APPWHIZ, No offense was taken. By the way, I’m Patrick, Mr. Egger was my dad, he’s gone and the world is now stuck with me. I appreciate and share your frustration and concerns, as do many appraisers. There are many activities going on behind the scenes and I have no doubt there will be changes, just not sure what they will entail, good and or bad. As a profession (not individually), we bear responsibility for much of the problem, not because we ignored the problem, but rather because we failed to address it “collectively”. At a time when there were 120,000 licensed appraisers, only 10,000 signed the appraiser’s petition. The profession trained (poorly in many, perhaps most, cases) a long list of good people that are now out there and “don’t know what they don’t know”, but should in order to do it the way it should be done. They created standards and licensed us, but failed to address them (agents, brokers, etc.). The bubble burst; mortgage industry is evolving and changes will be made. We all know we have been part of the problem, at question is what will our role be in the solution and will we participate “collectively” in shaping that solution? There are many things we could do better if we worked together “collectively”, shared ideas; we were open-minded to the concepts of others and the needs of the clients we serve. Such a program would require a certain leap of faith, but conceptually it could be done, others have accomplished similar goals in the past. From my perspective, the hurdles we face include trust, apathy, leadership and commitment. Collectively (as a profession), we’re apathetic, we don’t trust those in leadership positions now, and we won’t support others (individuals or groups) that would lead, because we don’t know them, etc. It’s a Catch 22. Guys like Brain Davis (he started the WinTotal User’s Group, The Appraisal Scoop, The Water Cooler, etc.), Steve Smith (Inland CA Appraisers Forum), Vicky Keeler and others (REAACA), etc, have given time, effort, costs, etc. with little/nothing in return. You have the AI, NAIFA, ASA, etc. Appraisers need to join, participate and embolden these groups. Many join organizations, but expect others to do the work. They need to join, support and participate. You may not agree with their direction, but by joining, you can be heard and perhaps help shape a different direction. PS, when you get a minute, drop Brian Davis a line and thank him for The Appraisal Scoop. It takes a lot of his time, cost you nothing and provides a valuable resource for us all to be “heard”. Thanks for the comments … Patrick

Appwhiz, You’re welcome to disagree with me … the Scoop is about presenting ideas and getting them out there for discussion, feedback, etc. I would agree that often the appraiser is the messenger and we know they “shoot the messenger”. If the appraisers does his/her job correctly, they are protecting the public, which is the directive of USPAP, FIRREA, licensing, etc. The article was about reinventing the process to change perception. The appraisal process isn’t “transparent or consistent” and in most cases “accountable” and it’s a part of the mortgage process, which isn’t transparent, consistent or accountable either. The mortgage process (and all involved, including the agent, lender, appraiser, etc.) should be based on transparency. If it was, it would be accountable, because anyone could measure and verify. Appraisers are blamed for miscues in the process because the process isn’t transparent. Guidelines are vague, opinions are often subjective vs. objective and the appraisal process itself hasn’t changed sufficiently to address the needs of the market/client, etc. The HVCC reintroduced the FIRREA concepts of independence, but did nothing to clarify the appraisal process and or provide for accountability of the client and the appraiser, by making the appraisal process measurable and verifiable by all. The appraisal process lacks “black and white” standards. The definition of market value (is theory) we use is very different that the concept of market value used by agents. The adjustments we are required to make, concepts, etc. are not understood by the market and clients we serve (think concessions for example). If real estate agents had to fully disclose concessions, make the same adjustments in their CMAs (lower the suggested price because of concessions included in the sales), their listing and selling prices would be a lot closer to our values. At the same time, the appraisal process needs to be updated (by Federal mandate) and adjusted to the realities of the market. To do a good job, we need time to verify data. We also need standards in place across the board to apply to all involved (agent, lender, etc.) for data reporting (think GLA, concessions, etc.) at the national level (no reason that reported GLA in one area can be different for the same home in another area, because of local custom, etc.). We need flexibility to provide services that reflect the market’s needs (the scope of work rule helped but has other adjustments are needed to USPAP) and we need uniform standards that apply to all parties to the mortgage transaction, so we are all on the same page. The article was about reinventing the appraisal process and the intent was to get feedback and ideas on what steps should be taken. In my opinion, federally mandated standards such as Uniform Real Estate Reporting Standards (URERS) that apply to all (lenders, agents, appraisers, builders, etc.) would be the first step towards transparency, consistency and accountability. If everyone is required to play by the same rules, has access to the rules (and those rules are transparent vs. vague) and can comprehend the rules, when something goes amiss, who to blame is evident to all. I just submitted an article on this to Florida Realtor Magazine (hopefully they’ll publish it). Thanks for your comments … Patrick

