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Posts Tagged ‘Appraisal Process’

More Fog Around The Lighthouse As Battle Of The Press Releases Runs Aground

November 28, 2005 | 12:01 am |

In last week’s post Cutting Through The Fog: Dependency On Proprietary Standards Is Not Good For Business [Soapbox], I referred to the strange press release from ACI actually announcing they did not renew their agreement with several vendors.

Apparently and Day One have released their own press release explaining their side of the story [Appraisal Buzz]. The press release headline “Accelerated adoption of MISMO & AI Ready standards makes Lighthouse format increasingly outdated” says it all and further indicated that ACI’s move would only affect 5% of the 40,000 appraisers that use their service.

This back and forth positioning between these vendors seems to drive home the point that proprietary formats for collaberation or exchange of data is not good for our industry because it makes all of particularly vulnerable to the health or strategy of the licensor. An industry open source format is the better way.

Can you imagine the commercial appraisal world without Microsoft Office? It can be unstable, buggy, expensive to upgrade and annoying to use at times but there are limited alternatives, primarily because both the user and the vendor must use the same software or have a working translator. Competitors were crushed a long time ago.

I am not happy with a business world without competition in software. Innovations and improvements wane over time. We all lose.

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Cutting Through The Fog: Dependency On Proprietary Standards Is Not Good For Business

November 22, 2005 | 1:14 pm |

Today I received a press release ACI Does Not Renew Lighthouseâ„¢ Agreement with Appraisal.comâ„¢ [AppraisalBuzz] that announce the termination of the licensing agreement for its Lighthouse product for use with, Day One and Nova users. ACI will provide upgrades for those users to switch to ACI products.

It is curious why this announcement was done as a press release. That seems to be unprecedented.

Its not apparent why this limitation would be trumpeted to the appraisal community unless is was done to sell more upgrades. However, this is only speculation. I don’t know the reasons for the decision besides those publicly stated as being in the best interests of ACI users.

If true, the strategy is quite logical. If Lighthouse was the standard for electronic data transfer for the appraisal industry over the past 7 years as the release says, then it could be advantageous to pull the plug on competitors and peripheral companies as the industry begins to rely exclusively on it and there are few alternatives. Users are forced (or urged with discounts and deadlines) to quickly switchover. One alternative to this prprietary format is the PDF format which is associated with Adobe. Most lenders accept this format and have developed OCR applications to cull key pieces of data from the documents. However, with PDF, the raw data does not stream to the client (which they can use to analyze and give to other appraisers).

I remember when appraisal software began to ramp up 15-20 years ago, some lenders would opt to go with a proprietary format and the appraiser would be forced to use it or lose the client. Appraisers were often running two or three software packages simultaneously. We would decline working for a lender because we did not want to run a particular software package. It seemed to me that the line was crossed when a lender would force me to run a type of software for their convenience since I had many other clients that used different packages. Kinda like, Are you a “Ford” truck owner or a “Chevy” truck owner.

Products like Lighthouse came out and made this practice obsolete but as time has passed, history may be repeating itself as it remains one of the few methods of EDI delivery of appraisal reports.

This situation brings to mind the problems with over-dependence on proprietary formats:

  • They require ongoing licensing fees
  • Vendors are subject to the whims of the licensor
  • Users are eventually afforded fewer market alternatives
  • Industries depend on the health of the company that is the primary licensor

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Forcing Appraisers To Be Something They Aren’t, May Cost The Consumer

November 21, 2005 | 10:46 pm |

The new appraisal forms mandated by Fannie Mae effective November 1 will likely cause an increase in appraisal fees [MCall] because they will take longer to fill out and place much more liability on the appraiser for expertise he or she generally doesn’t have.

When Fannie Mae redesigned the forms, the appraiser’s role took on the that of a home inspector which is a different discipline that appraisers are not trained for.

The problem is the new forms are written in such a way that they hold the appraiser responsible for the condition of the property, says Barbara Decker-Spence, an appraiser in Allentown, who has led seminars on the changes for area real estate agents, lenders and appraisers.

”I am an appraiser. I am not a home inspectorand there’s a big difference,” she explains. ”Appraisers value the economic interests [while] home inspectors look at: Does the electrical system work? Does the plumbing work? Does the mechanical system work and are there structural issues?”

