The Evaluation Problem

Customer:  Thank you for responding to my need for winter firewood.  How old are you?

 

Woodcutter 1:  Twenty-Threedesktop-appraisals

 

Woodcutter 2:  Forty-five

 

Customer:  How much experience have you had cutting wood?

 

Woodcutter 1:  Two years.

 

Woodcutter 2:  Twenty-seven years, sir.

 

Customer:  What credentials do you have?

 

Woodcutter 1:  None.

 

Woodcutter 2:  I am certified by the State Woodcutting Board, a member of the Woodcutters Association, and the Chair of the Regional Woodcutting Coalition.  Due to my certification, I am required to go the extra mile.  Before I begin cutting, I will cordon off a fall area so no one in the area gets hurt.  I cut with a saw that has passed a 72-point inspection.  I will personally inspect each and every cut to verify the integrity.  All blocks of wood I stack will be visually verified pest-free.  Oh, and I am also licensed and bonded.   

 

Customer:  Can you both do a good job?

 

Woodcutter 1:  Yes.

 

Woodcutter 2:  Yes.

 

Customer:  The job pays $120.

 

Woodcutter 1:  Okay.

 

Woodcutter 2:  But, I will get extra because I have more experience, am licensed, and follow a set of ethics that make my scope of work much larger than that of Woodcutter 1, right?

 

Customer:  The job pays $120.

 

Estimates vary, but currently there are approximately 10-15 BPOs or Evaluations ordered for every full appraisal.  The fees paid out to those completing alternative valuation products are in the billions (with a B).  Appraisal fees are estimated at $850 – $950 million (with an M) annually.

For a variety of reasons, most appraisers are not doing these types of products.  One of the biggest challenges is the extra scope of work put on appraisers that is not put on others who can also also complete this type of work.  As “appraisers,” we are required by law to follow the Uniform Standards of Professional Appraisal Practice (USPAP) whenever we complete a property valuation for a client.  This adds extra scope of work that is not placed on the shoulders of others completing the same type of work.

 

When asked, most clients would rather use an appraiser for their valuation job than another, less-qualified and less-experienced person, but an appraisal comes with extra hoops to jump.  Which woodcutter would you hire?  Woodcutter 2 comes with age, experience, certifications, and other qualifications.  She would likely do a better job than Woodcutter 1.  Yet, Woodcutter 2 – by nature of their title – must do more work than Woodcutter 1.  Perhaps the Customer should consider paying Woodcutter 2 more for the extras, but the extras are not necessarily needed.  He just needs a little wood cut and stacked.  The payment is the payment.  Woodcutter 2 just cannot afford to do all that is required of her to do for the payment offered.

 

Is it time to carve out some state law exceptions for appraisers who desire to complete alternative evaluation products?

 

27 thoughts on “The Evaluation Problem”

  1. Pingback: The Desktop Debacle - Appraisal Buzz

  2. I’m concerned that if we allow appraisers to do these valuations without the scope of work required by USPAP, that they will eventually replace the full appraisal. Why would a bank order a full appraisal when they can get an appraiser’s opinion of value for so much cheaper? Their reliance on the value generated by this superficial valuation, could lead to more problems as the collateral for the loan is not properly supported with a full appraisal. The enticement is the billions of dollars available, but resistance is the answer for the long term.

    1. Michael Morris

      Do a little research on the Corelogic RealAVM product.

      In my market in most typical suburban neighborhoods I have found it to be on average within less than 2-3% variance from the actual appraised value. (And this is in a non-disclosure state).

  3. While I appreciate your attempt at drawing parallels between a wood cutter and an appraiser, maybe if you chose another trade such as bricklayer, when the wall comes tumbling down in an earthquake when the less experienced bricklayer fails to use rebar or strapping on their less than level but seemingly solid 12′ wall, that image would provide a clearer picture of the gravity of the situation (pun intended). Unless you were going for the fact that the product of all the work would just be fuel for the next fire (sale).

  4. I do not do Desktop appraisals or Drive-by appraisals and would never do one regardless of the fee. It is not unlike appraising a diamond or fine gemstone from a photograph; it could be Cubic Zirconium or colored glass or plastic as far as anyone can tell from a photo. The last Drive-by I completed many years ago was a new house builder foreclosure in the dead of winter with a foot of snow on the ground. I did a walk-around the house and looked in the basement window and the basement was flooded to the window sills. The house was winterized and sump pump was not running. Did that have any effect on value? You bet it did, as did the lack of a kitchen and who knows what else. Maybe disclaimers get you off the hook but, how realistic is a value without even knowing whether or not the property is standing or in what kind of condition? I don’t want any part of it. Somethings are more important than money….like sleeping well at night.

