Seven Steps to Avoid Liability and Stay Safe during the Pandemic

By: Francis X. (Rich) Finigan 13 November 2020

The Coronavirus epidemic is reaching renewed heights across America. That’s the bad news. The good news is that deaths per case have declined because hospitals are better equipped to treat patients with the virus.

Your work as an appraiser is so important to the financial well-being of America, it can’t be overstated. Many of the site visits that you will be conducting are for refinancing. Many people are using this financing as bridge loans to get them through the pandemic or simply to take advantage of the low-interest rates. Without you, the loan isn’t going to occur!

While you’re undertaking this important work, you need to stay safe, keep your family safe, and keep those homeowners safe. On Wednesday, November 11, 2020, 145,000 new cases were reported, a new record! The following are things you can do to protect your health, the health of people you are in contact with, and protect yourself from liability. They include steps to staying safe, a questionnaire we recommend you use before you schedule an appointment for a site visit, and an addendum to include in your appraisal.

As many of you know, Francis X. (Rich) Finigan is an environmental expert as well as a real estate appraiser and educator. Calypso Continuing Education™ is an EPA accredited training provider. We won’t belabor our credentials. We have developed the following to help appraisers stay safe while they embark on inspections of residential properties. The recommendations are based on good environmental practices and source documents regarding this pandemic from CDC, WHO, and OSHA.

  1. Send the attached questionnaire or ask the questions over the phone to the residents of the properties you are about to inspect. Send it a few days before your inspection to ensure that the residents haven’t been out of the country, had a fever, or been diagnosed positively with the Covid 19 virus, etc.  Ask the resident to please, answer the questions honestly, after due consideration. Thank them for their cooperation. If all the questions are not answered satisfactorily, reschedule the appointment for a future date. Also, I would strongly recommend consolidating as many inspections in a single day as possible.
  2. Conduct any interviews about the subject property remotely i.e., by telephone, email, text, or other modes of communication. Ask the resident to please,  answer the following questions honestly, after due consideration. Thank them for their cooperation.
  3. Before entering the subject property put on your PPE (Personal Protective Equipment).
    1. Put on your face mask before entering the property.
    2. Before you touch the doorknob of the house you don your disposable nitrile gloves. We do not recommend latex coding gloves because some people have an allergy to them.
  4. Once inside the subject property do not touch anything. Take photographs with your smartphone and capture your measurements as efficiently as possible.
  5. When you leave the subject property remove your PPE outside your vehicle in the following manner:
    1. First remove your booties (if using) by rolling them from the heel to the toe, dirty side in. Do not reuse them. Dispose of them in a trash bag.
    2. Second, doff your gloves by gripping the cuff of one of the gloves pulling it off and crumpling it in your still gloved hand. Then gripping the cuff of the gloved hand, that’s holding the crumpled glove pull it directly over your hand trapping the contaminated side and crumpled glove inside like a little bag. Do not reuse the gloves. Dispose of them.
    3. Whenever you are working around contamination, the last thing you take off is your respiratory safety. Grip the bands that hold your mask on and remove it from your head folding the side that was next to the face against each other to prevent cross-contamination from the outside of the mask. You may continue using an N-95 until one of the three D’s exists: deteriorated, damp, or visibly dirty.
    4. Clean your hands with hand sanitizer immediately rubbing them together for about 20 seconds.
  6. When you get home, immediately remove your garments, and put them in the washer. Launder them normally.
  7. Attach a Covid 19 Addendum at or near the beginning of your appraisal report.

COVID – 19 APPRAISAL ADDENDUM

The global outbreak of a “novel coronavirus“ known as Covid 19 was officially declared a pandemic by the WHO (World Health Organization) on March 11, 2020. Subsequently, the United States of America identified Covid 19 as a national health pandemic.

Directly related to the pandemic financial markets and global economies have experienced significant volatility and turmoil. Unemployment rates have risen, and the US economy has suffered significant negative results.

Readers and users of the report are cautioned and reminded that the conclusions presented in this appraisal report apply only as of the effective date(s) indicated. I, the appraiser, make no representations regarding effects caused by the pandemic or other related incidents on the subject property after the effective date of the appraisal.

There exists insufficient data in the marketplace …read more to determine the impact of these rapid changes on the housing market. While the most current data is being used, a large portion of the market data utilized in this report may have been created prior to measures implemented by the Federal Reserve and response by consumers.

Many states have been under “Stay-At-Home Orders” or partial restrictions regarding an in-person inspection. Some states have gone through phased openings, while others are re-instating restrictions because of a renewed increase in Covid 19 cases. The full impact on the real estate market will vary from region to region but is not yet fully understood in any region.

