Out-of-area appraisers are out of luck

Submitted by Matt Carter on July 23, 2009 - 3:05pm.

Here's how the Federal Housing Finance Authority, which regulates Fannie Mae and Freddie Mac, put it in an Update on Enterprise Implementation of the Home Valuation Code of Conduct (HVCC) issued this week:

"Unqualified or out-of-area appraisers– The Uniform Standards of Professional Appraisal Practice (USPAP) requires that an appraiser be competent and knowledgeable of the local market to perform an appraisal. In addition, in reinforcing USPAP, the Enterprise appraisal guides require appraisers to have knowledge of the local market. The use of unqualified in-state or out-of-state appraisers, unfamiliar with local conditions, should be reported to state appraiser licensing agencies."

See more on this issue in Inman News story on NAR's report on June existing home sales.

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Submitted by Derek Eisenberg on July 23, 2009 - 5:06pm.

This is so absurd. As the owner of an appraisal firm, I have one appraiser that lives 60 miles from where we send him all the time and our office is 100 miles away. However, this appraiser works that market daily. It's his territory. So where the appraiser lives or where the appraiser's office is located is irrelevent.

Additionally, out of area appraisers are almost alway HIGH; not low. They miss a new highway or unfavorable pending development in the neighborhood. They're a heck of a lot more adverse factors that only a local appraiser would know than there are industrial buildings being turned into community parks and schools.

Appraisers that jabber the out of area nonsense are most likely protecting their turf. Appraisers don't attend the planning board meetings in every city in their county to be on top of everything new that is pending in the area. So if you really want a knowledgable appraiser, wouldn't they have to limit their coverage to just one city? How ridiculous would that be?

Realtors are the worst at understanding supply and demand. There is an excess supply of housing because so many foreclosures are flooding the market. Until that stops, supply will exceed demand and appraisals will be low. This is not rocket science. The real culprit is the buyer's agent that failed to represent his/her buyer's best interest and get his/her client to make a fair offer on the house instead of overpaying.

Derek Eisenberg, ePRO, GAA, RAA, GRI
Licensed Real Estate Broker
State Certified General Appraiser
Certified Tax Assessor
http://www.mls2u.com

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Submitted by Fred Glick on July 24, 2009 - 4:19am.

Derek,

You missed the point.

It is the appraiser the is UNFAMILIAR with an area is the one who should not do the appraisal.

Fred Glick
Principal Innovationist

Licensed Real Estate Salesperson, PA- US SPACES, INC.#RS285216
Real Estate Broker, CA Dept of Real Estate
USLM, Inc DRE#01507615
U S Loans Mortgage LLC Licensed by the Commonwealths of PA & VA, States of MD, FL, CO, AZ. Licensed Originator in the State of NJ

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Submitted by Sid Kirkland on July 24, 2009 - 8:30am.

Derek,

You did miss the point. More often than not, out of area appraisers are not familiar with the areas that they are accepting contracts on and therefore are in violation of USPAP and HVCC rules. I'm glad you can make an unqualified argument with one example, but the industry has made the counter argument with thousands of qualified complaints and as of July 22nd, 2009, the Federal Housing Finance Agency has rolled out an update to their guidelines in response.

The first thing the report addresses is the industries need to use "qualified and experienced appraisers" it then goes on to say:

"The GSE guidances reinforce existing professional standards that appraisers must be familiar with the local market where the property is located and highlighted that appraisers must choose appropriate sales comparisons."

Why do they need to make this statement? The answer would be that there has been a pattern of inexperienced and unqualified appraisers being used in areas they are not familiar with. One might surmise that experienced agents are not willing to put up with the theory of working for an AMC for half the pay and twice the work load. That might be just one reason that the AMC's need to higher less experienced appraisers and send those appraisers into less familiar territory.

The next thing the FHFA addresses in their report is misinformation regarding the Code. There are a number of paragraphs clarifying the Code's intent including this statement:

"Unqualified or out-of-area appraisers–
The Uniform Standards of Professional Appraisal Practice (USPAP) requires that an appraiser be competent and knowledgeable of the local market to perform an appraisal. In addition, in reinforcing USPAP, the Enterprise appraisal guides require appraisers to have knowledge of the local market. The use of unqualified in-state or out-of-state appraisers, unfamiliar with local conditions, should be reported to state appraiser licensing agencies."

