Another nail in the coffin for appraisers. Death to consumer protection and mortgage investment security.

In one swoop of the pen, the Federal Deposit Insurance Commission (FDIC) Board of Directors, decided that home mortgages will no longer need to obtain an appraisal for loans under $400,000. With this increased threshold, apx. 72-75% of all home mortgage transactions will be exempt from the Dodd-Frank Act’s rules protecting the integrity of appraisals. The vote raised the existing threshold for mandatory appraisals from $250,000 to $400,000. Think about that. With the average price of a home in the United States at $229,000-$310,000 (depending on who’s numbers you believe), we are talking about the majority of mortgage loans. Who benefits from this change? You guessed it, big banks.

This change will allow banks to use mostly unregulated “evaluations” instead of federally regulated real estate appraisals. All I can think about is “Here’s Your Sign.” Bad things are destined for the American home buyer.

The bottom line is, appraisals protect consumers, mortgage investors, and the economyWithout them, consumers are at the mercy of big banks and people who are most often paid based on the size of the loan. It is an open invitation to fraud and corruption. When all the curtains are lifted, this new change was inspired by greed and profits. Consumers will pay the price and within a few years the results will be devasting. Is the sky falling? Today it may very well be…


Bifurcated – Another Nail in the Appraisal Industry’s Coffin

Bifurcated appraisals are just one more step in a master plan to eliminate appraisers from the mortgage lending process. At the end of all the discussions, any changes to the appraisal industry are not about improving the process but about who profits from that process. It still comes down to money and profits. Banks want more and they decided the easiest place to bring in massive new revenue is from the appraisal industry. The motivation is simple – it’s the Golden Rule alive and well in 2019.

Let’s think about this logically. If you thought it was a good idea to have someone other than the actual appraiser complete the home inspection part of the appraisal, would you want to make sure that part was done as accurately as possible? If you are worried at all about quality, the answer would have to be yes. And, the people most qualified to complete appraisal inspections have been in the system for a very long time, they are called Trainees. They have taken advanced classes and spent time being properly trained by an appraiser. They would be the logical choice to complete inspections, if not done by the appraiser. But, for several years lenders have almost totally rejected Trainees. Just as a note here – I personally don’t believe there is any way to separate the appraisal process and retain true quality. Part of an appraiser’s knowledge base comes from doing inspections. If you remove that part of their ever changing market education, you lessen their ability to understand the total market. However, back to the Bifurcated process.

Consumer protection appears to be missing from this thought process. Now, Fannie Mae, Freddie Mac, and the VA still don’t want Trainees, but they will allow anyone (without any formal training) to perform these important inspections. This is nothing more than an attempt to weaken the already hammered appraisal industry and sadly, it all comes down to profits. The so-called “quality” big banks talk so much about is a myth. Big Banking Lobbyist have sold Fannie/Freddie/HUD/VA on a new and improved appraisal system, all designed to increase their control and lessen the hard-core truth and honest valuations the appraisal industry delivers. Is the appraisal system perfect? Certainly not and we can always increase appraiser education. But, the appraisal industry is not the only player in the mortgage lending process that could stand some extra education.  If we want true quality and consumer protection, we should ensure every lender has at least a 25% investment (or more) in every loan. It’s just like home buyers. With no skin in the game, they are likely to walk away from a loan and have little incentive to make the best decisions. With nothing to lose, why not roll the dice?  The same is true of lenders. Without any skin in the game, they make their money off the loan and move on to the next loan. Without any investment or risk in the loan, they have little incentive to make sure the collateral is solid and the loan secure. They’ve got nothing to lose and only more profits to gain. The whole lending system has gotten way off base and logic has left the system. From Wall Street to Main Street, they are so far removed, they have lost sight of the true definition of quality and the role of an appraiser in the home buying process. If they were invested in each loan, they would be working harder to increase appraiser training and Realtor® education. After all, Realtors® price homes with minimal education requirements. Then lenders expect appraisers to “prove” every adjustment (in a subjective business) where a Realtor® could flip a coin or just check Zillow® to come up with the price and no one questions their values at all. That’s a problem. And, since the appraisal is paid for by the buyer, lenders should only want to protect their clients by providing them the best product possible.

