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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd takes a bird’s eye view which is straighter than the way a crow flies about enhancing reports with photos from sources like Google Earth as an alternative to boilerplate text. …Jonathan Miller

Appraisals that are deliberate attempts to mislead are generally effective not because of the information that is communicated in the report, but because of that which is not. The client may be in another part of the country and have no direct knowledge of the area in which the subject property is located. He is completely dependent on the appraiser in that he only “knows” what the appraiser tells him. An unscrupulous appraiser may state “the subject dwelling is part of an established residential neighborhood”, when in fact the subject is on the outside edge of the established residential neighborhood, just as it transitions to an industrial area. The client may want to know (then again, maybe not) that the subject is across the street from, say, a piggery.

If we are serious in our concern about minimizing the number of misleading, inflated and fraudulent appraisals then we should be taking greater advantage of existing technology, such as Google Earth which has the added benefit of improving the overall quality of appraisals done by reputable appraisers. Let’s face facts here and recognize that even if you don’t consider yourself a “form-filler” (as Jonathan Miller derisively refers to the lowest among us) you’ve got to admit that most of the narrative parts of any appraisal report consist of boilerplate (with only minimal deviation) starting with the Neighborhood description and going right on through to the Reconciliation, and finally – the always scintillating – Certification and Limiting Conditions. Most of the verbiage in a FANNIE MAE appraisal, even one which is well written, consists of the same insipid pabulum that few clients read even the first time they see it (and never again thereafter).

On the other hand, everybody likes to look at pictures! All Yankee fans (and a lot of other people) will recognize this one as the House that Ruth Built.

A picture is worth a thousand words. Most appraisals would benefit from fewer (meaningless) words and more (insightful) pictures. By utilizing the “layering” effects available in GIS based systems like Google Earth, the appraiser can replace his generic Neighborhood Description with a uniquely specific, Neighborhood Illustration.

Appraisals should include two aerial photographs of the subject, one from 1,000 and another from say, 10,000 feet – with the subject property displayed at the center. This is easily doable with Google Earth. By looking at these photos it’s very easy to see how the subject conforms, or doesn’t, with properties around it. There’s no better way to examine externalities, changes in land use, density, size of buildings, etc. than by looking down from above. Until recently, you had to be in an airplane on its final approach to see a neighborhood from this perspective. Thanks to Google Earth, the flyover is “virtual” and you are at the controls (I know what you’re thinking. These photos are not in “real” time and therefore not necessarily accurate representations of the landscape. True enough, but unless there’s been a recent tsunami or comparable disaster, they will be plenty accurate enough to do the job for which they are intended.)

The photo addendum should include the roof top view in addition to the usual front and rear of subject, street scene and interior rooms. The same is true for the comparable sales a view from the sky taken from the same “eye level” as is used for the subject.

The list of potential applications for GIS systems like Google Earth to the appraisal profession is nearly endless and if you’re not using it yet, you should be. Best of all, the basic version is free.

Tags: Soapbox Blog, Todd Huttunen, Appraisal Process, Mortgage Fraud, Appraisal Forms, The Hall Monitor

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Commercial Grade is a regular post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. This week he laments how low the appraisal profession has gone, and even worse, he confirmed it through spam.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is one of the smartest guys I know. …Jonathan Miller

Like most people my Inbox gets jammed with spam on a daily basis. The other day, however, I got the ultimate in junk mail: a solicitation by a firm to punch data into your residential appraisal forms, all for the bargain fee of $15 per file. The services provided:

The fees:
– SFR $15.00 PER FILE
– CONDOS $15.00 PER FILE
– 2-4 UNITS $25.00 PER FILE
– REO $20.00 PER FILE
– DRIVE BY APPRAISAL $10.00

I am all for free enterprise, and if there is a need for someone to run your mapping program and punch in your comps for $15 then, who knows, the next McDonald’s may be born. But my initial reaction was to shake my head sadly and think how low the profession has sunk since I entered 23 years ago.

While we’re all striving to incorporate new technologies to make our appraisals more efficient, I just don’t know if subcontracting your drive-by for ten bucks is the answer.

Tags: Soapbox Blog, Appraisal Forms, Commercial Grade

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A series of forms are being released by the [Appraisal Institute] to address the needs of its members will be ready for use on January 1st 2006. Its the first of a series of new forms in development. The revision of all residential appraisal forms by Fannie Mae on November 1st 2005 are not usuable for purposes other than for mortgages unlike in the past. It will fill the void since software vendors would likely discontinue their support for the old FNMA forms in the future. Its a valient effort and the forms look great.

Download a sample watermark protected copy of the form [AI – pdf].

