Matrix Blog

Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is currently the Director of Valuation at Weichert Relocation Resources and a user of appraisal services. He spent seven years at Washington Mutual Bank where he was a First Vice President. Mr. Palumbo holds an SRA designation, is AQB certified and he is a State Certified residential appraiser licensed in New Jersey. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his interview on The Housing Helix.
-Jonathan Miller

The Fool’s Gold of AMC Licensing

Since I landed in the world of Relocation some three and a half years ago, I really did not pay much attention to what was happening in the trenches of the lending world. That changed when the concept of licensing appraisal management companies came about. My interest became more of an occupational study since these laws are so “broad-brush” and vague. As the manager an in-house appraisal arm of Relocation Management Company I was shocked and disappointed that that these laws cast a net on just about anyone who manages selects and retains appraisers for third party use. Clearly this type of legislation was created out of a knee-jerk reaction to one of the many “crisis-type” issues that came AT the appraisal community in 2008 and 2009. I am specifically referring to the attention to the “appraisal process” brought about by the ill-informed attorney general Mr. Cuomo of NY and the infamous HVCC. I agree with the basic the tenets of the HVCC and the AMC laws I just do not think there will be a net tangible positive affect and that the “real issues” are being conquered. AMC laws and HVCC are not the PANECEA. I WISH THERE WERE a panacea because some calm is needed. Being the realist and institutionally tenured manager of the appraisal process I just know reality of what happens VS what is supposed to happen.

For starters let me say that the relocation world has no direct OTS-like government oversight or appraisal requirements for the appraisals which are NOT intended for lending. The relocation industry is self- policing and we rely on what is set up by state licensing and our own quality control. Let me also say that while my department may perform some of the same functions that an AMC does, we do not TAKE ANY of the appraisers fee. We do select maintain, review AND USE appraisers as well as arbitrate valuation disputes. Also for the record I am not anti-appraisal management company.

Here is the issue: As pointed out by the OTS, last year FIRREA laws of 1989 already contain much of the language that the AMC Laws cite. States have also set up Appraisal Boards who are supposed to monitor fraud egregious issues and such. The problem with FIRREA and the State Boards is simple: money, resources and time. So along come laws that state it is unlawful to coerce an appraiser, unlawful not to pay them, unlawful to tell them which appraiser to use, unlawful to have people who select and review who are not “trained in real estate”, and so forth and so on. So the new laws are just restating the same of what we already had but we still lack an efficient mechanism to enforce. If the AMC laws are governed and enforced by the state boards who are short on cash and time then what makes AMC laws different? Currently 18 states have such laws on their books.

On top of the AMC laws many states are requiring AMC’s to be “registered”. This process is costly and requires plenty of paperwork. KUDOS to the Governor of Virginia, who signed his states law basically making it illegal to engage in the “appraisal nonsense” described above, but NOT requiring a registration process or fee. Also noted as being proactive is Arizona, which requires licensing and registration for AMC’s but which has a single line exemption for the relocation industry simply because: “we are not the problem” (the law reads the exemption for appraisals prepared for the purpose of employee relocation) .

Recently I was contacted by a state board attorney whose state passed AMC legislation in 2009; she stated “this law was not intended for your business model….because you use the appraisal with the client, whereas an AMC does not use…. it they get it…Q C it and pass it on”. It is great to see some realistic thinking for a change. The AMC- appraiser relationship is much like the HMO doctor relationship: mutual need mandated by external forces peppered with some mistrust. Don’t get me wrong there is a lot of merit to the underlying premise of HVCC and such I just do not think it is going to result in a changed world for the appraisal community. What the appraisers do not like about the AMC’s are the request for fast appraisals, some at a lower fee than they have seen in years, requests coming with numerous assignment conditions many of which are not realistic and unacceptable (3 comps within 3 months and 1 mile) the occasional “can you hit the number request” before the analysis gets done (comps checks)…among many others.

Many of the pressures ON AMC’s…yes I said ON AMC’S, are a result of what has transpired in the world: Increased competition, web-based valuation tools, fingertip internet real estate research, fraud, secondary market issues, and MISUNDERSTANDING of the appraisal process in general. I wonder what planet the “investors” live on that have guidelines they will not purchase loans in declining markets? I also believe that a lender than asks an appraiser to “remove a negative time adjustments” should be reported to the LVCC hot line” . Oh… that’s right there is none? Call your department of banking they say. Good luck. I had an appraiser the other day who did not read or adhere to the engagement letter I sent tell me “we have an AMC law here and you have to pay me regardless or you are breaking the law”. I stated, “great, I will take my chances since you signed the engagement letter but yet failed to meet the (simple) requirements stated in the letter, which is why I have called you three times ”. We’re not talking about value here we are talking about basic development and reporting issues that were not clear to me as user and client. Is this what the AMC laws are for?

Does anyone really think that the requirement of an AMC to fill out an application, pay a fee and require a few staff to take a 15-hour USPAP will stop the madness? Actually if the fees are an issue it could increase the cost of operating for the very folks that are presumable not paying a “fair rate”. Since the BIG 3 lenders (all using profitable AMC’s) have 60% of the market now via servicing or closing every US loan, I don’t see things changing until we see a UNIFIED industry, an industry that will unilaterally agree to push back on any conditions that are deemed to be unreasonable. It is very difficult to push back on three financial giants, but without a push, it will not happen. The other day a friend told me of a lender (his client) who is seeking to create a special list outside the AMC they use; their claim is poor service and product….betcha licensing that AMC would fix that! I also heard of a request coming from a AMC in a state that requires they be licensed and registered. The “caller” asked the appraiser if he could “hit the number”. He asked “isn’t that a violation of the HVCC and the AMC laws?”. The caller laughed…who is enforcing this stuff anyway..we do it all the time and we just send a text message to our appraisers telling them what they need”. There are approximately 97,000 appraisers in the US handling over 1 trillion dollars in mortgage money. Over 75% of the states require licensed appraisers for federally related transactions and 45% require for all appraisals. Imagine if ALL 97,000 decided to make change by just saying “no” on unreasonable compensation or assignment conditions. If we did not have state licensing there would be a clamor to get it. Remember what was stated twenty years ago? “State licensing will change everything” .

