Category Archives: Business Management

CU and Me: Let’s Be Practical For A Moment -Part 2

February 13, 2015

Editorial by Woody Fincham, SRA 

woody CU

Over the next several days I will be posting up my thoughts on the recent Fannie Mae Lender Letter Lender Letter  LL-2015-02.  This is part 2.  Part 1 is here.  

So let us dive in to looking at that Lender Letter.  Each of the quoted sections comes from the Lender Letter, which is cited above this. Following each are my thoughts on the quoted section.

“CU does not accept or reject appraisal reports or characterize an appraisal as “good” or “bad.” The CU risk score and messages pertain to risk and identify potential defects in the appraisal report. The lender is not obligated to “clear” or “override” the CU messages. The messages are meant to be used as red flag messages that lenders should use to assist with their appraisal analysis and inform their decisions based on a complete analysis and understanding of the appraisal report.[1]

I think this clarifies some of the biggest concerns to what CU is and is not.  Most large lenders and appraisal management companies (AMCs) have been using all sorts of third-party review rule sets and data pools for many years.  So this is nothing new under the sun. It really is the first time they are pulling in data that is verified by appraisers.  It has the potential to be a good thing, but it could very well be a bad thing.  It will depend on how the lenders use it in their respective review processes.  It is certainly bad for appraisers if they approach it the same way that they approached the 15% and 25% adjustment guidelines. I will not get into the old adjustment guidelines to deeply yet, but we all know that many lenders were set in stone about the 15% and 25% guidelines when Fannie Mae was not.  Yet lenders and AMCs still required adherence to those guidelines in some cases as hard and fast rules.

Working in a market as I do in Charlottesville, VA I understand where some concern would come from in the appraisal community.  Much of my personal work involves complex residential assignments.  From what I gather from those I have spoken to at Fannie Mae, and what information I have read about CU, I imagine many of my reports will become a four or five in their system.  I deal with properties that require regional research because they are status homes: essentially unique and custom to the market.  I would assume that these types of properties represent less than 5% of that MSA, and transfer infrequently.  The market is also small on the urban-side and voluminous in the rural and transition from suburban to rural type properties; acreage varies greatly.  The fact the MSA is in the Appalachian Mountains and that Fannie Mae requires segregation of finished basements from above grade living area; an overwhelming number of homes are built on slopes that have basements. I think you see that unless I am in a planned neighborhood or condominium development, it is unlikely my work product can be seen as conforming.  By circumstance, these properties will rate high in risk.

If I felt like my ability to perform work would be affected by the CU rick scores, then I would be up in arms as well.  Many of my colleagues believe that the CU risk score will affect them.  While I cannot say that it will (or will not), if AMCs/lenders decide to use the information to benchmark appraiser quality it could be a nightmare for some appraisers.  When you get to my thoughts on the 15% and 25% adjustment guidelines, later in this piece you will see more of my perspective on this.  I could be wrong, but I am not going to be overly concerned… yet. Until I see things happen contrary to Fannie Mae’s stated position, I will defer on an alarmist attitude.

“CU does not provide an estimate of value to the lender. CU provides a numerical risk score from 1.0 to 5.0, with one indicating the lowest risk and five indicating the highest risk. Risk flags and messages identify risk factors and specific aspects of the appraisal that may require further attention.”

I know many appraisers were convinced that this was not the case.  Many were positive that Fannie Mae was going to assign scores to the individual appraisers.  It is easy to see why that would be a concern, as the last major Fannie Mae policy change dealt with the Uniform Appraisal Dataset (UAD).  Appraisers are directly monitored on consistency of data for comparables with the UAD, but not with CU.

It is easy to mix it all up.  If you submit data in violation to their UAD standards, that does affect you.  The CU rating score does not.  It is relative to the report itself, not to the appraiser. With that stated, AMCs and lenders COULD use consistent high-risk scores on reports as a means to stratify appraisers as problematic from those that get lower ratings.  If this type of comparison was made a tracked, it could affect me.  I do not compete with the typical mortgage-use appraisers in my market.  Plenty stay in homogenous subdivisions and I cannot do the work that they do at the price points they do them.  If their resulting reports are lower-risk scores by the nature of the conformity these properties present versus the types of properties that I typically work with, I will be seen as an inferior appraiser.  Fannie Mae may state their position on such things but that does not mean the lenders and AMCs will not distill and extend the information they see further.

This is getting into the realm of conjecture; as such, there is not a whole lot of merit to it at all.  It does make one stop and ask questions though. I try not to worry about things that I cannot control so I will leave such thoughts alone for now.  But I will come back to the way lenders took the 15% and 25% adjustment guidelines out of context and altered the profession. I will have some more on that later, of course.

“CU’s selection of comparable sales considers the relevance of each potential comparable sale based on physical similarity, time, and distance. The selection process is not based on the relative “risk” or sale price of a comparable sale nor is there a “lower is best” approach. In fact, CU may assign a high risk score to an appraisal when the model identifies alternative sales that are potentially more relevant than the comparable sales used by the appraiser, regardless of whether the alternative sales are higher or lower in price.”

This certainly is concerning for appraisers.  Appraisers are paid to perform the research and when we do it, we can get defensive about someone questioning it.  Call it professional pride, but this can be a catalyst to incite negativity among us quickly. It is probably a good idea that appraisers write their reports with the above in mind.  Part of this may be addressed by including commentary regarding ideal and typical improvements for the shared competing market.

Since the risk flags are triggered by not using properties that are more similar on paper, commentary may need to change to deal with these items in mind.  Canned commentary certainly will not work in many situations. I know this means taking the time to write custom commentary in every report, but with enough foresight, it is easy enough to build a template that is set up as a skeleton to which specific report comments can be added. I have also suggested to a few colleagues, when asked, that they approach this similar to ERC (employee relocation) reporting.  Possibly embedding a chart of all the comparables surveyed from MLS prior to distilling then down to the comparables in the actual report. I realize this is more work, but if we start seeing lots of kickbacks on this issue, this might be a way to avoid it.

The way CU is setup, at least how it has been explained thus far, is that data is stratified by census block groups (CBG), which goes into the next quote…

“CU takes location into account using Census Block Group levels, which are subsets of Census Tracts. This is the most viable proxy for location in the absence of standardized neighborhood definitions, and more effective than use of arbitrary distance guidelines. Fannie Mae is not suggesting that appraisers use Census Block Groups to define comparable search areas, but appraisers remain responsible for indicating when comparables are from outside of the subject neighborhood and for addressing any differences.”