On a lighter note, the final form does not appear to have the complete copyright text at the bottom. You might see that type of presentation on a web site with a link to more disclaimers. You usually see “all rights reserved” as a suffix, but I am not a lawyer. 😉

The forms are tailored toward their members with their logo and have checkboxes for designations, etc. Understandably self-serving so I predict that they will not be universally accepted as a replacement. The opportunity remains for others to develop forms for non-lending purposes.

I think the Appraisal Institute has been short sighted from a marketing perspective and likely squandered an opportunity to make these forms the standard to be used by all. The advertising on the form will only be to their own membership which has its purpose but does not gain new members. A subtle notation at the bottom of the form would have been a far more powerful marketing tool.

Tags: Soapbox Blog, Appraisal Process, Appraisal Forms

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In Erick Bergquist’s article GSEs Restructure Appraisal Documents to Clarify Liability [American Banker], he discusses growing appraisal and mortgage fraud, both GSE’s are requiring the use of new appraisal forms to be more direct on who has the responsibility (liability) and therefore make it easier for Fannie Mae, Freddie Mac and state licensing boards to go after the bad apples.

Here’s the portion of the article that expresses my concern over the false comfort that this action will provide. FNMA is under incredible pressure right now from many different angles so I believe they are anxious to promote this as a step in the right direction, to show they are doing something about fraud. Well it is a right step. I just hope its not the only step.

Jonathan Miller, the president of the New York appraisal firm Miller Samuel Inc., said he had mixed feelings about the changes.

That certification, as it is worded, could significantly increase appraisers’ liability to almost anyone else in the mortgage process, he said.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud, Appraisal Forms

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In last week’s post Cutting Through The Fog: Dependency On Proprietary Standards Is Not Good For Business [Soapbox], I referred to the strange press release from ACI actually announcing they did not renew their agreement with several vendors.

Apparently Appraisal.com and Day One have released their own press release explaining their side of the story [Appraisal Buzz]. The press release headline “Accelerated adoption of MISMO & AI Ready standards makes Lighthouse format increasingly outdated” says it all and further indicated that ACI’s move would only affect 5% of the 40,000 appraisers that use their service.

This back and forth positioning between these vendors seems to drive home the point that proprietary formats for collaberation or exchange of data is not good for our industry because it makes all of particularly vulnerable to the health or strategy of the licensor. An industry open source format is the better way.

Can you imagine the commercial appraisal world without Microsoft Office? It can be unstable, buggy, expensive to upgrade and annoying to use at times but there are limited alternatives, primarily because both the user and the vendor must use the same software or have a working translator. Competitors were crushed a long time ago.

I am not happy with a business world without competition in software. Innovations and improvements wane over time. We all lose.

Tags: Appraisal Management Companies, Soapbox Blog, Appraisal Process, Appraisal Forms

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Today I received a press release ACI Does Not Renew Lighthouseâ„¢ Agreement with Appraisal.comâ„¢ [AppraisalBuzz] that announce the termination of the licensing agreement for its Lighthouse product for use with Appraisal.com, Day One and Nova users. ACI will provide upgrades for those users to switch to ACI products.

It is curious why this announcement was done as a press release. That seems to be unprecedented.

Its not apparent why this limitation would be trumpeted to the appraisal community unless is was done to sell more upgrades. However, this is only speculation. I don’t know the reasons for the decision besides those publicly stated as being in the best interests of ACI users.

If true, the strategy is quite logical. If Lighthouse was the standard for electronic data transfer for the appraisal industry over the past 7 years as the release says, then it could be advantageous to pull the plug on competitors and peripheral companies as the industry begins to rely exclusively on it and there are few alternatives. Users are forced (or urged with discounts and deadlines) to quickly switchover. One alternative to this prprietary format is the PDF format which is associated with Adobe. Most lenders accept this format and have developed OCR applications to cull key pieces of data from the documents. However, with PDF, the raw data does not stream to the client (which they can use to analyze and give to other appraisers).

I remember when appraisal software began to ramp up 15-20 years ago, some lenders would opt to go with a proprietary format and the appraiser would be forced to use it or lose the client. Appraisers were often running two or three software packages simultaneously. We would decline working for a lender because we did not want to run a particular software package. It seemed to me that the line was crossed when a lender would force me to run a type of software for their convenience since I had many other clients that used different packages. Kinda like, Are you a “Ford” truck owner or a “Chevy” truck owner.

Products like Lighthouse came out and made this practice obsolete but as time has passed, history may be repeating itself as it remains one of the few methods of EDI delivery of appraisal reports.

This situation brings to mind the problems with over-dependence on proprietary formats:

• They require ongoing licensing fees
  
• Vendors are subject to the whims of the licensor
  
• Users are eventually afforded fewer market alternatives
  
• Industries depend on the health of the company that is the primary licensor
  

Tags: Soapbox Blog, Appraisal Process, Appraisal Forms

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The new appraisal forms mandated by Fannie Mae effective November 1 will likely cause an increase in appraisal fees [MCall] because they will take longer to fill out and place much more liability on the appraiser for expertise he or she generally doesn’t have.

