Appraisal News and Business Tips

Posts Tagged forecast

Lone wolf appraisers fighting everyone, including other appraisers

Jonathon Miller’s original recent article on Bloomberg and follow up article replying to very negative appraiser “trolls”. Most of the appraisers did not read the

Guess What’s Holding Back Housing? – Original article
Jonathon Miller’s Original posting was on Bloomberg and got lots of appraiser comments, many of them very negative and defensive

Excerpts:
During the U.S. housing boom, real-estate appraisers acted like deal-enablers rather than valuation experts. Indeed, inflated appraisals were a key ingredient in the erosion of mortgage-lending standards that led to the housing bust. Now we are seeing the opposite — low appraisals — with unwelcome consequences for the housing market.

A recent working paper by the Federal Reserve Bank of Philadelphia looked at the impact of the HVCC rules on the outcome of appraisals and mortgages, touted as the first empirical analysis undertaken since the agreement was enacted.

The study looked at the frequency of low appraisals, in which the appraised value was less than the contract price. A low appraisal doesn’t necessarily equate to low quality but it could be a concern. The highest percentage of low appraisals occurred around May 2009. This was not only the peak of the housing-market collapse, but also when the agreement first went into effect, easing the pressure on appraisers by mortgage brokers and banks to “hit the number.”

http://www.bloombergview.com/articles/2014-09-25/guess-what-s-holding-back-housing

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Lone Wolves: Appraisers Fighting Everyone, Including Appraisers
Follow up posting after lots of appraiser ranting

Excerpts:
There are many great people, incredible talents and solid organizations within the appraisal profession. But in my opinion only 20% of the industry are truly competent professionals and the remainder are merely varying degrees of form fillers.

I have been an appraiser for 28 years and it is apparent that the industry is dying a death of a thousand knives. One of the key reasons for this slow death is the lack of national leadership and the extreme fragmentation since most appraisal shops are comprised of a single or just a handful of professionals. I’d also like to offer that the majority of our profession seem very willing to make unsupported negative inferences on reviews of a colleague’s work such as appraisal field reviews or troll columns like mine.

To read the full article and the appraisers’ comments:
http://www.millersamuel.com/lone-wolves-appraisers-fighting-everyone-including-appraisers/

My comments:
I have been following Jonathon Miller for many years. He is very savvy and is widely quoted in the media – local and national. Plus, he has a Most Excellent blog.

I agree with Miller regarding the lack of competent appraisers. It is not the appraisers’ fault. The problem is the lack of adequate training and poor education after appraisal licensing. Fee appraisers were expected to train new appraisers. But, it takes a lot of time. Also, poorly trained recently licensed appraisers were allowed to train new appraisers. The recent change to AMCs and UAD have made residential lender appraisers focus on “filling out the form” to fit guidelines and criteria that do not have much to do with getting a credible and accurate value. In fact, the restrictions can result in being hassled if you try to use comps and analysis that are appropriate for the appraisal. Many appraisers just give up and give them what they want.

I don’t know of any other trade, job, or career where participants constantly “bad mouth” each other. The only reason I can see is that their appraisals are reviewed. Appraisers are used to being criticized and look for “problems” in other appraisers’ work.

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New Fannie Appraisal FAQs including 1004MC

New Fannie FAQs – Appraisal and Property Related Frequently Asked Questions (FAQs) including 1004MC guidelines Published September 23, 2014

Fortunately, the document indicates which Q&As are new, as it is often hard to figure out what is new and what has already been sent out in other documents.

If you do lender work, read this document!!

Topics include:
– Comps with accessory units
– C&R ratings
– Comments on adjustments
– Sales over 12 months old and distance from subject – Ok to use
– Legal, non-conforming and proof of rebuilding – not required
And many more relevant and useful Q&As, including guidelines that have been around for a while, such as Net adjustments, etc.  Looks like Fannie has figured out many of the topics relevant to appraisers!!

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For many appraisers, the 1004MC comments will be very helpful:

Q16. What type of properties are to be analyzed for the data reported in the One-Unit Housing Trends portion of the Neighborhood section of the appraisal report form?

The data regarding trends to be reported in the One-Unit Housing Trends section must be reflective of those properties deemed to be competitive to the property being appraised. Additional commentary should be provided on the other segment(s) of the neighborhood when segmentation is present to aid in understanding the overall neighborhood dynamics.

Q17. Are the trends that are reported on the Market Conditions Addendum to the Appraisal Report (Form 1004MC) the same trends that are to be reported in the One-Unit Housing Trends section of the appraisal report (Form 1004)?

Yes. The conclusions regarding trends that are obtained from the Form 1004MC must be the same trends reported in the Neighborhood trends section of the Form 1004. The information reported on both forms must be consistent to provide the lender with a clear and accurate understanding of the market trends and conditions present in the subject neighborhood, based on properties that are considered competitive with the subject being appraised.