This has caused quite the banter in social media appraisal groups and pages. There are all kinds of issues with this concept.  The most obvious one is that appraisers do not stratify by CBGs normally.  It would be great if the software companies could create or add a way to also tag which CBGs each comparable comes from or address it in the rules set reviewer in each of the form packages.  This would at least allow a streamlined tool to allow the appraisers to comment on this item.  Perhaps even a data point that could appear in MLS data.  Most addresses are geo-coded now, so it would be an assumingly easy thing to do by over laying the CBG maps to existing maps.

Obviously, Fannie Mae chose this methodology because neighborhoods will vary market to market.  My concern with it comes from the staff reviewers at lenders and AMCs (Quality Control or QC Staff) that are not familiar geographically (geo competency) with the area. This certainly gets back to USPAP regarding writing the report at level commensurate to the intended users.  Explain away would the obvious answer, but that also require the readers and QC Staff to read the reports thoroughly.  I often hear from folks involved in QC review that they prefer cogent writing and brevity.  From some of the reviews I have personally gotten from lower-level QC staff (unlicensed appraisers); it seems many struggle with common terms in real property economics.  I struggle with dealing with those that gloss over when I use terms such as linkage, commercial zones, obsolescence, etc.

This also still sets up the appraisers to deal with non-appraisers applying arbitrary guidelines.  While distance guidelines are now going to be relaxed, in their stead I dread the likely possibility that QC Staff will want CBG differences addressed.  A bit later, I will address the sun setting of the 15% and 25% adjustment guidelines, but one has to see the possible pitfalls with CBGs that the lender-leveraged adjustment guidelines created.  QC staffs need to be well trained to deal with this.  Nothing prevents individual lenders and AMCs from requiring more than Fannie Mae’s suggestion as to how to implement the CU into their work processes.

“The risk analysis performed by CU is for exclusive use by the lender in their analysis of the appraisal report. After completing a thorough review, a lender should be able to have constructive dialogue with the appraiser to resolve specific appraisal questions or concerns. Although the lender may use output from Collateral Underwriter to inform its dialogue with appraisal management companies and appraisers regarding appraisals they supplied, the CU license terms prohibit providing these entities with copies or displays of Fannie Mae reports that contain CU findings, including without limitation the CU Print Report, the UCDP Submission Summary Report, or any other CU report. The lender must not make demands or provide instructions to the appraiser based solely on automated feedback. Also, the CU license terms prohibit using it “in a manner that interferes with the independent judgment of an appraiser.” Fannie Mae expects the lender to use human due diligence in combination with the CU feedback, and will actively follow up with lenders who are reported to be asking appraisers to change their reports based on CU feedback without any further due diligence.”

Fannie Mae is pretty clear the impetus is not to strong-arm appraisers with the feedback and analysis done by the system.  There is a real desire to keep human beings in the mix from Fannie Mae’s side.  The possible disconnect I see will be on the competency of the QC Staff.  The way many AMCs and lenders approach QC reviews is by hiring unlicensed staff people and expecting them to understand what valuation professionals do. Each appraisal is different and finding comments buried in a 20-50 page report is arduous at best; I can struggle with it and I have performed hundreds if not well over a thousand reviews in my career. The tactic that most QC staff uses now is simply kick to out a report because they cannot find a comment, or how the appraiser addresses the issues up front, and rely on the appraiser to point it out.  There are already copious examples of appraisers stating they are often already addressed in the original report.  Unless there is some reengineering of the process, this will only get worse as now the QC Staffs will be armed with more data.

One thing that we have already seen from CU is the copying CU comments being sent to the appraisers.  I have seen several examples from colleagues where something was flagged in CU and no human review was done.  No dialogue was attempted between the QC staff and the affected appraiser.  Fannie Mae has made it clear that the CU scores and flags are meant to be dealt with by QC staff actually having dialogue with the appraiser.  Instead, what we are seeing so far is many QC Staff people are simply copying and pasting CU comments and sending them as a standalone engagement for revision or commentary for the appraiser to deal with.  That is not creating dialogue; it is asking the appraiser to the work for the QC Staff.  One would think, after reading Fannie Mae’s letter that the expectation is for the QC Staff to check the report in question before calling on the appraiser to do anything.  If the appraiser has reasonably commented or dealt with the issues of concern, they should be good to go.

Much of this is going to remain an issue with AMCs and lenders that continue to utilize the services of uneducated and undertrained QC Staff.  Large lenders and AMCs that process lots of volume expect an awful lot of their QC Staff.  Each appraisal, if written well, is stand-alone research project. It should be read and understood with the same care it was prepared.  Pulling in someone that has never read an appraisal report as an hourly reviewer and expect them to get through the jargon and concepts that are summarized in a mortgage use report is counter-intuitive.  Either the Lenders or AMCs need to start hiring competent and credentialed valuation professionals, or spend the resources needed to train raw talent.  Both aspects are expensive, and neither is an option with the current compensation structures in the mortgage and valuation overlap of space.  We will certainly discuss fee levels in depth a bit later.

“Fannie Mae does not instruct or suggest to lenders that they ask the appraiser to address all or any of the 20 comparables that are provided by CU for most appraisals. It is also not Fannie Mae’s expectation that appraisals should contain only CU’s top-ranked comparable sales. In the majority of cases, there may be no material difference between comparable sales utilized by the appraiser and those identified by CU. Before asking the appraiser to consider any alternative sales, it is imperative that the lender analyze the relevance of the sale and determine if the use of such sale would result in any material change to the appraisal report. If the lender determines that there would be no material change, then they should not ask the appraiser to make revisions. Fannie Mae expects CU to enable lenders to accept appraisals “as is” with greater confidence.”     

The previous comments I have made are applicable here, too.  The disconnect lenders had, again the adjustment ratio guidelines come to mind immediately, understandably make appraisers wince at this idea.  The biggest concern, here again, is that QC Staff must be at a level of competency to understand that suggested comparable sales are just that, suggestions.  The way this was handled pre-CU was to send an appraiser comparable sales that were not used and ask the appraiser to then comment on not using them or to possibly also include them.  Of course, the comedy often ensues when the appraiser replies back that, “Two of the three comparables you sent me to consider are already in the report.”  This type of real world scenario proves that where Fannie Mae may need to concentrate some of this reengineering of the process is on those that do review and QC work.

Not to plug the Appraisal Institute (AI), but this may be the very reason that the AI created the new review designations, AI-GRS and AI-RRS.  Review is a completely different animal than Standard-1 and Standard-2 reporting.  I understand that hiring such professionals is a higher cost, which means more cost to the consumer, but let us face it; you get what you pay for.  At the very least, if the lenders want to have a positive outcome from the QC side, it should be built around utilizing well-trained professionals and the review designations are a step in the right direction in my opinion.  And it really may not need to be at the consumer’s dime so much as maybe it should come from the lenders.  The last I looked the larger lenders have no problems posting profit reports.