When Fannie Mae redesigned the forms, the appraiser’s role took on the that of a home inspector which is a different discipline that appraisers are not trained for.

The problem is the new forms are written in such a way that they hold the appraiser responsible for the condition of the property, says Barbara Decker-Spence, an appraiser in Allentown, who has led seminars on the changes for area real estate agents, lenders and appraisers.

”I am an appraiser. I am not a home inspectorand there’s a big difference,” she explains. ”Appraisers value the economic interests [while] home inspectors look at: Does the electrical system work? Does the plumbing work? Does the mechanical system work and are there structural issues?”

If report preparation takes longer and additional liabilities are being placed on the appraiser’s shoulders, it would then follow that the cost of doing business is higher. Appraisers in many markets could be expected to pass along the cost to their clients.

Tags: Soapbox Blog, Appraisal Process, Home Inspection, Appraisal Forms, Appraisal Fees

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There has been a lot made of the new forms released by Fannie Mae. The idea was to make the forms for different housing types similar and therefore easier to complete and review. The new forms require more detail (read between the lines: higher appraisal fees) for their completion.

“We expect these forms will result in more accurate and fully supported appraisals,” [Rutlan Herald] said Joseph L. Minnich, spokesman for Fannie Mae, the nation’s largest mortgage buyer.

Don’t get me wrong. I am a big advocate for full disclosure on appraisal forms. This was a big effort by Fannie Mae and I appreciate that effort. However, providing these new forms for primarily this reason strikes me as naive, indicating they do not fully understand the problems that exist or there is another reason altogether for their implementation.

I suspect its a little of both. Dishonest appraisers or those who “play ball,” will simply keep doing what they have been doing…there is simply more on the form to fill out (and who says it has to be filled out correctly?). Fannie Mae has been under tremendous heat for questionable accounting practices and perhaps this is another way to show they are good citizens. Also, since the housing market has been rising so rapidly, they need to position themselves for litigation against faulty appraisals should the market correct sharply.

The language of the several page limiting condition is written poorly – poor grammar that is – and the language of the disclaimers is written so broadly enough that it doesn’t protect the appraisers and basically paints a bullseye on all of our backs. Lawyers need very specific language in disclaimers to feel comfortable, not generalities. Canned responses can’t address all issues around the country.

Also, why were the new forms made so they can not be used for other purposes? I realize this is not their obligation. However, these forms were the universal standard that everyone knew and trusted. They worked great for non-lending work. I predict that most software vendors will not likely to continue supporting them in the not to distant future.

There will be other forms developed, such as the Appraisal Institute’s version and others but I suspect most will require licensing by software vendors and there will not be one that is unversially adopted like Fannie Mae’s was.

The new forms are definitely a step in the right direction, but a very small step that provides a false comfort against fraud. I would expect very little change in the current status quo.

Tags: Soapbox Blog, Appraisal Process, Appraisal Forms

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Fannie Mae clarifies certification #23 on the new forms put into effect on November 1st [Appraisal Institute]

“Addressing concerns of appraisers over the ‘intended user’ elements of its latest Uniform Residential Appraisal Report, Fannie Mae has issued a clarifying statement, based in part on input received from the Appraisal Institute. Mark Simpson, Fannie Mae’s director of property standards said, ‘Recognizing that there may be confusion in the appraisal community about the distinction between parties who use’ and parties who rely on appraisal reports,’ Fannie Mae has developed the following additional notice or statement that it will accept when the appraiser believes the Lender/Client is the only Intended User:”

The Intended User of this appraisal report is the Lender/Client. The Intended Use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated Scope of Work, purpose of the appraisal, reporting requirements of this appraisal report form, and Definition of Market Value. No additional Intended Users are identified by the appraiser.

Fannie Mae will not accept other versions of this disclaimer. Their position is that there is nothing wrong with Certification #23 but has admitted there has been a lot of confusion over the matter.

This has been controversial since the new forms were released [Working RE]. They are attempting to make the appraiser more accountable for the quality of the report and this is one of the ways FNMA thinks this will get the job done.

Before the fix, the appraiser was definitely facing unfair liability, however, with this fix, I feel more comfortable with its fairness.

