Whimsical Americana Lesson of the Week: What Is the White House Worth?

The White House.  1600 Pennsylvania Avenue.  Executive Residence, home of the First Family, seat and symbol of American power.  No matter what you call it, this 210-year-old edifice is unmistakably, undeniably grand.  Made up of six stories (including a two-story basement) spanning 55,000 square feet, it includes 132 rooms and thirty-five bathrooms, twenty-eight fireplaces, eight staircases, 412 doors and 147 windows, three elevators, a tennis court, a movie theater and a bowling alley, a jogging track, a swimming pool, and a putting green.  The grounds cover a total of eighteen acres of rose gardens and rolling greens.  One can safely assume that Malia and Sasha are not bored little girls. 

Somehow, despite my professional immersion in property appraisal, I’ve never really put the White House in my mental ”real estate” file, to be categorized alongside swanky beach houses or corporate office buildings. Instead, the structure has always resided in my mind alongside other indelible geographical features of Americana – the Grand Canyon, Mount Rushmore, New York’s side of Niagara Falls.  The thing is on the back of the twenty dollar bill, after all.  I was therefore amused to no end by a recent  hypothetical and playful “solicitation for White House fee quotes” sent out in January by appraisernews.com. How much, readers were asked, would it cost to appraise the White House? How would you go about accomplishing the daunting task?  And how long would it take?

The exercise elicited amusing responses from appraisers, but also brought up some interesting thoughts on the appraising profession as a whole.  Over all, guestimates for how much such an appraisal of the White House would cost ranged from $100,000 to a quarter million dollars. Appraisers estimated that they would require at least a year to complete a full valuation the property.  But, they wondered, how would one get access to fully execute a proper valuation?   And if one were to use the comparative approach, how far afield would an appraiser have to go to find an acceptable spread of homes with 132 bedrooms and 28 fireplaces? Wrote one commentator, “Comps may be located in competing countries, but how many national leaders actually sell their residences?” Would a cost approach be acceptable? What, though, of the historic value of the property?

In reality, monetary value can be, and has been, assigned to the White House. Appraising historic buildings is, of course, a much more complex process than a straightforward appraisal of grandma’s Florida condo. Multiple architectural experts and real estate historians are often involved in the process. Records must be studied to determine what parts of the structure are original and what has been remodeled or replaced. Because of this, appraisers who specialize in historic buildings are often avid students of history themselves.

As for the White House, which was originally completed in 1800, the building was constructed for a total cost of $232,000, or approximately $3 million in 2011 dollars.  (An ugly sidenote:  This bargain construction price was achieved in large part due the toil of slaves.)  Today, Zillow.com “lists” the White House (“Fireplace: Yes; Parking: Attached Garage”) at a whopping $252 million – a sweet price for sure, but one that has, like most properties in the market, seen a steep drop in value during the past few years. In fact, the theoretical price of the White House has dipped nearly $5.5 million since the beginning of 2011, and, since the pinnacle of the housing boom in 2007, has plunged a grand total of $80 million.

Perhaps the next time you’re feeling a little disheartened by the current estimated value of your home, you might try taking comfort in the likely fact that it hasn’t dropped $80 million in past three years. Hey – even the digs of the leader of the free world are experiencing the crunch. Not that there’s much of a chance that the White House is going on the market any time soon.

___________________________________
Jessica A. Edgerton, Esq.
After graduating cum laude from Indiana University Maurer School of Law in 2004, Jessica practiced as a litigation attorney in Boston and Chicago. She is now the Business Development Manager for US Appraisal Group’s Attorney Services Division, and lives in downtown Chicago.
Email: jedgerton@usappraisalgroup.com
Mobile: 312-342-0880

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Dodd-Frank’s New Regulatory Landscape: An Overview

Way back in 1989, in the messy wake of the S&L crisis, the Financial Institutions Reform, Recovery and Enforcement Act was born. Today we find ourselves once again struggling through a national financial quagmire, and this time, the feds have bestowed upon us H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which went into effect in July of last year. Dodd-Frank’s stated purpose is to revamp the country’s financial services regulatory system with more stringent institutional controls, and it serves as the first federal update of the country’s real estate appraisal regulations since FIRREA.

Below, I’ve summarized the central points of the Act which directly impact the appraisal community, and, by association, our clients. In addition, because community approval of, and expectations for, the Act are so far mixed, I have also set forth a few of the perceived pros and cons of Dodd-Frank. Finally, for the reference geeks among you, please see the final section of today’s blog for a numbered title-and-section list of the sections at issue.

