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Editor’s Note: Is the appraisal industry changing for the better?. This story is taken from the current print edition of Working RE, now mailing to over 60,000 active and licensed real estate appraisers nationwide, including every OREP insured. Don’t miss your print issue. (Am I a Working RE Subscriber?)
Time Has Come Today
By Richard Hagar, SRA
The wheels of justice turn slowly but grind exceedingly fine. After years of working with regulators and helping write several real estate laws and regulations, my experience tells me that it cantake years for laws to be adopted and staff of regulatory agencies to be trained. It can take years before there is any enforcement or real change. Appraisers are upset with how slowly enforcement actions have been brought against various AMCs. Well, “the time has come today,” just like Chambers Brothers hit song says, circa 1966.
Contrary to what some appraisers believe, the laws we have in place today were developed to protect appraisers, lenders, and of course the public, who relies on quality appraisals and an honest appraisal process. Better business practices, directed by laws, will allow appraisers, AMCs and lenders to survive, profit, and provide something of value to the American public: a high quality appraisal provided by a competently trained appraiser who is appropriately paid for his or her service.
And yet, for some people and organizations, if there’s a regulation they don’t like, they ignore it. When confronted with the regulation in black and white, they try to spin its meaning to their advantage. Why? Often it’s because new regulations can negatively impact their business practices and income. I see this in criminal and civil cases involving banks, AMCs, and appraisers.
Lenders, banks, credit unions and AMCs must follow certain hiring practices or face sanctions and fines from state and federal regulators. Many of these entities keep trying to ignore regulations or try to convince people that what the law states isn’t what it means. For instance, federal and state laws require lenders, and their AMC agents, to create and follow written policies explaining their methods for hiring and paying appraisers (that customary and reasonable fee thing).
As an example, here’s text from federal regulations:
“An institution should not allow lower cost or the speed of delivery time to inappropriately influence its appraisal ordering procedures.”
The regulation is simple, direct, and easy to follow. However, it seems that a few major AMCs just don’t like that pesky regulation. AMCs continue to use “low-bid” email blast order systems. They hire appraisers based upon the lowest cost and fastest turn time. Emails, hiring policies, and comments made during appraiser conferences appear to indicate that many lenders and AMCs continue to purposefully ignore the regulations and refuse to pay appraisers a Customary and Reasonable (C&R) fee.
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Here’s another example:
“An institution should not allow lower cost or the speed of delivery time to inappropriately influence […] the appraiser’s determination of the Scope of Work for an appraisal supporting a federally related transaction.”
Clearly, it is the appraiser’s responsibility to “determine the Scope of Work” in an appraisal assignment. Many of us have had AMCs tell us “We don’t need the cost approach,” or “Don’t use comparable X but use our comparable Y,” or “You can’t make a line adjustment greater than 10 percent.” All of these statements are inappropriate attempts at influencing an appraiser’s Scope of Work. However, regulations state that it is the appraiser who determines the Scope of Work. Again, this is simple and to the point, yet is often ignored by the AMC or lender.
My final regulatory example:
“These policies and procedures should address the process for selecting the appropriate valuation method for a transaction rather than using the method that renders the highest value, lowest cost, or fastest turnaround time.”
Lenders and AMCs are required to hire the best, geographically competent appraiser who is appropriately trained and capable of producing a high quality report that will protect the interests of the bank. Fast and cheap are not part of the criteria. Once two equally competent appraisers are selected for possible hiring, now the fee can be part of the final decision.
The problem is many clients use a cheap fee as the determiner of who will be considered for selection and hiring. They have the selection criteria reversed.
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Time Has Come Today
The stage has now been set and lenders and AMCs who fail to follow the law are going to be impacted. While helping a government agency profile and understand the illegal actions of several AMCs and appraisers, I have discovered numerous state actions and agreements that involve AMCs and their failure to follow the law. It’s clear that states are finally beginning to answer the call for enforcement. Figure 1 below has just a few examples from a handful of states in the last few years.
Click Here to See the List of Recent Enforcement Actions Against AMCs
After reading some of these state actions, you get the feeling that many AMCs believe themselves to be above the law or were trying to twist the meaning of the law to suit their needs. These cases mark the beginning of government actions against AMCs. Minnesota, Louisiana, North Carolina, Oregon, Washington, and Tennessee are leading the way; other states are right behind them. There are numerous (let me repeat that), NUMEROUS investigations currently underway in many states. There will be more investigations and increased enforcement actions and penalties. A $50,000 penalty is a blip compared to what is being contemplated by one government agency right now.
