Best of Show – Taking Appraisal Industry Pulse
by David Brauner, Editor WRE
Here is the best of show from the Valuation conference in Las Vegas and the latest on the issues that affect your business most– new forms from Fannie Mae, AVMs, 2006 USPAP, Scope of Work, identity theft, fraud, the future, negativity and more.
New Fannie Mae Forms
If you need help understanding how to use the forms, there are many courses being offered. Click for Fannie-sanctioned verbiage to “fix” Cert. #23 (Intender User). For appraiser reaction: Cert #23 Fix- Readers Respond.”
The best advice about the forms is to get used to them, they are here to stay. Fannie makes it clear that while they may be modified in the future, no major revisions are in the works.
Both Sides Now
Fannie says the changes are intended to hold appraisers accountable for the quality of their work and to combat fraud. Appraisers say the changes unfairly shift liability onto their slender shoulders. Meanwhile, Fannie Mae makes it clear that they are not accountable to appraisers; in their view, it’s the other way around. Who is Fannie accountable to? Their lender-clients and that is who the forms serve.
Future (Looks Bright)
Insiders agree that automated valuation reports (AVMs) have done most of the damage they are going to do in replacing appraisers; the worst seems to be over. Rather, the pendulum is swinging back toward a demand for more complete reports by appraisers; toward expertise and professionalism. The trend is to put technology into the hands of the experts (appraisers) to empower rather than replace them.
It is more likely that AVMs will be integrated into reports under the watchful eye of appraisers, who will use the technology to increase productivity and accuracy– once they are comfortable with the product. Some in fact, are doing so today.
Rather than replacing appraisers, the theme of emerging technologies is to put more decision making into their hands. These technologies allow appraisers to become more proactive, leverage their expertise and avoid the pressure for values and fees that is associated with form-filling work.
Fraud and Identify Theft
According to John L. Gray III, Vice-President of Fraud Detection, Aurora Loan Services, a thief needs little to steal your identify and forge an appraisal- not even your signature. All they require are your name and license number, which can be lifted from the Appraisal Subcommittee website.
As reported last issue in the WRE story, “Fraud or Incompetence: You Make the Call,” the incidence of fraud is skyrocketing, with brokers, agents, and appraisers being caught, convicted and doing time. As confidence in the profession plummets, all appraisers are feeling the heat. Some of the changes to the Fannie forms that are causing appraisers the most grief, for instance, are at least in part a reaction to the rampant fraud sweeping the nation.
Rhonda Heilig, Special Agent for the Federal Bureau of Investigation (FBI), recounts a case she handled in which the guilty appraiser was convicted and is serving a seven-year sentence. Heilig, who overseas the Cyberbanking, Mortgage Fraud and Identity Theft programs for the FBI, emphasizes that in federal cases there is no parole, so this appraiser will do the full stretch. She looked out at the audience of appraisers and said (presumably to the guilty), “If you wind up in one of my cases, I’ll put you in jail.” Those of us present had no doubt she meant it.
USPAP is changing in 2006, including an overhaul of Scope of Work reporting requirements and an end to the often misunderstood “Departure Provision.” The new version of USPAP will be available January 2006 but the changes are not effective until July 1, 2006. This provides time for people to become familiar with the revised USPAP, according to Danny Wiley, speaking on behalf of the Appraisal Standards Board (ASB) of the Appraisal Foundation.
The plan is for the new version of USPAP to run from July 1, 2006 until December 31, 2007 (18 months) and then convert to a two-year publication cycle.
What Does an Intended User have in Common with a Sport Coat? (No Joke)
Wiley shed some light on the Intended User issue as well– with his sport coat. The coat he was wearing has a label that reads “Size 44R,” which he points out is meant to accommodate a wide range of users– namely anyone who is a size 44R. Many appraisers take the same approach to writing appraisal reports, he says.
“On the other hand, the sport coat I had intended to bring to the meeting has a label that says ‘Made for Danny Wiley – Customer 8072.’ Such a label makes it clear that the coat is made specifically for me,” Wiley said.
“Equally important,” Wiley said, “is that the label serves as notice that it is not intended for use by anyone else. One sleeve is slightly longer than the other, etc. Now, some other party might pick up my coat and even manage to look good in it or use it to stay warm. But that does not change the fact that I am the only ‘Intended User.’ Because so much of the focus in real property appraisal is on appraising for lenders, we appraisers often write reports that are ‘44Rs.’ If we get a non-lender client, we tend to include a lot of material that isn’t needed because we forget to write for our identified audience. It is often more efficient for an appraiser, and more beneficial to the Intended User, to focus on customizing the report,” he said.
We spoke to an appraiser of 33 years who listened to presentations by both Mark Simpson of Fannie Mae and Danny Wiley of the ASB: he said he still has no clue how to deal with Cert. #23 nor does he understand Scope of Work (old or new). He said he did learn one thing, however: that the comp checks he routinely performs for lender clients- which often include a verbal or written value range or indication of value, are a violation of USPAP. Better to learn late than never, he agrees.
Over lunch, one appraiser shared his own refinance story, which made most of us shake our heads. An out of state appraiser, hired by a management company, called him explaining he was handling the appraisal for the refinance and asking our speaker to describe the inside of his house and any improvements. And oh, would he mind also snapping a few pictures of the interior and exterior and emailing them along? Our speaker, who did not reveal he is an appraiser, complied and the refi is booked.
Don’t Bring Me Down
Finally, every show provides one comment that takes us by surprise because it rings so true. This time the comment is from Clark Gimple, IFAS of Texas, in real estate and appraising over 40 years. He said he is tired of all the negativity in the industry and worries that it is doing serious damage to the image of the profession.
“Appraisers badmouthing their own are fanning the flames and putting the profession in danger of losing its already damaged credibility,” Gimple said.
“You don’t hear accountants, lawyers and doctors emphasizing the negatives in their profession. Even if they have contempt for one another, there is a professional code not to talk dirt in public. Appraisers should take a lesson from that playbook. Also, mortgage brokers, lenders, appraisal management companies and other clients need to know that like doctors, lawyers, etc., the appraiser is in charge of the appraisal. Do other professions allow their clients to set appointment times, turn-around times, fees and such? And you wonder why you get no respect.”
About the Author
David Brauner has covered the appraisal industry for over 14 years. He is editor of Working RE Magazine and a senior insurance broker at OREP (www.orep.org), specializing in E&O for real estate professionals nationwide. He can be reached at firstname.lastname@example.org