Comp Searches are for Suckers

By
Real Estate Appraiser with Ashcroft & Associates

Regardless of if and when the HVCC will be placed into existence (in January 2009, March 2009, July 2009? Ever?), many appraisal management companies have done their due diligence of marketing to lenders that they will have to go through a middle-man such as themselves in order to conduct business in 2009.

And why not start today?'  they will say to their potential new clients.  And their potential new clients will say ‘Why not?'

Once the lenders start their contracts with these management companies they will discover that what they are used to might be a thing of the past.  ‘No comp searches?  Really?' the lenders will say. 

This is when these lenders will search out you and me.  We are the potential* suckers that will give them the ranges of values that they seek... that bit of confidence that will push them forward with the appraisal process.  But will you and I receive the order for our troubles?   Heck no.  They now have a contract with this appraisal management company who will dole out the appraisal request that should have been ours to one of their desperate minions. 

Will we turn into these desperate minions?  Perhaps (let's face it, these are tough times).  But in the meantime why give away the milk for free?

And what if this is a lender that has not signed on with an AMC... a potential new client?' you say.  Just require an appraisal order prior to any work on a property is done.  Many of us have made that our practice for years.

 

* I am not accusing any of us of doing free comp searches or being suckers in general. 

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Rainer
162,690
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Sara, I worked with captive appraisers (WaMu) and national appraisal companies (National City) and it is so much better to be able to work with an appraiser. When you know your area, you know the appraiser that knows specific types of property also. So, I don't look forward to the national appraisal companies. 

Dec 06, 2008 06:57 AM #1
Rainmaker
212,573
Jennifer Monroe
Savvy + Company Real Estate - Charlotte, NC
Real Estate REALTORĀ®/Broker in Beautiful Charlotte

Good for you for standing your ground. When I first learned about this I was appalled.

If you wont, i WILL accuse any appraiser that gives this out for free as being a sucker. Where is the solidarity anyway??

Dec 06, 2008 03:14 PM #2
Rainmaker
119,507
Sara Goodwin
Ashcroft & Associates - Portland, OR
Portland, Oregon Appraiser

Hi Fred - Your term 'captive appraisers' congered up an image of these poor appraisers coming out of the jail cells in chain gain fashion and over to there desks in a big gloomy room.  It made me laugh until I thought 'how much different is that from all appraisers in this day and age?'.

Hey Jennifer - Solidarity has never been the appraisal industries strong point, I'm afraid....

Dec 07, 2008 03:44 AM #3
Rainer
162,690
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Actually, we did keep our appraiser in a jail cell and one of us had to stay shackled to him anytime we let him out in the light. :-)

Dec 07, 2008 11:12 AM #4
Rainer
14,996
David Hintz
Accurate Appraisals & Consulting of AZ - Maricopa, AZ
AZAppraiser

Sara  -  I don't know about you, or any other appraiser, but for me, the comp check requests haven't stopped.  They did slow down during the summer, but picked up again starting in Sept.  I received my latest request last Thurs via email.  One LO, three properties.  All three were for FHA refi, with pre-determined needed values.  My response was "I don't do comp checks!"  and I sent a copy of the request (emial) to FHA/HUD and State authorities - not that much, if anything, will become of it.  I don't do very many mortgage appraisals anyway, I keep busy with non-lender assignments.  No hassle with AMCs, values, fees, or completion dates - like the bail bond collateral assignment I did Sat - fee paid at the door ($425.00 cash) - no mention of value estimate or value needed - report will be delivered by next Friday.  Joyful time of year!! :) 

Dec 07, 2008 12:25 PM #5
Rainmaker
68,525
Richard D. Ferris
AmcAppraisalsinc.com - Clermont, FL
Florida State Certified (FHA) Appraiser

Hi Sara - yes, my calls for comp checks seem to be coming back again - but this time...sneakier!  I got an order for an FHA.  The lender called and asked, "Do you cover Seminole county?  What would your fee be?  How fast can you get to the inspection?"    I thought...ok - all good questions.  But then:

"Now I know you can't give me a value ahead of time...but I will put the estimated value on my order and if you would, please let me know if we are way off so we don't waste the borrowers time or money"

WHAAAATT??  Waste who's time or money??  I explained the difference between a "comp check" he may have received from less than ethical appraisers...and then what he COULD buy from me...a desktop appraisal.  I explained how much TIME it would take me to arrive at a value - even without an inspection - or even to arrive at a "the home is not worth $$" value.

