Lawsuits and Privacy
Barry C. Wilson August 19th, 2008
When banks foreclose on real estate, they look for someone to cover their losses. In some recent lawsuits against appraisers in other areas of the country, appraisers have been found to be incompetent whether or not they had appropriately valued the property. Residential appraisers are most at risk, but some of the following applies to anyone doing appraisals for lending purposes.
Privacy Policy. Every report done for a lender must have a reference to the company’s privacy policy in compliance with the Gramm-Leach-Bliley (GLB) Act. Our corporate policy is included in the company policy manual and also on our site, under Privacy Policy. The corporate policy, which is also mailed to our regular clients on an annual basis, shows the connection between the GLB Act requirements and USPAP confidentiality requirements and can be added to a report, or the more generic GLB compliance statement that was previously distributed can be used.
Exposure Time. With the current edition of USPAP, we are no longer required to comment on Marketing Time (prior to the Date of Value), but we still need to discuss appropriate Exposure Time in every appraisal report. Appraiser competency has been questioned and is found wanting when the Exposure Time comment is not specific to the assignment. Simply stating that “exposure time of 60-90 days is appropriate” is NOT adequate. The exposure time must be specific to the type of property (i.e. single family homes of 1,800 to 2,200 square feet or single family homes in the $XXX,000 to $XXX,000 price range) and the market area.
In Fannie Mae form reports, Fannie Mae guidelines require the “Date of Sale/Time” to show both the contract date AND the closing date for the sales comparables. However they will accept just the closing date but you must state in the comments which date you used and the source, e.g. “The date of sale shown in the comparison grid is the closing date as recorded by the county recorder.”
Also, in the Fannie Mae form reports, the Cost Approach, if developed, must include the ‘entrepreneurial profit’ as a line entry; Marshall & Swift does not include that in the Residential Cost Handbook.
Appraisers should also be aware that the Marshall & Swift cost factors are based on subdivision construction, where material can be staged and crafts-people can be easily shifted. The replacement cost for a single home in a developed plat requires “just-in-time” material delivery, because there is no space to store it for a week or two until it is needed, and coordination of workers’ schedules, so the builder does not have a $60/hr employee standing around waiting for someone else to finish their work. One insurance company has estimated that such timing adds at least 10% to the replacement costs for fire damaged properties.
Per the instructor of a recent continuing education class, the above are just some of the deficiencies in residential appraisal reports where appraisers are being shown to be incompetent before the court even considers the accuracy of the valuation. When the appraiser deviates from regulations (USPAP), policy statements (Fannie Mae guidelines) or textbooks (The Appraisal of Real Estate, 13th Edition), it does not matter to a court what “is typical in this market.”
