URAR vs. 1004MC issues - limited data, trends, sales-listings, and mixed housing in neighborhood

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1 Perhaps you are thinking: "If I cannot expand my grid results in the 1004MC how can I develop a meaningful trend analysis to complete the One-Unit Housing Trends section?" Answer: Develop a supporting analysis using competitive data from outside the subject neighborhood and report this in the summary/conclusion section of the 1004MC form (or addenda). The Neighborhood One- Unit Housing Trends on page 1 do NOT have to be based solely on the specific neighborhood inventory, sales and listing information provided in the 1004MC grid. Rather, the instructions to the 1004MC state the entire form is to be used to support and explain the One-Unit Housing Trends, including the summary/conclusion section and any addenda. The key to answering the above question accurately is the word "competitive." The 1004MC is focused on properties that directly compete with the subject. In other words, you are NOT using all the data in a neighbor- VOLUME 22 ISSUE 11 November URAR vs. 1004MC issues - limited data, trends, sales-listings, and mixed housing in neighborhood By Richard Heyn, SRA Dawn Molitor, SRA Republished and abridged with permission from ACI, The Appraiser's Choice 1004MC Revisited Part 1 - Not Enough Data, Now What? August 26, 2014 When Fannie Mae introduced the 1004MC form in 2008, there was a fair amount of uncertainty as to how to complete the form and how the data relates to pages 1 and 2 of the URAR (Uniform Residential Appraisal Report). Judging from the calls and s we receive, the confusion lives on. In response, we'll go through the most common questions and provide resources for your reference. We've created a series of 1004MC blogs and today, we are going to start with the key question to getting the 1004MC right! What if I do NOT have enough neighborhood data for a meaningful trend analysis in order to answer the "One-Unit Housing Trends" section on page 1 of the form? This issue was addressed early on in a series of FAQs (Question #41) issued by Fannie Mae in September The answer to the question is: "In those situations, the appraiser must complete the form with the information he or she has for the defined neighborhood/area-the lack of data may speak to what is occurring in that area. Additional analysis can be addressed in the summary/conclusion section of the form on data in nearby areas for competitive properties. In any event, the appraiser must provide support for his or her conclusions regarding housing trends as noted in the Neighborhood section of the appraisal report." First, report the actual results found in the subject neighborhood for competing properties - no matter how limited or non-existent this data is. In other words, do NOT expand your neighborhood boundaries in order to include more data. IN THIS ISSUE Survey of appraiser fees, appraisals per month,liability, turn times, etc page 6 Relocation appraisals pay well with no UAD, 1004MC, scope creep, etc page 10 November 2014 Appraisal Today PAGE 1

2 hood or competing neighborhoods. You are using the data that competes with the subject in the subject neighborhood, or in a competing neighborhood. If you need to use comparable properties in a competing neighborhood your supporting analysis should be referenced in the summary/conclusion or addendum. The biggest mistake appraisers make when completing the 1004MC is believing the checkboxes in the "Overall Trend" column must correspond to the 1004MC grid results. Again, the entire 1004MC is to be used to support and explain the One- Unit Housing Trends. This is especially important when there is limited or non-existent competitive data in the subject neighborhood therefore, requiring the expansion of competitive data analysis outside the subject neighborhood. Note: It's important to recognize that the Neighborhood section links directly to the selection of comparable data in the Sales Comparison section. The importance of being clear in completing the 1004MC will result in the intended user understanding what data is competitive to the subject inside and outside of the subject neighborhood. Early in the report this allows the client to understand the quality and quality of data available when developing your opinion of value. If necessary, it also explains why you will have to leave the subject neighborhood, what other competing neighborhoods exist, and in some cases why you may have to travel some distance to find competitive properties to develop a credible opinion of value. 1004MC Revisited Part 2 - To Get It Right, Stuff Has To Match September 9, 2014 Should the number of sales and listings reported on the 1004MC be the same as the number of sales and listings reported on the top of page 2 of the URAR? Yes, because the two forms are asking for the same thing. The appraisal report forms ask for the number of comparable properties currently offered for sale in the subject neighborhood. The 1004MC asks for the number of properties offered for sale as of the last day in the "Current-3 months" column. Fannie Mae clarified this in Announcement SEL on June 30, 2010, which stated: " when completing the "Current - 3 Months" column for "Total # of Comparable Active Listings," the number should reflect the listings on the most recent date in the 3-month period (which is also the effective date of the appraisal), and not the cumulative number of listings for the entire 3-month time period." Likewise, the appraisal report forms ask for the number of comparable sales in the subject neighborhood within the last 12 months and the 1004MC asks for the same thing, broken down into three different time periods. So if you add up the boxes in the top row of the 1004MC grid, it should total what you are reporting on page 2 of the URAR. Don't be confused by the fact that the 1004MC uses the term "properties that compete with the subject property" and the URAR uses the term "comparable sales." A Fannie Mae spokesperson at a recent industry event confirmed that the terms are synonymous. In other words, do NOT report all transactions in the subject neighborhood and do NOT expand the neighborhood boundaries