ta | appraisal webinar 11.15.2012

Interpreting Home Appraisals

Solving the Mystery of the Home Appraisal Valuation Process

Agenda: Welcome 1:00-1:02 p.m. Introductions of Speakers 1:02-1:04 p.m.Webinar Etiquette 1:04-1:08 p.m.Interpreting Home Appraisals 1:08-1:55 p.m.

Regulatory Overview (David) Appraisal Keys (Liz) Talking to the Appraiser (Peter)

Questions and Answers 1:55-2:25 p.m.Webinar Closure 2:25-2:30 p.m.

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Presenters

David Berenbaum serves as National Community Reinvestment Coalition’s Chief Program Officer. David is responsible for implementing NCRC’s legislative, research, compliance, community lending, minority business and civil rights programs.

CONTACT INFORMATION:David BerenbaumChief Program OfficerNational Community Reinvestment CenterTEL: (202) 628-8866 EMAIL: [email protected]

Presenters

Elizabeth Green, Principal Consultant with rel-e-vant Solutions, is a strategist, solutions architect, speaker and valuation advocate. A recognized mortgage technology veteran in software product leadership for solutions in residential property valuation, loan origination, mortgage servicing and secondary marketing, Green is helping to foster a new level of understanding in property valuation and collateral risk assessment through the application of digital intelligence. She is the third term chairperson of the MISMO Property and Valuation Services Workgroup. Follow her on Twitter: @FreshRelevance.

CONTACT INFORMATION:Elizabeth GreenPrincipal ConsultantRel-e-vantTEL: 888-804-7773EMAIL: [email protected]

Presenters

With 30 years of experience in real estate appraisals, Pete Vidi is a Certified General Real Estate Appraiser specializing in forensic valuations for litigation support in the Metro Washington DC, Maryland and Virginia areas. Mr. Vidi is also a past President of the National Association of Independent Fee Appraisers (NAFIA).

CONTACT INFORMATION:Peter R. Vidi National PresidentAmerican Guild of AppraisersGuild 44 OPEIUTEL: 888-804-7773EMAIL: [email protected]

Regulatory Overview

David Berenbaum,Chief Program Officer

NCRC

The Mission of the National The Mission of the National Community Reinvestment CoalitionCommunity Reinvestment Coalition

To increase fair & equal access to credit, capital, and banking services/products for low- and moderate-income communities, because discrimination is illegal, unjust and detrimental to the economic growth of underserved communities in the United States and around the world.

The CFPB and NCRC’s CommentsThe CFPB and NCRC’s Comments

As it relates to appraisal/valuation issues, the CFPB proposed several amendments to the Truth In Lending Act (TILA)-Regulation Z, as well as, the Equal Credit Opportunity Act (ECOA)-Regulation B. On October 15, 2012, NCRC submitted comments addressing the proposed amendments to these regulations.

The CFPB and NCRC’s CommentsThe CFPB and NCRC’s CommentsTILA-Regulation Z

In our comment, we argued that Congress did not intend that FIRREA Title XI requirements would only apply to the subset of higher-risk mortgage loans that are already covered by FIRREA. NCRC specifically called for the prudential regulators to require full walk-through appraisals by licensed appraisal professionals for all residential mortgages above $50,000 regardless if they are originated or insured by the private sector, Fannie Mae and Freddie Mac, or the Federal Housing Agency.

The CFPB and NCRC’s CommentsThe CFPB and NCRC’s CommentsECOA-Regulation B

In our comment, we argued that in order to prevent the problems associated with the use of automated valuation models and creditors reliability on them, it is essential that creditors disclose all forms of appraisal and/or valuation at the time the application is received, not later than the third business day after receiving a consumer’s written application, to allow consumers to read all information and make informed decisions relating to one of the biggest financial commitments of their lifetime.