If report preparation takes longer and additional liabilities are being placed on the appraiser’s shoulders, it would then follow that the cost of doing business is higher. Appraisers in many markets could be expected to pass along the cost to their clients.

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New Forms Expected To Cause Dishonest Appraisers To Change Their Ways

November 21, 2005 | 9:53 am |

There has been a lot made of the new forms released by Fannie Mae. The idea was to make the forms for different housing types similar and therefore easier to complete and review. The new forms require more detail (read between the lines: higher appraisal fees) for their completion.

“We expect these forms will result in more accurate and fully supported appraisals,” [Rutlan Herald] said Joseph L. Minnich, spokesman for Fannie Mae, the nation’s largest mortgage buyer.

Don’t get me wrong. I am a big advocate for full disclosure on appraisal forms. This was a big effort by Fannie Mae and I appreciate that effort. However, providing these new forms for primarily this reason strikes me as naive, indicating they do not fully understand the problems that exist or there is another reason altogether for their implementation.

I suspect its a little of both. Dishonest appraisers or those who “play ball,” will simply keep doing what they have been doing…there is simply more on the form to fill out (and who says it has to be filled out correctly?). Fannie Mae has been under tremendous heat for questionable accounting practices and perhaps this is another way to show they are good citizens. Also, since the housing market has been rising so rapidly, they need to position themselves for litigation against faulty appraisals should the market correct sharply.

The language of the several page limiting condition is written poorly – poor grammar that is – and the language of the disclaimers is written so broadly enough that it doesn’t protect the appraisers and basically paints a bullseye on all of our backs. Lawyers need very specific language in disclaimers to feel comfortable, not generalities. Canned responses can’t address all issues around the country.

Also, why were the new forms made so they can not be used for other purposes? I realize this is not their obligation. However, these forms were the universal standard that everyone knew and trusted. They worked great for non-lending work. I predict that most software vendors will not likely to continue supporting them in the not to distant future.

There will be other forms developed, such as the Appraisal Institute’s version and others but I suspect most will require licensing by software vendors and there will not be one that is unversially adopted like Fannie Mae’s was.

The new forms are definitely a step in the right direction, but a very small step that provides a false comfort against fraud. I would expect very little change in the current status quo.

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Appraisal Pressure Applied By Unwitting Clerical Staff: Appraisers Are Seen As Snails

November 18, 2005 | 10:51 pm |

Today we got an email from a client contact that read:

From: ############
Date: November 17, 2005
Subject: RE: Status

why does it take your office  1- 1 1/2 weeks to write up a report!?

This email was sent by an appraisal management company, who took over a long standing account that handles high end properties. They have been mandated to use our firm. Of course, you have to remember that we provide our service in a market where 80% of the housing stock is not a matter of public record, and we have no MLS system. To my knowlege this AMC does not review quality (or at least substantively) and simply track their vendors by turn times.

Its an ongoing battle with this client and eventually, the original bank’s loyalty, which has protected us from the AMC’s pressure, will fade as time passes since the original client doesn’t interact with us directly anymore.

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Certification #23: Intended User Clarified, Lawyers May Still Sharpen Their Pencils

November 17, 2005 | 9:14 am |

Fannie Mae clarifies certification #23 on the new forms put into effect on November 1st [Appraisal Institute]

“Addressing concerns of appraisers over the ‘intended user’ elements of its latest Uniform Residential Appraisal Report, Fannie Mae has issued a clarifying statement, based in part on input received from the Appraisal Institute. Mark Simpson, Fannie Mae’s director of property standards said, ‘Recognizing that there may be confusion in the appraisal community about the distinction between parties who use’ and parties who rely on appraisal reports,’ Fannie Mae has developed the following additional notice or statement that it will accept when the appraiser believes the Lender/Client is the only Intended User:”

The Intended User of this appraisal report is the Lender/Client. The Intended Use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated Scope of Work, purpose of the appraisal, reporting requirements of this appraisal report form, and Definition of Market Value. No additional Intended Users are identified by the appraiser.

Fannie Mae will not accept other versions of this disclaimer. Their position is that there is nothing wrong with Certification #23 but has admitted there has been a lot of confusion over the matter.