This Bifurcated process eliminates one of an appraiser’s main jobs and is one of the most important steps in the appraisal process. Then, it steps right past the most logical people to complete the inspection (if not the appraisers). It moves past Trainees to any person off the street they can get to do the job the cheapest. Not because they want to lower costs to consumers, but simply a method that allows them to make more money off of the appraisal fee for themselves. Consumers will pay no less for appraisals, yet get an inferior product and no one seems to care. It’s a sad process and one hard to understand from any perspective of wanting a quality appraisal product and protecting the home-buying public. It’s especially hard to understand how government agencies could be convinced this is all good for consumers.

However, if you follow the money and think about this entire process, it all makes sense, at least from the lender’s perspectives. They have convinced Fannie and Freddie it’s good for the process, helping to bring faster appraisal services. It’s all a smoke screen and a sales job. This new change is just another nail in the appraisal industry’s coffin. Using Bifurcated appraisals lessens the number of necessary appraisers, further reduces the number of appraisal Trainees, and if this trend continues, big banks will argue there are just not enough qualified appraisers. So they will make their case for using all automated valuations in mortgage lending. Consumers will pay more, get useless valuations, and banks will have achieved their final objective – eliminating those pesky appraisers from their lending process. A huge victory for big banks and a huge loss for appraisers, and especially consumers. It’s all happening right before our eyes.

I hope appraisers will just say “NO.” These appraisals have to have an appraiser’s signature to make this new process work. So, appraisers your future is up to you. It’s your choice to participate in the Bifurcated appraisal process. It’s never been more important to voice our opinions and stand up for our industry. Tick tock, tick tock…

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The Impact of Square Footage on Hybrid Appraisals

Let’s talk about walk through inspections, measuring homes, and completing all aspects of an appraisal assignment we put our signatures on. We can all see the ever growing wave of Hybrid Appraisal products. So, let’s talk about the one number at the start of every valuation. We live in a price-per-square-foot world. These numbers the new inspectors collect will be at the heart of every appraisal.  We can’t use a Licensed Trainee, that we know and have trained, but we should trust this unlicensed and barely trained person for the information which we will ultimately base our value and then sign? No matter how many disclaimers and disclosures we write, at some point any valuation problems will come back on the appraisers.

And in these inspections, what about little things like functional utility (which most agents have never heard of), and will they understand the importance of things like room counts and above and below grade? How will they know which sun rooms should be included in the GLA? What about detached spaces? If you look through MLS you can find lots of interesting spaces listed as total finished square footage, and these are the people we are going to rely on to bring us accurate data?

If the inspectors get it wrong, who will it really hurt? Who do hybrids really help? Lots of opinions on those questions. We are being force fed a blind faith in big data that big banks think we can’t understand, the public can’t understand, and they can manipulate any way they want with no one the wiser. Hybrids ultimately give lenders more power and appraisers less. It gives consumers and mortgage investors more risk; unnecessary risk.

When most appraisers take pre-licensing classes, they learn the very basics of measuring square footage. Agent courses teach far less than appraisal courses and the topic of square footage is barely mentioned. In a business that focuses on price-per-square-foot, they don’t consider how to calculate a square foot a very important topic. I’m always amazed at the agent classes, even the advanced CMA classes, they hardly mention the topic of square footage. It’s as though they have accepted the myth that Public Records provides the “Official Record” for square footage. Absolutely wrong! AVMs rely heavily on this data knowing it is filled with errors.

Learning to calculate the living area is a learned skill. It only comes with experience and knowledge. Should I really trust a real estate agent who knows very little about square footage to provide me with a number I use to determine a value, and to which I will place my signature? Sure, I used to do some 2055 reports and used the sqft from tax records, and I cringed every time I sent one out. But, if a large margin of error was acceptable to the lender, then why should I not do the work? At that time, I charged $50.00 less to do a 2055 versus a 1004. Think about that. Time is money, right. Are appraisers being turned into an hourly paid service that anyone can do, or are we professionals with valued opinions? It certainly depends on who you ask these days.

I have studied tax records, MLS systems, and the influence of sqft errors on home values for over 15 years now. I can tell you with absolute confidence that inaccurate sqft details harm home values and consumers. Just look at Zestimates® and every real estate professional having to explain why they are not reliable these days.

