Bank's Letter to Appraiser Started Off With ...


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Bank’s Letter to Appraiser Started Off With…
by Richard Hagar, SRA

Once the letter (redacted) arrived, this appraiser’s mind was screaming with questions. No matter what questions he asked or actions taken, his largest client was gone, along with a significant portion of his income. And once the lender communicates the blacklisting to their AMCs, the appraiser’s chances of obtaining another client will also be gone.

Dear Mr. [appraiser],

XXXXXX Bank conducted an Administrative Observation of an Appraisal Report you completed for a property located at XXXXXXX.  Based upon our analysis of the Appraisal report, it has become necessary to place you on an ineligible status with XXXX Bank.

Your ineligible status was caused by the following reasons:

• Providing a misleading appraisal, with a non-credible and unsupported value for the property.
• Reporting a value based on contract price.
• Failure to develop a credible Cost Approach to value.
• Failure to properly analyze and report the location, view or condition of the subject or the comps
• Failure to make consistent, market support adjustments within the appraisal report
• Failure to analyze and report the location and adverse view of comp 1
• Failure to properly analyze and report the conditions of comps 1 and 3.
• Failure to analyze and report the condition and view of comp 4.
• Failure to analyze and report the location and view of comp 5.
• Failure to analyze and report the view, condition and DOM for comp 6.
• Failure to properly develop and report the impact of the subject’s negative external influence and improperly developing the market reaction based on DOM.

If you have any questions regarding this or any other matter, please contact the Appraisal Review Department at [they really don’t care so why bother].

Chief Appraiser.

Here is another recent (redacted) letter:

April 16, 2015

Dear [xxxxxx],

Please be advised that the undersigned law firm represents XXXXX. By means of this letter, XXXXX hereby makes demand on you for damages due to losses caused by an inflated appraisal performed by you.

As a result of failures within your appraisal, [Lender] has suffered a loss of $160,000. [Lender] hereby requests that you place your insurance carrier on notice of this claim for damages.

[It goes on for three pages, but you get the point]

Mr. Lawyer

Here’s a third (redacted) letter:

Dear Ms. [appraiser],

Regarding the appraisal of [xxxxxxxx]

Please send six copies of each of the following:

Appraisal report as presented to the client
Entire workfile for subject property
The appraisal order form

Send one copy of your appraisal log for the past six months. The Board may select additional properties for review and request those appraisals by separate correspondence.

At this stage of the investigation…

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On Almost a Weekly Basis
On almost a weekly basis I have appraisers reaching out to me after they have received similar letters. The first thing they want to know is how can they can prevent these letters and stop from being blacklisted? Unfortunately, once blacklisted, there is little hope. However, there is hope for you and every other appraiser. I’ve noticed several reoccurring themes in these recent letters.

• Failure to provide USPAP compliant appraisals
• Failure to accurately describe all negative influences impacting the subject.
• Failure to comment on similar recent sales not used in the report.
• The demand for “support” or “proof of the adjustments made within the appraisal.

So it appears that appraisers need to:

A. Understand USPAP;
B. Do not hide facts (good and bad);
C. Comment on similar home sales that were not used;
D. Understand how to make market-based adjustments and provide proof within the appraisal and workfile and;
E. Do the job right the first time, so you don’t have to worry about these letters and blacklisting later;

As they say: An ounce of prevention is worth a pound of cure.

The same holds true for appraisers. Appraisals are not “just value statements.” Appraisals are many things including an analysis of the market, accurate descriptions of the subject, accurate adjustments, and having a supported value conclusion based on facts, not opinion.

Following the right processes and utilizing the correct methods are critical to an appraiser’s survivability and can be more important than the final value conclusion. When we review an appraisal and read through an appraiser’s workfile, as part of a lawsuit, we first try to determine if the appraisal makes sense and whether the proper processes and methods were followed. The value conclusion is the last thing we worry about. If the appraisal is logical and the right methods employed, usually there are no major failures with the appraisal. However, if descriptions are missing or erratic and there are “boiler plate” adjustments and statements, then the appraisal conclusions are usually wrong. In other words, following proper procedures and utilizing recognized methods usually leads to quality appraisals.

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What to Know
There are more than 25 different methodologies that can be used to determine and support market adjustments. Determining adjustments can be difficult in any market but it isn’t impossible if you know how to utilize any of the following methodologies. All three approaches to value require adjustments and since no single adjustment method works in every market or price range, knowing how to employ at least a few of the methods can change your status from “form filler” to a Tier 1 rating. Some of the methods available to appraisers are:

Matched Paired Analysis;
Single Line (Linear) Regression Analysis;
Multiple Regression Analysis;
Grouped Analysis (Big Data);
Capitalization of Income;
Cost Approach;
Depreciated Cost;
(and of course my favorite) Hagar’s Percentage of Use Calculation.

If many of the terms are foreign to you, then take a class or webinar on the topic (see below). Become the better Tier 1 appraiser, capable of earning higher fees. Failure is a very expensive way of doing business. The cheaper, better method is to get educated. Take good classes, for CE or not, and step up your game. Your appraisals will be more accurate. Your work will be elevated to a higher rating by lenders and AMCs and you will be able to charge more. It worked for me and American Home Appraisals, it can work for you.

Upcoming Live Webinars:

How to Support and Prove Your Adjustments – A Closer Look
Presented by Richard Hagar, SRA
Part 1: June 4th, 10 – 12:00 p.m. PST (Tomorrow!)
Part 2: June 11th, 10 – 12:00 p.m. PST

It was a great webinar, now I need to redo all my reports for the last 30 years!” – Sharon

Updated and expanded, Hagar shows you how to properly support your adjustments- the foundation of good appraising! Regulations state that appraisal adjustments cannot be based upon an appraiser’s opinion. Failure to provide proper proof and analysis to support your adjustments means a rough road ahead: state board complaints, panel removal, lawsuits, even license revocation. Fannie Mae cites “the use of adjustments that do not reflect market reaction” as the number one reason an appraiser can be “blacklisted.” This training is critical in helping appraisers avoid catastrophic appraisal failures. Sign Up Now!

