Working RE Magazine - Issue 57 by Working RE Magazine

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Real Est at e A pprai s ers

Fall 2021, Volume 57

CONGRESS TAKES AIM AT DISCRIMINATION IN REAL ESTATE

Spotlight on Appraiser Capacity During the Pandemic Tips for Training New Appraisers Post-COVID Remediation Letters Skapinetz vs. Coester

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Fall 2021, Volume 57

4 4

From the Publisher Readers Respond

6 14

Congress Takes Aim at Discrimination in Real Estate Isaac Peck, Editor

Spotlight on Appraiser Capacity During the Pandemic Danny Wiley, Senior Director at Freddie Mac

Tips for Training New Appraisers Mike Lay, Appraisal House USA

Wealth and Why

Dustin Harris, The Appraiser Coach

Racial Bias in Real Estate Maureen Sweeney, SRA, AI-RRS

30 32

Insurance IQ: Defining Professional Services Isaac Peck, Editor

Skapinetz Wins Against Coester VMS Isaac Peck, Editor

2021 Fee Survey Results Isaac Peck, Editor

GSE Buybacks and Remediation Letters Isaac Peck, Editor

Professional Marketplace

Industry News Mission

Publisher

Working RE is published to help readers build their businesses, reduce their risk of liability and stay informed on important technology and industry issues.

David Brauner dbrauner@orep.org

Subscribe Today! Print, Premium Content, Savings

www.workingre.com (click subscribe) Subscription included with purchase of E&O insurance from OREP. Comments & letters are welcome! All stories without attribution are written by the editor. 2 Working RE Fall 2021

Editor Isaac Peck isaac@orep.org

Assistant Editor & Designer Ariane Herwig ariane@orep.org

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Working RE is published quarterly and mailed to real estate appraisers, agents and other real estate professionals nationwide. The ads and specific mention of any proprietary product contained within are a service to readers and do not imply endorsement by Working RE. No claims, representations or guarantees are made or implied by their publication. The contents of this publication may not be reproduced either whole or in part without written consent.

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From the Publisher

Silver Lining by David Brauner, Senior Broker at OREP.org

Readers Respond Driving Comps: The Great Debate

The good news is that all the negative attention the industry is facing

regarding appraisal bias may have a silver lining. Proposed legislation intends to pump $50 million a year into the profession to help “correct” this perceived problem. And that certainly is not a bad thing. As the cover story Congress Takes Aim at Discrimination in Real Estate reports (pg. 6), proposed legislation will send millions of dollars through the Appraisal Subcommittee to help make It’s hard not to it easier for the next generation of trainbe defensive ees to earn their wings—with an eye on increasing diversity in the ranks. The curwhen you’re rent training model has always been hard being accused of for all parties involved: mentors have had prejudice and bias. to weigh the time and resources required to “train the future competition,” and trainees typically struggle financially during a long apprenticeship. It’s one reason the profession is so insular: appraisers are more likely to help family and friends first, just like everyone else. Still, the issue pisses you off, right? I don’t blame you. It’s hard not to be defensive when you’re being accused of prejudice and bias. It’s not comfortable and in the case of conscious or malicious bias, not justified either, in my opinion, with respect to the majority of appraisers who, as we all know, report the market, not make the market. Having said that, various studies have shown that diversity in business brings fresh ideas and perspectives and therefore enhanced results. And according to this issue’s cover story, there may be money available to compensate you if you are willing to take on a trainee. That also is very good for the future of profession. Whatever your feelings are about this very controversial topic, at least part of the proposed “cure” in this case might actually help the profession by making it more financially feasible for new professionals to join appraisers’ ranks. WRE 4 Working RE Fall 2021

There are, as many have said, pros and cons to the comp photo debate. There are several premises for each—for example there may be something that the Broker “selectively” cropped out of their MLS photo, etc., that you see in real time. But with the advent of highquality aerial imagery, probably 99% of those types of things are going to be caught when you do your due diligence research. So, we shoot them for FHA and others no matter what. Well, (especially on rural and mountain properties), I like to save time as much as the next guy. So if I don’t suspect anything out of the ordinary or am familiar with the location and am already aware that there is nothing there to be a problem, why spend hours (yes, sometimes it’s hours) driving to shoot a single picture of a single mailbox. Let it be the appraiser’s call. —Bill Fleming Put a license plate frame on your car. Mine has the words: “Real Estate Appraiser” at the top of the frame, and there is one on the front end and the rear end of my car. This one small addition to my appraiser toolkit has precluded ALL of the incidents that I occasionally have (rarely) encountered with residents when driving comps in my 30-year appraisal career. I would be willing to bet that 95–98+ percent of appraisers have NOT taken this simple step. —Rob Engle We lose focus on the real issue when we speak about “driving comps.” This discussion needs to stay focused on the requirement of taking pictures of

the comparable sales. Yes, I believe it’s essential to drive the market area and become competent when using comparable sales and making adjustments. This discussion/debate becomes very muddy when there’s a crossover between driving comps and taking pictures. Homeowners are generally okay with individuals driving past their residence looking at their home. Still, when the vehicle slows down, the window goes down, and a camera comes out, the situation changes. Hiring an appraiser to perform an appraisal is just that, to trust that the appraiser is competent in the market area, drives the comparable sales, and provides a clear and concise report that abides by appraisal standards. —Robert Weber

 Discrimination in Appraisals Great article! Thanks for digging into

these stories further. I was not aware of all the details surrounding the “undervalued” appraisals. Sadly, the truth wasn’t shocking enough to reach the national headlines. —John Hicks

those neighborhoods affected by issues, I let the nearby comparables speak for themselves. If they aren’t available, then I walk. Sometimes as professionals, we need to make a business decision to stay out of controversy. Just the cost of business! —Quay Catt

These issues are not for the faint of heart. I work in rural areas, but I have experienced similar challenges for years. It may not be race in my area; it might be our local polygamous community or unfriendly hillbilly neighborhoods! If there are not adequate sales within that neighborhood, then the value range won’t be represented. I can’t adjust for race, religion, bad neighbors, or any other bias! (end of discussion) If it is my opinion the subject is affected, I cancel the order for “lack of comparables to write a credible report.” (never an issue) If I try to write a report without adequate data, I’m truly at fault, and misleading. As independent contractors, we are in control of the jobs we tackle. In

 What I Learned from Drug Dealers Sounds good on paper. In reality, most folks don’t care if I do superior work, which I always do. They want to get them in and out at a low fee as quickly as they can. If you are licensed, they do not know a good appraisal from a bad appraisal—sad but true. It seems nearly impossible to know a good appraisal from a bad one in today’s market due to buyers being under duress and paying auction prices. —Larry Fenimore WRE

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Fall 2021 Working RE

Congress Takes Aim at Discrimination in Real Estate by Isaac Peck, Editor

Amid a media buzz surrounding racial

To promote diversity within the appraisal profession, the Bill proposes that the ASC will receive grants of $50 million per year.

bias in appraising, Congress responds. In April 2021, the United States House of Representatives introduced Bill H.R.2553—Real Estate Valuation Fairness and Improvement Act of 2021 that could change the face of appraising. The Bill has currently passed the House Committee on Financial Services and is awaiting floor action. Sources close to the process report that it has strong support in the House. To promote diversity within the appraisal profession, the Bill proposes that the Appraisal Subcommittee (ASC) will receive “authorization of appropriation” for grants of $50 million per year for fiscal years 2022 through 2026. You read that right, $50 million per year. The grant program would run for five years and total up to $250 million. Included in the activities the ASC would be authorized to use the funds for: A) funding scholarships, B) providing training and education, C) providing implicit bias training for appraisers, and D) other activities as determined appro priate to further the purposes of this grant program by the ASC.

Task Force Rational The Bill would establish an “Interagency Task Force on Real Estate Valuation,” facilitated by the ASC, and set to include as members 14 heads of leading governmental agencies and departments, Isaac Peck is the Editor of Working RE magazine and the President of OREP, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of free CE for OREP Members (CE not approved in IL, MN, GA). Visit www.OREP.org to learn more. Reach Isaac at isaac@orep.org or (888) 347-5273. CA License #4116465.

6 Working RE Fall 2021

including the Director of the Federal Housing Finance Agency (FHFA), the Secretary of Veteran Affairs (VA), the Undersecretary of Rural Development of the Department of Agriculture (USDA), the Comptroller of the Currency (OCC), the Chairperson of the Board of Directors of the Federal Deposit Insurance Corporation (FDIC), the Chairman of the Board of Governors of the Federal Reserve System, and many more. The rationale for the Task Force is that the Federal Home Owners’ Loan Corporation and the Federal Housing Administration (among others) played a major role in the development of the modern home mortgage origination industry and that, the Bill states: • Both Federal agencies explicitly considered the racial and ethnic makeup of neigh borhoods when underwriting loans and valuing the real estate to be used as home loan collateral. • Both agencies devalued property or refused to make loans secured by property in communities of color. • The harmful consequences of this discrimina tion remain unresolved. It is these “harmful consequences of discrimination” that the Task Force is meant to help resolve. The Task Force’s first mandate will be to work to “harmonize to the greatest extent possible” all collateral underwriting standards and guidance that govern both residential and commercial real estate valuations.” Interestingly, the Bill also includes reference to standards with respect to non-traditional valuations, including automated valuation models (AVMs), reconsiderations of value, page 88

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energy efficient housing, and “limited or inactive markets.” This means that the Task Force will not only be looking at appraisals and USPAP, but also examining lender’s valuation guidelines as well. It will also be tasked with investigating whether AVMs and other market drivers lead to the disadvantaging of specific minority groups. Additionally, the Task Force will create specific definitions for limited or inactive housing markets in which comparable sales are “limited or unavailable over a certain period of time.” Once defined, the Task Force will “establish greater flexibilities and guidance for appraisals and any underwriting processes associated with appraisals conducted in such markets, such as the ability to consider market evidence for similar properties in other geographic areas or utilizing a range of value.” In other words, the Bill is signaling “special treatment,” i.e. “special” underwriting and appraisal processes, will be developed and implemented for “limited and inactive housing markets,” which the Bill leaves undefined but is clearly related to the Task Force’s aim of addressing the “harmful consequences of discrimination.” The Task Force also will aggregate data and conduct studies to determine whether there are “racial disparities at both the borrower and community level in the valuation and price of the residential real estate to be used as collateral for mortgage applications.” Once that data has been aggregated and studied, the Task Force is mandated to “identify specific causes of such racial disparities and—adopt changes to address such causes.”

