Appraisal News and Business Tips

Posts Tagged future

CU – census tracts, adjustments, "bad apples", etc.

There is a lot of misinformation about CU. No one knows what will happen when CU is fully implemented. I speculate myself. I am an appraiser. I have opinions ;>

UAD is mechanical. CU is asking appraisers to think about their appraisals, not how to classify a characteristic.

For the appraisal profession, I think CU will make us better appraisers by making us take a critical look at adjustments. It will also help get rid of the “bad apples”, including appraisers that “push” values, throw anything into the form to get it out the door, need lots more training and education, etc.

I think Fannie’s main purpose of CU may be to stop appraisers from having low (or high) adjustments, inappropriate comps, using Q/C ratings, etc. to make values higher. That is what they worry about.

Only using comps from within the subject’s census tract is ridiculous and I’m sure CU will not be doing this. It is a good idea to see which census tracts match the neighborhood boundaries that you use. Or, part of Census Tracts. Then you can put the census tracts you use in your appraisal. In some areas census tracts are way out of date due to new construction, plus other problems.

To find census tracts near any property, go to http://www.huduser.org/qct/qctmap.html and type in an address.

I started my business in 1986 and had to put census tract numbers in my appraisals for the first time. I had previously worked for an assessor’s office and had never done a lender appraisal. I used Thomas Brothers Census Tract books to find them. To me, they often represented a reasonable way to delineate all, or part of, a neighborhood. Looking at the current census map for Alameda, CA, my city (population 75,000), it definitely did a good job of defining neighborhoods. However, I usually have to include more than one census tract as there is not enough data to do an appraisal otherwise. It did miss one very important neighborhood where most of Alameda’s large historic homes are located. There is a significant premium for being in this neighborhood. I very, very seldom go out of this neighborhood for comps. I suspect there are issues like this in other geographic areas. I have no idea what area Fannie would use, so I would put an explanation in my appraisal.

The problem is the forms, which were developed for use on tract homes. If you are not appraising a conforming tract home, it is like trying to put square boxes into round holes.

Every appraisal will have a risk score. A high risk score (1.0 to 5.0, where 5.0 is high risk) does not mean an appraisal is “bad”. It may be in an area of declining values or have a negative location problem. Or, not enough comps to provide a reliable value.

Remember that only certain UAD items will be considered by CU for now. If it is not UAD formatted, it will not be looked at. I don’t think Fannie’ use of census tracts will be the issue.

The Big Issue is support for adjustments. I have no idea how to support all the adjustments I make in my appraisals. I know what buyers will pay more, or less, for. But, I don’t know the exact dollar amount.

Regression is just one way to support adjustments, but it will not work for many adjustments, particularly if there are very few sales. Regression is not the only answer. There are many other methods. I will be writing about them in my paid email newsletters.

Regression works very well for time adjustments. Be sure yours are market based, not just from an MC form.

I am seriously considering not making any dollar adjustments when I use form reports for non-lending work, except time adjustments. I never make dollar adjustments on narratives and apartment form reports. My state regulator wants to see support in my files for adjustments.

Just because there is a box does not mean it has to be filled in. Qualitative adjustments are fine. There was a Fannie form developed and used for awhile in the 80s or early 90s that did not use dollar adjustments, only plus or minus signs. I worry about that a lot. The old Fannie 2-4 unit form did not have any adjustment boxes. I really hated when they changed that form to include adjustment boxes and de-emphasize the Income Approach.

No one knows how CU will work out. Will everyone turn down appraisals except for conforming tract homes? Will there be no one to do the tough appraisals and work in rural areas. When appraisers are compared, does the majority opinion win?

Will the days of 24 hour turn times and $200 fees be gone? Will AMCs stop broadcasting all appraisal orders to everyone on their fee panels? Will all appraisers be seen as the same and interchangeable? Or, will appraisers be rated on skills, education and experience? Will fees go up? Will fees be based on difficulty of the appraisal? Will lots of appraisers abandon the lender appraisal ship of fools?

