US Appraisal Group, Inc. http://usappraisalgroup.com Just another WordPress weblog Fri, 15 Apr 2011 12:41:54 +0000 en hourly 1 http://wordpress.org/?v=3.0.5 Customary and Reasonable Appraisal Fees http://usappraisalgroup.com/blog/customary-and-reasonable-appraisal-fees/ http://usappraisalgroup.com/blog/customary-and-reasonable-appraisal-fees/#comments Fri, 15 Apr 2011 12:41:54 +0000 admin http://usappraisalgroup.com/?p=565 New Appraiser Independence Regulations (AIR) protects appraisers from undue influence and pressure. Many banks now utilize independent third party vendors (Appraisal Management Companies) to manage their appraisal functions. Unfortunately, the cost of these services is often passed to both the consumer and appraiser. Rather than paying a separate and distinct fee to the Appraisal Management Company (AMC), the fee charged to the consumer for appraisal services is split between the appraiser and the AMC. In addition, some AMCs run rogue with abusive tactics towards appraisers, tainting the good name of reputable AMCs that provide independent important services to lenders. To maximize profits, abusive AMCs utilize bargain appraisers willing to operate in large geographic territories in which they posses, neither the necessary competence nor data, to perform efficiently. The Dodd Frank Act of 2010 provides some solutions by mandating state regulation of AMCs and the payment of customary and reasonable professional appraisal fees to qualified and competent appraisers. As the various federal and state bureaucracies grind on to formulate legislative solutions to the statutory mandate, both appraisers and AMCs remain tethered to the existing standard of business practice. Industry groups on all sides are calling for rapid resolutions, but in the meantime consumers continue to bare unnecessary costs for poor service, abusive practices and potentially inaccurate valuations.

]]> http://usappraisalgroup.com/blog/customary-and-reasonable-appraisal-fees/feed/ 35 Tax Season Update: What Every Residential Landlord Should Know http://usappraisalgroup.com/blog/tax-season-update-what-every-residential-landlord-should-know/ http://usappraisalgroup.com/blog/tax-season-update-what-every-residential-landlord-should-know/#comments Fri, 25 Mar 2011 21:17:20 +0000 admin http://usappraisalgroup.com/?p=558 Tax season is upon us, and if you own rental property, you’re going to want to give the following points a read before mailing off your forms. Why? Thousands of property owners across the country lose millions of dollars each year by overlooking some basic tax breaks. Landlords, here are a few deductions to look into:

1. Mortgage Interest Payments
As a landlord, interest is often going to be your most significant deductible expense. Typical examples of deductible interest include:

• Mortgage interest payments on loans used to acquire or improve rental property, and

• Interest on credit cards for goods or services used in a rental activity.

2. Depreciating Value
The actual cost of a rental property isn’t fully deductible for the year in which you paid for it. Instead, landlords get back the cost of real estate through depreciation. For tax purposes, this means deducting a portion of the cost of the property over the course of a number of years.

3. Maintenance and Repairs
The cost of repairs to your rental property (provided the repairs are necessary, ordinary, and of reasonable cost) are fully deductible in the year in which they are incurred.
In addition, when you hire someone to perform services related to your rental property, you may deduct payment, including salary, as a rental business expense. This is the case regardless of whether the worker is an employee or an independent contractor.

4. Travel Expenses
As a landlord, you’re entitled to a tax deduction whenever you travel for rental-related business. This even includes small trips, for example driving to your rental property to follow up on a repair, or paying for parking during a trip to the hardware store to purchase plumbing materials.
You have two options for deducting vehicle expenses:

• Deducting your actual travel-related expenses (including fuel and car maintenance and repairs), or
• Using the standard mileage rate. However, to qualify for standard mileage rate, a landlord is required to apply the standard mileage method from the first year you use the vehicle for rental related purposes. In addition, the standard mileage rate is unavailable to you if you have previously claimed accelerated depreciation deductions or have applied a Section 179 deduction.

If you travel longer distances for your rental activity, you may deduct airfare, lodging, and other trip-related expenses. Take note, however, that in audits, the IRS is known for looking closely at overnight travel deductions. More than one taxpayer has found themselves in hot water for claiming travel-related deductions without the necessary records for support. To avoid headaches – or more – make sure you’re properly documenting every phase of your travels

5. Home Office Deductions
In many cases, landlords may deduct home office expenses from taxable income. This break not only includes actual office space, but may also apply to, for example, a workshop used for your rental business. In fact, any work-related space may qualify.

