Appraiser Talkback Blog

Editor’s Note: Happy New Year! The Winter 2010 edition of Working RE is in the mail to 80,000 of you right now. You can also read it digitally by clicking the cover image (at left). There, you will have the opportunity to opt out of print for future editions, joining thousands of others in choosing to save the resources required to manufacture and mail their copies of WRE. If you decide to opt out of print, we’ll let you know via email when each new issue is posted online.

Below you’ll find this issue’s cover story summarizing the effects of HVCC, according to the Working RE/OREP HVCC Talkback Survey. So far, over 4,300 appraisers have responded, making it the most comprehensive appraiser survey of its kind, including being quoted in an influential New York Times story, published last summer, which reported that over half of you still feel pressure from AMCs to make a deal work at least some of the time. (Find the NY Times story at WorkingRE.com, Sidebar: In Appraisal Shift, Lenders Gain Power and Critics.) The percentage reporting pressure has stayed steady in the months since, as you will read. If you haven’t participated yet, you can find the questions below and a link to the survey. The good news is that grassroots and feedback from the appraisal organizations and other interested parties are making a difference! We have no doubt that most appraisers will find their way in this new environment.

Looking Ahead/Looking Around
For eight years the mission of WRE has been to help readers grow as professionals and business people. True to our mission, you’ll find valuable stories in the new issue on how to find more work and how to be better appraisers. But we will not ignore what you are telling us, via the survey, about the effects of HVCC: the Code has turned the profession upside down while not solving the problems it was intended to fix- pressure on appraisers remains and, according to many, the quality of work is diminishing not improving. The most seasoned appraisers say they will not work under the present conditions and are leaving for greener pastures. This hurts everyone, including consumers and taxpayers.

Thousands of others say they want to continue appraising but may not be able to make a living on the new cut-rate fees or are unable to secure enough work from AMCs to stay afloat, now that they do not have access to their regular clients. The sad irony is that most of the protections in HVCC– which by all accounts are easing pressure and reducing complaints to some extent- existed before the Code was even a gleam in the eye of the New York State Attorney General.

Real Life
Just before Christmas, an OREP member shared that he is leaving the profession after over 20 years. His story is more representative than it is unique. He said he has had a great career, built a (once) successful business, mentored many quality appraisers along the way- never giving in to pressure, producing first-class work. He still loves appraising but after two decades of honing his skills, acquiring expertise, earning designations and certifications and building a strong reputation and loyal clients based on quality work, he said that appraising for half fees in half the time for people who mostly don’t know much about the practice, just doesn’t make him eager to jump out of bed in the morning to go to work. He said he has other options. He did everything right and has been run out of business by HVCC.

And there is this comment posted to the HVCC Talkback Blog in December. “I just got off the phone with a major AMC. I called them to complain that it doesn’t matter how fast I text them back for an assignment, it has already been accepted by another appraiser. I got five text messages in the last two days and didn’t get one assignment. I complained that every time they text message me it costs 15 cents and that I wouldn’t mind paying the money if I got an occasional appraisal. The woman said that the way they assign appraisals is that when an appraisal comes in they put the address in their computer and all the appraisers within a certain radius get a text message. First one to text back gets the assignment. I told the woman on the phone that I didn’t think it could be any worse than that. I was told that what I should do is get a P.O. box in a busy area and they could feed me work that way. They are already doing that with a few appraisers. She told me that she thinks that I am nasty and that is why I am not getting any work. She said they want to have a mutually friendly working situation and that being nasty was making it hard for them to assign me work. I said you want to talk about nasty, I did two appraisals for your company and I am waiting over 60 days to get paid a lousy $210 an appraisal. She hung up on me. Anyone who thinks that this AMC is a good thing is out of their minds. After 25 years in the business I think it’s time for me to find a new profession.”

And so it goes.

HVCC Survey Results: Appraisers Still Feel Pressure
By David Brauner, Editor

If you’re struggling to survive post HVCC; if you’re angry at having control of your business taken from you; if you’re having trouble getting orders from AMCs even though you’re trying; if you can’t make a living working for reduced fees; if your experience is that AMCs hire based on the lowest fee rather than quality work or if you continue to feel pressure to make deals work, then you’re not alone according to the OREP/Working RE HVCC Appraiser Talkback Survey and Blog.

With over 4,300 appraisers nationwide responding to the survey, the most significant results are that over half of the appraisers working with AMCs report that they continue to feel pressure to make deals work at least some of time.

Here are some quick stats. Find more complete results below:
* Ninety-two percent (92%) answer that they are “not in favor of HVCC as written.”
* Eighty-two percent (82%) say they “do not consider the AMC model to be a legitimate business model.”
* Fifty-one percent (51%) say appraiser selection (by AMCs) is always based on the lowest fee.
* Twenty-four percent (24%) say personnel at the AMCs they work with are never knowledgeable and competent.
* Eighty-six percent (86%) say working with AMCs is not worth the “trade offs” (for example, earning lower fees in exchange for no pressure for value, a steady flow of work, no time/resources spent on collection, etc.).
* While seventy-two percent (72%) say they are “generally satisfied with appraising,” over half (52%) say they don’t expect to be appraising full time five years from now.
* Sixty-nine percent (69%) of appraisers are not in favor of the new Fannie Mae 1004MC form but a majority (70%) are in favor of the increased licensing and education requirements imposed by the Appraiser Qualifications Board.

