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Real Estate Appraisers
Winter 2021, Volume 55
APPRAISAL FEES ON THE MOVE: (NEW SURVEY ASKS HOW MUCH)
Original Comp Photos: Dangerous, Unnecessary Why Comp Photos? Dealing with a Subpoena How to Fight Blacklisting Solar: The Future Is Bright
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Winter 2021, Volume 55
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From the Publisher Readers Respond
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Appraisal Fees on the Move Isaac Peck, Editor
10
Original Comp Photos: Dangerous, Unnecessary Damian Downie, CEO of Downie Valuation Services, Inc.
12 16 18 20 26 30 32 34 36 37 38
Why Comp Photos? Richard Hagar, SRA
Something to Smile About David Brauner, Senior Broker at OREP.org
Lessons from a Service Business David Brauner, Senior Broker at OREP.org
Appraiser COVID-19 Survey Results Isaac Peck, Editor
How to Fight Blacklisting Isaac Peck, Editor
Effect of COVID-19 on Appraisal Volume Danny Wiley, Senior Director of Valuation at Freddie Mac
Solar: The Future Is Bright Mark Buhler, CRA at CMP Appraisals
Dealing with a Subpoena Isaac Peck, Editor
Institutional Memory Richard Hagar, SRA
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Working RE is published to help readers build their businesses, reduce their risk of liability and stay informed on important technology and industry issues.
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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 Winter 2021
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From the Publisher
New Year, New Business by David Brauner, Senior Broker at OREP.org
In another story in this issue I talk about how not to conduct business
(See Lessons from a Service Business, pg. 18). Here’s the opposite side of the coin and the key to higher fees. Our yard had fallen into serious neglect and maybe it took me working from home to notice: overgrown, full of weeds and did not provide the perimeter firebreak experts say is required here in Southern California. So, I was looking for a serious one-time cleanup project—trimming trees, bushes, weeds, etc., along with a bid for ongoing maintenance—twice a month, to cut the front and back lawn, trim the trees and keep everything looking nice. I’ve always done the landscaping myself but obviously, not well enough. I contacted numerous landscapers— very few responded. The first rule of busiBeing courteous ness in my mind is returning calls/emails pays dividends promptly—I don’t care how busy you are and feels good. or whether you “need” the business. Being courteous pays dividends and feels good. The one or two who did respond, just didn’t feel right (another rule—people buy from those they like and trust). But one vendor responded immediately, answered all my questions patiently, came by to give me a quote on the work for free (many would not!), sent me pictures of their product—sold themselves. They have been in business 19 years (same as OREP/WRE) and would be glad to furnish references. Their bid for the cleanup was high but the monthly maintenance bid was within my budget. So I said “yes.” Well, they did everything they said they would and the yard looks great! Immaculate actually. I could have gotten a less expensive vendor but this turned out to be professional and hassle-free. They did the initial cleanup and have my ongoing business. My point is that many lenders and AMCs these days, when there are fewer appraisers, approach hiring and fees the same way. They are willing to pay more for a good product. This landscaper did provide a good product, including reliable communication and a friendly, positive demeanor throughout (another rule of business). Richard Hagar, SRA, an instructor for OREPEducation.org and frequent contributor to WRE, preaches this: improve your skillset and customer service and you will be able to raise your fees and work with better clients. I kept thinking about this concept all during the entire landscaping process and I see his point. In the end, I didn’t mind paying more for a professional, hassle-free product. In fact, I’m grateful! I look forward to working with them for a long time. It was a smooth experience with great results and when I look out the window now, I’m content. WRE 4 Working RE Winter 2021
Readers Respond Have You Reviewed These Sales? (Part 2) I will admit that I do not do the volume of work that most of you do; however, I do complete about 75 appraisals a year (I am semi-retired). I have not had a request for reconsideration in over two years. Maybe it is because I include the following in every report: “If the appraiser is requested to research and comment on additional properties for consideration to be included in this completed appraisal report the appraiser may require an additional fee based on the time, including any driving time and expenses, research and the preparation of the response that is required to respond to the request.” As you can see I state “may.” You all might consider this. —John Pratt
Fannie Mae’s New Highest and Best Use Leave it to Fannie to make a bad situation worse and thanks to Rich and Lee for stepping off the curb without getting hit by a bus. The real question is: will Fannie listen? I ask because I got into a knock-down verbal altercation over just this topic. Won’t go into the details—frankly I don’t really want to relive the nightmare. But if Fannie keeps trying to fix something just so they can do a loan, we will continue to be in a bigger pickle. Thank you folks for your effort on this rather large mess. Keep us updated if they change it again, which I am sure they will. —Brad Bassi, SRA
The Human Being Business David—This is among the VERY BEST articles you have ever written. That’s 20+ years of material! It was empathetic and insightful—you picked specific, highly relatable moments that every consumer can identify with. By the way, I have purposely grown my non-lender/ non-AMC work to about one third of my appraisal business… due to your above-stated factors. —Bruce Ford
Reconsiderations of Value and What to Do About Them This appraiser, like most appraisers, believes the assignment is complete when the report is submitted. NO! The assignment is done when the lender accepts the report. Let’s look at a similar scenario—you are buying a new
computer for your appraisal business and purchase it from a computer store. When you take it home and unbox it, you find the screen is cracked. What did you do? Well, you take it back to get a replacement. The deal is not done when you walk out of the store; the deal is done when you ACCEPT the new computer. —John Dorie I, too, got tired of the frivolous reconsideration of value requests from Realtors via the lender. My appraisal work consists of VA appraisals (about 99.5%) and .5% is some lender work. I’m quickly curtailing the lender work because they want things in the report that are meaningless to the value of the subject property. The VA has the appraiser’s back and I thank them for that. Lenders can no longer send reconsideration requests to the appraiser. The Tidewater process takes care of that waste of time. I do not know of any VA appraiser that likes the Tidewater process when a
property does not make the sale price. There is extra work involved in the Tidewater process. However, the way that Realtors price homes brings about the Tidewater process far more than I like but, it is necessary. When I invoke the Tidewater on a sale to the lender, I enclose the VA Tidewater circular to hopefully understand the process and, a comparable grid sheet. No longer will I accept 5, 6, 7, or a flood of properties that have no chance to be a comparable sale. I state in the Tidewater letter that I will only accept three comparable sales. If more are sent I will select the first three, period! In my opinion, the problem is the way Realtors are educated (or not educated) about what makes a comparable property. The Brokers are not doing their jobs. I have been in the appraisal industry since 6/1/1966 and a Realtor since 05/1977. I know both sides very well and will not take any crap from anyone. —David Brumachi WRE
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Appraisal Fees on the Move: New Survey Asks How Much by Isaac Peck, Editor
Many appraisers are busier than ever
There is real value in seeing if you are earning what you’re worth in today’s environment. Appraisers have traditionally been solo acts for the most part.
today and fees appear to be rising in select markets across the country. To help the appraisal community better understand how fees are changing and in what markets, OREP/Working RE is launching a nationwide survey: 2021 Appraiser Fee Survey. What are you seeing in your local market? Despite the obstacles brought by the COVID-19 pandemic (and the corresponding lockdowns), 2020 was a blow-out year for total mortgage originations and for appraisal volume as well. At press time, the U.S. mortgage market in 2020 is currently expected to exceed $4 trillion in total mortgage origination for the first time in history. This stems from a combination of purchase lending reaching heights not seen since 2005, coupled with a record setting refinance boom due to incredibly low interest rates. The latest data from Freddie Mac indicates that appraisers have unquestionably participated in this boom. Danny Wiley, Senior Director of Valuation for Single-Family Credit Risk Management at Freddie Mac, reports that the seven months since COVID19 pandemic began (March-September 2020) represent the seven highest volume months in terms of appraisals received to the Uniform Collateral Data Portal® (UCDP®) ever on record. Compared to 2019, appraisal volume was up 40% from January–September
Isaac Peck is the Editor of Working RE magazine and the Vice President of Marketing and Operations at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 50 states. He received his master’s degree in accounting at San Diego State University. He can be contacted at isaac@orep.org or (888) 347-5273.
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2020 based on UCDP numbers. (See Appraisal Volume During COVID-19, pg. 30.) The UCDP® is a single portal for the electronic submission of appraisal data files to Freddie Mac and Fannie Mae and facilitates the electronic collection of appraisal report data. With a substantial increase in appraisal volume, and a relatively stable pool of appraisers available to complete assignments, the law of supply and demand suggests that appraisal fees should be increasing, at least in some markets. Anecdotal evidence from both lenders and appraisers supports this, with lenders reporting longer turn times and higher fees in higher-volume markets across the country, and appraisers indicating that they’re raising their fees in response to increasing demand.
Not All Boats However, with a rapid increase in appraisal volume, not all appraisers are benefiting equally. Many appraisers remain hesitant to perform interiorinspection appraisals due to the dangers of the COVID-19 virus and are limited to exterior-only and desktop assignments. For these appraisers, their volume has typically suffered, depending on their local market, because only about 15% of appraisal assignments ordered utilize the new appraisal flexibilities permitting exterior only, or desktop assignments, according to Fannie Mae’s latest data. Fee Survey History OREP/Working RE’s new 2021 Appraisal Fee Survey is the third nationwide fee survey OREP/WRE has conducted in the last 10 years. The first in 2010, was page 88
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in the wake of the Home Valuation Code of Conduct (HVCC) and garnered nearly 18,000 responses from appraisers across the country—many struggling to cope with severe fee splits imposed on their business model by appraisal management companies (AMCs). Many appraisers could not continue in business as a result. The second survey was conducted in 2017 and received over 7,000 responses. The 2010 survey, conducted when there were nearly twice as many licensed appraisers as today, gives us a good perspective on where we’ve been. For example, in 2010/2011, appraisers in Bend, Oregon were earning an average fee of $350–$400 for a standard 1004 appraisal order. In 2017, that average fee for a 1004 appraisal increased to $651–$750 in Bend, Oregon. Likewise, in Los Angeles, California, the average fee for a 1004 appraisal increased from $351–$400 to $401-$450 from 2010 to 2017. This type of comparative data is available to all appraisers and industry stakeholders free of charge. The results from the 2021 survey will be the same. (To find the results from earlier fee surveys, visit WorkingRE.com/surveys.) While the previous surveys now give us perspective, the 2021 survey
gives us the tools we need to succeed today, says David Brauner Senior Broker at OREP E&O insurance (www.OREP.org). “There is real value in seeing if you are earning what you’re worth in today’s environment. Appraisers have traditionally been solo acts for the most part. Collecting fee data nationwide is one way our national platform (Working RE Magazine) can be utilized to unite the appraisal community.”
