153 comments
The state law of Virginia $ 54:1-2013 that was adopted in 1990 grants the Real Estate Appraiser Board unique and wide ranging powers.
”The Board shall have all the powers of a regulatory board under Chapter 2 ($54:1 et seq.).
“The Board may do all things necessary and convenient for carrying into effect the provisions of this chapter....and ALL things required and expected of a state appraiser certifying and licensing agency of Title 11 of FIRREA of 1989.”
I was around in 1989 and 1990 when this legislation was drafted, discussed, and passed by the Virginia Legislature. In making and interpreting laws and regulations, it is important to understand both the letter as well as the intentions behind those rules. Title 11 was imposed as a result of the Savings and Loan crisis. The law was meant to grant wide-ranging authority of appraisers and licensing in Virginia.
Over the last decade or so, it appears that the VREAB has been misguided and mislead by the DPOR staff. It appears that staff has determined it is under similar restraints as other boards. This is not the correct interpretation. It might be easiest for Staff, but it is not accurate. These powers were granted in order to insure public protection of the right of home ownership and guard against predatory lending. The hesitations shown by Staff May have led to the fact there is no DPOR director currently. Could this be a result of JLARC’s report?
Now we have a Proposed Guidance Document About Hybrid Appraisals where unlicensed, unregulated, unregistered, uninsured people who have already identified themselves as appraisers to gain access to unwitting targets. This is illegal, in my opinion.
This document is poorly conceived and composed. This document clearly is an attempt to further usurp the Board’s rights and responsibilities. It was my understanding that stakeholders were to assist in this draft. To my knowledge, no practicing residential appraiser was consulted. Who did Staff collaborate with then?
This document goes further in eroding Board protections and oversights it was mandated to carry out.
Appraisals are to be done under an Appraiser’s DIRECT SUPERVISION!
The proposed guidance document does not meet the definition of a guidance document in Town Hall. It merely restates the language in statutes and regulations in paragraph form. It fails to provide any meaningful direction, guidance or interpretation.
54.1-2009 defines an appraisal as an analysis, opinion, or conclusion relating to the nature, quality, value or utility of specified interests in, or aspects of identified real estate….
The inter-twine of statutes and definitions between AMC and appraiser statutes and regulations is confusing. Although USPAP does not require a physical observation of the subject, when one is completed for the purpose of obtaining information for an appraisal, common sense tells us it is part of the appraisal process and should be completed by the appraiser.
The VREAB is encouraged to remember why licensing of appraisers occurred after the savings and loan failures of the 1980s. FIRREA was passed to protect consumer trust in appraisal practice. Moving backwards with unlicensed activity defies common sense and logic. It is harmful to public trust, the housing market and the economy.
Appraisers have already heard stories from agents that the person coming to observe the property identities themselves as the appraiser. Allowing unlicensed, uninsured, unregulated individuals into a consumer’s home; walking through each and every room, poses a risk of safety to the consumer. What recourse does a consumer have if something goes awry?
Pressure on appraisers to complete these products is increasing and best practice is to address the concerns proactively, rather than through disciplinary actions. The VREAB is encouraged to provide meaningful direction and interpretation of the statutes and regulations they are charged with enforcing.
Thank You.
I am a practicing appraiser in North Carolina and appraisers in our state as well as many others are tackling this issue of "hybrid" appraisals. The GSEs are making the property inspection or as they call it, "property data collection", a separate function entirely from the valuation and completed by a non-appraiser. These inspections, however, ARE being conducted for the purpose of being utilized in the development of a subsequent appraisal. As such, it is a generally accepted concept that such inspections should be conducted by an appraiser or their trainee. To develop a new, unregulated process appears to be an effort to circumvent licensing authorities and the responsibilities appraisers have to not only abide by credible and reliable development standards, but also to protect the public trust. These are serious issues that need to be addressed as well as what would be considered "reliable" in light of the fact that these inspections are not public records from a reliable source, are not a homeowners opinion or report whcih an appraiser can understand the nature of. These are inspections completed by actors that have various amounts of training, if any, and have no prohibition against bias, liability for misreporting or ignoring or enhancing items found on an inspection, etc. They are also under no requirement to be licensed. If there is any way that the Virginia Board, in their efforts to issue guidance, could address, it would be very helpful to other states and their appraisers.
I am from State of Louisiana and we are also trying to address the issue of hybrid Appraisals. The dialogue is pointing towards modernizing the appraisal process; however, the part of the discussion that continues to be missed is how does this improve the appraisal. The appraisal completed by a professional appraiser is the only independent part of the process of buying and selling real estate. The buying of a home is an emotional experience and the appraiser that visits the property has the knowledge and experience to understand what is important to physically view that a computer cannot determine. Having a person that does not understand the entire appraisal process gather information to submit to an appraiser could be completely misleading to the consumer that is going to be responsible for paying back the loan on the property that is being appraised. This new third-party inspection process also holds no responsibility to their actions as the appraisal would be completely responsible for the report that they are signing therefore why would it be beneficial to have an unknown third-party entering someone else’s home.
The third-party inspection services may sound like a good idea; however, there is already a method of “third-party inspections“ call the trainee program where the trainee Appraiser works under the direct supervision of a certified appraiser and learns and understands the process of a site visit and how it ties into the overall appraisal process. This is where the hybrid model misses the mark. If there’s anything that Louisiana can do to assist Virginia please let us know .
I just finished reading over the proposed Guidance Document for Hybrid Appraisals. My understanding of a hybrid addpraisal is that the information is pulled from a number of sources, some of which the signing appraiser may not have access to in order to verifiy the information provided. As a certified residential appraiser, I keep going back to 18VAC130-20-180. Standards of Professional Practice relating to the Use of signature and electronic transmission of report. 18VAC130-20-180. Standards of Professional Practice. The information contained in the report comes from different sources, including, but not limited to, other appraisers. Without being able to question the other appraiser about his/her findings and opinions, it would be a violation of USPAP to sign the appraisal report because the licensee could not honestly sign and send electronically the report because he/she could NOT exercise complete direction and control over the report. Personally, I would not put my signature and risk my license and livelihood on a report that I could not personally verify. See Below:
C. Use of signature and electronic transmission of report.
1. The signing of an appraisal report or the transmittal of a report electronically
shall indicate that the licensee has exercised complete direction and control
over the appraisal. Therefore, no licensee shall sign or electronically transmit
an appraisal which has been prepared by an unlicensed person unless such
work was performed under the direction and supervision of the licensee in
accordance with § 54.1-2011 C of the Code of Virginia.
Until FNMA released their version of a test format for hybrids (1004P) there was not one hybrid form appraisal process and online form reporting system found that was not egregiously misleading in the entire country. Not one. Not Clarocity's; nor Clear Capital's or Mueller Inc. .
A "typical hybrid" sample follows.
http://appraisersblogs.com/clearval-value-hybrid-appraisal
Not those crafted in Hyderabad, Pakistan for $8 Billion for just one year's Wall Street Investments (as published by Cezary Podkul Wall Street Journal) where the preparers claimed to be able to produce 360+ per day by illegally using broker login credentials from state-licensed brokers in America. The entire hybrid concept is predicated on fraud.
When the term hybrid was first introduced it started out as an evaluation in order to sidestep FIRREAs and USPAP & state regulatory limitations on non-appraisers offering professional appraisal opinions. That was not desired by the hucksters that sell loans securitized by those garbage reports.
So the definitions of different appraisal types were changed-along with the scope of work rule so that (Restricted Use) desk reports could now be mislabelled as "Appraisal Reports."
In the face of nearly universal appraiser resistance (other than the appraiser owned high volume low fee national value factories); a counter (pro hybrid) sophist argument was put forth. That third part inspections are no different than our old traditional 'third party' trainee inspections used to be. Back when lenders allowed properly trained assistants to be used.
The argument was and remains false. We personally trained our assistants "in the old days". They also had trainee licenses so they had a stake in preserving professional integrity and standards. Before licensing they had a burning desire to become great, reputable appraisers respected by their peers. Once adequately trained, we still interviewed them about every single property they inspected on their return to the office. We consulted with them in detail. We BOTH signed certification and the appraisal reports. We knew who and what we were cosigning for.
Hybrids are not the same. Advertised as 3rd party broker or other professionals inspections, they are uniformly performed by very low paid, untrained property 'inspectors' using a checklist-but with no appraisal training and skill. Boilerplate is inserted saying things like "The appraiser deemed the property inspection report by (for example) Mueller, Llc to be credible." They won't even list the unnamed, untrained inspector. Are they instead claiming the whole corporation inspected the property?
One originator of hybrids was First American Real Estate Services-just before they bought the number-two appraisal software company 'ACI'. Their early attempt at a hybrid was so egregiously deficient that the Appraisal Sub Committee and related regulatory agencies had to step in and stop it. First American used to be CoreLogics partner which combined was effectively a monopoly.
Specialty niche lenders did not wait for FNMA or anyone else to suggest a form or format where hybrids MAY be credible products. They attempted to impose their fees and format and completion time requirements on the marketplace to establish low turn time and cost expectations. The ordering requirements on these do not meet the most basic requirements under Dodd-Frank to be independent or reasonably compensated for.