just to obtain more data. The key to answering the question accurately are the words "comparable" and "compete." While it may be that all of the properties in the subject neighborhood may be "comparable" to or "compete" with the subject, that is often not the case. Most neighborhoods (or larger market areas in rural locations) have submarkets with which the subject is associated. Therefore, it is typical that only a select or specific group of sales are actually comparable or compete in the neighborhood with the subject directly. The questions at the top of page 2 of the URAR also ask for a "price range" from low to high. The range represents the results from the data search for comparable or competing properties in the subject neighborhood. Remember, a search for comparable or competing properties to the subject must be based on relevant characteristics determined by the market and reflected in the appraiser's judgment of the market's reaction to those characteristics. Searches for comparable or competing data to the subject should NOT be based on price or price ranges. USPAP is clear in the Management Section of the ETHICS RULE, that developing an opinion of value based on a predeter- PAGE 2 Appraisal Today November 2014

3 mined range of value is unacceptable. It's important to recognize the intent of asking for both the number of, and price range of listings and sales in the report is to provide an analysis of supply and demand for comparable (or competing) properties to the subject in the defined neighborhood. As a result, the search parameters used to complete both the 1004MC and the top of page 2 of the URAR must be consistent with your Neighborhood Boundaries stated on page 1 of the report form. Being clear in completing the 1004MC and the top of page 2 of the URAR will result in the intended user understanding what neighborhood data (if any) is competitive with the subject. Early in the report, this allows the intended user to understand the amount and quality of data from which you have to choose in the subject neighborhood for developing an opinion of value. It also explains why, if necessary you will have to leave the subject neighborhood due to limited or non-existent comparable data to derive a credible opinion of value. 1004MC Revisited Part 3: Subject Neighborhood Is A Mix Of Housing - Now What? September 19, 2014 I have different types of housing in the subject neighborhood and one type is increasing, another is stable, and yet another is declining in value. How do I report this on the 1004MC and what do I report under "Property Values" for the Neighborhood One-Unit Housing Trends on the report form? This is the one of the most confusing issues related to the 1004MC and has been heavily debated among appraisers. When Fannie Mae came out with the 1004MC, they issued a number of FAQs on the topic, but never really hit this one head-on. Here's an excerpt from the 04/15/2014 Selling Guide, B Neighborhood Section of the Appraisal Report, "Trend of Neighborhood Property Values, Demand/Supply, and Marketing Time," that clearly addresses this issue: "When completing the One-Unit Housing Trends portion of the Neighborhood section of the appraisal report forms, the trends must be reflective of those properties deemed to be competitive to the property being appraised. If the neighborhood contains properties that are truly competitive (that is, market participants make no distinction between the properties), then all the properties within the neighborhood would be reflected in the One-Unit Housing Trends section. However, when a segmented or bifurcated market is present, the One-Unit Housing Trends portion must reflect those properties from the same segment of the market as the property being appraised. This ensures that the analysis being performed is based on competitive properties. For example, if the neighborhood contains a mix of property types not considered competitive by market participants, then a segmented or bifurcated market is present. Additionally, the conclusions reported in this portion of the appraisal will be supported by the analysis contained in the Market Conditions Addendum to the Appraisal Report (Form 1004MC). The appraiser should also provide commentary on the other segment(s) of the neighborhood when segmentation is present." Not too far from the headquarters of ACI is a neighborhood that consists of several distinct property types, or as described by Fannie Mae "a segmented or bifurcated market." At various times in this neighborhood, the homes along the Intracoastal Waterway were increasing in value, the condominiums were declining in value and the non-waterfront, and detached single-family dwellings were stable in value. It is a clear illustration of a "segmented" neighborhood (market). Using this illustration, the revised Fannie Mae Selling Guide is telling us that if your subject was a waterfront home in this segmented neighborhood, you would check the "Increasing" box under the One-Unit Housing Trends - Property Values on page 1 of the report forms. Or, under this illustration if your subject was a condominium you would check "Declining", and if your subject was a detached, non-waterfront home you would check "Stable." You would then comment on the other market segments outside of your subject segment in the Neighborhood description on page 1 of the report form. Today, Fannie Mae's position on how appraisers are to support and report property values has been clarified in the revised Selling Guide. Take a minute and think about what the Selling Guide states because it makes perfect sense. To be clearer, look at it from the stakeholder's perspectives - the lender and secondary market e.g., Fannie Mae. QUESTION: If you are the lender providing financing for the subject property (or even a GSE like Fannie Mae purchasing the subject loan from the lender), what market data is most important in your decision-making process - the entire neighborhood or the segmented market that represents and competes with your subject property? ANSWER: Primarily what's happening within the segmented subject market, and secondarily what's happening in the other non-competitive segmented markets within the neighborhood. The 1004MC will communicate trends of the segmented subject market and provide support for the corresponding "Property Values" reported (Increasing, Stable, or Declining) in the Neighborhood One-Unit Housing Trends. November 2014 Appraisal Today PAGE 3

