Due to the shortage of appraisers in Portland, Oregon (and other places around the country), appraisers are bombarded with requests from Appraisal Management Companies (AMCs) requesting that they fill out mountains of forms; provide copies of identification, licenses, and insurance; submit to background checks, provide examples of work; and apply to be on the AMC’s roster of appraisers. So how do appraisers know if the AMC will be a trusted client? How do appraisers know if the AMC will treat them fairly? Will appraisers be confident that private information will be safe? The AMCs vet appraisers, but do appraisers screen AMCs? Perhaps appraisers need to scrutinize AMCs just as diligently before doing business with them. Here is a list of seventeen things appraisers could do before signing up on that next AMC roster.
I hope that you find this list helpful even though it is written partly in jest. My goal is to elicit thought and discussion about the imbalance of power and liability in our industry as it relates to appraisals done for AMCs and lenders. Remember that if an AMC fails in parts of your vetting process, the appraiser could charge a complex client fee to account for the shortcomings. If you missed my interview with The Appraiser Coach Dustin Harris, about my blog and how our business focuses on non-lender (non-AMC) type appraisal work, Click Here.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event. We will do everything possible to assist you.
Thanks for reading,
Two weeks ago we added another vehicle to the A Quality Appraisal fleet. Three of our four associates now drive company cars. This one was purchased for appraiser Lucas Warren. (Yes, we do hope to make it four for four in the future.) As the photo above shows, the new vehicle carries the AQA logo, just as the others do. Many appraisers ask, “Does putting logos on your appraiser cars attract any additional business?”
We did not choose to put the company logo on our appraisal cars to increase business; although over five years we can identify about five jobs attributable to the vehicle graphics. This has been from people either approaching our vehicle or calling us after we drive by. These additional jobs do cover the cost of the graphics, but they are not justification for the expense.
We use company vehicles because we want to show our employees that they are valued. Also, using company cars helps to elevate our professionalism above that of our competition, who usually drive a personal vehicle. A client who sees us pull up in the driveway is put at ease knowing that the professional who will soon be walking through their home is working for a legitimate company and not just a fly-by-night operation. This is especially important given that our business relies on non-lender clients. Referrals are the lifeblood of our company; professionalism and identity are vital for return business.
An additional benefit of having logos on our cars occurs when we survey comparable sales by viewing them from street and by taking photos. Homeowners and neighbors often get nervous when a strange car pulls up outside and the driver begins taking pictures. With a company vehicle, the logos tell the homeowner that we are appraisers. That is often enough to put people at ease. Other times, homeowners will see the phone number and call to ask what our suspicious-looking activity is. In those cases, I usually tell the caller that we are not real estate appraisers, but private detectives hired to conduct surveillance on their neighbor and that we will need their help in our undercover sting operation. — Just kidding.
At a Portland appraisal home viewing last week, the owner had two little dogs that would not stop barking as a result of my visit. Each time the dogs barked, the owner gave them a small treat. The barking would stop for a moment, but then the dogs would start again and so would the treat process. The owner was inadvertently rewarding wrongful behavior, thereby perpetuating the process. This made me think, unintentional reward of improper behavior is something that also happens regularly in appraisals contracted by mortgage financing, lending, and appraisal management companies (AMCs).
Home appraisals for lenders or AMCs typically pass through several layers of quality review. Often, the examinations involve a checklist of things that generally characterize a well-supported or lower risk appraisal opinion. Rightfully so, lenders want to know that the appraisal can be confidently used for evaluating collateral and avoid the dreaded forced loan buyback. If a lender’s checklist items are missing, the appraisal becomes flagged as higher risk and often goes back to the appraiser multiple times for additional clarification, comments, or comparable data. Appraisers with fewer red flag issues will often be rewarded with more work, first choice of assignments, and fewer requests for revision or clarification.
Appraisers can usually receive more work and fewer revision requests from lenders simply by working harder, explaining issues, and supporting adjustments. However, often appraisers who work longer hours (for the same pay per assignment) will still receive red flags because the reports are not read thoroughly by the client or because the properties are complex with few comparable sales data. Some appraisers learn quickly that there are shortcuts to receiving more work and fewer clarification requests.
Real estate appraisers are highly trained and regulated professionals who are required by law to be independent, unbiased, and to not mislead. Most appraisers work very hard to maintain high ethical standards. However, an incentive based system exists in residential finance that rewards appraisers who mislead by making an appraisal look stronger than actual. From experience I know that this happens all the time. Here are some ways that appraisers may mislead a lender’s quality checker into thinking an appraisal value opinion is stronger than it is.
1. Recent and close proximity comparable sales make an appraisal look strong, but the most recent and closest comparable sales are sometimes not the strongest nor most like the subject (particularly on a unique property). An appraiser looking to reduce questions from a lender might use recent and close sales over the most similar sales.
