WorkingRE Magazine - Issue 56

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Real Est at e A pprai s ers

Summer 2021, Volume 56

APPRAISAL WAIVERS THE FUTURE IS HERE

Driving Comparables: The Great Debate Discrimination in Appraisals Has Appraising Failed the Public Good?

What I Learned From Drug Dealers

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Summer 2021, Volume 56

4 4

From the Publisher Readers Respond

6

Appraisal Waivers: The Future is Here Isaac Peck, Editor

12

Good for Business

David Brauner, Senior Broker at OREP.org

14

New Coverages Appraisers Should Be Aware Of Isaac Peck, Editor

16 18 24 26

Has Appraising Failed the Public Good?

Steven R. Smith, MSREA, MAI, SRA

Driving Comps: The Great Debate Isaac Peck, Editor

What I Learned from Drug Dealers Richard Hagar, SRA

Discrimination in Appraisals Isaac Peck, Editor

30

Valuing Land When There Are Few or No Vacant Land Sales Phil Spool, ASA

34 37 38 40

Tracking an Increasing Market Rachel Massey, SRA, AI-RRS, ASA

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Professional Marketplace

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Industry News

2021 Appraiser Fee Survey Isaac Peck, Editor

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.

David Brauner dbrauner@orep.org

Subscribe Today! Print, Premium Content, Savings

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

2 Working RE Summer 2021

Editor Isaac Peck isaac@orep.org

Assistant Editor & Designer Ariane Herwig ariane@orep.org

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From the Publisher

Serving Others

by David Brauner, Senior Broker at OREP.org

How to Fight Blacklisting

The circumstances of the last year have allowed me to slow down a bit and contemplate my 20 years running OREP. When I forwarded these two comments to the OREP team with my congratulations this morning, I realized something: I still get a deep sense of accomplishment knowing we are treating people right.

Work as hard as you can at making your business work and don’t give up...

Sylvia Gatica HHHHH Great service...my experience was top of the line with my agent.

Pat Chastain HHHHH Great service, the new online renewal setup worked perfectly. I had my policy back the next morning.

There is a reason we get a comment or two like this almost daily and it starts at the top. I never have hassled any OREP agent about making or losing a sale. I never put any pressure on anyone to “hit the numbers.” What do I expect? That phone calls and emails are responded to promptly and questions answered. That problems are solved. That everyone is respectful. My gosh, there are so many competitors out there—if someone wants to trust you with their business—handle them with care! I give OREP agents an incentive along with their salary because when they work harder to manage a growing business, they should benefit commensurately in every paycheck.

But “making the phones ring” is my job. Their job is treating you competently and respectfully when you call/email.

If this simple formula for success had not been enough (combined with lots of hard work), there would be no OREP or Working RE. But it has always worked.

I just want to share that with you for your business. OREP agents know insurance, sure, just like you probably know how to inspect and report (appraise).

The combination of expertise and customer service is a formula for success.

I was not a business major. I was a journalism major, a liberal arts guy trained to communicate information honestly—that was and is my passion.

Actually your job is pretty similar, isn’t it? And I had an instinct, I’d say more like gratitude, for wanting to do my best for anyone who entrusted me with their business. I’m still grateful 20 years later.

My humble advice: Work as hard as you can at making your business work and don’t give up, and treat everyone the way you want to be treated.

See how that works. Set your pricing so you make the money you deserve and then deliver. I know that is simplistic but that’s what I know works. WRE 4 Working RE Summer 2021

Readers Respond We reviewed a Purchase Agreement that had an addendum that the owner (builder) would not allow a whole list of appraisers on the property.

Fortunately I was not on the list, but it still wasn’t right and I complained to the board. But they thought it was perfectly fine, GRRR. —Janet K. Riggs I have had serious attempts to coerce the final estimate of value. I have documented them and turned all the information over to the Feds and law enforcement each time. No action or follow-up was ever taken and each case was swept under the rug. I firmly believe this is all talk. —Gary Y. Gary. You are 100% correct. No one really cares. I have taken similar issues all the way to HUD. Nothing happens. But in this industry, most things are just talk. You either play ball or you’re out. Even with banks. There is no independence. Just “business partners.” —New England Appraiser

 Appraising Lake Property What about unrestricted lakefront vs. restricted lakefront? Is unrestricted lakefront more valuable? If you took the same lakefront lot, geography, location, and neighborhood and changed nothing else, but in one scenario, it was “unrestricted,” and in the other, it was subject to covenants/ restricted which would be more valuable and why? —Tamara Hasty





USPAP: Living and Changing Document (Part 1) Your article is good. I really enjoyed it, and it is one of the best walkthroughs of the history of the changes.

However, USPAP does allow any term added to the required “Appraisal Report” or “Restricted Appraisal Report” options. The idea is minimum requirements which is what USPAP is founded on. Using “Summary” or “Self-Contained” in addition to the required names of the reports does not indicate a violation of USPAP, nor does it mean students haven’t taken the 7-hour update course. It may mean they have been given a greater understanding of the requirements. I still see appraisal requests from lenders come across using those terms as well. —JoAnn Apostol

Fannie Mae’s New Highest and Best Use

really good stuff that proves no matter how much USPAP would love the One World Order, as long as it remains an unfunded federal mandate, there will be up to 50 interpretations…including H&BU. —Bob Hatfield

This interesting article raises the question: is “legally permissible” limited to government, i.e., for zoning and land use? Probably not, since deed restrictions have nothing to do with either yet they are clearly a factor in what is legally permissible; therefore, the deed of trust (in Texas) that is filed to protect the lender is, by extension, a deed restriction—and so the prohibition against subdividing the tract on which a dwelling straddles lot lines, could be interpreted to be in perpetuity, i.e., as long as the lien is in place. That “logic” follows the GSEs and HUD’s “quasi-PUD” theory that requires PUD reporting for any mandatory HOA, even though PUD is a zoning description (in Texas). This is

 Reconsiderations of Value and What to Do About Them Let’s talk about lazy appraisers who lie about market stats. In a low to no inventory market, he says 3–6 months of inventory and marks stable all the way down. Let’s talk about the fact that it robbed the seller and possibly the buyer as well, especially when the loan is already through the very same lender!

Also will be robbing the lender if the deal falls through. Laziness is real amongst some appraisers and I’m frankly sick of it.

—Stephanie Southerland WRE

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Summer 2021 Working RE

5

Appraisal Waivers: The Future is Here

by Isaac Peck, Editor

Back in 2017, when Working RE inter-

Currently appraisal waivers make up approximately 46% of all valuations for GSE mortgage transactions.

viewed Zachary Dawson, then Director of Collateral Policy & Strategy at Fannie Mae, Dawson reported that Fannie Mae’s use of appraisal waivers was only a few percent of the agency’s total loan production, and that it might increase to 10 percent. “Our enhanced Property Inspection Waiver (PIW) program started December 10, 2016, so delivery volume is still ramping up at this time. We are seeing it used at rates of around 20 percent on limited cashout refinances thus far,” Dawson said at the time.

Four years later, the expansion of Fannie Mae and Freddie Mac’s (the GSEs) appraisal waiver programs has been anything but modest.

According to the American Enterprise Institute’s analysis of the latest publicly available datasets from the GSEs, nearly 46% of all “valuations” for residential mortgage transactions were appraisal waivers in November 2020—with traditional appraisals only being used 54% of the time.

You read that right, currently appraisal waivers make up approximately 46% of all valuations for GSE mortgage transactions.

This represents nearly nine times the volume of waivers seen in late 2017, from around five percent of total loans to over 45 percent. See Figure 1: Appraisal Waiver Percentage of All GSE Valuations for a graph showing the rapid rise of waivers.

Isaac Peck is the Editor of Working RE magazine and the Vice President of Marketing and Operations at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 50 states. He received his master’s degree in accounting at San Diego State University. He can be contacted at isaac@orep.org or (888) 347-5273.

6 Working RE Summer 2021

Across loan types, nearly 70% of rate and term refinances have received an appraisal waiver; over 30% of cash-out refinances and over 10% of purchases received a waiver in the final months of 2020. See Figure 2: Appraisal Waiver Share

by Loan Purpose for details.

The GSEs seem to have executed a quiet coup of the appraisal industry, seemingly without appraisers or other industry stakeholders even noticing. Why? Many appraisers report being busier than ever in 2020, with many increasing their fees to handle the extra volume! (To take Working RE’s 2021 Fee Survey, visit WorkingRE. com/2021survey. The results will be published free to the industry.)

Here is a closer look at the data, what it means, and what it may tell us about the future.

Not New The use of appraisal waivers by Fannie Mae and Freddie Mac is not new. In late 2016, the Appraisal Institute (AI) wrote a letter to the GSEs’ head regulator, Mel Watt, then Director of the Federal Housing Finance Agency (FHFA), urging caution with the use of Fannie Mae and Freddie Mac’s appraisal waivers, particularly with purchase loan transactions.

AI’s letter points out that in the years leading up to the real estate crash of 2007–2008, Fannie and Freddie were issuing appraisal waivers en masse. After they were taken into conservatorship in 2008, it was discovered that as many as 30 percent of mortgage loans held by Fannie and Freddie had received such waivers, according to AI. Looking at the GSEs’ own data,

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Figure 1: Appraisal Waiver Percentage of All GSE Valuations 80% 70%

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Figure 2: Appraisal Waiver Share by Loan Purpose that has been analyzed and published by the American Enterprise Institute (AEI), it is safe to say that after the real estate crash of 2007–2008, the use of waivers was significantly cut back and curtailed. Since then, however, the use of waivers has skyrocketed.

Appraisals vs. Waivers Edward Pinto, Director of AEI, the organization that originally gathered, analyzed and published the GSE’s waiver data, believes that we are currently at the “high mark” of the GSEs’ use of waivers and we should see their use begin to decline in the months ahead.

According to Pinto, this is primarily because interest rates should rise in the next few years, which will decrease no-cash-out refinancing, also known as “rate and term” refinancing, causing cash-out refinances and purchase transactions to make up a larger portion of

total mortgage activity. Because waivers are now being used on the overwhelming majority of rate and term refinances (nearly 70 percent), rising interest rates should trigger less refinancing activity and consequently, waivers may decline as a percentage of total mortgage activity. That is, unless the GSEs continue to rapidly expand their use. “The prevalence of waivers in purchase transactions may still be going up,” says Pinto.

The GSEs’ use of waivers predates the COVID-19 pandemic, Pinto points out. But the pandemic, and the bonanza of refinance and purchase activity that occurred because of historically low interest rates, no doubt played a role in the growth.

Pinto argues that waivers actually are less risky than traditional appraisals, especially for no-cash-out refinances.