4 1004 Revisited Part 4 Why can t the Median Sale Price as a percent of List Price be auto-calculated from the fields found on the 1004MC form? October 10, 2014 The 1004MC questions keep rolling in so we ll keep blogging about it! In this blog we are going to help clarify a common question we received, which also happens to be the title of this blog, "Why can t the Median Sale Price as a Percent of List Price be auto-calculated from the fields found on the 1004MC form?" The reason the form can t perform this calculation is because the program doesn t have the necessary data to do the math, only you do. Now this might come as a surprise to some of you so please read on for clarification. At first look, it seems this data field could be automatically calculated by simply dividing the Median Comparable Sale Price by the Median Comparable List Price. But that s not what the form is asking you to do. The form is requesting you to provide the median sale-to-list percentage of listed properties that were sold during the time periods stated on the form. If this is unclear check out an updated series of Frequently Asked Questions issued on September 23rd by Fannie Mae reiterating their position on this issue. We highly encourage you to review all these FAQs for other important clarifications on appraisal and property related topics. Question #45: Is the Median Sale Price as Percent of List Price determined by dividing the Median Comparable Sale Price by the Median Comparable List Price from the preceding data on the form, or is it based only on comparables for sold properties? Answer: The Median Sale Price as a Percent of List Price is to be determined by analyzing the comparables that have sold and settled during the specific time frame, not by using the data from the lines above this section on the form. If you haven t been completing this section of the 1004MC grid as specified, this FAQ may not be so easy to understand. To help, here s an illus- tration: Assume 5 sales occurred during a given time period. The list price, sale price and percentages are as follows. What is the Median Sale Price as a Percent of List Price? List S.ale Sale price as Price Price % of list pr. 200, ,000 94% 205, ,000 98% 206, ,000 89% 210, ,000 95% 215, ,000 93% Illustration Answer: As the Median is the number in the middle of a data array arranged from low to high the answer to the question would be calculated as follows for this data set: List Price: $200,000 $205,000 $206,000 $210,000 $215,000 (The median is $206,000.) Sale Price: $184,000 $188,000 $199,000 $200,000 $201,000 (The median is $199,000.) Sale Price as % of List Price: 89% 93% 94% 95% 98% (The median is 94%.) Based on the data set the median is 94% for the Sale Price as a Percent of List Price, which is how you would PAGE 4 Appraisal Today November 2014

5 answer this question on the 1004MC. However, if you mistakenly divide the Median Sale Price ($199,000) by the Median List Price ($206,000) the result is 97%. Again, to arrive at the percentage the form is really asking for, we need to follow the math as explained in the illustration to calculate the individual Sale Price as percentage of the List Price and then identify the median percentage. This is why your software cannot calculate or pre-populate the data field in the 1004MC. It does not know the individual Sale Price as a percentage of the List Price of each individual sale. Thank you to the many appraisers who responded to the 1004MC blogs and asked this question. We have a strong feeling you were not the only ones confused, and perhaps today some may realize they ve been calculating this field incorrectly. About ACI ACI has gained recognition within the mortgage industry as a pioneer in crafting technology solutions for all facets related to the appraisal of real estate. ACI¹s highly scalable appraisal solutions are tailored to the needs of its customers. The ACI client base is comprised of thousands of real estate appraisers, many of North America¹s premier lenders, and national appraisal companies. From connecting appraisers nationwide to streamlining quality control, ACI empowers appraisal professionals to process appraisals and manage exceptions in a consistent and efficient manner. Headquartered in Palm Coast, Florida, ACI is a member of the First American family of companies. Blog postings in this article were originally published in About the authors Richard Heyn, SRA and Dawn Molitor-Gennrich, SRA are co-owners of Heyn, Molitor-Gennrich, LLC, which specializes in the development and presentation of real property education for appraisers. Dawn and Rich each hold the SRA designation from the Appraisal Institute and are AQB Certified USPAP instructors as well as Certified Distance Education Instructors. They are co-authors of a number of seminars and workshops, and can be reached at webinars@att.net November 2014 Appraisal Today PAGE 5

6 Survey of appraiser fees, how many appraisals per month, liability, turn times, types of appraisals, non-lender work, etc. Many appraiser surveys have been taken, and are being taken now, but this survey has been taken for four years annually, from 2011 to 2014, which makes it more useful to see what has changed. Also, the survey is more comprehensive than other surveys. About the survey Valuation Review has been taking an annual appraiser survey for four years, reported in Voice of the Appraiser. This year's survey was taken in the summer of 2014 and published in October This year's number of participants was 1,548, up about 10% from 2013, and the highest they have ever had. Appraisers were contacted via , on their web site, through our social media platforms, and through the help of their sponsor, the Herbert H. Landy Insurance Agency. This article has excerpts from the 16-page report and does not include all the results, particularly those that are included in other surveys. Graphs and comments from appraisers are also not included. Be sure to download the survey at Respondents