Do you know what you are getting into?

I have written many blog posts here, mainly for the consumer to read and understand what is actually happening in the world of Real Estate Valuations. My blogs range from being overcharged for appraisals so the middle man (the appraisal management company or AMC) can make money, lenders still pressuring appraisers to hit a value, and now having untrained and unlicensed people perform inspections (see my last blog entitled “Deception”).   

Well. This blog is for the Appraiser as well as the consumer.  I hope you read it and understand the extreme importance.   

Recently, as we all know, the new “Hybrid appraisal” has come onto the market. Fannie Mae has developed the 1004P form.  Lenders and AMCs have developed their own products as well, with false information claiming appraiser shortages, claiming they will be faster and better, and claiming they can still be done accurately saving consumers hundreds of dollars.  First thing, we all know that there is no shortage.  Secondly, there is no proof that these are faster and better products, and thirdly, where is the proof it’s saving them money?   

There is proof all over that AMCs are charging consumers outrageous amounts of money for a full appraisal, only to find the cheapest appraiser so they can make a bigger profit and pad their pockets. (Read my blog entitled “What’s Not In Your Wallet”). Who’s to say they aren’t charging the consumer the same or close to the same fees for these so-called faster Hybrid products?  

If you are still in your basement or even have no internet access, then you should know what this product is. If not, here is a quick synopsis. The definition of Hybrid: A thing made by combining two DIFFERENT elements.    

Elements of a Hybrid Appraisal: 

1) An inspector to gather data, take pictures and measure a home

2) A licensed or certified appraiser to complete the valuation

So what’s the problem here, you might ask?  Well, let’s just point out the main issues.  

1) Using an unlicensed and or untrained person to collect the data, measure the home and pretend to act like an appraiser. Appraisers have had to endure years of training under a supervisor, pass state tests, take continuing education, and make sure they abide by USPAP and state laws. The non-appraiser inspector?…a couple hours of training, if that! Hell, they don’t even have to be background-checked or carry any type of insurance. Seriously? Lenders, AMCs and the Government are ok with having just anyone out there with a heartbeat come to your home and gather data, and take pictures. (Yes. Appraisers have ethics and rules they’re bound by, so you never know what these unlicensed and non-background checked people will be taking pictures of and putting all over the internet.)   Maybe it’s worse. Maybe the non-appraiser person who comes to your home just got out of jail, maybe he/she is a pedophile, or worse, maybe a rapist or paroled felon.  Are you okay with this?   

2) Appraisers are in place to ENSURE THE PUBLIC TRUST!!!!  TO PROTECT THE CONSUMER. This isn’t something that just happens overnight. Years of training and supervision plus education and tests have to be overcome to gain the title of Certified Appraiser. Appraisers have the experience to note that a home has polybutylene plumbing…that “salt” on the block basement walls is a sure sign of past or current water intrusion issues, the ability and knowledge to look for things NO ONE else would even think to look for, to correctly measure the home for proper livable square footage and basement square footage per correct standards, to correctly judge the quality and condition of the subject by observing all aspects of a home upon inspection, and in the end be able to combine that inspection knowledge with market data to accurately value your home. Appraisers have to follow USPAP (Uniform Standards of Professional Appraisal Practice), which if you don’t know what that is, it’s pretty much the Bible and laws for appraisers.   

The non-appraiser inspectors:  Well, they don’t have any rules to follow, they aren’t trained to see the things appraisers are, they don’t have to have the extensive education or practical on-site knowledge and training. They just get paid to take pictures, take notes, and check off boxes on a sheet. Do they know the different types of plumbing? The differences between a bi-level home or a split level?  What is considered a basement and what is not?  The different types of home siding?  The quality or condition of a house in its current state? If I had to bet, I’d say no.   

