Reporter, Analyst, or Consultant?

Starting out in this business, my father once told me that real estate appraisal is not merely a science but an art as well. Many people understand the science of data gathering and analysis. Some are good at reporting their findings, but few report their findings in a way that enables the user of the appraisal to understand the relevance of the information that is being presented.

As licensed objective professionals, we must make sure the information, as presented in the report,  is not only factual, but also relevant to the valuation process. Our professional obligation is to ensure that the service we provide is not misleading and will not lead the user of the report to erroneous assumptions or conclusions.

What prompted this particular soap box has been the news reports that continue to report housing trends nationwide. Many lenders have become stymied in what was once called analysis paralysis. Appraisers have been placed in a position of defending every statement that goes into their appraisals and if the news reports information about a particular marketplace that are not consistent with the data that the appraiser is presenting then the appraiser is assumed to be wrong.

My suggestion is not one that is new. I suggest that when you write an appraisal report, you write the report as if you are going to end up in court and have to defend your report before a judge. If you follow this advice, I guarantee that the instances you end up in court will be diminished by more than 98%.

The best defense is a strongly documented work file and I believe with today’s technology we can import MLS data into excel and create niffy worksheets and charts to easily document and demonstrate the market data and trend of supply and demand and the information that is relevant to the appraisal process.

Perhaps if clients were getting this information up front, they would be able to find some level of comfort with the information that is presented for their use and consideration.

Of course, as an appraisal reviewer and forensic fraud reviewer, I am painfully aware of the need for review. But if appraisal files were documented up front with public records and MLS records attached, it would limit the need for reviews on the same degree of work and we could then focus on those appraisals that are not as defensible.

See you around the water cooler!

Oh My God – – Don’t Talk to Me!!!

I was amused at a phone message that was on my voice mail recently. A realtor spent 3 minutes apologizing for the phone call, explaining that she understood she was not allowed to speak to appraisers anymore for fear she might sway the appraisal process. The funniest part was that while she did tell me which file the message was regarding, she failed to leave her phone number.

Okay. I am sorry, but has this world lost its freaking mind? Yes, there is a world out there that tries to manipulate the decisions of licensed objective professionals, like appraisers, federal regulators, financing rating agencies and the like – and as professionals we must be hyper vigilant in our efforts to objectively approach each appraisal problem in a manner that does not favor any one side – but people, at what point did having a conversation with a Realtor or a loan officer or any other person “from the dark side” constitute pressure?

Real estate appraisers have a legal responsibility to accurately report their findings of the marketplace and to offer their opinion about how the subject relates to its marketplace. This opinion must be developed in a way that is consistent with appraisal methods that would be considered “tried and true” by the majority of our professional or industry peers.

It is time that we all employ a little known technique, with regard to community relations, known as common sense. As a very good friend of mine and I joke all the time – sense has become like courtesy it is no longer common.

Take time to smile out there, ladies and gentleman, as life is too short not to have some fun.

See you around the water cooler!

Truth In Lending?

Anyone who has been in the industry for more than 10 minutes is fully aware of a little old Federal Law, commonly called Truth in Lending. This law was established in 1968 to make sure that consumers had rights and choices when it came to credit. Primarily consumer credit, but there are several provisions that specifically address real estate mortgages as well.

So what? Well, in speaking with a few REALTOR friends of mine, it came as no shock to find out that most HUD 1 closing statements do not show the appraisal fee separate from the fee that is charged by the AMC. Would consumers be concerned at all in knowing that the $450 fee they were charged for the appraisal was actually $200 (or less to the appraiser) and the rest was to the management company.

There have been a lot of discussions flying around the Internet about what is customary and reasonable for an appraisal fee, but I think this discussion is moot. Appraisers did this one to themselves by agreeing to work so very cheaply in the first place. Of course with the federal legislation that was put into place, appraisers who are conducting mortgage appraisals are forced to work with management companies of one type or another and this puts all appraisers into a boat that was not built by all appraisers. In other words, the few appraisers who agreed to work for pennies on the dollar have now set the prices that all appraisers are expected to accept. Although tragic, this is not the worst of it. Consumers are now being misled. They are being charged more and more for appraisal fees when the real fee is for management and marketing. The appraisal fee is well concealed.

Does this concern anyone other than just me? Consumers speak out. Attorneys feel free to jump on board and investigate anyone who has closed a loan since January 1, 2011. You might find you are opening a very large can of worms that no one wants opened.

Who is Our Client Anyway?

This post is not intended to suggest any form of legal advice. To define the client within a particular assignment the appraiser should understand the guidance as provided in USPAP.

This post is written to suggest that our client is not necessarily the intended user of the report. They are not the party that ordered the appraisal service, or the party that will “promise to pay” and sometimes even pay for the service.

My suggestion is that our client is someone who we all too often forget. Our client is someone who never actually reads the report, uses the report, or even realizes they are affected by our report. The client does benefit from an accurate report and suffers great losses from the indirect effects of an erroneous report.

The client that I am suggesting that all professional appraiser’s work for is the general public. This is  not a new concept. But this foundational precept is worthy of repetition.  It is the general public that is currently suffering that fact that appraisers failed to understand the products that they were led into producing. And, for the record, I am not suggesting that all appraisers are inept or crooked – but I am suggesting that we all share responsibility of allowing the common practice of misleading appraisals to be used to shape the destiny of the lending industry.

Appraisers are like rating agencies, or judges. We are supposed to maintain a level of expertise that allows us to understand the service that we are providing. We are supposed to cause no harm with our service. The service should be accurate and meaningful. Unfortunately, the reality is that many appraisals are none of these things. They are reports that are generated by a group of people that who either do not know, care or understand what their function in the marketplace is supposed to be.

The appraisers of earlier generations were required to be people of good reputation, who had a level of expertise to render a reliable opinion of value for the property that was being appraised. For example, my mentor was a man who had an international banking/finance degree, an engineering degree and a law degree and was a real estate broker and property manager for five years before he became a real estate appraiser. When this man stated a property was worth X it was not because he ran the MLS and grabbed three comparable sales that supported the client’s opinion of value or the sale price, it was because all the data (Cost, Income and Competing Sales and Listings) was considered, analyzed and an opinion was formed to demonstrate the findings of the analysis.

What am I suggesting? I am suggesting that those of us who do know our role in this society should take an active role in mentoring our peers, taking part in appraisal organizations, encouraging all appraisers to join an organization that will help to foster growth and professional understanding. We cannot mandate associations, but we can encourage as many appraisers as we can personally influence to take part in building a better product and providing a reliable product that our client will benefit from and can rely upon.

For those appraisers who are reading this blog entry, that are “fighting the good fight” and have always taken the necessary steps to provide professional appraisals then I personally applaud your efforts and want to encourage you that you are not alone.  For those of you who may be new, or simply never had the proper training or education from your “mentor” then I want to encourage you that if you are sincere in your desire to provide a professional service that can be used to correct the errors of previous appraisal decisions, then you can join our ranks by finding a mentor and not being embarrassed to ask. We are all in this together and we are all able to affect positive changes that can improve our industry.

But, for those who are in this industry 1) to only make money 2) without concern of how they affect others and 3) with the “moral flexibility” of a professional assassin – I hope that you will consider changing professions because there are easier ways to take advantage of people and you can make so much more money without leaving a devastating wake of destruction.