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Spring 2013 Volume 32
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From the Publisher Readers Respond AMC Fails: Appraisers Stiffed Again
6 10 12 16 19 24 26 28 30 34 36 38 40
by Isaac Peck, Associate Editor
Tips from Appraisal Subcommittee by David Brauner, Editor
Wearing the Business Hat by Richard Hagar, SRA
Estimating Physical Deterioration by Philip Spool, ASA
Making “Appraisal Independence” Work for Your Business by Nelson Boswell, Jr., SRA
Six Ways to Stay Out of Trouble by Larry Disney
“Checkbox Chimps” and Review Appraisals by David Brauner & Isaac Peck
Texas Fee Survey Unpacked by David Brauner, Editor
Closer Look for Home Inspectors: Expert Witness Subpoenas: How to Not Work for Free By Isaac Peck, Associate Editor
Best Way to Handle Complaints: Anticipate Them
New Home Inspector Insurance Program
by Alan Carson, Carson Dunlop & Associates Ltd.
Industry News Professional Marketplace Survey Results: How Reasonable are Appraisal Turn Times?
$1,250 / $300,000 Limit E&O AND Premises Coverage Includes most other coverages (radon, commercial, etc.) See pg. 31
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From the Publisher
WRE— e! nlin Read itgoRE.com Links to more Workin
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Reward, Risk and Bankrupt AMCs By David Brauner, Editor
The extent of my business savvy is pretty simple: make more money than
you spend. So it’s hard for me to imagine a reasonable scenario in which Evaluation Solutions/ES Appraisal Services (ES) can go out of business owing appraisers and real estate agents $11 million. Neither, by the way, can two executives at successful AMCs whom I asked the same question. Everyone is puzzled. We know most of the trouble was with high-volume BPO business. ES is So it’s hard for alleged to be owed about $2 million me to imagine from its lender client, according to banka reasonable ruptcy documents. Given this, where scenario in which is the other $9 million? Is there a reasonable explanation besides gross misEvaluation management, in the best case scenario, Solutions/ and take-the-money-and-run fraud in ES Appraisal the worst? If nothing else, this and other Services (ES) can recent AMC bankruptcies, which also go out of business left millions in unpaid invoices, should owing appraisers be a clarion call for more meaningful AMC regulation. Having said that…. and real estate
agents $11
Take Care of Your Own million. There were repeated complaints and warnings on the Working RE/OREP AMC Rater Blog about ES being a “slow pay,” going back eight months prior to the AMC’s final collapse (WorkingRE.com click AMC Rater). When we looked into ES at the earliest reports of trouble, our research indicated the AMC paid slowly and sporadically but they paid—eventually. In the end, all who allowed their payments to be strung out by ES and still came back for more, were left with nothing. So, like with any client, the lesson may be that when you encounter problems getting paid, it should be a red flag that it’s time to consider the rewards and risks and proceed with caution. Is the business really worth the risk? Think of working for such a company like a Ponzi scheme, where if you’re lucky, you may get out before the collapse. But if you’re “all in” at the end, like so many appraisers and agents were, you wind up busted. And the stakes are high. As one appraiser said in our cover story (pg. 6): “That’s my kid’s college fund.” So the question to always ask is this: is the reward worth the risk? WRE 4 Working RE Spring 2013
AMC Fails, Appraisers Stiffed Push your state’s licensing board to adopt North Carolina’s system which states that an AMC that doesn’t pay for the appraisal within 30 days of the report being submitted (not addendums or requests for more comps), risks losing their N.C. registration. — posted to OREP/WRE Appraiser Talkback Blog
This AMC cost me or nearly cost me the roof over my head, my vehicle, my credit, my personal relationship and most of all, my sanity. I am willing to do anything to help fellow appraisers get justice and get paid. I would like to see people in this often solitary, underrepresented industry become united, even if just for this cause. —Maureen M Jungers
Why Appraisers Get Sued Congratulations, Mr. Spool and thank you. Reality-based instruction and discussion is what the profession desperately needs. Thanks again for emphasizing the use of fact for support in appraisal. Another effort is needed to convince appraisers to spend the time to figure out what information is relevant fact.—posted to OREP/WRE Appraiser Talkback Blog
Texas Survey (Appraiser Fees Up) I am unaware of anyone around here making what they used to make before HVCC. —Dane County WI
Appraiser Evaluations USPAP does not prohibit “evaluations” as described in FIRREA. The Scope of Work Rule in USPAP allows an appraiser to determine by consultation with his or her client the scope of the research and analysis necessary to credibly and reliably accomplish the intended use of an appraisal. Under the Scope of Work Rule the appraiser and the client may determine the scope of the assignment in conformance with the description of an evaluation in FIRREA, proceed with the research and analysis in conformance with the determined scope, and report the results of the assignment using one of the reporting options in USPAP—certainly a Summary Appraisal Report. Of course, it is critical to disclose the scope of the assignment in the report. —William M. James, MAI, CCIM
Best Way to Handle Complaints: Anticipate Them (Story from Working RE’s Home Inspector Edition.) That is one superb “common sense” suggested letter (for home inspector clients). It should be worked up so it can go with the Home Inspection Report..... to offset complaints before they evolve and come to fruition. —Barry Noble
VA Hiring (Story first appeared in Working RE’s email edition.) I have been on the VA appraiser fee panel for 20 years. I agree with the author there is no pressure on value... ever. The people at VA Construction & Valuation are the greatest people you
will ever work with. They truly work hard for the veterans they serve. They expect high quality work from their appraisers. —Paul S. Dotterman, SRA
2013 AMC Guide JUST UPDATED!
Find the best AMCs to Work for & Fire the Rest
The VA will not help collect from dead beat lenders promptly. You will have to wait 90 days; then VA will start another 120-day process for you to maybe get paid. VA insists that you continue to do appraisals for the non-paying lenders. The last deal I had like this took nine months and countless hours of my time to get paid. —Michael
Visit WorkingRE.com click 2013 AMC Resource Guide
(Find story VA Hiring, page 37.)
Maybe it’s time to quit the appraisal business…
Blacklisting with a Twist In the old days, before the lender would put an appraiser on its “blacklist,” it would send a certified letter stating the appraisal in question and giving the appraiser an opportunity for rebuttal. Now here is how it works: a broker tells the lender not to use a certain appraiser. The lender then tells the AMC to take the appraiser off the rotation. So the lender does not have to notify the appraiser and there is no chance for any rebuttal because the appraiser is not being taken off the lender’s list but the AMC’s. The broker has more control than before. It doesn’t have to be for any certain appraisal anymore, it can be just because the loan officer doesn’t like the appraiser. The AMC doesn’t have to notify the appraisers because it still leaves them in the rotation for other lenders who use them. There’s nothing an appraiser can do. This has happened to me. I have no recourse and it was not because of any particular appraisal. I know which mortgage company told the lenders not to use me. I’ve called the lenders and they tell me to call the AMC and vice versa. There is more control than ever by the loan officers. —Charlotte WRE
Or maybe it’s just time to finally jump in with both feet. Dustin Harris, The Appraiser Coach, invites you to join a group of like-minded appraisers who are committed to putting systems and principles into place which allow you to do more appraisal volume, improve the quality of your product, and make more money. For an introductory video and one month FREE access go to: www.MastermindingYourOwnBusiness.com
AMCs—Looking for Good Appraisers? “Thank you for your services! The advertisement is working great and we have been busy adding new appraisers to our panel. Thanks!” —Brian Weeks, Nations Valuation Services
Working RE Magazine
Spring 2013 Working RE
5
AMC Fails: Appraisers Stiffed Again by Isaac Peck, Associate Editor
Editor’s Note: Fast becoming one the profession’s most pressing problems, another AMC has failed; this time leaving individual appraisers and agents owed millions of dollars. How the lender and regulators respond may create an important precedent for the industry.
Evaluation
Another AMC has failed; this time leaving individual appraisers and agents owed millions of dollars.
Solutions/ES Appraisal Services is the latest national appraisal management company (AMC) to declare bankruptcy and leave hundreds of real estate appraisers and agents/brokers with unpaid invoices. According to their bankruptcy filings in January, Evaluation Solutions, in conjunction with its subsidiary, ES Appraisal Services, has left behind an $11 million debt to appraisers and agents/brokers in the form of unpaid fees for appraisals and BPOs. Those appraisers and agents/brokers who have been affected have been actively sharing their stories online and putting pressure on the lender who hired Evaluation Solutions, JP Morgan Chase, to cover the AMC’s bad debts. Last year under similar circumstances, appraisers cited numerous regulations, including the statutes of FIRREA and the OCC (WorkingRE.com, Library, Volume 29; Success Collecting AMC Debt from Lender), arguing that when an AMC fails to pay the appraiser, the lender becomes responsible, since the AMC is an “agent” of the lender (WorkingRE.com, Library, Volume 29; AMC Bad Debt – Lenders Responsible?). In fact, there is a precedent for lenders stepping forward and paying the bad debts of their AMCs—last year MetLife Bank paid on AppraiserLoft’s bad debts (WorkingRE.com, Didn’t Make It to Print; Lender Paying Appraisers Stiffed
Isaac Peck is the Associate Editor of Working RE m agazine and Marketing Coordinator at OREP.org, a leading provider of E&O Insurance for appraisers, inspectors, and other real estate professionals in 49 states. He received his Bachelors in Business Management at San Diego State University. He can be contacted at Isaac@ orep.org or 888-347-5273.
6 Working RE Spring 2013
by AppraiserLoft) and Wells Fargo paid the unpaid invoices for their agent, JVI (WorkingRE.com, Didn’t Make It to Print; Wells Fargo Paying JVI Bad Debt). At the time of this writing, Chase, the lender who hired Evaluation Solutions, is refusing to take responsibility.
Appraisers Left Unpaid Nicholas Conteduca, an appraiser from Chicago, says he is owed well over $30,000 for appraisals he did for Evaluation Solutions. After hearing they were ceasing operations, he created a website, www.ESAppraisalScam.com, that allows appraisers and agents/brokers to share information, collaborate, and post how much they are owed. The website is littered with comments from appraisers and agents/brokers who are owed tens of thousands of dollars. At the time of this writing, the running total reported to the website is over $1,400,000. Conteduca’s story has similarities with others. He says he worked for Evaluation Solutions for two years and that slow payment was the norm. “It would typically take 60 days or more to receive payment, and sometimes up to four or five months. But I always understood that they took a long time to pay,” says Conteduca. The fact that Evaluation Solutions consistently let invoices build up into the thousands, and tens of thousands of dollars before paying, made it less alarming when the total invoice amount would begin to build back up. Like others in his situation, one of the reasons Conteduca kept working for
Evaluation Solutions was because they paid him higher fees than any other AMC. “On orders where the standard fee was $250–$300, they would pay $600 or $700 an appraisal,” Conteduca says. The staff at Evaluation Solutions often lied about when payment was going out too, according to Conteduca. “There were times when they said they sent out a check but they didn’t. The only way to get paid was to constantly email and call them,” says Conteduca. Conteduca says he has been in contact with Chase, who has told him that the issue has been elevated to the vice-president level. William Furney, an appraiser from Rhode Island, says his firm is owed $73,960 for work done over six months. “Five of my appraisers and I were doing work for Evaluation Solutions. I’ve already paid out around $40,000 to my appraisers, so now I’m out the money that they owe me,” says Furney. Furney, who had been working for Evaluation Solutions for three years, confirms Conteduca’s experience that Evaluation Solutions was consistently slow to pay, but that they also paid a little bit more than other AMCs. “They had owed me money before this. They paid me here and there and sometimes a few months would go by,” says Furney. Furney says he only did a few appraisals for them in the beginning because of their slow payment, but then they would pay. “One time it went for five months, so I started putting a lot of pressure on them and they sent me a large sum,” Furney says. Furney ended up doing so much work for them that he made a few friends at their office. “The girls from the office would text me, asking me if I needed work,” says Furney. “This time around, the amount they owed me was getting larger and larger and I started freaking out. They would tell me, ‘I’m really sorry, I’m going to Fed-Ex you a check so
you’ll have it by this day,’ but the check would never come,” says Furney. On the day Evaluation Solutions shut down, Furney was still trying to get paid. “I started getting really fed up so I called one of the girls I knew. She said that she was putting pressure on the head of accounting, and that my check should’ve gone out already. She told me
that the head accountant was in a meeting and that she’d call me right back. I got a text message an hour later and she said ‘I just lost my job, they just kicked everybody out,’” says Furney. After hearing that Evaluation Solutions was going under, he called the WAMU-Chase Department in Florida. page 88
Spring 2013 Working RE
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7page 7
“The manager there told me he was being bombarded with calls from appraisers, then gave me the cell-phone number of the regional manager of the mortgage department at Chase,” says Furney. “When I originally called the regional manager, he told me to send him a list of my invoices and that he would get to the bottom of it, but he never called me back. When I finally got him back on the phone, he told me he ‘got wind’ that Chase isn’t really responsible for this and that he couldn’t help me,” says Furney. “This regional manager had the manager at WAMU-Chase in Florida call me back and he immediately started reading a script. It was pretty clear that Chase had their legal department send around a script to read to all appraisers calling in about this issue. I managed to get him off the script and he ended up telling me he was the one who hired Evaluation Solutions and he offered to refer me to his other clients! I said no thanks, that’s my kid’s college fund!” says Furney.
