LiveValuation Magazine - October 2010
-
Upload
david-peck -
Category
Documents
-
view
223 -
download
2
description
Transcript of LiveValuation Magazine - October 2010
Magaz i n e > > O c t o b e r 20 10
| FEATURE |ZAIO… The Long and Winding RoadThe rise, fall, and reinvention of a valuation technology company.Brad Stinsonpg. 20
02 | LVM / September 2010
LVM | 03
LVM | 05
12 Learning from Markets Abroad
Spain mandates the use of AMCs.
Santiago Herreros de Tejada
16 New Legal Risks for AMCs
Passing the liability buck.
Peter Christensen
FEATURE:20 ZAIO…The Long
and Winding RoadThe rise, fall, and reinvention of a
valuation technology company.
Brad Stinson
26 Appraiser in Realtor Clothing Appraisers and Realtors:
the common ground.
Steve Ferguson
30 Observations of an Inspector Part IV
The “Improvements” section
of the URAR.
Michael Connolly
7Publisher’s Note
8Industry Stats July 2010
10Contributors
34Voices of Valuation
36Directory
38For What It’s Worth
Contents
| OctOber 2010 |
Tunnel VisionBill Waltenbaugh, SRA
12
16 20
26 30
COME HOME TO THE E&O PROVIDER WHO REALLY MEASURES UP
To learn more, call 800-640-7601 or visit us at www.intercorpinc.net
• The Disciplinary Endorsement to our Real Estate Appraisers Errors & Omissions policy provides reimbursement (up to $5,000) for defense expenses incurred in responding to complaints from regulatory bodies.
• Our Special Purpose Program is designed specifically for appraisers having difficulty finding coverage due to claim issues or disciplinary actions and who may not qualify for standard program rates.
• To help you deal with knotty problems before they become full-blown claims, appraisers insured through our program have access to a confidential Pre-Claim Assistance Hotline.
STRENGTH: A XV rated insurance company.
STABILITY: Serving appraisers since 1994.
SERVICE: Intercorp is second to none!
inTERcORp–whERE wE nEvER sTOp Thinking Of wAys TO pROTEcT yOu.
int2562 House Ad.indd 1 7/22/10 1:33:55 PM
LVM | 07
Founder Aman Makkar
Publisher Ernie Durbin, SRA, CRP
Editor-in-Chief Emily Vannucci
Copy Editor Kaitlin Dershaw
Creative Traci Knight
Director
National Sales David Peck
Printer Ovid Bell Press
Advertising Phone : 858.832.8900
Information Email : [email protected]
Subscription Phone : 858.217.5332
and Editorial Email : [email protected]
Web : LiveValMag.com
© 2010 LiveValuation Magazine.
All rights reserved. LiveValuation Magazine is a California limited liability company and is the publisher of LiveValuation Magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of LiveValuation Magazine, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, LiveValuation Magazine is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to LiveValuation Magazine, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127
It is my pleasure this month to introduce you to our new Editor-in-Chief, Emily Vannucci. Emily joins us after the successful launch of our magazine under the leadership of Erica English. We certainly wish Erica all the best in her new ventures in publishing outside of the valuation space. Erica is a fine friend and a consummate professional who will do well at whatever she puts her hand to. That being said, I am excited that Emily has taken the reins of our magazine. This will be our largest issue with an even larger issue coming next month. We have great plans for the future of this magazine and Emily’s leadership will see these plans to fruition.
This month’s feature article tells the story of ZAIO. Brad Stinson, the founder, recounts his personal journey as an appraiser and technologist, beginning in the late 1970’s through today. Brad shares the implementation of technology and valuation that resulted in taking ZAIO public. The winding road seemed to come to a dead end on “Z-Day” in 2009 when investor capital and revenue sources dried up. At the end of that paved road, continued a path of reinvention. Brad lays out ZAIO’s path of reinvention from that fateful day. I have known Brad for a long time and always admired his tenacity and passion for technology. He has a “never say die” attitude and an interesting perspective on valuation that we can all learn from.
Be sure to read our Voices of Valuation section this month. We have had a tremendous response online to our previous articles and daily news summaries. LiveValMag.com provides an opportunity for our readers to interact with our authors online. The back-and-forth debate is vibrant with hundreds of contributions from our readers and also responses from our authors. In Voices of Valuation we only have room to publish a few highlighted comments. I encourage you to visit our website and tell us what you think; maybe your response will be highlighted in next month’s issue.
Please stop by our booth at Valuation 2010 in Las Vegas next month. I look forward to meeting our readers personally and introducing Emily Vannucci and others that make this magazine a success.
Ernie Durbin, SRA, CRP
Publisher’s Note
COME HOME TO THE E&O PROVIDER WHO REALLY MEASURES UP
To learn more, call 800-640-7601 or visit us at www.intercorpinc.net
• The Disciplinary Endorsement to our Real Estate Appraisers Errors & Omissions policy provides reimbursement (up to $5,000) for defense expenses incurred in responding to complaints from regulatory bodies.
• Our Special Purpose Program is designed specifically for appraisers having difficulty finding coverage due to claim issues or disciplinary actions and who may not qualify for standard program rates.
• To help you deal with knotty problems before they become full-blown claims, appraisers insured through our program have access to a confidential Pre-Claim Assistance Hotline.
STRENGTH: A XV rated insurance company.
STABILITY: Serving appraisers since 1994.
SERVICE: Intercorp is second to none!
inTERcORp–whERE wE nEvER sTOp Thinking Of wAys TO pROTEcT yOu.
int2562 House Ad.indd 1 7/22/10 1:33:55 PM
[
08 | LVM / October 2010
Stats| Highlights as of July 2010 |
+4.3%s.dakOta
+3.7%califOrnia
+4.5%Maine
+3.0%new YOrk
+2.6%virginia
The top five states with the highest appreciation in July, including distressed sales. [ ]
-4.3%washingtOn
-12.6%idahO
-9.7%alabaMa-4.8%
OregOn
[The top five states with greatest depreciation in July, including distressed sales. ]
-5.6%Utah
[ ]
LVM | 09
Stats| CoreLogic* Data |
“Although home prices were
flat nationally, the majority
of states experienced price
declines and price declines
are spreading across more
geographies relative to a few
months ago. Home prices
fell in 36 states in July, nearly
twice the number in May
and the highest since last
November when national
home prices were declining,”
said Mark Fleming, chief
economist for CoreLogic.
+5.1%s.dakOta
+2.8%califOrnia
-6.7%Michigan
+4.9%district OfcOlUMbia
-3.8%OregOn
cbsa
Chicago-Joliet-Naperville, IL Philadelphia, PA Phoenix-Mesa-Glendale, AZ Dallas-Plano-Irving, TX Atlanta-Sandy Springs-Marietta, GANew York-White Plains-Wayne, NY-NJWA-Arlington-Alexandria, DC-VA-MD-WVLos Angeles-Long Beach-Glendale, CAHouston-Sugar Land-Baytown, TXRiverside-San Bernardino-Ontario, CA
July 2010 12-Month HPI
change bY cbsa
Single Family Single Family Combined Combined Excluding Distressed
-2.9% -2.8% -2.7% -2.9% -1.6% -4.5% -0.3% 0.6% 0.6% -1.5% 2.4% 2.9% 2.6% 3.1% 3.3% 3.5% 3.3% 1.6% 6.9% 2.8%
* Source: CoreLogic HPI as of July, 2010.
July HPI for the Country’s Largest Core Based Statistical Areas (CBSAs):
+2.8%Mississippi
+3.4%new YOrk
-4.8%nevada
-5.6%ARIZONA
-9.9%idahO
| Highlights as of July 2010 |• �Excluding�distressed�sales,�the�top�five�states�with�the�highest�appreciation�in�July�were: District of Columbia, South Dakota, California, Mississippi, and New York.
• Excluding�distressed�sales,�the�top�five�states�with�the�greatest�depreciation�in�July�were: Nevada, Arizona, Michigan, Idaho, and Oregon.
10 | LVM / October 2010
Peter Christensen Peter Christensen is
the general counsel of
LIA Administrators
& Insurance Services.
LIA provides E&O
insurance to more than
24,000 appraisers and
is endorsed by the
Appraisal Institute. As
LIA’s general counsel,
Peter responds to
the claims, lawsuits
and disciplinary
matters affecting LIA’s
insured appraisers
and investigates and
researches emerging
legal issues related to
appraising.
Santiago Herreros de Tejada Santiago Herreros de
Tejada is Managing
Director of ST
International, an
international division
of Grupo Sociedad de
Tasación. ST minimizes
risks and operational
costs, automates
workflow, and increases
the quality of valuation
reports. Before working
at Grupo Sociedad de
Tasación, Santiago was
International Director
of Planner Reed,
company member of
Reed Exhibitions and
previously at the Global
Corporate Banking of
Citibank International
Plc in Madrid. Santiago
holds a MBA from the
Instituto de Empresa.
Contributors
Brad Stinson
Mr. Stinson is the
founder of Zaio. He
began photographing
entire cities from the
street in 1995 while
operating a successful
residential appraisal
business. He was a
mortgage underwriter
prior to his appraisal
career. His appreciation
for appraisal accuracy
and speed fostered some
of the industry’s earliest
appraisal software.
In 1984 his appraisal
team was completing
appraisal reports in
the field utilizing early
laptop computers and
mobile printers. Mr.
Stinson’s vision has
always been providing
exemplary service to
mortgage lenders and
others.
Steve FergusonSteve Ferguson started
his career in real estate
as an appraiser for
20 years, starting in
Cincinnati, Ohio. In 2004
he closed the appraisal
chapter in his career and
continued his formal
education in economics
where he began
applying statistical tools
to the field of real estate.
He currently is the lead
Realtor working for a
medium size firm in
Indianapolis, IN where
he lives with his wife
and three children.
steve.ferguson@
livevaluation.com
| Featured Authors |
Michael ConnollyMichael Connolly has over 30 years’ experience in the real estate industry and is owner of Smart Move
Inspections in Cincinnati, Ohio. He is a member of the American Society of Home Inspectors (ASHI) and
holds their highest designation of Certified Home Inspector (CHI). He has evaluated over 8,000 residential
homes for home-buyers, attorneys, and lending institutions. He holds licenses for Radon testing, wood
destroying organisms inspections, and is a HUD fee inspector. [email protected].
