April 2015 Index. Fannie and State regulators want adjustment support!! How to do adjustments - a review of 3 webinars

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1 April 2015 Index Fannie and State regulators want adjustment support!! How to do adjustments - a review of 3 webinars Page 1 Practical tips you can use today for getting more appraisals done and make more money during this boom time Page 13 Fannie Hard Stops - be sure to check this for this on every appraisal!! Page 18 Fannie and State regulators want adjustment support!! How to do adjustments - a review of 3 webinars Why did I choose webinars to write about? They are available now. I could not find any online all day live seminars or classes on the topic and only one all day live seminar. There are lots of statistics webinars and classes which I will cover in a future article. But, I wanted to start with education that covered all types of adjustment methods. Of course, we would all like to buy a regression software that would calculate all our adjustments, but that is not possible. Even Fannie s CU, probably the most sophisticated software, can t do it. I am an "old timer" who started appraising in 1976 and took most of my appraisal classes then. Before listening to these webinars I refused to accept "No support. No adjustment". For Fannie forms. I used the "XX (40 for me) years of experience" and "feelings" methods, which is what most of the appraisers I know still use. I had never been asked by anyone about how I supported adjustments. Of course, I supported my adjustment opinions in litigation, such as diminution in value. But, I never did any litigation work where I used a Fannie form with adjustments. After reviewing these webinars, I have definitely changed how I am doing my appraisals. I work in a city that was almost completely built out by All the statistical regression, matched paired sales, etc. never seemed to work. From these webinars I got a lot of good ideas for methods I will start using now. Page 1 April 2015 Appraisal Today

2 But, a few years ago, in a CE workshop I attended, our state regulator said that they want to see support for adjustments in your work file. I attended.. This made me very paranoid since I didn't have any. I knew I needed help. My classes only covered matched paired sales for residential adjustments. With CU, Fannie is now looking very closely at appraiser adjustments. Some clients have started asking specifically for adjustment support. If nothing else good comes out of CU, this has made a big change for appraisers in upgrading skills in making adjustments. It let everyone know about "The Dirty Little Secret" of Fannie forms - the adjustments. Last month I reviewed written material on adjustments. There was relatively little available. Appraisal textbooks had few pages. For example, the Appraisal Institute's book, Appraising Residential Properties, Fourth Edition, has only 11 pages out of 475 total pages. The only book I could find that had much was Mark Ratterman's Valuation by Comparison, published by the Appraisal Institute. This book is very good. Buy it. This month I review three webinars. The three are different, but cover much of the same material. You may want to take more than one as they are complementary and don't repeat the same analysis. Two of the webinars are live and on-demand, so you don't have to wait for a class to come to your area. One of the webinars will be offered once a month by McKissock, which will be offering a 7-hour adjustment seminar later this year. I could not find any classes on the topic. There are a few 7 hour seminars, such as the one that Richard Hagar teaches. Adjustments are discussed in some Sales Comparison classes and seminars, but they don't focus on adjustments. Next month I will discuss which multiple regression software programs are available and will look at price, data requirements, etc. I will also go over the pluses and minuses of multiple regression software and doing your own regression using Excel. To fully understand regression takes a lot of classes and practical experience and probably a PhD in statistics. Of course, I would love to have regression software that calculated all my adjustments! But, even if I did, I don't know how I could explain how it works to my state regulator. Also, multiple regression does not work in many areas, and definitely does not work for all adjustments. Which webinars are reviewed in this article? The three webinars are different, but all cover the same primary subject of adjustment methods. Richard Hagar, SRA, The Art of Determining Appraisal Adjustments, two 2-hour sessions, hosted by WorkingRE - live and recorded. Q&A. click on resources then webinar. $80 for all three sessions. Click on webinar in top of screen $49 each or $79 for both. No CE. Recordings are available for 90 days. Links to downloadable webinar materials are sent to all attendees. He has an excellent Adjustments Q & A that goes over the typical questions appraisers ask, such as: why do I have to change what I have been doing for 30, 20,or 10 years? There are also many very practical tips. Woody Fincham, SRA (with assistance by Rachel Massey, SRA) hosted by Appraisal Buzz, three 1-hour sessions - live and recorded. No CE. No Q&A. click on Page 2 April 2015 Appraisal Today

3 resources, then webinar in the pull down menu. $80 for all three sessions. You will receive link to download the recordings. McKissock: Adjustments: Supported or Not Supported - one 5-hour session (available in May). Live only with CE credit. Polls are used as it is for CE. Q&A. No copy of the recording is available. You will receive a link to download the materials. What is not covered in these relatively short webinars? The webinars give you an "overview" of adjustments. Practice exercises are not included. There is limited time and a lot of material to cover, so longer classes or seminars are recommended. Per the Fincham materials (applies to all three webinars): "The purpose of this presentation is not to re-teach fundamentals and procedures. We do not have enough time to thoroughly address and teach sales comparison analysis. What we will do is cover some familiar topics and hopefully address some of the concerns many have. We will approach the concerns with common sense approaches." Quantitative vs. Qualitative adjustments McKissock has the most extensive discussion of qualitative vs. quantitative adjustments, but all the webinars address both. From McKissock materials: "Most qualifying and continuing education focuses on the methods of extracting and supporting adjustments, without considering that there are actually two methods of researching and analyzing data: quantitative and qualitative." "Suggest to a residential appraiser that it might be appropriate to rely on qualitative analyses (trend analysis, ranking analysis, contingent valuation methodology, relative comparison analysis) and there is an immediate and intense reaction: I would dare - the client would NEVER accept it." Qualitative adjustment methods have been used for a long time, but many appraisers say that only quantitative methods (that produce adjustments for Fannie forms) are "allowed". The Fannie forms require dollar adjustments, so quantitative numbers are required. However, both qualitative and quantitative methods are useful, particularly when quantitative methods don't work well, or don't work at all. Qualitative can really help for those tough adjustments. The McKissock webinar spends more time than any of the other webinars on the difference between qualitative and quantitative, and how you can use each one. How to get started supporting adjustments What is your market like? Does it have many homes in conforming tracts? Is it rural with new sales? Are most of the homes built before 1930? Are there wide differences in lot size? Of course, we all encounter "odd ball" properties where we need anything we can to figure out what is happening. Here is some advice from Richard Hagar: "Not every method works every time in every Page 3 April 2015 Appraisal Today

