PERSON OF THE WEEK: On the heels of the federal financial regulators' releasing their guidance on sound appraisals, MortgageOrb.com checks in with Jim Kirchmeyer, CEO of Kirchmeyer & Associates Inc., a real estate appraisal company, and Real-Info Inc., a data and valuation company.
Q: The Dodd-Frank Interim Final Rule for valuations came out in late October, and the federal financial regulatory agencies issued their final supervisory guidance on sound appraisal practices earlier this month. When it comes to the various guidelines that are being implemented, what sticks out the most to you?
Jim Kirchmeyer: Can someone answer the question, "What is the black-and-white definition of a customary and reasonable appraisal fee?" Doesn't the market set appraisal fees based on individual special requirements and differing levels of participation?
An example would be a rush file, a lender with special requirements, a complex appraisal, or anything that would be above and beyond the typical request. Depending on the requirements, fees cannot be set at one level for all reports. Appraisal management companies (AMCs) complete key functions when providing an appraisal, including quality-control review, system integration, tracking, reporting, electronic delivery requirements, panel management, appraiser grading, the ensuring of proper licensing, protection against appraiser pressure, and errors and omissions coverage for the client.
Also, state regulations for registering AMCs have caused concern. The fees charged for registering vary widely from state to state, with some states making it almost impossible for some AMCs to comply. Examples would be Minnesota charging over $5,000 and Florida charging approximately $200. The AMCs that do register will have to raise their fees in order to comply. In the end, the borrower will eventually pay more for the same service.
Q: In today's real estate climate, distressed properties presumably make up a significant chunk of valuation volumes. How have the attitudes and strategies around evaluating distressed properties changed in recent years?
Kirchmeyer: The valuation of distressed properties hasn't changed much. Most of the properties under $250,000 are still being valued by real estate brokers. However, as more and more distressed properties hit the market, go through the foreclosure cycle and wind up back into the market again for sale, data about these cycles and changes in value of the property are reported. Valuable statistical and trending data is utilized on a daily basis by appraisers, which enhances an appraiser's ability to become more accurate in predicting the market value in this turbulent market when they are asked to complete a report.
Q: How far along is the industry in terms of being able to properly match valuation products with a given property and circumstance? It seems as though there is much debate over the appropriate use of automated valuation models (AVMs), broker price opinions, hybrid products, etc.
Kirchmeyer: The industry is moving backward because of regulations and fear, when we should be forging ahead. Understanding the regulations and overcoming fear by utilizing valuation tools and technologies and by appropriately matching the risk in a transaction will end the debate.
There are many tools in the toolbox to value real estate; the trick has always been matching the risk in the transaction to the tool used. AVMs, data analytics, desktop and hybrid products can and should be used in the right circumstances. Risk should be evaluated based on the product or purpose, the creditworthiness of the borrower and the integrity of the collateral. When all risk is properly measured, all valuation tools have their place, including full appraisals. Based on critical mass of market data and characteristics, all tools are viable options in lending transactions.
Q: No segment of the housing and mortgage markets has emerged unscathed from the ongoing crisis – appraisers included. What lessons do you believe the appraisal industry has taken away from the crisis?
Kirchmeyer: The Home Valuation Code of Conduct and now Dodd-Frank both reiterate safe and sound appraisal practices that were lost during the boom years, when property values climbed and lending practices slipped. Lenders that created high-risk mortgage products during this price appreciation era were also part of the problem. Appraisal quality review, accuracy and integrity were always important and continue to be the most important aspect when completing an appraisal report. The lesson everyone should take from this is, appraisers need to get back to basics.