I then had to explain that even with a desktop appraisal, I cannot accept an order with a predetermined value.   Links to USPAP, links to other sites, etc.  Hey...so far - they have not yet canceled the order at least!

It seems though I am getting more calls for these on FHA deals more than anything else!  I have heard that state agencies are doing "sting" operations to see if appraisers are doing "comp checks" and "pencil searches" though.  Appraisers need to better understand what they can and cannot do - and how they need to communicate those results - or the sting may sting hard!

Dec 09, 2008 10:22 PM #6
Anonymous
abe

you've got some great info.. maybe you can post some of it at www.realestateloans.com for the mortgage consumers?

Dec 13, 2008 02:10 AM #7
Rainmaker
68,525
Richard D. Ferris
AmcAppraisalsinc.com - Clermont, FL
Florida State Certified (FHA) Appraiser

It seems abe is making the rounds!  He is placing this tag line on quite a few blogs I have seen around lately...advertisement for abe?

Dec 15, 2008 10:30 PM #8
Rainmaker
119,507
Sara Goodwin
Ashcroft & Associates - Portland, OR
Portland, Oregon Appraiser

David - Lately these checks have picked up at an alarming rate from a handful of companies. They're all on my 'suspician list'.

Richard - According to USPAP and my state agencies, a comp check is an appraisal.  If you keep the proper documentation, it is not going to get you stuck in appraiser jail (unless your Fred's appraiser ;-) ) - As we're appraisers, it seems silly not to charge for them.

Thanks, Abe - I'll check into that.  (I guess it works, Richard :-) ) -

 

Dec 16, 2008 01:42 AM #9
Rainer
14,996
David Hintz
Accurate Appraisals & Consulting of AZ - Maricopa, AZ
AZAppraiser

Sara   -   Their all on my list also :)    In AZ (and USPAP) comp checks are appraisals also.  But like Richard said - you can do a desktop appraisal, which can provide much the same as a comp check and comply with USPAP.  The down side is getting paid for it.  I have offered desktop appraisals in place of comp checks, and have offered an unfiltered "list of sales" in place of comp checks, but no one wants to pay for the info.

Dec 16, 2008 03:26 AM #10
Rainer
20,690
Michael Zollo
Coral Springs, FL
Certified Residential Appraiser, South Florida, FH

David, why would they pay you! When they know some jeck will do it for them for free. If you do this for me, I'll get all the work out of our office, you know we have like 50 brokers! or is that broke brokers!

Hey Sara, Long time since I've been on here, I hope everything is going well.

Dec 17, 2008 08:51 AM #11
Rainer
14,996
David Hintz
Accurate Appraisals & Consulting of AZ - Maricopa, AZ
AZAppraiser

Michael  -  You got that right!  But I still offer, and I will still get paid the appropriate fee before I send it.  COD all the way baby!!!  Happy New Year!!  :) :) :)

Dec 17, 2008 09:31 AM #12
Rainer
5,382
Kenneth Miller
Miller Appraisals - Fremont, OH
NW Ohio FHA Appraiser

Sara, What will eventually happen is AMC's will ask for comps before placing the order so the lenders can decide if the deal is worth doing. AMC's will stand out from others because they "know before you go" so other AMC's will follow suit in order to stay competitive. I've already had one AMC approach me and asked for comps so the lender could structure the loan before placing an order. Oops did I forget to return their phone call?

