Appraisers Hinder ROI on Green Retrofits

Improving the energy efficiency of one’s home is beneficial for a variety of reasons but one may not include improving the home’s value.  Most agree that energy retrofits are good for the environment and save homeowners on utility bills but a recent article by CNNMoney indicates that appraisers are not well versed in valuing these features.

This is heady stuff considering cash for caulkers may be coming soon.  Legislation, if passed, would give homeowners up to a $12,000 tax credit for energy retrofits.  According to the article, this legislation will help the environment, increase energy efficiency of homes, and put contractors back to work.

Rather than defining utility savings, the ultimate question may be how does this impact value?  Two Realtors interviewed for the article said some value is added but not much.  This is due, in part, to the fact that most appraisers are not yet adequately trained to appraise these features in homes.  It’s not clear if the Appraisal Institute would agree with the statements in the article but the trade association has been offering training on appraising green features for some time.  You can get more information on the course, which counts as AI continuing education, here.

REALTOR® Leader Appointed to RPR Advisory Board

Dick Koestner, a 32-year veteran real estate professional and past president of the Iowa Association of REALTORS® and the Greater Davenport (Iowa) Association of REALTORS®, has been named to the REALTORS® Property Resource (RPR) advisory board. RPR is set to launch in the second quarter of this year and will be a REALTOR®-owned online real estate library and archive containing data on every property in the United States.

Koestner is chairman of the Quad City Area (Iowa) REALTORS® Association and a past NAR regional vice president and past NAR Appraisal Committee chair. He is a past REALTOR® of the Year for his state and for the Davenport association, and is a past member of the Iowa Real Estate Appraiser Examining Board and a past chair of the Board’s Ethics Committee.

AMC Reaches Goal, Drives Down Turnaround Times

Coester Appraisal Group, an appraisal management company (AMC) based in Gaithersburg, MD surpassed its goal of averaging less than 4 days total turnaround on appraisals nationally for two consecutive months. According to reports the firm averaged 3 days,19 hours, 48 minutes and 47 seconds.

This is part of a larger goal to remain below the 4 day mark for a full calendar year. Frank Novak, Coester Operations Manager said “we are extremely excited about all the hard work and dedication our team put into the goal. We consider this a stepping stone in the right direction of achieving our ultimate goal of 4 total days turnaround or less for a year and ultimately continually.” Each appraisal is manually reviewed by Coester staff to ensure compliance with HVCC and USPAP.

Coester has been providing appraisal services since 1970 and also offers BPOs, AVMs, and other valuation services.

Appraisal Foundation FAQs

2010-01: ETHICS RULE – CONDUCT

Question: If I have appraised a property multiple times within the previous three years, do I have to disclose the number of appraisal services? (e.g., “I have appraised the subject property three times during the previous three years.”)

Response: Yes. Each prior service must be disclosed to the client and included in the report certification. This disclosure is similar to when an appraiser has any current or prospective interest in the subject property or the parties involved, which requires that each interest be specified. Therefore, each service must be disclosed to the client and appear in the certification. (See lines 231-241 in the 2010-11 edition of USPAP)

2010-02: ETHICS RULE – CONDUCT

Question: If I have performed a service other than appraisal practice, such as acting as a general contractor within the prior three years, do I have to describe the specific service or merely state a service was performed?
Response: You must disclose to the client the type of prior service you performed regarding the property and this must be included in the report certification. This disclosure is not limited to services provided as part of appraisal practice. Therefore, each service must be disclosed to the client and appear in the certification.

2010-03: ETHICS RULE – CONDUCT

Question: The Comment to the Conduct section of the ETHICS RULE states, in part, “If an appraiser has agreed with a client not to disclose that he or she has appraised a property, the appraiser must decline all subsequent assignments that fall within the three-year period.” Does this really mean that the appraiser could not be engaged by this same client, on this property, within the three-year period?

