The ramifications of Hybrid Appraisals
I am writing today to address the disturbing trend of hybrid/bifurcated appraisals and the potential ramifications on the real estate market.
FIRREA was enacted in 1989 to help establish a minimum baseline for appraisers after the Savings and Loan crisis of the late 80s. It does not make sense to roll back those standards and allow activities and shoddy appraisal practice that FIRREA actually attempted to eliminate.
Hybrid and bifurcated appraisals take a key component of the appraisal process, the inspection, and allows another person, a real estate agent, an insurance inspector, or the guy the worked at McDonald's just last month, to measure, inspect, and, in some cases, make a determination of quality and condition. The inspection is important for numerous reasons but properly measuring a home is paramount to the appraisal practice and, despite what some purveyors of hybrid appraisals say, is not an easy process. In my 21 years as an appraiser, I have measured many thousands of homes, and I still occasionally find myself measuring a challenging home. I live in the Phoenix metro area and have access to above average public data and it is shocking how many homes are significantly larger or smaller than what public tax records indicate.
Along with measurement, I am also concerned about the varying quality of inspections we can expect with third-party inspectors in terms of condition and quality. I regularly see sales agents downplay serious condition issues such as broken/cracked windows, sagging roof trusts, and potential mold issues. It is disturbing to think that these same agents may be providing inspection data upon which the appraiser will depend when performing these hybrid/bifurcated appraisals.
State and Federal laws have strict regulations over the use of a supervised trainee to do inspections, they must be supervised at all times, no matter their experience. However, the banking industry is willing to throw all of those away and depend heavily on trainees that have gone through an insufficient 2 or 3-week training course. How do I know these courses are insufficient? Last week, an agent that went through and passed Clear Capital's inspection training course asked for advice on how to measure and inspect a home. As a young appraiser, I had a mentor and other experienced appraisers to lean on for advice and help. Newly minted inspectors that have passed a basic course have no support
As a licensed/certified appraiser for the past 21 years, I take seriously my obligation to the public trust. Appraisers are the only component of the industry that is intended to be unbiased. We are bound by USPAP, whose primary function is the public trust, to develop appraisals to protect consumers and to protect lenders from over lending on their collateral. The push for hybrid appraisals has everything to do with money, it is an attempt to cheapen the process and consumers will not see those savings, they will continue to pay high costs for an inferior product.
What are the ramifications for this mess? It is anyone's guess, but I imagine that functional and physical issues with properties may be overlooked, that the 'appraisers' that depend on these bogus inspections will overvalue properties and that any decline in the economy will see more people underwater and unable to pay their mortgage. As an appraiser, I refuse to do this work. The stated conditions of the 1004P put the responsibility of the inspection and evaluation on the shoulders of the appraiser and I refuse to take responsibility for some unknown inspector who is trying to 7, 8, 9 or even more inspections a day to make a decent living. The expediency of a short (insufficient?) inspection is a dangerous sign, not a sign of efficiency.
Thank You for your time.
Certified Residential Appraiser