Are there times when a bank doesn’t need a full appraisal? Absolutely. If a 30-50K margin of error on the appraisal is okay then I say by all means allow lenders to use Hybrids or AVMs. However, if I am buying a home, regardless of whether it is $100,000 or $800,000, I deserve to know the fair value. If banks actually were required to service the loans they write, would they be more concerned with accurate values? Of course. A mortgage investor, just like a home buyer, deserves to know the real value and no computer can provide that. Its just the facts of the real estate business. It is NOT a data perfect business where a computer program can calculate precise values. Never has been and never will be.

At the end of all discussions, Hyrbid appraisals can never perform the same level of quality as a traditional appraiser. But, if that’s what lenders want, lets give it to them. So yes, please send your inspector out and provide me all the data you want. My opinion of value is worth a minimum of $350. To $400.00. I’ll be happy to reduce my fee. Computers have certainly stream lined the banking business, and every other business associated with a real estate closing, but I don’t see them reducing any fees. For my knowledge and skill, I deserve a fair fee, just like the attorney and title insurance company, among others. For less than that, I say hire someone who has not worked to earn and keep an appraisal license.

We could also have national AMC rules that every assignment must be placed within 24 hours. They want appraisers to do everything fast, but they don’t have to do the same. If they want to speed up the process, maybe there should be some new rules for someone outside the appraisal industry for a change.

In home valuations, we work

3D illustration of a risk level knob over white background. Concept of investment strategy.

in a price-per-square-foot world and in every residential transaction, size does matter. Having an untrained person (after not allowing a licensed trainee) to inspect a home and measure square footage is not the answer to any appraisal problem.









Big Banks & the Fleecing of the Appraisal Industry

Big Banks are tricking appraisers into providing the very information they perceive they need to put appraisers out of business. There are countless new programs coming out and made available to appraisers, so they can fine-tune the formulas and help to make the programs better. These programs attempt to provide support or what banks like to call “Proof” of appraisal adjustments. Once appraisers figure out the best methods possible for doing this (although there are no exact formulas for a system that doesn’t provide exact adjustments, ever), then bankers think they will have just enoughdata to make their case for technology over traditional appraisals.

It’s a brilliant plan and they are getting away with it daily as appraisers, so anxious to stay in the process, play it anyway the big banks require. It’s the Golden Rule in play and once again, appraisers get the short end of the totem pole.

If you think about who is providing the majority of these new forms and programs designed to help support adjustments, many are owned by companies who also just happen to own automated valuation companies. Convenient right? It’s all smoke and mirrors, again, and the big banks convince government regulators, and they try to pass it on down the line, all the way to consumers. “Trust us and trust our technology. We’ve got your best interests at heart.” Said the wolves to the sheep.

The two biggest myths of our industry are that AVMs can provide accurate and consistent home valuations. Impossible task, regardless of technology. It’s easy to prove if you really want to see the answer. And second, that every appraisal adjustment can be “proven” by statistics. Again, impossible task. It’s like thinking we can replace all surgeons with technology. Some decisions have to be based on experience and cannot be performed by a computer or technology. It requires experience, guided by wisdom. There are some fields where a human brain is required to make subjective decisions and appraisal is one of those industries. That’s why appraisers are required to have so much education and training. It is not a math only business. You have to learn trends and patterns, and what “comparable” actually means. That’s the biggest problems with Realtors®, lenders, and AVMs. They don’t understand what homes are truly “comparable” sales and often end up being guided by the highest priced sales and owner’s opinions, rather than based on fair market data. AVMs select comparables based more on proximity rather than comparability and a computer may take forty sales in a certain area and average all the information. That is NOT the way to price real estate and it cheats consumers into lower or higher values. Appraisal is an art not a science and no computer can ever replace the human brain. No matter how many new programs or algorithms they come up with, it’s a task that has been tried for decades and failed miserably. You can’t make orange juice with lemons. Technology and real estate data just don’t mix.

Big banks want us to trust one of their employees to judge a home’s fair value. No training, no oversight, and talk about bias! Whatever value the bank wants is what they get. Where’s the danger in that? It’s time to let appraisers do their jobs and stop letting big banks try to eliminate appraisers from the mortgage lending process. The AVM and technology revolution is a scam with only one possible outcome. And, that outcome is only good for one group, and it’s NOT consumers.

