More On Free Comp Checks

[Webbed Feet]

We have our new clients sign the engagement letter with the following statement. Only had to use it a few times, the shady ones usually call someone else. Any thoughts on this would be appreciated.

"Comparable Check: The appraiser is willing to provide a preliminary comparable sales check prior to completing the appraisal inspection in order to provide the Client with recent sales for the subject's immediate developmenty. If the Client feels the estimate of value is inadequate, the Client may request to cancel the appraisal inspection, but will incur a fee assessment of $50.00. This fee will be waived if the Client wishes to proceed with the appraisal inspection. The information required for the comparable check will be obtained via hearsay and the appraiser will not be liable for discrepancies between the subjects actual amenities and stated."

Anytime I have to read something several times over, and think as hard on it as I did, my bet is you have yourself headed for trouble on this one. I'll go over this. Once an appraiser starts using the appraisers expertise to select specific sales because those sales are "comparable" to a specific subject property:

A) There is nothing "preliminary" about it.... the appraiser is doing and reporting a real estate appraisal with a SOW not requiring inspection of the subject or comps. Ya just did a real estate appraisal and it has to comply with USPAP. Too many appraisers think since they did not "reconcile" a point value opinion that it is not an appraisal. This is totally incorrect. You just sent your client a range of value. It is doubtful you did so within compliance of USPAP.

B) The client canceling what was to be a following SECOND assignment for an ADDITIONAL real estate appraisal is NOT justification for making the first real estate appraisal fee (see "A" above) contingent on the outcome. In otherwords, you charged $50 if the first appraisal did not have a high enough value to justify the client agreeing to move to a "Phase B" (second appraisal) but agreed to the first appraisal assignment fee to be changed to $0 if the final opinion of value for the first assignment WAS high enough to meet the clients benchmark for moving to the "Phase B" assignment.

Sorry, B above is a blatent contingency agreement in my opinion. IMHO, it violates USPAP. Charge a fee, or don't charge a fee, just don't be agreeing to the changing of the fee based on a value outcome or the need for the client to obtain a loan like you are doing.

C) You must look at that hearsay stuff the way it really is. You are invoking Extraordinary Assumptions to be used in a real estate appraisal. If too much of the information cannot be deemed reliable, you are violating USPAP in that your determined SOW is highly likely to not have any credibility. So while I have no idea what you mean about "hearsay," I can guess this just may be taking things a bridge too far over the river Kwai. You might want to rethink that one.

Webbed.

Ms. Crowley... ditto on the need of disbelief medication over this one....

 

[JSmith43]

We have our new clients sign the engagement letter with the following statement. Only had to use it a few times, the shady ones usually call someone else. Any thoughts on this would be appreciated.

"Comparable Check: The appraiser is willing to provide a preliminary comparable sales check prior to completing the appraisal inspection in order to provide the Client with recent sales for the subject's immediate developmenty. If the Client feels the estimate of value is inadequate, the Client may request to cancel the appraisal inspection, but will incur a fee assessment of $50.00. This fee will be waived if the Client wishes to proceed with the appraisal inspection. The information required for the comparable check will be obtained via hearsay and the appraiser will not be liable for discrepancies between the subjects actual amenities and stated."

It would be more logical to give them a credit for the "new assignment" (stage 2). If the fee charged on the assignment with the skeleton scope is commensurate with the work done, it will appropriately bleed the abusers of such a system of time and money if they are shopping for an answer.

The problem is, it isn't just all answer shoppers that are customers. There are customers with legitimate needs to be filled as well (determining feasibility, for example). Another legitimate need is to get a preliminary second opinion, since appraisers are anything but perfect.

I am sure that back pain sufferers are glad that they can pay for a diagnosis. Sure as heck the Orthopedic specialist or neurologist are motivated to find a reason to operate more so than to suggest exercises and Advil.

 

[JSmith43]

Webbed: You get extra credit for not telling Expressv: "Don't try to pull that one in Oregon."

Yes, Expressv, the way you are doing it looks too joined at the hip. I hope your engagement letter fleshes out the different scopes of the two distinct assignments and points out how these assignments differ and how the results may differ due to the change in scope.

That last part is key, because what you don't want is for your fee to be based upon assignment results. And, it won't be, and shouldn't be construed to be, if this is properly presented.

 

[Stone]

Webbed: You get extra credit for not telling Expressv: "Don't try to pull that one in Oregon."

Best line I've seen in some time.

 

[expressv]

The nausea comment seems a bit out of line, but I suppose professionalism and experience don't always go hand in hand.

What it says is that we will do an MLS search in the subjects immediate development based on the information provided by the lender via phone/fax. We charge $50 for the time to do the search, to speak with them, and to maintain a USPAP compliant file.

There is no contingency other than if we do work, we want to get paid. If they decide to proceed than the work completed up to that point will be considered part of the scope of work required to complete the assignment. The fee is the same fee quoted for the completed report. The same as if I drive out to the property and during the inspection we find something that would cancel the loan out. There would be no point in completing the report if the lender no longer needs it, but they will be paying for me to travel and to inspect the property.
Nothing is free, hence the $50 fee.

