More On Free Comp Checks

[Mike Kennedy]

Here is the issue in a nutshell:
A. As an appraiser, if you are going to provide an opinion of value in this context, it is always an appraisal. Therefore, it must comply with USPAP. This means keeping a workfile, producing credible results (given the intended use of the assignment) and having a signed certification.

B. You can do a desktop appraisal if you choose and charge whatever you like. The advice I give is to make sure that the engagement agreement and intended use are clearly identified. While not necessary in general, for this type of assignment I recommend one clearly puts in writing that the results of the desktop appraisal are not related to any other assignment and that another appraisal for a different intended use (such as a mortgage finance transaction) with a different SOW can return completely different results.

C. There are two very legitimate arguments (IMNSHO) against providing desktop appraisals.
The first is should the appraiser work for "free"? I think that depends on how much time it takes you to complete such an assignment and who you are doing it for. If you had a long-term client, you might be inclined to work for a half-hour on an assignment for them. If it is a prospective client, you may limit your time to about five-minutes. Naturally, this is dependent on your market and the specifics of the property itself. The average desktop appraisal I do takes less than 5-minutes. And, if it takes more than 10-minutes, I call the client and let them know that I cannot complete a desktop and they need to order the mortgage finance appraisal to get a value. Also, I do not do desktops on 2-4's or vacant land. I keep it simple.
The second legitimate complaint is this: Is their an implicit or explicit "quid pro quo" for value on the desktop vs. any subsequent order? In other words, if I conclude a value of $X with a desktop, does that imply the same value will be returned when I complete the mortgage finance appraisal? The fact of the matter, IMO, is that without taking the steps necessary to inform otherwise, there is a reasonable inference by the client that the values should be the same. Therefore, to counter this and make it explicit that no pre-determined value is implied, a statement like this should be used on the engagement form (for the desktop):

The greatest challenge here is for the appraiser to be able to tell the client up-front that the desktop valuation is only useful in analyzing the loan package by the agent/broker, and is not meaningful as far as estimating market value for a lender which is a different assignment, requires a completely different SOW and does not rely on the significant Extraordinary Assumptions that is part of the desktop appraisal.
My experience is this:
1. About half of the callers don't want to fill out my form which explains in detail what they are getting. They are shopping for a value, not trying to get a legitimate valuation for their loan package review.
2. Half of the remainder, once it is explained to them that there is no quid pro quo on the value, say thanks and don't call back.
3. The remaining group (about 25%) understand what I'm talking about and understand what they are getting. However, half of these drop out when I tell them that all mortgage finance transaction appraisals are COD at the inspection or before completion. They want to bill in escrow which we don't do.
D. This leaves roughly 10% who go through the full process. Of those, who actually orders? About half. So, of the ones that I pre-screen and get to this stage, we get about 50% of the orders, COD.

Finally, our values for the desktop estimate are expressed as a range. So, my value estimate may be $400k to $450k. I will get the occasional "Well, it will work if you are at $440k or more!"
to which I respond
"There is no guarantee, and for all we know, if we complete the mortgage refinance assignment, the value could be less than $400k... and we require the assignments to be paid at inspection."

So, I join in with everyone else to say stop doing "comp checks".
I am definitely in the minority, however, by suggesting that an alternative is to do a desktop appraisal. And, unless you are very confident in your ability to write a detailed engagement letter and understand how to write your limiting conditions and Extraordinary Assumptions so that your report is consistent with what you actually do (your SOW performed) and is USPAP compliant, I'd recommend not doing them at all.

Good luck!:new_smile-l:

I would have added, "and unless you ENJOY weeding through those 95% ers to perhaps find the 5% ers....... as a professional success story to regale your kids and grandkids with ....... versus devoting time, resources, and energy to isolate, market to, and meet Full $$$ Boat clients who recognize that an Ethical, Professional, Experienced, Geographically Competent, Totally Objective, Appraiser is worth his/her weight in gold - pass.:icon_mrgreen:

 

[hastalavista]

I would have added, "and unless you ENJOY weeding through those 95% ers to perhaps find the 5% ers....... as a professional success story to regale your kids and grandkids with ....... versus devoting time, resources, and energy to isolate, market to, and meet Full $$$ Boat clients who recognize that an Ethical, Professional, Experienced, Geographically Competent, Totally Objective, Appraiser is worth his/her weight in gold - pass.:icon_mrgreen:

:laugh:
Mike-
I'll take this as a "we are in agreement!"

 

[Lee Lansford]

I am sorry i ment to say, provide recent sales of similar properties and NOT specifically state a range or ballpark figure.

that was an important word that I missed. I edited the original post to avoid confusion.

See post #330. Heed the advice of both Denis and Webbed have provided.

YOU select and communicate sold data, you've communicated what we call an appraisal.

 

[JSmith43]

See post #330. Heed the advice of both Denis and Webbed have provided.

