Common errors in reporting

[George W Dodd]

"This stuff is my pet peeve. How did we let these morons take over this business?"


Nicely said.

The major reason we have to cope with this crap is because appraisers are not the ones setting standards and enforcing a code of ethics. It is the mortgage brokers, secondary market participants, and real estate agents, government agencies, which write, confuse, change, and otherwise make appraisers as impotent as possible.

For example: pick up a copy of your state's licensing laws for real estate agents and brokers. Read the section on what happens to the broker when a licensee commits an "unlawful" act. In order for it to create a problem for the broker it must be proved that the broker knew or should have known and that information cannot be simply imputed. As a supervising appraiser, if I sign off on the report than I take full responsibility for any and all errors and will be “hung out to dry”. No wonder no one wants to train anyone else.

Why do we all think the de minus level keeps getting higher?

Why do appraisal fees keep getting lower or fail to increase at least as much as inflation? In 1985 I was actually earning more "real" dollars on a $250 fee then I am now on a $350 fee (lets see that's a 2.4% yearly increase (approximately)).

The only way I see to change this industry is to truly make it a profession with:
One mandatory national organization (similar to CPA), one designation/license, one set of standards written by appraisers. The only way for all of us to win is for every one of us to be willing to put it on the line.

Can anyone see a day when a appraiser get “pressure” from a lender/broker/etc to inflate a value, and that appraiser being able to report it to a national organization, and that organization being able to act on behalf of all 85,000 plus appraisers.

No wonder so many other groups want to keep appraisers disorganized.

 

[Stephen J. Vertin MAI]

Paul:

I have no problem with calling. In fact I do. Additionally, I highly recommend every and all appraisers call. It is part of the job. However, I will not forgo a sale if the call is not returned. Furthermore, I have a real problem with fining appraisers for no other reason than not speaking with a party involved in a transaction. Especially, if all the information is correct. In Illinois they have done such.

On most MLS systems there is a section for financing. Furthermore, you are correct in stating the deed transfer also provides this information. As far as Red's comment about MLS being true or not, I think the issue moot. He/she (meaning the broker) has already announced to the public the information. In most areas brokers are fined for incorrect input. My job is not to determine whether the broker is lying. If the client wants to know that they need to hire a clairvoyant from the circus or a cop with a lie detector. If I see something that contradicts what the broker said, I either comment and make clear my observation or disregard what was told based on observation and say so. Once I start determining who is lying or telling the truth based on lack of evidence, then I circumvent the process. It allows me to abuse the process. I can cherry pick with little or no justification other than, I thought it was a lie. Let me make this clear, these statements go beyond what Red has said and in no way am I indicating his intent. His statement only got me thinking of these issue.

Furthermore, verification, in the process, as outlined by Alabama, opens a flood gate of abuse. All I need to do, is call the broker, hang up, and go on my merry way. I now have record of my call. When asked why I did not use the sale I simply say, I called and left a message but no one called back. I could not use the sale because I could not verify it with someone involved in the transaction. Again, this allows me to cherry pick sales.

This issue of verification goes to the heart of the fact we are not part of the actual transaction. No matter who you are or how well you appraise anyone of us can be hoodwinked. Why? Because the information we use is secondary.

Furthermore, in many cases I have clients that insist on verification directly with a related party. The time involved is extended many times due to the call back process. No problem; however, many clients do not care to wait and feel MLS is good for their needs. The extent of verification should be addressed in the scope of assignment and as agreed between the appraiser and client as USPAP intended, not as a matter of board selection.

Steve Vertin

 

[Jeff Horton]

Thank God we have some rational thinkers in this country. However, what is up with Alabama? It appears we have yet another psycho board who has joined the ranks of North Carolina and Illinois

Now you see why it took me almost two years to get to take my test to get out of Trainee status?

Enough said.

 

[larryhaskell]

Maybe I'm spoiled but, in the Reno/Sparks area most of the information we need (sale price, dom, financing, etc.) is in MLS although it is far from 100% accurate. With Metroscan we can verify the sale price and get a document #. If Metroscan isn't up to date we have online access to our Assessor's Office 24/7. Generally the only time we need to contact a realtor is for clarification purposes of something in MLS.

 

[Randy Beigh]

I will agree that using MLS and Metroscan will work most of the time without phone calls, but not all the time. If the home was listed for $50,000 but sells for $60,000, phone calls are necessary. Reading paper documents will not explain what happened. In our area, this became rampant as method of fraud. The additional prices were ways to hide a second mortgage and get 100% loans.