2. Fewer and smaller comparable sale adjustments can make an appraisal look stronger than it is. For example, an appraiser might take a comparable sale that requires a large positive adjustment for living space but a large negative adjustment for view and just make a smaller adjustment for each. In this case, the indicated value will be the same, but the comparable sale looks really strong to a reviewer because it has few adjustments. (Here is an article that explains more about how appraisers can use different adjustments and come to the same value conclusion.) Fannie Mae, the nation’s largest buyer of loans, has recognized small adjustments as an appraisal issue and is fighting back with big data and automated review of appraisals. Click this link to read a Fannie Mae announcement that explains more and shows evidence that the majority of appraisers were adjusting too low for gross living area (GLA). Also, view a video here showing how an appraiser might support a GLA adjustment that is not artificially low.
3. Omitting or downplaying issues like a busy road or a necessary repair can reduce red flags. If an appraiser can conceal an issue or convince a lender that it is not a big deal, then the report will likely receive less scrutiny unless the deception is uncovered. This is a particularly dangerous tactic that can cause an appraiser to be sued or placed in serious trouble with their licensing agency.
The takeaway from this is that appraisers who work for lenders are often conditioned, sometimes unknowingly, into softly misleading practice that is only uncovered with more thorough appraisal review processes. Here are my recommendations for lenders and AMCs to avoid encouraging misleading appraisals.
1. Lenders and AMCs should be very careful to select and hire the best appraisers.
2. Lenders and AMCs should make sure that appraisers are paid a sufficient fee so that they are able to take the time necessary to do the assignment correctly without cutting corners.
3. Lenders and AMCs should judge appraisers using well trained individuals and make sure that appraiser grading and subsequent job assignment is not tied to appraisal red flags, something that might also relate to property complexity, not just appraisal quality.
Here are my recommendations for appraisers who do work for lenders.
1. Appraisers should be cautious about working with the type of lenders and AMCs who regularly reject well documented and explained appraisal reports just because the subject properties are unique.
2. Appraisers should be extremely careful not to compromise their work quality just to avoid the headache that often comes when appraisers tell it like it is.
3. Appraisers should seek out working for clients that have well trained appraisal review departments. In my experience, these tend to be the smaller local or regional banks and credit unions; not the nationwide lenders.
If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event. We will do everything we can to assist you.
Happy Fourth of July real estate appraisers and others who follow my blog. I am excited to take a day off to spend time with my family, enjoy a big slab of watermelon, watch some fireworks, and celebrate our country’s independence. On this Independence Day though, I am also celebrating my appraiser independence. No, I’m not talking about the independence from pressure to reach a specific value, which is often referred to as “appraiser independence”. I mean that in 2015 I have not accepted an appraisal order from a single appraisal management company (AMC) or conventional lender.
Why would I exclude myself from by far the largest segment of the appraisal market? Previously I was happy appraising for AMCs and lenders. I had good clients who paid full fees, who had reasonable turn-time requests, and who did not hassle me too much.
Don’t get me wrong, as we still have an appraiser in our office who does work for AMCs and other lenders. He has a select group of clients that he likes, they like him, and we are all happy with that. The following are my personal reasons (experiences may vary) that made me decide to focus my work only on private party (non-lender) appraisals for clients like divorces, estates, pre listings, pre purchase, and litigation.
The number one reason to celebrate independence from lenders and AMCs is because they take business management away from the appraisal company. If I receive an appraisal order from a lender or AMC in a part of Portland that another appraiser in my office is headed to or is more experienced in, I typically cannot simply trade jobs with that appraiser for increased efficiency.
Many AMCs and lenders have long lists of requirements for the appraiser to address that are intended to limit the liability of the lender, but often take the appraiser’s focus off what is most important – appraising. AMCs and lenders will often send pages and pages of instructions with each assignment for appraisers to read. The problem is that the instructions are usually just repeating USPAP, Fannie Mae, or FHA rules with a few “lender-specific” requirements mixed in for the appraiser to hunt down. If the appraiser happens to miss any lender-specific directives, like take photos of smoke alarms, the appraisal report is returned for revision immediately after delivery.
Much of AMC and lender work is all about fee and turn-time. We receive a constant stream of phone calls and emails every day asking, “What is your fee and turn-time for this property.” The AMCs and lenders almost never ask, “What is your experience with this property type or market area?” something that non-lender clients ask regularly.
The system of AMC and lender work can often seem stacked against appraisers who work the hardest. Doing a good job can mean working more and making less money. For example, an appraiser who recognizes how unique a property is (be it condition, features, or location), and reconciles toward the end of the value range is likely to be questioned more regardless of how much explaining and analysis is done. The questioning occurs understandably because the data is not as strong as it would be if the subject’s value falls in the middle of the range.
AMC and lender work is more cyclical than non-lender work. Lender and AMC work peaks when interest rates are low, when loans are being made, and when homes are selling. Non-lender work tends to be less cyclical because such work is driven more by continuous life events.
