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Why Comp Photos?
by Richard Hagar, SRA
Many appraisers can’t understand why they are required to inspect the exterior and take personal photographs of the comparables (1004 form). This list should be familiar:
• I spend hours driving by the comparables.
• I had to drive down a private gravel road.
• There was a gate preventing me from…
• The new property owner threatened me, etc.
To justify not driving by comparables, appraisers come up with all sorts of rhetorical questions and excuses.
• What am I going to learn by driving by a comparable?
• Why can’t I use photographs that I obtained from Google Maps?
• Why can’t I use the photograph I took of the comparable two months ago?
• How can I make any money if I spend time driving by the comparables?
• MLS photographs best represent the house when it sold.
All of us “feel the pain” associated with the task which I grouse about when driving by each of the comparables, just like you, and it’s one of the issues we talk about in almost every live class I teach (Photograph and Inspection Requirements).
First, don’t even think about not doing it! To begin with, it’s required. Inspecting the exterior of every comparable isn’t a USPAP requirement, by the way, it is a Fannie Mae, Freddie Mac, Federal Housing Authority (FHA), and Department of Veteran Affairs (VA) requirement. However, FNMA’s requirement goes directly to the heart of USPAP’s “scope of work” rule. USPAP defines scope of work, in part, as: the type and extent of research and analyses. The scope of work section of the 1004 appraisal states “The appraiser must, at a minimum: (3) inspect each of the comparables sales from at least the street.” So, when an appraiser agrees to an assignment and its required scope of work, they have agreed to personally inspect the exterior of each sales comparable used in the appraisal. There is no way around this; an appraiser can’t contradict the certification requirement by inserting a qualification within the appraisal. In other words, it’s your job; you are being paid to personally inspect each sales comparable—so do it!
Signing a certification but not following through with the actions outlined in the certification is misleading and considered fraudulent. Almost every state licensing board has sanctioned appraisers for failing to inspect the comparables. In California at least one or two appraisers a month are sanctioned for this failure. I’m also aware of several criminal charges filed against appraisers for this issue. Appraisers must do what they certify they have done or face the ugly side of a fraud charge.
This from the findings in a criminal case:
“While it’s possible that Mr. Williams personally inspected the comparables [….] there was no evidence in the appraiser’s job files that [he] personally inspected any of the properties identified in Counts Two through Five of the Amended Complaint.”
“Original photos are required for the subject and all of the comparable sales. The photos taken by the appraiser are considered to be evidence of compliance with the appraiser’s scope of work. MLS photos may be included as additional photos; however, they are not to be used as the primary photo.”
Texas was explaining that the agreed upon scope of work requires the appraiser to inspect and photograph each comparable (the minimum requirement). The appraiser can always provide more than the minimum, including MLS photos.
Why Personal, Original Photographs?
First, an origin story. Way back when, the VA required appraisers to personally inspect each of the comparables so that they could make a more informed comparison between the subject and a comparable. When the VA figured out that some appraisers weren’t viewing the comparables, they came up with a “new” requirement; the appraiser must attach a photograph of the subject and comparables to each appraisal (stapled to the report). The VA used photographs as a confirmation of the appraiser’s viewing. So, if you’re upset with the photograph requirement today, blame less than thorough appraisers in the past and the VA’s need for confirmation.
Why not MLS Photos?
I hear this a lot: “I used an MLS photograph because they best represent a property at the time it sold.” If you believe this, you are not paying attention. An MLS photograph represents the property when it was listed. When a sale closes the listing agent doesn’t run back out to a property and take a final photograph for posterity’s sake. A property’s condition can change between list and sale date. I learned this when one of my inspections revealed that the house had burned down between the list and sale dates. Ends up the buyer was going to tear the house down, so the fire just made things easier. The original listing photograph remained in the MLS; nobody ever inserted a photograph of the burned out house. When subsequent appraisers used the MLS listing photograph in their appraisals, they were supplying fraudulent and misleading information to their clients about the comparable property and its condition.
