LiveValuation Magazine - October 2010

Magazine >> October 2010

| FEATURE | ZAIO‌ The Long and Winding Road The rise, fall, and reinvention of a valuation technology company.

Brad Stinson pg. 20

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| LVM

/ September 2010

LVM |

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| October 2010 | 12

Contents 12

16

Learning from Markets Abroad Spain mandates the use of AMCs.

20

Santiago Herreros de Tejada

16

New Legal Risks for AMCs Passing the liability buck.

Peter Christensen

20

FEATURE:

ZAIO…The Long and Winding Road

The rise, fall, and reinvention of a valuation technology company.

26

Brad Stinson

30

26

Appraiser in Realtor Clothing Appraisers and Realtors: the common ground.

Steve Ferguson

30

Observations of an Inspector Part IV The “Improvements” section of the URAR. Michael Connolly

7

10

36

8

34

38

Publisher’s Note

Industry Stats July 2010

Contributors Voices of Valuation

Directory For What It’s Worth

Tunnel Vision Bill Waltenbaugh, SRA

LVM |

05

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Publisher’s Note It is my pleasure this month to introduce you to our new Editor-in-Chief, Emily Vannucci. Emily joins us after the successful launch of our magazine under the leadership of Erica English. We certainly wish Erica all the best in her new ventures in publishing outside of the valuation space. Erica is a fine friend and a consummate professional who will do well at whatever she puts her hand to. That being said, I am excited that Emily has taken the reins of our magazine. This will be our largest issue with an even larger issue coming next month. We have great plans for the future of this magazine and Emily’s leadership will see these plans to fruition.

This month’s feature article tells the story of ZAIO. Brad Stinson, the founder, recounts his personal journey as an appraiser and technologist, beginning in the late 1970’s through today. Brad shares the implementation of technology and valuation that resulted in taking ZAIO public. The winding road seemed to come to a dead end on “Z-Day” in 2009 when investor capital and revenue sources dried up. At the end of that paved road, continued a path of reinvention. Brad lays out ZAIO’s path of reinvention from that fateful day. I have known Brad for a long time and always admired his tenacity and passion for technology. He has a “never say die” attitude and an interesting perspective on valuation that we can all learn from.

Be sure to read our Voices of Valuation section this month. We have had a tremendous response online to our previous articles and daily news summaries.

LiveValMag.com provides an opportunity for our readers to interact with our authors online. The back-and-forth debate is vibrant with hundreds of contributions from our readers and also responses from our authors. In Voices of Valuation we only have room to publish a few highlighted comments. I encourage you to visit our website and tell us what you think; maybe your response will be highlighted in next month’s issue.

Please stop by our booth at Valuation 2010 in Las Vegas next month. I look forward to meeting our readers personally and introducing Emily Vannucci and others that make this magazine a success.

Founder

Aman Makkar

Publisher

Ernie Durbin, SRA, CRP

Editor-in-Chief

Emily Vannucci

Copy Editor

Kaitlin Dershaw

Creative

Traci Knight

Director National Sales

David Peck

Printer

Ovid Bell Press

Advertising

Phone : 858.832.8900

Information

Email : david@livevalmag.com

Subscription

Phone : 858.217.5332

and Editorial

Email : emily@livevalmag.com

Web : LiveValMag.com

© 2010 LiveValuation Magazine.

Ernie Durbin, SRA, CRP

Publisher ernie@livevalmag.com

All rights reserved. LiveValuation Magazine is a California limited liability company and is the publisher of LiveValuation Magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of LiveValuation Magazine, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind.

While effort is made to ensure accuracy in the content of the information presented herein, LiveValuation Magazine is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to LiveValuation Magazine, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127

LVM |

07

Stats

| Highlights as of July 2010 |

+4.3%

+4.5% Maine

s.dakota

+3.7%

+3.0%

california

New York

+2.6% virginia

[

The top five states with the highest appreciation in July, including distressed sales.

] -12.6% idaho

-4.3%

washington

-9.7%

-4.8%

alabama

oregon

-5.6% Utah

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| LVM

/ October 2010

[

]

The top five states with greatest depreciation in July, including distressed sales.

[

[]

Stats

| CoreLogic* Data |

July HPI for the Country’s Largest Core Based Statistical Areas (CBSAs):

July 2010 12-Month HPI

“Although home prices were flat nationally, the majority of states experienced price

CBSA

declines and price declines

Change by CBSA

are spreading across more

Single Family Combined

geographies relative to a few

Single Family Combined Excluding Distressed

months ago. Home prices

fell in 36 states in July, nearly

Chicago-Joliet-Naperville, IL Philadelphia, PA Phoenix-Mesa-Glendale, AZ Dallas-Plano-Irving, TX Atlanta-Sandy Springs-Marietta, GA New York-White Plains-Wayne, NY-NJ WA-Arlington-Alexandria, DC-VA-MD-WV Los Angeles-Long Beach-Glendale, CA Houston-Sugar Land-Baytown, TX Riverside-San Bernardino-Ontario, CA

twice the number in May and the highest since last

November when national

home prices were declining,” said Mark Fleming, chief

economist for CoreLogic.

-3.8%

oregon

-9.9% idaho

-2.9% -2.7% -1.6% -0.3% 0.6% 2.4% 2.6% 3.3% 3.3% 6.9%

-2.8% -2.9% -4.5% 0.6% -1.5% 2.9% 3.1% 3.5% 1.6% 2.8%

* Source: CoreLogic HPI as of July, 2010.

+5.1%

s.dakota

-6.7%

michigan

-4.8% nevada

+3.4%

new york

+4.9%

District of columbia

+2.8%

california

-5.6%

arizona

| Highlights as of July 2010 |

+2.8%

mississippi

• Excluding distressed sales, the top five states with the highest appreciation in July were: District of Columbia, South Dakota, California, Mississippi, and New York.

• Excluding distressed sales, the top five states with the greatest depreciation in July were: Nevada, Arizona, Michigan, Idaho, and Oregon.

LVM |

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Contributors | Featured Authors |

Santiago Herreros de Tejada

Peter Christensen

Brad Stinson

Steve Ferguson

Mr. Stinson is the

Steve Ferguson started

Peter Christensen is

founder of Zaio. He

his career in real estate

Santiago Herreros de

the general counsel of

began photographing

as an appraiser for

Tejada is Managing

LIA Administrators

entire cities from the

20 years, starting in

Director of ST

& Insurance Services.

street in 1995 while

Cincinnati, Ohio. In 2004

International, an

LIA provides E&O

operating a successful

he closed the appraisal

international division

insurance to more than

residential appraisal

chapter in his career and

of Grupo Sociedad de

24,000 appraisers and

business. He was a

continued his formal

Tasación. ST minimizes

is endorsed by the

mortgage underwriter

education in economics

risks and operational

Appraisal Institute. As

prior to his appraisal

where he began

costs, automates

LIA’s general counsel,

career. His appreciation

applying statistical tools

workflow, and increases

Peter responds to

for appraisal accuracy

to the field of real estate.

the quality of valuation

the claims, lawsuits

and speed fostered some

He currently is the lead

reports. Before working

and disciplinary

of the industry’s earliest

Realtor working for a

at Grupo Sociedad de

matters affecting LIA’s

appraisal software.

medium size firm in

Tasación, Santiago was

insured appraisers

In 1984 his appraisal

Indianapolis, IN where

International Director

and investigates and

team was completing

he lives with his wife

of Planner Reed,

researches emerging

appraisal reports in

and three children.

company member of

legal issues related to

the field utilizing early

steve.ferguson@

Reed Exhibitions and

appraising.

laptop computers and

livevaluation.com

previously at the Global

mobile printers. Mr.

Corporate Banking of

Stinson’s vision has

Citibank International

always been providing

Plc in Madrid. Santiago

exemplary service to

holds a MBA from the

mortgage lenders and

Instituto de Empresa.

others.

10

| LVM

/ October 2010

Contributors | Featured Authors | Michael Connolly Michael Connolly has over 30 years’ experience in the real estate industry and is owner of Smart Move Inspections in Cincinnati, Ohio. He is a member of the American Society of Home Inspectors (ASHI) and holds their highest designation of Certified Home Inspector (CHI). He has evaluated over 8,000 residential homes for home-buyers, attorneys, and lending institutions. He holds licenses for Radon testing, wood destroying organisms inspections, and is a HUD fee inspector. Mike@smartmoveinspections.com.

Bill Waltenbaugh, SRA Bill Waltenbaugh, SRA is a certified appraiser of 20 years. During these years, Bill witnessed and experienced first hand the many changes that occurred in the appraisal industry, from the advent of licensing to the implementation of HVCC. Currently, Bill is the Chief Appraiser at AppraiserLoft, a nationwide Appraisal Management Company, and writes a weekly blog called, “For What It’s Worth”.

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Serving the Appraisal and Valuation Industry since 1977 CA License #0764257

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Peter Christensen, General Counsel peter@liability.com, 800-334-0652, Ext. 148

16oo Anacapa Street, Santa Barbara, CA 93101 Ph: (800) 334-0652 Fax: (805) 962-0652 www.liability.com lia@liability.com

I

I

LVM |

11

Learning from

markets abroad Spain mandates the use of AMCs.

F

~ Santiago Herreros de Tejada ~

For more than ten years, I have been

that methodologies, procedures, and

although there is still an oversupply of 1

involved with the international real estate

technology in the Spanish regulatory

million properties on the market, which

industry, and am currently Managing

model (which has been reproduced in

would need to be absorbed so the real

Director of ST International Company,

other places, such as Mexico), offer safety

estate market can fully recover.

which belongs to Grupo Sociedad de

and security to the mortgage market.

