I just finished reading this book. Ok, I guess that is a lie. I just finished listening to the audio version of this book during my morning walk. For those of you who spend a good bit of time in the car I highly recommend audiobooks especially when the subject matter is the housing finance meltdown. While I confess a personal addiction to reading anything and everything on the topic, the subject matter can be a bit dense.
This book is not about the mortgage crisis directly although it does allude to the Mortgage Backed Securities market. The emphasis is on the burgeoning field of Behavioral Economics. Personally I cannot dissect the housing finance crisis with a focus on the role of the appraisal process, policy and people without invoking more questions than I have answers. So what did I do? I went straight to Dan’s website, www.thehonestyproject.com and emailed him. Look for an interview from him soon.
I have a lot of friends who deal with mortgage fraud- attorneys, forensic review appraisers, regulators and law enforcement. I am always fascinated by what motivates people to lie. It would seem to me that we have flaws in the appraisal process, policy and practice that “throw gasoline on the flame”. We already know what lack of independence does to the appraisal process. How about Collateral Underwriter (CU)? Does the transparency make the appraiser more honest or does it inspire them to avoid telling the truth when the truth might stand between them and their paycheck? Does the outlier get punished? How do you feel about being graded based upon your peer’s data?
One of the points that Ariely makes in his book is that if you remind individuals of their honor code or have them recite the “Ten Commandments” before they perform a given task, they tend to lie less often. There is perhaps a case for having the certifications and a simple oath at the beginning of the process, not the end. How long has it been since you have read the certifications you sign? I am told by clients that there is an epidemic of appraisers sending “runners” to do the inspection and yet they sign the certification that they inspected the property. Some appraisers have claimed that the definition of inspection includes reviewing photographs and aerial maps. And yet we wonder as a collective why there is a lack of confidence in the appraisal profession.
Is our culture of cheating so ingrained into the appraisal landscape that there is too much resistance to “doing the right thing”? The Home Valuation Code of Conduct brought about a world of change where many of the stakeholders are still pushing back. Some stakeholders within the housing finance sector think appraisers are just a speed bump in the process and are supposed to facilitate their deal. This hangover effect still remains.
From a process perspective, sadly I think we encourage lack of independence by anchoring the estimate by providing a contract of sale to the appraiser. We are giving appraisers the answer to the question and fault them when they deviate from the contract price. More importantly when are seller concessions given to you for all of your comps? Do you wonder what the fudge factor (also known as institutionalized fraud) is for each comparable sale? Do you adjust for cash equivalency or just accept the industry normal range of inflated values? If you actually lay bare the naked truth, what would that do to your business?
When ambiguous rule sets and group dynamics enter the mix it can be a recipe for disaster according to Ariely. Do appraisers understand who their client is? What is their role? To protect the lender? Satisfy the consumer? Report sales price or market value? Do buyers and sellers establish market value? Do they understand USPAP? 65% of appraisers, according to the annual survey Appraisal Buzz conducts, say it is difficult to comprehend. That is a recipe for disaster.
Misaligned incentives, lack of transparency, weak oversight, anchoring, denial and ambiguous rules remain today in spite of a whole host of new regulations. As I am strolling down the street finishing this book all I can do is pray that we work together to find the right path and effect appraisal reforms. We need an honest, simple, straightforward road map.
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Written by : Joan Trice
Joan N. Trice is the founder and CEO of Allterra Group, LLC, publisher of Appraisal Buzz, and host of the annual Valuation Expo, the largest conference for the valuation community. Joan also hosts the Collateral Risk Network, a members-only group of more than 500 dedicated chief appraisers, collateral risk managers, regulators, and valuation experts who are focused on resolving the many challenges facing our profession.
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Your forgot to mention “ENV transmission to the client.” Where they strip off the appraisers signature. Steal information, strip out the cost approach and later after they’re through raping your file, they reattach your signature. Oh, did I forget to mention that you MUST SIGN a waiver letting you know that they are doing this and yet your’re held accountable for the final product? Or that you wont receive any further work UNLESS you do this? Are they just data mining or “adding to your report?” With all the data hacking, and data mining. My advise: Is To Stay Old School: Keep paper copies of everything you do. TO PROTECT YOUR SELF FOR WHEN THIS GOES SIDEWAYS…………………………..AGAIN.
