Home > Regulation & Examinations > Comment on Financial Reform Implementation
Comment on Financial Reform Implementation
August 14, 2010
Can you point to a private business in America that is not allowed to market or create a relationship with a specific potential or active client? Can you point to a business that has no way of controlling or upgrading the volume of business they do because they can't market a potential client? This is not free enterprise at work. This goes against every tenant of our capitalist form of business. I am a real estate appraiser in Washington State. I have been active in this industry since 1979, so I've seen it all. HVCC is the worst attempt to deal with the issue of appraiser independence that I have seen in all of those years.
Consequences: The proliferation of Appraisal Management Companies (AMC) to create the firewall is just that. And yet AMCs are the logical result of HVCC. The unintended consequences are destroying the appraisal profession, resulting in inaccurate values, providing appraisers who are not familiar with the neighborhoods in which they are assigned, who are inexperienced, and who are forcing the very best appraisers from the profession due to lack of adequate income. The final result is poor quality, dishonest and inconsistent appraisals, in which remediation of these practices was the whole point of HVCC.
Why: AMCs typically pay 50% to 60% of the standard fee in any area. They also require unrealistic turn times of the product. The difference between the fee quoted to the lender and the fee paid to the appraiser is the AMC source of income. I have personally chosen to not work for any company or individual which offers to pay me less than the cost of doing business. And the result in sticking up for professionalism and charging what it takes to make a living is that my business does not generate enough income to survive long term. I am one of those veteran appraisers who will not be able to afford to continue to appraise much longer. Meanwhile, young and less experienced appraisers are willing to play the game of cutting serious corners and making up adjustments. There is no time to do the research when you are being paid ½ what it costs to stay in business and adhere to the requirements of USPAP. Because that is what it takes to do a job in 24-48 hours for half the fee, when it takes 4-6 days minimum and a full fee to comply with the requirements of the job and the law. In fact full fees are not currently high enough to make a profit based on all the appraisal requirements.
Result: HVCC gives the appraiser exactly two choices, 1) Violate the spirit and the letter of the law we each agree to uphold when certified by our various states, or 2) Leave the profession.
These unintended consequences of HVCC are creating issues far worse than those it was intended to abate.
The issue of pressure on appraisers to make a certain value hasn't gone away. It can, and without the current burden on the entire real estate industry, from agents to lenders to appraisers. The firewall it's self isn't important. BUT THE INTENDED RESULT OF THE FIREWALL IS CRITICAL for accurate appraisals and competent, professional appraisers.
If I as an appraiser am being pressured by a broker, loan officer, or agent, or anyone else, I should be required to file a complaint with the state appraisal licensing board. If someone wants me to raise the value, it has to come in a written form, signed with a pen or digitally. I would then have a record of the pressure in my work file, or there would be no pressure. The complaint would immediately stop the forward movement of the transaction until said complaint is adjudicated. This would stop most pressure, because no agent, client or loan representative wants to delay closing of a transaction. For those complaints lodged, the transaction would stay on hold until resolved. If there was fault at any level, the person at fault would be reprimanded and removed from his / her part of the transaction, and lose the fee associated with the transaction. A second reprimand in a career would cause loss the certification, licensure, or whatever means a professional is considered to have met the minimum standards to work in that industry. In other words, first time you lose the deal, second time you lose the right to work at any job in the industry. This goes both ways. If the appraiser is the cause of the complaint by another real estate professional, the appraiser is immediately suspended and if found at fault, forfeits the fee. Examples of how an appraiser might be in this position would be making up data, using data inappropriate for the assignment, not complying with the stated scope of the work, etc. Another appraiser would be hired to replace the original appraiser. Same two strikes and your out apply to the appraiser. All adjudication would be done based on the professional's work file, since all communication is to be in writing and signed, including emails. It would be easy to determine where the fault lies. The names of those found guilty would be published in professional journals and also on the internet for all to see, and would round out the punishment. An appraiser would be required to inform each client of his / her discretion, and to each new potential client he / she would market. Not doing so, if caught, would result in permanent loss of certification.
This rather simple system seems like a lot of work, especially a lot of paper work; I don't believe that to be the case. After a number of people from all professions testing the system, resulting in loss of fees and / or status, the major reason most people work, and then being stricken from the industry, ie all real estate professions, would solve the problem. Continuing complaint action after testing by the non professionals, who would have lost their ability to work in their profession, would be rare. It would successfully remove those who want to game the system, leaving the various professions to the professionals. It would allow the various professions to communicate with each other and resolve issues more easily and more quickly than having to direct all communication through a third party. It would remove the need for AMCs, the one section of the industry that is bringing it down and reducing professionalism most rapidly in the appraisal profession.
When I started my business in 1988 my standard fee was $400. I could due 1.75 appraisals a day and my work file was not much thicker than the finished appraisal, which was about 10 pages. Twenty two years later my standard fee is $450, and I can do three or four appraisals a week, adhering to USPAP and the rules of Fannie Mae, and the separate added requirements of various lenders. Many of my appraisals are underwritten over seas, and the further requirements that come with many appraisals from underwriters are stupid, to put it nicely. The underwriters appear to have no standard guidelines under which they evaluate an appraisal for selling the loan on the secondary market. My appraisals are now are 20-30 pages or longer, and my completed work file is over an inch thick on average, with data and research. My appraisals which generally illustrate quality, condition and estimated value are no more accurate than they were two decades ago.
Please know that in order for this system to work, that every appraiser HAS to do ALL the work required by USPAP and the scope of work of the assignment. And any work required by the law has to be paid for by the client. Unless you create laws that require all professionals to do all the work, unless you create laws that remove all so called professionals that don't, unless you create laws that streamline the process to get rid of the junk in our work files and streamlines the process, and finally unless you find a way to enforce those rules across the board, you will lose a very important industry, an important step in the real estate transaction, the appraiser.
And we all will sink deeper into the quagmire that is loss of confidence in our system.
Please use this as testimony from a professional veteran appraiser who is active in the field, but won't be for long if something doesn't change.
|Last Updated 9/2/2010||FinReformComments@fdic.gov|