Tasacion. Due to this involvement, I have had the opportunity to attend several real

The Real Estate Market

The Appraisal Profession Due to the oil crisis of 1973, the Spanish

estate and valuation seminars as well as The key forces of the Spanish economy

government decided to regulate the

have been tourism and real estate. During

mortgage market. In 1982, the mortgage

During these years, I have been able

the time between 2001 and 2006, Spain

market law was established, which

to verify how concerns regarding the

experienced a real estate boom with very

included appraisal management

valuation industry have increased

high growth in bank credits, low interest

companies as a key element between

substantially. Industry professionals

rates, and high rates of employment.

lenders and appraisers, and addressed

have spent a great amount of time in the

In 2003, more than 450,000 homes were

the compulsory use of them in the

past searching for a solution that would

constructed in Spain, versus the 900,000

mortgage market. There are actually 53

offer security to the mortgage market

new homes that were constructed in

Appraisal Management Companies in

and quality in appraisals. Now, after the

the USA that same year. Spain has a

Spain currently under the regulation and

financial crisis, there is an even greater

population of 46 million, while the USA

supervision of the Bank of Spain. The top

need for a change in procedures and

has a population of 350 million. In 2006,

5 AMCs hold 50% of the Spanish market

methodologies in order to ultimately

more homes were constructed in Spain

share alone, with the leading independent

achieve excellence and stability in the

than in Germany, UK, and Italy combined,

AMC being Sociedad de Tasación. The

industry once again.

and more than 1.8 million loans as well as

AMCs develop appraisals done by

appraisals were delivered. Unfortunately,

independent professionals (appraisers)

At ST International, we have in

the economic downturn has also affected

who collaborate with them.

depth knowledge about the appraisal

Spain’s economy. Nowadays, it seems

They offer value to the process as they

business and we strongly believe

as if the situation is slowly recovering,

investigate and develop the technical,

sessions of congress worldwide.

12

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/ October 2010

formal, and IT aspects of the full appraisal

lenders; their responsibility is with

appraiser (controller) at the AMC,

process (from ordering to invoicing).

the Appraisal Management Company.

who acts as a quality controller and

Through the process, the comparables

Appraisers are subject to a technical

also as a consultant for the appraiser.

(which are introduced by the appraiser)

control done by the AMCs. Those that

The review appraiser is available

are grouped in one unique database.

work for Sociedad de Tasación (ST) work

before, during, and after the appraisal

AMCs also train and provide courses for

exclusively with ST due to high fees,

to resolve any doubts or questions the

appraisers and lenders, so that all of this

free leading technology, and continuous

appraisers may have.

knowledge and expertise is provided to

support in the appraisal process.

•

everyone. There is also a control team that

Easy-to-use software that guides the appraiser through the report.

reviews the appraiser’s reports, and the

Appraisers under the umbrella of the

appraisal is not delivered to the lender

AMCs benefit from the following:

appraiser and they are protected by

until the report is ratified by the team

•

•

ST guarantees payment to the

Methodologies, compliance, technical,

insurance issued by the AMC except

(controllers). The AMCs are responsible for

and urban aspects, etc. are normalized

in cases of gross misconduct.

the appraisals delivered through them to

by the AMCs’ technical departments,

ensure value and security is offered within

which keep appraisers updated in

100% and appraisers are paid monthly

the mortgage market.

regards to new rules, and eliminate

by the AMC (no need to worry about

possible mistakes due to lack of

claiming payments at the banks).

The Appraisers

knowledge.

•

•

•

The lenders invoicing is managed

Offers the appraiser an enormous

Allows appraisers to develop uniform

shared database, which is infinitely

Appraisers in Spain are also required

standard appraisal reports, which

better than an independent appraiser

to be architects or engineers. The law

facilitate the lenders’ understanding,

database (ST groups more than

made the use of AMCs compulsory for appraisals linked to the mortgage market

knowledge, and familiarity with them.

•

The AMCs develop market and

500,000 comparables yearly).

•

Appraisers operate on a municipal

and therefore appraisers

technical control over the appraisals

level so that they can guarantee

where forced to

and comparables introduced by their

perfect knowledge about the market,

collaborating appraisers.

the urban area, the real estate

work for the AMCs. Appraisers act in

•

an independent manner, giving

agents of the area, the developers

classrooms and online).

of the area, the contractors, and the

• Appraisers receive orders directly via

their opinion about value without

Appraisers receive training (in

macroeconomic factors that influence

the Internet (no commercial effort).

•

The appraisal rates are already

the economy of the area.

•

At our group, although it is not

having any

assigned and negotiated by AMCs

regulated by the Bank of Spain,

pressure

with lenders (no negotiation effort).

we internally make sure that our

The billing management is done 100%

collaborating appraisers work in

by the AMC, therefore appraisers

a specific zone (each appraiser

don’t spend any time in the charging

works over a ratio of 40 km). In

process.

cities, appraisers are even zoned by

from the

•

• Each appraiser is assigned with

districts.>>

a general or specialized review

LVM |

13

The Market Regulation

the fluent transmission of information

main goal of offering security and quality

to the appraiser, with the existing issues

control tools to the mortgage market.

The Bank of Spain, which is the equivalent

detected, and allow him to complete the

to the Federal Reserve, is the organization that supervises the appraisal management companies and the financial institutions in the Spanish market.

needed modifications.

Technology

There are several factors that imply risk

ST International has been investing in

and should be avoided. Some of them are:

smart progressive valuation technologies

•

Heterogeneous criteria between the

since the 1990s and nowadays our state of

different professionals involved in the

the art technology is being used in Spain

valuation industry.

by the AMC and by the leading financial

Heterogeneous content in the

institution in Mexico. The technology

valuation reports.

processes an average of 250,000 appraisals

Non-existent independent quality

yearly in both markets.

Below are the most important laws that regulate the appraisal profession: •

Ley del mercado hipotecario (RD 685/82). Modified por RD716/2009: (Regulates the Mortgage Market).

This law created the Appraisal Management Companies and made them compulsory for any appraisal linked to a loan that is intended to be sold on the secondary market.

•

Orden ECO 805/2003: Guidelines give an opinion of value, how the appraisal should be done, and the information that the report must have.

•

RD 775/1997: This law provides requirements to register as an AMC, how to be authorized, and sanctions

• •

control over the valuation reports.

•

Unaudited databases.

The valuation programs developed by ST

•

Unstandardized information.

International generate reports adapted to

•

Monopoly of valuers in several areas.

the Spanish legislation, European valuation

•

Non-automated processes.

standards (TEGOVA), International

•

Manipulable PDFs.

Valuation Standards, Mexican legislation, and are currently working on a US version

All of those factors create systematic risks

called ST Appraisal.

in the valuation market, which prevent an efficient quality control of the valuations

The core offering of ST Technology is the

linked to mortgage loans.

real estate appraisal preparation platform.

This unique approach combines the

In order to achieve security in the

professional judgment of the licensed

mortgage market, it is key to achieve

appraiser with intuitive scripts that drive

optimum control over the valuation

information gathering specific to the

Quality Control

products. In my opinion, the combination

characteristics of the subject property,

of strict regulations implemented

location, and the type of appraisal

The Bank of Spain specifies the type of

by governmental authorities with

assignment.

to AMCs. It also addresses appraiser incompatibilities, etc.

QC that should be done, and all AMCs must assure the following: •

The appraiser has used all of the necessary documentation.

•

The appraiser has completed all of the necessary steps required when doing the appraisal.

•

The technical proceedings (calculation methods) to do the appraisal have been completed.

•

The information specified by law is included.

The use of intelligent control systems as a tool to achieve quality and productivity in the appraisal process is key. It is essential that the control process is fast, therefore the technology used must allow

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/ October 2010

technologies that allow statistical and numerical analysis in the valuation process

Once the form is created, the Appraisal

is essential.

Management Company’s QC department, the QC department of a lender, or even

Additionally, in markets with high

the QC department at a governmental

volumes of valuations, it is virtually

organization can receive the form, plus all

impossible to conduct the business in a

of the information which has been used

secure way without the use of specialized

to develop the form electronically. All

software that manage and automate the

of the appraisals (reports and appraisal

process of the valuation work. If you are

certifications) are received via the Internet,

a valuer or a valuation firm, the workflow

so all of the data is electronic, and all

process must include technology which

possible mistakes in the appraisals are

will allow you to receive orders, highlight

highlighted through electronic tools

important deadlines, track the status of the

provided in the program. The lender

report, and assure that compliance is being

receives a PDF, which includes all of the

met. Additionally it will assure that the

information on the property (more than

criteria, procedures, and methodologies

180 parameters from each appraisal), and

used are appropriate, as well as check the

can file appraisals electronically with full

coherence of the certified values with the

legal approval.

main characteristics

•

It has a smart screen progressive process that varies depending on the typology of the appraisal.

Screens must be completed correctly in order to move to the next screen.

•

9 0% of the fields are prepopulated fields and each of them has a help button in order to avoid mistakes in the answers due to lack of knowledge.

•

The appraisal residential program therefore intuitively guides the appraiser throughout the appraisal process with a permanent QC during the process of developing the report.

•

of the system

•

It provides appraisers with a flexible operating platform, where un-biased validation of appraiser quality is a true differentiator.

•

The property valuation market is evolving with this program, which includes technology driven data capture, valuation, review, and risk assessment solutions.

