Discussion in 'General Appraisal Discussion' started by Julio E. Sune Jr. (FL), Aug 21, 2002.
That was really good! Too bad they were being so careful with their wording, but I guess they do have to be.
Frank, Looking forward to your comments.
Yep, me thinks the Banks / Lenders - are entitled to not force those people to pay for an appraisal 8O
But the public sure would like to get their hands on some of that equity :?
Hold on, I think the Banks continue to raise their rates & fees, to help "Free" most of the public from their hard earned money. Hell they don't want anyone working for them to make any money.
Interesting article, but it is based on a four year old edition of USPAP. Standard #4, which covers Appraisal Consulting, now requires an appraiser to develop an opinion of value. I caution all readers of this article as to the suggested course of action, and recommend reviewing AO-19 which first appeared in the 2000 edition of the USPAP
Our answer here to pre comps is; Every home is different until we have seen the home to know condition there is no way to compare it to any other home. We have homes in that area that R a year old & you'd think they were 20 & we have 20 year olds that could pass for 5. for a prepaid fee of 100 dollars we'll go look at home & get back to U.
I read all four pages of this Kentucky State Law. Everyone understands this is State Law, Right?
Because they stated that this is how it will be enforced -- as State Law. For such a document, that could get you in disciplinary trouble if "violated," and thereby effect your career, livelihood and reputation, it is particularly poorly conceived.
The scenarios located at the end of page four are absurd. Read them real carefully. Remember while you are at it, that the issue being discussed is "precomping." In the first scenario, there are several real obvious violations written in to the example, way beyond the subtleties of "precomping." Therefore, any board in the country (even your typical two-by-four) would find a violation for an appraiser accepting such a job under those conditions whether there was any "precomping" or not. For this reason, it is nonsensical writing; but for it to be State Law, well, I'm not sure what the best term would be to describe it. "Foolish" comes to mind.
Worse, the ultimate solution recommended by that board is very poorly thought out -- and I do mean the entire board -- not just the writer of the law, but also the individual board members who had to approve this State Law before it became the Law of the Land for Kentucky Appraisers. The Kentucky Board (at that time) apparently did approve of it.
The board's solution is to recommend the use of a particular word: "realistic." This is a very poor idea for obvious reasons. (In fact, it is a stupid idea, and certainly so compared to the very meaningful alternative solutions that could have been adopted.) Just think about it. I may post in more depth some other time. However, this is why the ASC must do screening via strict testing of state regulators (state board members). Anyone who would write this type of text and treat it as enforceable law, and also anyone, or any group, who would approve of it, probably has no business being in appraising, let alone being on any appraisal board.
Does this analysis sound a little mean of me? If you think so, you have no idea what mean means. Wait until the lives of your children (born or unborn) are permanently impacted by the selective enforcement of such an asinine State Law against you. The people who carelessly slapped it together and decreed it State Law -- having equal import as the USPAP (just as they indicated in that PDF file) -- can do real harm, and no doubt have. That type activity is a good definition for the word "mean." My pointing it out is an act of kindness. Yes, I am well aware some will not believe it for a minute, certainly including most Kentucky Board Members & Staff. However, I truely hope you never have to come to understand just how incredibly kind this post is. Think about it.
Pam, Frank is way too smart to comment in this thread, sometimes I wish I was too :wink: </span>
I went up and read that Kentucky article and the more I read and hear the better I feel about a career decision I made about 12 years ago: Get out of and stay out of residential mortgage appraising because it is nothing but a racket and a sinkhole. In the general scope of things residential appraising is the easiest type appraisal work imaginable because of vast amounts of sale data in comparison to other more specialized type properties, yet 99.9% of the problems relate to mortgage lending appraisal work. Why? Because the lenders have become very astute at circumventing the spirit and intent of the appraisal rules and the so called regulators refuse to address this problem but instead take the cowardly way out by heaping the responsibility of dealing with these problems into the appraiser’s lap or as in the case in point, making regulations to legatimize the procedure.