4 market. Appraisers should use a couple of methods until they become comfortable with them, then expand to include a few more. Eventually you will become proficient and able to adapt to any particular market or level of data. Think of various methods like a tool box, sometimes a hammer works and sometimes you need a pair of pliers." Keep a file of how you determined adjustments and what worked best Almost every appraisal uses different adjustment amounts of course, but sometimes there are ways to re-use adjustments and methods. For example, some adjustments can be a percentage of value. In my market, with large ups and downs in values over time, views are often a percent of value. Homes without off street parking are another consistent factor in my market as many homes lack off street parking (built prior to 1915 on very small lots). For example, you find a method that works for GLA, keep it in your file. Or, you found an excellent method for determining adjustments for the difference in number of garages. This is especially useful for those hard to find matched paired sales. You can use them again, adjusting for time, if needed. Be sure to keep a copy of how you determined adjustments for a property in your work file for that appraisal. Adjustments can be very difficult From McKissock materials, "For residential appraisers, extracting and supporting adjustments in the sales comparison approach is one of the most difficult and problematic aspects of an appraisal." What about regression? There are many classes, webinars, seminars and free online classes and videos on regression. I will cover this in a future article. But, remember that regression only works in some areas and on some adjustments. You will need to use other methods. I doubt if even Fannie Mae's CU can get accurate adjustments for all the factors included in UAD data!!! Plus, your state board may question your use of a multiple regression program - how does it work. If you use one of these software programs, be sure you understand what data is used. The actual statistical algorithm is proprietary, but you should know what data is used and why. My experience with adjustments When I started my appraisal business in 1986 I had previously worked for an assessor's office and had never seen a Fannie form with dollar adjustments. I did a few assignments for a local appraiser to get started. When I asked him how to determine adjustments he did not respond. The only methods I recall from any classes was matched paired sales. Other appraisers seemed to use "xx years of experience" or said they used matched paired sales in their form appraisal reports. I mostly used qualitative methods to figure out what was important, but not to get any specific number. It seemed a bit strange, but I assumed that was how it was done. I was never given a list of adjustments to use and was never questioned about my adjustments by any review appraisers. Page 4 April 2015 Appraisal Today

5 Today, of course, if I did lender work, I would probably get an occasional question. Filling out Fannie forms was never discussed in my appraisal classes from AIREA and SREA, predecessors of the Appraisal Institute (long before licensing started). Now, I know that it was "the dirty little secret" of Fannie form appraising. It has all shifted 180 degrees. A few years ago, my state regulator said they expected to see adjustment support in my work files. I started to see "matched paired sales" regularly as the adjustment method that was used on Fannie form reports. Of course, few adjustments can be made with that method. Of course, I never used dollar adjustments for residential litigation as experienced litigation appraisers don't use them. They are too easily challenged in court. I used narrative reports. I have never used dollar adjustments for 5+ unit apartment or commercial appraisals. Appraisers in other areas had different experiences. For example, in the Seattle area, where Richard Hagar was trained, there was assistance and education available when he started appraising. What about Fannie "guidelines" or "rules" on adjustments You will probably find that your supported adjustments are much larger than the unsupported adjustments you have been using. Fannie no longer has guidelines on 15%/25% net/gross total adjustments and has never had a 10% line item adjustment limit. Fannie finally figured out that appraisers were making low adjustments to keep within those "guidelines" for decades. What about lenders who continue to use the adjustment "guidelines" above? Richard Hagar advises that if they still persist in challenging you, drop them as a client and report them to their regulator as trying to influence an appraiser. My comment: Do you want to risk your appraisal license for one client? Fannie Mae's Collateral Underwriter's focus on adjustments As I mentioned above, I never had any reviewer ask about supporting adjustments. Now, Fannie's CU takes a very qualitative look at appraisers' adjustments. Although CU warning messages say that your adjustments are "different than your peers or model", which you cannot respond to, we are assuming that you need to put into your report how you made/supported them. Fannie recently has been sending warning letters by postal mail about adjustments that do not match their model. And, of course, reviewers are now asking for support for adjustments, even though Fannie does not ask for this specifically. Fannie has a do not use list, but there are very few appraisers on the list. I am sure that no appraisers will be put on the list for unsupported adjustments today. Few appraisers today really know how to support adjustments as it was not taught well and most of their peers don't use supported adjustments. Who should be on the list? Unethical appraisers who make up comps, change property characteristics to make the appraisal "look" better, choose inappropriate comps due to AMC/lender pressure to "come up" with a value or "pass underwriting" need to be put on the list. Page 5 April 2015 Appraisal Today

