Scope Creep

"Scope Creep is another of those recently coined phrases- like checkbox chips- born from appraiser frustration at doing more work for less money and diminished professional respect."

Appraisal management companies (AMCs) defend their quality control requests, arguing that if appraisers did their jobs correctly the first time there would be no back and forth; good appraisers don’t have this problem they say. They say the profession suffers from an army of appraisers who never get proper training. Observers surmise the additional “stips” (stipulations) are coming straight from lenders who are tightening oversight to avoid problems from zealous regulators, who themselves are under pressure because of Dodd Frank.

Long time appraiser Jo Ann Meyer Stratton, IFA, SRA has this take: “The biggest reason for scope creep today, compared with the past, is that before the rise of AMCs, underwriters who comprehended appraisals were reading the actual reports and asking logical questions. Now we have ‘checkers’ (not reviewers or experienced underwriters or appraisers) comparing a list to just parts of the report and not bothering to read the comments in between. Prior to AMCs, I only heard from underwriters about every three to five years. As soon as AMCs were inserted into the system, with their minimally-trained ‘checkers,’ I started hearing questions for things already in the report. Or they wanted the information stated twice or asked for information that was not applicable to the appraisal assignment. I have always written very detailed reports, so 99 percent of the time the information the ‘checkers’ are looking for is right in front of them,” Stratton says.

Stratton says her reply to these requests typically reads something like: See paragraph two on page two of the original Expanded Comment Section under Sales Comparison Report or see the exhibits, sketch and photos in the original report.

Darwin Ernst, SRA says, “The increase in the scope of work from the lending industry for residential mortgages is unyielding and without any consideration for additional compensation to the appraiser. I wonder why many lenders and their brokers (AMCs) now think that they must dictate what is required to produce a credible appraisal report, rather than allowing the supposed ‘independent’ appraiser to choose what to include. How long will appraisers be required to grid listings in the sales comparison approach, when they are not a part of a SALES comparison approach to value? Most appraisers know when to analyze listings and pending sales to support their concluded opinion of value but the trend by lenders and their brokers to request the additional listing data for every assignment, regardless of its contributory value to the concluded opinion of market value, is a contentious issue among professionally licensed appraisers. The increased scope of work is extremely labor intensive for appraisers and yet there is no additional compensation even considered by the lender, or their brokers.”

Review of Additional Sales
A common issue for appraisers is a request from an AMC to review additional sales. The report has been reviewed already by the AMC and compensation paid. Appraisers ask themselves two questions when this happens: shouldn’t they get paid for the extra work and, in certain cases, isn’t telling an appraiser how to appraise unlawful under new appraiser independence laws?

Some appraisers receive additional fees for these after-the-fact requests- the key they say is to ask. But many appraisers say they don’t have a choice, depending on the AMC they are working for. Many AMCs require compliance with language, such as the following, in their engagement letter: appraiser will agree to answer/fulfill all requests with ANY questions from the Client by accepting this assignment.

Some appraisers try to preempt the problem by including language of their own, such as: I selected and used comparables that are locationally, physically and functionally most similar to the subject property. No reasonable sales that are closer or more recent are available, and requests for additional comps will not be complied without additional compensation to the appraiser. Any provided would not be more comparable regardless, since the best comps have already been provided.

Another complaint is that these onerous “stips” are not stated up front when the appraiser accepts the assignment. This causes confusion, according to appraiser Deborah Gedney. “If there are specific lender requirements about the type of comps the lender needs to meet their underwriting qualifications (i.e. two minimum, within 90 days, within one mile, etc.), then for Pete's sake, tell us up-front in the assignment contract when we still have the option to decline the order,” Gedney said. “Most of us will do everything we can to meet those criteria if at all possible. But telling us after the fact and then expecting us to waste our time working for free, to meet criteria that should have been defined up front, is scope of work creep that is costly to us, annoying, and completely preventable.”