In the feedback we’ve received this year, perhaps the most gut wrenching are the many hundreds of emails that go something like this: “After 25 years I have gone through a lot of changes, been in and out of the professional organizations, worked for large institutions and have had three different, honorable fee shops in my journey. I somehow managed to gain approval with 45 major lenders and institutions and have never been blacklisted (that I know of), and never been sued. I have a solid reputation. I’m honest, hard working, and insist on providing my clients with only quality, comprehensive detailed reports. I don’t think I have ever completed an assignment in less than three days (after inspection); I usually take five to seven. Nor have I ever been pressured to do so. I’ve established my own fees and built a clientele of honest mortgage brokers, banks, attorneys, and accountants, and have never been without work.”

The appraiser continues, “I have never worked for an AMC and will obviously/most likely not be able to. The HVCC is costing me 60-70% of my business and it is doubtful I will be able to survive financially. The cost of maintaining my now one-person practice will be prohibitive, unless by some miracle I find a situation that will cover the cost of my E&0, health insurance, data sources, office and auto expenses, etc. Well, I guess we could move back in with my parents. (I jest, I’m 52.) The loss of so many seasoned appraisers will be devastating but was it really necessary? For now I anticipate having to start over in a new profession, wish me luck.”

HVCC Moratorium
A bill that would impose an 18-month moratorium on the HVCC (H.R. 3044) was forwarded to the U.S. House of Representatives in June by Representatives Travis Childers, D-Miss., and Gary Miller, R-Calif., in reaction to complaints from appraiser constituents. This bill is in the first step in the legislative process, according to Govtrack.us. To weigh in visit Govtrack.us/congress/findyourreps.xpd to find your state representative and how to contact him or her.

Survey Results

>> “Number of years appraising”
• Less than 5: 3%
• 5 to 10: 24%
• 10 or longer: 73%

>> “Was/is the lack of appraiser independence (lender pressure) a serious issue in your practice?”
• Yes: 38%
• No: 62%

>> “Are you in favor of having mortgage brokers removed from the process?”
• Yes: 42%
• No: 58%

Quality, Pressure, Fairness
>> “In your experience with AMCs, appraiser selection is based solely on obtaining the lowest fee?”
• Always: 51%
• Often: 37%
• Sometimes: 10%
• Never: 2%

>> “In your experience working with AMCs, service, quality and other factors play a part in appraiser selection.”
• Always: 5%
• Often: 14%
• Sometimes: 43%
• Never: 38%

>> “Are the personnel at the AMCs you work with knowledgeable and competent?”
• Always: 2%
• Often: 14%
• Sometimes: 60%
• Never: 24%

Fees
>> “Are the fees offered by the AMCs you work with unrealistic given the nature and scope of the assignment?”
• Always: 47%
• Often: 37%
• Sometimes: 14%
• Never: 2%

>> “Do you turn down AMC work because of inadequate fees?”
• Always: 22%
• Often: 45%
• Sometimes: 29%
• Never: 4%

>> “Do ‘low fees’ (from AMCs) effect the quality or completeness of the finished report compared with higher fee appraisals?”
• Always: 15%
• Often: 18%
• Sometimes: 26%
• Never: 41%

Pressure
>> “With the AMCs you work with, do you experience pressure for value?”
• Always: 3%
• Often: 11%
• Sometimes: 40%
• Never: 46%

>>“Do the AMCs you work with provide an adequate ‘firewall’ between you and the loan originator?”
• Always: 33%
• Often: 34%
• Sometimes: 26%
• Never: 7%

>> “With the AMCs you work with, are you asked to re-examine reports with the intention of trying to ‘make the deal work’?”
• Always: 3%
• Often: 12%
• Sometimes: 41%
• Never: 44%

Turn Times
>> “With the AMCs you work with, do you experience pressure for turn around times that is unrealistic given the nature and scope of the assignment?”
• Always: 35%
• Often: 42%
• Sometimes: 19%
• Never: 4%

>> “Does the time pressure (from AMCs) result in a product that is less reliable for the end user, compared to a report where adequate time had been allowed?”
• Always: 15%
• Often: 23%
• Sometimes: 32%
• Never: 30%

Dying Profession?
According to comments posted at the blog and survey, many appraisers doubt the profession can continue to attract competent professionals given the low fees, considerable expenses and licensing/training requirements. Many say they see greener pastures elsewhere.

>> As reported, 52% of survey takers say they don’t expect to be appraising fulltime five years from now but interestingly, 72% answer “yes” when asked if they are “generally satisfied with appraising.”

>> “Are you making plans to leave the appraisal profession?”
• Yes: 45%
• No: 55%

Many express doubts about whether the trainee system for bringing new appraisers into the profession is sustainable: how can you split a half fee in half again? So far, 72% of survey takers say they would not consider taking on trainees in the future.