The CFPB and NCRC’s CommentsThe CFPB and NCRC’s CommentsIntegrated Mortgage Disclosures under Real Estate Settlement

Procedures Act (Reg X) and Truth In Lending Act (Reg Z)

On November 6, 2012, NCRC signed on to a comment letter prepared by the Appraisal Institute, addressing the Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (RESPA)-Regulation X and the Truth In Lending Act (TILA)-Regulation Z. In their letter, the Appraisal Institute noted under the proposed rule, disclosure of AMC fees is optional, despite a clear authorization under the Dodd-Frank Act to require such disclosure. Under the proposed rule, lenders that do not want to report the fee paid to the AMC could instruct the settlement agent to bundle the two fees under the Appraisal fees. Among other things, this is likely to hasten the development of bank-owned or “captive” AMCs .

The CFPB and NCRC’s CommentsThe CFPB and NCRC’s CommentsIntegrated Mortgage Disclosures under Real Estate Settlement Procedures Act (Reg X) and Truth In Lending Act (Reg Z)

The Appraisal Institute argued that the decision to hide or disclose the AMC fee should be left to the discretion of a party that may have a vested interest in hiding this fee from consumers. The Institute explained that this practice is likely to result in inconsistency in disclosure of AMC fees, with some lenders listing only an appraisal fee and others listing both an appraisal and an AMC fee without any explanation. The overarching concern expressed was that the aforementioned practice would confuse consumers, not empower them to rational and responsible decisions. The Appraisal Institute and NCRC as a sign-on, asked the CFPB to establish clear and understandable rules that consumers and others can rely on commencing mortgage financing transactions.

NCRC’s Appraisal RecommendationsNCRC’s Appraisal RecommendationsOn June 28, 2012—NCRC testified before the US House of Representatives Committee on Financial Services, Subcommittee on Insurance, Housing & Community Opportunity on the subject of Appraisal Oversight: The Regulatory Impact on Consumers and Businesses

In our testimony, NCRC made ten recommendations aimed to improve the appraisal industry and help all Americans, particularly low to moderate income communities, communities of color, and communities impacted by the foreclosure crisis. These recommendations are as follows:

1. A call for Congress, the prudential regulators, etc. to review and define a more modern and robust appraisal reporting process and not accept the Uniform Residential Appraisal Report form by the GSEs

2.Require full appraisals by licensed appraisal professionals for all residential mortgages above $50,000

NCRC’s Appraisal RecommendationsNCRC’s Appraisal RecommendationsRecommendations continued:

3.The role and impact of Appraisal Management Companies (AMCs) must be critically reviewed by the ASC to ensure that they are not negatively affecting appraisal quality

4.Appraisal professionals must be appropriately compensated under any usual and customary fee standard that is developed

5.The banking regulators, Fannie Mae, Freddie Mac, and the FHA should not escape Appraisal Subcommittee valuation safety and soundness review and enforcement

6.Automated Valuation Models (AVMs) should never replace the use of an appraisal by a licensed appraiser for all mortgages that exceed $50,000

7.There is a need for more effective Consumer Protection, Transparency & Education

8.Responsible appraisal practices ensure and expand housing opportunities in an open society

9.Inappropriate appraisal undervaluation is equally damaging to homeowners, communities, the tax base, investors and insurers

10. States must suspend directing funds intended for appraisal compliance, professional development and licensing, to their general funds

Appraisal Keys

Elizabeth Green,Principal Consultant

REL-E-VANT SOLUTIONS

IntroductionIntroductionKnowledge of the home appraisal process -- and the differing credentials of those who provide appraisal services -- benefits homebuyers and sellers alike. This knowledge is a powerful information tool to help them make wise real estate investment and sales decisions about what is for most people, their single biggest asset.

