Drive by appraisals

[residentialguy]

I always look at the back & take a photo of it on a drive-by. But I don't on comps, so I guess RSW has a good point

If banks want to accept an drive-by with the extraordinary assumption that the interior is ok, then they were forewarned. They are willing to bet their money that the interior's fine.

 

[The Argus]

There you have it Mike, there you have it. I hate drive bys.

 

[23Degrees]

This topic breaks down into two components. In cases where the exterior only appraisal has been requested the user has decided that this type of appraisal will be reliable enough for their purposes. Some would argue that the scope of work involved and the resulting report is deficient for some of the intended uses and this level of inspection is used far too liberally. They are probably quite correct but this seems to be an area of concern for the users who decide to go this route and those that regulate them who allow them to do it. My own opinion is that it should not be allowed on any transaction subject to or seeking government backing. Prior to the issuance of the 2055-05 form an appraiser could perform these following an agreed upon SOW and appropriate EA regarding the interior. It was a pretty straightforward scenario with liability limited to ones defined scope of work.

But -

With the issuance of the 2055-05 form this once straightforward assignment option became immersed in some very muddy waters. You can talk to the homeowner all you want but certification 10 says that this is not good enough and you need to have another source regarding the interior. Per the 2005 form language the EA utilized to protect the appraiser must now be incorporated via CB4. So without confirmation of interior condition via communication with a disinterested party who happened to be in the home recently (and you have a high level of confidence in) you either gamble that the interior is in fact "average" or make the exterior only report subject to an interior inspection, somewhat ridiculous from the client's point of view and a sure way to lose future business. Without CB4 being checked it could be the appraiser that is ultimately the one making the bet that the interior is fine. I recognize there are those that believe that the EA can be thrown into an "as is" report. I'll wait for the test case on that or insurance claims data that suggest it is true.

 

[Terrel L. Shields]

am very thorough with my market research and interview home owners about the features of the Subject, but have never felt that the exterior only report is truly reliable.

I understand that when my clients order such a report it often has much to do with the LTV, borrower's financial situation etc. I just think the exterior only report has so many deficiencies. I am not a fan.

The expectation of the client is for the report to be an el cheapo report at an el cheapo price. The liability accrues solely to the appraiser. The inspection of the interior takes a few minutes, 30-40 at most on simple houses. To determine the interior condition by finding and interviewing people who have been in the house and can obtain the necessary condition information takes more time than an inspection.

I personally do not think that to caveat the interior condition away by assuming it equals the exterior condition is an appropriate, reliable, way to do it. If it really is in that condition, you are fine. If it is trashed out, then in my opinion, your report is misleading and your due diligence should have discovered that fact. So you end up in court over a discounted report? No thanks. If they want an appraiser hire me. If they want a rubberstamp, you can buy them in town at the print shop.

A good example was a house on a chicken farm I appraised in the country a few years ago. Without the interior inspection, I wouldn't have noted a soft spot in the flooring and recommended a structural inspection. A termite inspector rubber stamped the pest inspection but an insurance agent also noting the soft spot and called his own termite inspector who reported serious termite damage even up into the second floor but not obvious to anyone from inside. Also, he noted that none of the support beams indicated that any prior inspection had occurred and there was wood touching the ground.

Ultimately, the buyers were unable to occupy the house and sued the seller and errant termite inspector. I testified in that jury trial twice and earned more in court for 15 minutes work than I charged for the appraisal. Does it look that bad?

 

[Jeff Horton]

Changing the subject slightly. What is the problem with the new 2055? Is it the certifications?

The reason I ask is I do maybe one or two Drive By inspections for the Guvment for part of the their foreclosure process. They are the only one's I will do these and they require the latest form. I don't think I have done one since the new forms came out. So what's the issue with that form?

 

[residentialguy]

If it is trashed out, then in my opinion, your report is misleading and your due diligence should have discovered that fact. So you end up in court over a discounted report? No thanks.

Extraordinary assumptions are just that. It is saying that by ordering an exterior inspection from the street, I have no way of truly knowing what I could know if I did an interior inspection - I am going by the extraordinary assumption that the homeowners word is true. The condition and quality is based on an exterior inspection from the street and the homeowner's word. No mechanical or structural analysis is to be implied and there is no personal opinion expressed by the appraiser as to the condition of components - only those of the homeowner and any other data found. If the client is concerned, an interior inspection should be ordered, otherwise no liability shall be placed on the appraiser in any manner that can not be determined with an exterior inspection from the street.

