On June 28, 2012, Frank Gregoire testified before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity on behalf of the National Association of REALTORS® (NAR). Mr. Gregoire is an appraiser member of NAR and two-time Chair of the Appraisal Committee (now the Real Property Valuation Committee). The hearing was focused on appraisal oversight and the regulatory impact on consumers and businesses. The Appraisal Subcommittee, the Association of Appraisal Regulatory Officials (AARO), and the US Government Accountability Office (GAO) testified on the first panel. The second panel was made up of appraisal industry trade associations including NAR, the Real Estate Valuation Advocacy Association (REVAA), the Appraisal Institute (AI), the National Community Reinvestment Coalition (NCRC), the Appraisal Foundation (TAF). You can find all witness testimonies here.
NAR testified on concerns with the appraisal profession, particularly the role being played by appraisal management companies (AMCs). Other issues include the credible valuation of real property, including appraiser competency and local market knowledge and challenges in accurately estimating market value in stabilizing markets. Developing and reporting property values more accurately is critical to improving market performance, reducing risk and strengthening the housing finance system. Mr. Gregoire said “REALTORS® know that an accurate appraisal is an important part of the home buying process and that a strong and independent appraisal industry is critical to restoring faith in the mortgage origination process.”
NAR has long been proactive in ensuring credible valuation of real property for our industry and embrace an all-encompassing approach. Appraisals are the gold standard for mortgage origination but there is an important role for broker price opinions (BPOs), comparative market analyses (CMAs) and automated valuation models (AVMs). Through our subsidiary, REALTORS® Property Resource (RPR), and our Valuation Committee, NAR is able to provide comprehensive sets of data and tools for determining credible home values.
Frank Gregoire, a a state-certified residential appraiser in Florida, will testify on behalf of the National Association of REALTORS® (NAR) before the House Financial Services Committee’s Insurance, Housing and Community Opportunity Subcommittee on Thursday, June 28th. The hearing will focus on the appraisal industry and regulations impacting consumers and businesses. Mr. Gregoire holds the RAA Designation, is a two-time Chair of NAR’s Appraisal Committee, and has been active in NAR’s public policy committees since the early 1990s. Mr. Gregoire is on Panel II of the hearing.
Welcome Home Radio plays on KYNO940AM in Fresno, CA. This weekend they featured Marty Wagar from Midwest Appraisal Management Group. This AMC is a subsidiary of the Michigan Association of REALTORS. It also features a local appraiser. The reporter inaccurately states that HVCC created AMCs but it’s a good story and the reporter believes REALTORS have the necessary entrepreneurial spirit to address the current housing troubles.
The program addresses the following issues:
1-The effects of new appraisal regulations
2-What is involved in an appraisal
3-Appraisal Management Centers (we assume they mean Companies) and their effect on the industry
4-AVMs
Listen to the show here.
The Appraisal Foundation (TAF) is looking for qualified candidates to serve on the Appraiser Qualifications Board (AQB) and the Appraisal Standards Board (ASB). Applications for these vacancies are due August 1, 2012. There is one vacancy on each board. Persons interested can apply here.
The AQB is responsible for setting minimum qualification criteria for state licensure and certification of real estate appraisers and has established voluntary qualification criteria for personal property appraisers. Familiarity with appraiser qualifications is a prerequisite of service on the AQB, and a minimum of ten years of appraisal experience is required. The AQB meets up to four times per year for approximately ten days in total and individuals serving on the board are compensated for their time and reimbursed for travel expenses. Those selected for AQB positions will serve a term of up to three years commencing January 1, 2013.
The ASB is charged with developing, interpreting and amending the Uniform Standards of Professional Appraisal Practice (USPAP). Familiarity with USPAP is a prerequisite of service on the ASB, and a minimum of ten years of appraisal experience is required. The ASB meets up to five times per year for approximately fifteen days in total and individuals serving on the board are compensated for their time and are reimbursed for travel expenses. Those individuals selected for a position on the ASB will serve a term of up to three years commencing January 1, 2013.
When a motivated buyer and a motivated seller agree to a price that is value. While commonly stated in the real estate industry it is not always true. It is not true even when there are multiple offers at or above the sale price. It has always been a challenge for appraisers to identify value and support their opinions of market trends where neighborhood prices are in a state of flux. Today, this challenge is more widespread than perhaps any other time in history as neighborhoods and markets that were previously declining are now stable if not recovering.
It is when the market “bounces” that there are difficulties. For an appraiser, knowing when a time (or market condition) adjustments should be made and having the paired sales to support “market condition” adjustments can be difficult if not impossible as sales data often does not yet exist.
Scope of Work is Critical
Present scope of work by the vast majority of lenders/underwriters allows for sales to be used up to 12 months previous, in a declining market, 90 day sales are necessary. When a market is declining, the use of past sales can tend to reflect a value higher than what present conditions would dictate. The reverse is true of an increasing market. The adjustment for “market conditions” or “time” is meant to account for these differences.
Clients can stipulate conditions in the appraisal development which can influence the appraisal conclusion. This means lenders may instruct an appraiser to include or exclude certain data such as short sales or other distressed sales as comparables. However, the Appraisal Foundation warns that when a “client stipulates the inclusion or not of a particular type of comparable, the appraiser may have to revisit, with the client, the type of value developed”[1]. This will help ensure that a misleading analysis or assignment result is not reported.