Diversity in Appraisal Profession As far as the ASC’s $50 million grant, the ASC would be mandated to allocate 50 percent of the funds to Historically Black Colleges and Universities (HBCUs), or alternatively, to universities with degree programs approved by the 8 Working RE Fall 2021

Appraiser Qualifications Board (AQB) or a relevant State regulatory agency. These funds would be used for scholarships for students of color who want to pursue a career in real estate appraisal and/or “subsidizing living expenses for those students while in training.” Additionally, the ASC must allocate 20 percent of the funds to cover the cost of “fulfilling the experience requirements or other applicable requirements that students will need to complete in order to become appraisers.” The ASC would be authorized to allocate one percent of the grant, up to $500,000, for administrative costs for this program. The ASC is empowered to “coordinate, and enter into agreements, with private industry stakeholders (including appraisal management companies and industry associations) to facilitate activities and practices that ensure diversity among individuals newly hired as appraisers in their first employment positions in the appraisal industry.” Finally, the Task Force will examine if there are any “barriers to entry that are disproportionately preventing minorities from entering the appraisal profession, such as current minimum requirements established by the AQB, the cost and availability of education, the content of the State appraiser exam questions, or the time it takes to finish training.”

ASC Weighs In Jim Park, Executive Director of the ASC, reports that the ASC has been providing technical assistance to the House Financial Services Committee staff over the last year as the Bill has been crafted. Park says that legislators began exploring the issue in early 2020 as news began circulating of minorities being treated unfairly in the appraisal process and in some cases feeling that they have to hide their cultural and ethnic backgrounds in order to get a fair appraisal. At the time of this writing, over a dozen local and national news stories have circulated with minorities

coming forward to share stories where they felt discriminated against by an appraiser and/or the mortgage process generally. One of the items the ASC thinks is very important to address is diversity within the appraisal profession. Park points out that according to the Bureau of Labor Statistics, which groups real estate appraisers and assessors together, 96.5 percent are white, and 70 percent are men. This places the appraisal profession dead last in terms of diversity, reports Park. The Appraisal Institute published a report in 2019 that pegged the appraiser population at 85 percent white and 78 percent male. Because of the disparity, Park believes the Bill is a step in the right direction in terms of encouraging diversity in the profession. “The appraisal profession needs to reflect the country as a whole a lot more than it does. With the reflection across the country on racial issues and discrimination and bias, I think for the appraisal profession to have such a lack of diversity, really creates an issue with public trust right now. Given the allegations of racial bias, every week, multiple times a week, public trust has been significantly damaged. That’s not good for appraisers, for users of appraisal services, or consumers,” says Park.

Practical Implications It’s important to note that the $50 million of funding earmarked for the ASC is dedicated almost entirely to three general categories: 1. Providing scholarships, training, and financial resources to estab lish educational curriculum and assisting people of color to get training at colleges and universities so they can become appraisers; 2. Providing education and implicit bias training for appraisers; and 3. Assisting trainees in getting the experience they need to become licensed appraisers. page 108

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There are not very many (if any) real estate appraisal programs at HBCUs, nor are there many universities with degree programs approved by the AQB or a relevant state regulatory agency. However, Park sees that changing if funding is established. “If we can get significant grants towards establishing scholarships and educational programs, HBCUs and other institutions might be more likely to set up a real estate appraisal program and this makes it more realistic for them,” Park reports.

Compensating Training Supervisors Park says that the ASC envisions programs where supervisors are paid to train trainees. “We think it would be very beneficial to the industry to address the number of issues and barriers that the supervisor/trainee system currently has,” said Park. “It can be costly to bring on a trainee and often supervisors don’t get financial remuneration at the outset of the training cycle, all while taking on added liability, etc. We believe providing financial resources in this regard will facilitate additional opportunities.” There is also the opportunity to increase the quality of the training that trainees receive, according to Park. “Money could also be used to establish a more standardized and better training regime. This will make it more likely that we’ll end up with better trained appraisers.” The caveat is that the $50 million per year proposed by Bill H.R.2553 is reserved almost exclusively for minorities. In other words, only minorities would receive scholarships, financial resources, and qualify for a program wherein their supervisor is paid for helping to train them, as explained above. While nonminorities could be compensated as the “supervisor” of a minority trainee, only minorities are eligible for the scholarships and qualify for these types of trainee programs. The only part of the 10 Working RE Fall 2021

Bill that would be allocated to everyone is the money put towards education and implicit bias training. In terms of what type of implicit bias training or education the ASC might provide, Park says that courses are under development and will be offered in the near future. Historically, the ASC’s grant program was directed exclusively towards The Appraisal Foundation, but the Dodd-Frank Act gave the ASC the authority to provide grants to the state appraiser regulatory programs as well. Park reports that the ASC has established grant programs with over a dozen states to assist them with federal requirements. “We have a number of significant grants with the states. Our current ASC grants are going for equipment, personnel and training,” Park said. “For example, South Dakota has received a grant from us and it was matched by the state and they are using the funds to set up a supervisor-trainee program to provide experience that is such a difficult part of the current qualification criteria. This should benefit not only the state, but also other stakeholders, including appraisers, AMCs, and consumers.” A big part of South Dakota’s traineesupervisor program will be to financially compensate supervisors who are willing to train a trainee. Park says that this type of model is part of what the ASC will work on with the 20% of funds allocated to covering the cost of “fulfilling the experience requirements” that students will need in order to become appraisers. Unlike the proposed Bill discussed here, the program in South Dakota is open to everyone. The ASC is in a unique position within the appraisal regulatory system to facilitate the Task Force and administer the grants, Park said. “As a federal government agency, the ASC currently has responsibility of providing oversight of the appraisal regulatory system. We are unique in that we’re made up of seven federal government agencies, the OCC, NCUA, HUD, CFPB, Federal Reserve,

FDIC and FHFA. As the bill stands now, our role would be to facilitate. We will not be a member of the Task Force, but we would be the facilitator of it and we’re uniquely well positioned for that role,” says Park. The ASC currently has a $10 million annual budget, so the allocation of an additional $50 million per year would be a very substantial increase. However, Park reports that the ASC does have experience administering grant programs and now has a full-time Grants Director who has experience handling very significant grant funds.

Bias, What Bias? Many appraisers feel the entire premise of racial bias in appraising is suspect (See Racial Bias in Real Estate: Is It the Appraiser’s Fault?, pg. 26). Many feel personally attacked by the discussion of discrimination and are quick to point out that USPAP mandates that appraisers must not perform an assignment with bias or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, etc. To that end, the ASC has also recently approved a $250,000 budget for a comprehensive and independent review of the USPAP and the Real Property Appraiser Qualification Criteria (AQB Criteria). According to the ASC’s press release, the goal of the review is to “ensure that USPAP and the AQB Criteria do not encourage or systematize bias, and consistently support or promote fairness, equity, objectivity and diversity in both appraisals and the training and credentialing of appraisers.” In an episode of “AI Answers” on YouTube, published in November 2020, Bill Garber, Director of Government and External Relations for the Appraisal Institute, noted that given the Biden Administration’s interest in promoting education within the appraisal community on implicit bias, a likely response is that the education will be built into

the existing 7-Hour USPAP Update. “That seems to be where the Appraisal Foundation is moving at this point, to include some components relating to bias or fair housing within the USPAP requirements. Technically, there may not be a new education requirement imposed, although the AQB may consider an additional CE requirement, but they will almost certainly build this into the pre-existing USPAP education requirement,” says Garber.

Where We’re Headed With Congress taking up the topic of discrimination and diversity in real estate and appraisals, a number of states are also examining the issue. New York has mandated fair housing education

for appraisers; Illinois is considering a bill addressing discrimination in real estate, and a number of other states are currently discussing legislation along these lines. President Biden has also introduced a plan that calls for additional training for appraisers to ensure that they have “a full appreciation for neighborhoods and do not hold implicit biases because of a lack of understanding.” Whatever happens, appraisers can be sure that the issue of implicit bias, discrimination, and diversity within the profession will continue to be a hot topic in the national news, state and federal legislatures, and amongst the appraisal community itself. Stay tuned. WRE

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Spotlight on Appraiser Capacity During the Pandemic by Danny Wiley, Senior Director of Valuation for Single-Family Credit Risk Management, Freddie Mac

In November 2020, I shared informa-

tion about “The Effect of COVID19 on Appraisal Volume” submitted through the Uniform Collateral Data Portal® (UCDP®)—the appraisal portal shared by Freddie Mac and Fannie Mae (Visit WorkingRE.com, search “Appraisal Volume”). Now that it’s been more than a year since COVID-19 first started impacting everything, I am updating those same numbers and also diving a little deeper into the state-by-state impacts.

The pandemic year of 2020 continuing into the early part of 2021, has shone a bright light on a topic that’s been a growing concern— appraiser capacity.

Impact on UCDP Volume 2020 was a record year for the number of appraisals submitted through UCDP, also known as government sponsored enterprise (GSE) appraisals. This included the 10 highest-volume months (March– December) since we began collecting appraisals in UCDP in 2012. While there was a precipitous drop in the volume from October to November (from over 700,000 to around 625,000), December 2020–April 2021 saw volumes that remained in excess of 600,000 appraisals (with a spike of over 700,000 in March), all representing record volumes from pre-March 2020. In other words, the 14-month period from March 2020– April 2021 comprises the 14 highest individual monthly volumes in the history of UCDP. UCDP Volume and Unique Appraiser Licenses These numbers, including the fact that seven of those months represented volumes in excess of 700,000 appraisals, are staggering (see Figure 1). The numbers

Danny Wiley is Freddie Mac’s Senior Director of Valuation for Single-Family Credit Risk Management. He is responsible for Freddie Mac’s collateral risk management and its valuation team. He is also responsible for innovation in collateral risk analysis. This article is reprinted from Freddie Mac’s blog.