Hello Brian, I was hoping to get some "ideas" from appraisers, but didn't. Maybe I'll do a follow-up and post mine, should stir debate. USPAP (IMHO) needs to be modified to provide for services that would allow the field appraiser to be more responsive to the needs of the market. There are many changes in the industry that should be made, question is will we take the steps? Thanks for the comments Patrick

Larry, I’m not advocating that we surrender to our captors. After all, we’re in a prison of our own making, so we’d simply be surrendering to ourselves. Think about it, we’re a cog in a big wheel. While we like to think of ourselves as “independent, in reality we’re dependent, as are the other spokes in the wheel. From another article I’m writing … “Housing sits at the core of the economy. Its spokes touch a long list of activities that depend on it”. Each spoke (lending, real estate agents, the secondary market, home builders, etc.) must work together without one having to bear the burden of more weight than it can or should carry”. Over 50 years ago, accountants faced a similar situation as we do today. They created GAAP (Generally Accepted Accounting Principles) to reinvent the profession and gain back what they lost. In a related topic last year, I proposed the creation of URARS – Uniform Residential Appraisal Reporting Standards and have expanded on the concept (in a new article) to Uniform Real Estate Reporting Standards. “When you replace vague guidelines, ill-defined terms, opinion and subjectivity with uniform standards that apply to all of the spokes, you’ll have transparency, consistency and accountability that are measurable and verifiable by all”. I’m not advocating more work for less pay; I’m advocating recognition of changing technology and client needs and providing clarity to the process. Most clients (and many in our profession) don’t comprehend what we do or our role in the process. They don’t know what they don’t know. In the name of “independence”, we’ve made the appraisal process opaque and defined much of it with opinion vs. fact. We’ve dismissed the market’s needs in favor of our own egos and “certified” below our name. As a profession, we’re not transparent, consistent or accountable and we need to be, as do the other spokes. “When we speak the same language, and we are accountable for the words, we’re a lot more careful in what we say, how we say it and who we’re speaking to”. The URERS would provide for reports within a framework that anyone could validate. It wouldn’t be one appraiser’s view vs. another, nor some UW’s opinion on the guidelines, or second guessing by anyone in the process. “Twenty feet, 3 inches” is the same to anyone building the house. You don’t need any special skills, you simply need a tape measure. Thanks for the comments.