New Regulatory Considerations Implemented by Dodd-Frank:
• State registration of AMCs is now required, other than those AMCS which are owned and controlled by financial institutions;
• Appraiser independence standards added to the Truth in Lending Act (TILA);
• Conflicts of interest for both appraisers and AMCs defined and forbidden;
• Reporting of Appraiser violations of the Uniform Standards of Professional Appraisal Practice (USPAP) required;
• Regulations issued facilitating appraisal portability;
• “Customary and reasonable fees” are required;
• Minimum requirements established for AMCs;
• Home Valuation Code of Conduct (HVCC) ended;
• Appraiser Qualifications Board (AQB) must establish requirements for appraiser training;
• Automated Valuation Models (AVMs) are required to conform to quality control standards;
• Restriction on Broker Price Opinions (BPO) for loan origination are implemented;
• Appraisal Subcommittee (ASC) must maintain national registry of AMCs and collect state registry fee;
• ASC given power to make grants to state appraiser regulatory agencies;
• ASC given power to impose sanctions upon states; and
• Borrowers must be provided with appraisal reports.

Mixed Reactions to Dodd-Frank:
The Appraisal Institute itself has given the Act a big thumbs up, stating that the new regulations will mean more accurate and reliable home appraisals in the future. In fact, during the development of the Act, the AI was central to promoting a number of the Act’s provisions, including:

• Establishing a federal appraisal independence standard,
• Sunsetting the HVCC,
• Requiring AMCs to register with state agencies,
• Strengthening appraiser competency provisions,
• Providing financial resources for oversight and enforcement, and
• Separating AMC and appraisal fees on HUD-1 Statements.

AI President Leslie Sellers has been quoted as follows: “We applaud the conference committee’s efforts and urge Congress to pass HR 4173. We are extremely pleased that this bill will protect consumers by encouraging the use of highly trained and competent real estate appraisers with much-needed resources for oversight and enforcement.”
Much of the mixed reactions to the act have arisen from the rather controversial requirement that appraisers be paid “customary and reasonable fees.” Some critics argue that no clear enforcement mechanism has been provided to support the regulation. In addition, a number of appraisers have expressed uneasiness with the idea of the federal government determining the acceptable scope of professional fees.

On the other hand, the Appraisal Institute believes that the fees requirement will be of benefit to appraisal professionals: AI President Sellers take on the fee regulation is that, “with distressed sales prevalent in the market, it is critical that highly trained appraisers be actively involved in the mortgage market. In recent years, the inability to earn customary and reasonable fees has been a significant obstacle for many highly trained appraisers, whose experience is badly needed to assist with the economic recovery.

Perhaps verging on conspiracy theory territory, but still worth mentioning because of the prevalence of this gripe in the appraisal blogosphere, is the suggestion that Dodd-Frank’s primary beneficiaries are not consumers at all, but rather yet another government boost to mega-financiers. The theory arises most often in discussions of new requirements for AMC regulation by the states. Specifically, critics point out that (1) the federal banking agencies and the Bureau of Consumer Financial Protection will determine the state requirements for AMC registration and dictate to the states of the “correct” means of AMC regulation; and (2) those AMCs owned and operated by regulated financial institutions are exempt from state registration.

In rebuttal, supporters of this section of the act point out that while bank-owned AMCs are exempt from state registration, they are still subject to the standards of professional conduct for appraisers, and are by no means exempt from scrutiny.

In all, it appears to me that the bulk of reactions to the appraiser-related Dodd-Frank portions of the Act are being well received. Most in the real estate community agree that the Act is a big step in the process needed to bolster public confidence in the appraisal industry, and restore confidence in the housing market as a whole.

