Broker Price Opinions in Nevada

[xmtraterbcra]

BTW,

That BPO form shown in Bert's post above could easily be converted to an SR-2 compliant appraisal report with a couple of changes in the verbiage and the addition of a generally boilerplated addendum with assumptions and limiting conditions. As long as you knew exactly what those assumptions and limitations were you could add or modify extraordinary assumptions or hypotheticals or change other disclosures on a case-by-case basis.

I'd never use MS Word to do the report, though.

George,

You're converting a BPO into an appraisal report and calling it a BPO.

The point is that the Fannie Mae BPO form would be illegal for a broker to complete in California, Michigan, Nevada and I'm sure many other states where Real Estate Brokers are not allowed to provide market value estimates for other than internal company use.

The form is illegal and is causing havoc. - Someone with contact to Fannie Mae admin, should get them to completely remove anything related to market value from the form.

Bert Craytor, SRA

 

[xmtraterbcra]

...I think that Zaio's integrated software and hotload functions would make a great BPO buster so long as an appraiser could use it to tag and export their MLS listings and photos into the report.

Zaio came out with an annoucement the day before yesterday that it has moved from the "developmental" to the "operational" stage.

Coincidentally they mentioned that out of about 7,500 zones in the US, they sold a total of 54 last quarter for a total of 1,773 zones. Let's see, that's 54 x 4 = 216/year. At that rate they will have the remaining zones sold in another 26 years. [Of course assuming that the downturn in zone sales levels off to 52/quarter.]

- Maybe that explains the sell-off in the last two days. The stock is now $0.36/share from it's high of $5.20/share, with a 60% drop in the past two days. At this moment, the sell-off is ACCELERATING. Interesting to see how low the price is going to go.

.... I think Zaio is a dead issue.

Now, back to BPOs and fees.

1. It's true that there is less demand for full appraisals. There's fewer sales. Also, home prices have bottomed out in many areas. I'm seeing homes in distressed areas of California selling for 1/3 to 1/2 of their list price last year. The prices have bottomed out or something close. A lot of the sales are REOs. There is little risk for someone with a good credit rating. In fact many of these homes can be rented at rates that will cover mortgage payments. .... Nonetheless people are still doing 100% financing with FHA loans and full appraisals are still required in most cases.

2. For the profession as a whole, it doesn't make sense for a few appraisers to jump in and swoop up the available appraisals at cut-rate prices. Besides which, you are proposing Zaio type appraisals? You can't do it and be USPAP compliant. Promoting this kind of strategy will just cause more problems.

Bert Craytor, SRA

 

[George Hatch]

Bert,

Please don't misunderstand what I'm saying. When acting as an appraiser, USPAP applies. I wasn't suggesting that appraisers should be doing BPOs per se, I was only suggesting that USPAP is flexible enough to allow appraisers to perform appraisals that include a SOW that's similar in terms of type and extent of development as the BPOs. That BPO form would make an okay appraisal form with a few changes and a hefty addenda. Of course, it wouldn't be a BPO form at that point.

The question isn't so much what USPAP (and hence a state appraisal board) will allow, it's what the market will accept and at what price. I don't need the OREAs blessing to develop and use my own appraisal forms, so long as I abide by USPAP. I just need to know what I'm doing and to do it.

As you said yourself, the market is obviously interested in valuations that use a SOW that is far less than what we'd find on a Fannie 1004 or 2055. Within reason, we can step in and meet that demand if we can otherwise come to terms with our clients.

That may or may not be a smart move to do that over the long haul, though, because it would undercut our fee structure for our other assignment types. However, that's a business decision, not an appraisal standards decision. The only reason I jumped in on this thread was because a couple people were whining about how USPAP is the problem. USPAP is not the problem, and neither is licensing. The problem is supply/demand and fee structures; and the expectations appraisers have for their businesses.

As for my comments about Zaio's software, I was referring to portions of their software and its capabilities, not to the business itself nor the people who are running it. Ironically, even though the Z-advocates like to say that appraisers are afraid of change and technology, those are the aspects of the company that I like the most. I only wish that Zaio's claims were true that "we don't do appraisals, we only sell software." I'd seriously consider buying parts of Zaio's software if it were priced right and I could figure out how to integrate it into my business. I'd have serious reservations about loading an AVM into an appraisal report form, but I'd love to use a "hotload" function that imports data from my MLS and populates my report for me. I spend way too much time with data entry.

My areas of dispute with Zaio mostly revolve around elements of the Management section of the Ethics Rule and the disclosure requirements in SR-2, not the Competency Rule or the development requirements of SR-1.

At any rate, my point was and is that the feds have opened the door for the lenders to accept non-licensed appraisal work, masquerading as BPOs. As Steven said, it's going to be tough for a state to infringe on the jurisdiction of the federal regulators. If we want to eliminate the competition from realty agents and brokers for these clients we're probably going to have to lean on the clients and their regulators.

 

[xmtraterbcra]

... I was only suggesting that USPAP is flexible enough to allow appraisers to perform appraisals that include a SOW that's similar in terms of type and extent of development as the BPOs....