Maybe it didn’t because we didn’t MAKE it matter.

What we had already in FIRREA and state law is part of the mechanism to get us to the next level. The missing ingredient is unity. It does not mean abolishing the AMC’s or AMC laws either. Let’s look within and stop trying to reinvent the wheel with both the products and the process. We are miners of fool’s gold until we make real change happen from within, which while not easy is the only way for true meaningful change.

Tags: Joe Palumbo, Appraisal Management Companies, HVCC, AMC, USPAP, Palumbo on USPAP

3 Comments

Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller

The other day I observed a “Valuation Service” which looked and smelled like an appraisal. Problem is the appraiser did it by accident while labeling it an “Appraiser Price Opinion”.

Ethics: as stated in the “Ethics Rule of the 2010-2011 USPAP:”

“An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics. An appraiser must comply with USPAP when obligated by law or regulation, or by agreement with the client or intended users. In addition to these requirements, an individual should comply any time that individual represents that he or she is performing the service as an appraiser”.

The “Appraiser Price Opinion” is labeled as a price opinion, which appraisers CAN DO as part of “appraisal practice” provided it is labeled properly and the appraiser does not mix the terminology use appraisal techniques and call them something else. The appraiser has not adhered to the Ethics Rule, specifically Conduct: See AO-21 page A-69 line 176. This AO demonstrates how the appraiser has ignored definitions that MUST be adhered to when completing “a service as part of appraisal practice”. Those definitions ignored are: price, value and appraisal.

The reason appraisers have not done “price” in the past few 25 years is that they are not price experts, they are value experts.

The appraiser has indicated this product is a “A Price Opinion” yet: The report is labeled “Desktop Restricted Use Report” which is nomenclature reserved for the minimum written format for an “appraisal” (in part). On the certification page it states “This is a Summary Appraisal report”; an appraisal cannot be both; it must be one or the other. The report seems to conform to a Restricted Use Appraisal report but is missing the important disclosure: (SR 2-2 ( c ) (i) which states “The content of a Restricted Use Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum….state a prominent use restriction that limits use of the report to the client and warns that the appraiser’s opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiser’s workfile”. Further, I have material knowledge it had two different intended users….a taboo for a Restricted Use Appraisal Report.

The rest of the issues;

• The form concludes “Value Opinion” and “transaction” is noted as: “Market Value” and it concludes a “Highest and Best Use, which is a term relative to a market value appraisal, not “a price opinion”. There is no proof source other than “because it conforms to zoning the highest and best use is as is”.
• The certification refers to “approaches to value” and states they are used “when appraising….”
• The words value opinion appear three (3) times the word value appears six (6) times the words appraisal report appears three (3) times, and the word appraisal appears (1) once.
• Adjustments to the sales are made and explained in the narrative as if the report were an appraisal.
• The use is stated for a lending transaction: the use was not for lending but to determine value to list and sell the home.
• The Scope of Work mirrors the scope of a desktop appraisal and the scope contains a section stating the “the appraiser relied on data provided by a qualified professional surveyor”…which would be considered significant professional assistance. The certification in the report states” A “qualified professional property surveyor” (AKA uncle Jim with his Canon powershot) not a real property appraiser) provided the appraiser with a “complete” description of the subject (including its improvement(s), site, and surrounding area) to assist in providing relevant geographic market data, conditions and insight. Other than this observational assistance, no significant real property appraisal assistance was provided to the person signing this certification. The Comment to SR 2-3 states “Comment: The names of individuals providing significant real property appraisal assistance who do not sign a certification must be stated in the certification. It is not required that the description of their assistance be contained in the certification, but disclosure of their assistance is required in accordance with Standards Rule 2-2(a), (b), or (c)(vii), as applicable. Is the word surveyor accurate?

The overall contradictions in this assignment lead one to believe that 1) the appraiser is not competent to complete a price opinion because they do not understand the difference between value and price (Competency is required for ALL VALUATION SERVICES) 2) the appraiser is not competent to complete an appraisal if they label the reporting format in two different ways AND fail to provide the appropriate disclosures on the Restricted Use Appraisal Report. This result confuses the user and harms the public.

I am all for finding ways to cut costs and streamline….I get it. I am also a realist and I understand the pressures the appraisers are under. Here is the thing: this appraiser ended up doing an “appraisal” like it or not at one third the cost of the “other kind” of appraisal they may do on a different day…..in effect creating a market and an expectation that the Holy Grail exists and at a much cheaper cost than we all thought.

I am dazed and confused as to why the world wants to reinvent the wheel (appraisal) in light of the recent economic crisis related to real estate. We have reduced scope appraisals on minimum written formats but we have to consider the uses of these types of services and educate those that seek cheaper, better, faster. I am more dazed and confused why an appraiser would take on this assignment and give away the store. Maybe it is a going out of business sale……………..

Tags: Joe Palumbo, Palumbo on USPAP

3 Comments

Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller

2010-2011 USPAP changes: the need for transparency: it’s for your protection.

Over the past  2 years the “new world” has warranted many changes in the development and reporting of a value opinion:  clarity, specificity, accuracy….among other things.

In 2010-2011 add  “enhanced transparency “.  Like everything else in life that might seem painful at first, but is good in the end, this is the same premise here:  “it’s for your own good”.