AMC and lender work typically means waiting from a few weeks to a few months for payment. My company usually pays its employees sooner than AMCs and lenders pay us, which can be hard on the cash flow of a small business. With non-lender work, we are paid prior to the delivery of each report.
AMC and lender work can feel less personal. Appraisals for lenders are just that, for the lender only. Appraisers cannot talk to the homeowners about value opinions. With lender appraisals, the homeowner is often left with resentment toward the appraiser when the value opinion is not as hoped. With non-lender appraisals, I usually discuss the conclusion with the client. In the end, even if the client does not agree with me or is upset by my conclusion, they usually respect or understand my professional opinion.
I just finished a typical appraisal in Portland, Oregon that, on the surface, should have been an easy assignment. However, it turned out to be difficult because after data verification of six comparable sales selected, four turned out to have major errors in the multiple listing service (MLS) data as they relate to living space. Three of the comparables had to be rejected and replaced with stronger comparable sales data. Here are the four comparables and the major living space errors that I found.
Example Comparable Sale 1 was listed in the RMLS as having an above grade living area of 1,536 sf. The agent indicated that the source was the tax record. When I checked the tax record, the main floor is 836 sf and the finished attic is 300 sf. This comparable sale was quite comparable to the subject property at 1,536 sf but at 1,136 sf it was not very comparable and had to be replaced with another property.
Example Comparable Sale 2 was listed in the RMLS as having 1,627 sf of above grade living area with no upper level. The agent indicated the source was the tax record. Clearly, the photos show an upper area and the tax records show 1,218 sf of finished attic in addition to the 1,627 sf main area. This sale was reasonably comparable to the subject at 1,627 sf, but at 2,845 sf it is not very comparable. Consequently, it had to be replaced with another more comparable sale.
Example Comparable Sale 3 was listed in the RMLS as having 2,100 sf of above grade living area. The agent indicated the source was the tax record. I checked the tax record and found the main was recorded as 1,200 sf and the finished attic as 696 sf. This property actually became more comparable at 1,896 sf and thus remained in the appraisal.
Example Active Listing 1 was listed in the RMLS as having an above grade living area of 1,436 sf. The agent indicated the source of information was the “trio,” which is essentially tax records. When I checked the tax record, the main is shown as 836 sf and the finished attic is 300 sf, or just 1,136 sf of above grade living area. It appears that the agent had looked at the tax record and took the total as the main area and then added in the attic to result in the 1,436 sf. This listing was quite comparable at 1,436 sf to the subject, but at 1,136 sf, the property was not very comparable and had to be replaced.
At the data verification step of the appraisal process, the appraisal should be almost complete, and now due to errors in a fundamentally important set of data points, the appraiser is forced to go back to an earlier step of finding and photographing new comparable sales. This process of sifting and verifying inaccurate data is something that appraisers and real estate professionals everywhere have to deal with, not just appraisers in Portland, Oregon.
Data errors are also common throughout Portland real estate listing data. It would be helpful to the health of the real estate industry if there were a process for verifying MLS data prior to (or soon after) a real estate agent posts the listing. Just imagine if you were the buyer of the Example Comparable Sale 1 and you thought that you contracted to purchase a 1,536 sf home but the appraiser found it was only 1,136 sf. This could result in a low opinion of value and a renegotiation of the sales price. If the contract price is still supported by the comparable sales data, the buyers might never find out that the home they purchased is actually much smaller than they thought (since the appraiser is typically hired by the lender for sales transactions and buyers usually do not read the appraisal report).
Each listing of Portland’s RMLS (Regional Multiple Listing Service) has a “Report Issue” button for subscribers to report data errors. However, given the number of errors or misleading information that our appraisers find regularly in MLS data, I believe this process is deficient. Additionally, an MLS employee remotely editing listing information does not provide a complete picture to real estate professionals who need reliable data. If a house was inaccurately marketed as 1,536 sf to unsuspecting buyers, that could be important information for the appraiser to understand later when making comparisons.
A better solution would be a private forum at the bottom of every listing for RMLS subscribers as shown above. Instead of every appraiser, agent, or other real estate professional calling or emailing the agents and asking questions, there could just be a chat window similar to comments on Facebook. Each appraiser could ask questions about the transaction or the data and receive answers from the agents involved. If one appraiser already asked a question about a data discrepancy or if there is something that the agent cannot disclose, the next appraiser could simply read the previous comments and would not need to ask that question again. This simple change to the RMLS would reduce many failed sales, reduce time spent by agents responding to questions, reduce time spent by appraisers asking questions, reduce agent liability, strengthen the ability for real estate professions to value real estate, and improve the confidence of all market participants thru transparency.
If you find this information interesting or useful, please subscribe to my blog. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote. We will do everything possible to assist you.