This has been controversial since the new forms were released [Working RE]. They are attempting to make the appraiser more accountable for the quality of the report and this is one of the ways FNMA thinks this will get the job done.

Before the fix, the appraiser was definitely facing unfair liability, however, with this fix, I feel more comfortable with its fairness.

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Are We Or Aren’t We?

November 16, 2005 | 11:08 am |

I’ve been an appraiser for more than twenty years, and I still don’t know: Am I a professional?

According to Wikipedia:

There is no standard definition of a modern professionalBeyond the classical examples (lawyers, doctors, etc.) there are many groups that claim status as a profession, and many who would dispute that status. For example, school teachers often refer to their occupation as a profession, even though it is not exclusive (people teach others outside of the traditional school environment), nor is entrance competitive, nor are they self-regulating (laypeople in state legislatures or on boards of education typically set the rules for and regulate teachers)

In order to be a professional, there needs to be a specialized body of knowledge and there needs to be self-regulation. While steps have certainly been made in this direction, state licensing laws regulate the extent of the education required and there is no central regulatory body. (The AQB of the Appraisal Foundation relegates this function to each state.)

Membership in certain appraisal organizations vary from paying a fee to satisfying a rigorous program of education and experience. And yet, members in either organization may call himself (herself) an “appraiser.”

Given the confusion and the wide range of skills held by those calling themselves “appraisers”, the public view of appraisers is also quite varied. I maintain that if we act like professionals and hold ourselves to a higher standard, then we’ll be viewed by the public as professionals.

That means that in rendering a professional estimate of market value, we must add value to the process (no pun intended) and do more than blindly take 3 comps from the file and conclude to the mid-range. We’ll leave that to the guys who got their appraisal membership by sending in boxtops.

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Regulators Lip Service On Loan Standards Goes Unheeded: Now Its Hammer Time

November 15, 2005 | 9:40 am |

Federal regulators have been warning lenders for months about home mortgage underwriting standards but little has changed [American Banker] According to a survey by the Federal Reserve, only 5 in 60 banks have made changes. This seems out of step with the tone of the guidance on home equity lending, AGENCIES ISSUE CREDIT-RISK MANAGEMENT GUIDANCE FOR HOME-EQUITY LENDING [pdf pg. 7], which was issued by the Fed, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the National Credit Union Administration.

By most accounts, fierce competition, coupled with banks’ general comfort with the practices, has kept the industry from changing its product offerings or lending criteria much.

“Regulators said in the guidance that, along with rising interest rates, there were several other issues that warrant extra caution: interest-only features; loosening documentation standards; weaker loan-to-value ratios, debt-to-income ratios, and credit scores; and the increased use of brokers and automated appraisals…Agency heads’ speeches have grown more ominous, and bank executives report a recent uptick in questions from examiners and written warnings of coming scrutiny.

However, regulators say they are making progress and are concerned about moving too quickly for fear of causing a credit crunch, but are concerned about unsafe lending practices.”

Web Master’s Note: As a matter of record, there is no real wall between the sales function and the underwriting function of many, if not most national lenders. In other words, the structure of lenders today is flawed related to matters of collateral assessment. Perhaps this movement by regulators is the proverbial “light at the end of the tunnel.” There is still hope that good appraisers will be able to continue working whether or not they “play ball.”

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In The Trenches: Appraisal Inspection Stories

November 11, 2005 | 10:18 pm | Favorites |

The New York Times approached our firm to provide some “war stories” about unusual property inspections. No names, just experiences. We had a bunch of fun jogging our memories. However, the writer decided to present the story from the perspective of real estate brokers [NYT] which was a fun read so I thought I would make my own fun and share a few stories from my staff and myself with you:

Michael J. Grassi

  1. It was mid February and I was doing an inspection of a home. It was a very frigid day and I asked the owner if I could see in the garage. He was not all that happy about my request. I told him it was part of doing a complete inspection and he reluctantly opened the door. I came to find that there were two people living in the garage with no running water or heat. They were staying warm by using a Weber kettle grill and charcoal. They had cut a hole in the roof for a vent. Not ideal living conditions even by New York standards.