I spoke with a chief appraiser with a major AMC last week.  He informed me that they have three levels of human reviewers.  The first level is a combination of using technology to flag potential issues and areas that may need more in depth analysis. If there is enough need to elevate it upwards, it is then looked at by a non-licensed staff person.   On the next and final level, a human being that is licensed is involved.  It is apparently an effective way to do things, but even their internal processes still leave some room for improvement.  When so much volume is handled by any given entity, and cost is always the biggest concern, it is impossible to hire but so much real talent.      I will come back to cost a little later when I discuss fees and compensation.

End of part 2.

Stay tuned more to come over the next week. If you have any suggestions or want to share some war stories, please send them over to woody@woodyfincham.com.

[1] “Lender Letter  LL-2015-02,” Fannie Mae, https://www.fanniemae.com/content/announcement/ll1502.pdf (February 2015)

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CU and Me: Let’s Be Practical For A Moment -Part1

February 12, 2015

Editorial by Woody Fincham, SRA 

woody CU

Over the next several days I will be posting up my thoughts on the recent Fannie Mae Lender Letter Lender Letter  LL-2015-02.  This is part 1.  

On February 4, 2015, Fannie Mae released a new Lender Letter[1].  This was a full week and two days after they kicked off the Collateral Underwriter (CU). Many things in the residential valuation profession can create a stir, but few things create quite the clamor that a major government sponsored entity (GSE) policy change creates.  I helped co-write[2] an article on depreciated cost to support adjustments last week. As always, there are interesting comments on anything that gets published in our profession. Most have been very supportive, a few less so.

In the comments for that article, a pro-appraiser commenter was defensive of appraisers regarding the balance of how much work that can be done at such low fees for the mortgage clients.  His supposition is that the topic of the article was great but that appraisers could not possibly be expected to do that much work for the fee levels that are so common in the profession. I share that empathy for fee appraisers. I truly do.  I came up through the fee side of things, it is in my DNA and I will forever think of myself as an appraiser from that light.

I also share in the reality that some of my colleagues in the residential mortgage space are not doing much of anything to support adjustments.  Many have relied on “professional judgment” and “experience” when it comes to addressing adjustments, and sometimes that is offered in lieu of actual support.  I agree that both of these things have some merit, but often they are used in lieu of doing deductive research to support how much something is adjusted for in the grid.  They both can work when it comes to knowing something should be adjusted or not, but how much is sometimes thumb nailed or otherwise guessed at with no real support.  Before that sets off a bunch of personal barbs towards me, if you are doing your job in a manner that you are happy with, then keep doing that.

Of course if someone is reading this and my comments offend you because you do not support your adjustments; please be aware that my intention was/is not to do so.  I tend to be a bit of a purist when it comes to developing and reporting valuation services and that is for me and those that I manage.  What works for you is between you and the USPAP police.

I realize as a businessperson, there has to be a sweet spot between quality, speed and price.  That can be a hard thing to figure out.  If you focus on speed too much, quality tends to decrease. The same is true of price, if you can only get a low fee for your work; it becomes more difficult for some to rationalize not cutting corners to do it for less money.    If you focus on writing a demonstration-quality report each time out of the gate, you will go broke because you take too much time and if you charge at a commensurate level, you cannot be but so competitive. Balance is key in this space, and it will vary from practice to practice and market to market.

When we wrote that piece, it was a suggestion to ferret out support by using something many of us are familiar with but may have not used in a while.  It was also written to introduce the topic to folks that have never used it or thought to use it.  This approach was offered in because many colleagues were being pushed towards alternatives that are being sold as expensive “wonder approaches”.  Rather than seeing honest people buy a bag of magic beans, we offered another less expensive alternative.  So the article was written with empathy towards fee appraisers.

So as these few pieces roll out over the next few days, I hope that my perspective adds some food for thought.  This is certainly not an attack piece on Fannie Mae.  Fannie Mae work is an important part of residential valuation, one that is much too big to shrug off and say, “Well, smart appraisers shouldn’t do lender work.” This sentiment is simply not possible for everyone, and we need to all voice our concerns for all of our colleagues in the profession. Residential lending work is a lucrative part of the valuation profession, a low hanging fruit if you will.

This will also not be an attack piece on AMCs as they serve a function to our mutual clients.  Whether we like or dislike AMCs, they are here and will remain a part of the landscape for the foreseeable future. Instead of wallowing in the pig pen of discontent, we need to figure out how to make the best of the situation.   There has to be some sort of symbiosis attainable, so that everyone can get what they need and can reasonably attain some of what everyone wants.What I hope this is seen as is a common sense observation based on how all three entities, appraisers, AMCs and lenders can coexist. No one has the perfect answer but I hope this might add some positive discourse.

balance

Balance

Stay tuned more to come over the next week. If you have any suggestions or want to share some war stories, please send them over to woody@woodyfincham.com.

[1] “Lender Letter  LL-2015-02,” Fannie Mae, https://www.fanniemae.com/content/announcement/ll1502.pdf (February 2015)

[2] Rachel Massey, Woody Fincham, and Timothy Andersen, “Depreciated Cost, a Test of Reasonableness,”

http://www.appraisalbuzz.com/depreciated-cost-test-reasonableness/ (February 2015)

Thrilling? You Bet! Part 2

Image

Given there have not been all that many flat residential real estate markets in the past 10-years, how market-accurate, then, are the published tables? SR2-3 requires appraisers to certify to the fact that the statements of facts in an appraisal report are both true and correct. If there have been essentially no flat markets in the last 10-years, how can we certify our depreciation is both true and correct if the published depreciation tables are based on a flat market? If markets are dynamic, but the published tables assume a flat market, how accurate are they?

Another issue with the published tables is their self-recognized inability to speak to the appraiser about functional obsolescence and external or locational obsolescence. Appraisers know there are three components to accrued depreciation. Yet they depend on the published tables to conclude as to all three of depreciation’s components. These tables do not and cannot estimate the latter two forms of depreciation. In addition, it is a logical fallacy to assume a property has only one form of depreciation (even, sometimes, in a new one).

The Comment to SR1-3(a) is very clear about unsupported assumptions. If the appraiser does not engage in the analytics of the Cost approach, how is the appraiser sure there is no functional obsolescence? If the appraiser does not engage in the analytics of the Cost approach, how is the appraiser sure there is no external or locational obsolescence? If the appraiser does not engage in the analytics of the Cost approach, how can the appraiser certify that everything in the Cost Approach is both true and correct? Falling rents and/or falling multipliers may indicate the presence of these other two components of accrued depreciation. However, how many appraisers, via the residential income approach, go to the effort to read the market’s tea-leaves?