Currently, there appears to be a high demand for mortgage refinancing due to historically low-interest rates. The extent of this phenomenon is difficult to determine, it may be short-lived. While high demand exists, limitations on in-person meetings to stem the spread of the virus has, at least temporarily, negatively impacted transaction volume.

Based on some parts of our country and other parts of the world, where case numbers of the coronavirus have trended positively, there is optimism the current market disruption will be short-term. The current situation is unprecedented and there is no empirical data to support or extrapolate what the impact to market values may or may not be because of this pandemic.

It is likely that we will see prolonged marketing times and exposure times relative to prior norms for the near term while the market continues to suffer from uncertainty. It is assumed that the market will revert to prior conditions after the public health risk has been mitigated.

I have spoken to local commercial brokers and lenders who agree the market reaction is “all over the place” and that most sales under contract are still closing. On the residential side rentals and second homes are in high demand because people want to escape the congestion of heavily populated cities.

As the pandemic evolves so will market reaction. Subject to the potential changing markets, I suggest lenders obtain a new appraisal reflecting the then-current conditions after the pandemic is over.

Appraisers, Essential Workers Staying Safe and COVID-19 Impact on Value

Covid-19 and Hand Washing:  When, Why, and How

According to the CDC, handwashing is one of the best ways to protect yourself and your family from getting sick. The following two pages will describe how you should wash your hands to stay healthy. Washing hands is only one aspect of staying safe.

Wash Your Hands Often to Stay Healthy

The following paragraph describes what often really means:

You can help yourself and your loved ones stay healthy by washing your hands often, especially during these key times when you are likely to get and spread germs:

  • Before, during, and after preparing food
  • Before eating food
  • Before and after caring for someone at home who is sick with vomiting or diarrhea
  • Before and after treating a cut or wound
  • After using the toilet
  • After changing diapers or cleaning up a child who has used the toilet
  • After blowing your nose, coughing, or sneezing
  • After touching an animal, animal feed, or animal waste
  • After handling pet food or pet treats
  • After touching garbage

Follow Five Steps to Wash Your Hands the Right Way

 

Washing your hands is easy.  Clean hands can stop germs from spreading from one person to another and throughout an entire community—from your home and workplace to childcare facilities and hospitals.

 

Five Hand Washing Steps to Follow Every Time:

  1. Wet your hands with clean, running water (warm or cold), turn off the tap, and apply soap.
  2. Lather your hands by rubbing them together with the soap. Lather the backs of your hands, between your fingers, and under your nails.
  3. Scrub your hands for at least 20 seconds. Need a timer? Hum the “Happy Birthday” song from beginning to end twice.
  4. Rinse your hands well under clean, running water.
  5. Dry your hands using a clean towel or air dry them.

Use Hand Sanitizer When You Can’t Use Soap and Water

You can use an alcohol-based hand sanitizer that contains at least 60% alcohol if soap and water are not available.

 

Washing hands with soap and water is the best way to get rid of germs in most situations.

 If soap and water are not readily available, you can use an alcohol-based hand sanitizer that contains at least 60% alcohol.  Look at the product label to determine alc0hol content.

Sanitizers can quickly reduce the number of germs on hands in many situations. However…

  • Sanitizers do not get rid of all types of germs.
  • Hand sanitizers may not be as effective when hands are visibly dirty or greasy.
  • Hand sanitizers might not remove harmful chemicals from hands like pesticides and heavy metals.

Caution! Swallowing alcohol-based hand sanitizers can cause alcohol poisoning if more than a couple of mouthfuls are swallowed. Keep it out of reach of young children and supervise their use. Learn more here.

 

How to use hand sanitizer:

  • Apply the gel product to the palm of one hand (read the label to learn the correct amount).
  • Rub your hands together.
  • Rub the gel over all the surfaces of your hands and fingers until your hands are dry. This should take around 20 seconds.

 

 

 

Cleaning and Disinfecting Surfaces According To CDC

 

  • Clean AND disinfect frequently touched surfaces DAILY. This includes tables, doorknobs, light switches, countertops, handles, desks, phones, keyboards, toilets, faucets, and sinks.
  • If surfaces are dirty, clean them: Use detergent or soap and water prior to disinfection.
  • To disinfect: Most common EPA-registered household disinfectants will work. Use disinfectants appropriate for the surface.

Options include:

  • Diluting your household bleach
    To make a bleach solution, mix:

    • 5 tablespoons (1/3rd cup) bleach per gallon of water
      or 4 teaspoons bleach per quart of water

Follow the manufacturer’s instructions for application and ventilation. Ensure the product is not past its expiration date. Never mix bleach with ammonia or any other cleanser. Unexpired bleach will be effective against coronaviruses when properly diluted.

