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Sounding Bored is my semi-regular column on the state of the appraisal profession. This week, I touch on the FNC federal class-action lawsuit and the right of appraisers to their intellectual property.

In Kenneth R. Harney’s article in the Washington Post this weekend Reprisals on Appraisals he discusses the issue of reliability of appraisers and their digital alternative.

FNC is the subject of a federal class-action suit over the idea that the data collected by the appraiser can be leveraged for further use.

I do not take the view that all data in an appraisal is simply raw objective information that can be regurgitated for other purposes. As an appraiser, I have enhanced that data in my reports through my work and expertise. I made that effort for the preparation of the report. Of course some of the information is simply transposed from another source, but much of it is my intellectual property.

I have no problem with my data being used is if I am asked and decide not to opt out. However, I was never asked in advance to allow my data to be farmed for additional funds.

An appraiser’s expertise should be compensated if their work is used for an additional purpose not disclosed in the original appraisal request. That additional use would have been built into my fee from the outset.

Based on my experience and industry feedback with people who use them, the automated valuation models (AVM’s) are pretty much worthless as a reliable indicator of market value but they do appease the regulators as a document in the file and have potential in the distant future as a credible tool.

I am struck by the irony that the appraisers, who are supposedly a weak link in the mortgage chain, stimulating the need for AVM’s, are needed to provide reliable content to the very AVM’s that were built to replace them.

Tags: Soapbox Blog, Appraisal Process, Jonathan Miller

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd takes a bird’s eye view which is straighter than the way a crow flies about enhancing reports with photos from sources like Google Earth as an alternative to boilerplate text. …Jonathan Miller

Appraisals that are deliberate attempts to mislead are generally effective not because of the information that is communicated in the report, but because of that which is not. The client may be in another part of the country and have no direct knowledge of the area in which the subject property is located. He is completely dependent on the appraiser in that he only “knows” what the appraiser tells him. An unscrupulous appraiser may state “the subject dwelling is part of an established residential neighborhood”, when in fact the subject is on the outside edge of the established residential neighborhood, just as it transitions to an industrial area. The client may want to know (then again, maybe not) that the subject is across the street from, say, a piggery.

If we are serious in our concern about minimizing the number of misleading, inflated and fraudulent appraisals then we should be taking greater advantage of existing technology, such as Google Earth which has the added benefit of improving the overall quality of appraisals done by reputable appraisers. Let’s face facts here and recognize that even if you don’t consider yourself a “form-filler” (as Jonathan Miller derisively refers to the lowest among us) you’ve got to admit that most of the narrative parts of any appraisal report consist of boilerplate (with only minimal deviation) starting with the Neighborhood description and going right on through to the Reconciliation, and finally – the always scintillating – Certification and Limiting Conditions. Most of the verbiage in a FANNIE MAE appraisal, even one which is well written, consists of the same insipid pabulum that few clients read even the first time they see it (and never again thereafter).

On the other hand, everybody likes to look at pictures! All Yankee fans (and a lot of other people) will recognize this one as the House that Ruth Built.

A picture is worth a thousand words. Most appraisals would benefit from fewer (meaningless) words and more (insightful) pictures. By utilizing the “layering” effects available in GIS based systems like Google Earth, the appraiser can replace his generic Neighborhood Description with a uniquely specific, Neighborhood Illustration.

Appraisals should include two aerial photographs of the subject, one from 1,000 and another from say, 10,000 feet – with the subject property displayed at the center. This is easily doable with Google Earth. By looking at these photos it’s very easy to see how the subject conforms, or doesn’t, with properties around it. There’s no better way to examine externalities, changes in land use, density, size of buildings, etc. than by looking down from above. Until recently, you had to be in an airplane on its final approach to see a neighborhood from this perspective. Thanks to Google Earth, the flyover is “virtual” and you are at the controls (I know what you’re thinking. These photos are not in “real” time and therefore not necessarily accurate representations of the landscape. True enough, but unless there’s been a recent tsunami or comparable disaster, they will be plenty accurate enough to do the job for which they are intended.)

The photo addendum should include the roof top view in addition to the usual front and rear of subject, street scene and interior rooms. The same is true for the comparable sales a view from the sky taken from the same “eye level” as is used for the subject.