Why would anyone want a precomp check? The answer is to find out what the property is worth by finding out what it is not worth. For example, is this an appraisal: Your property is worth less than $100,000 but not less than $95,000? What is the intended use and purpose of the person requesting a precomp check? 1. Intended use: To find out what the property is not likely worth, which is a back door method of finding out what it is worth, for the sole purpose of (a) saving an appraisal fee or (b) finding additional comps to make a deal work on an appraisal they already have by essentially changing the definition of market value from most probable price to highest price in terms of money. 2. Purpose: To circumvent the existing appraisal laws. All of the above mentioned lender objectives are to thwart the spirit and intent of the appraisal law. What should be the government regulatory reaction to this demented activity from the lenders? The logical answer is punishing the people that are attempting to circumvent the intent and purpose of the law. Instead, how are the regulators reacting? Answer: By writing regulations to establish procedures for the appraisers to aid and abet the lenders in perpretrating their fraud on the public. It is all right to be in complicity to bank fraud as long as you report it properly according to standard 4 or 5 in the appropriate form. At least in the state of Kentucky it is. If you don’t report your complicity to defraud on the proper from, then you will hear from the Kentucky Board Mr./Mrs./MS Appraiser.
<span style='color:darkblue'>For Newbies:
What do experienced real estate appraisers across the country have to say about "precomping"? Here's what a lot of them say:
Don't do it.
But, if for business reasons, you find that it is sometimes a "necessity," a reasonable way to go about it will be provided in this post.
Except in Kentucky obviously (unless they have rescinded the State Law discussed in this thread), you should avoid mixing consulting and appraising just as the accounting profession has recently and belatedly come to understand. And Do NOT give any valuation indications without performing an appraisal analysis. If you do, you have violated the most important tenet of your profession.
Code words and terms such as the following (and all others) are not a good idea:
"Yes, it's likely to appraise"
"I don't think it will work."
"Looks good to me!"
"Yes, it appears realistic -- go for it!"
They are not advisable because they constitute an indication of value as rendered by a professional real estate appraiser. Remember, "a value" is not just a "specific point value," but is also defined as a range, or relationship to a benchmark, or a minimum amount that will make, or is likely to make, a deal work.
Might the "weak" appraiser be tempted to "up the value" just a bit (or a lot) to match his/her previous, recent "precomp analysis" in order to get paid, or preserve a good client, or even to avoid "loosing face," if the ultimate appraisal analysis does not support the initial (educated or not) guess? Probably. But, you see, it's completely beside the point! At this stage we are only talking about an additional USPAP violation since the first was committed by providing the "estimate" of the likely value opinion in the first place prior to doing an acceptable appraisal analysis.
Hey, in my earlier years, when I did residential appraising for lending purposes, I too had a client who occasionally asked for a Comp Check prior to a performing an appraisal. This group was not a fly-by-night group either. I noticed that they usually asked Real Good Questions!! For instance, they never asked if a $50,000 property would appraise for as high as $200,000 or if a $200,000 property might be worth as much as $50,000. Hell no! They asked Real Good Questions -- Hard Questions -- such as: "Will it appraise for $200,000?" where a subsequent check of the best apparent comps combined with a rough statistical analysis exercise or two might indicate a range of $190,000 to $205,000. These were the cases where they wanted or needed the advice, and it was easy to see why. It is because they were asking real good questions. My advise is that they would need to hire an appraiser or something to get a reliable answer before ordering such an appraisal to be sure it would appraise. That was not always much help for some reason.
But sure, I helped out when I could, and I will tell you and show you how I did it. No, I never charged for it. I should have. But I didn't. But then, I often have to learn the hard way. Maybe you will be smarter. I hope so.