H.R. 4173: SECTIONS PERTAINING TO PROPERTY APPRISAL:
14.7.1. Property Appraisal Requirements and Independence Standards.
14.7.1.1. Property Appraisal Requirements. Creditors providing higher-risk mortgages must obtain an appraisal before they extend mortgage credit. [§1471] A physical property visit and, in some circumstances, a second appraisal are required. Creditors must provide the borrower with a free copy of the appraisal, and creditors cannot charge the borrower for the cost of the appraisal. Willful failure by a creditor to obtain an appraisal as required will result in liability for the creditor to the consumer of $2,000.
14.7.1.2. Appraisal Independence Requirements. Those with an interest in the underlying transaction of the appraisal may not bribe, coerce, extort, or otherwise inappropriately influence the appraiser. [§1472] Appraisers may not have a financial interest in the transaction involved in the appraisal. Those with an interest in the transaction may not mischaracterize the appraised value of the property.
14.7.1.2.1. Mandatory Reporting. Various entities, such as a mortgage lender or broker, involved in a real estate transaction involving an appraisal must report to the appropriate state licensing agency any violations by an appraiser of the Uniform Standards of Professional Appraisal Practice.
14.7.2. Appraisal Subcommittee of the FFIEC. The Financial Reform, Recovery, and Enforcement Act of 1989 (FIRREA) is amended to provide the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC) with a consumer protection mandate. [§1473] The Subcommittee will audit state appraiser regulatory activities.
14.7.2.1. Annual Report. The Subcommittee must send an annual report to Congress detailing its activities and disapproved actions and warnings taken in that year. The Subcommittee may also prescribe regulation in limited areas.
14.7.2.2. Regulations. The Subcommittee may issue limited regulations involving appraisal standards. [§1473(d)]
14.7.3 Supervision of Third Party Providers of Appraisal Management Services. The Fed, the OCC, the FDIC, the NCUA, the Federal Housing Finance Agency, and the Bureau shall jointly establish minimum requirements for states to apply for the registration of appraisal management companies. Mandated requirements include compliance with the Uniform Standards of Professional Appraisal Practice. States may impose additional requirements in addition to the federally mandated standards. States may not register any appraisal management company owned any person who has had an appraiser license or certificate refused, denied, cancelled, or revoked.
14.7.3.1. Supervision of State Oversight by the Appraisal Subcommittee. The Board of Governors, the OCC, the FDIC, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection will also issue regulations for reporting the activities of appraisal management companies to the Appraisal Subcommittee. The Appraisal Subcommittee will have the responsibility to monitor each state appraiser certifying and licensing agency to ensure that those agencies have policies and practices consistent with federal law that they process complaints on a reasonable basis, among other requirements.
14.7.3.1.1. Reporting Requirement. State agencies dealing with the registration of appraisal management companies are required to transmit reports on the issuance of licenses and certifications, as well as sanctions, to the Appraisal Subcommittee.
14.7.3.1.1. Registration Requirement. Three years after the regulations are published, an appraisal management company may not perform services in a federally related transaction without being registered in that state or subject to oversight by a Federal financial institutions regulatory agency. The Appraisal Subcommittee may extend the three year period by an additional 12 months.
14.7.4. National Appraisal Complaint Hotline. The Appraisal Subcommittee must also establish a national hotline to receive complaints of non-compliance with appraisal standards 6 months after the date of enactment, if such a hotline does not exist at that time. [§1473(p)]
14.7.5. Quality Controls for Automated Valuation Models. Automated valuation standards must adhere to quality control standards designed to protect against the manipulation of data, avoid conflicts of interests, require random sample testing, and any other requirement determined by the agencies drafting the standards. [§1473(q)] These standards will be regulated by the Board of Governors, the OCC, the FDIC, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection.
14.7.6. Broker Price Opinions. Broker price opinions may not be used as the primary basis in determining the value of a piece of property in regards to a mortgage loan secured by that property. [§1473(r)]
14.7.7. Comptroller General Study on Appraisal Process. The Comptroller General is required to study the effectiveness and impact of appraisal methods and other aspects of the appraisal process due no later than 12 months after the date of enactment of the Act. A preliminary report to the House Financial Services Committee and Senate Banking Committee is due 90 days after enactment. [§1476]

The Benefits of Using An Appraisal Management Company – What All Lawyers Should Know.

At first glance, today’s blog topic might appear to be a major plug for my company. Okay, maybe at second glance, too. Fine. I think my company is exceptional, and I brag about it whenever I get the chance. That said, what follows comes from the keyboard of a person who not only believes deeply in what she does, but also from someone who spent many years practicing law. Much of my social and professional circle is made up of attorneys, and I speak from both first- and second-hand experience when I say that AMCs can serve as a major boon to any attorney whose work involves real estate valuation.

Many lawyers will, at some point in their practice, require the services of a real estate appraiser. A great number of lawyers, including those in the fields of real estate and real estate tax appeal, estates and trusts, bankruptcy, divorce, eminent domain and family law will use appraisers on a regular basis. It is these lawyers for whom an AMC can save significant time, money and headaches. Historically, many lawyers will either take it upon themselves to research and engage an appraiser, or leave the process up to their legal assistant or even their client. Below, I’ve laid out some reasons why attorneys might want to think twice before using this approach, and what to do instead.

Reason #1: Finding the Best Appraiser for the Job is Not a Simple Process.

You’re billing your client on an hourly basis, and you need to find an appraiser in Beaver, Oklahoma. Yes, Beaver, population 1,500, best known for being the cow chip throwing capital of the world. (I swear. Look it up if you don’t believe me.) You’re not about to spend four hours researching the reputations of appraisers in Oklahoma’s panhandle, so what do you do?