FNMA has introduced a test form which could be made to be USPAP compliant. I estimate it would take a minimum of four (4) working hours to credibly complete. Hybrid hucksters market their product as being able to be completed in from fifteen minutes to about forty-five minutes. Even using regression or AVMs to auto-fill the reports would not permit a USPAP compliant appraisal and report to be completed in one hour. That's not even enough time to research ownership rights; or current zoning and development standards, and it is especially not enough time to verify and analyze online mls data in sufficient detail to credibly compare properties or derive specific adjustments from the marketplace.
Especially if the appraiser doing the work on a property in Falls Church, Reston or Chantilly property is himself located in Pahrump, NV or Paducah, KY .
Having only a potential to be completed properly does not mean the FNMA hybrids are likely to be properly completed. That depends on Virginia regulators. If you allow NON-Virginia appraisers to desk appraise property in Virginia from other states you will have failed to protect the People of the Commonwealth completely.
If you must approve some format of hybrid use, then I urge you to follow New York and or Illinois rules. Require that the property inspector can ONLY be a licensed appraiser or licensed appraiser trainee; and that they too must disclose the extent of their inspection and sign the appraisal and the certification. Afterall if it is all done online, how tough can that be?
Establish a pragmatic C&R fee for both inspector (not less than $100 for inspection if they are to adequately inspect the property) and not less than 50% of the VA C&R non-complex 1004 full appraisal fee for the desk appraiser, as was established by the Richmond Regional Veterans Center for real appraisals. I personally think it should be $100 per hour x four hours, but Virginian appraisers and regulators will have to decide that for themselves. Just because its called a hybrid, does not mean Dodd-Franks C&R requirement does not apply.
The public and appraisers are watching both state and federal regulators closely. The greatest risk to real estate markets does not take place in identified difficult markets. It comes during the good times; as common sense protections are stripped away one by one in the interest of 'progress' & business facilitation. Loans collateralized by hybrid appraisals are the new sub-prime fiasco of this decade.
Respectfully submitted on behalf of our own Virginia Appraisal Guild Members, and our friends and professional associates at VaCAP;
M.F. Ford, Chairman, National Appraiser Peer Review Committee / V.P. Special Projects, American Guild of Appraisers, #44 OPEIU, AFL-CIO
http://www.appraisersguild.org
The words of the laws and regulations do have meaning; the intent of the law and regulation is the true meaning. Our laws and regulations were put in place to provide consumer protection. This is a direct result of bad actors causing an economic crash. Hybrid appraisals create unnecessary risk for the citizens of Virginia, the housing market and the economy. Those promoting hybrid appraisals claim they will save time and money. The claim of an appraisal shortage has also been exploited. Warnings from attorneys and investor rating firms such as Moody’s and Bloomberg have been made publicly that these products are dangerous and open up huge liability concerns for all involved. The purpose of a hybrid appraisal is nothing more than profitability at the expense of consumer protection.
Virginia laws and regulations require licensing. References to direct supervision of unlicensed individuals assisting and complete direction and control over the appraisal are part of those laws and regulations. In the case of an amc, the law requires they only engage licensed appraisers.
Unfortunately there is no standard hybrid appraisal format. The GSE’s have stated they are a “pilot test program” and have developed the 1004P. This is basically the first page of the current 1004 form. The information requested on the 1004P is more than factual property characteristics. Highest and best use, effective age, conformity to the neighborhood, etc. are all opinions about aspects of the real property and are an appraisal by definition. These opinions and conclusions are significant in developing a credible appraisal of the property. Most amcs have created their own proprietary on line form and some of these products automatically integrate sales, graphs, photos and other data into the report. How does an appraiser comply with the requirement of complete direction and control?
The proposed guidance document presented does not provide confidence to a licensee these products, by general nature or otherwise, comply with Virginia laws and regulations. The samples of hybrid appraisals presented at the VREAB Hybrid Appraisal Committee Meeting certainly raised concerns by those present and additional samples that have surfaced since have not eased those concerns.
The Governor of New York signed into law AMC legislation (S9080) that prevents an amc from engaging/employing or contracting with anyone other than a licensed appraiser. The language in this law is similar to language in Virginia’s law. The intent of both the New York law and Virginia’s law are the same. The law can be found at: https://nyassembly.gov/leg/?default_fld=&leg_video=&bn=S09080&term=2017&Summary=Y&Actions=Y&Text=Y
Additionally, the State of Illinois provided guidance on hybrid appraisals to its licensees in the February 2019 newsletter. Their guidance was clear on what is and what is not acceptable under Illinois law. The Board should consider a similar approach in moving forward with guidance to licensees. The newsletter can be found at https://www.idfpr.com/Forms/DRE/RENews/IDFPR%20Monthly%20Newsletter%20-%20February%202019.pdf.
I am probably one of few if any appraisers who have been personally affected by a hybrid appraisal. I purchased an investment property that a hybrid appraisal was ordered on through an Appraisal Management Company (AMC). The AMC then employed an "inspector" from a third party who performed the actual physical inspection of the subject. The inspector identified himself as the appraiser to the buyers agent and completed the inspection. The report was in fact signed by a differently named appraiser/person located a great distance from the subject and who never inspected the property per the signed certification. The results of the report were misleading and although the loan was able to close I chose to privately engage the services of a local certified appraiser to perform an additional valuation. The results between the two were painfully obvious not only from someone with experience but to others within the financial field, including those who ordered the hybrid and are debating whether to revert back to a conventional appraisal. From somebody who has experienced both sides of this matter, I can firmly say that not only are hybrid appraisals betraying the public trust, they are and will continue to contribute to a financial crisis. Allowing an untrained, unlicensed, unvetted, and uninsured person to prepare an inspection report to provide to an "appraiser" in an entirely different area of the state who then develops an "appraisal" is a great injustice to the many licensed and certified appraisers of this state who have worked tirelessly to promote and maintain public trust.
Please, re-read Michael Ford's comments because he expresses my sentiments exactly. I am bombarded daily with emails from AMC asking me to join their panel of hybrid appraisers to prepare this type of misleading and fraudulent report for various "clients". I am ethical and work hard to preserve this profession in order to protect the public. Allowing these types of reports misleads the intended user and puts the public trust at risk.
Thank you.
I would like to add our actual experience with hybrid appraisal assignments. I work with a firm of appraisers. We have worked with two AMCs over many years and have completed hybrid assignments for lower risk second mortgages and home equity lines of credit. I applaud the lending institutions who ordered these assignments instead of relying on a less credible evaluation.
In both cases, licensed real estate salespeople provided current photos and very basic information about the subject and site. My understanding is that both the real estate salesperson performing the "inspection" and the appraiser must be geographically competent.
Our experience overall was that we simply could not rely on the information provided by the "inspector". We often had to override their provided data. We had to verify every detail because the information provided was not always impartial, objective and unbiased. It appeared to us that negative aspects of the subject property were sometimes ignored or overlooked and most comments were highly generic with only favorable commentary. Maybe this is a flaw of using someone whose job it is to sell residential real estate to provide factual data, including accurate condition that would include negative influences, regarding a subject property.
I agree that the inspection piece of the hybrid assignment should be under the control of the appraiser to ensure accuracy of the data.
Most respectfully submitted.
On June 13, 2019, Clear Capital, an AMC operating nationwide and licensed in Virginia, sent an email to appraisers on their panel, regarding their hybrid appraisals. In the email, they admit that their third party ‘inspectors’ were providing appraisal opinions by commenting on the quality and condition of the improvement. They added, “1. This is an admission that inspector were previously offering appraisal opinions re Q&C. 2. There remain many other areas in hybrids that also are appraisal opinion being provided by non appraisers”. They went further to suggest that appraisers add the following in their report: “Clarification on Scope of Inspection: Per the scope of work identified, the interior and exterior inspection was not completed by the appraiser, however, was completed by the above named inspector who collected the information through an interior and exterior inspection. The information provided is deemed sufficient to comply with the requirements of the scope of work.”
None of the hybrid reports I have come across were USPAP compliant (see links of published hybrids below). None of the appraisers stated the extent of assistance received and/or named those providing the significant real property appraisal assistance. One report stated “Significant real property appraisal assistance was provided by Mueller Inc. representatives who completed the property inspection report that is made part of this document”. http://appraisersblogs.com/mueller-REO-hybrid-appraisal-report-vs-USPAP. Relying on the inspector’s improvement quality, condition, room count, and improvement size, would qualify as significant assistance. Did the inspector include attics, add-ons, three-season rooms, enclosed porches, basement square footage, etc. in the gross living area? Did they count pass-through rooms as bedrooms? Who is the inspector and what kind of training has he/she received. Appraisers completing these hybrid reports are relying on unnamed, unknown, unlicensed and/or untrained ‘inspectors’, and cannot produce a credible report.
A few months ago, I personally ran into a Muller ‘inspector’. When I asked him he was an appraiser he replied, “kind of”. He stated that he gets a $5 bonus for speed on each inspection but does not get paid more for complexity, size, distance, etc. and that he tries to “inspect” multiple properties in the same area as quickly as possible to maximize profit.
Hybrids put undue risk on consumers and create unnecessary risks for the citizens of Virginia
Links to published hybrid reports:
http://appraisersblogs.com/clearval-value-hybrid-appraisal
http://appraisersblogs.com/mueller-REO-hybrid-appraisal-report-vs-USPAP
The use of a hybrid product is not a safe and sound practice, in my opinion.
The appraisal process as we know it today may not be perfect but is as good as it can be at this point in time.
To weaken or eliminate it, as we know it, injects greater risk to the public.
The "inspector" needs some type of certification, again, my opinion.
