Editor’s Note: In a recent Q&A, Fannie Mae’s Mark Simpson, Director Property Standards, Single-Family Credit, makes clear that the word “inspection” on the new forms is Fannie’s clear intent and will not be changed- despite concerns that it can mislead homeowners into thinking they are getting a home inspection rather than an appraisal, and rumblings from appraisers warning that they are not qualified to handle the new demands. For this reason and others outlined here, appraisers are broadening their knowledge about the systems of a home. Some are finding increased success by adding home inspection to their list of services.
Diversify and Conquer: Appraising and Inspecting
by David Brauner, Editor of WRE
It’s that time again– as the market slows, many appraisers look for ways to diversify and expand their services; to be more competitive by knowing and offering more. And today, there are additional reasons for appraisers to increase their knowledge and skills.
In addition to the trend toward “niche” appraising, which requires expertise, new expanded reporting responsibilities placed on appraisers by FHA and Fannie Mae increase what appraisers are required to know about the physical characteristics and condition of a property.
Home and environment inspection and other related fields are a natural for appraisers to explore, just like 10 years ago when a slumping real estate market convinced many to leverage their contacts and expertise into new areas. Many have done so successfully over the years.
Donnie Shevlin, a licensed inspector in Illinois for four years, became a licensed appraiser two years ago. He says that while start up was not easy, by the second year his inspection business had taken hold. He says appraising caught his eye at first because it looks easy. “I learned soon enough, of course, how much time and hard work there is involved in appraising,” he said.
According to Shevlin, understanding structural and building issues is paying off handsomely for his appraisal business. “Knowing building quality helps me evaluate the subject and comps much better,” he said. “I am able to defend my choices with underwriters, who appreciate my knowledge and tell me that my descriptions of the subject and comps make sense, where those of other appraisers do not.”
The result for Shevlin is a booming appraisal business as satisfied underwriters keep coming back because of the quality of his product. He adds that his expanded knowledge also has been his ticket to FHA and VA work and a new special “Buy-Back” program from HUD.
Fannie, FHA Reporting Requirements
As noted, the trend in recent years is to place greater responsibility on appraisers for the “physical” inspection of a property. The following is from a Fannie Mae Q&A (11/1/05).
“We believe that an accurate description of the physical condition of the subject property is a critical element in arriving at a supportable opinion of market value, as well as in the prudent underwriting of a mortgage loan…The appraiser is responsible for noting in his or her report any adverse conditions (such as, but not limited to, needed repairs; deterioration; the presence of hazardous wastes, toxic substances, or adverse environmental conditions; etc.) that were apparent during the inspection of the property or that he or she became aware of during the research involved in performing the appraisal…The appraiser is expected to consider and describe the overall quality and condition of the property and identify items that require immediate repair as well as items where maintenance may have been deferred, which may or may not require immediate repair.”
Knowledge is Confidence
“Do you know how tell if a foundation is failing? Or if a roof is in satisfactory condition? Do you know how to tell if the plumbing and or electrical systems are in need of replacement or repair,” asks Jessica Camara, marketing coordinator at American Home Inspection Training.
“A good school like AHIT will teach you how to identify these things and will provide everything you need to step your business up to the next level. Taking training will help you to be more knowledgeable with your appraisals and will help reduce your risk,” Camara.
Marketing Muscle
Home inspection and other services such as environmental testing offer the opportunity to leverage established contacts– homeowners, agents, mortgage brokers, into referral business. While few do both the appraisal and inspection on the same home, many professionals “partner up,” referring work back and forth. Many have formed companies offering all these services under one roof.
Shevlin said he benefits from cross marketing, earning many appraisal referrals from his home inspection clients. (It can not work the other way around, however: USPAP does not allow appraisers to solicit or complete home inspection work on properties they appraise.)
Depending on the area, an established inspector can earn $450 and up for a single family residence, with the average nationwide at $250-$350. Many use software that allows them to complete and issue the report onsite, with none of the time-consuming research and writing involved in assembling an appraisal report.
Home inspectors don’t face the relentless pressure for values and speed either, though some report losing agent referrals when a deal is blown due to problems revealed in the inspection. Generally, inspectors are considered the “good guy” of the transaction because their homebuyer-clients want to know what’s wrong.
Liability
One downside of inspecting is the increased liability and cost for errors and omissions insurance– about two-three times more than appraisers pay. While it is fairly rare for an appraiser to be sued, this is not the case for inspectors, who are often squeezed by clients when something goes wrong, especially if the inspector does not establish reasonable expectations or communicate his or her findings clearly in the report. If not set straight in advance, homeowners feel they are buying a warranty, not an inspection, and blame the inspector for anything that goes wrong– even months later.
Proper training on how to inspect and how to report, a solid report and a tested pre-inspection agreement are all important tools to lower liability, which is another reason to seek good training and support.
Beginning inspectors can purchase E&O coverage through OREP for under $2,000. (For rates and more, visit OREP at www.orep.org.) You’ll find the most respected home inspection training facilities in these pages.
As for Shevlin, he is so busy he has hired and is training a home inspector to help carry the work load. Following in his footsteps, the new inspector has completed the basic appraisal coursework and is on the road to becoming licensed.
Shevlin says there is one drawback. “I’ve been so busy my family doesn’t know me anymore,” he said.
You’ll find the finest schools specializing in training and support in these pages. Many offer OREP members and Working RE Magazine subscribers reduced fees on training and products.