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Appraisers Lead, The Rest Follow

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Deleted member 130081

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I've been harping about this for awhile. We are the ones who should be telling our clients and everyone else how appraisal works, and we should also be telling them how it doesn't work. When we allow others to tell us how it works (mortgage clients), we should at least be pointing out what was meaningful and what was not (reconciling the methods and techniques). By completing the GSE form formats that have been laid out for us, without including an adequate summary of reconciliation, the result is clients and subsequently the public are misled. The example at the end is a recent, yet not uncommon example posted in the "Ask An Appraiser" forum.

The fact is, much of what the public understands comes from their experience with mortgage appraisals. If public trust is what USPAP is all about, we ought to be connecting the dots and doing a better job of reconciling and reporting what works and what doesn't. If we continue to dismiss this responsibility under the rationale that our mortgage clients are knowledgeable and understand what we do, the unintended consequence is a misled public. Heck, that goes for the mortgage clients who don't understand things like we assume they do too.

Thing is, it would help ourselves a whole bunch too. Imagine a world without silly stips and/or assignment conditions. That's one way we could improve our bottom line without ever mentioning the word fee.

" Reason I ask! I just has an appraisal. I'm at 3518 sq ft. The appraiser used comps of 2800 sq, 2400 sq, and 1955 sq. The average sales comp is about $80 a foot. I appraised at $64.2 ft 1 1/2 yrs ago. He uses $20 a foot for the adjustment of my larger sq footage. The previous appraisal I thought was low at $30 a ft for adjustment. $20 a ft for up to 1553 sq ft dimishishes my value by about $28,000. He also chooses to ignore the three most recent sales of 5000 ft, 2900 ft, and 2400 ft (much more recent). The newer sales are site similar. Even if the subject, my 3518 home, took massive hits for Quality and Condition, it would comp at about 280,000, His appraisal came back at 213,000 mainly due to comping to such small sq footage, ignoring the current sales, and giving such a low ($20 a foot) adjustment for my extra sq footage. What am I missing here ?

and later...

I want to thank you for taking the time to respond to my posting. I have 4 appraisals in hand, 1 Las Vegas, 1 Arizona, 2 for TN, and have been studying them and breaking down for about 8 years now. While not trained or coached on my work I have created spread sheets emulating Fannies form 1004, Freddies form 70. When I analyze I take everything I can see, online and even drive by's, location, views, acreage, age, Q factors, C factors, Garages, Outbuildings, other improvements, fireplaces, and more into account. I even take a very Bank critical position "thought process" like it's my money I am lending and do things like give the comp, 2 grades up for quality and or condition; even if I think my subject is equal. The spread between the comps and my current appraisal are $332,000 (adjusted) and $213,000 for my subject, once again the weight being much on the low Sq Footage credit given the subject and the upwards of 1500 sq ft difference in GLA that were used. Another local appraiser, Fannie Certified tried, and did, use better bracketed GLA comps about 16 months ago, and used $30 a foot for the square footage adjustment. This new appraisal uses $20 a sq ft. Because he/she refused to use the most current comps which sold from $85 ft to $131 ft, the combination of the two put my subject in the ghetto category when it actually is the most beautiful and tastefully remodeled gentlemen's estate on 11.5 acres. Thanks."
 

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
First of all USPAP was not originated over public trust - that's simply a word some agency started throwing around mostly after the mortgage meltdown - USPAP was originated after the Savings & Loan Meltdown in the eighties because there was no standard policy that prosecutors could use in litigation. I was involved with the infamous Lincoln Savings which was the poster boy of loan and appraisal fraud OR so the Feds said. The Federal Prosecutors went after the commercial appraisers claiming their appraisals had been inflated mostly on land and development projects in Texas and Arizona.

The problem is the feds lost almost every-case because that was before licensing and before USPAP so after that nightmare the Federal Government initiated plans for State Licensing and USPAP. The appraisers defenses were often based on the theory that appraisals were nothing more than an-opinion and even though there were some standards they were simply based on what we had been taught by either our mentors or by taking courses through SREA-ASA and of course good old experience. Today in the event either a State Board or the Feds go after an-appraiser they will use USPAP as a benchmark and USPAP is such a convolution it can be stretched twenty ways to Sunday. Kind of like the old joke about how a Grand Jury could indite a ham sandwich - Same principle the average appraiser does not have the money or resources to defend him self if charged with USPAP violations and 9 out of 10 appraisers have never read their E & O policy because if they did almost all of them only will defend the appraiser for $5,000 to $10,000 against a State Board and USPAP issue.

