Desktop Appraisals: Has The Devil Infiltrated The Public Trust?

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The Uniform Standards of Professional Appraisal Practice (USPAP) are the key to maintaining public trust in real estate transactions. USPAP is pretty much the equivalent to the Bible, but it MUST be followed for appraisers. Created by the Appraisal Foundation, USPAP set forth the guidelines for how appraisers should perform their work. By following these standards, appraisers ensure that they act in a professional and unbiased manner. To expand, even more, USPAP states, “While USPAP does not define public trust, it refers to the need for the public to be able to have confidence that the services provided by an appraiser are performed competently and in a manner that is independent, impartial and objective.”

Before we go any further, we must define what USPAP means by PUBLIC. According to USPAP, “The public, whose trust the appraiser must promote and preserve, exists on several levels. The most direct is the appraiser’s client. In addition to the client, any additional users would be part of the appraiser’s public. But, even beyond the client and other intended users, other parties may rely on an appraiser’s work, and the appraiser must be careful not to mislead such third parties. Finally, it could be said that the general public is also part of that public. The economy could suffer if the general public cannot depend on appraisers to act as independent professionals and provide credible results.”

Reread those first two paragraphs. Got it?

So that brings me to the reason I am writing this blog post. The appraisal profession has been in a rapid state of change since the financial crisis of 2008. Many of these changes that were supposed to have a positive effect have created more issues within the profession than they were supposed to solve. They range from Laws like HVCC (Home Valuation Code of Conduct) and the now Dodd-Frank to Appraisal Management Companies (AMCS). The latter was supposed to be the middle man and firewall between appraisers and lenders. Going back to the AMCS, they were supposed to act as the agent for the lenders. Somewhere along the lines, they were allowed to morph into having staff appraisers, building new technology, and selling that to their lenders and others controlling the entire appraisal process. I’ve written other blogs on the AMCS and how they operate, which you can read via the following links:

Now we get to the newest addition to my list of issues DESKTOP APPRAISALS.

Starting in 2022, Desktop appraisals will now be accepted by Fannie Mae. I’m sure many of you are asking, “How can this be a bad thing? “Well, that’s what I am here to outline for you and have you think a little more from the mind of an appraiser and not a lender or AMC.

Let me first discuss what these desktop appraisals entail? Here is the breakdown from Fannie Mae and my comments:

1) The actual appraiser does not have to inspect the property and gather all relevant data that could impact the home’s value. A third-party inspector (Realtor, Homeowner, Uber Driver, Home Inspector, AMC trained property data collector, etc.) will come to your home, take measurements, make a floor plan, take pictures and notes. This person does not have to be licensed by the state as a professional. Appraisers are Background checked by the state. Who is going to background check these people? Do you want just anyone in your home that isn’t a licensed professional and held accountable to state and federal laws? There is a database of appraisers nationally and state-wide.. Will these people be added to a database to be held responsible? Let’s take it further as an example I was aware of today. An inspector (not an appraiser) told a borrower they were the appraiser. When the actual appraiser called to get more info, and schedule an appointment, the borrower stated that the person that was there already told her he was the appraiser there to do the inspection… the truth of this is that an AMC was testing out a desktop inspection and also ordered a 1004 full inspection. So the homeowner thought the inspector who represented themself as an appraiser was indeed the appraiser. How’s that for sketchy? The borrower does not have that person’s name nor info as they represented themself as the appraiser to begin with. Outstanding.

2) Data Provided by parties with a financial interest in the subject property’s sale or financing (IE: Agents, Home Owners) must be verified by a disinterested source. THINK A MINUTE HERE… ISN’T THIS WHAT APPRAISERS ARE FOR? I mean, what could go wrong with an agent or homeowner inspecting their property or another industry peer’s property? I don’t know about you, but I am pretty sure they won’t be sending those pics or data of issues with the home to hurt another or their deal

3) Must include a FLOOR PLAN with interior walls. So besides an appraiser who is experienced at measuring a home, are we to be confident that the person creating this Floor plan has the experience to do so? Let’s take this further. In 2022 Fannie Mae stated they are adopting ANSI measurements for all appraisals EXCEPT desktops. I wonder why? I live in Atlanta, where tax records, sketches, and home data are incorrect. What I see here is many so-called inspectors taking the cheap way out and using tax records sketches to make a floor plan to do more inspections per day. That right there is a red Flag 

4) If the appraiser does not have sufficient information to complete a credible appraisal, they must refuse the assignment. So what you are saying is that I need to wait for this info to come in, decipher it, and if it’s not enough for me to do a credible report, I must decline? How does this save time? How does this benefit the borrower? Wait. I get it. I will decline it, make the lender and AMC mad, they then send that info to someone else to do the report, or order a full appraisal days later and have the borrower waste more time. I must say, this ranks up there with Zillows Ibuyer program that had them overpay for homes only to lose money and time

Now I will outline my questions and questions you should be asking.