Other Issues
>> “Is being able to be certain that your clients are receiving an unaltered version or ‘true copy’ of the appraisal reports you send them an important issue to you?”
• Yes: 92%
• No: 8%

>> “Is the data mining of your reports an important issue to you?”
• Yes: 91%
• No: 9%

>> “Is being ‘forced’ to submit your work through a third party entity and pay a fee to maintain a client relationship, an important issue to you?”
• Yes: 92%
• No: 8%

>> “Are you able to charge a higher fee for the new (1004 MC) form?”
• Yes: 34%
• No: 66%

Surviving by AMC Shopping
It seems shopping for the “good” AMCs may be a survival strategy appraisers are adopting. Seventy-two percent (72%) of survey takers report that they are satisfied working with appraiser management companies (AMCs) at least some of the time. (Twenty-eight percent (28%) respond “never” satisfied). Does this mean that those who are surviving are picking and choosing the AMCs they work with and firing the others, just like they did with mortgage brokers?

Fixing the Problem
Many appraisers say they intend to take back control of their profession and their businesses by working only with the AMCs that treat them fairly and by avoiding the ones that don’t.

So far, these are the remedies most mentioned by bloggers and survey takers: appraisers must band together, put their differences aside and speak with one voice to put their interests forward. Many appraisers suggest a short, national boycott to demonstrate their importance to the system. Some say a fixed fee structure is necessary and/or a cap on the percentage of the appraisal fee AMCs may keep. One theme expressed over and over is that no one can make anyone work for low fees. The only way to fix this problem is to just say “no.”

About the Author
David Brauner is Editor of Working RE magazine and Senior Broker at OREP, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 49 states (OREP.org). He has covered the appraisal profession for over 16 years. He can be contacted at dbrauner@orep.org or (888) 347-5273. Calif. Insurance Lic. #0C89873.

Editor’s Note: Year-end advice from two appraisers show us how to make 2010 a happy and prosperous new year. E.J. Frank discusses techniques to make us better business people by being happier and less stressed. Bill Cobb argues that, from his point of view, it’s time to move on after HVCC and shows us where the best opportunities for appraisers are today. 2010 begins year nine for Working RE/OREP! Thank you for your business. The entire staff at WRE/OREP wishes you and yours the very best this holiday season and in the New Year!

Better Appraising from the Inside Out
by E.J. Frank

There is good news and I want to share it with you.

It’s not like any of us need to be reminded of the multitude of changes from HVCC to 1004MC to FHA. The influx of REOs and low interest rates are keeping some of us very busy while others are not very busy at all. Most of us have taken a hit in our bank accounts and have been thrust into a world of panic, anxiety and tension and… oh yeah and the holidays are here.

The good news is that a number of simple things can help restore us to sanity and get us through these trying times.

First, let me make it clear that you and only YOU can do this for yourself. If your boss gives you a day off and you go home to work, it’s defeating the purpose. If your family goes out to dinner and all you do is stare into your soup and think about work, you’re defeating the purpose. In my seminars and books I like to say…well, many things but one very important point is that you must take care of yourself. You can’t function and others can’t rely on you if you aren’t healthy: honor yourself as you honor others.

Uncertainty, Anxiety
We appraisers never know from week to week what our workload will look like. One week we can have two jobs, the next 20. It’s the nature of the business. This uncertainty can be frustrating and stressful. Add to that the stress of new rules, new forms and changes in policies and procedures. If you work in a larger shop, other issues may include changes in personnel, workload, expectations and so on. Add to this, issues in our personal lives- the kids’ schedules, the expectations of a spouse or significant other, their workloads. Maybe you are caring for a sick parent, trying to juggle school, work, and family…any number of scenarios can exist. Short of melting into a complete pile of goo by the end of the day, what can you do to keep it all going?

Keeping it Together
The first step is being honest with yourself. You can only do what you can do. If the choice is doing ten jobs a week well or doing twenty jobs half way, how do you want to work? Do you want to give your best or 50 percent?

Be realistic. Take an inventory of your situation. Take a few minutes to do this and keep doing it weekly or daily if need be. In this inventory, prioritize the items for the day or week from need-to-do to should-do. Your list should not contain only one category. If your list reads: item #1: work, item #2: work and so on, either you are not being honest about the other parts of your life or you need to get a life. A person’s life is commonly made up of four general parts: work, family, recreation and faith. To be balanced, everyone should have more than one part. Consider this: if we have four parts and one isn’t working, we still have three parts remaining that are. This leaves us energy to put into the part(s) that need work. However, if we put 100 percent of our life into work and something goes awry…wow, we are in a serious personal crisis.

Stress, Tension
Does this sound familiar? We get to work on a Thursday morning and we’re emotionally and physically tired. We’ve had a rough week of being griped at by reviewers, AMCs, agents, borrowers, and even other appraisers in the office. It’s been trying but (of late), a pretty typical week. We’re preparing to go out to do two inspections. We don’t feel like working. Our bodies feel run down. We take shortcuts just to get things done. We’re snippy with our office mates. And what about road rage? Even the most mild mannered of us can become vicious monsters once we get behind the wheel, especially if we’ve been tainted by anger, stress, anxiety, or any number of similar issues. A car can become a dangerous weapon. Remember, everyone would like to return at the end of the day in the same physical condition they left home with that morning!

Fix It
Give yourself more time. This allows us to go a bit slower rather than try to beat the clock. We could allow a two car distance rather than tailgating. We might stop for that red light rather than running it. We may even back off and let that car merge in rather than run up to the car ahead. We also won’t feel as tense when we arrive because we’ve made our timeframe.