Because the AEI has their own nationwide AVM, as well as access to all of

the GSEs’ recent data, they are able to model what types of loans have received waivers and at what LTV ratios.

This has allowed Pinto and his team to conclude that the waivers are coming in lower, in general, on refinances than the traditional human appraisal. In other words, the GSEs are currently being conservative with their models. On the whole, AEI’s model concludes that Freddie Mac’s waiver system is slightly more aggressive than Fannie Mae’s, but that the waiver systems of both GSEs are still providing opinions of value that are slightly lower than those of human appraisers. See Figure 3: Tracking Waivers vs. Human Appraisals (Page 8).

Assessing Risk In terms of the risk involved in appraisal waivers, Pinto explains that the AEI’s primary concern is unscrupulous parties figuring out how to game the system. “I’m cognizant of that fact that when automated methodologies are in the hands of a duopsony, (two buyers controlling the market), they set the market. We are very concerned about that and we need to do more research about how the waiver process might be gamed,” says Pinto.

In terms of what “gaming” the system might look like, Pinto draws comparisons between automated valuation waivers and automated underwriting (AU) that was first implemented back in 1997. “When the actors in a system are able to figure out what the answer is going to be, either in underwriting or in valuation, they can figure out what to input into the system to get the answer they want. For example, when AU started out in the late 1990s, its impact was somewhat benign. However, over time, gaming became rampant, including by Fannie and Freddie themselves.

Underwriting standards continued to get looser and looser through 2007, which was a major contributor to the housing boom that ended in 2007 and page 88

Summer 2021 Working RE

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4%

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Fannie - Waiver -8% 8 18 18 18 18 18 18 18 18 18 18 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 17 17 17 17 17 17 17 17 17 17 17 17 18 1 n Feb ar pr ay un Jul ug ep ct ov ec an eb ar pr ay un Jul ug ep ct ov ec Jan eb ar pr ay un Jul ug ep ct ov ec Jan eb ar pr ay un Jul ug ep ct F M A M J M A M J F M A M J F M A M J O S O N D O N D O N D J A A S A S A S

Ja

Figure 3: Tracking Waivers vs. Human Appraisals the subsequent price collapse. AU was supposed to prevent that. They said it was going to be so much safer, but that’s not what happened,” said Pinto.

Pinto argues that waivers face a similar risk. “Key industry players will be able to figure out the GSEs’ model, at which point they’ll know what numbers to input into the system. But it’s not just lenders who could lead this astray. Fannie and Freddie might, for competitive reasons, also decide to get more aggressive with their models, increasing their risk. This would be akin to the house changing the odds as opposed to the players,” Pinto says.

Another concern that Pinto has is that waivers may end up promoting the “up” real estate cycle. “If you have policies that tend to reinforce an upward real estate cycle, this adds more gasoline to the fire. While we don’t see any of that going on today, we are alert to the fact that history tells us we have to be vigilant. AEI now has a benchmark to compare the waiver and the human appraisal processes in the future and we will continue on a quarterly basis,” reports Pinto.

Rodman Schley, MAI, SRA and 2021 President of the Appraisal Institute 8 Working RE Summer 2021

(AI), says that AI has concerns about the GSEs’ increased risk of waivers.

“Not every situation requires an interior or exterior inspection of the subject property, but we do believe that a race to the bottom is taking place and that increased use of waivers adds risk to the consumer, lenders, and ultimately the taxpayer. Just like we saw in 2008 and 2009, failed loans will lead to taxpayers taking on that burden, so our position is that risk management should be paramount,” said Schley.

Anchoring While there has been much discussion around anchoring, the tendency for the “opinion of value” to match the purchase price or refinance “target,” Pinto points out that there is a significant element of anchoring with appraisal waivers as well. “Anchoring is higher on purchase transactions than on refinance transactions, but is still quite prevalent on refinance transactions,” says Pinto. See Figure 4: Anchoring on GSE Purchase Waivers.

In one of its recent infographics, AEI writes that the waiver process “institutionalizes the traditional ‘what do you need?’ anchoring approach

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Figure 4: Anchoring on GSE Purchase Waivers common to human valuations. Like the AU process, loan originators may increase the odds of getting the desired result by submitting to both GSEs multiple times if a waiver is not offered on the first try. But if a waiver is not granted, the human appraisal becomes the third bite at the apple.”

What’s Up with Appraisal Volume?

If appraisal waivers have increased to 46 percent of all GSE mortgage transactions, why are most appraisers as busy as ever?

The answer lies in the correspondingly drastic increase in refinance and purchase transaction volume that took place in 2020. While the data page 108

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1,200,000 1,000,000 800,000 600,000 400,000 200,000 Apr-20

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Figure 6: Total Number of Mortgage Transactions, Human Appraisals, and Appraisal Waivers from Nov. 2017–Nov. 2020. provided by the GSEs is incomplete until 2017/2018, enough data has been published to get a good picture of the growth of waivers as well as the volume of appraisals over the last several years.

As we can see from Figure 5, the GSEs’ combined number of mortgage transactions increased from an average of around 350,000 transactions in 2014 through early 2019, to over 800,000 transactions per month throughout the summer of 2020 and then nearly 1,000,000 transactions in November 2020.

This sharp increase in mortgage transactions, more than doubling compared to past years, created an environment where even as the use of 10 10 Working RE Summer 2021

appraisal waivers skyrocketed, appraisers still saw the number of assignments allocated to them increase.

As we can see from Figure 6, the number of traditional, human appraisals tracked the number of mortgage transactions very closely from Nov. 2017 into 2019. However, in 2019, a divergence between the two metrics can be noted as waivers begin their rapid ascent.

However, even with the very drastic increase in appraisal waivers, it is still notable that the number of human appraisals has continued to increase throughout 2020. In fact, appraisal volume hit a record high in 2020, even as waiver usage increased substantially.

Another piece of good news for

appraisers is that Fannie Mae and Freddie Mac do not represent the entire mortgage market. Combined, the GSEs only represent 50 to 60 percent of the mortgage market by loan count. With slightly over six trillion dollars in mortgages on their books, they have a little under 55% of all mortgages outstanding, according to Pinto. Loans made by the Department of Veteran Affairs (VA) and the Federal Housing Administration (FHA) account for roughly 25% of the mortgage market combined; the United States Department of Agriculture (USDA) has a few percent of the market (focused on rural areas), and the rest of the market is made up of private or “in-house” lending where the banks hold the loans on their balance sheets.

This means that even as Fannie and Freddie seem comfortable waiving appraisals, the other industry participants that make up the other 45 percent of the mortgage market, are not yet moving in that direction.

Looking to the Future In terms of what to expect, Pinto says that appraisers have to stop complaining about automation, and start talking about what value they bring to the table. “Appraisers should be asking themselves: what is my value add? If appraisers can be replaced by a machine, they will be. If all they’re doing is filling out a bunch of boxes on a form, or putting three comps on a grid, then a machine can do a much better job of that. But if appraisers are bringing knowledge of the fundamentals of the market, and they can articulate the difference between price and value, then they’re adding value and justifying their place in the value chain,” argues Pinto.

Schley also believes that appraisers need to continue to learn and develop their skills. “We should always be working to provide the highest quality product possible. Successful appraisers today and in the future will continue to

educate themselves, and learn and grow.

AI offers a number of designations for appraisers, and it’s not just about getting a designation, it’s about continuing to learn and develop to be better able to serve our clients. Our folks are some of the most incredible forward-thinking people, who are relentlessly working to bring the highest value to reduce risk.

We should always be learning—always expanding,” argues Schley.

Schley believes a holistic approach is necessary. “We need to continue sitting down and talking through the issues with the GSEs, lenders, and appraisal service providers. AI is striving to take part in these discussions, so as an industry we can ensure we’re meeting the needs of the people we serve.

We need to continue identifying the problems and working together to solve them. It has to be a collaborative approach,” Schley says.

Despite the challenges, Schley argues vehemently against the idea that the appraisal profession is dying.

“We are not a dying industry; we are an evolving industry. Yes, things are changing and the way that we do things is changing. AI’s philosophy is that we need to evolve and grow with the changes. The way that you succeed in life is to evolve. If you’re not willing to evolve, if you’re not willing to change, if you’re not willing to learn, then you’re in trouble. The industry has been evolving significantly in the last five–10 years. Successful appraisers will continue to provide the highest quality of products and continue to find ways to improve, change, and evolve to meet the needs of their clients,” says Schley.

To that end, the AI believes that training a new generation of appraisers is integral to the industry’s future. “We

want to see a diverse, healthy appraisal industry and recruiting and training new appraisers is a key part of that.

We are working to break down some of the barriers to entry for the profession and are also offering scholarships for people to get into the industry. We are working hard to encourage more minorities and women to join the ranks because we believe it’s important that we have a diverse group of appraisers.

This industry has been incredibly good to me and it’s a very valuable profession in terms of overall risk reduction for our financial system. That’s why it is so important for our highly skilled appraisers, who have been in the industry for many years, to give back their knowledge and expertise to train the next generation of appraisers,” Schley says. “As an industry, we are going to continue to evolve and change, but we are not on our way out.” WRE

A simple conversa�on can become a peak moment in your career Keep the freedom & flexibility you have today, and

Summer 2021 Working RE 11

Good for Business

by David Brauner, Senior Broker at OREP.org

Great Responding to your client is another way of saying “thank you for your business”—and that’s good for business.

reviews, like the one printed here, can be good for business—just ask Yelp. But “negative” feedback also can propel your business success—if you pay attention to it. Let me explain why.

Good companies, even those with a staff of one, can benefit from negative feedback and even criticism. When we’re too busy or struggling, the impulse may be to not take criticism to heart. Staying positive while you forge ahead may seem like self-preservation. And it probably is—I’ve been there. But while you shouldn’t let criticism defeat you, you shouldn’t ignore it either. Taking the time to take a clear-eyed look at client feedback is good for business.

Pay Attention OREP set up BlippReviews, an automated customer review system, as a way to encourage client feedback and measure

David Brauner is Publisher of Working RE magazine and Senior Broker at OREP, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 50 states (OREP.org). He has provided E&O insurance to appraisers for over 25 years.

He can be contacted at dbrauner@orep.org or (888) 347-5273. California Insurance License #0C89873. Visit OREP.org today for comprehensive coverage at competitive rates.

12 Working RE Summer 2021

how we’re doing. The good, bad and the ugly. It works! This may not make sense for your company right now but when feedback in any form is offered, make up your mind to not ignore it because it’s valuable. If you’re busy, make a note and set it aside for when you have the time and patience to review it. Maybe you can schedule an hour a week dedicated for this; just giving it some thought on the drive home or in the shower can be all it takes to evaluate the validity.

A good part of this involves taming our egos and resisting the impulse to become defensive. We all know people who believe that everyone else is an idiot.