YOU select and communicate sold data, you've communicated what we call an appraisal.

What if only listings and/or pending sales are communicated? If there is filtering, and the intent is to bracket or benchmark value, I believe the way a USPAP applicable appraisal is defined, that is also an appraisal.

Having said that, I am in favor of narrowing what is an appraisal covered by USPAP, T-11, & various licensing statues to that which is first declared to be an appraisal under USPAP.

It should have a defined birth. The current treatment is a fundamental over-reach. It results in controversy, infringement and conflict with overlapping trades, and hard to understand distinctions.

"Birthing" by declaration (as opposed to by accident via block party musings or an errant CMA) is easily understood by the general public, and such an honest treatment of the subject would lead to enhanced trust by the public and related professions.

 

[Marcia Langley]

The last two comp check requests I received were requested to be in writing and one actually stated it would be used to set the purchase price prior to signing a purchase contract and prior to pulling an FHA case number.

Appraisers who do comp checks (undocumented appraisals) without carefully documenting the client, intended users, and intended use (and all other USPAPPY stuff) are in extreme jepoardy of liability. Even if it's oral.

Some clients understand USPAP just enough to know that lack of compliance can ruin the appraiser but not themselves. That's all they care to know about it.

 

[Mike Kennedy]

:laugh:
Mike-
I'll take this as a "we are in agreement!"

wutts a desktop?

 

[marytt]

$20,000 on the books.

I tell them something very similar, if the value looks way off, I will call them, but I do not do comp checks without an order, because they are requesting an opinion of value and that is what we get PAID to do! 50% of the time I get the order.....As for COD, we do not do the order UNLESS it is COD for any new client..We have never left one dime uncollected in 15 years of doing business. If you have one lender who owes you money and they come in with another order, don't you just say hey would love to do that order for you, but need to get paid first for the others or better yet, take the order from them, get the report ready and then say, I am ready to send it on over to you, but you owe me $$$$, so send that payment to me and I will email this appraisal right on over to you ASAP.:laugh:

I say....."sorry, I don't do free comp searches! Now if you want to fax the request to me I will do some preliminary work and if it looks like the borrower's estimate of value is way out of line I will let you know and just bill you for the research work." :rainfro: Never get the fax

Thinking about starting all conversations with...."this call is being recorded since what you are asking me to do is a violation of The Uniform Standards of Professional Appraisal Practice".

Honestly, I probably get 3 or 4 such calls a day...all from out of state lenders. Last one that did send the request is now refusing to pay "because I told you I had to have $200,000 and you came in at $195,000". From now on....only COD's. I have over $20,000 in accounts receivable which is beginning to upset me.

 

[Allied]

Customer Service Vs the Comp Check

If a client calls and asks for a comp check, I say no, sorry. Then they may ask if I can tell them what the sales price range in the neighborhood is - I look up MLS and just state "low $100,000, high $150,000." That, in my opinion, is a research project, not an appraisal. I never said, intimated, suggested or otherwise that any home in that neighborhood would fall within that range. Takes 30 seconds on the computer. That is not, to me, a comp check, nor do I do that for everyone who calls. Am I alone in this?
tdu

Well this is really walking a thin line here. Although USPAP does recognize that appraisal practice goes beyond the limits of the 10 STANDARDS and 5 remaining STATEMENTS, you have to be careful not to mislead the client by presenting them with a range. Many times the MB has an expectation to get a value check. It is up to me to change that expectation so they understand what I am actually giving them. I see nothing wrong with providing a list of recent sales (say 6 months) within a reasonable radius of the property in question (I don’t refer to it as a subject yet, nor do I refer to the sales as comps either). I DO NOT, arrange the sales in any particular order, I do not offer any opinion of value nor do I even suggest a range. It simply is what it is, a unanalyzed list of sales that they could get themselves from the MLS if they weren’t so lazy. In essence, you're doing the same thing, but verbally stating the range can be misleading if they "assume" you analyzed the data.

I deliver the sales with a written statement stating that “I have not inspected or analyzed the property in question or the recent sales and other than the time spent to locate the aforementioned sales I have given them no further analysis. This data is intended to show activity in the marketplace and is in no way an appraisal. The actual value of the property in question is unknown and would not be determined without an appraisal and the benefit of a proper analysis that complies with USPAP and its STANDARDS”.

Long story short, I don’t even give them a “high” or “low” range. I simply present ALL the available data impartially, charge them for my time, and let them draw their own conclusions, not mine.

 

[RICHARD D. FRANK]

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[TC]

That site is great.

1. We are going to provide you with the most aggressive value that we can that will stand up to Underwriting.

Let's see, market value, assessed value, and now agressive value. I must have slept through class that day.

2. We are always willing to take a second look at each appraisal at least twice, at any point in the process.

Can't top that.


TC