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Not so subtle nudge

Discussion in 'General Appraisal Discussion' started by Peter LeQuire, Oct 12, 2010.

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  1. Peter LeQuire

    Peter LeQuire Elite Member

    222
    Jan 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Tennessee
    In response to an REO appraisal I'd done, the bank wrote back telling me to reduce my estimate/opinion of buyer/entreprenurial incentive. I was curious why I would be prodded in that direction, thinking that the bank would want as realistic a set of numbers (as is and as repaired) as it could get. I can only guess that my "as is" number took the loan underwater and is giving some loan officer or compliance person a bit if indigestion.

    What is baffling is that this is not coming from a production area, and the criticism is that my opinion of incentives is "too high," not that it isn't supported or realistic.

    Thoughts?
     
  2. Mountain Man

    Mountain Man Elite Member

    33
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Georgia
    As an investors, what we expect for entrepreneurial profit depends on how much remodeling work is required. If it's not much, we might be happy with a $10,000 profit on a $100,000 house. But if it needs major repairs, we expect a dollar for dollar return with so much work and risk. That's why we just bid $45,000 on one to make it a nice $100,000 home again.
     
  3. Mike Kennedy

    Mike Kennedy Elite Member

    254
    Sep 28, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    New York
    Dearest "Bank",

    Kindly provide written support for your "too high" assertion (suggesting a Correction to a purported Error is required) within 8 hours for review and consideration. The Results of same could be: a decrease, no change, or an increase in the OPV.


    DODD-FRANK FINREG Eff. 7/21/2010

    SEC. 1472. APPRAISAL INDEPENDENCE REQUIREMENTS.​
    (a) I​
    N GENERAL.—Chapter 2 of the Truth in Lending Act (15
    U.S.C. 1631 et seq.) is amended by inserting after section 129D
    (as added by section 1461(a)) the following new section:

    ‘‘§ 129E. Appraisal independence requirements​
    ‘‘(a) I​
    N GENERAL.—It shall be unlawful, in extending credit
    or in providing any services for a consumer credit transaction
    secured by the principal dwelling of the consumer, to engage in
    any act or practice that violates appraisal independence as described
    in or pursuant to regulations prescribed under this section.
    ‘‘(b) A
    PPRAISAL INDEPENDENCE.—For purposes of subsection (a),
    acts or practices that violate appraisal independence shall include—
    ‘‘(1) any appraisal of a property offered as security for
    repayment of the consumer credit transaction that is conducted
    in connection with such transaction in which a person with
    an interest in the underlying transaction compensates, coerces,
    extorts, colludes, instructs, induces, bribes, or intimidates a
    person, appraisal management company, firm, or other entity
    conducting or involved in an appraisal, or attempts, to compensate,
    coerce, extort, collude, instruct, induce, bribe, or intimidate
    such a person, for the purpose of causing the appraised
    value assigned, under the appraisal, to the property to be
    based on any factor other than the independent judgment of
    the appraiser;
    ‘‘(2) mischaracterizing, or suborning any
    mischaracterization of, the appraised value of the property
    securing the extension of the credit;
    ‘‘(3) seeking to influence an appraiser or otherwise to
    encourage a targeted value in order to facilitate the making
    or pricing of the transaction; and
    H. R. 4173—813
    ‘‘(4) withholding or threatening to withhold timely payment
    for an appraisal report or for appraisal services rendered when
    the appraisal report or services are provided for in accordance
    with the contract between the parties.
    ‘‘(c) E
    XCEPTIONS.—The requirements of subsection (b) shall not
    be construed as prohibiting a mortgage lender, mortgage broker,
    mortgage banker, real estate broker, appraisal management company,
    employee of an appraisal management company, consumer,
    or any other person with an interest in a real estate transaction
    from asking an appraiser to undertake 1 or more of the following:
    ‘‘(1) Consider additional, appropriate property information,
    including the consideration of additional comparable properties
    to make or support an appraisal.
    ‘‘(2) Provide further detail, substantiation, or explanation
    for the appraiser’s value conclusion.

    ‘‘(3) Correct errors in the appraisal report.
     
    Last edited: Oct 12, 2010
  4. Peter LeQuire

    Peter LeQuire Elite Member

    222
    Jan 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Tennessee
    What I have heard from a couple of operative builders who do that sort of thing with houses bought out of estates and out of foreclosure and at least one "flipper" of same, is pretty consistent: that is, somewhere around 30% of the total SP of the house, after the work is done, is necessary to pay for repairs, holding costs, marketing, (generally) closing costs for the buyer and risk reward incentive. The bank's suggestion was that more than 10% of the costs of repairs was excessive, which, IMO, is totally unrealistic.
     
  5. CANative

    CANative Elite Member

    385
    Jun 18, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    EP or EI % can be applied in different ways. To the total costs, to the hard costs, to the finished product, etc. It varies. Maybe they don't want to see too much for certain types of costs. Some banks don't like to see EI at all because they are worried that the borrower doesn't have enough skin in the game.
     
  6. Mike Kennedy

    Mike Kennedy Elite Member

    254
    Sep 28, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    New York
    "The bank's suggestion was that more than 10% of the costs of repairs was excessive, which, IMO, is totally unrealistic."

    Which was anticipated and, IMO, the "Bank's" DEMAND should be replied to as above.

    Further, IMO, a demand to arbitrarily revise a Value Opinion absent CONCRETE proof of

    a. additional information that is RELEVANT or
    b. proof that an ERROR was made.... is what it is. Coercion.

    Complying with same demonstrates Advocacy and represents intentional Collusion.
     
  7. Mountain Man

    Mountain Man Elite Member

    33
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Georgia
    Are you putting in a flat 30% and calling it profit, or are you breaking it down like: 10% marketing & holding, 5% interest carry cost, 5% maintenance, 10% profit? That may be what they are looking for, more detail as to what investors are doing in your area.
     
  8. Mike Kennedy

    Mike Kennedy Elite Member

    254
    Sep 28, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    New York
    OP: "the bank wrote back telling me to reduce my estimate/opinion of buyer/entreprenurial incentive."

    IMO, as posted the Bank's directive was not a request for further explanation or a breakdown.
     
  9. Peter LeQuire

    Peter LeQuire Elite Member

    222
    Jan 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Tennessee
    CANative - what I've been getting from the folks I mentioned is 30% of the sales price after remodeling/renovation. I understand this to be a rough guide - not necessarily an arbitrary absolute requirement - and very much related to the market segment in which the victim property competes. (Upper end houses are much less attractive than are houses that would appeal to a first time buyer, for example.)

    MM - I simply called it buyer and entreprenurial incentive: my inference from the e-mail is that the "as is" value is too low, regardless of how it was achieved. No criticism was made of how I presented the information.

    MK - "IMO, as posted the Bank's directive was not a request for further explanation or a breakdown." I took it as a demand, and believed/believe it was an attempt to influence the appraisal.

    What I find curious is that this "request" was not coming from someone on the lending side, but from the appraisal management area of the bank (not an AMC). I called the manager of that area late yesterday, and, short version, told him that absent better information or error, I wasn't changing the report.

    I can only assume that the "as is" value gives the bank some sort of asset category or regulatory problem. Which is not my problem.
     
  10. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    628
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    Kennedy is correct. It is coercion, a solicitation of a crime.

    You have certified that the opinions are your OWN...not the clients. So don't even consider changing your opinion.
     
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