Agents/Brokers Unpaid Appraisers are not the only ones who were left with unpaid invoices when Evaluation Solutions shut its doors. Shelley Smith (not her real name) is a real estate agent/broker who says that she is owed over $46,000 by Evaluation Solutions for over 900 BPOs that she completed over a six-month period. “I worked for them for three years and they were always slow to pay. They typically took 90 days to pay me,” Smith says. Smith experienced the same issues as Conteduca and Furney with regards to being lied to about when payment
was being mailed out. “This latest time, they actually sent me an email in October of last year that my payment had gone out, so I kept working for them, but the check never came,” says Smith. Upon hearing the news that Evaluation Solutions was filing for bankruptcy, Smith created a Facebook profile, Evalonline Complaint, as a gathering place for appraisers and agents/brokers to come together and discuss their options. At the time of this writing, the profile had 69 friends. Since Evaluation Solutions went under, Smith has been in direct contact with Chase, the lender and “client” who ordered all of the BPOs through Evaluation Solutions. Chase initially instructed her to fax her invoices over to their research team, but less than a week later Chase sent notice to Smith saying that since they are not the direct vendor they declined to pay the invoices or to further research the issue. Through her Facebook profile, Evalonline Complaint, Smith says she is gathering support for a class action lawsuit against Chase, if it comes to that. Smith says a class-action lawsuit against Chase will be used as a last resort if filing complaints with the OCC and Consumer Financial Protection Bureau fail. To Smith, this is also a case of fraud on Evaluation Solutions’ part and she has also filed a Fraud Tip Form with the FBI. “It is fraudulent behavior for them to accept money for work from Chase, and then not pay us for doing that work. But also, the repeated instances of emailing us that payment had been posted, when no payment was coming, was intentionally fraudu-
100% Open Rate • Working RE Print “Unfortunately I don’t have time to read the volume of e-mails that are sent during work hours. Could they be replaced by the magazine, which can be read evenings after work? If not, I’m going to have to miss out on your articles. Thanks.” —Arden Field Reach appraisers with the only 100% open rate there is: print. Email cary@orep.org for details.
8 Working RE Spring 2013
lent. I believe they intentionally lied and engaged in fraudulent and criminal behavior,” says Smith.
Moving Forward It has been less than a month since Evaluation Solutions closed its doors, so it remains to be seen how Chase will handle this issue. From what appraisers and agents/brokers on the ground are saying, it is likely that within the coming weeks numerous complaints will be filed against JP Morgan Chase with the OCC, CFPB, and with the Florida State Banking Commission. If Chase continues to deny responsibility for Evaluation Solutions’ bad debts, the response by regulators might set a new precedent for the industry—whether it holds Chase responsible or not. The bankruptcy of Evaluation Solutions is a glaring reminder that the proper regulation and vetting of AMCs continues to remain a problem for the industry. Working RE has covered this issue in depth and appraisers and agents/ brokers are encouraged to read the stories of others who have been successful in getting lenders to pay for the bad debts of the AMCs they hired: • S uccess Collecting AMC Debt from Lender (WorkingRE.com, Library, Volume 29;) • A MC Bad Debt – Lender Responsible? (WorkingRE.com, Library, Volume 29) • L ender Paying Appraisers Stiff by AppraiserLoft (WorkingRE.com, Didn’t Make It to Print) • W ells Fargo Paying JVI Bad Debt (WorkingRE.com, Didn’t Make It to Print) Working RE also has an AMC Rater blog, where appraisers can share their experiences with AMCs and pick up on AMCs who are having payment problems. On the AMC Rater blog, appraisers were warning that Evaluation Solutions was slow/no pay as early as April 2012. Visit WorkingRE.com and click on AMC Rater under blogs in the left column. WRE
Fall 2011 Working RE
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Tips from Appraisal Subcommittee by David Brauner, Editor
Editor’s Note: Many appraisers wonder why the “complaint hotline,” established under DoddFrank nearly three years ago, is not operational yet. Jim Park, Executive Director of the Appraisal Subcommittee, answers this question and others.
Jim
Park, Executive Director of the Appraisal Subcommittee (ASC), has valuable information for appraisers regarding the proposed appraisal complaint hotline, their professional information posted publically on the National Registry of Appraisers and more. Many appraisers wonder why the “complaint hotline,” established under Dodd-Frank nearly three years ago, is not operational yet (as of this writing). Park answered this question and many others in his presentation at the Valuation Expo in San Antonio late last year, including when the hotline is expected to be in service. Dodd-Frank requires the ASC to create an appraisal complaint hotline for consumers, lenders, appraisers, and any other entity to report violations of the Uniform Standards of Professional Appraisal Practice (USPAP) or appraiser independence. Park says the ASC has been working diligently to establish the hotline and expects it to be operational in 2013. There are several reasons for the delay, he says; largely it is a “complicated undertaking due to the coordination it requires between the ASC, the member agencies and the states.” The hotline’s sole purpose is to refer USPAP and appraiser independence complaints to the proper federal and state authorities for investigation. The individual agencies must then be prepared to appropriately address the complaints each receives.
Check Your Records Park advises that appraisers regularly review their records in the National Appraiser 10 Working RE Spring 2013
Registry, located at the ASC website (ASC.gov). Disciplinary actions, license status— active or inactive, and more are posted publically. The ASC is a depository of information reported by the various state boards, and although it is rare, it is not without precedent to have inaccurate and potentially damaging information reported there, according to Park. AMCs, lenders, insurance companies and others use the Registry to check the status and records of appraisers before doing business with them. Park also clarifies that the Registry is made up of appraiser credentials and not individual appraisers. Therefore, when you see Registry numbers reported, it is important to remember that they reflect the number of active credentials, not the number of individual appraisers, as many appraisers have more than one credential. Park also notes that the vast majority of appraisers who have exited the profession in the last two years were at the “Licensed Appraiser” level.
Appraiser Requirements Appraiser opinions are mixed regarding the recent, more extensive education and
training requirements for those entering and wishing to advance in the profession. Some feel it enhances the profession to raise the bar, while others caution it will exacerbate the looming “appraiser shortage,” which is a hot topic these days. Park indicates that the Appraiser Qualifications Board is looking at various options including working with colleges and universities to bring more young professionals into the business. Park also notes that the ASC has the authority, with approval of the Federal Financial Institutions Examination Council, to waive any requirement relating to certification or licensing of appraisers, if it or any state agency determines that there is a scarcity of Certified or Licensed appraisers—either in a state or in a particular location, which leads to significant delays in the performance of appraisals.
Lack of Funding for States The most common problem the ASC sees during its compliance reviews of state appraisal programs is a lack of resources, according to Park. The reason for the lack of funding, in certain states, is that appraiser fees are absorbed into the general funds of those states and used for other purposes. The writers of Dodd-Frank took notice and empowered the ASC to do something about it. The ASC now has the authority to review a state program to determine if there is sufficient funding and to impose sanctions up to and including non-recognition of the state program, if the ASC determines that a state is insufficiently funded to carry out its Title XI requirements. Park also reminded the audience that the ASC is fully funded by appraiser fees, which totaled just over $2.6 million in 2011, and not taxpayer dollars. The ASC currently employs a staff of 12. WRE
RATE AMCs & LENDERS
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And collect from clients that owe you. Seriously though, who can afford to work for free?
www.AppraisalAdvisor.com Now you can tell if a prospect will be a good client or not, without waiting hours or days for peers to give you a vague opinion. In seconds (maybe even while you put the phone on hold) you’ll have concrete “one to five stars” answers to critical questions. Do they pay slow, or not at all, and has that changed lately? Do they love silly stips and red tape? Do they understand turn time realities? Are their fees reasonable? It’s all there, clearly organized and presented, like a credit score, but for appraisers like you. What about the bad clients who fail to pay? You’ll love this story about our Uniform Complaint Form (UCF). The very first appraiser ever to use it, one of our beta testers, was owed over $4,000 on invoices over 120 days old. The client removed the appraiser from their fee panel and refused to return repeated calls or e-mails (you’ve all been there). But then the appraiser’s wife used our UCF system. Our UCF sent a formal, professional e-mail to the client detailing the appraiser’s complaint, and it listed 17 different state and federal regulators, law enforcement, and consumer agencies that the complaint would be forwarded to, automatically, if not promptly resolved.
10 minutes after the UCF went out from our servers, they got a call. Within 48 hours, they were paid in full. Can you afford to be without that? Can you keep guessing whether clients will be good or bad? No, and you shouldn’t have to. We have the tools to solve these problems, but it’s up to you to contribute your ratings. So sign up, log in, and
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Appraisal Advisor and its products are trademarks, service marks, or registered trademarks of Appraisal Advisor, LLC. Other brand and prodcut names are trademarks or registered trademarks of their respective owners. All prices, terms, policies, and other items are subject to change without notice. © 2013 Appraisal Advisor, LLC.
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Wearing the Business Hat by Richard Hagar, SRA
Editor’s Note: Most appraisers know how to find value but an appraiser who is also a good businessperson, is harder to find. Here are some tips from the field.
I
was communicating with another appraiser who was complaining about the appraisal business in Florida. There were numerous back-and-forth emails. Here is the latest to me: “Richard, the appraisers can’t charge more. They can try but they won’t get the job. We are too disorganized to band together in the right way. The lending industry learned a long time ago to divide and conquer and they’ve done a stellar job. You can’t apply your personal business model to 99 percent of the other appraisers out there. It’s simply unrealistic. Unless you have a ‘smart pill’ you can start marketing.” Here’s my response: “I’ve been through the exact pain you are talking about. One of the reasons I teach is to motivate other appraisers to increase their fees and quality of work/life. I have lost clients and it hurt my business. However, once the cheap/fast lenders were out of my life, I had more time and replaced them with better-quality/higher-paying clients. It wasn’t easy but then that’s where the BUSINESS side of appraising kicks in. Most appraisers know how to find value but have NO idea how to run a business—which is why they are stuck with low-paying clients. In this profession, a little business sense goes a very long way.”