  5. I think different clients have different needs and nothing wrong with completing desktops, and i do think its impossible for appraisers with the current regs to do it at the low fee they request. A departure rule from USPAP may do the trick! And to some of the comments i have seen certified brick layers do crappy work and non certified brick layers do great work and vise versa also i don’t remember all the regs and strict 1004s saving us from the last “crash”.

    1. I am assuming using a departure rule was tongue in cheek. Scope of work opens many possibilities with appraisal services outside our comfortable FNMA form dominated industry. We need to make every effort to educate and work with the lenders and amc’s to find mutually rewarding products that are profitable and compliant. Talk to the head appraiser with a bank or appraiser, if any, at the AMC with possible solutions and ideas. The compliance needs of the lenders do not always line up neatly with the compliance requirements we live under.

      1. Adam I agree re scope of work RULE opening many other opportunities. Now if only the users of such other products OR the whores promoting the current crop of services remembered that the scope of work must not be so limited that the result is not credible. Further, it MUST NOT be misleading.

        Look up the ACI designed (owned by First American) new PACE PRO form which is undergoing scrutiny by federal regulators as I type this. No reasonable person with appraisal experience would conclude that it is anything other than an unregulated BPO+limited comp check; with a built in opportunity for appraisers to violate every standard we operate under. Indeed, the price ($70) virtually assures that will happen while the customer is being promised the sky.

        They are perfectly content with woodcutter number one but he is only charging $1.50, and is routinely violating ALL laws designed to protect the resource; the forest, his tools and the lives of those that do the work. Your analogy is n different than if McDonalds suddenly announced THEIR jobs only pay $1.35 an hour. It would VIOLATE the law!

        Exactly as the lenders and those using BPOs / AVMs are doing with respect to FIRREA. Even the MINIMUM “standards” of USPAP are too burdensome for these thieves who keep stealing from taxpayers every 10 to 25 years.

  6. I get Dustin’s analogy although the bricklayer is a better one. Personally I like analogies because it is a way for people to see the forest instead of the trees….. oops, that was an analogy of an analog with a “wood” pun for extra points.
    Seriously Dustin’s point is that we can do other things with our talents. I am as guilty as anyone of getting so locked into the Fannie Mae 1004 form that it actually takes me longer to do an appraisal for a personal client on a GP form sometimes. This work should be quicker and easier and I charge a discounted rate. A great example of this is after Hurricane Katrina in the New Orleans area I completed appraisal with a very limited scope of work. These were 2 photo drive by appraisals with meaning extraordinary assumptions and hypothetical conditions made as many of the homes were either destroyed or completely missing when I took a photo of the site. Buy Readjusting buy entire process I was able to complete about 2800 of these $150.00 gold nuggets in a little over a year. I also still completed about 150 regular appraisals for crappie AMC’S since I was newly on my own. I made a LOT of money and fulfilled my scope of work 110%. There are other products out there we can make money with as long as we do it ethically and responsibly.

  7. Typo correction. I sent the last post from my phone.
    …. with MANY extraordinary assumptions and ……
    …BY ME readjusting MY entire process…..
    Bad typos bother me, and you can’t edit posts here.

    1. Hi Angel. As intended your comment persuaded me to follow your link. I left WFG 12 years ago to be an appraiser. Being an appraiser is far more profitable. Just sayin’, from experience.

  8. Get a frigging brokers license and do the work as a broker. You can have two hats. Looking forward to the 40,000+/- license disappearing to reach equilibrium.

  9. Huge topic. No, I don’t like leaving all that money on the table either. Wouldn’t the purchasers of the these limited valuation products prefer to use the best possible work force they could find (that would be us, the appraisers, the people who study valuation data for a living)? The only reason they don’t use us is that we wont do it. The only reason we wont do it is because of USPAP. I think the simple and easiest solution is a change to USPAP.