Contributors
| Featured Authors |
Bill Waltenbaugh, SRABill Waltenbaugh, SRA is a certified appraiser of 20 years. During these years, Bill witnessed and
experienced first hand the many changes that occurred in the appraisal industry, from the advent of
licensing to the implementation of HVCC. Currently, Bill is the Chief Appraiser at AppraiserLoft, a
nationwide Appraisal Management Company, and writes a weekly blog called, “For What It’s Worth”.
LVM | 11
Peace-of-mind is just one of the advantages we offer.
Serving the Appraisal and Valuation Industry since 1977
16oo Anacapa Street, Santa Barbara, CA 93101 Ph: (800) 334-0652 I Fax: (805) 962-0652www.liability.com I [email protected]
Administrators & Insurance Services
In addition to our unsurpassed real estate appraiser E&O program, we offer coverage for:
n AMC Professional Liability (E&O) coverage, worded by LIA specifically for AMCsn Bonds for appraiser client contracts and state regulatory AMC requirements –
extremely competitively pricedn General Liability coverage for real estate appraisers including additional insured options
required by HUD and other clientsn E&O insurance for high risk real estate appraisersn Health insurance for appraisers and their families through the same exclusive program
endorsed by the AMA for its 400,000 physician members – includes 3-year rate guarantee options
LIA’s products are in response to requests made by real estate appraisers and other valuation professionals, seeking to meet the day-to-day challenges of the appraisal industry. In addition, LIA remains to be the leader in loss prevention and appraiser liability education.
For more information, visit our website at www.liability.com, or contact:
Robert A. Wiley, Asst. V.P. Peter Christensen, General [email protected], 800-334-0652, Ext. 128 [email protected], 800-334-0652, Ext. 148
CA License #0764257
F
12 | LVM / October 2010
For more than ten years, I have been
involved with the international real estate
industry, and am currently Managing
Director of ST International Company,
which belongs to Grupo Sociedad de
Tasacion. Due to this involvement, I have
had the opportunity to attend several real
estate and valuation seminars as well as
sessions of congress worldwide.
During these years, I have been able
to verify how concerns regarding the
valuation industry have increased
substantially. Industry professionals
have spent a great amount of time in the
past searching for a solution that would
offer security to the mortgage market
and quality in appraisals. Now, after the
financial crisis, there is an even greater
need for a change in procedures and
methodologies in order to ultimately
achieve excellence and stability in the
industry once again.
At ST International, we have in
depth knowledge about the appraisal
business and we strongly believe
that methodologies, procedures, and
technology in the Spanish regulatory
model (which has been reproduced in
other places, such as Mexico), offer safety
and security to the mortgage market.
The Real Estate Market
The key forces of the Spanish economy
have been tourism and real estate. During
the time between 2001 and 2006, Spain
experienced a real estate boom with very
high growth in bank credits, low interest
rates, and high rates of employment.
In 2003, more than 450,000 homes were
constructed in Spain, versus the 900,000
new homes that were constructed in
the USA that same year. Spain has a
population of 46 million, while the USA
has a population of 350 million. In 2006,
more homes were constructed in Spain
than in Germany, UK, and Italy combined,
and more than 1.8 million loans as well as
appraisals were delivered. Unfortunately,
the economic downturn has also affected
Spain’s economy. Nowadays, it seems
as if the situation is slowly recovering,
although there is still an oversupply of 1
million properties on the market, which
would need to be absorbed so the real
estate market can fully recover.
The Appraisal Profession
Due to the oil crisis of 1973, the Spanish
government decided to regulate the
mortgage market. In 1982, the mortgage
market law was established, which
included appraisal management
companies as a key element between
lenders and appraisers, and addressed
the compulsory use of them in the
mortgage market. There are actually 53
Appraisal Management Companies in
Spain currently under the regulation and
supervision of the Bank of Spain. The top
5 AMCs hold 50% of the Spanish market
share alone, with the leading independent
AMC being Sociedad de Tasación. The
AMCs develop appraisals done by
independent professionals (appraisers)
who collaborate with them.
They offer value to the process as they
investigate and develop the technical,
Learning from
markets abroadSpain mandates the use of AMCs.
~ Santiago HerreroS de tejada ~
LVM | 13
formal, and IT aspects of the full appraisal
process (from ordering to invoicing).
Through the process, the comparables
(which are introduced by the appraiser)
are grouped in one unique database.
AMCs also train and provide courses for
appraisers and lenders, so that all of this
knowledge and expertise is provided to
everyone. There is also a control team that
reviews the appraiser’s reports, and the
appraisal is not delivered to the lender
until the report is ratified by the team
(controllers). The AMCs are responsible for
the appraisals delivered through them to
ensure value and security is offered within
the mortgage market.
The Appraisers
Appraisers in Spain are also required
to be architects or engineers. The law
made the use of AMCs compulsory for
appraisals linked to the mortgage market
and therefore appraisers
where forced to
work for the AMCs.
Appraisers act in
an independent
manner, giving
their opinion about
value without
having any
pressure
from the
lenders; their responsibility is with
the Appraisal Management Company.
Appraisers are subject to a technical
control done by the AMCs. Those that
work for Sociedad de Tasación (ST) work
exclusively with ST due to high fees,
free leading technology, and continuous
support in the appraisal process.
Appraisers under the umbrella of the
AMCs benefit from the following:
• Methodologies, compliance, technical,
and urban aspects, etc. are normalized
by the AMCs’ technical departments,
which keep appraisers updated in
regards to new rules, and eliminate
possible mistakes due to lack of
knowledge.
• Allows appraisers to develop uniform
standard appraisal reports, which
facilitate the lenders’ understanding,
knowledge, and familiarity with them.
• The AMCs develop market and
technical control over the appraisals
and comparables introduced by their
collaborating appraisers.
• Appraisers receive training (in
classrooms and online).
• Appraisers receive orders directly via
the Internet (no commercial effort).
• The appraisal rates are already
assigned and negotiated by AMCs
with lenders (no negotiation effort).
• The billing management is done 100%
by the AMC, therefore appraisers
don’t spend any time in the charging
process.
• Each appraiser is assigned with
a general or specialized review
appraiser (controller) at the AMC,
who acts as a quality controller and
also as a consultant for the appraiser.
The review appraiser is available
before, during, and after the appraisal
to resolve any doubts or questions the
appraisers may have.
• Easy-to-use software that guides the
appraiser through the report.
• ST guarantees payment to the
appraiser and they are protected by
insurance issued by the AMC except
in cases of gross misconduct.
• The lenders invoicing is managed
100% and appraisers are paid monthly
by the AMC (no need to worry about
claiming payments at the banks).
• Offers the appraiser an enormous
shared database, which is infinitely
better than an independent appraiser
database (ST groups more than
500,000 comparables yearly).
• Appraisers operate on a municipal
level so that they can guarantee
perfect knowledge about the market,
the urban area, the real estate
agents of the area, the developers
of the area, the contractors, and the
macroeconomic factors that influence
the economy of the area.
• At our group, although it is not
regulated by the Bank of Spain,
we internally make sure that our
collaborating appraisers work in
a specific zone (each appraiser
works over a ratio of 40 km). In
cities, appraisers are even zoned by
districts.>>
14 | LVM / October 2010
The Market Regulation
The Bank of Spain, which is the equivalent
to the Federal Reserve, is the organization
that supervises the appraisal management
companies and the financial institutions in
the Spanish market.
Below are the most important laws that
regulate the appraisal profession:
• Ley del mercado hipotecario (RD
685/82). Modified por RD716/2009:
(Regulates the Mortgage Market).
This law created the Appraisal
Management Companies and made
them compulsory for any appraisal
linked to a loan that is intended to be
sold on the secondary market.
• Orden ECO 805/2003: Guidelines give
an opinion of value, how the appraisal
should be done, and the information
that the report must have.
• RD 775/1997: This law provides
requirements to register as an AMC,
how to be authorized, and sanctions
to AMCs. It also addresses appraiser
incompatibilities, etc.
Quality Control
The Bank of Spain specifies the type of
QC that should be done, and all AMCs
must assure the following:
• The appraiser has used all of the
necessary documentation.
• The appraiser has completed all of the
necessary steps required when doing
the appraisal.
• The technical proceedings (calculation
methods) to do the appraisal have
been completed.
• The information specified by law is
included.
The use of intelligent control systems as
a tool to achieve quality and productivity
in the appraisal process is key. It is
essential that the control process is fast,
therefore the technology used must allow
the fluent transmission of information
to the appraiser, with the existing issues
detected, and allow him to complete the
needed modifications.
There are several factors that imply risk
and should be avoided. Some of them are:
• Heterogeneous criteria between the
different professionals involved in the
valuation industry.
• Heterogeneous content in the
valuation reports.
• Non-existent independent quality
control over the valuation reports.
• Unaudited databases.
• Unstandardized information.
• Monopoly of valuers in several areas.
• Non-automated processes.
• Manipulable PDFs.
All of those factors create systematic risks
in the valuation market, which prevent an
efficient quality control of the valuations
linked to mortgage loans.
In order to achieve security in the
mortgage market, it is key to achieve
optimum control over the valuation
products. In my opinion, the combination
of strict regulations implemented
by governmental authorities with
technologies that allow statistical and
numerical analysis in the valuation process
is essential.
Additionally, in markets with high
volumes of valuations, it is virtually
impossible to conduct the business in a
secure way without the use of specialized
software that manage and automate the
process of the valuation work. If you are
a valuer or a valuation firm, the workflow
process must include technology which
will allow you to receive orders, highlight
important deadlines, track the status of the
report, and assure that compliance is being
met. Additionally it will assure that the
criteria, procedures, and methodologies
used are appropriate, as well as check the
coherence of the certified values with the
main goal of offering security and quality
control tools to the mortgage market.
Technology
ST International has been investing in
smart progressive valuation technologies
since the 1990s and nowadays our state of
the art technology is being used in Spain
by the AMC and by the leading financial
institution in Mexico. The technology
processes an average of 250,000 appraisals
yearly in both markets.