Before we get to the “why” of this Ethics Rule change let’s take a summarize look at the other changes from the 2010-2011  issue of USPAP: 

• Definition of “Signature
• Definition of “Jurisdictional Exception
• Definition of “Assignment
• The ETHICS RULE
• The COMPETENCY RULE
• The JURISDICTIONAL EXCEPTION RULE
• STANDARD 3, Appraisal Review, Development and Reporting

Definitions changes are usually the result of the need for additional clarity as a result of words being misused or misunderstood.  In the real estate community, the use of words with presumed meaning, improper or not, is pervasive. Remember the Board only defines words that have different meaning than they do in the standard English dictionary.   The changes to the definitions in the 2010-2011 USPAP are straight forward:  the comment under the definition of “signature” was deleted and new language was relocated to the Ethics Rule, whereby the responsibility of managing one’s signature is discussed (even allowing someone else to sign for you).  The definition of “assignment” was enhanced to specify that it means both the agreement to provide…… and the service itself.  “Jurisdictional Exception” was redefined to reflect that parts of USPAP may be voided when the law or regulation  precludes compliance rather than the law being seen as “contrary” to USPAP.   As such, the JER was re-written in a clear concise way including 4 specific exhortations required by the appraiser when invoking the JER.  This “four-point requirement”  forces one to not only know the law or regulation but cite then and then examine and report the specifics of what  part of USPAP that needs to be voided.  The change to the JER is well done and makes what was a complicated issue, very clear and straight-forward.   The Competency  Rule was rewritten and divided into three sections: being competent, acquiring competency, and lacking competency.   Basically, Competency can be can still be obtained during and assignment, providing the PRIOR disclosure was made to the client as well as the written steps taken to become competent are contained  in the report.   Standard 3,  one of two standards that contain development AND reporting wrapped in one, was expanded and rewritten to meet the practical needs of current practices. Specifically Standard 3 was  expanded to discuss the development and reporting where the reviewer is providing alternate value conclusions including the reporting requirements, including discussion of competence, diligence and scope of work.    

Last but not least, there is a change to the Ethics Rule (as written in the 2010-2011 USPAP)  

If known prior to accepting an assignment, and/or if discovered at any time during the assignment,  an appraiser must disclose to the client, and in the subsequent report certification:

any current or prospective interest in the subject property or parties involved; and

any services regarding the subject property performed by the appraiser within the three year period immediately preceding acceptance of the assignment, as an appraiser or in any other capacity.

Comment: Disclosing the fact that the appraiser has previously appraised the property is permitted  except in the case when an appraiser has agreed with the client to keep the mere occurrence of a  prior assignment confidential. If an appraiser has agreed with a client not to disclose that he or she  has appraised a property, the appraiser must decline all subsequent assignments that fall within the  three year period.

At first glance, this would seem overly intrusive and overkill.  There are certainly arguments for and against it, like any changes. A change like this  is best viewed in the context of today’s real estate world.  A world in which fraud, bias and conflict of interest have become the “flavor of the day”.  And like any change there are always several questions.  This time there were so many questions that the Board created and devoted an entire  Q & A to respond.  This Q and A (April 2009) is also included in the 2010-2011 USPAP Student Manual…a first for the Foundation to include a Q & A in student material.   Rather than address those here, one would greatly benefit from the download of the Q &  A.   I feel it is best to dig a little deeper here.  Note the careful wording by the board… “or in any capacity”…which could mean…that you cleaned the windows…or cut the lawn or even painted the improvements.  While none of these things constitutes “valuation”, they do imply a relationship, or knowledge of the property….and indication that you knew “something”.   Question is how much and will there be another service down the road?  Sometimes the mere perception of a conflict or bias is enough to give one reason to doubt that the appraiser can be objective, independent and impartial.  Until 2010 year it was not a requirement to notify a potential client that the appraiser had a current or prospective interest in the property or parties involved, but it  was a requirement  to indicate that in the certification AFTER the assignment was delivered.  It seems that where there was no mechanism to ensure transparency and objectivity, there is no a sure definitive way to say to a potential client:  “I have been involved with the property…in the following manner_______ and I feel I can be objective in solving the appraisal problem you seek a solution for”.  “I just need you to know up front” .  Of course this could lead those paranoid clients to engage another appraiser, but if not the appraiser will be on record should something strange arise in the future.  Either way, this is the new world and disclosure like this is in-line with all the written disclaimers I see flying around in the appraisal world.     

So as you digest these changes and there are more ( we have just reviewed the major ones here)  think about all those things in life that you felt where, unfair, wrong or just plain nonsense. Think about how many of them later in life turned out to be for your own good.   

Happy New (transparency) Year

Tags: Joe Palumbo, Palumbo on USPAP

1 Comment

Guest Appraiser Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions here. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller

I received a call the other day from an appraiser who had recently completed an appraisal for my organization. The file had gone through “review” and there were no “hitches”. The appraiser was calling only to ask me some questions about my “suggestions” regarding some of the redundant and unnecessary commentary in the report, including some technically incorrect labeling. He was very polite in seeking some guidance, and we chatted for 25 minutes or so. I said “if time is money, I think I can save you some”. He was eager to engage me in this discussion, probably because it had nothing to do with the appraisal he submitted but more because he said he was always looking to streamline the process to be more productive. He recognized my name from both working with us in the past as well as from an article I had written this year for an industry magazine so he was aware of the potential for me to quote USPAP which, of course, I will ONLY do if absolutely necessary. Anyway, I started to tell him about the aggregate changes that have taken place over the several years and some of the retired terms and concepts. His reply was “gee I get so bored in that USPAP class it is hard to absorb anything”. “Yes”. I said, “I understand”. “ Imagine how difficult it is for me to present what has a reputation for being boring”. “too many changes” he said…”I cannot keep up”. Again I said, “I understand”.