I doubt they would make such a clarification if there wasn't a huge problem in the industry! So thank you again for your "one" example, but the industry has a problem and it would be better to acknowledge and work towards a solution versus transferring the blame onto agents.

Barb,

Thank you for your comments to the Editor. Hang in there. The real estate community appreciates your knowledge and professionalism.

Sid Kirkland, GRI, RDCPRo
Broker Associate

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Submitted by Derek Eisenberg on July 24, 2009 - 5:27pm.

Fred and Sid, you are the ones that missed the point.

I wholeheartedly agree with USPAP and the concept that an appraiser who is not familiar with the area is unqualified.

My point which seems to have gone over both of your heads is that:

1) It's common for an appraiser to work a market that is 30+ miles from their home or office and work that one market all the time as I stated in my original post. It was not one example.

2) The complaints you reference Sid are sour grapes because their deals died and their deals did not die because the appraiser was from outside the area even though they foolishly need something to blame it on:
a) Appraisal organizations and the National Association of Realtors are rarely on the same side but this time, Appraisers don't like the HVCC because their fees are down and Realtors don't like it because their mortage guy can't send his boy out to make the number.
b) There is a glut of housing. Simple supply and demand dictates that excess supply lowers prices. Even if the excess supply is the result of foreclosures and even if they are not used as comps which they typically are not, they still create alternatives. Alternatives at lower prices drive down traditional non-distress sales because buyers have more choices and more bargaining power.
c) Lenders want recent comps within 3 months because the market is changing so fast. It use to be 6 months to a year. Appraisers can't pick that comp that supports value anymore because it's too old and the market is changing daily.
d) Appraisers who don't know the market overvalue most of the time. They miss something new and adverse that an appraiser knowledgable in the locality would know. For every factory knocked down and converted to parkland, there are 3 new highways, porn shops, gogo bars, methadone clinics and prisons that are built that have a negative effect and the appraiser who does not know the market misses them.

I 100% agree that Management Companies with low fees, and fast turnaround demands are driving appraisal quality down. I agree that they are creating a monopoly by having the buying power of Walmart and Home Depot that keeps fees down unfairly. If 5 firms control all the appraisal ordering there is a cartel that can fix appraisal prices at a low point. However again, slipshod work almost always produces overappraising not underappraising.

However, the reason your appraisals are coming in low is SIMPLE. EXCESS SUPPLY. What we need is to grant bankruptcy judges the power to slash mortgage balances for a short 12 month period with a built in moratorium that requires an act of congress if it needs extending. This would keep people in their homes and stop foreclosures. Banks are angry and of course oppose this type of legislation but they are shooting themselves in the foot and biting off their tongues to spite their faces. The more they foreclose, the more they increase supply and the more prices drop even further. In their quest to cut their losses they are increasing their losses.

Reduce supply and all of this will stop. Your appraisals will start coming in close to sale price again. If you buy into that out of area nonsense, you are being really naive. It's just a campaign of misinformation by trade industries to raise appraisal fees and let mortgage brokers pick a rubber stamper.

Derek Eisenberg, ePRO, GAA, RAA, GRI
Licensed Real Estate Broker
State Certified General Appraiser
Certified Tax Assessor
http://www.mls2u.com

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Submitted by Jeanne L Turnock on September 20, 2009 - 5:23am.

First of all, Barbara is "appalled that no one seems to know this: Appraisal standards PROHIBIT an appraiser from appraising in an area where he or she is unfamiliar with the nuances of the local market, (per the Competency Rule of the Uniform Standards of Professional Appraisal Practice)." How would real estate agents know this? They don't even know there is a USPAP! Secondly, the competency requirement also contains a provision for acquiring competency.

Derek is right. Just living or working in an area does not bring with it competency. And he is right about a non-resident appraiser appraising high because of lack of knowledge concerning bad stuff happening in a neighborhood. The "guts" of appraising are basically the same. It is the subjective stuff which separates appraisers. And a non-local appraiser with lack of knowledge of the zoning issues, etc. (and when are zoning changes ever good?) would most likely not be lowering values to reflect that knowledge.