•

•

There is a focus on solutions that increase the quality and speed of property valuations by bringing transparency and independence to bear.

The program assures that the data is introduced only once.

The program supports the appraiser’s development of a personalized data source from his own work, his participation in peershared data resources, and third party data integrated into the system. In Spain, for example, we have a database of 2 million data and 300,000 new data are introduced yearly by the appraisers who use the technology.

•

The criteria, methods, procedures, and techniques used depending on the typology and legal characteristics of the subject properties are appropriate.

•

I t automates and preserves complete work files of each assignment for the appraiser, eliminating cumbersome offline systems for record retention.

•

Compliance is integrated into the program.

•

Addendums and empty answer boxes are generated automatically as a result of the scroll-downs that appear at 90% of the fields.

•

«

•

The report is multilingual, independent of the language in which the appraiser has completed the screens. The demo version produces the reports in English and Spanish for a better understanding among the Hispanic population in the USA or the Hispanic investors in RE, which do not understand the official existing forms.

•

Each property has a family and the system recognizes if it has been appraised previously even if the legal aspects of the property have changed (urbanism, etc.).

•

The system adapts to hundreds of specific client requirements.

The system generates the official form required as well as another much more comprehensive form, which we believe is organized much more coherently.

Appraisals must include photographs,

is reduced substantially. It will be able to

security and safety to international

maps, and any other materials needed

achieve homogeneous technical criteria,

mortgage markets. It is necessary to make

for the appraisal certifications and

homogeneous reports, make sure that the

the industry aware that it is extremely

can be received at different locations

appropriate quality controls are produced,

profitable in terms of security to invest in

at the same time (financial institution

and include shared and audited databases

quality and automation of the valuation

headquarters, bank office, mortgage office,

as well as standardized information which

process in order to achieve productivity

risk departments, etc.). This technology

will allow a better analysis of the valuation

and profitability.

reduces the number of QC people needed

works.

in an organization by 70% due to the

Never before has it been more important

integration between the valuation program

The valuation market in each country has

for a new, viable system to be inserted in a

and the QC program.

its own characteristics but we have been

market place that restores the appraiser’s

able to prove that the methodologies,

ability to improve his efficiency and

Through the implementation of an

procedures and technology that are used in

accuracy, offering much more security to

effective regulation, and through the use of

Spain are 100% adaptable and exportable

the mortgage market, lenders, investors,

intelligent valuation technology platforms,

to diverse legal and socioeconomic

and international global markets.

the mortgage market will see how the risk

environments. We can help to offer

LVM |

15

New

Legal Risks for

AMCs

Passing the Liability buck.

Peter Christensen

16

| LVM

/ October 2010

A

Appraisers and appraisal management companies share the same lifeboat these

We see lenders doing this in several ways:

going to avoid sinking in the whirlpool caused by the mortgage crisis. This is becoming more evident as AMCs become visible to the public and subject to greater regulatory control. We’ve been advising appraisers for years about the claims and litigation that affect them and on strategies to reduce their risk. The information here is for AMCs and highlights a few of our current concerns about the risks they face.

AMCs Should Be Careful With What They Promise to Clients One pronounced recent development we have observed in the relationships between AMCs and their lender clients is that many lenders have become more focused on contractually shifting valuation liability risks to AMCs. Lenders are demanding that AMCs accept financial and legal

• Requiring AMCs to make more representations and warranties with respect to appraisal delivery performance, value accuracy and USPAP/ regulatory compliance. In some lender/AMC contracts, the AMC is then required to pay liquidated damages to the lender for any breach of its reps or warrants. They must also agree to pay the lender’s costs and losses associated with any appraisal-related issues such as mortgage repurchases or mortgage insurance rescissions.

Lenders are essentially mirroring the reps and warrants they’ve been making to the GSEs for years – promises that are now causing them to have to repurchase billions of dollars of mortgages.

Appraisers and appraisal management

companies share the same

lifeboat

these days when it comes to their liability risk...

winning the work. However, in the current legal environment surrounding appraisals, this is a risky approach. Lenders know the cost of the risk they are passing on to the AMCs far better than the AMCs. They simply know their own default rates, appraisal-related losses, and mortgage repurchase problems better. Some of the lenders who are trying to shift the most risk are lenders who are predisposed to litigation about appraisal issues and who have recent histories of treating appraisals essentially as guaranties of value, not professionally developed opinions.

Prudent AMCs should carefully evaluate proposed risk transfer provisions in their lender contracts: •

Can the risk transfer provisions be more fairly negotiated? Some lenders are willing to revise the language they initially demand.

•

If the provisions cannot be fairly negotiated, then the cost of accepting

responsibility for appraisal quality and compliance.

requirements like these without thought or negotiation. Their focus is simply on

days when it comes to their liability risk and they must row together if they are

Many AMCs execute contracts containing

• Requiring AMCs to agree to onerous, one-sided indemnification provisions under which the AMC must promise to indemnify and defend the lender for any and all claims, losses, expenses, attorneys’ fees, etc. relating to appraisals or other valuation products delivered by the AMC to the lender – regardless of fault in some cases.

that risk versus the benefit of doing business with the lender should be weighed. Thus, what is the lender’s history with respect to appraisalrelated claims and litigation? Key indications of a lender more likely to make demands under rep and warranty provisions are: a recent history of claims against individual appraisers or AMCs, and a high level of mortgage repurchases. An E&O carrier with relevant market knowledge can help assess these

• Demanding

that AMCs carry extensive insurance coverage not only for professional and general liability risks but also for less commonly covered risks like intellectual property infringement (i.e., patent and copyright claims).

factors.>>

LVM |

17

AMCs Should Be Careful With What They Require Appraisers to Promise

This is very one-sided. Under such a

law, for example, states: “An appraisal

provision, an AMC could contend that

management company shall not require

the appraiser must indemnify the AMC

an appraiser to indemnify the appraisal

for liabilities or damages, and even fines

management company against liability

The common reaction that many AMCs

or penalties assessed against the AMC

except liability for errors and omissions by

relating in any way to appraisals delivered

the appraiser.” Similar prohibitions exist

to the AMC by the appraiser – even if

in the AMC laws of at least the following

the alleged problems are the result of the

states: Minnesota, Tennessee, Utah and

AMC’s own conduct or wrongdoing.

Washington. Very one-sided provisions

have to lenders requiring them to agree to onerous reps and warrants as well as one-sided indemnification provisions is to try to pass on these potential liabilities to their panel appraisers. It is, of course, prudent to use independent contractor agreements to clearly spell out the performance standards, payment terms, and other aspects of the relationship between AMCs and appraisers. Trying to pass on all of an AMC’s potential liabilities to its appraiser panel in such agreements, however, does not work well in practice, may violate various states’ AMC laws, and can result in an appraisal panel that is lower in overall quality. It’s usually fair and practical that each party

are also often unenforceable under more Another example of one-sided

general statutory or common law in many

indemnification language in an AMC-

states.

appraiser agreement is: A second concern, based on years of Appraiser shall further indemnify,

observing appraisal claims, is that when

defend and hold [AMC] harmless

an AMC utilizes an agreement that is very

from and against any and all claims,

one-sided or commercially unreasonable,

losses, liabilities, costs and expenses

the overall quality of its appraiser panel

attributable to any allegation of

declines due to the loss of appraisers who

intellectual property infringement

choose not to do business under such

arising out of this Agreement.

agreements. This exposes the AMC and its clients to greater liability risk from poor

Under this provision, the AMC is requiring

appraisal performance. Appraisers who

the appraiser to indemnify the AMC

have the ability to make a choice about

for patent or copyright infringement

whether they do business with certain

in relation to any appraisals delivered

AMCs, on average, are more experienced

the individual appraiser.

by the appraiser – whether the alleged

and knowledgeable and have greater

infringement is the fault of the appraiser,

economic stability than appraisers who

We often see indemnification provisions

the AMC or some third party, such as a

feel they must accept the one-sided

technology provider.

terms of some contracts. Of course, good

to a contract will be responsible to the other for its own acts or omissions, but it’s quite another thing to shift the risk of all liabilities, regardless of who is at fault, to

like the following in AMC independent contractor agreements: Appraiser shall indemnify, defend, save and hold harmless [AMC] from and against any and all liability, claims, damages, losses, fines, judgments, penalties suits, decrees, costs and expenses . . . in any way related to . . . any appraisal report submitted to [AMC] by Appraiser.

“

appraisers do work for AMCs that have There are several issues and problems

unfair agreements but they generally do it

with including provisions like these in

only when they don’t have alternatives.

independent contractor agreements. First, AMCs need to be aware that some of

Finally, as a practical matter, we almost

these provisions will now violate various

never see AMCs actually enforcing the

state AMC laws and subject the AMCs

one-sided provisions in their agreements.

to investigation, potential monetary

An appraiser’s professional liability

sanctions, and possible loss of their

insurance is not going to cover any

registration status. New Mexico’s AMC

liability that the AMC tries to shift for its own conduct. Relatively few individual appraisers have the financial ability to

“

The common reaction that many AMCs have to lenders requiring them to agree to onerous reps and warrants as well as one-sided indemnification provisions is to try to pass on these potential liabilities to their panel appraisers.

18

| LVM

/ October 2010

personally satisfy the monetary demands made in such claims, which may be tens of thousands or hundreds of thousands of dollars. Thus, in general, AMCs are not getting any benefit from including the provisions but are suffering from loss of appraiser quality and potential regulatory scrutiny.