Option One: Plug “Beaver” and “appraiser” into the search engine and give the first guy in the results list a call. Right? Wrong. Don’t do it. While resorting to Google is by far the simplest solution, and you might think you’re saving your client billing time by taking this approach, it’s important to recognize that, just as a high-quality appraisal can impact your case, so too can a shoddy one. An inexperienced appraiser is akin to a summer associate – you’re not going to let a second year law student cross-examine an expert witness, so why let a green appraiser do your appraisal report? It’s essential to have an appraiser on the job who knows what he or she is doing.

Option Two: Call your client and tell him to get an appraisal done. Right? Wrong. Don’t do it. See Option One. Recognize that your client may not understand the impact an appraisal will likely have on his or her case. You’re not going to leave your legal research to your client, right? Using a poorly crafted appraisal report can be just as harmful to your position as citing overturned case law.

Option Three: Hire an AMC. Right? Jackpot! One of the functions of an Appraisal Management Company is to keep tight tabs on an appraiser’s training, work product quality, history of complaints against him, and areas of expertise. For example, US Appraisal Group has a detailed system that keeps track of each appraiser on our panel, and we never use appraisers whose work doesn’t stand up under scrutiny. Once you’ve engaged our company, you’re guaranteed to have the best appraiser on your job…even in Beaver.

Reason #2: An AMC Will Make Sure Your Report Gets Done Properly and On Time

A good AMC will stringently regulate the appraisal report process. At USAG, both our on-line system and our executives constantly monitor the paths of each report ordered by our clients. We know when an appraiser is doing what, at all times, and we make sure that things are moving along at the pace requested by our clients. (As a side note, lawyers should only work with an AMC that understands the schedules and deadlines imposed on attorneys. Ideally, the AMC should have a lawyer on staff as a point contact for your assignments.)

Reason #3: Transparency of Process

Just as our executives and staff know where an appraisal report is at each step in the process, so too do our clients. USAG’s on-line system allows you to log in and monitor each assignment that you’ve requested. This way, you are never in the dark when your client asks for an update.

Reason #4: By Using an AMC, You’re Saving Yourself and Your Client Money

Generally, AMCs make money not by increasing clients’ payments, but by reducing the individual amounts paid to appraisers on their panel. AMCs, including USAG, are able to engage and keep top-level appraisers by ensuring that appraisal assignments are steady and payments are timely, fair, and guaranteed. In other words, using an AMC does not mean you spend more money for an appraisal report. It does mean a streamlined process, vetted appraisers, high quality reports, and reduced billing time. There is never extra money spent on re-dos or second opinions for badly made reports, and your client’s bill will never say “4.25 hours: Internet research re: Beaver appraisers.” Definitely a plus.

Reason #5: Having A One-Stop Shop: AMCs Provide Other Services Useful to Attorneys

AMCs like USAG are not just about streamlining appraisal reports. In addition to commercial and residential reports, we are able to provide our attorney clients with expert witness testimony, third party appraisal report review, due diligence services, and consultation and advisory services.

So the next time you’re in need of valuation services, think twice before going for the search engine bar or telling your client to get an appraisal. Instead, give us a call at 888-580-USAG, and find out for yourself the difference the right Appraisal Management Company can make for your practice.

____________________________________________
Jessica A. Edgerton, Esq.
After graduating cum laude from Indiana University Maurer School of Law in 2004, Jessica practiced as a litigation attorney in Boston and Chicago. She is now the Business Development Manager for US Appraisal Group’s Attorney Services Division, and lives in downtown Chicago.
Email: jedgerton@usappraisalgroup.com
Mobile: 312-342-0880

AVM’s vs. Appraisals

Automated valuation models or AVM’s are value indications using mathematic modeling in combination with a database. AVM’s are a quick, easy, and many times free way for lenders and the general public to obtain value conclusions on residential properties. Bank of America offers consumers free online AVM’s and other websites like Zillow.com also offer free online value estimates. AVM’s conducted by lenders are many times used for home equity financing, refinancing preapproval, mortgage originations of less than $250,000, and even loan modifications. Some of the pitfalls of these types of limited scope value conclusions include the lack of consideration of:
• Location
• Quality of Construction
• Condition
• View
• Active listings
All homes are not created equal and using a broad brush or a cookie cutter model can lead to value indications that are simply inaccurate. With inflated real estate appraisals taking part of the blame for the housing crisis, the recent use of AVM’s by lenders to cut or decrease the value of a property is disturbing. Lawsuits against the Citibank, Wells Fargo, and Chase for employing these practices with AVM’s indicate the need for mortgage professionals to take a second look at qualified appraisal professionals for reliable value conclusions. AVM’s can’t conduct a full inspection of the property, they can’t ask a homeowner a question about recent upgrades or updates, and they can’t call a realtor to provide additional details about a comparable sale or active listing. Qualified appraisers are the best source for valuation products, especially going forward after the recent crisis.

