More lessons from field reviews-verification sources

[Tim Hicks (Texas)]

Stephen, I totally realize that we work in an imperfect market and data can be convoluted. Not all reviewers are Monday morning quarterbacks and not all appraisers use bad data. I am giving the viewpoint of a reviewer on bad reports. Not all reports are bad, but if you show the same consistancies in your good reports that the bad reports reflect then the magnifying glass comes out. I live and work in an area where the MLS system and online Tax Records are good, but not infallible. If two different sources have confilcting data and the reports uses one of these data, the reviewers I know don't assume that the appraisal is wrong. However, when an appraiser refuses to use any of readily available sources (MLS, etc.) for any of their comps and then six months to two years later these sources don't support the data that was used, what is the reviewer supposed to believe? I realize many of us have been burned on field reviews (I have). The purpose of my post is to help remove the "red flags" that cause appraisals to be questioned. I have done, 15+ field reviews for Fannie and Freddie. There have been countless errors in the reports, but the majority of errors deal with comp selection and verification. I don't care if your predominant value is skewed or if you have a wrong census tract number because that is not pertinent to the appraised value. I have one sale that was used in eight different reports that never actually closed and is still taxed as only the lot because the title is still not in the borrowers name. Two other predominantly used comps were "contract for deed" and "owner financed" proudly printed on the closing statements. My suggestion is if you use a comp from an unverifiable source, mix it in with the sales that are readily available. Shouldn't they all reflect the same market? Why would any appraiser drive 14 miles for comp when there are 5-10 sales from the MLS right from the neighborhood? The answer is: they are appraising a number not a property. I also fail to see why an appraiser will give neighborhood boundaries that include nearly the whole county to justify using comps that far away. Why would an appraiser say a property is +/- 5 miles away, when it is actually 18 miles away? Is it intentional? Or is it purposely misleading?

Stephen, I seriously doubt you or many of the people who post here put out the garbage that I have to review. Only about 10% of my business in field reviews, but doing these reviews sure changed the way I present my reports. If I screw up, it certainly is not going to be as obvious and as careless as the reports I have reviewed. However, if any trainee or newbie learns anything from my posts, maybe it will prevent them from joining the dark side of our business. I suggest that some of guys should do some field reviews. It will really open your eyes and make you realize why we are such scapegoats in this business.

P.S. Believe it or not, I did review one report for Freddie last month that I saw no problems with. It was new construction and his comps were old and farther away than desirable, but there certainly wasn't any comps that he could have used that were better. Not all reviewers have axes to grind or secret aggendas.

 

[Tim Hicks (Texas)]

I just realized something. In my attempt to educate the yung'ns, I am alerting all the drivel out there that we are on to them and their unscrupulous ways. They will just come up with new an more bizarre ways to convolute the system. So everybody, just ignore my posts. Oh, I forgot you already did.

No, seriously, I accepted these review assignments from Freddie and Fannie because of this forum. I felt if they were actually going to do something, I should do my part to help. They have actually taken a proactive stance against appraisal fraud. The foreclosures have awakened them (somewhat). My $325 fee is not nearly enough for the work these reviews take. They expect all reviews to be fully supported with hard data. They don't want a "contest" between appraisers. It actually has been pretty easy from that stand point, because the comps are so questionable and easy to disprove. It easy to spot "fraudulent behavior" compared to negligence and errors. I feel better knowing that if I do the review, then there is no witch hunt. I can objectively look at the appraisal and deal with facts and personalities and names don't matter to me. You will see names in the future that will not be able to appraise Fannie and Freddie loans. They are also sending the reviews to the State. It makes me feel better, but I know it makes some people angry because they think innocent appraisers will be chastised or accused, but I know I can help prevent that from my end of the spectrum.

 

[David C. Johnson]

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

In your initial posting, you write:

"Sorry, just did another $50,000 high review for FNMA.
It really seem worse when it is $50,000 on a property
is really worth $70,000. Especially, since it just sold
as an REO property for $49,000 this year. You would
think if an appraiser was going to be fraudulent and risk
his license they would be more clever and cover their
tracks better."

This subject of your review sure sounds like "an appraisal" that could use some attention beyond a private review commissioned by a user/client.

</span>

Is it headed towards the state board?

dcj[/color]

 

[Stephen J. Vertin MAI]

Tim:

I can not argue with anything you have said. Please do not think I was referring to you as a bad reviewer. I do not know you or your work. Nothing you have said appears incorrect. I am just venting about a number of people in our business who seem to think that appraising is all encompassing and appraisers should be omniscient, omnipresent and omnipotent because they were paid $250 to $350 to complete a report. Furthermore, they want to use the report for a building engineering report, environmental survey and mortgage insurance policy. Then when things do not work out they want to sue the appraisers.