14 Working RE Fall 2021

become even more staggering in light of the fact that during this time the number of unique appraiser licenses held steady at roughly 40,000 per month.

A State-by-State Look 2012–2019 The increase in the GSE appraisals nationwide and the strain it’s put on appraisers is apparent from the numbers mentioned above. When you look at it on a state-bystate basis, you see an even more compelling story (see Figure 2). Comparing average annual GSE appraisals per appraiser from 2012–2019 against 2020 shows that the numbers go up across the board. You also see a heavy impact on the states that already made up the top 10 highest average numbers. Let’s take a closer look. 10 Lowest Volume States Per Appraiser (2012–2019) From 2012–2019, the states that made up the list of the 10 lowest average GSE appraisals per appraiser (see Figure 2) were heavily situated in the northeast and, not surprisingly, included some of the least populated states in the country (nearly all of them with less than two million people). While it’s not a state, we’ve included Washington, D.C in our research, and it had the lowest volume with 79 average GSE appraisals per appraiser. Rhode Island topped this list with 116 average GSE appraisals per appraiser. Effectively, the appraisers in these 10 lowest states averaged between six and 10 appraisals per month during this eight-year stretch. 10 Highest Volume States Per Appraiser (2012–2019) The other end of the spectrum during the period of 2012–2019 tells a

UCDP Volume and Unique Appraiser Licenses

Figure 1: Unique appraiser license numbers in UCDP, per month. Appraisal and license volume for all form types (not limited to 1004/70).

GSE Appraisal Volume Against Capacity (2012–2019)

Figure 2: Based on unique appraiser license #s in UCDP. Appraisal and license volume for all form types (not limited to 1004/70). much different story (see Figure 2). The majority of the states comprising the list of the top 10 highest average GSE appraisals per appraiser were often situated in the western part of the country, and also, not surprisingly, included some of the more populated states, includ-

ing California, Texas, Michigan, Arizona and Colorado. This group ranged from Ohio (165 average appraisals per appraiser), Illinois (171) and New Jersey (174) at the low end to Utah (233) and Texas (207) at the top end. Overall, the appraisers on this list were

averaging about 14–19 appraisals per month from 2012–2019. As you can see, the workload quickly escalates at this end of the spectrum and, as you’ll learn on the next page, 2020 showed us that a perfect storm of factors could make the situation much worse. page 168

Fall 2021 Working RE 15

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GSE Appraisal Volume Against Capacity (2020)

Figure 3: Based on unique appraiser license #s in UCDP. Appraisal and license volume for all form types (not limited to 1004/70).

10 Lowest Volume States Per Appraiser 2020 There was very little change in the states that make up the list of 10 lowest average GSE appraisals per appraiser in 2020 (see Figure 3). While the order of states on the list moved around slightly, the only new state was Kansas, in place of Rhode Island (driven by its 67% increase in per appraiser volume in 2020). However, with the exception of Vermont, which saw a 48% increase, every one of the states on this list saw increases of over 50% (ranging from 51% to 73%). The largest percentage increases on this list were seen in Mississippi (73%), Arkansas (69%), Maine (68%), New Hampshire (67%) and North Dakota (66%)—all with increases over 60%, with their per appraiser volumes in 2020 ranging from 161 to 181. As I mentioned earlier, the states making up this list, included per appraiser volumes between 79 and 116 annually from 2012–2019 (or around 6–10 per month). With all but one of them showing increases over 50% (and half of them closer to 70%), the appraisers in these states were much busier in 2020, with per appraisal volumes 16 Working RE Fall 2021

jumping to 119–181 (or about 10–15 per month). Half of the lowest 10 states in 2020 experienced volumes that would have placed those states in the top 10 from 2012–2019.

10 Highest Volume States Per Appraiser 2020 The highest volume states are where the largest impact to appraiser capacity was felt in 2020 (see Figure 3). To start, two new states jumped onto the top 10 highest average list—Florida (6th at 270) and Alabama (9th at 252). And the states they replaced on the list, just missed staying there—Ohio (which tied Illinois for the final spot with 249) and Colorado (245). Three states on this list saw increases of over 50%, led by the newcomers Alabama (74%), Florida (64%), and New Jersey (57%). Every other state on the list saw increases between 42% and 49%. And while these percentage increases aren’t as dramatic as they were for the lowest 10 list, the overall volume for this already overworked group became even more overwhelming, jumping from 165–233 during 2012–2019 to a massive 249–335.

Meaning that the states comprising this list combined to do 46% more appraisals per appraiser (1,893 annually for this group in 2012–2019 to 2,766 in 2020)—or between 20 and 30 appraisals a month on average. However, the most eye-popping increase in these numbers was at the top of the list. Utah appraisers were already handling the most appraisals, 233 each annually on average between 2012–2019. But in 2020 that number jumped by 102 to 335—a 44% increase that meant they were doing about 28 appraisals per month on average.

Conclusion The pandemic year of 2020 continuing into the early part of 2021, has shone a bright light on a topic that’s been a growing concern—appraiser capacity. While the scope of that concern has been different throughout the country in recent years, it’s now been brought to the forefront for every state. The pandemic fueled regulation which lowered already-low interest rates and, for a portion of homeowners, home-improvement-related refinances combined with additional factors to create a perfect

storm for record appraisal volume, without a corresponding increase in the number of licensed appraisers. This increased loan origination turn times, impacting both lender margins and the overall borrower experience, as appraisers did their best to manage an influx of assignments. Due to a combination of fast-thinking industry collaboration between the GSEs and the Federal Housing Finance Agency (FHFA), to initiate the temporary appraisal flexibilities and existing automated solutions (e.g., appraisal waivers), some of the burden on appraisers was minimized and the impact to turn times lessened. I’m proud of the role Freddie Mac played, with the efforts mentioned above, to help keep the loan origination process moving safely for appraisers and borrowers. And I really can’t say enough

about the tremendous job appraisers did given the strain these massive volume increases put on them as they worked through a global pandemic. Now that it’s been a little over a year since the onset of the pandemic in this country, and interest rates have begun to tick up slightly, appraisal volume has also begun to recede slightly from the record highs seen in the fall of 2020. But volume still remains higher than at any time prior to March 2020 and the fall homebuying season is upon us. While the temporary appraisal flexibilities were sunset at the end of May 2021, rest assured that Freddie Mac will continue to monitor appraisal capacity and work with appraisers on new and innovative ways to help them meet the needs of the market as efficiently and effectively as possible. WRE

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Tips for Training New Appraisers by Mike Lay, Appraisal House USA

As a seasoned appraiser, should you

I believe there are things that an appraiser can do, and not do, to contribute to the profession and build their business while minimizing the issue of training future competition.

train a new appraiser or not? That is the question! For an appraiser, this is a defining question that will impact your business for years to come. Do you train someone to help build your business, or are you just wasting time because you will be training a future competitor? Most appraisers have a strong opinion, either way. Prior to the Home Valuation Code of Conduct (HVCC) and the subsequent diminution of fees, this was a relatively simple question because the money was there. So, if you wanted to build your business and had the taste for it, at some point, you brought on trainees. In six months of expending time, effort and expertise, a trainee could become a contributing member of your team, assisting you and producing enough revenue to offset their cost and hopefully adding to your bottom line. With a little luck, they would work for you for five or more years—maybe even decades—before going out on their own and starting their own business, and maybe returning the favor by training their own recruits. Some even stayed longer, taking over the business and providing a source of ongoing revenue for years after you retired. From a trainee’s standpoint, there were good reasons to stay with the appraiser who trained you after becoming licensed. The supervisor was the salesman; they went out and sold their services, developing long-term relationships with lenders and brokers. They

Mike Lay is a state certified appraiser and has been appraising since 2003. He is the President and Chief Appraiser of Appraisal House USA, a regional AMC located in Austin, TX. He also continues to perform appraisals for his own clients.

also paid for office space, computers, copiers, software, etc., and managed the day-to-day operations. To step out on your own was a much bigger commitment back then. You had to develop your own customers, pay for your own software and computers, deal with the billing and collections, and all of the other chores that go along with being a business owner. With implementation of the HVCC in 2009 and the associated rise of the AMC model for lenders, the dynamics changed drastically. Even after DoddFrank was implemented in 2010 to try to clean up the lax rules of the HVCC, the AMC model was fast and loose in those early post-recession years. If you had a license, you were welcome to complete a report, competence and/or geographic competency be damned in many cases. If it was on the right form and had a licensed appraiser’s signature, it was good enough. And if the appraiser was willing to take $200 for completing a report that the AMC could charge $500 for, even better. This was a boon to newly minted appraisers. Previously, the cost and effort of going out on their own was somewhat daunting. After Dodd-Frank, any licensed appraiser could sign up with a dozen AMCs and be swimming in orders—provided they were willing to work cheap and fast. In my opinion, this had a huge impact on the profession. With no barriers to hanging out their own shingle, what was the incentive for the trainee to stay long enough to make a meaningful contribution to the appraiser’s business after becoming licensed? Why work for a 60% fee split when they could get the whole fee? Costs were fairly minimal page 228

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by this point: a PC, software, internet, and insurance. From the supervisor’s standpoint, they just spent two years and many, many hours getting someone up to speed, and as soon as they could really contribute, they were gone. So what was the purpose of training someone who was going to leave as soon as they got their license? Training someone became a Sisyphean task—it got you nowhere. About two years ago I had a potential trainee tell me that he was looking for a sponsor so that he could “get his hours, get licensed and then move to Houston to go into business with his brother-in-law.” His pitch was “I won’t be competing with you in Austin.” Needless to say, he wasn’t what I was looking for. Add to that the requirement from many lenders and AMCs that the assigned appraiser had to be the one to complete the order, not another appraiser at your firm, and many of the appraisal firms saw no benefit to bringing on a trainee. Those who consider a trainee fall into two main camps. One thinks: “I will keep hiring trainees and hope that some will stay with me, allowing me to build my business.” Others believe: “What is the point of wasting so much time, energy, and money training someone who will immediately leave and become my competition?” A handful will only hire family members who they trust to carry on their business. While all these points of view are valid, I believe there are things that an appraiser can do, and not do, to contribute to the profession and build their business while at least minimizing the issue of training future competition.