To professional appraisers, then, the issue is to extract accrued deprecation from market data. Published tables may be a help with depreciation’s age-life component, true. But they cannot aid the appraiser with conclusions as to functional or locational/external obsolescence. These tables simply cannot calculate them; the appraiser must extract them from the market evidence. Yet, unfortunately, many do not. And, equally unfortunately, many appraisers do not understand when, where, and how to account for an entrepreneurial profit/incentive. Because of this lack of competency, therefore, many appraisers do not understand the market since they are unable to listen to it.

Thrilling? You Bet! Part 1

TA article 1

A lot of appraisers were thrilled when FannieMae, et al made their great announcement. Which great announcement? FannieMae publishes announcements all the time. It was when they announced they would no longer require the Cost approach to be part of an appraisal.

Hooray, a real time saver! Thank you FannieMae et al! The Cost approach is a waste of time anyway! Nobody understands accrued depreciation. Even builders cannot decide on what’s a hard cost, a soft cost, and overhead. And that entrepreneurial profit/incentive thing! What difference do they make anyhow?! The house is up and built! People don’t expect an entrepreneurial profit/incentive when they sell their house, so why have to worry about it in an appraisal!? Give me three recent sales in the same neighborhood, and I’m in and out of that appraisal in no more than four hours! Cha-ching! That’s how I can put some money in the bank! Besides, I always back into the Cost approach from the Sales Comparison approach!

Perhaps, there is another facet of the issue to consider?

It’s true “the market” does not typically does not use the Cost approach to buy and sell houses. It’s also true we appraisers enshrine the market and its trends. That’s what we do. So, if we enshrine the market, why are we willing to ignore what it tells us? But, how do we ignore it if that’s not how the market trades houses? Simple. True, the Cost approach may not talk to us in a transcendent baritone. It more likely advises us sotto voce. We listen when the market “talks” to us. Why are we less disposed to accept its advice when it merely whispers? Lovers whisper; antagonists SHOUT.

So, how does the Cost approach whisper the market’s trends to us? There are at least two ways it communicates market trends to us, if we will but listen.

The first is thru accrued depreciation. Many appraisers take accrued depreciation from published depreciation tables. There is no question these are mathematically correct. However, these tables assume residential housing wears out at a more-or-less curvilinear rate. That rate indicates little depreciation per year when a property is new, then more per year as it ages. This, too, is true. These tables, however, do not and cannot account for incredibly hot markets, or dead ones. What do these mean?

An incredibly hot market may see the man-made improvements to a site actually appreciate in value. Yes, this is a function of speculation. A speculative market is not one that meets the definition of market value. Yet they exist and we have to interpret them. The published tables do not reflect this market condition, so we have to.

Next, to consider is that dead market. Prices have fallen faster than a Senator’s job-efficiency ratings. Our broker friends tell us the properties are selling for little more than land value. Again, the published tables do not and cannot reflect this situation.

In other words, the published tables are at their most accurate in a flat market. How many of those have you seen in the last 10-years?

Appraising The Right way Part 2: Analyze This

    

article two headline

By Rachel Massey, SRA AI-RRS

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                                                                                                                                 Woody Fincham, SRA

We dream of seeing appraisal reports that stand-alone and are of themselves, self-sustainable as written.  That market analysis, while a single component of many that make up an appraisal, is done in a manner that is robust, clear and narratively driven.  How many reports have we seen that fail to state anything of real weight in them?  More frequently than we would like to admit, we review reports that are nothing more than checkboxes and statements with no real support. We both look over reports that have some fundamental failings, ones that really make us question how well researched the data actually is in the report as a whole. Many of the cracks that we see begin with the market analysis portion of the report.

In this installment, we are going to look at market analysis and offer some insight on what we believe should go into a well-supported appraisal report.  This installment is a rather lengthy one, but lays the groundwork for the next few installments.  We often see appraisal reports that do very little to support the indications stated on the 1004 report.  A cogent and well-supported market analysis is the foundation of a well-written report. The valuation process identifies the most basic flow for developing an opinion of value.

Jim Amorin, MAI, SRA, AI-GRS, and former president of the Appraisal Institute offered this quote about residential market analysis:

“Residential appraisers are required to be local market experts.  The amount of research that they need to perform is much more in depth and specific than that of a general appraiser.  Often times, a general appraiser uses regional level data, where a residential appraiser will need to have an in-depth knowledge of just a few blocks (Amorin, 2014).”

Clients should be retaining appraisers to provide that specialization and knowledge that only local and experienced appraisers can provide.

valuation process

(The Appraisal Institute, 2014)

There are no shortcuts or work around, yet we see very limited market analysis in many reports.  USPAP requires that appraisers adhere to two specific types of reporting options: Restricted Appraisal Reports and Appraisal reports.  Most appraisal work is performed for lenders and requires the use of the Fannie Mae developed forms.  Per USPAP, the Appraisal Report requires a summation of the analysis performed.  Our contention is that many appraisals performed for the GSEs do not rise to the level of summation of market trends, which is the basis for market direction and sets the tone of the appraisal.

fnma neighborhood

(Fannie Mae, 2014)

Fannie Mae has provided the profession with an interpretation of a minimum amount of information that they believe is significant for lenders to use.  We think what FNMA ended up requiring is an executive level summary that just touches on points, and not complete summations of analysis. For those not familiar with an executive level summary:  it is a summary type that touches on the 10,000 foot level rather than the on the ground perspective.    Why do we take that stand?  With the release and required addition of the 1004MC addenda, Fannie Mae realized that enough impetus was not being placed on a market analysis.

Many in the profession opine that the new addenda does not adequately reflect an adequate analysis as it is limited or does not work with rural and other heterogeneous data sets.   We agree with those opinions in spirit but will go on to say that Fannie Mae was probably trying to make a square peg fit into a round hole.  The 1004MC is an attempt to drive appraisers into an analysis of the market, but it is often too narrow in scope to be adequate, and should not be the sole basis of the appraiser’s analysis of the market.

An appraisal report should explain the data analyzed in such a way that is not misleading.  When Fannie Mae or a client asks for specific things that may enhance or diminish sections of a report, it falls on the appraiser to reconcile what is being done.  In a standard 1004 report, most appraisers now have to fill out the neighborhood section on page one, the appraiser must complete an inventory count in brevity on the top of page two and also complete the 1004 MC addenda.  Depending on how each appraiser goes about completing each of these three sections, they can indicate different conclusions.  It is a best practice to discuss each of the sections in your market analysis narrative in a supplemental addendum.  Other items one should avoid glossing over are days-on-market for the comparable sales selected versus the actual averages indicated in the 1004 MC.  USPAP now requires market time and exposure time explanations placed in the report.  Much of this can only be covered through writing actual sentences and paragraphs and cannot be conveyed at any level of detail by simply checking boxes and making minimal commentary.

