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2 Table of Contents and Welcome Message Real Estate Valuation Online ARTiClEs EDItORIAl by HENRY S. HARRISON USPAP 2nd Draft: Review and Comments 4 Appraisal Practice Ethics of Professionalism: Case Studies 5 Special Considerations in REO Appraisals 27 Industry Perspectives Appraisals today Newsletter 33 The Environmentalist Q u i k - C l i k s Get Peak Performance from Your E & O Insurance here FOR INTERACTIVE HOt topic: Paint 35 TABLE OF CONTENTS Marketing in REV Magazine New AskHenryHarrison.com Website 36 Departments Ask Henry 24 Copyright & Contact Information 4 On the Cover 2 Welcome & Table of Contents 2 SOUND OFF! 2 9 to our Sponsoring Advertisers Easy On-line E & O Application with Immediate Proof of Coverage hilb rogal & hobbs HOt ONlINE MARKEtING Reach 19,000 appraisers when you advertise in REV Magazine Online! for details... s Our 15 th Online Issue Dear Readers Here to access our Download Welcome to the 15TH issue of Real Estate Valuation Magazine On-Line, our SPRING 2007 issue. We hope that you ll find our on-line format easy to use, interesting and helpful. We do not offer a print edition. However, you may download and print or save the entire magazine, and all previous web issues. on this Download button. Note: To download single pages or the whole Magazine you must right-click (PC) or Control+ (MAC) on the links provided. Select the Save As option. After saving the file to your Desktop, try opening it. If you have any problems our Webmaster at: webmaster@revmag.com Read at YouR LeisuRe. on the magnifying glass opposite this letter and you will access our interactive Table of Contents with direct links to every article and ad. No time to read an article or ad? Just click on the icon at the top right corner of any page for a printable PDF file. Or, print out the entire magazine. Find What You Want. The magazine is arranged in independent sequential pages; you can navigate forward or backward using the FORWARD and BACK arrows at the bottom. To get back to the linked Table of Contents, click the back to p.3 home icon on the LOWER right-hand corner of any page. Here to access our Download Let us KnoW What You think. Respond via to askhenryharrison@revmag.com And please tell your appraisal friends about us! And check out our new website at HSH Next issue Online: Summer back to p.3 B ON THE COVER...The Apple Store in Manhattan, NY opened on Friday, May 19th, 2006 at 6pm and has remained open even since: 24 hours a day, 365 days a year. This is Apple s most architecturally innovative store, by the architecture firm of Bohlin-Cywinski-Jackson featuring a distinctive 32-foot glass cube with the Apple logo imbedded as a hologram. It is on Fifth Avenue between 58th and 59th Streets. Apple was named a Forward Green Leader, one of the top ten environmentally progressive companies recognized by the Sierra Club. Apple s Retail division generated more than one billion dollars in revenue during the 2005 holiday shopping season, solidifying Apple s position as one of the fastest-growing retailers in the world. More than 147 million people on three continents have visited Apple retail stores since they opened in May Apple operates 147 stores, including six in Japan, six in the U.K. and two in Canada. The NY store is a new "destination "on the Avenue. Interior of the 5th Avenue Apple Store in NYC back one page ~ 2 ~ forward one page B back to p.3

3 Features Table of Contents ~ SPRING 2007 Editorial: USPAP 2nd Draft: Review & Comments 4 APPRAISAL PRACTICe Ethics of Professionalism: Some Case Studies 5 Lender Pressure: Responses 32 Special Considerations in REO Appraisals 27 APPRAISAL INDUSTRy PeRSPeCTIVeS Harrison-Lee Appraisal Texts (2008 Compliant) 28 SOApbOx: Appraisal Ethics & Information 35 economics blink: The Power Of Thinking Without Thinking 33 Collapse: How Societies Succeed or Fail 33 Freakonomics: The Hidden Side of Everything 33 The Tipping point: Why Little Things Matter 33 THe environmentalist HOT TOpIC: Paint 35 MARkeTING FOR APPRAISeRS New Website 36 Special Offer: Buy Two Books, Save $30 29 Appraisers: Increase YOUR Bottom Line 6 Advertisers 1001 Q & A: PASS Any Appraisal exam Appraisal Courses by Harrison & Lee 28 5-Star Appraisers e & O Insurance by HRH 32 Advertise in Real Estate Valuation 31 Appraisal e & O Insurance by HRH 5-Star 10 Appraisal education Online ~ Van ed 20 Appraisal Guides: URAR, 2055 & Condo Forms 17 Appraisal Today Newsletter 