Appraiser Independence

As we are all no doubt aware the HVCC, which (in my opinion) was simply an expedient way to force all small business owners to funnel their working relationships through newly formed appraisal management companies, has been done away with.  Its replacement Dodd-Frank Wall Street Reform and Consumer Protection Act, Enacted into Law on July 21, 2010 was put in place “as an early warning system identifying risks in firms and market activities, to enhance oversight…”

A current example of this wondrous legislation that has been put in place to save us from corruption is as follows.

I was recently requested to conduct a retrospective forensic review for an appraisal of a residential property in NE Texas. The appraisal was 3 or 4 years old, and I was instructed by the appraisal management company (a relatively new kid on the block from the North Eastern States) to make sure that I made the basic assumption that all the information about the subject’s condition was accurately reported as of the date of value since there was no way for anyone to find what may or may not have been in place 3 or 4 years ago.  My field inspection revealed the property was vacant and being managed by a company for REO purposes. So I proceeded with inspection and gained entry into the home. What I found was a home of average condition that had an addition to the rear of the property. The addition was clearly designated on the sketch of the origination appraisal and the reported described the property as containing 3 bedrooms and 2 full baths.

The report did not provide interior photos of the alleged second bathroom. A casual inspection of the home revealed the following. The original home was built on a 12-inch slab, the addition was a 4-inch slab which had not been tied to the main foundation. The roof line of the addition did match the original home, but the interior showed evidence of much structural movement. Much of the work for the addition was found to be unfinished, electrical was not to code, and the “bathroom” was not finished. There was a concrete slab with plumbing stub ins and nothing more.

A trip to the city building inspection department revealed that permits were pulled for this addition, but no inspections were made by the city and no final approval was ever issued for this addition. This unpermitted addition was addressed in the review. It was documented that the appraisal report stated one thing, and an inspection of the property revealed another, etc.

The punch line is that the management company had a “fit” because I did not simply assume the appraisal was correct and because I had made a full inspection of the property. Fortunately for the client, after several days of discussions, the management company relented and turned in the review as it was presented. The client was not harmed and no one was mislead in the process; however, the concern is that appraisers now have a whole new dimension of training that we must conduct to do our jobs.

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