6 What does Fannie Mae say? From Hagar webinar: "Based on the examination of the UAD data, Fannie Mae's focus for the next 12 months will be on adjustments. " "The data indicates that many appraisers are not using proper methodology to make their adjustments." "Fannie Mae is planning to re-evaluate appraisers based on their adjustments and the GSE will expect appraisers to comment on all adjustments, if necessary." "To be safe, appraisers should document their logic and reasoning for making any specific adjustment." Source: Speech by John Underwood (and others) at the Appraisal Institute July 2014 national conference. Article written by Steve Costello in the AppraisalPort newsletter. November From Hagar, Per Fannie Mae Sellers Guide, April 14, 2014 Examples of unacceptable appraisal practices: use of adjustments to comparable sales that do not reflect market reaction to the differences between the subject property and the comparable sales; not supporting adjustments in the sales comparison approach; failure to make adjustments when they are clearly indicated; When are dollar adjustments required? USPAP does not require adjustments. Just because a form has spaces for dollar adjustments does not mean that they must be used. I use the old Fannie 2005 forms for non-lender work, but do not include dollar adjustments. I modified the forms, including replacing the limiting conditions and certification pages with my own. Clients can specify that adjustments are required. Dollar adjustments are required by clients when using Fannie forms for lender work. They are not required for other types of appraisals. Sometimes specific lenders require them for commercial appraisals, but they are typically percent adjustments, not dollar adjustments. What does USPAP say about keeping up with changes in appraisal methods? From McKissock webinar: USPAP Standards Rule 1-1 In developing a real property appraisal, an appraiser must: (a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal; Comment This Standards Rule recognizes that the principle of change continues to affect the manner in which appraisers perform appraisal services. Changes and developments in the real estate field have a substantial impact on the appraisal Page 6 April 2015 Appraisal Today

7 profession. Comment To keep abreast of these changes and developments, the appraisal profession is constantly reviewing and revising appraisal methods and techniques and devising new methods and techniques to meet new circumstances. For this reason, it is not sufficient for appraisers to simply maintain the skills and the knowledge they possess when they become appraisers. Each appraiser must continuously improve his or her skills to remain proficient in real property appraisal. What does USPAP say about adjustments? USPAP does not use the word "adjustment". Below are relevant USPAP references from Hagar's webinar. Standards Rule 1-1 (a): be aware of, understand, and correctly employ recognized methods and techniques that are necessary to produce a credible appraisal. Standards Rule 1-4 (a): When a sales comparison approach is applicable, an appraiser must analyze such comparable sales data as are available to indicate a value conclusion. Standards Rule 1-1 (b): not commit a substantial error of omission or commission that significantly affects and appraisal.... Standards Comment (1-3a): An appraiser must avoid making an unsupported assumption. Scope of Work Rule: Credible assignment results require support for relevant evidence and logic. Advisory Opinions: - The analysis of the effects on property value must be based on market data, rather than unsupported opinion or judgement. - Describe the analysis that was performed and the supporting information that was used in valuing the property. - In a market value appraisal, the appraiser's scope of work decision carries a burden of proof to support the appraiser's conclusion. Why is there so much interest in regression analysis? Per Fincham: "Regression is a hot topic. Lots of appraisers are discussing it because Fannie Mae has indicated they will be using it to test reasonableness of adjustments and opinions of value. However, Fannie has been working on this for quite a while, using statisticians and extensive testing. Appraisers do not have the ability to do this." Of course, we all want regression software that will give us our adjustments. Unfortunately, this seldom happens. Page 7 April 2015 Appraisal Today

8 Warnings about using regression My first statistics class was in I did my first MRA (multiple regression analysis) in 1980 when I was in graduate business school. It is very complicated and difficult. Even doing your own simple regression takes some knowledge to be sure your results are reliable. I will discuss this in a future article. Fincham: "Be wary of programs that try to sell how easy MRA can be, because it is anything but simple and easy. It is highly useful once you have learned some things and developed competency with it. It does not work well in some situations and learning the weaknesses of this type of methodology is important. Regression is not something just anyone can pick up and use. It is almost akin to learning how to do another complete approach. You must learn new software. Possibly become more familiar with Excel." State appraisal boards and adjustment support - much more important than Fannie If you lose your appraisal license, it is very, very hard to do much appraisal work. Getting or keeping another state license, such as a real estate license, will be difficult if not impossible. If you are in a non-mandatory state you could do non-lender work, but could never testify in court as you would be discredited immediately. Per McKissock materials, "One of the most frequent and consistent penalties invoked by state appraisal boards is for "failure to provide support or documentation for adjustments in the sales comparison and/or cost approach, in either the report or the workfile." What about fees? Hagar addresses this soon after the webinar starts. His answer, "Raise your fees". I have known for a very long time that there are appraisers who are "Tier 1" who get fees much higher than are paid to other lower tier appraisers. This difference has significantly increased with AMCs offering low fees. Fincham also suggests raising fees. McKissock does not discuss fees, probably a good idea for a large, multi-state appraisal education provider. What adjustments should not be done? Hagar says "nothing below GLA" on the grid, except maybe garages. He says if a client requests an adjustment, tell them that you cannot support it so adjustment can't be done. Fincham says that some adjustments are small and difficult to support, such as fireplace. How many methods are there? Per Richard Hagar, there are over 30 adjustment methods. He covers 13 of them. I was unable to obtain a list of all the methods. Page 8 April 2015 Appraisal Today