As far as public- trust the system has been designed to create lack of trust - example borrower-buyer pays for the appraisal and under Dodd-Frank the lender is required to not only give the buyer a copy but he/she also has X-amount of days to review and approve or disapprove the appraisal . ( but ) if the borrower does not like the appraisal or if he has questions he is told that he is not the client and he cannot contact the appraiser. The poor borrower calls the appraiser and the first thing out of Appraiser Bobs mouth is sorry you are not my client and therefore I cannot discuss the appraisal with you. The borrower is thinking what the F*** I just paid this dumb ******* $400.00 bucks and I can't even ask him a few questions - he calls his lender and the lender knows nothing about appraisals so the poor borrower is screwed and he realizes there is nothing in the system designed to assist his needs.

So get the public trust issue out of your head because it's nothing but a word politicians and bureaucrats like to throw around because it's just not true. Nobody including me likes or trusts most appraisers because their simply not very good at what they do and unless they get busted by either their State Board or somebody that hauls them into a civil court they just keep producing the same garbage over and over.

The person who posted the question about GLA adjustments at $20 Sq.Ft.has a legitimate question and while I don't know that market area I do know that the appraiser should have at least tried to bracket the GLA and derive or extract the adjustment based on market reaction and should have explained why he used that low number. There is almost no where in America where $20.00 per square foot is realistic except maybe on a property that is a super over-improvement. This is one reason Fannie Mae came out last year with it's study stating that appraisers were using extremely low GLA adjustments and in many cases their reviews indicated the appraisers were using the same GLA adjustments on every appraisal they did and the age,size, quality of construction made no difference. I have reviewed appraisals where some Skippy was using $50.00 per Sq.Ft. GLA adjustments on Custom Homes located in $5,000,000 to $15,000,000 neighborhoods.

In Summary: This has always been an-industry created and used for mostly loan production and real appraisals are rarely found outside of private work because lenders created the system and Fannie-Freddie with the advent of UAD further placed the appraisal in a box and the score of 1 to 5 has become the new standard that further places the appraiser into nothing more than a form filling junkie.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
subsequently the public are misled
They are not my client and PT encompasses the entire loan process.
First of all USPAP was not originated over public trust - that's simply a word some agency started throwing around mostly after the mortgage meltdown -
agreed. Not even a concrete term.
Prosecutors went after the commercial appraisers claiming their appraisals had been inflated
I know a commercial appraiser who lost because his hypothetical (clearly marked) condo conversion was deemed inflated although the projected conversion was never done.
There is almost no where in America where $20.00 per square foot is realistic
I've run a lot of sensitivity and rarely find anything less than 40% of the DCN...and you need to subtract the land value and outbuilding otherwise you are measuring more than just GLA.
Fannie Mae came out last year with it's study stating that appraisers were using extremely low GLA adjustments
Keeps the adjustment down when using houses much larger or smaller than the subject....use better comps.
 
D

Deleted member 130081

Guest
First of all USPAP was not originated over public trust - that's simply a word some agency started throwing around mostly after the mortgage meltdown - USPAP was originated after the Savings & Loan Meltdown in the eighties because there was no standard policy that prosecutors could use in litigation. I was involved with the infamous Lincoln Savings which was the poster boy of loan and appraisal fraud OR so the Feds said. The Federal Prosecutors went after the commercial appraisers claiming their appraisals had been inflated mostly on land and development projects in Texas and Arizona.

The problem is the feds lost almost every-case because that was before licensing and before USPAP so after that nightmare the Federal Government initiated plans for State Licensing and USPAP. The appraisers defenses were often based on the theory that appraisals were nothing more than an-opinion and even though there were some standards they were simply based on what we had been taught by either our mentors or by taking courses through SREA-ASA and of course good old experience. Today in the event either a State Board or the Feds go after an-appraiser they will use USPAP as a benchmark and USPAP is such a convolution it can be stretched twenty ways to Sunday. Kind of like the old joke about how a Grand Jury could indite a ham sandwich - Same principle the average appraiser does not have the money or resources to defend him self if charged with USPAP violations and 9 out of 10 appraisers have never read their E & O policy because if they did almost all of them only will defend the appraiser for $5,000 to $10,000 against a State Board and USPAP issue.