The valuation programs developed by ST
International generate reports adapted to
the Spanish legislation, European valuation
standards (TEGOVA), International
Valuation Standards, Mexican legislation,
and are currently working on a US version
called ST Appraisal.
The core offering of ST Technology is the
real estate appraisal preparation platform.
This unique approach combines the
professional judgment of the licensed
appraiser with intuitive scripts that drive
information gathering specific to the
characteristics of the subject property,
location, and the type of appraisal
assignment.
Once the form is created, the Appraisal
Management Company’s QC department,
the QC department of a lender, or even
the QC department at a governmental
organization can receive the form, plus all
of the information which has been used
to develop the form electronically. All
of the appraisals (reports and appraisal
certifications) are received via the Internet,
so all of the data is electronic, and all
possible mistakes in the appraisals are
highlighted through electronic tools
provided in the program. The lender
receives a PDF, which includes all of the
information on the property (more than
180 parameters from each appraisal), and
can file appraisals electronically with full
legal approval.
main characteristics of the system
LVM | 15
Appraisals must include photographs,
maps, and any other materials needed
for the appraisal certifications and
can be received at different locations
at the same time (financial institution
headquarters, bank office, mortgage office,
risk departments, etc.). This technology
reduces the number of QC people needed
in an organization by 70% due to the
integration between the valuation program
and the QC program.
Through the implementation of an
effective regulation, and through the use of
intelligent valuation technology platforms,
the mortgage market will see how the risk
is reduced substantially. It will be able to
achieve homogeneous technical criteria,
homogeneous reports, make sure that the
appropriate quality controls are produced,
and include shared and audited databases
as well as standardized information which
will allow a better analysis of the valuation
works.
The valuation market in each country has
its own characteristics but we have been
able to prove that the methodologies,
procedures and technology that are used in
Spain are 100% adaptable and exportable
to diverse legal and socioeconomic
environments. We can help to offer
security and safety to international
mortgage markets. It is necessary to make
the industry aware that it is extremely
profitable in terms of security to invest in
quality and automation of the valuation
process in order to achieve productivity
and profitability.
Never before has it been more important
for a new, viable system to be inserted in a
market place that restores the appraiser’s
ability to improve his efficiency and
accuracy, offering much more security to
the mortgage market, lenders, investors,
and international global markets.
«• It has a smart screen
progressive process that varies depending on the typology of the appraisal. Screens must be completed correctly in order to move to the next screen.
• 90% of the fields are pre-populated fields and each of them has a help button in order to avoid mistakes in the answers due to lack of knowledge.
• The appraisal residential program therefore intuitively guides the appraiser throughout the appraisal process with a permanent QC during the process of developing the report.
• There is a focus on solutions that increase the quality and speed of property valuations by bringing transparency and independence to bear.
• It provides appraisers with a flexible operating platform, where un-biased validation of appraiser quality is a true differentiator.
• The property valuation market is evolving with this program, which includes technology driven data capture, valuation, review, and risk assessment solutions.
• The program assures that the data is introduced only once.
• The program supports the
appraiser’s development of a personalized data source from his own work, his participation in peer-shared data resources, and third party data integrated into the system. In Spain, for example, we have a database of 2 million data and 300,000 new data are introduced yearly by the appraisers who use the technology.
• The criteria, methods, procedures, and techniques used depending on the typology and legal characteristics of the subject properties are appropriate.
• It automates and preserves complete work files of each assignment for the appraiser, eliminating cumbersome offline systems for record retention.
• Compliance is integrated into the program.
• Addendums and empty answer boxes are generated automatically as a result of the scroll-downs that appear at 90% of the fields.
• The system generates the official form required as well as another much more comprehensive form, which we believe is organized much more coherently.
• The report is multilingual, independent of the language in which the appraiser has completed the screens. The demo version produces the reports in English and Spanish for a better understanding among the Hispanic population in the USA or the Hispanic investors in RE, which do not understand the official existing forms.
• Each property has a family and the system recognizes if it has been appraised previously even if the legal aspects of the property have changed (urbanism, etc.).
• The system adapts to hundreds of specific client requirements.
main characteristics of the system
New
Legal Risks for
AMCs
Peter Christensen
PassiNg the LiabiLity buck.
16 | LVM / October 2010
LVM | 17
AAppraisers and appraisal management companies share the same lifeboat these days when it comes to their liability risk and they must row together if they are going to avoid sinking in the whirlpool caused by the mortgage crisis. This is becoming more evident as AMCs become visible to the public and subject to greater regulatory control. We’ve been advising appraisers for years about the claims and litigation that affect them and on strategies to reduce their risk. The information here is for AMCs and highlights a few of our current concerns about the risks they face.
AMCs Should Be Careful With What They Promise to Clients
One pronounced recent development we have observed in the relationships between AMCs and their lender clients is that many lenders have become more focused on contractually shifting valuation liability risks to AMCs. Lenders are demanding that AMCs accept financial and legal responsibility for appraisal quality and compliance.
Many AMCs execute contracts containing requirements like these without thought or negotiation. Their focus is simply on winning the work. However, in the current legal environment surrounding appraisals, this is a risky approach. Lenders know the cost of the risk they are passing on to the AMCs far better than the AMCs. They simply know their own default rates, appraisal-related losses, and mortgage repurchase problems better. Some of the lenders who are trying to shift the most risk are lenders who are predisposed to litigation about appraisal issues and who have recent histories of treating appraisals essentially as guaranties of value, not professionally developed opinions.
Prudent AMCs should carefully evaluate
proposed risk transfer provisions in their
lender contracts:
• Can the risk transfer provisions be more fairly negotiated? Some lenders are willing to revise the language they initially demand.
• If the provisions cannot be fairly negotiated, then the cost of accepting that risk versus the benefit of doing business with the lender should be weighed. Thus, what is the lender’s history with respect to appraisal-related claims and litigation? Key indications of a lender more likely to make demands under rep and warranty provisions are: a recent history of claims against individual appraisers or AMCs, and a high level of mortgage repurchases. An E&O carrier with relevant market knowledge can help assess these factors.>>
We see lenders doing this in several ways:
• Requiring AMCs to make more representations and warranties with respect to appraisal delivery performance, value accuracy and USPAP/regulatory compliance. In some lender/AMC contracts, the AMC is then required to pay liquidated damages to the lender for any breach of its reps or warrants. They must also agree to pay the lender’s costs and losses associated with any appraisal-related issues such as mortgage repurchases or mortgage insurance rescissions. Lenders are essentially mirroring the reps and warrants they’ve been making to the GSEs for years – promises that are now causing them to have to repurchase billions of dollars of mortgages.
• Requiring AMCs to agree to onerous, one-sided indemnification provisions under which the AMC must promise to indemnify and defend the lender for any and all claims, losses, expenses, attorneys’ fees, etc. relating to appraisals or other valuation products delivered by the AMC to the lender – regardless of fault in some cases.
• Demanding that AMCs carry extensive insurance coverage not only for professional and general liability risks but also for less commonly covered risks like intellectual property infringement (i.e., patent and copyright claims).
APPrAISerSand appraisal m a n a g e m e n t
companies share the same
lifeboat these days when it comes
to their liability risk...
18 | LVM / October 2010
AMCs Should Be Careful With What They Require Appraisers to Promise
The common reaction that many AMCs have to lenders requiring them to agree to onerous reps and warrants as well as one-sided indemnification provisions is to try to pass on these potential liabilities to their panel appraisers. It is, of course, prudent to use independent contractor agreements to clearly spell out the performance standards, payment terms, and other aspects of the relationship between AMCs and appraisers. Trying to pass on all of an AMC’s potential liabilities to its appraiser panel in such agreements, however, does not work well in practice, may violate various states’ AMC laws, and can result in an appraisal panel that is lower in overall quality. It’s usually fair and practical that each party to a contract will be responsible to the other for its own acts or omissions, but it’s quite another thing to shift the risk of all liabilities, regardless of who is at fault, to the individual appraiser.
We often see indemnification provisions like the following in AMC independent contractor agreements:
Appraiser shall indemnify, defend, save
and hold harmless [AMC] from and
against any and all liability, claims,
damages, losses, fines, judgments,
penalties suits, decrees, costs and
expenses . . . in any way related to .
. . any appraisal report submitted to
[AMC] by Appraiser.
This is very one-sided. Under such a provision, an AMC could contend that the appraiser must indemnify the AMC for liabilities or damages, and even fines or penalties assessed against the AMC relating in any way to appraisals delivered to the AMC by the appraiser – even if the alleged problems are the result of the AMC’s own conduct or wrongdoing.
Another example of one-sided indemnification language in an AMC-appraiser agreement is:
Appraiser shall further indemnify,
defend and hold [AMC] harmless
from and against any and all claims,
losses, liabilities, costs and expenses
attributable to any allegation of
intellectual property infringement
arising out of this Agreement.
Under this provision, the AMC is requiring the appraiser to indemnify the AMC for patent or copyright infringement in relation to any appraisals delivered by the appraiser – whether the alleged infringement is the fault of the appraiser, the AMC or some third party, such as a technology provider.
There are several issues and problems with including provisions like these in independent contractor agreements. First, AMCs need to be aware that some of these provisions will now violate various state AMC laws and subject the AMCs to investigation, potential monetary sanctions, and possible loss of their registration status. New Mexico’s AMC
law, for example, states: “An appraisal management company shall not require an appraiser to indemnify the appraisal management company against liability except liability for errors and omissions by the appraiser.” Similar prohibitions exist in the AMC laws of at least the following states: Minnesota, Tennessee, Utah and Washington. Very one-sided provisions are also often unenforceable under more general statutory or common law in many states.
A second concern, based on years of observing appraisal claims, is that when an AMC utilizes an agreement that is very one-sided or commercially unreasonable, the overall quality of its appraiser panel declines due to the loss of appraisers who choose not to do business under such agreements. This exposes the AMC and its clients to greater liability risk from poor appraisal performance. Appraisers who have the ability to make a choice about whether they do business with certain AMCs, on average, are more experienced and knowledgeable and have greater economic stability than appraisers who feel they must accept the one-sided terms of some contracts. Of course, good appraisers do work for AMCs that have unfair agreements but they generally do it only when they don’t have alternatives.