Turning It Around I’m not alone in making my business grow. Numerous other appraisal companies have followed these same methods and are all buried in high-paying appraisal business right now. Yes we lose many orders, I’d say 50 percent, but the ones we get pay us nicely. 12 Working RE Spring 2013
In the past 60 days alone my firm gained two banks which are paying $600+ for standard 1004/UAD/MC. Why? They like our quality and the way we do business—especially the way we do business! Here’s what I’ve learned over the years: • Provide good business interaction/ communication. • Provide GOOD appraisals (not average form-filling, but good). • Do not accept low-paying assignments. • Hold out for high-paying assignments. • Train the puppy (AMC, lender or mortgage broker) to do the right thing. • Business will suffer…at first, but will become much better. • Lenders, credit unions, banks and AMCs seek out our firm, our quality of appraisals and pay a higher fee. Follow the plan and make money doing the right thing. Our firm survives nicely off the bank appraisal business and the legal appraisal business that I’m known for. Our appraisal business has two major components: a) appraisal and b) the business of appraisal. Filling out a form is easy; running a business, in a businesslike manner, is tough, and that’s where most appraisers fail.
Test #1 of Your Business Knowledge Here are just a few simple business questions that every appraiser MUST know the answer to.
• How much business do you get from your website? • How many people visit your website each month? • What are they searching for once they reach your site? (What sort of services do they need?) • Who is looking at your print advertising? • Are your company brochures up-todate? • How many bankers have you personally met in the past 60 days? • What sort of clients do you desire? • How do you reach them? • Have you reached them, and how do you know? • Are they willing to pay for better than “form filling” work? (And how much better?) • List your advertising assets: which ones work; which don’t? My guess is that most appraisers can answer very few of these questions. Yet, many complain that they have to accept low-paying AMC work. If you’re thinking, Richard, it might work for you but it won’t work for me; this area is different—think again. Through my courses and webinars I try to show appraisers how they can do better: there’s money out there and a higher quality professional life—go get it! WRE
We’d Like to Welcome You to Our Team.
We’re Hiring. Join Us! TSI Appraisal® is expanding its existing appraisal network across the U.S. We’re looking for highly skilled candidates to fill numerous open staff appraisal positions in these markets:
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Estimating Physical Deterioration by Philip Spool, ASA
Editor’s Note: First of a three-part series on estimating physical deterioration (depreciation), functional obsolescence and external (locational and economic) obsolescence.
What I like about writing these articles
Calculating depreciation is the most misunderstood concept in the cost approach.
is the research it takes for accuracy and current terminology. For many years I was taught that accrued depreciation was depreciation from all causes, which consists of physical deterioration, functional obsolescence and external (locational and economic) obsolescence. This term is also used by those who value businesses within an accounting practice. However, little did I realize, the term accrued depreciation is no longer used. In its place is just the simple word depreciation. Calculating depreciation is the most misunderstood concept in the cost approach. Of the three forms of depreciation—physical, function and external, the easiest to calculate is physical deterioration.
Three Methods of Estimating Physical Deterioration The three basic methods of estimating physical deterioration are (1) the market extraction method, (2) the age-life method (most often used method to calculate physical deterioration) and (3) the breakdown method. I firmly believe that practically every appraiser utilizes the age-life method, and I will be discussing this method in more detail. The market extraction method is acceptable if you have good land sales. The breakdown method is too complicated
Philip G. Spool, ASA, is a State-Certified General Real Estate Appraiser in Florida, appraising since 1973. Formerly the Chief Appraiser of Flagler Federal Savings and Loan Association, he has been self-employed for the past 18 years. In addition to appraising, he is an instructor with Miami Dade College, teaching appraisal courses and continuing education. He is also the Vice President and Chairman of real estate programs with the Greater Miami Chapter of the American Society of Appraisers. He can be reached at pgspool@bellsouth.net.
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even to discuss and I seriously doubt that any appraiser utilizes this method except when performing a demonstration report where it is required to obtain an appraisal designation.
Market Extraction Method The market extraction method is similar to a “reverse” of the land extraction method (read my article Land Value: Extraction Method, WorkingRE.com; Library; Volume 30). Find comparable improved sales similar to your subject property. I suggest you find those sales with the least amount of added features, such as a covered patio, open patio or swimming pool. From the sales price, adjust for sales concessions, financing and conditions of sale, if any. Then, subtract the land (site) value at the time of its sale and any site improvements. This will give you the depreciated value of the improvements. The next step is to determine the replacement cost new for the improvements (try Marshall & Swift residential handbook, Marshall Valuation Service commercial book or BuildingCost.net). Subtract the depreciated cost of the improvements from the cost new and you will arrive at the total depreciation for that sale. Divide that number by the square footage of the improvements in order to get the depreciated value per square foot for each sale. Use this method for several sales, just like you would for the land extraction method. Hopefully, there will be no functional or external obsolescence, and the results will reflect only the physical depreciation.
Age-Life Method The formula for the age-life method is the “effective age divided by the total economic life, times the total replacement cost new of the improvements.” This is the easiest and most often used method to estimate physical deterioration. While the Fannie Mae form allows you to select either the replacement cost new or the reproduction cost new, and without going into a long explanation as to the difference between replacement versus reproduction cost new, choose replacement cost new. What Is Effective Age and How Is It Determined? My concept of effective age is based on the following principle: what you see is what you get. The example I use, including in court, is to assume you are single and are going on a blind date. You know your date is 40 years old and when you finally meet, you notice that your date takes good care of herself/ himself, and you think that your date looks ten years younger or 30 years old. Actual age is 40 years and effective age is 30 years. It is as simple as that. In other words, effective age is your opinion as to the age of the property you are appraising. Why Effective Age Is Abused and Manipulated with Cost Approach The abuse and manipulation of the effective age is an unfortunate reality. Appraisers who are taught that the value by the cost approach has to be close to the value by the sales comparison approach simply are not doing the right thing. What I mean by manipulation of the effective age is the appraiser’s adjustment of the effective age higher or lower so that the result of the depreciation can either increase or decrease the depreciated value of the improvements, and ultimately the value, when using the cost approach. For example, you consider the effective age of a house to be 35 years
with a total economic life of 65 years. By the age-life method, the depreciation is 53.85 percent (35 years divided by 65 years). If your replacement cost new is $300,000, the depreciation would be $161,550. This might result in a higher conclusion of value by the cost approach. You want it to be closer to your sales comparison approach, so you arbitrarily raise the effective age to 45 years. The result would be a depreciation of 69.23 percent or $207,690 or a lower value by $46,140. If you are going to change your effective age from your initial thinking, don’t do it for the result of comparing it to the sales comparison approach. One reason is that within the past few years, values have declined, in some cases, up to 50 percent from their peak. A relatively fast drop in value would reflect a lower value by the sales comparison approach than the cost approach. The effective age of the house, whether in bad times or good times, would not change. The only time the effective age would change would be due to the condition of the improvements. If the house was foreclosed and not occupied for a while, then a higher effective age is justified. In my upcoming third article of this series on depreciation and obsolescence, I will discuss the economic obsolescence component of external obsolescence. A decline in the market more than likely will result in an economic obsolescence that has to be considered in the computation of total depreciation. Therefore, your physical depreciation would not change, but total depreciation would be higher due to the addition of economic obsolescence.
Supporting Economic Life in Your Report (and Workfile) Marshall Valuation Service cost manual (the commercial book version) considers a non-high-end house to have a total economic life of 60 years and a highend house to have a total economic life
of 65 years. While total economic life might vary for different areas and towns, the appraiser must find some support for the total economic life used within the age-life method of computing physical deterioration. No matter what source you use when using the cost approach, make sure you keep a copy either within your workfile or somewhere in your office where you can reference its location in your workfile. Remember, the Uniform Standards of Professional Appraisal Practice (USPAP) require you to either maintain a copy of the support for total economic life in your workfile or make reference in the workfile as to the location of the documentation (see Record Keeping Rule).
Economic Life versus Useful Life Simply put, economic life is the amount of time which the improvements contribute to the property value. Useful life is the amount of time which the improvements perform the function they were constructed for (i.e. a house). A good example would be a house that is considered an interim use. It may have reached, or is close to, its total economic life, and its remaining economic life is either zero or close to zero. However, it still may be livable and therefore have a useful life for several more years. Economic life, not useful life, is used to calculate depreciation by the age-life method. Remaining Economic Life and Why It Is Important to Lenders While the appraiser should not be too concerned with the remaining economic life, a lender considers it important when making a loan. If the loan is for 30 years and the remaining economic life is only 20 years, the lender considers the property to last ten years less than the loan amount. While most loans are not on the books for the full 30 years, it could be a concern to the lender. Some appraisers are page 188
Spring 2013 Working RE 17
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aware of this and adjust their remaining economic life so that it is 30 years or more. Appraisers are not supposed to fashion their appraisal around the lender’s needs.
Is Cost Approach Necessary? I would like to know why any appraiser even considers using the cost approach unless the property is proposed, under construction or newly constructed. The only other logical reason is if there are no comparable sales and therefore the property is considered a special purpose building. What happens if your assignment is to appraise a house and there are no sales within the past year or two and none within the general vicinity? It would not be considered a special purpose building but it might be reasonable to use the cost approach. However, when I propose the question to other appraisers, as to why use the cost approach, inevitably they reply with “the AMC or lender requires me to do the cost approach.” Why do they want you to do the cost approach? Most likely it is because they want the appraiser to come up with the replace-
Appraisers are not supposed to fashion their appraisal around the lender’s needs. ment cost new which is a code phrase for “insurable value.” While the cost approach is part of the fundamental theory of appraising, appraisers have come to realize that buyers are not interested in the cost approach to value or the income approach if the property is a single family residence. If the subject was built many years ago and the effective age is high, then the estimated depreciation of the improvements becomes too subjective. This would be a very good reason why the cost approach is not utilized. Remember, USPAP Standards Rule 2-2, whether it be 2-2 (a) for a Self-Contained Appraisal Report, 2-2 (b) for a Summary Appraisal Report or 2-2 (c) for a Restricted Use Appraisal Report, states it is a requirement that “any exclusion of the sales comparison approach, cost approach, or income approach must be explained.”
Functional and External Obsolescence My next two articles will be on estimating functional and external obsolescence. Functional obsolescence is typically associated with a problem with the structure, whether it be an inadequacy or super adequacy or even a bad floor plan. I will discuss the different types of situations that are associated with functional obsolescence and how to estimate the amount of obsolescence. External obsolescence is divided into locational and economic obsolescence. This type of obsolescence is the most misunderstood of all three types of depreciation/obsolescences. I will discuss both locational and external obsolescence and the most effective way of calculating the obsolescence. WRE
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Making “Appraisal Independence” Work for Your Business by Nelson Boswell, Jr., SRA
Editor’s Note: Appraiser Nelson Boswell shows how to leverage new appraisal independence laws into more business.