That’s not good for business.

And not all criticism/feedback is obvious. Keep your ears attuned and your radar “on” because feedback can be subtle. Sometimes it’s in the form of a question, such as this from our business years ago: “Did you receive my renewal application?” If you hear the same question over and over, like we did at some point during our early days, that’s not good for business. If something like that happens often, a simple solution

like putting a sticky on your monitor or phone can work: “Return Calls” or “Smile.” It takes time and effort to form a new habit but once you do, it’s on auto-pilot.

As mentioned, sometimes a complaint can lead to a fix that applies to every piece of business you handle, a routine or procedure that makes everything more efficient. Your client feedback might be subtle. Perhaps you notice a pattern in a client’s preferences or “requirements” in how they want to be updated, for instance, or kept in the loop on your progress. Or maybe you are asked to include a unique explanation or extra comps on certain types of properties for this particular client.

Don’t make them ask every time—even if you think the request is unnecessary. Remember, it’s their dime. In many cases, there are “hints” in your dayto-day business that you can use to provide a better client experience and build stronger reports, as long as it’s within ethical bounds, try to comply.

If they drive you crazy, fire them for a better or more compatible client.

Responding If I see an email from an anxious client waiting for a quote as their expiration draws near, my radar turns on because they might be losing business. What is

their expiration date? Have they waited too long? Do we need more staffing?

If I see in the file that they have a claim that requires additional underwriting from the carrier and that they just submitted their docs two days ago, I understand why it’s taking longer than usual—that’s a one off. That’s resolved in my mind for now but not finished, for two reasons. First, we need to set up a reminder that the quote is still pending. And we also must acknowledge our client’s feedback. Responding to your client is another way of saying “thank you for your business”—and that’s good for business.

Ask yourself: if your expectations are not being met by a service provider, if the explanation is timely and reasonable, aren’t you okay most of the time?

If a mistake is involved, aren’t most of us willing to understand and accept that if the issue is fixed quickly? In this case, I might also remind the agent—in a company-wide email to remind everyone, that this type of question can be avoided by preparing clients with claims in advance that their renewal process may take a few days longer than usual. This ultimately saves our clients and ourselves time. For my own part, I send periodic insurance bulletins reminding our insureds that if they have a claim or complaint, it’s best to submit renewal documents early. It’s

good advice whether you’re an OREP insured or not.

Feeling Good Out of 425 total Google Reviews, OREP has enjoyed an average of 4.9 stars and has over 350 Five-Star reviews.

Yes, with a couple of “one and two stars” thrown in there too. (Stuff happens!) But kidding aside, a high level of customer satisfaction is not accidental. Why is it important? It’s important because it’s in our own best interests.

First, it’s good for business: happy clients mean more clients. Second, it’s good for business: better procedures reduce mistakes and liability. Third, it’s good for business: it reduces the stress and the workload, which makes everyone happier and hopefully more patient, kind and courteous to clients, which is…good for business!

Most importantly perhaps is that it’s good for us as human beings. Enough studies and our own life experience are proof enough that we are happier when we like what we do, when what we do matters to us and when we believe we are helping others. Being happier and liking what we do is…well…good for business. That’s how and why suggestions, questions and negative feedback can translate to a more successful business and greater satisfaction. WRE

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Summer 2021 Working RE 13

New Coverages Appraisers Should Be Aware Of

by Isaac Peck, Editor

As

One of the most valuable additions to coverage for appraisers is BIPD coverage, which stands for Bodily Injury and Property Damage.

14 Working RE Summer 2021

the appraisal industry continues to evolve and advance with regulatory, economic, and technological changes, appraisers will be delighted to hear that their E&O coverage is expanding to keep pace. Here are the latest coverages to help protect you and your business.

Most appraiser policies now have a broad definition of Professional Services that provides greater coverage for appraisal reviews, desktops and hybrid/bifurcated appraisals. Additional new coverages include bodily injury/ property damage (BIPD) coverage, that protects appraisers while they are at the subject property, security incident coverage, that protects against certain cyber risks, coverage for mold/fungi, discrimination coverage and much more.

Here’s a look at some of the latest coverages that are now available to appraisers.

Bodily Injury/Property Damage One of the most valuable additions to coverage for appraisers is BIPD coverage, which stands for Bodily Injury and Property Damage. BIPD protects you for what E&O does not cover: accidental damage to property or persons (bodily injury) which you may be responsible for while providing your professional services at an appraisal inspection.

One example is if you knock over a valuable vase (Grandma’s favorite 100-year-old vase, for instance) causing property damage, or God forbid, hurt someone in the course of doing your subject property inspection.

These types of claims are not very common but I have seen a few over the years, and I expect they will increase,

since FHA appraisals require testing or inspecting appliances, attics, crawl spaces, etc.

Here are some real life examples of BIPD-related claims that we’ve seen here at OREP: • Insured exits the rear sliding door onto a patio to measure the home but steps into newly poured cement ($5,000+).

• Insured flushes the toilet and it overflows causing water damage to expensive flooring ($15,000+).

• Insured opens an attic hatch and (allegedly) causes damage to pop- corn ceiling and wardrobe ($5,000+).

• The home seller trips and falls on the insured’s ladder during the inspection (bodily injury—amount of loss unknown).

Just a few years ago coverage for these types of claims required the purchase of a separate General Liability policy. Today BIPD is included at no extra charge in many appraiser policies, including OREP’s flagship policy.

Check with your agent to see if this coverage is included in your policy.

New Coverage: Discrimination Another issue on the horizon for appraisers is housing discrimination. Recent Congressional hearings, New York Times articles, and even a “position statement” from then-candidate Joe Biden, call for tougher standards for appraisers to help address housing discrimination.

Justified or not, appraisers are in the crosshairs when it comes to discrimination lawsuits.

To address this, OREP’s base policy now includes $100,000 of

discrimination coverage, with the option to increase that coverage to $500,000 for those appraisers who request it. This expanded coverage protects appraisers against allegations of discrimination of all kinds, not just race.

New Coverage: Mold/Fungi Fear of mold claims has been a constant worry for many appraisers for decades.

Until recently, most appraiser policies excluded all mold and fungi claims. Mold claims can be complex and “gray.” The reason is that often there is not a clear distinction between a claim involving unreported water damage (which may be covered) and the presence of toxic mold (which is excluded under many policies). This is why “water” claims can be ambiguous—which rhymes with dangerous. The good news is that OREP’s flagship program now includes up to $500,000 in mold/fungi coverage in one of its policy forms. This is very broad coverage, protecting you against allegations that you failed to disclose the existence or presence of any type or form of “fungus, including mold or mildew and any mycotoxins, spores, scents or byproducts.” This valuable coverage is included at no extra charge in OREP’s Standard Program. The coverage is not included automatically in every OREP appraiser E&O policy, so if you want to explore this coverage, please be sure to ask your OREP agent before placing coverage.

Expanded Coverages State board complaint coverage has also expanded, at least at OREP. Many appraiser policies include a small amount—$2,500 or less—toward legal expenses if you find yourself “invited” to a disciplinary board hearing by the state. OREP’s new program offers a policy that includes up to $25,000 per complaint in state board coverage. Like mold, this coverage varies by program, so please ask your OREP agent before placing coverage.

OREP’s policy also includes $25,000 of coverage for subpoena expenses, $10,000 in loss of earnings coverage, and $25,000 in Security Incident coverage, which covers you for expenses related to a security incident, such as hiring a cyber forensic analyst or covering regulatory expenses following a security breach.

Covering Your Tail When the time comes for you to stop appraising or retire, most appraisers know that they need to purchase tail coverage, or Extended Reporting Period coverage (ERP). With Claims Made professional liability policies, when you let the policy lapse, the coverage for prior work ends unless you purchase “a tail.”

It’s usually offered for one to three years into the future. ERP can be a bit pricy— up to one and a half times the expiring premium—but worth it in my opinion for the peace of mind. The good news is that certain programs, like OREP’s, provide free, unlimited ERP when you retire. There are certain qualifying requirements, like being of retirement age and being with the program for a minimum number of years. If you’re within five years or so of retirement, free ERP can be a very valuable benefit that could save you thousands. The coverage, even if you pay for it, is the best sleeping tonic there is. Check with your agent if you plan on retiring in the next five years or so.

Extra Coverage With OREP’s individual appraiser policy, the limit is outside of defense costs. What?

That means that the $1 million coverage limit you purchase will not be “used up” by the defense costs. Defense costs are also covered up to the same $1 million limit. While it’s unlikely that you’ll ever need all that coverage (we sure hope not), that is a lot more coverage for the same price. Again, not every policy includes the “limit outside of defense costs” so please ask your OREP agent.

Add to all this broad coverage, OREP’s zero deductible, and well, the news is very good: at least the errors and omissions news. If you also do real estate sales, you can get combined coverage with appraising in one policy.

Not so long ago, you would have needed to buy two policies. Again, this is a special policy, so please be certain you have the coverage you want before binding insurance.

If you have any questions or want to compare your coverage, feel free to visit OREP.org or call us at 888-3475273. OREP also offers free state board complaint consulting and 14 hours of free appraiser continuing education for OREP members in 46 states. Stay safe out there! WRE

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Summer 2021 Working RE 15

Has Appraising Failed the Public Good?

by Steven R. Smith, MSREA, MAI, SRA

The term Public Good is in the open-

ing paragraph of the Uniform Standards of Professional Appraisal Practice (USPAP). An appraiser friend once wrote that our regulations and guidelines are intentionally ambiguous—and that may be. But what is crystal clear to me is that the industry has put the interests of its clients before the public good.

The Public Trust statement and the Ethics Rule have been largely ignored over the years with loan production put first.

Expert Witness testimony by appraisers routinely provides favorable reports for the side who hires them.

Neither the residential nor commercial side of the industry is immune.

As a reminder, the Preamble to USPAP states: “The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers. It is essential that appraisers develop and communicate their analyses, opinions, and conclusions to intended users of their services in a manner that is meaningful and not misleading.”

It is interesting that the Appraisal Foundation does not require an Ethics Course and hasn’t in over 30 years.

Instead, there is a silent assumption made by all parties that anyone who becomes licensed is ethical. The majority of appraiser licensees have

never had an ethics course, I would guess. Where would they take it?

Only a few professional associations even offer it, and only those with a four-year degree are required to take it in college.

The states have taken some steps, like criminal background checks, which keeps most felons out…most but not all. Many white collar criminals have never been charged or convicted and work within the industries that employ appraisers. Few appraisers have ever been convicted of inflating values or writing misleading reports. FIRREA directs lenders to fill out a Suspicious Activity Report (SAR) when they spot appraisal fraud, but over the years few have. If it had been a regular practice, perhaps the 2002–2006 bubble may not have happened.