Clients

We dream that our clients want to, and need to, know what is happening in the market as of the date of the appraisal. These clients don’t want to rely on national media and Case-Schiller reports (no matter how good they are) because they realize that in all things real estate, the market is basically local. By local, we mean that the region where the property is located sets the mood for the market.  A region can be broad, such as an entire county or even a set of counties. It can be as narrow as the submarket directly related to one employer as the base. The market that relates specifically to a property is much narrower than the region and can be as narrow as a couple city blocks.  Our clients value an appraiser with this local expertise and knowledge.

Our clients can understand and depend on the report because it is developed and presented in such a way that the reader can follow our logic about the market  Many appraisal reports are performed for residential lending, and a key component of lender work is assisting the lender in identifying risk associated with the collateral they are lending on.  There is a need for the end-user to have all the facts and not just the barest of the facts.  It can also be said that more clearly written reports will help the appraiser when dealing with unintended end-users that inadvertently end up with the reports as well.  While not the impetus of this article, clear communication in the report prevents unintended conjecture from being made by the intended and non-intended users.  No one should walk away from an appraisal report without understanding the market mix and preferences of the consumer.  This leads into the highest and best use (HBU) analysis and extends into which approaches to value are most relevant and why.  Like any well thought out research paper, an appraisal report should start broad and work towards a finite result.  This is true for the report as a whole as well as each component that makes up the report.

To offer an out-of-the-box suggestion to lender clients and AMCs, your industry would be greatly benefited to try to retain appraisers on staff or through contract positions to read and vet appraisal reports.  After the Dodd-Frank (and the preceding HVCC) act went through, many lenders pushed out valuation management to AMCs.  Many AMCs, and some lenders through staff positions, utilize low-level clerks that are not certified to appraise to look through reports.  This results in poorly vetted work.  Some also utilize review appraisals from other appraisers, but these are often to have a supporting value not to obtain a true review of an appraiser’s report.  The consistently low fees that are pushed on appraisers to take review assignments evidence this.  In most cases, the lender/AMC wants a reviewer to do a review and provide an opinion of value for less money than the original appraiser did the first report for.  Considering a review on the lender choice form 2000 is both a review AND an appraisal, it is nonsensical at best.

In other words, seek out quality and stop trying to cut costs.

When you treat valuation professionals like a hurdle, rather than a partner that enhances your ability to do business, the market reacts by letting the under-achievers rise to the top.  Your collateral deserves vetting at a high level and makes sense to your overall risk assessment.  Your stakeholders will thank you and adding a small additional level of cost to hire quality appraisers will pay you dividends.  Rather than seek out those that will only give you answers that your origination staffs want to hear, look for those that are confident enough to give you hard answers to difficult questions.  The reason we mention this in a blog about market analysis, is that you can begin to discern how good an appraiser is by reading their market analysis; also by how they approach highest and best use and most especially how well the approaches to value are explained and supported.

Pointers from the Authors:

We are going to cover two facets to the market analysis. One will be the macro –level, national to regional and sometimes city-level facets of the market analysis.  The other is the micro-level.  This covers the market segmentation that the subject falls into at a very specific level.  Micro-level analysis deals with the smallest group of consumers that will consider the subject property and other competing properties as a group.

Woody’s $0.02:

I have worked in a valuation practice that does all types of real property on the fee side, and currently I work in an office where I manage both residential and non-residential real property appraisers.  I have seen how valuation works and it is enlightening to see the overlaps between the two sides.  It does not matter what you are appraising, the valuation process is the same.  All the academic concepts and fundamentals apply.  All three approaches apply, HBU analysis applies and market analysis is certainly applicable for any valuation report.

Many residential appraisers have never seen, much less done, a narrative format report. When one is being paid to perform a narrative format report, it is easy to justify the pages most appraisers spend on discussing the many items that one should in the market analysis section. Frankly, many appraisers believe that narratives should be bulkier and more robust than a report created using a modular form.  I disagree.   A proper market analysis for residential lending reporting should include much of the same information that one would expect to see in both length and content as a narrative style report. With that being said, let us look at the macro side of things.

The best place is to start broad with national information distilled down to regional then down to the local level.  Why start at such a high level?  Most of the time, you are dealing with lender staff that is located far away from your market.  They know and understand things from a high level, so starting with national trends helps draw a picture for them of your area.  No two areas of the country are the same, but every market is affected by what happens on a national level.  In my market analysis, I start out with national data, and then move to the state level, then to regional, before I finish with local data and analysis.

This normally should include a brief overview of the market historically.  How it fits into the regional and state level indicates why consumers are there, coming there, or possibly leaving the region.  What high-level employment events are occurring?  Is a major employer slated to open anytime soon, or is one ramping down for a reduction in force or worse, close? Any regional programs such as transit related items, cross community programs and any major development that may create additional demand or diminishes demand in housing is a generally a great topic to include.

What drives residential demand?  Many would say that employment levels are a direct driver.  We all saw that after the lenders tightened up on credit requirements post 2007; available mortgage products affect the market directly because they can limit effective purchasing power.  These are both important items to discuss, especially in a market that may have transitioning market conditions.

Regionally, public transit may or may not be a factor in consumer consideration but touching on whether it is or is not helps paint a picture for the reader.  In markets that have no public transit, linkages, and distances to support services and commercial areas are considerations.  I have seen this firsthand with petroleum prices increasing, many commuters changed to hybrid cars or moved closer to work.  Chances are that subdivisions with direct or quick access to commuter routes have a better marketability than ones that require extensive drive time or access via small rural roads.  As you look at communities farther away from employment centers and support centers, prices generally decrease to account for the distance.

Many regional markets have competing local markets.  Why would some consumers prefer one to the other, and how does the consumer resolve this?  Is there foreclosure competition?  Is there new construction options?  How do public school districts play into the considerations?  Market mix is also important to cover at this level.  What is a typical improvement for the area and what is the ideal improvement.  Is the consumer preference transitioning; which will lead into the HBU analysis later on.  Consumer preference speaks to the marketability of the property, and gets back to how risky is the collateral being leveraged against.

 

Rachel’s $0.02:

While certainly the wider national market has relation to what is happening at the University of Michigan or the Beltway, it does not set the stage for the nuances in the values around them. This is the same in most markets.

Since our lender clients are intelligent, understand that markets are both regional and local, and are driven by the wider economy, we offer some food for thought.  This relates to the danger of reliance on the 1004MC form, which was developed by the GSEs in order to try and get appraisers to actually analyze the market. Instead we believe there needs to be more analysis, and not just charts and graphs, but a true analysis by the appraiser.