were 77.3% residential appraisers, 7.8% commercial, and 14.9% both. This may have affected some of the results, as commercial appraisal fees are higher than residential and there are very few client problems, as compared with residential lender work. "Appraisal" fees do not define which type of appraisals it refers to. I assume that residential appraisers would use URAR, UAD, and 1004MC in appraisals for lenders. Types of appraisals Almost all respondents do full appraisals, but drivebys are also done by many appraisers. I don't know how many of these appraisals are done by appraisers, but I was surprised to see how many do reviews and drivebys. Alternative valuation products are done by some appraisers, but most appraisers don't like to do them as the pay is low. Appraisals/reviews Full appraisals 99.6% Appraisal reviews 71.2% Driveby appraisals 77.4% Property condition 28.8% inspections BPOs 3.8% Alternative 7.4% i.e., CVRs Non-lender appraisals Non-lender types of appraisal work was higher than I expected. I'm sure this has picked up for residential appraisers as lender work can be low fee with a lot of hassles. I'm not sure what the difference is between litigation and forensic. "Forensic" may refer to appraisers reviewing appraisals from before 2008 for lenders and PMI companies. However, 22.7% of respondents do commercial or both commercial and residential. I do both and am able to get lots of non-lender work. Litigation is also popular with commercial appraisers. I am able to do all types of properties, not just 1-4 residential. The same marketing is often required for a $400 and a $2,500 commercial appraisal. For residential appraisers, estate/probate and divorce are popular. Many residential appraisers do divorce appraisals as there is often a house involved in marital dissolution. However, many don't as they don't want to testify in court. I was surprised to see the relatively high percent doing bankruptcy appraisals. Right of way and eminent domain are typically done by commercial appraisers, who may use residential appraisers if there is a residential component. Estate 78.6% Divorce 70.9% Probate 46.5% Forensic 23.0% Litigation 33.6% Taxation 35.9% Bankruptcy 42.6% Right of way 10.1% Eminent 12.8% domain How busy are appraisers? Volume has dropped in 2014 and many appraisers are retiring or semiretiring, particularly baby boomers who are starting to collect social security. Other appraisers are doing other type of work part time, such as property investment or retail jobs, or relying on a spouse with a job that pays well. Below are the results for "What is the typical number of full appraisal assignments you complete each month?" Commercial appraisers do many fewer appraisals per month than residential. Unfortunately, the results were not divided by commercial vs. residential. There were more appraiser respondents in Also, the 4-5 and 5-7 categories overlap. However, the results show that more appraisers are working part time with 1-5 appraisals per month. Many appraisers are keeping their PAGE 6 Appraisal Today November 2014

7 licences for awhile, as getting an appraisal license back can be very difficult. Number of appraisals per yaer % 7.9% % 7.8% % 6.4% % 9.0% % 69% Major concerns of appraisers Ever since AMCs took over, I have been hearing about the complaints below from individual appraisers. Now, we know what is most concerning to appraisers. "Order, then cancel" and reviews were lower than I expected. Scheduling conflicts were higher. Scheduling conflicts include short notice, turnaround times, etc." Low fees, lack of loyalty and blacklisting were nothing new. Major No concern Low fees 72% 17% 7% 4% Reviews 16% 29% 31% 24% (conflicts) Scheduling 27% 35% 25% 12% (conflicts) Blacklisting 35% 20% 21% 24% Lack of loyalty 48% 29% 13% 10% Order, then 6.% 17% 31% 46% cancel Don't know 21% 21% 28 % 29% who to talk to Note: results rounded The "no concern" may include commercial appraisers and those who do non-lender work as most of the topics relate to residential lending work. Scope creep was not included, but I'm sure it is a big concern for appraisers. Per the report, "Some of the concerns, including the top three "major concerns," have intensified since our survey began in 2011, particularly at the top end." Fee changes since 2011 "Low fees has been the biggest concern every year, but the respondents who voted for it as a "major concern" have grown more than 7 percent (65% in 2011, 58% in 2012, 66% in 2013)." "Despite the frustration that some appraisers expressed in the survey for lack of progress pertaining to fees, our survey results show that, on average, appraisers are generating a higher fee than they were last year." Non-AMC appraisal orders - some increase In response to the question: "Have you seen an increase in appraisal work directly from lenders?", 23.8% said yes and 76.2% said no. This is somewhat encouraging. What is your typical appraisal fee? "Last year, 7.7 percent of appraisers said they earned more than $500 per assignment, 13.9 percent earned between $400 and $500, 52.1 percent earned between $300 and $400, 22.8 percent earned between $200 and $300, 3 percent earned between $100 and $200 and.4 percent earned less than $100." "Therefore, the percentage of appraisers who earned at least $300 per assignment jumped almost 10 points, from 73.7 percent in 2013 to 81 percent this year. That total was 73.6 percent in 2012, and 69 percent in 2011." The number of appraisers who rate their fees as low has increased from 11.8% in 2011 to 42.4% in The number who say their fees are C/R decreased from 24.9% in 2011 to 28.3% in 2012, to 25.5% in 2013 to 5.6% in I suppose this means that fewer clients are willing to pay C/R fees. I keep hearing about appraiser incomes going way down. But, lending volume has declined also during the inevitable up and down cycles of mortgage lending. There was no breakdown of the fees or volume of work. Both factors are causing reduced income. If you are still accepting low-ball fees, try asking for a higher fee or get a new AMC client. There are hundreds out there. Increased client scrutiny in past year? Yes %, no %. I had heard it was getting worse, but now we have the data. Percent of work from AMCs Less than 25% 36% Between 25% and 50% 15.3% Between 50% and 75% 16.3% More than 75% 32.5% The number for percent "less than 25%" seems low. Possibly, it includes part time appraisers. Also, the results include appraisers who do commercial appraisals, which may have skewed the results. Two of the responses include 25% and two include 50%, which make those percents less reliable. November 2014 Appraisal Today PAGE 7

