I have written many blog posts here, mainly for the consumer to read and understand what is actually happening in the world of Real Estate Valuations. My blogs range from being overcharged for appraisals so the middle man (the appraisal management company or AMC) can make money, lenders still pressuring appraisers to hit a value, and now having untrained and unlicensed people perform inspections (see my last blog entitled “Deception”).
Well. This blog is for the Appraiser as well as the consumer. I hope you read it and understand the extreme importance.
Recently, as we all know, the new “Hybrid appraisal” has come onto the market. Fannie Mae has developed the 1004P form. Lenders and AMCs have developed their own products as well, with false information claiming appraiser shortages, claiming they will be faster and better, and claiming they can still be done accurately saving consumers hundreds of dollars. First thing, we all know that there is no shortage. Secondly, there is no proof that these are faster and better products, and thirdly, where is the proof it’s saving them money?
There is proof all over that AMCs are charging consumers outrageous amounts of money for a full appraisal, only to find the cheapest appraiser so they can make a bigger profit and pad their pockets. (Read my blog entitled “What’s Not In Your Wallet”). Who’s to say they aren’t charging the consumer the same or close to the same fees for these so-called faster Hybrid products?
If you are still in your basement or even have no internet access, then you should know what this product is. If not, here is a quick synopsis. The definition of Hybrid: A thing made by combining two DIFFERENT elements.
Elements of a Hybrid Appraisal:
1) An inspector to gather data, take pictures and measure a home
2) A licensed or certified appraiser to complete the valuation
So what’s the problem here, you might ask? Well, let’s just point out the main issues.
1) Using an unlicensed and or untrained person to collect the data, measure the home and pretend to act like an appraiser. Appraisers have had to endure years of training under a supervisor, pass state tests, take continuing education, and make sure they abide by USPAP and state laws. The non-appraiser inspector?…a couple hours of training, if that! Hell, they don’t even have to be background-checked or carry any type of insurance. Seriously? Lenders, AMCs and the Government are ok with having just anyone out there with a heartbeat come to your home and gather data, and take pictures. (Yes. Appraisers have ethics and rules they’re bound by, so you never know what these unlicensed and non-background checked people will be taking pictures of and putting all over the internet.) Maybe it’s worse. Maybe the non-appraiser person who comes to your home just got out of jail, maybe he/she is a pedophile, or worse, maybe a rapist or paroled felon. Are you okay with this?
2) Appraisers are in place to ENSURE THE PUBLIC TRUST!!!! TO PROTECT THE CONSUMER. This isn’t something that just happens overnight. Years of training and supervision plus education and tests have to be overcome to gain the title of Certified Appraiser. Appraisers have the experience to note that a home has polybutylene plumbing…that “salt” on the block basement walls is a sure sign of past or current water intrusion issues, the ability and knowledge to look for things NO ONE else would even think to look for, to correctly measure the home for proper livable square footage and basement square footage per correct standards, to correctly judge the quality and condition of the subject by observing all aspects of a home upon inspection, and in the end be able to combine that inspection knowledge with market data to accurately value your home. Appraisers have to follow USPAP (Uniform Standards of Professional Appraisal Practice), which if you don’t know what that is, it’s pretty much the Bible and laws for appraisers.
The non-appraiser inspectors: Well, they don’t have any rules to follow, they aren’t trained to see the things appraisers are, they don’t have to have the extensive education or practical on-site knowledge and training. They just get paid to take pictures, take notes, and check off boxes on a sheet. Do they know the different types of plumbing? The differences between a bi-level home or a split level? What is considered a basement and what is not? The different types of home siding? The quality or condition of a house in its current state? If I had to bet, I’d say no.
All this leads me to this point: Recently, an AMC named Clear Capital, who has already been known to put out a bad Hybrid or desktop product. I have seen where an investor bought a townhome in Atlanta Georgia based on the output of this particular product. The appraiser was licensed in Georgia, however resided in a different state some distance from Georgia, and a third party non-appraiser inspector visited the property. Upon refinancing this home, a real, true and detailed appraisal was done by an appraiser who valued the home way lower than the Clear Capital Clear Val Hybrid desktop appraisal result. We won’t talk specific value, but it came in WAY less. Reasons? The Clear Val comparable sales used had been very inaccurate. Comp 1 sold as a 3-unit block, Comp 2 sold as a 4-unit block and comp 3 sold as a 2-unit block. To value a townhome. This was never addressed in the Desktop appraisal. Well, needless to say the buyer got a terrible, over-valued product that he relied upon.
Ok so where am i going…HERE. Clear Capital recently sent an email to appraisers on their panel. Go ahead and read it….
Back? I hope you read what I just did. They are NOW telling appraisers that the Quality and Condition ratings, WHICH ARE TWO VERY IMPORTANT ASPECTS of an appraisal, will now be left out by the inspector so that the appraiser can make their own judgement. Wait. What? The appraiser should make his/her own judgement on pictures that may or may not be taken properly & an observation by Johnny Superstar Inspector who may have missed many things due to having no training or knowledge?
But wait there is more….
The AMC goes out of their way to have you consider language they came up with for your report. First they have determined the scope of work for you. Secondly you are agreeing to this scope of work and that the third party inspector is sufficient enough to collect the data to comply with the Scope of work. HUH?
Now they have also admitted here that these inspectors were previously offering appraisal opinions via Quality and Condition ratings. Say what? They also state that there are many other areas within these reports that are also appraiser opinions that are being given by non appraisers. Makes sense right?
What purpose does this serve for the Consumer? Seriously. I know I am sick and tired of these AMCs and lenders taking advantage and spewing out garbage to pad their pockets. As a consumer, I would be livid if I found out that the person in my home is NOT qualified to do what they’re doing. The person in my home has no knowledge, training or even a background check. The person in my home measured it incorrectly. All of which adds up and can lead to major valuation issues. Sure, the appraiser is there in the end and doing the valuation on your home, however if they get bad data from these so-called inspectors, then that data is going to lead to a bad valuation of your home. Just to save a couple bucks on your biggest asset. What a shame.
So consumers, be aware of what you are getting into and make sure to find out if a licensed expert is coming to your home and not Johnny Superstar Inspector. Make sure you get all the details and make sure they do things properly.
Appraisers,one word: LIABILITY. Inspectors have 0% while you have 100%. Can you really afford to risk your career over $50-$100??
Of note, this how I see this playing out.
Consumer: “You valued my house wrong as you stated it was in below average to average condition.”
Appraiser: “Based on the information I had, that is what I determined.”
Consumer: “Well you weren’t here and didn’t see everything and have no idea what the quality and condition are.”
Appraiser: “Correct. I based it on the information and photos the inspector sent me.”
Consumer: “Well it’s incorrect and I will be filing a complaint with your state board and possibly looking to sue you!”
In the end…Crickets…Can’t blame the unaccountable inspector since, well, they have 0 liability. Sorry, real estate appraiser. You’d better hope your E&O will cover you.
2 thoughts on “Do you know what you are getting into?”
Couldn’t have said it better myself. Preach! Consumers and appraisers are being had so a lender can write more loans and an AMC can make more money.
Nice post Mark. The change removing quality and condition ratings is eye opening. Sounds like the Clear Capital appraisers need a raise if they have new responsibilities….