New federal legislation is leading to
greater “appraiser independence” for many, but not in the way legislators intended. Smart appraisers are using the new laws to their advantage by adding new services and changing the course of their practice. Here’s how to make the new appraiser independence laws work for you and your business. What I mostly hear from appraisers is concern about how they can exercise their own rights under the new law. Or how they might change, resist or fight rules that appear counter-productive to the industry. While those ideals are worthy, this story takes a different tack. The word “law” as applied to this article is the Dodd-Frank Act, Title XIV, Subtitle F, Sections 1471-1476. Title XIV is called the “Mortgage Reform and Anti-Predatory Lending Act.” Subtitle F is called “Appraisal Activities.” Section 1471 is called “Appraisal Requirements,” and Sections 1472–1476 are called “Appraisal Independence Requirements.” Most of what I hear and read from appraisers about the law is negative; appraisers see it not only as being unfavorable to them but favorable to other entities like lenders and AMCs. So how do once-prosperous appraisers take control of their future, in this new climate where control does not seem possible? First, you have to come to grips with the fact that the old ways of doing
things are gone forever. Don’t spend another second wasting valuable energy even thinking about it. Second, you have to come to grips with the fact that subsequent to the new law, things are going to be in a state of flux for quite some time. And third, the wise appraiser is going to get as far out in front of this wave of change as possible, for his or her own benefit and that of his/her clientele. Finally, they will take advantage of these changes to seek new types of clients. In the process, appraisers will be educating themselves as to their own rights under the new law.
Smart appraisers are using the new laws to their advantage by adding new services and changing the course of their practice.
Elevated Status The new law is large and complex. Its implementation and enforcement will be a huge, slow, grinding wheel. There will be inefficiencies. There will be contradictions. There will be regulatory changes. page 228
Nelson Boswell, Jr., SRA, is a Certified Appraiser in Florida and Nevada and a Certified General Contractor in Florida with 28 years experience. He specializes as an expert witness in appraisal and construction related litigation.
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There will be challenges to enforcement. There will be precedents set in new case law. All of this will take time. What is criticized today probably won’t be a topic of discussion a year from now or two years from now. That sounds like a long time but we all know it’s not. Appraisers are in a new climate of seriousness concerning their professionalism. Dodd-Frank appraiser independence has resulted in a newfound importance for FIRREA Title XI and the Uniform Standards of Professional Appraisal Practice (USPAP). The changes are of a very serious nature, meaning there is now enforceable law with real penalties for non-compliance. This is a good thing for the professional real estate appraiser and a bad thing for the unprofessional real estate appraiser. The appraiser who studies and makes understanding of Dodd-Frank, FIRREA and USPAP the first priority in his/her business, will be the appraiser who successfully guides his/her clients, or potential new clients, in the totality of Dodd-Frank, FIRREA and USPAP. This is to say, those who practice law in this area will practice law more effectively through the use of your expertise. Those who enforce compliance of the law will enforce compliance more effectively through the use of your expertise. Those who write policy will write better policy, through the use of your expertise. Those who guide other
Since changes in the law, with greater attention being paid to USPAP, I have increased my efforts in obtaining residential real estate appraisal review and appraisal compliance work. appraisers, or users of their reports as to their rights under the new law, will do so more effectively through the use of your expertise. Now, if you’re in a negative mindset, and/or emotionally and physically exhausted, this is not going to sound feasible. The initial reaction of the discouraged will be to see this as an unrealistic way to take charge of their business, income and future. Hang in there! Most appraisers know enough of USPAP to do what they do on a day-today basis. But I imagine many real estate appraisers, especially residential appraisers, have never read FIRREA Title XI, let alone the Appraisal Independence section of Dodd-Frank. Many residential appraisers, if you surprise them with the question, could not state from memory the basic outline of Standards 1 & 2 of USPAP (even though they have taken the update course every two years for decades). The real estate appraisers who become the experts in these laws and regulations will create new opportunity for themselves, especially in light of
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the fact that most residential appraisers won’t bother.
Our Day Has Come Appraisal law has finally become truly important. Many professionals involved with appraisal law and regulations have never practiced real estate appraisal and will need the professional assistance of appraisers to help them put these laws and regulations into context. Many, if not most, of them are confused and in a state of trepidation. It is the residential appraisers (as opposed to non-residential appraisers) who will supply the all-important context to their new and existing clientele. I have made it my business to know the “Appraisal Independence” sections of Dodd-Frank, the changes to FIRREA Title XI, as a result of the new law, and USPAP. If a client or potential client has a question or concern (especially attorneys, in my case), I want them to come to me for help. Directly and indirectly this has resulted in new and interesting appraisal and consultation assignments. I think it will continue to be a growing segment of the residential appraisal industry, primarily non-lender related assignments. Or more specifically, non-residential, mortgage-related appraisal work. Aside from mortgage appraisal work, lenders and AMCs will need guidance more than any other sectors of business. In my case, the types of clientele I service are primarily attorneys in litigation-related assignments. Since changes in the law, with greater attention being paid to USPAP, I have increased my efforts in obtaining residential real estate
appraisal review and appraisal compliance work. I am also a certified general contractor in Florida and focus on clients who may see this as an added value where material facts revolve around construction related issues. Whatever additional qualifications or related interests you may have as an appraiser, it is a good idea to take advantage of that to add value to your client’s experience. Furthermore, I concentrate on large law firms. Litigation work is not a volume, or quantity type of business. For me, it is a quality type of business. Large law firms have more attorneys. There is a greater chance of repeat business and referrals via larger law firms. I concentrate on review and compliance work because the assignments are related to cases that have a long life from the time the complaint is served to the time the case is finally settled. They can take a year or longer. In that time you might have several different engagements of varying scope, all on the same case. The fees are usually based on an hourly rate. I should say I concentrate on any type of litigation that has a potential for a long life. From a residential standpoint, in my opinion, litigation-related assignments, like divorce and bankruptcy, too closely resemble flat-fee work, with little opportunity for charging on an hourly basis for consulting work, or testimony as an expert in a deposition or court testimony. So I concentrate on that type of work less. There are numerous ways to implement a strategy where existing and potential clientele see you as the “go to” guy or gal in this new climate. It will take effort, but the effort will pay off. If you have been appraising residential property for a long time you are in a good position to put your experience to work. You have probably developed a niche. You have been immersed in a field that has been in a state of metamorphosis for over two decades. If not for the new climate we are in, many residential appraisers would
find themselves having to continue to do a greater volume or quantity of work, rather than having the opportunity to start doing more quality work. If you have not been in residential appraisal long, less than 10 years, you are in a good position to put your experience to work down the road if you start now. If you decide to implement a
strategy that is divergent from the kind of business you are doing now, whether you have been a residential appraiser for a long time or not, you must realize a few indelible truths. By doing so, you will ward off discouragement. I’ll offer more specifics on the steps to create a successful consulting business in the next installment. WRE
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Six Ways to Stay Out of Trouble by Larry Disney
My first commandment for appraisers
threaten or influence your
is: Know the truth and let the truth set you free. In this context, it means that you are in control of both the appraisal development and reporting. Therefore, let no person coerce, threaten or influence your objectivity, impartiality, or independence. After that, and based on my 10 years’ experience as Executive Director of the Kentucky Real Estate Appraisers Board, I have seen that the most common appraisal mistakes occur because of a failure to report credible assignment results. Here are six common appraisal mistakes and ways to avoid them. Value opinions may differ but the question is always: Is the report credible and defendable, no matter the value?
objectivity, impartiality, or
Mistake 1
Let no person coerce,
independence.
Failure on the part of the appraiser to recognize that he or she is a professional. In other words, taking sole responsibility for knowing and understanding the requirements for developing and reporting a credible opinion of value. This means developing a credible and accurate Scope of Work, including knowing how long a report will take to complete competently and what fee is required to take the proper time to do the job right.
Mistake 2 Failure to perform assignments ethically and competently. Being ethical and competent requires two different but necessary skill sets. An ethics violation is intentional. A violation
Larry Disney began appraising in 1977. He has been an investigator with the Kentucky Appraisal Board since 1999 and the Executive Director since 2003. Mr. Disney can be reached at larry.disney@ky.gov.
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of competency is usually not understanding or not knowing. Negligence and gross negligence typically happen due to a failure to thoroughly review the work. Review your work completely. Avoid boilerplate. That’s how mistakes happen.
Mistake 3 Failure to complete meaningful education that will enhance knowledge and understanding of the appraisal process. The best method for ensuring professional success is to continually diversify your practice. The best way to do this is to broaden your experience by learning and growing on a continuing basis. This opens new doors of opportunity which allow more opportunity to pick and choose assignments. Choice is good. Try to set aside time each month for professional development that exceeds your mandated continuing education hours. This includes gaining insights into professional appraisal practices, as well as business strategies and the latest technology issues.
Mistake 4 Failure to associate with peers on a regular basis. Too many appraisers fail to grow and develop because they work in isolation. Consider affiliating with a professional organization. Attend meetings of the appraiser regulatory agency in your state. Sign up to receive information from the Appraisal Foundation—these folks control your profession. Remain up-to-date on the work of the Appraisal Standards Board, Appraiser Qualifications Board and the new Appraisal Practices Board. Make comments on proposed changes to the Uniform Standards of Professional Practice when that is permitted. Comments are
read and considered. Visit the Appraisal Subcommittee website regularly to review the latest information (ASC.gov).
Another problem is failure to include a signed certification that includes the required information.
Mistake 5 Failure to identify an appropriate scope of work for each appraisal assignment. How do you combat this? Identify relevant assignment characteristics; identify extraordinary assumptions and hypothetical conditions; disclose research and analyses performed and not performed; disclose significant real property appraisal assistance. Another problem is failure to include a signed certification that includes the required information. Here are several examples of verbiage that can keep you out of trouble: I have performed no (or the specified) services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.
Another is: I have (or have not) made a personal inspection of the property that is the subject of this report. (If more than one person signs this certification, the certification must clearly specify which individuals did and which did not make a personal inspection of the appraised property.) Also: No one provided significant real property appraisal assistance to the person signing this certification. (If there are exceptions, the name of each individual providing significant real property appraisal assistance must be stated.) Assistance must be noted in the certification by name, and include a list within the body of the report of each step completed, if the person does not sign the report.
Mistake 6 Failure to identify and understand applicable client conditions for each assignment. This problem is solved by knowing, understanding and following the various professional guidelines, such as: the Interagency Appraisal and Evaluation Guidelines, Fannie Mae Selling Guidelines and FHA Requirements. And in allocating value contributions: Real Property STD 1 & 2, Personal Property (FF&E) STD 7 & 8 and Business STD 9 & 10. WRE _______________________________ Story excerpted from a presentation at the Appraisal Summit 2012.
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“Checkbox Chimps” and Review Appraisals by David Brauner & Isaac Peck
Appraisers are coining a new term for
Are their demands crossing the line from standard requests for additional information to subtle attempts at illegal influence and improper intrusion into the process?
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certain appraisal management company (AMC) staff—“Checkbox Chimps.” These are the personnel who are “reviewing” appraisals, and no matter how solid they may be, are instructing appraisers to change their reports. Are they really providing an “appraisal review” or are they just checking boxes on a form? Are these personnel allowed to issue instructions to appraisers? Are their demands crossing the line from standard requests for additional information to subtle attempts at illegal influence and improper intrusion into the process? Appraisers are being inundated by irrelevant requests like—instructions to re-label photographs, additional alternative street scenes or explaining the obvious—for instance, asking whether a porch is covered. AMCs defend their quality control requests, arguing that if appraisers did their jobs correctly the first time… but appraisers ask, what does a covered porch have to do with quality control? What bothers many appraisers these days—even more than low fees— are the constant and what seem like “unnecessary” challenges to their reports by AMC staff, who in many instances, appear to be less than qualified or competent than they are. Most appraisers know firsthand the extent to which this bogs down the process and negatively affects their efficiency and profitability. Not to mention delaying or killing deals. Few understand that some of this behavior may be at odds with state and federal regulation. There are differences between what is proper and what is in violation of state
and federal laws, according to expert Richard Hagar, SRA, as per the OREP/ Working RE webinar “Appraisal Reviews and the Law.”
