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While appraisers have a lot to gripe about in the less than perfect appraisal process, appraisal review is often one of the biggest stress points between the appraiser and client. Coercion, poor practices and just plan appraisal ignorance all can play a role in making the appraiser’s work more stressful. We asked our panel of excellent appraisers how they deal with this potential pitfall.

Valuation Review: What are the most common stress points in the appraisal review process?

“The majority of complaints are from borrowers, and second most are from AMCs. The complaints range from failing to fill in a check box in a Fannie Mae form to accusations based on strange misinterpretations of USPAP by state subcontract review appraisers, prosecutors, and AMC reviewers,” explained Roger Durkin, chair of the American Society of Appraisers (ASA) and an attorney for appraisers who defends appraisers before the licensing board. “USPAP interpretation is a serious issue. Did you know that a sanction by the licensing board that you violated USPAP may be used as relevant and admissible evidence in a civil negligence law suit? My wish is that review appraisers recognize that their policing actions can have a serious impact on appraisers. I would add that review is or should be an objective professional critique measured against clearly delineated standards (USPAP) should include a critique of the logic or logical fallacies, and finally a critique of the credibility of the appraiser.”

With the uptick in the market, appraisers can expect more scrutiny of their appraisals going forward. Appraisers and review appraisers share equally in ensuring the review process will go smoothly.

For the appraiser, the following suggestions should lead to fewer revisions and result in a more efficient process:

While certainly a necessary practice — and oftentimes required — most appraisal organizations and appraisers are looking for better ways to address the appraisal review process. Covering this from a global and all-inclusive perspective, we should first identify the stressful points throughout this hot topic process. 

In many circumstances, it is a simple as a lack of consistent formatting of reports that can frustrate both appraiser and reviewer. When the Uniform Appraisal Dataset (UAD) was introduced, it helped in lessening the wide variance of applicable, and sometimes not applicable, responses within any given assignment results performed on GSE forms.

Let’s face it: appraisers get the shaft. In today’s economy, it’s hard to accept the reality of market value. Sellers, buyers and other parties involved in the mortgage process often complain about appraisals coming in “too low.” Such is the case with a recent Wall Street Journal Q & A, in which a reader asked for advice in a sticky selling situation. To make a short story shorter: The buyers asked for $20,000 in repairs/upgrades, the appraisal came up short of the agreed price, and now the seller is being pressured to lower the price.

What’s that? Pressured?!

The Interagency Appraisal Complaint Form continues to generate concerned comments from industry professionals. The latest comments come from the Appraisal Institute and the American Society of Farm Managers and Rural Appraisers (ASFMRA), which penned a letter addressed to the Federal Deposit Insurance Corp. (FDIC), National Credit Union Administration, and Comptroller of the Currency, in hopes of highlighting some of the potential stress points if the current form is put into action.

First a little background, the Interagency Appraisal Complaint Form, along with the Appraisal Complaint Hotline, mandated by the Dodd-Frank Act, aims to collect information about complaints of non-compliance with the appraisal independence standards and the Uniform Standards of Professional Appraisal Practice, including complaints from appraisers,  individuals, financial institutions and others.

Three real estate industry professionals were sentenced for engaging in schemes to defraud two banks. The schemes are said to involve properties valued at more than $35.5 million. One defendent received 72 months in prison and was ordered to pay $2.8 million in damages while the other two were given 42 months in prison and ordered to pay $2.5 million. The mortgage broker who misrepresented material facts about borrowers’ income and assets, the potential rental income and accurate appraisals of properties. She falsified borrowers’ tax returns and documents relating to the true source and amount of the downpayments being made by borrowers and forged borrowers’ signatures on loan documents.The loan officer was working in conjunction with broker to approve mortgage loans for borrowers who did not meet the criteria for income, assets and credit scores, in return for bribes and kickbacks. As a result, the pair caused the approval of loans totaling more than $30 million.

Veros Real Estate Solutions announced that Citizen’s Equity First Credit Union (CEFCU) implemented Veros’ valuation management platform, Sapphire, to assist their team in automating their fully manual appraisal management process. Sapphire is a web-based platform for complete collateral valuation management, offering numerous options that deliver Sapphire’s “structured flexibility” so lenders can configure the system to their organization’s needs. The core platform includes comprehensive order, review and reporting functions. CEFCU and many other lenders have been struggling with labor-intensive appraisal management processes for years. 

Global DMS, provider of web-based compliant valuation management software, and MortgageFlex Systems, an established technology provider of mortgage loan software, announced that its eTrac Enterprise platform is integrated with MortgageFlex’s loan origination system (LOS), LoanQuest. The integration is bi-directional and streamlines data exchange and facilitates communication between the two platforms.  