6. Theft and Casualty Losses
Damage and destruction to your rental property may qualify you for a tax deduction for part or, in some cases, even all of the loss. Insurance coverage and the magnitude of the damage will influence your total permissible deduction.

7. Insurance Premiums
A landlord is permitted to deduct premiums paid for most rental-related insurance, including theft, fire, flood, and landlord liability. In addition, your employees’ health and workers’ comp insurance may qualify for further deductions.

8. Operating Expenses for Professional Labor
Finally, you can deduct any payments made to attorneys, accountants, management companies, real estate advisors, and other professionals as operating expenses, as long as the fees are paid for work related to your rental activity.

We hope these tips were helpful.  As always, contact USAG with any of your real estate appraisal-related needs, including real estate consultation and advisory services.  We look forward to hearing from you!

__________________________________________________________________

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

]]> http://usappraisalgroup.com/blog/tax-season-update-what-every-residential-landlord-should-know/feed/ 20 Industry Analysts continue to Warn of a Pending Commercial Real Estate Crisis. http://usappraisalgroup.com/blog/industry-analysts-continue-to-warn-of-a-pending-commercial-real-estate-crisis/ http://usappraisalgroup.com/blog/industry-analysts-continue-to-warn-of-a-pending-commercial-real-estate-crisis/#comments Tue, 08 Mar 2011 19:33:50 +0000 admin http://usappraisalgroup.com/?p=550 Despite signs of recovery in the economy, some industry analysts are warning of a pending commercial real estate crisis. Over the next five years, about $1.4 trillion in commercial real estate loans will reach the end of their terms and require new financing. Commercial property values have dropped more than 40 percent nationally since their peak in 2007. In December 2010, $61.5 billion in commercial mortgage bonds were delinquent, the highest ever recorded, according to the research firm Trepp.” There is a commercial real estate crisis on the horizon, and there are no easy solutions to the risks commercial real estate may pose to the financial system and the public,” say a report issued in February by a congressional oversight committee led by Harvard Law professor Elizabeth Warren. Warren warned, “When commercial properties fail, the result is a downward spiral of economic contraction; job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities. These are the same small banks that provide loans to the small businesses that create jobs and boost productivity. If hundreds more community banks go under the effect could be to dump sand in the gears of our economic recovery.” The panel calls for regulators to perform stress tests on the smaller banks to assess their health.
The Financial Accounting Standards Board plans to issue its final guidance on Troubled Debt Restructurings by the end of March, according to minutes from the agency’s Feb. 23 meeting. Currently, there are no clear guidelines to assist creditors in determining whether a loan or other debt modification meets the criteria to be considered a TDR, both for recording and disclosure purposes.
There are more than 10,100 troubled commercial properties worth more than $205 billion across the U.S., according to Real Capital Analytics.
US Appraisal Group is a commercial appraisal management company that provide compliance solutions for commercial collateral valuation. We offer valuation products including reviews to banks throughout the United States.

Sally Carothers, FRICS
Commercial Business Development Manager
200 S. Wacker Drive, Suite 3100
Chicago, Il 60606

Mobile: 614.634.6657

Toll Free: 888.580.604.4122
Fax: 888.604.4122
scarothers@usappraisalgroup.com

http://usappraisalgroup.com/

]]> http://usappraisalgroup.com/blog/industry-analysts-continue-to-warn-of-a-pending-commercial-real-estate-crisis/feed/ 6 The Role of Valuations in Conservation Easements http://usappraisalgroup.com/blog/the-role-of-valuations-in-conservation-easements/ http://usappraisalgroup.com/blog/the-role-of-valuations-in-conservation-easements/#comments Fri, 18 Feb 2011 20:54:13 +0000 admin http://usappraisalgroup.com/?p=546 The creation of conservation easements, which are land preservation agreements between landowners and qualified environmental organizations or governmental bodies,  is currently on the rise across the country. In fact, many environmental and tax lawyers are creating niche practices devoted entirely to structuring conservation easements for individuals and corporations alike. While the overarching purpose of this manifestation of restrictive covenant is an environmental one – specifically, to protect land from real estate development and industrial use - landowners electing to create conservation easements are often incentivized primarily by  significant state and federal tax advantages that accompany suc arrangements.  In addition, conservation easements allow landowners to reap these tax benefits while simultaneously retaining ownership of the property. Appraisers play a significant role in creating conservation easements, as the encumbrances and the tax breaks that often accompany them must be justified by detailed market valuations.