Reviewing for “Completeness” According to Hagar, employees of an AMC are permitted to “review” a report for completeness. They can ask questions to verify all required information is included—photographs, sketches, maps, flood numbers, certifications, signatures, etc.: Is the address correct, the homeowner’s name spelled correctly? AMC staff are allowed to ask for additional information and clarifications that help the client understand the report. They are also allowed, in limited circumstances, to ask the appraiser to consider additional information that might not have been considered in the original appraisal. However, as Hagar states, there are limits on what is considered “additional information.” “In most of the instances that I’ve reviewed, the original appraiser already considered the ‘additional information’ that the AMC is asking about,” said Hagar. “So it appears that the AMC did not read the entire report, or failed to comprehend what they read.”
Review Appraising While any AMC staff person is allowed to look at an appraisal and verify that it’s complete, only a state certified or licensed appraiser is permitted, by various state and federal laws, to challenge the appraiser on value or criticize the adequacy of the appraisal. AMCs are trying to ignore or find wiggle room in how laws define “appraisal review” or what constitutes a challenge
to an appraiser’s value or methodology. To most appraisers, this question is black and white. According to Hagar, no one is allowed to have an opinion regarding the value of a property or the quality of an appraisal except a licensed/certified (review) appraiser. “Are AMC staff just reading the report and ensuring that it is complete? Or are they critiquing the quality of the report? Once someone starts questioning the quality of your comparables, or offering an opinion on the quality of a report, they have to be a licensed/certified appraiser, or they’re in violation of state law in most cases,” Hagar says. “If you go on to have an opinion regarding the report’s USPAP compliance, you have to be trained in USPAP.” Hagar says to look at some of the lawsuits launched by the federal government against LandSafe and Bank of America. The suits contend that “reviewers” inside LandSafe were not just geographically incompetent and lacked proper training—in some instances they were not even licensed or certified. Yet these people were “reviewing appraisals” and telling good appraisers how to do their jobs! So, it’s one thing to correct a typo and quite another to criticize an appraiser’s approach to value or comp selection. The line is crossed when “requesting clarification” turns into passing judgment on an appraisal, Hagar says.
Chapter and Verse There are at least 32 states that have already approved AMC regulation legislation—these laws have not only mandated that any appraisal review be done by a licensed appraiser in that state, but they define a “review appraiser” and an “appraisal review,” effectively establishing guidelines on who is allowed to offer an “opinion” on the adequacy of an appraisal or make certain requests of an appraiser. For instance, the Arizona AMC Law states:
AMCs defend their quality control requests, arguing that if appraisers did their jobs correctly the first time… 32-3601. Definitions 5. “Appraisal review” means the act of reviewing of the report that follows a review of an appraisal assignment or appraisal report in which a real estate appraiser forms an opinion as to the adequacy and appropriateness of the report being reviewed. 18. “Review appraiser” means a person who engages in the activity of reviewing and evaluating the appraisal work of others from the perspective of an appraiser, generally for compensation as a separate skill. This includes the function of reviewing an appraisal report or a file memorandum setting forth the results of the review process. 32-3603. License or certificate use; exception A. All real estate appraisals and appraisal reviews performed on real property in this state shall be performed only by individuals licensed or certified in accordance with the requirements of this chapter. According to Hagar, it’s not just state law, but there are also clauses in Dodd-Frank, FIRREA, and the InterAgency Guidelines that reinforce state laws and what they say about who can pass judgment on an appraisal. He also cites language from the Truth in Lending Act (TILA) in the webinar, which mandates appraisal reviews be completed by appraisers certified and licensed in the state in which the subject property is located. Quoting Hagar from the webinar (Appraisal Review and the Law), he says: “Reviewing is no place for an amateur. Only the unaware, the misleading, the foolish, or the people who are attempting quick, simple, and cheap are trying to get around the laws.” His advice: Do the job right and according to the law and we will all
be better off. To learn more or if you have questions about the issue, you can purchase the recorded webinar at WorkingRE.com/Webinar Series (Appraisal Review and the Law). If you would like a copy of the lawsuit against Landsafe and Bank of America, regarding their alleged use of uncertified appraisers, send a request to Isaac at Isaac@orep.org. WRE
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Texas Fee Survey Unpacked
Story first appeared in WRE’s email edition Opt in at WorkingRE.com
by David Brauner, Editor
The most recent appraisal industry survey
Appraisers say the keys to higher fees are refusing to work for less (72%), having more experience (66%) and being specialized (40%).
reveals interesting results, mainly because both appraisers and appraisal management companies (AMCs) participated. The Texas Appraisers and Appraisal Management Company Survey, as the title suggests, sampled appraisers and AMCs in Texas only. Despite this limitation, certain survey results will be of interest to appraisers nationwide, with respect to setting fees and earning more money. The survey, conducted last year, was commissioned by the Texas Senate to “assure compliance with Dodd-Frank requirements that appraisers should receive customary and reasonable fees.” It surveyed 1,584 appraisers and 55 AMCs doing business in Texas. First the good news: survey results support WRE reporting, beginning in early 2012, that appraisers report earning higher fees compared to the darkest days immediately following the Home Valuation Code of Conduct (HVCC). And on this question, appraisers and AMCs agree: 73 percent of AMCs surveyed say fees paid to appraisers have risen over the last two years.
What to Charge When it comes to setting and negotiating higher fees with AMCs, property matters (the type and location that is). Texas AMCs say they pay higher fees based on the complexity of a subject property, as well as its rural location. Distance traveled also is a reason to pay more, AMCs say. And on this, appraisers agree. They say a property located in a rural area is likely to generate a higher fee. Higher fees also are associated with larger and more complex properties, as well as those that require greater travel. The factors that do not affect fees, according to appraisers, include properties 28 Working RE Spring 2013
in other locations: urban or high/low cost-of-living areas. A mere 11 percent say that having too many appraisers in the area would decrease their fee.
Keys to Making More How are some appraisers earning more? Appraisers say the keys to higher fees are refusing to work for less (72%), having more experience (66%) and being specialized (40%). If you wonder whether your colleagues are caving in to lower fees, according to this survey, 43 percent say they work for fees lower than they think are fair because they need the work; 45 percent say they don’t. The reasons for accepting lower fees are pretty simple. Most (67%) say they accept lower fees to make sure they have work (39% answered “other”). Can you charge more for completing a market conditions addenda? The answer is maybe: 19 percent say they have received an increased fee for completing one; 59 percent say they have not. More than half of the AMCs (64%) say they have seen appraisers turn down an assignment because the fee their company offered was too low. Only one-fourth of AMCs (25%) say they have seen their companies ask an appraiser to accept a lower fee than quoted for an appraisal. Who’s Working with AMCs? According to the Texas survey, most appraisers (70%) say they work with AMCs; six percent say they work for them exclusively. This percentage is down, however, from results from an earlier survey. In a survey conducted in 2009 by insurance experts OREP, in conjunction with Working RE magazine, 90 percent said they did at least “some” work for AMCs.
The 2009 HVCC Talkback Survey was the first national appraiser survey conducted in the wake of HVCC. Nearly 7,000 appraisers participated. In this earlier survey, when asked whether they did work for AMCs, appraisers answered: always/12%, often/36%, sometimes/42%. Only 10 percent said they “never” worked with AMCs.
Appraiser Selection AMCs and appraisers, as you might expect, differ on perceived hiring criteria. Texas AMCs say important factors when selecting a residential appraiser are the appraiser’s experience (84%), followed by the previous experience working for their company (76%) and a reputation for quality work (73%). A lower percentage of Texas AMCs (27%) say that the “fee to be paid the appraiser” is important. Only two percent (2%) of Texas AMCs say the most important factor in a company’s hiring decision is the “fee to be paid.” In contrast, 70 percent of appraisers in Texas say they have not gotten work because their fee was too high. In the 2009 Talkback Survey, when asked: “In your experience with AMCs, appraiser selection is based solely on obtaining the lowest fee,” appraisers responded overwhelmingly that low fees were the main hiring criteria. When asked if the lowest fee mattered most, appraisers answered: always/50%, often/38%, sometimes/11%. Only one percent (1%) said that the lowest fee was “never” the reason for appraiser selection.
Fair Fees? In the Texas survey appraisers were asked: “In the past 12 months, the fees you have been paid for appraisals have been fair.” Appraisers responded this way: they felt they were not paid fairly/48%—paid fairly/25% and unsure/15%. Perhaps the most eye-opening results of the Texas survey are the reasons appraisers give for their sense of not being paid fairly—it is not just about low fees. The main reason,
they say, is being asked to do more work but not receiving a higher fee (69%). A lower percentage say fees are unfair because they are receiving less than what they used to for the same amount/type of work (50%). Over one-third (36%) say fees are not fair because their level of experience justifies a higher fee than they are getting. A still lower percentage (22%) say they deserve higher fees than they are getting because they are conducting specialty appraisals. The 2009 Talkback Survey asked a slightly different question: “Are the fees offered by the AMCs you work with unrealistic given the nature and scope of the assignment?” Back then, 97 percent of appraisers said fees were not fair, given the scope of work, at least some of the time. The responses broke down this way: always not fair/46%, often/37%, sometimes/14% and never/3%.
Appraiser Fees In the recent survey, Texas appraisers report receiving from AMCs, for various 1004 reports, $300–$450 in the highest percentages. How far from customary and reasonable is this? The Texas survey doesn’t attempt to find out. The OREP/WRE Customary and Reasonable Fee Survey, conducted state by state in 2010 in the wake of the Dodd-Frank C&R fee mandate, had Texas appraisers reporting that customary and reasonable fees for the 1004 prior to HVCC were $350–$450. In the OREP/WRE C&R Fee Survey, data were collected in 25 Texas metropolitan areas (and one rural). Over 17,400 appraisers participated in the C&R Fee Survey nationwide, 832 in Texas. According to these two surveys, it appears that AMC fees, for Texas appraisers at least, are moving closer to what appraisers said were “fair” prior to HVCC. Though it should be noted that a high percentage of Texas appraisers gave no answer/refused to answer questions about fees and that being paid $50 an appraisal less over the course of a year is a significant loss of income.
Work Load and Quality Forty-five percent (45%) of Texas appraisers say they have not increased their workloads to make up for lower fees, while 40 percent say they have. Fortyeight percent (48%) say that their increased workload has not had a negative impact on quality, while 27 percent say it has hurt quality. One-fourth of respondents did not answer. The following question was asked in the 2009 HVCC Talkback Survey: “Do low fees affect the quality or completeness of the finished report compared with higher fee appraisals?” To this question, appraisers were split, with most (58%) saying that yes, low fees did affect quality at least some of the time. The answers broke down this way: always/15%, often/18%, sometimes/25%. Forty-two percent (42%) said low fees did not affect quality. Another question in the HVCC Talkback Survey was: “Do low fee appraisals result in a product that is less reliable for the end user compared to a report where adequate fees had been paid?” Appraisers were split again, with just over half saying that yes, lowfee appraisals are less reliable (56%); 44 percent said they were not less reliable. The responses broke down this way: always less reliable/14%, often 18%, sometimes/24%, never/44%.
Turn Times Perhaps two of the greatest issues facing appraisers today, the pressure for quick turn times and how that affects quality, were not part of the Texas study. For more on this, see the results (page 40) of the recent OREP/Working RE survey: How Reasonable are Appraisal Turn Times? WRE _______________________________ Find links to the following OREP/Working RE surveys at WorkingRE.com: HVCC Talkback Survey; Customary and Reasonable Fee Survey (with state-by-state results), and How’s Business Survey.