New Questions Just like the previous fee surveys, this survey is broken out by 365 Metropolitan Statistical Areas (MSA) as defined by the U.S. Census Bureau, with rural areas included by state, and takes only minutes to complete. The first two surveys focused on eight different appraisal products including reviews and FHA appraisals. The new survey will also ask appraisers for their thoughts on: If (and by how much) appraisers are lowering their fees for desktop and exterior-only assignments. • Current fees for 1004D Appraisal Update Assignment. • Current fees for 1004 Certification of Completion.
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•
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). The survey also addresses appraisal turnaround time, which some say is the biggest obstacle to quality today. While Working RE’s first survey included only non-AMC appraisal reports, the new survey draws no distinction between AMC and non-AMC appraisals. The value of the survey depends on the level of participation. The survey assumes assignments that are not complex (complex assignments require higher fees) and is anonymous for appraisers. The initial results should be published by the Summer Edition of Working RE or sooner and will updated regularly as the various market areas become more populated. In addition to appraisers, AMCs can use the data to measure the customary and reasonable fees they offer and turn-time policies. The data will be available to the government, AMCs and the public at large. WRE To weigh in with your customary and reasonable fees for various products, visit WorkingRE.com/2021survey.
Original Comp Photos: Dangerous, Unnecessary by Damian Downie, CEO of Downie Valuation Services, Inc.
I’ve been meaning to write this for a
With the abolishment of the requirement to drive past and photograph all comps, appraisers could free up hours per day towards better and more efficient productivity.
long time and what happened today is the straw that broke the camel’s (appraiser’s) back. As I do many times a day, I was taking comparable (comp) photos for an appraisal. This one in particular is a condominium, so I was taking photos of two condos in a competing complex. There was a gate into the property, so I stopped across the street and snapped a photo of the gate. Three minutes later, about a mile from the site, I looked over to my right out the passenger window, and I saw a man holding his phone up and pointing it at me. I asked him what he was doing and he angrily asked me why I was taking pictures of his car. He had a scowl on his face and so much anger in his voice that I seriously expected to see a gun pulled next. In that part of Sacramento, it would not have been a shock. When I tried to politely advise him I was a real estate appraiser, and was only taking photos of comparable sales, he did not want to hear it. He seemed to get angrier saying, “I’ve got your photo (mother…F-bomb).” Fortunately, I was able to drive off without it escalating but it certainly could have. Will it take one of us getting shot or killed to remove this archaic requirement of driving comps? This was the third time I had been chased down by someone in the
Damian Downie has been in the residential appraisal field for 18 years. He is the Founder and CEO/Chief Appraiser of Downie Valuation Services, Inc. in Roseville, CA.
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last year alone, and I’m not the only appraiser to go through this. I would bet most full-time appraisers have similar stories. This can and should be avoided. Each time something similar happens, the angry/concerned party has either willfully refused to listen to my explanation, or wasn’t able to comprehend what I was saying. Many people do not know what an appraisal is, and most do not understand what our job entails. In other words, because most people don’t know we take photos of comps they don’t understand why strangers are taking photos in their neighborhood. They are quick to assume we are up to something worse. Very few times a person will say, “Oh ok, I was just checking. Have a nice day.” Ever since appraisals became necessary, we have been required to take photos of each and every comp that we use in our reports. The reason for this is so we can get a clear picture of just how comparable these properties are to the subject. To evaluate if they are comparable in location, condition, quality, design and appeal, among other things. When this requirement was set, so many years ago, we did not have the technology that we do today. Back then, we could not see detailed photos with the many tools we have on the Internet. We didn’t even have the Internet back then. We do now, and it’s time we all agree that photos from the Internet are not only more helpful than driving comps, they save appraisers wear and tear on their vehicles, remove worry or concern from homeowners or tenants, save us time and money and keep unnecessary
traffic and often lost appraisers, from driving up and down city and rural streets where children play. As competent appraisers, we need to be informed of all aspects of the neighborhood, in order to provide a credible report, but proof of our neighborhood inspection isn’t necessary. Many tools we have today allow us to get a very clear picture of everything a drive-by of each comp would, and more. One is Google Earth, that allows us to see everything around the subject property as well as the comps we would use or consider. We do not need to drive around each side of every comp to know they are on, or backup to a busy street, commercial property, have power lines, etc. Satellite images allow us to zoom in and see these things right at our desk, and most of the time, this is even better than a personal inspection. With regard to inspecting the exterior of each comparable property, I doubt that I am the only one who makes sure to go fast enough so as not to be noticed by a potentially angry resident. The need to move quickly reduces the value of the in-person inspection in the first place. We cannot sit there for several minutes and take notes because we know that the longer we do, the more probable it will be that there will be a problem or confrontation. MLS photos not only show us, in detail, what that property is like, they show us what that property looked like as of the date of its sale. And that’s really more important, considering the fact that by the time we see them, it has been months or more since the sale, and improvements are likely to have been made. This, along with the other benefits listed above make online photos a much better alternative. MLS photos, along with allowing the appraiser and the reader to see what the exterior of the property in question looked like, as of the date it was listed,
allow us to see detailed photos of the interior. These photos are clear and we are able to zoom in or out so we can get a very strong idea of its overall comparability to the subject property. Driving by them and taking photos of properties owned by proud and concerned people, is completely unnecessary to provide a competent and credible value, and an overall supported appraisal report. Many of us perform appraisals in rural areas with parcels of more than an acre in size. Typically, when we take photos of these properties, we cannot even see the improvements, and wind up with only a photo of a driveway. In these cases, we include the photo of the driveway and then supplement it with an MLS or other online photo. We sometimes spend an hour or more driving through these rural neighborhoods because the comps are so far apart and the majority of photos end up being of driveways. This is costly in multiple ways, and overall completely unnecessary because an MLS photo would have been more than enough for credible results in the first place. In the end, the MLS photo was the only real photo data provided for the reader. Our industry is constantly changing, and it often adapts to technology. When I first started in this business 17 years ago, my supervisor told me stories of how he used to paste actual pictures to reports, and that he had to submit full appraisal reports via US mail. Why don’t we do these things today? It’s simple. We have adapted to technology. Our current technology allows us to attach digital photos to reports and submit them electronically. Why haven’t we adapted to the technology provided through Internet tools to eliminate the ridiculous needs of our clients and Uniform Standards of Professional Appraisal Practice to drive past and take photos? I hope we can get together and make this change for the better for all involved. Let’s embrace our current
technology, and move forward towards safer and more efficient appraisal work.
Bottom Line When HVCC was put into place, appraisers lost a good portion of our fees to AMCs and other middleman type companies. With the abolishment of the requirement to drive past and photograph all comps, appraisers could free up hours per day towards better and more efficient productivity. Our clients insist we are making “customary and reasonable fees” but that is simply not true. Fees have come back up over the last 14 years, but they are still not where they used to be. Reducing this burdensome requirement could allow increased productivity that raises our bottom lines back where they were before 2006. Of my 17 years in the appraisal business, I have been in the field for 12 years and spent five working quality control for an AMC. I know many appraisers and have spoken to most of them about this problem and need for change; not one of them has disagreed with my argument. I even discussed this with a staff appraiser from the California Bureau of Real Estate Appraisers, and he agreed with me 100%. He suggested that I write to Fannie Mae if I wanted to really help make a change. I will absolutely do that, once this article is published. We have the technology to make a change for the positive, so let’s use it. It’s cost effective for those of us who deserve our customary and reasonable fees, so let’s get those fees. And it’s safer for appraisers and residents of our communities, so let’s be safer. That man from the Sacramento condominium complex did not need to have to worry about his property or safety, and I did not have to worry about mine. Let’s come together and make the right decision. MLS photos and other online tools are sufficient, so let’s use them. WRE Winter 2021 Working RE 11
Why Comp Photos? by Richard Hagar, SRA
Many appraisers can’t understand why
Almost every state licensing board has sanctioned appraisers for failing to inspect the comparables. In California at least one or two appraisers a month are sanctioned for this failure.
they are required to inspect the exterior and take personal photographs of the comparables (1004 form). This list should be familiar: • I spend hours driving by the comparables. • I had to drive down a private gravel road. • There was a gate preventing me from…. • The new property owner threatened me, etc. To justify not driving by comparables, appraisers come up with all sorts of rhetorical questions and excuses. • What am I going to learn by driving by a comparable? • Why can’t I use photographs that I obtained from Google Maps? • Why can’t I use the photograph I took of the comparable two months ago? • How can I make any money if I spend time driving by the comparables? • MLS photographs best represent the house when it sold. All of us “feel the pain” associated with the task which I grouse about when driving by each of the comparables, just like you, and it’s one of the issues we talk about in almost every live class I teach (Photograph and Inspection Requirements). First, don’t even think about not doing it! To begin with, it’s required. Inspecting the exterior of every comparable isn’t a USPAP requirement, by the way, it is a Fannie Mae, Freddie Mac, Federal Housing Authority (FHA), and
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Department of Veteran Affairs (VA) requirement. However, FNMA’s requirement goes directly to the heart of USPAP’s “scope of work” rule. USPAP defines scope of work, in part, as: the type and extent of research and analyses. The scope of work section of the 1004 appraisal states “The appraiser must, at a minimum: (3) inspect each of the comparables sales from at least the street.” So, when an appraiser agrees to an assignment and its required scope of work, they have agreed to personally inspect the exterior of each sales comparable used in the appraisal. There is no way around this; an appraiser can’t contradict the certification requirement by inserting a qualification within the appraisal. In other words, it’s your job; you are being paid to personally inspect each sales comparable—so do it! Signing a certification but not following through with the actions outlined in the certification is misleading and considered fraudulent. Almost every state licensing board has sanctioned appraisers for failing to inspect the comparables. In California at least one or two appraisers a month are sanctioned for this failure. I’m also aware of several criminal charges filed against appraisers for this issue. Appraisers must do what they certify they have done or face the ugly side of a fraud charge. This from the findings in a criminal case: “While it’s possible that Mr. Williams personally inspected the comparables [….] there was no evidence in the appraiser’s job files that [he] personally inspected any of the properties identified in Counts Two through Five of the Amended Complaint.” The following statement from the Texas Appraiser Certification and page 148
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Licensing Board, concerning 1004 appraisals, was delivered to every appraiser in the state: “Original photos are required for the subject and all of the comparable sales. The photos taken by the appraiser are considered to be evidence of compliance with the appraiser’s scope of work. MLS photos may be included as additional photos; however, they are not to be used as the primary photo.” Texas was explaining that the agreed upon scope of work requires the appraiser to inspect and photograph each comparable (the minimum requirement). The appraiser can always provide more than the minimum, including MLS photos.