Again, do not get me wrong, appraisers who do not do their job or are out there strictly hitting numbers need to be reeled in quick and hard. I believe 30 to 60 days in the County jail would work wonders. But that is another subject.

Steve Vertin

 

[Tim Hicks (Texas)]

David, I can't send that one, because I don't know the indentity of the appraiser. But, my appraisal review order explicitly states that the review and report can and will be turned into state regulatory agencies.

 

[George Hatch]

Tim,

I'm sure that the state board could find out the identity of that appraiser if they wanted to badly enough. All they have to do is approach your client and ask for some cooperation. Not to split hairs, but without knowing the identity of the appraiser, how could you or anyone else even know if the appraiser were state licensed, or licensed sufficiently for the assignment in question? I don't think there is anything unethical about turning in a report just because you don't know who the appraiser is. If anything, it reduces the suspicion that you are acting with malice toward the individual. Send it in and see what happens.


George Hatch

 

[Pat Butler]

George- I had a lender client who was getting a whole bunch of appraisals reviewed that were all done by the same appraiser. They were even using a bunch of different reviewers too. They suspected that the appraiser was making the values work for one particular loan officer. They wanted to have all of these reviews in hand before deciding on what action to take. I think they ordered reviews on his appraisals for about a two month period.

If I, or any of the other reviewers, were to have turned this guy in to the state before the whole process was done, then the client may not have had all the evidence they needed for their own internal review process.

Also, unless there is fraud involved, I've always thought that it was a bad idea to turn in a questionable report to the state unless you were overall familiar with that appraiser's work. You might have received the one really bad appraisal from that appraiser, yet the vast majority of his work may be very good. The client who orders appraisals all the time from that appraiser is in the best position to know the overall work quality. None of us would like our worst appraisal to be turned into the state.

I would always check with your client before sending a report into the state. After all, you had the privelage of reviewing that appraisal solely because your client entrusted you to it.

 

[Steve Owen]

Tim:

I have been following this thread with interest. You sure brought out a lot of interesting comments. One theme that occurred several times was the use of MLS data as a sole source of verification. I have argued this with instructors several times. My point (it may not be the same everywhere in the country) is that MLS is the best single source of data available in this neck of the woods. To reviewers, or anyone else who says that you should verify it with the assessor or one of the parties to the transaction I offer this bit of hypothesis. Suppose you have a comp from MLS that sold for $50k. Then the assessor says, “the buyer returned the card and he says he paid $45k.” Who are you going to believe? The disinterested third party who put the data in the MLS or the buyer, who may have in interest (lower taxes) in misinformation? It is and has been my contention that if the MLS is the best source of data, then there is no need to go further. (Since you are going to believe the MLS anyway if you get conflicting data from a buyer or seller, why waste time?) As one poster said “we didn’t take this puppy to raise.”

On the other hand, I fully recognize that MLS can have errors or lack the needed amount of data. (It is almost always necessary to contact someone who has been in a house with finished basement listed in our MLS.) If there is an apparent error, most often GLA, then I definitely try to confirm that piece of information from another source, ideally the appraiser, if the selling agent can remember who it was. One of my main fears is in using this corrected information and getting dissed by some reviewer who can’t see beyond the end of their nose. (Appraiser used 1900 sq. ft. but MLS reported 2000 sq. ft., or vice versa.)

Concerning properties that cannot be confirmed through MLS, I occasionally use them if they are the best comp. In such a case, a party to the transaction may be the best source, but I always look for a disinterested third party first. If someone such as the lender tells me a sale price and the buyer or seller has different information who am I going to believe? The disinterested party, almost every time. In such cases, I feel an appraiser should confirm the sale through public records. In the case where the closing was listed in MLS, I just can’t see the point of it. The bottom line is that you use the best information that is readily available at the time; I never worry about a reviewer coming up with additional information at a later point in time (well, actually I do worry about it, but I don't obsess over it - lol). For simple SFR’s I use MLS as my first source and the broker who gave the data to MLS as my second source 98 percent of the time. I will continue to do so until they pull my license from my cold, dead, hand.

