There's no practical way to price your services well enough to break even in the event of a lawsuit
Yes, risk must be priced into your income model. You do that two ways, one with E & O insurance (it has to be paid for) and the last some part of your fee must be based upon a reserve in the event of a complaint (which are as expensive as a lawsuit up front win, lose or draw). No, you obviously cannot predict which report will get you sued but you do certainly know which assignments are higher risk and which appraisal products hold the most risk - divorce, drive-bys, etc. EAs are simple caveats and just because your caveat renders the actual problem "harmless" in your eyes, doesn't mean it might not be wrong and the client/user/borrower won't sue or complain. And those assumptions have another landmine is having someone somewhere knowing what is "right". I saw that play out in a court hearing when a termite inspector certified that they had inspected the crawl space. Months later another inspector entered the same crawl space, found no evidence that the first inspector had ever entered that space. Normally if inspected a termite man will mark the date on the joists they actually inspected.
The client knows damn well that a third party inspection is less reliable
see below
Nobody thinks these are just as good as a 1004
Really? Then why were they projecting the Form 1004P, which is being used in pilot testing. And what is the rationale for this pilot program? Yes, FNMA calls this a driveby appraisal but puts the onus upon the appraiser to address any inconsistencies from the source they use to verified the data was inaccurate. Additionally, they limit the "assignment specific" assumptions....aka what we once called "extraordinary assumptions" [another stupid pointless change in USPAP] So? That's easier??????
For Value Verify, if the appraiser finds an inaccuracy in the property data, the appraiser must not rely on the inaccurate data but instead use the alternative data source that was instrumental in uncovering the inaccuracy. In other words, a hypothetical condition is not a valid mechanism for dealing with inaccurate property data.... We allow two additional assumptions as needed. If the date of property data collection is not the same as the effective date of the appraisal, we allow the appraiser to assume that the property characteristics have not changed in the interim. Also, appraisers may assume there are no material omissions in the property data.
No mention is made when one cannot determine which source is "right" and which is not....especially true when you have an MLS interior pix from months ago to compare to an inspection written, or descriptions so eerily similar to the MLS descriptions you suspect it was merely cloned from the MLS....which you already have. And what about the Fannie rule that requires all accessible areas be inspected? Who of us hasn't found that locked room where they don't want you in? Fannie says the report must be "subject to" in those instances. Do you expect this 3rd party to notify the homeowner in advance that they need to see all rooms, closets, etc. ? And to not lie about it if encountered instead of reporting as if they inspected it correctly? Do you expect them to go back to inspect it? Not a chance for $50. This makes the quality of the report even less reliable than a drive by because you know what you can say/see/believe in a drive by no more so that in a 3rd party you don't know? If I know my sources, picked the inspector (trainee), or the source was unaware of my use of that information (i.e.- not tailored for me and the assignment fee) that I probably can rely upon better.
Further, when Fannie talks about a drive by (aka 2055) tons of those were done wrong because people caveat the interior away by saying they assumed the interior was the same condition as the exterior. Fannie always required the 2055 to determine the interior condition by some 3rd party source and that is why I always charged the same price for the 2055 as the 1004. In reality, all these so called "desktop" reports - 2055, 2065, 1004P -
are interior inspected (by someone) just like the 1004. The difference is who is doing it. A true "drive by" would be like the assessor who only visualizes the property from the road without benefit of MLS or other information.
Last the 1004P is supposed to be the pilot that represents "our [FNMA] efforts to modernize the appraisal process." The very same newsletter (Sept. 2019) urges homeowners to order their own appraisal "early in the process" because the reports are for FNMA and not for the borrower. How sweet. You "modernize" by compressing time into a 3 day period? But the HO is supposedly going to have time enough to order their own appraisal to see if they are over-paying or not? Who is kidding who? What is "modernization"? Is it merely defined by "faster, cheaper"...and cut the appraiser out of the valuation process? Seems so. And if this "modernized" process is meant only to save time, again, how does that happen with most appraisals expecting 3 -5 day TTs? Why is our check not 3 - 5 day turn times? My local banks do it. Why can't an AMC do that? Chase, et al cut checks 24/7...but cannot pay the appraiser within 30 days? The real expectation of FNMA appears to be is to cut the fee to the appraiser, nothing more. It was more to assert control over the appraiser, cut costs and not to improve or "modernize" the process.