8 Biggest liability issues What do you feel are the biggest liability issues facing appraisers today? Least Most Important Important Excessive or unobtainable demand from AMCs 51% 19% 11% 11% 8% Confusing regulations (USPAP, UAD, etc.) 21% 33% 24% 11% 11% Aggressive state and local disciplinary boards 9% 16% 29% 28% 18% Pressure from lenders and real estate agents 10% 20% 18% 16% 37% Actions brought against appraisers by the FDIC or other federal regulatory body 8% 12% 18% 34% 27% Note: results rounded I'm not sure how some of the questions relate to liability, but the results show what worries appraisers most and least. Actions by FDIC, etc. are liability issues. For most appraisers, the greatest "liability" issue is aggressive state disciplinary boards as you can lose your license, but it was rated relatively low. States vary widely on this problem and affect a relatively small number of appraisers. Pressure from lenders and real estate agents is relatively low, as compared with pre-hvcc when it was very high. Turn time requirements Unfortunately, the survey does not specify whether it is turn time from date of acceptance of the order or date of inspection, which can be a big difference. We also don't know if weekends are included, which makes a very big difference. "Our survey showed that the average turnaround time for a full appraisal report for residential assignments was 4 days or more (48.9 percent), followed by 2 to 3 days (46.3 percent), 1 day and the same day." "Last year, 45.2 percent said the average turnaround time was 4 or more days and 48.4 percent said it was between 2 to 3 days." "According to this year's survey, 46.8 percent said that their turnaround time requirements have quickened over the past couple years." I have been hearing from appraisers that turn time requirements had increased. Other appraisers say they are 1-2 weeks, but the survey only goes up to "4 days or more". Of course, turn time is directly related to the volume of appraisal work available. Marketing "According to our survey, the oldfashion approach is still the preferred method of marketing, as 80.3 percent said they relied on word of mouth to try to secure work." "But in this age of technology, online marketing continues to rise with 50.9 percent of respondents saying they take to the Internet to solicit work, while 27.3 percent of people rely on professional associations to network." Of course, if you only work for AMCs and a few lenders, and don't want any non-lender work, not much marketing is required. I am always surprised at how many appraisers don't have a web site. I have been unable to give referrals to appraisers as they have no web site. Or, if they gave a web site, it does not have contact information ( typically is not included) and the geographic areas they cover. Setting up a web site, using a template, takes very little time and is often included for free with your Internet service provider. Again, many web sites don't have addresses for contact. On your voic , be sure to give your name and say that you are an appraiser. This is often not the case. Surprisingly, this happens a lot when we try to call subscribers. Its okay for us, but what if it is a current or prospective client? It is not atall professional. Trainees Although many appraisers say they would never hire a trainee, 14.2% of respondents said they were working with or training a future appraiser. Per the report, "Once again, low fees and heightened regulations are cited as the determining factor that has forced many from taking on a supervisory role." Lenders not allowing trainees to sign reports on the left is the most significant factor, requiring supervisors to do all inspections. Some appraisers sign the report that they inspected the subject, but did not accompany trainees, have lost their appraisal licenses. PAGE 8 Appraisal Today November 2014

9 Mobile appraising There has been a lot of talk and classes on mobile appraising. There have been other surveys on this topic, but this survey has a large sample, so mobile use results is included. Do you use your mobile devide to complete on-site appraisal assignments? Yes %. No %. This was a decrease from last year's survey with 19.2% responding Yes. Several appraisers have commented that the lender requirements have increased so much it is hard to use mobile forms. Many appraisers use their cell phones for photos and sometimes for maps, presumably for directions. I'm not sure what "workflow management" refers to. Maybe it is responding to requests and orders from clients while in the field which could be used by phones, tablets, etc. Unfortunately, the survey did not ask what type of mobile devices are used. How do appraisers use their mobile devices? Workflow 33.5% mgmt. Photos 66.7% Sketches 33.1% Maps 27.3% Forms 26.5% What do lenders say? This year's report included responses from lenders. Whether they do their own ordering or use AMCs was not available. "We asked lenders, "Have you increased the scrutinyor vetting on your appraisal vendors in light of today's regulatory environment?" to which 91.7 percent said yes." "Because of the liability associated with making home loans today, more than 80 percent of our lender respondents said that they have either pared down or kept the number of appraisers they work with the same, favoring quality appraisers over quantity." "Accordingly, 46.2 percent of respondents said that the fees they pay have gone up since the implementation of Dodd-Frank and 38.5 percent said that fees have stayed the same." "More than half of the lenders surveyed said that they pay between $400 and $500 as a typical appraisal fee, while roughly a quarter said they pay more than $500 and a quarter pays between $300 and $400." My comment: The results definitely contradict what appraisers are experiencing with clients, as indicated by this survey and other surveys. Maybe that only applies to lenders who do their own ordering. But, some direct lenders are reducing appraisal fees. Why pay more to appraisers when AMCs pay so much less? How to use these results How does your appraisal business fit into these results? What do you think about the appraisal profession? What are your plans for the future? Where to get more information To download the report, go to This article does not include graphs, all the results, and no individual appraiser comments. There are many other surveys, including state fee surveys. This one is the most comprehensive. November 2014 Appraisal Today PAGE 9