You need decent clients. Get some!
Continuing to work for clients that do those things to get a fee is our problem. Just say NO. If you don’t you are complicit in the skull doggery our client indulges in, especially when you are aware of it.
with my client i approve the final copy of an env submission…env is just extracted data from an appraisal…dont be a nervous nellie…if u stay old school then u might as well close your doors and go work at mcdonalds
You don’t see the final copy. Just extracted data? Don’t you mean data mined? Don’t you mean Theft? Stealing your work, for the creation of a database to do away with the appraiser? I say old school to PROVE your work. So it don’t electronically disappear. You go to work for McDonalds. If they’re still hiring the mentally challenged.
well they paid for the data…who cares…its incomplete anyway..they still need appraisers…there is no way to PROVE your work…its an opnion…opinion …opionion…get that in your skull…data for sales is widely available on many databases…your mind is small and narrow
and yes i do see the final copy…see the difference i. you and me is that i have worked on both sides …u only have your own wrong perception and misconception….i have been involved with what banks get and what appraisers send…the env is a solid process and its for data collection and that doesnt mean the sky is falling…geez gget a drink or something nervous nellie
Appraiser “lying” isn’t the problem and never has been. How do “we” encourage anything? “We”, appraisers, basically have no control over anything. The fact that “we” let everyone else in the lending and real estate industry tell us what to do and how to do it is a part of the problem. But, since “we” have no political or financial power, nothing will ever change for the better. As long as lenders and the politicians they purchase run everything, we’ll just have to deal with it, huh? I agree with you in a sense, but can you imagine the bloody chaos that would ensue if we didn’t know the contract price?! There is a simple solution, however. For instance, if the contract price was $200,000 and the loan is $160,000 and it is appraised at $175,000. implying a loan of $140,000, and the purchaser still wants to go through with it, just get an extra insured loan of $20,000, separate from the underlying first. A special secondary market could be set up with more stringent guidelines, shorter term, higher interest, insurance or whatever to cover it. The kicker is that the two loans could not go past the originally intended $160,000. On the other hand, if the contract price was $200,000 and it was appraised for $250,000, fine, but the lender would have to stick with the contract price, not the appraisal, and not be allowed to sell the borrower an extra $40,000 just because they feel like it and want to make another few hundred dollars commission. The third thing is that all states become full disclosure states, with penalties for sellers and real estaters who lie in MLS or the deed records.
Appraiser lying is the problem, always has been and still is.
what is your source for this information/opinion? i am an appraiser and i have reviewed the work of over 20,000 appraisals across the nation and have found some honest mistakes but only two or three out right lies so its not appraisers…the problem lies with just the things she said…realtors not reporting concessions…realtors misleading people with price per sq foot valuations…if i were king i would abolish cash out mortgages also… the appraiser should not be provided the purchase contract but i would argue that the purchase agreement can be reflective of market value sometimes…especially in a shortage or homes or in steep fluctuation (up or down)…your opinion is too broad and too inflammatory to be stated without sources or facts…
You go Joan.
Take the helm and provide this mess called appraising some actual leadership. The problems we have are not imposed on us unless we let them be. As a group we lack enough backbone to say no. I first read your ideas in this regard in 2011 and liked them then. My disappointment is that they have not gained traction. Is the status quo so engrained in the sorry establishment that masquerades as leadership so blinded by greed and ignorance that they can’t see the truth of what you say?
Now that you have nailed the problems the next step is to construct a plan out of this mess. Rest assured you will encounter resistance from those who look at appraising as a job, but you can get it done.
Press on!!! And good luck. If it matters, even though I often disagree I’m in your camp on this one.
And now for the BIGGEST LIE OF THEM ALL: “TRUTH IN LENDING”. How much TRUTH do you see in the HUD-1 on the line regarding the appraisal fee folks?