Don’t Be a “Mill” That’s right, don’t be an appraisal “mill.” Most states allow you to train up to three people at the same time, and more in certain circumstances. I can understand that if they are staggered, training one for 12 months until they 22 Working RE Fall 2021

are relatively self-sufficient, then adding another, can be an excellent way to grow your business. But I’ve also seen shops where “trainees” are hired in bulk as “typists” or “researchers,” and then after a month are given a day or two of instructions on how to measure and inspect a house, and then essentially turned loose. State enforcement bureaus are overworked and understaffed, so the risk is minimal, and the rewards are great if you can get away with it. I remember a shop in my town back in the early 2000s that had over a dozen “trainees” at the same time, all under one appraiser. I’ve talked to some of those people over the years. One told me he has never used Excel—he doesn’t know how! I asked how he determined his adjustments and he said, “paired sales,” but when pressed, he admitted that he just made up numbers that seemed to work. Another said he always adjusts $2,500 for a bathroom because that is what his supervisor told him to do since “that’s a number you can’t get in trouble for.” It’s my belief that if you are running that kind of an appraisal shop, all you are doing is showing your trainees how to do the same. Their goal becomes to work the system and make a ton of money doing the bare minimum, rather than learning how to do their job well for the long haul. The end result is that few trainees in that environment get an adequate level of instruction and end up out on their own, knowing less than they should. They, in turn, train another group in the same fashion, and the “brain drain” continues.

Good Housekeeping Make the work environment something that a trainee would want to continue being a part of. Times have changed. I’ve heard stories from appraisers who were paid nothing for months until they were up and running and could contribute, so they would wait tables or tend bar at night and work all day. Or that they would work 100 hours a week for a

$1,500/month stipend from their supervisor for the first year. The thinking was, “If you want into this business, be prepared to suffer for a while.” In most areas, that doesn’t work anymore. The labor market has been tight for the past few years even before the COVID–19 pandemic. Provide a reasonable base salary for a reasonable workweek, like any other employer would do. Create a welcoming environment. Try to be positive; despite the dozens of calls from lenders and AMCs and angry Realtors every day—show the trainee the good side of the business. Make them better than you are. If you aren’t an Excel expert, it benefits both you and your trainee to invest in some online Excel training. There are also numerous online classes available for data analysis that you may not have time to take, but you can provide for your trainee, who then might help you figure out how to improve your reports. Are you a little bit of a technophobe? Still using graph paper to sketch? Ask them to learn a sketching program on a mobile device or data analysis programs that are on the market. Encourage them to learn, not just take what you say and do as gospel. It seems to me that “bosses” tend to lose trainees as soon as they get licensed, but “mentors” tend to keep them.

Road Forward Create a long-term path for your trainees. Maybe this is the trainee who will eventually become your partner in the business. And when you retire or semiretire, he or she can take over, and you will still get some residual income as a partner. Why just close the doors when you could be getting a dividend for your life’s work while you are fishing, playing golf, or laying on a beach? Don’t get frustrated. Not every trainee will work out. You won’t really know the person you hire—their habits, work ethic, honesty, commitment to the job—until they have been with you for

a while. If the first one doesn’t work out, commit yourself to trying again in a few months. The most frequent question I hear from many appraisers during this current boom is, “What is the best way to go about hiring and training an apprentice appraiser?” We all know how we were trained, but is that the best way going forward? Where do I find someone? Should I do the same thing my supervisor did when I was trained 20 years ago, or is there a better, more efficient method? Taking the step to actually hire someone is a “freeze” point for many who don’t have time to think of all of the ramifications of that single act of adding an employee. It’s easy to get some resumes and choose one, but that triggers a lot of work and worry: providing a regular paycheck, paying taxes and reporting to state and federal agencies, adding them to your E&O policy, buying and setting up a PC, providing office space, getting MLS access, getting software licenses, etc. It can be daunting.

Once you get past all that and have a warm body in the office, what is the best way to train them? Should they just shadow you all day every day, looking over your shoulder as you research and type reports? Or do you just have them do research and type reports all day for a few months? How do you keep them busy all day while you’re trying to spend two to three hours putting together a report that only takes them 45 minutes to research and type up? When can you send them out by themselves and really begin saving you time? To answer these questions, we are launching a short survey in Working RE asking things like, “Where did you find your trainees?”; “How do you compensate them?” and “How many hours do they work?” We are hopeful that the results will give you some insight and clarity into taking on a trainee. I encourage every appraiser to give something back to our profession by training a new generation of high-quality appraisers. If you have ever trained a trainee, please

take the survey at WorkingRE.com/trainees. The results will be shared with all appraisers in the industry. WRE

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Fall 2021 Working RE 23

Wealth and Why by Dustin Harris, The Appraiser Coach

I love having the opportunity to get

Having a foundation of why you’re doing things can completely change the trajectory of where you’re headed.

involved with other appraisers and to assist them in moving their businesses to the next level. I’ve been doing a lot of one-on-one coaching recently and a common theme in many sessions is lack of a solid “foundation” to start from. Specifically, people don’t have a good understanding of why they want what they want. When we sit down to talk about what is needed, instead of starting with the foundation, the appraisers I talk with usually want to jump right to the walls and roof! They want to discuss what they want and how to obtain it without having a reason why first. In his book, Start with Why, Simon Sinek stresses the concept that before you can move forward you need to know why you’re trying to go anywhere. The coaching sessions I do fall into two categories. Sometimes, the appraiser I’m talking with just wants to get together for an hour or so to discuss one specific problem they have. They just want to talk through what they are thinking of doing and get my advice and help. More often though, I’ll work with people over a longer period of time; we’ll have a series of 6–10 coaching sessions. Much of the focus in the longer series of coaching is around “taking the business to a new level.” Yes, that is a cliche but what is not is working to figure out exactly what that “next level” is for each client. Once that is defined,

Dustin Harris is a successful, self-employed, residential real estate appraiser. He owns and operates The Appraiser Coach where he advises and mentors other appraisers helping them to also run successful appraisal companies and increase their net worth. His free podcast can be listened to on iTunes and Stitcher. You can learn more at https://theappraisercoach.com.

24 Working RE Fall 2021

we need to look at why they want to get there. Oftentimes, when we start to define the why—the what and how change as well. Simon Sinek’s book is titled “Start with Why” because starting with “how” and “what” often sends us in the wrong direction. Starting with knowing your “why” can really take you places. Why are you going to the gym every morning? Because your friends all are? To lose weight? To have more stamina and get stronger? Knowing the “why” will make it easier to stick to it long term. Social science and my own experience have shown that without a reason, we give up. Having a foundation of why you’re doing things can completely change the trajectory of where you’re headed. I see this play out all the time in my coaching sessions when individuals come to me sure of what they want but after we define the “why,” the “what” suddenly changes. Most people do have a why behind what they want, they just haven’t refined or defined it yet. The why is just hanging around in their subconscious leading them emotionally towards what they want but when they step back and really define the why, it becomes a much more powerful factor.

Wealth? The definitions we use for ourselves have a lot of influence in our lives. Most of the time, the why is to have wealth. But “wealth” also needs to be defined and that definition needs to be what wealth means to you. Most people automatically associate wealth with financial wealth, with dollars and cents. Wealth is more than

just money. Years ago I redefined what wealth means to me because I looked at the why of what I was doing. I knew the what and the how, that was part of the principles of prosperity I’d been teaching. I understood that part of things but I needed to look more closely to refine my personal “why” and definition of wealth. My definition of wealth, which has very little to do with finances, is the center of my life. It is part of every relationship I have, why I take care of my physical being, why and how I spend my time and how I organize my business. Everything is centered around what wealth means to me and why I want to be wealthy. My definition of wealth has changed a little over the years as I chisel off the rough edges. Currently, my definition is “to be free to do what I want, when I want, with whom I want because I want.” When I think of wealth it is much more than finances. Sure, money and

finances are part of the mix but what good does it do you to be rich if you’re in poor health? What if you’re rich and healthy but your relationships are a mess? What if you have money, health and good relationships but no control over how you spend your time? There is a lot in my definition of wealth and it is the driving force behind my “why.” I hire the people I do so that I can delegate and have the time to do what I want, when I want. I go to the gym so I will be healthy longer and be free to do what I want, when I want. I work on having healthy relationships with my family, neighbors, colleagues, employees and anybody else I associate with so I can do what I want, with whom I want. I have the finances to buy airline tickets to Hawaii and just as importantly, I have the health to enjoy it (thank God) and do all that I want to do. I have the relationships that make it enjoyable to spend two weeks with my family. I have

systems in place in my office to free my time. All the pieces of wealth are there: I can afford this trip and I can do what I want, when I want, with whom I want because I want. What is your definition of wealth? If you don’t have one, you can adopt mine; I’ll give it to you—no charge! If you want to make your own that’s fine too. What is important is that you know the “why” involved in what you’re doing. Once you have the why, you can move on to what and how. What is your why? Beyond finances, what is your definition of wealth? What are you doing today that will allow you to have wealth in the future? If you want help getting where you want to be, reach out to me and we can get together. I would love to have a conversation with you to help you on your way to true wealth. WRE

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Fall 2021 Working RE 25

Racial Bias in Real Estate—Is It the Appraiser’s Fault? by Maureen Sweeney, SRA, AI-RRS

In the past year, appraisers have been

In the 32 years since Congress charged the appraisal profession with protecting the public trust, I know of no discipline against an individual appraiser that was based solely on racial bias.