Why Personal, Original Photographs? First, an origin story. Way back when, the VA required appraisers to personally inspect each of the comparables so that they could make a more informed comparison between the subject and a comparable. When the VA figured out that some appraisers weren’t viewing the comparables, they came up with a “new” requirement; the appraiser must attach a photograph of the subject and comparables to each appraisal (stapled to the report). The VA used photographs as a confirmation of the appraiser’s viewing. So, if you’re upset with the photograph requirement today, blame less than thorough appraisers in the past and the VA’s need for confirmation. Why not MLS Photos? I hear this a lot: “I used an MLS photograph because they best represent a property at the time it sold.” If you believe this, you are not paying attention. An MLS photograph represents the property when it was listed. When a sale closes the listing agent doesn’t run back out to a property and take a final photograph for posterity’s sake. A property’s condition can change between list and sale date. I learned this when one of my inspections revealed that the house had burned down between the list and 14 Working RE Winter 2021
sale dates. Ends up the buyer was going to tear the house down, so the fire just made things easier. The original listing photograph remained in the MLS; nobody ever inserted a photograph of the burned out house. When subsequent appraisers used the MLS listing photograph in their appraisals, they were supplying fraudulent and misleading information to their clients about the comparable property and its condition.
Agents…Lie Agents…embellish the truth? Please tell me it isn’t so! The MLS is an advertising system, a way to deliver sales information to other agents and appraisers. In most areas, agents can take classes on how to stage homes and alter photographs to make homes look better than they are (welcome to Photoshop). Weekly I see MLS photos that make a house look pristine only to find, after driving by, that it is really a house of horrors. What about Google Photos? What about Google photos? You mean the photographs that might have been taken three plus years ago? How does that represent the house when it sold or today, six months later? What if you can’t see everything? Here’s an example, look up this address: 5962 Mud Hen Lake Rd., Makinen, MN. Quick—how many buildings are on this site? Bet you can’t figure it out from the high-altitude aerial photos. Go ahead and look at the property using the 3D feature. Oh that’s right, there isn’t one for most of the United States (outside city limits). Is that a comp roof or metal? What’s the condition of the paint or landscaping? What kind of dock is that? Is it permanent or movable? Bet the aerial photograph is too fuzzy to figure anything out about the property and this isn’t unusual. Copyright Protected One other point regarding MLS or Google photographs...they are copy-
right protected. It’s against federal law to use their photographs without written permission (and your MLS membership isn’t permission). If you use copyrighted photographs then sell the report to a third-party, you are making money off the copyright holder’s work. I’m surprised an underworked attorney hasn’t recognized this and sued some unlucky appraiser for the violation.
Why Can’t I Reuse a Photograph I Took Two Months Ago? Why can’t you reuse photos from a previous assignment? Because it’s not a current/original photograph and most lenders have a specific requirement in their engagement letters for current and original photographs. Fannie Mae’s new whizbang Collateral Underwriter system has been processing around 20,000 appraisals a day. Let’s assume they have exterior photos of the subject and only three comparables (20,000 x 4); that’s 80,000 exterior photos entered into their system every day, and 80,000 x 280 days of operation a year = 22,400,000 per year. That’s a whole lot of photographs! They don’t need more dated photographs; they obviously have those. They want CURRENT photos—today, now, cutting edge. Why? Who cares why; this is their required scope of work (my guess is that they track how the condition of a house changes over time and crosschecking to see which appraisers have identical photographs of a house). As the chief appraiser for a regional bank in Washington state told me: “For Pete’s sake, appraisers should just do their job and provide the photographs we require.” And by the way, that bank and FNMA both can compare appraiser photographs against the MLS. If there’s a match, the federal law requires them to turn appraisers into the state board for disciplinary action.
What Am I Going to Learn Looking at This Property Again? The best example why it’s important to always take current photos happened to me when I first started appraising. The first time I used a particular sale as a comparable 30 days after it closed, the house was vacant. Hmm, that’s a little odd I thought. Now 60 days later I drive by the comparable again to take another photograph for a new assignment. This time I notice a new for sale sign with a photograph of the new home that will be built on the site. OMG, what I thought was a great house comparable wasn’t—it was a land sale; the existing house, in C3 condition, was going to be torn down; it had no value. By driving by again, and maybe again, you might learn something about the property that you didn’t learn the first time. Maybe it’s being torn down, maybe it’s being remodeled or a second floor added. Maybe on this drive-by you learn there’s a motorcycle gang
living next door and they love latenight get-togethers at the clubhouse which might explain why this comp sold for so little. Bet you didn’t learn that from the MLS photo.
Job Security Every wonder why there’s a move to bifurcate the appraisal process and have someone other than the appraiser inspect the subject and comparables? One reason may be lenders who want to make sure the inspection and photos they are getting are current. Lenders know who’s lying and who isn’t, and they are getting tired of paying full price for appraisals that do not meet the required scope of work. If you want to stay clear of trouble, do what you are supposed to do. If we don’t do the job right, Fannie will go further down the bifurcation trail and your appraisal fees will go down—significantly. None of us wants that. WRE
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Winter 2021 Working RE 15
Something to Smile About by David Brauner, Senior Broker at OREP.org
I know, good news is in short supply
Most appraiser policies have a very broad definition of coverage these days to include reviews, desktops and hybrid/ bifurcated appraisals.
these days and appraisers have had a rockier road than many other professions over the years, but here’s something to smile about—appraiser E&O insurance. I know, I know. But give me a few minutes to make my case. First, I was preparing for a webinar presentation last year and realized that the cost of E&O for appraisers has not gone up significantly in the 25 years that I’ve been an agent. Back then, you could get a policy for about $350–$600. You still can. At OREP you can get a million dollar limit for $478! The premiums vary slightly by state, so please check with your agent or OREP.org. The coverage is better also. Most appraiser policies have a very broad definition of coverage these days to include reviews, desktops and hybrid/bifurcated appraisals. Some appraiser policies, including OREP’s, have a zero deductible and free bodily injury and property damage coverage for the property inspection—in case you break a vase or, God forbid, hurt someone in the course of doing your subject inspection. Neither a zero deductible, which saves you out of pocket cash, nor free BIPD, which saves you having to buy that coverage (a general liability policy at $350– $500), was included 25 years ago. And I have seen BIPD claims, especially now since FHA appraisals require testing appliances, attics, crawl spaces, etc. With the OREP policy, the limit is “outside of defense costs” also, meaning the limit you purchase, say $1 million,
David Brauner is Publisher of Working RE magazine and Senior Broker at OREP, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 50 states (OREP.org). He has provided E&O insurance to appraisers for over 25 years. He can be contacted at dbrauner@orep.org or (888) 347-5273. California Insurance License #0C89873. Visit OREP.org today for comprehensive coverage at competitive rates.
16 Working RE Winter 2021
does not get used up by the defense costs. While it’s unlikely that you’ll ever need it (hopefully!), that is a lot more coverage for the same price. The policies I was familiar with 25 years ago were not written that way. Today, most policies also include generous coverage for state board complaints, legal fees, loss of income, etc. Most of you know that when you stop appraising or retire, you need to purchase tail coverage to…well…cover your tail, meaning to keep the protection for appraisals you did over the years while you were covered. With Claims Made professional liability policies, when you let the policy lapse, the coverage is gone unless you purchase “a tail.” The official name for tail coverage is Extended Reporting Period coverage or ERP. It’s usually offered for one to three years into the future. ERP can be a bit pricy—up to one and a half times the expiring premium—but well worth it in my opinion. But free is even better. Some programs, including OREP’s, provide free, unlimited ERP when you retire. Certain restrictions apply, like being of retirement age and being with the program for a minimum number of years. If you’re getting close to retirement, this is a very valuable benefit that did not exist 25 years ago. Another coverage that did not exist years ago is combination coverage, if you do real estate sales also. This is two policies for the price of one—covering appraising and sales. Other coverages have been added over the years at no cost, such as coverage for subpoena expenses, loss of earnings and security incident coverage, which covers you for expenses when responding to a security incident, such as hiring a cyber forensic analyst or costs to comply with state or local privacy laws following a security
breach. Discrimination coverage is included and mold can be added. Most of these coverages were not available 25 years ago (as I recall!). Today they are included free in a policy which does not cost much more than it did 25 years ago! Now, I’d be remiss if I didn’t
mention that the OREP program includes all this, but other programs offer one or more of these features also. What they don’t offer, of course, is OREP’s 14 hours of free continuing education, dozens of free webinars to help you professionally, Working RE magazine and other business support.
I hope that no matter where you get your coverage, you find agents who want to help you. I know you will at OREP (if you don’t, let me know!). You can reach me at dbrauner@orep.org. See, there is something to smile about—even if it’s only E&O insurance. WRE
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Winter 2021 Working RE 17
Lessons from a Service Business by David Brauner, Senior Broker at OREP.org
You may not believe this. And no, it’s
If have your own business, you know you have to do more than create great appraisals to be profitable.
