We get asked to do appraisals for probate here at Pacific West Appraisal. It is usually a single family residence that the deceased lived in and has been left as part of the estate.
We do these appraisals often. They are usually prepared and presented on the standard banking appraisal form, known as the FNNA 1004 form.
Probably your primary risk in getting an appraisal for probate is finding an appraiser that is not qualified, or well enough trained to do the work properly. Neither the state, the courts nor IRS smile upon fraudulent work.
The highest credentials you can find for doing probate appraisals are the SRA (Senior Residential Appraiser, awarded by the Appraisal Institute) and the IFA (Independent Fee Appraiser, awarded by the National Association of Independent Fee Appraisers). Those two “Designations” as they are called, are awarded to appraisers who have completed an advanced degree in residential real estate economics. They are the equivalent of a Masters Degree in the discipline.
I did an appraisal in downtown Vancouver, Washington a couple months ago. It is a one hundred year old house that had been painted up nicely inside and out. It had a new kitchen sink, bathroom sink and toilet. But, substantially the same house it was before it was cleaned up.
Some houses are bought and re-outfitted with new exterior siding, new insulated glass windows, new heating, plumbing and electrical systems, etc. This extensive work reduces the effective age of a house. That is, the house would be “made newer,” not just cleaned up, or maintained.
The value conclusion I derived from the market was less than the contract price on the house.
The lender then switched to an FHA loan application and had an appraiser do an appraisal of the same house for the FHA.
Miraculously, the appraiser for the FHA found the current market value of the house to be just over the contract sale price.
The lender sent the second appraisal to me, to show me the way of my error. Unfortunately, the second appraisal was (as I see it) a biased and fraudulent piece of work.
I called the FHA. They have a review process. They asked for the case number and will review the report. The appraiser will be required (if the report is found to be bogus) to attend some specific continuing education, or the appraiser will loose their FHA approval. AND, the FHA will deny insurance to the lender. YIKES!
Also, if the FHA thinks the report is bad, they will send it to the state that the appraiser is licensed in (and the subject property is in) with a complaint to the state.
I am attending an Appraisal Fraud class in a few days. I will take the FHA report with me and review it during the class. Then I will submit it to the FHA with my observation of what parts of the Uniform Standards of Professional Appraisal Practice (USPAP) it violates.
I will keep you posted on the progress of this investigation.
Many appraisers, who have been committing fraud with impunity for years, don’t realize the seriousness of their actions and that industry forces are rising up to deal with this kind of activity.
Yesterday a loan officer from a major U.S. lender called. He wanted me to fill in the gray shaded areas on the 1004MC form with something other than “Not Available.” He said the underwriter told him that the FHA would not accept an appraisal report without that area being filled in with actual market data.
At the top of the 1004MC form there is a paragraph titled “Instructions.” The third sentence in that paragraph says, ” If any required data is unavailable or considered unreliable, the appraiser must provide an explanation.”
It does not say that the appraiser MUST enter numbers into those areas. It only says that an explanation is needed.
Here is the way it works. When a house is listed, it is posted in the system as an “Active” listing. Once an offer is accepted it moves to “Pending” or maybe “Bumpable.” However, once a listing goes to the “Sold” status, it no longer is a listing and not held in the computer as a listing. The “Listing” status is gone. Also, if a listing is “Withdrawn,” or “Canceled” it is removed from the system as a listing and can not be found again, unless it is re-listed.
So, if someone is looking for the “Total number of comparable active listings” for the time frame from 7 to 12 months ago, all that will be found are those properties that were listed in that time frame, or earlier, that have still not sold. This will be a small group of properties that is not necessarily representative of the entire body of listings that existed during that time period.
The Realtors Multiple Listing Service does not maintain a data base of listings that existed in the past. Once a listing has been sold, canceled or withdrawn, it is gone.
House Bill 3040 in Washington State and House Bill 3624 in Oregon State are both working their ways through the legislature.
The banking lobbies are fighting hard to defeat or water down the bills. Of course, the banks that own Appraisal Management Companies (AMC) are at the lead of the fight to defeat the bills. AMCs make a great deal of profit charging banks AND APPRAISERS for the services the AMCs provide. On the banking side, it is a profit center. They don’t want a bunch of appraisers whittling away at their profits. The fact that they are whittling away at the appraises’ profitability and integrity appears to be of no concern to them.
