Appraisal Scoop

The 1004MC-71 Industry Update Part 4; Making Market Condition Adjustments and Determining When Values Are Declining

2009-07-18T06:48:59-05:00

This is the forth article in a five-part series dealing with the new 1004MC form (MCF) by David Braun, MAI, SRA. In Part 1 of this series, David began with a discussion of where appraisers are NOW . . .and gave some direction on where we're headed. In Part 2, David looks at appraiser's frustration with the 1004MC and in Part 3, he gave us a "What Goes Where and Why" look at the 1004MC.

I am enthusiastic about appraisers gathering large amounts of data onto a spreadsheet for analysis. The power gained from the appraiser being enlightened through this process is staggering. I am on record for supporting Fannie Mae in the over-all process, and condemning the appraisal profession for not beating Fannie to the punch. I believe strongly that the form (not the process) is far too limited.

The Total Solution program that I developed is an example of adding to and expanding a standardized form. Performing a market condition analysis is a lot like sky diving in the sense that you either do it or you do not.

Many critics are correct when they say, “Appraisers are providing misleading market condition analysis.”

I agree that many appraisers are limiting their data and scope of work to such a degree that the results and conclusions are just not reliable. Appraisers are much more like the Wright Brothers at Kitty Hawk, than the modern-day jet pilot . . .but we have to start somewhere.

In this part of “The 1004MC-71 INDUSTRY UPDATE” the process of extracting the appropriate market conditions (time) adjustment for the direct comparison grid and determining the value trend’s direction (stable, increasing, declining) will be addressed.

This method is appropriate for vacant land, apartments, and various commercial properties. Microsoft Excel is the canvas used in the following adjustment extraction process.

The examples are taken from AVT’s Market Conditions Adjustment Extractor. You can view it and other automated appraiser tools at http://www.scoopgear.com/automated-valuation-techn.html

Click Here To Continue Reading . . .

The market conditions extraction process has the following steps:

1. Gather the appropriate sales data.

a. Perform an MLS search

b. Return the search query to an spreadsheet

2. Analyze the data based on some sort of value per unit.

a. Unadjusted sales price per property

b. Sales price per square foot

c. Fully adjusted sales price

d. Apartments might be per unit

e. Condominiums might be per bedroom

3. Plot the date of sale and the appropriate unit of comparison as on a “scatter” chart.

4. Insert the appropriate trend line into the plotted points.

5. Compare the X and Y points for the effective date of the appraisal and the comparable sales date on the trend line. a. Manually with a ruler b. Mathematically by solving the equation

6. Calculate the percentage difference in the two value units (Y-axis).

7. Apply the percentage difference to the comparable sales price.

8. Adjust the sales price by the difference found in step 7 above.

Most appraisers have been exercising Steps 1 and 2; so there will be no discussion here. Some appraisers have had access to applications such as the Total Solution or others applications that construct the scatter chart for you when performing a MCA. Those of you who do not use one of these automated systems can download an Excel workbook and instruction manual from www.alamode.com/labs that will aid you in this process. The workbook is preprogrammed to help you make a number of useful charts.

The sales prices per square foot are on the Y-axis, while time is plotted on the X-axis. Each sale is plotted as a “dot” on the scatter chart. It is apparent where the scatter chart got its name. The trend line was placed by Excel based on regression and was fitted to have the summation of the least square of the differences in each point and the trend line.

The data does not seem to fit a straight line very well as value tends to move upwards for a while and then top out around October 2008. Values appear to fall from that point on. This can be seen in the following chart. The red colored trend line appears to fit the data much better. The trend line in this chart is based on a polynomial line. Polynomial lines are appropriate when the value trend changes direction or is curved. The value trend presented in this chart is not conducive to the MC adjustment formula that appraisers traditionally use such as adjusting the sales price upward at a consistent specific rate per year.

In the chart above the effective date of the sale is 4/1/09 and the sale sold for $200,000 on 4/1/08.

Exercise 1: Based on the data presented what is adjustment should be made to the sale? (A) Based on a straight line analysis, and (B) based on the polynomial curve presented.