under attack for “racial bias” when providing appraisal services to lenders for home mortgages. Let’s take a closer look. A licensed real estate appraiser is expected to perform valuation services competently and in a manner that is independent, impartial and objective. Like doctors in the medical, dental, and veterinary fields, real property appraisers are licensed by the individual states where they practice. Real property appraisers are also regulated by the federal government as a result of Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), enacted in 1989 in response to the savings and loan crisis of the late 1980s. Appraisers who develop appraisal reports for federally related transactions must be licensed. An example of a federally related transaction is a home mortgage. If a real property appraiser violates professional standards or the rules and laws governing their license, they can be fined, as well as having their license suspended or revoked. Appraisers collect the data, verify the data from reliable sources, analyze the data, and accurately report the conclusions. If real property appraisers neglect to do this, we can be fined, disciplined, lose our license or go to jail. In the 32 years since Congress charged the appraisal profession with protecting the public trust, I know

Maureen Sweeney, SRA, AI-RRS, has been a residential real estate appraiser since 1989. From 2005 through 2017, she served as an Illinois Real Estate Appraisal Board member. Maureen is a national instructor with the Appraisal Institute and is the author of “The Valuation of Condominiums, Cooperatives, and PUDs” and the developer of their online and in-class 7-hour seminar, “Appraising Condos, Co-ops, and PUDs.” She is an AQB Certified USPAP Instructor and resides in Chicago, Illinois.

of no discipline against an individual appraiser that was based solely on racial bias. If appraisal assignment results were based on any bias, including gender, sex, sexual orientation, race, age, mental or physical impairment, or any other protected population, the appraiser who developed that report would be in violation of national and state fair housing laws, appraiser licensing laws, and the clear standards of valuation practice. That appraiser should and must be subjected to peer review and regulatory oversight—and suffer the disciplinary consequences. Licensed appraisers must follow the law, which includes not performing an assignment with bias. Bias is defined as “a preference or inclination that precludes an appraiser’s impartiality, independence, or objectivity in an assignment.” If an appraiser has bias towards socioeconomic status, race, religion, nationality, gender, sex, age, weight, mental or physical disorders or disabilities, or anything else, the appraiser must withdraw from the assignment. If real property appraisers neglect to do this, we can be fined, disciplined, lose our license, or go to jail.

Appraiser’s Job The appraiser is central to the checks and balances in the home lending system. The appraiser is hired by the lender to ensure that there is adequate value in the property being used as collateral by the lender to provide funds to the borrower. The licensed broker/agent negotiates the price of the property, but they are not qualified or licensed to estimate the value. Providing valuation services is the job of the appraisal page 288

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professional. The appraisal professional provides checks and balances in the housing system, as the appraiser has no financial interest in the amount or success of the transaction. Appraisers reflect the market; we do not create it. This may cause some to get angry, especially when their commission is at stake or a homeowner cannot get a home equity loan to update their kitchen or repair the roof. The lender may have reasons to reject a mortgage application that have nothing to do with the appraised value of the property. The borrower may not qualify for the loan, they may have a low credit score, or they have a job that does not pay enough to cover the loan. Because the appraiser is typically the only party in the mortgage process who meets the homeowner in person, the appraiser may become the sole target of the homeowner’s disappointment, even if the reason for rejection of a loan has nothing to do with the market value of the property.

The Critics In their research article Neighborhoods, Race, and the Twenty-first-century Housing Appraisal Industry, two academics making bias claims against appraisers, Dr. Junia Howell and Dr. Elizabeth KorverGlenn, identify that “all appraisers complied with a uniform definition of market value that specified that appraisal values should be ‘the most probable price’ in an open and fair sale.” A fair sale means that buyer and seller are each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Howell and Korver-Glenn use “predicted values” to validate their findings. Predicted values are constructed by assigning a chosen value to each explanatory variable in their study. They conclude a predicted value of $479,000 for properties located in neighborhoods where there are higher quality public schools, lower crime 28 Working RE Fall 2021

rates, more accessibility to public parks, and more convenient to public transportation and employment. Properties located in neighborhoods that have poor or no public schools, high crime rates, no access to public parks, no access to public transportation, and limited employment options or opportunities had concluded predicted values of $58,000 and $65,000. According to their data, buyers pay more to live in one neighborhood than another. Howell and Korver-Glenn showed through their data and the use of predicted values that the most probable price in an open and fair sale is more for properties in locations that have greater neighborhood amenities and less for properties in locations that have limited neighborhood amenities. As an appraiser, I agree with this conclusion and so does the open market. In their 2018 report, The Devaluation of Assets in Black Neighborhoods, The Case of Residential Properties, authors Andre Perry, Jonathan Rothwell and David Harshbarger also claim racial inequities within the housing market. This study also uses market value. It examines components of neighborhoods and locations including access to schools, the quality of the schools, access to businesses, including stores, restaurants, and other goods and service providers, walkability, crime, income mobility, household income, and educational attainment. This study uses regression analysis to predict home values. They found that violent crime predicts significantly lower property values. They also found that school quality, the number of gas stations, and access to public transportation affect value. In areas where school performance is weaker, commute times are longer and access to business amenities is more limited, the value of housing is less than in locations that have high performing schools, short commute times, and ample access to businesses. I agree with this conclusion also, and so does the open market.

In their study Howell and KorverGlenn investigate whether racial inequality persists in the contemporary appraisal industry and, if present, how it happens. Howell and KorverGlenn’s search criteria was single family houses in various census tracts areas in Harris County, TX in 2015. They use the terms value and price interchangeably and conclude that the market value (“the most probable selling price”) in one area with better schools and less crime has higher value than properties in another area with poor performing schools and greater crime. However, the HowellKorver-Glenn report as well as PerryRothwell-Harshbarger conclude this was based on race, and it was the fault of the appraiser, rather than the result of the open market. They ignored their own data and conclusions on the market value, which reflect the decisions and behaviors of knowledgeable buyers and sellers who are typically motivated, well informed, or well advised, and acting in their own best interests. Their conclusions mirror the conclusions of the various appraisers they studied: the likely selling price would be less in one location than in another. Like the results of these various studies, appraisers reflect the market— we do not create it. It is my hope that researchers, journalists, government officials, and the public come to clearly understand the vital role appraisers have in society. The systematic practice of redlining—bias in the approval or rejection of loans, the lack of quality public education, lack of affordable insurance and unfair property taxation are not caused by the appraiser. The appraiser must be independent, impartial, and objective. In a mortgage transaction the appraiser evaluates the property that is to be used as collateral in a mortgage finance transaction. The appraisal is provided to the lender, who uses the appraisal as one of the

many criteria to underwrite the loan to determine if it will be funded or not. Contrary to what some believe, the appraiser does not make underwriting or lending decisions. Discrimination is a multi-layered, multi-cultural and multi-generational issue. The systematic, historic, and institutional causes of the various business and government policies and practices need to be addressed and cured. We do not blame the doctor for a cancer diagnosis. Why is the appraiser blamed for reporting on the real estate market? WRE

Mass Appraising Is there reliable data that indicates there is a problem with unfair taxing by practitioners in the mass appraisal and assessment specialty? Yes. The Chicago Tribune did a fantastic job investigating, verifying, and reporting of the unfair taxing in 2017 in their four-part series, The Tax Divide: How flaws in Cook County property tax assessments harmed the poor and helped the rich. The assessor who was the subject of this investigation, Joe Berrios, was defeated in the March 20, 2018, Democratic primary election for Cook County Assessor, conceding to Fritz

Kaegi, who went on to win the general election. Assessor Kaegi is working to shift the unfair tax burden from poor neighborhoods to wealthy neighborhoods and from homeowners to businesses. WRE

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Fall 2021 Working RE 29

Insurance IQ: Defining Professional Services by Isaac Peck, Editor

Have you ever wondered what your

The good news for OREP appraisers is that you have broad coverage for a variety of services, assignments, and appraisal specializations that you might pursue.

30 Working RE Fall 2021

E&O policy actually covers? OREP E&O insurance agents frequently get questions from appraisers such as: “Am I covered for right-ofway appraisals?” Or “Am I covered for hybrid appraisals?” Or “Am I covered for appraisal review work?” If you’re covered through OREP and you’re a licensed real estate appraiser performing “professional services” as a real estate appraiser, the answer to the above coverage questions is most likely yes. OREP policies are tailored specifically for real estate appraisers, providing coverage for “Professional Services” that you might provide as a real estate appraiser. Defining coverage in this way is commonplace for most (if not all) professional liability policies, also known as errors and omissions insurance (E&O). It follows then that “professionals” should purchase professional liability (E&O) insurance specific to the services they provide. The good news for OREP appraisers is that you have broad coverage for a variety of services, assignments, and appraisal specializations that you might pursue. Most policies in the marketplace are broad, but please ask your agent if you have any questions— whether you are with OREP or not. Here is an example of how “Professional Services” is defined in OREP’s individual appraiser policy: “Professional Services means services performed for others by the Named Insured in the capacity as a properly licensed or certified appraiser of real estate, notary public, expert witness, or a member of a real

estate accreditation, standards review or similar real estate board or committee.” You will find that most services you provide in your capacity as a Licensed/ Certified appraiser of real estate should be included in your coverage, unless it is specifically excluded in the policy. If you’re thinking, well then what’s excluded is pretty important: you’re right. And what’s not excluded is important too because that’s what’s covered! For example, at OREP, there is no exclusion for right of way appraisals, commercial appraisals, appraisal reviews, hybrid appraisals, property data collection, appraisal-related consulting, or expert witness work. That means that that work should be covered (check with your OREP agent). It’s important that you ask your agent if the coverage is there for the types of appraising you do. To summarize, you want a policy that affords broad coverage for a variety of services you might perform in your capacity as a licensed real estate appraiser, and that does not specifically exclude what you want covered.

