Valuation Industry Overview. What you need to know

Transcription

1 Valuation Industry Overview What you need to know 1

2 Who We Are Your Presenters: Jeff Del Rey - Director of Strategic Partnerships/Compliance Tim Scherf - Chief Operations Officer Dawn Haghighi General Counsel Our Company Over 33 Years Experience in Providing Collateral Solutions On Residential and Commercial Real Estate Nationally. Privately held Corporation Service Offerings Include Appraisals, Broker Price Opinions, Reconciliations Clients Include 5 of The Top 10 Financial Institutions, Government Agencies (FDIC, VA), and both GSE s. We are one of the largest Appraisal Management Companies (AMC s) in the country

3 AMC s Provide Valuations for Attorneys Bankruptcy Litigation Support Banks - Origination Residential Lending Commercial Lending Portfolio Validation Banks - Loss Mitigation Departments Dealing with the asset late in the delinquency process Dealing with a large percentage of Short Sales/Workouts Servicers Dealing with the asset early in the delinquency process Asset Management Companies/Institutional REO Dealing with the property at time of asset disposition Investors/Due Diligence Often dealing with the purchase of large bulks of loans M&A property acquisition

4 Key Valuation Terms Appraisal - the act or process of developing an opinion of value as of a given point in time. The most detailed valuation report available Can be performed on both residential and commercial properties Performed by a licensed/certified appraiser Broker Price Opinion the act or process of developing an estimated sales price of a property Faster/Cheaper than appraisals Can be performed on both residential and commercial properties Performed by a licensed real estate broker or agent Automated Value Model (AVM) - A desktop computer generated valuation product using a mixture of property sale and/or listing data with complex algorithms.

5 Breaking Down Appraisal and BPO Reports Appraisals and BPOs have common elements that take the reader from a macro look at the subject property and the subject market down to a micro look at the subject s final value conclusion. Choose the most qualified valuation professional for the job Give the valuation profession instructions unique to the assignment. Valuation professional collects good data and Inspects the property Valuation professional completes the report. Identify the Subject Property Discuss the Subject s Neighborhood Discuss the Subject s Improvements Identify comparable properties Analyze all the data collected. Reconcile all the data Provide a supportable defendable and credible opinion of value or estimated sales price. Provide Quality Control to the completed product. 5

6 VALUATION QC: REALITY CHECK Things to consider when reviewing a valuation report include: Does the valuation make sense overall - - Common Sense? Is the report well documented with well supported? Is the roadmap clear for how and why the appraiser did what they did? Can you follow the analysis and does it lead you to the final value? Are there many typos? This can be an indication of sloppy work. Did the appraiser answer the question asked by the client? Are there any conflicts regarding independence? 6

7 Valuation Differences PROS CONS Appraisal Licensed appraiser Highest Cost Standard methodology Longer to complete BPO (Broker s Opinion of Value) Geographical Competency Local Area Brokers Low cost Not standardized Limited analysis Variable results AVM (Automated Valuation Model) Lowest Cost Fastest Limited success in rural areas. Least Accurate. Outliers can skew data. 7

8 What Does an AMC Do? Receive the Order A. Panel Management Recruit Train Maintain database of QC Results B. Assign Find Qualified vendors to perform valuations o Licensed/certified o Properly Insured o Geographic Competency C. Track the Progress Require updates for key completion steps Resolve issues that affect the timely delivery D. QC Function GSE or Investor requirements met? USPAP compliant? now a regulatory and auditable impact Quality Scoring feeds into the decision of who receives the work in the future Deliver a valuation report back to the client.

9 Who Regulates AMC s Federal CFPB OCC FRB FDIC OTS NCUA FDA Etc State 38 States have enacted AMC statutes Four will become effective in 2014 Delaware, Virginia, West Virginia, Wyoming Holdouts must enact legislation following adoption of AMC minimum standards by Federal Regulators Due out anytime. The remaining states appear to be delaying legislation or rule making to be able to take federal and other state standards into consideration. Sharing among regulators (AARO)

10 What is an AMC? Federal Definition DODD-FRANK DEFINITION OF AN AMC Any external third-party that oversees a network or panel consisting of more than 15 certified or licensed appraisers in a State, or 25 or more nationally within a given year: (A) to recruit, select or retain appraisers; (B) to contract with licensed or certified appraisers to perform appraisal assignments; (C) to manage the process of having an appraisal performed, including providing administrative duties such as receiving appraisal orders and appraisal reports to creditors and underwriters, collecting fees from creditors and underwriters for services provided, and reimbursing appraisers for services performed; or (D) to review and verify the work of appraisers.