Dec 20, 2008 09:54 AM #13
Anonymous
Mike Lay

Okay, I'm going to get hammered for this, but let me play devils advocate. 

This will take some heavy assumptions for an understandably cynical and skeptical group, but for the purposes of this discussion assume that the LO/MB is NOT shopping multiple appraisers for the highest value.  He/she is just calling the person that they trust with all of their assignments for a professional opinion.  You have dealt with him many times in the past and have a good relationship.

Now, assume the LO has a client whom they can get into a better mortgage that will save them a few hundred dollars a month.  But the client is a typical paycheck-to-paycheck type that has little or no money to spend, and to him/her that $400 appraisal fee is a car payment or electric bill. 

The LO has looked at the tax record, maybe even looked at Zillow or to see what was currently for sale in the area through realtor.com or similar.  But it looks pretty close, and they just don't know if it will work.

So is it fair to force the LO to pay the $400 out of his pocket, regardless of the outcome?  He might get 20 loan apps a month, and with the tight lending requirements nowadays, maybe 4 of them will go through.  Is it fair to have him shell out $8,000 and keep his fingers crossed?  OR, should he coerce a potential borrower who really can't afford it to go ahead and spend the money, knowing there is a chance that it won't appraise?

From this perspective, either the LO or the client is out $400.  But the appraiser could take a general look and at least be able to say "probably" or "doubtful" with only 10 to 20 minutes of work (assuming it is a fairly standard area and not a complex assignment).  The LO is not saying "make it appraise for $206,000" (remember, the LO is not shopping you), he just wants to know if the deal is worth pursuing.  And (another big assumption) he/she understands that things may be significantly different when you get out to the property than what you saw in the tax records.

At $400 for an appraisal that will take 8 hours start to finish, a lookup comes out to $8 - $17 of the appraisers time.  Why would this not be considered just a cost of doing business, similar to any sales person spending time prospecting?  Would you expect to pay a carpenter, electrician, or plumber $200 to come give you an estimate?  Why not?  You want to get three bids to make sure you are paying the contractor will will do the best job for the least money, so isn't that the inverse of the the appraisers argument - that the LO's are looking to pay the least for the highest value?  Why would you not spend $600 to have three of them out?  They spend their time and trouble and gas to come see your project and write up an estimate.  Should they do it for free?

I understand that plenty of MB's and LO's call multiple appraisers to see who will get the best value, the cheapest price, and the fastest turnaround.  There are more than a few that don't give a hoot about the appraisers time and trouble.  But in the above scenario, is it really too much to expect to get a preliminary professional opinion that will save your client (the LO) some time, and save the borrower some money?  

My final point:  Appraisers talk about the ethics of the practice.  Lets say you receive an assignment, and it is a purchase, so you have the contract and know that the purchase price is $150,000.  How ethical is it to accept that assignment, go out and do the appraisal, and bill the client when you noticed right away that nothing in that subdivision had ever sold over $130,000.  You saw all of the comp photos on MLS and pretty much knew before you left the office that there was a slim-to-none chance that it was worth it.  Sure, it's not your fault that the buyer had a crappy realtor, but was it ethical to not bring it to your clients attention?

I just think that there is some middle ground.  I see the scenario I described above MUCH more often that some random out of town LO sending a fax or email asking for my "best and highest".  Those of course do not deserve a response, and for the most part it's the same with the call-in's.  But for my regular clients, send me the order, and I will do you the courtesy of letting you know if I feel like there are any issues before we have wasted a lot of time and money on it.

 

Dec 22, 2008 01:53 PM #14
Rainmaker
68,525
Richard D. Ferris
AmcAppraisalsinc.com - Clermont, FL
Florida State Certified (FHA) Appraiser

Mike - I have only 2 issues to consider for "comp checks" as an appraiser.

Issue #1:   USPAP compliance.   As long as the appraiser is not given a predetermined value up front, and treats the "comp check" like a restricted desktop appraisal, performs the necessary research according to a defined scope of work, communicates that in a manner which is not misleading to the end user, fully documents the work file and maintains the records for a minimum of 5 years........then issue #1 is satisfied.