Coverage for Other Work So far we’ve confined our discussion specifically to real estate appraising and the related services you might provide in your professional capacity as such, but what about other services you provide, like real estate sales? Well, there’s good news here too. Some appraisers also work as a real estate agent/broker, or property manager, etc. There is a solution for you: combination coverage. This is one

policy that covers professional services for both appraising and sales/brokering. And one (similarly priced) premium instead of two. Here is the definition of “Professional Services” in OREP’s Standard Program: “Professional Services means services performed for others in the Insured’s capacity as a(n): 1. Real estate agent or broker; 2. Leasing agent or Property Manager; 3. Appraiser or auctioneer of real property; 4. Real estate consultant or counselor; 5. Short Term Escrow Agent or notary public; 6. Member of a real estate accreditation, standards review or similar real estate board or committee; or

7. Expert witness, provided that all necessary licenses or certifications are held by the Insured at the time of the act or omission giving rise to the claim. Professional Services shall also include services performed for others by the Insured on or via the Insured’s internet, e-mail, telecommunications or similar sys tem. Professional Services does not include services as a Construction Manager, Business Broker, Mortgage Broker, or Mortgage Banker.”

If you are managing property, or hold a real estate sales or broker license, we recommend asking your agent about combination coverage to make sure you have the best policy fit for you. It will

save you money and provide the coverage you need. The takeaway is that it’s in your best interests to be covered under a policy that specializes in the professional services you perform. OREP has two different real estate appraiser policies with slightly different coverages, so it’s important to check with your OREP agent to make sure you have the coverage you need. OREP has expanded hours (8 a.m. – 8 p.m. EST) so that when you need us, we answer the phone. And if you don’t need the extra care, we are fully automated online for quick and seamless coverage. Call OREP today at 888-347-5273 to see what you’re missing. WRE

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Fall 2021 Working RE 31

Skapinetz Wins Against Coester VMS by Isaac Peck, Editor

ongtime readers of Working RE may remember the case of Mark Skapinetz vs. Coester VMS, and vice versa. The case dates back to late 2016 and turned into a legal spat not long after. Skapinetz sued Coester VMS, a now defunct appraisal management company (AMC), and Brian Coester, the AMC’s President, for hacking his email account. In response, Coester VMS counter-sued Skapinetz alleging $20 million in damages. Now, after a nearly four-year legal battle, Skapinetz has finally been awarded damages in the case and is able to put the case behind him.

“I stood up for myself. I did what I thought was right. While this was occurring, it started to become about protecting appraisers and their rights,” Skapinetz says.

32 Working RE Fall 2021

Backstory Beginning in late 2016, Skapinetz fired off an email calling Coester VMS a “criminal and fraudulent company,” citing an ongoing lawsuit against the company. Skapinetz was on the Coester VMS appraisal roster and sent the email to several appraisers and his contact at Finance of America, who was a client of Coester VMS at the time. Upon hearing of Skapinetz’s email, Brian Coester, the owner of Coester VMS, lifted Skapinetz’s password from the Coester VMS platform and used it to log into Skapinetz’ private Gmail account. The original Summary Judgement indicates that once logged in, Coester “saw the emails in Skapinetz’ account, including emails from the Finance of America appraiser, as well as another individual, Robert Scheer, with whom Coester was engaged in ongoing litigation.” Brian Coester subsequently logged into Skapinetz’ business email account as well, contending that he did so “to confirm Skapinetz’ identity as author of the disparaging email and to also learn whether Skapinetz possessed any unlawfully obtained confidential and proprietary

information related to Coester VMS.” After receiving an alert on his phone that his Gmail account had been accessed, Skapinetz quickly learned that both his email accounts had been hacked from a location in Maryland. Skapinetz reported at the time feeling beside himself, angry, shocked, and confused. Not long afterwards, in April 2017, Skapinetz filed his lawsuit against Coester VMS and Brian Coester individually. Nearly a year later, Coester VMS filed a countersuit against Skapinetz citing $20 million in damages, alleging that due to Skapinetz’s actions, Coester VMS lost both Finance of America and LoanDepot as clients. “After I got the countersuit, there were times when I was pretty scared. But my attorney, Arnold Abrahams with Cyberlaw, and I did our jobs. We did everything we had to do. I knew deep down it was typical Brian Coester, always trying to bully his way out of things,” says Skapinetz. Over the next two years, the legal battles took their toll on Skapinetz. “It hurt my personal life very much and I went into depression. I even had trouble with my marriage because of the added stress. Business-wise, it never really affected me with orders coming in. AMCs and clients understood what I was doing. When the counter-claim was filed against me, it really created a very rough time for me and my family,” says Skapinetz.

The Award While Skapinetz officially “won” the case in 2019, it has taken over two years to be awarded damages. Part of the delay comes from the fact that Coester VMS shut down its operations and went out of business in early 2019, allegedly leaving many appraisers unpaid.

Skapinetz ultimately prevailed against Coester VMS’s countersuit as well, with the Court finding no logical connection between the loss of Coester’s clients and the original email that Skapinetz sent. On April 27, 2021, the United States District Court in Maryland issued a Memorandum of Opinion awarding Skapinetz $8,000 in actual damages, $1,000 in pain and suffering, and $92,222.50 in attorneys’ fees, as well as $6,557.61 in costs under the Stored Communications Act (SCA) as to Defendant Brian Coester. This amount awarded to Skapinetz was ultimately substantially less than what Skapinetz had been pursuing. Specifically, Skapinetz sought $160,000 in compensatory damages, which included $8,000 in lost wages, $2,000 in statutory damages, and $150,000 for pain and suffering. Additionally, Skapinetz sought punitive damages of $200,000 against Coester, $400,000 against Coester VMS; and attorneys’ fees and costs totaling $282,167.61. In explaining its lower damages award, the court details that Skapinetz estimated he spent 80 hours during his workdays investigating the email breach, and since his bi-weekly salary translates to roughly $100 per hour, the Court concurred with Skapinetz’s claim of lost income totaling $8,000. However, the Court found that an award for $150,000 for pain and suffering to be not proportional with the offense. While the Court acknowledged that Skapinetz and his wife testified to the anguish he suffered as a result of the email breach, the Court found that these very real difficulties bore “an outsized relationship to the actual offense.” Consequently, only $1,000 was awarded for pain and suffering. The Court also denied any punitive damages, writing that Coester’s “actual violations are minor in scope and nature,” and that because Coester “never accessed the email accounts again or

otherwise profited from the four emails, the Court cannot conclude that he must be further deterred from committing future SCA violations.”

Lived Experience Working RE sat down with Mark Skapinetz to get his thoughts on the experience. For starters, Skapinetz says that he is happy that the saga is finally over. “I am 1,000% relieved that I can put this behind me. For over two and a half years this consumed my life. It has been a real roller coaster emotion-wise and there have been a lot of ups and downs,” reports Skapinetz. As noted above, part of this saga included Skapinetz being sued by Coester VMS for $20 million. “I worried a lot about what would happen. I struggled with alcohol during that time and have since gotten sober. Once I got sober, my mind changed, my body changed, and my whole life changed in a positive way. So when the verdict came down, finally, it was like the bench press was taken off my throat. I am happy the outcome resulted in a favorable decision for me,” says Skapinetz. Although the judge reduced the damages Skapinetz originally sought substantially, Skapinetz says that his primary motivation wasn’t money. “I was trying to prove that what happened to me was wrong. It wasn’t about a big payday or getting money. Whatever damages the judge thought were right, I can’t argue. At the end of the day I am happy about it. The only thing I’m unhappy about is how long it took,” says Skapinetz. Given the time, money, and trouble involved in Skapinetz’s struggle, he says that he ultimately pursued it because it was the right thing to do. “I caught Coester red-handed hacking my email accounts and I believe an example needed to be made. My story shows that AMCs can abuse their power, use their IT systems and resources, go against their internal policies, and do whatever they want to

bully appraisers—even violating the law. Coester got away with pressuring the state of Virginia by threatening lawsuits and pushing many people around. I stood up for myself. I did what I thought was right. While this was occurring, it started to become about protecting appraisers and their rights,” Skapinetz says.

Lessons Learned In terms of what lessons appraisers can glean from his experience, Skapinetz says that one of the biggest lessons is vetting the people and the companies he does business with. After all, Brian Coester could access the email and password that Skapinetz used to log in to the Coester VMS platform, then use that same information on Skapinetz’s email accounts. Consequently, Skapinetz says he is much more careful about who he chooses to work for. “My advice to appraisers is to do your due diligence on who you’re dealing with. Before you sign up for a company, take the time to research them and research the platform they are using. Research everything you can; call them up, speak to the owner or Chief Appraiser, ask other appraisers, and look for everything you can on Google and Facebook—get a good feel of if this is a company you want to work for. Don’t just sign up with every AMC or client that offers you work,” reports Skapinetz. Lastly, he learned a lesson about the American legal system. “Hiring attorneys is expensive. I’d advise anyone to think twice before suing somebody. I learned a lot about the law and the American judicial system in the process. My experience was not a good one and I believe the entire system needs to be revamped. It is too easy for expensive attorneys to kick the can down the road and it is very difficult to hold powerful people responsible for their actions,” Skapinetz argues. It’s much easier to vet your clients and business partners than to wind up in a lawsuit down the road, notes Skapinetz. Stay safe out there! WRE Fall 2021 Working RE 33

2021 Fee Survey Results by Isaac Peck, Editor

Since the start of the COVID-19 pan-

The data should be a strong nudge to those appraisers in competitive markets who have not yet raised their fees and/or expanded and enhanced their products.

