Appraisal bias

Discussion in 'Fannie Mae, Freddie Mac, USPAP' started by JSmith43, Sep 1, 2009.

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  1. JSmith43

    JSmith43 Elite Member

    9
    May 5, 2003
    Professional Status:
    Certified General Appraiser
    State:
    California
    Just after reading the USPAP ASB Q & A thread, I picked up Working RE in "the library" for a minute of reading pleasure. This is the article I chose at random:http://www.workingre.com/workingre/liability-landmines-appraisers-beware-page.html

    There were lots of practical tips about avoiding liability, but a few glaring problems. Example: The author advocates erring toward the low side whenever the market evidence is thin enough that "you cannot unquestionably prove" that it was worth that much. He goes on: "A good test is this: For every appraisal you perform, imagine yourself in court trying to explain why the value is accurate. If you cannot, reduce the value until you can."

    Does anyone else see a USPAP error in that strategy? It certainly will lead to technical valuation errors. In fact, I suggest the value sought is Cover Your A$$ Value, not Market Value. And, that fact is not disclosed.

    The author goes on to argue another point. He states that since the government debt is spiking, interest rates (including mortgage rates) will inevitably increase and that will effectively lower market values.

    OK. He says that will lead to more REO's, and more scrutiny of appraisers. He concludes: "Since appraisers are charged with determining the present worth of future value, understanding these economic issues is part of the appraiser's responsibility."

    The implication is that there are clouds on the horizon in his value forecast, therefore be all the more conservative.

    Technical issue: What if buyers and sellers don't look over homes, find one that is most appealing and whip out the HP and do a PV calculation, mindful of this guy's forward looking macro economic forecast? I'd love to see the paperwork on the future benefits of mowing the lawn and painting the house and dealing with noisy neighbors. We aren't looking at triple net income stream of known quality here.

    I might want to give the author a break, since he is preaching to a certain audience & many of the comments have practical merit. But, it might as well have been an article about how to perform comp checks without following Std 1 & 2 and fly under the radar.

    What do others think?
     
  2. CANative

    CANative Elite Member

    30
    Jun 18, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    How can someone defend accuracy when the definition is predicated on "probable?" The first opinion is that of an idiot.

    The second point he may have a point. Does a buyer need to use an HP to have questions about PV? I think that's exactly what people are doing at this time.
     
  3. Terrel L. Shields

    Terrel L. Shields Elite Member

    62
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    In a falling market the momentem is downward. I can follow that and if you accept it then it seems logical to lean towards the low side of the range of indicated value. Hard to catch a falling knife but his choice of descriptions are "unfortunate" as it implies deliberately depressing market value. By my spin, I feel like the pressure is to the downside and in a rising market, I would think it to the upside.
     
  4. JSmith43

    JSmith43 Elite Member

    9
    May 5, 2003
    Professional Status:
    Certified General Appraiser
    State:
    California
    Sure, lots more cautious buyers not sure if it is safe yet, will only act when they think they have a super deal. So, that behavior is already baked into their transactional behavior. I fear the author is encouraging appraisers to add a second layer of caution, by the CYA strategy articulated. The UW might come along and hit MV again, a third swing:unsure:

    The appraiser is allegedly acting in their own best interest by reducing the calculation of potential damages by legal actions from deep pocketed lenders, rather than keeping to the stated task of opining most probable price at a point in time.
     
  5. RSW

    RSW Elite Member

    3
    Feb 18, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Tennessee
    I read that article a few weeks ago and had the same reaction. Seems to be feeding the HVCC critics with more Ammo.
     
  6. Mike Kennedy

    Mike Kennedy Elite Member

    27
    Sep 28, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    New York
    The author needs to "bone up" on Effective Date (unless the SOW includes Forecasting FV)
     
  7. Randolph Kinney

    Randolph Kinney Elite Member

    15
    Apr 7, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    There should be a bias to lower values since lenders and GSEs make a distinction with LTV in declining markets.

    Lots of times the appraised value is cut by the lender to limit their exposure in declining markets.
     
  8. David Wimpelberg

    David Wimpelberg Moderator Staff Member Moderator

    18
    Mar 30, 2005
    Professional Status:
    Certified General Appraiser
    State:
    New York
    There are a few problems with this statement.

    First, notice the use of "accurate." Our standard is "credible."

    Second, "leaning toward the low side," IMHO, increases liability, not diminish it. It implies that the appraiser developed an opinion of value, then decided to go lower to cover their gluteous maximus.

    If you can't "unquestionably prove" the value (which also is not the standard we are held to), then one can simply provide the point value, as well as a range of value and the reason for providing that range.

    Actually, it's the present worth of future benefits. That present worth of those future benefits can be established by market data...typical by direct sales comparison in most SFR assignments. A prospective value could also be provided if the client wishes to have one, or an analysis of market trends.
     
  9. JSmith43

    JSmith43 Elite Member

    9
    May 5, 2003
    Professional Status:
    Certified General Appraiser
    State:
    California
    At some point I started to feel sorry for the guy. He might have had to meet a publishing deadline or something:rof:

    Did you notice he is a litigation specialist, instructor and author of some textbook?:shrug: Should we point him to the thread so he can offer supplemental comments?

    I can't imagine posting some of the comments in the article on the forum without catching a lot of flack. This is a great place to run something up the flag pole!
     
  10. Caligirl

    Caligirl Senior Member

    0
    Jan 27, 2006
    Professional Status:
    Certified General Appraiser
    State:
    California
    I've always believed that defending an appraisal has nothing to do with the opinion of value, which is simply the conclusion after all of the research and analysis. If you have done the research and analysis correctly, the concluding opinion of value is what it is. :shrug:

    Edit: now the link is to a different article. ?
     
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