The purple dotted lines represent the various intersections. Lines 1 and 4 represent the effective date of the appraisal and the comparable’s sale date respectively. The straight regression line intersects Line 4 (Sale Date) at $118.02 and Line 1 (Efft Date) at $134.07. This indicates an appreciation rate of 13.6% ($134.07 - $118.02) / $118.02.

The polynomial regression line intersects Line 4 (Sale Date) at $103.93 and Line 1 (Efft Date) at $105.36. This indicates an appreciation rate of 1.37% ($105.36 - $103.93) / $103.93.

On a $200,000 property the difference between these two methods is $24,460 (13.6%-1.37%) x $200,000. This is a significant error.

Exercise 2: Using the same data find the appropriate market condition adjustment for a comparable sale which sold for $200,000 on 11/1/08 with an effective date of the appraisal of 4/1/09. Find the appropriate adjustment for a straight regression line and one based on the polynomial regression line. Use the ruler method and see if you agree the answers the MC Adjustment extractor calculated.

Exercise 3: What is the current directional trend of the market?

Answer: Declining

In this case the value trends are definitely declining. What are the factors that should be considered in forming a conclusion about the direction (stable, increasing, declining) of the value trend.

First, the appraiser must decide if they are keying on a regression trend line or the actual trend of the median sales prices per period. Then the appraiser must look for some percentage change over some period of time.

There is no one accepted definition; and logically, this task requires a definition. Any definition will have to consider a specific time period, but much like exposure time it may be different for each sub-market. This is because we want to make the determination based on the intermediate term trend, and not the normal cyclical movements around the long term trend.

The short-term cyclical movement can be based on seasonal influences, but are basically caused by the market going in and out of balance. This represents the normal changes in supply and demand that all markets experience. This means that the direction of the intermediate term trend can only be measured over a time period that is longer than the normal short-term cycle for each particular market.

It is the inability of the market to correct itself through the principle of market equilibrium that indicates the direction of the over-all market value trend from stable to increasing or declining. Once the market is out of balance in terms of supply and demand, and it is able at achieve balance by the principle of market equilibrium then the market will have achieved a stable valuation trend. In theory, the time period would be market specific based on the frequency of the short term cycles. The percentage change in the median values or regression trend line that represent a change in direction of values in the market is determined by the sub-markets natural cycle size.

The above chart shows a market that cycles up and down with about a 6% fluctuation in values (from high to low). This is a hypothetical situation, but probably typical for many residential markets.

Many people originally thought that a change from 1% to 3% in the median prices tracked over time was significant. My studies and analysis lead me to believe that a sensitivity level of 10% to 15% is more realistic when measuring changes in the median sales prices over time. However, a much lower change in the trend line may be a legitimate indication of a change in the value trend’s direction.

The proper sensitivity level to indicate a change in value when looking at a trend of the median sales prices over time depends on how wide the short-term cycles are. The chart below represents real market data. The normal short-term cycle is illustrated by the red (solid) line. The median sales prices per period are osculating around the trend line (Blue solid line).

Most of the data points do not fall exactly on the trend line so the sensitivity levels used for the data points (median values) should be different than for the trend line.

A declining market is indicated when the over-all trend in values based on a polynomial trend line falls by one half of the normal full cycle variance over a time period equal to the normal frequency of one cycle for the market in question.

The above market then would indicate a decline in values when the polynomial trend line falls at least 4% over a six month period. The percentage change when tracking the medium sales prices directly would have to be >4% when measured from the bottom of the cycle and >12% when measured from the top of the cycle.

Some “more” practical benchmarks are needed by appraisers, reviewers, and underwriters. A market trend determination should be based on a 12 month period with heavy weight given to the most recent 3 months. A sensitivity level of 12%-15% changes in a direct trending (not the regression based trend line) of the median sales prices over time is typical of most residential sub-markets. A 3% change in the regression trend line based on a polynomial curve to the 3rd power is a good benchmark for an indication that the market has experienced a change in value trends. These bench marks should be tempered considering all of the other market indicators.