 

[Webbed Feet]

The nausea comment seems a bit out of line, but I suppose professionalism and experience don't always go hand in hand.

What it says is that we will do an MLS search in the subjects immediate development based on the information provided by the lender via phone/fax. We charge $50 for the time to do the search, to speak with them, and to maintain a USPAP compliant file.

There is no contingency other than if we do work, we want to get paid. If they decide to proceed than the work completed up to that point will be considered part of the scope of work required to complete the assignment. The fee is the same fee quoted for the completed report. The same as if I drive out to the property and during the inspection we find something that would cancel the loan out. There would be no point in completing the report if the lender no longer needs it, but they will be paying for me to travel and to inspect the property.
Nothing is free, hence the $50 fee.

Expressv,

Here is where I really get extra credit. Your attempt at interpreting what you originally posted into something different than what it said just does not cut it. Even your second post here just confirms my prior post.

If you receive client supplied information on the subject, versus your own developed information, or public information, it does not matter. You are still turning around and using that information to then professionally "comp out" that subject, based on that supplied information, using your expertise to do so. That my friend is a real estate appraisal in action, and it is then reporting a range of value to the client. There is in fact a contingency of the fee going on that is based on the range of value outcome. You can try and parse it saying "They decide," but you're still into the Ethics Rule about contingency fee arrangements.

What I said above is not client supplied parameters for the MLS search. This is something entirely different from client supplied information on the subject and then the appraiser creates the search parameters based on that information. The first one is not a real estate appraisal because it was the client's parameters for the search, the second one is a real estate appraisal because it was the appraiser's parameters for the search.

If when you drive out to a property you discover a big hole where the house was yesterday, one might certainly be able to cancel with a reduced fee because a house is required. But if you drive out to a property and determine you cannot hit a client's benchmarked estimate of value and then offer a fee reduction, you just violated USPAP because you arrived at a "less than" opinion of value and then agreed to a reduced fee due to the outcome of the appraisal you just did. These two may seem the same, but they are not. In the first case you developed no approaches to value, nor reported any. In the second case you did both.

Webbed.

 

[hastalavista]

The nausea comment seems a bit out of line, but I suppose professionalism and experience don't always go hand in hand.

What it says is that we will do an MLS search in the subjects immediate development based on the information provided by the lender via phone/fax. We charge $50 for the time to do the search, to speak with them, and to maintain a USPAP compliant file.

There is no contingency other than if we do work, we want to get paid. If they decide to proceed than the work completed up to that point will be considered part of the scope of work required to complete the assignment. The fee is the same fee quoted for the completed report. The same as if I drive out to the property and during the inspection we find something that would cancel the loan out. There would be no point in completing the report if the lender no longer needs it, but they will be paying for me to travel and to inspect the property.
Nothing is free, hence the $50 fee.

If you are talking about two assignments here (and you should be) then why link them in any form?
Assignment A: Desktop appraisal. Period.
Assignment B: Mortgage finance appraisal. Period.
Two different purposes, intended uses, SOW, etc. The only similarity between the two is the client and the subject. Don't make a connection (or imply one) when none should exist.

 

[Offshore]

The nausea comment seems a bit out of line, but I suppose professionalism and experience don't always go hand in hand

Express did your comp checking supervisor put you up to this?

 

[expressv]

ahh

Denis/Mentor,

I guess "credit" would be a better word to use in the statement as its what we are trying to get across. Desktop or comp check to begin with then if the client feels its necessary to move forward the $50 fee is credited towards a full appraisal assignment, so they are never paying more than a full appraisal, but we are being compensated for the initial research if it ends there. Denis: Do you do comp checks? If so do split the physical files as you say? We keep a physical file with 2 sets of pw, one reflecting the information discussed for the comp check as req by USPAP and then the rest for the completed assignment as req by USPAP. Is that a violation or just bad practice?

Webbed,
Just to clear it up, it would seem obvious to me that any appraiser would pull public information to begin an assignment at a minimum. I dont know what resources you use, but many of the ones we utilize in our office do not always provide information such as bed/bath count, quality features etc, so where do you suppose we get this information prior to inspection? How could it be interpreted that the MLS search parameters were dictated by the client if we as the appraisers are gathering the information to develop the parameters for the search? The hearsay statement is in regards to not physically measuring the house to determine the square footage, as the home owner is always over estimating and public information is rarely correct or den vs. bedroom etc. Since you are all knowing what would your suggestion be for securing payment for comp checks if you do them at all?

 

[expressv]

Here is an example of what we communicate as a "comp check" accompanied with the listings found:

[FONT=&quot]"These are the most recent sales from the subjects immediate development. Per MLS and County Records the subject is 1879SF 3Bed/2.5Bath, 2Car Garage, built in 1987. The sales included bracket the subjects living area and bed/bath count. The highest price sale in the past 6 months is $345,000 and it is larger than the subject. The estimate of $355,00 appears high, please call or email if you have any questions.[/FONT][FONT=&quot]"

http://northernarizonamls.rapmls.co...ZKprsGBYNIDVhIb/+gwNsokkMQxWKdm1Zjw=&KeyRid=1[/FONT]A quick whats right or wrong will suffice,.