9 McKissock webinars - what is covered McKissock focuses on quantitative vs. qualitative adjustments. The methods are divided between qualitative and quantitative. Per McKissock: "The course is divided into five sections, with the primary focus on the two methods of research and data results: Quantitative and Qualitative. Recognized methods for each are presented, along with example of how these methods can be utilized in appraisal practice. Each section ends with a summary of the strengths and the weaknesses of each method." Woody Fincham webinars - what is covered Fincham, Part 1, includes overall discussions of the valuation process, including client requirements, data analysis, market analysis, highest and best use, using "real life" discussion, and the 5 adjustments to consider before looking at property characteristics adjustments. Fincham, Part 2, discusses statistical testing, agent interviews, and support from Cost and Income approaches. Statistical testing includes using Excel for simple regression with examples and case studies. Fincham, Part 3, covers using the Cost Approach methods, including GLA adjustments and age, plus reconciliation and qualitative analysis. Why you should do the Cost Approach on all appraisals, particularly land value, is covered. Reconciliation is included. For example, reconciling market analysis from the neighborhood section, top of page 2, 1004mc and DOM for comps. He includes sample comments on this and adjustment support. Qualitative analysis discusses using it when you still have some variation between the after-adjustment comparable sales price or a swimming pool in an area where it is not common. Fincham also includes links to articles published on Appraisal Buzz. Richard Hagar webinars - what is covered Hagar, Session 1 Starts with why you must support adjustments with examples from state boards and litigation where appraisers lacked adjustment support. Most of session 1 covers the Cost methods, including depreciation which has detailed examples of different methods. Hagar, Session 2 Hagar coverers these common methods for determining adjustments: 1. Data Analysis: big data, paired analysis, allocation 2. Statistical analysis 3. Cost 4. Hagar's percentage of use calculations 5. Capitalized via Change in Rent Income Hagar covers many methods with extensive practical examples from his many years of appraisal experience. Page 9 April 2015 Appraisal Today

10 Adjustment methods discussed in the McKissock webinar McKissock: The pluses and minuses of each method are discussed, plus examples and case studies. Quantitative Matched pairs with a case study and analysis Use of percent adjustments Income approach using GRM and agent interviews Cost approach - more limited than the other two webinars Linear and multiple regression - HP12C (keystroke example) and spreadsheet (no details on how to do it). Qualitative Discusses Contingent Valuation Methodology "asking the right question of the right people and then relying on the results to lead you to the appropriate answer." Interview market participants. Trend analysis Relative comparison analysis Ranking analysis Adjustment methods discussed in the Fincham webinar Pluses and minuses of each method with practical examples. Part 1 Paired sales -when it works and when it does not work Regression analysis Part 2 Statistical testing COV (Coefficent of Variation) The ratio, expressed as a percentage, of a variable's standard deviation to its arithmetic mean Correlation (an association between two variables) Agent interviews Part 3 Cost approach - depreciated cost Income approach - GRM Qualitative analysis and reconciliation is also discussed. Tracy Martin (McKissock) - "style" and presenter bio The primary author is Tracy Martin, a very experienced teacher, who presents this webinar. The "style" is traditional - following the text closely. It is a "traditional" format, approved for CE, so the presenter stays with the text and does not include many personal anecdotes. I had a preview of the webinar without Q&A. I'm sure there are some lively questions and answers in a "regular" webinar. She is a popular instructor with McKissock. Tracy has been involved primarily in the valuation of non-residential real estate including commercial and industrial income properties as well as vacant land, including subdivision Page 10 April 2015 Appraisal Today

11 development land. Tracy is an AQB Certified USPAP instructor, an IDECC Certified Distance Education Instructor, and a Certified General Real Estate Appraiser in Texas. Tracy served as President of the Commercial Investment Division of the Greater El Paso Board of REALTORS and an officer and a member of the Board of Directors of the El Paso CCIM chapter. Currently, Tracy is the Senior Appraisal Instructor and Director of On-site and Webinar Curriculum for McKissock. She is responsible for recruiting, retention and training of McKissock's AQB-Certified USPAP Instructors, and is the webinar instructor for McKissock. Tracy has also authored numerous qualifying and continuing education courses for presentation on-site, on-line, and as a webinar. Woody Fincham - "style" and presenter bio Woody's "style" is similar to speaking with a knowledgeable appraiser. He is easy to understand and is very knowledgeable. He is a practicing appraiser and uses examples from his appraisal practice in Virginia. Doing a webinar is tough as there is no audience, but he does well in his first webinar. He kept me interested the entire time. There were not any Q & As. Woody Fincham, SRA is the Senior Land Preservation Tax Credit Appraisal Consultant for the Department of Taxation in Virginia. He reviews and consults on the valuation work submitted for tax credits. These reports deal with conservation easement and historic façade easements. He has been appraising for 15 years and recently became Vice President Virginia Valuation Manager at The Trice Group, llc. He also managed a private appraisal practice that specialized in residential valuation with a focus on non-lender reports, review and a small portfolio of lender work. Woody is very involved with the Appraisal Institute and was a discussion leader for the 2014 Leadership Development& Advisory Council (LDAC) after attending as a participant for three years prior to that. He has been a featured panelist at the Association of Appraiser Regulatory Officials (AARO). He has also been a non-member participant in the Collateral Risk Network (CRN) and has recently joined the ranks of national instructors for the Appraisal Institute. Richard Hagar - "style" and presenter bio I have known Richard for many years and hired him to teach CE when I had my education business in the 1990s. He started teaching in 1980 and became an appraiser in I have heard him speak several times. He is a "natural" at speaking and is talented. Since he does lots of litigation and training for lenders and regulators, he tends to be "strict" in his interpretations. He somehow has time to do appraisals and run his appraisal business, American Home Appraisals (founded in He is definitely "the" expert on supporting adjustment as he has an appraisal staff that supports adjustments, has been doing it for many years, works sometimes in rural areas, and does lots of litigation (where you learn quickly Page 11 April 2015 Appraisal Today