  2. While doing an inspection in Jamaica, Queens I asked the owner if I could go down to the basement and if I would disturb anyone. No was the reply by the owner. I went down into the dark basement with only minimal light from a window. When, I reached the bottom step, I heard a growl and saw a massive head with two large orange eyes. As I slowly backed up the stairs heart pounding, sweat dripping, I got to the top step and asked what that was down in the basement. Oh!! the owner said casually, you mean our watch dog. This dog was a 180+ lb. Rottweiler, who looked very under fed. Thanks for the warning I said.

  3. During an inspection of a multi-family dwelling I came across a most unusual sound. As I moved into the basement I noticed a foul smell which was pungent but not overwhelming. While in the basement I heard what sounded like a distant toilet flush from above. As I stood listening, I heard what amounted to the sound of a waterfall getting closer with a splash at the end. Apparently, there was a large hole in the sewer pipe and the waste water was dumping right into the basement, not ideal. The landlord who was with me was mortified. I needed a shower and shoe cleaning after that inspection.

Lea Freund

I was appraising a museum and the summer intern took me around the place. I think it was in the fall and I decided to leave my jacket, bag and cell phone in her office. Just as we stepped out onto the roof, the door closed behind us and locked. . . We did find a set of stairs that led down to an enclosed alley, and the doors on each floor were locked. Finally, we got to the ground level and we started banging on the door quite loudly. It took a while, but security opened the door and said they were completely frightened by the noise.

Dina Miller

I went to an inspection, the maid let me in. The husband had made the appointment. Both husband and wife were at work. The apartment was spotless and in beautiful condition. The wife calls the housekeeper by phone and asks to speak with me. Her first words are “Get the HELL out of my apartment. The maid hasn’t finished cleaning and its a mess”. I explained to her the apartment really looked fine and her husband had made the appointment. She said we’ll see about that…Then I had to conference call with the husband and the wife who continued to rant that I need to get out, her apartment wasn’t clean. When I hung up the maid said “You know she has a daughter. The daughter is just like her. You want some wine?”

Andrew L. Rogers

I went into an apt in Harlem. there were cages for large dogs, but no dogs and cats all over the place. the maid was there and said she didn’t know where the kittens were. we went down to the basement and in one room that was littered with debris there were flies buzzing all about, we assumed that the kittens were dead underneath the rubble.

Jonathan J. Miller

  1. I met a couple on a very large property inspection that stayed with me (very much in my personal space) for the entire inspection, yet both screamed strong insults and innuendos at each other for the hour I was there while I kept saying “perhaps I should come back at a later time” or “please, I am having a hard time concentrating” hoping they would leave or stop, but they would both say “oh no take your time” seemingly oblivious of what they were doing to each other (and me). I called my wife after the inspection and told her I loved her.

  2. I was given the keys to an apartment. When I opened the door, the apartment was completely dark. I thought I saw someone sitting on the couch so I called out “Hello”, but no answer. I finally found the light switch and saw a nude woman out of the corner of my eye in the mirror looking at me. I was startled but then realized it was a female mannequin propped up on the couch. I continued with the inspection, and was startled by yet another mannequin standing behind a door in a dark bedroom. I was definitely creeped out. When I called the homeowner later for info, I mentioned this to him and he laughed and told me their names as if they were real people.

  3. At the end of the day, I had to inspect an apartment for an estate. The property seemed to be lived in with dishes in the sink, magazines strewn about. The apartment was very large and didn’t have a lot of natural light. It was getting dark and as I worked my way toward the rear of the apartment, I began to hear two men speaking very softly from the back of the apartment. I called out and the talking stopped for a few seconds. Then it continued. I became very uncomfortable and felt a chill down my spine. I called out again with the same result. I finally arrived at the rear of the apartment and found a small radio playing on the floor of a closed closet door. I finished up and got the heck out of there.

  4. As a broker was taking me in to inspect a condo unit in a relatively nice building in Chinatown, he mentioned to me in passing “this apartment needs a little work.” He opened the door and the cigarette smoke was so thick, I could not see across the room. I literally had to duck down to see where I was going. It was a studio (one room) apartment and 6 chain smoking brothers were living there after their mother had died (it had been her apartment). There were about a half dozen cages with live chickens and all the walls were smeared with their mother’s feces as she had suffered from some psychological problems before she had died. Needless to say I didn’t touch anything and got outside as soon as I could.