18 Working RE Winter 2021
not the latest conspiracy theory. This story is real life and pretty mundane, unless it concerns your livelihood—then it’s very serious. I hope it helps you and your business. I have an all-glass, frameless swinging shower door that slips and rubs at the threshold. In the 12 years we’ve lived in this house, and in an effort to get it to swing properly without dragging, I’ve tightened the screws, replaced the screws, stripped the screws, realigned the door and left it partially open for months at a time when it couldn’t be fixed correctly, so the door would clear the bottom, swing freely and close completely. It has worked smoothly for months and even years at a time after an adjustment but eventually it always slips again, making it impossible to close the door all way. I’m stubborn but not that stubborn. Recently, I had the brilliant idea to hire a professional to fix it once and for all (duh!). I called three glass companies to get a quote. No one would fix it. They all wanted to sell me a new $1,500+ glass door. The glass is fine, I thought, why replace it? I priced out the hinges myself online (finding the correct hinges is trickier than it appears unless you want to drill new holes into the glass door/tile— which I do not) and was about to buy them to fix the dang door myself when I thought better of it, took a breath, and called one more company. Those doors can be very tricky to take off and put on, and I know my handyman limitations. So I called a fourth business. They didn’t answer. I left a message. They didn’t call back. I was wary but I called them again before capitulating and buying a
new door from one of the other vendors. This time, someone answered. Let’s call her Sandy. She told me to email a picture of the hinges and they’d get right back. I did email the picture and after about three days of not hearing anything, I called again. I got Sandy again, reminding her of my issue. She said someone would call me back. No one did. I called again, got Sandy and was transferred to who I assume is the owner or some kind of senior person. We’ll call him Bill. Bill hadn’t taken a look at the picture of the hinge yet. He asked me to hold. When he came back, he said the hinges looked fine and that it was probably just the gaskets that were worn out, causing the slippage—a seven dollar item. If it is the hinges—they are about $150 for the pair he said. So now I’m happy. Persistence pays off right? There were a few more email exchanges to get a quote (instead of just quoting me right then). Finally: it appears labor is about $250 plus the cost of the hinges, if they are needed. I emailed back immediately to accept. He replied that Sandy would call to schedule me. I’m feeling very proud of myself at this point. After about four days, no one called to set up the appointment. Remember, my shower door is not closing properly, scraping at the bottom and I’m really tired of dealing with it. Sandy answers and says she is super busy but she’ll call me soon to schedule. Now this blows my mind but I say okay. I mean, why not just schedule me right then while I’m on the phone? Well, she actually does call back that very afternoon. The tech shows up on time about a week later, wearing a mask, is very nice and professional. He replaces my gaskets in about
an hour and the door is fixed! It no longer drags at the bottom. The hinges do not need to be replaced! Before he leaves, I ask the tech how he wants to take my payment. He says he doesn’t do that. That’s unusual I think, but I wait about a week for the invoice to be emailed—nothing. So I think maybe they are old school and still mail bills. So I wait another week or so. Nothing. Now it’s over two weeks after the fix, so I email Sandy for an invoice. No response. About a week later, I call and leave a voicemail asking for a bill. Again, no response. I wait probably another week or more before emailing Bill directly, who as I say, seems like an owner. Now I’ll get this resolved, I think. No response from Bill. Let me ask you dear readers and fellow businesspeople: are you shaking your head at this point? So did I. And it gets worse, much worse. About a week later, I call again… just trying to pay a bill. This time “Mary” answers. She assures me she is right person to take care of this, and she sure will—she is the accountant. She asks if I’d wait on hold while she goes “upstairs” to ask. I instead offer my phone number for her to call me back. She says great, she’ll call me right back. That was over two weeks ago and you may have guessed—no one has called back. Why wasn’t my order somewhere she could look up, give me a price and take my money right then? I don’t know. Why don’t I just give up trying to pay? Well, they solved my problem when no one
else would and I’m grateful. And I have a thing about not making people wait when I owe them money.
Your Business So what does this have to do with your appraisal business you may be asking— whether you have one or are employed by one? Well, if have your own business, you know you have to do more than create great appraisals to be profitable. Richard Hagar, SRA a renowned educator and author has said for years in WRE that appraisers should unite into “pods” to share expertise, experience, expenses and staff. (Visit WorkingRE. com, search “Come Together.”) After this experience, I see his point. Having someone to answer the phone, return calls promptly and keep track of receivables is vital for the reasons I hope my story illustrates. This glass business has the staff, it seems, but something is obviously not working. In addition to all the admin duties that can be shared, grouping together allows the various aspects of the appraisal process to be split up for maximum efficiency—research, inspection, etc. I have always believed in going to people’s strengths—whether it be solitary and tedious attention-todetail tasks or guiding clients through the insurance process efficiently by great communication and people skills. Why try to pound a square peg into round hole? If your business is running efficiently, that’s great. If you struggle at some aspects of running a business or
work for someone but dream of going out on your own, joining a “pod” as described above might make sense. If you’re a newish appraiser and haven’t had much mentoring or want to expand your skill-set—into commercial work for instance, this also can help to get you the experience you need that is often very hard to acquire. One note, maintain your own individual E&O insurance policy. You want to share expertise with other appraisers, not liability. In my own journey, I have encountered professionals, as well as vendors in the trades, who don’t call back, don’t show up on time or at all, or who don’t do what they say they will do once they land a job—including landscapers, plumbers, contractors, electricians, dentists, attorneys and CPAs. I really believe this explains why so many businesses fail or just bump along year after year. My guess is that many of the businesses that fail, do so because they are run like this glass company that won’t let me pay them. My advice, whether you run your own business or dream of doing so one day, is to do what you say and say what you do; never stop learning—be courteous and respectful of everyone, and if/ when someone wants to pay you for services rendered, take their money. WRE Postscript: It is now just before press time. I’ve called two more times to pay this bill and left voice messages without any response. Today I mailed them a check for the amount they quoted me in the email. Good luck in the New Year!
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Appraiser COVID-19 Survey Results by Isaac Peck, Editor
The year 2020 turned out to be a wild
By the Fall of 2020, over 91% of appraisers report that they are performing interior appraisal inspections.
ride for real estate appraisers. As lockdowns began sweeping across all 50 states in March 2020, uncertainty dominated the appraisal industry. Business for many appraisers slowed or ground to a halt, as they declined interior inspections out of concern for the health and safety of themselves and their families. However, as real estate came roaring back, many appraisers saw their order volume and revenue rebound rapidly. OREP/Working RE published two appraiser surveys focused on how the COVID-19 pandemic was affecting appraisers. The first survey, Coronavirus: State of the Appraisal Industry, was published in March/April 2020 and received over 2,000 responses. The second survey, Appraiser Coronavirus Survey Part 2: What’s Changed?, came out in August/ September 2020 and received over 1,300 responses. It measures how the business environment changed six months into the pandemic. The results, and the comparisons between the two surveys, provide insight into how the Coronavirus is affecting appraisers from the onset of the pandemic lockdowns to date and throughout 2020.
Interior Inspections At the start of the pandemic, appraisers were very hesitant to perform interior inspections, with roughly 40% indicating in the first survey that they had stopped performing interior appraisal inspections because of the Coronavirus. The fear surrounding COVID-19 amongst appraisers was palpable, as evidenced by the over 140 comments left in the comments section of the survey. Many 20 Working RE Winter 2021
appraisers expressed fear that interior inspections put the health of themselves and their families at risk, not to mention the risk of infecting the property’s occupants. However, the willingness of appraisers to perform interior inspections has changed dramatically since those early days. By the Fall of 2020 (See Question 1, Page 21), over 91% of appraisers report that they are performing interior appraisal inspections. The percentage of appraisers who are declining to do any interior appraisal inspections has fallen from nearly 40% in March/April 2020 to just under 8% in Fall 2020.
Business Increase/Decrease The same dramatic changes can be noted in terms of business volume. In the March/ April survey, over 43% of appraisers reported that their business had slowed 20% or more overall due to the Coronavirus (See Question 2, Page 21). By the Fall, over 70% report that business revenue had increased compared to the same time during the year prior, with 22% of appraisers reporting that business revenue is up over 20% or more. Fees, Safety, and Retirement The Fall 2020 COVID-19 survey results provide great insight into what kind of fees appraisers are getting, how many appraisers believe there is a health and safety concern when performing interior inspections, and much more (See Questions 3–11, Pages 21–24). Read on for the full survey results. The survey only takes two minutes to complete, so if you haven’t chimed in yet, please visit WorkingRE.com/COVIDsurvey2 to take the survey.
Fall 2020 Survey Results Question 1: Are you performing interior appraisal inspections? Often/very often
78.9%
Occasionally
13.4%
Never
7.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
40%
50%
60%
70%
80%
90%
100%
Question 2: How is your business revenue as compared to this time last year? 29.3%
Higher: 1-10%
22.9%
Higher: 1-20%
Higher: Over 20%
23.5%
Lower: 1-10%
9.5%
Lower: 11-20%
5.3%
Lower: Over 20%
9.5%
0%
10%
20%
30%
Question 3: Are the majority of your lender clients allowing Desktop or Exterior Appraisals in lieu of traditional (interior inspection) appraisals? Yes
24%
No
76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100% page 228
Winter 2021 Working RE 21
7page 21
Question 4: Are lenders or AMCs offering you lower fees when assigning the new GSE’s alternative formats, i.e. drive-by and desktop appraisals?
Yes, but I don’t accept them
41%
Yes, I am accepting alternative reports at lower fees
12%
47%
No
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Question 5: What market trends are you noticing in your local market area since the start of the pandemic? Home values are remaining steady
27%
72.5%
Values are increasing
Values are declining
0.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
50%
60%
70%
80%
90%
100%
Question 6: How many more years do you plan to continue appraising (part or full-time)? 0-5 Years
34%
6-10 Years
28%
No plans to stop
38%
0%
10%
20%
30%
40%
Question 7: Did the pandemic delay your retirement?
Yes
9%
No
91%
0%
22 Working RE Winter 2021
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Question 8: Do you mostly enjoy appraising? Yes
87%
No
13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
90%
100%
Question 9: Are you optimistic about your ability to make a living as an appraiser in the future?
Yes
74%
No
26%
0%
10%
20%
30%
40%
50%
60%
70%
80%
page 248
Winter 2021 Working RE 23
7page 23
Question 10: Are you concerned for your health and safety and the safety of your family in terms of performing interior inspections?
Yes
53%
No
47%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Question 11: Have you or an appraiser you know personally been diagnosed with COVID-19?