34 Working RE Fall 2021

demic in early 2020, there has been an unprecedented demand for appraisal and valuation services. Despite the substantial increase in the use of appraisal waivers by Fannie Mae and Freddie Mac (the GSEs), the number of appraisal orders continues to set new records. 2020 was a record year for residential appraisals submitted through the GSEs’ Uniform Collateral Data Portal® (UCDP®), with March–December being the 10 highest-volume months since this data began being tracked in 2012 (See pg. 14 for details). What does this mean for appraisal fees? In January 2021, the OREP/Working RE 2021 Appraiser Fee Survey was launched to help uncover the answer. With over 3,500 appraisers responding so far, the results are a current and ongoing source for fee and turn time data by market and nationwide. This is the third national fee survey conducted by OREP, a leading provider of E&O insurance for appraisers and other real estate professionals. You can find the results of all three surveys at WorkingRE.com (2011, 2017, and 2021). OREP/Working RE’s first nationwide fee survey in 2011 was in the wake of the Home Valuation Code of Conduct (HVCC) and the Dodd-Frank Act. More than 17,000 appraisers responded. The second fee survey was conducted in 2017, with over 7,000 appraisers responding. To view the current survey results for your market, visit WorkingRE.com/surveys and click “2021 Appraiser Fee Survey,” then select your state. The number in the right-hand side in parentheses is the total number of appraisers in that specific MSA (Metropolitan Statistical

Area—as per the Census Bureau) who responded at the time of this writing. The survey remains open if you have not participated yet. The data is provided free to appraisers and all industry stakeholders.

History in Context The 2011 survey measured non-AMC appraisal fees only—where appraisers and clients negotiated fees directly without a middleman. The 2017 and 2021 surveys make no distinction. So today, more than 10 years after Dodd-Frank and the HVCC, the comparison of fees and turn times between then and now— before AMCs and after—offers Working RE readers a unique perspective. While the previous surveys provide us with perspective and context, the 2021 survey gives us the help we need to succeed today, says David Brauner, Senior Broker at OREP E&O insurance (www.OREP.org). “Collecting and distributing current fee data nationwide for free is one way we can use our national platform (Working RE Magazine) to help our OREP insureds, and all appraisers, succeed in their businesses. Knowledge is power and nowhere is that truer than when it comes to setting fees.” Format-Expanded Survey Questions Like its predecessors, the 2021 Appraiser Fee Survey includes 365 Metropolitan Statistical Areas (MSA), as defined by the U. S. Census Bureau, with rural areas included by state. The survey includes eight different appraisal products, including reviews and FHA appraisals, and addresses turn times, to offer insight into that controversial topic by area.

For the 2021 survey, a number of new questions were added, including: • Current fees for 1004D Appraisal Update Assignment. • Current fees for 1004 Certification of Completion. • Estimated reasonable fees for Fannie Mae’s new 1004 “Desktop” form (not yet active). • Estimated reasonable fees Fannie Mae’s new 1004 “Hybrid” form (not yet active). • What is the average number of appraisals you complete per month? • Do you have any trainee appraisers? • Do you have any administrative assistants on staff? “We’ve updated the questions to fit the current environment,” said Brauner. “Bringing on administrative assistants as a way of maximizing efficiencies is gaining traction among appraisers and we want to measure it. We also want to measure volume and see how the

industry is doing when it comes to trainees and bringing along the next generation,” says Brauner.

Increasing Fees and Turn Times The new survey results show that appraisal fees continue to rise, if only modestly, in many markets compared to 2017. As you compare the fees in your area, note that the Cost of Living Adjustment (COLA), which is tied to inflation and on which Social Security benefits are paid, has increased 16.5 percent since 2010. The Consumer Price Index has gone up 20.72 percent over the last 10 years as well. Modest Good News That appraisal fees continue to rise modestly in many markets is good news for appraisers. But as you can see, appraisers in certain locations are faring much better than in others. The data should be a strong nudge to those appraisers in competitive

markets who have not yet raised their fees and/or expanded and enhanced their products. If you want to expand your skills and services to raise rates, there are many resources available to you, including quality online CE offered through OREPEducation.org. Economical bundle pricing is available on a variety of coursework. OREP members enjoy 14 hours of appraiser CE (approved in all states except GA, IL, and MN), and all appraisers save even more on larger bundles of approved online education. Thanks to the many thousands of appraisers who helped make the survey possible. If you are an appraiser and have not yet taken the survey, please weigh in today! If you’re looking for E&O insurance, you can get quoted in under five minutes at OREP.org. Call 888-347-5273 to speak to an agent; we’re now open 12 hours per day (M–F) from 8 a.m. – 8 p.m. EST to serve you better. Thanks for reading! WRE

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Fall 2021 Working RE 35

GSE Buybacks and Remediation Letters by Isaac Peck, Editor

As most appraisers know, Fannie Mae

“I do it all the time and I don’t see a problem. I make an Extraordinary Assumption that the home is similar on the inside as it looks on the outside,” wrote one appraiser on Facebook.

36 Working RE Fall 2021

(Fannie) and Freddie Mac (Freddie) implemented “temporary appraisal flexibilities” during the pandemic to accept desktop and exterior-only inspection appraisals in lieu of the traditional interior-inspection appraisal. Fannie said that appraisers using these flexibilities “may have to rely on information from an interested party to the transaction (borrower, real estate agent, property contact, etc.) and additional verification may not be possible.” However, Fannie was careful to note that appraisers should be collecting this information from all available sources, including interviews with homeowners, real estate agents, etc. And that while appraisers can make an assumption that those sources are correct, appraisers cannot make an assumption as to the condition of the property without having data (interviews, pictures, etc.) that supports that conclusion. Fannie Mae specifically forbade the use of an Extraordinary Assumption, writing that “Appraisers must have data sources they consider reliable,” and that “if adequate information about the subject property is not available from a credible source, then the desktop or exterior-only inspection appraisal is not acceptable.” Fannie Mae was careful to also add: “The assumption that data sources are correct is not considered an Extraordinary Assumption.” In other words, appraisers could make an assumption that the data analyzed is correct (including interviews with homeowners/agents, etc.), but the appraiser cannot make an Extraordinary Assumption about the condition of the interior of the property if they had no data to support that conclusion. A number of appraisers were and are still confused about this process. Across

numerous appraiser forums, including appraiser-focused Facebook groups, discussions indicate that many appraisers believed that it was perfectly okay to use Extraordinary Assumptions. “I do it all the time and I don’t see a problem. I make an Extraordinary Assumption that the home is similar on the inside as it looks on the outside,” wrote one appraiser on Facebook. “In my opinion, you can’t do an exterior-only without an Extraordinary Assumption,” wrote another appraiser. The final extension of these flexibilities was discontinued on May 31, 2021. Today, a reckoning about the misuse of the flexibilities is beginning to become evident.

Remediation Letters Fannie Mae personnel have used the following slide, in their presentations at various industry conferences, to show the biggest appraisal issues: making assumptions about the condition of the property rather than relying on data sources as required (see Figure 1, pg. 40). The result of this is that lenders and appraisers now are receiving remediation letters from the GSEs. Some AMC and lender sources report to Working RE that up to 30 to 40 percent of all appraisals were completed incorrectly during the pandemic, with many appraisers employing an Extraordinary Assumption around the relevant property characteristics and the quality and condition of the property. The remediation letters focus on two separate issues: 1. Appraisers used an Extraordinary Assumption about the property’s condition (not allowed), or 2. Appraisers did not state how they determined this information at all. page 408

Professional MARKETPLACE info@orep.org (888) 347-5273 Insurance Services, LLC. California License #0K99465

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If you’ve been with the same E&O provider for years (and years) expecting that you still enjoy the best rates and coverages available, you may not. Don’t wonder—find out NOW in five minutes at OREP.org! Many appraisers do save money on their insurance—sometimes $100 or more. And every appraiser will save on the cost of continuing education—while lowering risk and increasing their professional competency through free education from industry leaders. OREP offers 14 hours of free continuing education to all of its insureds/members, a savings of over $200 (not approved in GA, IL, and MN).

OREP insureds/members in California enjoy group access to several medical plans, including certain Kaiser Permanente and Blue Anthem plans. The group plans provide benefits not available to individuals and at no extra cost. Those who purchase their medical coverage through the OREP group plan, also enjoy a $10,000 life insurance policy included at no extra cost. The policy, written through Mutual of Omaha, is guaranteed-issue without any exclusion for medical conditions and pays double in the event of an accidental death and dismemberment (AD&D). Also included is the New Dental Choice Special Discount Plan that gives you significant discounts of 15–60 percent for dental services. There is no cost above the medical plan itself for these services, including expert help navigating Covered California. If you are a California resident and an OREP insured/member please email info@orep.org for more information. WRE

Valuable Support: OREP insureds/members enjoy Working RE magazine, over 15 hours of free training webinars, discounts on the FHA Checklist and eBook, the 2021 AMC Guide, the Expert’s Guide to a Defensible Workfile, and more! Each is designed to help you grow your business and sharpen your skills. Combine E&O: Appraiser and RE Sales One low premium covers both your appraising & sales/brokering work. Pay for one policy instead of two. Visit OREP.org for details or call (888) 347-5273. WRE

OREP Offers Free Risk Management Continuing Education for Insureds/Members (14 Hrs./most states) OREP, a leading provider of appraiser insurance nationwide, announces two free continuing education courses (14 hours of approved CE) for OREP insureds/members, designed to help them improve their professional skills, lower their liability risk and protect their businesses (not approved in GA, IL, and MN). OREP insureds/ members now enjoy the following online courses FREE:

How to Raise Appraisal Quality and Minimize Risk (7 Hours CE) Presented by: Tim Andersen, MAI Learn the common charges brought against appraisers, with real-world examples of specific civil and regulatory cases. Andersen shows you how to avoid potentially risky situations with time-tested steps to “bulletproof” your appraisal reports and workfiles. Learn proven techniques to protect yourself from state regulators and plaintiffs, while reducing your liability and exposure.

FHA Appraisal Standards (7 Hours CE) Presented by: Lore DeAstra, MBA, MRICS, SRA, CDEI Lore DeAstra unpacks the LATEST 4000.1 FHA Standards and shows you what to look for on an FHA appraisal, including handling complex assignments and the forms to use for unusual situations. “OREP has always been committed to providing insureds/members with the latest news, information and risk management education via Working RE, so offering free continuing education is a natural next step for us,” said David Brauner, Senior Broker at OREP. “We chose veteran appraisers and renowned authors and educators to share with insureds their proven and effective strategies on how to limit liability, follow appraisal standards and protect themselves. The benefit for our insureds/members is twofold—it makes them more careful, more successful appraisers and lets them keep a little more hard-earned money in their pockets, saving them over $200 in education costs.”