The AppraisalThe AppraisalThe appraisal process and written reporting formats vary, depending upon the nature and purpose of the appraisal. But the appraisal’s fundamental purpose is: “To establish a well-researched, impartial and carefully documented estimate of property value at a single point in time, And, in so doing, protects the interests of buyers, sellers, mortgage lenders and other involved parties regarding the corresponding event.”Mortgage Financing/Refinancing and the AppraisalHomebuyers seeking financing, and homeowners seeking refinancing, are required by their mortgage lenders to underwrite the cost of an appraisal, which typically ranges from $200 and $400. The appraisal is the essential component in determining loan limits for the property in question. Mortgage lenders typically select appraisers from “approved” lists they compile and maintain. Consumers are entitled to copies of all valuations used in conjunction with their loan as mandated by recent legislation.

• Know the approximate value of the home.• If you can afford one, get your own appraisal from a

state licensed appraiser.• Ask questions. Shop around. Get the best price from

your agent.• Insist on a home inspection!• Don’t rush into transactions. Don’t sign anything until

you read and understand it.• Get a copy of all forms associated with the transaction.• Understand the meaning of buyer’s agent, seller’s agent

& dual agent.• Ask how your agent is going to advertise your property.

Roles in the Appraisal ProcessRoles in the Appraisal ProcessConsumer ResponsibilitiesConsumer Responsibilities

• Describes the terms of the loan.• Determines the monthly payments.• Informs you of The Annual Percentage Rate/if it changes/balloons/or

increases in percentage over a period of time.• Describes the different forms involved in the loan transaction.• Acknowledges whether the loan will be sold by the lending institution or

mortgage company who is lending and to whom it will be sold.• Utilizes an appraisal to check comparison of the loan value and the

property value.

Roles in the Appraisal ProcessRoles in the Appraisal ProcessLender ResponsibilitiesLender Responsibilities

• Provides and explains Agency Disclosure.• Enters into a Listing Agreement & Negotiates a

commission.• Discusses with you how your property will be

advertised if you are the seller.• Doesn’t act as a Mortgage Broker. Your agent is

not responsible for the home inspection.• Notifies the consumer of known physical defects

of the property.

Roles in the Appraisal ProcessRoles in the Appraisal ProcessAgent ResponsibilitiesAgent Responsibilities

• Your agent is not responsible for finding you the best financing.

• Your agent does not ensure that the title search is done properly.

• Your agent is not responsible for providing a copy of your deed.

Roles in the Appraisal ProcessRoles in the Appraisal ProcessAgent ResponsibilitiesAgent Responsibilities

Roles in the Appraisal ProcessRoles in the Appraisal ProcessAppraiser Responsibilities Appraiser Responsibilities

• Gathers data on market area, subject property & comparable properties in market area.

• Reflects markets perception of value as of the appraisal date.

• Examines the separate indications of value.• Bases comparison of like properties to subject

property with adjustments made for differences.• Analyzes evidence & draws conclusions.• Does not advocate the needs or desires of the

client or lender.

Roles in the Appraisal ProcessRoles in the Appraisal ProcessAppraiser Responsibilities Appraiser Responsibilities

• Provides sufficient detail & information to lead the reader of the report to a logical conclusion.

• Reports the highest best use of the property. Does NOT take the place of a home inspector.

• Analyzes all sales of subject property for last 3 years.

About the AppraisalAbout the AppraisalThe written appraisal contains valuable and often-revealing information -- including the legal and physical description of the property, square footage measurements, list of comparable properties in the neighborhood, a neighborhood description, and a narrative of current real-estate activity and/or market trends in the vicinity.Carefully review the details regarding the size, number of rooms, features and condition as reported by the appraiser. The appraiser will check all rooms for obvious damage that could affect the overall value of the property.Also review the information presented about the neighborhood as well as the comparable sales that have been selected by the appraiser to support his opinion of value.

Details About the HomeDetails About the Home

The Appraiser will account for permanent features to a home. For example, in-ground pool, built-in appliances in the kitchen. Anything removable is not included in the final value. For example: a Jacuzzi tub.

The appraiser will check that heating and air units are present and that they are in good working condition.