Yes
15%
No
85%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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How to Fight Blacklisting by Isaac Peck, Editor
Being blacklisted by a real estate agent,
I spoke to an appraiser recently who reported losing between $10,000 and $15,000 in appraisal work per year after she “missed value” on a transaction between two powerful and successful real estate brokers.
lender or appraisal management company (AMC) is familiar to most appraisers—it’s either happened to you or to someone you know. It can cost an appraiser time, money and more than a few sleepless nights. Here is what you should know, whether you’ve been blacklisted or not, and how to fight back if you need to. It usually starts when an appraiser comes in “low” on a purchase transaction appraisal—delivering an appraised value that is lower than the contract price between the buyer and seller. The deal subsequently falls through and the listing agent or the buyer’s agent (or both) hold a grudge against the appraiser and make their best effort to “blacklist” that agent with their favorite lenders/AMCs, resulting in a loss of work for the appraiser. In my role at OREP/WRE magazine, I frequently speak with insureds/ appraisers facing this issue who are seeking advice and counsel about what their options are. Typically, unless the blacklisting is coupled with a state board complaint (which sometimes happens) or includes some other threat of legal action, it is not something that involves your E&O insurance at all, but we still do our best to give our insureds advice and support whenever we can. This article explores what appraisers face when blacklisted with some advice on what you can do if you find yourself in this very difficult and frustrating situation.
How It Happens When a real estate agent “blacklists” an appraiser, the result is often that the agent’s lender/AMC contacts will stop using the appraiser completely (at the agent’s request), or occasionally, the lender will continue to use the appraiser but not assign the appraiser any of the transactions that that particular agent works on.
In the case of the latter, sometimes the appraiser will be assigned an order only to have it cancelled later that day once the real estate agent sees the appraiser on the order and calls the lender or mortgage broker to complain. I’ve talked to appraisers who have this happen several times a year with the same agent. More harmful to the appraiser, however, is to be completely removed from a lender or mortgage broker’s panel, as this can mean a significant loss of work. I spoke to an appraiser recently who reported losing between $10,000 and $15,000 in appraisal work per year after she “missed value” on a transaction between two powerful and successful real estate brokers. The two brokers immediately blacklisted the appraiser and she saw work from a few of her local clients completely dry up. To this day, if she ever receives an order where one of these brokers is involved in the transaction, it is subsequently cancelled and reassigned. To make matters worse, this scenario is most common with real estate agents who are well-known locally and very successful in the area, as lenders and mortgage brokers are more inclined to aim to please (i.e. break the law for) the agents who are wildly successful and refer a high volume of business their way. This sets up the perfect storm for the appraiser as those agents who are doing the most transactions in an area have the most clout with the lenders and mortgage brokers, and consequently can cause more financial harm to the appraiser by blacklisting them. Having an order cancelled and reassigned is sometimes the first and only indication to the appraiser that something fishy is going on, but some appraisers who abruptly stop receiving work from a client often don’t have to look far to figure out why. While “blacklisting” is page 288
26 Working RE Winter 2021
When the State Board Comes Knocking... Who’s in Your Corner?
Helping Appraisers Manage Their Risk Since 2002
Free State Board Complaint Consulting Every year, over 2,000 State Board Complaints are filed against appraisers, according to Tim Andersen, MAI and CEO of TheAppraisersAdvocate.com. As an independent real estate appraiser…you don’t have to go it alone. At OREP, you can rest easy knowing that if you face a state board complaint, you have an expert in your corner. OREP members receive a FREE consultation with Bob Keith, Former Director of the Oregon Appraiser Board, and 25% off any consulting services if needed. OREP Members also enjoy a free webinar, Fighting Appraisal Board Complaints: An Expert’s Advice, presented by Keith that shows you how to defend your livelihood and protect yourself if the state board comes knocking.
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sometimes more discreet, some appraisers actually have the real estate agent call them and tell them explicitly that they are going to actively prevent the appraiser from ever working on one of their transactions.
What the Law Says Anyone, including a real estate agent, who blacklists or otherwise attempts to retaliate against an appraiser for a “low” appraisal value is in violation of Appraiser Independence laws. In 2010, the Dodd-Frank Act amended Section 129E of the Truth in Lending Act (TILA), establishing new requirements for appraiser independence, including making “coercion” of appraisers illegal. (1) Coercion. In connection with a covered transaction, no covered person shall or shall attempt to directly or indirectly cause the value assigned to the consumer’s principal dwelling to be based on any factor other than the independent judgment of a person that prepares valuations, through coercion, extortion, inducement, bribery, or intimidation of, compensation or instruction to, or collusion with a person that prepares valuations or performs valuation management functions. (i) Examples of actions that violate paragraph (c)(1) include: (C) Implying to a person that prepares valuations that current or future retention of the person depends on the amount at which the person estimates the value of the consumer’s principal dwelling. (D) Excluding a person that prepares a valuation from consideration for future engagement because the person reports a value for the consumer’s principal dwelling that does not meet or exceed a predetermined threshold; and Dodd-Frank’s interim final rule clarifies that the definition of “Covered Person” extends to real estate agents. This, of course, is not news to appraisers. Attempting to influence, coerce, or blacklist an appraiser to “hit the number” is illegal. Furthermore, Fannie Mae, the Federal Housing Finance Agency (FHFA), and Freddie Mac developed the Appraiser Independence Requirements 28 Working RE Winter 2021
(AIR) which provides very detailed protections for appraisers and specifically forbid a real estate agent from “selecting” appraisers—which is an obvious conflict of interest. It follows here that any lender or mortgage broker who goes along with a real estate agent and assists in blacklisting an appraiser is also breaking the law.
Several Remedies One of the main problems that appraisers face in this situation is a lack of evidence. Years ago, Working RE reported on a case where a bank official sent around an email calling the appraiser a “BUTCHER” while demanding the appraiser be blacklisted (WorkingRE. com, search “Smoking Gun Allows Appraiser to Sue over Blacklisting”). Other appraisers report actually seeing comments placed directly into the MLS, with some agents even including a clause in the listing agreement that the seller must sign which states: “Appraiser XYZ is not allowed to appraise the property.” In these cases, the bad behavior is obvious and explicit, but unfortunately gathering evidence of illegal activity isn’t always so easy. Did the real estate agent say anything to you directly, threaten you, or attempt to influence you before or after the assignment? If you have it in writing, that is even stronger evidence. Without a “smoking gun,” you can speak with the agent directly, speak with the lender, and interview other parties to gather information, but it is more difficult to fight back if you don’t have any direct evidence of being blacklisted. Here are some potential actions an appraiser who has been blacklisted by a real estate agent might consider taking: Contact the Agent and/or Managing Broker Richard Hagar, SRA, and popular appraisal education instructor, says that he has seen this happen many times to both himself and other appraisers he
knows. His recommendation is to try to be nice and educate the agent/broker at first. “In this business, you don’t want to be stepping on anyone’s toes, but you do want to explain to the agent that blacklisting an appraiser is problematic and in violation of federal law. The nicer you can be in explaining this, the better, because they are probably already pissed at you,” says Hagar. For these conversations, Hagar advises to start documenting everything and taking notes of who you talked to and when. If you don’t make any progress talking to the agent, Hagar advises going to the managing broker. “Usually the managing broker will shut it down. Take the same civil approach—be nice but list the federal laws being violated. It is illegal for agents to handpick appraisers. I’ve seen managing brokers fire agents over things like this,” Hagar reports. If the managing broker doesn’t listen, or perhaps is the offender, Hagar recommends contacting the agency’s corporate office. If the agent is working under a big brand like RE/Max or Keller Williams, you can contact their Corporate Headquarters and let them know about the bad behavior that is happening at one of their offices.
Contact the Lender and/or AMC Discussing the issue with the lender or the AMC is the next step to escalate the situation. It’s best to ask to speak to the Chief Compliance Office or the Chief Appraiser. If the appraisal assignments are going through an AMC, you can contact both the lender and the AMC. Hagar advises notifying the lender in writing. “Notify the lender that there’s been a direct attempt to influence the appraiser. Send them a letter, not an email. If you send an email, it’s easier to just delete, but a physical letter is not as easy for a bank to rip up and throw it away. A written letter carries
more importance and more weight; and if you want to add even more legitimacy, then send it Certified. It will get their attention. Mail it specifically to a senior official at the bank or AMC who oversees appraisals and/or compliance,” advises Hagar. Many states have requirements to notify the appraiser if they have been removed from a panel, so if you’ve completely stopped receiving work from a client, you can inquire if you were removed from their panel. Try to be respectful and non-accusatory while explaining the situation, but you should be clear that you believe a violation of appraiser independence has occurred and that the lender/AMC has a legal obligation to not “play along” with the real estate agent. This is a conversation you want to approach with care, especially if you are still doing work for the client in other areas, as taking an accusatory stance with a current client can harm the relationship.
File Complaints with Real Estate Commission Coercing, intimidating, and/or blacklisting appraisers are all activities that violate appraiser independence and are illegal in all 50 states. Consequently, if you decide to fight back directly, you can file a complaint against the agent/broker with your state’s Real Estate Commission. This is where you will need evidence because without it, the complaint is unlikely to stick. Working RE has reviewed several state board complaints from appraisers against real estate agents dealing with this issue (Stay tuned for follow up stories exploring them!). File Complaints with the Realtors’ Association This approach only works if the real estate agent/broker is also a Realtor®, but most active agents are Realtors®. Breaking the law and attempting to influence the appraiser is against the Realtors’ Code of Ethics and is something the
local or state Realtors’ association might investigate and “sanction” a Realtor® for. A few years ago, Sehar Siddiqui, the National Association of Realtors’ (NAR) regulatory policy representative, spoke publicly about this issue and reminded agents that it is an ethics violation to interfere with the appointment of an appraiser. NAR has publicly stated on numerous occasions that it “strongly supports the independence of appraisers and the appraisal process.” It is admittedly rare for Realtors® associations to get involved in these types of complaints, but it has happened. Furthermore, Article 15 of Realtors’ Code of Ethics states that: “Realtors shall not knowingly or recklessly make false or misleading statements about other real estate professionals, their businesses, or their business practices.” Hagar reports that he’s personally witnessed a case where an agent, who had previously been very vocal about one appraiser’s “egregious” errors, was forced to make a public retraction/clarification after the matter went before the local Realtor association.