Finally, as a practical matter, we almost never see AMCs actually enforcing the one-sided provisions in their agreements. An appraiser’s professional liability insurance is not going to cover any liability that the AMC tries to shift for its own conduct. Relatively few individual appraisers have the financial ability to personally satisfy the monetary demands made in such claims, which may be tens of thousands or hundreds of thousands of dollars. Thus, in general, AMCs are not getting any benefit from including the provisions but are suffering from loss of appraiser quality and potential regulatory scrutiny.
The common reaction that many AMCs have to lenders requiring them to agree to onerous reps and warrants as well as one-sided indemnification provisions is to try to pass on these potential liabilities to their panel appraisers.
“ “
LVM | 19
Indemnification provisions are not the only contractual clauses that may cause regulatory scrutiny for AMCs or cause their panel quality to suffer. Another example is the following provision –wording similar to this appears in many AMCs’ current contractor agreements:
Appraiser may not disclose the appraisal
fees paid for services under this
agreement to any third party.
Provisions like this potentially violate new state prohibitions against AMCs prohibiting appraisers from disclosing their fees in appraisal reports. California’s emergency AMC regulations, for example, provide that “[a]n Appraisal Management Company cannot prohibit a contracted appraiser/client from disclosing the fee paid to the appraiser/client for an appraisal assignment in the body of the appraisal report.”
A Risky New Form of Appraiser Pressure
We do not receive many reports or claims anymore relating to valuation pressure from AMCs or lenders in connection with current appraisals for loan origination purposes. We do, however, receive reports and see the results of pressure by some personnel employed by AMCs in the business of delivering “forensic” review work for mortgage insurance and loan repurchase purposes. In recent months, for example, we have received confidential reports of AMC personnel instructing appraisers in writing that they must deliver forensic review appraisals with value opinions lower than the origination appraisal and must identify errors in the origination appraisals under review. It’s been reported that these AMC personnel threaten the appraisers with being cut off from further review work. This is a potential business and legal disaster for these AMCs. Mortgage insurance denials and mortgage repurchase demands are
the subject of significant current litigation and arbitration. If review work performed by a certain AMC for MI or repurchase purposes is contaminated by these kinds of practices, that AMC will have potential liability across a wide spectrum (magnified by any indemnification provisions it has agreed to) and, moreover, will quickly see demand for its services to evaporate.
Future Liability Issues under Dodd-Frank and State AMC Laws
As AMCs busy themselves preparing to comply with the initial TILA elements of the Dodd-Frank Act and new AMC laws, we are busy trying to determine the additional liability risks that both appraisers and AMCs will face.
We are most concerned about effects from the mandatory disciplinary reporting of appraisers under the Dodd-Frank Act (and the eventual complaint “hotline” that will later exist). In short, Dodd-Frank mandates that mortgage lenders, AMCs, and other parties report an appraiser to the applicable state licensing agency if there is a reasonable basis to believe that the “appraiser is failing to comply with the Uniform Standards of Professional Appraisal Practice, is violating applicable laws, or is otherwise engaging in unethical or unprofessional conduct.” This will mean many more complaints to state boards and, correspondingly, an increase in lawsuits against appraisers and AMCs because a certain percentage of such complaints evolve into civil litigation. AMCs also will be in the
awkward position of being required to file complaints alleging USPAP or other violations against their own panel appraisers, while in some cases being obligated to indemnify their lender clients for losses caused by such violations.
We are also concerned about the effect of new AMC laws which contain provisions requiring AMCs to have in place a system for ensuring that their panel appraisers’ work product complies with USPAP and in some instances appear to suggest a duty on AMCs to ensure USPAP compliance. Attorneys for consumers will likely contend that these requirements establish a legal duty of care owed by the AMCs to borrowers – if this occurs, we will see more consumer claims against AMCs.
The common reaction
that many AMCs have to lenders requiring them to agree to onerous reps and warrants as well as
one-sided indemnification provisions is to try to pass on these potential liabilities to their panel
appraisers.
“
“
20 | LVM / October 2010
LVM | 21
I have known Brad for a long time and always admired his tenacity and passion for technology.
He has a ‘never say die’ attitude and an interesting perspective on valuation that we can all learn from.
-ernie Durbin, Publisher
““
technology changes everything,
22 | LVM / October 2010
especially for the appraisal industry. this is the story of how Zaio’s vision came to be, based on my personal perspective as the founder and as a fee appraiser keeping pace with technical advances over the past 30 years. it’s about the rise of a simple concept that will enhance the appraisal profession and provide the collateral risk industry with valuation clarity in real-time, while also separating the appraiser from all undue value pressure.
My appraisal career began as a Canadian
mortgage underwriter when I was 19.
Back then, bankers drove long black
sedans, mortgage loans were a privilege,
not a right, and underwriters often wrote
their own appraisal reports by hand. The
year was 1979 and the Olivetti typewriter
was on the cutting edge of technology.
In the early 80s, mortgage rates were
like price tags. They just kept rising
with inflation, until they reached the
apex of insanity at 22%. At the bank,
we filled our days with back-to-back
games of Cribbage and began to talk
about a cool new desktop appliance
called a PC. As mortgage rates eased,
a new world emerged—a world filled
with mortgage money and loan officers
living in a constant state of panic, waiting
for independent appraisers to deliver
reports. Mortgage lending had suddenly
become a new and highly competitive
industry. From my perspective inside
the bank, it was easy to see how faster
service would mean plenty of business
for an appraiser. What if an appraiser had
a computer that prompted the questions
and then printed the appraiser’s response
right onto the form? Eureka! In 1983 I
left the bank, hired a programmer and
rode boldly into the new frontier. I had
visions of becoming this highly informed
appraiser that completely understood
what every home was worth, visited
open houses, studied market trends in
advance, and provided the accuracy
everyone was looking for. Unfortunately,
I was naïve and that was not how the
industry would unfold. There was
certainly no time or method to actually
study market conditions between orders,
and the business volume quickly began
flowing toward those appraisers who
always supported the necessary number.
I still believed integrity would rule the
day and better service could win.
With a Tandy 100 laptop and my own
new custom software application, I hit
the streets as a high tech appraisal shop
that delivered speed but not always the
requested number. I trusted that turn-
around time and service would keep the
orders flowing, even when the required
values weren’t really there.
The Tandy 100’s monochrome screen
only displayed 200 characters, 50
characters wide and 4 lines high. The
reports were saved onto a separate audio
cassette player by pressing play/record
and save on the Tandy at the same time;
there was no floppy disk yet. With my
printed sales books in the back seat,
a power generator, and a daisy wheel
printer, I was able to turn an appraisal
around in 2-3 hours and personally
inspect all of the comparables. Inspecting
comparable sales was overkill and
highly unique back then. I would print
the report while sitting in the lender’s
parking lot and then glue on that
Polaroid photo. It didn’t take more than
a month for lenders and competing peers
to notice a major change in the industry.
I sold my software to a few appraisal
firms in the mid 80s, but by 1990, larger
and more dedicated software developers
had entered the market. I had my CRA
designation (equivalent to an SRA)
and I was running a busy appraisal
business called Blueprint Appraisal
Services. Our software was really only
custom designed for our appraisal
firm, and we focused on helping our
clients provide prompt service to their
borrowers by trying to carve minutes
off the turnaround cycle and never
compromising quality. We had to provide
better service because we didn’t always
support the value our client needed.
On the front line of technology in 1990
was the cellular phone. The cell phone
companies told me it was illegal for us to
transfer appraisal data over radio, but I
knew the oil and gas industry outside of
Calgary, Alberta, was transmitting data
logs by wireless every day. Why couldn’t
an appraiser log onto the MLS or transfer
appraisal files by cell phone? “AT X19 -
enter” turned out to be code that would
tell a modem to connect with a squealing
LVM | 23
modem on the other end. This was cool
stuff…until the MLS website became
graphical and the page load times
jumped to 5 minutes at the pathetic 300
baud rate our modems could maintain
over a cell phone. The competition didn’t
mind our little technical setback and they
were beginning to dislike our technical
ways. We bought faster modems and
more comfortable cars and carried on.
Exclusive appraisal contracts were
unheard of, and considered unfair for
the competition, but lenders wanted
what we had, so I signed one of the first
contracts in Canada for the entire city
of Calgary. We posted and distributed
orders through our private Bulletin
Board Service (BBS) because the Internet
didn’t yet exist. Our appraisers logged
onto our BBS from their vehicle and the
company grew very quickly even though
our appraisers rarely met each other at
the central office. As technology settled
in, we began to imagine the tremendous
potential of electronic data interchange.
We didn’t know it at the time, but what
we had imagined soon arrived in the
form of the Internet. We were gaining
market share while the competition was
growing more unsettled with us every
day. Lenders loved us.
Digital signatures were next on the
horizon in the mid 90s, along with
those binocular-shaped digital cameras.
We bought 26 Logitec™ cameras and
photographed Calgary’s 300,000 homes
in 1996. When the Internet became
mainstream in 1997, our photo database
raised eyebrows and questions from the
privacy commissioner. After a few radio
interviews and a 30-minute television
debate, the excitement over privacy
rights abated. Lenders could suddenly
see any Calgary home from the street
through their computer screen. Banks
were centralizing their operations and
our goal became the task of centralizing
the appraisal supply and data on their
behalf. We wanted to be faster, better, and
allow appraisers to spend more time on
real valuation research while transferring
the clerical mechanics of production into
the burgeoning world of information
technology on the Internet. We had 12
appraisers, all with complete briefcase
office systems on the passenger seat
of their car, and our quick turnaround
time with higher quality research had
a markedly positive impact on our
client’s market share for
mortgage origination.
Real estate agents soon
knew where they could
get quick mortgage
approvals and where
NOT to send fraudulent
deals. Our lenders
were winners on both accounts.
A separate company called PhotoInfo
Digital Photography Inc. was formed
and we began to generate interest
from appraisers in other cities. The
competition then wanted to partner with
us and we were happy to oblige if it took
us national and could help fund the very
expensive data collection.