Indemnification provisions are not the

the subject of significant current litigation

awkward position of being required

only contractual clauses that may cause

and arbitration. If review work performed

to file complaints alleging USPAP or

regulatory scrutiny for AMCs or cause

by a certain AMC for MI or repurchase

other violations against their own panel

their panel quality to suffer. Another

purposes is contaminated by these kinds

appraisers, while in some cases being

example is the following provision –

of practices, that AMC will have potential

obligated to indemnify their lender clients

wording similar to this appears in many

liability across a wide spectrum (magnified

for losses caused by such violations.

AMCs’ current contractor agreements:

by any indemnification provisions it has

Appraiser may not disclose the appraisal fees paid for services under this agreement to any third party.

Provisions like this potentially violate

agreed to) and, moreover, will quickly see

We are also concerned about the effect of

demand for its services to evaporate.

new AMC laws which contain provisions requiring AMCs to have in place a system

Future Liability Issues under Dodd-Frank and State AMC Laws

for ensuring that their panel appraisers’ work product complies with USPAP and in some instances appear to suggest a duty on AMCs to ensure USPAP compliance.

new state prohibitions against AMCs prohibiting appraisers from disclosing

As AMCs busy themselves preparing to

Attorneys for consumers will likely

their fees in appraisal reports. California’s

comply with the initial TILA elements

contend that these requirements establish

emergency AMC regulations, for example,

of the Dodd-Frank Act and new AMC

a legal duty of care owed by the AMCs to

provide that “[a]n Appraisal Management

laws, we are busy trying to determine

borrowers – if this occurs, we will see more

Company cannot prohibit a contracted

the additional liability risks that both

consumer claims against AMCs.

appraiser/client from disclosing the

appraisers and AMCs will face.

fee paid to the appraiser/client for an appraisal assignment in the body of the

We are most concerned about effects from

appraisal report.”

the mandatory disciplinary reporting of

A Risky New Form of Appraiser Pressure

appraisers under the Dodd-Frank Act (and the eventual complaint “hotline” that will later exist). In short, Dodd-Frank mandates that mortgage lenders, AMCs, and other parties report an appraiser to the

anymore relating to valuation pressure

applicable state licensing agency if there

from AMCs or lenders in connection with

is a reasonable basis to believe that the

current appraisals for loan origination

“appraiser is failing to comply with the

purposes. We do, however, receive reports

Uniform Standards of Professional

and see the results of pressure by some

Appraisal Practice, is violating

personnel employed by AMCs in the

applicable laws, or is otherwise

business of delivering “forensic” review

engaging in unethical or

work for mortgage insurance and loan

unprofessional conduct.”

repurchase purposes. In recent months, for

This will mean many

example, we have received confidential

more complaints to

reports of AMC personnel instructing

state boards and,

appraisers in writing that they must

correspondingly,

deliver forensic review appraisals with

an increase

value opinions lower than the origination

lawsuits

appraisal and must identify errors in the

against

origination appraisals under review. It’s

appraisers and

been reported that these AMC personnel

AMCs because

threaten the appraisers with being cut

certain percentage

off from further review work. This is a

of such complaints

potential business and legal disaster for

evolve into civil

these AMCs. Mortgage insurance denials

litigation. AMCs

and mortgage repurchase demands are

also will be in the

in

a

“

The common reaction that many AMCs have to lenders requiring them to agree to onerous reps and warrants as well as one-sided indemnification provisions is to try to pass on these potential liabilities to their panel appraisers.

“

We do not receive many reports or claims

LVM |

19

20

| LVM

/ October 2010

“

“

I have known Brad for a long time and always admired his tenacity and passion for technology.

He has a ‘never say die’ attitude and an interesting perspective on valuation that we can all learn from.

-Ernie Durbin, Publisher

LVM |

21

technology changes everything, especially for the appraisal industry. This is the story of how ZAIO’s vision came to be, based on my personal perspective as the founder and as a fee appraiser keeping pace with technical advances over the past 30 years. It’s about the rise of a simple concept that will enhance the appraisal profession and provide the collateral risk industry with valuation clarity in real-time, while also separating the appraiser from all undue value pressure.

My appraisal career began as a Canadian

open houses, studied market trends in

highly unique back then. I would print

mortgage underwriter when I was 19.

advance, and provided the accuracy

the report while sitting in the lender’s

Back then, bankers drove long black

everyone was looking for. Unfortunately,

parking lot and then glue on that

sedans, mortgage loans were a privilege,

I was naïve and that was not how the

Polaroid photo. It didn’t take more than

not a right, and underwriters often wrote

industry would unfold. There was

a month for lenders and competing peers

their own appraisal reports by hand. The

certainly no time or method to actually

to notice a major change in the industry.

year was 1979 and the Olivetti typewriter

study market conditions between orders,

was on the cutting edge of technology.

and the business volume quickly began

I sold my software to a few appraisal

flowing toward those appraisers who

firms in the mid 80s, but by 1990, larger

In the early 80s, mortgage rates were

always supported the necessary number.

and more dedicated software developers

like price tags. They just kept rising

I still believed integrity would rule the

had entered the market. I had my CRA

with inflation, until they reached the

day and better service could win.

designation (equivalent to an SRA)

apex of insanity at 22%. At the bank,

and I was running a busy appraisal

we filled our days with back-to-back

With a Tandy 100 laptop and my own

business called Blueprint Appraisal

games of Cribbage and began to talk

new custom software application, I hit

Services. Our software was really only

about a cool new desktop appliance

the streets as a high tech appraisal shop

custom designed for our appraisal

called a PC. As mortgage rates eased,

that delivered speed but not always the

firm, and we focused on helping our

a new world emerged—a world filled

requested number. I trusted that turn-

clients provide prompt service to their

with mortgage money and loan officers

around time and service would keep the

borrowers by trying to carve minutes

living in a constant state of panic, waiting

orders flowing, even when the required

off the turnaround cycle and never

for independent appraisers to deliver

values weren’t really there.

compromising quality. We had to provide

reports. Mortgage lending had suddenly

better service because we didn’t always

become a new and highly competitive

The Tandy 100’s monochrome screen

industry. From my perspective inside

only displayed 200 characters, 50

the bank, it was easy to see how faster

characters wide and 4 lines high. The

On the front line of technology in 1990

service would mean plenty of business

reports were saved onto a separate audio

was the cellular phone. The cell phone

for an appraiser. What if an appraiser had

cassette player by pressing play/record

companies told me it was illegal for us to

a computer that prompted the questions

and save on the Tandy at the same time;

transfer appraisal data over radio, but I

and then printed the appraiser’s response

there was no floppy disk yet. With my

knew the oil and gas industry outside of

right onto the form? Eureka! In 1983 I

printed sales books in the back seat,

Calgary, Alberta, was transmitting data

left the bank, hired a programmer and

a power generator, and a daisy wheel

logs by wireless every day. Why couldn’t

rode boldly into the new frontier. I had

printer, I was able to turn an appraisal

an appraiser log onto the MLS or transfer

visions of becoming this highly informed

around in 2-3 hours and personally

appraisal files by cell phone? “AT X19 -

appraiser that completely understood

inspect all of the comparables. Inspecting

enter” turned out to be code that would

what every home was worth, visited

comparable sales was overkill and

tell a modem to connect with a squealing

22

| LVM

/ October 2010

support the value our client needed.

modem on the other end. This was cool

photographed Calgary’s 300,000 homes

competition then wanted to partner with

stuff…until the MLS website became

in 1996. When the Internet became

us and we were happy to oblige if it took

graphical and the page load times

mainstream in 1997, our photo database

us national and could help fund the very

jumped to 5 minutes at the pathetic 300

raised eyebrows and questions from the

expensive data collection.

baud rate our modems could maintain

privacy commissioner. After a few radio

over a cell phone. The competition didn’t

interviews and a 30-minute television

By 1998, with the help of a large national

mind our little technical setback and they

debate, the excitement over privacy

partner, we had become Canada’s largest

were beginning to dislike our technical

rights abated. Lenders could suddenly

appraisal management company. Our

ways. We bought faster modems and

see any Calgary home from the street

appraisal contract expanded nationally

more comfortable cars and carried on.

through their computer screen. Banks

as did our national photo shoot. Lenders

were centralizing their operations and

could see any home instantly, but now

Exclusive appraisal contracts were

our goal became the task of centralizing

they wanted the appraised value along

unheard of, and considered unfair for

the appraisal supply and data on their

with that photo. We began to focus our

the competition, but lenders wanted

behalf. We wanted to be faster, better, and

technical development on a database

what we had, so I signed one of the first

allow appraisers to spend more time on

structure that would help an appraiser

contracts in Canada for the entire city

real valuation research while transferring

organize market data and research values

of Calgary. We posted and distributed

the clerical mechanics of production into

even before an order was received. That

orders through our private Bulletin

the burgeoning world of information

naïve idea about >>

Board Service (BBS) because the Internet

technology on the Internet. We had 12

didn’t yet exist. Our appraisers logged

appraisers, all with complete briefcase

onto our BBS from their vehicle and the

office systems on the passenger seat

company grew very quickly even though

of their car, and our quick turnaround

our appraisers rarely met each other at

time with higher quality research had

the central office. As technology settled

a markedly positive impact on our

in, we began to imagine the tremendous

client’s market share for

potential of electronic data interchange.

mortgage origination.

We didn’t know it at the time, but what

Real estate agents soon

we had imagined soon arrived in the

knew where they could

form of the Internet. We were gaining

get quick mortgage

market share while the competition was

approvals and where

growing more unsettled with us every

NOT to send fraudulent

day. Lenders loved us.

deals. Our lenders were winners on both accounts.