I say it is time for residential appraisers to stop selling their souls to the AMC store. As I’ve said before, the AMCs don’t own us. They use us for their own profits and give us little in return.
WE APPRAISERS HAVE ALL THE POWER. THE ONLY POWER THE AMCs HAVE, WE APPRAISERS GIVE TO THEM.
So, no matter how the legislation comes down, no AMC in America has a chance of surviving or profiting without our (appraisers’) permission.
When an AMC calls and says: “You’ve been doing work for XYZ LENDING for years at a fee of $450. XYZ is using SLUGGO AMC now. SLUGGO wants to pay you $250 for an appraisal order from XYZ LENDING from now on.” You, Mr. or Ms. Appraiser have to say “NO” to this.
If we appraisers act like professionals, rather than a scattered bunch of scared mice, we can move the fees paid to us right back to where they belong.
A couple of years ago I attended a seminar presented by George Van of LSI. He spoke of a lot of things in that seminar. But, the main message he repeated several times to the attendees was, “Appraisal fees are going to continue to go down. Get used to it.”
Mr. George Van, I say to you that you don’t have a business without us appraisers. I say it would be more wise of you and LSI to fight for appraisers’ health and vitality and integrity rather than continuing to abuse us.
And, Mr. Van, I remind you, WE APPRAISERS HAVE ALL THE POWER. YOU CAN’T DO A SINGLE ASSIGNMENT FROM ANY LENDER WITHOUT US.
The legislation concerning Appraisal Management Companies (AMC) is still moving through the legislatures in Washington and Oregon. Some of the larger AMCs are owned by banks. The banking lobby is showing up strongly to fight the proposed AMC legislation.
What the larger banks have done is made a profit center of residential appraisal ordering, and made the independent appraiser pay for it.
Over the years appraisal fees rose to cover the added work of newer regulations and more extensive analysis imposed by the industry. Appraisers have a 350 page book called the Uniform Standards of Professional Appraisal Practice (USPAP) that must be followed when conducting an appraisal (federal and state law). A single family residential appraisal, conducted under USPAP is a lot of work.
As the AMCs continue to lower fees to appraisers and raise fees to borrowers. The work appraisers do continues to be eroded by the “Ride ‘em hard and put ‘em away wet.” attitude of the AMCs.
One way we appraisers could resolve the problem is to say “NO” to the abusive AMCs.
It seems that amongst the residential appraisal community there are lots of people who will work for any fee to get any work they can. This leads to extreme burn out and erosion of the quality of the work product submitted.
I invite appraisers in Washington State to join the Appraisers Coalition of Washington. Here’s their link. http://www.acow-wa.org/
Also, an appraiser’s coalition of Oregon is forming. There will be more news of that in about a month.
A word to you appraisers out there. No AMC can create an appraiser. Appraisers create appraisers through the trainee programs. AMCs live off of our professional efforts. The AMCs don’t own us.
WE APPRAISERS HAVE ALL THE POWER. THE AMCs HAVE NONE, BUT WHAT WE GIVE THEM.
WE APPRAISERS GIVETH AND WE APPRAISERS CAN TAKETH AWAY.
Here is the chart with the latest NTS statistics. After that big spike in the late spring of 2009 there was a very large drop.
However, as you can see, there has been (on average) a slow and constant climb since then. I am guessing that federal programs brought the numbers way down for a while, but the pressure of the down economy persists. The net effect is a continuous high rate of foreclosures in Clark County. There were 255 sales through the MLS in Clark County in January. You can see that there were 247 foreclosures. The lines are close to intersecting once again.
Representative Paul Holvey and the Consumer Protection and Government Affairs Committee
RE: HB 3624
I attended the hearing today at the Capitol. It seemed to me that a general overview of the history of Appraisal Management Companies (AMC) and how this HB 3624 came to be before you would be helpful.
Appraisal Management Companies provide a useful service to lenders. The AMCs have been in existence for about three decades. When the Federal Financial Institutions Reform Recovery and Enforcement Act of 1989 (FFIREA) was passed to bail out the Savings and Loans, it mandated that all states maintain a licensure program for appraisers. Oregon was progressive in this area, having already a program in place for licensing of appraisers. As a result of FFIREA the Appraisal Certification and Licensure Board of Oregon was created.