The list of potential applications for GIS systems like Google Earth to the appraisal profession is nearly endless and if you’re not using it yet, you should be. Best of all, the basic version is free.

Tags: Soapbox Blog, Todd Huttunen, Appraisal Process, Mortgage Fraud, Appraisal Forms, The Hall Monitor

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Jim MacCrate, MAI, CRE, ASA, has worn many hats in his career. He taught a number of the appraisal classes I have taken through the Appraisal Institute. and I think he is one of the few people who actually understands the “J-Factor.” His wife Judy is an SRA and is an accomplished appraiser in her own right, having managed an appraisal panel for a large lending institution throughout its various mergers for a number of years. I can only imagine the riveting conversations at dinnertime. This week, in his inaugural post, he dashes dogma and talks non sequitor to get to the topic of appraisal review. …Jonathan Miller

Non Sequitor cartoon strip
“A pinch of preconceived notions, a dash of dogma, mix well in a bowl of innuendo, then just say the magic word” . . . and what do you get? A real estate appraisal? Or just a quote from Max in the cartoon Non Sequitur.

With all the players in the appraisal process, it’s no surprise client pressures from all sides can create biased reports. Unfortunately, lawyers, accountants and other real estate advisors who work on a performance fee basis sometimes suffer ethical lapses. They opt for fat fees, rather than fair appraisals. Even government reinforces subtle pressure on real estate appraisers by failing to protect society with required standards (minimal licensing and limited resources to monitor unscrupulous appraisers and their clients). Without such oversight, appraisers must learn to walk away to avoid compromising their ethics and professionalism.

Thus the need for unbiased professionals to review appraisal reports for fraud, incompetence, or human error. The Uniform Standards of Professional Appraisal Practice (USPAP) defines the review function as distinct from real estate valuation/consulting, so different standards apply.

Many review appraisers are independent professionals who are educated, trained, and experienced to evaluate appraisal reports. They must know the property type, the market, the geographic area, and the correct analytical methods for an accurate analysis. They judge the quality, completeness, and adequacy of the appraisal report to determine if its information is relevant and the correct valuation techniques support reasonable conclusions.

Max also concludes

Facts are a lot more fun when you get to make them up.

That’s why appraisal reviews offer good insurance and professional appraisal reviewers make qualified industry watchdogs.

Note: a special thanks to Nancy Reiss of The Write Stuff and Max Ramsland, MAI for their help with this.

Tags: Soapbox Blog, James MacCrate, Appraisal Pressure, Appraisal Process, USPAP, Straight from MacCrate

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Here is an appraisal-related post on our other blog Matrix: Appraisers: Band-aids Don’t Prevent Cuts that discusses the real issues related to appraiser’s access to sales contracts.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd sizes up the lame excuses made by appraisers who disclaim and defer to public record. So much so that Todd gets worked up into a lather. …Jonathan Miller

If you’ve been appraising residential real estate in a suburban area for more than a couple of years you’ve measured (I hope) hundreds, and maybe thousands of detached, single family houses. That, my friend, makes you an expert in estimating the gross living area of those houses you haven’t measured (most of your comps) when the primary source (MLS) for those comps state square footage numbers that are, shall we say, “Viagra-sized” and the public records are unavailable or unreliable (neither of which is an uncommon occurrence in many parts of Westchester County and probably some other places too).

Let us start with the basic Cape Cod house on a 50 x 100 lot, not unlike the one shown to the left:

The listing might read something like this. “This house is perfect for the young family or those looking to downsize. It features a first floor layout which includes a living room with a fireplace, dining room, modern eat-in kitchen, two bedrooms, and one full bathroom. The second floor has a bedroom and a full bathroom (and room for expansion). The house features a finished basement with a bedroom, rec. room and bath.”

Then comes my favorite part the total room count, which very often goes as follows:

Rooms 8
Bedrooms 4
Bathrooms 3
Square Footage 2,300

But wait a second; I say to myself, this house doesn’t have eight rooms, four bedrooms and three bathrooms (above grade). It’s identical to the house I’m appraising a block away! It’s a six room house with three bedrooms and two bathrooms. It has a finished basement. And it’s not 2,300 square feet it’s 1,500 square feet.

Why, oh why, do some appraisers simply parrot the summary room count shown on the listing when even a cursory review of the narrative part of the listing illustrates that, at best, realtors have different standards for what constitutes living area and room counts than do appraisers? When you drive by the house to take a picture, isn’t it frequently obvious that the house is in fact smaller than the listing agent claims it to be?

