Appraiser Participation: Voicing Change…

In March of this year, I spoke at the Valuation Expo in Orlando. The general topic of my presentation centered on professionalism within the appraisal industry and how individuals can take steps to stand out and rise above the difficulties we see. As a fee appraiser for many years and having recently moved into a compliance manager and review position, I have seen both sides of the struggle to achieve professionalism and excellence in day-to-day appraisal work.

As I closed my talk at the Expo, I shared with the conference the good news that, after years of prohibiting trainees from signing appraisal reports, the Colorado Division of Real Estate had issued guidance on finally allowing trainees to sign as the “appraiser”; the Division’s guidance aligned very well with Fannie Mae’s recent reminder that the GSE has allowed trainees to sign reports for years. My point in the talk was not to boast (although I was overjoyed!) that Colorado trainees and supervisors now had more flexibility in managing their appraisal firms from a training perspective. Rather, my point in sharing the good news was that years of actions by me and other individuals, groups, and companies had finally brought about important CHANGE in our state, which was a main premise of my talk.

As I’ve written before, the Power Of One (one person taking action) is a formidable force – especially when coupled with many other individuals taking action towards the same end. During the question period after my talk, the following day at the conference, and in the months since, appraisers have asked me “What can I do to make necessary changes in my state?” So, let me reiterate several of the main points I presented in March:

Every state is different. Some states’ policies may stem from the law itself, in which case the solution would likely require legislative changes. In other states, the problem may be related to the rules that the real estate division or board have adopted; changes to rules can take time, but are often simpler than changing laws. As I told one participant from the podium, “There is no 10-step process that works in every state to bring change.” Remember, whatever steps are needed to alter your state’s rules or laws will not take days or weeks, but likely months and years.

Reach out to organizations. State coalitions, the National Association of Appraisers, the Appraisal Institute, and other appraiser organizations may have local chapters and contacts who can shed more light on the issue and help to direct your efforts for maximum effectiveness. In my case, the NAA contacted appraisers, management companies, and lenders who wrote letters and emails explaining the need for trainees to participate more fully in the appraisal industry in Colorado; when I approached the State, I was able to share these documents to show it was not simply one appraiser who was concerned about the issue, but rather the larger industry. I owe a big Thank You to the NAA!

Attend state Board meetings. Don’t expect someone else to tell the Appraiser Board or the real estate division that there is a problem. Call, email, and visit the state yourself. In my case, I called and emailed the Board and Division numerous times over a period of over a year, before being encouraged to attend a Board meeting at which time productive discussion took place, including future steps for the state. At one point in the process, I found out about a Board meeting at the last minute, so joined by phone – but only after pulling off the interstate and parking in a hotel parking lot (I was driving to an appraisal appointment at the time). Bottom line, commit at least some time to getting personally involved, and get to know the employees and Board members in your state.

Join a professional organization. Ask fellow appraisers about their experiences with specific appraiser organizations. Costs of membership vary from one organization to another, so research the cost. Contact the local, regional, and national leaders of the organization or coalition. Determine what the organization has done to affect the appraisal industry positively. Truly, supporting appraiser groups ensures that appraisers’ interests are being bolstered behind the scenes on a continuing basis, even as you go about your daily work.

Ask questions and network. As you attend conferences and other events – whether locally, regionally, or nationally – get to know people. Seek out your state regulators and Board members, long-time experienced appraisers, representatives from agencies and the GSEs, current and former Board members, individuals who participate in appraisal organizations, and other knowledgeable participants in related industries such as bankers, real estate agents, and lenders. Who better to hear the rationale behind current policies than many of the people on the front lines? Communication with others – and encouraging the continued distribution of accurate information – helps to strengthen you and your peers’ knowledge base.

I was certainly not the only person responsible for “victory” in allowing trainees to sign reports in Colorado. However, it was through the steps above that I ensured my years-long activities were united with many other individuals’ and organizations’ efforts to bring about the change our state needed. As I shared at the Valuation Expo: “If you want a voice, you need to make sure you’re saying something. So… what are you saying?”