FFIREA dictated that lenders had to maintain a list of appraisers that the lender approved to do the lenders appraisal work. And, the lenders had to keep copies of appraisers’ licenses and other documentation. This was a large burden for many lenders. So, they sought to outsource this responsibility. The AMC’s were there to fill this need.
Over the years AMCs grew into larger and larger companies that handled a very large percentage of the appraisal ordering in the United States.
The business model of many AMCs is to require a fee from the lender (paid by the consumer) to cover the cost of the AMC’s activities and to pay the appraiser. The AMC’s business model includes creating the largest spread they can between the money submitted to the AMC by the lender and what the AMC pays the appraiser.
This business model is the primary cause of the friction felt in the daily business of appraisers providing appraisal services, and the escalating cost of appraisals to the public. Although AMCs provide a useful service, their urge to create a larger and larger spread between what they collect from lenders (paid by the consumer) and what they pay appraisers has increased greatly.
The Home Valuation Code of Conduct (HVCC) which went into effect last May 1st resulted in a sharp spike in the use of AMC’s by lenders. Now the AMCs have much larger control over the industry. They admit that they now handle over 60% of ALL APPRAISALS ORDERED IN THE UNITED STATES. That statistic represents ALL APPRAISALS, NOT JUST APPRAISALS FOR FINANCE.
I don’t agree with the idea, presented to you today in testimony, that because the AMCs are the only group in the food chain that is not regulated that they ought to be. I feel that regulation should not be imposed unless the subject of the regulation is acting badly and refuses to self manage.
I suggest that the AMCs fall into this “bad actor/non self manager” category. In their zeal for profits they are weakening the relationship between the appraiser and the borrower and eroding the “Public Trust” that we appraisers are required by law (USPAP) to maintain. Our Uniform Standards of Professional Appraisal Practice (USPAP) are about 350 pages of documentation that describe what it is that we are charged to do, when conducting an appraisal, so as to protect the public and maintain the public trust.
The AMCs, by their controlling the appraiser population have become quite manipulative, as you heard in testimony today. They are building huge profits for themselves at the expense of the consumer. And, they are eroding the quality of appraisal practices performed by licensed appraisers.
The ultimate looser in this relationship between consumers, lenders, AMCs and appraisers is the consumer. They pay more and get less.
Thank you for your time. I hope this has been helpful.
Here is worst we’ve seen. In 2009 the lines crossed.
From January until June there were more notices of trustee sales than there were sales of houses through the MLS. (Reminder: The sales data is just the sales through the MLS. This is a sample of the total sales. It is a large sample, but still just a sample.)
As the year progressed sales continued to increase while notices of trustee sales decreased. Things have leveled off to a more normal level for this very bad cycle. But, that foreclosure spike in the early part of the year represents a wave of foreclosed property that has to be re-sold and put back in service. That is a lot for the economy to digest.
Here is the 2009 year in a chart. This represents the notice of trustee sale activity in Clark County Washington. Notice of trustee sales are foreclosures on mortgages.
As you can see, the year started out very high. Around 65 notices of trustee sales per month is a more typical rate. So, the year started out at about five and one half times normal. It rose in June to around seven and a half times normal. Then it dropped down to an average of about 200 per month for the last five months of the year. That was about half of what it started out at, being that the first five months of the year averaged about 390 per month.
Progress is being made. The rate is still high, but far better than it was at the beginning and middle of the year.
I think housing prices will continue to drop for a while. The large amount of REO will continue to hold them down. Again, athis foreclosed on property has to be put back into service. Buyers must be found, new mortgages created and debt service maintained before prices can begin to recover.
Well, here is where the house of cards gets the table pulled out from under it. All those really smart people, who we can’t afford to allow to fail, couldn’t juggle fast enough to keep it all up in the air. Here’s the graph.
The bell curve still has some upward tilt, but the foreclosure numbers intersected with the sales numbers at the end of the year. This looks bad. By the end of 2008 the number of residential sales through the RMLS was almost exactly the same as the number of Notices of Trustee Sales in Clark County Washington. From a ten to one ratio of sales to foreclosures four years ago, the market moved to a one to one ratio last year at this time.