2011 Market Forecast Medley: Don your galoshes, sun hat and mittens…and hang on for the ride.

All in all, 2010 was a painful year in the world of real estate. Foreclosures dominated both commercial and residential market news; homeowners, already faced with negative equity, slashed prices and resorted to short sales, and lenders grappled with bankrupt debtors and an influx of REOs. Now at the dawn of 2011, economists and market analysts are doing their best to forecast the new year’s yet-to-be-realized trends. Predictions to date span a wide arc between partly cloudy (Lawrence Yun, NAR Chief Economist, is keeping his chin up about what to expect) to quasi-apocalyptic (see, e.g., this cheery forecast for our 2011 market). By sorting through the soup of opinions out there, I’ve pieced together a snapshot of dominant opinions regarding what’s to come. In the end, the best advice will be to pack your rucksack for any contingency, double-check your seatbelt, and keep the caffeine flowing, because no matter what happens, 2011 sure ain’t the year to fall asleep at the wheel.

The Ugly Stats on 2010:

- An estimated 4.2 million mortgage holders went into delinquency status;
- Between 2.8 and 3 million people had foreclosure action (including foreclosure notice) taken on their homes,
and approximately 1 million homes were foreclosed on outright;
- The number of first-time homebuyers dropped 50% from 2009;
- Negative equity fluctuated between 15% – 25%;
- Shadow inventory rose 10%;
- Housing inventories at all price points were listed for an average of 9 months; and
- Housing prices were down 4.1% by the end of the year.

What Pundits are Saying about 2011:

- Foreclosures: While foreclosures stalled for several months toward the end of 2010 as lenders attempted to slog through the implications of government bailouts and foreclosure scandals, the general consensus is that we haven’t seen the end of this road by a long shot. Estimates for additional foreclosures in 2011 range from 1 to 1.5 million. This continued influx of foreclosures will in turn cause home prices to remain depressed due to further increased inventory.

- Construction and Development:

• A number of developers are expected to snap up REOs and sell new single-family homes in 2011 and 2012 at significantly reduced prices.
• Green building is a trend to watch this year – smaller environmental footprints and the allure of reduced energy costs will bring new high-level LEED certifications across the board.
• Careful developers may find huge opportunities in 2011, particularly in apartment construction, as both institutional lenders and nontraditional financiers are, in some camps, expected to be more open to funding multifamily projects this year.

- Jobs: While higher-than-desired unemployment rates and a heavy inventory load are holding back activity in most real estate markets, the New York Times predicted at the end of 2010 that we could see new job growth this year due partly to the Federal Reserve’s arrangement to buy $600 billion worth of Treasury securities.

- Buyer Behavior:

As further home value declines are expected to occur during 2011 (predictions for decreases in 2011 home prices range from 3% to 10% nationally), potential buyers will be on the lookout for near-instant equity and will gravitate to homes that they believe are undervalued. Still, experts predict that buyers will remain circumspect and sale rates sluggish until concerns over salary freezes and layoffs are further assuaged. In addition, while mortgage lending rates dropped to new lows last year and are expected to stay down through much of 2011, credit is still often tough to come by, even for prospective buyers who would easily qualify in a” normal” economic landscape.

- Financing:

• Fannie and Freddie: 2011 is already being called the year of Fannie Mae and Freddie Mac. Rumblings in Congress have now begun regarding a number of proposals to rework both GSEs, and incoming reps are putting reform at the top of their to-do lists. How quickly anything will actually get done, however, is undoubtedly in question. It is the federal government, after all. When the changes do happen, however, insiders anticipate the inclusion of an explicit guarantee of government support to ensure mortgage liquidity.
• Federal Housing Administration: The FHA will continue as king of the secondary mortgage market in 2011. With Fannie and Freddie in morph mode, many experts anticipate that the FHA will dominate the mortgage market this year, especially in the realm of loans to first-time homebuyers.
• Interest rates: Interest rates are not expected to dip any lower, and may begin to rise beginning in the second or third quarter of this year.
• Refinances: Refis are expected to slow this year, with some experts predicting the refinancing market to fall from $1 trillion to approximately $350 billion. This, in turn, will drag down mortgage lending as a whole over the course of the next 12 months.
• Fixed Rate Mortgages and ARMs: Frank Nothaft, Freddie Mac’s chief economist, anticipates that 30-year FRMs are expected to remain below 5% throughout most of 2011, while ARM loans are likely to remain below 4 percent.
• Distressed Property: Earlier this month, Joseph Tracy, a senior advisor at the New York Federal Reserve Bank predicted that distressed sales will grow “even further over the coming year.” In addition, Tracy called existing negative equity an economic “overhang” that will certainly hamper the housing market for many years to come.