Digital signatures were next on the

A separate company called PhotoInfo

horizon in the mid 90s, along with

Digital Photography Inc. was formed

those binocular-shaped digital cameras.

and we began to generate interest

We bought 26 Logitec™ cameras and

from appraisers in other cities. The

NEXT ? YEARS

LVM |

23

at a time. Appraisers had to become local

public in 2004 with a small IPO at 30

order was on the table again. The risk

market analysts even before the order

cents, we had completed most of the

manager at one of our lender clients said,

was received. The appraiser needed to be

photography in Spokane, St. Louis and

“Our sales department wants to issue

more than just a person who could tally

Denver, and we had the rudiments of

mortgages as quickly as a credit card

up the physical assets of a house and

GeoScoring. GeoScoring crystallizes

transaction, while I need to make sure

find three comparables that sold near the

qualitative words like “good” and “fair”

we maintain a quality appraisal.” Things

suggested value. They needed to become

into meaningful and consistent numbers

were still too slow and clients seemed to

professional market analysts for local

on a scale of 1 to 10. The vision for an

always want the report yesterday. Those

market conditions and value trends,

appraiser-backed valuation database

scary black sedans from the 70s would

and they needed to do it better than a

was clearly on the road ahead. With seed

soon become black box Automated

real estate agent, tax assessor, or the

financing, we developed the first version

Valuation Models (AVMs) that would

dreaded AVM. We could feel statisticians

of our valuation software and

attempt to determine a home’s value

breathing down our necks. On the flip

pre-appraised most of the homes in

instantly or simply risk rate the loan and

side, those AVMs had data errors and

Spokane, Washington. Within days, we

not conduct any valuation at all.

were inaccurate 30-40% of the time and

were instantly delivering the original

>>

doing market research in advance of the

1979 1980 1990 1990s 1996 1998 My appraisal career began as a Canadian mortgage underwriter when I was 19…the Olivetti typewriter was on the cutting edge of technology.

Mortgage rates

The cellular phone

were like price

was on the front-

tags. They kept

line of technology.

rising with

Cell phone

inflation until they

companies said

reached the apex of

it was illegal to

insanity at 22%.

transfer appraisal data over radio.

We began to imagine the potential of electronic data interchange. What we had imaged soon arrived in the form of the Internet.

We bought 26

We had become

Logitec ™ cameras

Canada’s largest

and photographed

appraisal

Calgary’s 300,000

management

homes.

company.

Our best client had been predicting a

we knew appraisers could do a much

2055 appraisal form to a few small local

doomsday for all residential appraisers

better job if they had the tools. It was at

lenders. The valuation research had

unless appraisers could somehow learn

this critical juncture that our Canadian

taken months, but the lender could

to analyze more than one house at a

business partner would decide to buy

receive it instantly. However, the larger

time. Lenders needed neighborhood

us out, leaving me with a non-compete

lenders with most of the market share

trends and statistical data to manage

agreement for Canada. We entered the

felt they needed national coverage before

risk, while the mortgage sales side

US market in January 2000 and ZAIO

they could really play ball, and the

needed those same statistics for better

was born (Zone Appraisal and Imaging

middle of a refi-boom was not exactly

service and marketing. Black box

Operations). We were right on time for

ideal for lenders to re-tool their existing

AVMs would become the appraiser’s

the tech wreck, AKA the Dotcom market

appraisal supply chain. It was a Field of

archenemy. Trying to carve another 10

crash. I had to re-invest every dime

Dreams scenario. “If we build it they will

minutes off an appraiser’s turn time was

from the Canadian sale and refinance

come…”

no longer the question. In fact, the whole

my home for the second time, but the

question had changed for the appraiser.

company survived.

It was no longer “What is this house

This would be a very steep uphill curve. Photographing and GeoScoring

worth?” but “What are these houses

It was hard to know where this

a large portion of America would cost

worth and where is this particular

long and winding road would lead,

millions unless appraisers liked the

market going?” Loans were securitized

especially when the capital markets

concept enough to purchase a software

into mortgage pools to reduce risk and

and investors had the jitters too. ZAIO

license for a specific geographic area.

appraisers were becoming outmoded.

had to unite US appraisers with photo

In 2006, with a new CEO and an office

Clearly, the key was to help the appraiser

and data collection, and it needed

in Phoenix, we launched an aggressive

measure value on more than one house

capital. When we took the company

Zone Sales program. Appraisers would

24

| LVM

/ October 2010

own rights to a geographic area called a

and investor capital, when industry

and accelerate GeoScoring and database

Zone. A Zone contained approximately

icons like Bear Stearns and Lehman

growth. The solution was for Zone

10,000 properties and the Zone Owner/

Brothers toppled. When lenders hit the

Owners to unite under their own banner

Appraiser would research all the homes

brakes, all revenue sources and investor

and for ZAIO to issue one national

in detail, fixing errors in the property

dollars for ZAIO vanished and our US

software license to this new entity. That

data, selecting comparables and

subsidiary was closed and dissolved.

new company is Zone Data Systems LLC

analyzing the value of every home in the

Zone owners dubbed that fateful day as

(ZDS). Independent valuation research is

database. Appraising in advance of the

“Z-Day”.

the future for appraisals. Whether the

order would ensure pure independence,

final product is a desktop, drive-by, or

geographic competence, and adequate

ZAIO’s Board of Directors managed to

full interior appraisal, knowing the valid

time for quality research, while the client

keep the public parent company alive

comparables and market trends up front

would receive real-time delivery, quality,

and out of the ditch. Dedication to

makes complete sense for everyone

and cost efficiency. The appraiser’s

preserving the investments from Zone

involved. The ability for local appraisers

local research would be the most critical

Owners and shareholders carried the

to accurately track property values every

aspect of the entire value proposition.

company through 2009, saving its critical

month will add an entirely new and

2000 2004 2006 2008 2009 2010 ZAIO was born

We took the

With a new CEO,

Stress fractures

ZAIO’s Board of

ZAIO issued a

when we entered

company public

we launched an

began to appear in

Directors managed

national software

the U.S. market in

with a small IPO at

aggressive Zone

the business fabric.

to keep the public

license called Zone

January.

30 cents.

Sales program.

Bear Stearns and

parent company

Data Systems.

Lehman Brothers

alive and out of the

toppled.

ditch.

the

long and winding road

Appraisers caught the vision and

assets for a better day; saving it for days

necessary dimension to the appraisal

purchased software rights for one third

like today, when market research and

and collateral risk industry.

of metro USA, and those selected Zones

valuation clarity is really taking center

encompassed half of the country’s

stage. By keeping the faith, shareholders

As the country continues its effort to

strategic lending footprint. With ZAIO’s

and Zone Owners would emerge from

clean up and restructure America’s

stock price soaring as high as $5.60, the

this economic disaster stronger than ever

mortgage woes, and leaders in lending

company then found itself in acquisition

before and the database would grow

and government have that deer in the

mode. ZAIO purchased appraisal

again.

headlights look, they need to know that

management companies, software

technologies such as, ZDS and ZAIO

development companies, photography

The crisis proved to be an ideal

are coming down the road with a major

networks, and even Appraisal.com.

opportunity to revisit the business

helping hand. Real-time valuation clarity

Some of the best known names in the

relationship with local appraisers.

will inspire new investors to absorb the

appraisal industry were happy to lend

Between economic change and

troubled loan and REO portfolios, and

their expertise and join the management

technological advancement,

accurate value tracking in the future

team. The concept was solid, but there

perspectives can change overnight,

will foster better lending programs and

were still a few sharp turns in the

making a company’s willingness to

mitigate fraud. The entire lending and

road, and in early 2008 stress fractures

reinvent itself a major asset. Zone

collateral risk industry reside on this

began to appear in the business fabric.

owners wanted to mitigate risk and

long and winding road, and I think we

Operational costs were high and it

needed more control. They wanted

all know where this road leads.

became difficult to see the road. We

higher revenue potential. ZAIO felt a

were running mainly on revenue from

strong need to unify the Zone Owner

traditional appraisal services, Zone sales,

network, reduce capital expenditures,

LVM |

25

o

appraiser realt r I in

CLOTHING

Appraisers and Realtors: the common ground.

Steve Ferguson

I have been involved in some form of the real estate industry for the better part of my life, from

construction with my father as a teen, to appraising and loan originating, and now as a Realtor.

Even when I decided to go back to school in the early part of the decade to pursue an education

in economics and leave the business, I saw more opportunity and application in real estate than anything else. The study of economics has allowed me to create models to simplify the complex, and recognize there are problems that cannot be explained rationally: perfect for real estate. It is from this background, specifically my experience appraising real estate, that I have gained a significant foundation as a Realtor.