I know what you’re thinking. You didn’t measure the comp yourself so you don’t know how big it is. The public record card was unavailable or inconclusive. So you are relying on the MLS stated square footage. I say bullshit! YOU’RE THE EXPERT. You’ve actually measured thousands of houses.

Most realtors don’t know how to measure houses and if there isn’t a reliable public record available they don’t have a clue as to the actual size of a house. They are salespeople and their business is selling houses. They tend to exaggerate things like the size of houses. Appraisers, who do measure houses, have to know this!

Therefore, if you haven’t measured the comp yourself and if the public record is missing or not helpful, I believe it is incumbent on you to critically examine the listing before accepting its stated square footage. Read the listing and count the rooms it describes. If they add up to six or seven don’t say nine just because that’s what the listing shows as the total. Look at the house when you go to photograph it and, when required, exercise your professional judgment when it comes to reporting the size of your comparable sales.

It would be nice if you could rely on the public record data that is available to you. And I suspect that in most parts of the country, you can do just that. But if you bring that mindset to the county where I’ve worked for the better part of 20 years, you’re in for a rude awakening, and misleading appraisal reports. Put in all the disclaimers you want, but if your reports are to be meaningful, they will have to include the statement that your opinions are based, in part, on your powers of observation and your years of experience.

My experience is that six room, Cape Cod houses with three bedrooms and two bathrooms, on 50 x 100 foot lots, generally measure around 1,500 square feet, give or take.

Tags: Soapbox Blog, Todd Huttunen, Appraisal Process, The Hall Monitor

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Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week. In this post, he chews the fat with us about the easy credit syndrome and begs the question: “Do you want fries with that?.” …Jonathan Miller

This past Wednesday the Wall Street Journal reported on how US auto parts suppliers were successfully resisting the price-cuts demanded by Detroit’s Big 3-GM, Ford & Chrysler. The article explained how attrition among the US parts suppliers through bankruptcies, consolidations, etc. had resulted in giving the remaining survivors the necessary leverage to resist Detroit in price reductions demanded by the Big 3 in their attempt to lower costs. Thus with fewer plants, smaller operations and lower overhead the suppliers did not have to take on unprofitable contracts in order to keep their plants busy as they were now more efficient than in the past.

Compare this to the current state of the appraisal industry and you will find the exact opposite in terms of the relationship between supply and demand. The appraisal world has burgeoned over the past decade as a result of the vast residential and commercial CMBS market that has sopped up the investment capital pouring into US real estate. Preceding this boom, however, the supply side of appraisers had already expanded thanks to the enactment of FIRREA in 1989 in answer to the savings and loan debacle in the mid- late 1980’s when state certification enabled every Tom, Dick and Harriet to take a core of appraisal courses, pass a test and hang out their shingle as either a residential or general property appraiser. Moreover, and equally as important, many of these newly hatched appraisal savants were single practitioners operating out of their basements with no staff and little overhead. This is not meant to belittle the capitalistic society in which we operate but merely to set the competitive scene.

To handle the growing volume of deals and the expanding need for appraisals as well as keeping their overhead costs low the financial institutions commoditized the appraisal process and resorted to on-line standardized engagement letters that gave almost no information to the appraiser as to the number of tenants on the rent roll other than being told it was an office building or single-user industrial building, along with the property’s address and a contact name and telephone number; organized the lending process into a production line so that the loan officers had little knowledge of the collateral. Anecdotally, in the large bank that I worked for I found myself fielding requests for appraisals from our out-of-state branch offices whose customer/borrower may have banked at that location but whose property was somewhere back in the New York area (when I requested information about the property, its gross building area, rent roll, leases, etc. so that I could talk intelligently to the various appraisers in order to obtain a fee quote and timing in many instances the field office had no basic property information). To handle either appraisal reviews and/or engagements (especially by the smaller institutions) banks retained appraisal management companies (AMC’s) to administer the process. And thus conditions for the PERFECT STORM in the appraisal world were set in motion:

• growing appraisal volume
  
• growing appraiser supply
  
• 3rd party AMC’S under orders to obtain lowest bid fees
  
• newly minted appraisers eager to obtain work
  
• AMC’s & institutions able to exploit the appraiser oversupply
  
• contented client-lenders able to comply with FIRREA/USPAP minimum standards where any appraisal mistakes were bailed out by geometrically rising sales prices
  

Fast forwarding to the present and the various SOAPBOX articles of my fellow bloggers reporting manifestations of today’s appraisal business world: lenders shopping to see if the appraiser can support the loan/value amount; a quick “verbal” value before the written report arrives and any other quirky requests to prevent the deal from being lost due to the appraisal and it is apparent that business can be rough.