Tax Benefits Accompanying Conservation Easements

As mentioned above, landowners are often motivated to create conservation easements by the encumbrances’ attractive tax breaks.   Not only may landowners qualify for a federal income tax deduction equal to the value of the easement donation, as determined by a qualified appraiser – in addition, a number of states offer income tax credits for conservation easements.

Finally, and perhaps most significantly, conservation easements can create a significant reduction in estate taxes for inheriting parties.  Not only can a conservation easement reduce the value of an estate, and thereby reduce the associated inheritance tax; in addition, federal tax code allows for a further reduction (up to 40%) in “death taxes” for estates with qualified conservation easements. Because the tax breaks are significant, it is becoming a common trend for estate lawyers to present the option of creating conservation easements to property holding clients with tracts of qualifying land.

Where do Appraisals Fit In?

Two methods exist for appraising a conservation easement: The “before and after method” (which subtracts the value of the land post-easement from the value of the pre-encumbered land, and then divides that amount by the value of easement interests) and the direct comparison method, which takes into consideration the actual sales of easements, which are then directly compared to the easement being appraised. Both are discussed briefly below.

The Before and After Method

An appraiser using the before and after method values the property prior to the conservation easement and then again after the encumbrance of the property. The value difference represents the value of the rights within the conservation easement. In some cases, the resulting value may end up close to the full fee value of the property .

The after value may be estimated in one of two ways–either by considering sales that are encumbered by similar easements, or by considering sales that are encumbered in the same way, but under different theories – for example, zoning or access encumbrances. While the before and after method has historically been the accepted approach to easement valuation, many appraisers are now employing the direct comparison method.

The Direct Comparison Method

In the direct comparison method, appraisers compare existing market easement sales with the easement requiring appraisal. Appraisers employing the direct comparison method must consider a number of factors, including:

- The physical comparability of the real estate;
- Any motivating forces behind the easement sales;
- Interests transferred in the easement sale;
- Offsetting benefits and severance damages unique to the sales;
- Market opportunities for realizing economic potential;
- Availability of capital for easement purchases; and
- Public attitude toward the resource being protected.

If you or a client is interested in finding out more about the benefits of conservation easements, or would like to discuss in detail our easement-related valuation services, please give me a call at (888) 580-USAG (8724) Extension 705, or email me at jedgerton@usappraisalgroup.com.

______________________________________________________________
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

]]> http://usappraisalgroup.com/blog/the-role-of-valuations-in-conservation-easements/feed/ 25 True Commercial Appraiser Independence http://usappraisalgroup.com/blog/true-commercial-appraiser-independence/ http://usappraisalgroup.com/blog/true-commercial-appraiser-independence/#comments Tue, 15 Feb 2011 21:57:32 +0000 admin http://usappraisalgroup.com/?p=541 In the last twelve months “appraiser independence” has been codified into various rules and regulations. Appraisers, compliance officers and other industry experts may read the words but fail to recognize the philosophical significance. Appraisers, appraisals, the appraisal function and collateral valuation must be independent (and therefore not dependent on) a loan transaction. A professional appraiser is responsible for providing an independent opinion of value. They should be paid a customary and reasonable fee for the appraisal assignment based upon a clearly communicated scope of work.
How the individual appraiser or appraisal firm manages that assignment is a professional business decision and may fall under state appraisal regulation. How a lender manages its appraisal function is a compliance decision based upon federal and state law. It is contrary to the philosophy of appraiser independence to expect an appraiser or appraisal firm to manage the appraisal function of a lending institution. Yet, this is exactly how many lending institutions manage their commercial appraisal function, despite the catastrophic losses of the last three years. The traditional rotation of a “seasoned” small list of commercial appraisers is rife with incestuous malfunction. Simply put, a handful of appraisers can create a market and perpetrate it into the future. Data is rare and sales are limited. Income, expenses, cap rates, discount rates, absorption rates, vacancy etc. cannot be calculated, forecast, supported or verified through a recorded, open and public source. The “appraiser panel” controls the cost, quality and time-frame.
In contrast, independent management of the commercial appraisal function protects the integrity of the real estate collateral and lending institution. A commercial appraisal management company can build a firewall to promote quality, service and independence. Technologically efficient systems track and manage valuation reports; a diversified group of qualified professionals provide independent and accurate values; and an appraisal management team oversees continual compliance review and oversight.
USAG is committed to promoting the ultimate commercial appraisal management experience. By devoting the necessary resources, correct tools, unparallel technology and expertise; we empower our customers to maximize the efficiency and compliance of their appraisal function.