10 Relocation appraisals - pay well with no UAD, 1004MC, scope creep, etc. Relocation appraisals are my favorite type of appraisals. Why? Appraisals are done before a home sells. Each one is a test of how close you come to the sales price. You are treated as a knowledgeable professional. In today's world of lender appraisals that focus on "filling in boxes" rather than the value, they are a remnant from the past, when appraisers were trusted. I started doing relocation appraisals in Many appraisers turn down relocation appraisals because they are too busy or never did them before, or just aren't interested in doing them. Some appraisers don't want to forecast and provide Anticipated Sales Prices, forecasting into the future, 2-3 months for example. But the fees are substantially higher than for lender appraisals They really want to know what the home is worth and what is wrong with it. There are minuses, of course. The biggest problem is AMCs coming into the relocation appraisal business. Some have untrained reviewers, lower fees, etc. In this article, I focus on appraisers who have never done relocation appraising and are looking for nonlender options. Similar to the VA article I wrote a few months ago, it includes pluses and minuses. For example, you will have to learn how to use a new form, plus take classes. Connecting with an experienced relocation appraiser for advice is strongly encouraged. However, this article is also useful for experienced relocation appraisers. The market for relocation appraisals has changed significantly in the past 5+ years. I had been hearing about AMCs, lower fees, etc. I researched these changes, and other changes for this article. PAGE 10 Appraisal Today November 2014 Worldwide Employee Relocation Council (ERC) "The" place to go for information, training, and to check out your competition. The ERC offers training, certification, etc. for appraisers. Almost all relocation companies use their appraisal form, which was revised in Relocation Appraisers and Consultants Relocation Appraisers and Consultants (RAC) is a small organization. Membership is only for experienced relocation appraisers. They have lots of information at Check out the articles in the Library section. RAC has been trying to get new relocation appraisers. Check out their web site. Try to attend one of their meetings. There you will find out about relocation from appraisers who have done it for many years. ERC conferences were useful previously, but there is very little information or training now for appraisers now. Why are relocation appraisals ordered? In the past, the primary reason was to offer the corporate transferee the option of selling to the corporation with a Guaranteed Buyout Offer or selling it themselves. This has changed, probably due to the big losses in the recent recession. Today it is often for a "equity advance" - they aren't buying their home, but they are reimbursing expenses through lump sum programs. They advance equity for home purchase at the new location the employees are being transferred to. Also, often it is for marketing assistance. Even though the corporation is not purchasing the home, they are assisting them in marketing the home. For them to be eligible for certain benefits, they might have to list within 5% or 10% of the appraisal. Often one BMA (broker market analysis) and one relocation appraisal is ordered when it is for marketing assistance. Who orders relocation appraisals? When I started, in 1986, third party relocation companies ordered appraisals, plus corporations who ordered their own appraisals. The number of third party relocation companies has declined. Currently, they include Weichert Workforce Mobility (formerly Weichert Relocation), SIRVA Relocation, NEI Global Relocation and Plus Relocation. There are many smaller companies including Xerox Relocation, Allegiance Relocation, OneSource Relocation, and TRC Global that often focus on a few corporations. Today, many corporations and third party relocation companies have outsourced their appraisal ordering and management to "fourth party" companies. They have been around for over 5 years, but recently have been increasing their numbers of relocation appraisal orders. There are two major AMC's that have taken over the relocation industry. The largest one is Dwellworks. They have many of the largest third party relocation companies outsourcing to them including Cartus (formerly PHH and Homequity), as well as Brookfield Relocation (former GMAC Relo and Prudential Relo), Paragon Relocation, Lexicon Relocation, Grabel Relocation, and some others. The other major player is a company called LSI Relocation Services, which is no longer owned

