Evaluation Liability

[George Hatch]

When off label users using appraisal reports for off label uses win civil suits on the basis of the SOW used in the appraisal report not adequately addressing the issues that are meaningful to them - THAT's when I'll start worrying about evals (that I include all the USPAP requirements in) becoming some undue risk.

It takes so little to comply with the minimum standards I'm really having a tough time figuring out what a professional appraiser would choose to omit from an eval that they would be required to put into an appraisal report.

Moreover, the "Restricted" gambit isn't even necessary. If you're a professional appraiser you want your reader to have SOME understanding of your subject and your valuation process, at least enough so to fit the intended use. And for most properties that is not a particularly time consuming explanation.

If a client thinks the garden variety BPO has enough info to enable an informed decision that SOW and that level of documentation (when augmented with the USPAP housekeeping items) doesn't suddenly become inadequate for that intended use or intended user just because a licensed appraiser does it.

 

[Terrel L. Shields]

There hasn't been a successful suit against appraisers doing evals yet in Tennessee

A suit does not have to be successful to cost you a lot of money, especially if your E & O carrier says they will not cover you. Again, outside 2 states, the other 48 plus don't have the luxury of a law to do these kinds of reports.

Ditto for BPOs. Unless you have broker's insurance too, "dual citizenship" won't stop complaints.

 

[Terrel L. Shields]

It takes so little to comply with the minimum standards I'm really having a tough time figuring out what a professional appraiser would choose to omit from an eval that they would be required to put into an appraisal report.

Calvin Moye teaches just such a class. I have taken it. He works mostly with federal bank employees, the IRS, etc. Teaches weeks at a time in Washington DC. In the class he points out the differences. There are things in an evaluation that is not required by USPAP. So if you do an appraisal, mark out all the words "appraisal" and substitute "evaluation" you can well fail to adequately meet the evaluation standard. Example? You must have inspected the property...or someone has to inspect it. No true "desktop" evaluation exists. You or someone must inspect and photograph (proof of inspection?). With the exception of the two states, it appears to me that an appraiser cannot produce an "evaluation" per se. They can produce an appraisal. The term "restricted" is a smoke screen. That is merely the Std 2 part of the appraisal equation. The meat of the report is Std 1 issues. So the problem isn't the presentation. The problem is developing the appraisal and scope of work. So where is the bright black/white line between just the minimum needed to meet USPAP and being inadequate?

For years appraisers complained bitterly about quality in this forum. Appraisers were short cutting the process. They were using a single approach, minimum comps, MLS data only, writing "canned" comments. Undercutting fees. Now suddenly everyone wants to embrace these crap so-called "restricted" appraisals and the assumption apparently both of the client (expectation?) and the appraiser is that "restricted" does not mean the Std 2 report, rather means a shortcut, ill-investigated, ill-researched, unconfirmed desktop report that will compete with the evaluation.

Evaluations have been landmines from Day One. The bankers however were slow to adapt it but now are making up for lost time...play ball with them or get the bat crammed up your backside. What an industry that has spent the last 25 years arguing for "quality" to now embrace the bare minimum and rejoicing at the opportunity to make $100 a pop fees.

 

[George Hatch]

Most assignments have additional assignment conditions that go beyond the bare minimums in USPAP. Why would eval assignments be any different?

The only complaints about quality that appraisers should be making is about those of their peers who don't even attempt to identify - let alone meet - the relevant expectations their intended users have for those assignments.

You can't expect to solve an appraisal problem if you haven't bothered to even try to identify it.

Approaching the question of appraisals from the perspective that "THIS is a Complete Appraisal and anything less than THIS is a Limited Appraisal" is soooo 1995. This here's 2017, and the name of the game is making the effort to fit the workproduct to the expectations of the intended user.

 

[George Hatch]

Edit to add; fees are a function of supply and demand. If the bankers can get their needs met at $100/pop then that's the value of the service from those providers.

 

[Terrel L. Shields]

Why would eval assignments be any different?

Never seen it or heard of special instruction.

 

[PL1957]

Never seen it or heard of special instruction.

You never had a client tell you to include all three approaches?

 

[Meandering]

Never seen it or heard of special instruction.

That's because with the appraisal, the appraiser decides on the scope of the work, while with an evaluation, the bank set policies that pre-determine the scope of the work.

Therefore, an institution should establish criteria for determining the level and extent of research or inspection necessary to ascertain the property’s actual physical condition, and the economic and market factors that should be considered in developing an evaluation. An institution should consider performing an inspection to ascertain the actual physical condition of the property and market factors that affect its market value. When an inspection is not performed, an institution should be able to demonstrate how these property and market factors were determined

Appendix B


Evaluations Based on Analytical Methods or Technological Tools

The Agencies’ appraisal regulations permit an institution to use an evaluation in lieu of an appraisal for certain transactions. An institution may use a variety of analytical methods and technological tools for developing an evaluation, provided the institution can demonstrate that the valuation method is consistent with safe and sound banking practices and these Guidelines (see sections on Evaluation Development and Evaluation Content). An institution should not select a method or tool solely because it provides the highest value, the lowest cost, or the fastest response or turnaround time.

It is the institution, not the "individual evaluator" who makes all the decisions and is responsible.

