Real Estate Appraisal Insight From the Expert

Oops!!! I Did it Again!

I’m not a fan of Britney Spears, but I do know she had a big hit called “Oops I Did it Again” and I can hum the song but don’t know the words.  So despite not knowing her music, “the Brit” popped into my mind yesterday because of something I did, but at least it was appraisal related.

Back in the good ol’ days, when lender pressure was rampant, we appraisers would get assignments that would say things like “must hit $250k” or “$300k minimum”.  Well the bad appraisers would hit that value no matter what, and the good appraisers would hit that value if it was warranted.  But either way, future business was often dependent on how you did on your most recent appraisal.  Some loan officers would put feelers out before they actually ordered an appraisal- you know, do some research on if there were supportive sales before they took their borrower head first down the refinance path.

Now when an appraiser’s client base can come and go based on your last deal, it can be a bit stressful.  It used to be that whenever I’d get an order where I pulled the comps and knew before even going to the home that it wasn’t going to make their deal work I always get a lump in my stomach.  If it was a COD order, I wouldn’t feel too bad because at least I’d get paid, and sure I’d feel bad for the borrower, but if it was a bill through escrow situation, I was always wondering if I’d really get paid (assuming that the deal dies because of low appraisal value).  I actually had one of my longtime clients order an appraisal of a luxury home in North Scottsdale- gated, golf, gargantuan, and it took me 3 hours to measure the dang thing.  As property values were proven to be declining, I marked that on the appraisal, and next thing I know, I got an email from my client’s assistant railing on why I marked “declining”.   I never heard from that client again, and I was out $1,200.

So flash forward to HVCC- the Home Valuation Code of Conduct.  You know, the Anthony Cuomo contrived system to protect the transparency of the system.  Put in place to ensure that there was no undue pressure on appraisers from loan officers.  They say that it was put in place because some of the biggest lenders in the country actually owned their own appraisal companies thus causing conflicts of interest.  As a few real life examples so as not to sound biased, Countrywide/BofA owns Landsafe Appraisal, Wells Fargo owns RELS.  Now the operative word is “owns”, not “owned”.  So in other words, despite these changes which affected appraisers nationwide, the biggest lenders still have their appraisal companies working for them.  But in the meantime, a majority of appraisers have now been subjected to a major shift in business as appraisals must now be ordered through third party AMCs- Appraisal Management Companies.

If you’ve read any of my previous articles you can see my opinions on AMCs- and in case you don’t want to read it all, I’m generally in favor of the new system.  I won’t go into that here, but let’s just say that I didn’t work directly with any of those big banks, so all my clients went with AMCs that they didn’t own.  Now in this shakedown I lost some clients because they went with AMCs that I couldn’t effectively become an appraiser for, but I also gained some clients that truly ordered their appraisals randomly.  However, a few clients went with an alternative AMC solution- which was more of an electronic AMC.  Imagine that instead of having to contact a person to order an appraisal, you could go to a website which truly and somewhat randomly and anonymously selects the appropriate appraiser based on proximity, experience, etc.  I’ll talk more on that type of AMC some other time.  So because a few of my clients used that sort of system, I was able to get full or pretty close to full fees with transparency and lack of pressure.  Life was good.

But then one of my lenders started whining about deals that were killed because of low appraisals and their lack of control of the process.  I started getting calls from loan officers… I never wavered from my value, but still- a conversation that should never happen any more.  So what did they do?  That’s right, since they couldn’t fire the appraiser (assuming I’m not the only one who has come in low for them, they simply decided to change the AMC they used.  The new one was the human kind and guess what- it happened to have the same physical address as the lenders headquarters!  So this smaller lender decided to create their own AMC with employees who are paid essentially from the same revenues as the loan officers and they are now within walking distance of each other.  Does anyone see any potential problem here?  Here’s kicker number one- perfectly legal.  Here’s kicker number two- now that they had to go with a different AMC they claimed they had to cut the fees paid to the appraiser so that they could justify the cost of running their new AMC division.  The borrower was still getting charged $425+, but now the appraiser was getting paid less.