The Bottom Line: 2011 is unlikely to match 2010 for sheer market nastiness. The chances of a double-dip are seen as more remote than they were two months ago, and smart investors and developers will find goldmine opportunities if they keep their ears to the ground. Nonetheless, potential pitfalls abound, and the ride won’t be all smooth sailing. Stay smart, stay strong, and wear a helmet.  May the gods of Real Estate smile upon us all.

Jessica A. Edgerton, Esq.
After graduating cum laude from Indiana University Maurer School of Law in 2004, Jessica practiced as a litigation attorney in Boston and Chicago. She is now the Business Development Manager for US Appraisal Group’s Attorney Services Division, and lives in downtown Chicago.
Email: jedgerton@usappraisalgroup.com
Mobile: 312-342-0880

Off to the Races

Happy New Year from US Appraisal Group! We are kicking off 2011 with the reintroduction of our blog, The Online Voice. Our contributors will be posting biweekly articles touching on all aspects of real estate appraisal, including, in my case, topics relevant to attorneys whose practices involve real property valuation.

2010 bore a number of significant changes to the landscape of real estate appraisal-related law and regulation. As we move into 2011, I will be tracking the development and fruition of these events, and reporting on areas significant to legal professionals who regularly utilize commercial and residential real estate valuation. Law-related topics to be covered in following weeks and months will include:

• Legal issues pertaining to the use of Automated Valuation models and Broker Price Opinions (BPOs);

• Shifts in commercial real estate workout paradigms being made by the Financial Accounting Standards Board and federal financial institution regulators;

• Changes to the requirements for appraiser qualification, which are being contemplated and implemented by the Appraisal Qualifications Board; and

• Section 129E of the Truth-in-Lending Act, the interim final rule for which was announced on October 18, 2010. The purpose of the new section, for which compliance will be required starting April 1 of this year, is to ensure that real estate appraisals used to support creditors’ underwriting decisions are free of pressure or influence, and based solely on the appraiser’s unbiased professional judgment.

It’s the beginning of an exciting and dynamic year for our company, our clients, and for real estate professionals across the country. US Appraisal Group looks forward to sharing our insights and successes with you in 2011. Please stay tuned for articles and updates in the near future, and, as always, please call or email us with any questions or to set up an appraisal. Our office number is 888-580-USAG, and my contact information is listed below.

________________________
Jessica A. Edgerton, Esq.
After graduating cum laude from Indiana University Maurer School of Law in 2004, Jessica practiced as a litigation attorney in Boston and Chicago. She is now the Business Development Manager for US Appraisal Group’s Attorney Services Division, and lives in downtown Chicago.
Email: jedgerton@usappraisalgroup.com
Mobile: 312-342-0880

Top 3 Ways Realtors can Ensure a Smooth Appraisal Process

1.Understand Guidelines
Lenders and banks are the only authorized parties to order appraisals, either directly from appraisers or through Appraisal Management Companies. Appraisers are required by lenders and AMC’s to provide at least two closed comparable sales within 90 days of the effective date of the appraisal, two active/pending sales, and analyze the sales contract (if applicable). The largest lenders are also now requiring only specific appraisers complete their reports. Sadly, some of the appraisers on lenders’ approved lists are low on quality and high on themselves, which makes working with them difficult but unavoidable. For those loans subject to HVCC, lenders are also required to provide a copy of the appraisal report to the borrower within three days of the loan closing date.

The Home Valuation Code of Conduct and FHA Appraiser Independence Mandates ensure that realtors and brokers do not aid in the selection or compensation of appraisers. Realtors and real estate agents can still ask appraisers for additional information, provide additional information to an appraiser, or ask for corrections of factual errors. Appraiser independence will apply to FHA loans as of February 15, 2010.

2. Understand Market Value
Market value is the most probable price a property should bring in an open and competitive market. Factors that contribute to market value have nothing to do with the cost of improvements in the property but rather the market response to those improvements. For example, a remodeled kitchen may have cost the homeowner $20,000 but buyers in the marketplace are only willing to spend $10,000 more for properties with upgraded kitchens. Many of your clients may choose to appeal the appraisal once they receive their copy and they should also know that factual errors may be addressed but will not always lead to a higher market value. The most common complaints are inaccurate square footage, subjective adjustments of sales comparables, bedroom/bathroom count, or using short sales or foreclosures in the report. The educated and informed realtor should always explain each of these concepts to their clients.

