Solution to contract dilema

[J Grant]

If you have a bias because of the contract you should really consider your ability to do the job.

Pilgrum, it's not the issue of the fair minded and competent dealing with the issue of bias and doing an unbiased job. I personally have no problem having a SC price known to me, and it doesn't bother me when other unbiased appraisers have it either. (or the better term would be, appraisers with no agenda to hit a SC price. )

However, from appraisals reviewed and the high # of underwater home owners who paid inflated prices and the still too high # of made hit the number reports, it's a big problem that goes beyond any one individual.

These appraisers consider their job ability to be that of making SC value come in no matter what, and doing it in the slickest way possible to get past UW or a cursory review . Many of these appraisers are experienced and competent and know all the tricks and techniques to accomplish this. The rest are misled by bad training or misconception about the purpose of purchase appraisal .

I am sure most of you, if you have been working your area(s) for awhile, will have some bias without the contract
As far as the listing price is concerned that argument goes out the window the moment you decide what the comparables (substitutions) and market area are and do your first search. You are immediately faced with a range of value and need only to render the appropriate adjustments for differences and condition to refine your opinion of value.
I know. I know. An over simplification. .
The sales contract is the LAST thing that needs to be analyzed. If it needs analysis at all.

I agree, with this end statement, about the SC needs to be the last thing analyzed, which is why my phased method ensures that it is needed, analyzed last, (after value is developed without it, it is introduced to appraiser to consider and reconcile to if appraiser's judgment deems it appropriate to do so)

It would level the playing field and make it harder for the number hitters to fudge things.

 

[SutnNC]

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It would level the playing field and make it harder for the number hitters to fudge things.

Ah, and there's the rub. This is the exact opposite of what everyone else typically wants out of this part of the process. It'll never happen....

The other "it'll never happen" part is that appraisers will be "able to charge more" (which is even MORE unlikely then the contract idea). Appraisers are able to charge more now however, it's not possible in the mind/operation of most of all those horse's @$$^*$ running amuck these days.

Good intention however, "they don't have the time" and "they want the money". So they'll get what they want.

 

[J Grant]

Your post is real world correct, SutNc. Was putting it out there for consideration and I may write in the suggestion to appraisal foundation one day, but doubt it will go anywhere, still when I get a bit slow and have the time will submit the idea.

 

[Elliott]

This was tried for a few months after FIRREA was rolled out. It was part of loan production could not speak to the appraisals side. Each lender had a sweet, new administrative assistant who acted as the go between. No sales contract was provided. Appraiser's were expected to just do an appraisal. I frankly liked it, but it was reversed because Production was tearing their hair out over it.

So it has been tried, but was reversed by the powers that be.

 

[Restrain]

And while the basic regs might be changed, the "supplemental" assignment requirements from the GSEs and the lenders would include a review of the contract. When you look at the actual requirements of Standard 1 and the "supplemental" requirements, especially the Fannie Mae Selling Guide appraisal section and 4150.2 of FHA, you can see the difference. Standard 1 is " do a good job, explain what you are doing, and report the results without bias". Everything else is micromanaging to make the appraisal fit the round hole of the appraisal requirements. And "making the deal work" is an objective of the appraisal round hole, thus the contract analysis.

 

[J Grant]

This was tried for a few months after FIRREA was rolled out. It was part of loan production could not speak to the appraisals side. Each lender had a sweet, new administrative assistant who acted as the go between. No sales contract was provided. Appraiser's were expected to just do an appraisal. I frankly liked it, but it was reversed because Production was tearing their hair out over it.

So it has been tried, but was reversed by the powers that be.

Interesting, the very solution I recommend was tried, re, no contract provided till after the value was developed without it? Or no contract provided, period?

When you say production was tearing their hair out, I guess not enough deals were coming in!

 

[23Degrees]

Nice effort J but this conundrum will never be solved. Never. If the powers that be eventually require a prelisting appraisal as that first assignment in order to eventually get GSE funding on a particular address then maybe you could establish a system to address the "target" issue but that will never happen either. I've found my own personal solution to the contract issue. I actively avoid purchase assignments via the application of a very appropriate (IMO) up charge.