Sadly, licensing attracted a criminal mind, some of whom work for the largest organizations that provide appraisal services. Some lost their licenses along the way but that did not stop them from owning or being employed by an appraisal management company.

It is unfortunate that the legislation that mandated licensing, FIRREA (1989), had poorly worded language regarding appraisal fraud and pressure.

It directs regulated lenders to report appraisal fraud. The world would be so different if it had simply mandated that Lenders Should Not Pressure Appraisers or allow their agents to pressure appraisers

Steven R. Smith, MSREA, MAI, SRA is an example of a person who started out doing lender work fast and cheap as what he has learned to all call a Vocational appraiser. Somewhere along his path he was introduced to the term Professional Appraiser and it began a process that took years and lots of education. Two degrees in real estate and two professional credentials later he remains busy no matter what the real estate market is doing because he does little to no transactional business. No longer fast and cheap, but then, his fees are in the thousands of dollars, not hundreds. Through the years he has tried to help other appraisers, starting what is now the National Appraisers Forum on Groups.IO. He mentors appraisers who want to change, long distance.

16 Working RE Summer 2021

to inflate values or to write misleading reports. Almost the same number of words, but such a different outcome would have resulted.

Appraising Your Clients What can an individual appraiser do to support the public good, even before they start an assignment? For me, the answer always has been to appraise the client and the appraisal assignment. There are some clients and assignments that simply should be avoided because of the wants, needs and desires of the client, with respect to the assignment results.

My first step was avoiding work from loan brokers unless paid in advance. Next, I stopped doing appraisals on loans with a high loan to value, which are the most likely to default. When contacted for litigation work, I inform the attorney involved that my testimony will be unbiased, regardless of which side of the case they are on. Half of them do not use me. I have been happy with both decisions. I find it easy to face hours of withering cross examination when I have not slanted the value.

Thankfully, along my path, there was a class on Litigation Issues in Valuation, which was mostly about Eminent Domain. The lead attorney said something the very first morning that stuck with me: “Your job is not to help me row the boat to win the case, but to do your work objectively without bias and then, if needed, provide testimony, and then leave.”

That has stayed with me all these years and has served me well. I hope this helps at least one appraiser find clarity to stake out their position in this industry. It all starts with a decision on how you want to do business. Mine was clear. Where do you stand? WRE

Driving Comps: The Great Debate

by Isaac Peck, Editor

Rarely

Do appraisers take original comp photos just because that is what Fannie Mae, Freddie Mac, and lenders require, or is there a real value?

18 Working RE Summer 2021

has there been a debate as passionate or spirited in the appraisal industry as the one raging now: should appraisers continue to be required to drive comparable sales (comps) and/or take comp photos? Here are both sides and a survey to see where the majority of appraisers come down on the issue.

Appraisers in favor say comp photos are a value-add that provides the appraiser with critical information about the neighborhood and comparable sales.

Appraisers against say that it is unnecessary, a waste of time, and puts them in dangerous situations.

Working RE recently published two opposing articles on the subject, Original Comp Photos: Dangerous, Unnecessary and Why Comp Photos? (find it at WorkingRE. com). The stories produced dozens of emotional comments, with appraisers heatedly debating each side.

Do appraisers take original comp photos just because that is what Fannie Mae, Freddie Mac, and lenders require, or is there a real value? Some appraisers argue that it is not even a Fannie Mae requirement, citing their website which reads: “Copies of multiple listing service (MLS) photographs are acceptable.”

To help gain some insight for the industry, Working RE recently published 2021 Comp Photo Survey, which asks appraisers their opinion on the subject.

The survey takes less than two minutes.

The results will be shared with the entire industry. (Visit WorkingRE.com/photosurvey to take the two minute survey.)

For now, the debate rages. And what better way to air out the arguments than the words of boots-on-the-ground appraisers? Here are the two sides of the debate, in appraisers’ own words.

Danger to My Family I was taking comp pics in a typical tract subdivision which was not located in a “sketchy” part of town. As I was leaving the neighborhood, I noticed a guy getting out of the truck behind me and walking toward me. Just then the light turned green, so I took off. He ran back to his truck. A few seconds later, the truck is following me. A different car pulls up beside me with two people yelling at me, asking why I was taking pictures of their friend’s truck. I yelled back what I was actually doing and they seemed to have accepted my explanation. Mind you, this was explained driving alongside each other at 40 mph. I saw them all pull into a gas station as I continued on my day. About two hours later I get a call from my wife, who is at home, asking if I took a picture of someone’s truck! Apparently, the guy with the truck found out where I lived and showed up at my house and confronted my wife about why I was taking pictures of his truck. She explained to him what I do. He accepted her explanation and left without incident. But what if he hadn’t and decided to harm my family? Comp picture taking is absurd and dangerous.

Next time any one of you who disagrees and accuses us of “whining” about taking comp pics, ask yourself how comfortable you would feel if an angry stranger showed up at your home. —Eric Fenlon Necessary, Sometimes I think inspecting comps is a necessary part of our practice. Many times I see something that I would have missed in photos (power lines, sewage plants, etc.). With that said, I won’t take a comp photo if I see anything hinky and never page 228

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if anyone is in the front yard. I just photograph the nearest intersection sign. When I had an unmarked car, I had several scary situations, but now that I drive a car with the company name on it, I rarely get asked what I’m doing. If I’m asked, I just point to the sticker on the side of the car and that solves it. However, when I do rural appraisals, I often risk my neck trying to get a picture of a mailbox. Many times the roads are curvy, or you have to stop after the crest of a hill, and most of the roads do not have shoulders.

All this for a picture of the mailbox?

—Jim Anderson

Waste of Time The reason MLS pics are OK in the new bifurcated products is because that process would not be possible if comp pictures needed to be taken, so guess what? It’s magically OK to use MLS pictures. The appraisal can be done perhaps days sooner if you don’t have to drive the comps. I have been doing this for almost 20 years and can count on one hand the number of times it made a difference. I have, however, been confronted many times by angry people concerning the picture taking.

—Diana Kan Just Put a Sign on Your Car I was pulled over by a police officer while out taking comp photos.

Someone had reported a “suspicious” vehicle driving slowly. Once I told him who I was he suggested I check into getting a Realtor® tag on my vehicle.

In my area, to use our MLS, we need to be full members of the local Realtor® association. Being a full member, I am able to have a Realtor® tag on my vehicle. This has greatly reduced the aggravation and confrontations. Might be worth checking into. —Janet Jansen Not Dangerous Dangerous? No. In more than 35 years of doing appraisals, I’ve had exactly two 22 Working RE Summer 2021

instances of people being upset that I was taking photos. In one case, it was a woman who was in the middle of a divorce and thought I might be a private investigator. In the other, the lady of the house wanted to make sure I hadn’t taken a photo of her young son (I never take pics of people).

Unnecessary? Maybe. But we have ourselves to blame. If appraisers were better at knowing the certifications they sign… and about not taking it upon themselves to decide that one or more comp pictures don’t matter… then the GSEs may not have insisted that we actually take original photos of the comparables. Let’s not pretend. We all know appraisers who routinely use MLS photos and never bother to drive by the comparables. —Stephen

Absolutely Necessary I totally disagree with the author of the article about not taking comp photos.

Particularly if you are in rural areas, you may not see everything but you have an opportunity to get a feel for the neighborhood. I have been an appraiser for over 50 years and completed many original and review assignments. Doing many field reviews shows me that some unscrupulous appraisers have manipulated photographs and maps to make comparables more or less desirable. To do away with the requirement of an appraiser inspecting comparable sales is an abhorrent idea. —John Underwood MAI, SRA Traumatizing Thank you for writing this. In my 18 years in this business, I’ve had people sneak up on my car and bang on my window as I sat and took notes. I was stalked and hunted through a neighborhood a few months ago after taking a comp photo. He was relentless and I finally stopped and gave him a quick explanation. He apologized for scaring me and drove off, but as a woman in this business, I was traumatized. It’s

making my heart race just typing this out. You are correct, we have all the tools we need to assess the location of a comp available to us on the Internet.

There are times a photo of a comp is nearly impossible such as one on a busy street. We create unsafe driving conditions for ourselves and the cars around us—with all this beginning and ending with having to take comp photos.

—Amanda G.

Get Higher Fees, Do It Right I love you folks, especially when I’m in court watching you getting your butts handed to you in a sling. A lot of the time MLS/Google/etc. are five–eight years old and out of date but you go ahead and use them and when you’re called to defend your appraisal by a mad property owner or such, and you go look at your “comps” to prepare yourself (weeks or months later) and find, whoops, you blew it on one or some of the comps.

I have been at this over 45 years, and have had the experiences you folks have and have gotten smarter about how to go about it. There are some tricks of the trade that time teaches. An easy one is drive a truck, not some go-cart. Good luck, stop whining, get higher fees and do it right. Or go do something else.

—Jack Kennedy Concealed Defects, Changing Neighborhoods I agree, taking photos can be challenging at times, so much so I have become careful of my environment, time of day, etc., and especially of those observing me taking photos. It comes with the business. Maybe your company is purchasing loans originated in SoCal, up in the area off the Antelope Valley Freeway. There are a lot of oil derricks up there. You get sent out as the reviewer to take a look at the properties and much to your surprise, you find oil derricks in the open areas behind the homes, that somehow don’t make the MLS or appraisal photos. Nor are they

mentioned in the reports or listings.

I cannot tell you how many times I went to a home that is fine in the MLS photos, but the adjacent properties are not, and this may have impacted the price of that property. There are many things you cannot tell from photos in the MLS. It’s been my experience that agents don’t place anything negative in those MLS pictures. Driving by the comps is not just about seeing the home, but about seeing its environment and perhaps motivating factors impacting the price paid. Like you, I don’t like having to drive all the comps.

However, I recognize the importance of doing so, even if on occasion, I have to deal with someone who’s upset about me taking a few pics.