Rita, From the client’s perspective (as an industry), we’re not worth it and they don’t want to pay for it, that simple. Time has proven that (collectively, as an industry) we’re not reliable, for a host of reasons. We’re nothing more than the E&O policy we provide, because as a profession, we’re not transparent or consistent, we’re only accountable at some point via the E&O policy. While many of us include additional data, analysis, charts, graphs, etc., from the client’s perspective, is it valuable, perhaps, is it usable, unlikely. Not because it isn’t meaningful, but rather because it isn’t understood. Much of what we do is theory and opinion based on theory. We need to convert theory and opinion into a format that is universally understood. What if all of our custom addenda was the same and structured into a form, like the two-page HMA I use? What if we all used the same clarification of scope of work? What if appraisers formatted their reports so that the flood map is always on page 23, the HMA always on pages 12-13, the COSOW always on pages 24-26, etc.? What if we (as a profession) not only provided a report in consistent format, but included a pre-filled PMI appraisal checklist addenda; saving the UW time? The addenda could be extracted on the fly and auto-filled using the forms software. What if we provided the clients (by reference in the report), access to a publication that showed them how to read the charts and benchmark data in the two-page HMA and provided them with an overview of what the data means and how such data relates to risk in the market trends? To date (as a profession), we’ve done everything to give them what they think they want and very little to show them or teach them, what they need to know. Many appraisers go the extra mile, yet there isn’t a collective effort to standardize and market “the extra mile” to the client. They don’t know what they have (the extra mile), how to use it and why it makes a difference. If you can provide a client with a product that costs $50 extra dollars, but saves them $100, $200 or more, why wouldn’t they buy it? There are only two answers, they are not convinced that it will, or they don’t believe they can get the same level of service in every market, every time. If the profession subscribed to a single COSOW, HMA, appraisal report format and the same Uniform Real Estate Reporting Standards, there would be transparency, consistency and accountability in the work. Moreover, it would raise the bar and provide the clients with a consistent product to compare and contrast. Thanks for your comments

Always nice to get good feedback from a client. When you meet with the UW, post what you learn, so that others will benefit from the experience.

Hello Michele, I agree that the “collective profession” needs to take a higher road. Unfortunately, we lack the “collective roadmap” that points to which route east and west or north and south. Many appraisers are providing “added services”, just not in a manner that makes them productive and must haves to the client. The only thing consistent in the appraisal report is the URAR. Beyond that, appraisers have a lot of custom addenda. If you are an underwriter, finding the information and answers needed to compete various underwriting checklists is time consuming and confusing for many. This is one area we could improve. Technology makes all things possible. We could tweak the system to provide UW answers on the fly, with little or no effort on our part and a valued added service from the client’s perspective. When you see the appraisal from the client’s perspective, you’ll see a lot of opportunity to make improvements. Thanks for the comments. Patrick

We often see larger problems from one perspective, our own. How does this issue affect me, vs. what could be done to eliminate the issue so that I am not affected? I’m not ready to share all of my thoughts, but just as USPAP provided guidance for appraisers, interpretations of USPAP created a least one huge problem for lenders. As a former VP with a major lender, I’ve seen both sides of the appraisal, what we do before we send it and what the client must do after they receive it. I think this is the area appraisers need a better comprehension of. What changes could we make on our side (collectively) that would have a major impact on their side? Like you, I have always included a lot of addenda material, stats, etc. to help the reader. After spending time with our UW’s, I quickly came to understand that providing the data benefited me more than the client, not because it wasn’t useful, but because they didn’t understand how to use it. You can have the best tool for the job, but its only valuable if the person on the job knows how to use it and how it benefits them if the require it and employ it. Therein is the core of the problem and the opportunity. I teach CE for appraisers and for agents. One class for agents, “Demystifying the Appraisal”, has repeatedly shifted opinions from what they were pre-class to what they are post class. Our product will only excel when we provide the client with both the tool and how to use it, something we can accomplish through a variety of existing channels. Thanks for the comments Patrick

This and many cases before it affirm and raise a number of issues. First, the use of exculpatory clauses (disclaimers) to protect a licensed professional from negligence on his/her part. The professional has a duty and the public has reason to expect a certain level of care, in this case the correct square footage. Various courts have ruled that the public has a right to expect a degree of accuracy with respect to the facts provided by the professional’s inspection of the property. In this case, the professional apparently didn’t inspect (measure) the subject. Should a buyer have reason to rely on a licensed professional (agent, appraiser, etc.) to provide an accurate GLA? Where did the appraiser get the GLA from? In this case the client ordered and the appraiser agreed to apparently a drive-by or short form of some type. The appraiser did not measure the property, relying on what for accurate SF? Assessor records are often wrong, for many reasons. If both parties agreed (lender and appraiser) to a drive-by (and reliance on a source for GLA) then does the client also have some responsibility here? Will the E&O provider look to the lender as being partly responsible, since I would assume they dictated the SOW to some degree? As a result of this ruling, will lenders look at drive-bys differently? I agree with Dave, far more questions than answers at this point, but many possible implications for drive-bys, AVMs, BPOs, etc. and I suspect a lot more to come on “standard of care” as lawyers see the possibilities for their clients. If you do drive-bys, "what's in your wallet, that may soon be removed"? It will be interesting to see if the E&O companies add riders to policies regarding drive-bys.