Let’s break it down to what prompted me to write this article since I’ve already engulfed a lot of your time.  If I do not hit the value needed by this AMC/lender, I inevitably get a call- but up until this point it had never been a call of value pressure.  But more of a “why didn’t you call me when you knew the value was going to be low?”  And as a reputable and reasonably articulate appraiser I would simply say, “I didn’t realize it was low”.  But in my mind was the question of whether I’d get further business from them.  And I always did.  But then it got down to the dread whenever an order would come over.  Before I actually accepted the order, I would look it up and do a quick search of comparables.  If I knew that the value wouldn’t be there, I’d simply decline the order.  That sounds pretty much like the life of an appraiser before HVCC went into effect doesn’t it.  Instead of calling it like it is, I would simply avoid appraisals that would make me look bad in the end.

Smash cut to a few weeks ago.  I got a request for this lender- purchase price of $350k.  I pulled comps and found everything similar selling for $220ish.  I was puzzled by this.  So I did (I’m so ashamed) a Zillow search and found that they thought it was worth around $250ish- still way below the contract price but emphasizing that something was fishy.  Since there is so little recent sales data, I did a “quick” paired sales analysis from the last time the subject sold and found that there was no reason for the home to be worth $130k more than its peers.  So as oftentimes today buyers use the appraisal as a bargaining chip, I accepted the order (40 minutes of unpaid work so far).  I then went and inspected the home- top of the line everything, best house on the block.  But the comps I had- although in most cases inferior, were not $130k inferior.  We’re not talking about a million dollar home here- we’re talking about a tract home.  The Realtor actually provided me with a handful of what she felt were good sales- but they were either 600-800SF bigger or in different neighborhoods or custom/semi custom homes.  I of course examined each one and realized that they were inappropriate sales.  So with what little but supportive data I had, I arrived at a value closer to what Zillow figured- based on the preponderance of similar utility homes, coupled with a recent sale of a larger home to warrant some upward adjustments.  I submitted my finished report and a few days later I got confirmation that my appraisal passed their QC standards and that the file was closed. Oh yeah, and I got paid on it a few days ago.

So this past Sunday- two weeks later, I’m at the park with my family and my email pops up from the head reviewer at the AMC with attached comparable sales (the same ones provided by the Realtor) and a message to call or email him.  So since he said call OR email, I immediately email back and ask what his concerns were so that I could answer any questions.  To which he replied, “you need to call me”, to which I replied “please inform me on what you need me to call you about so that I am adequately prepared to discuss it with you”, to which he replied in all caps and red, “YOU NEED TO CALL ME”.  So I’m not dumb.  I know why he wants to talk.  I call him on Monday morning to which he replied “you’ve got me at a disadvantage because I don’t have the file in front of me” to which I reply “if you would email me your concerns, I’ll be happy to address them professionally and promptly.”  His basic concern was why I included a sale of a much larger home that sold for $380k but still arrived at a value of $250k.  I explained that this sale was by the same builder and was on the same street and was used to bracket the subject’s GLA, thus justifying the appraised value coming in significantly higher than what would result in only the consideration of similar sized homes.  In other words, I gave that sale some weight, but by far the least weight.

Now remember, my appraisal has already passed their QC department 2 weeks prior, and I have subsequently been paid, so why is anyone calling me in the first place? Why would this reviewer care what the value was?  And how would this senior reviewer have the exact same MLS sheets as were provided to me by the Realtor with her exact handwritten notes on each one.  And why would anyone at all call to argue with my comparable selection when the bottom line is that my appraisal is used to help the lender make a financial decision on whether the underlying transaction makes sense for them.  I end the conversation with “Sir, I believe I understand what you want me to do, please email me your request through the proper channels and I’ll be happy to remove that sale and get the revised report back to you promptly”

Here it is, four days later, and I have yet to receive that request and I doubt I will.  Are you figuring out what is going on here?  Notice that this “senior reviewer” has not sent me any sort of documented request on what they want me to do?  So what is my recourse?  What proof do I have that I was being pressured into doing something that I didn’t want to do?  That’s right, I have no proof- and that’s how they like it.  Lender pressure is there, appraiser has to spend time defending his findings, dread on if further business will come from this source.

Getting back to Britney, I’ve learned my lesson.  I really wish I could go after this guy/these guys, but unfortunately I have no real evidence.  When my spider senses were tingling over whether I should even accept the order, I went against my better judgment based on past experience.  I can’t stand Britney.  And I can’t stand lender pressure- regardless of who the messenger might be.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude.  Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.