As far as public- trust the system has been designed to create lack of trust - example borrower-buyer pays for the appraisal and under Dodd-Frank the lender is required to not only give the buyer a copy but he/she also has X-amount of days to review and approve or disapprove the appraisal . ( but ) if the borrower does not like the appraisal or if he has questions he is told that he is not the client and he cannot contact the appraiser. The poor borrower calls the appraiser and the first thing out of Appraiser Bobs mouth is sorry you are not my client and therefore I cannot discuss the appraisal with you. The borrower is thinking what the F*** I just paid this dumb ******* $400.00 bucks and I can't even ask him a few questions - he calls his lender and the lender knows nothing about appraisals so the poor borrower is screwed and he realizes there is nothing in the system designed to assist his needs.

So get the public trust issue out of your head because it's nothing but a word politicians and bureaucrats like to throw around because it's just not true. Nobody including me likes or trusts most appraisers because their simply not very good at what they do and unless they get busted by either their State Board or somebody that hauls them into a civil court they just keep producing the same garbage over and over.

The person who posted the question about GLA adjustments at $20 Sq.Ft.has a legitimate question and while I don't know that market area I do know that the appraiser should have at least tried to bracket the GLA and derive or extract the adjustment based on market reaction and should have explained why he used that low number. There is almost no where in America where $20.00 per square foot is realistic except maybe on a property that is a super over-improvement. This is one reason Fannie Mae came out last year with it's study stating that appraisers were using extremely low GLA adjustments and in many cases their reviews indicated the appraisers were using the same GLA adjustments on every appraisal they did and the age,size, quality of construction made no difference. I have reviewed appraisals where some Skippy was using $50.00 per Sq.Ft. GLA adjustments on Custom Homes located in $5,000,000 to $15,000,000 neighborhoods.

In Summary: This has always been an-industry created and used for mostly loan production and real appraisals are rarely found outside of private work because lenders created the system and Fannie-Freddie with the advent of UAD further placed the appraisal in a box and the score of 1 to 5 has become the new standard that further places the appraiser into nothing more than a form filling junkie.

I really don't disagree with anything you said (except for the $20 sf GLA thing, which is a number that comes up for me plenty in certain markets when using a GSE form).

I couldn't agree more that the current system is designed entirely around mortgage lenders and the ability to hold appraisers accountable. I would ask, so what? Frankly that does not seem unreasonable from a certain point of view. Mortgage is the largest client group by far and I see no reason why appraisers should not be held accountable to a certain degree.

For me it starts to get ugly when we are pressured to produce reports that include "desirable" data, rather than what we would present if left to our own decisions. The problem I see here, which coincides nicely with the sentiment you are laying down, is that the loans are ultimately bundled and sold to investors. These investors are sold a product by which they are "assured" on the appraisal portion, of an unbiased report completed by competent professionals - that's part of the sales pitch/marketing. When the lenders stick their noses in what we do to the extent that they do, its becomes misleading to then turn around and claim the process was entirely independent. Some might view that as fraud. I do.

But to go back full circle, the standardization of the industry does provide great benefit to all. A lender from CA can order an appraisal in NY and when they get it back, they understand what they are looking at. That familiarity creates confidence and that confidence results in a loan. Credit and liquidity of currency are wonderful things and our entire global society benefits from it. Just imagine if we still traded cows for houses!!! Just saying there is a lot to consider.

Last point is USPAP. I wasn't around when it was introduced and I have no reason to doubt any comments you made about it. Though consider this if you will, certain things have unintended consequences. Maybe USPAP was a wink wink of a farse between the people who initially wrote it. But they did write it, and now we all follow it. The purpose of USPAP is defined and written within the document itself, and that writing has laid it out for future generations to follow. While we all argue and disagree about everything under the sun when it comes to appraisal, I have yet to see anyone say the trust of the public is not an ideal and goal we don't want, value and strive for.
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
The fundamental requirements of USPAP for ethical and competent conduct by the appraiser have not changed in at least 90 years. I have a scan of a code of conduct that was published in a 1929 appraisal text and some of those terms have survived to present in very nearly the same verbiage. There's more detail to the current version and we've thought through some of these concepts more deeply, but if you had adhered to that previous code of conduct in your current work you would not be turning out unreasonable results. With the exception of some of the housekeeping items.