I look forward to working with each of our commercial client users to design their custom commercial valuation solution.

Sally Carothers, FRICS
Commercial Business Development Manager
200 S. Wacker Drive, Suite 3100
Chicago, Il 60606

Mobile: 614.634.6657
Toll Free: 888.580.604.4122
Fax: 888.604.4122
scarothers@usappraisalgroup.com

http://usappraisalgroup.com/

]]> http://usappraisalgroup.com/blog/true-commercial-appraiser-independence/feed/ 26 The Role of Attorneys in the Appraisal Process: An Unnamed Audience For the AI’s Recent “Helpful Tips” Release http://usappraisalgroup.com/blog/the-role-of-attorneys-in-the-appraisal-process-an-unnamed-audience-for-the-ai%e2%80%99s-recent-%e2%80%9chelpful-tips%e2%80%9d-release/ http://usappraisalgroup.com/blog/the-role-of-attorneys-in-the-appraisal-process-an-unnamed-audience-for-the-ai%e2%80%99s-recent-%e2%80%9chelpful-tips%e2%80%9d-release/#comments Fri, 11 Feb 2011 21:24:35 +0000 admin http://usappraisalgroup.com/?p=539 Earlier this year, the Appraisal Institute issued a paper titled “Helpful Tips for Consumers”. The stated purpose of the release was to help guide home buyers and sellers through the sometimes convoluted appraisal-related steps in the process of buying or selling a home. In reference to the article’s publication, the AI’s president, Joseph Magdziarz, stated that “too many consumers in this struggling real estate market face problems with appraisals when attempting to buy or sell a home. But rather than passively enduring delays in closing a sale, homeowners and buyers can take proactive steps to avoid pitfalls.”

Yes, they can, and they should. As an attorney, however, I felt that this AI release would have been more elegantly – and more usefully – aimed at attorneys whose clients are in need of appraisal services, rather than speaking directly – or, at the very least, exclusively – to the buyers or sellers themselves. Among the tips set forth in the AI’s article, homeowners and buyers are encouraged to:

• Understand the role of appraisals;
• Make sure their lender hires a qualified appraiser;
• Request a copy of the appraisal report from the lender;
• Examine the appraisal report and ask questions;
• Appeal the appraisal if appropriate;
• Ask the lender to order a second appraisal by a qualified and designated appraiser; and
• File legitimate complaints with appropriate state board or professional appraisal organizations.

All of this is excellent advice, of course. My problem with the manifest, however, is twofold. First, how many private homeowners and buyers will actually see these tips? Is the AI planning on sending a “helpful hints” packet to homeowners across America? Probably not. And second, of those who do read the tips, how many people going through the already discombobulating process of acquiring or selling a home will have the wherewithal and proper understanding of the process to correctly follow through on each of them? Not many. Who does? You – their real estate lawyer.

This is what we, as attorneys, are here for. We guide our clients through convoluted processes; we act as the translators of murky governmental and bureaucratic procedures. We “file complaints with appropriate state boards” and we appeal that which needs appealing. We wrangle with lenders in order to ensure that they are using unbiased and well-qualified appraisers, and, when our client needs an appraisal report, we make darn sure that the appraiser knows what he’s doing. And when that final appraisal report is issued, we don’t toss the unopened envelope into our client’s lap. We are the reviewers, the question-askers. We stand between our clients and the chaos into which real estate transactions can so easily devolve.

So yes, good advice from the AI. They just missed the target a bit on their most important audience – you.

For more information on how to help your client navigate the appraisal process, please give me a call at (888) 580-USAG (8724) Extension 705, or email me at jedgerton@usappraisalgroup.com.

