Portland Area Real Estate Appraisal Discussion

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. 

1. Most states require that AMCs obtain licenses. In Oregon, appraisers can go to the AMC Database put out by the Appraiser Certification and Licensure Board (ACLB) to see if the AMC has a license in good standing. Appraisers can also call the appropriate state AMC regulator for information that might not be available online. You worked too hard for your license to work for someone who is not licensed.
2. Ask the AMC if they have ever been investigated by any state AMC regulators or if they have been involved in any lawsuits related to appraisal management. If so, ask them to explain the outcome of the investigation.
3. Obtain the AMC’s list of base or minimum fees paid for common appraisal products in your area. If starting fees are not acceptable, then you do not need to waste your time moving forward with the AMC screening process.
4. Inquire how many days before appraisers can expect to be paid following completion of the appraisal report. Remember money in 15 days is much more valuable than money in 90 days, especially in terms of business operation. Don’t work for AMCs that fund their growth on loans from independent appraisers unless you are compensated appropriately for risk and interest on credit.
5. Request copies of the AMC’s liability insurance and find out what that insurance covers. Would it cover a vendor appraiser who accidentally caused property damage at a subject property?
6. Determine if there are any fees associated with delivery of appraisals to the AMC’s online portal. Many AMCs offset the cost of their technology through delivery fees to appraisers. If the AMC has a “technology fee” don’t worry, you can add this to the price of your appraisal along with the appropriate third-party outsourcing markup.
7. Google the AMC’s name and see what comes up. This might seem obvious, but some AMCs have been in the news for lawsuits related to unfavorable treatment of appraisers. You do not want to waste your time vetting an AMC that has a bad reputation. Even if no lawsuits come up, a quick Google search could result in a feel for the company and let you know if this is a company you want to work for. Remember that homeowners might think you work for this AMC when you show up to do the appraisal. Is this a company that you are okay with if homeowners get confused and think you work for them?
8. Go to national online appraiser Forums like 100% Real Estate Appraisers or I am a Real Estate Appraiser or a local appraiser forum like Portland’s NW Appraiser Forum and search the group for threads about that AMC. If you don’t find a thread, put one out there like, “Anyone ever worked with AnytownAMC? Was it a good experience? Did they pay you fairly and quickly?” You might be surprised how much you find out.
9. Ask for references from other appraisers who have worked with the AMC recently. You can interview those appraisers and ask if they have been treated well. Just remember that the appraisers on the reference list are more likely to speak positively about the AMC.
10. Request that the AMC obtains a business credit report through your favorite business credit reporting company. Reports cost between $30 and $100, but you can ask the AMC to pay for this expense in exchange for your consideration with being on their roster of appraisers. Doing business with an AMC that has poor credit could cost you big. Several years ago, I had to send several threatening letters to one AMC and book flights to visit them before getting paid. Soon after I was paid, the AMC went out of business. I found out through social media that other appraisers had been stiffed by that same company.
11. Obtain temporary access to the AMC’s online appraisal delivery portal. If the AMC has a poor online ordering system, then working for them might be a headache.
12. Review the AMC’s policy on appraiser performance scoring. Suppose that you only accepted more complex assignments (those that tend to raise more quality control red flags and take longer to complete) but you always complete the project on time. Will your performance score look inferior to another appraiser who only accepts easy assignments?
13. Determine if the AMC (not Fannie Mae, we already know what they do with appraisal data) is collecting data from the appraisals they manage and if so, will that data ever be sold?
14. Inquire about AMC’s quality control staff. Questions might include how many quality control staff members are licensed appraisers and if their performance is in any way judged by or linked to how many revisions are obtained from appraisers. Often the best AMCs to work with have a well-trained quality control staff who can act as a firewall between appraiser and the lender. (Lenders don’t always recognize a well-supported and reasonable appraisal that was produced despite limited data. An experienced AMC review department can be an ally.)
15. Ask for a copies of the AMC standard engagement and independent contractor agreements. The appraiser can skim the contracts for non-customary appraisal requirements such as, required interior closet photos on all appraisals. Ask your attorney to review the agreements. It is likely that the AMC engagement agreement moves too much liability from the AMC to the appraiser (you would do the same if your lawyer wrote the contract), so it is important for appraisers and their attorneys to amend the AMC engagement agreement to bring the liability back into balance or avoid working with some AMCs. Amending these long engagements can be costly, but do not forget that such costs will be billed back to the AMC in the form of higher fees.
16. Review documentation concerning the AMC’s request for value reconsideration process. It is likely that if you appraise for an AMC long enough, someone will dispute your value opinion. It is important to know in advance if the AMC has a fair process for value reconsideration, or one that puts undue burden on the appraiser.
17. Check the AMC’s data protection policy and ask what steps have been taken to keep your private information safe. Also ask if the AMC has ever had any data breaches and if so, determine what systems have been put into place to ensure that data breaches do not happen again. Does the AMC have a policy that requires them to alert appraisers if they believe a data breach was possible?

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,

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.

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 we can to assist you.

Thanks for reading,

A Quality Appraisal, LLC specializes in appraisals for non-lending or private parties (divorce, estate, presale, etc.), but we receive emails and phone calls almost every day from Portland area homeowners wanting to price or order an appraisal to use for home refinancing or other lending purposes.  Some of these callers just want to know what we charge to compare with the lender’s good-faith estimate and to make sure that they are not being overcharged.  In these cases, we are always happy to provide a quote. 