1.Come to the Inspection Armed with Data
The single most important way for realtors to participate in the appraisal process is to meet the appraisers at the time of inspection armed with data. Data should be in the form of publicly listed closed or pending sales that are within ninety days. Listings, older comparables, and superior properties will be considered in the appraiser’s analysis but will most likely not be included in the report due to lender guidelines.

Realtors can also add a clause to the sales contract that states:
“Buyer shall have all the rights and provisions manifested by the Appraisal Contingency provided that the appraiser the buyer’s lender selects has competency in the market area and has completed appraisal reports in the immediate submarket within the past year.”
As many lenders will utilize a radius search to find appraisers for assignments, unique market areas that require specific competency will have a higher incidence of errors in the appraisal report. By adding a clause to the sales contract, realtors help promote quality appraisals for their clients.

US Appraisal Group Ensures Full compliance with New FHA Regulations ahead of Mandatory Deadline

CHICAGO, IL (January, 2010)  US Appraisal Group demonstrates its ongoing commitment to increasing public confidence in appraisal management by implemented new Federal Housing Administration (FHA) policies and procedures prior to the original January 1, 2010 deadline.  The Department of Housing and Urban Development (HUD) recently postponed the enactment of these rules until February 15, 2010 giving US Appraisal Group further time to educate and assist clients in making an effortless transition.  The new FHA Appraisal Requirements consist of additional safeguards which promote objectivity for appraisers and minimize the influence from lenders of Federal Housing Administration (FHA)-backed mortgages.

As Dione Spiteri, US Appraisal Group’s Director explains, “The new FHA regulations are comparable to those administered by the government-sponsored enterprises (GSE’s) which exist to reinforce appraiser independence with the Home Valuation Code of Conduct (HVCC).  As we continue our dedication to being fully informed and in compliance, we managed to meet and exceed compliance of the new rules in a very short period of time.  We have worked these items into our processes, transcending even the minimal requirements declared in the new regulations.  For example, we employ the highest ratio of staff appraisers in the industry and only Certified Appraisers are part of the review process.”

Since its establishment in 2003, US Appraisal Group has demonstrated the highest quality appraisals, while doing so with the utmost integrity.  Working with only the best real estate appraisers worldwide, US Appraisal Group values the trust bestowed by its clients and will always remain 100% FHA & HVCC compliant.

For more information regarding FHA compliance and US Appraisal Group, please contact info@usappraisalgroup.com.

US Appraisal Group, Inc. is an appraisal solutions firm that works with the best real estate appraisers worldwide for commercial and residential client needs. Each client receives a complimentary analysis to determine the optimal way to handle their needs and a customized solution is then built which helps clients be more efficient, save time and resources, and consolidate appraisal orders to one source. US Appraisal Group’s appraisers are the best in their respective markets and always produce quality reports that include sound analyses and well-documented reasoning. As a result, working with US has been known to dramatically increase public confidence in the appraisal profession. 

© 2010 US Appraisal Group, Inc. All rights reserved.

Scary Things about the Appraisal Industry

In the spirit of Halloween, here are 3 scary things about the appraisal industry right now:

3. The FHA website has not been updated with appraisers that are actually certified to do their appraisals.

2. Appraisers still report value pressure from appraisal management companies.

1. Freddie claims HVCC improved appraisal quality because 15% more have come closer to the automated valuation model used as a check.

And…5 things that might ease those fears:

5. Pressure from mortgage brokers has been essentially eliminated.

4. Geographic competence is being discussed and highlighted because of so many complaints.

3. AMC fees will be honestly reported starting the first of the year for FHA transactions.

2. Comp checks and estimated values have disappeared.

1. States are starting to regulate appraisal management companies.

Happy Halloween!

Is Your HVCC Solution the Best Choice for Your Company?

Is Your HVCC Solution the Best Choice for Your Company?
The four questions you need to consider

The Home Valuation Code of Conduct was designed to set forth guidelines that govern appraisal-related activity for loans sold to Fannie Mae and Freddie Mac. In an effort to reduce the risks associated with the appraisal process, most of the stipulations focused on ensuring objectivity in ordering real estate appraisals. Here are four questions you should ask yourself about how your company is handling HVCC.