Joshua Walitt, SRA, MNAA is the Compliance Manager for Property Interlink, an appraisal firm and management company. He oversees procedures, training, licensing, audit, appraiser independence, and review functions. He is currently a Director on the Board for the National Association of Appraisers (www.naappraisers.org). Prior to joining Property Interlink, he provided fee appraisal and consultation services to lenders, attorneys, management companies, and private parties. In 2013, he was the appraiser member of Colorado’s AMC Rulemaking Taskforce. Walitt designed the Market Machine in 2015, a market analysis and regression modeling tool used by appraisers throughout the U.S.. He also provides valuation consulting for international applications. He writes for industry publications, designs and presents education courses, served as a valuation hearing officer, and speaks at regional, national, and client conferences. Contact: linkedin.com/in/joshuawalitt

AMC Appraisal Fees and Disclosure- Joshua Walitt

The proposed AMC Rules from the Agencies are out in draft form. Coalitions, industry organizations, and groups of appraisers are examining these and other Rules. There is discussion amongst appraiser groups and other industry participants like never before. It’s a great time to make your voice heard and to hear what others have to say!

When I helped put together a petition to the CFPB a few weeks ago (related to correcting the Customary and Reasonable Fee Rules which allows circumventing the intent of Dodd-Frank), I never imagined the amount of responses I would receive. With so much change going on in the industry, I encourage every appraiser to be involved:

What is your Appraiser Coalition doing?
How can you be involved in the local chapters of AI and other appraisal organizations?
Have you read your State’s Appraiser and AMC rules?
Have you read the Appraiser Independence rules established by CFPB, HUD, the Agencies, and other entities?
Who do you contact if you have questions regarding State laws and rules?
Have you contacted the CFPB regarding enforcement of Appraiser Independence or Customary and Reasonable Fees?
Have you completed any and all available fee surveys related to establishing your area’s typical (aka Customary and Reasonable) fees?
When was the last time you met with other appraisers in your area?
Have you signed and shared the Petition to the CFPB?
Are you part of online discussion groups that are positive and share useful information?

Obviously, we all need time to do our work, but issues related to our independence and our fees are part of the foundation of that work itself, so we need to make time to be engaged in the industry discussion. My talk at Valuation Expo this June will touch on related fee issues, with the overall topic being compliance-related issues and their practical applications to our everyday work.

One argument against the Rule-based solution is the assumption that consumers, in the end, really don’t care how much an appraiser is paid. (So is this really a consumer issue? the argument goes.) While consumers may not care about an appraiser’s paycheck per se, let’s not fool ourselves: consumers do care 1) how much they are paying, and 2) what they are paying for. I would argue that consumers DO care how much the appraiser is receiving – since it may differ from what they are charged on the settlement sheet (which may reflect a higher fee than is necessary).

If a loan settlement document shows the consumer is being charged $600 for the Appraisal Fee, I think that consumer would find it surprising – and confusing – to learn the appraiser was actually paid $300 (this is an illustration). Even real estate agents and loan officers tell me they are confused over this issue: Why does the appraisal report say the fee is $300, but the borrower is being charged $600?

The CFPB allows lenders to separate the two fees on the settlement document. But in situations where the lender chooses to comingle the fees on the settlement document, the consumer may not realize they are being required to pay an AMC fee – which is an optional service.

To help alleviate this confusion, many states now require appraisers to post their fees in the reports. HUD also gives this authority to the appraiser for FHA appraisals. (Some AMCs expect the appraiser to post the breakdown of fees within the body of the report.) I have posted my fee in appraisal reports for years.

But be sure to include a disclosure explaining why the Appraisal Fee on settlement documents may differ from the fee you’ve typed in your report, so there is a clear explanation of any “additional” or “different” fees. Take a look at a sample here.