Other callers want to order their own appraisal before refinancing.  I explain to such callers that lenders typically have their own networks for ordering appraisals and that the caller will need to check with the lender before proceeding with an appraisal from our company.  There are two reasons for lenders stipulating who and where your appraisal is ordered.

1.  After the recent mortgage crisis, rules adopted that made it mandatory for government-sponsored loans like Fannie Mae and Freddie Mac to ensure stricter appraiser independence.  (For instance, no pressure is permitted for appraisers to meet a number.)  Prior to these new requirements, it was common for appraisers to receive calls from loan professionals asking if the appraiser could perform an appraisal on a particular property at or above a particular value.  Some lenders would incentivize the appraiser by saying, “We will send you lots of work if you can get this done for us.”  I received such calls almost daily prior to the mortgage crisis, and some appraisers got themselves into trouble by accepting these offers. 

Now, lenders are required to ensure that appraisals are ordered and paid for by people who do not benefit from the appraisal value (This includes homeowners and lenders.).  If a homeowner provides an appraisal to the lender that the homeowner ordered, the lender cannot ensure regulators that the homeowner has not influenced the appraiser.  The easiest way for a bank to confirm compliance is by outsourcing appraisal orders with an Appraisal Management Company (AMC).  The AMC locates and engages the appraiser, provides instructions to the appraiser, usually checks the appraisal for quality, pays the appraiser, and delivers the appraisal report to the lender without any direct communication between the lender and the appraiser.

2.  Lenders typically have proprietary requirements regarding appraisal development and reporting.  Homeowners ordering an appraisal likely do not have the specific instructions required by the lender for the appraisal.  This could also apply to private lenders who may “portfolio the loan” or do not plan to sell the mortgage on the secondary market.  If the lender orders the appraisal through normal channels, the lender can make sure that the correct guidelines are provided to the appraiser.

Have I left 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,

Real estate appraisers are responsible for protecting public trust by producing credible appraisal reports. Users of appraisal reports, like banks and appraisal management companies (AMCs), also have a role in protecting public trust. Consequently, those entities should select only the most qualified appraisers to perform an appraisal.

What if we lived in a world where home appraisers were not selected based on their experience in the geographic area, property type specialties, and quality of work? What if home appraisal orders were sent out simultaneously to large groups of appraisers in bulk emails, with the first to login and accept the job receiving it? What if this were done out of the view of the public, who rely on accurate appraisals? Such a practice would award the largest volume of appraisals to those who quickly accept the work with no relationship to their skills as an appraiser. This would be like the winner of Jeopardy being based solely on the ability to click the buzzer first.

If all appraisals were assigned from AMCs using broadcast, would we start to see logos like this one popping up on appraiser advertisements? This logo suggests that the most important trait an appraiser has is the ability to accept an assignment quickly. I think appraisers should be judged on traits like quality and experience.

The practice of broadcasting appraisal orders is already the process used by many of the largest AMCs. The companies that assign jobs this way tend to be the lowest paying appraisal clients. The best appraisers tend to be able to get work elsewhere, thru other more respectable clients, and this leaves the less established or less experienced appraisers waiting by their computers and fighting over “fast finger” jobs.

If this practice reduces appraisal quality, then why do many AMCs choose to do business this way? AMCs are regulated; they are an industry that grew as a way to increase public trust in appraisals by separating biased lender parties from the appraiser assigning process. The reason AMCs choose to broadcast orders this way is simply time and money. If an appraisal assignment is sent to only one appraiser (who has plenty of work) at a lower than average fee, that appraiser is likely to decline the job, which costs the AMC time to look for another appraiser and the possibility of needing to increase the fee. However, if that same low fee appraisal is sent to many appraisers simultaneously, someone is bound to need the work and accept it. The AMC benefits by getting the job assigned quickly at the lowest price possible. Who can blame them? However, low price and speed might seem reasonable for something other than appraisals, which function as an important safety device that helps to support the financial system.

The AMCs who broadcast appraisal orders defend the process by saying that all of the appraisers on their panel are carefully screened and the reports are carefully checked for quality. The AMCs also argue that if they have 50 appraisers who are all equally qualified for one appraisal, then it is reasonable to offer the job to all appraisers and to look for the lowest price. In the short term, these AMC arguments may be somewhat true. AMCs do not recognize that the practice is slowly pushing out the best appraisers thru natural selection. In reality, there are rarely a large number of appraisers who are equally qualified for any one job.

I understand that in business, as well as nature, it is survival of the fittest. However, when the natural environment is out of balance, the hungry bears come looking for food. Broadcast ordering AMCs are feeding the hungry bears. I believe that AMCs need to spend more time grading appraisers on quality (something that requires highly trained individuals and not just automated systems or list checkers), tracking appraiser activity and experience by location and property type, and assigning fairly priced appraisals to the best appraisers, rather than just feeding the hungriest. Lenders should also do their part by rejecting AMCs who broadcast appraisal orders. Doing so is more costly, but the result is stronger appraisals, more efficient mortgage closings, fewer loan buybacks, and increased public trust.

The next time you apply for a home loan, do you want your appraisal assigned to the appraiser who likely has difficulty finding work elsewhere and who does business through broadcast order AMCs, or an appraiser with a successful practice including a diverse clientele of satisfied customers who likely does not do business with broadcast AMCs? The trouble is, if you’re just a borrower on the loan, it could be difficult to find the answer to this question. Your lender may not even know how your appraiser was selected.

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, OR area residential real estate appraisal services for any reason, please contact us. We will do everything possible to assist you.

Thanks for reading,