Read the webinar pdfs and look at the maps from the two Fannie Webinars to see what they actually are doing. I spent lots of hours doing this, plus speaking with others about what they thought. Of course, it was for a 12-page article in my paid newsletter. Plus 18 pages of excerpts from Fannie documents and webinars. I probably would not have done it otherwise ;>

Go to www.fanniemae.com/singlefamily/collateral-underwriter and listen to Fannie’s two webinars for underwriters – very good with excellent illustrations and explanations. Plus, read the FAQs. You need to register, but it is very easy and you go directly to the webinar and can return at any time. There are lots of links on the web page for more information.

Last month’s January 2015 issue of the paid Appraisal Today newsletter had a 12-page article on CU plus 18 pages of addenda material. The February and subsequent issues will address problems such as how to make adjustments. Click the ad below for more information.

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Fannie's Collateral Underwriter (CU) will make big changes in how we do appraisals starting January 26, 2015 !!

UAD is annoying and only relates to data consistency, not appraising real estate. Collateral Underwriter, which is regression based, uses UAD data to compare your appraisals to your “peers” and Fannie’s “model”, which is regression based. It also compares the appraisal with previous appraisals you have done where the same comp was used. It compares only what is coded by UAD. In other words, it does not address pools, patios, and other non-UAD data. For example, you use $40 per sq.ft. GLA adjustment. CU compares your adjustment to your peers and to the “model” adjustment and you are different than 4 out of 5 other appraisers and the “model” has a different number.

On the plus side, now underwriters are only getting messages based on “rules”, not actual data. With CU, they will have more information to decide if something needs to be changed. I am sure that a lot of “flakey” appraisers who are not very competent, rush through appraisals too fast to get them done, etc. will be identified. More important, the really bad appraisers who may be competent but choose to use “fake” comps, change comp sales prices to get a higher value, etc. will be found out.

I am working on an article for my January 2015 newsletter on CU and am studying all the Fannie documents plus interviewing industry insiders to see what it means for you. Reading all these Fannie documents is giving me a headache!!

Go to www.fanniemae.com/singlefamily/collateral-underwriter  and listen to Fannie’s two webinars for underwriters (listed under OnDemand eLearning Courses) – very good with excellent illustrations and explanations. You need to register, but it is very easy and you go directly to the webinar and can return at any time. There are lots of links on the web page for more information.

Also listen to Jeff Bradford’s recent webinar athttps://goto.webcasts.com/viewer/event.jsp?ei=1050667 . It starts with the Big Picture of Big Data and discusses CU. It also includes information on his new Redstone report which has adjustment support and other information. Redstone can be attached as an addendum to any forms software you use. You can skip this part, if you want. But, I found it very interesting. Projected pricing is $5-$15 per report, depending on what you need. Jeff is writing an article on the Big Picture of Big Data for the February issue of the paid Appraisal Today.

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Fees and getting C/R vary widely-per www.AppraisalPort.com polls

Fees and getting C/R vary widely – per www.AppraisalPort.com  polls

As you can see above, appraisers say that 60% or more of their  clients are paying C/R fees

As you can see above, only 9% of appraisers say C/R is under $350. Yet, I suspect that many are working for under $350 fees. Looking at the poll above,  60% or more of respondents say are working for C/R fees. Are most of them doing a lot of non-lender work, VA appraisals, AMCs who pay C/R, or direct lenders?

As you can see from the two polls, they show that 60% of residential appraisers say they are getting $400 or more per appraisal. If you’re not in the 60%, its time to change.

But, somehow the results seem strange to me. With AMCs at about 80% of the lender market and limited non-lender work available (as compared with commercial appraising) who are the 60% of the appraisers working for? If it is accurate, it means there are lots of clients paying C/R fees…

If you want to get higher AMC fees, you must:
1. Ask for higher fees and
2. Dump cheap AMCs
3. Only bid on jobs that won’t take much time and have few revision requests
Why don’t appraisers do this? Fear and Greed, just like all other businesses. Fear – afraid they will never get another appraisal job. Greed – want more money now. You have to overcome this to be successful in today’s very competitive AMC appraisal market. It is your choice to work for low fees and very demanding clients.