As a professional real estate appraiser this message should serve as a warning of the harm of having bifurcated appraisals involved in lending. Appraisers have had hundreds to thousands of hours of education and training to perform appraisals for mortgage lending. The most critical component of the appraisal process is the defining and development of the subject property. Removing that process from the appraiser while having an unlicensed, unregulated, uninsured person performing that portion is not only reckless but it will have a long lasting ripple effect to the appraiser as they will be far removed from the market they are supposed to be an expert in. They will be behind their desks not interacting with market participants observing and studying trends and neighborhoods. Please give pause and look hard at all implications and negative consequences this process could bring. Thank you.
It appears that hybrid evaluations are just one more step in the opposite direction of protecting the public trust. Public trust is compromised when AMC’s blast appraisers with the turn-time and fee emails. They don’t even enter our name in to the email, so the AMC’s cannot be putting too much thought in to who might be doing the appraisal. Public trust is grossly compromised with hybrid products. Hybrid products should not be used for large investments. The protection of the public has to be the first priority.
Based on the comments posted here relating to this issue and the little information that I know, one thing for sure is that a hybrid appraisal is not a product that I would endorse as an appraiser. I have not performed any and will never sign off on an appraisal that someone else did an inspection for. Furthermore if a knowledgeable consumer is aware of such a practice, it further deteriorates the appraisal profession as a whole.
Hybrid appraisals are dangerous. I would not sign my name to a report that I did not have full control over the information. I have been in this business for over 30 years and seen numerous errors in descriptions of property by other people. This is a real disservice to the public. They would most likely still pay the same fee for an inferior report. Why doesn't anyone ever investigate all of the additional fees charged by the lender and the closing attorney? The appraisal fee is a small amount of the loan processing cost. Faster is not better. A reliable report takes time and investigation of the property, comps and market. Other professions are not pressured to give a result within a few days, why should appraisers be pressured? Vote NO to Hybrid Appraisals.
Another step in eliminating Appraisers. Let's see AVM's are good for what? Contain what? Are sourced from what? Benefit whom? Liable to whom? Let's apply this to Hybrid appraisals - Good for no fee/low fee servicers. Contain 'realtor's/inspector opinions skewed opinions to inflate and sell. Sourced from the same municipal providers (they're never wrong.) Benefit the servicer not the public trust and most of all, all the liability is put upon the Appraisers shoulders. Wake-up America, Dump the Hybrid and re-empower the Appraiser and M.A.G.A. - Make Appraisers Great Again!!!!! Thank-you.
As stated in some of the other comments, this proposed guidance document is generic and just restates parts of the regulations without saying anything new. My past experience with guidance documents issued by Virginia for AMCs' shows me that AMCs' have legal teams that find numerous loopholes that allow the AMC to disregard the guidance document. Case in point was the guidance document concerning Reasonable & Customary Fees. I called the AMCs' that were my clients regarding the new guidance document. They had already found loopholes, mainly vague and open-ended wording, that allowed them to ignore the fees being paid for VA appraisals. Oh well, nice document, no meat. Back to Hybrid Appraisals, one of my clients has been pushing hard to get their independent appraisers to perform Property Data Inspections and Property Data Reviews without an opinion of value (which I now know are going to be used as hybrid appraisals). When they initially contacted me about my possible interest in performing these assignments, I was confused about the purpose of the reports. When I started asking questions about their purpose, they would not give me an answer. They actually told me that they did not know. This is the type of company that will be providing these services. Do we want the AMCs' to set the standards of Appraisal Practice instead of USPAP?
The Independent Appraiser has been under attack since the implementation of HVCC and the subsequent Dodd-Frank laws. We were handed significant blame for the 2008 crash which was truly caused by Wall Street and Big Bank fraud. There were plenty of rules in place in 2007 to control Appraisal fraud, however our Regulators (AARO.net) and State boards were doing very little to ENFORCE the existing laws. So Dodd-Frank created a bunch of new rules that are ambiguous and abused by AMC's on a daily basis. The AMC's and REVAA now believe that THEY are the Appraiser and are working feverishly to develop "products" that are faster and supposedly cheaper - when in fact they are not. And when in fact the true culprit in the "slow down" of Appraisals is the Appraisal OverManagement Companies now in existence and controlling at least 80% of FNMA lending work. They send out each assignment for "bid" and will waste 7-10 days consistently "shopping" for a lower fee to maximize their profit margins. NO regards are considered in each assignment other than "fee only" criteria.... no other competencies are truly considered.
If you truly want quicker reports get the resources back to the Appraiser, a little job security and we can hire and train staff again and not be scattered and smothered by the Scope Creeps who keep dumping more work and wasting more of our time which has effectively destroyed our business model, much less be able to function efficiently and professionally.
Tri-furcated Appraisals - (upgraded from Bi because the AMC is still an undisclosed participant in this fraud... ) is a completely non-Credible product which is only being used to dupe Joe Public out of the "Appraisal Fee" and provided with a completely worthless and non-Credible product. They are no more reliable than a "Zestimate" and entirely un-defensable as a valuation product vs an experienced Certified Appraiser.
Stop the madness and act like you got some sense
Sincerely
Barney Fife
I am a real estate appraiser. Although I have not been requested to provide a hybrid or bifurcated appraisal as of now, I have read quite a bit on the topic. Being a professional appraiser has several components including ongoing education and most importantly direct experience in the market we work in. That hands-on experience is the most critical component and the property inspection is a vital part of that experience as it is paramount in the process of identifying changes in market trends, buyer preferences, neighborhood familiarity, etc. Additionally, ascertaining condition and quality features in a dwelling and the site and identifying which components are important to buyers cannot be properly analyzed without a hands-on inspection. There are many instances when inspecting a property for appraisal purposes would require the expertise of a valuation professional. A few examples that occur frequently are, enclosed areas that may or may not be part of main living area, added space that may or may not have a lower level of utility and contributory value, such as, converted garages, finished attics, rooms over garages, rooms that are accessed via other rooms, etc.. USPAP does not specifically require a physical inspection of the property, however, as a practicing appraiser it is vital to achieve the most accurate results. I will let others expand on the weakness of these products from a USPAP compliant perspective, which, it appears there is strong case against them.
Please strongly consider what is best for the public vs the lending institutions, Fannie, etc., in this matter as have other states like New York and Illinois which have taken a position on this issue to not allow hybrid or bifurcated appraisals. It appears to me the drive in the direction of a hybrid or bifurcated appraisal is on the lender side as a cost and time saving solution which is not in the best interest of public trust, in my professional opinion. The lessons we should have learned from 2008 is tighter control over the lending guidelines not the opposite.
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Dear Committee:
Bifurcation is not “modernization” of the appraisal process. The bifurcated model has been in place since licensure and the implementation of FIRREA for appraisers to train and apprentice new up and coming valuation professionals. Those appraiser apprentice/trainees are registered and regulated by the state. The apprentice/training to become an appraiser is how appraisers replace their credentialed ranks, serve consumers and protect the public trust. Replacing the apprenticeship programs with lender/AMC owned bifurcation models not only undermines the appraisal process, it undermines the ability for up and coming new professionals to share in the full scope of training typical of credentials and licensure. We are unsure what the long-term effects will be but anticipate a loss in appraiser numbers throughout the state and country due to the bifurcated/non-licensed inspector model.
How did this happen? Lenders and AMCs took a fully functional apprentice and training program that’s worked for decades and scaled it to a fault for profit, to serve shareholders. It is apparent the goal is to break the appraisal process into smaller pieces to profit more from each piece. The end results will be less credible appraisals, higher cost to consumers, and no regulatory policies or consumer protection for so-called inspectors. The worst-case scenario is someone will be harmed or hurt. We believe this is inevitable with no training, regulation or accountability of said “inspectors.”
The irony of the model program from the top at the GSEs down to the local lender is that lender/AMCs forbid apprentice appraisers who are trained, regulated and accountable to regulators from performing the same processes. Yet, the lender/AMC model will allow untrained, unregulated, and unaccountable individuals to provide critical and pertinent information for the appraisal process. How is this even logical?
Diminishing growth potential and restraining trade from those who are licensed and registered professionals in our respective states to grow our businesses honorably, respectfully, and with accountability are the results of these AMC/lender bifurcated being pushed into the housing valuation process.
The bifurcated programs allow lender/AMCs to circumvent laws and control the valuation process that goes against the intent of FIRREA and Dodd-Frank and consumer protection. Lender/AMCs are not doing this to help consumers, they are doing this to increase profits because they can make more money off the consumer by breaking down each segment of the process.
Lender/AMCs stole billions from consumers with no accountability for decades because of the lender/AMC model. Unfortunately, consumers do not know better because full disclosure to consumers is not being met by regulators or the CFPB. We need strong agencies like Virginia to take a stand against change for the sake of change and keep consumer protection and the public trust the priority.
My personal experience with hybrids includes but are not limited to:
In closing, I respectfully hope the Virginia DPOR looks deep into what’s presented on the surface as talking points by AMC/lenders who are pushing the bifurcated model as a solution. We hope the long-term picture will defer any short-term decisions. It is imperative appraisers not be restrained from replacing our numbers and training the new valuation professionals of tomorrow as “independent”. Leaving the valuation process solely to banks, AMCs, and aggregators fueled the credit crash in 2008 because of conflicts of interest. The same leaders who took us down that devastating path are the same leaders pushing bifurcation.