Conclusion: When the data points indicate a change in direction or strong curve then a straight-line trend line analysis is inappropriate. It is very adequate for the appraiser to simply apply a straight edge ruler to a chart that has a trend line and do the calculations by hand for each sale. However, for maximum efficiency (appraiser’s time) and accuracy computer programs such as AVT’s “Market Conditions Adjustment Extractor” can be used.

The call made by the appraiser on the trend of values in a particular sub-market is determined by the time period considered and the sensitivity of the percent change in value that constitutes a change in the intermediate value trend. This is based on the normal value cycles of a market discussed above and the accuracy of the appraiser’s measurements of these changes that will be covered in Part 5 of this series. While the time period is related to the normal frequency of cycles for the specific market it is difficult to determine any conclusive pattern in less than six to twelve months. There is a balance between having timely information (based on short time periods) versus having a comfortable degree of reliability in the opinions and conclusions put forth by the appraiser..

Be on the lookout for Part 5; “STATISTICALLY SIGNIFICANT” AND “EXPECTED VARIANCE”. In Part 5 we will discuss how reliable the market condition adjustments put forth for the adjustment grid, and the indicated direction of the value trend (stable, increasing, declining) are when a trend-line analysis is used.

Author: David A. Braun, MAI, SRA (President, Braun & Associates, Inc.) has been actively engaged in real estate appraisal, review, and consulting since 1976. David is also the author of Appraising in the New Millennium - Due Diligence & Scope of Work, 3rd Ed. All of his products can be found on http://www.scoopgear.com/automated-valuation-techn.html

Video - Learn the "Story" Behing the Chinese Drywall Issue

2009-07-17T17:33:53-05:00

Dr. David Krause discussing issues related to imported drywall found throughout structures in Florida

Dr. David Krause from DOH Content on Vimeo.

New Appraiser Podcast Channel on iTunes

2009-07-17T13:25:46-05:00

I would like to introduce a new weekly appraiser pod cast! We are non-profit and NOT selling anything. We simply would like to give appraisers, and other real estate professionals more options to keep up with the latest news in the industry.

"It's time to spread the word! There is a new FREE online appraisal radio show that you can download for free on iTunes or go directly to the website, www.appraiserpodcast.com!

This show is specifically broadcasted for real estate appraisers who don't want to waste any more of their time sifting through pages upon pages, and countless internet websites!

This is a weekly updated show keep you abreast with all the latest industry news".

Regards, Lauren Zilka-Humbrecht

Chicagoland Appraisers, LLC. Office manager

info@CLAppraisers.com www.CLAppraisers.com

Celebrate Appraiser's Independence, Not Yet!!!

2009-07-17T11:16:48-05:00

[Editor's Note: I've been taking a little time off from Appraisal Scoop and so apologize for not keeping up with the "normal" flow of articles. This article by Bryan Reynolds is a little late getting posted but is still great food-for-thought!]

Celebrate Appraisers Independence, Not Yet!!! by Bryan S. Reynolds, AQB Certified USPAP Instructor

The 4th of July is around the corner and millions of Americans will celebrate their Independence. However should the appraiser be celebrating their appraiser independence as a result of the HVCC or any other pending or proposed legislation?

Although the number of requests to “hit the number” may be fading, appraisers are certainly shackled by the client dictating requirements many of which are unreasonable and unfounded. Yet when clients demand appraisers to jump it appears many appraisers typical response is How High?

It's time for appraisers to stand up, become truly independent and learn to say no! Let’s have the tail quit wagging the dog. When you are asked to do something you should not do or something perverse have the courage and backbone to say no.

Recently I appraised a property on 13 acres with a portion of the site being in a flood hazard zone. The client received a flood certification indicating the improvement was not located in the flood zone. After repeated requests, which turned into demands, to have me change the first page of the URAR to check the box no under flood zone I was successful in speaking directly to the underwriter. If you get to speak with the underwriter I have found most are pretty reasonable people. After providing her with the Fannie Mae Guideline, as listed below, she said thank you and nothing further was needed from me.