Back by Popular Demand!
This webinar will help you utilize quick and simple methods for proving adjustments that improve the quality of your reports and help you avoid problems, blacklisting and legal actions.
Sign Up Now!

Save with a Season Ticket: Enjoy the entire summer webinar series at your leisure (live and recorded) and save: June, July, and August Webinars for a single price!

Regular Price: $237          Subscription Price: $149

Summer Series:
June –
Parts 1 & 2: How to Support and Prove Your Adjustments

July –
Part 1: How to Get What You’re Worth (Working with AMCs)
Part 2: How to Work Profitably With AMCs

August –
Part 1:
Running an Effective Appraisal Business
Part 2: Efficiency Through Technology: Mobile Tools and Paperless Appraising

Enjoy the Entire Series and save $88 with a Season Ticket!

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Comments (4)

  1. Having read this I believed it was really enlightening.

    I appreciate you taking the time and energy to put this information together.
    I once again find myself spending way too much time
    both reading and leaving comments. But so what, it was still worthwhile!

    - Reply
  2. i’ve been appraising forever, and Mr Ford, that is a hell of a lot excellent advice on one page. i love reading the blogs. you should be writing more than commenting. wonderful advice, and free. makes me want to thank another appraiser for their sharing, like many do on these blogs.

    - Reply
  3. by Rich Fergerson

    Excellent article. I am a retired bank and fee appraiser. We have a lot of form fillers today. Appraisers are too aligned with salespeople and brokers. I recently had an appraisal done on a proposed duplex. There were many factual and other mistakes. It had pages of canned comments as if it relieved the appraiser of liability. CE was the thing that sharpened my skills and kept me out of trouble. I learned to look for reasons for the range of values in similar home sales.

    - Reply
  4. Not a month goes by that I don’t see some variant of the letters Mr. Hagar describes above, that was sent to one of our American Guild of Appraisers (AGA) members. Separate from the thrust of Mr. Hagar’s article, each requires a very detailed and thorough response. These are potential career ending situations.

    I have written or drafted several letters for our members to: a Governor of one state; State Enforcement Agencies, Attorneys, National Lenders and GSEs on blacklisting, and in one instance referred one case for possible class action consideration. We have had some success in reversing some of the situations presented to us by our members. Others remain pending.

    While its not quite as bleak as the article suggests, blacklisting is not an easy condition to effectively reverse. You will need help. That’s where the AGA comes in.

    Of course Richard’s main point makes excellent sense. AVOID the conditions that lead to these kinds of letters in the first place! His course helps you do that.

    While Im not as much as fan of the current industry “soup de jour” or “fair haired child” called regression, linear regression or multiple variable regression as many are; it/they can at least provide the appearance of cover though most auto software I’ve seen so far is highly suspect to me. It least it shows effort. Id take a course from the Appraisal Institute on this one BEFORE you buy an off the shelf version.

    The easiest adjustment techniques to use are paired sales; cost, depreciated cost, extraction, abstraction or allocation techniques and an income approach (grm x added rent or lost rent the characteristic results in ), AND DIRECT OBSERVATION as reported by trusted, well informed & experienced area agents.

    Two of these are abused so often as to be almost immediately suspect. (1) paired sales where no explanation or description of the pairing is provided, and (2) per area agents where no name and phone number of the broker or agent is provided.

    Reporting use of a technique to support an adjustment without having actually used that technique can cause one to lose their license all by itself…and it should! That’s an integrity issue, not a competency of diligence issue.

    I’m NOT a fan of “percentage of use” calculations as I THINK they may be used but admittedly don’t know how the author applies his techniques, so I have to keep an open mind and WOULD invest the money to learn more. At the very least one could cite Mr. Hagar as the ‘authority” for such techniques, and he is a highly respected national appraisal educator.

    Another overlooked but extremely simple method is depreciated cost approach! Just because the lender ‘doesn’t make you do it’ is no reason to exclude it! (PS-STOP citing M&S if you don’t actually use M&S !!!). FREE Online data sources such as produce a credible improvement replacement cost in minutes. You can also select; right click, and print a copy of the detailed breakdown for your work file. IF one has done their cost approach correctly, then the result is supposed to be a reasonable approximation of what buyers would pay for a similar property. It doesn’t take a rocket scientist to recognize that the depreciated (primary) improvements costs divided by square footage is reasonable support for GLA adjustments+- (rounded).

    I have almost never encountered a market in California in which room count or bath count adjusting can be reliably supported separately from GLA. Exceptions are newer tracts SFRs or condos with similar size but differing room counts. Yet invariably I see rote adjustments of $25 to $50 sf plus $2,500 for a half bath; $5,000 for a full bath and $5,000 OR $10,000 for a bedroom. Common rooms may or may not be included too. This “methodology” was taught by a couple downtown L.A. “appraisal mills” to raw trainees for years. They’ve never progressed beyond that spurious ‘method’, and have now convinced some lenders its “reasonable”. Certainly they can almost never support the adjustment.

    Mr. Hagar’s course offers a much more comprehensive list of ways to determine; make, and support specific adjustments. If you have not already had a similar course I’d strongly recommend taking it.

    If you have ANY remote concern about ever receiving a letter like the ones described, then I’d recommend joining the AGA ( ) -You WILL need someone on your side.

    - Reply

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