Establishing a Trend – Statistical Tools for Analysis
For the appraiser, identifying and proving a trend rather than just one sale is what is necessary for the appraisal to be accepted. The reality is the sales that take place from an increasing market become comparable sales and in turn should begin to show higher appraised values. Unfortunately it takes time to develop a trend – spotting a trend and proving it are very different things.
Identifying trends may be helped with technology. Recent publications have noted that appraisers increasingly have access to automated valuation models (AVM) or Computer Assisted Mass-Appraisal (CAMA) models. This technology can allow appraisers to access and develop their own statistical tools to support opinions about market trends. The National Association of REALTORS® offers REALTORS® Property Resource (RPR) as a member benefit. RPR recently unveiled tools specific to appraisers.
Limitations of Forms
In a changing “market” (however it is defined geographically), the key to making the case for the potential impact of changing conditions is the conclusions presented in the Market Conditions (MC) Addendum form. Other types of valuations products are likewise evolving along the lines of seeking a neighborhood commentary component to present a much more compelling view than can be suggested through the presentation of recent sales and competitive listings in the body of the appraisal – creating more space in the narrative for factors like the impact of changing investor/owner-occupier mix, agency sales, REO and short sale composition, and predictive factors like the local unemployment rate projection.
Anecdotally, the clearest illustration of this was a recent encounter with leaders from NAR’s Valuation Committee, in which RPR shared a proposed implementation of using the site to autopopulate the MC form. The initial approach was to do it “by the book” and stick to populating the fields that are provided in the form. According to Committee members, overall implementation RPR was proposing – the possibility of extracting different types of analytics from the RPR site to create all kinds of appendices to the MC with a strong visual aspect that they believed would be really helpful to “making the case.” What this pointed out is just how limiting the forms really are in terms of providing a format that supports the use of factual information about overall market dynamics and how that is likely to impact any given subject property beyond what can be expressed through point-level data like comps and adjustments.
Definitions May Impact Value
Clients ask appraisers to indicate if markets are declining, stable, or increasing. Defining a declining market is difficult in large part because there is no single accepted definition in the industry. In some cases the client may define “declining market” but the appraiser may not accept this definition if the definition will produce misleading results.
Defining a market and a neighborhood is a gray area. Some appraisers may define the market and the neighborhood as the same geographic boundaries while others will distinguish between the two. It is possible for a market to be declining while a neighborhood is stable or even improving and vice versa.
[1] APB Valuation Advisory #3: Residential Appraising in a Declining Market. The Appraisal Foundation. May 7, 2012.
Just a reminder for those not paying attention at home. The Uniform Collateral Data Portal (UCDP) is now in effect. Here is the announcement from Freddie Mac:
“The March 19 UCDP effective date is here. You must submit an appraisal report form to the UCDP and must receive a “Successful” status from UCDP prior to delivery, if an appraisal report is required, for all conventional mortgages with application dates on or after December 1, 2011, and delivered to Freddie Mac on or after March 19, 2012.”
Get more information here.
The Appraisal Foundation’s (TAF) Appraisal Practices Board (APB) put out a call for subject matter experts (SME) on the valuation of green buildings. According to the release, the SME panel will “research and cite all pertinent sources of existing information on the given topic, which may include multiple recognized methods or techniques.” The panel will also work with APB in drafting voluntary guidance.
Members of the SME panel will conduct their work in two subareas: 1) general background of the green movement – including definitions of green buildings, identifying respected resources, identifying green review programs (eg, LEED, Energy Star) and 2) the setting for valuers – including identifying government incentives and describing the regulatory environment. Interested SME applicants should have experience in green building from one of the following perspectives: professional valuers; related trades or professions; users of appraisal services; educators, writers and researchers; or service in a government or government-related agency.
From the Today Show this morning.
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This week, NAR submitted comments to the Consumer Financial Protection Bureau’s (CFPB) proposed rule amending Truth in Lending (Regulation Z) per Dodd-Frank. Much of this proposed rule looks familiar to you because CFPB is really just republishing regulations and proposed rules initially released by the Federal Reserve. In fact, the proposed rule states specifically that it does not “impose any new substantive obligations on persons subject to the existing Regulation Z, previously published by the Board.”
NAR’s comments were similar to those provided to the Federal Reserve in 2010. In the letter to CFPB, reiterated support to greater disclosure of appraisal fees, use of an expanded definition of value to include broker price opinions, and a definition for appraisal management companies (AMC) that goes beyond the number of appraisers on the AMC panel.
The National Associaiton of REALTORS® (NAR) continues its holistic approach to valuing real property with the adoption of its Responsible Valuation Policy. The document is the culmination of NAR’s efforts to consider all methods of valuing real property. NAR previously hosted two valuation summits and two working groups were convened. Members from across NAR’s policy structure had input in the document and included representation from the Professional Standards, Real Property Valuation/Appraisal, Federal Housing Policy, Conventional Finance and Lending, Commercial, and Business Issues Committees. Input was also provided by RPR.
The document will serve as the foundation for NAR’s policy position on the various methods of valuing and pricing real property – including appraisals, broker price opinions (BPO), and automated valuation models (AVM). The policy document also includes language from NAR’s Code of Ethics as a reminder to members that REALTORS® hold themselves to the highest professional standards in the industry.