Purchase assignments should pay a $200 minimum premium over a refi assignment in the simplest of markets - Here's my list why:

- A minimum doubling of the individuals involved who will have cause to complain and open up reconsideration cases over the opinion of value. Personally I think that having to deal with Sally Highheels or Mick Mercedes is reason enough to get a higher fee.

- Responsibility of contract "analysis" the definition of which will surely be a moving target in the event of any inquiry. And as a side note I think that any appraisal done at a point in time where there is a contract should include the "analysis". This contract issue is a matter of timing and process, not a matter of playing hide and seek or purposefully putting on blinders.

- Increased liability related to all legal and physical issues of the property. See certification 23 - the refi borrower has no standing to sue an appraiser on a multitude of issues where the purchase borrower can claim a reliance.

- The increased responsibility, whether some care to admit it or not, of applying the signature to the next set of comparable sales. And quite often that new comp would not exist without appraiser signature as the buyer's premium overbid "offer" was highly leveraged and would not survive without it.

Frankly I think an advanced license classification for purchase assignments would be more than appropriate if the industry as a whole ever recognizes the increased importance that these assignments represent but fat chance on that. I don't know of any AMC or lender that has a fee classification system that distinguishes purchase assignments. This is presumably because the overwhelming majority of appraisers either don't recognize the differences I've noted above or don't see them as significant. And I'm OK with that. Where I work, when the refi market collapses and there is nothing but purchase assignments, just about everything goes to the staff guys who collect $100-150 an assignment or to the disgusting and revolting farms that split fee on AMC assignments where the signing appraiser makes about that amount if they are lucky. No thanks.

 

[J Grant]

An advanced license for purchase appraisasls or advanced education with particular emphasis on contracts and influence of such would be a great idea, as you said as unlikely to happen as my idea.

The powers that be want to leave a big gap in the door open for those that want to barge through the gap by hitting numbers. The gap could easily be closed if the regulators/appraisal standard boards were serious about it.

There is language in USAP FAQ about not making contract a target value and language in the certs about not predetermine outcome of report, so the powers that be have what they need to go after the number hitter down the road if it benefits, them, and they also have the system in place that favors fudging the influence of contracts to allow the short term goal of keeping loan production flowing with minimal interference.

I personally don't avoid purchase appraisals though I respect the decision of those who do. I have a pretty good group of clients, small in number and they include a couple of surprisingly decent AMC's who don't want number hitting or fudged results.

 

[Terrel L. Shields]

this conundrum will never be solved. Never

There is no need to solve. We are all biased period. How do you get that bias? Well, if I know what the taxes are, I know how much the assessor thinks its worth. If I know what the contract says, I have another indicator. If I know what the place sold for, last time it is sold (which once was considered a "fourth" method of appraisal) then I have another indicator. And prior listings, current listings, etc.

So if all that data is consistent and I have a contract in hand that is consistent with those other indicators.....hmmm. What is the price MOST LIKELY that this property is going to sell for? It's the contract price.

If our own indicators (3 + Sales, Cost, Income) are run thru the simple exercise of running the average/std. deviation ... you have a perfectly fine mathematical method of developing a "range" of value and in such, you find the contract fits...then it should be the MV of the property.

As I have asked so many times. If you value something at $100,000 and the contract said $104,000; then the property closes at $104,000....do you ever use that property as an arm's length comparable sale? AND if you do, do you adjust it DOWN because you thought it sold "too high"...I wanna see the UW comments when you do that.

 

[J Grant]

Terrel, people use the word bias, and perhaps the better word for the root of the problem, is agenda. I'll agree with you, that we all are biased to some degree, even if we fight the fact taht we are and try to put it aside.

A professional appraiser recognizes some bias may be present, and acknowledges it, and then works hard to put personal bias aside when developing a value.

However, there is a difference between having a bias and having an agenda. Appraisers can have an equivalent amount of bias, which as you said comes with the territory. The crucial difference is, that some have an agenda to hit the SC price no matter how flimsy the market support, while other appraisers do not have this agenda.

Reports done with an agenda to make value can easily pass a superficial read, as long as one does not look to closely or examine alternate data not used. Thus, these reports often pass UW and the superficial AMC driven checklist "reviews".