Welcome to 2012 (USPAP)

An even numbered new year means a new edition of USPAP.  I know every appraiser sleeps with a copy of USPAP under their pillow and has read the 2012-2013 edition so many times their copy is already worn out.  Even so,  I thought I would bullet point the major changes:

• Revised definitions: Client, Extraordinary Assumption, Hypothetical Condition.  The definition of Exposure Time was moved from Statement 6 into the Definition Sections.
• A new rule: Record Keeping is now a full blown Rule
• Exposure Time (associated with market value) must now be reported.
• Revised disclosure requirement:  Disclose whether you have or have not performed any services with regard to the subject property within the 3 years proceeding the effective date.
• Standards for Personal Property Appraisal (Standards 7 & 8) have been significantly updated.
• Advisory Opinion 21 USPAP Compliance has been revised to help us understand when USPAP does and does not apply.

See you in the 7 hour USPAP update class!

Appraiser - Friend or Foe

Are you of the opinion that appraisers are killing deals and keeping the housing market in the dumps?

Many real estate agents, builders and lenders seem to think this.  This belief betrays a misunderstanding about what appraisers do.  Does the appraiser determine the value of the property?

If you said "yes" then you are among the misinformed.  It is the market that determines the value.  Appraisers simply report what the market has already decided.  If you disagree with a value conclusion and wish to dispute it, remember one simple thing.

Data is King!

The value is coming in low because that is what the data supports.  If you feel the value is unjustifiably low, provide the appraiser relevant, meaningful data that suggests otherwise.  Many real estate professionals have the belief they are not allowed to interact with the appraiser.  This is false.  You can be involved in the appraisal process as a data source.  Appraisers welcome any and all useful information you can provide.  

Treat the appraiser as an ally rather than an adversary and I guarantee you will see positive results.

Something other than bank clients.

Looking for something other than bank work?  Give your local real estate attorney a call.  Litigation assignments are often much more interesting and challenging...and not to mention they pay much better.

Recognize that big pay checks come with expectations.  Yes, the opposing attorney will try to make you look like a fool, but when the data is on your side, it's an easy argument.  The data speaks for itself.

What is the difference in fees you ask?  I'm happy to share.

I recently worked on a single-family residential property that, for mortgage lending purposes, would have commanded a fee of around $400.  However, for the condemnation intended use, the fee was over $9,000.  Not only was the client happy to pay the fee, I got a hug from the property owner for my efforts.

Home Loan Modification Are Causing Foreclosures

Though the intent of home loan modifications is honorable, it is clear the system is broken.  Obama's making home affordable program was intended to help homeowner's avoid foreclosure. You can read about how the program was intended to work at makinghomeaffordable.gov. 

If you decide to go for a loan modification.  Here is one piece of advice:  Somewhere along the process the lender will allow you to make a lower monthly payment while your application is being processed.  DON'T DO IT!  Keep paying your original amount unit you are actually approved.   Why you ask?  Isn't a lower payment the whole point?

Here is the reality,  it is highly unlikely you will get approved.  As many sources have pointed out, very few homeowner's are getting approval.  Like I said the system is broken.  So here is what is happening to many people attempting loan modification.  

They make application.  They are told they can make a lower payment while their application is being processed.  The lenders will take several months processing the application.  The lender will likely have a never ending list of needed paper work, that they will  say they never received.  The lender will then deny the application on the grounds the homeowner never provided the needed paperwork in spite of the homeowner sending in the documentation two, three or even four times.

And guess what, since the application was denied, the difference between the original mortgage payment and the lower payment the lender told you to make while your application was in process is now treated as LATE PAYMENTS.  Since your application took 6 months to process (and be denied), you are now 6 months behind on your mortgage payment.   So if you can not come up with the cash to get current on your mortage (and chances are you don't since that is why you were applying for the modification in the first place) the lender now starts foreclosure proceedings.

So the program that was intended to help keep your home is actually causing you to lose it.

The New Interagency Appraisal & Evaluation Guidelines

On December 2nd, the final Interagency Appraisal & Evaluation Guidelines were published.  These represent the basic appraisal requirements when working for a federally regulated lending institution.  The last set of guidelines were published in 1992 and only a few pages addressed appraisal requirements.  This time around the guidelines are 70 pages and address everything from maintaining appraiser independence, appraiser selection, use of AVMs and BPO as well as requirements for reviewers.

A couple things of interest from the new guidelines:

BPOs can not be used as the primary basis for making a lending decision.
AVMs can not be used as the primary basis for making a lending decision.
Reviewers are expected to have sufficient eduction, experience and knowledge about appraisal methodology.
The appraiser independence requirements found in the HVCC are now part of the new guidelines.
Restricted use reports are generally not sufficient for supporting a lending decision.