We work diligently and honorably to avoid that same mistake from happening again. There is no appraiser shortage but there will be if the bifurcated model is allowed to go unchecked, unregulated with unlicensed inspectors and out of state appraisers. How does this protect the public?
The only solution is clients allow appraisers to manage their licensed and credentialed trainees to perform inspections and reports as the intent of the bifurcated process and model was designed to be used. Allow apprentice appraisers to participate and sign in the appraisal process. We do not understand why we are being restrained while non-licensed individuals are being allowed to proceed.
Respectfully Submitted,
WVCAP
I'm sorry this issue has to be addressed as I find it a waste of time. I think all licensed appraisers would agree that the "Hybrid appraisal" is nothing more than some lending agencies trying to obtain an "acceptable appraisal" at bargain basement prices and "we needed it day before yesterday" mind set. I think this is reverting back in history several years and the housing industry will have another crash much worse than the previous one if anyone is allowed to appraise without complying with the present regulations. If these Hybrid appraisals become the "appraisal" of the future I suppose we should all quit paying fees, and taking continuing ed, etc, etc, and work as "Hybrid appraisers" rather than the licensed appraisers we are. I personally am thankful that most lenders I conduct business with are professionals that realize the quality of an actual appraisal report and I still have the freedom to reject work from any lender asking for less.
Hybrid appraisals will be a huge step backwards for gaining public trust in us as professionals. Appraisers are regulated and abide by standards that align with clarity and accuracy. They are specific to each property we appraise, and not a computer-generated algorithm. They are appraisers-on-the-ground, doing what we are trained to do as professionals. On the other hand, a hybrid appraisal involving "non-professional-gatherers-of-information/pictures" will be misleading, will lack continuity and produce reports that will likely be filled with inconsistencies and errors.
As an appraiser I feel that we produce an invaluable product for a very reasonable price, all things considered, with all the many facets we perform, along with the fact we are the only objective entity in most real estate transactions. Continuity throughout the appraisal process is KEY. To randomly break up the appraisal process into segments is a reckless idea without wisdom or foresight.
Please reconsider the idea of misleading hybrid appraisals. They will adversely affect our profession and mislead the public.
Thank you.
My concern is the inspections which these products require appraisers to rely on and the information provided. At present, there is no standard for the inspection or whom preforms it, nationally or at a state level. As realtors/brokers and lenders all have skin in the game, making money from a transaction; price and hitting that number are all they care about. And the higher the price, the more the commission. That is a double edged sword to both the consumer and the economy.
Given this, I contend that the inspector must be competent in all aspects of the inspection, just as an appraiser is expected to be and that said inspector meet specific qualification standards and be licensed to “inspect”. I contend that the person completing an inspection not be a realtor/broker involved in the transaction or form one or either of the offices involved in the transaction. I contend the inspector not be in any way related to, or friends of the realtors/brokers involved in the transaction, or their offices and the inspector not be in any way related to, or friends of the lender involved in the transaction or that lending office. Likewise of the buyer or seller. And, having seen some photography of what we consider questionable (inspectors wearing shorts, tank tops, and questionable head gear), I contend the inspector should have a complete, fingerprinted background check to insure he/she is not criminally inclined or was not recently released from a prison or jail!
The inspection must remain an unbiased piece to the appraisal process and the person completing it must be knowledgeable and competent. It might be easy to inspect a square or rectangle, but inspecting a 1905 Victorian with turrets, a English Tudor with dormers and half turrets, or a Neocolonial with large circular windows is far from easy and for the sake of value, accuracy counts! So do we need an inspector with experience, or some guy off the street that just bought a tape measure and is being paid $75? And, how long does this new cheaper fee stay cheaper???
Only when the appraiser can trust the information he/she receives can the appraiser completing these modified appraisal products have some sense of confidence and relief that the information being provided in regard to the inspection is reliable enough to stake their reputation and certification on when they sign a report. Because when spit hits the fan, no one is going to go looking for that person that did the inspection. They are going to go after the person that signed the appraisal report; the appraiser.
In addition, at present, the lending community does not allow appraiser trainees to inspect real property without the direct supervision of a certified appraiser. They fear the trainee, regardless of the number of years experience, is not competent enough to inspect unsupervised. Yet, with this new appraisal product, using someone with no training or experience to inspect is a great idea?
This is about protecting the consumer, the lender, the appraiser, and the economic future of this country and not about cheaper and faster! And, the lending industry already has the qualified individual I have been referring to. That qualified person would be an appraiser or an appraiser trainee.
To whom it may concern:
I have always been taught that it is the appraisers job to protect the public interest. We are trained to not MISLEAD the public. To be the eyes and ears of the lender so 2008 doesn't happen all over again.
It is in my humble opinion that Hybrid/Bifurcated appraisals will be catastrophic for the appraisal industry. Management companies are screaming there is a shortage of appraisers and they need these type of products. There is NOT a shortage of appraisers only a shortage of appraisers who are sick and tired of working for fees below what is considered customary & reasonable.
These appraisal management companies want to utilize independent contractors with minimal training. Send them out in the field to measure homes, offer their opinion on condition, quality and take photos. Provide that information to the signing appraiser who is supposed to develop an opinion of value for a significantly reduced fee. When I say reduced I meant to say $75-$100 per report and they are expecting them back within hours after the signing appraiser receives the information.
I've been a real estate appraiser for 19 years. There are homes to this day that are still challenging to measure. Are we just supposed to take the word of someone with minimal training that their word is gospel? When they make a major mistake whose head is on the chopping block? Not theirs, because there is only one name on the report.
Third party inspector has no liability. No E&O. Not licensed with the state. Trained by the appraisal management company. Working for peanuts on the dollar with minimal training and we are just supposed to scribble our name on the report and assume all of the liability.
In closing I am vehemently against all Hybrids/Bifurcated reports. I do not feel that they best represent the interest of the industry. Within this industry you have good hard working licensed appraisers who have the ability to perform to the highest standards and provide quality reports in a timely manner.
We must protect the consumer.
Please reconsider the idea of misleading hybrid appraisals. They will adversely affect our profession and mislead the public.
Thank you
David
American Guild of Appraisers Member
Having been an appraiser for over 20 years and having been active in the appraisal profession during the past real estate crisis, I find it appalling that this is even being seriously considered. While there are many facets to putting together a reliable appraisal, I would venture to say that none is more important than the presence of a licensed and experienced appraiser during the inspection of the property being valued. Appraisers have and continue to be heavily regulated and are required to stay up to speed through on going education and training. Additionally, most appraisers currently practicing have many years of experience and gained knowledge of real estate and their specific market areas. How could anyone possibly believe that turning the actual inspection process over to third parties that do not have to be licensed, are not regulated in anyway, do not have to be experienced or knowledgeable in valuing or inspection real estate, could not drastically reduce the reliability of the appraisal process and the final product provided to the consumer. Home buyers deserve to have a professional appraiser INSPECT and develop the appraisals so they can have a reliable assurance of the homes value for making a purchase decision or a financing decision. Even considering this is an assault on consumer protection and one that is related that the largest investment a person, typically, makes in their life. Being licensed or certified, having many years of experience, having expertise in real estate valuation and your market area mean absolutely nothing if the inspection is going to be performed by someone who has none of these attributes or skills. For the sake of the potential real estate buyers and consumers in general, I urge you not to even consider approving "hybrid appraisal", something that would destroy buyers protection by having their properties or potential properties INSPECTED by third parties who are not licensed, regulated, experienced or knowledgeable. This would destroy the buyers most reliable protection in real estate purchases and I can see absolutely no positive benefits, certainly, none that would be worthy of the damage that this would cause the entire real estate purchasing process. Please, let's learn from the past mistakes and not make decisions that would lead to an even worse real estate crisis, not to mention putting individual buyers in danger of making a bad decision due to inaccurate, misleading or inadequate data being provided by third party. Let's lay this to rest and let the licensed professional appraisers get back to doing what we do best, protect consumers and lenders by providing expert reliable real estate appraisals. Thanks
This hybrid process is very disturbing to the true residential valuation professional. Just today I was provided what seemed like a bread and butter easy sale conventional order. Upon inspection there were serious issues with the home that would cost 10's of thousands. By my experience I identified the issues and alerted the client. 9 out of 10 non-appraiser inspections would have missed this issue. The buyers were not getting a home inspection so this was the only chance for the banks to not have lent on an unlivable home. The loan to value was 98%. A huge loss for both the home owner and/or bank.
FNMA has tried to make these hybrids more USPAP compliant by saying that the appraiser will now judge condition and quality rather than the unlicensed inspector. Sounds great - that is not possible without walking through the home. You must understand that the difference in one quality or condition level can be $200,000+ in many of the markets I serve. Quality and condition are entirely necessary for a credible report. And nobody can make that determination without witnessing it.
I cannot tell you how many homes I walk into where the photos are terrible due to clutter - but as an expert I can see the new updates and the home owner gets credit. On the flip side a well cleaned and painted home can look like an entirely different condition level yet be falling apart at the seams with aged updates that no buyer would want.
This is much different than the appraiser making this determination of the comps we use in the report - which is an argument I've often heard. We use many sales - often 6 - and that significantly limits any incorrect determination of one through 3rd party sources. The anomalies jump out at you and we are able to correct the issue by selecting a different Comp. and by averages the impact is minimal when bracketed. But that can't be done with the subject. You MUST get the subject right or the bank is loaning on an incorrect collateral analysis. Wildly incorrect.