So your client does not like "NO" for an answer? OK, let's see if we can help them out then:
You have already explained that you cannot provide any indication of market value for professional and legal reasons. But if they want to define their own parameters for a computerized sales record search, you can run it and fax them the printouts (or email it to them by "printing" to a computer file instead of the printer), and you can probably also (depending on how your county is setup) printout and fax some tax cards too, including that of the subject property. To suggest parameters for a search of sales in the subject's neighborhood or subdivision in the same GLA (Gross Living Area) range over the last six months for that property type (e.g., single story, split level, etc.) is probably OK. But this is the important issue: Let them do the analysis of the data, not you. You would rather not even see it. Let your office secretary do the computer work and sending of the raw data to the client.
Go to the end section of this post right past the double lines. This text is a section from PMI Rescue's Information / Instruction Package for homeowners with PMI (Private Mortgage Insurance). It may be helpful to you as a guide for your clients who insist on precomping. Fine. Let them do it themselves after you tell them how by faxing them the directions as appear below. By the way, before long I may put that text up, adapted for precomping loan officers, on Boardwatch.com or maybe PMIRescue.com, and post the URL for you. I will put it in this thread (which will bring the thread back to current so that you will know it has been done and can find it). You can then simply send your clients to the URL in order to give them some pointers for estimating the value on their own, and/or with some limited help from your staff for the research. (Alternatively, you can fax them a printout of the URL page.)
David C. Johnson
One other alternative is available to you as a possible alternative for resolve precomping issues. As a knowledgeable up-to-date professional real estate appraiser well versed in USPAP, you are aware of all your appraisal and reporting options including limited restricted reports with written or verbal reporting. You can probably do this work in half the time and for half the fee. If the client likes the valuation results, you can then complete the FNMA-type reporting option requested by completing and adding in any previously omitted approaches to value from your prior work to produce the requested appraisal and report, and charging an additional fee.
I do not condemn lenders for wanting an opinion regarding whether or not a deal is likely to work as they would rather not do a lot of useless work, and they would rather not charge their potential client (e.g., a homeowner or home buyer) for an appraisal that will get them nowhere. If I was a loan officer, I would want precomping on most all of my potential deals! (As an appraiser loan officer, I would understand why I would rarely be able to get them though.)
I'll probably be back to this post before long to edit out some of the typos and other errors. </span>
PSSSS. OK, here is one of them (i.e., a correction / addition to this post). More and more these days, motives for requesting precomping, as Austin indicates, are not always quite as legitimate as I indicate. Some loan officers and mortgage brokers almost certainly are "likely-valuation-shopping" among various appraisers, and looking more for "pre-commitment" for the valuation from the appraiser. I would watch out for that game. </span>
"DO IT YOURSELF" VALUATION METHODS FOR HOMEOWNERS
(& NOW FOR PRECOMPING LENDERS, I GUESS)
There are two methods you can use to estimate the current Market Value of your property. Both methods require that you get a copy of your property tax card from the county in which you live. Call your county Tax Assessor's Office and have a copy of your tax card mailed or faxed to you. This should be very inexpensive or free. Worst case, go and get it. Some comments about property taxes (i.e., ad valorem taxes) may be in order for some readers:
Property tax records are public information. That means that you have the right to know the Tax Assessor's assessed valuation of your property. Additionally, you have the right to know the tax value of anyone else's property. Naively, some homeowners would rather not, in any way, bring up the issue of property taxes with their county's Tax Assessor's Office because they believe they may be the beneficiary of a valuation oversight on their property. Ironically, many homeowners who believe they are inadequately taxed, are actually overtaxed relative to other similar properties in their taxing jurisdiction. The reason for this "mass misconception" is that assessed valuations are almost always different (usually less) than the current Market Value of properties. This is because market values are estimated by a county's Tax Assessor's Office only periodically such as every four years or eight years (while "every year" revaluations are becoming more common). In our economy, with changing real estate prices due to market dynamics, increasing building costs and inflation, the assessed valuation of a property is only intended to coincide with its actual current Market Value during the year of revaluation. This means that most of the time, by design, the assessed value is different from the current Market Value for any given property. Revenues to the taxing jurisdiction are maintained by the rates of taxation applied to these assessed values. These rates generally increase every year up to the year of the Tax Assessor's revaluation of properties in the county or jurisdiction. At that point, rates typically fall steeply to adjust to the more accurate (e.g., higher), current Market Value estimates of properties. Do NOT hesitate to obtain a copy of your property tax record.
