July 2008 ASC Q&a- Wink Wink Comp Comp

[The Warrior Monk]

A wink is as good as a nod to a blind man. Some things don't need to be said to be communicated.

Mike,

As an investor, would you consider a buyer requesting an appraisal be performed before they place an offer an unreasonable request?

 

[DTB]

Mike,

As an investor, would you consider a buyer requesting an appraisal be performed before they place an offer an unreasonable request?

Of course not and yes the "full boat" apraisal for financing better be damn close to that #.

 

[PL1957]

Bottom line:

The ONLY cure is to take the appraiser selection and ordering completely away from ANYBODY or ANY COMPANY that is involved in the transaction that would include a mortgage loan.

Yes, I mean both residential and commercial.

This is what most concerns me about these discussions and the only reason I wade through 40-50 pages of this stuff. Well-meaning individuals who have absolutely no clue of the larger implications of their statements propose rules that may help them but would serve to decimate other areas of the same profession.

First, why do you limit your restrictions to "mortgage loans"? Do you think that the same pressure doesn't exist in other parts of the business? Try tax appeal work, litigation, estate work, divorce work, etc. In almost every instance there is a "preferred" result for one or the other of the parties involved. If you don't think pressure is applied, you haven't been involved in that side of the business.

Second, how do you define "ANYBODY or ANY COMPANY that is involved in a transaction"? What does involved mean? Listing the building for sale? Acting as a selling broker? Managing the building? Marketing space for lease in the building? On the commercial end of things, virtually all of the major firms, CBRE, C&W, Colliers, some IRR offices, have brokerage, management or financing components. The appraisal arms of these companies are run separately from other groups. There are literally thousand of appraisers that work for these firms that would be adversely affected by such an arbitrary rule. Their clients are aware of any potential conflicts. Some will automatically exclude the company, others accept the fact that conficts occur and can be managed to everyone satisfaction.

Third, does the "ANYBODY or ANY COMPANY" include the actual user of the report, i.e., the lender? If it does, the proposal goes from being short-sighted to being absolutely comic in nature. If I'm going to be making a decision that involves my or my companies money, you would have to be foolish to think I wouldn't want to have a say in who does the appraisal that I'm basing my decision on. What are you going to do next, stop me from picking my own attorney or accountant?

There are plenty of slimeball attorneys and accountant out there in addition to appraisers, but you don't see them trying to pass regulations that would adversely affect the honest professionals. Just because you choose to swim in the cess-pool side of the business, don't assume that everyone else does the same.

 

[George Hatch]

The bottom line on any assignment is whether or not the results are biased or unbiased. Whether or not the appraiser complied with our requirements for competency and ethical conduct.


When was the last time you accepted an assignent wherein you didn't "know" that the client wanted the appraisal to be biased for either a higher value or a lower value? It does happen, but not all that often and it almost never happens when appraising for mortgage lending.

The problem doesn't occur until an appraiser starts allowing the objectives of their clients to start affecting the results of their appraisals. Whether that bias enters into the assignment before the engagement, during the process, or after the report has been delivered makes no difference.

An appraiser who has returned an appraisal report that includes a value conclusion that satisfies their clients desired results cannot be assumed to have done anything wrong unless that value conclusion is something other than their own personal unbiased, impartial and objective opinion. Just because the client can work with the results doesn't automatically mean that the appraiser has sold their objectivity away in exchange for the fee.

If an individual is capable of performing one assignment with objectivity and impartiality they are capable of performing a dozen different appraisals on the same property, using a different SOW for each, and being equally impartial and unbiased in all of them. Whether or not an appraiser can be impartial and unbiased is not dependent on how many assignments on that property they've been asked to perform.

That's why some of this "there is only one appraisal in heaven and 1004 is it's name" type of thinking is overly narrow and poorly informed. It's an extreme point of view that goes way beyond what our appraisal standards actually say.

 

[George Hatch]

Of course not and yes the "full boat" apraisal for financing better be damn close to that #.

This brings up an interesting followup question.