Special Flood Hazard Areas

Fannie Mae’s appraisal report forms provide an area for the appraiser to indicate whether the property is located in a Special Flood Hazard Area that is identified on the Federal Emergency Management Agency’s (FEMA) Flood Insurance Rate Maps. Flood insurance is required if any part of the principal structure is located in the following Special Flood Hazard Area zones: A, AE, AH, AO, AR, A1-30, A-99, V, VE, VO, or V1-30.

If the first page was changed to reflect no when a portion of the “property” was in fact in a flood hazard area a misleading report would have been prepared. A portion of the site was in the flood zone, the house was not, make the loan and leave the appraiser alone.

When you educate yourself, having the tools and resources at your disposal is very powerful. The published Fannie Mae Appraisal Guidelines are the underwriters’ guideline for review of appraisal reports. If you are familiar with them, when asked for things that are not required you can respond with no and can quote them their guidelines for reviewing appraisal reports.

For instance did you know that for appraisal reports delivered to Fannie Mae:

an interior floor plan is only required if the subject suffers functional obsolescence attributed to the layout
photos of comparable rentals and listing are not required
comparable sales over 12 months are acceptable sales
you may exceed the 15% and 25% adjustments
mls photos are acceptable

Now for one you didn’t want to hear about. Minor conditions including holes in window screens must be reported. My first thought was all windows screens have a whole bunch of little holes in them. Fannie Mae does want them reported and considered in the overall condition rating but do not require repair.

One area appraisers routinely simply check the box is with regard to Highest and Best Use. This is one of the most critical areas of the appraisal process. How do you know what is comparable until a proper H+B Use analysis is conducted? The answer is you don’t.

I encourage everyone one to read a book, take a class with substance by seeking out meaningful education instead of the closest, fastest and cheapest. Challenge yourself; try to complete your next assignment on note book paper instead of a preprinted form you are currently utilizing as a crutch.

Light a sparkler and celebrate Independence Day but considered becoming a truly independent appraiser by not succumbing to client demands that makes little sense or that could place you in inauspicious situation. Let’s bring some Common Sense back to this business.

Bryan S. Reynolds is a Certified General Real Property Appraiser and an AQB Certified USPAP Instructor. Mr. Reynolds serves as an adjunct faculty member of The Columbia Institute, and is an approved appraisal instructor in 31 states. Reynolds is the owner of Reynolds Appraisal Service in Owensboro, KY, providing various residential and commercial valuation services, consulting and litigation support services throughout the area. He can be contacted at (270) 929-3088 or by email at bryan@reynoldsappraisalservice.com

2010-2011 EDITION OF USPAP ADOPTED

2009-07-08T05:44:00-05:00

The Appraisal Foundation recently announced that the Appraisal Standards Board (ASB) adopted revisions for the 2010-2011 edition of the Uniform Standards of Professional Appraisal Practice (USPAP) at its public meeting in New Orleans.

The 2010-2011 edition of USPAP will be valid for two years, effective January 1, 2010 through December 31, 2011. As with the current edition of USPAP, the new edition will include guidance from the ASB in the form of the USPAP Advisory Opinions and the USPAP Frequently Asked Questions (FAQs).

The new edition of USPAP is scheduled to be available by October 1, 2009. However, appraisers and users of appraisal services should begin familiarizing themselves with the changes to the document as soon as possible. To this end, the ASB has issued a Summary of Actions document, which explains the changes that are being made and the rationale for those changes. The Summary of Actions is available by visiting the following link to The Appraisal Foundation’s website:

http://commerce.appraisalfoundation.org/html/Docs/2009_ASB_summary_of_actions.pdf

Most of the revisions that will become effective on January 1, 2010 involved improving the clarity, understandability and enforceablility of the ETHICS RULE, the COMPETENCY RULE and STANDARD 3: Appraisal Review, Development and Reporting.