12 how to support adjustments). He uses many examples from his many years of appraising in Washington, including very rural areas. His "style" is fast and entertaining. He pushes back some, such as saying you must support adjustments or get into big trouble. He also teaches a quarter length class in adjustments in a local Seattle community college. He has taught many classes for real estate agents, appraisers, loan officers, regulators, etc. For more information on his education offerings from The Hagar Institute, go to He does travel sometimes to teach classes, typically when a local appraisal group hires him. His bio would take up way too much room in this newsletter. In brief, he has a Certified Residential license, is a licensed real estate agent and was involved in construction and development before becoming an appraiser. What about land value? As I learned, from all the webinars, land value is key to many adjustment methods, particularly cost based. Hagar will be offering a webinar on land adjustments - Land Value and the Cost Approach - Two Part Series, live in April and available as a recording. What if you need help with specific types of adjustments? Contact the webinar author and see if it is covered in the webinar or other educational offering. What about classes and all day seminars? McKissock will be offering a live class this fall, an expanded version of their 5 hour webinar. Hagar offers a 7 hour live seminar on adjustments. Some appraisal classes, such as the licensing classes, have sections on adjustments. See if your local proprietary school offers an adjustment seminar or class. With CU it is a very popular topic. Any new adjustment webinars coming soon? Hagar is offering a 2-part webinar, 3 hours total, on Land Value and the Cost Approach this month and is planning on offering short 1 hour webinars covering one of the many adjustment methods he briefly covers in his two hour seminars. Check WorkingRE.com for offering times. They will first be offered live. Recordings will be available soon after. Which webinars are best for you, if any? If you make adjustments in your appraisal reports, I strongly recommend taking at least one. If you want information now, Fincham and Hagar can be downloaded. Page 12 April 2015 Appraisal Today

13 All the webinars cover the same basic topics, but are very different. The speakers are different, the amount of detail varies, etc. Each one uses different methods. Even when using the same methods, the explanations are different. If you want CE credit, take the McKissock webinar. But, it is only offered once a month starting in May. If you take Hagar's webinar, be sure to plan on listening to it again at least once as it moves very fast and covers a lot of material. It is available to listen again for 90 days, so don't wait too long. Fincham's webinar is in between the other two. Moves at a slower pace than Hagar and has more personal experiences than McKissock. But, it lacks Q and As, which are always interesting. Practical tips you can use today for getting more appraisals done and make more money during this boom time This article focuses on what you can do today, or very quickly, to get more appraisals done. No one knows how long this boom will last. You sell your time. Time is money. AMC fees are up. This is the best time to make money. Now is a boom time for appraisals. You need to make as much money so you can to survive the inevitable downturn. Working as effectively as possible is critical. Managing your time for maximum productivity is critical. Time is a precious resource. After a minute (or an hour) has passed you can't get it back. "Time management" is not really correct. Technically, we don't manage the clock, but we manage ourselves with respect to the clock. The better you manage your time, the more profitable the business, and the less stress you'll feel when the workload is demanding. Other ways to save time such as new software and hardware is great, but they take time to set up and learn. Do this when the boom is over. Why don't appraisers turn down more work? Fear and greed. Fear of never getting another appraisal assignment from the client. Greed - want money, even in this very strong market. Fortunately, AMCs have forced most appraisers to turn down work, even if it is just not bidding on broadcast orders. This gives you practice in Saying No. In the past, prior to HVCC in 5/09, appraisers worked for regular clients, such as lenders and mortgage brokers. You often had established a good relationship with them. You gave their appraisal orders priority and were willing to take on tough assignments or fast turnarounds. Today, when too many clients see one appraiser the same as another, and have no loyalty to appraisers, there is no reason not to turn down their work. Page 13 April 2015 Appraisal Today