Imagine what I go through…. It’s mandatory for me to understand that stuff; being bored is not an option when you are a speaker or instructor ”. “Let me give you some tips” I said: “ USPAP changes every two years and those changes will always effective occur at the beginning (January) of the third year”. “The reason for the changes are because appraisers and users of appraisal services ask questions, raise new issues, revisit old issues under new circumstances or because the Standards Board observes something as not applicable, no longer meaningful or something new as pertinent and topical”. USPAP is a working document an evolutionary doctrine that will change with the needs of the business. All you need to do is pick up a few past issues and look inside. Hindsight will really be 20/20 because looking backwards will reveal what was needed most of the time. Along the way the ASB will provide public exposure drafts (with specific rationale) and obtain public comment. Once changes are decided the summary of changes will be made available a few months prior to implementation and when the new edition is published there are a few pages dedicated to what the changes are. Other professions have to deal with similar issues as it relates to CE, changes in laws or regulations. While too much change can be cited as confusing and time consuming it is arguable that not changing at all can be considered detrimental. One cannot argue that today’s issues are different than those from five or ten years ago. Change is a scary word for most people and that is part of the challenge.

Let’s be fair here, being bored in the classroom is not exclusive to USPAP. I took some pretty boring classes myself during the past 43 years: college courses, appraisal courses, on-line courses. “Boring” can also be an instructor attribute and one can suffer through some tough classes even if the material commends excitement. I remember my Economics class at the University of Maryland… 8 AM or something…with 100 or so students. Boring stuff for an 18 year old but I had a great animated instructor who did his best to make the supply curve interesting. I am glad he did because despite my boredom, I did learn something…and I did not have to sit in the front row and take 10 pages of notes each class. I also had history teacher in high school, who despite being boring herself, DID manage to successfully explain the nuts and bolts of the Confederacy. What’s not boring? It really boils down what you absorb and IF you want to pay attention. In today’s world we go to the movies with IPODS in our ears and we text while we watch. I see the same in classes: newspapers, laptops and magazines. It seems as if we set ourselves up for minimum absorption capabilities.

Getting back to my appraiser friend from the other day. He was very appreciative that we were able to trim his “canned” addendum from 2.5 pages to 1 page. We eliminated terms from his report that are no longer considered up to date or not accurate (limited appraisal, Departure Provision/Rule) and crafted an appropriate “2009” type reconciliation. “WOW”, “I guess really need to pay a little attention because I missed all this stuff! “Yes”, I said “but imagine what you could absorb if you wanted to.”

Tags: Joe Palumbo, Absorption, Palumbo on USPAP

1 Comment

Guest Appraiser Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions here. View his earlier handiwork on Soapbox and his published article in the Employee Relocation Council’s Mobility Magazine.
…Jonathan Miller

There are many debatable topics in the appraisal world and within USPAP. There is one that is not really a USPAP issue but an issue of law….though it does draw some parallels in that some “interpret” things differently. To me there is only one correct interpretation which boils down to common sense. This time around I thought I would step outside of USPAP issue and a practical specific relationship to a valuation assignment and talk about something that has been “bugging me” over the past several years. I was reminded of this issue after reviewing the Appraisal Standards Board Q and A for Feb 2009. I can also recall debating this issue with a former supervisor of mine, who while extremely intelligent and knowledgeable in appraisal and (other matters) seemed to take the find any crevice in order to disagree with me. It got me so hot that I got a friend of mine (now unfortunately and untimely deceased) on the NJ State RE Appraisal Board to write me an e-mail explaining how my “view” was correct in fact and law…which I sent to multiple parties who “disagreed” with my view and the topic was never discussed again. Here is the issue as taken from the Q and A:

Must a Review Appraiser be licensed or certified in the state jurisdiction where the subject property is located?

Question:

Does a review appraiser have to be licensed or certified in the state where the subject property is located?

Response:

Appraiser credentialing requirements are not covered by USPAP. However, since this question is often asked, we have provided the following response from the Appraisal Subcommittee (ASC):

“Included in ASC Policy Statement 5 is the ASC’s position on when an out-of-state review appraiser must obtain a credential for purposes of performing a technical review. The ASC has concluded that for federally related transactions, so long as the review appraiser does not perform the technical review in the state within which the property is located, and so long as the review appraiser is certified or licensed by another state, that appraiser need not be registered for temporary practice or otherwise credentialed by the state agency where the subject property is located. With that said, state law may be more restrictive than federal law and may require a temporary practice permit or other credential. It is therefore imperative to consult with the state where the property is located.”

(ASC Policy Statements may be downloaded)

It is important to point out here that the “problem” I have is with a technical review that INCLUDES as part of the scope an alternate value conclusion (= APPRAISAL) even concurrence and NOT the Standard 3 Qualitative Review.