Take a different route to the inspection. We typically take the same route everywhere. It’s familiar, we can time it, we know the possible pitfalls. We also tend to zone out, think about other things we have to do and this can add to our tension. So, take a different route, one you aren’t as familiar with. This forces you to focus on the road and what’s around you and not on your thoughts. You can’t be mad and calm at the same time. You can only be one thing at any moment. Change your focus, change one thing and change your thoughts.

Listen to relaxing music- something calm, preferably with few words, low drums and at a low volume. This type of music calms the heart which calms the mind and body.

Avoid driving if you are tired. This affects everything– your ability to focus, your reaction time, your judgment, your attitude…everything. If things you are trying such as energy drinks and coffee aren’t working, your body is telling you that you need to rest. Remember, you must take care of yourself.

Coping with Change
The people who survive and thrive are those who can bend with the changes. In many cases, this includes diversifying. Learn other aspects of the job. Not a hundred aspects mind you- you don’t want to spread yourself so thin that you can’t be proficient and effective. Being more marketable is a good benefit. Also, doing something different from time to time helps keep work interesting and manageable.

Work with your partner, family members and others who are available to handle issues which may arise. Sharing responsibilities helps everyone in the household, creates a better overall internal and external environment and could save a marriage in trouble!

Don’t try to do it all. Delegate. Share. Be realistic about what you can take on in any one day. It’s better to take on less and get it done well than to take on too much and make mistakes you’ll have to correct later. If you set reasonable expectations you will be more likely to handle your workload and keep a positive self image.

Here are some very basic but important tips. Please try not to “rush through” or skim the list- most of this information is not new- we know what we should and shouldn’t be doing. The trick is to consider each from where you are today and then make a plan to correct whatever area needs help.

• Get a good night’s sleep.
• Eat well. Eat several whole meals and several small meals or snacks to keep your body energized.
• Stay hydrated. It’s amazing how much energy we lose if we aren’t.
• Exercise daily. Take a walk. Work out. It’s suggested by most professionals that we workout at least 20 minutes a day. It gets you away from the desk and gets you rejuvenated.
• Be present at whatever you’re doing. If you are with your family, be with your family. Focus on them. Appreciate the time you have with them.
• Communicate with those around you – co-workers, family members, etc. There is no substitute for communication.

One of the most powerful and simplest solutions to a tough day is to wear a smile. It’s amazing how smiling changes everything. Remember, we can’t be angry and happy at the same time. We can only be one thing. Choose to be happy. If you are with a homeowner, even if your day is going to hell in a hand basket, smile, be kind, say something nice about their house and be pleasant even if you really don’t want to. You will leave that job feeling lighter and different about your day. And that can make all the difference in the world!

About the Author
E.J. Frank is a Certified Residential appraiser in Colorado who performs conventional and FHA appraisals as well as machinery and equipment appraisals. E.J. is also an EFT (emotional freedom techniques) Advanced Practitioner. E.J.’s websites are www.EJFrankAppraiser.com and www.EFTwithEJFrank.com.

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Moving On
By Bill Cobb

Even if HVCC is repealed in 2010, industry leaders have said that most of the guidelines are in place for good and will not be altered even if the Code is repealed. In other words, most of the changes within the lending industry with respect to how appraisals are ordered are not going back to the way they were.

Fannie Mae, Freddie Mac and FHA are raising loan qualifications standards for 2010, which means that there may be fewer appraisals ordered in 2010. If your business is focused strictly on mortgage lending you could be headed for trouble.

Motivational speaker Jim Rohn, who recently passed away, emphasized this message: “You get paid for bringing value to the marketplace.” Another quote of Rohn’s is, “Don’t bring your need to the marketplace- bring your skill. If you don’t feel well, tell your doctor, not the marketplace. If you need money, go to the bank, not to the marketplace.”

Others might put it this way: We get paid based on the problems we choose to solve in life. A lawyer gets $200/hour and a store clerk gets paid $7/hour. What’s the difference in the two of them? The difference is in the perceived “value” of the problem each chooses to solve. For appraisers, it appears that the perceived value of what we bring to the marketplace is greatly diminished, at least for now and at least to the lending industry.

So, where is the perceived value of residential appraisal services regarded most highly these days? Three places:
1.) REO assignments, which do not have to be HVCC compliant.
2.) Local individuals needing pre-listing or pre-purchase appraisals.
3.) In the non-lending community of attorneys and CPAs for the settlement of estates/successions, divorce, litigation, trusts and tax appeal.

If Jim Rohn were alive today and speaking to a group of appraisers he would tell them that the past is the past and it’s time to move on to solving the valuation problems that have more of a perceived value in the marketplace.

About the Author
Bill Cobb is a full-time residential appraiser in Baton Rouge. You can find him on Twitter@billcobb. Bill builds “appraiser video blogs” with online ordering capability, teaches appraisers how to “blog to be found” on local online searches, how to use the new social media and video marketing to increase business.Visit: Appraisersblogsample.info.

By Michael Antoniak

Appraiser Tony Bamert, Bamert & Associates, Champaign, IL, feels he’s been asked to assume some new and unwanted responsibilities on recent appraisal orders and wonders if his are isolated concerns or issues other appraisers are grappling with as well.

“Traditionally, with any conventional appraisal, I’m not asked to touch the mechanical systems in a home in any way,” he explains. “But over the last year or so, since the market meltdown, I’m being asked to do things I’m not comfortable with as an appraiser.”