In the end, Appraiser Independence and Fee issues are complex and there is no easy one-route solution. We must proceed with caution.

My two points today:

CFPB Rules related to C & R Fees do not allow for any real enforcement of Dodd-Frank, and need correction.
Post the Appraiser Fee in the body of the appraisal report with a clear and understandable explanation to avoid consumers misundertanding settlement documents.

Take a look at the Petition, and please sign and share it. But don’t stop there: Know your industry, Get involved, Take action.

Josh Walitt

Originally published at appraisalbuzz.com .

Agencies Issue Proposed Rule on Minimum Requirements for Appraisal Management Companies

Six agencies released a Joint Release “Agencies Issue Proposed Rule on Minimum Requirements for Appraisal Management Companies”. The release, and its attached Proposed Rule, list five AMC requirements that participating States must enforce, as well as six broad powers the States must have related to monitoring, disciplining, and reporting.

The Joint Release also points out to States that participation is not mandatory; non-participation by a State would bar appraisal management companies from doing business in that State related to federally-related transactions.

Read the Joint Release and the Proposed Rule. The Proposed Rule contains instructions for comment.

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WASHINGTON— Six agencies today issued a proposed rule that would implement minimum requirements for state registration and supervision of appraisal management companies (AMCs). An AMC is an entity that serves as an intermediary between appraisers and lenders and provides appraisal management services.

In accordance with section 1124 of Title XI of the Financial Institution Reform, Recovery, and Enforcement Act of 1989, as added by section 1473 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the minimum requirements in the proposed rule would apply to states that elect to establish an appraiser certifying and licensing agency with the authority to register and supervise AMCs.

The proposed rule would not compel a state to establish an AMC registration and supervision program, and there is no penalty imposed on a state that does not establish a regulatory structure for AMCs. However, an AMC is barred by section 1124 from providing appraisal management services for federally related transactions in a state that has not established such a regulatory structure.

Under the proposed rule, participating states would require that an AMC:
Register in the state and be subject to its supervision;
Use only state-certified or licensed appraisers for federally related transactions, such as real estate-related financial transactions overseen by a federal financial institution regulatory agency that require appraiser services;

Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice;
Ensure selection of a competent and independent appraiser; and
Establish and comply with processes and controls reasonably designed to ensure that appraisals comply with the appraisal independence standards established under the Truth in Lending Act.

The proposed rule also would require that the certifying and licensing agency of a participating state have certain authorities, including the authority to:

Approve or deny initial AMC registration applications and applications for renewals;
Examine the AMC and require the AMC to submit relevant information to the state;
Verify that the appraisers on the AMC’s appraiser network or panel hold valid state certifications or licenses;

Conduct investigations of AMCs to assess potential violations of appraisal-related laws;
Discipline an AMC that violates appraisal-related laws; and

Report an AMC’s violation of appraisal-related laws, as well as disciplinary and enforcement actions, and other pertinent information about an AMC’s operations to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council.

The proposed rule would provide participating states 36 months after its effective date to implement the minimum requirements. An AMC that is a subsidiary of a financial institution and regulated by a federal financial institution regulatory agency is required by section 1124 and the proposed rule to meet the same minimum requirements as other AMCs, although such an AMC is not required to register with a state.

In conjunction with the proposal, the Federal Deposit Insurance Corporation is proposing to rescind appraisal regulations promulgated by the former Office of Thrift Supervision (OTS). The OTS appraisal regulations are duplicative of the FDIC’s appraisal regulations in Part 323. Similarly, in a separate rulemaking, the Office of the Comptroller of the Currency is rescinding appraisal regulations promulgated by the former OTS.

The proposal is being issued jointly by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, and the National Credit Union Administration.

The Federal Register notice is attached. The agencies are seeking comments from the public on all aspects of the proposal. The public will have 60 days to review and comment on the proposal and the proposed Paperwork Reduction Act analysis. Publication of the proposal in the Federal Register is expected shortly.