You guys are zooming yourselves if you think USPAP is a creation of the lending business. The basics are fundamental to what we do; for the most part they're more/less what you would choose to do if you thought these issues deeply enough - which most appraisers never do. That some appraisers are looking at USPAP strictly as a nuisance or an obstacle only betrays how little they understand about the "why" behind the "what".

Why would you not want to be aware of your intended user and all of their expectations when you're doing work for them?
Why would you not want to maintain client confidentiality to whatever extent it's important to them?
Why would you not want to disclose all the assumptions and limitations that are in play in your report?
Why would you not want to actively assert that you were trying to meet a common standard?

Apart from perhaps the 3-yr assignment history and property sales history - and even both of those make sense if you think about it - what does USPAP do to you that undermines your legitimate interests? If anything, having the common standard that presents the defensible position *supports* your legitimate interests.
 

USPAP Compliant

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
I've been harping about this for awhile. We are the ones who should be telling our clients and everyone else how appraisal works, and we should also be telling them how it doesn't work. When we allow others to tell us how it works (mortgage clients), we should at least be pointing out what was meaningful and what was not (reconciling the methods and techniques). By completing the GSE form formats that have been laid out for us, without including an adequate summary of reconciliation, the result is clients and subsequently the public are misled. The example at the end is a recent, yet not uncommon example posted in the "Ask An Appraiser" forum.

The fact is, much of what the public understands comes from their experience with mortgage appraisals. If public trust is what USPAP is all about, we ought to be connecting the dots and doing a better job of reconciling and reporting what works and what doesn't. If we continue to dismiss this responsibility under the rationale that our mortgage clients are knowledgeable and understand what we do, the unintended consequence is a misled public. Heck, that goes for the mortgage clients who don't understand things like we assume they do too.

Thing is, it would help ourselves a whole bunch too. Imagine a world without silly stips and/or assignment conditions. That's one way we could improve our bottom line without ever mentioning the word fee.

" Reason I ask! I just has an appraisal. I'm at 3518 sq ft. The appraiser used comps of 2800 sq, 2400 sq, and 1955 sq. The average sales comp is about $80 a foot. I appraised at $64.2 ft 1 1/2 yrs ago. He uses $20 a foot for the adjustment of my larger sq footage. The previous appraisal I thought was low at $30 a ft for adjustment. $20 a ft for up to 1553 sq ft dimishishes my value by about $28,000. He also chooses to ignore the three most recent sales of 5000 ft, 2900 ft, and 2400 ft (much more recent). The newer sales are site similar. Even if the subject, my 3518 home, took massive hits for Quality and Condition, it would comp at about 280,000, His appraisal came back at 213,000 mainly due to comping to such small sq footage, ignoring the current sales, and giving such a low ($20 a foot) adjustment for my extra sq footage. What am I missing here ?

and later...

I want to thank you for taking the time to respond to my posting. I have 4 appraisals in hand, 1 Las Vegas, 1 Arizona, 2 for TN, and have been studying them and breaking down for about 8 years now. While not trained or coached on my work I have created spread sheets emulating Fannies form 1004, Freddies form 70. When I analyze I take everything I can see, online and even drive by's, location, views, acreage, age, Q factors, C factors, Garages, Outbuildings, other improvements, fireplaces, and more into account. I even take a very Bank critical position "thought process" like it's my money I am lending and do things like give the comp, 2 grades up for quality and or condition; even if I think my subject is equal. The spread between the comps and my current appraisal are $332,000 (adjusted) and $213,000 for my subject, once again the weight being much on the low Sq Footage credit given the subject and the upwards of 1500 sq ft difference in GLA that were used. Another local appraiser, Fannie Certified tried, and did, use better bracketed GLA comps about 16 months ago, and used $30 a foot for the square footage adjustment. This new appraisal uses $20 a sq ft. Because he/she refused to use the most current comps which sold from $85 ft to $131 ft, the combination of the two put my subject in the ghetto category when it actually is the most beautiful and tastefully remodeled gentlemen's estate on 11.5 acres. Thanks."