Basements are not included in the square footage for the computation of Gross Living Area (GLA). But, are considered in the valuation overall. The appraiser will check the basement for upgrades and finishing which can increase a property’s value, but it’s never included in the square footage.

Bedroom count is also a big part of the valuation. Appraiser will verify the number of bedrooms. By definition, a bedroom is a room with at least one closet and one window.

Checking the AppraisalChecking the AppraisalCommon errors in appraisals include: misuse of adjustments to comparables, disregarding special financing and concessions, or miscalculation of gross living area. Ask yourself: •Do adjacent homes add or detract from the value of the subject property?•Is the subject property equal to or lower in price than surrounding homes? •Does the floor plan have any functional problems? •Does the house (particularly the kitchen and bathrooms) require major remodeling to make it comparable with similar homes in the same price range? •Is the number of bedrooms and baths in the home comparable to similar homes in the same price range? •Did the appraiser perform an adequate review?

Appraisal FactsAppraisal FactsAssumption: Market value should approximate replacement cost.Fact: Market value is based on what a willing buyer likely would pay a willing seller for a particular property, with neither being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind.Assumption: Assessed value should equate to market value.Fact: While most states support the concept that assessed value approximate estimated market value, this often is not the case. Examples include when interior remodeling has occurred and the assessor is unaware of the improvements, or when properties in the vicinity have not been reassessed for an extended period.Assumption: Appraisers use a formula, such as a specific price per square foot, to figure out the value of a home.Fact: Appraisers make a detailed analysis of all factors pertaining to the value of a home including its location, condition, size, proximity to facilities and recent sale prices of comparable properties in the subject market area.

Assumption: In a robust economy - when the sales prices of homes in a given area are reported to be rising by a particular percentage - the value of individual properties in the area can be expected to appreciate by that same percentage.Fact: Value appreciation of a specific property must be determined on an individualized basis, factoring in data on comparable properties and other relevant considerations. This is true in good times as well as bad.

Appraisal FactsAppraisal Facts

Assumption: Consumers need not be concerned with what is in the appraisal document so long as it satisfies the needs of their lending institution.Fact: Only if consumers read a copy of their appraisal can they double-check its accuracy and question the result. Also, it makes a valuable record for future reference, containing useful and often-revealing information - including the legal and physical description of the property, square footage measurements, list of comparable properties in the neighborhood, neighborhood description and a narrative of current real-estate activity and/or market trends in the vicinity.



Assumption: An Appraisal is the same as a home inspection.Fact: An Appraisal does not serve the same purpose as an inspection. The Appraiser forms an opinion of value in the Appraisal process and resulting report. A home inspector determines the condition of the home and its major components and reports these findings.Assumption: You generally can tell what a property is worth simply by looking at the outside.Fact: Property value is determined by a number of factors, including location, condition, improvements, amenities, and market trends.

Appraisers & ConsumersAppraisers & ConsumersAppraisers provide an integral service as an unbiased, trusted advisor to the process. Consumer education and advocacy regarding the appraisal process has been improved as a result of recent legislation and the advent of the Consumer Finance Protection Bureau.The appraisal report is a critical tool to new homeowners to help them understand their new home and the investment it represents.

How to work with the Professional Appraiser

“Understanding Real Estate Valuation”

Peter Vidi,National President

American Guild of AppraisersGuild 44 OPEIU

• Describe the certification/licensing requirements, underwriting guidelines, and appraisal laws in the jurisdiction.

Understanding the Professional Appraiser

• Describe the certification/licensing requirements, underwriting guidelines, and appraisal laws in the jurisdiction.

• Identify appraisal conditions and requirements that professional real estate appraisers are required to follow.

Understanding the Professional Appraiser

History of Real Estate AppraisingPrior to 1989 real estate appraisers were unlicensed. For the most part “designations” were offered by professional organizations as part of the effort to control the education and practice.

