July 2008 ASC Q&a- Wink Wink Comp Comp

[Hamlet]

I theory, regulations do not remove or prevent wrongdoing. Laws against murder do not prevent or remove all murder.

In almost all cases, preventing those with interests in the outcome from ordering appraisals would preclude everyone except judges, mediators - and AMC's - from odering appraisals. Think about the consequences of that. Just as AMC's have arisen to fill the need of having disinterested parties order appraisals, the AMC's would become the brokers of all appraisal transactions because the buyer or seller, the trustee of an estate, a comdemnor or condemnee, the tax assessors office and the individual complainant - interested parties all - would all be precluded from ordering appraisals.

This keeps crossing my mind, but I never posted it. Put yourself in the shoes of a legislature. Who is it going to appear to be the ones who can't be trusted? If appraisers would do their job and just say no to htting numbers, then no one would be lobbying anyone to "fix" it.

Steve, I agree with what you are saying, but murders are mentally ill. Robbers are driven by greed. It is more difficult to deter someone who is driven by demons rather than someone who understands and fears the consequences of their actions.

If greed is the motivating factor for those that would steal, then penalizing them monetarily would be a deterrent. One way to do this is to require the lenders to hold those loans in house for a period of time before they are able to bundle and sell. The lenders have to be made to care about the quality of their loans. Not being able to pass off, or write off bad loans would be a start.

Waiting for unethical people to just say no voluntarily is no more realistic than expecting laws to abolish all crime.

 

[Mike Phillips]

Any constructive advice? What else besides making it unethical to hit pre-determined values can the rule-making body do? Where are these other magic words that the ASB can't find?

Just off the top of my head -

How about making it mandatory that the appraiser disclose certain relationships with the client, which, by the way, I believe the ASB has the authority to determine and specify, that would be beneficial to users of appraisal reports?

An excellent example is the case where the appraiser is an employee of the mortgage company that is owned by a national builder. Is there not a chain of influence there, or at least a very good possibility for abuse in that relationship that should be disclosed to the client? Let's assume for a moment that the client (the mortgage compnay) doesn't care, in fact, they want the relationship hidden (and we both know many do). Shouldn't the appraiser have an obligation to the public trust in appraising to make that relationship known to anyone who has a right to rely on the appraisal report, including investors?

How about the ASB taking a firm position - is it a violation of USPAP for an appraiser to allow another party to apply the appraiser's mark, digital signature, or other evidence of authentication, without disclosing what has happened to the client? I believe the ASB has reversed themselves on that issue. We have discussed before the wording in previous Q&A - "as long as it is clear" and they gave an example similar to "by MP for Steven." What happened to making it clear - swept under the rug?

 

[Ken B]

Nice...except let's say you appraise proposed construction under a HC that the improvements exist, but construction is not complete for 4.5 months at which time the client requires an update. Are you saying the original appraiser cannot perform the update? Kind of silly, don't you think?

Maybe you need to rethink your solution?

Any assignment received after submission of a “comp check” has been assigned based on the contingency that the “comp check” gave the all clear to move ahead with that particular appraiser or appraisal firm. To deny this is to enter a world of complete and total fantasy. Anyone ever do a comp check and then have the assignment go to someone else based on your well done and completely accurate comp check.

I agree with Bert. The way to end this nonsense in the lending world is to have in place a mandate that any particular appraiser or appraisal firm can only appraise a particular property once within a 12 month period. You do a “comp check”, congratulations you just hit your quota and don’t even think about appraising that property until 12 months go by. Until the MB’s and LO’s are deep sixed from the process this could at least add some real clarity to the issue and would have its benefits even after they hopefully are removed. If they happen to decide to do enforcement on the issue it is much more evident if someone did more than one appraisal during the time period than trying to nail down whether every “comp check” file has all the t’s crossed and then making some judgment about contingency that they clearly refuse to want to make.

No more BS about whether or not there was a contingency, there was and there always is whether or not the powers that be include enough wiggle room for an 18 wheeler.

As was pointed out above there are similar problems that go along with every update (new assignment with same property as subject) when the same appraiser is used. Not only do you have expectations from the user as was pointed out, you have motivation by some so inclined to not remedy an error that they made in the first assignment in the second or third. Making it a one shot deal per firm ends that hazard as well.

 

[23Degrees]

Kenneth

Why so silly. Another set of eyes on the problem is going to hurt. If original appraiser dies 2 months after the initial assigment they call off construction and cancel the loan?

We all need to keep thinking about solutions - maybe someday we will find one that actually gets implemented.

And Lee I agree with you on your post. Probably easier to enforce than the current situation but would not be. But thanks for letting me have my optimism for 15 minutes, I appreciate it.

 

[timd354]

Again, it's the assignment conditions of the second appraisal that might come into conflict with the Ethics Rule, not the first. You're not going to be able to cure the problem with the second assignment by outlawing the first, even if such a thing could be done on a standards basis.

George, I disagree with you wholeheartedly on this one. When a lender, loan officer, mortgage broker, etc. requests a so called "comp check" it is clear that the intended use of the so called "comp check" is for the lender to determine whether or not to order a full appraisal of the property. There is an implicit promise that both the lender and appraiser understand, that the lender will send the appraiser an order for a full appraisal (which will actually pay a fee) if the so called "comp check" hits a certain target value. Thus, if the appraiser perfroms a comp check and hits the target value, he will be compensated with the order for a full appraisal, if he fails to hit the target value, he will get no compensation. Thus, acceptance of the so called "comp check" assignmen, itself, in the manner it is used in our industry in virtually all cases, is a violation of the Management section of the USPAP ethics rule.

We won't even get into the other obvious problem of the use of comp checks as an appraised value shopping tool by the mortgage brokers.