File Complaints with GSEs, FHA, and VA Depending on the type of loan in question, appraisers can also file complaints with Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veteran Affairs (VA). Each organization has their own guidelines that protect appraiser independence. Fannie Mae, for example, encourages appraisers to call the Appraisal Complaint National Hotline (877-739-0096) or use the “Contact Us” form on the Appraiser Page on its website to report deviations from its policies. File Complaints with State and Federal Regulators If all else fails, a more nuclear option is to file complaints against the lender in question with the Federal Deposit
Insurance Corporation or the Office of the Comptroller of the Currency, and report the incident. The Appraisal Subcommittee has also built a tool called Refer My Complaint which directs to you the appropriate regulatory authorities to file complaints regarding violation of appraiser independence. (Visit WorkingRE.com/ReferMyComplaint to access the link.) In these cases, you are not filing complaints against the real estate agent directly, but against the AMC or lender involved. You can also contact your state’s banking regulator with your complaint against the lender. If an appraisal management company (AMC) is involved, you can report them to your state AMC enforcement agency. In many states this will be your local appraisal board, but AMCs are regulated by different boards/ commissions in some states, so check who regulates AMCs in your state.
Conclusion Each step of the way, Hagar advises appraisers to try to educate (and be nice) at first, whether you are dealing with an agent, managing broker, lender, or AMC. “Not everyone is aware of just how serious it is to attempt to ‘handpick’ appraisers and have real estate agents involved in the appraiser selection process. So, when you have those first conversations with the agent and your AMC/lender clients, your goal should be to inform and educate. But if they don’t change their behavior then it’s time to push back and fight back. Agents and banks will try to push appraisers around and bully them because they don’t expect the appraiser to fight back—so you’ve got to stand up and fight back when necessary,” says Hagar. WRE To learn more about how to maintain independence and fight back, check out Working RE’s webinar How to Limit Liability, Maintain Independence, & Fight Influence, presented by Richard Hagar. (Visit WorkingRE.com/influence.) Winter 2021 Working RE 29
The Effect of COVID-19 on Appraisal Volume by Danny Wiley, Senior Director of Valuation for Single-Family Credit Risk Management at Freddie Mac
Editor’s Note: This article is reprinted from Freddie Mac’s Single-Family division.
There’s
Appraisal volume to UCDP during the early months of the pandemic (March–July 2020) represents the five highest volume months to UCDP on record.
been widespread speculation about the specific effects of the COVID19 pandemic on appraisal volume. Has it been greatly affected? Are the temporary appraisal flexibilities being used? What about waivers and their impact? But the good news is that there’s no need to speculate about these questions because there’s available data to answer them. And I’d like to share the insights we’ve gotten here at Freddie Mac by analyzing that data. Over the years, Freddie Mac has routinely tracked the monthly volume of appraisal reports submitted through the Uniform Collateral Data Portal® (UCDP®). Because appraisal reports are a primary collateral risk management tool for Freddie Mac, the number of reports and the number of appraisers submitting those reports are vital to our collateral risk analysis. During that time, we’ve shared this data when we’ve presented at industry conferences and events related to appraisals or risk management. The graph below (Figure 1, page 31) is a great example of information we’ve presented recently. It shows the number of appraisal reports completed using Single-Family and condominium appraisal forms (form 70 and 465) submitted through UCDP each month since January 2012 (when we started collecting appraisals in UCDP). While UCDP submissions alone don’t account for all appraisal volume, this
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.
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data offers reliable indicators for overall appraisal volume levels.
What Does the Data Say? As you can see (Figure 1, page 31), despite the many impacts of COVID19, appraisal volume to UCDP during the early months of the pandemic (March–September 2020) represents the seven highest volume months to UCDP on record. A closer look shows that distinct appraisals submitted to UCDP have increased 53% between 2014 and 2019 (about 9% per year). Moreover, when looking at appraisal report submissions from January to September of this year, the numbers show a 40% increase in appraisal volume over the same time period in 2019. Appraisal volume to UCDP during the early months of the pandemic (March– July 2020) represents the five highest volume months to UCDP on record. The data also clearly show the seasonality in volume, year over year. Volume tends to peak in the spring and summer and decline during the winter months. That trend has continued in 2020 despite the pandemic. Another key point to note is the relatively fixed nature of the number of active appraisers (as measured by unique appraiser credentials) submitting appraisals to UCDP. While monthly appraisal volume has varied from about 200,000 to 800,000 between 2014 and 2020, the number of active appraisers has remained relatively flat—hovering just shy of 40,000 per month. This relatively fixed
Figure 1 number of appraisers supporting significant fluctuations in demand can create stress in some markets.
What Are Lenders Saying? Over the last six months, we’ve gotten reports from our clients that they’re seeing longer appraisal turn times and higher fees. This isn’t surprising considering the data above related to increased volume and the fairly static number of active appraisers. And clients have voiced concern that it will only get worse if we rely solely on the existing appraiser resource pool without making prudent alternatives available. What Role Have the COVID-19 Temporary Flexibilities Played? An example of these alternatives is the COVID-19 temporary appraisal flexibilities we’ve instituted that allow for desktop and exterior-only appraisals. The adoption and use of these flexibilities vary greatly from area to area. In locations with a higher concentration of COVID-19 cases, use of the flexibilities tends to be significantly higher—which isn’t surprising considering that they can help ease concerns around social distancing. However, in every state, the majority of appraisals during the pandemic have been completed based on the traditional interior and exterior inspection appraisals.
What Role Have Appraisal Waivers Played? In some cases, Freddie Mac uses automated collateral evaluation (ACE) to assess collateral risk rather than an appraisal report prepared by an appraiser. The use of ACE in the appropriate situations, as a sound collateral risk management tool, has contributed significantly to keeping the mortgage market moving and keeping borrowers and appraisers safe during the pandemic. The volume of appraisal submissions to UCDP over the last several months clearly shows the increased usage and continued demand for appraisals. However, the number of appraisers completing and submitting appraisal reports has remained relatively stable. This means more volume per appraiser, which generally affects appraisal turn times. The use of ACE in certain cases helps relieve some of that pressure. The use of ACE in the appropriate situations has contributed significantly to keeping the mortgage market moving and keeping borrowers and appraisers safe during the pandemic. Conclusion During the last few months, we’ve seen record high appraisal submissions to UCDP, along with the use of appraisal
waivers and COVID-19 temporary flexibilities. Despite the reasons for the current record volume, it’s our job to be prepared. We’re committed to fulfilling our mission of providing liquidity, stability and affordability to the U.S. housing market—regardless of economic conditions—to communities from coast to coast. Looking back just six months to the onset of the pandemic, there was so much uncertainty. We worked extremely hard, in collaboration with Fannie Mae and at the direction of our regulator (FHFA), to quickly stand up processes that would promote safety for all parties involved in the mortgage process, while also allowing the market to continue moving. Offering contactless and responsibly distanced options, that also allowed us to effectively manage our risk, was both timely and prudent. Ultimately, those actions helped maintain good, and safe, collateral risk evaluation in a time of heightened demand for appraisals. WRE
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Solar: The Future Is Bright by Mark Buhler, Certified Residential Appraiser at CMP Appraisals
Solar panels are becoming an issue that
appraisers are increasingly confronted with. The proliferation of solar in some markets has raised issues for homeowners, buyers, sellers, Realtors®, lenders and appraisers. Among the concerns for homeowners is the return on investment and the safety of solar panels. Realtors® are experiencing marketability issues in purchase transactions involving properties with solar. Lenders and appraisers need to determine when and how to analyze the contributory value of solar. Here is a short introduction to the state of the solar market and how it relates to appraisers and Realtors®.
If solar is owned, an appraiser is obligated to determine the contributory value of the solar, if any.
Homeowners and Solar One of the most common objections from homebuyers is the idea that solar is too expensive or that the return on investment does not make sense. In 2018, the average cost of a solar installation nationwide was between $2.57 and $3.35 per watt, depending on the market area. The average cost of a 5kW solar panel array, before the Federal Solar Tax Credit, is currently around $15,000. After factoring in the 26% tax credit, the average net cost is $11,000. Some markets have state and local incentives which may further reduce the net costs. The time required to recoup the initial investment varies depending on the amount of energy your system produces and the cost of electricity in your area.
Mark Buhler is a Certified Residential Appraiser in CA with over 25 years of experience, primarily appraising private legal uses and estate planning. Buhler has found a niche in the valuation of solar and resource-efficient, “green” homes. Buhler teaches a number of solar courses, including the “Accredited Green Appraiser” continuing education course for Franklin Energy and a new course, “Valuation Resources for Solar Photovoltaic Systems.” Mark enjoys teaching real estate professionals about appraisal matters and how they can impact your business.
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Increasing energy prices and declining cost of solar has significantly shortened the break-even term over the past 10 years. The high energy cost states such as California and Hawaii have the shortest return on investment.
Clouds, Rain, Snow, Wind and Hail Solar panels are not dependent on sunlight, merely the sun’s ultraviolet (UV) rays. A solar array will continue to generate energy when it is cloudy, but its efficiency will be reduced. UV rays and ambient light will penetrate clouds and solar panels will continue to generate electricity. This effect is similar to getting a sunburn on an overcast day. Rain and snow do not have much effect on solar panels. Solar panels heat up when generating energy. Snow will melt due to the heat and slide off due to the tilt of the installed panels. Accumulated snow will need to be removed; a snow-covered panel has no solar access and will cease to produce energy. Rain can help with the maintenance by keeping the panels clean. The threat of wind ripping the panels off the roof is minimal. Rooftop panels are securely mounted to roofing beams and high-quality solar panels can withstand high winds and heavy hail storms. Night Time Solar panels only produce electricity when they are exposed to sunlight and UV rays. Solar panels do not produce energy at night. There are two ways to combat this issue: net metering and battery storage. Net metering occurs when your solar panels produce more e lectricity than your property uses. The excess energy is fed back to the grid
and you earn credit that you can draw on when your solar panels are not producing. Think of it as an energy bank account. When you overproduce, you put energy in your bank account. When you need to draw down on your balance because the solar is not producing enough to power your property, you withdraw from your energy account. Net metering is not available in all markets because some utilities have discontinued it. With battery storage added to a solar panel system, the excess energy is stored on site instead of feeding it back to the grid. The stored energy can be used in your property at night. When the battery is full, the excess will go back to the grid. If the battery is depleted during the night, you will draw electricity from the grid. Battery storage is gaining in popularity, due to reduced costs and advances in technology.