Got any of your own stories? Share ’em!

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Association of Appraiser Regulatory Officials Drafts A Resolution

November 8, 2005 | 11:27 pm |

The association had serious issues with the certifications on the new Fannie Mae 1004 forms and within the other forms developed at the same time concerning the intended use and intended users [PDF]. They drafted a resolution on October 10, 2005 to Fannie Mae:

“And whereas serious concerns were raised that the new Fannie Mae Form 1004 certification #23, and similar certifications in other recently revised forms, are potentially misleading and contradictory without supplemental clarification;

And whereas the Appraisal Standards Board (ASB) has provided guidance through its July 2005 Q&A and the ASB provided further confirming clarification at the AARO 2005 annual fall meeting;

And whereas State appraisal regulatory agencies are charged with enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP) that requires appraisers to clearly and accurately identify intended use and intended user(s);

And whereas the above referenced Fannie Mae forms, as currently written, can be viewed to identify persons that “may rely” on appraisal reports beyond those identified in the forms as intended users;

Now therefore let it be resolved that the member jurisdictions of AARO wish to reiterate that regardless of Fannie Mae’s position that “modifications or deletions to the certifications are not permitted,” it is the appraiser’s responsibility to comply with USPAP. Therefore, appraisers must provide supplemental clarification in their appraisal reports regarding specifically who the intended users are.

WE, THE UNDERSIGNED, by unanimous vote of the attached list of AARO member jurisdictions, call upon Fannie Mae to address this issue, recognize the potential problem the matter creates for the real property appraiser regulatory officials, and take immediate corrective action to resolve the item(s) listed.”

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A Taxing View Leads To A Revolt

October 31, 2005 | 9:48 pm |

In New Hampshire, town assessors are beginning to treat view amenities as a separate line adjustment. The idea is that if a property has a value premium because to its views, it is taxed over above other properties. In some markets, the view adjustment is a separate line item [Washington Post]

The concept here is that the overall value must be accurately reflected. It appears that the view amenity was not fully accounted for and it was significant enough for the state to itemize the adjustment which was the subject of the recent complaints.

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New Fannie Mae Forms Start November 1: Its The End Of The World As We Know It

October 30, 2005 | 10:49 pm |

And I feel fine…

The new Fannie Mae forms start this Tuesday November 1. Its days like this I realize how fun it is to be an appraiser. The form is being changed for reasons I still can’t explain. In fact, nearly all the forms are being changed at the same time. Something about conforming to changes in USPAP, forcing more thorough reporting, catching flips, etc.

I am sure software vendors are thrilled, appraisers are annoyed and lenders are frustrated. I love change. I love new things. However, this could be a potential fiasco in the making.

What day does use of the form begin? I am getting all kinds of instructions on when to start using the forms from my clients. The required use of the new form should begin on November 1 based on (per my clients):

The effective date of the report? (I am going with this)
The order date of the report?
Anything you have inhouse from that point on?

Here’s a few issues to consider.

  1. Fannie Mae does not buy all the paper that is sold to the secondary market. I understand that a number of these investors may not want appraisers to use the new forms. They are under no requirement to use them.

  2. Appraisers will be using the re-sending appraisals on the new forms that have already been delivered on the old form.

  3. I took this opportunity to launch an entirely new software application we developed with the new forms in it. Training for us will be doubly hard.

  4. This has been a revenue opportunity from trade groups and individuals to sell books and promote seminars, which makes the whole conversion even more scary (when it really isn’t).

  5. Judging by how hard it was for many lenders who optically scan incoming reports when they went digital, I suspect this won’t be much better.

  6. We will be managing more forms now since Fannie Mae made sure that these new forms would not be appropriate for any other use by including a series of poorly worded, extensive liability pitching to the appraiser, limiting conditions. Rest assured, we have all been told its no big deal.

On the bright side, I suspect most appraisers will expect to be compensated for the additional work and frustration. The new forms require more information and add more liability, some of it unrealistic, in addition to the cost of new software upgrades.

At the end of the day, we will all survive and get the reports out the door, perhaps late and incorrectly, but we will figure it out as we go on our own.

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