I’ll use the info from my friend at the NJ State Board to elaborate on this using NJ as an example. NJ is mandatory state which also requires a temporary practice permit should anyone with an out of state who wants to “appraise” a property. Simply put you need a NJ APPRAISAL LICENSE OR TEMPORARY PERMIT to appraise a property here. If you are a realtor, asset manager, outsource company, AMC, and you are “reconciling VALUES” between appraisals on NJ properties YOU NEED the specific permission granted under NJ LAW. If you want to do the qualitative Standard 3 review WITHOUT a value conclusion as stated above, that is acceptable. This restriction on “appraisals” would logically extend in any states that require practice permits. I fail to see how this can be interpreted any other way yet it does all the time. Ask yourself why the states would go through the legal process of protecting consumers and then allow someone that is (legally) unqualified to value a property? It flies in the face of why licensing came about. As an example, If a Pennsylvania appraiser without a temporary practice permit does a review with an alternate value conclusion on a NJ property and the valuation is flawed loans are made based on the valuation and things fall apart; whose economy is affected? Certainly this burdens NJ more than PA? What is the difference between getting in a car driving across a state line inspecting, measuring, photographing, conducting a quality and condition survey and rendering a value opinion OR rendering a value opinion from the desk after reviewing someone else’s report? Other than a difference in scope THERE IS NO DIFFERENCE, both are appraisals. And just to be clear I am not saying that you cannot be geographically competent because you can be….. but there is a technicality in that in the license MAY be required first. The problem is that this scenario presents a very difficult enforcement task from a timing perspective. Even further, this situation is taking place all over the country with major lending institutions who see the mandated use of a state-asset-specific appraiser to be a (costly) inconvenience. Hence we are left with the truth about how unenforceable the “e-review” is from a realistic perspective. The last thing any state board has is the resources to police cross-border electronic appraisals. ( the state would have to issue the cease and desist). The only real policing is for those in the industry to recognize the issues here and do a bit of self policing and refuse the review or for the banks to set up staffing and appraiser panels to comply. I worked at a large bank that did just that and I will not deny that it was very challenging economically and from a staff efficiency point of view. It was however the right thing to do for consumer the bank and the licensed staff. Current economics have made that more difficult but not IMPOSSIBLE.

The ASC does imply some driver’s license logic above; one must have a driver’s license to drive and that simple qualification extends the license to do so in any other state without additional requirements. That is where an appraisal license and a drivers license differ: An appraiser MAY have to have a specific license rather than just “any license” whereby automatic temporary practice is granted for driving from here to California. While some states do grant reciprocity most require the application and (fee of course) so there may be a state or two with “automatic driver’s license” reciprocity but based on my research they are a very small minority.

I have also heard the argument that the law only applies to those who ARE licensed and that the layperson can do anything….because the laws and subsequent restrictions only apply to those licensed. This was a statement made to me by the President of a AMC who was trying to justify the use of “non-licensed specialists” to reconcile appraisals via review with alternate conclusions. This is the most ridiculous thing I have ever heard which brings me back to the driver’s license analogy: Do the laws apply just to the licensed drivers? No unlicensed drivers can cited as well.

Defending your position based on what you have to gain is nothing new for business. At least in the case of major lenders using out of state appraisers they have “a” license. I guess they believe in half truths or bending laws unlike those who practice valuation with indifference altogether. They probably have their share of motor vehicle moving violations The amount of hypocrisy in this industry never ceases to amaze me.

Tags: Joe Palumbo, Appraisal Management Companies, AMC, Palumbo on USPAP, NAR, National Association of Realtors

3 Comments

Guest Appraiser Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions here. View his earlier handiwork on Soapbox and his just published article in the Employee Relocation Council’s Mobility Magazine.
…Jonathan Miller

It’s been a good year so far. I have to say “hats off” to all the appraisers I work with from Maine to Oregon. In the relocation business the litmus test for quality valuations is ultimate sale price VS the appraised value as nearly every home appraised will be exposed and sold under a normal market scenario. The typical industry standard and tolerance of such comparison is 5% between the Sale Price and The Appraisal Value. A recent 1st QTR review of accuracy across the client base has me feeling better then the media has me believing I should. This achievement is especially satisfying in what continues to be challenging market. It was Yogi Berra who said…… “predicting is difficult…..especially when it involves the future”.

So while you have my sincere thanks for a job well done..as a user of appraisal services..I (appropriately) have yet another request. Not to worry…this request does not involve additional comps, adjustments to listings… addendums, or more data. Simply put: I just need to know what you are “thinking”. When I started in the appraisal business in 1986 I asked one of the appraisers who was training me at that time, “where do all these neighborhood comments come from”? “They all seem to be the same”? “What does all sales considered mean?” Enter the “canned comment” . Canned comments can actually be used quite effectively when a micro level of specificity is applied. Many appraisers have a library of canned comments for neighborhoods, scope of work, appraisal process and other areas of often repeated …”non value add” areas of the appraisal. If you really think about it the most important part of an appraisal…the “signed certification” or even the “limiting conditions” are the biggest culprits when it comes to “canned language”. So…. you get the point…and I hope you do..that canned comments are OK by me and there are as they say ‘’far worse things are going on in the industry for that matter. There is one area though that I have to say “enough is enough”…and no “canned will do”.. This area is the Reconciliation: (see 2008-2009 USPAP) Standards Rule 1-6 In developing a real property appraisal, an appraiser must: (a) reconcile the quality and quantity of data available and analyzed within the approaches used; and(b) reconcile the applicability and relevance of the approaches, methods and techniques used to arrive at the value conclusion(s)

The ASB takes a lot of heat (as do the instructors) with regard to abstract, meaningless and or confusing Standards. Issues of interpretation…while are a much better level with the current USPAP, will always exist. I can’t say that that is the case with SR-1-6 and frankly I marvel at its straight-forwardness and simplicity yet I constantly see even a “good appraisal” lack a good reconciliation. My issue lies in part SR-1-6 (a) since (b) is nothing more than a recital of which approaches were used or not used. What I mean is this: after you take me through the market and show me the “story” that each appraisal presents, the final value and how you got there in terms of the quality and quantity of the data is essential in my defense of your valuation. Many of the valuation appeals that I see center around the question…… “Why $xxx,xxx for my home and not $yyy,yyy”. For me the answer can be very simple. Within any range of value there are certain strengths and weaknesses beyond net and gross adjustments and distance and sale date of comparables. This is where your thinking plays large role in having the user understand your though process. Sadly “all sales were considered”…the often used canned reconciliation of the go-go days of the 90’s will not cut it these days. How were the sales weighted? What other factors were considered? How do they rate in terms of comparability? Were there any unverifiable pieces of information or inconsistencies that deemed an apparently good sale not so good? These are a few things I would ask myself in defending my value.