All this leads me to this point: Recently, an AMC named Clear Capital, who has already been known to put out a bad Hybrid or desktop product. I have seen where an investor bought a townhome in Atlanta Georgia based on the output of this particular product. The appraiser was licensed in Georgia, however resided in a different state some distance from Georgia, and a third party non-appraiser inspector visited the property. Upon refinancing this home, a real, true and detailed appraisal was done by an appraiser who valued the home way lower than the Clear Capital Clear Val Hybrid desktop appraisal result. We won’t talk specific value, but it came in WAY less. Reasons? The Clear Val comparable sales used had been very inaccurate. Comp 1 sold as a 3-unit block, Comp 2 sold as a 4-unit block and comp 3 sold as a 2-unit block.  To value a townhome. This was never addressed in the Desktop appraisal. Well, needless to say the buyer got a terrible, over-valued product that he relied upon.   

Ok so where am i going…HERE.  Clear Capital recently sent an email to appraisers on their panel. Go ahead and read it….

  

Back? I hope you read what I just did. They are NOW telling appraisers that the Quality and Condition ratings, WHICH ARE TWO VERY IMPORTANT ASPECTS of an appraisal, will now be left out by the inspector so that the appraiser can make their own judgement. Wait. What? The appraiser should make his/her own judgement on pictures that may or may not be taken properly & an observation by Johnny Superstar Inspector who may have missed many things due to having no training or knowledge?  

But wait there is more….

The AMC goes out of their way to have you consider language they came up with for your report. First they have determined the scope of work for you. Secondly you are agreeing to this scope of work and that the third party inspector is sufficient enough to collect the data to comply with the Scope of work. HUH?

Now they have also admitted here that these inspectors were previously offering appraisal opinions via Quality and Condition ratings. Say what? They also state that there are many other areas within these reports that are also appraiser opinions that are being given by non appraisers. Makes sense right?

What purpose does this serve for the Consumer? Seriously. I know I am sick and tired of these AMCs and lenders taking advantage and spewing out garbage to pad their pockets. As a consumer, I would be livid if I found out that the person in my home is NOT qualified to do what they’re doing. The person in my home has no knowledge, training or even a background check. The person in my home measured it incorrectly. All of which adds up and can lead to major valuation issues. Sure, the appraiser is there in the end and doing the valuation on your home, however if they get bad data from these so-called inspectors, then that data is going to lead to a bad valuation of your home. Just to save a couple bucks on your biggest asset. What a shame.   

So consumers, be aware of what you are getting into and make sure to find out if a licensed expert is coming to your home and not Johnny Superstar Inspector. Make sure you get all the details and make sure they do things properly.   

Appraisers,one word: LIABILITY. Inspectors have 0% while you have 100%.  Can you really afford to risk your career over $50-$100??   

Of note, this how I see this playing out. 

Consumer: “You valued my house wrong as you stated it was in below average to average condition.”  

Appraiser: “Based on the information I had, that is what I determined.”

Consumer: “Well you weren’t here and didn’t see everything and have no idea what the quality and condition are.” 

Appraiser: “Correct. I based it on the information and photos the inspector sent me.” 

Consumer: “Well it’s incorrect and I will be filing a complaint with your state board and possibly looking to sue you!”   

In the end…Crickets…Can’t blame the unaccountable inspector since, well, they have 0 liability. Sorry, real estate appraiser. You’d better hope your E&O will cover you.   

I’m not an Appraiser, You just think I’m one

Ever see the AT&T commercial where the surgeon walks in and he says ” I Just got reinstated, Nervous? Thats ok so am I “. If not see here: https://youtu.be/1YT3erQZoq4

Or the late 1986 commercial with Peter Bergman that states ” I’m not really a doctor but I play one on TV”. If not see here https://youtu.be/ts0XG6qDIco

Well get ready Consumers because the person that is about to visit your home IS NOT an appraiser or just pretends to play one without the proper training.

See, Fannie Mae and the Appraisal Management Companies (AMCs) are ready to send appraiser imposters to conduct appraisal inspections on our homes.  These same AMCs were created to manage appraisal processes for lenders, but without laws, standards or accountability, their self-defined charters have morphed into other functions.

They sell their services as being the only way for a lender to procure the best “Qualified” appraiser for a particular assignment.  In fact, they will shop around until they find the cheapest appraiser.  Hey, we all like cheap, right??  We routinely shop for bargain prices on all kinds of things, but honestly, would you settle for the cheapest mechanic trusting he’ll keep your car safe, hire the cheapest plumber for you home’s systems, or seek out the cheapest lawyer to safeguard your interests??