Talk to AMCs and you’ll hear the other side of the story: they rail about a lack of professionalism among appraisers; not showing up for appointments, not completing conditions for weeks, not communicating and worse.

AMCs are not the only ones with “do not use” lists, however. More and more appraisers have lists of their own and refuse to work for less than reasonable fees or in too short a timeframe (Survey Results: How Reasonable Are Appraisal Turn Times? And is Quality Effected?). Like so many issues, appraisers are considering the quality of the relationship when deciding customer service issues such as what fees to accept, when to say yes and when to say no to underwriting requests. While the need to make tough business decisions isn’t new, appraisers say it was much less risk to fire clients in the old days than it is today because recent consolidation of lenders/AMCs has left far fewer appraisal order sources.

But is it Legal?
Richard Hagar, SRA, says that most of the additional comparables his appraisal firm are asked to consider appear to have been selected based on their value and are extremely biased towards a higher value conclusion. This is an issue that many appraisers immediately recognize as an attempt at influence, but the requesting party often doesn’t see it that way.

In many cases, the client’s request to analyze additional comps is coming from someone who is not a licensed/certified appraiser in the state where the property is located. “We’re talking about underwriters or others who don’t have appraisal expertise and yet insist on getting involved in the appraisal process. They are attempting to perform the appraiser’s job,” says Hagar.

Hagar, who presents the OREP/Working RE webinar Appraisal Review and the Law covering these issues, says that it is very rare for a request for additional comps to include any properties that he hasn’t already considered, but when there is a legitimate comp that he missed, he’s happy to consider it. For the vast majority of other cases he refuses play their game.

“For comp requests, I usually tell them directly that their suggestions are not comparables so I won’t consider them. Or that they were already considered in the original scope of the assignment, and they aren’t comparable,” says Hagar. “I don’t need to write out long explanations. They ask a simple question, so I give a simple answer, in writing!”

Ernst, who served six years as Chair of the Montana Real Estate Appraiser Board's Adjudication Panel, says that each state regulatory agency has the responsibility to license and adjudicate complaints against AMCs, and they will be the final judges on whether the AMC is adhering to its state's AMC law. Most of the current AMC laws follow the appraiser independence provisions within the Truth in Lending Act, as amended by the Dodd-Frank Act, very closely, he says.

“I would advise every appraiser to take the time to check their state's AMC law (if they have one in their state) before they make a decision of what is (and what is not) appropriate for a lender to ask of their panel appraisers. Personally, I believe every time the appraiser perceives pressure from the lender (or its agent, the AMC) to alter his/her opinion of value, there is a potential for a legitimate complaint from the panel appraiser to the AMCs regulatory agency. However, make no mistake about it, the AMCs regulatory agency will be responsible for deciding whether the complaint has any merit, and if it does, which action(s) they might take against the AMC,” says Ernst.

Hagar concludes, “Sometimes the request is legitimate. If, for example, a photo isn’t relevant to the appraisal, then the appraiser should comply with the request to remove it. But if the appraiser thinks that it’s valid- a legitimate photo that is relevant to their report, then the response to ‘remove the photograph’ should be ‘no.’ The client doesn’t get to tell the appraiser how to do his/her job. Attempting to mold the appraisal report to tell the appraiser how to alter it is in violation of state and federal law,” says Hagar. “If the lender or client has particular needs about what photos they require, then that should be made clear up front, in the scope of work agreement before the appraisal is created or delivered. However, the majority of additional requests to alter a report after the fact are clearly attempts at influence and coercion.”

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Upcoming Webinars: This March, Richard Hagar will present a two-part Webinar Series: Appraisal Review and the Law and Lender or AMC: Who's Responsible for Paying Appraisers? In these webinars, Hagar shows appraisers what they need to know to stay out of trouble and how to respond properly against illegal requests. Hager also sets the record straight on what the lender’s responsibility is to the appraiser when it comes to collecting fees, giving appraisers the information they need to fight back when lenders and AMCs fall short. Click here to sign up.