Appraisal Warranty Insurance

[Junior Member]

I look at the creation of such insurance as another added cost that lenders and AMC clients will soon be requiring appraisers to provide at no additional cost.
I can see appraisers being told you must sign up with and provide such insurance on every appraisal in order to be considered for assignments.

I can see a lender wanting this insurance far more than E&O.

Because of that desire on the lender's part, would the appraiser who is able to offer an insured valuation be in a position to then charge a higher fee? I read a steady stream of complaints from experienced appraisers that some or most AMCs go to the cheapest and fastest without regard to competency. If the "skippies" as some call them here can't offer an insured valuation because they cannot qualify, does that leave the "non-skippies" with pricing power?

I think there are two parts to the value offered to a lender ordering an insured valuation: (1) the mitigation of their risk by the insurance; and (2) knowledge that the appraiser delivering the appraisal is "qualified" to provide it -- I wrote above about the type of qualifications that might apply and those are certainly up for comment.

-- Peter Christensen, LIA's general counsel

 

[JRS at OBX]

Interesting concept. Could there be issues with my selling of an insurance policy without being licensed by my state insurance department?

 

[Junior Member]

Interesting concept. Could there be issues with my selling of an insurance policy without being licensed by my state insurance department?

No. The appraiser is not selling insurance. The insurance policy that covers the appraisals exists between the insurance carrier and the appraiser -- the lender, however, is a covered third party. As an example, this is no different legally than if you were to buy a fidelity insurance policy which has "third party coverage." Under that policy, when you provide your services, your client is covered for their losses if you do something like steal from them, and the client has a direct claim on the policy. You are just selling your services but the services come covered by insurance.

-- Peter Christensen, LIA's general counsel

 

[William K]

Because of that desire on the lender's part, would the appraiser who is able to offer an insured valuation be in a position to then charge a higher fee? I read a steady stream of complaints from experienced appraisers that some or most AMCs go to the cheapest and fastest without regard to competency. If the "skippies" as some call them here can't offer an insured valuation because they cannot qualify, does that leave the "non-skippies" with pricing power?

I think there are two parts to the value offered to a lender ordering an insured valuation: (1) the mitigation of their risk by the insurance; and (2) knowledge that the appraiser delivering the appraisal is "qualified" to provide it -- I wrote above about the type of qualifications that might apply and those are certainly up for comment.

-- Peter Christensen, LIA's general counsel

Wouldn't the insurer need a sufficient pool of participants to make it worth while to offer such insurance? If so then the "qualifications" could actually be, for a better term, "watered down" so that the pool of appraisers is large enough.
I see the requirement of coverage by a lender, of the appraisers they utilize, to be an added expense put upon the appraiser rather than paid for or passed along to the borrower.
I understand the thinking of "more" being better, for which a client should pay, however it has not resulted in such action based upon history in the appraisal profession.
We currently provide more details, more analysis, and more information now than we have at any point in our profession in our appraisals, yet fees are still at levels seen from over 20 years ago.

Why can't "Skippy" qualify? "Skippy" still takes classes, still provides a nice resume and still provides a solid "work sample". It's in every day practice that they don't provide the same care and quality because they can't in order to be cost effective. They aren't going to submit a sample of work with a bunch of short cuts.

 

[Junior Member]

Why can't "Skippy" qualify? "Skippy" still takes classes, still provides a nice resume and still provides a solid "work sample". It's in every day practice that they don't provide the same care and quality because they can't in order to be cost effective. They aren't going to submit a sample of work with a bunch of short cuts.

William,

The factors I outlined very briefly for qualifications to provide insured valuations were: a certain number of years experience as a fee appraiser, completion of specific education regarding risk mitigation for lender assignments similar to what we offer now to appraisers but more focused on valuation errors (since that is what is insured), an evaluation of the appraiser's ongoing appraisal education, a review of sample work, and an acceptable history free of material liability.

Are there other factors, not just for "insured valuations," but in general, that meaningfully can be used to determine appraisers who deliver accurate valuations from other appraisers? Should we test them with a specific assignment?

For E&O, we "qualify" appraisers every day, but qualifying appraisers to provide insured valuations requires a higher level because of the greater, overall monetary exposure and the lender's ability to make a direct claim, when there is an inaccurate valuation.