Really, the same is true the other way. If the gap between listing and sale is to much, you have got to find out why.

Further, if you have any concern about the quality or condition of the home, I think a phone call is needed. I have found that most agents are nice, professional, and willing to provide information. They are very busy, though, and sometimes don't remember everything.

 

[Red Blumenstock]

Randy,

I very much agree with you. However, there are those times when you get answers that are due to the agent not caring, or being too busy, etc., and just blowing you off. I had a husband of a husband/wife team apologize since the property did not close and should have been eliminated as a sale from the MLS. There were 4 cabins (not a 4 unit as advertised) and they were all on contaminated wells. When I told my staff of that, one of my appraisers said he had verified a day or two before and spoke to the wife who simply told him that it sold for cash. That is why I said you quickly learn who you can trust.

Red

 

[Austin]

There is a more scientific way of verifying the accuracy of sale data. I have a database with all MLS residential sales classified in all categories. If I am appraising a 1,500 sf rancher with full basement, I filter the database for one story, rancher, approximate age, same location, bracketed by GLA range, etc. and filter it down to about 25 sales. Then I graph the GLA vs. the sale prices to spot the outliners (non arms length sales). If the sale is not legit, I can spot it in a NY minute. When I first started doing this I would call the Realtor and ask what the scoop was, and there always was something like: “Well the seller was going to a nursing home and the government would have gotten the money anyway so we put a low ball price on it for a fast sale.” There was always a reason. If I am appraising a property under contract I include it in the data on the grid to see how it compares with the 25 comparable sales on the graph. This is all after I have searched every sale on the subdivision street and have a pretty good idea what the price range is. After I have determined the market price using the above method using 25 sales plus a subdivision sale history search, I pick three comparable sales for use on the marketing grid. One smaller and clearly inferior; the one most similar; and one larger and clearly superior. This is important because I can gauge the market gravity reaction to the differences. If somebody says I appraised it to low, I refer them to sales 2 & 3 for comparison. If they say to high, I refer them to sales 1 & 2. If they get nasty, I show the graph of the 25 comparable sales with a regression and say: “Lets see you support your opinion now that you have seen mine. Another thing I always do is search the sale history of every dwelling in the vicinity of the subject because the owner will always say: “The house next door just sold for $120,000.” Then I say: “No it didn’t. It sold for $103,000.” Then they say; “but mine has 2,000 sf and that house only has 1,800 sf.” And I say: “You are wrong. That house has 2,200 sq and your house has 1,950.” You can never have to much information.
I have always felt that calling sellers or Realtors to verify sales was a waste of time. If the buyer got screwed, what do you think he is going to say? Do you think the seller is going to say: “Man! I sold that one to cheap like an idiot!” If the sale is not arms length, you are going to get a lie. Then too, you have to take this business with a grain of salt. I don’t know a Realtor that can measure a house accurately. The typical MLS statement is: “+/- 2,000 sf per tax assessor. Yesterday I appraised a house in a new subdivision. All sales were from builder to owner with no Realtor and no re-sales. The builder told me the house had 1,500 sq. I measured it to the inch and it had 1,344 sf. The tax records had it at 1,432 sf because they rounded the inches up. That is a 15% range spread of GLA. The only available sale data was from the tax assessor and builder. Builder gave me the sale history of every house sold, about 10 total, and one sold for $140,000, but she explained that the owner paid for $15,000 of the cost not reflected in the sale price. The tax office had this sale at $140,000 and I told them it was wrong it was $155,000. They said: “It may be wrong, but we have to use the recorded price.” So much for AVM’s that use this garbage. These are reasons I use statistical methods; to hedge my bets. A picture is worth 1,000 words, expecially when every possible comparable sale is included in the picture.

 

[Alan Simmons]

In the Alabama Disciplinary Report in the same newsletter the most commonly listed violation appears to be:

“[Appraiser] failed to explain methodology used to estimate physical depreciation.”

 

[Restrain]

In RE: Calling to verify sales data. I took an FHA class taught by one of FHA's approved people when the new regs were going into effect. One of their requirements was that you had to call the Realtor, Buyer or Seller. MLS by itself was not sufficient. 1. The buyer and seller are not going to talk to you. 2. If the realtor is going to lie on MLS, they'll lie to you. But that's FHA for you. So I call and confirm that the MLS data is correct and everyone's happy.

 

[Stephen J. Vertin MAI]

Good point Randy. Red your trust story is a valuable lesson. Alan, if what you say is true, I have not verified it, good luck in Alabama. And Austin, that is one hell of a system you have. Have a good week end. I am out of here.


Steve Vertin