I'd recommend you carefully read Advisory Opinion 22 of USPAP 2008-2009 (Scope of Work in Market Value Appraisal Assignments, Real Property).

It ends with this paragraph:

"In a market value appraisal, the appraiser’s scope of work decision carries a burden of proof to support the appraiser’s conclusion about how he or she addresses each “condition” in the market value definition used in the appraisal. The definition includes conditions that often require a high degree of knowledge, competency, and judgment, which are necessary to effectively develop the appraisal process. An appraiser cannot meet his or her obligations in a market value assignment without having competently identified and then completed a scope of work that enables development of credible opinions and conclusions."


- Aside from the fact that estimating market value requires a sufficient understanding of the subject market, - steps 7 (Extraordinary Assumptions) and 8 (Hypothetical Conditions) must be "Reasonable". With regard to exterior only inspections, assumptions have to be made about the interior. With regard to Desktop Appraisals, assumptions have to be made about the site, exterior and interior. ... Well, if the appraiser can correctly remember and document a previous inspection, he is home free. That's Zaio's contention. However, I will predict that if Zaio survives long enough - that we will see plenty of Zaio appraisals that are not only inaccurate - but totally off base. There just isn't enough time to do a good job on 10,000 properties in the allotted time and for the expected revenues. - And you can be sure that non-Zaio appraisers who discover the errors (remember home owners love to hand out copies of their old appraisals) will be merciless in reporting such incidents.

Bert Craytor, SRA

 

[xmtraterbcra]

...- steps 7 (Extraordinary Assumptions) and 8 (Hypothetical Conditions) must be "Reasonable". With regard to exterior only inspections, assumptions have to be made about the interior. With regard to Desktop Appraisals, assumptions have to be made about the site, exterior and interior. ... [/quote]

I should mention that this issue came up in discussions with the OREA. For example:

1. If you are working in a newer subdivision, it is probably "reasonable" to assume that the subject is not in "below average" condition. That is, you know, based on your experience in that subdivision, that it is highly improbable that a home would be in poor condition. If, on the other hand, you are working in a neighborhood of mixed home types of different ages, some of which you know are in inferior interior condition, then it would not be considered "reasonable" to assume a home is in any particular condition, without some type of inspection.

2. We have a problem here in California of homes along the coast, where within a particular neighborhood, some homes have a fastastic view and others, possibly adjacent and just located on the wrong side of the street, do not. The value of the ocean view can be over $100,000. It would not be reasonable, agreed the OREA official, to assume a value for the view, wiithout inspecting the site. In fact, this is one of the things they look for in doing reviews.

3. The SF Bay Area is full of anomalies, exceptions and misfits. I've never done a BPO or desktop for that reason. In fact, I've only done 4-5 exterior only appraisals - and that was back when I was working as a trainee.

Bert Craytor, SRA

 

[George Hatch]

Bert,

AO-22 - check.

I think you've got me all wrong. Just because I mentioned Zaio's software in a post doesn't mean I'm advocating mass inspections or dated inspections or most of the other aspects of their business model. I was just talking about some of their software. Truth to tell, I'd rather purchase my software from alamode or ACI (or you), if/when they develop the same capabilities.

Likewise I'm not suggesting exterior-only inspection protocols are appropriate for all assignments or even a large percentage of assignments, nor am I advocating research protocols that skip driving comps in areas with a lot of variance for site factors. I live in a beach community, too, so I know all about site influences.

All I've been saying is that for at least some assignments and depending on some uses it may not be out of line to use these lesser protocols. The credibility of assignment results is always measured in the context of the intended use. You may believe that full 1004 type appraisals are the only thing that counts, but at least some of the intended users disagree with you, and USPAP has always allowed a wide variation of SOW for different assignments, depending on their usage.

IMO, appraisers are far more limited about their own perceptions of what the minimum requirements are than by what those minimums really are. Fannie's minimums are fine for many assignments but they are excessive for some assignments and they are indequate for other assignments.

 

[xmtraterbcra]

This is a duplicate post.

 

[xmtraterbcra]

I think you've got me all wrong.

Most posts are short and lack detail, but often give an impression. None of us have enough time to do a good job of accurately expressing our changing opinions - which would be a waste of time in most cases. It's all just food for thought.

Fannie's minimums are fine for many assignments.

My theory is:

1. That we are dealing with a system where the real culprit is BIAS that enters the picture at all source of entry points, because of GREED. For example, pressure to overvalue by mortgage brokers who's main motive is making their deals happen.

2. CONSISTENT BIAS in the system (lending) leads to POSITIVE FEEDBACK LOOPS ( a term in System Theory) which occur when market participants start to rely on the BIAS in making their decisions (e.g. purchase price). These POSITIVE FEEDBACK LOOPS are what make the system instable (as exemplified by the current mortgage "meltdown").

So, it's not so simple: you can't just say that if the LTV is only 80%, of if the prices have bottomed out, appraisals don't need to be that accurate. ONCE you say that appraisals don't need to be accurate, you open the door to BIAS. And the "system" is too weighted with inertia to make a fine distinction between cases were accuracy is needed and where it is not.