Spring 2013 Working RE 29
H o me I n specto r s
Closer Look
Expert Witness Subpoenas: How to Not Work for Free
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fo ctors spe ome In
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Excerpted from Working RE Home Inspector’s Edition (find it posted at WorkingRE.com)
By Isaac Peck, Associate Editor
Editor’s Note: What do you do when subpoenaed in someone else’s lawsuit? The best answer is simple: charge an expert witness fee, of course. The advice applies to both inspectors and appraisers.
S
ome home inspectors specifically solicit work as an “expert witness” as a matter of choice. Others find their way into a courtroom or deposition hearing when they’re drawn in by opposing parties, usually because their testimony is deemed relevant to the lawsuit at hand. In these cases the home inspector often is served a subpoena to show up. For many inspectors the question is how to respond when subpoenaed in someone else’s lawsuit. The answer is simple: position yourself to earn an expert witness fee. Many experienced home inspectors insist that, in most cases, when subpoenaed to testify or be deposed in a lawsuit between two parties, inspectors should submit an expert witness contract to the requesting party and receive compensation for their time. The rub is that sometimes a lawyer will subpoena an inspector and expect him/her to testify for free. In situations where the lawyer attempts to play hardball, retired home inspector Jerry Peck, now a construction and litigation consultant, advises fellow inspectors to acknowledge that they wrote the report but avoid offering any opinion unless under contract as an expert witness. “Whether or not you are a party to the case, as soon as they ask ‘What do you think?’ or ‘Is that what you think?’ or any other question that leads to your offering an opinion, you are acting in the role of ‘expert’,” says Peck. Peck explains the difference: “If a home inspector is asked, ‘Did you do this inspection on this day, at this address?’ That is not an expert witness question,” Peck says. “That is a question for him/her as the Records Custodian.” Peck insists that no lawyer should get more than a “Records Custodian” answer unless s/he is willing to sign the home inspector’s expert witness contract, which includes a retainer fee and advance payment. “The Records Custodian can only attest to things such as: ‘Yes, this is the report which was produced for the inspection which was 30 Working RE Spring 2013
performed on (date) at (address) for (client’s name).’ Think of it as name, rank, and serial number only, until they retain you for further information,” Peck says. An inspector can stop answering and get his contract out when a lawyer begins asking questions like, “Why was that your opinion?” or “Why did you think that needed to be corrected?” because the home inspector is now being treated as an expert. “Turn to the judge and bring up the fact that they are treating you as an expert but have refused to sign your contract. I have not heard of a judge yet who will not tell the attorney to sign the contract and get their checkbook out,” says Peck.
Expert vs. Witness of Fact For Peck, the distinction is clear between expert witness and witness of fact. “If you are testifying that what you wrote up at the first inspection was true and why—you’re giving your professional opinion, i.e., you are testifying as an expert and giving your opinion,” says Peck. Alternatively, witnesses of fact are only allowed to testify about what they saw, not their opinion of what they saw. For example, saying “the tree fell” is a statement of fact, while saying “the wind blew the tree down” is an opinion, as to what caused the tree to fall. “If you are called as a witness of fact, you can only read from the report. Nothing else can be added: no ad libbing, no explanations, no opinions. The report is ‘fact’ and if it is in the report, you read it as ‘fact.’ If it is not in the report, it is ‘not fact’ and classified as either ‘hearsay’ or ‘opinion’ and you have NOT been retained to offer your opinion,” Peck says. Peck cites the following definition of an Expert Witness to highlight the difference between a witness of fact and an expert witness, as well as to illustrate that a home inspector can be an expert witness even when s/he was initially involved in the inspection of the property: EXPERT WITNESS When knowledge of a technical subject matter might be helpful to a trier of fact, a person having special training or experience in that technical page 328
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Home Inspectors Closer Look 7page 30
field, one who is called an expert witness, is permitted to state his or her opinion concerning those technical matters even though he or she was not present at the event. For example, an arson expert could testify about the probable cause of a suspicious fire. A person who testifies at a trial because he/she has special knowledge in a particular field is an expert witness and this entitles him or her to testify about his/her opinion on the meaning of facts. Non-expert witnesses [witnesses of fact], are only permitted to testify about facts they observe and not their opinions about these facts. In family law trials, typical expert witnesses include: actuaries, who testify about the value of spouses’ pension plans for the purpose of dividing them at divorce; child psychologists or development specialists, who testify about the best interests of the child when custody or visitation are in dispute; appraisers, who testify about property values when the parties cannot agree; and career counselors, who testify about a homemaker’s ability to return to the work force for the purpose of determining the amount and duration of alimony. Keith Gipe, a commercial inspector in Florida, confirms Peck’s assessment, saying, “I can’t say how it works in other states, but Florida allows an inspector or other expert to testify as an expert witness even if he or she were party
to prior investigations [home inspections]. I worked several years as an inspector for an engineering firm specializing in construction defect litigation support. We inspected hundreds of commercial properties each year and many of us were regularly subpoenaed to testify and we were paid as expert witnesses,” says Gipe. Gipe says that his company included “litigation support” and “expert witness” as optional services with the rates in the standard fee schedule. “There was never a problem with the attorneys except that occasionally they wanted to renegotiate the fees or dispute the time we billed for litigation support. If the attorney who subpoenaed you thought your testimony would hurt his case, he wouldn’t have subpoenaed you. Conversely, the opposing counsel can subpoena you if they think your testimony favors their case,” says Gipe. So what is a home inspector to do when subpoenaed in a lawsuit where the inspection reports (and the inspector’s testimony/opinion) are relevant to the case? Home inspectors who have been through it, advise forwarding an expert witness contract to the requesting lawyer and receiving a retainer and advance payment before proceeding. WRE
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Spring 2013 Home Inspectors Closer Look 33
Home Inspectors Closer Look Excerpted from Working RE Home Inspector’s Edition (find it posted at WorkingRE.com)
Best Way to Handle Complaints: Anticipate Them by Alan Carson, Carson Dunlop & Associates Ltd.
Editor’s Note: The following is intended for your clients because, as most seasoned inspectors will tell you, setting reasonable expectations about a home inspection report is more than half the battle in avoiding liability problems.
One of the best ways to handle complaints is to
anticipate them. We include a document called When Things Go Wrong in our reports. We remind clients of this document when complaints come in. It is nice to be able to say, ‘We told you this would happen.’ Feel free to use all or part of this document. (Dear Client): There may come a time that you discover something wrong with the house, and you may be upset or disappointed with your home inspection. There are some things we’d like you to keep in mind.
Intermittent or Concealed Problems Some problems can only be discovered by living in a house. They cannot be discovered during the few hours of a home inspection. For example, some shower stalls leak when people are in the shower, but do not leak when you simply turn on the tap. Some roofs and basements only leak when specific conditions exist. Some problems will only be discovered when carpets are lifted, furniture is moved or finishes are removed.
No Clues These problems may have existed at the time of the inspection but there were no clues as to their existence. Our inspections are based on the past performance of the house. If there are no clues of a past problem, it is unfair to assume we should foresee a future problem.
We Always Miss Some Minor Things Some say we are inconsistent because our reports identify some minor problems but not others. The minor problems Alan Carson is Past President of the American Society of Home Inspectors (ASHI) and principal in Carson Dunlop, one of Canada’s largest home inspection firms, founded in 1978. Carson Dunlop is distributors of the ASHI@HOME training program home study, Horizon report writing and business management system, the Home Reference Book and Technical Reference Guide, which identifies the age and size of HVAC equipment.
34 Spring 2013 Home Inspectors Closer Look
that are identified were discovered while looking for more significant problems. We note them simply as a courtesy. The intent of the inspection is not to find the $200 problems; it is to find the $2,000 problems. These are the things that affect people’s decisions to purchase.
Contractors’ Advice A common source of dissatisfaction with home inspectors comes from comments made by contractors. Contractors’ opinions often differ from ours. Don’t be surprised when three roofers all say the roof needs replacement when we said that the roof would last a few more years with some minor repairs.
Last Man in Theory While our advice represents the most prudent thing to do, many contractors are reluctant to undertake these repairs. This is because of the Last Man in Theory. The contractor fears that if he is the last person to work on the roof, he will get blamed if the roof leaks, regardless of whether or not the roof leak is his fault. Consequently, he won’t want to do a minor repair with high liability when he could re-roof the entire house for more money and reduce the likelihood of a callback. This is understandable.
Most Recent Advice Is Best There is more to the Last Man in Theory. It suggests that it is human nature for homeowners to believe the last bit of “expert” advice they receive, even if it is contrary to previous advice. As home inspectors, we unfortunately find ourselves in the position of “first man in” and consequently it is our advice that is often disbelieved.
Why Didn’t We See It Contractors may say, “I can’t believe you had this house inspected, and they didn’t find this problem.” There are several reasons for these apparent oversights:
1. Conditions During Inspection It is difficult for homeowners to remember the circumstances in the house at the time of the inspection. Homeowners seldom remember that it was snowing, there was storage everywhere or that the furnace could not be turned on because the air conditioning was operating, et cetera. It’s impossible for contractors to know what the circumstances were when the inspection was performed. 2. The Wisdom of Hindsight When the problem manifests itself, it is very easy to have 20/20 hindsight. Anybody can say that the basement is wet when there are two inches of water on the floor. Predicting the problem is a different story. 3. A Long Look If we spent half an hour under the kitchen sink or 45 minutes disassembling the furnace, we’d find more problems too. Unfortunately, the inspection would take several days and would cost considerably more.
do. This is because we are expected to have heating expertise and plumbing expertise, structural expertise, electrical expertise, et cetera. 5. Invasive Look Problems often become apparent when carpets or plaster are removed, when fixtures or cabinets are pulled out, and so on. A home inspection is a visual examination. We don’t perform any invasive or destructive tests.