The reason the 1004MC form can be misleading, is that it requires, if done properly, that the appraiser analyze the competition.  Unfortunately, in most markets, the competition is not very robust, and so an appraisal will often use five to ten sales (or less) over a year to come up with a trend analysis.  This is simply not a sufficient number of sales to be meaningful.  Relying on limited data, over a limited period, is not going to result in meaningful information, and at the worst can be misleading.

How do we analyze the market on a more local level? We pay attention to the number of sales that are occurring; the type of sale that is occurring (for example more REO properties or fewer);the days that these listings are on the market cumulatively; the list price to sales price ratio, median sales price, and median sales price per square foot.  In addition, we both consider the contract-to-listing ratio to be very meaningful in measuring market activity at the time of the appraisal, and even predicting a short-term movement (normally a few weeks in the future).  We may break out the macro to include a data such as a school district, down to the level of only generally competitive properties.  Through doing so on most appraisals, we are able to see the market changes that are happening quickly. Even looking at a market as segmented, comparing REO to arm’s length sales is meaningful, such as the example below which shows how distress sales are lessening in one market:

woody blog

Another useful way to perceive the market revolves around visiting Sunday Open Houses simply to see the amount of activity that is present.  Doing so in one’s core market is beneficial in many ways, but mainly in seeing how much activity is happening as well as having the opportunity to view ones future comparable sales first-hand.  The interaction with the agents is priceless, and the visibility is a great way to market.

 

Our $0.04

While writing a market analysis that includes macro level information can be a huge project, it can be updated periodically.  Once you have established the major trends that have recently occurred, those that are presently happening, and those that are likely to happen, one only needs to edit and update it as often as shifts occur.  This increases one’s ability to defend the report if needed, but it also increases one’s perception as a professional.  Expert-appraisers should be performing this level-of-work.  By giving in to the pressure from scope creep and just checking boxes and making ambiguous statements in the report you are giving in to the commoditization that lenders and AMCs want to push the profession towards.

If all that we offer are reports that contain only executive level summaries, it is hard to have a debate about how fees have been pushed down since Dodd-Frank paved the way for AMCs to capitalize on lender work.  With USPAP moving from summary report to appraisal report, it is best to explain each facet of the report in a professional and thorough manner.  Move away from the intention of the lender and especially the AMCs to force the profession into a commoditized service by not giving in to the pressure to do less work, but by doing more.  We know that seems counter-intuitive, but throwing your hands up in the air and doing less than credible work by just checking boxes and user vague boiler plate narrative just makes it seem like anyone can do it.

 

References

Amorin, J. M.-G. (2014, April 2014). (W. Fincham, Interviewer)

Fannie Mae. (2014, April 13). Appraisers. Retrieved from Single Family: https://www.fanniemae.com/singlefamily/appraisers

The Appraisal Institute. (2014). The Appraisal of Real Estate. Chicago: The Appraisal Institute.

Why “Just Any” Residential Appraiser Will Not Do

This blog is a re-post of a recent blog by our own Woody Fincham, SRA.  It was originally posted on the Appraisal institute’s Opinions of Value blog located here.

Why “Just Any” Residential Appraiser Will Not Do

The following is a guest blog post by Woody Fincham, SRA, principal, F&M Associates, Inc.

With so many appraisers vying for low-fee appraisal management company and lender-related work, many AMC-centered appraisers are starting to compete for non-lender work.

Residential_Appraisal_Report

Most consumers don’t understand the need for experienced and designated appraisers outside of lender use work. It’s the appraiser’s responsibility – and in his or her best interest – to remind non-lender clients that hiring a designated appraiser is worth their time … and, most importantly, their money.

Attorneys, financial experts, homeowners and other non-lender consumers and users of residential appraisal services should tread very carefully when selecting appraisers. There are two distinct groups of appraisers in residential valuation: appraisers who perform primarily mortgage related work and those who work with non-lender clients.  It pays to be able to discern between the two groups.

What is the difference? 

Non-lender residential valuation is a market niche, often best suited for experienced appraisers who think outside the box. These assignments include appraisal reports performed for situations such as wealth-management, divorce and other litigation related needs. Often, intended users need to find the most qualified and experienced appraisers. Well-vetted experts are most applicable when testimony is a possibility or when looking at unique properties. Selecting an appraiser limited to only experience with lender related work could result in less than optimal results.

Take attorneys, for example. They need someone who can write reports well enough to be seamless and defensible, but also handle cross-examination in a trial or the craziness that can be a pre-trial deposition. It takes a good professional to write the report, but an even better one to be effective on the stand or to help with pre-trial preparation.

Often, during the interview process in pre-trial or in court testimony, the appraiser must be able to communicate complex valuation theory to a jury or a judge who may have no understanding of such things. In other words, the appraiser must become an effective teacher in addition to being a good report writer.

Many residential appraisers who work primarily with lenders − especially since the housing crisis emerged in 2007 − are required to stay confined within a limited scope of work. Lenders often require appraisers to utilize comparable sales within a very narrow window of time, a small geographic area, and to not exceed lending guidelines when adjusting comparables sales.

This can be problematic when dealing with situations that often, or may, end up in court. The cost for an attorney to reorder a better report, or to pay a well-qualified appraiser to assist in pre-trial analysis, can get expensive quickly. Even worse would be finding that across the courtroom, the opponent hired the appraiser he or she should have hired.

What is the Takeaway for Consumers?

  • Be willing to ask an appraiser why they are a better choice than the other appraisers you are considering.
  • Ask for a resume and check references.
  • Take the time necessary to make sure the appraiser is well qualified, beyond just the minimum qualifications.
  • Look strongly at professional designations such as the MAI, SRPA and SRA designations.
  • If you are looking for pre-trial consulting that involves the review of another appraiser’s report, the new Appraisal Institute Review Designations are a great place to retain talent:
    • AI-RRS for residential reviews, and
    • AI-GRS for non-residential reviews.

Valuation from Both the Fee and Assessment Side of Things, Part 1

By Woody Fincham, SRA

This was originally posted over at Appraisal Buzz

 

This is the first part of a series that will briefly compare and contrast real estate assessment and standard fee practice. There are lots of similarities as well as differences between the two disciplines. There are both superior and inferior aspects to both sides, with both sides producing appraisers and analysts that are unique to their respective sides. Having worked both sides at staff and management levels, I can see how a combination of both disciplines could very well produce valuation professionals that are, to borrow one of my favorite band’s lyrics, “Some Kind of Monster”. Of course, I mean monster in a good sense. In my opinion, there are key items that both sides could benefit from learning from the other.
*****

Often, I will be with a group of fee appraisers and hear some negative comments about assessment values or about the staff appraisers that work for a city or county. Having cut my teeth in fee work, many of my colleagues will confide stories of this or that about how “wrong” assessment is as a rule. Sometimes I think they are just trying to get a rise from me. I also get similar comments from assessment appraisers and head assessors saying things about fee appraisers such as “I can’t believe that appraiser…” I always listen, sometimes I try to explain where one side or the other may be coming from, and sometimes I just smile and say, “How about that”.

