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Posts Tagged ‘Musings Of An Appraiser’

[Musings Of An Appraiser] Disputing An Appraisal

September 6, 2008 | 9:59 pm |

Adam Johnston, SRA, is a long time appraisal veteran, and currently a chief appraiser for a national real estate settlement services company (and a longtime fan of Soapbox). On a daily basis, he speaks with appraisers and lenders across the country having observed the rise and fall of the sub-prime lending market. I am glad to have him share his views with us …Jonathan Miller

There has been some recent discussion regarding the process of disputing an appraisal. As expected, this topic tends to illicit passionate responses.

As a profession, we like to believe that appraisers opinions are formed from a rigorous examination of the market and a boundless understanding of market forces and dynamics. We believe that people should unequivocally respect an appraiser’s opinions. Unfortunately, some appraisers believe that such respect is demonstrated by insulating appraisers from critical questioning or examination. These same appraisers tend to believe that questions pertaining to the accuracy of the value opinion or report content are tantamount to an attack on the appraisers integrity and aptitude. Any such questions are met with moral objection and are viewed as insipid and inherently sinister.

To start, I believe that an appraiser must render appraisal services as a unbiased professional, without advocacy or favor. An appraiser, much like in scientific discovery, must seek the truth from the data. To this end, I believe that the appraiser should independently gather and examine data without the injection of influence during the development of the appraisal. Some entities and organizations offer a codified venue for ostensibly biased individuals, including borrowers and real estate agents, to submit uninvited data to the appraiser during the development process. By doing this, I believe that these entities and organizations are potentially facilitating the co-opting of the appraiser into a suggested outcome. In contrast to this practice, I believe that all petitions and value reconsiderations should be prohibited until the appraisal report has been completed and delivered.
In this way, we engage a process where the appraiser’s opinions and conclusions are based upon an independent data gathering process, unaffected by the uninvited supplications of others.

However, once the appraisal report has been completed and delivered, I fully support a restrained process by which individuals may entreaty the appraiser to consider alternative data and arguments. This would encompass both value reconsiderations and disputes related to any other elements of the appraisal report or development process. I recognize, as should every reasonable professional, that perfection is elusive.
Additionally, maturity teaches us to consider the opinions of others, regardless of how objectionable they may seem. It is my opinion that a prudent and professional appraiser, while acting within the bounds of a proper appraiser-client relationship, should be willing to consider argumentative data and probable conjecture, regardless from whom it originates.

Please understand that I am not suggesting that an appraiser be compelled to consider an endless stream of data and arguments without just compensation. However, because compensation is a matter of business negotiation and therefore subject-to the savvy and preferences of each appraiser, it must be neutralized for this discussion. In an ideal scenario, all value reconsiderations and supplemental data should be screened prior to submission to the appraiser by persons having sufficient appraisal knowledge and training. This method will reduce the incidence of irrelevant and non-persuasive data reaching the appraiser. In addition, threatening or objectionable matter could be censured. I am firmly opposed to commissioned or quota based mortgage salespersons directly interacting with appraisers. In addition, I question the wisdom of empowering anyone with negligible formal appraisal training to interpret, screen or supply data and value appeals directly to the appraiser. Although it may involve additional cost, I submit that regulated mortgage lenders should be expected to employ licensed/certified appraisers to manage post-delivery value reconsiderations and dissenting arguments. Anything less constitutes an unacceptable sacrifice of lending prudence, often for the primary benefit of constricting payroll. As we have seen from the recent residential lending implosion and epidemic over valuations, the cost of lax controls is disastrous and far outweighs the added payroll burden of qualified appraisal staff.

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[Musings Of An Appraiser] You Are Only As Good As Your Last Appraisal

May 4, 2008 | 11:03 pm |

Adam Johnston, SRA, is a long time appraisal veteran, and currently a chief appraiser for a national real estate settlement services company (and a longtime fan of Soapbox). On a daily basis, he speaks with appraisers and lenders across the country having observed the rise and fall of the sub-prime lending market. I am glad to have him share his views with us …Jonathan Miller

For those that recall, Baghdad Bob was the embattled former Information Minister for Sadaam Hussein. He achieved international fame by rendering delirious proclamations of Iraqi victory while the rest of the world watched Sadaam Hussein’s regime collapsing with historical speed. Baghdad Bob was forced to humiliate himself by contradicting reality with fictitious stories of Iraqi battlefield victories. This is akin to the Captain of the Titanic steering the ship while it sank to the bottom of the ocean.