19 Appraisal World Directory 15 Appraiser Online Registry ~ Fee Appraiser.com 8 Appraiser Directory - AppraisalWorld.com 15 AppraiserUSA Free Online Directory 25 Appraisers! Increase your Bottom Line... 6 Basic 2008 Appraisal Texts - Harrison & Lee 16 Best-Selling economics Books ~ Amazon.com 33 Bluebook Residential Cost Data 30 Books: URAR & 2055 Guide ~ Save $30 29 Forms Software from Bradford Tech. 24 CompuTaught Online Continuing education 9 Courses: Vaned Online education 29 Directory Membership ~ AppraisalWorld.com 26 Don't Just Sit There ~ Join FeeAppraiser.com 18 e & O Insurance: HRH-5 Star Appraisers 21 on any entry to jump to that page. Contact Us! Advertise! Problems Webmaster Departments Here for Complete Download ASk HeNRy 24 Copyright & Contact Information 4 DOWNLOAD Instructions 2B editorial 4 The environmentalist: Hot Topics - Paint 35 On the Cover 2 SOUND OFF! 29 Welcome & entry Portal 2 on any entry to jump to that page. e & O Insurance: Landy Insurance 22 e & O Insurance: Liability Insurance Admin. 7 easy On-Line e & O Application - HRH 21 educational Programs by Van ed Online 20 FeeAppraiser Online Appraisers' Registry 8 Five Star Appraisal e & O Insurance by HRH 32 HRH-Hobbs Appraisal e & O Insurance 20 Industry Newsletter ~ "Appraisal Today" 33 Intercorp Inc. e & O Insurance 11 Liability Insurance Administrators e & O 19 Marshall & Swift "SwiftEstimator" 13 NeBB Institute ~ expand your Business! 12 Measuring Made easy: Quantum Gear 25 Machinery & equipment Appraising: NeBB 12 Online Appraiser Registry ~ FeeAppraiser.com 18 Online education from Van ed 20 Order Online or by Mail ~ "Appraisal Today" 34 Quantum Gear ~ Measuring Made easy 27 Residential Cost Data from BlueBook.net 30 "Swift Estimator " from Marshall & Swift 13 Vaned On-line Continuing education 10 "Work Smarter, Not Harder" ~ NeBB Institute 12 back one page ~ 3 ~ forward one page

4 Editorial 2006 USPAP Changes - 2nd Draft: A Commentary by Henry S. Harrison The Appraisal Foundation has issued a 2nd Draft of proposed changes to the 2006 USPAP. The new 2008 USPAP which will go into effect on January 1, The following are highlights of the proposed changes, together with my editorial comments. HSH 1. Deletion: Supplemental Standards Rule and Definition of Supplemental Standards Highlights: Supplemental Standards are requirements beyond the USPAP requirements that appraisers must comply with. These are the requirements of (a) government agencies; (b) government sponsored enterprises (i.e., Fannie Mae and Freddie Mac); and (c) other entities that establish public policy. The Supplemental Standards have been a continual source of confusion. They duplicate Scope of Work which requires that an appraiser determine the needs of the client and all the intended users, which include Freddie Mac, Fannie Mae, and ERC, and must also consider government requirements. If the appraisal is done for the FHA, VA or other governmental agency, their requirements must also be met. This change recognizes that there is no need for Supplemental Standards. 2. Deletion: Statement 10. Assignments for use by a federally-insured depository institution in a federallyrelated transaction Highlights: This is a very confusing statement which tried to provide clarification of the USPAP when used in the specific context of these transactions. There is general agreement that Statement 10 did not successfully accomplish its goal of clarification. I feel the fewer Statements there are, the better off we are. The USPAP should be written to be usable by everyone. 3. Changes to the Ethics Rule Highlights: Elimination of the definition of "advocacy" and the concept that it is acceptable for an appraiser to advocate for their own position. Real Estate Valuation Magazine OnLine 315 Whitney Avenue Carriage House New Haven, CT Ph: (203) Fax (203) Publisher: Henry S. Harrison askhenryharrison@revmag.com Editor : Ruth Lambert editor@revmag.com Webmaster: H Alex Harrison webmaster@revmag.com REV Magazine is published online and offered free to all interested parties. For advertising rates, please or FAX us. Our ads are presented as a service to our readers. No claims, representations or guarantees are made or implied by their publication. Submissions are welcome and are considered for publication based on content, interest and suitability of material All rights reserved. The contents of this publication may not be reproduced in whole or in part, except for personal use, without express written consent. Everyone should know what advocacy means. I agree that the concept of being permitted to advocate for your own position is confusing and should be eliminated. 