If the second appraisal didn't come damn close to the number from the first one, what would be the real basis for your dissatisfaction? That the second appraisal didn't deliver on what you interpreted to be an implied promise or that your expectations were based on an initial appraisal that apparently involved either erroneous assumptions or some level of incompetency?

In my first appraisal I'd be telling you that, due to the assignment conditions involved, there are some additional assumptions and limitations. If those assumptions later prove to be substantially incorrect it could have an effect on my value conclusion. Having told you that, shouldn't you use that information to temper your expectations?

My car won't start so I take it to a mechanic's shop. He tries the key and hears the starter click, but not turn over. he tries the battery to see if there's enough charge, which there is. The mechanic tells me he thinks it might be my starter, but he won't know for sure until he gets to it, and then gives me an estimate based on that opinion.

If he calls me up an hour later and tells me that in addition to the starter I also need a new ignition coil and that's going to cost extra. Am I supposed to get belligerant that he didn't see that during his initial process? Of course not. He told me (or I already knew) that his initial opinion was based on a process that had some limitations, and that a subsequent and more comprehensive analysis might reveal more information.

Credibility hinges on establishing and meeting reasonable expectations.

 

[Offshore]

Whenever attempts are made at changing existing laws in Amsterdam’s red light district, those who are benefiting valiantly defend the status quo and impugn those who wish to change any statutes. It is the law.

 

[Fred]

If the shoe fits - wear it proudly. Pro-Comp. Semantic Exercise "like a feasibility test" - HOGWASH.

IT IS WHAT IT IS. THE "more expensive appraisal" IS CONDITIONAL upon the " little preliminary test".:Eyecrazy:


Steven - say it ain't so.

Interesting you have no reluctance to imply that I am crooked, even though Pam just posted to knock off the personal crap. I guess it just depends on which side of the argument you are on.

Trying to weed the technical, professional part of your message out of the slime, I'd say
1. I have no idea what "conditional upon" means.
2. USPAP has no "conditional upon" rule.

but I have no idea of whether I am saying it ain't so or is so.

Every appraisal has "contingencies." This is explained in Concepts and Principles of USPAP, published by the ASB. For example, extending credit - ie agreeing that you will be paid on delivery of the report - makes the assignment "contingent." USPAP prohibits one (and only one) type of contigency, the one in which the appraiser agrees to hit a predetermined result.

I know. It is a set and subset relationship. Those are very confusing. Within the set of all contingencies, is the one (and only one) unethical contingency.

FWIW, wrongly accusing an appraiser of engaging in unethical contingencies would be a significant USPAP violation, IMO. It goes to the Competency Rule.

 

[Mike Kennedy]

I have no reluctance to challenge a claim of "neutral" based upon the rest of the posted assertion. No personal crap - just the facts based on your post #489. :icon_idea:

"I'd say comp checks are ALMOST always appraisals. Also, there has to be third point of view, niether pro nor con - my point of view - neutral.

Outside of residential mortgage work, there are plenty of cirumstances were a little preliminary research is done to determine whether a more money should be invested in attempting to do some kind of project - like a feasibility test. That's what a comp check really is. They get a cheap (ie free in most cases) appraisal to see if it is worth committing more resources, time and effort (including getting a more expensive appraisal)."


......the more expensive appraisal assignment is predicated (and is ordered ONLY if) on the "little preliminary" indicating a range of value sufficient to "do the deal".

 

[Fred]

Whenever attempts are made at changing existing laws in Amsterdam’s red light district, those who are benefiting valiantly defend the status quo and impugn those who wish to change any statutes. It is the law.

I'll defer to your expertise on red light districts.

 

[Fred]

Bottom line:

The ONLY cure is to take the appraiser selection and ordering completely away from ANYBODY or ANY COMPANY that is involved in the transaction that would include a mortgage loan.

Yes, I mean both residential and commercial.

And give it to the AMC's. Please stay on your side of the line.

I am wondering how you could enforce that. I have money. I want to make a mortgage loan. I trust certain appraisers and don't trust others. Why would I even consider letting you force an appraiser on me?