Define "verify"....

[Oregon Doug]

SR1-4 states that "an appraiser must collect, VERIFY, and analyze all information applicable to the appraisal problem..." I can look the word up in the dictionary too, but what I'm seeking is a really good definition of "verify" as it relates to appraisal. For example: is it a USPAP violation for an appraiser to rely solely on "paper verification" of the terms & conditions of a comparable sale using MLS data, a data service print out and/or recorded deeds? Must the appraiser interview a party to the transaction or their agent?

The director of Real Estate in my state recently stated that real estate brokers are not to disclose any information regarding a transaction to an appraiser (or anyone else). You can see where this creates a difficulty for the appraiser who now may not be able to obtain conformation of the terms (concessions?) involved in a comparable sale transaction.

This becomes an important issue for the appraisal regulatory & enforcement agencies because the term "verify" may be so broadly construed so as to make it difficult to enforce. If left to individual state agencies and administrators to define "verify" within their own context, then enforcement could be applied in a non equal manor from agency to agency. If not appropriately defined, how can it be enforced at all?

Comments please, Oregon Doug

 

[David C. Johnson]

<span style='color:darkblue'>Doug,

Good question. I will be interested in reading responses. From your following text, where I have highlighted some of it, I will make an observation:

"If left to individual state agencies and
administrators to define "verify" within
their own context, then enforcement
could be applied in a non equal manor
from agency to agency."

But perhaps of much greater concern, from case to case.

dcj</span>

 

[Terrel L. Shields]

I believe one must verify. And by that I conclude you must do so with either the buyer or seller or someone close to the transaction like the Broker or Banker. That really is affected by the new privacy laws as I see it, primarily by simply drawing attention to issues of privacy. Best to err on the side of caution and avoid any unwarrented disclosures. Again, the public tax card and the MLS listing are not sufficient as I interpret USPAP, but often that is about all that we have, and on new construction in my part of the world, we do not even have the sketch on the tax card until the second year.

In general, I use a clear paper holder to put a tax card and MLS printout in, and pencil on that any additional comments. With regards to financing, often I have to check courthouse deeds & mortgages to find the right info. Even contacting someone does not necessarily mean you are told the truth. Many farms in my area are being financed at 80% LTV with the seller carrying 10 to 20% at market rates. Some recent sales also involved FSA guarantees that are abnormal in my area and have the effect of lowering interest rates by about 2%.

I recently appraised a farm selling for $1 mil. But the property had been parceled between the original buyer and his daughter. The buyer about a year after buying a 160 acre tract, built poultry barns, then sold 50 ac. + barns to his dau. He kept 110. They sold the tract together, but for tax purposes, the improved tract was sold at below its actual value and the sale price of the vacant tract was inflated. Therefore, this sale price was something around $670,000, with the balance on the vacant land. Not understanding that transaction will mislead.

Meanwhile the guy who owned the vac tract had bought another similar farm. The deed stamps recorded a low price which was only the part financed by the bank. 20% financed by the seller went unrecorded except I pried that info out of the real estate agent.

Now the guy has sold this second farm to the dau. and the deed stamps are consistent with the other sales price which has already fooled several appraisers!! The property is actually selling for $850,000, not the $700,000 or so reported! Disaster for a nearby farm with identical barns. The appraiser used the sale of the property at $700K as proof the $800,000 sales price of this farm was too high AND the $1,000,000 sale he only recognized as $670,000.....but its not! If the knucklehead had VERIFIED these sales, he would have known the one was not arm's length and the other involved an additional land tract. This other farm eventually did close with the seller carrying an even larger amount, but had the deal collapsed, I feel like he had a good case for suing the appraiser for damages. Two of his comps were defective lacking proper verification.

VERIFY, VERIFY, the consequences of not verifying can be horrific.

 

[Terry Russell]

Just two cents here,

Collect: Gather the data.

Verify: Thoroughly examine and document the source of the data to be able to defend its authority if challenged. The extent of the verification is the responsibility of the appraiser.

Analyze: To each his own.

I was once told by a state review board chair to:

"Maintain your workfile as if it held the evidence to exonerate you from a murder conviction!"

