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Appraiser Efficiency in New World of CU
by Dustin Harris
Ready or not CU is here! Collateral Underwriter (CU) from Fannie Mae began on January 26 for lender use, and like it or not, it is not going away. Although I secretly hope it fails and dies a quick death, I doubt that will happen easily. Appraisers are having a lot of anxiety over CU. Some of it is justified but much is probably not.
Regardless of where you are on the CU debate, there is no doubt about one thing; CU is likely to cost appraisers additional time. Revision requests from CU have already begun arriving on our computers, and appraisers are reporting lengthened times for report completion as a result. In some cases, there have been complaints from my peers that CU is causing additional hours (not minutes) to satisfy the CU requirements (as well as others). This is a problem for the fee appraiser.
Most appraisers are not in a staff (salary-based) position. You work on a per report fee basis. In other words, time is money. If an appraisal takes additional time, you do not typically get compensated more. It is not hard to understand that the CU scope creep does not help the bottom line. If you want to survive (and even thrive) as an independent real estate appraiser, these days and into the future, you must pay attention to your business model and processes (and ask for more money). In the new world of Collateral Underwriting, here are a few things you need to consider if you hope to continue to make a living as a real estate appraiser who works primarily for AMCs.
Evaluate Your Current Business Model
We appraisers are busy kids. I know very few appraisers who work less than 40 hours a week (many work over 60 on a regular basis). Throw in a family and other responsibilities and who has time for hobbies? However, an essential (yet often neglected) aspect of running an appraisal business is remembering to run the appraisal business.
Most of you are not just appraisers. You are also the CEO of your empire. How often do you take quiet time to look at your business from both a 30,000 foot level and up close to see how well (or poorly) things are running? I often refer to this process as working on it not in it (OINII). For me (with few exceptions) this is a weekly occurrence. It does not happen on its own, however. It must be scheduled into your calendar and religiously adhered to if it is going to work.
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Plug Those Leaky Holes
I love sticky notes. My life and business are about 98% paperless, but I just cannot seem to break the clutches of the sticky note addiction. As I am working, I sometimes notice problems with the business process. If it is a major or recurring issue, I note it on a sticky note. During my OINII time each week, I spend time looking over these problems and deriving appropriate solutions. Boats sink with only small holes. Businesses are no different.
Streamline the Process
Appraising is not an assembly line and cannot be treated as such. However, there are many principles involved in the conveyer belt system that can also be applied to running a successful appraisal business. With the increased workload introduced through CU, your system will become even more important. Though appraising is somewhat of an art, there are also many repetitive tasks involved with each assignment. The engagement letter must be accepted and logged into the system. The appointment must be set. Data needs to be gathered from the applicable sources. Comparables must be chosen and entered into the grid, etcetera. You get the point. With each task, find the very best – most efficient – way of doing things and develop procedures which allow you to be consistent as well as constantly improving.
Continue to Reevaluate
Once your business is running like an Olympic athlete, remember that gold medalists still have to practice. Do not become complacent. Changes – such as CU – may not be fun, but they sure can spur a business owner to rethink things. Good enough may not be good enough if you are going to survive the extra efforts required by Collateral Underwriter. Do not cut corners in quality but find ways to be ever more efficient. Once something is working right, improve it even more.
Additional Tips Specific to CU
The principles outlined above are just good business practice. With the introduction of CU to lenders and AMCs, it is more important than ever to keep your business model tuned and running well. However, CU brings some particular concerns and things to watch out for.
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Recording Your Thoughts
First, are you choosing the best comparables? Do you have an answer as to why you did not use the other sales that may have come up in your search? Many of us make a mental note of these things, but keeping a written log of why you do what you do will likely save you time (and heartache) when CU sends back its scary list. (See Collateral Underwriter: First Feedback)
Be Meticulous
Pay close attention to the details when entering comparables into a report. Transposing a number on the sales price or square footage may seem like a simple mistake but it is likely to trigger red flags that might not be raised if you were more careful to begin with. If your information is different than what was entered by others, you might just start the dominos a-falling. Are you adhering strictly (at least as strictly as possible) to Quality and Condition ratings? Do not forget that these ratings are intended to make reporting more precise and not to be used as a relational description as compared to the subject or other sales.