Not Insurance In conclusion, a home inspection is designed to better your odds. It is not designed to eliminate all risk. For that reason, a home inspection should not be considered an insurance policy. The premium that an insurance company would have to charge for a policy with no deductible, no limit and an indefinite policy period would be considerably more than the fee we charge. It would also not include the value added by the inspection. We hope this is food for thought. WRE
4. We’re Generalists We are generalists, we are not specialists. The heating contractor may indeed have more heating expertise than we
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Visit WorkingRE.com, click Webinar Series for schedule
Industry News When Do Comps Requests Cross the Line? The following Q&A comes from attendees to the webinar “The Top 5 Questions Asked of an Appraiser and How to Answer,” presented by Richard Hagar, SRA. (For more, visit WorkingRE.com, click webinars.) Question: Hi Richard. I took part in your webinar last week on the Top 5 Questions. Just after, I got a request to review additional comps from an AMC. I told them that it was against TILA (Truth in Lending Act) and Dodd/Frank. They sent me back this: EXCEPTIONS.—The requirements of subsection (b) shall not be construed as prohibiting a mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company, employee of an appraisal management company, consumer, or any other person with an interest in a real estate transaction from asking an appraiser to undertake 1 or more of the following: (1) Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal. (2) Provide further detail, substantiation, or explanation for the appraiser’s value conclusion. (3) Correct errors in the appraisal report. How do appraisers defend against this? Is there a place in the law that clearly states that appraisers are not to be influenced? I really need your help on this because I have already tried to fight the good fight after participating in your webinar but when this quote was pointed out to me, I was stumped. It appears that the law has a huge “loophole” by which the AMCs can still try and influence value. Any help you can offer will be greatly appreciated. —J. Bentley Rainwater, CREA Answer: The text they sent you is correct and from the law. Is the fact that they sent you “comparables” an attempt at influence? Maybe. It depends on the quality of your appraisal and the quality of their “comparables.” One way to measure “influence” is— did the “comparables” sent all have sales prices higher than your appraised value? If they are, then it appears to be an attempt at pushing the appraiser to a higher value (influence). If, and this is a big if, what they sent are better comparables, they would likely have prices below and above your value point. Since they ALL have prices above your value and— let me guess—are likely not “comparable” (shock), it appears to be an attempt at influencing the appraisal outcome—an illegal act. Comparables should bracket the subject, some higher in price some lower, bigger and smaller, younger and older (etc.). If this is what they sent, then maybe…just maybe… they are trying to improve the quality of the appraisal. Next point—who decides that they are “comparable” and “appropriate?” Likely, it is someone
36 Working RE Spring 2013
with a financial interest in the property—hmmmmm? People are allowed to interact with the appraiser to try to help by sending information. However, it’s a razor’s edge between help and influence. Every lender and AMC is required to have written policies and procedures that outline what is allowed and what is “influence.” My suggestion is to have the lender/AMC send you a copy of their written policies and procedures regarding the additional information. And if they don’t have them, you have the option of letting their federal regulator know about the failure. Nicer Solution: you can give them a simple reply: “I did consider these sales in the original appraisal process. None of them were considered superior to the comparables used in the report.” Place it on your letterhead, PDF and send it back. Now if you want to take it a step further: analyze their sales, briefly state why they are not comparable and send a written response to the Chief Compliance Officer of the bank and tell that person: “This appears to be an attempt at influencing the outcome of the appraisal.” In brief, provide the who, what, when and where. That will get their attention and likely stop the problem in the future. Here is a general tip: If you think something is wrong, document everything and shine light on it. Then sit back and see who scatters. These are the kinds of soultions we provide to both sides (in the OREP/WRE webinars)—appraisers and AMCs/ lenders. This is why it is so important that every appraiser and AMC/lender who cares about staying in business attend these webinars. Even one mistake can be a game ender. You need to learn what to do to remain insulated and protected and what not to do, that will get you into trouble. You need to do some things and there are some things you need to avoid doing. This environment is like a mine field. – Richard Hagar, SRA
Do You Need General Liability Insurance? Do you need general liability insurance? You just might. Business Owner’s/General Liability Policy has been compared to a homeowner’s policy for your business. Coverage includes but is not limited to Property Damage to others, Bodily Injury, Business Interruption and Loss of Income coverage, Personal Property Coverage (computers, client records, buildings) and employee dishonesty. Inspectors, appraisers and real estate agents/ brokers need this coverage. Minimum premium is $500. Workers Comp also available. Call OREP. org for details and a free quote (888) 347-5273 or email: info@orep.org with your request.
OREP.org/WorkingRE.com Blogs & Surveys AMC Rater This blog is an information exchange by and for appraisers on the best AMCs to work for. Visit WorkingRE.com and under Blogs click AMC Rater (left column).
New 7-Hour USPAP CE Online: Convenient, Affordable Enjoy an OREP/Working RE discount on Mckissock’s new 7-Hour USPAP online continuing education course, approved in most states. Taking this mandatory continuing education coursework is now affordable and convenient with this new online course. Visit WorkingRE.com and click Mckissock banner (center column) to learn more.
New Working RE Home Inspector Edition The new edition of Working RE is dedicated to home inspector issues only. Find a link to the PDF magazine at WorkingRE.com.
2013 AMC Resource Guide Published The 2013 AMC Resource Guide has over 200 verified AMCs listed, with the first 50 sending over 90% of the author’s work. Expand your business and find the AMCs that pay fairly and know how to treat an appraiser professionally. Visit WorkingRE.com or email your request to subscription@workingre.com.
Wells Fargo Paying JVI Bad Debt Appraisers getting stiffed by appraisal management companies (AMCs) that declare bankruptcy or simply fail to pay remains a hot-button issue for the industry. JVI Solutions is one of many in the last several years to leave appraisers with a mountain of unpaid invoices. But this story, unlike so many others, has a happy ending, with one lender stepping up to make good on its share of JVI’s unpaid debts. Find the story, originally published in WRE’s Online Edition, at WorkingRE.com (click Working RE News Edition). Opt In to the bi-monthly edition there.
Insurance: How Saving Money Can Really Cost You If you are considering letting your errors and omissions (E&O) insurance policy lapse (not renewing or canceling) to cut expenses or thinking about switching to a company that does not provide “prior acts” coverage for your past appraisals just to save money, you should think again. Appraisers are being sued in record numbers today—even the careful ones. No matter the merit, appraisers have to spend time and resources defending themselves— even if they did nothing wrong. As most claims involving appraisers take several years to surface, letting your Claims Made insurance policy lapse or willingly giving up your prior acts coverage to save a few dollars could be very costly indeed should a claim arise from the past and you have no coverage. Call your insurance agent to find out what is really at stake. For more on E&O insurance issues, see Insurance: Insight and Advice from the Inside, an interview with OREP.org Senior Broker David Brauner, who has been point of sale for appraiser E&O insurance for 20 years. visit OREP.org.
We're on Twitter! http://twitter.com/workingremag rials will help you obtain additional avenues of income pertaining to your FHA expertise now and into the future.” OREP insureds enjoy a discount.
AMC Rater
“That was a great seminar!!! I learned some new cool ways to save time and be more efficient. Keep up the great training!” —M. Maddox
Don’t Miss Your Opportunity to Know More and Make More Industry leaders share their expertise with you at prices you can afford. The topics are useful, the costs are minimal. OREP members/Working RE paying subscribers always enjoy reduced fees. Recorded webinars also are available on demand for your convenience.
Appraisal Review and the Law Presenter: Richard Hagar, SRA “I just wanted to let you know I really enjoyed the webinar. It was very informative.” —B. Eastman Ever wonder if the “Review Appraiser” you’re talking to is behaving legally? Knowing the law will help appraisers respond properly against some of these illegal requests. Hagar tells appraisers what they need to know to stay out of trouble, respond appropriately, and protect themselves.
This blog is an information exchange by and for appraisers about working with the various AMCs— read the good but mostly the bad and ugly about which AMCs to avoid, such as the following: “Boy, are you right! I had to chase (AMC name removed for publication) for months for a check. We have friends that had to chase them for 120 days for $3,000+. They are supposed to be run by an ‘ethical’ appraiser but I think not! I did an appraisal for them, busted my rear to get it in in their turn time and then I got an email back saying they had cancelled it and utilized one of the appraisers in the area who does most of their work. I never got a cancellation email. So, I was out two days’ work and $375. Nice!” Learn what you need to know about working with AMCs at this blog. Visit WorkingRE.com and under Blogs click AMC Rater (left column).
VA Hiring
Environmental Hazards Impact on Value Presenter: Francis X. (Rich) Finigan, Education Director of Calypso Education As many as 85% of properties appraised in the United States have potentially sensitive environmental sites within a half a mile. Learn key strategies for conducting environmental due diligence, making the right disclosures, and dodging the inevitable liability bullet.
Mobile Appraising: Saving Both Time and Money Presenter: Dustin Harris, “The Appraiser Coach” “Wow! Wow! Wow! The seminar was very helpful and encouraging in timesaving mobile applications!” —J. Weseman Learn about the technology and techniques that can keep your business profitable and competitive. If you think you’ve heard it all before, you haven’t. Dustin does it successfully and enjoys showing others how.
According to Gerald A. Kifer, Supervisory Appraiser at the Veterans Administration (VA), his agency’s goal is to increase VA fee appraiser panels by 25 percent by the end of the fiscal year 2013 (September 30, 2013). All fee appraiser applicants must be state-licensed or Certified and meet all additional VA qualification requirements as detailed on VA’s website (Benefits.va.gov/homeloans/appraisal.asp). According to Kifer, the VA Regional Loan Centers are the primary point of contact for applying. Read the entire story, first published in Working RE’s Online Edition in November, 2012, at WorkingRE.com (under Recent Stories: VA Recruiting Appraisers Nationwide).WRE
Complaints: What to do When the State Comes Calling Presenter: Tim Anderson, MAI New Regulations have AMCs and Lenders turning appraisers in to their State Boards for alleged violations of USPAP and other applicable laws, sometimes even when the appraiser has done nothing wrong. Learn how to protect your license and your livelihood if the state ever comes calling.
FHA Appraising Easier, More Efficient Excellent material—will help me get to the next level—well worth the money! Thanks, J. Joslin FHA work is booming. Here’s an opportunity to make your FHA appraising faster and more efficient. The FHA Appraiser Inspection Checklist and eBook are designed to get you up to speed and more efficient at FHA appraising. The Checklist serves as a field guide for completing your reports. The eBook saves you time and money by summarizing and organizing the material you need to know. Author/appraiser Lore DeAstra says, “We reviewed more than 450 pages of HUD materials and spoke with several HUD officials to com-
pile the FHA Appraiser Inspection Form, course materials, and eBook. It will save you time and money.” The guide is updated with the following: formatting updates for improved ease of use, more concise information in an easy-to-follow eBook searchable by topic, web links to topics for easy access, symbols and pictures included by topic for at-a-glance comprehension to FHA Checklist, FAQ from appraisers and lenders by topic with detailed index by page, over 10 new ways to access information and contact FHA to check competencies and get help fast! For more, go to WorkingRE. com and click FHA Checklist, and eBook (top left column). “Differentiating yourself from others improves your business and marketing efforts,” says author Lore DeAstra. “These revised mate-
Dog Ears Our appraiser Kenneth Newton gets your magazine but wants to know if that means he is an (OREP) member. If not, how much is a membership? He said that he really enjoys your magazine. He is not much for getting online and looking but he says his magazines have dog ears. Let us know if we are a member and if not what a membership will cost. OREP/Working RE
Spring 2013 Working RE 37
Professional Marketplace 2013 AMC Resource Guide—Author Comments info@orep.org (888) 347-5273 David Brauner/David Brauner Insurance Services
Individual Appraiser E&O Rates Per Claim/Annual Aggregate
Most States
$1,000,000 / $2,000,000
$650.00
$500,000 / $1,000,000
$573.00
$300,000 / $600,000
$501.00
Please Note: Rates vary by state. Commercial rates are slightly higher. Please call or visit www.orep.org for more (888-347-5273). Zero deductible available in certain states. Prior acts coverage is provided free for qualified applicants (call for details). Beginning appraisers/trainees qualify. If you would like an application for this program or a quote for a multiple-appraiser firm or for sales/brokering, please call or visit OREP: (888) 347-5273, www.orep.org. Subscription to Working RE magazine included. Financing available.
Appraiser E&O Options • Policies with no FDIC Exclusion. • Combine Appraising, RE Sales and Brokering: One low premium covers both appraising/sales & brokering. • Appraisal Firm Coverage: If you are experiencing an increase in rates, a decrease in coverage or new exclusions that seem unreasonable, it pays to shop OREP when your firm’s E&O policy is expiring. Many firms are switching to OREP. Many appraisal firms are surprised to learn how much they can save by shopping OREP. • AMCs: Many appraisal management companies are forming in the wake of HVCC. If you need this coverage, OREP can help. • Retiring: If you are retiring from appraising, ask your insurance agent about purchasing Extended Reporting Period or “tail” coverage. Without it, you are exposed for any liability that may arise from past appraisals. Premiums range from one to one-and-one-half times (100%–160%) your last year’s premium and can provide coverage forever into the future for past appraisals. Each program is unique. Call your agent for details if you are planning to retire.
