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How I stopped worrying & learned to love updates

Discussion in 'Fannie Mae, Freddie Mac, USPAP' started by Terrel L. Shields, Nov 2, 2009.

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  1. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    249
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    Banks, Examiners, Appraisers, Updates
    THINK in-house NOT fannie mae or secondary market, but even there the implication is the lender, if a regulated bank, is in the hot seat over this issue.

    What next? I have alluded to problems with Examiners telling bankers that they need to have "updates" of appraisals done when a loan is renewed, and telling those bankers that their appraisers can do something much shorter than an appraisal (and do so competitively with bank evaluations). They argue that you can just do a few comparable sales and update the value from an older appraisal.

    Today, local appraisers for a bank were asked to meet with the QC appraisal reviewers of the bank. About 12-15 appraisers were there. They were not talking about appraisals but rather how to ‘update’ an existing appraisal which might be 6 mo. - 2 years old. They are doing so under pressure from the FDIC / State bank examiners.

    The form they held out as the ‘correct’ form was alamode’s Update Appraisal form... one page, no certs, and they asked only to support our value with a minimum of a single comparable....They read AO-3 btw, a whole lot differently than most appraisers here would do. We pointed out that none of us was comfortable gauging whether the market was up or down based solely on one sale...nor was anyone happy about the implication that a single page was adequate for a report even if attached to a prior appraisal.

    The bank doesn’t care if the value is the same or higher. They don’t need that value. BUT to calculate a new LTV (loan to value) IF the value is less than the original report, they have a problem. The value drop has to be small enough that the LTV is still adequate, no problem and no big expense to the borrower. But if it is lower, and most of the properties will be lower, much lower could trigger a full blown appraisal. The real problem is the frequency (annual that the Examiners want) and cost...especially for commercial properties.

    The bank’s concern, particularly on commercial and large properties, is not sticking their customer with full appraisal fees annually or bi-annually. They want a short form...read cheap. The meeting stirred quite a hornets nest and they withdrew the proposal to have a Update form and a single comp for residential property. But the issue of land, agri, and commercial remained unresolved. However, a couple of well respected appraisers did say they were providing restricted reports to a "limited scope" [at this point, my tongue was already bloodied and too swollen to even groan] for all but the most complex properties.

    I give up. How can you provides such a service? Is someone teaching a step by step course on how to "update" a report without calling it an update, using much less data, arriving at a value estimate, and doing so for say 25% of the original fee? Just shoot me. 95% of the properties appraised in 2007 will be lower this year. That triggers at a minimum that we get enough data to support a lowering of the value and write a compliant report...It is more wordsmithing and how can it take less time and be cheaper?

    The moderator noted that they got negative feedback on this and "updates were from $75 - $350 so $350 ones were unacceptable and they quit using those appraisers!
     
  2. Denis DeSaix

    Denis DeSaix Elite Member

    149
    May 16, 2005
    Professional Status:
    Certified General Appraiser
    State:
    California
    I don't have a problem with a bank wanting a limited SOW assignment in order to drive-down the cost of the appraisal (assuming the limitations are such that the results of the assignment still meet the client's needs). If I'm going to do less work, I can charge less for what I do. The problem, however, is that the amount of work necessary to complete an assignment is not solely dependent on the SOW alone.

    Here's a hypothetical SOW that can probably satisfy many lender's needs.
    A. Confirm the H&BU.
    B. Use an EA about the condition/configuration of the subject based on previous appraisal (client-supplied).
    C. Review and analyze the comparable data.
    D. Provide the opinion of value.
    E. Provide one comparable as an example of the competition.
    F. Drive subject and take photo.
    G. Communicate results in a restricted-use format report.

    If I'm working in a tract development with plenty of sales & listings and nothing fancy, how long is that going to take me? Not long.

    On the other hand, if data is scarce, then it doesn't matter if I have the same SOW, the appraisal process is going to take a lot longer even if the reporting results look the same.

    A one-size fits all SOW may work for 90% of all a bank's properties. But SOW is only one part of the work-component equation. If you have to spend 8-hours analyzing scarce data to come up with the best comparables, the streamlined SOW does not really simplify the appraisal process and does not result in lower costs.:shrug:
     
  3. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    249
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    Where weighting has been given to Income or Cost, then sales don't tell the story...especially when you are talking about types of properties that rarely sell
     
  4. Denis DeSaix

    Denis DeSaix Elite Member

    149
    May 16, 2005
    Professional Status:
    Certified General Appraiser
    State:
    California
    I agree with you.
     
  5. Dennis J. Black ASA IFAS

    Dennis J. Black ASA IFAS Senior Member

    0
    Mar 5, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Florida
    Appraisals are about due diligence and given that Scope of Work is driven by intended use I see the situation as such.

    They are making a loan, AGAIN.

    H & B use is where the rubber meets the road. I mean real H & B use analysis. You know, where you actually try and quantify supply and demand for a use. That could have changed tremendously in those time frames. Just think residential subdivision.

    Market rent and cap rate could be far different today.
     
  6. Michael Tipton

    Michael Tipton Senior Member

    0
    Sep 25, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    Does USPAP address which form to utilize when completing an appraisal? Not that I am aware of. I would have countered with the USPAP, which I am required to adhere to whenever an appraisal assignment is completed. Appears your bankers are only thinking of "saving" client's funds. As Mr. Black suggested, any appraisal "update" is driven by H & B use and the SOW, as long as the SOW is not limited to the extent the results might be mis-leading.

    Time and effort is the factors I consider when quoting a fee, not based on the form only.
     
  7. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    249
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    That was what they thought but we bucked up over the "UPDATE" form provided by alamode [thanks ala mode for giving us a crap form for them to wave around. Why would anyone think that putting such a form in a software package would ever give a lender the idea that made the form "USPAP" compliant.] If you don't do the 'loser' short form [short for them, long on time for me] a. k. a. - a desktop or driveby...
    So who gets to dictate SOW? me or thee?

    The problem is is soluable because it would require ASB & bank regulators to agree on some sort of "update" format and I fear those two egos could never fit in same room let along agree on a special situation for lenders / updates only.
     
  8. CANative

    CANative Elite Member

    128
    Jun 18, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    A scene from the movie "Dr. Countrywide or How I Learned to Stop Worrying and Love the Bonus."

    [​IMG]
     
  9. CANative

    CANative Elite Member

    128
    Jun 18, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    C'mon. This was funny. Angelo's head on Slim Picken's body?

     
  10. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    249
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
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