Attachment: Minimum Requirements for Appraisal Management Companies – PDF
Media Contacts:
OCC Stephanie Collins (202) 649-6870
Federal Reserve Susan Stawick (202) 452-2955
FDIC Greg Hernandez (202) 898-6984
CFPB Sam Gilford (202) 435-7673
FHFA Corinne Russell (202) 649-3032
NCUA Ben Hardaway (703) 518-6333

PR-21-2014

This article was first published at FDIC.org

How to create an Appraisal Report: Following Instructions

I normally get very few revision requests, and usually for minor items. I’m not saying this to pat myself on the back, but to explain how surprised I was a few weeks ago when I received two revision requests in the same week. And they weren’t just any type of revision request: they were the dreaded “instruction” from an underwriter.

“Appraiser to include a second sale whose unadjusted sale price supports the opinion of value, and resubmit report.”

“Appraiser to remove the time adjustment from comp #3, and resubmit report. Our investor does not allow time adjustments.”

A few months back, I got another memorable instruction: “Appraiser cannot include any comps that exceed per-line, net or gross adjustment percentages of 10%, 15%, 25%. Appraiser to include different sales that do not exceed these requirements.”

I won’t go into details related to these reports, because I want to focus instead on how we can respond to these types of instructions from lenders and AMCs. (And, no, I am not a regulatory expert. I recommend taking a class or webinar on appraisal-related regulations.)

The issue at hand is that TILA, many states’ AMC rules, HUD, Interagency Guidelines, and other entities restrict this type of instruction from lenders and their agents (AMCs) because such conditions may lead to reports that are not based on the appraiser’s independent judgement (or even sound valuation principles). For example, the first request above turns the appraisal process on its head. Normally, the appraiser chooses comps based on similarities to the subject, then develops an opinion of value. Instead, the appraiser is being instructed to develop an opinion of value, then choose comp/s based on that value opinion. In the second, the appraiser is being instructed to ignore or remove a necessary adjustment. Remember learning, in your first-ever appraisal class, that you must adjust for market conditions? (By the way, in this situation, the client agreed with my data and analysis – that the market had increased – but simply didn’t “allow” adjusting an older transaction.)

So, how can we handle these instructions?

First, be polite. Don’t make insulting, belittling or threatening remarks. Simply state facts: facts related to the subject property, the comps, the market, and acceptable appraisal methodology. Consider this an opportunity to teach; whether they learn or not is in their control. If you respond negatively, don’t expect a positive outcome. Show your willingness to work through the situation compliantly and professionally.

Put it in writing. Submit your information in writing (email, fax, online messaging system), and specifically request a response in kind. This way, you can fall back on exactly what was communicated. And be sure to ask yourself how your message would look if (hypothetically) published in the newspaper or read by a regulator, a colleague or your mother?

Ask for the individual’s name and title who is making the instruction. I’m not suggesting we burn bridges by making it personal. But if they believe they are right in instructing you, let them identify themselves and be accountable. “Please provide the name and title of the individual requesting this, so I have it for my workfile” is simple and to-the-point; in the same message, let them know what action you are taking in the meantime.

Don’t be pig-headed. Are they asking you to fix a Mountain photo that you’ve labeled “Interior” instead of “View”? Is that worth arguing over? Be gracious and fix it. But on the other hand, if they are saying “Please change the label from ‘Barn’ to ‘Outbuilding’; we do not allow barns”, then that alteration could be misleading.

Keep your license. Ultimately no one other than you truly cares about your license. If a loan goes south in a few years and the a lender is examining the file, they won’t care who instructed you to do what – but they’ll surely see a misleading report, improper methodology, incorrect information, or other violations. And whose signature will be on that report?

Finally, be certain. Don’t make it up. If you’re not exactly sure of methodology, State interpretation, USPAP, TILA, etc. on a specific issue, then go to those sources before you start “quoting” incorrectly. Call your state’s division of real estate, re-read sections of USPAP, read through the applicable sections of TILA, even look at the FNMA Selling Guide. Don’t make it about how YOU appraise, make it about what is correct, reliable and credible for appraisal work.

