agency” is not just important, it is critical to knowing when the customer relationship begins and ends, and when a client relationship is entered. Agents have duties to clients.

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A complete understanding of these duties is not just beneficial, it is essential for every real estate professional.

This knowledge will empower them to navigate the evolving landscape of the real estate transaction with confidence and expertise.

Consultants with a broker or agent license and an appraiser license will avoid using words like value, range of value, or market value when discussing property price. Terms like list price, price range, and probable sale price will be critical parts of their consulting vocabulary. The consultant must be aware of state licensing laws and the Uniform Standards of Professional Appraisal Practice to maintain an ethical and legal practice. Consultants are advised to use a Comparative Market Analysis form rather than a restricted appraisal report or appraisal report format.

Under the fee-for-service model, the real estate appraiser, as the consultant, will typically meet with a buyer or seller for an intake assessment. During this meeting, the prospective client’s goals are discussed and recorded.

The method of compensation is discussed in detail. The six steps or stages of the buying or selling process are reviewed, and the tasks are divided between the client and consultant.

Ideally, an engagement letter is developed, and in many cases, a retainer is collected. (It’s important to note that it would be considered a conflict of interest for an appraiser to provide a mortgage appraisal for a transaction on which they were consulting.)

Depending on company policies, billings are provided monthly, much as an attorney would bill. Often, there is no brokerage or consulting expense on a closing statement.

Watershed Moment We are at a watershed moment in the history of the real estate business. It is time to upgrade the real estate business

to a profession and serve the consumers first. As unbiased consultants, forwardthinking agents and appraisers have a unique and crucial role in real estate transactions. Their role is not about selling but about providing valuable advice and services.

This unbiased approach is what sets appraisers apart and makes them an integral and valued part of advancing the real estate profession. This transformative period could see a significant expansion of their business portfolio, potentially propelling them into the role of a highly valued real estate consultant, offering unique insights and expertise. WRE