Response: Yes. The agreement not to disclose that he or she has appraised the property is between an appraiser and the client. It is possible that a qualified legal opinion might conclude that a confidentiality agreement between an appraiser and a client does not preclude disclosure between the same parties. However, the ASB is not qualified to make such a determination. Without such a legal opinion, the requirement precludes an appraiser from disclosing the prior service and from appraising the property again during this three-year disclosure period.

However, there is nothing that prohibits a client and an appraiser from modifying the prior agreement to allow disclosure. If the confidentiality agreement is amended, the disclosure could be made and an appraisal could be completed for the same client. It must be made clear that if a client releases an appraiser from such a confidentiality agreement, services performed within the previous three-year period must be disclosed in the certification of the subsequent report, even if the client is the same for both assignments.

2010-04: ETHICS RULE – CONDUCT

Question: I am a staff appraiser for a company and only complete appraisals for my employer’s (the company’s) internal use. Am I required to inform the company that I have previously completed an appraisal within the three-year period when the company is already aware of it?

Response: If you consistently correspond with the same person in the company when completing subsequent assignments regarding the same property, the risk of misleading that person is probably minimal. However, your prior services must still be disclosed. When you are working with the same person and they understand your professional responsibilities, it is unlikely this will be a problem.

It is also possible that the specific person you deal with from one instance to the next may change. In this case, the new contact must certainly be informed if you have performed services regarding the subject property within the last three years.
While it is not included in your question, there is also the possibility that you may have performed services regarding that property for a different client within the three-year period, or performed another type of service.

2010-05: ETHICS RULE – CONDUCT

Question: I am aware of the new disclosure requirements in the Conduct section of the ETHICS RULE for the 2010-11 edition of USPAP that requires me to disclose any services I performed regarding the subject property within the prior three years. If I have not performed any such services, am I required to make that disclosure as well?
Response: No. USPAP does not specifically require disclosure when no prior services were performed by the appraiser within the last three years.

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FHA Delays Implementation of Appraisal Rules

On December 23, 2009, the Federal Housing Administration (FHA) announced the enactment of two appraisal Mortgagee Letters (ML) will be delayed until February 15, 2010. ML 2009-28, Appraiser Independence, prohibits mortgage brokers and commission-based lending staff from ordering the appraisal. In ML 2009-51, FHA announced it is adopting the Appraisal Update and/or Completion Report, Fannie Mae Form 1004D/Freddie Mac Form 442/March 2005.

ML 2009-28 and ML 2009-51 were initially to be implemented on January 1, 2010. According to FHA, the extension “will provide FHA and lenders additional time to adjust systems to accommodate the changes.”

HVCC Update – from Boston, MA

Sam Schneiderman writes in Boston.com on his opinion of the Home Valuation Code of Conduct (HVCC) six months after it was implemented. In his review, Mr. Schneiderman discusses many of the concerns expressed by the National Association of Realtors (NAR): increased costs to the consumer, pressure on appraisers to complete reports in less time, quality control (specifically geographic competency). Much of this stemming from the use of appraisal management companies (AMC) by lenders. More information on NAR’s HVCC activities can be found here.

“From what I have seen, the cost of many appraisals has increased about twenty to twenty-five percent (presumably to cover the cost of the AMCs involvement)…Some AMCs email all appraisers in a given area and the first one that responds gets the job, provided that the appraiser agrees to complete the appraisal around within 24-hours of the property inspection…By far the biggest complaint that I’ve heard is that most of the appraisers do not know the territory they are appraising in very well.”

FHA Removes Second Appraisal Requirement

On Saturday, November 14, 2009, FHA Commissioner Dave Stevens spoke before a group of Realtors at the NAR annual convention in San Diego, CA. During the speech, the Commissioner noted that FHA, based on input from NAR, would soon remove the requirement for a second appraisal on loans that exceed $417,000 and are secured by properties located in declining markets. Earlier this week, FHA released ML 2009-48 to make it official. This ML rescinds ML 2008-09. ML 2009-48 also eliminates the need for a second appraisal on cash-out refinances. (as described in ML 2009-08).