A Word of Warning
I’m trying to keep you safe out there by providing words of warning:
Lenders—Be careful whom you hire to manage appraisers. Government agencies are examining your hiring policies, procedures, and your required testing of third-party vendors (AMCs). If lenders fail to follow safe and sound practices and institute proper procedures, they face millions in fines. (If you need help, I can assist with establishing proper policies and procedures.)
AMCs—Get licensed. Stop trying to find fast and cheap. Pay appraisers their full fee and demand high quality appraisals in return. AMCs that fail to do this are being examined, fined and prohibited from doing business in many states.
Appraisers—Provide high quality appraisals and support your adjustments. Provide appraisal services in a polite, businesslike manner and increase your fees. Become a Tier 1 appraiser.
The Time Has Come Today is a song by the Chambers Brothers circa 1966. Give it a listen because this business will get better.
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About the Author
Richard Hagar, SRA is an educator, author and owner of a busy appraisal office in the state of Washington. Hagar now offers his legendary adjustments course for CE credit in over 30 states through OREPEducation.org. The new 7-hour online CE course How to Support and Prove Your Adjustments shows appraisers proven methods for supporting adjustments. Learn how to improve the quality of your reports and defend your adjustments! OREP members save on this approved coursework. Sign up today at www.OREPEducation.org.
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by Baggins
It has occurred to me, Mr Hagar, that it was the lenders whom wanted insulation from appraisers, and appraisers never really needed insulation from lenders. Regulatory take over is very real in this industry. Lenders asked for more self regulation in the form of middle managers and separation of appraiser from loan production. It’s obvious at this later date, they did so to get more power, and not to protect appraiser independence. Appraiser independence is a myth because the appraiser has no advocate. We were our only advocate, and now that middle management is absolutely clueless regarding their intended position of bolstering appraiser independence, they have all of them turned into pure advocates for the lenders interest. There is no difference between amc or not in mortgage lending, because all persons whom operate as intermediaries are pure advocates for the lenders interests through amc contract, need to maintain amc contract, or simply being some employee or quasi employee of the lender themselves. Appraisers have no advocate, and normally cannot advocate for themselves. Enter the next phase, to roll away the ethical independent appraisers with strong backgrounds in actual real estate dealings, construction, ethics, law, and replace them with the new breed of yes men form fillers. Right on schedule for major lending interests, as they seek less checks to balance, rather than more. Now it’s my turn to ask for certain regulation to benefit me. Every single person involved in appraisal distribution should be licensed themselves from the secretary to the janitor. Well, it might just make more sense to let me be in touch with loan production again. It’s been such a very long time since anyone has had the courage or business positioning to actually stand up to them directly in this monstrously oversized mortgage lending market. Keep up the good work, and please help the appraisers nationally to be able to once again, have an effective advocate in their daily business dealings in mortgage lending. I see only 1 solution, which is to abolish the appraiser independence rules as they lead to no independence, but perhaps you have a more innovative solution.
-by none
Richard, Well done! You dated yourself, though, with the Chambers Brothers reference. What a great song! You, Edd Gillespie, and I may be the only ones familiar with it! Thanks for keeping us up-to-date on what is happening in our industry, as well as your educational efforts on our behalf. Education is the key to maintaining appraisers as relevant!
-by Timothy C. Andersen
OOPS! Filled out the blanks wrong! Timothy C. Andersen made the above comment
-by Debbie Biehl
“Time has come today”
-Did anyone EVER think that putting the AMC’s in charge of Hiring appraisers would turn out any other way? Remember the Sopranos? ” If you want to do business in my end of town, you have to pay me, or else you do not work. ” or whatever!!! The Sopranos are no different than the AMC’s. But remember, The Lenders want these products Fast and Cheap they prompt the AMC;s to do just that.
The AMC’s hold the REPORT CARD over your head…..If you do the work and take what they pay, asking for no more money and no more time, you get a good grade.
Then they tell the lenders they have the Best Appraisers. That’s another whole story.
When you let the Government get into your work world you are in trouble.
by Edd Gillespie
Richard,
Thanks for hanging in there for us. And thanks for your continuing efforts in educating us.
Question. Is there such a thing as a specific and detailed definition of a “high quality” appraisal? I do not know anyone who can tell me what it is. Would you please let me know ASAP. I want to start educating appraisal reviewers and regulators.
Thanks in advance.
-by John Hicks
Great article; one of the few that actually have a positive tone instead of the “doom and gloom” so regularly seen in group discussions or in various “comments” sections. This encourages us to take back control of our industry; something long overdue!
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