Details The classes are online, allowing you to take the coursework safely at your own convenience. Current insureds/members, please email info@orep.org for enrollment details. WRE Fall 2021 Working RE 37

Industry NEWS Louisiana Appraiser Board Settles with FTC The four year legal spat between the Federal Trade Commission (FTC) and the Louisiana Real Estate Appraisers Board (LREAB) has finally come to an unceremonious end. In June 2021, the FTC published a proposed Consent Order wherein LREAB agreed that it “cannot adopt a fee schedule for appraisal services, or take any other actions that have the effect of raising, stabilizing, or fixing compensation levels for appraisal services.” The Consent Order represents a significant loss to LREAB, who vigorously defended itself against the FTC, even going so far as to file an appeal to have its case heard in front of the Supreme Court—a move the Supreme Court ultimately denied. Appraisers who have been following the case will recall that LREAB made history by being the first state to enforce Dodd-Frank’s Customary and Reasonable (C&R) fees. Beginning in 2015, LREAB entered into a consent order with appraisal management company (AMC) Coester VMS for violations of its C&R fee provisions, and then later pursued a second case against iMortgage Services. Both cases made national headlines, in the appraisal industry (See WorkingRE.com, search “Louisiana Makes History” and “AMC Fined Over C&R Fees”). However in 2017, the FTC filed a complaint against LREAB alleging that the Board acted in violation of antitrust laws by attempting to restrain “price competition for appraisal services in Louisiana” (See WorkingRE.com, search “Louisiana Appraisal Board: Anti-Competitive?”). LREAB’s primary defense was the “state action defense,” which is a legal doctrine that says that states and their departments and professional boards are immune from antitrust legislation. LREAB ultimately sued the FTC in federal court in 2019, in an attempt to overrule the FTC’s interpretation of the case and stay the FTC’s order. After losing its case in the U.S. District Court of Appeals for

38 Working RE Fall 2021

the 5th District, LREAB appealed to the Supreme Court but found no relief. The final Consent Order between LREAB and the FTC effectively strips LREAB of its ability to regulate appraisal fees in any way and sends a message to other appraiser boards throughout the country that enforcing C&R fee requirements will not be tolerated. When it published the proposed Consent Order, the FTC invited public comment on the order. At press time, only 13 comments had been received but the following comment from Anonymous sums up how many appraisers feel about the issue. Here is the comment reprinted in full: The FTC’s pursuit of the State of Louisiana is, and has been, a case of overzealous interpretation of the Sherman Act. Dodd-Frank specifically addresses customary and reasonable appraisal fees, and gives guidance as to how the fees can be determined. The state appraisal board was simply exercising this guidance. The damage of low fees offered by AMCs is quite far reaching. It has resulted in a lack of new and diverse appraisers entering the profession. Appraiser supervisors cannot afford to train new faces because of low, noncompetitive fees. AMCs has caused irreparable and far reaching damage to the profession. Any notion of an appraiser shortage is rooted in the fact that many appraisers are turning away from AMC ordered assignments. The FTC’s time SHOULD have been spent investigating the AMC trade group known as REVAA to find TRULY non-competitive practices. The FTC has cost the appraisal profession dearly in their pursuit of the State of Louisiana. This entire episode has been entirely misguided. The only silver lining for appraisers is that the demand for appraisal services has skyrocketed due to low interest rates and a red-hot real estate market. As a result, appraiser fees have been steadily rising over the last ten years. WRE

Good News: Mold Coverage for Appraisers Now Included with E&O Fear of liability due to mold is a persistent worry for many service professionals—including real estate appraisers. Most appraiser E&O insurance policies exclude mold claims, according to David Brauner, Senior Broker at OREP.org. “For most of my career, appraiser policies excluded all mold and fungi claims. Even though mold claims are rare, the fear of mold was real for many appraisers,” Brauner said. According to Brauner, the issue is further complicated because with many mold claims it can be difficult to distinguish between water damage, which would likely be covered, and the resulting mold, which would likely be excluded. The good news for appraisers is that OREP’s new program offers an alternative policy that includes up to $500,000 in mold/fungi coverage, at no extra charge. The coverage protects appraisers against allegations surrounding the failure to disclose the existence or presence of any type or form of: “fungus, including mold or mildew and any mycotoxins, spores, scents or byproducts.” “The alternative appraiser policy includes all the same coverages of our flagship appraiser policy, plus the mold, and at around the same premiums for most appraisers,” Brauner said. But the alternate policy requires more underwriting and a more lengthy application, so if you want mold coverage, you should ask for it specifically, Brauner said. Visit OREP.org or call 888-347-5273 to learn more. WRE

PAREA Adopted January 1, 2021

OREP Endorsed by National Association of Appraisers (NAA) OREP, a leading provider of appraiser E&O insurance nationwide, has been endorsed by the National Association of Appraisers (NAA) as the preferred provider of E&O insurance for NAA members. OREP is the proud publisher of Working RE magazine and has served real estate appraisers’ insurance needs for over 19 years. The NAA is an appraiser organization with over 2,000 members dedicated to uniting appraisers for the purpose of exerting a beneficial influence upon the profession and advocating for appraiser interests. “I feel very comfortable with our first alliance of this kind because the focus of both organizations is the same—supporting and helping appraisers,” said OREP/ Working RE founder and Senior Broker, David Brauner. Craig Morley, 2020 President of the NAA, says, “We are pleased to have OREP working with NAA to provide information, education and professional liability insurance (E&O) to our membership. NAA is an association that is intended to be a low-cost professional association that likewise provides information to its members and representing our membership at both a state and national level in an effort to benefit the typical appraiser.” WRE

The Appraisal Foundation (TAF) has formally adopted Practical Applications of Real Estate Appraisal (PAREA), which is meant to offer coursework and mentorship in lieu of in-the-field training hours. PAREA coursework is intended to “provide an alternative to gaining experience in the traditional sense of training (i.e., in an appraisal office with a supervisor mentoring the trainee).” The PAREA coursework as adopted by TAF allows a would-be appraiser to use coursework to qualify for up to 100% of experience credit for their Licensed and Certified Residential credentials. It will be up to education providers to develop the PAREA coursework per the Appraiser Qualification Board’s (AQB) Real Property Appraiser Qualification Criteria and the PAREA Implementation Policies. In lieu of having a traditional supervisor, the applicant will have an appraiser “mentor,” presumably provided by the education provider. Applicants can complete 150 education hours for the Licensed Residential certification to replace 100% of their experience requirements. Applicants can complete 200 education hours for the Certified Residential certification to replace 100% of their experience requirements. Applicants can complete 300 education hours for the Certified General certification to replace 50% of their experience requirements. While the AQB will approve the PAREA programs that education providers develop, the states will decide whether to adopt PAREA guidelines and allow the process. TAF notes that “it is up to each individual state to adopt PAREA as an alternative pathway, and to accept the AQB’s approval of PAREA programs.” WRE

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How did appraisers do? After introducing the temporary flexibilities, we have observed that appraisers have done a great job executing these flexibilities to keep the US housing market moving.

92%

map reference Appraisers choose the appropriate map reference 92% of the time.

external obsolescence Traditional appraisals miss external obsolescence 11% of the time in comparison to 8% for flexible appraisals.

36%

sketches Even though not required, 36% of flexible appraisals included a sketch.

Minimal omissions

There are very minimal data field omissions as a result of flexibilities.

Biggest Issue

Some appraisers have made assumptions about condition rather than relying on data sources as required. Fannie Mae Confidential and Proprietary

Figure 1: Slide from Fannie Mae on Temporary Appraisal Flexibilities In response, many appraisers are complaining that the GSEs, lenders, or AMCs are asking them to violate the Uniform Standards of Professional Appraisal Practice (USPAP) by not using an Extraordinary Assumption. The conflict arises because Fannie Mae’s guidelines state: “If adequate information is not available to complete the appraisal, the assignment cannot be completed.” While there is a conflict between USPAP and Fannie Mae in the minds of many appraisers, Fannie makes its own rules and was upfront from the beginning that if the appraiser could not find data (including interviews) on which to produce a credible report, they should decline the assignment instead of making an Extraordinary Assumption (which was not permitted). Refinances that were ordered as exterior-only are the primary loan type where this is a potential problem, according to John Dingeman, Chief Appraiser at Class Valuation. This is 40 Working RE Fall 2021

because there is often no prior MLS listing data for the appraiser to rely on, Dingeman said. “The appraiser often didn’t call the homeowner because they thought they couldn’t contact the homeowner,” says Dingeman.

Fixing It Dingeman says that the remediation letters being sent are, in many cases, requesting a retrospective appraisal on the same property. “The GSEs are giving appraisers the opportunity to resolve the issue,” says Dingeman. If an appraiser did not collect any data and just made an Extraordinary Assumption about the interior condition of the property, Dingeman says that appraisers who receive a remediation letter may need to reach out to the borrower and collect that data now, in order to meet Fannie requirements. “Appraisers who receive remediation letters can call the borrower and ask them questions about the home. As the appraiser, you can explain to the new

homeowner that the banks offered an appraisal flexibility to appraise the home from the exterior during the pandemic, but they’re doing some audits now and you are calling to confirm some information. Oftentimes, the homeowner can tell the appraiser about the property and even send interior pictures, which the appraiser can use to respond to the remediation letter,” says Dingeman. The risk of not complying is that a remediation letter may turn into a repurchase demand. “The GSEs have issued remediation letters to the lenders, which will turn into a repurchase demand if not fixed,” said Dingeman. “Appraisers need data that allows them to credibly identify the relevant property characteristics and opine on the quality and condition without the use of an Extraordinary Assumption.” Fannie Mae and Freddie Mac began issuing remediation letters in early 2021 and those letters are likely to continue in the months to come. Stay safe out there! WRE

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