In 2003 the Appraisal Standards Board addressed the “reconciliation issue” by moving the requirement to reconcile from the lonely location of SR-1-5 (c) to a its own standard in what we have now as SR-1-6, dedicated specifically to topic of quality and quantity of data and suitability of the approaches. The ASB cited the rationale for this change in 2003 to ..“clearly demonstrate the reconciliation is a separate component of the appraisal process rather than a function of the sales history”. In my opinion this rationale validates the thought that the appraisal process is best ended with a clear understanding of not only the process but the conclusion and the result of that process. As a separate component the ideal reconciliation would leave the reader with a clear understanding of why the value opinion has landed where it has. Given the level of subjectivity in the entire appraisal process and the reconciliation as well, there may be disagreement but having the “why” could resolve part of that issue and a quick specific commentary is all it takes. Remember standards are minimum requirements not options.

Let’s put the canned comments of years past behind us….as these are different times altogether. Again it was also Yogi Berra who said….the future isn’t what it used to be.

Tags: Joe Palumbo, Palumbo on USPAP

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Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions on Soapbox.
…Jonathan Miller

If there is one thing that is NOT debatable about USPAP, it is that everyone knows (and agrees) that sales that occur 3 years or less from the effective date of the appraisal need some “attention and addressing”. That is the easy part. Now for the hard part: SR 1-5 (b) indicates that such sales need to be “analyzed”. At a minimum, that translates to “making sense out of the prior sale with whatever information is available in the normal course of business” and beyond if you seek a higher standard of quality.

Analyze like many other words used in USPAP is not defined but is taken as the “normally used context in the English language. ANALYZE: to study or determine the nature and relationship of the parts of by analysis. synonyms analyze, dissect, break down mean to divide a complex whole into its parts or elements. analyze suggests separating or distinguishing the component parts of something (as a substance, a process, a situation) so as to discover its true nature or inner relationships. dissect suggests a searching analysis by laying bare parts or pieces for individual scrutiny . break down implies a reducing to simpler parts or divisions . analyze. (2009). In Merriam-Webster Online Dictionary. Retrieved February 5, 2009

I realize appraisers are always under the gun when it comes to the search for critical info. Sometimes information conflicts with fact, is available in bits and pieces, does not make sense, is sometimes wrong, and sometimes even raises more questions.

When all is said and EVEN beyond the course of normal business when extra efforts are made there is very little to be found. In those cases where a effort has been made, narrative commentary would likely suffice for the reader to ensure the report contains sufficient information (2-2 ( b)) for the users to understand the report.

Problem is most times appraisers do a great job of STATING sale prices and dates and doing little if anything to “dissect” these sales (if the do, they do not tell me in the report).

There is a whole advisory opinion (AO-1) on what the language can be used as it relates to the normal course of business and prior sale information. In keeping with my previous articles mantra (thou shall not be boring), I will not recite the AO or even aggregate. Maybe there is nothing to say on a prior sale maybe there is? In today’s environment one would be prudent to investigate concessions (they are giving away vacations and 4-wheelers with homes these days people). Some sales have limited exposure to the market and may not be arm’s length some sales take MONTHS to close and some are not even in line with “market prices” (my wife to me for $1).

Here is the point: an appraisal is like a story and the reader (often a client) is seeking to connect the dots. In relocation appraisal both past and future price trends are part of the analysis; in a market value (mortgage appraisal) the historical trend is inherent in the (dated) sales if they exist. When you present your conclusion, and the analysis unfolds, there should be some consistency with the market trends, or the story you told. If Mr. X paid $100,000 10 months ago and you have indicated the market has been stable for the past 12 months and conclude $80,000 I need to understand more about that $100,000to make a business decision. And by the way.NO, I am not asking for two appraisals (someone accused me of that once) just the info THIS one is supposed to have. Sadly the last discussion I had that spurned this blog article (we get two appraisals on every file) went this way. Client: “Hi Mr. Appraiser #1 & Appraiser #2 , I see in your report the subject sold 2 years ago. You have stated the price and sale date (thank you) but have not analyzed that sale”. Appraiser #1 response: “I can not comment on value without doing an appraisal per USPAP”. Appraiser #2 response: “I did not do the appraisal on the home 2 years ago so I can not comment”. Just for the record, these appraisals were “ok sans this issue” and the appraisers are long-time partners that we have worked successfully with for several years, so please refrain from the “your using the wrong guys” thought. This problem is PERVASIVE in the appraisal industry. I have personally experienced this dozens of times.

Here is the wrap. This home sold new 2 years ago and was the builder’s last model prior to a subsequent price decline for such model. It contracted and closed new in less than one month and included a laundry list of “extras” that increased the purchase price substantially. The sale included a concession and a copy of the (major lender’s) appraisal the we received (later) once the owner screamed of his “recent purchase” revealed no way was the sale price market at that time (all 3-bedroom comps, 1-bedroom home). That’s a whole other story but isn’t that how we got here?? Now the appraisers would not have the appraisal but my simple research from 1000 miles away got me the other information. Second disclaimer: 3-year sale analysis is ONLY a requirement for Market Value Appraisals and a relocation appraisal is not market value. Still though, the report did not contain sufficient information (2-2 (b)) and the prior sale issue is just plain common sense and a prudent practice in all appraisals.

So again I askhelp out an old friend, leave the macro paragraph about the future uncertainty of the bailout, economy and the stimulus effect (blah, blah, blah) out and give me a few sentences on that prior sale..just a few quality sentences..please?

