Category Archives: Charlottesville

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)

Depreciated Cost, a Test of Reasonableness http://goo.gl/dysa1o

http://goo.gl/dysa1o

All Three of us worked on this piece.  I won’t post it in the entirety yet as it’s brand new today and should be given full look at through the publishing site.  But if you happen across it here, please click through to read it.

Charlottesville, VA School District Values

By Woody Fincham, SRA

When looking at residential values in a given market region, school districts will generally play a large role in what consumers are willing to pay for a home. The Wall Street Journal published an article in 2008 about this, and stated, “Even for buyers and owners who don’t have school-age children, good schools can ensure consistent demand for properties — and strong prices. Taxes are also a big factor when talking about schools and home prices because in many states property taxes fund education (Peck, 2008).”

Brendon DeSimone, a well-recognized realtor recently wrote in a blog on Zillow blog that:

1. You’ll pay more to live in a good school district

2. A good school district might protect you from the real estate market’s ups and downs

3. Though it may cost more to buy near a good school, it will be good for resale (DeSimone, 2013)

So how does that apply to the market here in Charlottesville? We are fortunate to have six school districts here that are all accredited and test well per state metrics. I ran some basic metrics on an array o f sold properties from 2013. All sales occurred in 2013, all are detached homes.

You will notice that Venable, Burnley-Moran and Jackson-Via lead the city with most sales per school with 72, 79 and 72, respectively. The chart is arrayed from highest price per square foot to least (Above grade finished). Venable leads the pack in price per square foot at $225.48/SqFt.

So how does this data speak to the local real estate agents? Does this reflect your understanding of the school district relationship to sales price? Are there any inherent biases that may influence this method of data metrics?

I would love to hear any comments related to this topic. I would also be open to looking at other unique ways to analyze residential data within the city markets, if you have a thought of two of more data points that are worth looking at, please suggest them. I will happily see how that data reacts when I run it through some charts.

Remember if you need any residential valuation services please give me an email: woody@woodyfincham.com.

Works Cited

DeSimone, B. (2013, October 4). 3 Reasons to Consider School Districts When Buying a Home. Retrieved from Zillow Blog: http://www.zillow.com/blog/2013-10-04/3-reasons-to-consider-school-districts-when-buying-a-home/

Peck, E. (2008, February 20). Wall Street Journal. Retrieved from Buying a New Home: How Important Is the School District?: http://blogs.wsj.com/developments/2008/02/20/buying-a-new-home-how-important-is-the-school-district/

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