I’ve been appraising in my area for more than 40 years. I’ve been in some of these neighborhoods hundreds of times, yet I’m amazed at the changes I see happening in the area in the short time since I was last there. Having appraisers take a current photo is a check and balance system, designed to keep honest people honest, and it helps appraisers keep up with various principles of value at work in the neighborhood.—Patrick

Not Feasible Here’s another problem with comp photos that is not typically mentioned; it requires the appraiser to choose their

comps before seeing the subject property. Can any professional appraiser make a credible argument as to why selecting comps before seeing the subject property is better than selecting them after? Of course you can’t; we all know it’s better to select the comps after seeing the subject property, preferably after the sketch has been completed and the appraiser has had a chance to confirm all the subject’s features and influences. You can select comps after seeing the subject property then drive the comps, but that isn’t feasible with the fees we’re paid and the time constraints to make an extra trip into the field to shoot comps.—David

Why Cut Your Own Pay? As a vocation, I don’t get the argument that people make to take away a value-add. Is the end game that somebody else goes to the subject and everything else is online and all that an appraiser does is some market analysis, adjustments and offer an opinion? What will this take? An hour? So you get $100–$150 for an “appraisal”? You should be getting paid for the WHOLE PROCESS, so why cut out any of it? Spare me the “efficiency” concerns—if you think that a lender or AMC will not want to cut back your pay for this, then you are fooling yourself. They already want to cut pay for a 2055

even though they take no less time to do effectively; I can go inside and look and measure in less time than it takes to scour listings, assessor sites, etc. If you want to do less, somebody will want to pay you less, period. In the end, you will do the same amount of work in a different way… for less money. —Doug

Shotguns and Accuracy You have eloquently expressed my thoughts and arguments concerning photographing comparable properties.

I actually did have a shotgun pointed right at my face. I have been chased with people brandishing baseball bats, tire irons, and once, a sword-like weapon. I’ve been doing this almost 14 years and it never gets easier. It affects my mood, creates enormous anxiety and stress, and makes me feel like a pervert when kids are out playing in their driveways. I do not blame homeowners for attempting to protect their homes and neighborhoods. Furthermore, the comps are selected based on their time of sale so that corresponding photos are more accurate than “today’s” photos. Photographing comparables can be dangerous and does not contribute to the derivation of an accurate valuation of the subject. Thanks for writing a long-overdue article of such importance. —David Edward Cohen WRE

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Summer 2021 Working RE 23

What I Learned from Drug Dealers

by Richard Hagar, SRA

I’ll explain about the title in a minute.

Many clients are desperate for good appraisers and complain that competent appraisers can’t be found.

They are willing to pay more if only they could find you.

I teach a class called Real Estate, Mortgage, and Appraisal Fraud to various departments of Homeland Security; one of the departments is the Drug Enforcement Agency (DEA). Several years ago I was teaching the class and some of the DEA agents suggested that I stick around the next day and attend their class on drug dealers and organized crime. In the class, among other things, I learned that the average drug dealer earns $35,000 per year peddling drugs from a street corner. Of course, the dealer must deal with obtaining their product, marketing and delivery, as well as guns, violence and the probability of being arrested. And on top of it all, massive competition—not the best of business models.

The DEA training officer told the audience that the street corner hustlers had amazing marketing skills. Well this focused my attention. What marketing skills could a drug dealer have?

He went on to explain that drug dealers are “nice” to potential clients to get them to “like them.” Then the dealers offer their potential clients a solution to their problems—drugs to make them feel better. Typically they furnish the first few “tastes” for free, until they are hooked.

As sad a commentary as this is, and as far out as the comparison may seem, I can’t help thinking we can learn a

Richard Hagar, SRA, is an educator, author and owner of a busy appraisal office in the state of Washington. Hagar now offers his legendary adjustments course for CE credit in over 45 states through orepeducation.org. The new 7-hour online CE course “How to Support and Prove Your Adjustments” shows appraisers proven methods for supporting adjustments. Learn how to improve the quality of your reports and defend your adjustments! OREP insureds save on this approved coursework. Sign up today at www.OREPEducation.org.

24 Working RE Summer 2021

little something about how to market our services.

Three Steps to Higher Fees As I teach classes I hear the same lament from appraisers all across America: “Clients in this area aren’t paying appraisers more than $350” or “I’ll provide a better appraisal when the client pays me more.” While I understand their point of view, I believe that if you want to earn higher appraisal fees, there is another way to do business. Appraisers must make themselves found, make themselves trusted and be service oriented.

Step #1: Being Found Future clients must know you exist. I’m aghast at the number of appraisers who don’t have a website. Every appraiser needs a website and a Facebook page that explains who they are, what services they provide, and in what areas of the country they cover. If you don’t market you will be forced to work for lowpaying lenders and AMCs. Many clients are desperate for good appraisers and complain that competent appraisers can’t be found. They are willing to pay more if only they could find you. I can attest that this is true. Start your move toward higher fees by making yourself better known. Stop hiding; get a website!!

Step #2: Being Trustworthy Increase the quality of your appraisals.

Provide less boilerplate and increase the relevant explanations specific to the market and subject. Take more education and learn more—the times they are a– changing. Support your adjustments and include a summary of the

adjustment process in every appraisal.

Be more factual and less opinionated.

Stop using MLS photos. It’s best if you use photographs that you have personally taken for the appraisal assignment in question and are not reusing a photograph from an old appraisal or the MLS. Fannie Mae’s Collateral Underwriter (CU) knows when the photos are reused or MLS, so use your photos once and don’t lie to clients—it only hurts you. Clients must trust us and learn from our reports.

Step #3: Be Service Oriented Be more helpful and business minded— that will make your services be in demand. Not all requests from the AMC or lender are attempts to obtain higher value conclusions; sometimes they are trying to obtain a better understanding of the market and subject property. If a lender has questions, try to provide the answers on the same day…not days

The Appraiser Coach

later—“when I have time to get back to you.” That attitude does nothing to help a client and everything to indicate your disdain for them. If you don’t like the way a client interacts with you, fire them and find ones that you can work with. In other words—increase the quality of your customer service and solve your client’s problem.

Get the client to like your product and service more than your competition.

Get them to like you and forget the email address of others in your market.

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Summer 2021 Working RE 25

Discrimination in Appraisals

by Isaac Peck, Editor

Discrimination and racism in apprais-

By creating a private right of action, the Bill could allow a buyer or a seller, to bring lawsuits against appraisers and other real estate professionals for the alleged discrimination.

26 Working RE Summer 2021

ing is a hot-button conversation across the industry of late. Here are the issues.

It all started in early 2020, when candidate Joe Biden issued a Housing Plan that took aim at “racial bias” in the appraisal community. This, the plan argued, led to homes in communities of color being “valued at tens of thousands of dollars below majority-white communities even when all other factors are the same.” Biden’s plan called for a “national standard for housing appraisals that ensure appraisers have adequate training and a full appreciation for neighborhoods and do not hold implicit biases because of a lack of understanding.”

Biden also cited a report by the Brookings Institution, The Devaluation of Assets in Black Neighborhoods, which concludes that majority-black owned neighborhoods and communities are devalued compared to non-majority black neighborhoods. The Brookings report notes that “Homes of similar quality in neighborhoods with similar amenities are worth 23 percent less ($48,000 per home on average, amounting to $156 billion in cumulative losses) in majority Black neighborhoods, compared to those with very few or no Black residents.”

Appraisers, of course, were quick to point out that they already have a set of national standards called the Uniform Standards of Professional Appraisal Practice (USPAP), and that they are already required to perform their roles in an unbiased and objective manner. And that the old saying is accurate: appraisers report the market, they don’t make the market.

However, the story doesn’t end here. After Biden’s proposal, several

national newspapers published articles that repeated the allegations of discrimination within the appraisal industry and urged that “action be taken.”

Here’s a closer look at the developments around this controversial issue.

National Standards The tongue-in-cheek response from many appraisers when Biden proposed “national appraisal standards” was quite predictably: “Ever heard of USPAP?” But the conversation goes a little deeper than that. Both the Appraisal Institute and the National Association of Appraisers issued letters to Joe Biden and his team in an effort to explain why the portion of his plan targeting the appraisal industry is, perhaps, a little misguided.

Craig Morley, the 2020 President of the National Association of Appraisers, argued that appraisers are already bound

by USPAP and that “there is no need for any additional national standards for appraisals or appraisers,” explicitly rejecting the insinuation that “home values in any neighborhood are the result of racial bias among appraisers.”

Morley quotes USPAP at length to make his point, specifically the Conduct Section of the Ethics Rule which states that an appraiser: • must not perform an assignment with bias.

• must not use or rely on unsupported conclusions relating to characteristics

such as race, color, religion,national origin, gender, marital status, familial status, age, receipt of public assist ance income, handicap, or an unsupported conclusion that homo geneity of such characteristics is necessary to maximize value.

Morley goes on to cite the Appraiser

Independence mandates, from section 129E of the 2010 Dodd-Frank Act, which he points out already addresses the issue of lender pressure on appraisers, which Biden also seems concerned with.

Jefferson Sherman, the 2020 President of the Appraisal Institute (AI), also wrote a letter to Biden’s campaign, arguing eloquently against the idea that appraisers are the “culprit,” writing: “To be quite frank, the assertion that appraisers would systematically undervalue or overvalue real estate due to these [racial] factors is absurd and shows a profound misunderstanding of the real estate valuation profession...

It also should be noted that appraisers do not make the market. Instead, we reflect buyer and seller behavior in real estate. Appraisers do not evaluate individuals or borrowers; rather, we analyze properties and property markets,” the AI President said.

Fair Housing Education One of the reasons Biden’s campaign originally called for national appraisal standards was so that appraisers can be “adequately trained, understand the neighborhoods in which they work and [be] free of bias.” While some appraisers are offended at the prospect of fair housing education, there are those in the industry who argue that change is absolutely necessary. In September 2020, The Appraisal Foundation (TAF) President David Bunton seemingly agreed with Biden, writing that “recent tragedies across our nation have highlighted how much more work we need to do to combat systematic racism in the United States, and that extends to the housing industry.”

TAF consequently signaled that it is taking a variety of actions to support diversity and fight discrimination, including “modifying education requirements for current and aspiring appraisers to include specific content to address bias, discrimination, or fair

housing issues in appraisal,” among a litany of other initiatives centered around fair housing.

“While The Appraisal Foundation’s Uniform Standards of Professional Appraisal Practice (USPAP) has specifically prohibited discrimination since the first writing in 1989, it is clear that we must do more,” Bunton writes.

Several state legislatures quickly heeded the call, with New York law 19 NYCRR § 1107.2. being amended to require all licensed/Certified appraisers to “successfully complete an approved course of study in Fair Housing and Fair Lending” every two years in order to renew their licenses.

California is also rumored to be considering a bill that would require five hours of “fair housing” continuing education for appraisers every renewal cycle.

This call for “re-education,” not surprisingly, has offended many appraisers. National appraiser blogger Dave Towne argues that a “separate multi-hour required course EVERY license cycle,” which is currently being proposed by several states, is “overkill.”

Towne is careful to add that he is not saying that additional education about the topic is unimportant, but wonders aloud whether other states will jump on the “blame/punish culture bandwagon.”

Liability In lieu of educational changes, Illinois is currently considering a bill (HB 5862) that would create a “private right of action” against any appraisers or real estate agents who provide an opinion of value that is allegedly discriminatory. In other words, the consumer public would have a right to sue appraisers for any alleged discrimination under the bill.