Tags: Joe Palumbo, Soapbox Blog, USPAP, Palumbo on USPAP

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Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions on Soapbox.
…Jonathan Miller

I doubt anyone is really thinking about USPAP right now but it is near that time again. Many see USPAP as an impediment and while I understand that sentiment, I disagree and see it as “knowledge is power” issue. It seems to me the USPAP clock ticks a bit faster than the average wall clock. I likely feel this way due to the fact that it takes me weeks to go through the new materials with my highlighter, red pen, margin comments and post-it notes. After 16-18 months and several classes my crumpled “finalized” USPAP is close to becoming obsolete even with few pending changes, as the pages numbers alone are SURE to change. I imagine this becomes magnified for those not using the doctrine in the manner I do.

In December of 2007, the Appraisal Standards Board requested comments from users of appraisal services, appraisers, regulators, educators and others how USPAP can be improved for better understanding, in both the short and long term. Nearly 2,000 responses have germinated in to the current draft for some changes to the 2010-2011 USPAP. Anyone wishing to make comment on the draft must do so by 1/16/09. More information is available at www.appraisalfoundation.org. The ASB does a nice job of summarizing the proposed changes using a “strikeout” method for text deletions, underline for new text as well as a rationale for each change. And once the new version is published for those who like cliff notes, the new USPAP docs always contain a general summary of changes in the front.so as to give a running head start on what has changed from the last edition.

After the huge changes we experienced a few years back with the removal of the Departure Rule and last years deletion of the Supplemental Standards Rule, I would categorize this year’s changes as “tepid” in comparison to previous years but important. The major categories are of change are noted below:

• Definition of Signature
• Definition of Jurisdictional Exception and the JURISDICTIONAL EXCEPTION RULE
• The ETHICS RULE
• The COMPETENCY RULE
• STANDARD 3, Appraisal Review, Development and Reporting

In the interest of time (and boredom) since no one wants to read about USPAP much less sit through a class, I will not interpret or comment on these changes with the exception of Standard 3, the one I provided comments on back I December. Briefly also of note in this draft are amendments to the Competency Rule including the explicit labeling of “being competent” and “acquiring competency” as well the timing if these two “states” as prior to “agreeing to perform” rather than prior to accepting the assignment, which if you really think about it is subtle but important timing issue in “preserving the public trust”, which is the goal of USPAP.

The crux of the Standard 3 issue surround the issues of development VS reporting requirements and in the words of the Board:

“Revisions are proposed to organize and clarify the requirements that apply to a reviewer providing his or her own opinion of value, review opinion, or consulting conclusion related to the work that is the subject of the appraisal review assignment”.

While there are some much need clarifications and improved language here I still feel the “Appraisal Review” is a misunderstood product/process for those users of appraisal services. Simply put, the current and proposed definitions of an “appraisal review” speak to the QUALITY of another appraiser’s work. While the Standard does allow for a revised scope or dual Scope, to produce a alternate value conclusion the “shelf product” here is NOT a value opinion. In my experiences in the lending world, relocation, private practice and now USPAP and other real-estate related instruction the majority of requests are NOT for a “true” qualitative reviews, and when those requests were made they were only met later with a stark question, “what about the value?” It is all about education but I will be darned if that burden should pressed on the appraisers as it is some of the time. Explaining Scope of Work and the effort and (liability) involved is not a discussion to be had in the trenches of daily business. I can honestly say that I copied and pasted Standard 3 as it exists or as revised it would be clearly understood. The term “appraisal review”, much like “recertification of value” have evolved over the years to mean certain things with certain expectations and that presents problems. We need simple “direct reference able” language and concepts.

Generally I feel the ASB has done a good job of late, refining and trimming USPAP. Here I think they need a simple but drastic change: Let’s create a new Standard RULE say 3-1 (and bump the rest down) for the “Qualitative Review” which basically becomes and “appraisal assessment”. This service would NEVER EVER, EVER, have an alternate opinion. That would allow one to clean up/restructure the rest of Standard 3 to be specifically designed and directed at the development and reporting aspects of the review with the alternate conclusion. Users would immediately see the language of the assessment WITH the (my) proposed wording

“an appraisal assessment never contains an alternate value conclusion.users seeking a product of that type should seek an “appraisal review”.(see Standard 3-2).

So..now’s your chance.to comment, help out an old friend or suggest something of your own: remember USPAP is yours not theirs.

Be heardtick tick.. tick.

Tags: Joe Palumbo, Soapbox Blog, USPAP, Palumbo on USPAP

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Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP].

…Jonathan Miller

Although I am supposed to be managing a process, it is quite often that I “get my hands dirty” and dive in.

Reviewing appraisals and conversing with appraisers keeps me close to the issues of the market as well as helping me get a handle on the realities and challenges of dealing with a nationwide professional vendor panel. Most of the time this is a pleasure and very reassuring: I get to observe new markets, some of which are NOT declining, yes that is correct, not a typo, and I also have discussions with highly skilled appraisers who enlighten me on their markets via articulate thorough (appraisal) analysis so my risk is mitigated as best it can be. To those TRUE business partners I say thanks and I look forward to the next challenge for us to work on TOGETHER.

Unfortunately, like always here are some bad apples. Those who accept appraisal assignments with a sense of entitlement, who also tend to fail miserably in communicating let alone solve the appraisal problem. And just so we are clear here we are NOT talking about questioning someone’s “value”. In the relocation business it is standard protocol to obtain two or three appraisals and then query each appraiser based on what was observed as it relates to facts about the subject, market conditions, trends, common comparables used etc. The summary of responses is recorded so that the “intended user”, an employing corporation, can (try) to make sense of this highly subjective process. A lot of the questions we (in-house staff) ask we already know the answers to and how they impact the analysis (if at all) but we ask anyway so the client and employee can gain some reassurances on some real estate related misconceptions and such. We are not a management company and we pay market fees and allow for ample completion time. All we ask in return is thorough credible appraisals in a timely manner and endurance of the back-end process.