Terry

"If a frog had wings, he wouldn't bump his *** when he hopped."

 

[jtrotta]

Verification can be extremely difficult; as in our area, many sales at the Town Hall can be found to contain the following;

A has sold to B for $1.00 and other valuable consideration;

A has sold to B for $1.00 and other love and valuable consideration;

in our area you won't get a Real Estate agent to devulge any of the "Terms & Condition's" of a sale at all :!: they would and have been sued by the Seller for breach of fiduciary responsibility.

So verify what you can and good luck.

8)

 

[Richard Carlsen]

Verification is one of the reasons I only use comps from one of the 7 MLS systems I have. When a seller "lists" with a broker, they are also giving permission for the house data and the selling data to be shared with other brokers and appraisers. The only exceptions to this rule are private appraisals for selling decisions and appraisals for private sales that I personally do. On both, the sales/closing data and amount is "verified" with the county equalization over the phone.

I tend not to believe buyers and sellers. The exact numbers can sometimes get lost in the confusion of closing. Besides, a seller is not going to tell you he took $125,000 for his house when he was asking $159,900 and a buyer rarely if ever will tell you he ended up paying full price for a house. It has to do with something called "Pride" I think.

I don't have time for such games and if the data were not readily available, I would just move on and use a different comp.

 

[bradellis]

Doug,

I think it would depend upon that property type you are appraising and the degree of difficulty it presents, your scope of work agreed to with the client, along with the historical veracity of your data sources. In other words- no definitive answer.

Let's look at some of them.

MLS combined with public record. IMHO this is adequate for most SFR/2-4 unit/condos unless you need rental rates and they are not on the MLS. I do not believe (apart from FHA which specifically asks you to interview a party to the transaction, whenever possible) that you need to make all the calls. However, if it is high value or unusual, then a conservation with the broker is probably appropriate.

Calls to owners/sellers/bankers/attorneys. I did this routinely when doing income properties. Even such good sources as Comps, Inc. that purportedly reports the actual income and expenses can be wrong or will only estimate. Not all these folks will return your calls, but you might be surprised at how many actually do.

On other properties, you should already know what sources are and are not reliable. Remember, we are trying to get facts, but sometimes the "facts" are misreported. Your limiting conditions are specific in saying that your data is from "sources deemed to be reliable" and that you do not take on responsibility for errors in the data.

When brokers refuse to give out info- for whatever reason, I'd simply state so. In non-disclosure states, brokers have historically been helpful. Indiana used to be one of those states. When I called a broker, I'd first ask- "Did the sale close at the price you reported in the MLS?" "Would you take a minute to tell me what you can about this sale?" Their answers, or lack thereof, would go into my file and report.

Frankily, I am often surprised over MLS board rules. Some, like Las Vegas, refuse to let brokers or appraisers include, hand out, or otherwise transmit this data. Since the public can, by federal court precedent, access this data- right down to listing their own properties for sale without a broker, it astounds me. They are just begging for lawsuits- and they will lose each one of them.

Had one a couple of weeks ago on a home valued at over $2MM. Public records showed only the closing dates and doc #s for the comps, but nothing else. No price. Called the appraiser and he told me that I could not get the MLS printout from him (board rules). So, I told him, "this is a very large deal, and I cannot accept the appraiser without SOME sort of verification of price". Mind you I was NOT questioning value.

He then went to the VP of the board and explained the situation. Turns out everyone was reading the rule wrong. I got the printouts- AND the appraiser also sent the copies of the deeds, even though he did not have to do so. Note: everything checked out. A very good appraisal, in my opinion.

Here is what I suggest in those cases: NAR has a rule/by-law that requires brokers to conform to USPAP. USPAP specifically says that an appraiser should not knowlingly permit the transmission of a fraudlent report. If that also applies to brokers, then file a formal charge with NAR. File against both the broker and board (note: we are talking about Realtor boards). Maybe NAR will get tired of these and direct the boards to ease this rule.

If not, perhaps we can begin to sue the brokers who report false information.