1. How do you know if your organization chose the right solution for HVCC compliance?

The key to effective workflow management is utilizing a system that addresses your unique needs so you can deliver impeccable service to your clients. At any time, extensive proof of compliance may be required. For an in-house management solution, this could include: external audits, copies of written HVCC compliance policies, quality control procedures, organizational charts, and employee roles and responsibilities. Working with an AMC is an instant way to provide compliance on loans that are critical to your core business.

For example, Flagstar Bank requires that you can either use an AMC exclusively OR provide:

• Audited company financial statements indicating a net worth of equal to or greater than $1,000,000
• Organizational chart that indicates who will be ordering appraisals
• Copy of appraisal ordering employee’s job responsibilities and job description
• Copy of company’s most recent articles of organization
• List of other lenders with which you are an approved HVCC correspondent
• Copy of written HVCC policies and procedures
• Proof of an external audit trail
• Copy of Appraisal Quality Control procedures

The key disclosure written throughout the requirements is that these are all absolved if you are using an AMC exclusively.

2. What if you want to keep your existing appraiser relationships?

Some AMCs offer a hybrid option where appraisal workflow is managed utilizing your existing appraiser fee panel. US Appraisal Group, an AMC available in Encompass, will re-qualify and import your approved panel of appraisers and rotate assignments. This arrangement can preserve your local appraiser relationships while providing instant compliance.

Several banking clients have found that having an AMC manage their existing fee panel can actually lead to better appraisal quality and lower costs. Because AMCs manage appraisers as their core competency, they are able to offer additional benefits, not to mention saving bankers an immense amount of time that could be used to generate revenue.

3. What if we went with an AMC and are unhappy with the service and quality levels?

Management companies have been criticized for putting quality last and shifting the cost of the appraisal to lenders and borrowers. But it is the lender, not the management company, that determines the appraisal fee. Management companies can adopt “lean” business models such as the one used by US Appraisal Group, where the appraisers can be compensated around market rates. When contracting services with a management company, several lenders have negotiated nationwide pricing, which allows the management company to recuperate costs in some market areas but forces a loss in others. When the fees are negotiated at lower rates, it is most advantageous for the management company to work with low-cost appraisers, who are sometimes less experienced than higher-priced appraisers in the same market area.

How can lenders resolve this issue?
Engage management companies that pay market rates to appraisers or charge a management fee instead of forcing appraisers to agree to a fee-split arrangement. Most of the time, this can be done without any significant additional cost to the lender. With this structure, appraisers are compensated at fair market rates and are more likely to provide quality appraisals that meet guidelines.

4. What if we are committed to managing the process in-house?

Following are some guidelines for ensuring in-house compliance:

• Can you prove that your entire loan production staff and anyone monetarily incentivized by the loan process does not identify, select, retain, communicate or compensate the appraiser?
• Are your in-house staff members independent of the loan process “appropriately trained and qualified in the area of real-estate appraisals?”
• Do you verify appraisal licensure and conduct ongoing audits for licensing and E&O insurance?
• Do you have written policies and procedures addressing each element of the Code and including disciplinary policy for selection, instruction, communication and compensation of each appraisal assignment?
• Can you prove that appraiser removals from your approved list are done with written notice and well-documented reasoning?
• Do you ensure timely appraiser payment regardless of the file outcome?
• Can you prove the borrower receives a free copy of appraisal within three business days of closing?
• Are you reviewing appraisals for USPAP compliance and storing the review with the finished appraisal and engagement letter?
• Can you prove that no estimate of the subject property’s value, proposed loan amount, or proposed loan-to-value ratio, was provided or communicated to the appraiser?
• Can you guarantee that additional appraisals on the same subject are only ordered if the original appraisal had errors or omissions that are adequately documented as per your written policies and procedures?
• Are you randomly selecting 10% of your appraisal files for objective quality control and objectivity testing?
• Are appraiser disciplinary matters documented and communicated to licensing agencies or other relevant regulatory bodies?
• Can you represent and warrant the process on every applicable loan?

Unsure which solution is best for you? Get a complimentary needs’ analysis

All Encompass users are being offered a complimentary needs’ analysis of their current appraisal solution with no obligation from US Appraisal Group. Our analysts will profile your existing appraisal solution to determine areas of non-compliance or areas where a more efficient system could be utilized. The data is then analyzed based on hundreds of other lenders and presented to you in a format that can be used by your management team to make immediate decisions about this critical area of your business. All the analysis is done with no obligation to work with US Appraisal Group or any other management company as sometimes the best solution is to handle the process in-house. USAG can also provide recommendations of ways to best leverage Encompass’ tools and services to ensure solid compliance and peace of mind.

Phone (888) 580-USAG for your complimentary needs analysis today! Or visit us online at usappraisalgroup.com/your-needs.