There were also two significant changes:

A requirement was added to the Conduct section of the ETHICS RULE, stating that, prior to accepting an assignment (and if discovered at any time during the assignment), an appraiser must disclose to the client and in the report certification any services regarding the subject property performed by the appraiser within the prior three years, as an appraiser or in any other capacity.
The appraiser’s obligation to allow a client access to his or her workfile when providing a Restricted Use Appraisal Report was removed.

“The change to the Conduct section of the ETHICS RULE is significant,” said Sandra Guilfoil, Chair of the ASB, the Foundation Board that promulgates USPAP. “It creates a new requirement for appraisers to disclose, up front to prospective clients, any involvement the appraiser might have had with the property within the past three years.”

The ASB believed this new requirement was necessary for public trust. “In a current climate with a focus on things like transparency in financial transactions, the ASB did not believe that USPAP was adequately serving public trust by allowing an appraiser to complete an assignment without initially notifying the client of any recent involvement with the property. The ASB believes the client has a right to know about an appraiser’s involvement and make the decision whether or not to engage the appraiser in that particular assignment,” said Guilfoil.

In fact, the ASB believed this particular revision was so important that it issued a series of Q&A’s on this topic in April 2009, providing guidance to appraisers almost eight months before the change takes effect. “We understand this new obligation may be unpopular with some appraisers and are doing our best to provide them with guidance,” Guilfoil stated.

Finally, Guilfoil added, “We encourage appraisers and users of appraisal services to read through the Summary of Actions now, and thoroughly familiarize themselves with the requirements well in advance of the January 1, 2010 effective date.”

Source: The Appraisal Foundation July Newsletter

Timing of Mortgage Loan Disclosure Statements and Appraisal Reports: Truth in Lending and the HVCC

2009-07-08T05:32:45-05:00

The Home Valuation Code of Conduct (HVCC) adopted by Fannie Mae and Freddie Mac as of May 1, 2009, requires that a copy of the appraisal ordered by the lender must be given to the borrower at least three business days prior to the closing. The requirement can be waived by the borrower. Under HVCC, real estate agents and brokers may not select, retain or compensate in any manner an appraiser providing an appraisal to the lender.

Read Hartzler’s full memorandum regarding Truth in Lending and HVCC.

The Green REEPer - Cap and Trade Bill

2009-07-08T05:27:27-05:00

Think your E&O insurance is expensive? Wait till the U.S. Senate passes the "Cap and Trade" (aka Crap and Tax) bill which has already been pushed through the U.S. House of Representatives.

Can you imagine getting sued by a homeowner because you appraised a house which some bureaucrat determined (after-the-fact) did not meet arbitrary EPA guidelines for "energy efficiency"?

That's right folks, it's time to learn a new term: REEP - Retrofit for Energy and Environmental Performance.

Just think: California's repressive environmentalist policies aimed at houses and businesses being implemented all over the country.

In short - You can't sell your house or business unless it has been properly "retrofitted". i.e. Anything and everything the environmentalist wackos can think up to make your house more "green". The cost to retrofit? Well that's the homeowner's problem.

Well maybe not just the homeowner's problem. Why? Because homeowners will want to do whatever they can to keep expenses down before they sell. They will cut corners. Someone will sign off that the work has been completed. They will have all the appropriate documents. They will sell the house, and an appraisal will be performed. Then, when the bureaucrats finally come to check up on us, the blame will be spread all around, and the appraisers will not have an easy out. It may be years later, when some "expert" determines the house sold or resold, not having appropriate modifications or credible documentation. Then you get a letter in the mail.

You will be party to law suits just because you were the appraiser. It does not matter that we are not energy experts. It does not matter that we are not knowledgeable of green retrofitting. It will not matter that some "expert" signed off on the retrofitting as having been completed.

Is REEP really in the Cap and Trade bill? Yes it is. It was one of those minor details (300+ pages) slipped into the bill at three in the morning (before the vote) so members of Congress would not have time to read them. Those members who asked to read the additions were denied the right to see them before the vote was taken. Denied, and laughed at on the floor of the Congress. So much for "transparency" in the Democrat controlled Congress.