Brad Ellis, IFA, RAA

 

[George Hatch]

Funny, our biggest complaint about AVMs as an alternative valuation product is that none of the data is verified. If a user is free to choose a valuation product that by its very nature cannot verify any of their data then why would we be required to only offer 'absolute verification'. Why not offer 'personal verification' (vs. 'two-source verification') only as necessary, depending on the situation and the intended use/intended user? Couple this with the current trends of increasing public awareness of privacy concerns and safeguarding non-disclosed information, and we're going to run into a huge disconnect between our requirements and our reality. This doesn't even address the lingusitic challenges we can run into when appraising in ethnic communities where all of the participants are non-English or only partial-English speaking.


The issue of verification and the old school prescribed manner of personally verifying the data with a principal to the transaction arose prior to the advent of the information age. It came up during an era when existing databases were spotty in terms of content and reliability, and in many areas there was no way for an appraiser to actually know what was going on unless they were also a member of an individual realty board. Some areas are apparently still like that, but most areas are not.


Here's a slant you won't hear too often.

'Verification' as a method of cherry picking sales data. It goes like this: Appraiser overlooks the most comparable sales data and uses only sales data that will support their target value. When jammed by an review appraiser, underwriter or state board, the appraiser defends their choice of comparables by saying that he was unable to 'verify' the other sales with their respective participants hence could not use them in the appraisal. Tell me that this one isn't a favorite of some of the big verification junkies.

Let's say you come across a transaction in the MLS or other database that was input by one of the principals to the transaction or was verified with one of the principals by a subscription service. It fits into the appraisal analysis perfectly, comparability-wise, but cannot be directly 'verified' with one of the principals by the appraiser because they all think they are sworn to secrecy. The factual data is a matter of public record and you can pretty much tell what's going on with the property itself on a physical basis. What are you going to do? Not use the sale because it cannot be 'verified'? Does the exclusion of that sale data make the appraisal more reliable or less reliable? Remember, some of the biggest appraisal scams have been run by those appraisers whose main claim to fame is personal verification for every single piece of data used. Verified? - maybe; Applicable, relevant and representative of the subject? - not necessarily.

I'm sure there are areas where the public records are of no help whatsoever and the MLS boards are not reliable either in terms of accuracy or in the amount of data available. In those cases, personal verification is going to play a much greater role in the reliability of an appraisal. However, when the area in question has public records databases and MLS boards or other databases that are reasonably reliable in terms of accuracy, the use of personal verification for every sale is not going to significantly increase the reliability of the appraisal. As in the other posts above, I believe the appraiser needs to be able to make that determination based on their scope of work and intended use/intended user, and then be prepared to defend it.


George Hatch

 

[Conrad]

The Las Vegas MLS does not let the current financial information and listing office information part of the listing out for public consumption. All the other information is available and can be printed out in a brochure format by members of the MLS for distribution to clients. Those appraisers that are members of the MLS have this information available for comparison against the very good county records that are available on the county web site. With this information and some phone calls, a lot of information can be verified quite readily. We are lucky that Nevada is a full disclosure state. If the MLS information doesn't match the county info, then that is a good indication that there may be a problem. I have ran into a problem with underwriters or out of state reviewers wanting a copy of the full listing. I have had to say no but have told them what info is available.

 

[Restrain]

As Texas is a non-disclosure state, verification is iffy at best. Yes, we rely on MLS but on high $ homes, often the list price is available but the sale price is not disclosed (they don't want the tax office to know). On very high $ homes, the sales are handled privately and never disclosed. On builder sales, we have to rely on the builder as the sales are not disclosed (the title company may or may not confirm due to new privacy rules - more often not). So verification becomes a matter of what's available. We do have reasonablly good tax records (site, size, age) but not always sales prices. And finally, it becomes a matter of weighing the available sales. If a sales price looks screwy, it probably is. So, I have begun to include a comment that the sales used are the best available. There may be other sales but Texas is a non-disclosure state .....

As to relying on MLS, well, if the broker is going to lie on the MLS sheet, don't you think they'll lie if you call their office?

You can only verify so far and with the new privacy laws, verification is becoming less and less.