Fires and Firefighters Solar panels can create problems for firefighters. Recent fire codes require panels to be spaced so that firefighters have access to walk between the panels and can cut holes in roofs for venting heat and smoke. Solar panels are also required to have clearly labeled shut off mechanisms to “de-electrify” the system, thus reducing the danger to firefighters. Realtors® and Solar Realtors® are beginning to experience challenges with solar. When a property with solar is listed for sale by a real estate agent, marketability issues can arise. If the solar array is leased, the agent must not only market and sell the property, but also the solar lease. The added financial burden on the buyer can price them out of the transaction. A knowledgeable real estate agent might be able to sell the benefit of solar, but often the seller ends up paying off the lease to facilitate the purchase transaction. Realtors® who are able to demonstrate the value of an owned solar array
should be able to sell a property at a premium, and likely get more listings of solar properties.
Appraisers and Solar Under what circumstances does an appraiser consider placing value on solar panels? Most appraisers know that if solar is leased, they do not have to consider the contributory value of the solar array. There are additional scenarios where they are off the hook to consider placing value on the solar. According to the Fannie Mae Selling Guide, the solar panels may NOT be included in the appraised value of the property if the solar panels are 1) leased, 2) under a Power Purchase Agreement (PPA) or 3) have a Solar Loan with a UCC-1 Filing. Under these three scenarios, most appraisers breathe a sigh of relief because they are under no obligation to determine contributory value. However, an appraiser should analyze the lease, PPA or Solar loan to determine any possible effect on the marketability of the property. If solar is owned, an appraiser is obligated to determine the contributory value of the solar, if any. Valuing Solar USPAP Standards Rule 1-1a states that an appraiser must correctly employ recognized methods and techniques to determine contributory value of any feature. There are three approaches to value: market, cost and income approaches. The valuation of solar can employ all three of the approaches to value. Paired data is the most widely recognized method. The cost approach is helpful, but I can already hear the appraiser mantra in the background, “Cost doesn’t equal value,” which is true. The income approach is a foreign approach to most residential appraisers, but income capitalization can be utilized to determine the value of an income stream. In the case of solar, the income stream is the recognized energy
savings. This can be determined with pre and post utility bill comparisons. All three of these methods are “recognized methods and techniques” that require a trained appraiser to implement. Weighing or reconciling the results of the three methods is similar to placing the most weight on a certain comparable. An appraiser may give the most weight to the income or market approach, with the cost approach lending support to the conclusion. Determining contributory value via the three approaches to value can be challenging, especially in markets where there is a lack of data.
Finding Data In many markets, MLS data regarding solar is lacking detail or accuracy. Others MLS systems have no data at all. Appraisers rely on MLS for accurate data, but often find incorrect or unreliable information in their MLS. Tax Assessor information is virtually nonexistent for solar data. Building permits, homeowner records and solar installers are potential sources of data. The data may be scarce or unavailable, but if possible, an appraiser should consider all three approaches to value to determine if value exists for the panels. The building code in my home state of California changed in 2020 to require all new residential construction be built zero net energy (ZNE), which means the property is required to produce as much electricity as it uses. Needless to say, California appraisers are seeing an increasing number of appraisal assignments of properties with solar. Appraisers in California, and in markets where solar is prevalent, may want to take notice and prepare themselves for the challenge. There are many good books, articles, classes and webinars on this topic. If solar is prevalent in your market, and valuation of solar is an issue for you, I strongly suggest that you gain the necessary competency to tackle these assignments. Knowledge can be as powerful as the sun’s rays. WRE Winter 2021 Working RE 33
Dealing with a Subpoena by Isaac Peck, Editor
As an appraiser, you don’t have to be
Serving an appraiser with a subpoena is an approach that some attorneys use to try to get “expert witness” testimony for free.
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sued or be facing a lawsuit to find yourself on the receiving end of a subpoena— staring down a lawyer who is peppering you with questions. Appraisers are often subpoenaed in legal disputes involving third parties, usually being tied to the dispute for no other reason than having appraised a property involved in the dispute. If the appraiser is not a party to the lawsuit, then typically they are being subpoenaed for documents and/or being called as an expert witness, sometimes without pay, to testify regarding a past appraisal. As a leading provider of E&O insurance for appraisers, OREP frequently hears from appraisers who are facing a subpoena and wondering what their options are and how they should respond. Here’s what you should know about subpoenas.
Compliance and Confidentiality First, subpoenas are court orders and you must not ignore the subpoena or you will find yourself in contempt of court. Tim Andersen, MAI, MSc, USPAP instructor and CEO of TheAppraisersAdvocate.com, says that if an appraiser doesn’t want to comply with a subpoena they can try to fight it, but that requires hiring a lawyer, which can be costly and has its own challenges. “One approach is to protest the subpoena to the judge indicating that your records are private, and requesting that your records be treated as confidential and not be made part of the public record. The judge, however, will do whatever s/he chooses to do,” reports Andersen.
One question that appraisers frequently have is whether USPAP confidentiality prohibits them from sharing the appraisal or speaking about its contents. The USPAP confidentiality rule is not a privilege protecting against disclosure in court discovery. “With a subpoena, the issue of confidentiality pretty much goes out the window because a court is ordering you to provide the records and/ or discuss the matter,” says Andersen. This has been proven in federal court as well. In 2010, the United States District Court of North Carolina wrote, “The law does not afford an evidentiary privilege to professional appraisers. Moreover, the USPAP rules themselves explicitly contemplate the production of such documents to ‘third parties as may be authorized by due process of law.’” (See United States of America v. 2,091. 712 Acres of Land, et al., Defendants. No. 4:09-CV-88-BO.) In other words, you would need an overriding confidentiality issue or reason that is beyond USPAP’s confidentiality rule to convincingly argue to the judge that your appraisal, workfile, etc. is “protected” and should not be procured by the subpoena. There are, of course, other ways an appraiser might try to fight a subpoena, but the main point here is that (1) you cannot ignore a valid, court-ordered subpoena, and (2) a subpoena trumps USPAP confidentiality as it pertains to the information being requested in the subpoena. It’s important to understand, however, that USPAP confidentiality is overruled by the subpoena ONLY for the information that is the subject of the subpoena, according to David Brauner,
Senior Broker at OREP.org. “As the appraiser, you still may be responsible for confidentiality under USPAP for other appraisals and other information that is NOT the specific subject of the subpoena. So be careful not to discuss or reveal confidential information that is outside the specific scope of the subpoena,” advises Brauner.
Getting Paid Depending on the nature of the subpoena and if witness testimony is requested, the appraiser may seek to get paid for their time. Some appraisers rightly point out that their limiting conditions in the appraisal include a statement that their service “does not include testimony.” They therefore insist that the attorney pay them their hourly fee. But because the appraiser is being ordered by the court, they typically are entitled to no more than the daily witness fee. Here in California, that is $35 for the day and $0.20 per mile for mileage. Serving an appraiser with a subpoena is an approach that some attorneys use to try to get “expert witness” testimony for free. Consequently, an appraiser who is called to testify may want to present an expert witness contract to the attorney who was involved in issuing the subpoena. It is often helpful to speak to the attorney first, as this will allow you to understand why they are involving you in the case in the first place. And it might also present an opportunity for you to sell your services, if you so desire. In situations where the lawyer attempts to play hardball, retired home inspector Jerry Peck, now a construction and litigation consultant, advises appraisers to acknowledge that they wrote the report but avoid offering any opinion unless under contract as an expert witness. “Whether or not you are a party to the case, as soon as they ask ‘What do you think?’ or ‘Is that what you think?’ or any other question that leads to your offering an opinion, you are acting in the role of ‘expert’, not a ‘witness’,” says Peck.
Peck explains the difference: “If an appraiser is asked, ‘Did you do this appraisal inspection on this day, at this address?’ That is not an expert witness question. That is a question for him/her as the Records Custodian.” Peck insists that no lawyer should get more than a “Records Custodian” answer unless they are willing to sign the appraiser’s expert witness contract, which includes a retainer fee and advance payment. “A Records Custodian can only attest to things such as: ‘Yes, this is the report which was produced for the appraisal which was performed on (date) at (address) for (client’s name).’ Think of it as name, rank, and serial number only, until they retain you for further information,” Peck says. An appraiser can stop answering and get his contract out when a lawyer begins asking questions like, “Why was that your opinion?” or “Why did you think that needed to be corrected?” because the appraiser is now being treated as an expert. “Turn to the judge and bring up the fact that they are treating you as an expert witness but have refused to sign your contract. I have not heard of a judge yet who will not tell the attorney to sign the contract and get their checkbook out,” says Peck.
Coverage In terms of what appraisers can do to protect themselves when subpoenaed, Brauner advises appraisers to (1) be careful not to disclose confidential information OUTSIDE the specific scope of the subpoena, and (2) report the incident to your E&O insurance agent/company. Depending on your insurance policy, you might enjoy coverage for subpoena expenses. OREP’s flagship insurance program contains $25,000 in subpoena expense coverage which covers “expenses incurred while assisting the Insured in responding to a subpoena which the Insured first receives and reports in writing” to the insurance company. Ask your OREP agent whether
your policy includes this coverage if you have any questions. “While no one likes to receive a subpoena, it’s great for appraisers to have coverage for subpoena expenses— if it comes to that. That’s one of the added perks to OREP’s appraiser policy,” says Brauner. Ultimately, if you have any concerns about potential liability or risk arising from a subpoena, Brauner advises appraisers to reach out to their E&O insurance agent/company or engage your own legal counsel if your policy doesn’t cover it. “If you’re concerned about liability or you think there’s a risk of an error or mistake coming to light due to the subpoena, then you shouldn’t go it alone. It’s important to seek professional legal advice if you need it. Like the old saying goes, better safe than sorry,” advises Brauner. Stay safe out there! WRE
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Winter 2021 Working RE 35
Institutional Memory and Appraiser Firms by Richard Hagar, SRA
Institutional memory, having “old farts”
The problem is that most “newish” appraisers working on their own have never experienced issues like what we are dealing with today, and as a result they don’t know where to turn for answers.