Agents…embellish the truth? Please tell me it isn’t so! The MLS is an advertising system, a way to deliver sales information to other agents and appraisers. In most areas, agents can take classes on how to stage homes and alter photographs to make homes look better than they are (welcome to Photoshop). Weekly I see MLS photos that make a house look pristine only to find, after driving by, that it is really a house of horrors.
What about Google Photos?
What about Google photos? You mean the photographs that might have been taken three plus years ago? How does that represent the house when it sold or today, six months later? What if you can’t see everything? Here’s an example, look up this address: 5962 Mud Hen Lake Rd., Makinen, MN. Quick—how many buildings are on this site? Bet you can’t figure it out from the high-altitude aerial photos. Go ahead and look at the property using the 3D feature. Oh that’s right, there isn’t one for most of the United States (outside city limits). Is that a comp roof or metal? What’s the condition of the paint or landscaping? What kind of dock is that? Is it permanent or movable? Bet the aerial photograph is too fuzzy to figure anything out about the property and this isn’t unusual.
One other point regarding MLS or Google photographs…they are copyright protected. It’s against federal law to use their photographs without written permission (and your MLS membership isn’t permission). If you use copyrighted photographs then sell the report to a third-party, you are making money off the copyright holder’s work. I’m surprised an underworked attorney hasn’t recognized this and sued some unlucky appraiser for the violation.
Why Can’t I Reuse a Photograph I Took Two Months Ago?
Why can’t you reuse photos from a previous assignment? Because it’s not a current/original photograph and most lenders have a specific requirement in their engagement letters for current and original photographs. Fannie Mae’s new whizbang Collateral Underwriter system has been processing around 20,000 appraisals a day. Let’s assume they have exterior photos of the subject and only three comparables (20,000 x 4); that’s 80,000 exterior photos entered into their system every day, and 80,000 x 280 days of operation a year = 22,400,000 per year. That’s a whole lot of photographs! They don’t need more dated photographs; they obviously have those. They want CURRENT photos—today, now, cutting edge. Why? Who cares why; this is their required scope of work (my guess is that they track how the condition of a house changes over time and crosschecking to see which appraisers have identical photographs of a house).
As the chief appraiser for a regional bank in Washington state told me: “For Pete’s sake, appraisers should just do their job and provide the photographs we require.” And by the way, that bank and FNMA both can compare appraiser photographs against the MLS. If there’s a match, the federal law requires them to turn appraisers into the state board for disciplinary action.
What Am I Going to Learn Looking at This Property Again?
The best example why it’s important to always take current photos happened to me when I first started appraising. The first time I used a particular sale as a comparable 30 days after it closed, the house was vacant. Hmm, that’s a little odd I thought. Now 60 days later I drive by the comparable again to take another photograph for a new assignment. This time I notice a new for sale sign with a photograph of the new home that will be built on the site. OMG, what I thought was a great house comparable wasn’t—it was a land sale; the existing house, in C3 condition, was going to be torn down; it had no value. By driving by again, and maybe again, you might learn something about the property that you didn’t learn the first time. Maybe it’s being torn down, maybe it’s being remodeled or a second floor added. Maybe on this drive-by you learn there’s a motorcycle gang living next door and they love late-night get-togethers at the clubhouse which might explain why this comp sold for so little. Bet you didn’t learn that from the MLS photo.
Ever wonder why there’s a move to bifurcate the appraisal process and have someone other than the appraiser inspect the subject and comparables? One reason may be lenders who want to make sure the inspection and photos they are getting are current. Lenders know who’s lying and who isn’t, and they are getting tired of paying full price for appraisals that do not meet the required scope of work. If you want to stay clear of trouble, do what you are supposed to do.
If we don’t do the job right, Fannie will go further down the bifurcation trail and your appraisal fees will go down—significantly. None of us wants that.
About the Author
Richard Hagar, SRA, is an educator, author and owner of a busy appraisal office in the state of Washington. Hagar now offers his legendary adjustments course for CE credit in over 30 states through OREPEducation.org. The new 7-hour online CE course “How to Support and Prove Your Adjustments” shows appraisers proven methods for supporting adjustments. Learn how to improve the quality of your reports and defend your adjustments! OREP insureds save on this approved coursework. Sign up today at www.OREPEducation.org.
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