Know How to Adjust
Where are your adjustments coming from? I am not convinced that every needed adjustment can be perfectly derived through scientific analysis, but we should support where we can and comment where we can’t. Remember, CU compares what you have done to what your peers have done historically. Don’t forget (or learn) the basics of appraisal fundamentals here.
Conclusion
Running a successful business long-term does not just happen. It takes planning, diligence, paying attention to details, lots of hard work and a little dumb luck. With CU and the inevitable corrections/revision requests that will be coming (if they are not already), these principles are even more important. Your business governance will never be perfect, but application of the above suggestions will pay dividends in the long run. None of us are thrilled about the increased workload that CU is bringing but it does not have to be the end of your business. The Collateral Underwriting system may be a perfect excuse to step back, take a deep breath, and remodel what you are doing for the better.
CU Webinar Help
(Webinars recorded in case of scheduling conflicts.)
March
How to Support and Prove Your Adjustments
Part 1: March 5th, 10 – 12 p.m. PST
Part 2: March 12th, 10 – 12 p.m. PST
Updated and expanded, Hagar shows you how to properly support your adjustments- the foundation of good appraising! Regulations state that appraisal adjustments cannot be based upon an appraiser’s opinion. Failure to provide proper proof and analysis to support your adjustments means a rough road ahead: state board complaints, panel removal, lawsuits, even license revocation. Fannie Mae cites “the use of adjustments that do not reflect market reaction” as the number one reason an appraiser can be “blacklisted.” This training is critical in helping appraisers avoid catastrophic appraisal failures.
February (recorded): Fannie Mae’s CU: Understanding Quality and Control Ratings
Enjoy Subscription Pricing: January, February, and March Webinars for just $149! (Fannie Mae’s AQM, Making Accurate Condition Ratings, Adjustments and more. Click for menu of all 5 webinars included.)
About the Author
Dustin Harris is a super-successful, self-employed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker, and consultant. He also owns and operates The Appraiser Coach where he personally advises and mentors other appraisers, helping them to also run successful appraisal companies and increase their net worth. He and his wife reside in Idaho with their four children. He is helplessly addicted to Swedish Fish.
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by Steve Owen
I will mirror Edd’s comment. That those objectives have always been primary to appraisal should be axiomatic. Dustin’s article offers good advice and the kind of reminders we all can use. However, the critical issue is fees. In order to make the kind of hourly gross I require, I would have to charge at least twice the going rate for a secondary mortgage market appraisal. And, that calculation was before CU. Make that three times the CR fee… that is what it would take to lure me back into the secondary mortgage market.
-by Garth27
Let s say you make $100,000 as an appraiser. Sounds pretty good to the average worker. Then throw in that if someone doesn’t like your work you can be turned in by a realtor, owner, AMC, FNMA, FHA. You can be forced to take extra classes, you can be arrested or jailed, you can be sued by these same people, the Appraisal Board can take you license so that you cannot earn any income, You can be fined, and also you can be blacklisted by FNMA, FHA, AMC’s, Lenders, and not even be told why. Your results can be questioned and you are forced to explain or add extra work to explain why your conclusion was too low or too high.
Add in all of these safety tip in the articles above . . . .
And finally, now your work is questioned by a computer program.
Now that $100,000 doesn’t sound so great!
-by Norm@sillbrat.com
Collateral Underwriter is a violation of USPAP! The Ethics Rule of USPAP (see page U-7) clearly states that any appraiser accepting any appraisal assignment must act impartially, objectively and Independently! If an appraiser is told that eight others assigned a comp a C-4 rating and his is C-3 and that he must clarify, explain or revise……his or her independence has been revoked. USPAP is supposed to dictate our livelihoods. Those who teach USPAP and those who take it every 2 years should be screaming at the top of their lungs.
-by Edd Gillespie
Great article Dustin.
I am pleased that you have recognized the importance of Cu to thoroughness and factual and reasoning documentation in the appraisal process. Those objectives have always been primary to appraisal, but have been almost completely obscured by the headlong rush to compete on the bases of lower fees and faster turn times in form work.
Good work. Now if you could come up with something like “Go create some higher fees.”
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