Theretically, it is clearly possible to think of a scenario where a so-called "comp check" is performed in compliance with USPAP, but, in the real world of mortgage related appraising, it just does not happen that way.

 

[xmtraterbcra]

.... The way to end this nonsense in the lending world is to have in place a mandate that any particular appraiser or appraisal firm can only appraise a particular property once within a 12 month period.

I think the implication here, is that it is possible to circumvent the "One appraisal per business transaction" through updates. This is virtually impossible with a well designed Appraisal Registry in place. For a full appraisal, say at a fee of $350, the client has to commit to the fee up front. He doesn't get his value until the appraisal is complete. It's not much good as a "Comp Check". And the appraiser is stuck with doing a USPAP compliant full appraisal.

Updates would have to be uploaded to the Appraisal Registry - and I would assume that appraisers who are known to do numerous updates as a matter of habit - would likely come under scrutiny. The order could be canceled. But again, with a registry, recurring patterns of behaviour would emerge as evidence.

Unfortunately, I'm sure a lot of the "power players" in the profession are are SRAs and MAIs who no longer do many appraisals - and would not like the fact known in an Appraisal Registry. But, seriously, the number of appraisals an appraiser does has very little significance compared to the quality. ... As we all know, Skippy surely sets the record for the most appraisals per day & year. ... But then that's the other side of the coin, those appraisers that are doing 4+ full appraisals per day are going to be easy to identify in a registry.

In systems theory and quality control, there is a principle that systems should be designed so that problems are easily exposed. Hiding problems just leads to more problems. An Appraisal Registry would expose many facets of the profession, for better and possibly for worse (if for example you are doing one appraisal/week but want the world to believe you do one/day). But, as I see it, it is the only thing that is going to effectively deal with the host of problems facing the profession - that no one has been able to solve in the past 20 years.

Bert Craytor, SRA

 

[George Hatch]

time354,

The damage to the mortgage lenders does not occur during the first appraisal because they don't ever see it or use it. It's the second assignment that causes all the actual damages. You may or may not be able to argue that the first assignment had the strings attached, but you cannot argue that the second assignment absolutely did have those strings.

We get it - you guys want to outlaw comp checks. It's a nice idea in the abstract but there's no real way to do it on a practical level. Your first step is to define the service accurately enough so it doesn't bleed over into areas that you don't intend to infringe upon, and your second step is to define the service comprehensively enough so that the clients can't work an end-run on it vie technicality.

The reality is that you guys can't do either, and neither can the ASB.

 

[CANative]

I must say, every appraiser in this part of town is a money hungry, bottom feeding, low life swindler that would charge their own mothers for an appraisal.

I had an incident where I told the appraiser (his name is "Fat Slob Rob"), that the only way the loan would work is if the house was worth $400k, I specifically told him to comp it out and let me know BEFORE he went to do it. This was a rate/term refi and the borrower was strapped for money and could not afford to pay $475.00 for an FHA appraisal if the refi would not go through.

Fat Slob Rob said that $400k was no problem, he had plenty of comps and to put him in touch with the borrower to schedule. Fat Slob Rob did the appraisal and charged the lady $475.00 at the door in cash. He took 5 days to send me the appraisal and when I got it, he appraised the house at $365k. When I asked him why he did that he said that what I asked him to do was illegal and he had to do the actual appraisal to get a "real value". He did this knowing that the loan wouldnt work.

Am I wrong for thinking this guy is scum or was I asking him to commit a crime???

Selected responses:

If I was an appraiser I would punch myself in the balls

Yeah, seems like the appraiser is out just to make a couple hundred bucks.

I will only order an appraisal based on value!!!!

If a homeowner owes $400k on a home and the appraiser tells me the home is worth $350k after he does his comp checks, are you suggesting I should have him do the appraisal anyway fully aware that the homeowner is wasting her money?????

That would make me as much of a dirtbag as the appraiser... I don't really care about the loopholes you hide behind, the homeowner shouldnt get screwed because the appraiser can't pay his bills!!!!

 

[Hamlet]

And who here wishes that?


Good luck. If everyone could be made to act as disinterested third parties, there would be no need for a profession built on being disinterested third parties.

Yes, but even the knights had armor to protect themselves. What do we have except our ethics, which is an unvalued commodity in this industry?

Those that wish to make comp checks illegal for appraisers to perform. Comp checks are appraisals, wouldn't that outlaw our profession? It is the pressure to perform these services for free contingent on receiving the second order which will pay for your services, that is the problem. However, since it is not possible to enforce a disinterested party or those that have an interest to act in an ethical manner and not apply pressure for a guaranteed value, why should it be so difficult to make those deals less attractive by making the lenders responsible for the loans? Only if the lenders have something at stake for the bad loans they issue will the pressure cease.

 

[xmtraterbcra]

Selected responses:

The problem here is that, while this is some respects an expeditious way for appraisers to handle the situation, it's sure to be violation of appraisal and business ethics, in particular there has to be something in State regulations that prohibits make such misleading and/or false promises. So, its not an option - sorry to say.

Questions:

1. Is there really any way out for the poor homeowner who's only hope to keep his home is refinancing? (In my opinion, Zillow and other free AVMs, plus his knowledge of neighborhood pricing are his only real support - plus the advice of any knowledgeable friends.)

2. Who should take the inevitable risk in such situations? - (In my opinion, the homeowner. Rationale: People work for a living and need to be paid for their time. The loan officer/MB relies on truthful statements from the borrower before proceeding with a loan - thus the borrower should bear at least some of the responsibility and risk of loan application expenses. )

3. What if the borrower doesn't know anything about appraisal or real estate? (In my opinion, then he should find someone who does.)

Bert Craytor, SRA