Specifically, Bamert is referring to appraisal orders on foreclosed homes with guidelines requesting he “include commentary within the body of your appraisal report which indicates whether the utilities (water, electric, gas) were turned on and operational or turned off at the point of the appraisal inspection.” Another’s guidelines stipulate, “….Appraisers must state within the appraisal that all utilities including water are on and working…”

With 17 years experience, five as the head of his own firm, Bamert is fully familiar with standard procedures, and feels these requests are pushing him beyond that norm. “As an appraiser, my job is to go through the house, take notes and use comparables to come up with a value for that property,” he explains. “That’s completely different than the role of a home inspector. Now they are asking the appraiser to test some of the mechanical systems and give a statement if they are in working condition.”

Bamert says he’s not comfortable with such requests, nor does he have the expertise to make such an evaluation. “On an FHA inspection, our job is not to make a determination on whether something is in good working condition or not.” he notes. “When something doesn’t look right, we advise to hire a home inspector to take a look.”

Bamert’s core concern is the potential legal liability he could expose himself to by offering a professional judgment on matters beyond the scope of his experience and qualifications. He also wonders- were a worst case scenario to occur and a homeowner suffer financial loss or personal harm due to misplaced faith in his opinion on the “working condition” of a utility- whether he would be protected by his errors and omissions insurance.

Several contacts at mortgage companies and AMCs, who routinely request such judgment calls from appraisers, dismiss Bamert’s worries as much ado about nothing. Speaking off the record, and requesting anonymity, one maintains, “FHA requests have asked appraisers to make sure the utilities are functioning for years. Due to the number of foreclosures and bank-owned properties, other lenders have glommed onto that.” He says that nothing in an appraisal request is mandatory and appraisers are encouraged to raise any concerns as soon as an order is received. “If an appraiser feels a request is outside the scope of their knowledge and experience, they should refuse that order or advise when a home inspection is warranted.”

Leslie Seller MAI, SRA, 2009 president-elect of the Appraisal Institute, advises appraisers to be aware of the concerns raised by Bamert and take proactive steps to protect themselves. “The bottom line is everyone is more concerned about their collateral these days, and they are just looking to get more out of their appraisals,” he says. “Some want to save money, some want another set of eyes to look at the property and a few simply don’t understand the difference between an appraiser and a home inspector.”

His best advice: use language which limits exposure and potential liability. “To protect themselves, appraisers should state in their report the scope of their work. Include a qualifier which states ‘I am not an engineer, and I am not a home inspector.’ Make it clear where you do not have expertise, what you did or did not do,” said Seller.

That’s a strategy Bamert arrived at on his own. When asked to evaluate the working order of household systems, he’ll include statements like, “I turned on the light and the light came on,” or that he turned on the faucet and water came out. “Beyond that, I don’t know how to determine if a system is working properly,” he reiterates. “I’m not trained for it, and it’s something I don’t like being asked to do.”

by David Brauner, Editor

The appraiser Valuation 2009 conference in New Orleans this month offered unprecedented access to key regulators, AMCs and other decision makers regarding the future of the appraisal industry- that’s the good news. The bad news is that you may not like what they are saying.

Honchos from FHA, Fannie Mae, Freddie Mac and FHFA, the agency overseeing Fannie and Freddie, laid out their positions on the state of the industry since the collapse, the Home Valuation Code of Conduct (HVCC) and recent and proposed legislative and policy changes at their agencies. According to these folks, the result of HVCC so far are less pressure and better appraisals.

FHA clarified what it means by its dictate that appraiser fees must be customary and reasonable- and unless you own an AMC, you’re not going to like that either.

Alfred Pollard, General Counsel at the Federal Housing Finance Agency (FHFA), in the keynote, stressed the importance of appraisers and their role in “getting the value right.” In answering appraiser objections to HVCC, he said that the core of the Code supports appraiser independence and that this is something everyone should support. His remarks at the conference make it clear that FHFA considers the Code a success.

When addressing the unintended consequences of HVCC, including the dominance of appraisal management companies (AMCs), the downward pressure on fees and the catastrophic effect on the businesses of many appraisers, Pollard said, “HVCC doesn’t effect the marketplace,” meaning that there are no provisions in HVCC mandating the use of AMCs or which address appraiser fees. While accurate, the response seems to dismiss any cause and effect relationship.

Pollard said that no decision is made yet whether HVCC will be allowed to expire in November 2010 but that whether it is renewed or not, the “core values (of the Code) will remain.” He seemed to echo what many others say: that even if HVCC is allowed to sunset a year from now or is reversed by one of several legislative initiatives in process, the current system is so firmly entrenched- including changes to the seller guides- that there is little chance of things going back to the way they were.

Regarding the financial woes many appraisers complain about, Pollard again failed to publicly acknowledge any cause and effect, saying that the real estate bubble burst and that has nothing to do with HVCC.

Appraiser-Regulator Disconnect
Working RE, via the HVCC Talkback Survey and Blog, has received many hundreds of comments from appraisers that directly link implementation of the Code in May to a catastrophic loss of business as a result of being barred from working with their long-time mortgage broker clients. Over 4,000 appraisers have responded to the survey to date.