14 The key to getting more done is managing yourself You MUST break those habits you got when business was slow. For most of us, whatever work we have seems to fill up our time. We took whatever came in the door during slow times. It's not other people who control how you use your time, it's you! This might require changing habits you've established over a long period of time. You also do it because you want to have more time for important activities, such as family, friends, hobbies, education, or just relaxing. And, have a less stressful business. You want to work smarter, not harder. If I am stressed out, it is my fault, not my clients', for not managing my time better. Are you working long, long hours and missing your childrens' school plays, baseball games, etc. Which is more important - your family or your appraisal clients. "Just Say No" No appraiser can do every appraisal assignment. If you're a residential appraiser, do you accept a commercial appraisal assignment? One of the greatest time savers is using the word "NO". The inability to use this word leads to taking on too much work, procrastinating on more difficult assignments, and feeling very stressed out with a negative attitude. More tips on when to say NO 1. If they can't pronounce your city name, say No. 2. If you say no and they proceed as if you accepted the order, say No (AGAIN!) 3. If you can't understand the name of the company's contact person, or number over the phone or the lacks the info say No. 4. If they tell you they'll be doing a lot of business in your area, say No. 5. If they answer the phone saying "ABC AMC, formerly XYZ amc," say NO. 6. If they send you an order to appraise a property several states and thousands of miles away, say No. 7. If they say they don't know who to call, tell them to check out roster. Don't accept appraisals that are difficult and time consuming These often take too much time and create lots of questions from reviewers/underwriters We've all done it. The appraisal assignment looks easy, but when we look closer it will be very difficult. Don't ask for a higher fee. Even if the client is willing to pay a higher fee, we never seem to get a high enough fee and have lots of unanticipated problems. Don't forget the inevitable review hassles for properties that don't conform to the "standard" tract house. This creates both extra time and greater stress. When you are not busy is a very good time to take these tough assignments. They challenge you and make you a better appraiser. Now is not a good time. Page 14 April 2015 Appraisal Today

15 Always, always always pre-screen appraisal orders How do you avoid accepting these money-loser assignments? Carefully pre-screen each appraisal request, even tract homes. Pre-screening tips: - The best way is to use Google. Type in the property address and see what comes up. Often, there is a photo from the street of the property. - Use Google Earth to see if there is some locational influence, such as location next to a commercial or industrial use. - Hopefully, you are familiar enough with a neighborhood to know what is not standard, such as a big house in a tract neighborhood. Use to get info on a neighborhood. You can search by census tract, an excellent way to get info on a neighborhood. Just type in an address. If you want to see all the census tracts in a city, type in only the city name. Some of the detailed data requires a paid subscription. If you work a wide geographic area with many cities, the price is well worth the money because of the time saved and the data source. You can include the source in your appraisal which will help the underwriter or reviewer. Ask the owner about remodeling, etc. After doing the pre-screening above, if you accept the assignment, always, always, always ask the homeowner about the property. Previous sales, major remodeling, additions, etc. Make up a checklist. If it is going to be too time consuming, turn it down. See the next paragraph. How to say No if you've already accepted an assignment What if you don't find out until after you have accepted the assignment? Every appraiser has this problem sometimes. One good way to turn it down is to say you are not competent to do the appraisal. FYI, Fannie requires that you be competent before accepting the assignment. If not for a Fannie loan you can also add that it will take quite a while to gain competency by studying, getting help from other appraisers, etc. But, you don't want to hold up their loan. No appraiser has the skills and experience to appraise every type of property in every location, particularly for the fee that is offered. Cut your driving time by reducing your geographic area The easiest and best way to save time is to cut your geographic area. EVERY EXTRA MINUTE OF DRIVING IS TIME AND MONEY LOST. I live in the San Francisco Bay Area. The distances are not great, but the traffic can be a nightmare and is often unpredictable. I was recently at a local appraisal group meeting. I was very surprised to hear that many of the attendees were still working the large geographic areas they worked last year when there was much less business. They were trying to schedule multiple appraisal appointments on the same day in specific geographic areas. But, every time they had to spend 2-3 hours, round trip, for an appraisal that couldn't be scheduled with other appraisals, they lose money. Research time also expands, the larger your geographic area. More money lost. Now, they are working 7 days a week, hours a day. But, they could be making a lot Page 15 April 2015 Appraisal Today

16 more money by working one or two counties close to their offices. I cut my geographic area gradually from 5 counties to 1 county, starting about 20 years ago. 10 years ago, I started working only one county. Now, almost all my appraisals are in my small city. A few more driving tips Don't make two trips - one for the inspection and the second for data. Get a clear idea of the property before you go out. Check MLS, public records, interview the home owner. Then you can take what you need with you. Sometimes you have to make a second trip, but make it the exception, not the rule. The farther away the property, the more data you need to take with you. If you need more sales or listings, log onto your MLS using your computer or smart phone while you are in the field. Don't take assignments that require a lot of driving time unless you get a bigger fee or can schedule them with other nearby appraisals. Use GPS mapping software to schedule the fastest route. There are also some phone apps that can do this. Schedule assignments in times when there is less traffic. You already know your local traffic patterns. If you're not sure, check for traffic patterns on the Internet. Dump clients. Then you won't get phone calls and s from them. See the article in February issue of this newsletter on how to analyze your clients. Cut down on interruptions and time spent on phone calls. Don't be a slave to your phone. EVERY TIME YOU STOP WRITING AN APPRAISAL TO ANSWER YOUR PHONE, YOU LOSE MONEY. To avoid becoming a slave to your phone, you must control your calls, rather than being controlled by your callers. Of course, when your business is slow, you always answer your phone, as each call may be a lost appraisal order. We're all afraid an important call will be missed if we don't pick up the phone. You may miss an important call, but you will be able to complete the job at hand. After all, if you are out in the field, you couldn't pick up the phone! Of course, you shut off your cell phone and turn off the ringer on your landline. This can be difficult to do. It took me awhile to re-program myself. Try doing it for an hour or two at a time, gradually increasing the time. Whenever you have to interrupt writing an appraisal report, you lose production time as you have to "get up to speed" again, taking more time than if you started and completed the report at one sitting. Plus, mistakes are much more likely. Set aside "quiet time" every day, during normal business hours, to get appraisals written up. Call forward your calls, or let them go to voice mail or an answering machine. Call screening is an option, but you will be interrupted every time you listen to see who is calling. Today, it is better Page 16 April 2015 Appraisal Today