By 1998, with the help of a large national
partner, we had become Canada’s largest
appraisal management company. Our
appraisal contract expanded nationally
as did our national photo shoot. Lenders
could see any home instantly, but now
they wanted the appraised value along
with that photo. We began to focus our
technical development on a database
structure that would help an appraiser
organize market data and research values
even before an order was received. That
naïve idea about >>
NEXT ? YEARS
24 | LVM / October 2010
doing market research in advance of the
order was on the table again. The risk
manager at one of our lender clients said,
“Our sales department wants to issue
mortgages as quickly as a credit card
transaction, while I need to make sure
we maintain a quality appraisal.” Things
were still too slow and clients seemed to
always want the report yesterday. Those
scary black sedans from the 70s would
soon become black box Automated
Valuation Models (AVMs) that would
attempt to determine a home’s value
instantly or simply risk rate the loan and
not conduct any valuation at all.
Our best client had been predicting a
doomsday for all residential appraisers
unless appraisers could somehow learn
to analyze more than one house at a
time. Lenders needed neighborhood
trends and statistical data to manage
risk, while the mortgage sales side
needed those same statistics for better
service and marketing. Black box
AVMs would become the appraiser’s
archenemy. Trying to carve another 10
minutes off an appraiser’s turn time was
no longer the question. In fact, the whole
question had changed for the appraiser.
It was no longer “What is this house
worth?” but “What are these houses
worth and where is this particular
market going?” Loans were securitized
into mortgage pools to reduce risk and
appraisers were becoming outmoded.
Clearly, the key was to help the appraiser
measure value on more than one house
at a time. Appraisers had to become local
market analysts even before the order
was received. The appraiser needed to be
more than just a person who could tally
up the physical assets of a house and
find three comparables that sold near the
suggested value. They needed to become
professional market analysts for local
market conditions and value trends,
and they needed to do it better than a
real estate agent, tax assessor, or the
dreaded AVM. We could feel statisticians
breathing down our necks. On the flip
side, those AVMs had data errors and
were inaccurate 30-40% of the time and
we knew appraisers could do a much
better job if they had the tools. It was at
this critical juncture that our Canadian
business partner would decide to buy
us out, leaving me with a non-compete
agreement for Canada. We entered the
US market in January 2000 and ZAIO
was born (Zone Appraisal and Imaging
Operations). We were right on time for
the tech wreck, AKA the Dotcom market
crash. I had to re-invest every dime
from the Canadian sale and refinance
my home for the second time, but the
company survived.
It was hard to know where this
long and winding road would lead,
especially when the capital markets
and investors had the jitters too. ZAIO
had to unite US appraisers with photo
and data collection, and it needed
capital. When we took the company
public in 2004 with a small IPO at 30
cents, we had completed most of the
photography in Spokane, St. Louis and
Denver, and we had the rudiments of
GeoScoring. GeoScoring crystallizes
qualitative words like “good” and “fair”
into meaningful and consistent numbers
on a scale of 1 to 10. The vision for an
appraiser-backed valuation database
was clearly on the road ahead. With seed
financing, we developed the first version
of our valuation software and
pre-appraised most of the homes in
Spokane, Washington. Within days, we
were instantly delivering the original
2055 appraisal form to a few small local
lenders. The valuation research had
taken months, but the lender could
receive it instantly. However, the larger
lenders with most of the market share
felt they needed national coverage before
they could really play ball, and the
middle of a refi-boom was not exactly
ideal for lenders to re-tool their existing
appraisal supply chain. It was a Field of
Dreams scenario. “If we build it they will
come…”
This would be a very steep uphill
curve. Photographing and GeoScoring
a large portion of America would cost
millions unless appraisers liked the
concept enough to purchase a software
license for a specific geographic area.
In 2006, with a new CEO and an office
in Phoenix, we launched an aggressive
Zone Sales program. Appraisers would
1979My appraisal career began as a Canadian mortgage under-writer when I was 19…the Olivetti typewriter was on the cutting edge of technology.
1980Mortgage rates
were like price
tags. They kept
rising with
inflation until they
reached the apex of
insanity at 22%.
1990 The cellular phone
was on the front-
line of technology.
Cell phone
companies said
it was illegal to
transfer appraisal
data over radio.
1990sWe began to imagine the potential of electronic data interchange. What we had imaged soon arrived in the form of the Internet.
1996We bought 26
Logitec ™ cameras
and photographed
Calgary’s 300,000
homes.
1998We had become
Canada’s largest
appraisal
management
company.
>>
LVM | 25
own rights to a geographic area called a
Zone. A Zone contained approximately
10,000 properties and the Zone Owner/
Appraiser would research all the homes
in detail, fixing errors in the property
data, selecting comparables and
analyzing the value of every home in the
database. Appraising in advance of the
order would ensure pure independence,
geographic competence, and adequate
time for quality research, while the client
would receive real-time delivery, quality,
and cost efficiency. The appraiser’s
local research would be the most critical
aspect of the entire value proposition.
Appraisers caught the vision and
purchased software rights for one third
of metro USA, and those selected Zones
encompassed half of the country’s
strategic lending footprint. With ZAIO’s
stock price soaring as high as $5.60, the
company then found itself in acquisition
mode. ZAIO purchased appraisal
management companies, software
development companies, photography
networks, and even Appraisal.com.
Some of the best known names in the
appraisal industry were happy to lend
their expertise and join the management
team. The concept was solid, but there
were still a few sharp turns in the
road, and in early 2008 stress fractures
began to appear in the business fabric.
Operational costs were high and it
became difficult to see the road. We
were running mainly on revenue from
traditional appraisal services, Zone sales,
and investor capital, when industry
icons like Bear Stearns and Lehman
Brothers toppled. When lenders hit the
brakes, all revenue sources and investor
dollars for ZAIO vanished and our US
subsidiary was closed and dissolved.
Zone owners dubbed that fateful day as
“Z-Day”.
ZAIO’s Board of Directors managed to
keep the public parent company alive
and out of the ditch. Dedication to
preserving the investments from Zone
Owners and shareholders carried the
company through 2009, saving its critical
assets for a better day; saving it for days
like today, when market research and
valuation clarity is really taking center
stage. By keeping the faith, shareholders
and Zone Owners would emerge from
this economic disaster stronger than ever
before and the database would grow
again.
The crisis proved to be an ideal
opportunity to revisit the business
relationship with local appraisers.
Between economic change and
technological advancement,
perspectives can change overnight,
making a company’s willingness to
reinvent itself a major asset. Zone
owners wanted to mitigate risk and
needed more control. They wanted
higher revenue potential. ZAIO felt a
strong need to unify the Zone Owner
network, reduce capital expenditures,
and accelerate GeoScoring and database
growth. The solution was for Zone
Owners to unite under their own banner
and for ZAIO to issue one national
software license to this new entity. That
new company is Zone Data Systems LLC
(ZDS). Independent valuation research is
the future for appraisals. Whether the
final product is a desktop, drive-by, or
full interior appraisal, knowing the valid
comparables and market trends up front
makes complete sense for everyone
involved. The ability for local appraisers
to accurately track property values every
month will add an entirely new and
necessary dimension to the appraisal
and collateral risk industry.
As the country continues its effort to
clean up and restructure America’s
mortgage woes, and leaders in lending
and government have that deer in the
headlights look, they need to know that
technologies such as, ZDS and ZAIO
are coming down the road with a major
helping hand. Real-time valuation clarity
will inspire new investors to absorb the
troubled loan and REO portfolios, and
accurate value tracking in the future
will foster better lending programs and
mitigate fraud. The entire lending and
collateral risk industry reside on this
long and winding road, and I think we
all know where this road leads.
2000ZAIO was born
when we entered
the U.S. market in
January.
2004We took the
company public
with a small IPO at
30 cents.
2006 With a new CEO,
we launched an
aggressive Zone
Sales program.
2008Stress fractures
began to appear in
the business fabric.
Bear Stearns and
Lehman Brothers
toppled.
2009ZAIO’s Board of
Directors managed
to keep the public
parent company
alive and out of the
ditch.
2010ZAIO issued a
national software
license called Zone
Data Systems.
the long and winding road
realtor
26 | LVM / October 2010
appraiserin
ICLOTHING
I have been involved in some form of the real estate industry for the better part of my life, from
construction with my father as a teen, to appraising and loan originating, and now as a realtor.
even when I decided to go back to school in the early part of the decade to pursue an education
in economics and leave the business, I saw more opportunity and application in real estate than
anything else. The study of economics has allowed me to create models to simplify the complex,
and recognize there are problems that cannot be explained rationally: perfect for real estate. It
is from this background, specifically my experience appraising real estate, that I have gained a
significant foundation as a Realtor.
Appraisers and Realtors: the common ground. STeve FerGuSON
realtor
LVM | 27
“As an appraiser, I had respect for some of the Realtors in the field, but largely, my perception was that they were paid a lot of money to turn a
key; I will not even tell you what most Realtors think of appraisers.
As an appraiser, I had respect for some
of the Realtors in the field, but largely,
my perception was that they were paid
a lot of money to turn a key; I will not
even tell you what most Realtors think
of appraisers. Even though I am not an
appraiser now, I still become defensive.
I figured that with my background in
valuation, it would be a snap to adapt to
this part of the industry. Keep in mind I
was an appraiser, then became a Realtor
during two very different and distinct time
periods of my career. Believe it or not, the
job of a Realtor can be very demanding,
especially for a closet introvert. It turns out
I have learned quite a bit as a Realtor—
things that I did not know or consider as
an appraiser.
There are many similarities to our two
sides of the business, including client
relationships as well as valuation and these
two similarities take on different forms.
For instance, we as Realtors need to get to
know our clients very well as it pertains to
their lifestyle and even finances. It is not
uncommon for personal relationships to
spawn out of a business relationship, to
know names of kids, and to have common
friends and hobbies. As appraisers,
especially now, you may not even know
anyone at the mortgage company/bank
you are charged with protecting. However
the same client confidentiality applies to
both.