So how did we get here? Why is this insanity suddenly seen like a good idea?
To understand how we got here let me walk you back in time. Through the misinterpretation of Dodd/Frank our industry was hijacked and the playing field tilted in favor of AMCs. What AMCs were meant to do was to provide a buffer for the appraiser so that they could value real estate without pressure. That is how it was sold to you and the public. What transpired was just the opposite. A storm of fly by night establishments popped up and with their sales teams hoarded all of the appraisal orders in the industry. Once established they've been looking for ways to increase profits as the middle man. They began broadcasting orders in search of the lowest fee possible.. rather than selecting qualified appraisers with geographical competence, experience, professionalism, etc.
Imagine if you did that with your Doctor, Lawyer, or even your Plumber. You end up with an inferior product. Additionally the AMCs found a loop hole and began hiring staff appraisers. Staff appraisers are not independent. And the only appraiser's willing to work staff are the least experienced and qualified. Yet here we are today with the least qualified doing the majority of appraisal work across the nation due to AMC staff and AMC hiring the lowest priced appraisers to keep the most profit.
Why must we race to the bottom with this very necessary service? Break the strangle hold of the AMCs on our industry. Allow appraisers to train their own staff to be compliant and competent in the markets they serve. We've had one of the biggest bull real estate markets in history this past 10 years. It is the underwriting standards that has allowed banks to feel more confident than 2007 - not differences in the appraisal process. The appraisal process, if allowed to be what it was meant to be, without AMCs, can be much better than it is today ... and today it is considered pretty good.
But everyone wants the appraisal fee for their bottom line. FNMA, the AMC, the banks. But the home owner is who pays this fee and they deserve a true professional licensed by their state to do their job properly for that fee. That is what they deserve. Not a hybrid cheap product. Not an AMC low bidder or staff worker. A professional independent opinion.
I am a Certified Residential Real Estate Appraiser in Illinois and a member of The Appraisal Institute as well as the Illinois Coalition of Appraisers (ICAP). I have been licensed for 12 years. As a licensed professional, I am required to provide an ethical and unbiased opinion of value. Appraisers must take several continuing education courses each year and uphold strict guidelines. The fact that this third-party inspection process is being used is gross negligence in the protection of the consumer. Buying or refinancing a home is one of the largest investments a person can make. Not having a proper inspection by a licensed appraiser will lead to much misleading information. Someone getting paid peanuts to go look at a home and judge its condition or even know what to look for is not going to be educated in this matter. I can only imagine a person living in a small dumpy rental home who is doing these “inspections” walking into an average home that is much larger than their home and has some updates would think that home is amazing and in great condition when it is most probably average at best.
With uneducated “inspectors” providing misleading information to an algorithm or even an appraiser, the cost for the lenders can be reduced therefor lining their pockets while the cost to the consumer would be immense. While it may speed the process up some, why not get rid of the AMC’s that are holding up the process by shopping around for the lowest fee. I have seen orders sit for days before being assigned or accepted by someone else. In those 2 or 3 days, I would have had the appraisal scheduled and most likely inspected already.
How can it be that right now that an appraiser trainee cannot inspect a property under the guidance of a Certified Appraiser but now the powers at be feel a trained professional is not needed at all for this part. This is not about modernization but all about greed. Was 2008 that long ago? Do we need another financial crisis?
Dear Committee:
This topic is of special interest to me. I am an active appraiser in North Carolina. I worked as a Realtor® for 10 years and have been an appraiser and author for over 15 years. I have studied the subjects of square footage, public records, automated valuations, and the impact of square footage since a few months after obtaining an appraiser’s license. The talk of hybrid appraisals and using untrained/unlicensed property data inspectors, in my opinion, is a danger to the public trust and could be devastating for consumers, appraisers, and mortgage investors, who depend on the “quality” of the products in which they invest.
Inaccurate square footage is already an issue that hurts the home-buying public. The lack of a nationally mandated measurement standard creates confusion and disagreement among all those that provide this information for the public. The inconsistencies among agents and appraisers is a huge problem. Mandating ANSI® would be a great start, but even ANSI® leaves numerous measurement issues subjective and causes debates among agents and appraisers. I authored a CE course titled ANSI®, Home Measurement and the Power of Price-Per-Square-Foot for agents and appraisers, and even developed a Home Measurement Specialist certification program. I am always amazed to see the comments from 20-year veterans who learn new info and so many comments suggesting this information be a part of mandatory education.
Even with the training an appraiser’s license requires, there continues to be problems with inconsistent data. I can only imagine what a disaster we would have if we allow home inspectors without any training or licensing requirements to create the square footage data that appraisers rely on to calculate values. We live in a price-per-square-foot world and every quality valuation is dependent on the accuracy of the very first number – square footage. Without appraisers calculating these numbers we are inviting inaccurate appraisals.
Virginia and North Carolina are well respected around the country with proactive appraisal boards. Over the last 15 years, I have heard from hundreds of appraisers asking us to set examples so their states can follow suit. This is a dangerous time in the appraisal industry. I authored a book titled “Death of an Industry-Real Estate Appraisal” back in 2010. I have watched what I believe to be a very well orchestrated plan to reduce, and then eliminate, the appraisal influence in the mortgage industry. This is the “Golden Rule” alive and well in the appraisal industry. If we don’t draw a line in the sand to stop the so-called “modernization” of our industry, we will reach the point of no return and consumers and mortgage investors will be the ultimate losers in this battle. At the end of the day, all the changes to this industry are simply about money and control. If no one other than licensed appraisers were allowed to profit from the appraisal process, all the talk of modernization would disappear immediately. This entire debate is about who profits from the appraisal process, pure and simple.
It’s hard to imagine the very people who will not allow a licensed and trained appraisal Trainee to inspect a home, will now allow any undisclosed and untrained person to enter people’s homes and provide the very data they would not accept from a trained expert. Why the change? Follow the money. They can basically hire the person they can pay the least to complete an inspection. The appraisal process requires the appraiser to be involved in the entire process, to see the neighborhood and view the house personally is one of the most important steps in the process. If others perform the inspection, appraisers are at the mercy of their pictures, their comments, and also items they leave out of the report. Things the appraiser would have noticed, and things that would impact the valuation. These inspections will lead to reports filled with errors. Inaccurate square footage alone will cause a dramatic increase in valuation errors. If those numbers are wrong so is every number that follows. Also, these inspectors don’t even have to be named and have no responsibility when the errors are discovered. All in all, it’s an invitation to fraud and abuse and a nightmare waiting to happen.
I urge you to stand up and protect home buyers and not allow the appraisal process to be further dismantled. You have a great power and responsibility in your hands, and I sincerely hope you will side with logic and end this before it goes any further. Since the inception of the AMC model, appraisals are more expensive and take more time than ever. It reduces the number of quality people entering the industry and reduces the most qualified to train the next generation. Any further reductions to our numbers ensures that big banking may ultimately get their wish, and eliminate the only participant in the home buying process without bias. Appraisers protect homebuyers and are the very best chance at sustaining a credible valuation process. Thank you for listening.
I am an independent fee appraiser from California - not Virginia - but I do understand USPAP, and one aspect of this controversy that many of the other comments being made are overlooking is the law of unintended consequences.
When the Great State of Virginia makes changes to their licensing rules and regulations they affect ALL licensees in the state regardless of their scope of practice and ALL appraisals performed which are subject to the appraisal board's jurisdiction. For this reason I believe as a matter of principle that a state legislature and a state appraisal board should always act slowly and with great deliberation with respect to how their actions will affect all of their licensees and all of the appraisal users, not just a portion of them.
Most of these other comments have overlooked the point that the only consumer of an appraisal that was prepared for a lending institution's use is the lending institution itself. The property owners, buyers, sellers and brokers are - by definition - third parties to the appraiser-client relationship and every appraiser understands this. Every appraiser knows that it's none of these others' business what type and extent of appraisal a lender chooses to use to make their decisions. Every appraiser knows that if any of these other 3 parties want an appraisal of their own then they need to engage one separately and specific to their use.
As far as appraisers using information gathered or aggregated by 3rd parties, we do it constantly and any appraiser who says otherwise is...underinformed. We commonly make reference to title reports we didn't collect or assemble, to zoning determinations we didn't make by use of the source materials, to flood determinations we didn't make by use of the source materials, to descriptions and pics in the MLS listings we use, to imagery on Google Streets we didn't take and so forth. In some cases we actually require additional information in our appraisal assignment be performed before we can complete our work. Examples including but not limited to property surveys, letters from the local jurisdiction involving licensing and permits, 3rd party contractor's bid for repair or construction, 3rd party roof or mold inspection or a pest control inspection, etc.
In that respect every appraisal we do can be called a hybrid that includes some information generated by the appraiser's own hand vs a generally much larger percentage of information gathererd and reported by various 3rd parties.
So the notion that the use of 3rd party information sources about the subject in an appraisal is a bright red line that appraisers cannot cross is wholly and completely untrue. This issue will become even more significant when complaints are made to the board concerning other types of appraisals - far more complicated in scope than a single family appraisal for performed for mortgage lending purposes.