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working with younger appraisers, that’s where the profit is today. Finding those who have the experience and figure out how to work with or for them to make your life easier and more profitable. Here’s why that is so. Institutional memory can be defined as a collective set of facts, concepts, experiences and knowledge held by a group of people. Wikipedia explains the concept as: Adaptations developed over time and taught to new members of the group, keeping them from encountering the same problems and having to develop a solution that already exists. In this way, organizations save time and resources that might otherwise be wasted. In our context, it might mean a veteran appraiser or appraisers helping a newbie deal with changes impacting business. Example: If everyone at an appraisal firm quit at once, the employees hired to replace them would not be able to benefit from the previous group’s collective experience. They would make many of the mistakes the group of experienced appraisers now avoid. The firm would have lost some or all of its institutional memory and would operate less efficiently. The appraisal business today is experiencing significant changes—inspection issues, new appraisal processes, conflicting certifications, and of course—fear. Appraisers are asking me on a daily basis: • “Do you have a class that teaches how to perform a drive-by or desktop appraisal?” • “Can I use a 1004 for a drive-by appraisal?” • “If the lender requires an interior inspection and I don’t want to go
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inside…..can I be forced to inspect the interior?” “The 1004 Certification states that ‘I inspected’ but if I do a desk appraisal I haven’t inspected it, now what?” “If I don’t inspect, where do I get information regarding the property’s quality and condition?” “Should I still provide a cost approach when I don’t inspect?” “Where do I get information regarding these new appraisal processes?” And dozens of other questions.
Scope of Work First, desktop and drive-by appraisals are not new. For decades Fannie Mae has had forms for these types of appraisals. For even longer the Appraisal Institute has taught classes explaining different scope of work scenarios, all of which are useful during these changing times. The problem is that most “newish” appraisers working on their own have never experienced issues like what we are dealing with today, and as a result they don’t know where to turn for answers. This is where institutional memory (experienced peers) would normally come into play. The can help apply sound appraising principals to new challenges. At the core of these questions and issues is the scope of work. Scope of work isn’t which form you use—it’s how much work you put into the appraisal process and how much information you convey to the client. What is the level of research? What information sources were used; which were not used; did you get information from the owner, agent, past appraisal, MLS, and/or county or client? How much effort did you put page 408
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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 (most states).
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 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. 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 how to handle 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 Winter 2021 Working RE 37
Industry NEWS Bill Prohibiting Discrimination on Appraisals There’s been a lot of talk recently about discrimination and appraisals, with even President-elect Joe Biden calling for tougher regulation and oversight on appraisers to combat “racial bias.” One state is considering addressing the topic directly by passing legislation that specifically addresses discrimination and property valuation. Illinois is considering a bill (HB 5862) that would modify the Real Estate License Act of 2000 and the Real Estate Appraiser Licensing Act of 2002. The bill would define discrimination as any consideration of “the actual or perceived race, color, religion, or national origin of the owner of the real estate or the residents of the geographic area in which the real estate is located when determining the market value of the real estate.” The bill would apply to any broker price opinion (BPO) or comparative market analysis (CMA) prepared by a licensed real estate agent or broker, or any appraisal or valuation prepared by an appraiser. Appraisers have been quick to respond to allegations of bias and discrimination by reminding anyone who will listen that appraisers are already bound by the Uniform Standards of Professional Appraisal Practice (USPAP) to perform assignments with: “impartiality, objectivity, and independence.” Furthermore, USPAP’s Ethics Rule states that appraisers “must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value.” The potentially worrisome aspect of the Illinois bill is that it creates a “private right of action” against any alleged violators of the bill. In other words, the consumer public would have a right to sue appraisers for any alleged discrimination under the bill. This might significantly increase appraisers’ liability
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as potentially they could be liable to both buyers and sellers if discrimination is alleged. Currently, most clients are banks—making it more difficult for buyers and sellers to bring a lawsuit against the appraiser because they have no contractual relationship with the appraiser. By creating a private right of action, the bill could allow a buyer or a seller to bring lawsuits against appraisers and other real estate professionals for the alleged discrimination. The bill also “provides for professional discipline of brokers and appraisers who engage in discrimination.” It remains to be seen if additional states will follow Illinois’ lead. Fortunately, OREP’s appraiser E&O policy provides $100,000 in coverage for appraisers for any discrimination claims. Visit OREP. org or call 888-347-5273 to learn more. WRE
The case found its way to the U.S. District Court of Appeals for the 5th District where, on October 2, 2020, the Court ruled that the FTC’s case against LREAB can proceed. The result is that the dispute between FTC and LREAB is likely to be concluding soon. Industry observers expect the FTC to issue a “cease and desist” order stipulating that LREAB overreached by attempting to regulate C&R fees. This is a case that other appraiser boards are no doubt paying attention to since it speaks to the state appraisal boards’ authority to regulate AMCs, especially as it relates to appraisal fees. This is a developing story. WRE
Anti-Trust Update: FTC vs LREAB
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
The Louisiana Real Estate Appraisers Board (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, at least in the appraisal industry (See WorkingRE. com, search “Louisiana Makes History” and “AMC Fined Over C&R Fees”).In 2017, the Federal Trade Commission (FTC) filed a complaint against LREAB alleging that the Board is 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?”). The case has been progressing at a snail’s pace since 2017, with LREAB invoking 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.
Good News: Mold Coverage for Appraisers Now Included with E&O
2021 APPRAISER FEE SURVEY
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
Blast Orders: AMC Fined Appraisers have long decried the “lowbid” email-blast-appraisal-orderingsystem as bad for the profession and in violation of state and federal regulations. This type of appraisal order is shot-gunned by an AMC to a large number of appraisers at once with a low-ball fee, with the first appraiser willing to accept the low fee typically getting the assignment. This chooses the appraiser based on price, not competency. Recently, Consolidated Analytics, Inc., a California based AMC, was fined $3,000 for violating Utah’s Administrative Rule R162-2e-306, which specifically addresses “Offering an Appraisal Assignment and Communicating with Two or More Appraisers About a Potential Assignment.” Consolidated Analytics agreed to pay a $3,000 fine and admitted that it “broadcast an appraisal assignment to 58 independent contractor appraisers and then awarded the assignment to an appraiser without waiting the required 120 minutes or until each appraiser had responded to the offering.” WRE
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, 2019 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
If You’re NOT Saying Something Like This to Your Insurance Agent, You’re probably NOT with OREP!
for the speedy service. You guys are top notch! —Scott H.
Apply Now in 5 Minutes or less at OREP.org! (Also, Enjoy 14 Hours Free CE)
Serving appraisers for over 19 years Over 100,000 policies issued… Today, Stronger than Ever. 888-347-5273 • info@orep.org CA Insurance License #0K99465 Winter 2021 Working RE 39
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into confirming information and adjustments? Did you measure the building or rely on the county or third-party? Did you sit on your tush in the office or personally inspect—from inside or the nearest street? All of these, and many other questions and explanations, are part of your scope of work. What did you do to produce a credible report? The form you use to convey information to your client is a minor part of this process. More important is—what does your Certification state that you did? And did you really do what is in the Certification? I strongly suggest you carefully read the Certification in the current 1004 appraisal and FNMA’s new Certification designed for the level of inspection we are using today. Taking a class that explains the scope of work process and other topical issues is vital to every appraiser. It is a way to achieve “institutional memory” that you may have missed.
Over the last decade or so, the prominence of AMCs has caused many appraisal firms to splinter into oneperson shops. With AMCs taking their cut—often half—there often isn’t enough left for an appraiser to share with a “firm.” But many of the appraisers going out on their own have not developed much institutional memory. Appraisers keep more of their fee by going solo, yes. But newer appraisers, and most AMCs, don’t have the experience or institutional memory to navigate the issues we are all facing today. So, at the end of the day, the quest to avoid splitting a fee has caused some appraisers to operate less efficiently and less profitably.
running the business and C) doing the business (providing appraisals). Each of these segments requires separate job skills, focus and time… lots of time. If you are tracking the money or obtaining new clients, you are not researching, inspecting and writing appraisals. Bouncing between three different business segments reduces efficiency and profit. This is hard for a solo appraiser. The advantage of working in a larger office, with a mix of experienced and inexperienced appraisers, is that the experienced appraisers or office managers can provide the institutional memories necessary to handle the situations we are facing—whereas many AMCs cannot. Seasoned appraisers should have the answers that allow lessexperienced appraisers to quickly adapt and profit in the crazy business cycle we are in. You can enjoy the benefits of institutional memory, reduce/shift your workload and grab a bigger share of appraisal assignments from clients who are willing to pay the highest fees. Figure out how to work in a larger office or alternatively, how several independent appraisers can work in the same space (once social distancing restrictions are lifted). Figure out how to share expenses associated with office rent, file storage, bookkeeper, accounts payable & collections, payroll, software, a professional receptionist, phone systems, construction cost services, and most importantly, knowledge about the good clients and the bad clients with a history of under or slow paying. Even if you run your one-person shop out of a shared space, there will be others around who you can ask questions to and learn from. Sharing experiences is the path toward greater learning, adaptability, and profit.
Appraising Business
Two suggestions
The business of appraising is much more than simply filling out an appraisal form, there is: A) advertising and obtaining the business—marketing B)
How about rotating management between three partners; each month one of the owners is “the boss” running the office and helping the other appraisers.
The Solo Appraiser
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Because the “boss of the month” is completing fewer appraisals, they are paid five to 10 percent of the total business income month. Next month another owner is selected to run the office. As an alternative, maybe each owner runs a different segment of the business based on their strengths: A) marketing B) managing C) reviewing D) bank appraisals E) complex appraisals. There are dozens of different versions of this that could be employed. Figure out which business path works best for you and how to divide the workload, increase institutional memory and profits. In my office I’ve been through several downturns and learned to provide a wide range of appraisal products with different scopes of work. We learned to adapt and overcome. Once lenders started asking us for drive-by appraisals I already had, with a little tweaking, we had the Certifications necessary for the appraisal services our clients were asking for. We already knew that the cost approach would be included in the appraisal (desk, drive-by, or inspection), and most importantly, that our appraisal fee would be equal to, if not higher than a “normal” 1004 type of appraisal. Providing a drive-by appraisal still requires support for the adjustments, researching the current market and reliance on information from others, all of which must be explained in the appraisal. The fees we are being offered today are $900+ for a “typical” 1004 appraisal on a “standard” home. Why? Because while other appraisers have to search for answers or tell their clients “no” or “I won’t/can’t do that,” we adapted and were able to tell our clients in many cases—yes we can and here’s how. Wouldn’t that feel good? Lenders are desperate for someone to competently appraise properties for their loans and those with institutional memory can provide solutions. Prepare yourself so you can fill the need. WRE