The parallel between Baghdad Bob and my friend the appraiser should become more evident as this blog post continues.

This week, I was challenged with an appraisal that made my eyes water. The author was reportedly an appraiser with 45 years of experience, certified general licensure, and possessing a prestigious designation with a prominent appraisal organization. By all standards, this appraiser is a patriarch of the industry and should be admired by the legions of lesser accomplished appraiser’s-myself included.

Yet, his work betrays a different story. Case in point; the subject property is located in a mixed-use area with residential and commercial land uses. The appraiser acknowledges in his appraisal that he failed to verify zoning (or attempt to verify the zoning). Consequently, he omits a determination of zoning and zoning compliance. Yet, the appraiser managed to conclude that the highest and best use of the subject property is it’s current use. I found this conclusion baffling since one of the four mandatory tests for highest and best use is legal permissibility. The appraisal contained no discussion regarding the basis for his conclusion of highest and best use. Thus, having no verification of the subject’s specific zoning, and consequently what uses are legally permissible, it becomes impossible (without assumption or specific assignment condition) to answer the question of highest and best use.

Sadly, when confronted about the apparent problem in his appraisal, the appraiser admonished me and suggested that my concern constituted a lack of trust in his abilities. Thus, he essentially ignored my questions in favor of a disapproving glare. As a consolation, he directed me to review his resume for assurance and peace of mind.

The Lesson Learned: Your appraisal, as opposed to a self-composed list of resume qualifications, represents the most trustworthy resume.

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[Musings Of An Appraiser] Incompetence A Bigger Issue Than Fraud

April 13, 2008 | 3:23 pm |

Adam Johnston, SRA, is a long term appraisal veteran, and currently a chief appraiser for a national real estate settlement services company (and a longtime fan of Soapbox). On a daily basis, he speaks with appraisers and lenders across the country having observed the rise and fall of the sub-prime lending market. …Jonathan Miller

There has been a lot of recent discussion from the government and the news media regarding the issue of appraisal fraud and improper pressure on appraisers. Although appraisers and fair housing advocacy groups have complained loudly about these issues for the past several years, our concerns were frequently disregarded or dismissed as being over-hyped and insignificant. Many regulatory bodies and lending institutions naively suggested that appraisers should obey the rules and everything would be fine. All the while, these entities ignored a fundamental reality; where there is demand, there will be supply. Accordingly, where demand for appraiser’s to “play ball” became a prevalent practice, there developed an ample supply of greedy appraisers to meet that demand. The presence of inexcusably lax enforcement, instigated by regulatory apathy and insufficient state funding further enabled the problem and emboldened the offenders.

Unfortunately, we now find ourselves in a real estate meltdown of mind-numbing proportions. Although appraisal pressure and fraud was merely one symptom of the greater problem, it was avoidable none-the-less.

Despite all the rhetoric about appraisal fraud, I believe a far more significant problem exists within the appraisal industry. Namely, we are plagued by incompetent appraisers with marginal training and a marginal understanding of basic appraisal procedures and techniques. Shockingly, it has been my experience that many seasoned appraiser’s lack the necessary understanding of USPAP to comply with it’s rules. How does an appraiser certify compliance with a document they fail to read or understand? I believe that appraiser incompetence is a greater threat to mortgage lenders than appraisal fraud. I suspect that most appraisers would not knowingly commit fraud, but yet will engage in incompetent appraisal practice on a routine basis. An incompetent appraiser can unknowingly yield appraisal conclusions and market value opinions that are similarly erroneous and damaging as appraisals that are frequently labeled as fraudulent.

In conclusion, I believe that:

  • appraiser incompetence is significantly more dangerous and prevalent than appraisal fraud.
  • Secondly, I believe that appraiser incompetence is far more difficult and costly to detect than appraisal fraud.
  • Lastly, I believe that our current system of mentoring, licensure, continuing education, appraisal review and enforcement is woefully inadequate and is built for marginal success.

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