The specifics of my “bad experience” involve my query of an appraiser’s room count as it related to what was reported by the two others. Seems this gentleman included both an above ground laundry and utility room as part of the “room count”, where HIS local peers did not. Item of note here is the both realtors did NOT exaggerate the room count via this method of counting. When I pointed that out and merely suggested that he “clarify, explain why, or possibly modify his room count”, I was met with a terse one line response “per USPAP to change the room that would be misleading”. The terse response to that one question was followed by a petulant response to the several other items noted in contrast to the other reports. Since this is not my first day on the job, nor the first such role I have had as a manager of the appraisal process, I promptly finalized the summary of my findings internally so as to “pull up the anchor” and move on. CLEARLY this is not even a USPAP issue.so I figured I would have some fun with this guy. This kind of response to this kind of issue makes me wonder what some people are thinking and why there is such a sense of entitlement. I wrote back: “thank you sir for your response, I appreciate it. No worries on the room count issue, but I just want to clarify one thing: Acting unprofessional and petulant and providing a response like this the worse USPAP crime going: YOU”RE MISLEADING ME into thinking you belong in the appraisal profession!! Maybe you have done the best appraisal I will ever read, and the valuation conclusion is rock-solid but that gets lost in dialogues like this”.

Don’t get me wrong, I know everyone has a bad day every now and then. Unfortunately unlike my last appraisal management gig where fee panels can cover 90% of the (pre-determined) lending area, I have no idea where the next “move” will be. We qualify and engage within a small window and trust tremendously in those we engage. 2008 has revealed this type of response and attitude more than one would like to see. I get it: is very tough out there right now. Just remember no matter what business you are in that angry and unprofessional does not work. Angry sends a message beyond what you think and begs the question of empathy VS apathy. Also. when you quote USPAP be carefulthere may be a hidden meaning to what you quote.

Tags: Joe Palumbo, Soapbox Blog, USPAP, Palumbo on USPAP

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Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP].

This week Joe recalls his time at WAMU. It looks like the stock price could use a wing or two. …Jonathan Miller

October 6th 2006 was my last day as a First Vice President and NE area Manager at Washington Mutual. It was bitter sweet, having attained what I desired all my professional life: a high visibility, well respected position in a major company where I could be an appraiser and a manager all in one. With the help of my staff we managed appraisers both in house and on our vendor list. We had proven efficiencies with regard to cost of service, turn around and quality. We were appraisers talking with appraisers, solving problems, getting the business done while never compromising our standards or ethics. We had the numbers to prove it and the plan “b” solution as well if “cuts” needed to be made. No one was listening, minds were made up.

Still, the bank had grown very fat over the “boom years” and the efficiencies got lost in the fact that we “cost too much”, especially since mortgage volume was way down. Hey what do you do when it stops raining? Yeathrow out your umbrella? The solution was supposed to be simple: replace 323 staff appraisers including management with two large behemoth outsource companies (that take a slice of the action on the APPRAISER Side, while charging the lender even MORE than typical). Why not? Appraisals are all the same, appraisers are all the same and as long as you can get someone to sign the form you can make a loan. Who needs management of appraisals?

Well well, now the bank is in the headlines for collusion with the very business partners that were supposed to save the day. Something about “things wrong with these values: fix it or no more work” per the New York Attorney General. As a result there were “inflated appraisals”.

Some of the appraisals I saw from the Appraisal Management Companies were a far cry from inflated but rather conservative. What happened on October 7th to change all that? Nothing. What did happen was that Washington Mutual decided to remove an integral communication piece within the banking operation that made sense out of these “value” things and replaced it with a “message service”. The AMC “clerk” leaves the appraiser a “message”: “The bank does not like the value.please call us back”. No translation of information or discussion on the complexity of the issue.

Today as I see the WAMU stock price I can not be so naïve as to think it is ALL attributable to the demise of the in-house appraisal department. I do think that there are some things in business that you can not try to “wing”.

Like my friend, (also an appraisal manager for 17 years there) at a major national lender says. those in the ivory tower sure know the cost of everything..and the VALUE of nothing.

Tags: Joe Palumbo, Appraisal Management Companies, Soapbox Blog, Appraisal Pressure, Appraisal Process, USPAP, Palumbo on USPAP

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Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice.

This week Joe has high hopes for USPAP 2008. Let us sit vigil …Jonathan Miller

As a AQB certified instructor and a user of appraisal services over the past 10 years I hope 2008 will be the year of the “know”, rather than the year of the “no”.

What I mean here is that those mundane, boring things we call Standards and the Ethics Rule which governs conduct, can in fact be tools of empowerment. Those days of restrictive, cumbersome requirements are all but gone. The days of multiple areas of ambiguity are gone: no more Departure Rule, no more “limited or complete” labels, no more confusion on which approaches must be included or considered, no more muddy waters on the “appraisal update” issue the “re-appraisal” or the “re-addressal” issue. In 2008 it gets even better as the Supplemental Standards Rule and definition get deleted, and the responsibility that existed there is now part of the Competency of the appraiser.

The problem is that most times as a Client seeking that a “problem” be solved I hear too often from the practitioners

“NO” we can’t do that, “NO”, we have abide by USPAP, “NO” we can not do those things, “NO” our State laws prohibit that practice.

Someone at my local State Board said to me, “a license is something that permits you to do something”. All I am asking here folks is that before we say “NO” that we say..maybe I can help you. Do some research, recall what was said in that boring 7-hour class that cost you so much, write to the ASB to that wonderful and informative group we have there, call your local USPAP instructor, go on-line anything you can so that you can sayI KNOW I can help you rather than the “NO” we do not want your business.

I can assure that I will find the appraisers who do such research, because if I can’t than those that hire me to hire you will altogether find someone else

hint hint- and that may not even be an appraiser.

Tags: Joe Palumbo, Soapbox Blog, USPAP, Palumbo on USPAP

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