The valuation techniques were, I believe,
the best tools I learned through the years
as an appraiser. There are many appraisers
and Realtors who are good at estimating
market value. I have found that many
Realtors throw around the price per square
foot statistic more than appraisers. Taking
something so complex and reducing it to
one all encompassing figure is dangerous
and violates the axiom of each property
being unique. I am sure it is used because
most buyers and sellers can relate. I still
look at contributory value as the way to
advise clients, which makes me feel more
confident. When determining a list price
for a house and sometimes purchase price
for a buyer, I will run a multiple regression
and do a modified appraisal on the
property. At the very least, I will complete
a truncated appraisal using sales from the
neighborhood and from time periods in
which marketing influences are somewhat
similar (remember this mess started in
August 2007). I do use older sales (12
months plus) in order to stay within the
confines of a neighborhood rather than
extracting an adjustment for differences
in amenities and location. Again, this is to
protect the interests of my clients, not for
an underwriter. I realize I am not doing
an appraisal by today’s standards but it is
the way most appraisers would operate if
given the freedom.
Perhaps a story would be useful
in illustrating how our worlds are
different. In my office, my experience
as an appraiser comes in handy and is
especially centered on training other
Realtors. Recently, I became concerned
with the April 30th expiration of the
buyers incentive specifically as it relates
to appraisals—low appraisals. I wanted to
bring Realtors in line, if only temporarily,
with how appraisers estimate value. It was
early April; I did not want to see anyone
lose a deal and cost a client $8,000 and
possible litigation. I had approximately
thirty Realtors in the training group and
started with USPAP definition of market
value and moved into neighborhood
definition and comparable selection. All
was going well until I discussed matched
pair analysis. To be fair, this systematic
approach to valuation is in many ways
like learning a new language. For good
measure, I have been in many appraisal
courses where the slightest hint of algebra
brings panic to appraisers. The intent
of the exercise was to borrow some best
practices from the appraisal world in order
to help them think in an organized and
systematic way. My conclusions were that I
shouldn’t have had such high expectations
while giving them a crash course in
everything I had learned over the course
of 15 years inside of a two-hour training
session. I also concluded that the average
personality of a Realtor is not conducive to
thinking in a linear way (cheap shot). We
did manage to close all deals from April
and only had one “low” appraisal for the
month.
Even though many Realtors do not
methodically look at contributory value
the same way, after looking at so many
properties in a specified market, the value
of a specific property almost becomes
visceral. From my experience working
with buyers, this is particularly true.
Buyers, whether they are thinking or
feeling, can organize data and come pretty
close to market value, in somewhat of a>> “
STeve FerGuSON
28 | LVM / October 2010
qualitative manner. Translation: whatever
their ideas are of the market, they
price-adapt quickly once they have
developed their own set of priorities or
bundle of needs. Will they pay more for
a full fenced rear yard? Deck? In-ground
pool? My experience tells me it depends.
If they did not have it in their bundle of
needs and it is an added feature to the
house they have selected, they may be
inclined to pay a little more for the added
feature. For those buyers who had to have
an in-ground pool, or a fenced rear yard,
well, they wouldn’t be looking at that
property if it were not included. This leads
me to the question: is there one price that
a pool, fence, deck or house is worth? This
one is hard to pound into the heads of the
secondary lending market, but the answer
is no. There is a range of values or multiple
demand curves. In the first example where
the buyer was not necessarily interested in
a deck, but the house had one, it seems the
buyer is more in control of the contributing
value. In the second example where the
buyer had to have a deck, the seller is more
in control of the value so long it does not
exceed the cost of installation. Of course
this is hard to observe unless it is part
of the transaction. I have witnessed the
market working first hand and it is slightly
different than the way I thought it behaved
as an appraiser.
The best way I found to model
the real estate market is through
a form of regression. It is a
rigorous approach to observing
and smoothing out contributory
value. In the example with the
pool, deck and fence it can infer
a value point and then also
a range of values within the
upper and lower 95% confidence
interval. There are at least three downsides to this approach.
• the first is that you will need
plenty of observations, 30 plus
sales, listings or pendings, but this
can be done at light speed with
the right program; on the more
obscure features you will need
even more.
• the second downside is that
you should be trained. You should
know how to select the features
that are important in the market
place, be able to convert data or
have a program that will, and also
be able to interpret data.
• the third and final downside
is that it will absolutely change
all the canned adjustments
most appraisers use in their
report—$500 for a half bath on
a $200,000 home will be history.
The benefit I have found to this
approach is that regression takes
all the information objectively
and gives back what is important
to buyers and sellers in that sub
market by giving a coefficient and
also standard error.
Leaning hard on my clients’ bundle of
needs and also the ability to use statistical
tools have kept me from having problems
with appraisals. Of course, being a former
appraiser does not hurt either, which leads
me back to the beginning.
I believe it is my duty to protect my client
and earn the commission I am to be paid. I
also believe I am helping the appraiser do
his job and to protect his client relationship
by making sure I can justify a purchase
price. Entering into this downturn, there
were probably many appraisers who
were aware there was a growing crisis.
Maybe we could not have predicted the
magnitude of the downturn but there
were enough warning signs that lead to
concern. The rise in LTVs since the mid
1990s and the concerns within Fannie
Mae even going back to 2004 were only
a couple of the problems. Mentioning
anything about over supply or decreasing
values was career suicide for an appraiser.
Being on this side of the industry for a
good portion of the run up of appreciation,
I can see why we reached a critical mass.
Almost every client I worked with prior to
the collapse chose the most house he/she
could afford. So predictable was this that
it was unusual for a client to buy a house
that was less than the limit of the pre-
approval. Greed is part of human nature
and has been talked about and studied
from the beginning of time. This of course
puts more pressure on me, their Realtor, to
find something that is a solid investment.
Appraisers tend to be the scapegoats of
most real estate crises, but in this case it
was, in my opinion, unchecked greed. This
greed was not only on the part of lenders
and secondary market (they did quite
well), but on the part of the general public.
Remove, change, or alter credit guidelines,
allowing more people to own homes and
it will skew demand. Buyers will always
want more if they are not restrained by
guidelines. What else is an appraiser to
do but follow past supply and demand? I
witnessed more zero down loans to people
that could barely hold their credit together
long enough to close the loan. HVCC
and FinReg, I am sure, are well intended
but not the answer. Fraud, coercion of
appraisers, is only a small part of the
problem. If you could barely pull together
$500 or $1,000 (FHA minimum amount
purchaser had to contribute) to purchase
...appraisers could improve their business and understanding of THE MARKET by s h a d o w i n g a Realtor for a day or two...
““
LVM | 29
a home, how long would you stay around
when your home just lost 5-10% of its
value? Add to that the sub prime market
and it was clear to see we were just
borrowing money for an unsustainable
lifestyle. Taking the homeownership rate
from 65% to 69% of the American public
could not be done by corporate greed
alone. Homeownership has gone from
being a dream to being portrayed as a
right. Rest assured it will be fixed by the
same organization that created HVCC and
FinReg.
I may be cutting my own throat, but the
answer to this is obvious: larger down
payment and lower LTV. This flies in the
face of the right to homeownership and
also the ability of the secondary market
to have such control over the origination
process. Analogous to this is the health
care insurance that most have. When
offered full access to doctors without any
type of co-pay, demand is much higher
than when there is even a small $10 co-pay.
As a consequence, the group insurance
premiums are much lower when there is a
co-pay. The patient is vested in that doctor
trip and will not waste their own money
over a hangnail.
Lenders and the secondary market are
asking appraisers to know more than ever
while receiving an unfair portion of the
blame; the lenders will probably get part of
the blame for holding the current market
static. Part of the responsibility to educate
is that of the lenders and Realtors—both
buyer and seller need to be properly
informed or advised, and to act in their
own best interest. What happened to
buyer beware? As an example, FHA will
not allow the buyer to purchase a home
on a well when city water is available.
Can the buyer not make some of these
decisions, especially in an economy where
saving $30-$50 may make a difference
to an individual? If there is a correlation
between well water and mortgage default,
I have not been made aware. To clarify, I
am referring to a functional well in good
working order. What if the buyer was
interested in the property in spite of, or
because of a so-called deficiency? I know
this sounds a little old fashioned and
utopian, but we now have more checks
in the system than ever: public access to
MLS, home inspections, and Realtors and
appraisers are more educated. I recognize
it is not easy, if not impossible, to uncover,
research and resolve all issues as they
relate to an assignment based on an hour
long (sometimes less) site inspection,
especially in isolation from the rest of the
industry. That is why the very least we can
do as Realtors is protect our clients’
interest. The appraisal is only one pillar
when building a quality loan file. There
are credit, title, and income (and its source)
of the buyer as well. The appraisal is only
ordered when the first three pillars are in
place. As we all know, a three-leg table,
if all legs are strong, should be able to
stand on its own; the fourth leg is there to
provide extra stability equal to the other
legs, should one fail.
Realtors and appraisers will probably
never think exactly the same way and
I consider the lessons I have learned as
a Realtor invaluable. We have a lot of
common ground, we share an enormous
amount of data, and we are experiencing a
time where banked technology is changing
the way in which we do business.
Change is inevitable in any industry.
As professionals from both sides, there
will always be a need for interpretation
between real estate and technology, and
there will always be a need for human
interaction. We can stick to our old ways
or adapt to new more efficient ways to do
business for what I believe to be the good
of the industry and consumer.
In my years of appraising, the systematic
approaches to highest and best use,
income capitalization, etc., have all made
me a stronger Realtor. Realtors could
benefit if we attended a class or two on
appraisals to expand our knowledge in
the valuation methodology, so we as a
group could understand what concerns the
appraisal side has in the process. On the
other hand, based on what I have learned,
appraisers could improve their business
and understanding of the market by
shadowing a Realtor for a day or two, or
at least be a part of a small business group.
We deal in the same industry, we both
encounter similar problems in the
industry, and it would be beneficial to both
sides if we “cross-trained” to the other
side. We are in a unique time and we need
to share ideas, information, and support
each other’s efforts toward stabilizing the
market.
Lastly, Realtors look out for Realtors.