________________________________________________
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

]]> http://usappraisalgroup.com/blog/the-role-of-attorneys-in-the-appraisal-process-an-unnamed-audience-for-the-ai%e2%80%99s-recent-%e2%80%9chelpful-tips%e2%80%9d-release/feed/ 6 Custom Solutions to Commercial Appraisal Management http://usappraisalgroup.com/blog/custom-solutions-to-commercial-appraisal-management/ http://usappraisalgroup.com/blog/custom-solutions-to-commercial-appraisal-management/#comments Tue, 08 Feb 2011 18:57:18 +0000 admin http://usappraisalgroup.com/?p=537 Hello! I would like to introduce myself (Sally Carothers) as the Business Development Manager for the Commercial Division of US Appraisal Group. I am an experienced commercial appraiser with a General Certification in Illinois and Ohio; Fellow of the Royal Institute of Chartered Surveyors and member of the Appraisal Institute. I have taught and developed numerous appraisal courses and served on several state and national professional appraiser boards.

I am fascinated by the form and function of commercial valuation. Commercial appraisal is a multi-faceted, complex, billion dollar industry. There are no standard products, a universe of property types and a handful of qualified appraisers each individually responsible for millions of dollars of real estate. Clients wrestle in a regulatory swamp. Lenders attempt to balance compliance with customer satisfaction and investor motivation. The uniformity and consistency of residential appraisal reports has never been successfully replicated to a standard commercial valuation product. A Commercial summary report can vary in length, detail, analysis, accuracy, verification, quality, and written skill as much as the National Enquiry does to War and Peace.

I joined the US Appraisal Group team to develop solutions for commercial appraisal management. I used to believe the solution rested in uniformity and standardization. I believed that we could apply the “one size fits all” mentality to commercial valuation management. But the mere diversity of property type, use, size, investment type, business type, income structure, operating expenses, leverage etc. precludes shoving a round peg into a square hole. Successful and compliant commercial appraisal management resides in design solutions customized to client/ user specifications. Custom valuation solutions integrate for maximum benefit to lenders and allow appraisal firms to operate profitably and independent of the appraisal function.

USAG is committed to promoting the ultimate commercial appraisal management experience. By devoting the necessary resources, correct tools, unparallel technology and expertise; we empower our customers to maximize the efficiency and compliance of their appraisal function.

I look forward to working with each of our commercial client users to design their custom commercial valuation solution.

Sally Carothers, FRICS
Commercial Business Development Manager
200 S. Wacker Drive, Suite 3100
Chicago, Il 60606

Mobile: 614.634.6657
Toll Free: 888.580.604.4122
Fax: 888.604.4122
scarothers@usappraisalgroup.com

http://usappraisalgroup.com/

]]> http://usappraisalgroup.com/blog/custom-solutions-to-commercial-appraisal-management/feed/ 7 Whimsical Americana Lesson of the Week: What Is the White House Worth? http://usappraisalgroup.com/blog/whimsical-americana-lesson-of-the-week-what-is-the-white-house-worth/ http://usappraisalgroup.com/blog/whimsical-americana-lesson-of-the-week-what-is-the-white-house-worth/#comments Fri, 04 Feb 2011 20:19:51 +0000 admin http://usappraisalgroup.com/blog/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

Follow this link to follow me on Twitter

Click here and “Like” us on Facebook

]]> http://usappraisalgroup.com/blog/whimsical-americana-lesson-of-the-week-what-is-the-white-house-worth/feed/ 1 Dodd-Frank’s New Regulatory Landscape: An Overview http://usappraisalgroup.com/blog/dodd-franks-new-regulatory-landscape-an-overview/ http://usappraisalgroup.com/blog/dodd-franks-new-regulatory-landscape-an-overview/#comments Fri, 28 Jan 2011 19:24:19 +0000 admin http://usappraisalgroup.com/?p=517 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]

]]> http://usappraisalgroup.com/blog/dodd-franks-new-regulatory-landscape-an-overview/feed/ 41 The Benefits of Using An Appraisal Management Company – What All Lawyers Should Know. http://usappraisalgroup.com/blog/the-benefits-of-using-an-appraisal-management-company-%e2%80%93-what-all-lawyers-should-know/ http://usappraisalgroup.com/blog/the-benefits-of-using-an-appraisal-management-company-%e2%80%93-what-all-lawyers-should-know/#comments Tue, 25 Jan 2011 21:01:45 +0000 admin http://usappraisalgroup.com/?p=496 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

]]> http://usappraisalgroup.com/blog/the-benefits-of-using-an-appraisal-management-company-%e2%80%93-what-all-lawyers-should-know/feed/ 38