Question 1) Where are the protections for consumers to know who might be coming into their homes? Who do they represent? What is the knowledge or experience of these inspectors? Are they remaining unbiased? Are they providing all the info needed? How are they representing themselves to homeowners/borrowers?

Question 2) Are These third-party inspectors adequately trained.

Question 3) Are these inspectors licensed by the state or obtain a certification that shows they understand what is expected of them.?

Question 4) Are these inspectors being Background checked? Many AMCS require appraisers to be background-checked by them and the state. Third-party inspectors should be held to the same standards as appraisers, and the state should have a proper background check done and a database of these people for any issues or complaints down the road.

So now that I have explained the process, I will get back to the PUBLIC TRUST aspect and back to what USPAP states. How do these Desktop appraisals with third-party inspectors involved protect the public trust? I believe that it goes against everything those first two paragraphs say. How is the public or any intended user confident they are getting what they expect from an appraiser if the appraiser or an appraiser trainee trained properly never visits the home to collect the CORRECT DATA? So does this mean that what USPAP states above is no longer valid for these desktop appraisals?

Let’s face facts here. In this current day and age, protecting one’s home, assets, and more is very important. Consumers deserve to know who comes to their homes and what role they play in the process. They deserve to know where all this information is going. I know of some companies that will have this information sent overseas, and well, if you have an unlicensed inspector with no standards, laws, and regulations to follow, might those pictures and sketches end up in the wrong hands? They deserve to get the best service possible. When they hire someone to perform a service, they do their research. They look for companies with good reviews, reasonable pricing, and a good reputation. However, they are at the mercy of an AMC or Lender when it comes to the lending process. They deserve to be protected by laws and regulations. They deserve to be respected and stop having the Federal Government, Lenders, and AMCS take advantage of them.

Lastly, I need to write about the protection of the appraiser.

Right now, per my knowledge, there are no laws or regulations that will absolve the signing appraiser of issues due to inadequate information the inspector collected. The signing appraiser is fully responsible for all information within the report. While many of the forms we use will have certifications that will separate each party, at the end of the day, there are no laws, regulations, or requirements for the inspectors being responsible for the data they collected. Appraisers should NOT have to take on the responsibility of poor information from a third party or figure out if the data is correct.

Third-party data collectors MUST be held accountable for the data sent to an appraiser to further this. For example, suppose an appraiser’s report is flawed due to the inspector’s data. The appraiser verified all data given, but a complaint was made due to information being left out. In this case, the inspector or data collector should be held responsible and NOT the appraiser. Any Complaint filed must be looked into to determine if the data collector or the appraiser was in the wrong.

So I ask you this? Is the Public trust being protected here? Are Desktop appraisals with third-party inspectors protecting the public, or are these products about to destroy the very profession I love so much.

11 comments on “Desktop Appraisals: Has The Devil Infiltrated The Public Trust?”

  1. Here is the real question that we should be asking; why are they doing this? Are they doing this to improve the quality of our reports and opinion of value? No. I can’t tell you the correct answer, I don’t know for sure, but I can tell you that some guy in a high-rise office, in a place like New York City, in a fancy suit, is going to somehow make more money and the borrower will be further mislead that the appraiser is working for their interests.

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  2. Good article. Look, the issue is faster, cheaper, it’s 1. An insured loan, of 2. The lender sells to FNMA and bears no liability. I’ve long said that if lenders were required to have a dog in the race, things would change dramatically. Require they retain 10% ownership of each loan. With their capital at risk, I am sure their position would be much more cautious – after all, the capital invested is relatively small. But,the Mortgage Bsnkers Lobby would prevent anything of this sort from happening. So until the next financial crisis, we are stuck with the status quo.