Read the additional 1004MC Q&As.

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Thanks to appraiser Dave Towne for some great comments on 1004MC:

Ever since the blasted MC Form was mandated in 2011, I’ve been saying the way appraisers have been ‘classically’ trained and used the Neighborhood check boxes on the primary forms did not mesh with the MC Form requirement.  (And in fact, I quit doing the ‘classic’ method then, and have been doing what Q16 & Q17 below say.)

I happen to believe one reason why the MC Form was instituted was that this ‘classic’ reporting methodology of reporting overall dissimilar neighborhood property trends (heterogeneous properties) did not (and does not) make sense when the assignment is to appraise a single property using comparable (or competitive) properties.

Dissimilar properties seldom have the same trend components that the comparable (competitive) properties have.  As such, they don’t need to be reported…..except as the last sentence of Q16 says …. ”Additional commentary should be provided on the other segment(s) of the neighborhood when segmentation is present to aid in understanding the overall neighborhood dynamics.”

An issue with the ‘classic’ methodology is the “predominate” value of an overall neighborhood with dissimilar properties can be much different than when only comparable (competitive) properties are used in the trend analysis.  So, when appraisers use the proper properties as outlined above, there should be no significant problems with that data point, because the “predominate” value will more than likely fall within the price range of the comparable (competitive) properties.

My comment: Finally some guidance on issues that have been driving appraisers crazy with lots of differing appraisal opinions. Now, we can use answers directly from Fannie!!

Hopefully, AMCs and lenders will use these Fannie guidelines instead of making up their own. Particulary, the guidelines that have been around for a long time that are repeated in these FAQs. You can refer them to this document.

Link to FAQs
https://www.fanniemae.com/content/faq/appraisal-property-report-faqs.pdf

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Appraisalport poll comments and results on 1004MC (from their Sept. 2 blog posting at www.appraisalportblog.com

“This month, I want to take a closer look at two recent polls – one related directly to the use of AppraisalPort and the other concerning a controversial form. Starting with the form, we asked: What do you think about the 1004MC form? This was a popular poll with a total of 5982 responses. The form doesn’t appear to be well thought of; with 66 percent of respondents selecting the answer “It really doesn’t work well and should be retired.”  Another 21 percent answered that “It is OK but in need of some updating or modifications.” It seems that the 1004MC form is going to have some trouble getting a date to the prom because only the remaining 13 percent of voters said “It still gives the client a good idea about current market conditions.”

“I did receive some additional feedback on this poll. Some appraisers just don’t like to use the 1004MC because it’s just something else that has to be done; takes more time out of the day; and may not provide accurate results – especially in rural areas. Others think it really is the first step to a more modern style of computer-assisted appraising.“

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How to stem appraiser "low tide"

By Alan Hummel, Chief Appraiser Forsythe Appraisal

Excerpt:

The topic may seem peculiar at a time when mortgage originations are down from the heyday of the early 2000s, but if the issue isn’t addressed now, a shortage of qualified residential appraisers could have a dampening effect on the mortgage market at precisely the moment when it is trying to regain its past vibrancy.

The decline in the numbers of appraisers entering the profession can be attributed to many factors including (but not limited to): qualifications and licensing requirements, the economics involved in training, and unwillingness on the part of some financial institutions to allow trainee appraisers to perform services. The most significant obstacle for many trainee appraisers is completing the 2,500 hours of required experience to achieve Certified Residential status, after the education component has been completed.

My comment: The only answer is for lenders to allow trainees to “sign on their own”.Hummel proposes a training program. But, I don’t see this happening on a large scale.  Since Fannie and Freddie started loan securitization in the 1970s, the volume of appraisals needed has been very, very cyclical. Before licensing, most appraisers were employees of lenders. Lenders solved the problem by hiring armies of trainees during boom times and then laying them off when volume dropped. Few appraisers are employees of lenders now. Fee appraisers have been expected to train new appraisers. Lenders paid them a salary and experienced salaried appraisers were the supervisors. But, fee appraisers are not set up for it – no time, minimal supervisor training, little economic incentive, etc.

Read the full article at:
http://www.housingwire.com/articles/31233-how-to-stem-appraiser-low-tide

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Fannie looking at adjustment

From AppraisalPort’s monthly newsletter

Author: Steve Costello, who attended the recent Valuation Expo
Excerpts:

“Fannie Mae’s Murphy stated that over the past year, the GSE had been focusing on “quality” and “condition” ratings of comps used in multiple appraisals by the same appraiser and found many cases where the appraiser has changed the quality and/or condition ratings on the same comparable from appraisal to appraisal.  Now, based on the examination of the Uniform Appraisal Dataset (UAD) data, Fannie Mae’s focus for the next 12 months will be on adjustments.  The data indicates that many appraisers are not using proper methodology to make their adjustments.  Murphy stated that some appraisers are still using the old standard $20-$40 per square foot adjustment on properties that are easily valued at $500-$650 per square foot.”