This comment, recently posted to the Blog, is typical of many hundreds of others: “Anyone who thinks that the HVCC will improve the quality of the appraisal profession is not thinking clearly. Appraisers who have been in the business for years are leaving because their client base disappeared overnight (mine did also). Many, if not most, of these individuals will never come back. In addition, qualified individuals who in the past were excited about starting their own businesses will not choose appraisal as a profession given the qualifications and training necessary and the lack of pay. It is nearly impossible for most appraisers to make a decent living in this profession since the implementation of the HVCC.”

He continued, “Who is going to train new appraisers? With greatly reduced fees and AMCs mostly running the show, how can a trainee make enough money to pay a qualified supervisor for training? There is going to be a major shortage of experienced and qualified appraisers as time goes on. Most of the problems the HVCC has tried to correct could have been handled differently, without turning the industry on its head. I spent several years getting the training and experience it takes to become a Certified Residential Appraiser. For what? I make 40-50 percent of what I made in years past, for the same volume of work. I have just started sending out resumes for positions outside of the appraisal field.”

And this from another Blog poster: “Less than $300 for a single family report is a failed business model in my mind. So far I have managed to stick by this. If I can’t, I will start the process of finding another profession and/or job. Accepting $200 fees for a full report is pitiful. I was getting more in the early 1990s. There are other options out there and working as a tenant farmer for AMCs is not one.”

At one point, Pollard referenced the comment period for HVCC prior to implementation, seeming to suggest that appraisers had their chance to make their concerns known- so what’s all the fuss about now? The software maker a la mode confirms that it forwarded over 31,000 letters in opposition to HVCC from appraisers and loan originators to New York Attorney General Andrew Cuomo during the comment period. This is just one batch of comments. To date, one petition to reverse HVCC has over 117,796 signatures (find the link to the petition to sign and view signatures at WorkingRE.com, Sidebar: HVCC Petition). The Working RE/OREP HVCC Talkback Survey reports that 92 percent of appraisers are “not in favor of HVCC as written.” When have 92 percent of appraisers ever agreed on anything?

In general, the report from the conference suggests that the regulators who matter the most are fully behind HVCC and seem either to be unaware of or unwilling to give credence to what appraisers are saying: that many thousands are losing or have lost their businesses because of HVCC and, more importantly, that quality is taking a hit as long-time, seasoned professionals refuse to work for wages that they consider unsustainable. A result, these appraisers say, of AMCs that seek the lowest bidder instead of the best appraiser.

Freddie: Appraisal Quality Better
When asked about lower quality appraisals since HVCC, Pollard said that the issue will be addressed if it is considered to be a problem by Fannie Mae and Freddie Mac. So far, he said, evidence suggests the opposite- that appraisal quality is actually better.

Jacquie Doty, Director of Collateral Policy, Credit Policy and Portfolio Management at Freddie Mac, said the Code has stemmed the flow of complaints and is having “its desired effect” in reducing pressure. Doty said that appraisal quality also has improved. She said Freddie Mac has seen a statistical improvement in the quality of value conclusions by appraisers as measured by their internal proprietary automated valuation model (AVM). “Appraisal bias” is down since HVCC took effect, she told the audience. Doty told WRE that she is not certain, however, that the improvement in quality can be attributed solely to HVCC. Other possible factors, she said, could be the 1004MC form, which requires better reporting and closer scrutiny by lenders.

One appraiser asked whether FHA or Fannie/Freddie may allow mortgage brokers back into the process once they are licensed and regulated by states in accordance with the SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act of 2008). A HUD staffer told WRE that there is no provision in SAFE that guarantees mortgage brokers the right to work but said that the purpose of SAFE is to require licensing, and that once licensed, “individuals will be permitted to take loan applications within their state.” (The SAFE Act is part of the Housing and Economic Recovery Act of 2008, find text at WorkingRE.com, Sidebar: Housing and Economic Recovery Act of 2008.)

Don Kelly, of the Kelly Group and long-time Appraisal Institute lobbyist, who also spoke at the conference, told WRE, “Mortgage Brokers are going to need to work hard to re-establish their value as mortgage originator participants even after HVCC lapses in 2010. Fannie and Freddie have now included a prohibition against broker ordered appraisals in their seller guides and without a strong showing by the brokers with rationale for changing, I don’t see Fannie and Freddie reversing their policy. Brokers need to embrace the SAFE Act, accept responsible regulation and accountability and commit to fair play with the appraisal community.”

FHA: “Customary and Reasonable”
If you thought that FHA might be your white knight, given its recent announcement requiring greater transparency, a clear separation of appraiser and AMCs fees and its mandate that appraiser fees be customary and reasonable, you may want to think again. Milton H. Corson, Jr., MAI, SRA spoke on behalf of HUD/FHA. Corson told WRE that FHA is not in the business of setting fees. “If someone feels $200 is sufficient, that’s their business decision,” Corson said. He said “customary and reasonable” is common sense and appraisers should know what a “commensurate fee” is for their services. “There is no line in the sand and there will be no regulating by FHA,” Corson said. A fair translation is that customary and reasonable now means the lowest bidder.

Meanwhile, Gerald Kifer, Supervisory Appraiser at the Department of Veterans Affairs, told the audience that the Veterans Administration (V.A.) does set fees, still uses mortgage brokers and has had, “zero fraud” reported. “The panel rotation system has served us very well,” Kifer said. He also noted that the V.A. has a “negative subsidy,” meaning it makes money and uses no tax dollars.