 

[Tim Hicks (Texas)]

Good point, Steve. I never question data that an appraiser uses from the MLS. It is when they refuse to use data from the MLS when there is ample data that draws a red flag from me. A key element here is the "exposed to the open market" requirement. A FSBO is exposed to the open market. A land/home package is not unless it is built and sold and offered as one unit on the open market. There is a reason no MLS sales are used in many land/manufactured home appraisals. The re-sale data and lsitings do not support what the uninformed buyer is being sold. Would you buy a any home that a dealer and developer told you was worth $120,000, but the minute you place it on your lot and decide to re-sell it it is worth $80,000. The market determines the value of homes not the developer and dealer or builder. There is a reason you don't see custom home builders building in tract home subdivisions. We have a market here where, the developer takes his $10-15,000 lot, puts a septic system on it, puts an electric meter, an excuse for gravel drive and prices it at $35-40,000. Would you buy that lot, when there are plentiful unimproved lots available for $10-15,000. No, but an uninformed buyer will. Then, you get a dealer, who works on commission, who tells a prospective buyer, ""Well, your credit is marginal, but I can get you in a land/home package for $0 down. You qualify for this much and your ratios are high, but you can afford a $1,100 payment if you put nothing down, right?" So, they take a $60,000 home, add a $37,000 lot, and figure, "lets see, $97,000 divided by 80%, we need the sales price to be $120-125,000 to cover closing costs." The developer makes $20,000, the dealer makes $20,000 and the uninformed borrower foots the bill. And later the tax payers foot the bill. What they don't tell the buyer is their property taxes aren't included, then they get a high escrow the second year and foreclosure starts. All of this only takes two stooges, the buyer and a money hungry, self serving, ignorant or just plain crooked appraiser. They compound the issue by starting them out with a "contract for deed" or "owner financing" so they get around the actual cost figures that an underwriter might question. Then they attempt to refinance with the original sales price as their shining beacon.

Here's the kicker. None of this can happen without an appraiser to play along. Every appraiser in the area knows that the MLS sales (re-sales of similar properties) do not support these values. Many have been conned into believing that they depreciate the day they drive off the lot, but cost manuals and NADA never support the prices they were sold for. now, for the appraiser motto, "if you furnish me with sales, I can appraise anything". The dealer sits across his desk and says, this property sold for $125,000 and closed on xx/xx/xx. They may even show the appraiser the closing statement. I have seen some of these closing statements. The "type of financing" is whited out. That's because if you get a true copy you would see the "owner financed" or "contract for deed". Or, they show you the closing statement for the refinance without letting you see that the property has been occupied for 3-9 months. Many times, though, they just tell them prices, dates, addresses off the top of their heads and the appraiser just jots it down and uses it.

Fast forward to two years later. Tim has a review to do. The first thing he notices is that all three sales (the same sales it seems every time) have Fidelity National Title as the verification source and the appraiser states in the report that sufficient sales were not available in the immediate market area. Well, lets see, 48 MH sales in the county in the year before the sale, 10 within 0-5 miles, but all three sales are 14+ miles away, but the appraiser says they are 5 miles away. You have one sale of a 1997 home on an acre with a 1,200 SF workshop within a mile, but their 1998 home on an acre with a carport only is worth $47,000 more. Then, because you don't get to see the closing statements of his (or hers) comps, you have to result in checking with the Tax Records. Well, comp #1 plainly states that it is "contract for deed" on the tax records and is 1,967 SF not 1,568 SF. Comp #2 is still taxed and owned by the developer as a vacant lot. Comp #3 shows its first deed recorded 10 months after the reported date and two months after the appraisal date. Oh, and this one 2,016 SF not 1,571 SF. First and foremost, these are not close to applicable on distance alone, but because these are FNMA reviews I have to address them anyway. Instead of dismissing those comps, I have to prove why they are inappropriate.

Here's the best part. It is not one appraiser. It is several appraisers. It is negligence by committee. it is still going on. It is so bad the Texas Appraisers Licensing and Certification Board had to post a notice about utilizing only "open market transactions" for land/home packages.

Three years ago, they tried a variation on this system. They had found a lender who would loan on the land only. Well, New Century asked me to do a couple of land appraisals. The sales prices (values) were $37,000 for one acre lots. I asked the land developer to furnish me with comps, because the lot sales I had from the immediate area on the MLS did not support the values. They faxed me three lot sales. I asked for sales that were not owner financed. They faxed me three more sales. I asked for sales that wre not "contract for deed". They sent me three more sales. Two of the first three with the financing whited out and a third sale with financing blank. I asked them if they had any sales that were cash, FHA, VA or conventional. They sent me a closig statement of a land home package with financing whited out and told me to extract the hoem from that sale and they had no others. They also had three lots listed with a local RE office. They were on the market for 330 days at that time and of course never sold. Yet, those lots are worth $37,000. I put $20,000 with the septic and the drive. Wanna bet they found somebody to appraise them for $37,000.

End of story time, I actually have reports to finish.

 

[Willie]

Tim, I'm glad you got that off your chest, but it looks like Paulette sure did tell you a think or two. I'm hope you will become a better appraiser now that you heard this.