We want the best car repair service, the one with the best reviews. We research the best qualified plumber to reduce the risk of more costly household issues later. And when we face a lawsuit, or have to sue to retain our rights, we pretty much want the best legal representation available, right? So why would we settle for low/no standards when it comes to our homes, the most valuable single asset most of us will ever own? 

That’s essentially what’s happening when an AMC sends a “non-appraiser” to photograph, measure, sketch, and observe a property, it’s quality, condition, and surroundings instead of using a qualified appraiser. That’s the AMCs’ bifurcated appraisal where the observation function is totally isolated from the valuation.

Don’t we have a right to expect that someone coming into our home, to develop an opinion of its value, is specifically qualified to do so? Aren’t we trusting that person to gather the information necessary to develop an accurate valuation of our real estate? And yet, are we willing to allow an AMC to instead send an appraiser imposter, someone who has little/no training, to perform the observations that will be the foundation for the value opinion of our home? 

As a consumer, ask yourself those questions another way: Am I really okay with someone coming into my home, expressly to determine its value, who has zero appraisal training, zero knowledge of what is significant to observe, zero valuation experience, and not insignificantly, zero liability? That party’s only accountability is to hand over their gathered info to an experienced appraiser who will then do their best, under severely limited circumstances, to come up with the value of your home.

Why not just have a real appraiser do it? The fully qualified, certified, bound to standards of ethics and competency, continually educated appraiser? Good question

Ask yourself that again… Are you ok with someone coming to your home that has 0 training, 0 knowledge as to what to look for and 0 experience only to hand that info over to an appraiser who may or may not be experienced to come up with the value of your home? Why not just have the appraiser who has all these qualifications already do it? Good question right?

Lenders and Fannie Mae along with the their Appraisal management companies have decided that to speed up the process, its better to have unqualified people go out and obtain the information on a property and submit that info to an appraiser to do a valuation. Read that again. “Lenders and Fannie Mae along with the their Appraisal management companies have decided that to speed up the process, its better to have unqualified people go out and obtain the information on a property and submit that info to an appraiser to do a valuation.” This is like me an appraiser coming to your house to tell you how to run your electric lines on your new addition. I have 0 clue but hey I’ve seen 1000’s of homes and should have some ideas right?

Their reasons? 

1) To speed up the process, in theory. The reality is that the AMCs are spending days and weeks shopping for the cheapest and fastest appraisers before an appraisal assignment even makes it to an appraiser’s desk. 

2) To make it cheaper. For a bifurcated appraisal, they’ll pay an unqualified person $25-75 to observe the property, and then have an appraiser do the rest at $50-150, all while charging the consumer far more so that the AMC can pocket the substantial difference. 

3) To take advantage of the available technology. They’re enamored with “Big Data” and are pushing appraisal waivers in lieu of appraisals. They think technology is great with all the appraisal data they’ve compiled over the years. However, look at Zillow and her sister sites where the estimates are based on broad algorithms and not property-specific. 

Frankly, if I had to guess, I’d say 90% of their valuations are over-inflated. Does it make any sense at all to depend on such a product? Is it worth saving a couple hundred dollars when the value of such an important asset—our real estate—is at stake?

Let’s be honest here. AMCs bring nothing valuable to the valuation process. They were put in place after the housing crash to serve as a middle man between the appraiser and the lender. However, they haven’t been regulated, and their main lobbyist group, REVAA (Real Estate Valuation Advocacy Association), seems to think they have some sort of power, now that they are creating products that ONLY benefit AMCs and not consumers. 

Want an example? Coester VMS, an AMC who has gone out of business, owes millions in fees to appraisers for jobs completed. REVAA allowed this company to be a part of their network, to be represented by REVAA, even knowing that Coester VMS had a poor history as a company. REVAA’s panel includes some of the most notorious, low-paying AMC firms, and those that have decided to be more than a middle-man and take advantage of the consumer. 

Don’t believe me? Here is another example.

Clear Capital. An AMC out of California that has a product called a ClearVal. I won’t belabor the description of this product as it has already proven to be not only deceptive but completely inaccurate. There are many articles written about this product and how the company uses out of state appraisers to perform the analysis.  So now adding unqualified inspectors to the mix, with the out of state appraisers performing the analysis….. What could go wrong???   