Preparation of an Evaluation
The Guidelines discuss the possible use of several analytical methods and technological tools, such as automated valuation models and tax assessment values. To use one of these methods, an institution should be able to demonstrate that the valuation method is consistent with safe-and-sound banking practices and the Guidelines. The Guidelines detail expectations for selecting, using, and validating an analytical method or technological tool. Institutions should establish policies and procedures that specify the supplemental information that is required to develop an evaluation.


And while an evaluation has many of the "things" an appraisal report has..........


XIII. Evaluation Content


An evaluation should contain sufficient information detailing the analysis, assumptions, and conclusions to support the credit decision. An evaluation’s content should be documented in the credit file or reproducible. The evaluation should, at a minimum:


• Identify the location of the property.


• Provide a description of the property and its current and projected use.


• Provide an estimate of the property’s market value in its actual physical condition, use and zoning designation as of the effective date of the evaluation (that is, the date that the analysis was completed), with any limiting conditions.


• Describe the method(s) the institution used to confirm the property’s actual physical condition and the extent to which an inspection was performed.


• Describe the analysis that was performed and the supporting information that was used in valuing the property.


• Describe the supplemental information that was considered when using an analytical method or technological tool.


• Indicate all source(s) of information used in the analysis, as applicable, to value the property, including:


o External data sources (such as market sales databases and public tax and land records);


o Property-specific data (such as previous sales data for the subject property, tax assessment data, and comparable sales information);


o Evidence of a property inspection;


o Photos of the property;


o Description of the neighborhood; or


o Local market conditions.


• Include information on the preparer when an evaluation is performed by a person, such as the name and contact information, and signature (electronic or other legally permissible signature) of the preparer.


(See Appendix B, Evaluations Based on Analytical Methods or Technological Tools, for guidance on the appropriate use of analytical methods and technological tools for developing an evaluation.)
https://www.FDIC.gov/news/news/financial/2010/fil10082a.pdf

An evaluation does not have an intended use, intended user, client, limiting conditions, certifications, highest and best use, transfer history of the subject and comps, extraordinary assumptions, hypothetical conditions.

The IAEG also notes (footnotes)
17 Although not required, an institution may use state certified or licensed appraisers to perform evaluations. Institutions should refer to USPAP Advisory Opinion 13 for guidance on appraisers performing evaluations of real property collateral.

Which is what I copied and pasted to Danny yesterday, and says that

Conclusion
An evaluation, when performed by an individual acting as an appraiser, is an appraisal. In addition to complying with USPAP, the appraiser must be aware of and comply with any additional assignment conditions and reporting requirements imposed on the assignment.

Because Appraisals are not Evaluations, and Evaluations are not Appraisals,, and it doesn't matter how "creative" you can get with labeling your report.

And,

Just because the loan amount is below the appraisal threshold level, doesn't mean that a valuation which typically requires a full appraisal report, due to multiple intended users is now suddenly restricted to a single user and can be produced as a Restricted Report.



So much for the creative labeling BS.

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[DWiley]

Because Appraisals are not Evaluations, and Evaluations are not Appraisals,, and it doesn't matter how "creative" you can get with labeling your report.

And,

Just because the loan amount is below the appraisal threshold level, doesn't mean that a valuation which typically requires a full appraisal report, due to multiple intended users is now suddenly restricted to a single user and can be produced as a Restricted Report.

I have a modest degree of familiarity with AO 13 and all that I have posted has been 100% consistent with AO 13.

Evaluations and appraisal are not the same thing. However, lenders have the option of exceeding the minimum requirements. So, if a transaction only requires an evaluation, a lender may still use an appraisal report to meet the obligation. So, there is no issue with a bank asking for an evaluation from an appraiser and accepting an appraisal report to meet that requirement. This is done every day with the full endorsement of the banking regulators.

Also, most "full appraisals" I see are for lenders, and most of them note that the client is the only intended user. See the sample Intended User language that is endorsed by Fannie Mae.

The myth that one cannot provide a restricted report to a lender, because there must be multiple intended users, is just that, a myth. The fact that a borrower may receive a copy of the report as part of disclosure obligations does not make that borrower an intended user. There is only one way to become an intended user of an appraisal report - and that is to be named as an intended user in the report. We just covered all that in my USPAP class yesterday. You should have been there

If one does provide a restricted report to a lender the report content will have to be expanded to include more than the bare minimum that USPAP requires. For example, a restricted report that provided only the results and did not include the supporting data and analysis to show how those results were derived would not be acceptable, because it would not meet the IAG.

For most that I talk with, the real angst with evaluations is with fees. The simple answer to that is to set the fee at a level that is acceptable to you and don't accept anything less. I was far more concerned with the hourly rate than the gross amount. My former firm did a lot of evaluations at $100 - $125, and found that with the admin staff we had to support the appraiser, that fee actually resulted in a higher per/hour billing rate than doing 1004s. YMMV, especially if you don't have any admin support.

 

[J Grant]

I may be in the minority, but I believe $100-$125 might be a decent fee for a desktop portion of an evaluation. But are lenders or AMC;'s paying that? I've had more than a few solicitations for evaluation work at a fee of $45.