Steve, My point exactly, and then some. The 1004MC is misleading and meaningless as it presents totals, ratios, medians, etc. in past periods that have no relationship to present or future value of the subject. Thanks for the comments.

J, Go here http://www.graphthetrend.net/1004MC_How-to_Videos.html get the materials online Patrick

Frederick, I also pointed out "garbage in - garbage out", I agree with you, a lot will depend on how neighborhoods, competitive to the subject, etc. are defined, however in the "information age", there are national services that can provide trend information (OFHEO, title companies, reviewers, etc.) and therefore it can be verified and measured. The 1004MC is about "conformity" and "objectivity", something that is lacking today. I do not think the 1004MC is "the answer", but I do think it is a step in the right direction. The key now is to find the best ways to approach it, something I have been preparing the 1004MC Workshop to accomplish. I see several perspectives on what goes where. The question will be "which one is best"? You make a good point, the data is out there and can be processed via most MLS services or downloads and Excel, so it becomes a matter of time/work. From my viewpoint, the 1004MC is about "effective vs. efficient". That is where I taking the workshop, identifying the issues, possible solutions and getting appraisers aware of the options. Thanks for the comments.

Doug, I have similar thoughts and observations. The 1004MC (like its number-sake-the 1004) is a universal form, designed for the typical as opposed to the atypical, hence, it works for the majority of what Fannie and Freddie have in mind (conforming, in city, subdivision housing) and becomes the appraisers bane in neighborhoods that are rural or in urban areas that are transitioning. On the upside, you have an out. The appraiser must fill-in all the information “to the extent it is available and reliable” or provide an explanation. I am not sure how lenders will view the explanation part, but Fannie & Freddie did provide the out in the instructions, if it isn’t reliable, don’t report it. The problem with averages (as opposed to medians) they are affected more by isolated sales, so they have a tendency to jump. In my class, I am focusing on cleaning the data to ensure you are comparing “apples to apples”, which will minimize the impact of “outliers”. The problem in some markets, especially rural, you don’t have a lot of data to work with and what would appear on your market grid (out of necessity) may be very different (your 10 vs. 40 ac example). I do not think the 1004MC will be reliable in all areas either (something I pointed out in the series), even in conforming markets you may have one segment of the market (1200 SF, 3/2) doing better than another (2200 SF, 4/2), based on demand, location, etc. This is why I believe you’ll need an “addendum” to the 1004MC-Addendum and why I believe this form won’t be a 30 minute “point, click, calc, done”. It’s GIGO – garbage in, garbage out, and therefore you will need to clean you data and do some “homework” to support and document your findings. Thanks for the comments.

Jeff, I agree ... lots of miscues here with the 1004MC, a step in the right direction, but walking through a mine field, lets be careful out there.