  • Alcohol solutions
    Ensure the solution has at least 70% alcohol. Many laboratories around the country spray surfaces with ethyl alcohol and wipe them dry to decontaminate.
  • Other common EPA-registered household disinfectants
    Products with claims are expected to be effective against COVID-19 based on data for harder to kill viruses. Follow the manufacturer’s instructions for all cleaning and disinfection products (e.g., concentration, application method, and contact time, etc.). EPA product list follow this link https://www.epa.gov/pesticide-registration/list-n-disinfectants-use-against-sars-cov-2

 

Coughing and Sneezing Protocol

 

  • Cover your nose and mouth with a tissue when you cough or sneeze.
  • Throw away the dirty tissues.  
  • Use your sleeve or elbow if you don’t have a tissue. 
  • Wash or sanitize your hands afterward. 

 

  • Try not to touch surfaces and objects that are used and shared often.  
  • If you do touch surfaces or objects, wash or sanitize your hands afterward. 
  • Limit actions like shaking hands, hugging, etc.

 

Social Distancing 

There is currently no vaccine to prevent coronavirus disease (COVID-19).

  • The best way to prevent illness is to avoid being exposed to this virus.
  • The virus is thought to spread mainly from person-to-person.
    • Between people who are in close contact with one another (within about 6 feet).
    • Through respiratory droplets produced when an infected person coughs or sneezes.
  • These droplets can land in the mouths or noses of people who are nearby or possibly be inhaled into the lungs.

CDC has conducted testing and determined that coronavirus can remain suspended in the air for as long as three hours.

 

When can you stop home isolation after having COVID-19?

 

March 20 at 10:25 AM 

 

If you have COVID-19 and will not have a test to see if you are still contagious, you should only leave your “sick room” and home when ALL of the following are true:

  • No fever for at least 72 hours (3 days)
    • Other symptoms have improved
    • It has been at least 7 days since you started feeling sick

Heads up: People who will get a test to see if they are still contagious should follow different guidance provided by their medical practitioner after the results are available. Also, people with weakened immune systems might have special guidance. Learn more: https://bit.ly/2wf7sS7

 

 

Calypso Continuing Education™ Questionnaire:  Required prior to entering our offices or prior to our consultants entering a subject property for an appointment:

 

Covid-19 is highly contagious. To help stem the pandemic and protect your health and the health of our consultants, we need you to complete the following questionnaire. 

 

Facts: CDC believes that frequently the virus has been transmitted by touching surfaces where someone infected with Covid-19 has coughed or sneezed on and deposited the virus along with other biomatter.  The CDC has indicated the particles may stay suspended in the air for as long as three hours. Therefore, the CDC recommends social distancing of 6 feet, so you are out of somebody else’s breathing zone.

 

Please, honestly answer the following questions after due consideration. Thank you so much for helping us protect you and our consultants. 

 

Have you in the past 14 days: 

 

  1. Traveled to or from one of the affected countries or regions listed as a Level 3Travel Health Notice on CDC.gov?

NO Yes

 

  1. Been in contact with a novel coronavirus/ COVID-19 infected person?

NO Yes Not Sure

 

  1. Have you been to a health care facility (hospital, walk-in clinic, emergency room) where people infected with novel coronavirus/ COVID-19 are treated?

NO Yes 

 

  1. Have you had the following symptoms in the last few days: feel uncomfortable, especially with respiratory symptoms (cough, fever, shortness of breath, difficulty breathing)?

NO Yes

 

  1. Do you feel unwell, especially with respiratory symptoms (cough, high temperature, shortness of breath, difficulty breathing)?

NO Yes

 

If you answered  Yes to any of the questions above, access to ( OFFICE ADDRESS ) or our appointment outside the office (SUBJECT PROPERTY) will be postponed until such time answers to all questions are a definitive NO or alternative options have been developed. If you answered Not Sure to question # 2, let’s have a discussion to clarify. Thank you.

 

_________________________________    ____________________________________ ________

Signature Name Printed Date

 

 

Calypso Continuing Education has excerpted the materials in this flyer directly from CDC, EPA, and OSHA publications. 

 

https://calypso-assets.s3.us-east-2.amazonaws.com/Articles/Staying+safe+and+keeping+others+safe+(FXF+final).pdf

Staying safe during appraisal inspection 6 easy steps

Staying safe during appraisal inspection 6 easy steps

By: Francis X. (Rich) Finigan

The appraiser’s work is so important to the financial well-being of America, it can’t be overstated. Many of the site visits that you will be conducting are for home equity loans or refinancing. Many people are using this financing as bridge loans to get them through the pandemic. Without your site visit, the loan isn’t going to occur!