Have you received any troublesome instructions from clients?

This article was first published in Appraisal Buzz – click here.

Paired Sales Are a Joke …

“Paired Sales are a joke” …So some folks say.

Okay, I agree that paired sales are not the be-all and end-all of adjustments, and that there are other methods for supporting adjustments, but the paired sales method really can be valuable.

Yes, paired sales are much more accurate in a textbook or in a state board’s newsletter than in an actual real-world environment. It’s wonderful if you can say “these two properties are exactly alike, except this one has a three-car garage, and that one has a two-car garage – so that means a third bay is worth $10,000”. The drawback, of course, is that it’s often difficult to find two properties similar enough (let alone, exact!) to even begin to isolate just one single characteristic for establishing adjustments. So, should we just give up on paired sales?

I think there are a few misunderstandings surrounding paired sales. Paired sales are not designed to arrive at an exact rate of adjustment to be used for each and every property you come across in each and every assignment. Simply because you calculate a $43.7982 per sq.ft. adjustment rate based on two sales doesn’t mean you’re going to use that exact rate for every assignment. Perhaps that support is only valid in a certain subdivision, or to new construction, or in a certain market area, or for certain age properties. If you determine a third garage bay is worth $15,000 for a certain segment of properties, will it also be worth $15,000 in so-called higher-end houses? Maybe, maybe not. Perhaps the $15,000 represents a percentage, not a flat dollar amount. Just like anything else, paired sales require analysis, not just calculations.

And we won’t ever find the perfect textbook example of identical-except-for-one-characteristic paired sales. But is this reason to abandon the process? Paired sales will undoubtedly require adjustments in order to isolate a single characteristic. For example, maybe one is on a larger site, but you can reasonably adjust for site size differences, and then isolate the sq.ft. rate. Or, perhaps one property has slightly different GLA, so you qualitatively know that the difference in sale prices isn’t entirely attributed to the two-versus-three bay garages, but you can still draw a conclusion regarding if and how much value a third garage bay adds still taking into account that their GLA vary slightly.

Additionally, one paired sale is not the end of the process. Over time, we should be collecting, analyzing and storing the studies so that we can develop ranges of market-supported adjustments. Maybe our data indicates a garage bay is worth between 5% and 15% of the value for a particular property type in a particular area. So, where in that range does the appropriate adjustment fall for a specific assignment? …You are the human market expert qualified to develop the reasoning to support the specific adjustment you use in a report, which will most likely be based on the range your research indicates.

Paired sales will not show an exact number or percentage. So, what do they do? What use are they? First, they establish that there is (or is not) a value contribution associated with a specific characteristic. Second, they provide a basis for the adjustments that we end up making. A basis does not mean “a number to blindly follow without thinking about it”! A basis means our adjustments are logically grounded in real analysis, and not simply pulled out of thin air.

Of course, there are other methods of supporting adjustments: regression, market interviews and similar, which can be especially helpful in rural and non-homogeneous markets. Yes, only in textbooks are paired sales perfect. But to simply write them off because they are imperfect in the real world ignores the real evidence and support they can provide.

– Let me know what your experience is!

This article was first published from here.

What is your Appraiser Coalition doing?

How can you be involved in the local chapters of AI and other appraisal organizations?

Have you read your State’s Appraiser and AMC rules?

Have you read the Appraiser Independence rules established by CFPB, HUD, the Agencies, and other entities?

Who do you contact if you have questions regarding State laws and rules?

Have you contacted the CFPB regarding enforcement of Appraiser Independence or Customary and Reasonable Fees?

Have you completed any and all available fee surveys related to establishing your area’s typical (aka Customary and Reasonable) fees?

When was the last time you met with other appraisers in your area?

Have you signed and shared the Petition to the CFPB?

Are you part of online discussion groups that are positive and share useful information?