Next month’s paid Appraisal Today newsletter will have an article on how to overcome Fear and Greed and get higher fees.

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How much time should clients give appraisers to deliver a 1004 report on a typical (not unique) property?

www.Appraisalport.com  poll results



Take the current poll at www.appraisalport.com  on c/r fees –
What percentage of your clients offers what you would consider to be customary and reasonable fees for most assignments?

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Where Did All the Good Appraisers Go?

Where Did All the Good Appraisers Go?

By Hamp Thomas, Institute of Housing Technologies

Excerpt:

As appraisal fees go downward, quality is going in the same direction. The best appraisers, who have invested years and years in building their careers don’t want to work for a company that they have to check in with every 12 hours, and get treated like a school kid in the principal’s office. An untrained and unlicensed person on the other end of the phone is making their schedule and deciding who gets paid what. And guess what – it’s going to get worse… The best appraisers are finding other types of appraisal work (that values their craft), and the appraisers that work on mortgage loans are often the newer licensees or trainees. If all this Reform we’re talking about is still hoping for higher quality appraisals for use in mortgage lending, we’re in deep trouble. The best appraisers are leaving mortgage appraising as fast as they can.

Appraisers get together and discuss how “bass ackwards” all this “reform” is, and why something that is so logical has been stretched far enough that the government is biting; hook, line, and sinker… If you want a higher quality product, you have to pay more. Look around. Do the best doctors get paid more? How about the best mechanics? The best architects? The best teachers and speakers? The best attorneys? People seek out the best and they are in such great demand, they command higher fees. This is nothing new, it’s just the way the system is supposed to work. So why do we think that appraisals should be different? The lenders, and government officials, and AMC’s think appraisers can be paid less, be required to do more work in each report, and then the quality of appraisals will go up? Come on, this is not rocket science. In most cases, when you add a middleman to any process the price goes up and the quality goes down. Ask Walmart…

http://www.housemeasures.com/ArticlePages/Where-Did-All-the-Good-Appraisers-Go–.html

My comment: AMCs, and the lenders that hire them, see all appraisers as the same. Why not go for the lowest fee? Yes, there are direct lenders who care, and big lenders who have “special lists” of experienced and well trained appraisers, typically for high end homes or people who are top bank customers. Those appraisers are paid much more than the appraisers who compete on fee.
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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!!

—————————–

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.

——————————
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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Mortgage forecast – loans predicted to drop 30% in 2014

Mortgage forecast – loans predicted to drop 30% in 2014
Mortgage Bankers Association, September 2013

Commentary (9/24/13)

Excerpt:
We expect housing starts and home sales to continue to
increase, as home prices continue their recovery. Rising rates have already caused refinance activity to drop significantly, but home buyers who are able to and need to purchase a home will likely adjust accordingly in the current rate environment to complete their purchase. The Fed’s delay in tapering asset purchases has pushed rates down slightly, but we expect
that this is just a pause and rates should continue to increase in the coming months.

Our forecast is for mortgage originations to total $1.6 trillion in 2013, with $989 billion in refinances and $616 billion in purchases. Originations will drop to $1.1 trillion in 2014 as refinances drop to $388 billion, while purchase originations should continue to increase to $703 billion.

2013 actuals and forecast – mortgage loans – in billions
Q1       Q2      Q3       Q4
482     494     369     260

2014 forecast
Q1       Q2    Q3    Q4
251     283     290     267

Interest rates – in percent
2013 actuals and forecast
Q1      Q2    Q3    Q4
3.5     3.7     4.6     4.8
2014 forecast
Q1      Q2    Q3    Q4
4.8     4.9     5.0     5.1

For the full MBA finance commentary, go to
http://mbaa.org/NewsandMedia/PressCenter/85717.htm

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