4. Edit: Report Certification Requirements Highlights: There is confusion about the difference between work done by other nonsigning appraisers and work by other non-appraisers whose contributions are used in an appraisal report. It is still not clear to me what if any difference there really is, and what the signing appraiser must do about this. 5. Changes to Standards 6,7, and 8 These apply only to personal property and mass appraising, which I am not qualified to comment on. 6. Edits: Reconciliation and Reporting Requirements Highlights: To resolve inconsistencies in wording between Standards Rules 9 and 10. It would take a "Philadelphia lawyer" to understand these changes, which are (hopefully) helpful. 7. Proposed New Advisory Opinion: Assignments involving more than one appraiser, and Proposed Retirement of Advisory Opinion 5, Assistance in the Preparation of an Appraisal. (continued on page 24) back one page ~ 4 ~ forward one page B back to p.3

5 2055 COVER 4C w-spine f.in1 1 10/25/05 1:12:04 PM Appraisal Practice The Ethics of Professionalism Note: This article is based on material which appears in Chapter 14 in Basic Appraisal Principles (2007) by Henry S. Harrison and Burton S. Lee to be used with the Appraisal Foundation Approved Course #1 and Course #2 for Appraisal Trainees. Instructors may obtain more information about these courses by contacting the author at: askhenryharrison@revmag.com A profession is, by definition, a vocation that involves primarily intellectual activities and requires high levels of technical competence, individual responsibility and personal integrity. Historically, the first professionals were physicians and surgeons, professors, lawyers, accountants, engineers and the clergy. Today, a professional is a member of an organized vital vocation or activity in which the membership is highly competent, thoroughly honest, and devoted to the ideal of performing a service to the maximum of their capacity, regardless of compensation. Simply put, a professional has a responsibility to help make the world a better place to live in. A professional is a member of an organized vital vocation... Appraisers have aspired to professional status in the eyes of the public and the rest of the real estate field for many years. Today, appraisals written by appraisers who have achieved some level of professionally recognized expertise by Henry S. Harrison usually receive greater acceptance than those prepared by a nonprofessional. The need for professional real estate appraisers came into focus with the collapse of real estate values during the Great Depression of the 1930s. Prior to that time, real estate appraising as a vocation had been unstructured and little educational material was available, although as early as 1929, the National Association of Real Estate Boards had a publication called Standards of Appraisal Practice. What appraisers have to Sell An appraiser basically has five things to sell a client, which forms the acronym A. E. I. O. U: A. Adequate knowledge E. Experience I. Integrity O. Objectivity U. Uncompromised willingness to do the work on a timely basis for a mutually agreed upon fee Adequate Knowledge A qualified appraiser has a good general education, has taken a variety of appraisal courses and seminars, and is keeping current with continuing education in the field. In a profession as complex as real estate appraising, most lenders feel that a minimum of a high school education is required. The Appraisal Institute now requires a college degree for its designations. However, this is a recent requirement and many of their older members are not college graduates. (continued on page 6) BEST SELLERS NEW 2006 Edition of 1001 Questions & Answers Harrison s Illustrated Guide 1001 Questions & Answers To Help You PASS Any License or Certification Appraisal Exam * Best-selling Exam Prep book in the U.S. * Highest pass rates in the industry! * NEW 2006 Uniform Standards (USPAP) * Illustrated Glossary of Appraisal Terms * 4 Practice Tests with Answer Keys Item # $ Harrison's Line-by-Line Guide to the 2055 DRIVE BY FORM Item # $ Order NOW from Call or Toll Free: back to p.3 B back one page ~ ~ forward one page 4! Henry S. Harrison, MAI, SRPA, ASA, DREI Stephen J. Martin & Thomas E. Battle! 4 Harrison s Illustrated Guide How to make a One-Unit Property Appraisal or a One-Unit Property with Accessory Unit Appraisal (including a unit in a Planned Unit Development) on the Exterior-Only (2055) Inspection Residential Appraisal Report Freddie Mac Form 2055 ~ Fannie Mae Form 2055 Rev. 3/05 Includes: Full Case Study & Model Appraisal Current Guidelines Fannie Mae Freddie Mac Model Comments & Consistency Checks 312 s with over 200 Illustrations Henry S. Harrison MAI, SRPA, RM, ASA, IFAS, CSA, DREI