To come up with a GLA adjustment, prepare an extraction. Sales price minus land, garage, decks, patios etc, f/p.....all items that are not GLA. All of that value deducted from the sales price gives you a GLA adjustment that is defenseable. If asked how to explain $30.00, $20.00 or some other # how would you do it.
 
D

Deleted member 130081

Guest
The fundamental requirements of USPAP for ethical and competent conduct by the appraiser have not changed in at least 90 years. I have a scan of a code of conduct that was published in a 1929 appraisal text and some of those terms have survived to present in very nearly the same verbiage. There's more detail to the current version and we've thought through some of these concepts more deeply, but if you had adhered to that previous code of conduct in your current work you would not be turning out unreasonable results. With the exception of some of the housekeeping items.

You guys are zooming yourselves if you think USPAP is a creation of the lending business. The basics are fundamental to what we do; for the most part they're more/less what you would choose to do if you thought these issues deeply enough - which most appraisers never do. That some appraisers are looking at USPAP strictly as a nuisance or an obstacle only betrays how little they understand about the "why" behind the "what".

Why would you not want to be aware of your intended user and all of their expectations when you're doing work for them?
Why would you not want to maintain client confidentiality to whatever extent it's important to them?
Why would you not want to disclose all the assumptions and limitations that are in play in your report?
Why would you not want to actively assert that you were trying to meet a common standard?

Apart from perhaps the 3-yr assignment history and property sales history - and even both of those make sense if you think about it - what does USPAP do to you that undermines your legitimate interests? If anything, having the common standard that presents the defensible position *supports* your legitimate interests.

I like USPAP. I thought it was dumb when I started because I had expected it to tell me how to appraise property, nuts and bolts style. After awhile I came to respect and applaud it. It directs us how to interact with our clients which, in theory, should result in increased trust in the profession. Your comments on the history are very interesting. Like I said, I wasn't around when they wrote it. I have close to zero issues with USPAP.
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
I've said this on the forum many times before. I started appraising several years before licensing came along and USPAP became a requirement, so I remember what it was like to appraise when there was no common standard for everyone.

Back then, if an appraiser and a reviewer got into a disagreement for any reason, the only way the appraiser might prevail was if they had a designation and the reviewer didn't. Otherwise, the reviewer always controlled the discussion solely by virtue of their job title, whether they knew what they were talking about or not. Reviewers *commonly* dictated arbitrary requirements and made decisions based on "I don't like it" and without any further support of it than that. Naturally, the lack of a defensible position for appraisers resulted in appraisers being UNABLE to know when they were or were not within spec because those specifications could change at any time.

This is how the sentiment "there's no such thing as a USPAP compliant appraisal" came to be - it is an extension of the paranoia that arose back when the the appraiser could almost never win even if they were right. the combination of USPAP and licensing came to level the playing field between appraisers and reviewers and other users of the appraisal because the appraiser had a benchmark they could point to in support of why they were doing what they were doing or declining to do something they weren't supposed to be doing. These days, appraisers and reviewers relate to each other on more of a peer basis, as equals and with the reasoning being given more weight than the status. That's a huge improvement in our working conditions, the effects of which almost cannot be overstated. Since most of you - including many of the more senior appraisers on this forum - didn't come into the business until after licensing came online you guys have no "before" upon which to base the comparison. I saw it and I'm here to tell you that appraisers have it way better now, especially as our understanding of USPAP has matured, than we had it back when the lenders decided what was and wasn't acceptable appraiser conduct and appraisal practice.

For a while we even had the idea of "competing standards" floating around with some appraisers considering Fannie or VA or FHA guidelines to be competing and freestanding appraisal standards in their own right (as opposed to being supplemental to those assignments when present). They thought USPAP didn't apply when those other guidelines were in effect. I saw that a fair bit on this forum when I first started posting, at which point licensing had already been online for several years. By the time I and a couple others got done running those arguments into the ground several of the posters who had been advocating "Fannieworld doesn't require USPAP" basically quit the forum in frustration. Some of the remaining OG posters might even remember some of those names if I were to drop them here, which I won't.

The point is that there would be expectations for appraisers regardless of who developed and promulgated them. Whether its called USPAP or by some other label makes no difference. And in any case we should WANT our standards to be promulgated by other appraisers who know WTF they're doing in an appraisal and based on appraisal principles, not by the bankers based on their interests.

IMO
 
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