Portland Area Real Estate Appraisal Discussion

Due to the shortage of appraisers in Portland, Oregon (and other places around the country), appraisers are bombarded with requests from Appraisal Management Companies (AMCs) requesting that they fill out mountains of forms; provide copies of identification, licenses, and insurance; submit to background checks, provide examples of work; and apply to be on the AMC’s roster of appraisers.  So how do appraisers know if the AMC will be a trusted client?  How do appraisers know if the AMC will treat them fairly?  Will appraisers be confident that private information will be safe?  The AMCs vet appraisers, but do appraisers screen AMCs?  Perhaps appraisers need to scrutinize AMCs just as diligently before doing business with them.  Here is a list of seventeen things appraisers could do before signing up on that next AMC roster. 

1. Most states require that AMCs obtain licenses. In Oregon, appraisers can go to the AMC Database put out by the Appraiser Certification and Licensure Board (ACLB) to see if the AMC has a license in good standing. Appraisers can also call the appropriate state AMC regulator for information that might not be available online. You worked too hard for your license to work for someone who is not licensed.
2. Ask the AMC if they have ever been investigated by any state AMC regulators or if they have been involved in any lawsuits related to appraisal management. If so, ask them to explain the outcome of the investigation.
3. Obtain the AMC’s list of base or minimum fees paid for common appraisal products in your area. If starting fees are not acceptable, then you do not need to waste your time moving forward with the AMC screening process.
4. Inquire how many days before appraisers can expect to be paid following completion of the appraisal report. Remember money in 15 days is much more valuable than money in 90 days, especially in terms of business operation. Don’t work for AMCs that fund their growth on loans from independent appraisers unless you are compensated appropriately for risk and interest on credit.
5. Request copies of the AMC’s liability insurance and find out what that insurance covers. Would it cover a vendor appraiser who accidentally caused property damage at a subject property?
6. Determine if there are any fees associated with delivery of appraisals to the AMC’s online portal. Many AMCs offset the cost of their technology through delivery fees to appraisers. If the AMC has a “technology fee” don’t worry, you can add this to the price of your appraisal along with the appropriate third-party outsourcing markup.
7. Google the AMC’s name and see what comes up. This might seem obvious, but some AMCs have been in the news for lawsuits related to unfavorable treatment of appraisers. You do not want to waste your time vetting an AMC that has a bad reputation. Even if no lawsuits come up, a quick Google search could result in a feel for the company and let you know if this is a company you want to work for. Remember that homeowners might think you work for this AMC when you show up to do the appraisal. Is this a company that you are okay with if homeowners get confused and think you work for them?
8. Go to national online appraiser Forums like 100% Real Estate Appraisers or I am a Real Estate Appraiser or a local appraiser forum like Portland’s NW Appraiser Forum and search the group for threads about that AMC. If you don’t find a thread, put one out there like, “Anyone ever worked with AnytownAMC? Was it a good experience? Did they pay you fairly and quickly?” You might be surprised how much you find out.
9. Ask for references from other appraisers who have worked with the AMC recently. You can interview those appraisers and ask if they have been treated well. Just remember that the appraisers on the reference list are more likely to speak positively about the AMC.
10. Request that the AMC obtains a business credit report through your favorite business credit reporting company. Reports cost between $30 and $100, but you can ask the AMC to pay for this expense in exchange for your consideration with being on their roster of appraisers. Doing business with an AMC that has poor credit could cost you big. Several years ago, I had to send several threatening letters to one AMC and book flights to visit them before getting paid. Soon after I was paid, the AMC went out of business. I found out through social media that other appraisers had been stiffed by that same company.
11. Obtain temporary access to the AMC’s online appraisal delivery portal. If the AMC has a poor online ordering system, then working for them might be a headache.
12. Review the AMC’s policy on appraiser performance scoring. Suppose that you only accepted more complex assignments (those that tend to raise more quality control red flags and take longer to complete) but you always complete the project on time. Will your performance score look inferior to another appraiser who only accepts easy assignments?
13. Determine if the AMC (not Fannie Mae, we already know what they do with appraisal data) is collecting data from the appraisals they manage and if so, will that data ever be sold?
14. Inquire about AMC’s quality control staff. Questions might include how many quality control staff members are licensed appraisers and if their performance is in any way judged by or linked to how many revisions are obtained from appraisers. Often the best AMCs to work with have a well-trained quality control staff who can act as a firewall between appraiser and the lender. (Lenders don’t always recognize a well-supported and reasonable appraisal that was produced despite limited data. An experienced AMC review department can be an ally.)
15. Ask for a copies of the AMC standard engagement and independent contractor agreements. The appraiser can skim the contracts for non-customary appraisal requirements such as, required interior closet photos on all appraisals. Ask your attorney to review the agreements. It is likely that the AMC engagement agreement moves too much liability from the AMC to the appraiser (you would do the same if your lawyer wrote the contract), so it is important for appraisers and their attorneys to amend the AMC engagement agreement to bring the liability back into balance or avoid working with some AMCs. Amending these long engagements can be costly, but do not forget that such costs will be billed back to the AMC in the form of higher fees.
16. Review documentation concerning the AMC’s request for value reconsideration process. It is likely that if you appraise for an AMC long enough, someone will dispute your value opinion. It is important to know in advance if the AMC has a fair process for value reconsideration, or one that puts undue burden on the appraiser.
17. Check the AMC’s data protection policy and ask what steps have been taken to keep your private information safe. Also ask if the AMC has ever had any data breaches and if so, determine what systems have been put into place to ensure that data breaches do not happen again. Does the AMC have a policy that requires them to alert appraisers if they believe a data breach was possible?