6 Appraisal Practice ~ Continued (continued from page 5) Professional Ethics - Cont'd Since the appraisal profession and appraisal requirements are changing all the time, appraisers need to keep up with current appraisal practice. The best way to ensure this is to require appraisers to attend continuing education courses and/or seminars on a regular basis. Appraisers should also keep current by reading the available appraisal journals and other appraisal publications. In addition, the Appraisal Qualifications Board requires that appraisers take a USPAP course every two years as part of their continuing education. Experience There is an old saying that nothing is a substitute for experience. This is not what a new appraiser wants to hear. The reality is that appraising is still not a science but rather an art. Often, when it comes to making adjustments, rating the neighborhood and/or the improvements, and reconciling data throughout the appraisal, the appraiser must rely primarily upon judgment. It is appropriate for an inexperienced appraiser to work with a seasoned appraiser who reviews their work and jointly assumes responsibility for it by signing the appraisal report as the supervisory appraiser. It is a good policy to require that the supervisory appraiser, who jointly signs the appraisal, also inspect the interior of the subject property when the primary appraiser is very inexperienced, the value of the house is high, the house is old, or when the property has some significant atypical characteristics. There is an old saying that nothing is a substitute for experience. The Appraisal Foundation now requires at least two years experience as a minimum requirement for an appraiser to be able to sign an appraisal without supervisory review. Integrity There are a variety of ways a client can check on the integrity of an appraiser. The most common is by checking personal, general business and professional references. Others include talking with other appraisers. The participation of the appraiser in community activities and their professional associations are other indicators of reputation in the community and among peers. Objectivity The appraiser signs a certificate with each appraisal saying that he or she has no present or future contemplated interest in the property being appraised. Unfortunately, clients can often be their own worst enemy when it comes to appraiser objectivity. It does not take long for an appraiser to figure out whether a client is primarily interested in making loans regardless of the value of the loan security or whether they are primarily interested in obtaining the true value of the property in order to protect their loan portfolio. (continued on page 7) APPRAISERS TIRED of a shrinking client base? of can you squeeze another $1000? of comp checks? of losing your trained staff? Let me show you how to increase your bottom line by 25% to 40% on existing and past clients. NO ADVERTISING NO COST - NO JOKE Scott Farmer TX R back one page ~ 6 ~ forward one page B back to p.3

7 Appraisal Practice ~ Continued (continued from page 6) Professional Ethics - Cont'd The amount of pressure that some clients put on appraisers is well documented. Many people feel such pressure is a primary cause of poor appraisals. It is up to the clients to communicate to the appraiser how they really feel. If they want true value estimates, they must make it clear to the appraiser that the assignments and payments they receive in the future will not be in jeopardy if they produce appraisals where the appraised value is less than the contract price of the pending loan application. Uncompromised Willingness to do Work on a Timely Basis for a Mutually Agreed Upon Fee The best arrangement is when the client and appraiser agree upon the approximate number of appraisals that will be ordered in any given period of time. Unfortunately, clients cannot always control the number of appraisals they need and when they get busy, will often give appraisers more work than they can handle. It seems to be a pattern that in the Spring when business traditionally picks up, appraisers become swamped and get behind in their work.! "!!