Matt, Through the process of developing a workshop for the 1004MC, I have debated each required response to the 1004MC, including median DOM and when each listing is counted. To answer your question, first there are two schools of thought, one being “cumulative days on market” and the other being “current days on market”, or days on market. From my perspective, either can be misleading as one (CDOM) represents the total time on market without addressing “knowledgeable seller”. Effectively, if I list a property for $400,000 that is worth $350,000, it may not get offers and remain on the market for some time. Had I listed it at $360,000 it may have sold in a normal time-period and when I do list it at the right price it will sell. If I used the original list price to current sale price to develop the L/SP ratio, it may be 75% and if I had listed it correctly, that may be much higher. The same goes for CDOM. If it was priced correctly, while technically it was “on the MLS”, effectively it really wasn’t. I prefer the DOM (from last listing date) because it considers that informed sellers have corrected the price and the L/SP ratios, DOM, etc. reflect a truer indicator. Taking it a step forward, from my 1004MC – COSOW, I state that if it was listed and available during the period it counts for that period. Which raises and issue, if it was actively listed, expired and was relisted during the same period, will you count it once or twice? I count it once. How you do the math will make a difference in the results and in many cases, those results will be misleading. To best answers the questions, focus on the intend of the 1004MC and that is “to provide the lender with a clear and accurate understanding of the market trends in the neighborhood”. How best can we do this? Focus on: 1) Count the number of unique properties available during each period (remove duplicate listings during the same period) so your totals are unique. 2) If the property was available during two periods, count it for both the periods it was available. 3) The totals, rates, percentages and medians on the 1004MC are not for you, they are for the “intended user”. Don’t be caught up in the 1004MC being a “meaningful appraisal tool, it isn’t. It is a form for identifying and underwriting risk. You are trying to put “square-pegs in a round hole”, to “pre-sort or classify” a mortgage investment for the secondary market. The 1004MC is not an “appraisal tool”, it is an “underwriting tool”. The 1004MC and DOM is a question that elicits opposing opinions. I am writing a “5-hour 1004MC workshop” that includes an Excel Workbook to do the math for you (using a MLS dataset download. As part of the process, I am also writing an additional 1-page “Clarification of Scope of Work”, similar to the 2-page one Brain Davis and I made available here for the URAR. A la mode has expressed interest in working with me on this, but as always, I could use support from appraisers to help convince them. Send them an e-mail and let them know if you believe a workshop would be beneficial. I want to do it locally (me on the road in your backyard). The workshop will include a step-by-step, options available and the automated Excel Workbook. Patrick

KLP The “crux” of all appraisals is two-fold (Standard 1 and 2). Do the work, and communicate your findings to the user in a manner that “is not misleading”. I do not have issue with Fannie Mae’s “standardization” of neighborhood analysis (in some format), if fact I applaud the attempt. My series on the URARS is all about “standardization of what we do and how we do it”. I agree that no form is perfect however, this one (like many before) perpetuates the problem more than resolving it. You are correct regarding “market analysis”, this is something I teach in every class, “it’s always been required, simply never mandated”. I agree with many points of your assessment of the appraisal profession, its evolution, and current state. The problems (as I see them) are the form and the profession, something I pointed out in the beginning of the article, the assumptions that “appraisers by virtue of a license are qualified to appraise and the secondary market, by virtue of their policy making, comprehends the appraisal process”. Speed and conformity (the basis of risk management) has been and will always be the “grail” from a lender’s perspective. Every 20 years or so, we go through a major market correction and yet, they do not seem to learn from history. I think the 1004MC will make more aware of these issues, but not resolve the problems, instead create more in a time when we need less. Some simple changes would improve the form from my perspective, especially with respect to “overall trends” as opposed to “current trends” and providing flexibility. Thanks for the comments.

Lucia, That’s a good point, markets do fluctuate in resort areas, college towns, etc. The question is why use 12- months as opposed to 3 years? If you’re in a seasonal market area where 3 months a year prices are down, but the other 9 months they are up, and you are appraising after the 9 good months, the quarterly indicators may be 12,12,12 and 9 – declining when 3 months down the road it will be 12,12,9,12 … stable. The 1004MC, is based on Wachovia’s form. The real issue I have with it is that it focuses the trend on a 12-month period and removes the flexibility for the appraiser to select the trend based on an expanded analysis of the market over time (say two or 3 years) to put “the median” in perspective. The 1004MC is a “form” and as such, UW’s will look at the “checked boxes” as opposed to the pages of comments that tell the reader “why”. Fannie wants the appraiser to make a square peg fit a round hole, in the name of conformity. A 12-month trend simply doesn’t provide the perspective needed to make a good “risk management” decision, for any market and the appraiser has no option to select anything other than the trend indicated by the -7-12,4-6 and 0-3 periods. Thanks for the comments.