Is there anything that can be done? We can certainly call and email our U.S. Senators and ask them to oppose the Cap and Trade legislation. Not just for our own sakes. But because the one issue I have mentioned is just the tip of the iceberg in terms of how REEP will further devastate the housing market. And REEP is the only a small portion of the the overall Cap and Trade legislation which most economists predict will devastate the already crippled economy via excessive taxation on energy production and manufacturing.

Read the article below for details on REEP.

Democrats’ Cap-and-Trade Bill Creates ‘Retrofit’ Policy for Homes and Businesses

Scott A. Austin, IFA

Certified Residential Appraiser

Birmingham, AL

AMCs vs. Direct Contact Roughly 50/50 Post-HVCC

2009-06-18T05:52:11-05:00

Nearly six weeks after the Home Valuation Code of Conduct went into effect, technology vendor Global DMS found that the number of lenders ordering appraisals through appraisal management companies was roughly the same percentage as those lenders who ordered appraisals directly from the appraiser.

While Global DMS – which owns and operates Oasis software and e-Trac – reported that there has been a surge in lending institutions ordering valuation services through AMCs, there also have been suggestions that customers of AMC services have been dissatisfied with the results; especially when those results have led to increased fees to the borrower and declining fees to the appraiser.

Click here to read the full article from the Appraisal Institute

Open Letter from a la mode Chairman: Reversing the damage done by the HVCC

2009-06-10T15:02:24-05:00

To: Our colleagues in the real estate industry

From: David Biggers, Chairman, a la mode, inc.

RE: Reversing the damage done by the HVCC

As many of you are aware, we’ve always been at the forefront of lobbying for and protecting the interests of the profession. That’s why, a little over a year ago, we began the complex and expensive process of trying to educate everyone we could about the little-known dangers of the proposed “HVCC”, or Home Valuation Code of Conduct.

"Unfortunately, as the economic meltdown and our presidential election garnered all the attention in Washington this past year, the HVCC transitioned quietly from a mere proposal into concrete national policy altering the core aspects of virtually all real estate transactions, with devastating effects."

Today, the complications of the HVCC are killing real estate deals in every corner of the country, forcing buyers to pay more in closing costs while receiving less service, eliminating the positive aspects of the business relationships that REALTORS®, mortgage brokers, and appraisers have nurtured for decades, and shifting market value decisions to unfettered and often clueless appraisal management companies located thousands of miles away. Worse, your transactions, in your town, are many times being derailed by night shift hourly workers parading as “appraisal reviewers” in call centers half a world away. That’s not appraisal independence – that’s appraisal insanity, and it’s hurting every one of us.

Our friends at NAMB, the National Association of Mortgage Brokers, are seemingly more aware of that than anyone. They agreed with us from the beginning that the HVCC is not just an appraisal issue and indeed is a threat to the livelihood of thousands of independent small businesses run by their members.

That’s why we’re happy to pass on this Call To Action from NAMB and to encourage you to follow through with the phone calls, e-mails, letters, and visits to everyone you can reach. Getting the reversal of the HVCC back into the national spotlight is achievable if we each take the time to make a difference.

A few minutes is all that’s required, but it could literally save the entire real estate industry from the specter of ill-conceived national policy interfering with inherently local real estate practices and relationships. None of us can afford to let that take root. Please read NAMB’s call to action [click here], and help us all save our industry from this dangerous federal bureaucratic meddling.

NAMB - HVCC Call To Action

2009-06-09T14:37:37-05:00

To: All Mortgage Brokers, Real Estate Agents, Appraisers, Lenders, Home Builders, Title Agents, and Consumers

From: Marc Savitt, President- National Association of Mortgage Brokers

After more than a year of exhaustive negotiations with Fannie Mae, Freddie Mac, Director of FHFA (GSE Regulator) James Lockhart, and NY Attorney General Andrew Cuomo, NAMB believes the time has come for your individual voice to be heard.

In order for this “Call to Action” to be effective, we ask that you fully participate, encourage others to join the action and continue calling and emailing everyday, until advised to stop by NAMB. This will NOT be a one day action!

