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The HVCC was developed to reduce the external pressures of the mortgage broker to influence the outcome of the real estate appraiser, provide full disclosure to the borrower and make the lender more responsible for the outcome of the appraisals they order. In the wake of the process lenders have developed relationships with Appraisal Management Companies which in turn are not concerned with quality of the outcome but the profit that can be reaped from the over whelming number of orders they are now receiving.

Fannie Mae and its followers have demanded more disclosure, more support for conclusions and more information be provided to them in order to justify the acceptance of a property for a loan. What is demanded from the appraiser has increased 20 to 30 percent while compensation has reduced 20 to 50 percent. Mortgage brokers are concerned with the increasing cost of appraisal reports, fees that have not changed in my area for over 30 years. Yet the quality of reports, the substance in the report has dwindled over that period of time. I personally will have no other choice, if I am to stay in the appraisal business to provide less of a report, to perform less due diligence, and to find more short cuts, find creative ways to lie, or look at ways other appraisers are able to be more cost effective.

Some of them appear to be:

• Don’t measure the property, and use assessment data.
• Don’t give a detail floor plan.
• Don’t inspect the site.
• Don’t inspect attics, crawl spaces, check for moisture or etc.
• Don’t talk to real estate agents and participants in the market.
• Don’t drive around the area to see what is happening in the market.
• Don’t spend much time with the borrower at the time of inspection.
• Don’t spend time giving neighborhood descriptions.
• Don’t do the cost analysis – and use a standardize reason for not doing it
• Don’t drive by the comparables.
• Don’t verify data, condition of sales and financial terms.
• Don’t provide details in the 1004MC form.
• Don’t spend extra time to research sales history of comparables.
• Don’t research the deed and check on easements, encroachments and etc.
• Don’t research land sales and perform extractions to estimate site value.
• Don’t extract effective ages and economic life from the market.
• Don’t go to the town hall; don’t spend time researching zoning, history, etc.
• Don’t worry about being accurate in my final estimate; just get the report out the door.
• Don’t even try to collect GRM’s and rental information.

It takes me about 8 hours to do an appraisal report. I feel that a fair fee is $400 to $500 per report. Yes that represents about 50 an hour. But there is at least 10 to 20 hours a week given to book keeping, reading updates from Fannie Mae, alterations and changes in reports, dealing with the phone calls, and office work.

Expense take up about 35 percent, maybe less if follow my prior list. So I am left with about 4 to 5 appraisals a week.

The AMC want to pay me $275.00 or less, mostly less, (e-appraiser and several others pay 200 or less) and if I agree to that fee my fixed expenses such as MLS service, software expenses, automobile expense will increase my expense percentage to 50 percent. So I will be looking at about 600 a week if I am able to get the work, and I am working about 50 hours a week.

To make up the difference, I will have to do twice as many appraisals, which means do 50% less work on appraisal reports. I am in a quandary as to how I can do that.

When all is said and considered appraisers don’t make a lot of money doing appraisals. Keep in mind, I was charging $350.00 thirty years ago, and will remind you that was before licensing.

I would also say it is not a correct statement that appraisers can make up the reduction of fees in return for volume of work. There are only so many working hours in a day, and even an appraiser has to sleep.

Who bears the responsibility for this change in the industry? The regulators of course, the bank regulators for allowing the process to go to far, the government for over reacting, and the local appraisal boards for allowing appraisers to reduce their scope of work in order to meet the lending industries demands for fast and cheap appraisals.

Will it continue? Absolutely, since appraisal boards are made up of appraisers, empathetic of the current situation, as they should be in many respects. However they are remised in not creating a pro-quality program. The program that exist now just react to the transgressions of appraisers, it does not promotes quality, consistency and adherence to appraisal principles.

My favorite line form the Lending business is that what is currently required in the 1004MC has always been required. I have never heard of a board expressing they need to see that kind of analysis in appraisal report when they review them for upgrading licensing or when an allegation of transgress has occurred and the appraiser was to submit a copy of the appraisal report and file.

For that matter I have not see any of the programs that have come on the market since the 1004MC was required, nor have I see appraisal organizations teaching such courses as to how to obtain this information or any guidance for that matter or making sure that appraisals were done to a set of standards. Again only when a transgression or if you prefer, a violation has been suggested.

So nothing much has changed since licensing, were not in any better position as an industry, we are unwilling to regulate ourselves, and we are unwilling to work towards making changes to insure that we are perceived as professionals.

We are vendors, working for $10.00 to $15.00 an hour, leaving the government, lenders and borrowers wondering why our appraisals seem to be more reflective of a fast food burger, than a steak at a fine restaurant.

If were going to change, then lets change, but lets be clear on one thing. We as an industry are responsible for current place in the market, and only we as an industry can get ourselves out.

In the mean time, I would advise appraisers to continue what they have always done, cut back what you do, lie about what you did, and survive until the next change comes.

Last November Fannie Mae announced changes in their appraisal requirements. Some of of these became effective on January 1^st, 2009 and others will become effective on April 1^st 2009.

As of January 1^st 2009 some of the major changes were.