New 7-Hour USPAP CE Online: Convenient, Affordable Enjoy an OREP/Working RE discount on Mckissock’s new 7-Hour USPAP online continuing education course, approved in most states. Taking this mandatory continuing education coursework is affordable and convenient with this new online course. Learn and earn (CE) on your schedule! Visit WorkingRE.com, then scroll down and click on “Proud Partner of McKissock” Banner (center column).
Working RE: New Home Inspector Edition You’ll find two issues, full of valuable content exclusively for home inspectors, posted online at WorkingRE.com. Stories include: Examining AgentInspector Relationship, Staying Safe Out There, Manufactured Homes: One That Almost Got Away, In Search of Perfect Home Inspection, Playing “Not Readily Accessible” Inspection Card, Expert Witness Subpoenas: Don’t Work for Free, Reducing Liability: Setting Proper Expectations and much more.
FHA Field Guide This is very good material. Concise and really helpful. —Kim Moore Visit WorkingRE.com, click FHA checklist.
38 Working RE Spring 2013
“Hi All—The new 2013 AMC Guide is out! I completely updated the entire list—I removed deadbeat AMCs, the ones that never send work, and most of the companies that do not have online applications. I also re-organized the list so the top 50 companies send me the most work. Of these, 99 percent are national, so most likely they have work in your area. The top 10 are MY BEST CLIENTS!” —Bryan The 2013 AMC Resource Guide has over 200 verified AMCs listed, with the first 50 sending over 90% of the author’s work. Expand your business and find the AMCs that pay fairly and know how to treat an appraiser like a professional. You control whom you work for instead of the other way around. The 2013 AMC Resource Guide helps increase orders so you can turn down low-fee AMC work, negotiate fees from a position of strength and confidence, and refuse to work for the AMCs that undervalue you with low-fee work and endless streams of unnecessary corrections and stipulations. Visit WorkingRE.com to order or email your request to subscription@workingre.com.
Calypso Approved Continuing Education Calypso is a new and innovative continuing education provider. These online classes include professional-produced video segments, interactive games and exercises, and more! Courses approved in most states. Email isaac@orep.org to receive Discount Code. (Calypsocontinuinged.com or see Inside Back Cover.)
Continuing Education at Cost “The class was great and the price was even better. Please let me know if you have any other discounted classes.” —Eric (OREP Member) Appraisers and Agents: The online McKissock course, Essential Elements of Disclosures and Disclaimers (5 hrs. approved continuing education in most states), is available to OREP Members/Affiliates for administrative costs ($15.64). The purpose of the course is to provide appraisers with the tools to meet their disclosure obligations, while at the same time protecting them from unintended liability through the use of appropriate disclaimers. How and where must an appraiser disclose prior services provided on the subject property within the prior three years? How should repair items be disclosed in an FHA appraisal report? How should significant real property appraisal assistance be disclosed? How can an appraiser protect himself or herself when there appears to be mold in the basement? This course provides the essential elements of disclosures and disclaimers in appraisal reports. Every appraiser will benefit from this course. (Visit OREP.org, click Benefits and OREP Education Network.) Inspectors CE Education: Online Mckissock course Home Inspection Safety (3 hrs. ASHI, NAHI, NACHI approved and also by 15 states), is available at administrative costs to OREP Members and Affiliates (ASHI, NAHI, NACHI: $5.74; varies by state). The objectives of the course are to identify protective clothing that should be worn. recognize safety equipment used; understand limitations and exclusions; discuss general safety issues; recognize lead paint, asbestos, etc.; discuss electrical safety; understand, heating and air conditioning precautions; recognize un-permitted additions and more. (Visit OREP.org, click Benefits and OREP Education Network.)
Mortgage Field/Property Preservation Many appraisers and home inspectors are now providing mortgage field and property preservation services for bank-owned properties. OREP has provided E&O and GL insurance to this industry for over 10 years and is a leader in the field. If you’d like a quote, please call or visit OREP.org, (888) 347-5273.
Professional Marketplace: Insurance, Education, Information and More OREP Announces New Home Inspector Insurance Program Cadillac Coverage: E&O + Premises Coverage (BIPD) $1,250 /$300k Limit Home Inspectors no longer have to pay more for the complete coverage they need. A new program from OREP includes most coverages in the minimum premium ($1,250), including Bodily Injury Property Damage (BIPD/Premises coverage). The new insurance program allows inspectors to have complete coverage and save money! David Brauner Insurance Services/OREP has been servicing the insurance needs of home inspectors for 11 years. Program Highlights • Includes Errors and Omissions (E&O) and Bodily Injury/Property Damage (BIPD)/Premises coverage, as well as most incidental coverages, such as termite, radon, and commercial coverage. • “A” Rated Carrier, Prior Acts, Additional Insured for Agents and other Referring Parties. • Convenient: Fast, Self-Rating Application gets you quoted and back to work in minutes. • No policy fee, no taxes. “Home inspectors who are paying extra for ‘add on’ coverages, or worse, going without the full coverage they need just to save money, don’t need to any longer. Broad coverage is included in the minimum premium, including E&O and premises coverage,” said David Brauner, Senior Broker at OREP. OREP’s new program also includes most incidental coverages, such as termite, radon and commercial coverage. The minimum insurance premium is $1,250, which provides a coverage limit of $300,000 Aggregate/$100,000 each Occurrence for E&O/BIPD. Choice of coverage limits and deductibles are available. Find details pg. 31. Visit OREP.org for more or call toll free (888) 347-5273. Info@orep.org. David Brauner Calif. Insurance License: #0C89873
Group Health Care—No Application/Limitations for Pre-Existing Conditions
on a guaranteed issue basis. Eligibility is accomplished by being a member/affiliate member of a real estate association/board. Kaiser Permanente offers eleven plans including the new Tax Advantaged Health Savings Account Plans. United Healthcare offers three HMO and four PPO plans, including a Tax Advantaged Health Savings Account. Allied National offers four Limited Benefit PPO Plans that offer highly affordable first dollar coverage including doctor office and emergency room visits and prescription drugs. These plans are available to California residents only through OREP (OREP membership not required). Please visit OREP.org, click Benefits or email info@orep.org with medical benefits in the subject.
How to Save on Office Supplies, Telecom and More Corporate Savings is a little-known but significant cost-saving benefit of being an OREP member/paid Working RE subscriber. Members and subscribers who take advantage of the program save money with Office Depot, Staples, Dell, FedEx, UPS, Sprint, travel, and more. OREP/Working RE saves well over $1,000 a year on office supplies alone. Rod Lopez, an appraiser from New Jersey, says that he saved over $100 recently on the discounts at Staples, Office Depot and on approved continuing education from Mckissock. Cynthia Traylor, from House Calls Home Inspections, in California, responded, “YES! We are saving 19% on our Verizon bill and I order all of our office supplies through the discounted Staples portal—they provide overnight, FREE shipping, even on Sunday orders! Lastly, we are considering the Six Flags discount. So, yes, yes, and yes. We are taking advantage and truly enjoying your program. Great job!” If you’re an OREP member, ask about these savings! If you buy your insurance elsewhere, consider a paid subscription to Working RE magazine. Subscription benefits also include corporate savings, discounts on continuing education, webinars and more, in addition to the print magazine. The savings easily pay for the cost of the subscription. WRE
California residents qualify for programs offered through Kaiser Permanente, Allied National and United Healthcare. These plans are available to real estate professionals
Thank You! Great Service...Easy, fast, affordable! —Patti Tai, Certified Residential Appraiser
Low E&O Rates, New Policy Servicing Department…and Yes, We Still Answer the Phone! Appraisers E&O Min. Prem. $501 (varies by state) Inspectors E&O Min. Prem. $1,250 Real Estate Agents/Brokers Min. Prem. $429 (varies by state) OREP has a new policy servicing department to streamline insurance requests from our clients, including renewals. Simply email your policy-servicing request to info@orep.org to get the assistance you need, usually same day. Whether you’re an existing client or someone calling for the first time, you can reach us by phone anytime during business hours (8–5 M–F Pacific Time).
Business by the Golden Rule Our mission at OREP is simple: “Business by the Golden Rule.” It means we treat you the way we want to be treated: with honesty, courtesy and efficiency. This is David Brauner, Senior Broker and Principal of David Brauner Insurance Services/OREP.org. Call us to see what you’re missing if you’re missing great rates, great service and business by the Golden Rule. Yes, with OREP you can have all three. Call toll free today: (888) 347-5273 or visit OREP.org. Policy servicing: info@orep.org. OREP publishes Working RE magazine. WRE
OREP now in our 11th year! (L-R) Michael, Kevin, Lori, Isaac, Ashley, David, Carolynn, Clark, Maria, Cary
“WOW! Thank you very much. You are the fastest and most efficient insurance agent I have ever done business with !!!” —Aloha, James
David Brauner Insurance Services: Calif. Lic. #0C89873
Spring 2013 Working RE 39
Survey Results: How Reasonable are Appraisal Turn Times? (And is quality affected?) by David Brauner, Editor
As
of this writing, 2,455 appraisers have participated in the OREP/ Working RE How Reasonable Are Appraisal Turn Times? Survey. Find the data below. Appraisers report that turn times are unreasonable much of the time. Further, turn time demands do not vary much according to complexity. However, ordering entities do allow more time when it is requested. Most appraisers indicate they are penalized for not making required turn times, at least some of the time. Finally, appraisers say they are not letting unreasonable turn time pressure hurt the quality of their reports—most of the time.
Summary One way to interpret the results are that: 72 percent of appraisers say that requested turn times are “reasonable” half of the time or less.
26.3 percent of appraisers say they deliver reports of diminished quality to meet unreasonable turn time demands half of the time or more.
75.8 percent of appraisers say turn times vary depending on the complexity of the property half of the time or less. 71.9 percent of appraisers say the ordering entity allows more time when requested half of the time or more. 48.4 percent of appraisers say they are penalized, fee or otherwise, for not meeting required turn times half of the time or more.
Data 1. Requested appraisal turn times are “reasonable” about what percentage of the time? 10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
11.8%
10.2%
13.7%
9.6%
26.7%
6.4%
9.3%
7.8%
3.8%
.6
2. Requested appraisal turn times vary depending on the complexity of the property about what percentage of the time? 10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
33.8%
13.1%
11.0%
4.3%
13.6
3.4%
5.8%
6.2%
3.4%
5.4%
3. The ordering entity allows more time when you indicate it is required about what percentage of the time? 10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
7.8%
7.2%
7.7%
5.3%
19.0%
7.1%
10.9%
13.7%
10.8%
10.4%
4. You are penalized, fee or otherwise, if you are unable to meet the required turn times about what percentage of the time? 10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
35.6%
7.4%
5.5%
3.1%
11.8%
2.8%
6.4%
8.2%
8.3%
10.9%
5. You deliver reports of diminished quality to meet unreasonable turn time demands about what percentage of the time? 10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
56.4%
8.2%
6.2%
3.0%
8.9%
3.0%
2.9%
4.9%
3.0%
3.6%
40 Working RE Spring 2013
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ACI is a division of Verisk Analytics (NASDAQ: VRSK), a leading provider of risk assessment solutions to professionals in insurance, health care, mortgage lending, government, risk management, and human resources. Verisk Analytics includes the holdings of Insurance Services Office, Inc. (ISO) and its subsidiaries, which provide essential solutions to the insurance, mortgage lending, and healthcare markets. For more information, visit www.verisk.com.