Regardless of assignment type, in each of these uses of 3rd party information the appraiser is compelled to decide for themselves whether or not they have reason to question the accuracy of the information, whether or not they consider the information sufficiently credible. The use of 3rd party inspectors for the site work in a residential appraisal does not create any new protocols for the appraisers doing the valuation - it's just more of the same they've been doing all along except that this time it involves the info about the subject's physical attributes. The appraisers will still have to review the information in those reports s closely enough to form the opinions they will be using in their analyses - whether the opinions they form agree with or disagree with any opinions or ratings expressed in those inspection reports. Which additional opinions quite honestly can be considered redundant to the appraiser's analysis. It is a certainty that the appraisers will disagree with those opinions in some cases anyway.
For example, let's say a broker or a professional home inspector or even a layperson performs an inspection and they express their opinions that the quality of the structural improvements is "Average" in comparison to other nearby properties or ranks as a "4" on some fixed external benchmarking system that has quality ranges of 1-10. As an appraiser I will be compelled to review that material and form my own conclusions about the quality regardless of what opinions the person performing that inspection expresses. I can only be said to be using or relying on that other person's opinions if/when I don't form any opinions of my own. In that scenario I would be making the assumption - which would require disclosure in my report - that the other person's opinions were reasonable and sufficiently usable for me to use without forming my own opinions.
If the above scenario seems ridiculous it's because it is ridiculous. In real life most every appraiser will review that information along with all the other information they're using and they will form their own opinions about the credibility of that information, whether they have reason to challenge the accuracy of the factual information and how they think the subject's attributes compare to the information they have about the other properties they are using as comparables in their analysis. Comp information, I might add, that is exclusively aggregated and reported by 3rd parties who also aren't working for the appraiser and whose work is also not attributed as being part of the analyses, opinions and conclusions that the appraiser is performing. Which, by the way, is the distinction between appraisal practice as referenced in USPAP and the VA regs vs the definition of valuation services of which appraisal practice is but a small subset.
Let's discuss the distinction between the meaning of valuation services over much of which the VA Appraisal Board has no jurisdiction vs appraisal practice over which the Board does have jurisdiction. If a company hires a professional engineer, or a technical home or commercial building inspector, or a broker, or a layperson to perform an inspection - then how does their work fall under the definition of appraisal practice as referenced in USPAP or the state's appraisal regs? In each case the individual would not be allowed by state regs to represent themselves as an appraiser (doing so violates existing statute). They are not expected by their respective clients or report users to be valuing that property, and there is no reason to doubt that those reports might have multiple uses for multiple types of decisions by the user besides just the potential use of that information by an appraiser.
In real life there is no such thing as a USPAP-compliant property inspection, and it would actually be unethical for even a licensee engaged to perform such an inspection in isolation of the appraiser's supervision and control to present themselves as a USPAP-compliant property inspector or that their inspection reports were USPAP-compliant. And as much as some of the other commenters might like to say otherwise, none of them are capable of arguing that point because the ETHICS RULE in USPAP explicitly prohibits appraisers from misrepresenting themselves as appraisers when performing other types of valuation services outside of appraisal practice. We must never lose sight of the fact that appraisal practice as defined is just a small subset of the wider range of valuation services as that term is defined.
In fact, the meanings of these definitions to which I am referring are so inconvenient to the financial interests of appraisers that many of them are now advocating that those definitions be changed to make exceptions or exemptions in order to drag the role and the actions of the property inspector into the definition of an appraiser. This is despite the fact that those inspectors don't do anything other than catalog the property attributes. These inspectors won't research any other aspect of the subject's physical, legal, or economic attributes, they won't perform any analysis of the highest and best use of those improvements to the site beyond perhaps commenting that the property is similar to other properties in the neighborhood, they won't be analyzing any aspect of the market, the market conditions, the subject's market segment or any of the comparables. When considering how limited their scope of practice is when compared to the role of an appraiser these inspectors might just as well be equated to the work of autonomous drones or robotic pool cleaners.
Now to be sure, there are other very significant issue the State of Virginia should consider in their appraisal licensing program; such as
- First and foremost, the use of 3rd party inspection reports most definitely has the potential to negatively impact the quality and quantity of the information about the subject that the appraiser is using. That is, in comparison to a normal 1004 protocol. They're actually getting more information than they would have when completing a 2055 or a desktop-only assignment.
- In real life these lenders have always used a variety of appraisal types in their decision making, including appraisals where the appraiser doesn't physically inspect the interior or measure the structure at all (the GSEs 2055 appraisal reports are an established and accepted example of this). Lenders have also used desktop appraisals based solely on public records information - no inspection by anyone - and appraisal reviewers commonly express their appraisal opinions based on information contained in other appraisal reports but which they have no personal knowledge of. Nor can it be said that the use of these "lesser" levels of personal inspection has actually been detrimental to the public's legitimate interests.
So the conventional 1004 protocol involving personal inspection by the appraiser is not now and never has been the sole expression of professional appraisal practice.
- Whether or not the lenders - who are in fact the only "consumers" of one of these mortgage appraisals - have the right to order and use one of these inspections performed by one of these inspectors and for whatever purposes they deem fit.
- Whether or not any other type of user besides the mortgage lenders and getting into real property appraisal assignments performed for non-lending users and non-lending purposes have the right to order one of these inspections from one of these inspectors.
- Whether or not the use of a 3rd party inspection report can even be assumed to undermine the utility of an appraisal report that is based in part on that information.
- Whether or not the State needs to license and regulate the individuals who perform those inspections, and if so under which licensing board and according to which standards of performance. Maybe these individuals should be regulated by the same board that regulates building inspectors and maybe that board needs to establish the performance standards that they state should enforce for those activities. After all, there's nothing in USPAP or indeed in any qualifying education requirements for appraiser licensing that addresses the standards for what is/isn't competent inspection practice for appraisers, let alone for any paraprofessionals who might perform a property inspection.
- How the state will defend their regulations in court if/when challenged. Which challenge can be assumed to be a virtual certainty. Courts operate off the rule of law and legal arguments - not feelings and opinions - so the State will need to be able to articulate it's arguments in support of these regs to the satisfaction of the courts. The state will be going up against experts who are well versed in USPAP and who will be going straight to the meanings of the definitions being used, and how none of them indicate toward 3rd party inspectors actually being engaged in appraisal practice over which the Board would have jurisdiction. After all, a law or regulation that cannot withstand appeal in court isn't going to stand. All it's going to accomplish is to make it's authors look foolish.
- How the statutes will be written to unilaterally declare - outside of USPAP - that the process of property inspection
how that individual's conduct and performance automatically falls under the definition of appraisal practice over which the State Appraisal Board has jurisdiction.
- And finally, what other areas of appraisal practice , what other appraisers and users outside the mortgage lending pipelines - might be adversely affected by legislation that is being narrowly and carefully crafted to accommodate the financial interests of the mortgage lending appraisers.
As for the economic arguments and concerns appraisers have about the effects of the use of these assignments will have on their own economic interests, I share those concerns. If/when the lenders start using a larger percentage of these assignments it's going to cut into the demand for the conventional appraisal assignments that is more profitable for us to sell. Nevertheless, on a fundamental basis it is not the role of the State legislature or their Appraisal Board to act as an agent or advocate for our economic interests. The State's role is to act on behalf of the public interests, which for the users of mortgage lending appraisals is explicitly limited to the lenders themselves - we appraisers certify to that intended use in every one of those appraisal reports we sign. I will say again, if/when a property owner wants the more comprehensive appraisal performed for their own usage then there is nothing stopping them from getting one of their own and specific to their needs.
In closing, I recognize this may be the most lengthy response you get, and that I am most definitely expressing a minority opinion among the fee appraisers. I am not a licensee in your state and although I am a fee appraiser I do mostly commercial work, not residential appraisals under the GSE appraisal programs.
With that said, I hope the decision makers at the State do take under consideration some of these additional elements that are largely being overlooked among all the other commenters. I also hope that the individuals who are acting in the role of lawmakers and State Appraisal Board members will compartmentalize their approach and consider all of the various talking points submitted by all the commenters within the context of what it takes to run an effective and fair licensing program vs what their individual biases may be as appraisers or users of appraisals. The State's role is to act within the legitimate interests of the public at large, which vary considerably, not just on behalf of some of it's licensees.
Thank you for our consideration.
FIRREA was enacted to protect the public and ensure a minimum standard in appraisal practice. Where is the logic in allowing activity equivalent to actions prior to FIRREA? Is this not steps backward? The inspection is the foundation on which all other aspects are built upon. If this is wrong, the entire report is wrong and the report has no credibility. No amount of disclosures, hypothetical conditions or extraordinary assumptions will change the fact the report is not credible. Virginia statutes and regulations are pretty clear and follow the intent of FIRREA; protecting the consumer from bad or fraudulent appraisals.
Public trust is also the focus of and in the preamble to USPAP.
Stated in the laws and regulations, the unlicensed assistance must be under the direct supervision of the licensed appraiser and the licensed appraiser completing the appraisal must have complete direction and control over the appraisal. Compete direction and control simply is not possible to obtain when an unknown third party is doing the inspection.
Virginia Statutes and Regulations are pretty clear. Please don’t be swayed by those who want to profit at the expense of the consumer by twisting the language and intent of the laws and regulations.
Thank you for reading and considering my comments.
Please be aware that hybrid appraisals will leave the home buying consumer in jeopardy of overpaying for the largest purchase of their life. This is truly not the place to try to "cut corners". Licensed & Certified Appraisers have a civic obligation to protect the public trust and non licensed persons do not have that obligation. Please don't allow hybrids!