This might significantly increase appraisers’ liability as they could potentially be liable to both buyers and sellers if discrimination is alleged.

Currently, most clients are banks— making it more difficult for buyers and sellers to bring a lawsuit against

the appraiser because they have no contractual relationship with the appraiser. By creating a private right of action, the Bill could allow a buyer or a seller to bring lawsuits against appraisers and other real estate professionals for the alleged discrimination. The bill also “provides for professional discipline of brokers and appraisers who engage in discrimination.” It remains to be seen if additional states will follow Illinois’ lead.

One important point to note is that the Fair Housing Act does not require that the discrimination be intentional. In 2015, the U.S. Supreme Court upheld the “disparate impact” section of the Act. This means that a plaintiff need not prove intentional discrimination, the plaintiff only needs to prove that a defendant’s policies and practices have an adverse impact on members of a protected class. This has the potential to create a great deal of liability for appraisers.

Certain E&O programs that specialize in coverage for real estate appraisers have been proactive about discrimination liability and have included coverage. OREP’s appraiser E&O policy, for example, now includes $100,000 in coverage for any claim brought against appraisers alleging discrimination. “It’s another bit of included protection for our insureds and one less thing they have to worry about,” said David Brauner, OREP Senior Broker. Not every OREP policy includes the coverage, so please ask your OREP agent before binding your coverage.

National News Much of the discussion regarding discrimination and fair housing practices in the appraisal industry seems to be taking place within the industry and between the industry and politicians/ regulators. However, a series of national news stories subsequently brought the conversation into the public eye. page 288

Summer 2021 Working RE 27

7page 27

In August 2020, the story of Abena and Alex Horton was picked up by the New York Times, Good Morning America, and dozens of other national newspapers and TV stations. As the Times reports, the Hortons lived in Jacksonville, FL and were looking for an appraised value of around $450,000 when they went to refinance their house.

The first appraiser appraised the home at $330,000. Feeling wronged, the Hortons appealed the appraisal with the lender and sought to get a second appraisal.

Horton, who is African American, says that she suspected discrimination in the first appraisal and decided to take down all family photos and holiday cards that included nonwhite persons. Ms. Horton left up pictures of her white husband, his white family, and other holiday cards “showing white families.” The second appraisal subsequently came in at $465,000.

In a widely circulated Facebook post, Horton decried what she saw as clear discrimination that prevents black communities from building wealth, writing: “Racism silently but conspicuously steals wealth. Racism wastes time. Racism raises blood pressure. Racism makes me hate myself for my calm acceptance of what I had to do, and have always had to do, to achieve a fair result. I write this from a place of absolute anguish, to sort through my emotions. I want better for my son.”

Horton’s post received over 3,000 comments, with other black homeowners sharing similar experiences. After taking down family pictures and having a white neighbor stand in for him, Stephen Richmond, in Hartford, Conn. says that he saw his appraised value increase by $40,000.

Appraisers also commented on Horton’s post, urging her to file a state board complaint against the first appraiser and asking her to make public both appraisals in question. One appraiser acknowledged the possibility of discrimination, writing: “I am an appraiser and this is going around 28 Working RE Summer 2021

our discussion boards and most of the appraisers don’t want to admit this could be true. Because it is illegal to do this, they act like it can’t happen. But this doesn’t surprise me at all. I have seen some bad appraisals and in many areas. Appraising is subjective which allows for implicit bias.”

Other appraisers proffered that perhaps the first appraiser was simply incompetent, not racist. Others accused Horton of playing the “race card” and pointed out even if she had left her pictures up on both appraisals, the two appraisers still might have disagreed widely on the value.

One interesting twist that appraisers have been quick to point out is that Abena Horton is currently the Assistant General Counsel & Vice President at Black Knight, a provider of integrated technology, data and analytics for lenders and mortgage services. Black Knight also provides, you guessed it, Automated Valuation Models that provide an opinion of value for real estate. As a potential competitor to appraisers, some appraisers have publicly wondered if Black Knight has a vested interest in seeing such a controversial story about appraisers hit the national news circuit. However, since the Hortons story became public, at least three other non-white homeowners with similar stories have come forward to allege a white appraiser discriminated against them. These stories were subsequently picked up by the New York Times, Denver News Channel 7, and the Chicago Sun Times, among other news outlets.

Statistical Sampling The American Enterprise Institute (AEI), a Washington D.C. think-tank focused on the housing industry, recently wrote a letter to the Federal Housing Finance Agency which addresses appraisal waivers (see Appraisal Waivers: The Future is Here, pg. 6) as well as the issue of discrimination in appraisals.

AEI addresses four recent examples of alleged racial bias in appraisals,

including the case of the Hortons and Mr. Richmond explained above.

AEI has state of the art data sorting and analysis capabilities, as well as great visibility into the data that is currently public regarding all of Fannie Mae and Freddie Mac’s (the GSEs) loans, waivers, appraisals, and more.

Using a big data approach, AEI conducted a study that looked at whether “the alleged practices of intentional racial bias, along with unintentional bias, are common or uncommon.” Using data from 243,000 valuations, including 59,000 “appraisal waivers” from the GSEs, the AEI used its own AVM in combination with the data to determine if there was a value difference (or a gap) between refinance loan appraisals for blacks and whites, in order to evaluate the existence of bias, especially as it relates to the alleged practices.

In its letter to FHFA, the AEI ultimately concluded the following: (i) contrary to media allegations, racial bias by appraisers on refinance loans is uncommon and not systemic (ii) a claim of unintentional bias on refinance loans, if to be used as the basis of a disparate impact claim, was also found to be uncommon and not systemic, (iii) appraiser bias cases, such as cited by the media, may well result from “bad apple” appraisers or incompetence.

Conclusion With the Biden administration’s focus on fair housing, TAF’s new diversity initiatives, and a renewed interest among state legislatures to address the topic, appraisers can likely expect further discussions, education, and even liability around this issue in the coming months and years. Now that this issue is also squarely in the public eye, it’s quite possible that we will soon see more cases of alleged victims of discrimination take to the press, file state board complaints, or bring lawsuits against appraisers. Stay safe out there! WRE

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Valuing Land When There Are Few or No Vacant Land Sales

by Philip G. Spool, ASA

For those of you who have read my arti-

While most everyone uses the term “land,” technically we are valuing the “site,” which is the land that is cleared and ready for construction.

cles in Working RE magazine in the past, I have already written an article about land extraction, also referred to as land abstraction (Land Value: Extraction Method —published Summer 2012). This is an extension to that article with a revision.

This article is geared for both residential and commercial properties that have a land component and a building component. While most everyone uses the term “land,” technically we are valuing the “site,” which is the land that is cleared and ready for construction.

For the purpose of this article, we will consider the word “land” interchangeably with “site.”

Why value the land when appraising a property? There are two reasons why you would need to value the property site (land) in an appraisal report. A very important reason is to determine the highest and best use of the property. If the value of the land is equal or greater than the property with the existing improvements (utilizing the Sales Comparison Approach and/or the Income Capitalization Approach), then the highest and best use of the property would be to either demolish the existing improvements and construct a building consistent with the immediate area or to consider the existing improvements as an interim use. In either case, that should give you the maximally productive (most profitable) use. A prime example where the land value is greater than the existing property would be an under-utilization

Philip G. Spool, ASA, is a State-Certified General Real Estate Appraiser in Florida, appraising since 1973. Formerly the Chief Appraiser of Flagler Federal Savings and Loan Association, he has been self-employed since 1992. In addition to appraising, he is an instructor with Miami Dade College, teaching continuing education classes. He is also the Vice President and Chairman of the real estate division with the Greater Miami Chapter of the American Society of Appraisers. He can be reached at pgspool@bellsouth.net.

30 Working RE Summer 2021

of the site whereby the land-to-building ratio is much larger than normal or if the land zoning permits a better use than what exists on the land.

Another reason to value the land is if a lender (for loan purposes) requires the appraiser to value the land component of the whole property. For the most part, there are three components in a property: the building component, the land component, and the site improvements (also referred to as extra features, such as the parking area, fencing, swimming pool and landscaping). The lender might want to know how much of the total property value is the land portion and determine if they want to make the loan. After all, the lender is not making a land loan but a loan with viable existing improvements. This is not the concern of the appraiser.

Calculating Land (site) Value The two most common methods in determining the land value are by the sales comparison method and the extraction (abstraction) method. By the way, you can call it either land extraction or land abstraction as some appraisal books refer to the extraction method while other appraisal books refer to the abstraction method. For the purpose of this article, I will call it the extraction method. A third method is called the allocation method.

Sales Comparison Method The Sales Comparison Method is probably the most preferred and reliable method for estimating land value. This method is similar to valuing an existing house or commercial property, comparing the subject to recently closed sales

of vacant lots with similar zoning. As no two houses or commercial buildings are typically the same, no two vacant lots are the same. The most common differences include the size, width and depth of lot, location, and if the comparable lot is cleared or in need of clearing trees, shrubs, and leveling the land. All of these differences must be taken into consideration. It is important that the sales price of the land sale be converted into a sales price per square foot of the lot. This is the unit of comparison that the opinion of value will be based on, after adjustments for the differences mentioned above.

Once the sales price per square foot is determined for each comparable sale, the reconciliation process starts.

Probably the most important comparison is the lot size differential. Basic appraisal theory indicates that smaller lots tend to sell for a higher price per square foot than larger lots, just as larger lots tend to sell for a lower price per square foot than smaller lots. However, one should consider the most ideal lot size for the end use, in this case, a single family residence or the type of commercial property on the site.

For example, if the average lot size is 15,000 square feet, would a 10,000 square foot site be worth more per square foot than the 15,000 square foot site? Not in all cases. One has to consider the demand for the 10,000 square foot site versus the 15,000 square foot site, just as one has to consider the demand for a 20,000 square foot site.

If the ideal house size or commercial building size is best reflected on a 15,000 square foot lot in the area, then perhaps a 10,000 square foot lot size would reflect an inferior designed house or commercial building, representing less demand for the smaller lot.

If the lot size is 20,000 square feet, then the extra 5,000 square feet of land could represent surplus land.

Many appraisers confuse the difference between surplus land and excess

land. Surplus land is land that cannot be sold off separately, while excess land can be. In many cases, a large lot that is considered to have excess land more likely is worth more than a large lot that has surplus land, due the fact that two buildable lots are worth more than one buildable lot. The shape of the lot also has to be taken into consideration.

All of these situations have to be taken into consideration when reconciling the value of the subject’s lot.