11 Dodd-Frank AMC Mandates Dodd-Frank Mandates that AMCs must: Register with and be subject to supervision by the state appraisal board of each state in which a company operates. Verify that only licensed or certified appraisers are used for federally related transactions Require that appraisals the AMC coordinates comply with the USPAP Require that appraisals are conducted independently and free from inappropriate influence Requires all states to enact AMC regulations meeting minimum standards Many state enacting even more stringent requirements Requires mandatory reporting by the lender Some states require both AMC and Lender to report. 11

12 Third Party Oversight Guidance Regulators have made it clear that they will begin to audit federally regulated institutions for effective risk management related to their third party arrangements. One of the banks most important third party relationships among many is the relationship they have with their Appraisal Management Companies (AMC). The OCC will pursue appropriate corrective measures, including enforcement actions, to address violations of law and regulations or unsafe or unsound banking practices by the bank or its third party. OCC Bulletin 2013 There are over 450 AMCs in this country. Can your AMC pass an OCC audit with the regulators since AMC oversight is now officially your responsibility? Failure to choose the right AMC can cost you tens of thousands a day in penalties and there is a tremendous amount of reputational risk. 12

13 What does 3 rd Party Oversight Look Like? At the Bank a) Detailed plans of how the bank selects, assesses, & oversees the third party. b) proper due diligence in selecting a third party. c) written contracts that outline the rights and responsibilities of all parties. d) ongoing monitoring of the third party s activities and performance. e) contingency plans for terminating the relationship in an effective manner. f) clear roles and responsibilities for overseeing and managing the relationship and risk management process. g) Documentation and reporting that facilitates oversight, accountability, monitoring, and risk management. h) Independent reviews that allow bank management to determine that the bank s process aligns with its strategy and effectively manages risks. 13

14 YOUR Required Due Diligence of an AMC Financial Viability Compliance is expensive and will only get more expensive as more and more state and federal regulation comes down the pike. And it is coming. Smaller AMC s are beginning to panic as they realize that audits, both internal and external, will have a devastating impact on their bottom line. Chose an AMC with a long history of financial stability and make sure to review their audited financials. Policies and Procedures for both Federal and State Regulations - Currently, there are over 35 states that have some form of Appraisal Management regulation. And while similar, no two states are the same. So it is extremely important that your AMC has a keen understanding of both Federal and State regulation and have well documented processes that can be audited for both. Regulatory audits will surely be elevated in the new world and working with an AMC with detailed policies and procedures is critical to mitigating both short term and long term risk. Data Security is critical for most businesses and especially financial institutions. Borrower information can be dangerous if it falls into the wrong hands so, selecting an AMC with bi-annual SSAE16 audits is a must. Business Continuity - Data lost due to disasters such as a flood or fire is also crushing, so chose an AMC that is has annually tested Business Continuity and Disaster Recovery plans in place to deal with potential disasters. Licensed Review Appraisers Today we live in a world of automation and outsourcing. But there really is no substitute for licensed appraisers reviewing appraisal reports prior to the delivery. Automation can t read appraisal addendums and non-appraiser analyst outsourcers can t identify red flag risks in the appraisal like licensed appraisers can. Make sure to work with an AMC that uses a combination of automation and licensed appraiser appraisal review which is proven to lead to the most credible valuation results. Longevity One of the side effects of the financial crisis was the creation of many new appraisal management companies. But many these newly created companies lack the experience to work on complex compliance issues, or complex appraisal assignments associated with varied market conditions. You will want to work with an AMC with decades in the valuation business because there is no substitute for that kind of regulatory and valuation experience. 14

15 If you have any questions about this presentation or any valuation issues that may come up, do not hesitate to call. Jeff Del Rey Direct: Mobile: Tim Scherf Chief Operating Officer Mobile (714) Company Website: pcvmurcor.com 15

16 Appendix 16

17 Appraisal Report Sample ----Subject Identification ----Sales Contract Info Section ----Neighborhood Section ----Site Section ----Subject Improvements Section

18 Appraisal Report Sample ----Sales Grid/Listing Grid w/adjustments ----Sales History for Subject and Comps ----Summary of the Data ---Approaches to Value (Sales/Cost/Income) ----Final Value Conclusion

19 Appraisal Report Sample Photos Subject and Comps Map of the Subject and Comps

20 Valuation Providers - Appraisers Appraiser Licenses (Bound by USPAP) Trainees Licensed Certified Residential Certified Commercial Appraiser Designations MAI - held by individuals who are experienced in the valuation and evaluation of commercial, industrial, residential and other types of properties, and who advise clients on real estate investment decisions (Appraisal Institute) SRA - is held by individuals who are experienced in the analysis and valuation of residential real property. (Appraisal Institute) IFA Independent Fee Appraiser (IFA organization) ISA- International Society of Appraisers Challenges for AMCs Shrinking number of appraisers getting into the profession. Reasonable and Customary Fees driving up fees/shrinking margins Regulatory Environment (AMC registration, Bonds, Audits)

21 Valuation Providers Brokers/Agents Broker/Agent Licenses (No industry recognized valuation standard) Licensed Sales Agent Licensed Broker Agent Designations Accredited Buyers Representative (ABR) Accredited Land Consultant (ALC) Certified Commercial Investment Member (CCIM) Certified International Property Specialist (CIPS) Broker Price Opinion Resource (BPOR) And many more. Challenges for AMCs Coverage in rural areas Regulatory Environment - State Laws prohibiting BPOs No longer providing them for HELOCs and 2nds Diminishing number of distressed properties reduced demand for BPOs Appraisal Management Company (AMC)( Models In Market Agent/Broker Panel of Independent contractors.