17 to not even look at the phone to see who is calling. This is less of a problem now as many appraisers don't answer their phones because they are out in the field, and don't have calls forwarded to their cell phones. But, we all work in our offices almost every day. Manage your s to save time. Note: this may take a few hours, but can easily be done. If you don't know how to do it and don't want to hassle with it, pay someone to set it up for you. I use a local computer company that logs on remotely to help me when needed. It is very easy to do. Be sure to have the person show you how to manage your filters and spam settings, as they will change. Set up automatic filtering, with individual filters for each of your clients, or groups of clients. Then you won't have to spend time looking for their s. Or, filter all your appraisal orders into one mailbox. All the order requests, Set up your so you have a "thread" for each with the order, your response, their response, etc. This is a huge help in managing all those back and forth s. I belong to many chat groups and subscribe to many newsletters. All are automatically filtered into separate folders. Delete, delete, delete. My primary address, ann@appraisaltoday.com has been "harvested" by many bulk mailers. Even after heavy filtering I still get about 20 junk messages per day. I delete them without reading them. Be careful with spam filters For unknown reasons, my s have not been getting to some people. They were identified as spam somehow. Be sure your regular clients are not stopped by your filters. You need to add them to your "whitelist" which every spam filter has. Have a separate address which is very unlikely to be harvested by the junk mailers. You can use yahoo or gmail for an address, but be sure to test it to see if you get lots of junk s. When giving out your address to a web site, for example, to get an for a plane reservation, use a special address so that if it is harvested for junk you can quit using it. Take time off Even a few hours a week or minutes per day can make a difference. If you are stressed and overworked, your productivity will go way down. Set aside time with no phone calls or s. When I am stressed and overworked because I took on too much work, I sometimes just park my car under a tree for minutes while out in the field. Go to a movie. Your family and your health are your number one priorities. Clients can always find another appraiser. Of course, you shut off your cell phone and turn off the ringer on your landline. Page 17 April 2015 Appraisal Today

18 Where to get more information This article focuses on what you can do today. Next month I will write about overcoming bad habits such as overcoming procrastination, prioritizing, etc. I will go over simple behavior modification techniques. I have used them and they work!! Take a live time management seminar or class in your area. Do a google search. I took a two day class in 1980 and am still using the techniques I learned there. It changed my life. If there are none offered locally, take an online class. There are many books written on time management. Just go to There are several for self employed persons which is very useful for fee appraisers. Fannie Hard Stops - be sure to check for this on every appraisal!! With the recent Lender Letter instructing lenders not to send CU warning messages to appraisers without a review of the appraisal, few appraisers are receiving them. Per Fannie, 3-4 warning messages are generated per appraisal. For example: "The reported total below-grade area is materially different than what is reported by other appraisers". There is not much that appraisers can say about the other appraisers. You can only say what you did in calculating below grade area. Underwriters can override the messages and the appraisal is accepted by Fannie's UCDP (Uniform Collateral Desktop Underwriter). But, occasionally, an appraiser will complain that their client "went ballistic" about something in an appraisal. This is often due to a hard stop and the lender cannot submit the appraisal to Fannie. Of the 147 possible "findings", only the 22 "Hard Stops" do not allow the underwriter to submit the appraisal to UCDP. It requires that the underwriter "manually override" the hard stop as of 1/26/15. Of the 22 hard stops, 5 do not relate to the appraisal and some are duplicates. This leaves a total of 14 hard stops for you to check. The first says "There are one or more Fannie Findings". Four relate to appraisers and supervisory appraisals whose appraisals are not accepted by Fannie Mae. Removing several duplicate hard stop messages leaves only 14 for you to check. On the next pages is a PDF of Appendix A: List of Hard Stops. "Hard stop" messages that lenders must manually address. These messages affect the appraisal Risk Score. Overriding them does not change the Risk Score. Be sure you do not have any of these problems in your appraisals. These 22 messages stop the appraisal from being submitted to Fannie Mae. They must be fixed or "overriden" by the underwriter. Many are probably "typos", but some are a good way to identify appraisers and supervisory appraisers who are not allowed to submit appraisals to Fannie or require 100% review. Per Fannie:..."lenders will receive a "Not Successful" status when one or more of the 22 appraisal messages are issued. Lenders will be required to review the Fannie Mae appraisal message(s) to verify if the information is correct as submitted or if a new or corrected appraisal is required. If the information is verified as correct and it is determined that there is no impact to loan Page 18 April 2015 Appraisal Today