Extraction Method and Not Deducting Building Component In a time when there is strong demand for new construction, whether it be a stable market or an increasing market, and when demand is greater than supply, there is no need to select a sale, whether being a residential property or commercial property, and deduct the existing improvements. A test of reasonableness would be whether the sales price per square foot (without deducting the building component) is in line with pure vacant land sales and if the sales price per square foot appears to be consistent. The economy, particularly demand and supply for land for construction of a building, helps to determine whether or not to include the improvements in your analysis.

Extraction Method and Deducting Building Component In a nutshell, site value is the difference between the sale price of a property and the contributory value of its improvements. So how do you determine the contributory value of the improvements? There are several ways to do this. The contributory value of the improvements is the same as the depreciated value of the improvements as observed in the market. In other words, it can be construed as cost new, less the accrued depreciation. Accrued depreciation is calculated as the effective age divided by the total economic life of the improvements. If you still have your

appraisal books from your basic appraising course, look up Accrued Depreciation.

An excellent reference book you should always have is The Appraisal of Real Estate, currently the Fifteenth Edition, by the Appraisal Institute.

When valuing the subject property, the appraiser calculates the effective age by an onsite visit to the property and observes any physical deterioration in order to arrive at the effective age. However, the appraiser does not have the luxury of visiting the interior of a comparable sale or even walking around the outside of the comparable sale that is a good candidate for the site value by the Extraction method. But if the property is listed on the Multiple Listing Service, there is a possibility that there are photographs of the interior and exterior of the property. You can also contact the listing agent to get additional information regarding the physical condition of the improvements to arrive at a more supportable effective age. Remember, effective age of a property is based on the appraiser’s judgment and observation.

Therefore, the proper procedure would be for the appraiser to calculate the replacement cost new of the improvements first and then subtract the depreciated value (contributory value) of the improvements from the sale price of the property used for comparison. But what about the residential site improvements such as the swimming pool, driveway, landscaping, etc.? And what about the commercial site improvements such as the parking pavement?

Yes, those too have to be subtracted from the replacement cost new of the improvements.

Where do you get your replacement cost figures? There are several sources. For residential and commercial properties, use Marshall & Swift (also referred to as Marshall Valuation Service). For residential properties page 328

Summer 2021 Working RE 31

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only use either www.Building-Cost.net (they now charge for their use) or www.CostToBuild.net (free service).

Extraction Method Using the Property Assessor’s Building Component Another method, though one that is not supportable, is to obtain the Property Assessor’s estimate of the depreciated value of the improvements of a recently closed sale. The land value would be the sales price less the property assessor’s estimate of the depreciated value of the improvements. This is not supportable because an owner can have their property assessment successfully appealed resulting in a reduction in the improvement portion of the assessment, while another recently sold house may not have had their property assessment appealed or not successfully appealed, resulting in no reduction.

Just remember, assessments are based on the mass appraisal system and not looked at individually.

Allocation Method The Allocation method is more

applicable for valuing residential land but not commonly used. However, if a newly constructed house is built on a site that was purchased recently, it can be effective. The Allocation Method can be applied as a percentage or proportion of the building to the total value of an improved property. For a comparable improved sale, either the land or building portion must be determined. If the house is relatively new, estimating the cost of improvements and dividing the costs by the sales price of the property will give you the percentage of the improvements to the purchase price of the comparable.

The remaining percentage difference will be the land portion and the percentage of the land portion times the sales price would result in the land value. The Allocation method is not as reliable to apply on an older house because estimating accrued depreciation is too subjective. If new developments are being constructed nearby, consultation with the developers is helpful if the developers can provide the building costs associated with the houses being sold. This would include

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the site improvements, such as landscaping, driveway, open patios and swimming pools.

In conclusion, the next time you explain how you arrived at your site value in your appraisal report and you state that you utilized the Extraction or Abstraction Method, be sure you use the correct procedure in addition to having your support in your workfile. Or better yet, have it indicated in detail within the text addendum of your appraisal report. WRE

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Tracking an Increasing Market

by Rachel Massey, SRA

Keeping track of the percentage of properties under contract in the market

Figure 1: Ann Arbor Area Board of Realtors® Monthly Statistics from February 2020-2021

you are working in alerts you to changes that are occurring before the sales close.

Figure 2: Average Single Family Home List Price and Gross Living Area

Many markets across the United States

are increasing. Here is some insight on how to evaluate the extent to which your market may be increasing.

Washtenaw County, in Michigan, is obviously increasing. The local Board of Realtors® (BOR) publishes monthly

Rachel Massey, SRA, AI-RRS, ASA is an AQB Certified USPAP instructor and has been appraising full-time since 1989. She is a Certified Residential Appraiser in Michigan, specializing in private work for various clients, as well training and education. Please visit https://annarborappraisals.com for more information.

34 Working RE Summer 2021

statistics that are distributed to the public (Figure 1). The problem is that the data included in the MLS do not differentiate between the various submarkets, or account for changes in size.

Yes, you read that right, changes in size.

For example, my MLS states that the market has increased 12.5% over the past year (February 2020 to February 2021). It looks fine, but sizes have also changed, and therefore the increase is not as drastic.

Example one, note the single-family average price on the bottom of this graphic (Figure 2, pg. 34). Using the same data, the BOR compiled, it is possible to mostly replicate the averages. But look at the change in size during this same period. Size increased by 7.1% at the same time prices increased 12.5%. Does that mean the market only increased 5.4%? Maybe, maybe not. It does show a preference recently towards either larger properties or a few ultra-large properties that skewed the data upward. Regardless, it always makes sense to look at more than one piece of information when concluding to any trends.

It is perfectly logical, and even expected, that with the lockdown/ working from home scenarios common to many, that space both inside and outside the house would become a premium, and tastes in this market have shown preference for larger houses, and those with a bit of elbow room between them. Lake properties, and houses that can be used as a staycation oasis have become popular, and that has partly been responsible for prices increasing.

Of course, low interest rates, and even lower inventory, have also played a part.

Example two (Figures 3-5), following the annualized monthly trends for one macro market, it is easy to see how prices have risen, but so too have sizes.

On the flip side, price per square foot has declined as sizes increased, but the slope of the linear trend line still indicates a price increase.

This type of information helps show how markets ebb and flow over time. Appraisers may even get lucky and have an MLS that has data at their fingertips, without having to do downloads into Excel to run your charts. Not all do, and on those that don’t, you must manually complete the trends. But it is not particularly time consuming once it is in place. This can be completed on an annualized basis, monthly, or whatever makes sense for the appraiser completing the analysis.

Figure 3: Median Selling Price Annualized

Figure 4: Median Gross Living Area Annualized

Figure 5: Annualized Price Per Square Foot The competitive market segment (the segment in which the property being appraised operates) then sets

the data download for “price-indexing” (shout out to George Dell, MAI for page 368

Summer 2021 Working RE 35

7page 35

that one), which can easily show trends to a narrower segment. Think of the trend’s analysis like a funnel, starting

Figure 6: Sales Price

Figure 7: Gross Living Area

Figure 8: Contract-to-listing ratios 36 36 Working RE Summer 2021

with the wider market, which may be as wide as a county, or even a few counties for some rural markets, or a city

or school district, then down to the competitive segment. If nothing else, consider at least trending sales in the market segment as well as paying close attention to what is on the market.

Here is an example of a competitive segment, still showing trending upward (Figures 6 & 7). Size has not increased in this segment; therefore the increase in price over time relates to true market change, not simply size changing.

There is a tool that agents use all the time. It is not something many appraisers are using, but it would benefit appraisers to start paying attention to the “Contract-to-listing ratio” or CTLR. This is a very simple analysis which looks at all the properties that are listed for sale in each market, either macro or in a competitive segment, and measures the percentage of those under contract compared to those that are still available. For example, if there are 100 listings in the XYZ school district of one-unit houses, and 40 of those are under contract, then the CTLR is 40%.

If there are 80 houses listed for sale and 40 are under contract, then the CTLR is 50%. Keeping track of the percentage of properties under contract in the market you are working in alerts you to changes that are occurring before the sales close.

Since following this metric in appraisal reports from the early 1990s, in one iteration or another, it is my opinion that once the market hits over 35% of the houses on the market under contract, it has tipped into a seller’s market. I have rarely seen it hit above 60% in my market, until this past year. The following is an image of a monthly comparison tracking the contract-to-listing ratio (Figure 8). Clearly the market was already highly active since the beginning of the COVID-year but notice the jump up in CTLR starting in January of 2021 in most markets. Currently, most of the macro markets in this area are running over 60%, one currently over 90%. This market is active!

page 408

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If you’ve been with the same E&O provider for years (and years) expecting that you still enjoy the best rates and coverages available, you may not. Don’t wonder—find out NOW in five minutes at OREP.org! Many appraisers do save money on their insurance—sometimes $100 or more. And every appraiser will save on the cost of continuing education—while lowering risk and increasing their professional competency through free education from industry leaders.

OREP offers 14 hours of free continuing education to all of its insureds/members, a savings of over $200 (most states).

OREP insureds/members in California enjoy group access to several medical plans, including certain Kaiser Permanente and Blue Anthem plans. The group plans provide benefits not available to individuals and at no extra cost. Those who purchase their medical coverage through the OREP group plan, also enjoy a $10,000 life insurance policy included at no extra cost.

The policy, written through Mutual of Omaha, is guaranteed-issue without any exclusion for medical conditions and pays double in the event of an accidental death and dismemberment (AD&D).

Also included is the New Dental Choice Special Discount Plan that gives you significant discounts of 15–60 percent for dental services.

There is no cost above the medical plan itself for these services, including expert help navigating Covered California. If you are a California resident and an OREP insured/member please email info@orep.org for more information. WRE

Valuable Support: OREP insureds/members enjoy Working RE magazine, over 15 hours of free training webinars, discounts on the FHA Checklist and eBook, the AMC Guide, the Expert’s Guide to a Defensible Workfile, and more! Each is designed to help you grow your business and sharpen your skills.

Combine E&O: Appraiser and RE Sales One low premium covers both your appraising & sales/brokering work. Pay for one policy instead of two. Visit OREP.org for details or call (888) 347-5273. WRE

OREP Offers Free Risk Management Continuing Education for Insureds/Members (14 Hrs./most states) OREP, a leading provider of appraiser insurance nationwide, announces two free continuing education courses (14 hours of approved CE) for OREP insureds/members, designed to help them improve their professional skills, lower their liability risk and protect their businesses. OREP insureds/members now enjoy the following online courses FREE:

How to Raise Appraisal Quality and Minimize Risk (7 Hours CE) Presented by: Tim Andersen, MAI Learn the common charges brought against appraisers, with real world examples of specific civil and regulatory cases. Andersen shows you how to avoid potentially risky situations with time-tested steps to “bulletproof” your appraisal reports and workfiles. Learn proven techniques to protect yourself from state regulators and plaintiffs, while reducing your liability and exposure.