Think about this…. We will go out there and find the best TV to buy and pay for it. We will go out there and find the best lawnmower and pay for it. Why? Because we want the best so we don’t have to deal with potential issues down the road. But when it comes to valuing our home, does it make any sense at all to allow someone, with literally zero clue about appraisal, to be the individual making the observations that will inform the appraisal? 

Makes no sense to me…especially when that 50″ TV is sitting in the pawn shop or on eBay because I decided to allow Johnny-No-Knowledge to collect the data for my home for $50.00 and then expected an appraiser, who consequently had zero clue about my home and its surroundings, complete a valuation with uninformed secondhand data.

It amazes me how many people complain about the tax assessor increasing taxes based on incorrect info, and then they’ll carefully seek out someone experienced to solve that problem, typically an independent local appraiser with the training and experience to provide accurate market-reflective data. If we can be that outraged by the county assessor, then how can we NOT be outraged by the ill-advised shortcuts, the untrained individuals, and the non-experts doing our home inspections to value our homes?

I will end with this. When we choose to use these cheap and fast products and untrained people, we have no one else to blame when things go south, and they will. It’s exactly the same dilemma as buying a car without the due-diligence research or buying a home and skipping the home inspection. Those choices come with consequences, all of which rest on the shoulders of the consumer and nowhere else. Think About It!!!

A Little Push Can’t Hurt Right? Wrong!!

Well, here we go again.

In my previous blog posts titled “Round and Round” and “Pressure My Story”, I spoke to examples of how lenders and/or AMCs have been pushing and pressuring appraisers to hit certain values on transactions. If an appraiser did not hit these numbers, or make changes to make the transaction work in the lender’s favor, the appraiser would be threatened with non-payment, removal from appraiser panels, and/or blacklisted. If you haven’t read those blog posts, feel free to go back and have a look. This post, however, is about another issue that has recently come to light.

Let me set this up for you. A consumer is looking to refinance their home. They get everything set up on their end and ready to apply for the loan. But as the process with the lender gets going, they get a letter like this one below from the loan officer or banker:

I don’t know about you, but in my opinion, this violates Dodd Frank, Appraiser Independence. It clearly shows that issues of the past are still being presented today, just in a different way. It’s not necessarily the lenders that are directly trying to influence values (although many still act as described in previous blog posts), but they are instructing the homeowners to exert influence, and as this person said, “PUSH” the appraiser for a certain value because the lender is prohibited from doing so. The very person the consumer is trusting to do what’s right on their loan, is now instructing the prospective borrower to “SELL YOUR HOME to the appraiser” to achieve the magic number that will close the loan. Forget ethics, forget trying to do what’s right, and forget the risky position foisted on the consumer by the loan officer. Have we as members of the national economy not learned anything from ten years ago?

Since the crash, laws have been put into place to protect Appraiser Independence and YOU as the consumer. The Dodd Frank law specifically spells out what must not happen among lenders, AMCs and appraisers. 

The following is directly from Dodd Frank:

Dodd-Frank and discussions between appraisers and agents

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) prohibits “any act or practice that violates appraisal independence…” It also states:

It shall be unlawful, in extending credit or in providing any services for a consumer credit transaction secured by the principal dwelling of the consumer, to engage in any act or practice that violates appraisal independence as described in or pursuant to regulations prescribed under this section.

For purposes of subsection (a), acts or practices that violate appraisal independence shall include—

‘‘(1) any appraisal of a property offered as security for repayment of the consumer credit transaction that is conducted in connection with such transaction in which a person with an interest in the underlying transaction compensates, coerces, extorts, colludes, instructs, induces, bribes, or intimidates a person, appraisal management company, firm, or other entity conducting or involved in an appraisal, or attempts, to compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate such a person, for the purpose of causing the appraised value assigned, under the appraisal, to the property to be based on any factor other than the independent judgment of the appraiser;

‘‘(2) mischaracterizing, or suborning any mischaracterization of, the appraised value of the property securing the extension of the credit;

‘‘(3) seeking to influence an appraiser or otherwise to encourage a targeted value in order to facilitate the making or pricing of the transaction; and

‘‘(4) withholding or threatening to withhold timely payment for an appraisal report or for appraisal services rendered when the appraisal report or services are provided for in accordance with the contract between the parties

Now that you have read the above excerpt from Dodd Frank, notice that in #1 the word INSTRUCT shows up twice. The example provided here appears to be a clear violation, by the loan officer, of the law as it’s written.