19 eligibility, the lender may request a manual override and provide a reason code to change the submission status to a "Successful" status in UCDP." First, check to see if your appraisal has any "typos" Check your forms software to see which hard stops is checked, if any. The easiest way to be sure you check to see if you have any hard stops, is to let your forms software review check it. Be sure to check yourself to see if this is done correctly. What if you have a "hard stop" in your appraisal that is not a "typo"? Be sure to explain the problem in your appraisal. You may want to contact your AMC or lender client to see what they want to do before sending the appraisal to the client. List of 14 hard stops that you should check, to avoid big problems FNM0083 The sales contract was not analyzed. ADD COMMENT FNM0084 There was no comment on market conditions, even though one or more negative housing trends were indicated (declining, over supply, over 6 months). ADD COMMENT FNM 0085 Less than three settled sales were used as comparables. TYPO? FNM 0086 Research of prior sale was not performed. ADD COMMENT FNM 0092 State certification is not provided on transaction amount over $1 million. TYPO? FNM 0093 Appraiser license state does not match subject property state. TYPO? FNM 0094 Supervisor license state does not match subject property state. TYPO? FNM 0096 Illegal zoning compliance has been indicated in appraisal. Review description to verify if the property may be eligible per the selling guide. TYPO OR CONTACT CLIENT FNM 0098 Present use is indicated as not highest and best use. TYPO OR CONTACT CLIENT FNM 0101 The subject property may be a hotel/motel or condo hotel. CONTACT CLIENT if you have information FNM 0102 The subject property is in a condominium project that may be ineligible for delivery to Fannie Mae. CONTACT CLIENT if you have information FNM 0174 The project name suggests that the property may be a condo hotel. Verify the subject is located in a project that meets Fannie Mae's Selling Guide requirements. CONTACT CLIENT if you have information FNM0176 The appraisal indicates that the subject property has legal nonconforming zoning and cannot be rebuilt to the current density. This data indicates that the property is ineligible for delivery to Fannie Mae. TYPO OR CONTACT CLIENT FNM0179 The appraisal indicates the subject property has a C6 condition rating. If the loan is not Page 19 April 2015 Appraisal Today

20 a DU Refi Plus or Refi Plus loan, the property is not eligible for delivery to Fannie Mae. TYPO OR CONTACT CLIENT Where to get more information To see the original PDF document, google: UCDP User Guide for Fannie Mae Messaging, Version 9, dated 1/26/15. Page 20 April 2015 Appraisal Today

21 As you can see below, loan applications are going up and down. Of course, they have declined significantly since early Interpreting The Graph Below As you can see below, appraisal work declined significantly between April, 2013, and September, 2014 and has been going up and down a little since then. Forecasts by economists for 2015 vary, some say decline and some say increasing lending. To be safe, don t plan on any volume increases for MBA Loan Volume Application Index 1/13 to 3/ Market Index 100 in /15 2/15 1/15 12/14 11/14 10/14 9/14 8/14 7/14 6/14 5/14 4/14 3/14 2/14 1/14 12/13 11/13 10/13 9/13 8/13 7/13 6/13 5/13 4/13 3/13 2/13 1/13 The survey covers approximately 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100. Appraisal Today ISSN Page 21 April 2015 Appraisal Today

22 Appraisal Today is published 12 times per year by Real Estate Communication Resources. Subscription rate: $99 per year, $169-2 years Publisher Ann O'Rourke, MAI, SRA Subscriber Services Theresa Lua M,T,W 7AM to noon Friday 7AM to 9 AM (Pacific time) info@appraisaltoday.com (24 x 7) Circulation Hancock Mailing Service Editorial and Subscription Offices 2033 Clement Ave., Suite 105 Alameda, CA Phone: Fax: info@appraisaltoday.com Appraisal Today is sold with the understanding that the publisher, editors, and others associated with the publication are not engaged in rendering accounting, legal, or other professional services. It does not attempt to offer specific solutions to individual problems. Questions about specific issues should be referred to the appropriate professional for analysis by Real Estate Communication Resources. All rights reserved. The contents of this publication may not be reproduced either whole or in part without consent. Page 22 April 2015 Appraisal Today

23 Appendix A: List of Hard Stops The following table lists Fannie Mae hard stops that can be generated as part of an appraisal data submission. Hard Stop Code Message Text Type FNMOOOO There are one or more Fannie Mae Findings Auto-overridable FNM0083 FNMOO84 FNM0085 FNM0086 FNM0087 FNM0092 FNM0093 FNMOO94 FNM0096 FNM0097 FNM0098 FNM0099 FNM0101 FNM0102 FNM0174 FNM0176 FNM0179 The sales contract was not analyzed. There was no comment on market conditions, even though one or more negative housing trends were indicated (declininq over supply, over 6 months). Less than three settled sales were used as com parables. Research of prior sale was not performed. Research of prior sale was not performed. State certification is not provided on transaction amount over $1 million. Appraiser license state does not match subject property state. Supervisor license state does not match subject property state. Illegal zoning compliance has been indicated in appraisal. Review description to verify if the property may be eliqible per the sellinq quide. Illegal zoning compliance has been indicated in appraisal. Review description to verify if the property may be eligible per the sellinq Quide. Present use is indicated as not highest and best use. Present use is indicated as not highest and best use. The subject property may be a hotellmotel or condo hotel. The subject property is in a condominium project that may be ineligible for delivery to Fannie Mae. The project name suggests that the property may be a condo hotel. Verify the subject is located in a project that meets Fannie Mae's SellinQ Guide requirements. The appraisal indicates that the subject property has legal nonconforming zoning and cannot be rebuilt to the current density. This data indicates that the property is ineliqible for deliverv to Fannie Mae. The appraisal indicates the subject property has a C6 condition rating. If the loan is not a DU Refi Plus or Refi Plus loan, the property is not eligible for delivery to Fannie Mae. as of 1/ ~s of 1/26/2015 Applicable Forms 1004/2055 1'073/ / /2055 t: UCDP User Guide for Fannie Mae Messaging Page 15 of 24 Version '15