There is no question that today’s appraisal world has been transformed into a high volume rush business stoked by Wall Street’s need to keep the bonfires of CMBS in ample supply to sop up the large capital flows seeking investment outlets. The vast volume of business means that the originators, lenders and underwriters are the bosses while the appraisers have become the sweatshop workers if they want the business. State certification of appraisers has raised the supply of people willing to work at sweatshop fees. As often cited in SOAPBOX commentary, appraisers have become “form filler-outers” and downloaders of web-based data, sales comps and practitioners of applying sales price or rental rate averages to subject properties. Lucky is the appraiser if Co-Star has a photo of the selected comps. If not, a trip to the field may be mandatory if the reviewer does not accept the caption: “no photo available”. Gone is the appraiser who can look his client in the eye and say-“you know what, my experience tells me that market value is not represented by the average of the sales comps and here are the reasons why”.

If I have given the impression that appraisers are being paid for their production and not for their ability to discern market value based on market dynamics you are not mistaken.

Tags: Appraisal Management Companies, Soapbox Blog, Martin Tessler, Appraisal Pressure, Appraisal Process, Fee Simplistic

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Sounding Bored is my semi-regular column on the state of the appraisal profession. This week, all the pressure venting starts to get the word out.

For the past 5 years I have watched the appraisal profession go through a pretty dramatic change, most of it bad, accelerated by the housing boom. In 2005, I decided to beginning blogging about it to try to get the word out because going through normal channels (ie appraisal organizations and politics) didn’t seem to be effective enough, plus, I had no idea how to do any of that.

So I simply said what was on my mind in this blog, and later on, got others to join me. These include appraisers and former appraisers that I have met during my career including Chip Wagner from Chicago, my commercial appraisal business partner John Cicero, Marty Tessler from New York City, Butch Hicks from Virginia, John Mason from suburban New York and Todd Huttunen from suburban New York.

The subprime mortgage market woes expose the problems we have been discussing for years. Two articles were released this week that are starting to shed light on the situation. These authors got our attention through Soapbox and my other blog Matrix.

“Drive to make deals fuels mortgage woes” by Holden Lewis of Bankrate.com who writes an excellent blog called “Mortgage Matters“

“In the current real estate market, an accurate appraisal is more important than ever” by Carol Lloyd of the San Francisco Chronicle who writes a must-read weekly column “Surreal Real Estate“

The subprime lending woes we are all reading about illustrated the problems all of us have been shouting about in this blog and on a personal level for the past several years if not more.

• Competent appraisers are being replaced by form-fillers and 10-percenters.
  
• The lending industry structure has evolved into a flawed system where those on commission determine which appraiser gets the work.
  
• The appraisal industry is being commoditized into the equivalent of a title search or flood zone certification rather than a professional analysis.
  
• Appraisal licensing, while a good idea overall, has legitimized a legion of hacks and given the good ones a bad name.
  
• The lack of political clout for the industry has made appraisers the poster child for all that is wrong with lending (aka mortgage fraud).
  
• Lending institutions don’t understand the value of their collateral, affecting compliance with bank reserve requirements by federal regulators.
• Mortgage portfolio pricing in many cases is grossly inaccurate, because the secondary mortgage market investors don’t realize nor have access to accurate collateral valuation.

Let’s hope there is more coverage of this specific issue in the future.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud, Redlining and Predatory Lending, Jonathan Miller

1 Comment

Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week. This week, Marty explains the smoke and mirror lending process.
…Jonathan Miller

My original commitment to authoring Fee Simplistic was that it would only be written when commentary would be warranted by current events in the real estate market. And so the imploding of the sub-prime mortgage world on investors and the fallout of lenders and borrowers going into default makes it seem that the mortgage market is caving in.