• Supervisory appraisers must inspect all properties of trainee appraisers.
• Lenders or their representatives must provide copies of the purchase and sales agreement.
• Seller concessions for comparables must be disclosed, and verification requirements of the appraiser are increased.
• Appraisers are no longer allowed to appraise portions of sites.
• Time adjustments are required and support be given in markets where home values are increasing or decreasing.
• Effective ages indicated by the appraiser must be given support and justification.

As of April 1^st 2009 the “1004 MC” or Marketing Condition Addendum will be required. This form is very comprehensive, requiring the appraiser to extract MLS data, to an excel spread sheet and then taking this information and developing trend lines, absorption rates, sales to list price ratios, days on market, as well as explanation of submarkets and the overall effect of submarkets.

This form is intended to increase the transparency of the appraiser’s conclusions in the report.

From a pragmatic perspective, it will mean more work for the appraiser to explain his or her conclusions, especially in light of that most underwriters that have no or little understanding of appraising theories and/or tools.

Our scope of work is increasing. And with that increase in workload, is an increase in appraisal fees. So as of March 17, 2009, I will include the 1004MC on all appraisal reports and increase my residential fee to $500.00. There will be no additional charge for FHA since all appraisals will be made for FHA standards.

In most cases my appraisal report will include a cost analysis to better support the indicated effective age, and include additional comments regarding the verification of comparables and condition of sale adjustments. Reports will include graphs that will support or give weight to the basis of time adjustments, or lack of one, and in many cases an AVM/Multiple Linear Regression report to support the conclusions made.

Don’t forget that as of October 2009, FHA will require all appraisers to be certified, so expect a reduction in qualified appraisers starting in October 2009

I recommend several links to understand what is going on in the market.

Fannie Mae Announcement November 14, 2008

www.appraiserscope.com Which has comments and solutions from both mortgage representatives and appraisers.

The appraisers water cooler – 1004 MC

Back To Basics - How Do We Make Appraisals More Reliable?

As appraisers we analyze everything, including how the square footage of a property is measured and calculated. In most cases, we’re providing an appraisal to meet secondary market guidelines, and most commonly Fannie Mae and Freddie Mac.

In the commotion that has pebbled out industry about the factors that influence the reliability of the appraisal report, has mostly been placed on appraisers. Some of the changes that are being suggested are:

• · Creating a so called “middleman” between the appraiser and the mortgage broker will eliminate pressure and fraud. Hence the HVCC
• · I have heard some talk that HUD will increase the licensing requirements for appraisers that want to provide FHA appraisals. Increase on the so called education level of the appraiser.
• · Increasing license requirements

I would like to remind everyone that appraisers have been around longer than there have been licensing requirements and USPAP. Although there has always been pressure on the appraiser to come to a predetermined value we had this level of a problem before now.

So the question is: How do we make an appraisal more reliable?

Some of old farts can look at the changes over the years and see that two things have been happening.

• 1. We are getting about the same fee we got 20 years ago
• 2. We are doing less work than we did 20 years ago

What has happen? Have we changed our priorities from being concerned with determining an accurate fair market value to meeting the minimal requirements of USPAP?

Meeting minimal USPAP requirements is just that, meeting minimal requirements.

I for this discussion, I propose that extending our analysis beyond these minimal requirements, which will increase the reliability and there for the final conclusion.

There are several other factors that I feel are important to recognize and justify this statement.

• 1. I believe that appraisers that have obtained their license over the 10 years are getting less and less training before they go out on their own. The grapevine mythology of teaching you pupil less than you know continues to escalate the lack of knowledge each proceeding appraiser gets.
• 2. Meeting minimal standards for providing an appraisal is fine for ethical appraisers but fraudulent appraisers can take advantage of these minimal requirements.
• 3. The industry has been consumed by fast and cheap services.
• 4. Appraisal organizations have not stepped up to the plate to substantiate what they teach actually has merit.
• 5. Politics got involved in something Politian’s know nothing about.
  

From a practical stand point these factors will not change anytime soon. However extending our scope or depth of study can change rather quickly and be done at a grass roots level. If we simply make clients aware that exceeding the minimal standards would increase the reliability of appraisal reports and decrease the so called fraudulent appraisals.

Let me give an example of why I feel this statement is correct let us say we have four appraisers appraising the same property for four different intended uses.

• · The first appraiser does a BPO
• · A second appraiser does a drive by appraisal and simple sales approach,
• · The third appraiser does a full URAR maybe two approaches to value and some current listings.
• · The forth appraiser provides a large narrative analysis with three approaches to value in conjunction with AVM, graphs and demographics.

While each appraiser may or may not come to the same conclusion, the reliability of such conclusion is increased with the depth of study each sequential appraiser provides. Even from a layperson’s point of view, a person would conclude that there a higher reliability factor associated with the appraisal analysis in which the depth of study is greater.

Through all this talk, debate and conversation, appraisers nor their organizations have found or suggested a solution to solve the problem. My suggested solution is getting back to out principles, get back to being concerned with estimating fair market value and not meeting the minimal requirements of USPAP.