Tags: Soapbox Blog, Appraisal Process, Mortgage Fraud, Appraisal Forms

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The association had serious issues with the certifications on the new Fannie Mae 1004 forms and within the other forms developed at the same time concerning the intended use and intended users [PDF]. They drafted a resolution on October 10, 2005 to Fannie Mae:

“And whereas serious concerns were raised that the new Fannie Mae Form 1004 certification #23, and similar certifications in other recently revised forms, are potentially misleading and contradictory without supplemental clarification;

And whereas the Appraisal Standards Board (ASB) has provided guidance through its July 2005 Q&A and the ASB provided further confirming clarification at the AARO 2005 annual fall meeting;

And whereas State appraisal regulatory agencies are charged with enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP) that requires appraisers to clearly and accurately identify intended use and intended user(s);

And whereas the above referenced Fannie Mae forms, as currently written, can be viewed to identify persons that “may rely” on appraisal reports beyond those identified in the forms as intended users;

Now therefore let it be resolved that the member jurisdictions of AARO wish to reiterate that regardless of Fannie Mae’s position that “modifications or deletions to the certifications are not permitted,” it is the appraiser’s responsibility to comply with USPAP. Therefore, appraisers must provide supplemental clarification in their appraisal reports regarding specifically who the intended users are.

WE, THE UNDERSIGNED, by unanimous vote of the attached list of AARO member jurisdictions, call upon Fannie Mae to address this issue, recognize the potential problem the matter creates for the real property appraiser regulatory officials, and take immediate corrective action to resolve the item(s) listed.”

Tags: Soapbox Blog, Appraisal Process, Appraisal Forms

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And I feel fine…

The new Fannie Mae forms start this Tuesday November 1. Its days like this I realize how fun it is to be an appraiser. The form is being changed for reasons I still can’t explain. In fact, nearly all the forms are being changed at the same time. Something about conforming to changes in USPAP, forcing more thorough reporting, catching flips, etc.

I am sure software vendors are thrilled, appraisers are annoyed and lenders are frustrated. I love change. I love new things. However, this could be a potential fiasco in the making.

What day does use of the form begin? I am getting all kinds of instructions on when to start using the forms from my clients. The required use of the new form should begin on November 1 based on (per my clients):

The effective date of the report? (I am going with this)
The order date of the report?
Anything you have inhouse from that point on?

Here’s a few issues to consider.

1. Fannie Mae does not buy all the paper that is sold to the secondary market. I understand that a number of these investors may not want appraisers to use the new forms. They are under no requirement to use them.

2. Appraisers will be using the re-sending appraisals on the new forms that have already been delivered on the old form.

3. I took this opportunity to launch an entirely new software application we developed with the new forms in it. Training for us will be doubly hard.

4. This has been a revenue opportunity from trade groups and individuals to sell books and promote seminars, which makes the whole conversion even more scary (when it really isn’t).

5. Judging by how hard it was for many lenders who optically scan incoming reports when they went digital, I suspect this won’t be much better.

6. We will be managing more forms now since Fannie Mae made sure that these new forms would not be appropriate for any other use by including a series of poorly worded, extensive liability pitching to the appraiser, limiting conditions. Rest assured, we have all been told its no big deal.

On the bright side, I suspect most appraisers will expect to be compensated for the additional work and frustration. The new forms require more information and add more liability, some of it unrealistic, in addition to the cost of new software upgrades.

At the end of the day, we will all survive and get the reports out the door, perhaps late and incorrectly, but we will figure it out as we go on our own.

Tags: Soapbox Blog, Appraisal Process, Appraisal Forms, Appraisal Fees

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For some reason, Fannie Mae was inspired to change ALL the appraisal forms they use, effective November 1, 2005.

This will be a painful conversion process for most appraisers and will generally be met with skepticism for a few reasons:

• Cost – The new FNMA forms seem to be written to prevent other traditional uses such as appraisals for estate, trust, litigation, divorce and other purposes. The Appraisal Institute, in good faith and possible anticipating a revenue stream, has created AI Reportsâ„¢ Residential Summary Appraisal Report Form. The press release sounds interesting, but Letter Sized formatting for a professional versus legal look? Commercial appraisers generally write letter sized narratives and residential appraisers do not. Think of the thousands of appraisers out there all set up to use legal documents. Once again, the orientation of the AI remains for commercial appraisers. This new form is being developed by all the major software vendors.

Here’s a radical idea. Keep using the old FNMA 1004, 1073, 1075 and other appraisal forms for non-lending use. They are USPAP compliant and appraisers already have the software. I want to see how this shakes out before I consider using the AI form.

• Liability – The new forms hard code pages and pages of liability pitched back to the appraisers. I call these the silent killers. The text is not that well written creating more confusion to the reader.

• More data to present – The forms harp on days on market type stats for all of the comps and lots of other detail. In a perfect world, this is great stuff, but the reality is that many markets do not have this level of detail. The added time spent to collect this data warrants a fee increase, yet that likely won’t happen. As a result, we will all get used to inserting Not Available in many of the fields. Again, good intentions by FNMA to catch “flipping” but unrealistic implementation. Bad appraisers will remain bad.

• More headaches for lenders using OCR software – Some national lenders fought the introduction of these forms, an unprecendented quantity at one time, because all their OCR scanning software and back office systems have to be re-designed to input this information.

Tags: Soapbox Blog, Appraisal Process, Appraisal Forms

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