-- Peter Christensen, LIA's general counsel

 

[Highlander416]

Because of that desire on the lender's part, would the appraiser who is able to offer an insured valuation be in a position to then charge a higher fee? I read a steady stream of complaints from experienced appraisers that some or most AMCs go to the cheapest and fastest without regard to competency. If the "skippies" as some call them here can't offer an insured valuation because they cannot qualify, does that leave the "non-skippies" with pricing power?

I think there are two parts to the value offered to a lender ordering an insured valuation: (1) the mitigation of their risk by the insurance; and (2) knowledge that the appraiser delivering the appraisal is "qualified" to provide it -- I wrote above about the type of qualifications that might apply and those are certainly up for comment.

-- Peter Christensen, LIA's general counsel

I think the concept is really good. The key will be what it takes for an appraiser to qualify. If most appraisers in a market qualify and start offering it, the lenders will adjust pretty quickly and just require it along with an E&O policy. If everyone offers it, we are pretty much back to the starting point.

 

[William K]

William,

The factors I outlined very briefly for qualifications to provide insured valuations were: a certain number of years experience as a fee appraiser,(a large number of "Skippy" appraisers have better than 5 years experience) completion of specific education regarding risk mitigation for lender assignments similar to what we offer now to appraisers but more focused on valuation errors (since that is what is insured), an evaluation of the appraiser's ongoing appraisal education,"] ("Skippy" takes most of the same courses as all other appraisers even from large national organizations) a review of sample work"(Skippy is smart enough to provide only the best "perfect" sample reports, some times written by other appraisers), and an acceptable history free of material liability.

Are there other factors, not just for "insured valuations," but in general, that meaningfully can be used to determine appraisers who deliver accurate valuations from other appraisers? Should we test them with a specific assignment? see below

For E&O, we "qualify" appraisers every day, but qualifying appraisers to provide insured valuations requires a higher level because of the greater, overall monetary exposure and the lender's ability to make a direct claim, when there is an inaccurate valuation.

-- Peter Christensen, LIA's general counsel

Since insurance would be specific to the property being appraised I would think rather than samples that you would want copies of actual reports that were insured to be submitted so that a certain percentage of every appraisers work could actually be reviewed for their "accuracy" and for quality assurance. Considering there would, in most likelihood, be a great crossover of appraisers who also carry E&O insurance with the same firm I would think this would be the most prudent course of action to ensure the quality of work by the appraiser being insured.

 

[Meandering]

Peter,

Could we offer this product for private work? What would be your feeling if we offered it for court work? Would it be viewed as advocacy if we provide an appraisal with a warranty that the other side does not have?

If we could offer it for private work, would we need to submit a copy of each final report to you for each insurance? Would that be within USPAP confidentiality? I'm sure private clients would waver a confidentiality agreement for a warranty of the value arrived.

This might be very useful for private work.

.

 

[Junior Member]

Peter,

Could we offer this product for private work? What would be your feeling if we offered it for court work? Would it be viewed as advocacy if we provide an appraisal with a warranty that the other side does not have?

If we could offer it for private work, would we need to submit a copy of each final report to you for each insurance? Would that be within USPAP confidentiality? I'm sure private clients would waver a confidentiality agreement for a warranty of the value arrived.

This might be very useful for private work.

.

No. For anything that might be an affordable premium, it would not work for private work because private parties are more likely to have claims on a warranty, would only purchase an insured appraisal when they are more likely to have a claim, and are much less predictable than regular lender clients. I made some other comments in another response above.

-- Peter Christensen, LIA's general counsel

 

[Junior Member]

Since insurance would be specific to the property being appraised I would think rather than samples that you would want copies of actual reports that were insured to be submitted so that a certain percentage of every appraisers work could actually be reviewed for their "accuracy" and for quality assurance. Considering there would, in most likelihood, be a great crossover of appraisers who also carry E&O insurance with the same firm I would think this would be the most prudent course of action to ensure the quality of work by the appraiser being insured.

Thank you. Yes, I think sampling of appraisals covered could be valuable, and there is a benefit to also having the E&O with the same firm.

-- Peter Christensen, LIA's general counsel