*$+##, + *, -! - -!%##$### ' & (! '( ) '! *!! ' %!"##$### # $ ( )!%$###$### & The final step in selecting appraisers is finding those who are willing and able to do the client s work on a timely basis for a mutually agreed upon fee. The client should investigate the appraiser s capacity to produce the work. If the appraiser has a one, two or three person operation, the amount of work they can turn out is limited. Usually the appraiser has other clients who also want their work done on a timely basis. (continued on page 8) '. & ' / 00/// )!!./ $ / 012 3(( $ $ ( %2 6&((7 55)8(39' :2 6&(97 3'8(39',,, ; 4 <( 3)'9 Real Estate Valuation Magazine Online SPRING 2007 back one page forward one page ~7~ back to p.3 B

8 Appraisal Practice ~ Continued (continued from page 7) Professional Ethics - Cont'd Clients have different policies on how they pay appraisers. Some large lenders have a published fee schedule. Appraisers must decide whether they are willing to accept the offered fee in order to get assignments from the lender. Other lenders negotiate fee schedules with each appraiser, taking into consideration the appraiser s knowledge, experience and the length of time they have been working together. Clients should recognize that some appraisal assignments require substantially more work than others. Often the fee will be adjusted to reflect the extra work required to make an appraisal of a high value home, waterfront property, historic property, contemporary house and other houses with significant atypical characteristics. Professional Conduct The essence of our civilization is that people acknowledge the limited right of society to control the activities of individuals for the benefit of the public. Many people conduct their own activities at a higher ethical level than is required by the law or by their fellow humans. There are four levels of conduct. The first deals with the laws that apply to all people. In the United States, there are federal, state and local laws. Everyone is required to obey these laws. It makes little difference if one agrees or disagrees with them. If someone does not obey a law, society has the right to punish the lawbreaker. (Of course, not all laws are enforced uniformly and many people who break laws are not caught or punished.) The second level of conduct consists of the laws that apply to certain groups of people. These are laws and rules that regulate special activities, such as those of lawyers and doctors. Often one has to obtain a license or permit to participate in such activities. For example, in the real estate field, one must have a Best location on the Web for Real Estate Appraisers Feeappraiser.com Where your clients are just one click away! 4,000+ appraisal listings in the U.S. 100% confirmed licenses Residential & Commercial National marketing campaign Strategic industry alliances Feeappraiser.com was started by appraisers, for appraisers. We offer a no hassle moneyback guarantee because we are confident the our service is superior. You can pay twice as much at other directories with no guarantee...but why would you want to? The best doesn t have to cost the most -- it just has to outperform the competition! Annual Fees as low as $59-$99/year, and we guarantee RESULTS Only Feeappraiser.com offers: Guaranteed Results: We offer the only money-back guarantee in the industry. Search Wizard Technology: When an appraiser is not located in one county, adjacent counties are automatically displayed, increasing your profi le! Two-Tier Pricing: Half the states start at just $59/year. Other sites change fl at rates regardless of State. Satisfied Customers: Over 95% renewal rate for appraisers because WE DELIVER! license to sell or rent real estate for compensation. Real estate brokers are subject to special laws that control their activities. Other common examples at this level are the laws pertaining to driving automobiles, building houses, practicing medicine, or running a store. (continued on page 9) The Best Internet Database of Real Estate Appraisal Companies in the United States (888) (888) back one page ~ 8 ~ forward one page B back to p.3