Now read #3 again. Yet another clear violation of the law as it’s written. This is a perfect example of the collusion that still goes on today, besides other indirect ways that lenders influence value and violate appraiser independence.

Consumers already face many challenges when obtaining a loan. They shouldn’t have to face another with loan officers’ unethical and illegal practices. Influencing a value just to make a loan is not protecting you the consumer. The consumer shouldn’t be directed to influence the appraiser in order to get a professional opinion of the value of their home. The loan officer shouldn’t have to instruct the consumer to influence the value because he “can’t talk to the appraiser.” If the value is there to make the loan, then great. If it is not, the lender should move on to the next loan and the consumer should move on to their own next step. 

This is why appraisers exist: to provide an unbiased and honest opinion of value of a property. Where are the ethics and laws to protect the consumer from these types of lenders? Today’s lenders want fast and cheap and will do anything they can to close a loan. They will use desktops, appraisal waivers (which the consumer should never agree to without an independent appraisal as well), AVMs, and yes, they will do exactly what this person did in the example above. Is the consumer protected? Does the consumer’s confidence in the integrity of the loan process improve because the loan officer is asking them to press the appraiser for a value? My answer is NO

The only unbiased part of the process is the Appraiser and it should remain that way. The Appraiser should not be influenced in any way at all in order to give you the consumer the best professional opinion of your home as possible. The Appraiser has no interest in the transaction, is the expert when it comes to the valuation process and is bound by USPAP (Uniform Standards of Professional Appraisal Practice) as well as state and federal laws. Consumers should remember this and remember that Appraisers are not trying to screw you out of a loan or make things difficult for you. Appraisers are there to protect the public trust, you the consumer and provide the lender with an accurate opinion of market value.

I suggest to any consumer reading this to remember that your home is most likely your biggest asset and that obtaining a loan based off an overvalued valuation set forth by influencing the professional appraiser may come back to bite you in the end. All because you were instructed to do so by the loan officer or others wanting to make your loan close and pad their pockets. Do you really want that issue later on?
Think about it…

Appraisers Outraged! End The Appraiser Payment Issue!

” I am owed $20,000.00″. “I am owed $2000.00”. “I am owed $500.00”. “I am owed $1500.00”. These are just some of the quotes pulled from various groups, message boards and forums from appraisers all over the country that are owed money for the appraisal services they provided. Services they provided for a Lender, Mortgage Company or Bank through an Appraisal Management Company or AMC as they are known.

What’s an Appraisal Management Company you ask? Well for those that do not know, AMCS have been around a long time. Appraisal management companies (AMC) are business entities that administer networks of independent appraisers to fulfill real estate appraisal assignments as Agents of the lenders. However it wasn’t until the financial crash of 2008 that they became a permanent fixture in the Real Estate Process due to the HVCC (Home Valuation Code of Conduct now known as DODD FRANK). They were installed as the “Middle Man” between appraisers and lenders to help insure Appraiser independence and manage the appraisal ordering process. Overnight many of these Amcs were formed and began entering into contracts with the lenders to perform the duties of managing the appraisal process as Agents of the Lenders. Notice how Agents is in Bold? I’ll explain shortly.

So now that we have that out of the way lets get into the real issue here. Appraisers are being left unpaid by Appraisal Management Companies and it’s an outrageous, painful and terrible result of poor legislation and regulation. I will compare this to the recent Government shutdown. The outrage of federal workers not getting paid. The outrage of them not being able to pay bills. The outrage of how could this happen. It’s nice to see all the outrage over this but where is the outrage over appraisers being owed money and not being able to pay bills? Exactly. There is none because no one knows about it. Let me give you some insight and maybe you too will have some outrage.

First lets go back in time.