It’s easy to be cynical when you’re in our profession. Many brokers and loan officers simply want you to “hit the number”, Fannie and Freddie don’t seem to care, they change guidelines at a whim without consideration of unintended consequences, AMC’s take half of you fee and your competition, the “other guy” does things you wouldn’t consider. While it’s easy to point fingers, it still comes back to us. The only reason the pressure is there is that we didn’t stand up, less than 10,000 appraisers out of 100,000 (at the time) signed the Appraiser’s Petition. The only time we acted collectively and sent Fannie and Freddie a message was a few months back when 31,000+/- signed the HVCC petition. AMC’s seem to have little problem getting appraisers to work for ½ price, because many will and the “other guy’s” training was provided by a licensed or certified appraiser, many of whom failed in the responsibility to teach not only the fundamentals, but to impart ethics. There are lots of things we could write to the complaint department about, but the first should be person we see in the mirror. What is that person doing to bring about the changes needed? A few months ago a small group of appraisers in Nevada set out on a mission to work with the Real Estate Division and bring about change when it comes to how BPOs are completed, who can complete them, how they are used and how they differ from an appraisal. They put a lot of time and effort into it and the results will be legislation that effectively precludes the use of BPOs as “valuations” for lenders. The following appeared in the recent AI Newsletter. Nevada BPO Task Force Recommendations Advance to Legislative Council for Review at its November 12 hearing, the Nevada Real Estate Commission approved a motion to approve recommendations submitted by the State’s Broker Price Opinion Task Force regarding the use of BPOs in Nevada. Earlier this year, the Commission directed the Task Force to take an in-depth look into BPOs and to recommend changes to existing real estate laws and regulations regarding the use this tool. The Task Force’s recommendations include new language clarifying the use of BPOs by real estate professionals. According to the recommended language, real estate licensees may perform BPOs—for a separate fee—for a buyer or seller only for the purposes of listing and selling property, or for third parties making decisions related to the listing or sale of property. More importantly, the recommendations clearly state that a real estate licensee may not perform a BPO for financing or valuation purposes. The Commission forwarded the recommendations to Nevada’s Legislative Council Bureau for review and input. It is likely that several recommendations will be implemented through the regulatory process. However, some may require legislative action, which the Nevada Legislature will consider when it reconvenes in February 2009. Following the LCB’s review, the State will conduct two public hearings on the proposed regulations.

Getting from where you are to where you want to be is a journey that starts with the first step in the right direction. Hopefully other states will take similar steps. I would encourage appraisers to write their state commission or boards and ask for similar actions. Pointing fingers and protesting about the state of the appraisal profession does little to effect change. This action and 49 more like it would send a message, but they won’t solve the problem either. We arrived at this point because people didn’t get involved when they should have. The appraiser’s petition was signed by less than 10,000 out of 100,000+/- licensed or certified appraisers. The HVCC petition got DC’s attention with 31,000+/- signatures. Change is upon us. It will never be as it was, however what it will be depends on a persistent effort by all, not just a few. To those that comment, spend your time writing something worthwhile to a commissioner or board member and get your friends to do the same. Take the time like Woody did to pen an article to keep us up to date. Draft a statement on what changes you think should be made. Post it on the Scoop and forums, get some feedback and get it down to several key talking points (like the HVCC). Take the final version and get 100 appraisers to gather 100 signatures each or 10,000 register voters. Sent that to a Congressman/woman and you’ll garner some attention. Votes are voices. If the 31,000+/- that signed the HVCC, collected 100 signatures each, it would be a very loud whisper in a Senator’s ear, 3,100,000 voices. We can complain or we can work together. The first takes little effort and produces similar results. The latter opens many new possibilities. If you think you have the answers, get off the sidelines and into the game. If not, tip your hat to Woody and say thank you and move on. By the way Woody, my bald head is showing ‘cause my hat is off to you, George Dodd and others. Tell Virginia to keep it up.