FHA Appraisal Standards (7 Hours CE) Presented by: Lore DeAstra, MBA, MRICS, SRA, CDEI Lore DeAstra unpacks the LATEST 4000.1 FHA Standards and shows you what to look for on an FHA appraisal, including how to handle complex assignments and the forms to use for unusual situations.

“OREP has always been committed to providing insureds/members with the latest news, information and risk management education via Working RE, so offering free continuing education is a natural next step for us,” said David Brauner, Senior Broker at OREP. “We chose veteran appraisers and renowned authors and educators to share with insureds their proven and effective strategies on how to limit liability, follow appraisal standards and protect themselves.

The benefit for our insureds/members is twofold—it makes them more careful, more successful appraisers and lets them keep a little more hard-earned money in their pockets, saving them over $200 in education costs.”

Details The classes are online, allowing you to take the coursework safely at your own convenience. Current insureds/members, please email info@orep.org for enrollment details. WRE Summer 2021 Working RE 37

Industry NEWS Good News: Mold Coverage for Appraisers Now Included with E&O Fear of liability due to mold is a persistent worry for many service professionals—including real estate appraisers. Most appraiser E&O insurance policies exclude mold claims, according to David Brauner, Senior Broker at OREP.org. “For most of my career, appraiser policies excluded all mold and fungi claims. Even though mold claims are rare, the fear of mold was real for many appraisers,” Brauner said. According to Brauner, the issue is further complicated because with many mold claims it can be difficult to distinguish between water damage, which would likely be covered, and the resulting mold, which would likely be excluded. The good news for appraisers is that OREP’s new program offers an alternative policy that includes up to $500,000 in mold/fungi coverage, at no extra charge. The coverage protects appraisers against allegations surrounding the failure to disclose the existence or presence of any type or form of: “fungus, including mold or mildew and any mycotoxins, spores, scents or byproducts.” “The alternative appraiser policy includes all the same coverages of our flagship appraiser policy, plus the mold, and at around the same premiums for most appraisers,” Brauner said. But the alternate policy requires more underwriting and a more lengthy application, so if you want mold coverage, you should ask for it specifically, Brauner said. Visit OREP.org or call 888-347-5273 to learn more. WRE

PAREA Adopted Jan. 1, 2021 The Appraisal Foundation (TAF) has formally adopted Practical Applications of Real Estate Appraisal (PAREA), which is meant to offer coursework and mentorship in lieu of in-the-field training hours. PAREA coursework is intended to “provide an alternative to gaining experience

38 Working RE Summer 2021

in the traditional sense of training (i.e., in an appraisal office with a supervisor mentoring the trainee).” The PAREA coursework as adopted by TAF allows a would-be appraiser to use coursework to qualify for up to 100% of experience credit for their Licensed and Certified Residential credentials. It will be up to education providers to develop the PAREA coursework per the Appraiser Qualification Board’s (AQB) Real Property Appraiser Qualification Criteria and the PAREA Implementation Policies.

In lieu of having a traditional supervisor, the applicant will have an appraiser “mentor,” presumably provided by the education provider. For the Licensed Residential certification, applicants can complete 150 education hours to replace 100% of their experience requirements. For the Certified Residential certification, applicants can complete 200 education hours to replace 100% of their experience requirements. For the Certified General certification, applicants can complete 300 education hours to replace 50% of their experience requirements. While the AQB will approve the PAREA programs that are developed by education providers, the states will get to decide whether to adopt PAREA guidelines and allow the process. TAF notes that “it is up to each individual state to adopt PAREA as an alternative pathway, and to accept the AQB’s approval of PAREA programs.” WRE

CoreLogic Acquired by Private Equity CoreLogic, a property data and analytics behemoth in the appraisal industry, announced in February 2021 that it will be acquired by Stone Point Capital and Insight Partners for $80 per share, or approximately $6 Billion.

CoreLogic is currently home to a number of well-known appraisal company brands and service providers, including a la mode and Marshall and Swift. The transaction is scheduled to close in Q2 2021. WRE

Insurance IQ: The Declarations Page Says With everything else going on, none of us wants another item to worry about on a growing list—especially not our E&O insurance, which is intended to provide the exact opposite—peace of mind. Every once in a while someone is switching to OREP with a Declarations Page from another program/carrier that does not include a Retroactive Date, found on the Declarations Page. It might have the policy or term dates— June 1, 2020 to June 1, 2021, for instance, but will omit the policy Retroactive Date or when the policy began—say June 1, 2014. If you have renewed on time continuously every year since 2014—did not let your policy lapse—your coverage will go back that far. If your policy lapsed/ expired for whatever reason, you start over with a new inception date when you purchase a new policy. But if your carrier does not issue you a Declarations Page that clearly states what the Retroactive Date is, it makes ensuring your prior coverage difficult. How do you prove you were covered? If you have a Declarations Page like this, one that leaves off the Retroactive Date for some reason, please keep copies of your annual Declarations Pages in order to ensure you keep your prior coverage—when you switch to OREP or to any other program.

Keep your Declarations Pages organized and where you can find them and shop OREP for broad coverage, competitive rates, respectful service and free education. www.orep.org—by David Brauner, Senior Broker OREP WRE

OREP Endorsed by National Association of Appraisers (NAA) OREP, a leading provider of appraiser E&O insurance nationwide, has been endorsed by the National Association of Appraisers (NAA) as the preferred provider of E&O insurance for NAA members. OREP is the proud publisher of Working RE magazine and has served real estate appraisers’ insurance needs for over 19 years. The NAA is an appraiser organization with over 2,000 members dedicated to uniting appraisers for the purpose of exerting a beneficial influence upon the profession and advocating for appraiser interests. “I feel very comfortable with our first alliance of this kind because the focus of both organizations is the same—supporting and helping appraisers,” said OREP/Working RE founder and Senior Broker, David Brauner.

Craig Morley, 2020 President of the NAA, says, “We are pleased to have OREP working with NAA to provide information, education and professional liability insurance (E&O) to our membership. NAA is an association that is intended to be a low-cost professional association that likewise provides information to its members and representing our membership at both a state and national level in an effort to benefit the typical appraiser.” WRE

7 Hrs Approved CE Available Online

HIGHER FEES WITHIN YOUR REACH

Discount for OREP Members

Identifying and Correcting Appraisal Failures Richard Hagar, SRA outlines many of the most common failures flagged by Collateral Underwriter, appraisal reviews, and AMCs and lenders to prepare for what is next.

Learn to build stronger reports that will reduce the call-backs, hard stops and the need for corrections and make your clients happy. Hagar shows you proven techniques to help you become a “Tier 1” appraiser who can command higher fees, stay out of trouble, and get the best assignments.

Online Course $119 7 hrs CE

Sign up OREPEducation.org or 619-546-5702

If You’re NOT Saying Something Like This to Your Insurance Agent, You’re probably NOT with OREP!

for the speedy service. You guys are top notch!

—Scott H.

Apply Now in 5 Minutes or less at OREP.org!

Also, Enjoy 14 Hours Free CE (Most States)

Serving appraisers for over 19 years Over 100,000 policies issued…

Today, Stronger than Ever.

888-347-5273 • info@orep.org CA Insurance License #0K99465 Summer 2021 Working RE 39

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Figure 9: Contract-to-listing ratios in a macro market—February 2020–February 2021 Finally, if one tracks sales and the CTLR, one can also track where things are headed within the very near future.

This is not predicting out months but predicting what will happen within the next few weeks to month related to the properties that are under contract. In the example above (Figure 9), there were 331 sales in the past year, 28 currently available and 52 under contract. This meant that the CTLR was 65%, and there was just over a one-month inventory of available properties compared to the past years sales. Asking prices of those properties under contract are 9.20% higher than the previous year’s median, and size is 10.87% greater than

the past year. It shows that in all likelihood, the trends towards larger houses are continuing and prices will be rising accordingly. I spoke with a couple of agents with houses under contract, and was informed they had multiple offers, and were selling over list price. Easy to see, for at least the short term, prices are not yet stabilized.

As appraisers, we have many tools at our fingertips. This type of analysis is the value-added benefit we bring to the table. Some MLS systems have this information available without having to pull out Excel, but even those that do not, have an “export” function which can be used to develop robust

trending data which will help keep us up to date on the market.

It is possible that some of our markets are increasing at extremely rapid rates, but it is also important to analyze whether the markets are increasing due to pure price increases, or in large part due to buyer preferences changing.

Lastly, the contract-to-listing ratio is a leading indicator of where the market is heading. When more houses are under contract than are available, indications are strong that the market is improving, but this is also where we will see a slowdown occur before it makes its way to the closed sales data.

Be safe out there everyone! WRE

2021 Appraiser Fee Survey

by Isaac Peck, Editor

The individualistic spirit of appraisers is well-known.

And while many great accomplishments come from folks like us, there are also some drawbacks to working in isolation. One is a lack of “social” connection.

Through Working RE, we’ve tried to connect the nationwide “herd of cats,” aka real estate appraisers, through information that everyone has access to: Working RE magazine. Now in its 19th year, WRE is mailed to most every actively licensed appraiser in America. It is the only nationwide print publication serving the appraisal industry. There are print and digital versions.

Here is your chance to contribute to and benefit from priceless Fee Survey data contributed by your peers—across the country and in your own zip code.

The survey is only as good as your participation.

The survey asks 20 questions regarding the customary and reasonable fees in your area currently, along with turnaround times and average number of appraisals completed per month. Over 3,000 appraisers have completed the survey so far. The average time 40 Working RE Summer 2021

to complete the survey is four minutes. The results, as always, will be published free to all, probably by late summer. You can find and participate in the survey here: http://www.workingre.com/2021survey.

Working RE is published by OREP, a leading provider of E&O insurance for real estate appraisers nationwide. WRE

When the State Board Comes Knocking...

Who’s in Your Corner?

Helping Appraisers Manage Their Risk Since 2002

Free State Board Complaint Consulting Every year, over 2,000 State Board Complaints are filed against appraisers, according to Tim Andersen, MAI and CEO of TheAppraisersAdvocate.com. As an independent real estate appraiser…you don’t have to go it alone.

At OREP, you can rest easy knowing that if you face a state board complaint, you have an expert in your corner. OREP members receive a FREE consultation with Bob Keith, Former Director of the Oregon Appraiser Board, and 25% off any consulting services if needed. OREP Members also enjoy a free webinar, Fighting Appraisal Board Complaints: An Expert’s Advice, presented by Keith that shows you how to defend your livelihood and protect yourself if the state board comes knocking.

Choose OREP for “A” Rated Coverage and Unrivaled Professional Support.

Call (888) 347-5273 or Visit OREP.org to learn more.

OREP - Organization of Real Estate Professionals Insurance Services, LLC. California License #0K99465