26

| LVM

/ October 2010

As an appraiser, I had respect for some

market value. I have found that many

with how appraisers estimate value. It was

of the Realtors in the field, but largely,

Realtors throw around the price per square

early April; I did not want to see anyone

my perception was that they were paid

foot statistic more than appraisers. Taking

lose a deal and cost a client $8,000 and

a lot of money to turn a key; I will not

something so complex and reducing it to

possible litigation. I had approximately

even tell you what most Realtors think

one all encompassing figure is dangerous

thirty Realtors in the training group and

of appraisers. Even though I am not an

and violates the axiom of each property

started with USPAP definition of market

appraiser now, I still become defensive.

being unique. I am sure it is used because

value and moved into neighborhood

I figured that with my background in

most buyers and sellers can relate. I still

definition and comparable selection. All

valuation, it would be a snap to adapt to

look at contributory value as the way to

was going well until I discussed matched

this part of the industry. Keep in mind I

advise clients, which makes me feel more

pair analysis. To be fair, this systematic

was an appraiser, then became a Realtor

confident. When determining a list price

approach to valuation is in many ways

during two very different and distinct time

for a house and sometimes purchase price

like learning a new language. For good

periods of my career. Believe it or not, the

for a buyer, I will run a multiple regression

measure, I have been in many appraisal

job of a Realtor can be very demanding,

and do a modified appraisal on the

courses where the slightest hint of algebra

especially for a closet introvert. It turns out

property. At the very least, I will complete

brings panic to appraisers. The intent

I have learned quite a bit as a Realtor—

a truncated appraisal using sales from the

of the exercise was to borrow some best

things that I did not know or consider as

neighborhood and from time periods in

practices from the appraisal world in order

an appraiser.

which marketing influences are somewhat

to help them think in an organized and

similar (remember this mess started in

systematic way. My conclusions were that I

There are many similarities to our two

August 2007). I do use older sales (12

shouldn’t have had such high expectations

sides of the business, including client

months plus) in order to stay within the

while giving them a crash course in

relationships as well as valuation and these

confines of a neighborhood rather than

everything I had learned over the course

two similarities take on different forms.

extracting an adjustment for differences

of 15 years inside of a two-hour training

For instance, we as Realtors need to get to

in amenities and location. Again, this is to

session. I also concluded that the average

know our clients very well as it pertains to

protect the interests of my clients, not for

personality of a Realtor is not conducive to

their lifestyle and even finances. It is not

an underwriter. I realize I am not doing

thinking in a linear way (cheap shot). We

uncommon for personal relationships to

an appraisal by today’s standards but it is

did manage to close all deals from April

spawn out of a business relationship, to

the way most appraisers would operate if

and only had one “low” appraisal for the

know names of kids, and to have common

given the freedom.

month.

especially now, you may not even know

Perhaps a story would be useful

Even though many Realtors do not

anyone at the mortgage company/bank

in illustrating how our worlds are

methodically look at contributory value

you are charged with protecting. However

different. In my office, my experience

the same way, after looking at so many

the same client confidentiality applies to

as an appraiser comes in handy and is

properties in a specified market, the value

both.

especially centered on training other

of a specific property almost becomes

friends and hobbies. As appraisers,

Realtors. Recently, I became concerned

visceral. From my experience working

The valuation techniques were, I believe,

with the April 30th expiration of the

with buyers, this is particularly true.

the best tools I learned through the years

buyers incentive specifically as it relates

Buyers, whether they are thinking or

as an appraiser. There are many appraisers

to appraisals—low appraisals. I wanted to

feeling, can organize data and come pretty

and Realtors who are good at estimating

bring Realtors in line, if only temporarily,

close to market value, in somewhat of a>>

“

“

As an appraiser, I had respect for some of the Realtors in the field, but largely, my perception was that they were paid a lot of money to turn a key; I will not even tell you what most Realtors think of appraisers.

LVM |

27

qualitative manner. Translation: whatever

I believe it is my duty to protect my client

their ideas are of the market, they

The best way I found to model

and earn the commission I am to be paid. I

price-adapt quickly once they have

the real estate market is through

also believe I am helping the appraiser do

developed their own set of priorities or

a form of regression. It is a

his job and to protect his client relationship

bundle of needs. Will they pay more for

rigorous approach to observing

by making sure I can justify a purchase

a full fenced rear yard? Deck? In-ground

and smoothing out contributory

price. Entering into this downturn, there

pool? My experience tells me it depends.

value. In the example with the

were probably many appraisers who

If they did not have it in their bundle of

pool, deck and fence it can infer

were aware there was a growing crisis.

needs and it is an added feature to the

a value point and then also

Maybe we could not have predicted the

house they have selected, they may be

a range of values within the

magnitude of the downturn but there

inclined to pay a little more for the added

upper and lower 95% confidence

were enough warning signs that lead to

feature. For those buyers who had to have

interval. There are at least three

concern. The rise in LTVs since the mid

an in-ground pool, or a fenced rear yard,

downsides to this approach.

1990s and the concerns within Fannie

well, they wouldn’t be looking at that

•

Mae even going back to 2004 were only

the first is that you will need

a couple of the problems. Mentioning

me to the question: is there one price that

plenty of observations, 30 plus

anything about over supply or decreasing

a pool, fence, deck or house is worth? This

sales, listings or pendings, but this

values was career suicide for an appraiser.

one is hard to pound into the heads of the

can be done at light speed with

Being on this side of the industry for a

secondary lending market, but the answer

the right program; on the more

good portion of the run up of appreciation,

is no. There is a range of values or multiple

obscure features you will need

I can see why we reached a critical mass.

demand curves. In the first example where

even more.

Almost every client I worked with prior to

property if it were not included. This leads

the buyer was not necessarily interested in

•

the collapse chose the most house he/she

the second downside is that

could afford. So predictable was this that

buyer is more in control of the contributing

you should be trained. You should

it was unusual for a client to buy a house

value. In the second example where the

know how to select the features

that was less than the limit of the pre-

buyer had to have a deck, the seller is more

that are important in the market

approval. Greed is part of human nature

in control of the value so long it does not

place, be able to convert data or

and has been talked about and studied

exceed the cost of installation. Of course

have a program that will, and also

from the beginning of time. This of course

this is hard to observe unless it is part

be able to interpret data.

puts more pressure on me, their Realtor, to

a deck, but the house had one, it seems the

of the transaction. I have witnessed the

•

find something that is a solid investment.

the third and final downside

Appraisers tend to be the scapegoats of

different than the way I thought it behaved

is that it will absolutely change

most real estate crises, but in this case it

as an appraiser.

all the canned adjustments

was, in my opinion, unchecked greed. This

most appraisers use in their

greed was not only on the part of lenders

report—$500 for a half bath on

and secondary market (they did quite

a $200,000 home will be history.

well), but on the part of the general public.

The benefit I have found to this

Remove, change, or alter credit guidelines,

approach is that regression takes

allowing more people to own homes and

all the information objectively

it will skew demand. Buyers will always

and gives back what is important

want more if they are not restrained by

to buyers and sellers in that sub

guidelines. What else is an appraiser to

market by giving a coefficient and

do but follow past supply and demand? I

also standard error.

witnessed more zero down loans to people

market working first hand and it is slightly

...appraisers

could improve

their business and

understanding of

that could barely hold their credit together

the market by

Leaning hard on my clients’ bundle of

long enough to close the loan. HVCC

shadowing a

needs and also the ability to use statistical

and FinReg, I am sure, are well intended

tools have kept me from having problems

but not the answer. Fraud, coercion of

with appraisals. Of course, being a former

appraisers, is only a small part of the

appraiser does not hurt either, which leads

problem. If you could barely pull together

me back to the beginning.

$500 or $1,000 (FHA minimum amount

Realtor for a day or two...

purchaser had to contribute) to purchase 28

| LVM

/ October 2010

a home, how long would you stay around

Can the buyer not make some of these

there will always be a need for human

when your home just lost 5-10% of its

decisions, especially in an economy where

interaction. We can stick to our old ways

value? Add to that the sub prime market

saving $30-$50 may make a difference

or adapt to new more efficient ways to do

and it was clear to see we were just

to an individual? If there is a correlation

business for what I believe to be the good

borrowing money for an unsustainable

between well water and mortgage default,

of the industry and consumer.

lifestyle. Taking the homeownership rate

I have not been made aware. To clarify, I

from 65% to 69% of the American public

am referring to a functional well in good

In my years of appraising, the systematic

could not be done by corporate greed

working order. What if the buyer was

approaches to highest and best use,

alone. Homeownership has gone from

interested in the property in spite of, or

income capitalization, etc., have all made

being a dream to being portrayed as a

because of a so-called deficiency? I know

me a stronger Realtor. Realtors could

right. Rest assured it will be fixed by the

this sounds a little old fashioned and

benefit if we attended a class or two on

same organization that created HVCC and

utopian, but we now have more checks

appraisals to expand our knowledge in

FinReg.

in the system than ever: public access to

the valuation methodology, so we as a

MLS, home inspections, and Realtors and

group could understand what concerns the

I may be cutting my own throat, but the

appraisers are more educated. I recognize

appraisal side has in the process. On the

answer to this is obvious: larger down

it is not easy, if not impossible, to uncover,

other hand, based on what I have learned,

payment and lower LTV. This flies in the

research and resolve all issues as they

appraisers could improve their business

face of the right to homeownership and

relate to an assignment based on an hour

and understanding of the market by

also the ability of the secondary market

long (sometimes less) site inspection,

shadowing a Realtor for a day or two, or

to have such control over the origination

especially in isolation from the rest of the

at least be a part of a small business group.

process. Analogous to this is the health

industry. That is why the very least we can

We deal in the same industry, we both

do as Realtors is protect our clients’

encounter similar problems in the

“

“

Appraisers tend to be the scapegoats of most real estate crises, but in this case it was, in my opinion, unchecked greed. This greed was not only on the part of lenders and secondary market (they did quite well), but on the part of the general public.

care insurance that most have. When

interest. The appraisal is only one pillar

industry, and it would be beneficial to both

offered full access to doctors without any

when building a quality loan file. There

sides if we “cross-trained” to the other

type of co-pay, demand is much higher

are credit, title, and income (and its source)

side. We are in a unique time and we need

than when there is even a small $10 co-pay.