The property inspection is made by an unlicensed individual who could be tempted or paid to misrepresent property condition without any liscensing discipline. AMCs will be motivated to utilize and pay inspectors that please loan originators by making positive property inspections which will effect property valuations by falsely increasing value. AMCs will have no liability and the inspectors no licensing discipline. Additionally the appraiser not having intimate knowledge of properties can lead to omitting important charachteristics that effect final valuation.
A poorly conceived and transparent attempt to weaken the lending discipline of a quality appraisal.
In a pilto test phase, bifurcated might look reasonable, in practice where profit from appraisal as a cash cow to an AMC or ordering dept is the driving force, it will compound the abuses affecting appraisals now. Allowing non appraiser inspectors to inspect for origination loans means-appraisers at desktop can vastly expand their geographic coverage since they no longer drive to the subject. Allowing a staff appraiser to increase volume, a driving force for this product use The downside is appraisers be valuing a property they never saw, in an area they never saw./lack local knowledge of. They will do this out economic survival if on fee or if on staff as part of production. Low fees and fast turn times and worst practices go hand in hand, and serve to drive the more diligent appraisers out of the profession or out of mortgage lending work where they are most needed.
A problem for both hybrids and bifurcated is rushed turn times. ( AMC's claim a hybrid by appraiser should only take 45 minutes ). That does not allow time to analyze, verify, develop the appraisal. Though fast delivery is vital and appraisers are presently delivering faster than ever, rushed turn time at expense of credible results hurts the investors, users, borrowers and markets.
The appraiser is the only impartial party in a real estate transaction. Hybrid appraisal products that utilize an unlicensed "inspector" to take photographs of a property and consider this substantial evidence of the condition of the property are putting the real estate market at risk. It is imperative that well educated professional appraisers complete the property inspection as well as the entire development of the appraisal when so much is at stake. The real estate market is a critical component of the entire health of the U.S. economy as evidenced by the recent Great Recession. Taking short cuts in the appraisal process is not the answer to "modernize" the mortgage loan process.
Prior to licensing, one had to apprentice under an appraiser to gain years of experience in the business, take college level courses and get to be known by the quality of your work before lenders would accept you onto their appraisal panel.
There were abuses on both the lender and appraisal side including one large local bank where the loan officers even did their own appraisals. Licensing was established to protect the public interest. As far as lenders were concerned anybody with a license was equal. Then came Appraisal Management Companies (AMCs) who falsely convinced a lot of lender that the only way to comply with regulations was to hire them to order appraisals. Fees increased to the public and AMCs used the cheapest person they could find – often new people who were not experienced enough to have developed a client base. Half or less of the market fee was better than nothing. I am still getting requests for full appraisal reports at $300 below the VA DPOR established C&R fee!
But half of the fee wasn’t good enough for AMCs. They immediately started looking for ways to pass off a substandard product that would in best case completely bypass the law protecting the public interest and came up with Broker Price Opinions where they generally pay an agent $25 to take exterior photos of a house and provide a opinion of value. These are often used in REO and short sale lending decisions – again another violation of the public trust because many of these properties were sold below actual market value and were government guaranteed loans and the public picks up the loss.
Then AMCs tried “Appraiser Assisted” computer generated appraisals where a computer- generated automated valuation model (AVM) estimate was reviewed by an appraiser. There were marketed to lenders as cheap and quick alternatives to full appraisals – and to appraisers as a legal way to increase business for $25. Once company estimated that I could complete 10 an hour all from the comfort of my desk.
So here we are again. AMCs are back with yet another attempt at enriching themselves at the expense of the public. Use unlicensed 3rd party to inspect the property of the unsuspecting public, use an AVM value then have an appraiser sign off so that it can be called an appraisal.
Under USPAP and other industry guidelines, we are required to inspect each property we appraise, and at minimum the exterior of each comparable sale. Says so right on the URAR form.
As a person with business and computer background, I have watched computer modeling with interest. While AVMs are getting better, they still lack the ability to accurately access differences in attributes. I have seen models that assigned a minus $22k value to a garage – because there was a difference that had to be applied somewhere but it didn’t know where so it put is a garage. In the course of a year I review thousands of AVM values (CoreLogic/Realist) while completing appraisals for the subject property and reviewing generally 6-15 (or more) actual sales. The AVMs often have a very wide range and are also no where near the actual sales prices.
As a Licensed Residential Real Estate Appraiser in Virginia with more than 30 years experience I an deeply concerned at the repeated disrespect that AMCs continue to show for laws and regulations, the appraisers they work with, VA DPOR and the public/taxpayers.
Protect the public interest like the law requires and reject these AMC attempts to bypass them.
The reliability of an appraisal is only as strong as the observations and information on which it is based. Appraisers have and continued to be heavily regulated. Additionally, most have lengthy experience and thorough knowledge of property inspection and how it relates to the valuation process. The entire validity of the appraisal rests on the observations made of the property during the inspection process. It can only diminish the reliability of the appraisal and greatly increase financial risk to, both, the buyer and lender. How can this not be considered a breach of public trust. Let's not so quickly forget the lessons from the last real estate crisis. I strongly urge you to consider the possible consequences of taking the experience, knowledge and expertise, that a professional licensed appraiser provides, out of the process, supposedly to save the consumer a few dollars while they are being blindly lead into the most important purchase decision of their life.
I have been a Virginia appraiser for over 25 years and I wish to comment on the use of hybrid appraisals. It appears to be self-evident that this proposal will produce substandard results which would undermine public trust.
Simply put, the hybrid product may generate a number, but there is no guarantee it is a supportable or verifiable. It is certainly not a USPAP compliant appraisal, and to call it such is misleading and a breach of public trust.
It is ironic that while most lenders do not accept reports in which inspections are performed by appraisal trainees (75 hours specialized training and under mentorship of licensed appraiser), the hybrid appraisal utilizes non-regulated data collectors who greatly influence the derived value.
The real issues at hand fundamentally seem to be whether Fannie/Freddie need or want USPAP compliant valuations at all, and why are they so willing to take such risks at the expense of the public? The corollary questions are why are dummy-down valuations being considered at this time after the two decades of escalating requirements for appraisers? (Could it be AMCs are profiteering at the risk of jeopardizing the stability of the real estate market?) And why would this appalling approach be even considered by our regulators who are charged with protecting the public trust?
Or perhaps the recent real estate crisis never really happened?
I got into the appraisal industry in 1987 so I've been around. Prior to my appraisal career I did title examinations, title insurance and real estate closings. I've previously been on the Board of Directors of NVAR so I have a bit of a wider perspective than many.
Much of the work I do now is for banks, for realtors and for the general public although mortgage financing work remains the majority of my appraisal assignments. I can honestly say none of my clients have any interest in seeing Hybrid Appraisals. They want someone who knows what they are doing, can write up an assignment so it makes sense and so they can follow along to see the reasoning behind it and perhaps learn a little more about the property and the current market. Hybrid appraisals however, will not be done by me, my colleagues or in general anyone who I would want appraising my own property.
Of all the entities who would be harmed by a less thorough valuation analysis performed by a less qualified individual no one is adversely impacted more than the general public. Appraising property is a tough job and by no means am I the be all, end all valuation expert. But I do take the time, do the extra analysis and take great pride in my work. And I sleep well at night.
Now is not the time to reduce the emphasis on analyzing the property well and relaying that analysis to the client and the public in general. And I'm not sure there ever will be a time. Buying a home is the biggest investment most people make in their lives and has a major long term financial impact on the parties involved and on the general health of our country. Dumbing down the valuation assignment in my humble opinion is shortsighted and unwise. And its not what the public and realtors want.
Frankly, Hybrid Appraisals are a bad idea.
The Property Site Visit by a trained, qualified Professional Appraiser of the Interior, Exterior & surroundings of the Property being used to secure a major amount of someone else's money in the form of a Mortgage loan IS the most important aspect of the Appraisal process. Items missed or left out of a "report" by an untrained, unlicensed & unregulated "Site Inspector", whether by mistake due to lack of training or deliberately in order to secure future work from the AMCs & GSEs , WILL affect the whole process and produce flawed Property Appraisal values.
Bundle enough of these flawed values into financial products sold to Investors and bingo - enter Great Recession #2, another bail out of FNMA/FHMC & Banks, and more Homeowners suffering Foreclosures and Retirees, Working Individuals and Pension Programs suffering substantial 401k, SEP, Pension Fund, etc, losses from which many do not have the years left to recover. In addition to another "lost" generation of future Homeowners like we are already experiencing.
The Property Site Visit is NOT the portion of the process in which to cut corners - ask any experienced Appraiser how many times what was described in a Listing &/or a phone conversation with an Owner or Agent turns out to not be the case once you have walked through and around the House & Property.
Hybrid appraisals are no more than a collective attempt by the AMC's and their trade group REVAA to gain even greater control over the nations appraisal assignments i.e. profits by now dividing the steps in the appraisal process. They control who gets the majority of the orders, they control the fees (don't let them fool you the lender does not) and now they want to "pick" who completes the inspection (boy, this will free up a lot of time for their staff appraisers). Some AMC's are even "picking " the comps ! This is about control make no mistake about it. They have no concern over quality or what is in the best interest of the consumer. Exactly how is it better for the consumer for an individual with very little training or experience to inspect the property over someone with decades in the field and years of training ? How is it better for the consumer and for the financial system for the appraiser to NOT see the property ? I am an appraiser. I am also a consumer. I have purchased, sold, and refinanced many properties over the years and not once has the closing of the loan been delayed due to a late appraisal submission OR the lack of ( shortage ) a qualified appraiser to do the job. In fact, the appraisal is usually mailed to me weeks before the closing. Delays have either been the fault of the lending institution OR my own because I did not submit the required documentation in a timely manner. Lets step back and look at the big picture. We all know what this is about.
