The Appraisal Blog

Back in 2010, after the Great Recession of 2008, Congress signed Dodd-Frank into law.  It was a sweeping financial regulation act designed to prevent the events of the previous couple years from ever happening again.  A lot of the regulation was aimed at banks by requiring "stress" tests to ensure they could remain solvent.  But another part, specifically related to appraisals, required that a 3rd party intermediary be engaged by lenders when ordering an appraisal.  These 3rd parties are called AMC's (Appraisal Management Companies).  So...  the lender has a loan they want to finance.  They place the appraisal order with an AMC, the AMC finds an appraiser, the appraiser conducts the appraisal, gives it to the AMC, and the AMC gives it back to the lender.  It was implemented to stop lenders from pressuring appraisers.  And for the most part, in my opinion, it solved a problem that wasn't really a problem.  I won't say I was never asked to change the value of an appraisal.  But it was rare.

So Dodd-Frank and the AMC's "fixed" a problem that didn't exist and at the same time introduced a series of issues.  First and foremost, they increased the cost of appraisals.  As you can imagine, the AMC's don't provide their service for free.  They take a cut of what the appraiser would typically make ... often 50% or more, and even charge the lender more than the typical appraisal fee for other services.  Basically they review the report before sending to the lender.  Additionally, the model INCREASES the turn time of the appraisal.  The AMC, which like everyone exists to make money, shops the appraisal to their fee panels.  Essentially hunting for the lowest fee.  I've even bid the same assignment for the same AMC a week after the first bid!  If they had just accepted my (reasonable) fee they would have had the report back in a few days!.

But here is the thing... Dodd-Frank, at least the AMC requirement doesn't exist anymore.  It was updated several years ago and the requirement that lender order appraisals through an AMC is gone!

So all you lenders out there... I am ready to accept your order!


https://sf.freddiemac.com/faqs/appraiser-independence-requirements-faq

According to Working RE Magazine, HUD has received 300 complaints alleging appraisal discrimination over the past 3 years.  No numbers were provided on how much of an increase this is over previous years, however the implication is that it is dramatic.  The increase is actually not surprising.  In early 2020 Joe Biden issued a Housing Plan to take aim at "racial bias" in the appraisal industry.  Since then states have followed suite by requiring Bias and Cultural Competency classes and AMC's have published lists of words not to be used in appraisals including such benign words as "affordable", "age", and "desirable"... and words that I have never seen in an appraisal like "queer", "slum", and "gay."  They are even banning words like "homogenous" and "gentrification" which are valid terms which would provide valuable information to a reader of an appraisal to understand the market.

Unfortunately, the complaints and lawsuits will continue for the foreseeable future.



https://www.workingre.com/fhfa-slows-bifurcated-appraisals/

Keeping in the same Luxury Home theme this week ... there is a new listing on Calle del Oro in La Jolla.  I've driven by the house several times and, to be honest, it is somewhat unassuming from the curb!  By the way, it is not the most expensive house on the market.  A listing on The Point in the Coronado Cay is listed at $43M.  It comes with 2 boat docks and two pools (one on the roof) and there is a 15,000 sf horse ranch with a 15 acre bass lake situated on 77 acres in Rancho Santa Fe.  You can get that one for only $98,000,000!



https://robbreport.com/shelter/homes-for-sale/oceanview-la-jolla-home-san-diego-1235461884/

The most expensive house ever sold in San Diego county closed escrow in October 2023.  The house is located in the Beach Colony community of Del Mar which is located just south of the San Dieguito Lagoon near Dog Beach.  The ocean front property situated on Sandy Lane was not listed in MLS but was reported to have 8 bedrooms, 7.5 baths with a guest house, tennis court, pool, and 100 foot of beach front footage.

It sold for $44.1 million!

https://www.10news.com/news/local-news/del-mar-beachhouse-is-most-expensive-home-ever-sold-in-san-diego-county

In the past I've written about my experience with AI in the appraisal industry.  You can read those posts here and here.  Generally speaking I am not convinced AI will be able to do what appraisers do on a daily basis.  They work okay in areas where all the homes are homogenous, but in older neighborhoods, rural areas, coastal areas, etc.  ... not so much.