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  3. Hello Mark!
    I think it’s interesting that appraisers are holding on to the desire to inspect a property and measure the improvements. Technology, (i.e. CubiCasa) is better at measuring walls and taking pictures than we are.
    Are we appraisers? Or are we property inspectors? Are we paid to accurately measure the market? Or tell the client that the property has hardwood floors?
    I am a data analyst, not a home inspector. I’m thrilled to have a third party inspecting the improvements so I can focus on what I am paid for, measuring the market, and providing market-supported adjustments.
    AMCs like Clear Capital are using licensed Real Estate Agents. This is sufficient to collect data. We as appraisers should be in our offices harnessing technology to measure the market, being data-analysts, not property inspectors!

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    1. I respectfully disagree. I am not a property inspector but I am a researcher. I research firsthand how large a property is, what condition it is in, and any other factors that may impact the home. Since I have been trained to look for these factors I look at a property with different eyes than someone who has not. When I see a crack by a door I know to look for other stress fractures in the home, this includes the crawl space and attic. If I drive up to a house and see that on both sides of the home it has dilapidated houses I do research on how this will impact the value. My job is not just as a data analysis but as a full package appraiser with the knowledge and education to find the market value of a home. It is the difference between a substitute teacher and a teacher. The substitute goes in and teaches the lesson plans. The teacher looks at each child as an individual and assesses them.

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    2. As an appraiser our job is to collect accurate data and then assess the data to arrive at a credible opinion of value. Personally I think relying on a sales person to provide data doesn’t make sense. If you don’t collect your own data how can you possibly say it’s reliable….The way the new desktops are defined the appraiser is 100% responsible.

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      1. Some valid points here, however, do we inspect the interior of the comps we use? Do you “drive” your comps every time? What if a sale is located on a private road or gated community? Can you still get credible data by analyzing information from a broker along with google maps, public records, and assessors’ field cards? Why do we accept third-party data in one instance, but claim that it’s unreliable in another?

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    3. Enjoy going before your State Board when the data provided isn’t correct. When you sign it, you own it regardless of any certification to the contrary per USPAP. I have a Master’s degree in Data Science. I have been using data science and econometric tools in my practice for over 31 years. CubiCasa is a fine tool and I am very familiar with it as well as Hover and other third-party tools. One question for you. In your career how many times have you driven out and found external influences not visible by google maps and street views that would have an impact on value? It’s dangerous to the consumer and dangerous to the appraisal profession. There are much better ways of streamlining the process and this isn’t it.

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    4. The problem is appraisers are not JUST data analysts. We are gauging the market, yes. BUT, we are also tasked with formulating a specific estimate of value for our SINGLE property assigned. How does THIS home compare to the market. This job is a mix of micro and macro data analysis. Both parts are equally important to the determination of value. We gather much of our information about the micro portion at the site inspection/drive-by. Sitting at a desk being productive sounds great for appraisers but if you never leave the office, how will you know what’s actually going on in your market? What’s being built? What external factors are affecting the property you’re tasked to appraise?

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  4. Yeah-im gonna trust my license(income/livelihood) to an unverified, unlicensed, party to the transaction who isnt background checked and is NOT trained by me to earn an income?
    no flaming way!

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  5. “In 2022 Fannie Mae stated they are adopting ANSI measurements for all appraisals EXCEPT desktops. I wonder why?” Could it be that FHFA has more to gain off 3rd party inspections with a big payoff from the demographics they glean? Like you said in your other posts, mega-amcs spearheading this are more interested in owning (and selling) the data. The inspector, who isn’t experienced in measuring or making field notes, will use a scanning app like CubiCasa where A.I. extracts more than the house itself. It will capture a full profile of the resident’s life and that’s valuable. Over time, full spectrum regional demographics will map out the U.S. I can see politicians salivating already. I agree 100% that they could easily fix the appraiser shortage (that they created) by opening the door for lenders to accept appraisals completed by trainees. Instead of giving AMCs more power to select random field agents, they need to allow us appraisers use our own “Trainees and “Field Inspectors”. Implement a new Appraiser Inspector License or designation for someone who isnt interested in writing the report, but who’s trained by an appraiser to conduct field inspections. There are a lot of appraisers who would use a field inspector. It would help appraisers who cant conduct inspections as easily any more. The irony is that that a Lender can now accept a Desktop Appraisal inspected by anyone hired by the AMC, but won’t accept an appraisal inspected by a state licensed trainee that was trained by an appraiser! If they can control the inspection, they control the data. Keep your eye on the scanning software. The american People are getting sold.

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