Some Appraisers Moving On-Some Not
One or two appraisers in the audience challenged the panelists on certain issues but opposition was mostly muted and confined to private conversations. Privately, while some appraisers are making a go of it working with AMCs, most are unhappy with the low fees and the extraneous work imposed by the extra layer of administration.

Many told WRE that they’ve seen highly qualified friends and colleagues leave the business rather than work for less, lamenting that this is not good for the profession. The ones faring the best since HVCC seem to be those who had established relationships with AMCs and who have found the best to work with. The appraisers still struggling express continuing bitterness at having their lifetime of expertise minimized and their services commoditized down to the lowest bidder.

Appraisers Satisfied Working with AMCs
As we will report in the new print edition of Working RE, mailing in early January (already to press), current results from the HVCC Talkback Survey and Blog reveal that “AMC shopping” may be a survival strategy appraisers are adopting. Seventy-two percent (72%) of survey takers report that they are satisfied working with appraiser management companies (AMCs) at least some of the time. (Twenty-eight percent (28%) respond “never” satisfied). This may mean that those who are surviving are picking and choosing the AMCs to work with and firing the others, just like they did with mortgage brokers.

The following comment, which illustrates the point, was left at our survey a few days ago: “I only work for two AMCs right now and am trying them out. They seem to have it down pretty well as they are owned by a professional appraiser and hand-select the clients they work with. For one, good quality is important, for the other they are time and price sensitive but offer a pretty complete review process and offer some good comments regarding the points in the appraisals. Their philosophy for doing business is a good one as well. I end up telling them when I need more time to do the job right. Some of my answers (on the survey) were regarding AMCs that I worked with in the past. As I don’t bend on fees or turn-time, they go somewhere else, which is fine with me. I prefer to do litigation work where the fee is not an issue and I make a great living in half the time.”

Pressure Remains
While most appraisers report a slackening of “pressure to make a deal work” since HVCC, the issue is far from resolved. According to survey results, which will be reported in the upcoming WRE, over half of the appraisers working with AMCs report that they continue to feel pressure to make deals work at least some of the time.

For their part, representatives from various AMCs defended their business practices and their quality standards. Representatives from several AMCs told WRE that they were at the conference to recruit appraisers face to face because they want the best, even though they have more than enough applicants on file.

Fannie Mae Collecting Your Data
Sue Potteiger, collateral risk manager at Fannie Mae, announced details of Fannie’s new Collateral Data Delivery (CDD) system, which will mine several pieces of information from appraisal reports, including property address, value conclusion and the appraiser’s license number. The reason: transparency; Fannie’s been burned and doesn’t want it to happen again. The reports will be submitted by the lender, not the appraiser, and will be in the XML format, which is part of Fannie’s new data delivery requirements beginning next year.

Future is Analysis
Several exciting presentations reinforced what the visionaries have been saying for years- that the future of appraising is data gathering and analysis and not form filling. New software from Bradford Technologies, CompCruncher, and others are supporting this push.

by Phil Spool, ASA

This article is about common mistakes in appraisal reports, whether the appraisal is for a mortgage transaction or other intended use. Most mistakes are not violations of USPAP but errors caused by a lack of common sense, trying to satisfy a client or not following Fannie Mae guidelines.

After reviewing countless appraisal reports, I noticed a pattern of common mistakes. The most include:

1. Market Area/Time Adjustment Inconsistency. In a residential appraisal report form, within the Market Area Description section, if you check the box that indicates property values are declining, then a negative time adjustment is in order for your comparable sales. Awhile back residential appraisers were hesitant to indicate that property values were declining as lenders or mortgage brokers were letting appraisers know that if they checked the “declining” box, the loan would not get approved.

The bottom line is that an appraiser is held responsible for what they write in their report and should not be persuaded by anyone telling them what to write. Therefore, if you check the box that indicates property values are declining, then truly consider using a negative time adjustment for the comparable sales. Conversely, if property values are increasing and if that box is checked, the appraiser should consider using a positive time adjustment for the comparable sales.

2. Improperly Describing Neighborhood Boundaries. As sales become more scarce and similar type properties are located further away, in comparison to when sales were plentiful and nearby, appraisers have a tendency to expand the neighborhood boundaries in order to accommodate the utilization of sales in adjoining neighborhoods. This is wrong. If a comparable sale is located in an adjoining or nearby neighborhood, the appraiser should simply state that the comparable sale is in a substitute neighborhood.

This is explained in the Fannie Mae Selling Guide, Part XI, Section 406.02: Selection of Comparable Sales, where it states: “As a reminder, although it is preferable for the appraiser to provide comparables from the subject’s neighborhood, Fannie Mae does allow for the use of comparable sales that are located in competing neighborhoods, as these may simply be the best comparables available and the most appropriate for the appraiser’s analysis. If this situation arises, the appraiser must not expand the neighborhood boundaries just to encompass the comparables selected. The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist”.

While this is a Fannie Mae guideline (Announcement 08-30 dated November 14, 2008), it is also considered appropriate for non-lender appraisals. If you are interested in more details of Fannie Mae appraisal-related policy changes and clarifications, go to efanniemae.com. At this site you will also find information on the 1004MC form and the Home Valuation Code of Conduct (HVCC).

