Apple Appraisal Blog

“Red Flags” have been around for a long time. As long as there have been appraisals, there have been red flags. A “Red Flag” is something in an appraisal that is likely to cause problems for an underwriter or Review Appraiser. Apple Appraisal has compiled this list from various sources and our extensive appraisal and appraisal review experience throughout California. Apple Appraisal, Inc. has been a leader in valuations in California for more than a decade. Staff is always happy to answer questions or help out. Contact us at (925) 313-5900 or www.goapple.com.

Inaccurate or insufficient property descriptions.

This can typically include:
a. Over-reliance on boilerplate
b. Insufficient discussion of recent upgrades, repairs, etc.
c. Incorrect zoning
d. Incorrect neighborhood boundaries

e. Incorrect description of the comparables as they relate to the subject.

Use of dated comparable sales in a declining market. Dated sales can be relevant to the subject, as long as any potential time adjustments are recognized.

Use of distant comparable to support a value. In many areas, even a short distance can result in large swings in value. Look for comparables located across major boundaries.

Use of all larger or superior comparables and adjusting them down to the subject. “Bracketing” is a well tested technique that helps to prevent inflation of values.

Use of “Non-MLS” data. The Multiple Listing Service is critical to the quality of an appraisal. Many times, Appraisers will put “MLS” as a data source, but will not actually use it. Always look for the actual MLS listing number over the comparables.

Wide adjusted value ranges of the comparables. When properly adjusted, the comparables will have a narrow adjusted value range of less than 5%.

Use of dis-similar sales when other more similar sales are available. Net adjustment should be less than 15% and gross adjustments should be less than 25%.

Even in some of the most complex appraisals, it always boils down to the same thing. The Appraiser must use the most recent, the most similar and the most proximate sales. Above all, the appraisal must make sense and the Appraiser should never ask the reader to “Take a leap of faith”. If a review of an appraisal shows any “Symptoms” like those above, the appraised value could be in jeopardy.

What to do if there is a problem with an appraisal. Try and address the problems at the loan originator’s office before it gets to review. If you spot something that makes you say “HHhmmmm”….ask the LO to send it back to the Appraiser for clarification or corrections.

Oh, NO!! My value got cut…I need a rebuttal!

Not to fear. There are ways that an Appraiser can help the process:

1. Be polite and professional. There is never a personal reason that a Reviewer has to question an appraisal. The review is never a personal attack. The rebuttal should not be either.

2. Address ALL of the issues in the review. Not just selected parts.

3. Acknowledge and correct problems and errors in an appraisal with a revised version of the appraisal and a cover letter stating what was changed.

4. Bring more information to the table, such as gridded comparables or other data that helps support the appraised value.

5. Don’t “Re-Hash” the issues the Reviewer dis-agrees with. Restating what was already said in the appraisal will not help the Reviewer.

6. Take the time to communicate in a grammatically correct way. If the Appraiser can’t communicate effectively, the rebuttal process could be jeopardized.

7. Do not create more issues by creating more “Red Flags”. If one of the issues in the review is the use of non-MLS sales, then don’t add more non-MLS sales in a rebuttal.

8. Be direct, concise and efficient. How long an Appraiser has been doing appraisals and other background information is usually not relevant to the matter at hand.

Contrary to popular belief among Appraisers and Loan Originators, Reviewers do not cut values to satisfy quotas, for entertainment value, for revenge, to get business away from an Appraiser or to discredit them or for any other reason except that there is a breach in the quality of the appraisal.

Reviewers apply the same principles of valuation in a review, as is done in an appraisal. If the Appraisal has good methodology and sound conclusions that do not raise “Red Flags”, the appraisal will more than likely get through a review with no major issues.

Apple Appraisal, Inc. is a proven company with an excellent reputation among lenders for quality and the solidity of their appraised values and reviewed values. Apple Appraisal, Inc. provides a high level of personal customer service in the execution of our sound methodologies.

Always feel free to contact us with comments or questions. (925) 313-5900 or www.goapple.com

Fraud or Incompetence: You Make the Call
by David Brauner, Editor, Working RE Magazine

Fraud or incompetence? According to Larry Disney, Executive Director, Kentucky Real Estate Appraisers Board, that is a question that regulators across the nation are grappling with as they sort through the growing number of complaints against appraisers. The answers are not always clear cut.

When recent sales used as comps turn out to be "flips" with inflated values, for example. Changes reflected in the new Fannie forms are specifically geared to make "innocent mistakes" less likely and to hold appraisers more accountable (so be careful). Since most appraisers who bend the rules do so just to keep orders flowing (and not to get rich quick), one question Disney believes worth asking is: "Is this really worth my license?"

Fraud/Complaints Soar
“Based on my observations in the Kentucky office for appraiser regulation, and conversations with other state appraiser regulatory officials, it appears that complaint case filings are increasing in mortgage lending appraisal assignments,” Disney said.

“The complaints typically are categorized into three areas, 1) ethics, 2) competency, and 3) negligence. Upon investigation we discovered in Kentucky that the problem areas are linked or attributed to 1) real property appraiser education course content, 2) deficiency in training by a supervising appraiser, and 3) pressure from clients to ‘hit’ a target value. Item three (3) appears to be the area with the highest frequency of complaints in the past three years,” he said.

This is supported by the U.S. Department of Justice Federal Bureau of Investigation, Criminal Investigative Division publication titled “Financial Crimes Report to the Public,” (May 2005). The report lists the number of mortgage fraud cases pending as 436 for 2003, 534 for 2004, and 642 through the second quarter of 2005. During the same period the numbers of mortgage fraud convictions and/or pretrial diversions listed 256 for 2003, 172 for 2004 and 95 through the second quarter of 2005.

Based on the information and the findings in cases before the Kentucky Board, Disney says it is apparent that the number of complaints originating from financial institutions and review appraisers has also been increasing steadily for the past three years. The interesting part of the complaint puzzle is the type of activity that is alleged and, in many cases, proven to have occurred, he said.

“In one case it was discovered a property was purchased for $25,000. Within a very short time, without any repairs or modernizations, the same property allegedly sold for $100,000 and appraised for $90,000. There was no support for the value opinion and no support from the comparable properties in the market area of the subject property. The same lender and appraiser were involved in many similar occurrences- multiple, back-to-back transfers of the same property, each time at a significantly higher dollar amount,” Disney said.

Scam Alert
According to Disney, appraisers should beware of the following scam, which is growing in popularity. A property is listed for sale. A buyer’s agent contacts the seller’s agent and informs him/her that the buyer will pay the list price but has no money for a down payment.

The can make the deal work, they say, if the seller agrees to an unrecorded second mortgage or a seller-paid concession “outside” closing for the amount equaling the desired down payment. The selling agent is advised that the property must be withdrawn from the Multiple Listing Service at the lower price and re-listed immediately for a higher price to include the necessary down payment. When questioned about this practice the selling agent is told, “Don't worry, we have a lender and an appraiser who understands what to do and we can make this happen.”

According to Disney, this scenario happens all the time. “Appraisers and agents should be aware that the above act or any act of willful deceit to assist in obtaining a loan secured by a federally-regulated financial institution is considered bank fraud and carries the possibility of a $1,000,000 fine and 30-years imprisonment.”