The new guidelines can be found on the FDIC website at http://www.fdic.gov/news/news/press/2010/pr10261a.pdf

What makes you an appraiser?

The most common answer is holding a license or certification, but that would be the wrong answer.  Notice that USPAP says nothing about licensing. 

The main reason for being licensed is so that you can work for banks.  Granted banks are a large client base, but they are just a part of the appraisal universe, and frankly as far as clients go, they typically do not pay very well.

Believe me when I say there are clients that will pay 5 and 6 digits for your work, but it is not your license or certification they care about.  It is your knowledge and skills they pay for.   So what it is that makes you an appraiser?

Knowing the answer to this question will help you understand the opportunities that few appraisers realize. 

Back to the future.

As we all know the HVCC has expired.  Some appraisers thought the good old days of working for mortgage brokers and loan originators would soon return.  That is not going to happen.  

The rules to protect appraiser independence are here to stay.  After the Dodd–Frank Wall Street Reform and Consumer Protection Act included the provisions of the HVCC, to no great surprise Fannie Mae has also implemented major portions of the HVCC in its policies.   On October 15, Fannie Mae released SEL-2010-14 which describes their appraiser independence policies.


In a nut shell Fannie Mae's policy is that:


1. All members of the lender's production staff;

2. Any person who is compensated on a commission basis upon the successful completion of a Mortgage; and

3. Any person whose immediate supervisor is not independent of the lender production staff and process.

 Are prohibited from:


1.  Selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved or forbidden to perform appraisals for the lender and

2. Having any substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment.


For good or bad, the new appraisal business model of working for third parties such as AMCs or for bank appraisal departments is here to stay.

Cost data at a fraction of the price

If you are looking for way to trim expenses, might I suggest the National Building Cost Manual published by Craftsman Books.  A friend and fellow appraiser brought this source to my attention and I thought I would try it out.  It comes in both book and software format.

I compared it to Marshall & Swift and liked what I found.  Granted Craftsman's data is categorized a little differently and they have a little different idea of what constitutes "average quality", "good quality" etc.  But when I matched up an example cost estimate as best I could, Craftsman's result was within a few percentage points of Marshall & Swift.

And here is the best part.  It is roughly one-tenth the cost.  I spent a total of $53 on both the book and software.  Compared to over $500 for my Marshall & Swift annual subscription.  Plus the book included not only residential, but many commercial, industrial and retail improvements.

Now it is not as exhaustively detailed as M&S, but for simple RCN calculations it appears it could be a real good, and less expensive alternative.

Customary and Reasonable Fees

Is a new day dawning for residential appraisers that work for appraisal management agencies (AMCs)?

 If you read the newly enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) that answer is YES.  We have all been hearing about the new law that requires AMCs to pay appraisers "customary and reasonable" fees.  So when should we be expecting a pay raise?  October 19, 2010 is the big day.

Talk about teeth.  Lenders and AMC that continue to pay appraisers "slave wages" after this date can be fined $10,000 to $20,000 PER DAY.

So who gets to decide what is "customary and reasonable."  We do (the appraisers).  And the kicker is that fees paid by known AMCs are excluded from setting the standard.  Now there are other agencies that get to have a say as well (The V.A. as an example) but AMCs do not.

The Appraisal Institute recently published a FAQ which provides some good insight.

I personally will be keeping a keen eye on how AMCs will be responding over the next few weeks.  They are no doubt going to try to find a loop hole.  But if we can now expect to get "full fees" from AMCs, I will probably start responding to their e-mails and phone calls.

Fannie Mae Announcement

Fannie Mae released some updates to Section B4 of its Selling Guide that change your everyday appraisal process.  You will want to read SEL-2010-09 in detail.

Here is a brief summary:


1.  Interior photos are now required when doing an interior inspection (effective 9/1/2010)


2.  Calculating the Months of Housing Supply on the 1004MC has been clarified.  You now use the Total # of Active Listings as of the last day for the given 3 month time frame. (Not the total cumulative number of properties listed during the entire three month time frame.)  They prefer this method in order to  provide a more precise depiction of housing supply on the effective date of the report.  (effective 9/1/2010)


3.  Use of foreclosed or short sale homes as comparables require the appraiser to analyze the motivations of the parties involved as well as the the physical condition of the comparable to determine whether there is an adjustment needed.  In many neighborhoods, bank related sales sell for a discount compared to owner-occupied sales and may need an upwards adjustment.  Here in the Minneapolis area bank related sales often sell for 20% to 30% less than traditional sales.


4.  Fannie Mae provides a reminder that seller concessions as well as the inclusion of personal property continue to be a source of over-valuation and need to be addressed by the appraiser.