But according to this article the County of Riverside's Assessor Department will now be using a product from C3.ai to analyze and assess the counties property values.

A couple thoughts.  1) In California we have Prop 13 which caps your assessed value at the purchase price plus ~1% per year.  So this tool will have little impact on the vast majority of homes.  2) Assessed value is not appraised value.  The assessed value is a part of a calculation that is part of a mass appraisal of the all the dwellings in the area.  So the accuracy and impact of a service like this is to be determined.

But I am watching closely!



https://finance.yahoo.com/news/riverside-county-california-selects-c3-130000348.html?guccounter=1

I've been conducting appraisal for the Veterans Administration for about 15 years.  They have a program called Tidewater which allows any parties to a transaction to provide data to the appraiser for consideration in their analysis.  It is a little more complicated than that ... there is a specific procedure and timeline that must be adhered to ... but that is the gist of it.  Federal banking agencies have been looking into allowing for a similar process for conventional loans and the Appraisal Institute has provided their support.

I am all for anything that increases transparency and public trust, and Tidewater, in general is a good process.  My concern is that this will open the door for anyone to submit irrelevant data and, if a change in value is denied, feel justified in filing complaint with the state licensing board.  And this doesn't even speak to the added time it will take to address these issues.

In other words, I fear this will open the floodgates for unsubstantiated complaints against appraiser.

See my previous post about the ROV for additional information here ... 



https://appraisalinstitute.org/advocacy/advocacy-pdf-library/tidewater-initiative

The biggest change an appraisal forms since appraisal forms were standardized is being rolled out with scheduled implementation for 2025.  The redesign rethinks what a "form" is and takes advantage of technology to create a truly dynamic format.  No more 1004 Single Family Residential form.  No more 1073 Condominium form.  The appraisal report will change based upon what kind of property you are appraising and what the assignment is.  Appraising and SFR in a PUD?  The report will have a PUD section.  Appraising a manufactured dwelling for a purchase?  Add the contract section and the HUD section.  Similar sections will appear and/or disappear for 2-4 units, and drive-by and desktop assignments.

This will take some time to get used to ... but the end result should be beneficial to everyone!


https://sf.freddiemac.com/tools-learning/uniform-mortgage-data-program/uad?utm_source=eloqua&utm_medium=email&utm_campaign=2023-09-27_TECHNOLOGY_Announcement

The latest salvo against the appraisal industry is the introduction of the bifurcated appraisal.  Essentially, for certain loans, FNMA is splitting the appraisal process into two parts,  The field inspection and the analysis.  As such, they are having non-appraisers, conduct the physical inspections, who then provide that data to the appraiser for analysis.

Who are these data collectors?  What kind of training do they have?  What is there liability and responsibility?  In short ... I don't know...



https://www.nar.realtor/research-and-statistics/research-reports/appraisal-process-report

25 years ago I charged $285 for my first full appraisal.  Last week I did one for $300.  Now, we are currently in a downturn in the real estate market in terms of volume, so there are some other market pressures, however, the AMC model has had a major impact on appraiser fees.  For those of you who don't know, after the 2008 crash, Congress signed Dodd-Frank into law which created the AMC model currently in place.  Essentially, an AMC is a middle man between the appraiser and the lender.  And for doing their service they charge anywhere between 50-100% of the appraisal fee.  That fee isn't charged to the lender/consumer... it is taken from the appraiser.



https://www.housingwire.com/articles/appraisers-raise-alarm-on-amc-revenue-sharing-models/

It has been my experience that there is a general misunderstanding of what an appraiser does, what their opinion of value is used for and how much power an appraiser has.  I've had discussion very recently, even among real estate agents, who think that appraisers create value in markets.  This could not be farther from the true.  We report value based on what we see in the market.  Furthermore, our opinions are private.  They are not available to ANY party outside of the transaction and therefore could NOT be used by 3rd party as a basis for a different party.

Take a look at this article for a more detailed breakdown.  Let me know if you have any comments or feedback!



https://www.nar.realtor/magazine/real-estate-news/sales-marketing/how-much-power-do-appraisers-have-over-home-value