Valuation Method #1:
You need to know the prices properties similar to yours are currently selling for in your subdivision or neighborhood. One method is to use one of the online Home Sale Price Services. The website of the National Association of Realtors (NAR) has such a national service at the time of this writing, (the Consumers Union service has recently been discontinued, but was also good and may return in the future), and there are others with more limited (e.g., regional service). A www.Google.com search is recommended to see what services are currently available in your area. Based on public records, these relatively recent undertakings provide the recorded sale price and sale date for every residential property along every street in every neighborhood in many (or in some cases, in all) areas across the country.
Alternatively, look under "Real Estate Appraisers" in the yellow pages of your phone book, write down the telephone numbers of several residential appraisal companies or individual residential appraisers. Tell an appraiser that you do not want to order an appraisal, but would like to have an MLS (Board of Realtors Multiple Listing Service) search done for similar properties to yours that have recently sold in your neighborhood or area. This could take as little as 10-15 minutes of his/her time depending on how well their office is set up. Offer to come pick up the results and be prepared to pay $30 or $40, or so. Tell the appraiser you are preparing to drop your PMI and want to get an idea, on your own, of what similar properties are selling for.
Letting the appraiser know that you have a copy of your tax card in front of you when you are calling is a good idea. This will not only indicate that you know what you are doing, the appraiser will know that you will be able to provide the information needed for such a search. Real estate sales agents or brokers can also provide this service and may be preferable. If the agent is knowledgeable about your area (you might try to find one who is) he/she may be able to give you an idea of what similar properties are selling for per square foot in your neighborhood. Appraisers are unlikely to render any value opinion as they are legally liable for anything they say regarding property values. For convenience, keep in mind that the appraiser or the agent may be able to print out your tax card from their office depending on whether the local Tax Assessor's Office has online access service. For someone to do a good search they will need to enter the appropriate search parameters into their computer based on information specific to your property. You will need to provide as much of the following information as possible:
* Your property address
* Name of subdivision, neighborhood or community
* House size in square feet (tax card or your own exterior measurements)
* Number of stories
* Number of bedrooms and baths
* Construction type and design (i.e., brick ranch, no basement, etc.)
* Year built/renovated
* Parking (none, 1-car garage, 2-car carport, etc.)
* Type and number of porches, decks and/or patios
* Road type (paved, dirt road, highway, private)
* Size of lot (approximate area recorded on your tax card/record)
* Any deferred maintenance (need of repainting, etc.)
* Anything atypical, positive or negative, regarding your property
You would like to receive a printout of several recently SOLD (i.e., not active listings) proximate, similar properties to yours from the Multiple Listing Service data bank that will give you the factual information (e.g., sale price, sale date, size, condition, etc.) for these comparable properties. There should be no restricted information on these pages. Any potentially "confidential" information such as the name of the buyer and seller, type of financing obtained, etc., is actually public record available at the county courthouse. However, it is possible that there may be some resistance to releasing this data. If necessary, ask that the pertinent information be summarized for you in an acceptable and usable form. Drive by and look at these recently sold similar properties. Compare them with your property. Keep track of physical differences that may make your property worth more or less to a potential purchaser. Make allowance estimates (i.e., dollar adjustments to the sale prices) for significant differences (e.g., slightly better location, slightly larger house, older construction, etc.). Appraiser's make their adjustments based on the thinking and actions of market participants; you were once part of that market. Note any sales concessions that may lower the effective sale price of a transaction such as a seller paying all closing costs (as indicated on MLS printout). You should subtract this amount from the listed sales price.
You should be able to develop a reasonable range for the current Market Value for your property by making sensible adjustments to the respective sale prices of your comparable properties.