I hope that you find this list helpful even though it is written partly in jest.  My goal is to elicit thought and discussion about the imbalance of power and liability in our industry as it relates to appraisals done for AMCs and lenders.  Remember that if an AMC fails in parts of your vetting process, the appraiser could charge a complex client fee to account for the shortcomings.  If you missed my interview with The Appraiser Coach Dustin Harris, about my blog and how our business focuses on non-lender (non-AMC) type appraisal work, Click Here.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook.  Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos.  If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event.  We will do everything possible to assist you.

Thanks for reading,

At a Portland appraisal home viewing last week, the owner had two little dogs that would not stop barking as a result of my visit.  Each time the dogs barked, the owner gave them a small treat.  The barking would stop for a moment, but then the dogs would start again and so would the treat process.  The owner was inadvertently rewarding wrongful behavior, thereby perpetuating the process. This made me think, unintentional reward of improper behavior is something that also happens regularly in appraisals contracted by mortgage financing, lending, and appraisal management companies (AMCs).

Home appraisals for lenders or AMCs typically pass through several layers of quality review.  Often, the examinations involve a checklist of things that generally characterize a well-supported or lower risk appraisal opinion.  Rightfully so, lenders want to know that the appraisal can be confidently used for evaluating collateral and avoid the dreaded forced loan buyback.  If a lender’s checklist items are missing, the appraisal becomes flagged as higher risk and often goes back to the appraiser multiple times for additional clarification, comments, or comparable data.  Appraisers with fewer red flag issues will often be rewarded with more work, first choice of assignments, and fewer requests for revision or clarification. 

Appraisers can usually receive more work and fewer revision requests from lenders simply by working harder, explaining issues, and supporting adjustments.  However, often appraisers who work longer hours (for the same pay per assignment) will still receive red flags because the reports are not read thoroughly by the client or because the properties are complex with few comparable sales data.  Some appraisers learn quickly that there are shortcuts to receiving more work and fewer clarification requests. 

Real estate appraisers are highly trained and regulated professionals who are required by law to be independent, unbiased, and to not mislead.  Most appraisers work very hard to maintain high ethical standards.  However, an incentive based system exists in residential finance that rewards appraisers who mislead by making an appraisal look stronger than actual.  From experience I know that this happens all the time.  Here are some ways that appraisers may mislead a lender’s quality checker into thinking an appraisal value opinion is stronger than it is.

1.    Recent and close proximity comparable sales make an appraisal look strong, but the most recent and closest comparable sales are sometimes not the strongest nor most like the subject (particularly on a unique property).  An appraiser looking to reduce questions from a lender might use recent and close sales over the most similar sales.