of the buyer as well. The appraisal is only

to share ideas, information, and support

As a consequence, the group insurance

ordered when the first three pillars are in

each other’s efforts toward stabilizing the

premiums are much lower when there is a

place. As we all know, a three-leg table,

market.

co-pay. The patient is vested in that doctor

if all legs are strong, should be able to

trip and will not waste their own money

stand on its own; the fourth leg is there to

Lastly, Realtors look out for Realtors.

over a hangnail.

provide extra stability equal to the other

We get to know each other through our

legs, should one fail.

dealings in the market; we sit across the

Lenders and the secondary market are

table from each other and even develop

asking appraisers to know more than ever

Realtors and appraisers will probably

friendships. There is competition but

while receiving an unfair portion of the

never think exactly the same way and

there is also a set of ethics that require us

blame; the lenders will probably get part of

I consider the lessons I have learned as

to explicitly treat each other fairly, and

the blame for holding the current market

a Realtor invaluable. We have a lot of

by nature agree to work together. The

static. Part of the responsibility to educate

common ground, we share an enormous

strength of the local, state and national

is that of the lenders and Realtors—both

amount of data, and we are experiencing a

boards create a cohesiveness that I did

buyer and seller need to be properly

time where banked technology is changing

not witness as an appraiser. It is from this

informed or advised, and to act in their

the way in which we do business.

unity that we have developed strength in

own best interest. What happened to

Change is inevitable in any industry.

the market and with our PAC. Like many

buyer beware? As an example, FHA will

As professionals from both sides, there

blogs I have read before, I would suggest

not allow the buyer to purchase a home

will always be a need for interpretation

appraisers do the same. There is strength

on a well when city water is available.

between real estate and technology, and

in numbers.

LVM |

29

Mich

ael C

Inspector

A

The “Improvements” section of the URAR.

1

IV Part

OBSERVATIONS of an

onn olly

As you would expect, the “Improvements”

mandated by a professional association

section of the URAR form is where

like the American Society of Home

the largest cross over exists between

Inspectors (ASHI). These standards of

appraisers and home inspectors. The

practice require the inspector’s description

appraiser is asked to describe the

and inspection of specific areas and

improvements and generally advise

improvements in the home.

on the condition, needed repairs, and

The home inspector goes into much more

soundness, or structural

deficiencies of the property. The appraiser

detail and analysis than an appraiser

integrity?

is asked if the property conforms to the

would, but is ultimately asked to

neighborhood in terms of functional utility,

conclude by answering the same three

style, and condition. Most home inspectors

questions as indicated at the end of the

follow “standards of practice,” often

“Improvements” section of the URAR:

30

| LVM

/ October 2010

2

3

Describe the condition of the property.

Are there any physical deficiencies or adverse conditions that affect livability,

Does the property conform to the neighborhood?

In this installment, I will follow along with the URAR form in the “Improvements” section and touch on a few methods and protocols home inspectors use to evaluate the improvements (house) and ultimately answer these three questions.

General Description If a home is attached to another unit or building, the inspector should closely evaluate the common wall. The common walls should provide privacy and separation from a neighboring unit. However, a common wall’s most important purpose is to provide adequate fire stopping between adjoining units.

It should be examined for any breaks or penetrations in the wall. If there are any breaks, these need to be adequately sealed to prevent the migration of fire. This common wall should also extend up into any attic spaces. If a wall has penetrations that are not sealed or a separation wall is missing in the attic, this should be mentioned in the report.

If a home is new construction, the home inspector should look for any signs of municipal inspections and permits. Every municipality has different procedures for posting their inspections. These are usually in the form of stickers or tags placed on the main electrical panel (electric inspection) and on the water heater or main soil stack (plumbing inspection). If no inspection notifications are present and no occupancy certificate is present, the builder should be asked to present proof that the home has been inspected and approved by the local public building department.

The design and age of a home can dictate many common problems and areas of concern for homes. The scope of this article does not allow for a full exploration of the unique attributes of each design of a home, as well as age related issues.

Foundation

over dirt floors should be in place and

There are three basic designs for slab

moisture vapor in the crawl space which

foundations: monolithic, floating and supported. It is often difficult and outside the scope of an appraisal to identify the design of the slab, but this is required of a

continuous to prevent the build up of can lead to mold and fungus growth.

The very nature of crawl spaces makes them an undesirable place to visit. Most

home inspector.

homeowners ignore the crawl space

Most slab homes of the Midwest, where

inspect. Moisture and insect penetration or

I am from, are supported slabs where the floor rests on a poured foundation that is deeper than the frost line. In other parts of the country, based upon the climate and soil conditions, the slab can be monolithic and placed on grade, as the soils are more stable. Most garages and patios are a floating slab, which means they are independent of the foundation walls (sometimes tied into the foundation with

of their home and may never enter to plumbing leaks can occur for years before being discovered (usually by a home inspector). By the time they are discovered, the damage to the structure can be extensive. A crawl space is the most likely place one will find issues, defects and deficiencies in a home. It should not be overlooked! I once inspected a crawl space in a thirty-year-old one story home that had a pin hole leak which had developed

steel rebar).

into a 1/2” water line running under the

Slabs can crack and settle. When walking

sort of leak, but a fine mist spraying out

through the home, be aware of uneven floors, cracks beneath the finished floor coverings and gaps, or separation between the floor and the outer perimeter walls (foundation). Most slabs have the load bearing walls resting on the foundation, and the floors are not load bearing.

However, any noticeable cracks or settlement of more than 1/4” should be noted and evaluated further by a

bathroom. This leak was not a “drip drip” from the pipe spanning nearly a 10-foot radius. This misting of the crawl space had been occurring for at least 9 months (this time frame has been estimated, since the pipe had ruptured from freezing, which must have occurred in the winter; the inspection was in the summer). The misting caused rotting of the floor joists and subfloor as well as extensive mold growth over half of the crawl space area.

qualified contractor or engineer.

The owners had to remove the finished

Crawl spaces are generally shallow and

and bathroom areas to effect repairs, which

uninhabitable areas under the main floor.

These crawl spaces should provide access of at least 18”x24” to allow for inspection of the under floor area. If mechanical equipment is present in the crawl space, the minimum opening should be 30”x30.”

Wood framing members such as floor joists should be more than 18” above the floor of the crawl space to minimize the possibility of termite infestation. The crawl space should be adequately ventilated (usually to the exterior, or it can be opened to the interior of the home and conditioned with the HVAC system). A vapor barrier

floors and subfloor in all of the bedrooms were over $30,000! Always inspect the crawl spaces or make sure that if you cannot inspect the crawl space that this limitation is mentioned in your report.

Full basements provide the best opportunity for moisture penetration.

Most basements are 8-to-10 feet below grade. A hole that is 10 feet in the ground will, at some time, have moisture penetration. This could be a chronic issue or a one-time occurrence such as a flash flood or plumbing leak. There are a number of clues that may >>

LVM |

31

“

“

A crawl space is the most likely place one will find issues, defects and deficiencies in a home. It should not be overlooked!

inside a house. Subterranean termites live in the ground and only forage for food (wood) inside the house. Mud tunnels extending up a foundation or wall from the ground are a sign of subterranean

indicate moisture penetration such as rust

area is filling with water. Sump systems

termites. Any signs of termites warrant

stains on the carpet or flooring, which can

are usually connected to underground

further evaluation by a licensed pest

be indicative of prior water penetration.

perimeter drain tiles that collect ground

control technician.

Staining from water penetration can

water around the foundation and direct

often be seen on the baseboards (push the

it to a sump crock, then an operable

Dampness in a basement or crawl space

carpet down to look at the bottom of the

pump evacuates the water from the crock

can represent a significant issue in a

trim). If possible, view any drywall from

(usually out to daylight somewhere in

home and could impact the habitability

the unfinished sides of the walls. Water

the yard). However, when the pump is

as well as the structural stability of the

will stain the paper on the drywall and

inoperable, the drain tile is still collecting

house. Mold and fungus can seriously

it is usually not painted to cover up the

ground water and filling the crock. A

affect the health of the occupants, so any

staining. Floor drains in the basement

house with an inoperable sump pump will

noticeable signs of dampness should be

(which are connected to public sewers)

flood much faster than a basement without

further investigated by a professional.

will be the first drains to back up if there

drain tiles and a sump crock. For this

The most likely cause of dampness in the

is a back flow or blockage in the sewer

reason, all sump pump systems should

below grade levels is water penetration

connector pipe (between the house and

have a secondary or back up system.

past the foundation walls. This is

the public sewer). Always look for signs

attributable to poor soil grade around the

of moisture penetration around the floor

Some houses may have a sump pump and

house and inadequate management of

drains, as this is usually the lowest place

an ejector system. A sump pump system

water draining off the roofs.

in the basement floor. Look for any stickers

handles clean ground water, while an

from local plumbers and drain cleaner

ejector system handles either gray water or

Settlement is often a term used to describe

companies (usually found on the water

sanitary wastewater. The sump discharges

any sort of crack in a foundation or

heater or on a soil stack); this may be a

to daylight while an ejector system will

walls, which is associated with building

sign of chronic blockage or past water

discharge to the sanitary drain system

movement. A house can just as easily

penetration.