The 1 – 2 Punch – Ending the AMC Nightmare and starting the path to Realtor® Education

The AMC dog and pony show has been going on for the better part of a decade. Appraisers have been called out for every problem associated with a real estate closing. Ever silent is any talk of better educating Realtors®. They are the ones with the most power in the pricing process, and the majority of so-called “appraisal problems” are because they say it’s a problem. That’s a LOT of power. But somehow, they manage to stay under the radar and no one seems to be challenging their integrity, as they constantly do with appraisers. Realtors® are the least educated people in the entire home buying process. It seems everyone, their brother, and their cousin has a real estate license. How many times do we hear about how easy it is to get a license and sell houses. “Oh, we love making a little part-time money and it’s so easy.” Of course selling homes is not so easy, but getting a real estate license – that’s much easier. The Association of Real Estate License Law Officials (ARELLO) estimates that there are about 2 million active real estate licensees in the United States. According to the Appraisal Institute, as of December 31, 2017, the number of active real estate appraisers in the U.S. stood at 82,208. Let’s see – 2,000,000 vs 82,208?? Must be a little easier and that’s two million opinions based on the least required education in the entire home buying system.

Realtors® have always seemed to have some unwritten power. When it comes to home prices, it’s always assumed a “low appraisal” rather than an “over-priced listing.” Realtors® have a magical credibility that appraisers have not been afforded. AMCs and their underwriters seem to question every comment and adjustment appraisers make. But, no one questions how a Realtor® comes up with a listing price. There’s something wrong with that picture, but it seems to get lost in the smoke and mirrors of the cheaper and faster appraisal rush, a rush that no one except the AMCs have ever demanded. And, no one appears to have any interest in protecting consumers, only making money from the appraisal process. The entire “faster and cheaper” appraisal argument remains all about potential profits and consumer protection is totally lost.

AMCs were given their power overnight which was unearned and undeserved, and have now grown into billion-dollar businesses (on the back of every appraiser). They are also playing hardball with their new-found wealth by promoting every policy that benefits only them, such as Hybrid Appraisals. These products benefit only the AMC. They are bad for the appraisal industry and especially for consumers. The AMC decade will leave a lasting impression on the appraisal industry that will not soon be forgotten. The appraisal industry has lost over 10% of the entire workforce with those who flat out refused to work for AMCs. That’s a large chunk of appraisers who did not need to be lost. And, what about fees? I won’t get into that too much here, but I still find it amazing that consumers are not allowed to see the breakdown of the fees paid for an appraisal. Who’s rule is that? Exactly, the AMCs. They seem to have lots of power these days.

Appraiser voices are being heard more and more often and the true value of an appraisal management companies is coming to light, but it may be too little too late. AMCs are touting record sales volumes and more power than ever, as they continue to drive the best appraisers out of the industry. They don’t want or need good appraisers. That’s not their goal. Only cheap, fill out the form to meet minimum requirements and run to the bank with their profits. Appraisers were chartered to protect consumers and mortgage investors. That’s the exact opposite of an AMCs charter. It is a business model that only grew with the force-feeding

businessman with red boxing glove punch to the goal business concept

of a government agency, not of the free market. Appraisers were not offered a choice the same as lenders were not offered a choice. Basically, overnight AMCs were handed the keys to the world of mortgage lending and appraisal ordering. Perhaps justice would also come with the stroke of a government pen, signing AMCs out of business just as quickly as they entered.

Of course, there are some very good management companies. But, the model that dictates any one service over another, without free choice in the market, is over-government control at a time in history when less government is the objective. AMCs have been offered a long and fair test in the market. They have failed miserably and can only blame delays caused by them on appraisers. Surprisingly, when lenders order directly from appraisers, with truly qualified underwriters reviewing the work, the speed rises dramatically. Faster appraisers would come with the total removal of the AMC system. The question is, will the powers that be, and all the talk of big data and big money, take control over reason and logic – and of course consumer protection.

I think in an open market the best AMCs would survive. They have changed and grown to work with appraisers, not as dictators but as partners. However, the majority survive because they are mandatory or the least expensive option under current government rules. From the HVCC to today, can we really say the mortgage lending system has improved due to AMCs? The short answer is NO, not even a little bit. A wasted decade with lots of evidence if anyone really wants to see the truth.