The term “sub-prime” connotes a loan that is related to prime when never the twain ever met or will meet. Reading the individual anecdotes of some of these sub-prime borrowers reflect histories of people who would score exceedingly low in credit ratings; were either fraudulent in reporting income or else their broker was fraudulent in reporting on the borrower’s income and assets; executed sales contracts that had excessive sales prices where the buyer would get a kickback and use the proceeds to pay his first few mortgage payments and/or split some with the seller or broker; and finally broker “sweet talk” lulling the borrower into refinancing where mortgage payments would eventually end up higher than what was previously paid. So what prevailed was a sub-prime lending world comprised of smoke and mirrors if not outright chicanery.

This time, instead of Uncle Sam having to step in with the establishment of an RTC to keep the banking system afloat it appears that the only ones being hurt are those investors who played the high risk game of buying the bonds of the sub-prime CDO’s that were issued by Wall Street. The “invisible hand” of the marketplace so aptly described by Adam Smith is at work in culling out the bad from the good and the risky investment from the prudent one. High risk and high yield vs. low risk and low yield have always governed the marketplace and now is no exception.

It is not a far stretch to remember the principles most of us were brought up on by our parents:

* Don’t play with the bad kids, you’ll get hurt
* Don’t skate on thin ice
* It may look good now but it may give you an upset stomach later
* If it looks too good to be true it probably isn’t
* What makes you think you can get away with it?

And for those who know their Latin
* Caveat Emptor

Tags: Soapbox Blog, Martin Tessler, Appraisal Process, Mortgage Fraud, Redlining and Predatory Lending, Fee Simplistic

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Sounding Bored is my semi-regular column on the state of the appraisal profession. This week I talk to a wall.

In Today’s Inman News, there was an article written by a pretty sharp real estate reporter named Marcie Geffner, called: Real estate appraisals are outmoded. (If the link is expired and you don’t have access, I have included the salient parts.)

At first I was in agreement with the article because it addressed the pressure appraisers are faced with every day. Its what I have been preaching for more than 20 years. Lenders, agents and appraisers are all to blame in the process because the appraiser, in their unique position in the transaction, is vulnerable (willingly or not) to outside influence. Quite often their only sources of business systematically apply pressure.

The fundamental problem is the conflict of interest among the lender who selects the appraiser, the borrower who pays for the appraisal and the investor who relies on the adequacy of the appraiser’s opinion.

Here’s where 90% of all consumers, lenders, agents, appraisers and the reporter for this article miss the boat.

The fundamental problem is the conflict of interest among the lender who selects the appraiser, the borrower who pays for the appraisal and the investor who relies on the adequacy of the appraiser’s opinion.

• A mortgage appraisal has nothing to do with the borrower — The appraisal for a home purchase that is ordered by a lender or mortgage broker for a mortgage has nothing to do with the borrower. It is purely an assessment of the collateral (the asset) of which to lend against. It makes no difference what the buyer wants the value to be or to feel comfortable about the purchase. This issue needs to be reinforced with loan officers and underwriteres, as well as real estate agents.
  
• An appraisal ordered by the buyer, by law, can not be used by the lender for the mortgage — If the buyer wants to feel more comfortable about the transaction, they can hire their own appraiser to get an estimate but they need to make sure the appraiser is getting their data from an independent source and has limited contact with the agents involved in the sale.
  
• A client is not defined by who pays the appraiser — An appraiser’s client is determined by who engaged the appraiser for the assignment. Just because a borrower pays an appraisal fee for their mortgage application doesn’t mean they have any right to speak with the appraiser directly.

The author’s solution to the credibility problem is more about enforcement and an update of current laws. This is not likely to happen, nor will it effect change. Licensing actually made the quality of appraisal work decline because it lowered the bar on the entire profession. With a few classes and some simple training, anyone can get a license and all appraisers are on a even playing field.

Enforcement is virtually impossible unless the report is out and out fraud. Licensing departments in most states are understaffed and lack adequate resources despite best intentions. Plus, its tough to deal with subjectives. Boy, that value was a little too high – let’s get ’em on that.

Most of the substandard work that gives the profession a black eye is done by ten-percenters. Those are typically appraisers who always seem to be a little high on their values which coincioedntally gives their clients more flexibility. This practice was reinforced to me today as I reviewed an appraisal today done for a mortgage broker by a ten-percenter and the appraiser used no real logic but kept using the phrase…based on my vast experience… in his text.