Of course, both sides of the fence have good points and both offer tremendous merit to valuation as a whole. I think because both sides work within their own respective universes without understanding how similar they really are and have minimal to no understanding why there are differences. More specifically, there are good reasons why things are different. Appraisers and assessors would be better suited to have a conceptual understanding of the differences between the two sides. After all, both groups are working towards the same end: market value.

What is the difference between assessment valuation and fee appraisal valuation? When I start doing research, I often start with very basic steps. Most often, I pull out my dictionary or a related textbook so let us try that here using the Appraisal Institute’s The Dictionary of Real Estate Appraisal, 5th edition:

Appraisal:
1. The act or process of developing an opinion of value.
2. An opinion of value. (USPAP, 2010-2011 ed.) (Appraisal Institute )

Fee appraiser:
An appraiser who is paid a fee for the appraisal assignments he or she performs
(Appraisal Institute ).

Assessment:
1. The official valuation of property for ad valorem taxation (Appraisal Institute ).

Assessor:
1. The head of an assessment agency; sometimes used collectively to refer to all administrators of the assessment function. (IAAO)
2. One who discovers, lists, and values real property for ad valorem taxation (Appraisal Institute ).

Just looking at the definitions, one can infer that both fee appraisers and assessors are essentially doing the same thing: developing value. The stated difference really is the purpose of the value and the implied is for whom the valuation is performed. With fee reports, the appraiser is valuing for whoever hires him or her. With assessment, the purpose is to value for ad valorem taxation, and generally this is done for a local governmental entity, but can also be for state governments and in some parts of the world the national level of government. Since local code or state law usually requires assessment, laws and precedent can limit the methodology or manner used for valuation.

The most obvious difference one will note is that with fee appraisal, a single property is valued at a time using standardized practices and technique. With assessment, a group of properties is valued at a time, using standardized practices and techniques. In both cases, the professionals performing the valuation follow technique and practices as established by the valuation profession. Most reading this blog already have a well-informed understanding of single-property appraisal; fewer will have a professional understanding of exactly how assessment of groups of properties or, mass appraisal works.

Mass appraisal:
the process of valuing a universe of properties as of a given date using standard methodology, employing common data, and allowing for statistical testing. (USPAP, 2010-2011 ed.) Often associated with real estate tax assessment valuation (Appraisal Institute ).

Well that wraps up this installment, but I will be following this up soon with the next part. I encourage everyone to take the time to comment and ask any assessment related questions that you may have. Whatever side of the valuation fence you may be familiar with, I welcome your input and inquiry.

Works Cited
Appraisal Institute . The Dictionary of Real Estate Appraisal, 5th ed. Chicago : Appraisal Institute, 2010.

 

Non-Lender Valuation: Consumers Should Tread Carefully

By Woody Fincham, SRA

This post was originally posted to the Appraisal Buzz

Competition, in a free market, is a fierce catalyst: one that can effectively sort out the bad apples from the bunch. Capitalism works, it is simple when left unfettered and when all parties are ethical in their approach to business. It works until politicians, however well meaning they try to be, step in with a”solution”. Through the Dodd-Frank reform and the Andrew Cuomo created Home Valuation Code of Conduct that predates Dodd-Frank, congress effectively went anti-small business again. I liken this profession’s recent undermining by congress to how they saw to sort out the small-family farmers by paving the way for companies like Monsanto and ConAgra.

Competition is fierce in the valuation profession these days. For competition to work, it does require a level playing field. Presently, in residential valuation, there is no such thing as a level playing field. There are still lots of mortgage-use reports to do, but these reports are being filtered through appraisal management companies (AMCs). The AMC model chooses the cheapest appraisers competency is a distant second to cost, and like most things, you get what you pay for.

The quality of appraisal reports ordered thorough AMCs is getting bad enough that members of the Appraisal Foundation (TAF) have been quoted recently in the media with some interesting points. In a recent Chicago Tribune, John Brenan, director of appraisal issues, is quoted as stating:

“First, there is no additional revenue to fund AMCs, so the fee that an appraiser would earn is now divided between the AMC and the appraiser. Appraisers are making less money, and they have a new middleman they wind up working through. They’re looking to engage the cheapest and fastest appraisers. So, we’re seeing appraisals done across the country where the appraiser does not have what is, in fact, required under standards we write for geographic competency” (Glink & Tamkin, 2013).

By Mr. Brenan’s comments, it is obvious that enough emphasis was not placed on the things that matter. Instead of requiring the banks to pay for the alteration, a market was enhanced for non-appraisal entities to make money. Instead of enhancing the appraisal process, they provided a market that actually counters retaining well-qualified appraisers. It is a pretty big deal when an organization like TAF is drawing attention to the deficiencies found in the appraisal profession. One should give pause when history has proven repeatedly what happens when the collateral of mortgages is not properly vetted. The recent mortgage bust was partially created by issues with appraisals.

I would also supplement that most of the problems fell squarely on the big banks and how they retained and utilized appraisal services. Instead of requiring lenders to do the correct thing with retaining qualified appraisers, AMCs were given preference as a means to outsource the responsibility or at least the appearance of responsibility. The lenders got the advantage of AMCs seeking out minimally qualified appraisers that follow narrow scope of works (SOWs). Rather than hiring appraisers that are both competent and confident, they hire those that are prone to following without question. They effectively dictate to a large section of these appraisers how to do their job.

I know what you are thinking: Fincham your title says non-lender valuation, so why are you writing about Dodd-Frank and AMCs? Good question…

Non-lender valuation is the last bastion of market share that exists where appraisers can actually bill at a commensurate rate. These types of assignments will include appraisal reports performed for many situations such as wealth-management, divorce, and other litigation related needs. Oftentimes, intended users need to find the most qualified and experienced appraisers. Well-vetted experts are most applicable when testimony is needed. As litigation and divorce proceedings have evolved over the years appraisers are not needed as much for testimony; a report will satisfy the streamlined processes. In these situations, attorneys are not as involved with selecting appraisers as they were in the past.