Clear Capital, provider of data and solutions for real estate asset valuation and collateral risk assessment, released its Home Data Index (HDI) Market Report with data through February 2013.National and regional home price trends remained stable and nearly flat in February, as prices continued to hold their ground over the slow winter months. National quarterly growth of 1 percent was supported by quarterly growth of 2.1 percent, 0.4 percent, 0.7 percent and 0.8 percent in the West, Midwest, Northeast and South, respectively. While the West continued to lead the recovery, the Midwest, Northeast and South’s quarterly home prices remained flat over January. While these trends are modest in comparison to the aggressive rates of appreciation the market saw during the run-up, they do make an impression on consumers. By not dropping during the slow winter season, small quarterly growth could encourage consumers to re-engage in the housing market. 

a la mode announced that Metro-West will now provide staff appraisers with a la mode’s full suite of software, including TOTAL form-filling products. The TOTAL family of software products is the dominant appraisal report platform in the industry, used by more than half of all appraisers nationwide. In conjunction, Metro-West launched a MercuryDirect plugin with Mercury Network to ensure the highest quality appraisals for its growing list of lenders.

Last week, the National Association of Home Builders (NAHB) released a white paper that stated there are “serious problems in the residential appraisal process” that “must be addressed in order to restore confidence in the residential real estate market and to establish a foundation for sustainable growth of the U.S. economy.” 

It was just the latest instance of the NAHB pointing the finger at appraisers. Similar reports and accusations were launched last year as well. Not surprisingly, appraisers did not take kindly to statements such as: 

"Even as the residential construction industry shows signs of recovery, housing activity is thwarted by an appraisal system that remains dysfunctional and is a major impediment to a stable housing finance framework," said Rick Judson, NAHB chairman and a homebuilder from Charlotte, N.C. "Until we see meaningful appraisal reform, the U.S. housing finance system will be operating under unprecedented uncertainty."

The Appraisal Foundation’s Appraisal Standards Board released a pair of advisory opinion exposure drafts last week for appraiser comments. The first advisory opinion relates to “Performing Evaluations of Real Property Collateral to Conform with USPAP.” The issue was prompted by the federal financial regulatory agency, which issued updated Interagency Appraisal and Evaluation Guidelines in December 2010. 

A Colorado man was sentenced to serve 72 months in federal prison for wire fraud, making a false statement to a pretrial services officer and escape. The man was ordered to spend three years on supervised release after he serves his term of imprisonment. He was also ordered to pay restitution totaling nearly $1.8 million. The man had appraisal reports prepared in which the appraiser fraudulently inflated the fair market values of the properties by $100,000 to $325,000. To make the inflated values in all the reports appear legitimate, the appraiser falsely represented that the purchases, which were actually sales at market value, were “distressed” sales, or “quick” sales below market value.

Then, based on the fraudulent appraisals, the man set the prices for the resales far beyond their true market values and arranged for the buyers to obtain 100 percent financing for them. To ensure that the desired funding would be approved for the buyers for both the purchases and the resales, the man caused false information about their qualifications to be incorporated into their loan applications to enable them to qualify for the loans. He caused the proceeds from the second sales to be directed to entities of his choice.

The size of a property relative to the average-sized property in its neighborhood may affect its sale price, according to an article published by The Appraisal Institute. “The Impact of Relative Size on Home Values,” by Paul Asabere, Ph.D., and Forrest Huffman, Ph.D., examined the impact relative size has on the pricing of houses. Relative size impact refers to the effect on home values of house size relative to the average size of properties in the same neighborhood. Unlike absolute size, which is a property characteristic, relative size is a type of neighborhood effect.

The nation’s largest professional association of real estate appraisers premiered its “Residential and Commercial Valuation of Solar” course in Albuquerque, N.M. The course is the latest offering in the Appraisal Institute’s Valuation of Sustainable Buildings Professional Development Program. 

The Office of the U.S. Attorney sentenced a Twin Lakes, Wisc., man now living in Ojai, Calif., to 14 months in federal prison for his part in a mortgage fraud scheme that spanned from 2004 to 2006. He faced a total of 30 years in prison for these offenses. According to the indictment, the man, acting as a mortgage broker, orchestrated a scheme which involved straw buyers, fraudulent loan applications and inflated appraisals. He was able to arrange in excess of $14 million in loans for the purchase of approximately 51 properties located in southeastern Wisconsin and northern Illinois. More than $2 million of the loan proceeds wired by the various lenders were funneled to shell companies that the man established.

In connection with the scheme, the man represented himself as a person involved in the purchase and improvement of real estate for profit and the coordinator of a group of investors engaged in that activity. All but a few of the properties ultimately went into foreclosure resulting in a loss of more than $5 million. The money laundering counts alleged that ill-gotten loan proceeds were used, in part, for the purchase of additional properties and for personal expenses, including his purchase of a new Chevrolet Corvette.

Ellie Mae, a provider of enterprise-level, on-demand automated solutions for the residential mortgage industry, released its Origination Insight Report for January 2013. The report draws its data and insights from a robust sampling of the significant volume of loan applications — more than 20 percent of all originations in the United States — that flow through Ellie Mae’s Encompass360 mortgage management software and Ellie Mae Network.

Serious problems in the residential appraisal process must be addressed in order to restore confidence in the residential real estate market and to establish a foundation for sustainable growth of the U.S. economy, according to a new white paper from the National Association of Home Builders (NAHB).