11 by LSI. They are in the process of a name change. There are some small "support" companies that manage the appraisal process for corporate in-house programs (IHP's). Examples are HR Support orders relocation appraisals for Volkswagen of America and Molex International. WHR Group has been around for almost 20 years and have State Farm Insurance, McDonald's, Kraft Foods, and a few other companies. NRI Relocation manages the appraisal process for Marriott and some other companies. What about low fee AMCs? I am hearing about other AMCs who are ordering relocation appraisals for very low fees, such as $400 in a market where $650 is standard. Just like any other AMC, try one appraisal and see how you like them. However, getting your first few relocation appraisals can be very difficult. This offers you a way to break in. Just like residential AMCs, many of "fourth party" AMCs, particularly those who don't specialize in relocation appraisals, compete on fees. Typically, one fee is set. It can be difficult to get higher fees from them. What about fast turnaround times? Some companies want 48 hours. But, it is very difficult to do this in a relocation appraisal. You are graded on how close you come to the sales price. How can you call all the agents in 24 hours. What if it is not a "cookie cutter" house in a stable market? Lender vs. relocation appraisals Like other types of non-lender work, lender appraisers may have difficulty adjusting to the very different orientation. For many appraisers, the most significant difference is that you provide Anticipated Sales Prices, which is a value in the future. However, some REO and foreclosure appraisal clients require both a value based on typical marketing time and a "quick sale" value, such as days in the future. You are expected to contact every listing and selling agents on the sales and listings you use in your appraisal. At least two appraisers will be used. If the two appraisals are too far apart, a third appraiser or BPO may be used. Your appraisal will be compared with the other appraisal(s). I spent many years trying to convince very knowledgeable local lender-oriented appraisers to do relocation work without much success. However, since AMCs have taken over lender appraisals, many appraisers are looking for other options. In lender work, you are discouraged from being picky and reporting every little problem you see. But relocation work is the opposite. You are requested to accurately portray any problems that may cause the property to be difficult to sell. Lender "reviewers" (software and human) focus on filling out the boxes correctly. UAD and scope creep has meant spending a lot of time on details that don't affect value. Another way to look at the difference is to see a relocation assignment as if it was an appraisal done for a friend or relative who has to sell his or her home and can't wait for the buyer who will pay top dollar. Every dollar in your valuation makes a difference. You would tell them what they need to do to fix it up, the competing listings, recent sales, and the overall market conditions i.e., sellers or buyers market. Some of your lenders may want the same information, but they tend to focus on closed sales. Many lenders have restrictions on the data that can be used, such as recency of closed sales or similarity of sales to the subject. Because they focus on closed sales (the past) lender appraisers tend to be high in soft and declining markets, and low in increasing markets. But, relocation appraisers are graded on how accurately they predict the sales price. In relocation appraising you are asked to predict the future, typically projecting the value in 90 to 120 days. Appraisers who zip in and out of a home with only a few brusque comments don't do well in relocation appraising. The relocation companies expect you to dress and act professionally, to spend a minimum of ½ hour at the home, and to be sensitive to transferee stress. Many lenders see residential appraisers as a homogeneous group, with one appraiser as good as another. Relocation companies are very picky about who they use. The appraisals must be as accurate as possible. REO vs. relocation appraisals If you do foreclosure appraisals, you will find relocation appraisals very similar, with emphasis on "as is" values, recommended repairs, and providing information on listings. Relocation appraisals may be more profitable as they don't require two values or repair estimates like REO appraisals. Also, relo fees are higher. Predicting Anticipated Sales Price One difference between a relocation and a lender appraisal is that relocation companies typically want future value. They want to know what it will probably sell for in the future, usually 90 to 120 days. They also want a realistic assessment of the property condition, and the marketability of the home. For a buy-out, if the home isn't sold by the transferee, the relocation company buys it and has to re-sell it. Many appraisers say they can't predict the future. But every appraisal using the income approach, such as a 2-4 unit property appraisal, predicts future rental and expense income. To predict the future on a home, you must use trends, listings, and particularly, pending sales. You must evaluate the market for the home. Closed sales are very useful, of course, but they are the past. November 2014 Appraisal Today PAGE 11

12 Client loyalty Relocation companies are very loyal to appraisers who are accurate and provide good customer service. I am still getting calls from clients I started working for many years ago. You are also often able to establish personal relationships with relocation employees, including reviewers. Overall relocation appraisal volume Relocation appraisal volume is based primarily on how many employees are transferred. Because of the recession, employee transfers declined about 35-40% in the Chicago area, a primary relocation market. The downturn lasted from Quarter to Quarters 1 and 2 in Since then, relocation appraisals have picked up significantly. Just like other businesses, relocations significantly declined during the recession as employee transfers sig- Appraisal Today ISSN 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, MBA ann@appraisaltoday.com 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. nificantly declined. Employees were not accepting transfers because the home sale market was poor and they could not sell their homes. Also, corporations were cutting costs. Another factor is that many employees can telecommute now, flying to other locations for periodic face-to-face meetings. As the recession has waned, transfers have been picking up,i am anticipating that there will be more relocation appraisals needed. Retaining employees, particularly younger persons who don't stay on a job very long, is more important now. Relocation assistance can help reduce turnover. Fewer companies offer employees the option of buying their homes because of the significant losses in the recent downturn in the home sale market. The volume of appraisals for home buyouts, where