FHA retains a second appraisal requirement per ML 2006-14. This policy requires a second appraisal when a property is resold between 91 days and 180 days following acquisition by the seller. This is part of their property flipping prohibition policy.

Home Builders Blame Appraisals for Lost Sales

The National Association of Home Builders (NAHB) sentiment index is at 17 this month. While MarketWatch reports that this means the sector is lacking forward momentum, at least some of the blame is being placed on the shoulders of appraisers.

“In a special question this month, a third of the builders said they had lost sales because of low appraisals. They said appraisers are using foreclosures and distressed sales for comparisons.” According to NAHB, the response is a 25 percent increase for this response compared to the July survey. The article also states that home builders are concerned because of new rules that require an independent appraisal of the new home.

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NAR Announces Realtors Property Resource

The National Association of REALTORS (NAR) recently announced the creation of the Realtors Property Resource (RPR). The online real estate library will catalog every property in the United States. This initiative will provide access to a national database of real property information and will give real estate professionals the best access to real property information needed to serve their clients and customers.
On November 9, 2009, NAR announced it acquired technology to create the database from LPS Real Estate Group, a subsidiary of LPS. Said the press release “NAR will use the assets to develop the Realtors® Property ResourceTM, a parcel-centric information database covering all of the more than 147 million property parcels in the country as a resource for NAR members. NAR is planning to launch RPRTM in the second quarter 2010.”
RPR™ will give Realtors® nationwide data on all properties at their fingertips so they can respond quickly to consumers interested in residential and commercial real estate. This is exciting news and a terrific NAR member benefit. NAR is committed to keep Realtors® central to the transaction and to the buying and selling experience with their clients and customers,” said NAR President Charles McMillan, broker with Coldwell Banker Residential Real Estate in Dallas-Fort Worth.

Appraisal Foundation creates Appraisal Practices Board (APB)

The Appraisal Foundation Announces
Establishment of New Independent Board
Appraisal Practices Board (APB) to Commence Work in July 2010
The appraisal foundation has announced the formation of a new board, the Appraisal Practices Board APB). This board joins the Appraisal Standards Board (ASB) and the Appraiser Qualifications Board (AQB). This posting will try to explain what is going on with the new board. The press release follows this posting. The idea behind the new board is to provide specific guidance on various techniques and methods used in the appraisal process. USPAP refers to “recognized methods and techniques that are necessary to produce a credible appraisal” (Standards Rule 1-1 (a). In the past, guidance and methodology for methods and techniques has been left to the sponsoring organizations of the Foundation and they continue to do an excellent job of educating their members. It has become very apparent however that many of the appraisers in the United States are not affiliated with any professional appraisal organization and consequently are not getting this kind of guidance.
The past few years has seen a major shifting of market conditions in real estate, particularly residential real estate. Many of the appraisers who have been licensed over the past ten years had never gone through a down market and were unprepared to adjust their practice to recognize the shifts, particularly where downward adjustments were required for market conditions. There has also been a huge increase in foreclosed properties which has raised the question “should foreclosed properties be used as comparable sales”. Each of these examples shows the need for timely education on these subjects.
The sponsoring organizations of the Foundation have stepped up to the plate and introduced new timely courses covering these subjects and much more. Unfortunately, many appraisers were not exposed to these courses for various reasons. I can positively state as a state regulator that we are getting several appraisers appearing before our board who do not seem to know what to do in this market. These people for the most part of trying to good job and produce credible appraisals but they just don’t have the knowledge or training. It is the hope of the Foundation that we will reach these people better than they are being reached now.
The specifics of the new board will be finalized over the next few months and applications for the new board will be taken in the spring. For further information please refer to the following press release.
Joe Traynor (Note – Joe is NAR’s representative to the Appraisal Foundation’s Board of Trustees).

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