2011 an AMC named Appraisal loft closed its doors unannounced owing appraisers Millions. The scramble began by appraisers to get their monies owed. Some appraisers were successful but most were not. In this case Lenders were collecting the fees from the borrower and passing them along to Appraisal Loft to pay the appraiser. But over time that didn’t happen and the doors closed leaving appraisers not paid for their time and services.

2012 an AMC named JVI Solutions closed its doors owing appraisers Thousands of Dollars. Once again appraisers scrambled to get their monies owed however only some were able to do so. In this case as well Lenders were collecting the fees from the borrower and passing them along to Appraisal Loft to pay the appraiser. Some appraisers sued the lenders that used JVI and one in particular won his case (no update on if he actually received the monies owed). However others were left without payments ever being made.

2013 an AMC named Evaluation Solutions filed bankruptcy thus leaving appraisers without payments. JP Morgan Chase was the largest client of Evaluation solutions and through a courts decision in Florida the Amc and Bank were absolved of all payments and liabilities to appraisers. Once again borrowers paid for appraisals to the Lender and the AMC failed to make those payments to appraisers.

2018. An AMC named CoesterVMS goes silent and leaves appraisers unpaid. Per numerous articles, web searches & message boards appraisers are owed thousands of dollars and hoping to get paid. According to other various articles, blogs and web searches, Coester VMS stopped responding to appraisers, was paying them late, owed payments from over 6 months and more and now is apparently out of business. Once again appraisers are scrambling to get paid. Many have called the lenders that used CoesterVMS and some lenders have paid up however most have not. Many Lenders as in the other examples state they already paid the AMC for services and are not responsible for any further payments.

There are a couple other AMCs that have ceased business between 2011 to now as well. Some have tried to settle with pennies on the dollar and some have just disappeared. Hell there are some that just rename themselves and continue to not pay appraisers.

Now let me explain this. Most states have AMC laws and regulate them. Many require an AMC to carry a Surety Bond in order to do business in that state. Some don’t. So referring back, one AMC had a surety bond in NC that was for $25,000. When it was announced that the AMC had canceled the surety bond, appraisers flocked to file against that bond for payments. Within a day or so the bond was exceeded. Yes $25,000.00 was exceeded in 1 state. Imagine the filings in other states since the company operated in all 50 states plus Puerto Rico.

So a question comes to mind. If these AMCs are doing this much business and handling this much money then why are they only required to carry a $25,000.00 Bond? A million seems more reasonable.

This brings me back to the beginning and the word Agent. As an independent appraiser I work for myself. I am considered an independent contractor. According to the laws and regulations an AMC works as an Agent of the lender. If they are acting as an Agent (they have a signed agreement), how come the Lender is not ultimately responsible for making sure the appraiser that their Agent obtained is paid properly and on time? Think about this for a minute. The borrower paid the Lender and the lender passed that payment to the AMC to pay the appraiser however no payment was made. Who would you hold accountable?

If the lender takes payment from the borrower and then passes it along to the AMC for the appraisal then shouldn’t the lender who hired this Agent make sure they are doing things correctly? I would think so. I’d like to know if my agents were doing things correctly representing me.

Now what can be done here? I have a couple thoughts:

  • The laws need to be redone to make all parties (Lenders/AMCs)responsible for paying the appraiser and in the event the AMC goes under the Lender takes full responsibility.
  • As discussed earlier, A Larger Surety Bond of at least $1,000,000.00 should be required.
  • Lenders pay the Appraiser their fee for the report and pay the AMC they hire a separate fee. Separate checks or transactions.
  • Escrow Accounts. Money is collected by the lender and put into an escrow account OR if the AMCs do collect money they take their fee and put the rest in escrow.
  • Do not let AMCs handle the appraisal fees. They should have nothing to do with collecting or paying appraisal fees.
  • Go back to the days when the actual borrower paid the appraiser at the door for the appraisal service. With technology today the appraiser can be paid quickly via many different payment options without having a 3rd party commingle in the process.

Enough is Enough. It’s time to change the way appraisers are paid for their services. With all the talk of technology and changing the way appraisals are performed one would think with said technology appraisers can be paid properly. It’s time make changes and that time is NOW!

**** all info regarding AMCs was researched via web searches, blogs, and other public articles*****.