AMCs need to be removed from the mortgage system just like the 1004 MCA. AMCs failed miserably and it’s time to move back to sanity and move forward to focusing up Realtor® education about pricing real estate. Then we can talk of “low appraisals” vs “over-priced listings” and mortgage loans.

The Missing “Standard”

Every week I talk to appraisers in different parts of the country and the conversations are almost always the same. Square footage errors are a problem everywhere, some places worse than others. Every appraiser seems to understand the problem and many of them complain about the real estate agents, home-owners, and even underwriters who challenge them about their square footage totals. They rely on the “Official Record” they believe is listed by the local tax department. Who teaches them this stuff? How is it possible the general public doesn’t know how important a home’s size is to the total value. They all believe in price-per-square-foot, but for some reason think the square footage in that calculation is not important.

Yesterday I talked to an appraiser who told me about his discussion with a homeowner who was upset because his home was over 200 sqft smaller than when they bought it, he even showed the appraiser the MLS listing. The appraiser pulled up the tax records and sure enough, the square footage in MLS was the same number in tax records. And yes, it was wrong over 200 sqft.

It seems like this topic is pretty frequently discussed so how can more people not understand the problem? Even in North Carolina, where the Real Estate Commission requires agents to have a sketch in every listing file, and to never rely on tax records, most weeks I can find new listings with the square footage totals that match the tax records. It must be they just don’t care enough to change the method they have always used. For agents, it is an absolute problem, but they always blame appraisers. If appraisers can’t agree on one standard, why the hec should we?

What will it take for the Appraisal Foundation to make a measurement standard mandatory? It’s almost funny to hear the same comment over and over again – “we don’t care which standard we follow or whether we count stairs as square footage on one floor or on two floors, we just want one rule so we can all do it the same way.” It really does make our profession look bad.

We all know the problem is real and it cheats home-owners every day. So, what can we do to establish a national measurement standard for appraisers? Who has the answer? It’s time…

Best Practice – Blue Pointer with a Label Indicates the Direction of Movement. Best Practice, Text on the Blue Arrow. 3D Render.

Realtors® Giving Too Much Power to RPR®

“Since then, we’ve become RPR’s biggest fans. It has helped grow our business because it has given us more credibility.” A recent article talks about the benefits of using the Realtor® edition of online home valuations. This growing trend is frightening for home owners as more and more agents rely on computers to price real instead; instead of using their time, skill, and research to calculate home values the right way. When it comes to determining the price of most people’s single, largest, lifetime investment, shorts cuts are NOT a good idea. Money matters, and getting a suggested listing price based on a computer and not a licensed professional’s skill, is the new trend and it is very bad for consumers.

“That first phone call is critical, I’ll immediately pull up RPR on my tablet and start researching the seller’s home while asking questions at the same time. I quizz the seller to confirm the home’s basic facts such as number of bedrooms, baths, square footage, etc.”

Stop the presses! This is a licensed real estate professional, responsible for pricing people’s homes and financial futures, that proudly announces to the world that she accepts whatever information she can find online, or better yet, that the seller provides her. Just WOW! The square footage totals agents rely on are one of the most important items when it comes to pricing a home. Tax records are notoriously inaccurate, and how are the owners supposed to know what size their house is? Most know what is in tax records. The “Official Record” for square footage is a myth started by an agent that didn’t want to be responsible for measuring a house. I actually don’t think agents should measure houses. They can’t be experts at everything. However, finding the correct square footage is a vital part of pricing the house and providing that data has always been part of the real estate agent’s duties. Ask 100 home owners where their agent gets their square footage total and they will tell you – that’s part of the agent’s job.

Agents say square footage is not that important and so they can use tax records to get close enough. On the one hand, they say square footage is not that big of a deal. But, then you look at every CMA they create and there you have it – a price-per-square-foot formula used to price the home. You just can’t have it both ways. It’s either important or it’s not. The fact is – if you change the square footage total used in the price-per-square-foot formula, you change the listing price. Often, by tens of thousands and much more. It absolutely changes home values and this is not just a number, it’s real money from real home buyers and sellers.

If Realtors® want to use RPR, more power to them. The graphs are wonderful. But, if you (or your computer) is going to use a price-per-square-foot formula – then have each listing measured BEFORE you give the owners a suggested listing price. If you don’t, you’re cheating consumers every day. Not an opinion, a fact of the real estate business. Size does matter!