9 Appraisal Practice ~ Continued (continued from page 8) Professional Ethics - Cont'd Such regulatory laws apply only when one voluntarily engages in a special activity controlled by the legislation or regulation which applies. In all states, real estate appraising now falls into this category of control. The third level, for appraisers, consists of the Uniform Standards of Professional Appraisal Practice (USPAP) and the various codes of ethics that have been developed by the professional appraisal organizations to control the activities of their members. The members of the organization agree to be governed by its Code of Ethics as one of the conditions of membership. The organization itself develops and enforces the Code of Ethics. Numerous appraisal organizations have codes governing the conduct of their members... Violators may be disciplined in a variety of ways. The maximum penalty usually is expulsion from the group. The American Medical Association, the American Bar Association, the National Association of Realtors and numerous appraisal organizations have codes governing the conduct of their members with the public, their clients and among their own members. Many everyday decisions people make about their professional activities and conduct fall outside the scope of the three preceding levels of conduct. Decisions regarding how to act must be made by the individual based on personal standards of conduct. The rewards for functioning I N N O V A T I O N I N E D U C A T I O N Successful Real Estate, Appraisal, and Home Inspection Professionals get their Licensing Education Online! with convenient, easy Thomson CompuTaught courses...for at this higher level are personal satisfaction and approval by one s family and peers. The punishment is from one s own conscience and disapproval by others. (continued on page 10) Sign up Today! Call or go to Enter promotional code: 627 The fourth level encompasses the personal rules people set for themselves to control their own lives according to their personal (and religious) beliefs. 15hr National USPAP Course Available Online! COMPUTAUGHT back one page ~ 9 ~ forward one page B back to p.3

10 Appraisal Practice ~ Continued (continued from page 9) Professional Ethics - Cont'd ETHICS CASE STUDIES - INTRODUCTION Many of the questions I am asked relate to appraisal ethics, and more specifically how to comply with the Uniform Standards of Professional Appraisal Practice. The reason most of the questions are asked is not because the appraiser has not studied the USPAP. Often it is difficult to be certain if one is meeting all the USPAP requirements in real world situations. The purpose of these case studies is to help you think about some of these real life situations. They provide the opportunity for expressing ideas and discussing experiences. Appraisers not familiar with the use of case studies sometimes become frustrated because the case studies are not black and white. In testing these case studies, I have often found this to be true. Some appraisers think that each case study should clearly illustrate the violation of a specific USPAP provision and that any reasons offered in the case studies by the appraisers in their defense should be completely invalid. Some of the case studies are presented this way, while others clearly are gray. It is quite possible that two different appraisers will come to different conclusions, just as it is possible that two appraisal commissions will rule differently on the same alleged violation presented to them. Following each of the case studies are Discussion Questions. If you are reading this article, you should first ask yourself how the questions should be answered. Then you should take a look at my comments and see if you agree or disagree. If you disagree and would like to discuss the answer further, you can do so by sending me your opinion at askhenryharrison@revmag.com Discussion of each case study should focus on two separate things: 1. the basic ethical issues covered by the case study; and 2. the specific sections, standards and comments in the USPAP that apply to the issues that are developed in the case study. (continued on page 11) Get Peak Performance from Your E & O Insurance! Easy On-line Application with Immediate Proof of Coverage hilb rogal & hobbs Real Estate Appraisers Insurance Program Superior E & O Coverage for Appraisers Who Want the Best Competitive Rates Low Deductibles Up to $1MM per occurrence Experts in E & O Insurance A.M. Best A rated Carrier Prior Acts coverage Legal Defense coverage A respected industry leader back to p.3 B back one page ~ 10 ~ forward one page