The solution has to be regulatory needs to be resurrecting that Chinese Wall between the sales function and the underwriting function of a bank.

Until then, we might as well keep talking to a wall.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Jonathan Miller

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Sounding Bored is my semi-regular column on the state of the appraisal profession. This week I refuse to paint and therefore am not enabled.

Like or not, [when there is mortgage fraud involved, appraisers are somehow involved [Dayton Daily News]](http://www.daytondailynews.com/n/content/oh/story/news/local/2007/02/04/ddn020407flipsidebar.html). The appraisal profession, whether appraisers like it or not, is the connection between the property and the mortgage fraud being conducted.

A lot of appraisers, including myself, have pointed fingers at many in the lending business, but not enough of a critical eye on ourselves. On one hand, the lending process has encouraged self-dealing and exagerating through financial incentive, but on the other hand, many in our profession don’t have the backbone to say no and work to switch their client base or specialty, otherwise it wouldn’t be so widespread.

Lender pressure and wholesale lending irregularities didn’t happen overnight. The appraisal industry has always been underreprepresented because it is too fragmented and emphasis has always been placed on the commercial sector, because the dollars (value) are so much bigger.

The loss of our professional identity happened at about the same pace as the paint fading on a house (assuming it doesn’t have aluminum siding). Form-fillers are merely coloring an asset to meet the needs of the parties involved (no offense to house painters).

Whenever you read about someone arrested or indicted for mortgage fraud, there is always an appraiser involved.

But let get one thing straight: using the professional label of an “appraiser” for those walking down the “perp” walk is clearly inaccurate, because they didn’t appraise the property.

Those individuals are merely painters in appraiser’s clothing.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Jonathan Miller

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Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week. In this post, after noshing, drinking and dancing in the conga line during the holidays with mortgage lenders, Marty observes what appears to be a series of quick fixes for looming foreclosure problems. “ …Jonathan Miller

A recent article in the Wall Street Journal described how lenders are dealing with mounting mortgage delinquencies through the latest plug-the -dike quick fix tools created to cope with the easy credit and underwriting gluttony of the past few years. This parallels the diet industry’s post-holiday marketing blitz where all of that rich holiday noshing and drinking has added inches and pounds that are conjuring images of the saftig pre-diet Kirsti Alley.

The latest “crash diets” that the lenders have come up with are:

• Allowing some borrowers to refinance into a different loan at no closing cost
  
• Alerting those holding ARM loans months before the rate is reset
  
• Allowing the property to be sold at a loss and forgiving the shortfall in proceeds or remaining debt without it affecting the borrower’s credit record
  

Of particular interest was a story of a borrower caught in the vise of trying to sell a house in Las Vegas where the market tanked after he bought a new house following a job transfer to Dallas. The man’s dilemma stemmed from his expected sale at $475,000 and the buyer’s bank appraisal of $419,000 compared to his present loan balance of $440,000. Now I have been around this business long enough to sniff out aberrations when I smell them so here it comes.

• I was intrigued by the appraisal of $419,000-not $420,000, not $415,000 but exactly $419,000. I would like to meet the appraiser who is so certain that he can reconcile to a residential value at that exact amount. He/she must be very good on their adjustments or else they know how to read numbers off their Excel spreadsheet, BUT-where is their professional judgement in rounding? It reminds me of putting an asking price on a house at $499,500-you want to avoid the $500K priceline but you know you will settle for something in the high end $400’s.
  
• The gap between the loan balance of $440,000 and the present appraised value of $419,000 bears some scrutiny. Let us assume that the loan is relatively recent and thus that amortization of principal is minimal. Let us further assume that LTV is 80% so the $440,000 balance would equate to an original appraised value of $550,000 at the 80% ratio. That is a 23.8% decline in market value based on the assumptions above.
  

And so, Dr. Phil, here is my dilemma:

• Did the easy credit people allow too much partying and noshing ?
• Could a declining market have wiped out the borrower’s equity in such a relatively short period or did the fault lie with the original appraisal?
• Did the appraiser on the original loan get carried away with his adjustments in an up-market and overvalue or
• Is the appraiser of the current market value of $419,000 so sure that maybe he has undervalued?
• Should the owner allow the lender to sell the Las Vegas house and cut his losses?
• Should we all join Kirsti Alley in the conga line?
• Is gluttony the first deadly sin?