We have received hundreds of e-mails through the hvcc@namb.org e-mail address outlining specific cases where the HVCC has created delays and additional costs to consumers. NAMB has categorized and compiled a report of the examples received, which was sent to FHFA Director James Lockhart. Please use your own examples in your conversations with legislators, regulators, or their staff. Also, please visit the NAMB HVCC Resource Center for additional information and documents on the HVCC.

Who will you be contacting?

NY Attorney General Andrew Cuomo’s Office: (212) 416-8000, Internet Complaint
Federal Housing Finance Agency (FHFA): (866) 796-5595, director@fhfa.gov
Fannie Mae: (202) 752-7000, headquarters@fanniemae.com
Freddie Mac: (703) 903-2000, Internet Complaint
Senators, Representatives and Governors: Click here for contact information.

Also, please contact your local TV and Newspaper outlets. Below are talking points and background information to assist in your conversations. Please remember we are all professionals and should conduct ourselves accordingly in any communication with the above parties.

For the most successful and influential calls, it is important to concisely quantify how the HVCC is affecting your consumer and your business.

Talking Points:

1) NAMB conservatively estimates (breakdown below) that the HVCC is costing consumers over 2.8 BILLION dollars a year in extra fees, created by long delays (extended lock-in fees) and higher appraisal costs.

2) Unregulated Appraisal Management Companies (AMCs), who have been the subject of several misconduct investigations, are the centerpiece of the HVCC. The original Cuomo investigation involved a federally chartered bank and an AMC.

3) AMCs are driving honest appraisers and mortgage brokers from business, eliminating competition, increasing costs to consumers and reducing state revenue. The HVCC is causing significant delays in real estate transactions, hurting real estate agents, title companies and other third parties reliant on turnaround time.

4) HVCC does nothing to reduce fraud, as it legitimizes the same failed model, which was the subject of Attorney General Cuomo’s investigation.

5) No Portability! Consumers are “trapped” with a specific lender. If a better deal becomes available with a different lender, the consumer is forced to pay for another appraisal.

Click here to continue reading . . . .

Background:

I. Lack of Portability

A. Lenders are not allowing borrowers to transfer appraisals, regardless of the reason.

B. Forces the borrower to pay for another appraisal and wait for a new appraiser to be assigned and complete it, increasing the total cost and time needed for obtaining a home. Delays in turnaround times also cause the borrower to miss rate lock deadlines and possibly face penalties charged by the lender.

C. In a poll conducted by NAMB, 75.8% of respondents said that 0% of their appraisals are portable since the enactment of the HVCC.

II. Lack of Quality

A. AMCs are assigning appraisers from a different municipality, county, or even state to appraise the target house, therefore unfamiliar with the neighborhood and unable to produce an accurate appraisal. i. Because of this, the HVCC is forcing appraisers to be in direct violation of the Uniform Standards of Professional Appraisal Practice (USPAP) for jurisdictional competence.

B. Because AMCs pay appraisers such low fees, those assigned appraisers willing to do the work are often inexperienced and fail to adequately appraise the home.

III. Increased Cost of Appraisals

A. The minimum increase we have seen in direct consumer cost is $150 per appraisal. That, coupled with the drastically increased appraisal turnaround times that impose extended lock periods at an average expense of $561.95 per loan, is now costing consumers an estimated additional $711.95 per transaction.

B. $150.00 - minimum increase per appraisal $561.95 - average loan amount of $224,778 at .25% for extended lock period $711.95 - average total increase per transaction x 3,870,552* - 2007 HMDA report of residential real estate loans originated $2,755,639,496 - $2.8BILLION in increased fees to consumers!

IV. Articles Illustrating the Effects of the HVCC

A. The Appraisal Bubble – The Center for Public Integrity

B. The Cure is Worse than the Disease – Appraisal Press

C. Appraisals Roil Real Estate Deals – The Wall Street Journal

Feel free to forward these articles and/or reference them in your conversations.