The real issue here is the effect of foreclosures. Real estate agents (and I am a working broker) may not like it, but foreclosures, more and more, ARE the market. When I pull listings for my buyers to see and then eliminate short sale, 2/3 of the listings drop out and, out of what is left, 98% are foreclosures. Are we, as appraisers, to ignore that? The buyers sure don't.

Jeanne L. Turnock, e-Pro, ABR,GRI,CRS,SES
RealTrans Certified, REOMAC member
Broker/Appraiser
Turnock Real Estate Services, Inc.
Baltimore, Md.

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Submitted by Barry Noble on September 20, 2009 - 8:50am.

If an appraiser works an area 60 miles from his home base, but has been doing it for a long time and is fully familiar with that area and its nuances - then that appraiser is a good pick. It's the appraisers that travel long distances to do cheap appraisals (below normal cost of living earnings) and HAVE NO KNOWLEDGE FROM EXPERIENCE of the area or property types or market conditions - these are the ones who should NOT be doing the appraisals.

I work in a range of 40 miles - have worked the 8 resort cities in our valley for over 18 years - have followed the market nuances, ups and downs, understand the area property types, specialty communities (gated and otherwise) and consider that range my local area. I would NOT go 89 miles to Los Angeles to do an appraisal any more, because I left that area 18 years ago, having worked there 6 years - but it is no longer my area of expertise.

I just watched a Los Angeles appraiser appraise my neighbors house across the street yesterday - a couple of months ago an appraiser from Santa Barbara was there trying to do the same thing - and they wonder why the appraisals are "off" of an accurate value? Yes, the earlier appraisal was so low, I reviewed the copy the owner was given and found it $150,000 off an accurate Market Value (given local Market economic conditions). This is a famous neighborhood for Mid Century Moderns (in Palm Springs CA) and that is one of the considerations when appraising. However, to the out of towner appraisers - they're probably "Cute old houses!"

I am not a complainer, by any means. In fact, I consider myself an eternal optimist. I am a very good appraiser, proud of my accuracy and detailed work. Fact: I am, however, being sidestepped by the AMC's with a preference for "cheap" out of area appraisers because I won't work for lower than my "lowest cost of living" fee - not a glamor fee or exorbitant fee by any means. I supplement my income with Estate planning or settlement, divorce, Insurance retro-active and listing assistance appraisals. If that doesn't suffice over these next few months, I may have to return to Brokering, but don't want to.

Barry Noble
http://www.MyPropertyIsWorth.com
Certified Residential Appraiser
and Broker, Palm Springs, CA

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Submitted by Barb Van Stensel on September 20, 2009 - 7:32pm.

Barb, I am one of the real estate agents that understands the recourse but I will not allow an appraiser into one of my properties if he does not understand the marketplace. That being said, the appraisers that do not qualify under USPAP guidelines are the low cost appraisers who are undercutting the appraisers who are doing and have been doing their job.

It isn't the distance the appraiser travels but if they understand the marketplace.

I had an appraiser attempt to do his first two unit appraisal on my sale. I asked where his boss was? There should be an apprenticeship when an newer appraiser lacks the experience. Both of my brothers are appraisers over in Michigan. They appraise the western half of Michigan. Now go choke on that one. They can because they are qualified. The one is commercial. The other is residential. If they have questions concerning their qualifications, they refuse the assignment.

Barry made a very good point and that being: "however, being sidestepped by the AMC's with a preference for "cheap" out of area appraisers because I won't work for lower than my "lowest cost of living" fee - not a glamor fee or exorbitant fee by any means" is a major problem that good appraisers are up against. No one has any idea how much work is involved in these appraisals that are done by competent appraisers.

On the flip side, how many real estate agents sell a home, condo or two unit building and don't know how to place the value, how to market, understand what type of financing the subject property qualifies for? If you look at all the expired listings for homes that are now facing foreclosure because a real estate agent has sold one home in the last year or two, and nobody is getting upset that the failure to price, sell and close is costing us our equity in our home, on top of all the other foreclosures that don't even "hit the market". I had an agent from another firm call me last week and ask me how to write a contract this week!!! Where is his managing broker?

Bottom is, no matter what area of business you are in, if you aren't qualified .... either get the training, experience, knowledge, do the research and get on board or defer

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