(sewer or septic system). The two systems

be rising or lifting rather than settling.

look similar so it is important to take a few

Expansive clay soil, when hydrated, has

Below grade areas with outside entries

minutes to evaluate and determine if you

enough force to lift foundations, piers, and

provide additional opportunity for

are looking at a system to handle ground

columns. Many people might see a crack in

moisture penetration into the lower level

water or wastewater.

a foundation or a wave in a floor and think

past the doorways. Many doors are not

the house has settled (sunk) when in fact

adequately flashed and elevated to prevent

Evidence of infestation can be difficult

a section of the foundation or a footer has

moisture penetration. If the surrounding

for an inspector or appraiser unless they

lifted due to expansive soils. Furthermore,

area of the basement is finished, the

have specific training in inspection for

a structure can settle or rise uniformly,

moisture penetration may not be readily

such animals or insects. As such, this type

often without noticeable evidence such as

visible, so closely check the adjoining

of inspection is usually outside the scope

cracks. Differential settlement is the term

walls, trim, and floor covering for moisture

of an appraisal or inspection, but some

used to describe uneven movement, which

penetration. Open the door and look at

home inspectors are trained and licensed

often results in cracks and out of square

the doorjambs and the sill for signs of rot.

to inspect for wood destroying organisms

doorways. When in doubt, it would be

Lots of small insects and worms around

(WDO). These would include termites,

prudent to recommend that a professional

the doorways is also a sign of moisture

carpenter bees, carpenter ants, powder

evaluate the structure.

penetration.

post beetles, and wood destroying fungus.

The two main types of termites that can

In the next installment, we will finish up

Sump crocks and pumps are one of the

be found in homes in most of the United

the remainder of the “Improvements”

most overlooked systems in a home. Many

States are the subterranean and dry wood

section of the URAR.

owners never think about their sump

termites. Dry wood termites live in the

system until their below grade

wood and can be found in large colonies

32

| LVM

/ October 2010

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I

I

I

LVM | lia@liability.com

33

CA License #0764257

Voices of Valuation Last month’s articles sparked a lot of debate. Here are some responses from our readers.

Publisher’s Note

1

Aagc Nothing short of the individual appraiser setting his or her own fees for an assignment, AFTER reviewing available Subject data and establishing the Scope of Work, is acceptable in my opinion. Per the USPAP, the Responsibility for the SOW Decision rests squarely on the appraiser’s shoulders.

What Do I Do?

Beachappraiser The problem is: there are way too many appraisers practicing today with little or no formal education i.e.; Appraisal Institute Courses.

The state licensing courses only make you dangerous!!! I recently had an appraisal review on three appraisals on the same property that ranged from $535,000 to $900,000!!!!!!

2

Bayhill Appraisers didn’t cause the last mess. Foreclosures are a result of people not being able to pay their mortgages due to bad loan programs, like 30/5, adjustables, ez qualifiers, & fraud. The mortgage industry caused this. Even if appraisers over appraised by a few thousand, or a few appraisers committed outright fraud, that didn’t bring real estate to its knees. AMC appraisals will.

34

| LVM

/ October 2010

Do you

have something to say?

www.livevalmag.com

Reasonable & Customary Fees

3

LGOrlando Jordan, I have technically known you for 10 years. You are an intelligent business minded professional. Always have been and became successful in the process. But I have to interject on the comment regarding “If your competitor is willing to complete the same assignment for a reduced fee – one that he/ she deems to be reasonable & customary – shouldn’t they have that right?” No they should not since this is why we got into this mess in the first place. Self-hating appraisers who do poor quality work.

Millettw The lenders off loaded their appraisal management needs to AMCs. Now it’s time for them to pay for that service, not the appraisers.

Jim The lender is the AMC’s customer and will promise low fees and quick turnaround times to get and keep the lender’s business. This is a common business practice, competitive pricing and quality work. Until HVCC, fee appraisers did this as part of their business model. I know I did! I marketed my company and my product daily but the fees and product quality I promised were based upon what I knew was needed to stay in business based upon my expenses and to compensate us for our education and appraisal knowledge to the level of other similar professionals.

The problem with this practice now is that the fee appraiser is expected to fulfill the unreasonable promises made by the AMC to it’s customer, the lender, with no regard to the appraiser’s expenses, education, experience and competence!

4

Granny on Valuation

Relocation Appraiser

Sherrielisa This is something maybe we should really consider. When I complete my reports I always note pending sales and then follow up to check on their closing status. It is a bit time consuming but it is a great help to train yourself for relocation reports. Forward thinking!

For What It’s Worth

Marc There are several AMCs, which I have encountered, that are professional, fair and courteous. Most of them, however, don’t fit into that category and are bottom feeders who resort to bullying tactics to keep appraisers in line and their cash registers ticking. I hope that this bill gets implemented and thins the herd of these slugs and sends their staffs scurrying back to the jobs they are best suited for such as being carnival barkers, used car salesman and crawl space inspectors.

James Amazing Roger. That generation was simply one of the most practical and consequently smartest we have known so far. Humble, family oriented and hard working. Thanks for sharing.

6

Ethan The 2nd most significant word in Roger’s essay (after “Granny” of course) is “Probability”; a term lost upon investors, home buyers, refi-consumers, lenders, appraisers and political decision makers through ignorance or willful neglect. These stakeholders twisted assumptions so that “Probability” was often replaced with “Certainty”.

“Certainty “ suggests a single point value when forecasting a future value (which for a continuous variable such as home prices or interest rates will always be incorrect), while the correct method of forecasting is around bands of probability, which would have resulted in the instinctively correct conclusion made by Granny.

Jerry Same typical comments reflecting how appraisers are going beyond local areas for work assignments. Rules are in place for appraisers not to accept assignments in areas or scope of work they are not familiar with - the rules also allows for professional appraisers to appraise anywhere providing they provide due diligence in making themselves knowledgeable for whatever particular assignment type or area.

This appraiser receives orders outside general coverage areas often (ex.

U.S. Marshals Office) due to quality of work.

Someone please come up with a better argument as this one is played out and weak...

5

LVM |

35

PRIDE. PASSION.

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Corelogic

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513.659.1656

317.205.4320

Landy

www.landy.com

/ October 2010

Relocation Appraisers and Consultants

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781.292.5417

| LVM

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800.640.7601

36

800.334.0652

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LVM |

37

For What It’s Worth | Tunnel Vision | My high-school football coach would always talk to his players about tunnel vision. In a medical sense,

Bill Waltenbaugh, SRA

tunnel vision is the loss of peripheral vision with retention of central vision, resulting in a constricted circular tunnel-like field of vision. However, my football coach used this term to describe a player that loses sight of what is going on around him by focusing too much on one thing. For example, a defensive lineman can become so focused on the quarterback and the ball that they don’t recognize the trap block coming their way or the screen play setting up behind them. In short, they are knocked off guard and taken by surprise because they were too focused on one thing and lost sight of what was occurring around them.

38

| LVM

Ever since the passage of Dodd-Frank Bill, it seems everyone’s attention is focused on reasonable and customary fees. I understand this is a big issue for appraisers and others in the mortgage lending world, however there are other things in this bill that, if overlooked, have the potential of catching appraisers and their clients off guard. For example, things like mandatory reporting and the softening of the firewall between the appraiser and loan production staff definitely deserve more attention.

The purpose of HVCC was to prevent undue pressure from being placed on appraisers to inflate home valuations. In short, a full communication firewall was put in place between loan production staff and the appraiser. It’s difficult to argue that this isn’t a good thing. Keeping the person who is paid when a loan closes from being in charge of ordering the appraisal needed for loan approval seems to make sense. However, in accordance with Dodd-Frank Bill, the HVCC is expected to sunset sometime in the mid part of October 2010 after the appraisal independence-related provisions of the Act are released.

I totally expect the new regulations will maintain the firewall between loan production staff and the appraiser when it comes to ordering an assignment. However, there’s a provision in Dodd-Frank Bill that specifically states that an appraiser cannot prohibit anyone with an interest in a real estate transaction from asking them to consider additional information, to provide further support, or to correct errors found in the report. Those with an interest in a real estate transaction include the mortgage banker, mortgage broker, real estate agent, and consumer. In short, appraisers will still be protected from being punished if not complying with a loan officer’s demands, but the days of hiding behind HVCC and not entertaining additional information or answering specific questions from interested parties are quickly coming to an end.

Although the ground rules have been set, the question remains, how do lenders and appraisers comply with these new rules, yet preserve the spirit of appraisal independence? How, under certain circumstances, does an appraiser comply with these new provisions and still maintain confidentiality under the ethics rule of USPAP? Looking back pre-HVCC, I think communicating with the loan production staff of my clients made me a better appraiser. To stand the scrutiny of a loan officer (LO), a report had better be well written, well documented and well supported. If the report wasn’t rock solid, you were certainly going to hear about it. If I had to defend my report from long time LO clients like Jim and Bill, I better have a solid case. However, I had longterm relationships with these guys. We didn’t always see eye to eye but we were always able to put the last assignment behind us and move on. Personal client relationships like this are few and far between these days.

As such, when participants in the process are unhappy with the results, it’s a lot easier to be vindictive.

Which brings me to the mandatory reporting provision of Dodd-Frank Bill that states: any person involved in mortgage related real estate transaction who has a reasonable basis to believe the appraiser is failing to comply with USPAP, is violating applicable laws, or is engaging in unethical or unprofessional conduct, shall refer the matter to the applicable state appraiser licensing agency. Although I agree with this statement, I believe it opens the door for abuse. One has to question, are the state licensing agencies ready to receive and process the flood of reports from mortgage brokers and real estate agents who feel the appraiser didn’t do an adequate job? Customary and reasonable fees are important. However, let’s not lose sight of other issues that, if not addressed, might catch us off guard and end up taking us by surprise when they happen.

/ October 2010

LVM |

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