    USPAP does not address limited valuation products in realistic terms. By not addressing these types of assignments specifically (maybe an entire standard should be written to address them), it blankets these types of assignments with all other types of assignments. Doing so creates an appraisal standard that exceeds the feasibility of appraisers performing these types of assignments. Typical users/clients of appraisals know little about USPAP, other than it exists and appraisers are required in most cases to live up to it. When we tell our clients “Sorry, I cant complete this assignment for you because I would not be able to do it for the price you are willing to pay and still comply with USPAP…” they don’t modify their way of doing business to accommodate USPAP, nor do they pony up and pay what is feasible to the appraiser, they simply work around it another way, which is taking the appraiser out of the equation. I think this debacle is therefore in the hands of those who are in charge of writing USPAP, in terms of finding someone to blame and in terms of finding someone who could offer a solution.

    The coach appears to suggest that changes at the state level could be a solution. I do not argue that could be a solution, however I struggle to see the appraiser lobby having enough political power to get it done.

  10. Dustin, if I take your analogy and apply that concept on a grander scale to the appraisal profession, I get the following. The customer for the firewood is the lenders hired puppet AMC, and the job that pays $120 is a set fee that may be state wide (Veteran Administration) or paid on a national level (AMC policy). The choice to take the job or not will be directly related to the cost of living in the area where the work is being done. If one area is 80% more expensive to live in than the other, than its common business sense to expect hire fees. The person selling the firewood in different markets will not offer it at the same price and will raise the prices accordingly. Any word on the podcast you promised concerning my take on cost of living concerns?

    1. Michael Morris

      “concerning my take on cost of living concerns?”

      Good to see good ol’ BL back with his nonsensical ramblings.

      One and for all, the buyer of appraisal services does not give a damn about “your” cost of living and no one else but you does either.

      The buyer of appraisal services bases the fees the pays on making sure he turns a reasonable profit, that’s it.

      GO BACK to school and take an Economics class instead of wasting your time on appraisal forums.

      1. Michelle, when our clients are setting fees for all of their services they are absolutely concerning themselves with local costs, so why would they expect the appraiser to not do the same? Do you think upper management bank executives would get a raise if they moved (required) from an area where homes cost $150,000 to areas that cost $800,000? Do you think a firewood selling business in Seattle WA where minimum wage is $15 would charge more compared to an area where federal minimum wage is $7.15? When you say our clients (lenders/AMC’s “base the fees on making a reasonable profit” then why are most not abiding my federal and state law (customary and reasonable fees)? Keep disagreeing with me Mitch all you want, but when my state of CA is on pace to lose 400 APPRAISERS over the next year, there are plenty of appraisers telling you the numbers don’t add up on a local level.

        1. Michael Morris

          “my state of CA is on pace to lose 400 APPRAISERS over the next year,”

          PLEASE help make that number 401.

          Your logic is pathetic….

          1. How is bringing to light what is going on regionally, locally, etc., pathetic? If the firewood provider only pays $120 (VA or AMC) and an entire area (CA) is saying on a daily basis this doesn’t work, bringing to light facts is not pathetic. Keep giving value to those above ground pools you spoke of last month Mike.

      2. Mitch, the STATE of CA has put in place a plan that over the next five years will increase the minimum wage to $15. Will businesses have higher labor costs? Will those free market businesses raise prices? What impact will there be on the COST OF LIVING? If AMCs are setting national policy and prices for a set product (1004, 1073, etc.) while not taking into account the cost of doing business on a local level, then the market will react (reduction of appraisers in my area). Our lender clients will raise prices accordingly to maintain THEIRE PROFITS in my state, but by controlling our fees (VA, AMC related) they will again ask us to take a pay cut.

  11. Michael Morris

    This is actually a perfect example of the high and might appraiser DEMANDING “their fee” for every job and getting all bent out of shape when a COMPETITOR under bids them and takes “their” work.

    Bottom line here is that the BUYER of the service sets the fee and that fee was $120.

    If Woodcutter 2 accepts that offer he gets the job. If not, Woodcutter 1 will. And then Woodcutter 2 will whine and cry like the “full fee” appraisers do all the time…….

    1. Underbidding at a rate that is below customary and reasonable fees Mike, can be a crime. Just ask imortgage via their hired lender Flagstar how paying $200 for an FHA assignment in the state of Louisiana can get you a nice $10,000 fine. The truth is out there Mike.

  12. the appraiser who stated get a brokers License and do it as a broker, and have to hats. Ooops in Illinois you are held to your highest License by judges in court cases. I see a lot of law suits ahead and a major market crash with this form. Many brokers here cant even do the square footage, and why would you use information from the person making the sale for a commission. Do you think the Loan officer would sign his name to a possible bad loan? thats basically what they are asking appraisers to do. I think not.

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