“Murphy explained that Fannie Mae is planning to re-evaluate appraisers based on their adjustments and the GSE will expect appraisers to comment on all adjustments if necessary. And, ‘it will be necessary,’ he said, adding that Fannie has seen a lot of under adjusting. To be safe, appraisers should document their logic and reasoning for making any specific adjustments.”

My comment: The easiest adjustment is time. Fannie got that done by requiring 1004MC. The next easiest adjustment is sq.ft. – very easy and reliable using statistics. Of course, as we all know, unless you are appraising a conforming tract home, it is very, very difficult to “prove” all your adjustments. If you know the local market makes adjustments, they should to considered in your appraisal. State regulators are looking for support for adjustments. I am seriously thinking about not using dollar adjustments for 1-4 unit appraisals. Many years ago there was a Fannie form that just required plus and minus adjustments.

I seldom make any dollar adjustments on my apartment and commercial appraisals except for time adjustments, which are easy to support. I find it very strange that residential appraisals have such a high standard. I guess it is due to the lenders telling appraisers what they have to do. I am so glad I don’t do any residential lender appraisals any more. I never like them telling me how to do my appraisals.

I don’t know how Fannie will evaluate adjustments. I make many of my adjustments on a qualitative basis as I work in an area where most homes were built prior to 1920 and are very dissimilar. I know what my market wants, and doesn’t want. If I am not sure, I ask local real estate agents. Of course, they seldom know the dollar amount.

I wonder how well “bracketing” will work for adjustment support?

click here to read the full newsletter
http://www.appraisalport.com/news_events/newsletter.aspx?id=683bbe16-bc37-4573-a436-6a680b2882e0

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Appraisers' forecast for biz in 2014

AppraisalPort Polls – 2014 biz forecast
www.appraisalport.com

Do you expect appraisal fees to change in 2014? January 6, 2014
Yes, increase substantially – 384 votes – 7%
Yes, increase slightly – 1,030 votes – 18%
Yes, decrease slightly – 420 votes – 8%
Yes, decrease substantially 230 votes – 4%
No, stay about the same – 3,227 votes – 57%
Not sure – 302 votes – 5%

Total Votes: 5,593

My comment: Looks like the majority of appraisers see stable fees. However, only a few weeks later, I am hearing reports of AMCs dropping fees, especially on broadcast orders.

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I think the business environment for appraisers in 2014 is going to be: (December 30, 2013)
Much better than 2013 – 212 votes – 4%
Better than 2013 – 516 votes – 9%
About the same as 2013 – 1,962 votes – 35%
Worse than 2013 – 1,781 votes – 32%
Much worse than 2013 – 621 votes – 11%
Too early to tell – 548 votes – 10%

Total Votes: 5,640

My comment: Looks like appraisers are unsure about 2014.
They left off my choice – I have no idea!!

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Fewer appraisers in the future – fees and turn time?

In last week’s email I reported these results:

www.appraisalport.com  poll

With few new people currently entering the appraisal profession, do you foresee a shortage of appraisers at some point?

Yes, in the next few years. 2,705 votes 47%

Yes, but it=s probably years down the road. 1,603 votes 28%

No, I don=t think we will see a chronic shortage. 1,137 votes 20%

Not sure. 253 votes 4%

Total votes: 4,818

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This is a followup to that poll

As a follow up, do you think the future shortage of appraisers will affect fees and turn times?

Yes, at some point it will. 3403 vote (70.6%)

No, I don’t think it will have much effect. 663 votes (13.8%)

No, I don’t think we will see a chronic shortage. 528 votes (11%)

Not sure. 224 votes (4.6%)

Total Votes: 4,818

Appraisal Today newsletter

Will there be an appraisal shortage in the future?

www.appraisalport.com poll

With few new people currently entering the appraisal profession, do you foresee a shortage of appraisers at some point?

Yes, in the next few years. 2,705 votes 47%
Yes, but it’s probably years down the road. 1,603 votes 28%
No, I don’t think we will see a chronic shortage. 1,137 votes 20%
Not sure. 253 votes 4%

Total Votes: 5,698

Until appraiser licensing 20 years ago, most residential appraisers worked for lenders. When it was busy they hired armies of trainees. When work slowed down many were laid off. With the cyclical fees in AMC work and many lenders not allowing trainees to sign appraisals, it is not financially feasible for fee appraisers to train.

I assume that lenders will allow trainees to sign at some time as the inevitable cycle of weak vs. strong regulations shift. I have no idea when this will happen. This is the easiest way to fix the problem. Low AMC fees when business is slow is more complicated as it reduces the financial incentive for fee appraisers to hire trainees and give them part of the fee.