Attorneys understood the need of retaining the best appraiser he or she could find. They needed someone that could write reports well enough to be seamless and defensible but also handle cross-examination in a trial or handle the craziness that can be a pre-trial deposition. It takes a good professional to write the report, but an even greater one to be effective on the stand or to help with pre-trial preparation. In the case of wealth management: to talk to an accountant and walk them through a report or analysis on the phone.

With less emphasis placed on the interview skills of the appraiser, many attorneys have relegated the retainer of an appraiser back to the client. Most consumers do not really understand what they need. The consumer makes a call, or does an internet search, to find an appraiser based on the only criteria that the do understand: cost. They also negate the importance of selecting the right professional in case they may need testimony later in time.

They can contact a well-qualified appraiser that understands the work involved with their situational needs, or they can contact an appraiser that does mostly government sponsored enterprise (GSE) work. Appraisers that do mostly lender-use work within a very confined box, and unless they have a background in non-lender work, will likely not have the problem solving skills needed for thinking outside of that box. AMCs often provide such detailed instructions to their roster appraisers, that the appraiser is boxed into a very narrow scope of work (SOW). These appraisers are experts at meeting the SOW established with the AMC. However, what happens when these narrow SOWs are removed? You introduce someone that specializes in filling out a form to a world full of variables and possibilities.

An appraiser is only as valuable as their experiences allow them to be. Part of this value is knowing and recognizing the strengths and weaknesses of the approaches to value. An even bigger part is thinking in the abstract and knowing that in trials and depositions, an attorney will exploit a weakness in a report. They will discredit an otherwise good appraiser if that appraiser is incapable of dealing with questioning effectively. Appraisers that concentrate solely on mortgage-use reports have no background to be effective in these types of situations.

So How Does Dodd-Frank Tie In?

Therein lies my problem with the AMC bred and conditioned appraisers. The fees have been beaten down so low for mortgage work that the appraisers that only do AMC related work are now trying to compete in the more lucrative non-lender market. Here we have members of TAF acknowledging that the lender market is using less-than-optimal appraisers. That alone is enough to make a normal person pause and pay attention. This was Washington’s answer to a problem they did not understand, and by stepping in, they created waves that extend beyond their intended design. They destabilized the market for established and trusted professionals.

These same mortgage-use appraisers have discovered that non-lender work pays better: in some cases, much better. They capitalize on the naivety of the consumer base. In a sense, they are capitalizing on a competitive advantage, but only an artificial one that was created by the meddling of politicians. In a very real way, Dodd-Frank is now affecting the valuation profession outside of the mortgage business.

In that same Chicago Tribune article, David Bunton the president of TAF stated “Most appraisers not going to turn around a top quality appraisal in 24 hours, for half of the normal fee. So you get people who are less experienced, who have less business clientele, and they may end up driving 4 to 6 hours for $150. We’re concerned about quality” (Glink & Tamkin, 2013).

Mr. Bunton, we are all concerned over quality. Those of us that have refined our toolsets and experience are being passed over for appraisers that have been subsidized by a flawed mortgage market that is propped up by the AMC model. The weak links of that subset of appraisers are now matriculating into non-lender work. In a way, the biggest user of appraisal services, the mortgage companies have once again undermined the appraisal process. By law, appraisers are required to abide by USPAP to preserve the public trust. Until lenders and AMCs are required to follow it, it will remain nothing more than a very effective tool to make those that claim to be ethical blend in with those of us that actually are beholden to our professional integrity.

The bottom line for appraisers, attempt to educate your attorney clients and colleagues on the differences between what a true professional appraiser is and what a primary mortgage-use appraiser is. Reach out and network with your bar associations and other professional organizations. Distinguish yourselves from the group through education and networking opportunities.

The bottom line for consumers: be careful whom you attempt to retain. Be willing to ask an appraiser why they are a better pick than market of other appraisers. Be willing to check references and ask for a resume. Take your time and make sure this appraiser is well qualified and not just minimally qualified. The inverse to you using a well qualified can actually cost you more money. If you end up in a trial, the cost to have your attorney reorder a better report, or pay a well qualified appraiser to assist in pre-trial analysis. Even worse, you may find that across the courtroom, your opponent hired the appraiser you should have, and now your mortgage-use appraiser will be in contrast to a superior professional.

Works Cited

Glink, I., & Tamkin, S. (2013, December 26). How do you get a great appraisal? Try eliminating the AMC. Retrieved from Chicago Tribune real estate: http://www.chicagotribune.com/classified/realestate/sns-201312221330–tms–realestmctnig-a20131226-20131226,0,4405990.column

RIP Appraisal Advisor

By Woody Fincham, SRA

Reprinted from Appriasl Buzz

It is with a good deal of lament that I am writing this post. I opened my email this morning to see an announcement from Appraisal Advisor (AA) stating that they that would be ceasing operation as of February 1, 2014. For those that did not know about them, they were, to my knowledge, the only source for appraisers to post reviews about working with Appraisal Management Companies (AMCs). AA also developed credit ratings based on appraiser reviews of working with each rated AMC. Appraisal Advisor was truly a tool that was of great use to me and many other appraisers that worked with the AMCs.

This tale is common in the appraisal profession. Appraisers can be a testy lot to deal with, even more so when they are asked to pay for anything. I am an appraiser, and I get that money is tight in the profession. My comment is not an admonishment to appraisers, but rather a fact. In this case, I see where the thousands of appraisers have signed up but have failed to participate. Matthew Biggers, Co-Founder of AA, wrote in his announcement of the forthcoming shut down:

“Unfortunately, the lifeblood of Appraisal Advisor – appraisers submitting client reviews – fell prey to the age-old “80/20” rule. Over 79% of our many thousands of ASC-verified appraiser members submitted zero reviews, while only 3% submitted more than five reviews.

That was far below what we needed to support a revenue model of non-appraisers paying to access and advertise on the site. And since appraisers had already spoken loudly that they wouldn’t pay directly for it either, that cut off the only two sources of funding for Appraisal Advisor (Biggers, 2014).”

I wish it were not so, but we must bid adieu to yet another concept that is designed to help the profession at large; mostly, as a group, we cannot see the forest for the trees. The AMCs won out here at the expense of residential appraisers. Matt did share some interesting information about a yet unnamed AMC that was very pleased to know that AA was going off line. If I ever get a chance to update this blog with that information, I will share the relevant information pertaining to it. I am sure many AMCs will be happy to see that as well because the less transparency between independent professionals means more fracturing. More fracturing means more leverage for the AMCs.

Thanks for Trying Mr. Biggers!!

Works Cited
Biggers, M. (2014, January 21). Important announcement about Appraisal Advisor; Email. Atlanta, GA, USA.

– See more at: http://www.appraisalbuzz.com/buzz/blog/2014/01/21/rip-appraisal-advisor#sthash.HMidn7gu.dpuf