two appraisals are used, has significantly declined. However, they order two appraisals for other uses so they can have two opinions of value. The cost of an appraisal at $650 is a small cost compared with the $100,000 typical cost of an employee transfer. When corporations are offering a bonus or a payment if a house is worth less than the mortgage, such as MBA Loan Volume Application Index 1/13 to 10/ $100,000, they often order one appraisal plus a broker opinion. What are the best places for relocation appraisals? Your business address will affect the amount of relocation business you can get. If you're in a small town with a very stable population, you won't get much work unless a local company does a major move. In contrast, if you're in a city with a high proportion of residents who move frequently, you'll have the opportunity for more business. Living in a suburban city is a plus, as transferees often live there rather than in a more rural area or within large cities. If you're in a city with one or more larger employers that will be relocating, or that transfers employees regularly, there will be more appraisal work available. If you're not in a city with many transferees, perhaps there's a larger nearby city where you can get more assignments. Good areas include Chicago, Atlanta, Dallas, Los Angeles, New York, Washingon, DC suburban areas, and parts of Florida, plus areas with large oil companies. The top 20 metro areas are the best areas. Market Index PAGE 12 Appraisal Today November 2014

13 Sometimes there are large group moves, when a facility is shutting down and relocating its employees. But, this work is gone when the employees are moved to the new location. Look for companies with a large number of offices around the country, as there will be more transfers. There are some places in mid- America that are good, such as Oklahoma City and Omaha. Because of budget problems transfers were eliminated, or severely cut back. For example, FBI transfers have significantly picked up. Homeland security is strong now. Federal government agencies do a lot of transfers, such as the FBI and Secret Service. Major airports use lots of security personnel. What about areas distant from a major city? There is typically little work in these areas. Sometimes there may be the headquarters of large manufacturing company with facilities around the country. For example, Caterpiller headquarters is not located in a major urban area, but does a lot of employee transfers. How to evaluate your local market's potential for work Large metropolitan areas are the best, particularly if they have large corporate headquarters. Look for Fortune 100 or 500 companies. Multiple offices in the U.S. is important, as most relocation appraisals are done for corporate employee transfers. Check out the major employers in your area. The location of your office ` A suburban area popular with transferees is the best. My office is located in an older part of the San Francisco Bay area, about miles from the prime suburban area east of me. I would get a lot more relocation appraisals if I was located there. Fees Because of the additional work required (calling real estate agents on sales and listings, market research, etc.), fees are higher than lender appraisals. Fees are fairly standard in each geographic area, like lender work. For example, if lenders typically pay $400 for a URAR, a typical relocation fee could be $650 or more. AMCs often pay much less, closer to C/R lender fees. Like lender fees, they tend to fall in a fairly narrow range. Even the low fee AMCs that only pay $400 for an appraisal often pay much less for a lender appraisal, such as $250. Payment is typically 30 days after receipt of the appraisal. I have never had a payment problem with a relocation company. Sometimes they need a reminder, but they always pay. What type of form is used? The Employee Relocation form is 7 pages long, but 2 of the pages are boilerplate, leaving 5 pages to be filled out. The format is very similar to the URAR form and includes analyses similar to the 1004MC. There is much more space available for comments on each sale and the subject property description. Three listings are required, and an analysis of each listing. Data on days on market and price changes are particularly useful. You can get a copy of the form, and a manual on how to fill it out, at How will your appraisal be compared with the other appraiser(s)? An employee of the relocation company will compare the two or three appraisals, plus possibly a broker's analysis, looking at consistency in such items as square footage, time and forecasting adjustments, sales and listings used, description of the subject and sales/listings, etc. They will try to reconcile the appraisals, if possible. Sometimes the two appraisals are very different because the appraisers have different opinions about the market and the subject's marketability and the appraisals can't be reconciled. Then an additional appraisal may be ordered. Answering questions is a part of doing a relocation appraisal. Relocation companies don't always call, but they often do. If you are working for an AMC, this may be difficult as most of their employees have limited relocation appraisal experience. How long do the appraisals take? Writing, of course, takes longer as there are 5 pages. However, some appraisers do long appraisal reports for lenders, so the time may not be much longer. The inspection and research may or may not take longer than lender work, depending on what you're doing for lenders. If you don't look at listings or do much research on sales, and zip through a home in 15 minutes on lender assignments, relocation appraisals will definitely take more time. Also, you are expected to call agents to get information on listings and sales, and on the status of the current market which, again, takes time. How are you evaluated by the relocation companies? When you work for a lender, turnaround is often very highly rated. Plus, how many UAD errors, etc. as they don't trust appraisers. Relocation appraisals are very different. Each relocation appraisal is a test of how close you come to the sales price. This is the primary per- PAGE 13 Appraisal Today November 2014