3. Misunderstanding the Difference between Data and Verification Sources. The most common data sources include public records, Multiple Listing Service, HUD 1 statements and deeds. Verification is picking up the phone and speaking to either the buyer, seller, listing agent, selling agent, attorney involved in the transaction or the title company that handled the closing. The most common verification source is the listing agent, followed by the selling agent. Verification would include confirming the sales price, any sales concessions, condition and renovation of the property, etc. The key word is confirming.

4. Misrepresenting the Line Item in the Sales Comparison Approach where it asks Sales or Financing Concessions. Some appraisers have the tendency to state that the comparable sale has a conventional mortgage, ignoring that the line item is requesting any sales or financing concessions. The two most common examples of sales or financing concessions are (1) the seller contributing money toward the closing whereas the buyer usually pays his/her portion of closing costs and (2) seller offers a below-market interest rate purchase money mortgage. Stating that the comparable sale has a conventional mortgage does not necessarily guarantee that there is not a sales concession. If there were no sales concessions, then state “no sales concessions” or “no known sales concessions” but don’t put “conventional mortgage” as that is not what it is asking.

5. Improper Mathematical Adjustment for Time Adjustment. This relates to the appraiser making a negative time adjustment after determining that property values are declining and an adjustment for sales concession for that comparable sale. Basic appraisal theory dictates that when using quantitative adjustments, which is what you do in the residential appraisal form each time you make an adjustment, there is a specific order of adjustments, especially if they are percentage adjustments. If you look at the Sales Comparison Analysis section of the grid, the first possible adjustment that could be made is for Sales or Financing Concessions so that the sales price reflects the cash equivalent sales price.

The second possible adjustment is Date of Sale/Time (also referred to as Market Conditions). Therefore, if there is a sales concession for one of your comparable sales that also had a time adjustment, the sales concession adjustment has to be made first and then the time adjustment would be based on the adjusted sales price after the sales concession was made. Both of these adjustments are usually percentage adjustments (i.e. sellers contributing a percentage of the closing costs typically paid by the buyer, and time adjustments as a percentage per month basis).

For example, a house sells for $750,000 and there is a three percent seller’s contribution sales concession and you indicate that there should also be a negative 10 percent time adjustment due to the continuing declining market. The proper way of making the adjustments would be to adjust for the sales concession first: $750,000 minus three percent ($22,500) equals $727,500. Then the negative time adjustment of 10 percent would be applied to the adjusted sales price of $727,500: $727,500 times negative 10 percent equals negative $72,750. Assuming no other adjustments are to be made, the Adjusted Sales Price of the comparable would be $654,750 ($727,500 minus $72,750), rounded to $654,800. The improper way would be to take the $750,000 purchase price and subtract $22,500 for the sales concession and $75,000 for the time adjustment to arrive at the Adjusted Sales Price of $652,500.

6. Line Item Adjustment for Actual Age and Condition. The most common mistake for these two line item adjustments are when the appraiser uses the Effective Age of the subject and the comparable sales instead of their Actual Age. If the Effective Age is utilized, this would already take into consideration the condition of the improvements and only one adjustment would be made for Age & Condition. But that is not what the form asks for. The form wants the adjustment made for the Actual Age difference and then separately, an adjustment, if needed, for Condition. The key words are Actual Age, not Effective Age.

7. Retrospective or Prospective Value. This relates to the Intended Use for an estate, tax assessment appeal or a property that is either proposed or under construction. When the effective date of an appraisal is prior to the date of visit (inspection), this would be considered a retrospective value, not a current value. For example, if the appraisal is for an estate, usually the retrospective value date would be the date of death or the alternative date, six months thereafter. If the appraisal is for a tax assessment appeal, the date of valuation would be January 1 of that tax year. So be sure to call it a retrospective value.

However, if you are appraising a proposed property or a property under construction, the value would be considered a prospective value as of a date in the future (completion date). When doing a prospective value, it would be a good idea to get the estimated completion date (month and year) from either the builder/contractor or client. USPAP’s Standards Rule 2-2 (vi) requires the appraiser to state the effective date of the appraisal and the date of the report. If there is substantial difference in time between the effective date of the appraisal and the date of report, then that would indicate either a retrospective value (i.e.: date in the past) or prospective value (i.e.: date in the future).

8. Improperly Putting Listing(s) along with the Sales. I have noticed that many appraisers who utilize listings add them at the end of their sales grid as if it were an additional sale, giving it a false or misleading indication that it is a sale and not a listing. While the appraiser does state that it is a listing, the listings should be on a separate page by themselves and hopefully the software program the appraiser utilizes has a heading “Listing” and not “Sales.”

Summary
I hope this information is beneficial to you. Just remember, anything you write in the report has to be supported. Just don’t assume that an adjustment you make is appropriate due to your many years of experience. It is better to explain any unusual or questionable adjustment within a Text or Supplemental Addendum and do as much explaining in this addendum as it takes to leave little doubt as to what you did and why you did it. It is easier to explain what you did than to explain afterwards why you did not explain it.

About the Author
Philip G. Spool, ASA, is a State-Certified General Real Estate Appraiser in Florida and has been appraising for over 36 years. Formerly the Chief Appraiser of Flagler Federal Savings and Loan Association, he has been self-employed for the past 17 years. In addition to appraising, he is an instructor with the Institute of Real Estate Studies (IRES), teaching residential appraisal classes as well as continuing education courses. He can be reached at pgspool@bellsouth.net.