Time Adjustments

A recent review has prompted this post. It has become painfully clear that many appraisers are still unable to justify time adjustments. It appears that many believe that the MC Addendum is the “perfect” tool to justify increasing or declining prices; however, the reality is that this form was never designed to be an economic forecast model. In order to prove trends, a solid sample is required to show the price changes. Trying to prove a trend with a hand full of sales is a lot like predicting the annual rainfall in Texas based upon the observed weather patterns in Dallas for only six weeks.

Some appraisers are using some pretty wild assumptions and, in my opinion, had better be really careful not to over-analyze the data. The danger is that someone might take them seriously and actually make a lending decision based upon the prediction that they are making; values declining or rising. Either way, if the client loses money based upon this “expert” opinion, this is a lawsuit waiting to happen.

It is every appraisers responsibility to know their individual marketplace and to report prices and the direction of prices as of the date of value; thus, to carry this out, the appraiser should be looking at market areas for a few years and establish an actual trend. Then, the data within the last 12 months can be narrowed to show the subject property. This is, of course, not the only way to show market patterns, but it is one of the safest ways, because then you allow the data to speak for itself. Any adjustments can then be developed using a trend or regression analysis that will give results that are a little more reliable than the Texas weather patterns.

Just a point to ponder. See you around the water cooler!

Score one for the Good Guys

According to FACT, the Texas Governor signed HB 2375 into law on Friday. This legislation modifies the current occupational code that governs how a real estate appraiser conducts business within the State of TexasAmong the more significant changes are:

  • Brings the TALC Statute into compliance with current terminology and State and Federal Laws relating to the regulation of real estate appraisers.
  • Makes it mandatory that a person be certified or licensed under the act in order to perform an appraisal in Texas.
  • Allows the TALC Board to delegate to the Commissioner the authority to approve consent orders and agreements to help expedite enforcement case closure.
  • Allows the board to solicit, accept and administer gifts, grants and donations.
  • Allows for a probationary certificate, license or trainee approval under specified conditions.
  • Allows for up to a 90 day period for late renewal of a certificate, license or trainee approval with payment of 1.5 times the required renewal fee – does not allow appraisal practice during the late renewal period.
  • Requires an applicant to complete additional prescribed education after failing the licensing or certification exam three consecutive times.
  • Repeals the provisional license category.
I applaud the efforts of FACT and encourage Texas Appraisers to check out their site and get involved. It is time we engage and begin to take back our industry. 

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.