Issue #2:  Getting paid.  As you stated, it could be seen as a cost of doing business, it could be given away for free to garner trust and a relationship with a new client, etc.  That is the business decision one has to make.

Personally...I don't care about issue #2 - each has to make their decision on what their time is worth.  The truly BIG issue, is when someone calls, like in your scenario, and says "I have done all my own research, and I know I only see values in the $190,000 to $200,000 range. Before we commit, can you see if a value of $206,000 is possible in the market?"  

BAM - right there, if an appraiser accepts that challenge - they are violating uspap under AO-19 for accepting an assignment with a predetermined value.  Regardless if your answer is a simple yes or no - you render a value (it is worth less than $206,000 or it is worth as much or more, etc).  So from the beginning - a violation has occurred.

Now, I DO accommodate good clients on these assignments.  I know they are not shopping me.  Particularly, in the reverse mortgage world, where the customer is elderly and has a fixed income.  I am sensitive to that.  So I will allow for one of the brokers to simply send me an address, and I will complete a "restricted use desktop appraisal".  It is typically about 5-6 pages long, includes a fully documented scope of work on what I did and did not do, and sometimes, can take me at least an hour to as many as 3-4 hours - just to make an analysis of the sales, listings, and pendings in the market, determine the trends (declining, at what rate, etc).  In these, I do not fully verify each and every sale for concessions, motivations, etc - and I detail that in the scope of work.

So in the end, I have provided a free service to a particular client, yet I maintain USPAP compliance from the "order" to the communication of the assignment.

Now....how many appraisers doing "comp checks" are fulfilling those requirements?  How many can fully document their workfile on each and every one?   And now many, simply glance over the sales in the area or the last 12 months to see if anything sold as high as what the client is hoping for?  Those appraiser better watch out....the day of losing their license over a free comp check is at hand.

Your last point - accepting an assignment where the purchase price is obviously above the market?  What if neither the seller or buyer believes this?  The seller is overly enthusiastic about the value of their home, and the buyer is uninformed (first time buyer, etc).   Our job is not to make a deal, save a deal, or keep a deal from being made.   Our task is to provide an unbiased opinion of value to the parties involved.

And to that end - I have saved quite a few buyers from future pain by alerting them that they are paying $10,000 too much for a home.  They renegotiated and were very happy to have paid true value for a home!  Especially in cases, where some had contracted 6 months prior for a new construction - and by the time the home was finished, the market had declined by 2.6% per month.   They are now paying 15% more for the home that it is worth.   I would accept that assignment to tell them the truth any day....and would expect to be paid for the service.

Dec 22, 2008 11:40 PM #15
Rainmaker
119,507
Sara Goodwin
Ashcroft & Associates - Portland, OR
Portland, Oregon Appraiser

Kenneth - Nearly every AMC I've ever worked with has asked for a comp check up front - I find them no different than lenders other than they're over abundance of status checks, lack of knowledge about mortgage or appraisals and low wages (generally speaking).

Mike - I see lenders being much more cautious lately.  Usually by requiring a COD payment directly from the borrowers (which due to bank failures is becoming more of a requirement for appraisers as well).

Richard - Exactly.  It's a narrow ledge to balance on and even with the lack of business, not worth losing our licenses over or getting a hefty fine, at least.     And as to your  last paragraph... I'd love to warn all buyers to carefully read their contract from builders on new constructions.  At least twice I have appraised a new construction for less than the offered price and in return the builders points out their clause in the contract that states that if a conventional lender will not accept the loan, their lender will gladly take it (for a higher interest).  The unsuspecting buyers are caught going thru the builders (unscrupulous?) lender at a high cost to them.

Dec 23, 2008 04:39 AM #16
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Rainmaker
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Sara Goodwin

Portland, Oregon Appraiser
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