2.    Fewer and smaller comparable sale adjustments can make an appraisal look stronger than it is.  For example, an appraiser might take a comparable sale that requires a large positive adjustment for living space but a large negative adjustment for view and just make a smaller adjustment for each.  In this case, the indicated value will be the same, but the comparable sale looks really strong to a reviewer because it has few adjustments.  (Here is an article that explains more about how appraisers can use different adjustments and come to the same value conclusion.)  Fannie Mae, the nation’s largest buyer of loans, has recognized small adjustments as an appraisal issue and is fighting back with big data and automated review of appraisals.  Click this link to read a Fannie Mae announcement that explains more and shows evidence that the majority of appraisers were adjusting too low for gross living area (GLA).  Also, view a video here showing how an appraiser might support a GLA adjustment that is not artificially low.

3.    Omitting or downplaying issues like a busy road or a necessary repair can reduce red flags.  If an appraiser can conceal an issue or convince a lender that it is not a big deal, then the report will likely receive less scrutiny unless the deception is uncovered.  This is a particularly dangerous tactic that can cause an appraiser to be sued or placed in serious trouble with their licensing agency.

The takeaway from this is that appraisers who work for lenders are often conditioned, sometimes unknowingly, into softly misleading practice that is only uncovered with more thorough appraisal review processes.  Here are my recommendations for lenders and AMCs to avoid encouraging misleading appraisals.

1.    Lenders and AMCs should be very careful to select and hire the best appraisers.

2.    Lenders and AMCs should make sure that appraisers are paid a sufficient fee so that they are able to take the time necessary to do the assignment correctly without cutting corners. 

3.    Lenders and AMCs should judge appraisers using well trained individuals and make sure that appraiser grading and subsequent job assignment is not tied to appraisal red flags, something that might also relate to property complexity, not just appraisal quality. 

Here are my recommendations for appraisers who do work for lenders.

1.    Appraisers should be cautious about working with the type of lenders and AMCs who regularly reject well documented and explained appraisal reports just because the subject properties are unique. 

2.    Appraisers should be extremely careful not to compromise their work quality just to avoid the headache that often comes when appraisers tell it like it is. 

3.    Appraisers should seek out working for clients that have well trained appraisal review departments.  In my experience, these tend to be the smaller local or regional banks and credit unions; not the nationwide lenders.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook.  Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos.  If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event.  We will do everything we can to assist you.

Thanks for reading,

When talking to appraisers and other real estate professionals, I often hear that it is the job of an appraiser to protect the bank.  In my judgment, this is not true.  An appraiser’s job is to develop and report opinions of value and to protect the public’s trust by complying with the strict Uniform Standards of Professional Appraisal Practice (USPAP). 

Bank Underwriters are required on most loans to use an appraiser’s opinion of value as a way to determine if there is sufficient collateral for the loan.  An appraisal is only one factor in many that helps a lender determine the overall risk of a loan.  Banks themselves (and bank regulators) protect the bank’s and the public’s interest.

This begs the question, “If an appraiser’s job is not to protect the bank, then why do appraisers ask for repairs or inspections when performing an appraisal on a home for the mortgage?”  Appraisers “call out” repairs because lenders have internal and regulatory guidelines that require minimum property condition standards prior to funding most loans.  When a property has a condition that fails the minimum requirements set out by the guidelines, then the appraiser typically conditions the appraisal report for a repair. 

Appraisers can value a property both “subject to” or “as is”.  A “subject to” appraisal is based on a hypothetical condition that a repair has been made.  Most lenders do not want to loan on a home with defects that may cause harm to the occupants or to the structure if left unattended.  This is because a home that needs no repair makes a less risky loan in terms of both liability and repayment.  Therefore, with appraisals for loans, the appraiser will typically make note of these issues and make the appraisal report “subject to” repair or further inspection.  Typically, the loan cannot fund until the “subject to” repairs are made or when further inspection finds that repairs are not necessary.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook.  Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos.  If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event.  We will do everything possible to assist you.

Thanks for reading,