Tags: Soapbox Blog, Martin Tessler, Appraisal Process, Fee Simplistic

1 Comment

[Butch Hicks is an appraisal veteran that hails from Northern Virginia](http://www.bhicks.com/). I first met him when he was the President of [RAC (Relocation Appraisers & Consultants)](http://www.rac.net) and was struck by how he got straight to the point, and peppered it with a southern drawl. He is a leader in the appraisal industry and has an affinity for crunching housing market data like I do. In his first post for his Hicks on Sticks column in Soapbox, Butch deals with the ethics and practicality of doing comp checks (which in their pure form, completely violates USPAP). I am thrilled to have him contribute to Soapbox. …Jonathan Miller

“Bill Hicks my friend (if he was a friend, he would have called me Butch), how are you doing? My name is Slick E. Lender and I’m with AllQualify Mortgage. We have just begun an expensive ad campaign in Virginia and anticipate a lot of appraisal work for you as a result and I’d like to establish a relationship with you as the sole appraiser for our use there.”

And so begins yet another phone request for a comp check.

“Ok,” I respond, “what comp do you want me to check?” This, my ‘old’ response, usually resulted in a pained and questioning “huh” from the other end of the phone line. “You asked for a comp check,” I reply, “so which one do you wish me to check?”

These requests for comp checks, whether made by phone or fax, have increased dramatically with the advent of the internet, the slowing of the realty market and rising interest rates that have all but chocked off the refinancing deals of the recent past. Like all appraisers, I assume, I take a different attitude toward such requests from my regular clients as opposed to those like Slick E. but of late my patience has worn a bit thin on all of them.

I’m not going into a discussion here of how providing comp checks in order to lasso an appraisal request might place the appraiser in jeopardy as regards USPAP; I assume all appraisers are aware of such, though the evidence might indicate otherwise (on numerous occasions, I’ve been told by requestors that I’m the first to ever have bought that issue up). Also, I must admit, it’s a little difficult to get terribly angry with those making such requests because I recognize that a primary reason they are doing so is because so many of my fellow ‘professionals’ easily accommodate them.

Worse, to some degree, are those faxed requests that eat up otherwise clean paper. I’ve begun a collection of the worst offenders (another subject for later), you know, the ones with the Appraisal in Appraisal Request crossed out and replaced with a handwritten “Comp”. Lenders, having now caught on the fact that some appraisers (like myself) do not provide comp requests, have now resorted to blast faxing such to every appraiser in a given market. Experience tells them, I suppose, that someone will bite and the chase for ‘the number’ is on.

There was a time when I would respond for such requests by simply sending all sales in a subject neighborhood to the requestor and letting them decide at that point whether or not to proceed with a formal appraisal request. It’s not that difficult to do with my current MLS system but it does take a little time. Time is money however and for that reason I eventually halted even that process. But, what the heck, I’m in the appraisal business and I earn a living by collecting a fee for such, so my new view is to take advantage of a technology that is in some fashion, competing with me.

[Zillow.com is now my friend](http://www.zillow.com). Since appearing on the scene, I have taken to measuring its performance against mine on actual sale cases. How, you may ask, do I do that? Simple! Since I do a lot of relocation work, I have something to measure my own performance against. By capturing Zillows value, along with my own on every relocation assignment and tracking the history of the subject as it goes to settlement, I have concluded that in most cases, the Zillow value is in excess of my value estimate and the eventual sales price (in fact, of late, the Zillow value is generally higher than even the subjects initial list price).

Back to earning the fee part earlier noted (not to mention saving myself the aggravation), I have devised a new tactic. Now, when I get that call from Slick, I simply point him to the Zillow website. If, after obtaining a ‘value’ there, he wishes to proceed, fine, I can accept the assignment with no problem and a very clear conscience.

Coming in ‘low’ is not a problem; the value is what it is. I don’t worry about irate phone calls from anyone (borrower or lender) any longer; experienced appraisers learn to develop a thick skin.

Experienced appraisers also learn which battles to fight and ones involving comp checks are no longer a priority of mine.

Tags: Zillow, Soapbox Blog, Butch Hicks, Appraisal Pressure, Appraisal Process, Mortgage Fraud, Hicks on Sticks, USPAP

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