I have been a full time residential real estate appraiser since 1987 and have many years experience. While I feel that modernizing the appraisal process is a great idea, Fannie Mae needs to have fee appraiser voices and ideas, instead of only talking to lenders, AMC's and other entities in the real estate area, but not having actual appraiser's knowledge and ideas when it is our profession you are talking about. The inspection part of the process is the MOST important part of the appraisal process. Some houses can look great from the outside, but be in need of many repairs that photos cannot capture. Training someone to inspect a house does not substitute years of experience inspecting properties. AMC's who are saying there are appraisal shortages are not telling the truth. They continually shop around for the cheapest appraiser so that they can keep more of the fee for themselves and this takes time and has hurt appraiser's overall. The most upsetting thing is that Fannie Mae is not having any voices of actual appraiser's , when it is our profession, it seems as though you need appraiser input.
Please consider public trust, This will force appraiser to rely much more on parties who have a vested interest in the final outcome. This pressure will be applied though our paycheck by AMCs. Inspections is one of the few areas where appraiser get direct data, take this away and it will greatly diminish the appraisers ability to accurately get a feel for the dwelling.
There is currently a proposal to allow the use of hybrid appraisals or bifurcated appraisals, where unlicensed individuals conduct appraisal inspections on behalf of a licensed or certified appraiser. This is an inherently bad idea and should be struck down. To date, there is no better method to obtain a credible opinion of value than utilizing a well-trained licensed or certified appraiser. Why tamper with the best thing going?
There is no question that the highest quality appraisal products result when a licensed or certified appraiser, or a properly trained appraiser trainee inspects the property. Appraisers have taken state approved licensing classes, passed state licensing exams, served under a licensed or certified appraiser mentor and have fulfilled all the qualifications required by the state to promote the competent appraisal of real property. Appraiser trainees have passed the same state approved licensing courses as required for licensed appraisers, have passed the same licensing exams as require for licensed appraisers and are directly supervised by an experienced appraiser. The bar is set very high in the appraisal industry as appraisers help maintain the public trust. The use of inadequately trained inspectors that are not trained and/or directly supervised by licensed or certified appraisers would only tend to dilute the quality of the appraisal process and would result in a decline in the reliability of support for loans submitted to the secondary market. How could this possibly be a good idea? Why circumvent the safeguards put in place to protect the public?
For years, lenders and appraisal management companies (AMC's) have resisted the use of appraiser trainees, despite their many significant qualifications and their direct supervision by appraiser mentors. Now the use of untrained, or inadequately trained property inspectors, who are less qualified than a licensed and directly supervised appraiser trainee, is suddenly supposed to be a good idea? Not only would the quality of the appraisal process be compromised, but consumers will be misled as they will likely believe the property inspector who visits their home is an appraiser. And how many will be asked to pay the same price for a bifurcated appraisal as a proper appraisal?
It is also likely lenders and AMC's will be unwilling to take the blame when poor quality hybrid appraisals lead to foreclosures and short sales, as it is common for lenders and their AMC representatives to force appraisers to sign indemnity agreements. Appraisers will be stuck shouldering the responsibility for anything that goes wrong, even though they would have little control over the process. It would be unfair to ask appraisers to take the blame for a process that would likely be forced upon them.
It is in the best interest of consumers to allow the appraiser to be in full control of the appraisal process. The public will be best served if appraisers or their directly supervised licensed trainees inspect properties for appraisals. A hybrid appraisal utilizing a property inspector in place of a licensed appraiser, a certified appraiser or a licensed appraiser trainee will compromise the quality of any appraisal and can only increase the risk to consumers and the general public. Why on earth should we put our friends, neighbors and relatives in a position where they may have to bail out GSE's on account of bad decisions that can be avoided?
It is my opinion that the hybrid and desktop appraisal reports are a significant step backwards for consumers when making a purchase or refinance of a single family home. As an appraiser I am required (among other things) to have college education and 3,000 hours of training before I can work on my own and earn a living barely above minimum wage levels. Now companies like Clear Capital and CoreLogic expect me to earn EVEN LESS while putting my livelihood (license) on the line by signing as an appraiser for properties I have not inspected. I cannot and will not rely on some real estate agent trained for an hour or less at an online class to inspect a property, take photos and comment on condition and quality. This is ridiculous! Not everything in the world has to be faster and cheaper, especially when it involves one of the biggest purchases in most consumers life times, their home. An appraiser who earns $600 on a $250,000 home is earning less than a 1/4 of a percent. Compare that to a real estate agent or a tile/escrow fee. It's already peanuts when compared to 15 or 20 years ago. The hybrid appraisal report is a BAD idea. Compare it have allowing your neighbor who is not a doctor to perform open heart surgery on you while watching a video on YouTube. Just say NO to hybrid appraisal reports.
Real estate appraisers are under siege by third parties that are desperately trying to replace our services with something more "modern." Yet appraisers understand the back story and know that there is no shortcut in providing credible valuation results. Hybrid appraisals are a systematic danger to the mortgage process and damage the public trust because they are:
- More expensive and slower to complete as they are parsed out to two different parties
- Removing the inspection from the valuation expert so it takes away the appraiser's familiarity with the property.
Just because something is "new" doesn't mean it is better. Just because someone is against something proposed as "modern" like hybrids aren't stuck in the past. Regulators are trying to create more loan volume because low mortgage rates are not effective. They are trying to remove all pain points - providing a full appraisal is seen as a pain point yet appraisers are the only set of eyes left in the process to protect the consumer and the taxpayer against fraud. Please consider this in your review of this matter.
In my opinion, hybrid appraisals will result in another housing crash or worse. The fact that unqualified persons are being allowed to physically inspect a property, and a certified appraiser is being asked to agree to these findings with taking on liability is appalling. The fact that this profession, which I trained very hard and long to be a part of, is being thrown away to LOWER fees is disgusting.
Bifurcation is not “modernization” of the appraisal process. The bifurcated model has been in place since licensure and the implementation of FIRREA for appraisers to train and apprentice new up and coming valuation professionals. Those appraiser apprentice/trainees are registered and regulated by the state. The apprentice/training to become an appraiser is how appraisers replace their credentialed ranks, serve consumers and protect the public trust. Replacing the apprenticeship programs with lender/AMC owned bifurcation models not only undermines the appraisal process, it undermines the ability for up and coming new professionals to share in the full scope of training typical of credentials and licensure. We are unsure what the long-term effects will be but anticipate a loss in appraiser numbers throughout the state and country due to the bifurcated/non-licensed inspector model.
How did this happen? Lenders and AMCs took a fully functional apprentice and training
program that’s worked for decades and scaled it to a fault for profit, to serve shareholders. It is apparent the goal is to break the appraisal process into smaller pieces to profit more from each piece. The end results will be less credible appraisals, higher cost to consumers, and no regulatory policies or consumer protection for so-called inspectors. The worst-case scenario is someone will be harmed or hurt. We believe this is inevitable with no training, regulation or accountability of said “inspectors.”
The irony of the model program from the top at the GSEs down to the local lender is that lender/AMCs forbid apprentice appraisers who are trained, regulated and accountable to regulators from performing the same processes. Yet, the lender/AMC model will allow untrained, unregulated, and unaccountable individuals to provide critical and pertinent information for the appraisal process. How is this even logical?
Diminishing growth potential and restraining trade from those who are licensed and registered professionals in our respective states to grow our businesses honorably, respectfully, and with accountability are the results of these AMC/lender bifurcated being pushed into the housing valuation process.
The bifurcated programs allow lender/AMCs to circumvent laws and control the valuation process that goes against the intent of FIRREA and Dodd-Frank and consumer protection. Lender/AMCs are not doing this to help consumers, they are doing this to increase profits because they can make more money off the consumer by breaking down each segment of the process.
Lender/AMCs stole billions from consumers with no accountability for decades because of the lender/AMC model. Unfortunately, consumers do not know better because full disclosure to consumers is not being met by regulators or the CFPB. We need strong agencies like Virginia to take a stand against change for the sake of change and keep consumer protection and the public trust the priority.
My personal experience with hybrids includes but are not limited to:
In closing, I respectfully hope the Virginia DPOR looks deep into what’s presented on the surface as talking points by AMC/lenders who are pushing the bifurcated model as a solution. We hope the long-term picture will defer any short-term decisions. It is imperative appraisers not be restrained from replacing our numbers and training the new valuation professionals of tomorrow as “independent”. Leaving the valuation process solely to banks, AMCs, and aggregators fueled the credit crash in 2008 because of conflicts of interest. The same leaders who took us down that devastating path are the same leaders pushing bifurcation.
We work diligently and honorably to avoid that same mistake from happening again. There is no appraiser shortage but there will be if the bifurcated model is allowed to go unchecked, unregulated with unlicensed inspectors and out of state appraisers. How does this protect the public?
The only solution is clients allow appraisers to manage their licensed and credentialed trainees to perform inspections and reports as the intent of the bifurcated process and model was designed to be used. Allow apprentice appraisers to participate and sign in the appraisal process. We do not understand why we are being restrained while non-licensed individuals are being allowed to proceed.
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