We get to know each other through our
dealings in the market; we sit across the
table from each other and even develop
friendships. There is competition but
there is also a set of ethics that require us
to explicitly treat each other fairly, and
by nature agree to work together. The
strength of the local, state and national
boards create a cohesiveness that I did
not witness as an appraiser. It is from this
unity that we have developed strength in
the market and with our PAC. Like many
blogs I have read before, I would suggest
appraisers do the same. There is strength
in numbers.
Appraisers tend to be the scapegoats of most real estate crises, but in this case it was, in my opinion, unchecked greed. This greed was not only on the part of lenders and
secondary market (they did quite well), but on the part of the general public.
A30 | LVM / October 2010
As you would expect, the “Improvements”
section of the URAR form is where
the largest cross over exists between
appraisers and home inspectors. The
appraiser is asked to describe the
improvements and generally advise
on the condition, needed repairs, and
deficiencies of the property. The appraiser
is asked if the property conforms to the
neighborhood in terms of functional utility,
style, and condition. Most home inspectors
follow “standards of practice,” often
mandated by a professional association
like the American Society of Home
Inspectors (ASHI). These standards of
practice require the inspector’s description
and inspection of specific areas and
improvements in the home.
The home inspector goes into much more
detail and analysis than an appraiser
would, but is ultimately asked to
conclude by answering the same three
questions as indicated at the end of the
“Improvements” section of the URAR:
Describe the condition of the
property.
Are there any physical
deficiencies or adverse
conditions that affect livability,
soundness, or structural
integrity?
Does the property conform to
the neighborhood?
OBSERVATIONSInspector IVof an
Par
t
The “Improvements” section of the URAR.
Michael Connolly
1
2
3
LVM | 31
In this installment, I will follow along with
the URAR form in the “Improvements”
section and touch on a few methods and
protocols home inspectors use to evaluate
the improvements (house) and ultimately
answer these three questions.
General Description
If a home is attached to another unit
or building, the inspector should
closely evaluate the common wall. The
common walls should provide privacy
and separation from a neighboring
unit. However, a common wall’s most
important purpose is to provide adequate
fire stopping between adjoining units.
It should be examined for any breaks or
penetrations in the wall. If there are any
breaks, these need to be adequately sealed
to prevent the migration of fire. This
common wall should also extend up into
any attic spaces. If a wall has penetrations
that are not sealed or a separation wall
is missing in the attic, this should be
mentioned in the report.
If a home is new construction, the home
inspector should look for any signs of
municipal inspections and permits. Every
municipality has different procedures for
posting their inspections. These are usually
in the form of stickers or tags placed on the
main electrical panel (electric inspection)
and on the water heater or main soil stack
(plumbing inspection). If no inspection
notifications are present and no occupancy
certificate is present, the builder should be
asked to present proof that the home has
been inspected and approved by the local
public building department.
The design and age of a home can dictate
many common problems and areas of
concern for homes. The scope of this article
does not allow for a full exploration of the
unique attributes of each design of a home,
as well as age related issues.
Foundation
There are three basic designs for slab
foundations: monolithic, floating and
supported. It is often difficult and outside
the scope of an appraisal to identify the
design of the slab, but this is required of a
home inspector.
Most slab homes of the Midwest, where
I am from, are supported slabs where the
floor rests on a poured foundation that is
deeper than the frost line. In other parts of
the country, based upon the climate and
soil conditions, the slab can be monolithic
and placed on grade, as the soils are
more stable. Most garages and patios
are a floating slab, which means they
are independent of the foundation walls
(sometimes tied into the foundation with
steel rebar).
Slabs can crack and settle. When walking
through the home, be aware of uneven
floors, cracks beneath the finished floor
coverings and gaps, or separation between
the floor and the outer perimeter walls
(foundation). Most slabs have the load
bearing walls resting on the foundation,
and the floors are not load bearing.
However, any noticeable cracks or
settlement of more than 1/4” should
be noted and evaluated further by a
qualified contractor or engineer.
Crawl spaces are generally shallow and
uninhabitable areas under the main floor.
These crawl spaces should provide access
of at least 18”x24” to allow for inspection
of the under floor area. If mechanical
equipment is present in the crawl space,
the minimum opening should be 30”x30.”
Wood framing members such as floor
joists should be more than 18” above the
floor of the crawl space to minimize the
possibility of termite infestation. The crawl
space should be adequately ventilated
(usually to the exterior, or it can be opened
to the interior of the home and conditioned
with the HVAC system). A vapor barrier
over dirt floors should be in place and
continuous to prevent the build up of
moisture vapor in the crawl space which
can lead to mold and fungus growth.
The very nature of crawl spaces makes
them an undesirable place to visit. Most
homeowners ignore the crawl space
of their home and may never enter to
inspect. Moisture and insect penetration or
plumbing leaks can occur for years before
being discovered (usually by a home
inspector). By the time they are discovered,
the damage to the structure can be
extensive. A crawl space is the most likely
place one will find issues, defects and
deficiencies in a home. It should not be
overlooked! I once inspected a crawl space
in a thirty-year-old one story home that
had a pin hole leak which had developed
into a 1/2” water line running under the
bathroom. This leak was not a “drip drip”
sort of leak, but a fine mist spraying out
from the pipe spanning nearly a 10-foot
radius. This misting of the crawl space
had been occurring for at least 9 months
(this time frame has been estimated, since
the pipe had ruptured from freezing,
which must have occurred in the winter;
the inspection was in the summer). The
misting caused rotting of the floor joists
and subfloor as well as extensive mold
growth over half of the crawl space area.
The owners had to remove the finished
floors and subfloor in all of the bedrooms
and bathroom areas to effect repairs, which
were over $30,000! Always inspect the
crawl spaces or make sure that if you
cannot inspect the crawl space that this
limitation is mentioned in your report.
Full basements provide the best
opportunity for moisture penetration.
Most basements are 8-to-10 feet below
grade. A hole that is 10 feet in the
ground will, at some time, have moisture
penetration. This could be a chronic
issue or a one-time occurrence such as a
flash flood or plumbing leak. There are a
number of clues that may >>
“
32 | LVM / October 2010
indicate moisture penetration such as rust
stains on the carpet or flooring, which can
be indicative of prior water penetration.
Staining from water penetration can
often be seen on the baseboards (push the
carpet down to look at the bottom of the
trim). If possible, view any drywall from
the unfinished sides of the walls. Water
will stain the paper on the drywall and
it is usually not painted to cover up the
staining. Floor drains in the basement
(which are connected to public sewers)
will be the first drains to back up if there
is a back flow or blockage in the sewer
connector pipe (between the house and
the public sewer). Always look for signs
of moisture penetration around the floor
drains, as this is usually the lowest place
in the basement floor. Look for any stickers
from local plumbers and drain cleaner
companies (usually found on the water
heater or on a soil stack); this may be a
sign of chronic blockage or past water
penetration.
Below grade areas with outside entries
provide additional opportunity for
moisture penetration into the lower level
past the doorways. Many doors are not
adequately flashed and elevated to prevent
moisture penetration. If the surrounding
area of the basement is finished, the
moisture penetration may not be readily
visible, so closely check the adjoining
walls, trim, and floor covering for moisture
penetration. Open the door and look at
the doorjambs and the sill for signs of rot.
Lots of small insects and worms around
the doorways is also a sign of moisture
penetration.
Sump crocks and pumps are one of the
most overlooked systems in a home. Many
owners never think about their sump
system until their below grade
area is filling with water. Sump systems
are usually connected to underground
perimeter drain tiles that collect ground
water around the foundation and direct
it to a sump crock, then an operable
pump evacuates the water from the crock
(usually out to daylight somewhere in
the yard). However, when the pump is
inoperable, the drain tile is still collecting
ground water and filling the crock. A
house with an inoperable sump pump will
flood much faster than a basement without
drain tiles and a sump crock. For this
reason, all sump pump systems should
have a secondary or back up system.
Some houses may have a sump pump and
an ejector system. A sump pump system
handles clean ground water, while an
ejector system handles either gray water or
sanitary wastewater. The sump discharges
to daylight while an ejector system will
discharge to the sanitary drain system
(sewer or septic system). The two systems
look similar so it is important to take a few
minutes to evaluate and determine if you
are looking at a system to handle ground
water or wastewater.
Evidence of infestation can be difficult
for an inspector or appraiser unless they
have specific training in inspection for
such animals or insects. As such, this type
of inspection is usually outside the scope
of an appraisal or inspection, but some
home inspectors are trained and licensed
to inspect for wood destroying organisms
(WDO). These would include termites,
carpenter bees, carpenter ants, powder
post beetles, and wood destroying fungus.
The two main types of termites that can
be found in homes in most of the United
States are the subterranean and dry wood
termites. Dry wood termites live in the
wood and can be found in large colonies
inside a house. Subterranean termites live
in the ground and only forage for food
(wood) inside the house. Mud tunnels
extending up a foundation or wall from
the ground are a sign of subterranean
termites. Any signs of termites warrant
further evaluation by a licensed pest
control technician.
Dampness in a basement or crawl space
can represent a significant issue in a
home and could impact the habitability
as well as the structural stability of the
house. Mold and fungus can seriously
affect the health of the occupants, so any
noticeable signs of dampness should be
further investigated by a professional.
The most likely cause of dampness in the
below grade levels is water penetration
past the foundation walls. This is
attributable to poor soil grade around the
house and inadequate management of
water draining off the roofs.
Settlement is often a term used to describe
any sort of crack in a foundation or
walls, which is associated with building
movement. A house can just as easily
be rising or lifting rather than settling.
Expansive clay soil, when hydrated, has
enough force to lift foundations, piers, and
columns. Many people might see a crack in
a foundation or a wave in a floor and think
the house has settled (sunk) when in fact
a section of the foundation or a footer has
lifted due to expansive soils. Furthermore,
a structure can settle or rise uniformly,
often without noticeable evidence such as
cracks. Differential settlement is the term
used to describe uneven movement, which
often results in cracks and out of square
doorways. When in doubt, it would be
prudent to recommend that a professional
evaluate the structure.
In the next installment, we will finish up
the remainder of the “Improvements”
section of the URAR.
A crawl space is the most likely place one will find issues, defects and deficiencies in
a home. It should not be overlooked!