The homeowner gave his word and hopefully the exterior condition/quality supports what the interior has been decribed...and many times you have a previous listing of the subject. That, too, will help support or give you confidence. You could also call the county assessor to see if he's done an interior.

There is nothing wrong with turning it down. Nothing wrong with doing it. Nothing misleading about saying "the value is this, only if that assumption is true".

 

[Michigan CG]

...........Nothing wrong with doing it. Nothing misleading about saying "the value is this, only if that assumption is true".

As I said a couple years ago when drive-bys were all the rage, if an interior inspection is possible then PROFESSIONAL appraisers need to insist on the interior inspection.

The product is more reliable and the results are more reliable.

 

[residentialguy]

As I said a couple years ago when drive-bys were all the rage, if an interior inspection is possible then PROFESSIONAL appraisers need to insist on the interior inspection.

The product is more reliable and the results are more reliable.

That can be said about any profession. Dentists would insist on dental implants. Car salesman would insist on Mercedes Benz. The world would get real expensive, real fast >>>>>>>>>>>>>>>>>>>

 

[Mike Kennedy]

Scope of Work Rule

I always look at the back & take a photo of it on a drive-by. But I don't on comps, so I guess RSW has a good point

If banks want to accept an drive-by with the extraordinary assumption that the interior is ok, then they were forewarned. They are willing to bet their money that the interior's fine.

IMO, the Scope of Work Decision rests squarely on the Appraisers' shoulders :icon_idea: INCLUDING advising a Specific Client on the appropriate SOW which reflects the typical actions of typical property buyers and OTHER Intended Users.

Problem Identification
An appraiser must gather and analyze information about those assignment elements that are necessary to properly identify the appraisal, appraisal review or appraisal consulting problem to be solved.
Comment: The assignment elements necessary for problem identification are addressed in the applicable Standards Rules (i.e., SR 1-2, SR 3-1, SR 4-2, SR 6-2, SR 7-2 and SR 9-2). In an appraisal assignment, for example, identification of the problem to be solved requires the appraiser to identify the following assignment elements: ​

client and any other intended users;

intended use of the appraiser’s opinions and conclusions;
type and definition of value;​

effective date of the appraiser’s opinions and conclusions;

subject of the assignment and its relevant characteristics; and​

assignment conditions.
This information provides the appraiser with the basis for determining the type and extent of research and analyses to include in the development of an appraisal. Similar information is necessary for problem identification in appraisal review and appraisal consulting assignments.

Communication with the client is required to establish most of the information necessary for 396 problem identification. ​

However, the identification of relevant characteristics is a judgment made by the appraiser that requires competency in that type of assignment.

Scope of Work Acceptability​

The scope of work must include the research and analyses that are necessary to develop credible assignment results.Comment: The scope of work is acceptable when it meets or exceeds:



the expectations of parties who are regularly intended users for similar assignments; and

what an appraiser’s peers’ actions would be in performing the same or a similar assignment.​

Determining the scope of work is an ongoing process in an assignment. Information or conditions discovered during the course of an assignment might cause the appraiser to 412 reconsider the scope of work.
An appraiser must be prepared to support the decision to exclude any investigation, 414 information, method, or technique that would appear relevant to the client, another intended user, or the appraiser’s peers.​

An appraiser must not allow assignment conditions to limit the scope of work to such a degree that the assignment results are not credible in the context of the intended use.​

Comment: If relevant information is not available because of assignment conditions that limit research opportunities (such as conditions that place limitations on inspection or informationgathering), an appraiser must withdraw from the assignment unless the appraiser can:

modify the assignment conditions to expand the scope of work to include gathering the information; or use an extraordinary assumption about such information, if credible assignment results can still be developed. <<<<<<<<<<<<<<<<<​

An appraiser must not allow the intended use of an assignment or a client’s objectives to cause the assignment results to be biased."​

* IMO "biased" also includes intentionally omitting site observation / inspection typically done by TYPICAL buyers of a property because a "client" wishes:​

a. to save a few bucks upfront while potentionally losing hundreds of thousands when an Interior is performed by the Buyers of a loan.
b. ignore possible/probable "relevant property characteristics" which will "kill the deal". ​

 

[residentialguy]

I have no problem with what you wrote, Mike... and don't see an issues when using extraordinary assumptions.