But to be practical, I would prefer an Either/Or system where AVMs are used for those cases where accuracy is not needed - because they (AVMs) can be engineered (as software programs) to protect against bias and where, on the other hand, appraisers are used only when accuracy is needed. When appraisers enter the picture, USPAP constraints should apply in full force. - And for all practical purposes, that means full appraisals - as a general policy. I think that is where USPAP is headed. The SOW is really not that flexible on the soft side, because of the "reasonableness" criteria - that's the way it should be. I think the grey area between AVMs and full appraisals will eventually be eliminated.

Now, having said that, there is, possibly, room for an "Appraiser Assisted AVM". This is, in my opinion what Zaio is trying to do. The result is something that should not be signed by an appraiser. The appraiser would only provide approximate scoring of property features based on the best available evidence. But of course, as soon as human intervention is allowed, in the form of scoring, bias is likely to enter the picture. You can avoid this largely by scoring all properties in a single sweep, rather than on demand for a particular transaction. But, then you have to maintain a PUSH system. These are largely very inefficient, as is well known in the manufacturing industry - which prefers PULL systems (build to order). We already have a PULL system for independent fee appraisers that is fairly efficient. Zaio's PUSH system is, in fact, a backward innovation. The people who created it are incompetent as systems analysts, IMHO. So, where does this leave us, in my opinion? "Someday" all real estate data will be stored in computers. Everything. Pictures of the interior taken and so on. We are already partially there with a variety of MLS systems, which contain numerous exterior and interior photos of properties, along with video. The problem with these systems, is lack of standardization, quality control and the fact that the data only covers listings that have been entered in the last 10 years. But these systems will eventually improve and be tied into AVMs. Appraisers will likely be called in to fine tune the AVMs - in a way that ensures lack of bias. This is probably 15+ years off on a national basis. ... Even then, residential appraisers will still be needed for more accurate appraisals, - and many will surely find their specialty to be appraising for AVMs rather than mortgage brokers or lenders.

Bert Craytor, SRA

 

[George Hatch]

Bert,

Two things -

"Accurate" is not the operative term with appraisal values. It implies a level of certainty and precision that we don't assert. The operative term we use in USPAP is "reasonable", which connotes quite a different standard than accurate.

I've been appraising for 23 years now, and in that time we have always done different SOWs for different types of intended uses. Reasonable for one use isn't reasonable for all uses, and it never has been. Whether you think it proper or not, some uses have always justified a lesser SOW.

There are way too many appraisers who are fixated on only selling what they want to build rather than what the intended users want to buy. The overarching requirement in USPAP is to provide appraisal services that will be meaningful and not misleading to the intended users, and meaningful can sometimes mean not doing the 150 page narrative-by-the-pound for a simple little dogbox tract home.

I'm glad you brought up the PULL systems that build appraisals to client specifications, because that's exactly the intent of the SOW Rule. Of course, that also means listening to them, too.

As for AVMs, I haven't been pushing those either; but I will say that for some low risk uses forcing a lender to get a 1004 appraisal for a recently built tract home is overkill. I realize we all like to get those no-brainer assignments that even a monkey can do because they're extremely profitable, but let's be reasonable here - the client usually doesn't need something like that when they're doing a $20,000 HELOC.

Besides, sooner or later we will be integrating various forms of regression analysis into our appraisal reports, if nothing else than as a supplement. You're an AI designated appraiser - it's your org that's pushing it.

I don't have a problem with Nevada putting limitations on BPOs going to lenders. You guys might have some success in persuading the state to compel the agents to comply with USPAP when they are acting as appraisers. Or, maybe the state can compel their agents to include a reasonable set of assumptions and limitations so that it will be apparent to the lenders exactly what they're getting.

The area that's difficult for me is that some of the rationale you guys are using for what you're doing just won't hold up. If you're going to argue for something, I think you need to make an argument that will stick. That's all I'm saying.

 

[xmtraterbcra]

"Accurate" is not the operative term with appraisal values. It implies a level of certainty and precision that we don't assert.

Ha,ha. Well there sure are a lot of appraisal companies called "Accurate Appraisal." And, the phrase comes up 123,000 times on Google. So, pardon me.

BTW, the term "accuracy" is used throughout USPAP, e.g.

"The appraiser should know which characteristics (e.g., size, location, quality) are analyzed and how the analysis is tested for accuracy and reasonableness." [Page A-47]

While some may struggle to understand what accuracy has to do with appraisal, I find it enlightening to consider that it certainly is possible to construe and "operational definition" (as the term is used in advanced physics) for "acccuracy". - You collect all appraisal reports from all appraisers over a number of years. You find those appraised properties which have sold within a reasonable period (within 5 years) after appraisal, make adjustments for market conditions to the value estimate and compare. Do this for a large number of appraisers and you will get a picture of how accurate appraisers are in general. Then you can rate appraisers based on the average percentage difference between sale prices and their adjusted estimates. Those who have the smallest average percentage difference are, I would think all agree, providing more "accurate" estimates than those who have higher percentage differences.

Bert Craytor, SRA​

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