For an additional valuation indication, compare what they sold for per square foot of finished living area. Multiply the range of Price/SF indications from your comparables to the finished living area of your house. This method is most effective when lot values, construction-type, garages/porches and finish quality are similar. The results of these two exercises are your current Market Value indications via the Sales Comparison Approach.
Valuation Method #2:
Rough current Market Value estimates can be approximated by an analysis of the Tax Assessor's Values. These values should be listed on the MLS sheets, if not call or visit the Tax Assessor's Office and ask about the properties found in your search that are the most similar to your property. Or simply make a list of properties that you happen to know of in your neighborhood that are similar to yours that recently sold. Eliminate any sale that appears not to be arms-length (e.g., a parent selling to a son/daughter) where the sale price may not be a good example of a true market transaction (this might be evident by a thorough examination of the tax record, or you can ask a tax office employee for assistance here, or even contact the owner if you like). Take each comparable property and subtract its Assessed Value from its recent Sale Price and then divide that number by the Assessed Value. This resulting number is the percentage increase (or decrease if it is a negative number) indicated for the property since its revaluation and the time that it sold.
Your Comparable Sale #1 (Located on your street)
Tax Value of Comp: $154,000
Its Recent Sale Price: $182,000
182,000 - 154,000 = 28,000
28,000 / 154,000 = 18%
Tax Value of Your Property: $147,000
147,000 X 1.18 = $173,460
This example indicates a property value of approximately $173,500. Assuming a ± $5,000 margin for error, your property is very likely to be worth between $168,500 to $178,500. This valuation process assumes that neither property (your home or the one you are comparing it to) has seen significant physical change or experienced significant external change (e.g., a new county dump recently opened adjacent to one or the other that the assessor has not considered yet) since the county's last reassessment date. Do this exercise with all your best (i.e., most similar, recently sold) comparable properties. (The closer all the value indications are to each other, the more reliable this exercise is likely to be.) The average of the resulting values is your indicated current Market Value by Statistical Analysis of Assessed Valuations.
Your market research should give you a good idea whether your property will likely appraise to your current PMI Threshold Value (as determined to the dollar by the PMI Rescue online calculator). Also, in a few cases, this may be sufficient documentation for your Mortgage Servicer if the value indications are high enough over your PMI Threshold Value. If they insist on an appraisal, this should be good research to share with your appraiser.[/color]
Doing some early morning research on the concept of "Scope of Work" for an oddball assignment, I used this forum's search function to locate and deliver some previously expounded expert opinions on the subject from the ranks of our esteemed participants. I found the following post by George Hatch from a thread I'd never read. Excellent. Go to his "on the fly" (BTW decent expression -- someone remind me to use it more often) text for "pre-comping." It's real good. And it makes the effort much more billable somehow. Halfway through reading it, I had to quit. I stopped to go check the date on my post in this thread for my advice, and my previous method for pre-comping to compare it with the date of his. Not only did his posted suggestion precede mine, his is much better. More modern. It utilizes current USPAP more meaningfully. And again, and very importantly, its more billable. I like it. I recommend it.
So, from a respective reading and rereading of the two posts, and remembering my pledge to make my post's text more available to your pre-coming clients, an idea popped into my head that would make my commitment easier, and that would also be much more effective at the same time (a win/win solution -- always the best kind):
Simply send your clients to either or both posts -- and you decide which, depending on the circumstances. Brush them off with mine, or do a billable job with his.
Here are the two URLs to cut & paste into email to yourself to save in your filing cabinet 'tile needed:
That's way too much for me. I just tell 'em to do a freebie AVM on the internet, it's about as good as what I could do blindly. If I do it, it becomes an appraisal. "Would you like next Tuesday or Thursday at 10 am for me to come to your home? I'll collect the appraisal fee while I'm there and you'll have your appraisal report in another 2-3 days. The fee base is $300 which covers a basic house - there are additional fees if your house and/or lot are not typical." Same scenario with any lender or AMC that calls for a value.
or... "You want an appraised value before you order an appraisal?" I just laugh at them when they say "Yes". For any lender, the conversation is now over. I nicely try to educate a HO.