History of Real Estate Appraising Legislation and Regulations

FIRREA enacted mandating that appraisers who perform valuations for Federally Related Transactions would need to be licensed


FIRREA enacted mandating that appraisers who perform valuations for Federally Related Transactions would need to be licensed

USPAP annual guidelines & rules governing the professional real estate appraiser and the appraisal reports for various assignments.


Subsequent to Congress passing FIRREA regulators reduced the “deMinimus” threshold to $500,000 to ultimately $100,000. States were faced with mandatory vs. voluntary licensing.


Subsequent to Congress passing FIRREA regulators reduced the “deMinimus” threshold to $500,000 to ultimately $100,000. States were faced with mandatory vs. voluntary licensing.

Many States and jurisdictions areas are NOT mandatory states. Appraisers who perform non-FRT assignments may be exempt.

Licensing of Appraisers Appraisal Trainee

• 75 Hours of Approved Appraisal Education including 15 Hours in USPAP



• Within 4 years must pass test for Licensed or Certified Residential Real Property Appraiser



• Within 4 years must pass test for Licensed or Certified Residential Real Property Appraiser

• Under direct supervision of Licensed or Certified Real property appraiser


Licensing of Appraisers Licensed Residential Real Property Appraiser

• 150 hours of Approved Appraisal Courses


• 150 hours of Approved Appraisal Courses• 2000 hours of field experience (max 1,000

hours per year)


• 150 hours of Approved Appraisal Courses• 2000 hours of field experience (max 1,000

hours per year) • Pass a Comprehensive Exam


Licensing of Appraisers Certified Residential Real Estate Appraiser

• 175 Hours of Approved Appraisal Courses


• 175 Hours of Approved Appraisal Courses• Minimum Associate degree in approved

subject matter



subject matter• 2000 Hours of Field Experience (max 1,000 hours per

year)



subject matter• 2000 Hours of Field Experience (max 1,000 hours per

year)• Pass a Comprehensive Exam


Licensing of Appraisers Certified General Real Estate Appraiser

• 300 hours of approved appraisal courses


• 300 hours of approved appraisal courses• Minimum Bachelors in approved subject matter


• 300 hours of approved appraisal courses• Minimum Bachelors in approved subject matter• 3000 hours of field experience (max 1,000 hours per

year)


• 300 hours of approved appraisal courses• Minimum Bachelors in approved subject matter• 3000 hours of field experience (max 1,000 hours per

year)• Pass a comprehensive exam


Appraisal vs. CMA They are NOT the same!

• An appraisal is an estimate of market value as of a specific date by a professional real estate appraiser.



• Term “appraisal” is a specific term only used in connection with definition of market value.




• CMA only for listing/sale purpose


• Appraisers have a fiduciary responsibility to the client”

• Appraiser is only an “advocate” for the appraisal report and conclusion

• Impartial opinion to protect consumer

• Appraiser is controlled by USPAP


What does this all mean to you and the consumer?

Violation of the Law!!! Don’t go there!!!

• Coercion of the appraiser



• Manipulation of information or report



• Manipulation of information or report

• Predatory Actions


What can I do…What can’t I do?Know the professional boundaries

• Do NOT pressure the appraiser to get a value or to misrepresent.



• Do encourage the appraiser to act independently.



• Do encourage the appraiser to act independently.

• Do assist appraisers in disclosing “material” information


• Appraiser calls the client asking for them to provide comparables.

• Appraiser uses comparables outside of market to “push” or “lower” values

• Appraiser with geographic competency

Examples of issues with a professional appraiser?

• Appraiser can be the “gate keeper” on a deal...treat them with respect.

• Appraiser can provide invaluable information to assist in a decision

• Ask the appraiser questions!!!

What should the consumer know?

• Provide information on new comps

• Provide new perspective about things that appraiser may have overlooked

• Get a copy of the appraisal report

What can consumer do if they disagree?

• Any person may file a complaint against a licensed or certified appraiser. Complaints must be filed in writing on forms provided by the Commissions.

• Follow the directions of providing the objective evidence that can be used by the investigating body.

Complaints

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