“
LVM | 33
Peace-of-mind is just one of the advantages we offer.In addition to our unsurpassed real estate appraiser E&O program, we offer coverage for:
n AMC Professional Liability (E&O) coverage, worded by LIA specifically for AMCs
n Bonds for appraiser client contracts and state regulatory AMC requirements – extremely competitively priced
n General Liability coverage for real estate appraisers including additional insured options required by HUD and other clients
n E&O insurance for high risk real estate appraisersn Health insurance for appraisers and their families through the
same exclusive program endorsed by the AMA for its 400,000 physician members – includes 3-year rate guarantee options
LIA’s products are in response to requests made by real estate appraisers and other valuation professionals, seeking to meet the day-to-day challenges of the appraisal industry. In addition, LIA remains to be the leader in loss prevention and appraiser liability education.
Serving the Appraisal and Valuation Industry
since 1977CA License #0764257
16oo Anacapa Street, Santa Barbara, CA 93101 Ph: (800) 334-0652 I Fax: (805) 962-0652 I www.liability.com I [email protected]
LIA Administrators & Insurance Services
For more information, visit our website at www.liability.com, or contact:
Robert A. Wiley, Asst. [email protected], 800-334-0652, Ext. 128
Peter Christensen, General [email protected], 800-334-0652, Ext. 148
LIA Conf Ad2.indd 1 10/7/10 3:11:27 PM
34 | LVM / October 2010
Last month’s articles sparked a lot of debate. Here are some responses from our readers.
31
2
Publisher’s NoteAagcNothing short of the individual appraiser setting his or her own fees for an assignment, AFTER reviewing available Subject data and establishing the Scope of Work, is acceptable in my opinion. Per the USPAP, the Responsibility for the SOW Decision rests squarely on the appraiser’s shoulders.
Voices of Valuation
What Do I Do? BeachappraiserThe problem is: there are way too many appraisers practicing today with little or no formal education i.e.; Appraisal Institute Courses. The state licensing courses only make you dangerous!!! I recently had an appraisal review
on three appraisals on the same property that ranged from $535,000 to $900,000!!!!!!
BayhillAppraisers didn’t cause the last mess. Foreclosures are a result of people not being able to pay their mortgages due to bad loan
programs, like 30/5, adjustables, ez qualifiers, & fraud. The mortgage industry caused this. Even if appraisers over appraised by a few thousand, or a few appraisers committed outright fraud, that didn’t bring real estate to its knees. AMC appraisals will.
Reasonable & Customary FeesLGOrlandoJordan, I have technically known you for 10 years. You are an intelligent business minded professional. Always have been and became successful in the process. But I have to interject on the comment regarding “If your competitor is willing to complete the same assignment for a reduced fee – one that he/she deems to be reasonable & customary – shouldn’t they have that right?” No they should not since this is why we got into this mess in the first place. Self-hating appraisers who do poor quality work.
MillettwThe lenders off loaded their appraisal management needs to AMCs. Now it’s time for them to pay for that service, not the appraisers.
JimThe lender is the AMC’s customer and will promise low fees and quick turnaround times to get and keep the lender’s business. This is a common business practice, competitive pricing and quality work. Until HVCC, fee appraisers did this as part of their business model. I know I did! I marketed my company and my product daily but the fees and product quality I promised were based upon what I knew was needed to stay in business based upon my expenses and to compensate us for our education and appraisal knowledge to the level of other similar professionals. The problem with this practice now is that the fee appraiser is expected to fulfill the unreasonable promises made by the AMC to it’s customer, the lender, with no regard to the appraiser’s expenses, education, experience and competence!
do you have something to say?
www.livevalmag.com
LVM | 35
4 Granny on ValuationJamesAmazing Roger. That generation was simply one of the most practical and consequently smartest we have known so far. Humble, family oriented and hard working. Thanks for sharing.
EthanThe 2nd most significant word in Roger’s essay (after “Granny” of course) is “Probability”; a term lost upon investors, home buyers, refi-consumers, lenders, appraisers and political decision makers through ignorance or willful neglect. These stakeholders twisted assumptions so that “Probability” was often replaced with “Certainty”.
“Certainty “ suggests a single point value when forecasting a future value (which for a continuous variable such as home prices or interest rates will always be incorrect), while the correct method of forecasting is around bands of probability, which would have resulted in the instinctively correct conclusion made by Granny.
6Relocation Appraiser SherrielisaThis is something maybe we should really consider. When I complete my reports I always note pending sales and then follow up to check on their closing status. It is a bit time consuming but it is a great help to train yourself for relocation reports. Forward thinking!
5
For What It’s WorthMarcThere are several AMCs, which I have encountered, that are professional, fair and courteous. Most of them, however, don’t fit into that category and are bottom feeders who resort to bullying tactics to keep appraisers in line and their cash registers ticking. I hope that this bill gets implemented and thins the herd of these slugs and sends their staffs scurrying back to the jobs they are best suited for such as being carnival barkers, used car salesman and crawl space inspectors.
JerrySame typical comments reflecting how appraisers are going beyond local areas for work assignments. Rules are in place for appraisers not to accept assignments in areas or scope of work they are not familiar with - the rules also allows for professional appraisers to appraise anywhere providing they provide due diligence in making themselves knowledgeable for whatever particular assignment type or area. This appraiser receives orders outside general coverage areas often (ex. U.S. Marshals Office) due to quality of work. Someone please come up with a better argument - as this one is played out and weak...
36 | LVM / October 2010
Directory
| Get Connected |
ACI800.234.8727
www.aciweb.com
AppraiserLoft877.870.LOFT(5638)
www.appraiserloft.com
Corelogic978.762.7000
www.corelogic.com
CRN513.659.1656
www.collateralrisknetwork.com
Easystreet Realty 317.205.4320
www.eaststreetrealty.com
Intercorp800.640.7601
www.intercorpinc.net
Landy781.292.5417www.landy.com
LIA Administrators & Insurance
Services800.334.0652
www.liability.com
Relocation Appraisers and
Consultants972.658.9216
www.rac.net
Smart Move Inspections513.896.5434
www.smartmoveinspetors.com
ST International(+34)91.436.02.00
www.stinternacional.com/en
ZAIO877.318.0537www.zaio.com
PRIDE. PASSION.
PROFESSIONALISM.
Relocation Appraisers & Consultants
RAC is a nationwide organization of Independent Appraisers who are trained professionals in relocation appraising.
What distinguishes RAC from all other appraisal organizations l Our exclusive focus on relocation
appraising and consulting.
l The majority of our organizational activities are devoted to education, research, and client outreach.
l Each of our select group of members is considered the relocation appraisal experts in their respective markets.
For more information visit our web site at:
www.RAC.net
LVM | 37
38 | LVM / October 2010
My high-school football coach would always talk to his players about tunnel vision. In a medical sense, tunnel vision is the loss of peripheral vision with retention of central vision, resulting in a constricted circular tunnel-like field of vision. However, my football coach used this term to describe a player that loses sight of what is going on around him by focusing too much on one thing. For example, a defensive lineman can become so focused on the quarterback and the ball that they don’t recognize the trap block coming their way or the screen play setting up behind them. In short, they are knocked off guard and taken by surprise because they were too focused on one thing and lost sight of what was occurring around them.
Ever since the passage of Dodd-Frank Bill, it seems everyone’s attention is focused on reasonable and customary fees. I understand this is a big issue for appraisers and others in the mortgage lending world, however there are other things in this bill that, if overlooked, have the potential of catching appraisers and their clients off guard. For example, things like mandatory reporting and the softening of the firewall between the appraiser and loan production staff definitely deserve more attention.
The purpose of HVCC was to prevent undue pressure from being placed on appraisers to inflate home valuations. In short, a full communication firewall was put in place between loan production staff and the appraiser. It’s difficult to argue that this isn’t a good thing. Keeping the person who is paid when a loan closes from being in charge of ordering the appraisal needed for loan approval seems to make sense. However, in accordance with Dodd-Frank Bill, the HVCC is expected to sunset sometime in the mid part of October 2010 after the appraisal independence-related provisions of the Act are released.
I totally expect the new regulations will maintain the firewall between loan production staff and the appraiser when it comes to ordering an assignment. However, there’s a provision in Dodd-Frank Bill that specifically states that an appraiser cannot prohibit anyone with an interest in a real estate transaction from asking them to consider additional information, to provide further support, or to correct errors found in the report. Those with an interest in a real estate transaction include the mortgage banker, mortgage broker, real estate agent, and consumer. In short, appraisers will still be protected from being punished if not complying with a loan officer’s demands, but the days of hiding behind HVCC and not entertaining additional information or answering specific questions from interested parties are quickly coming to an end.
Although the ground rules have been set, the question remains, how do lenders and appraisers comply with these new rules, yet preserve the spirit of appraisal independence? How, under certain circumstances, does an appraiser comply with these new provisions and still maintain confidentiality under the ethics rule of USPAP?
Looking back pre-HVCC, I think communicating with the loan production staff of my clients made me a better appraiser. To stand the scrutiny of a loan officer (LO), a report had better be well written, well documented and well supported. If the report wasn’t rock solid, you were certainly going to hear about it. If I had to defend my report from long time LO clients like Jim and Bill, I better have a solid case. However, I had long-term relationships with these guys. We didn’t always see eye to eye but we were always able to put the last assignment behind us and move on. Personal client relationships like this are few and far between these days. As such, when participants in the process are unhappy with the results, it’s a lot easier to be vindictive.
Which brings me to the mandatory reporting provision of Dodd-Frank Bill that states: any person involved in mortgage related real estate transaction who has a reasonable basis to believe the appraiser is failing to comply with USPAP, is violating applicable laws, or is engaging in unethical or unprofessional conduct, shall refer the matter to the applicable state appraiser licensing agency. Although I agree with this statement, I believe it opens the door for abuse. One has to question, are the state licensing agencies ready to receive and process the flood of reports from mortgage brokers and real estate agents who feel the appraiser didn’t do an adequate job? Customary and reasonable fees are important. However, let’s not lose sight of other issues that, if not addressed, might catch us off guard and end up taking us by surprise when they happen.
For What It’s WorthB
ill
Wal
ten
bau
gh,
SRA
| Tunnel Vision |
LVM | 38