While your undertaking this important work you need to stay safe, keep your family safe, and keep those homeowners safe. As of Tuesday, April 28th, 2020, according to CDC, there were 26,512 new cases of coronavirus in the United States, that day! So we’re not out of the woods yet.

As many of you know, Francis X. (Rich) Finigan is an environmental expert as well as a real estate appraiser and educator. Calypso Continuing Education™ is an EPA accredited training provider. We won’t belabor our credentials. We have developed the following to help each and every appraiser stay safe while they embark on inspections of residential properties. The recommendations are based on good environmental practices and source documents regarding this pandemic from CDC, WHO, and OSHA.

  1. Send the attached questionnaire to the residents of the properties you are about to inspect. Send it a few days before your inspection to ensure that the residents haven’t been out of the country in the last 14 days, have not had a fever in the last 14 days, haven’t been diagnosed positively with the Covid 19 virus, etc. If all the questions are not answered satisfactorily, reschedule the appointment for a future date. Also, I would strongly recommend consolidating as many inspections in a single day as possible.

 

  1. Conduct any interviews about the subject property remotely i.e., by telephone, email, text, or other modes of communication.

 

  1. Before entering the subject property put on your PPE (Personal Protective Equipment). Follow the guidance in the videos and graphics attached to ensure proper usage of your PPE.
    1. First, don (put on) your N-95 or other respiratory safety protection (face mask).
    2. When you get outside the door, you are going to enter, don your protective equipment before entering the subject property.
    3. Before you touch the doorknob of the house you don your disposable nitrile gloves. We do not recommend latex coding gloves because some people have an allergy to them.

 

  1. Once inside the subject property do not touch anything. Take photographs with your smartphone and capture your measurements as efficiently as possible.

 

  1. When you leave the subject property doff (take off) your PPE outside your vehicle in the following manner:
    1. First remove your booties by rolling them from the heel to the toe, dirty side in. Do not reuse them. Dispose of them in a trash bag.
    2. Second, doff your gloves as shown in the attached video gripping the cuff of one of the gloves pulling it off and crumpling it in your still gloved hand. Then gripping the cuff of the gloved hand, that’s holding the crumpled glove pull it directly over your hand trapping the contaminated side and crumpled glove inside like a little bag. Do not reuse the gloves. Dispose of them.
    3. Whenever you are working around contamination, the last thing you take off (doff) is your respiratory safety. Grip the bands that hold your mask on and remove it from your head folding the side that was next to face against each other to prevent cross-contamination from the outside of the mask. You may continue using an N-95 until one of the three D’s exists: deteriorated, damp, or visibly dirty. Clean your hands with hand sanitizer immediately rubbing them together for about 20 seconds. Yes, you know the drill, happy birthday twice. See the graphic below.

 

  1. When you get home, go directly to your laundry room take your clothes off, and put them in the washer. Launder them normally.

Recommended Questionnaire

 

Ask the resident to please,  answer the following questions honestly, after due consideration. Thank them for their cooperation.

 

Have you in the past 14 days:

 

  1. Traveled to or from one of the affected countries or regions listed as a Level 3Travel Health Notice on CDC.gov?

NO       Yes

 

  1. Been in contact with a novel coronavirus/ COVID-19 infected person?

NO       Yes      Not Sure

 

  1. Have you been to a health care facility (hospital, walk-in clinic, emergency room) where people infected with novel coronavirus/ COVID-19 are treated in the past 14 days?

NO       Yes

 

  1. Have you had the following symptoms: feel uncomfortable, especially with respiratory symptoms (cough, fever, shortness of breath, difficulty breathing)?

NO       Yes

 

 

  1. Do you feel unwell, especially with respiratory symptoms (cough, high temperature, shortness of breath, difficulty breathing)?

NO       Yes

 

If you answered  Yes to any of the questions above, access to ( OFFICE ADDRESS ) or our appointment outside the office (SUBJECT PROPERTY) will be postponed until such time answers to all questions are a definitive NO or alternative options have been developed. If you answered Not Sure to question # 2, let’s have a discussion to clarify. Thank you.

 

_________________________________    ____________________________________  ________

Signature                                            Name Printed                         Date

 

Reliance Letter Minefield an appraiser real-world problem… Solved

by Francis X Finigan

August 2019

Save this letter in your file; it will help protect you from liability and enhance your professional image.

While not typical, there are enough requests for “reliance letters” that they are not uncommon.

A mortgage broker may receive a copy of the appraisal report and want to submit it to a “second mortgage” lender, who is not the original client or an intended user.

The mortgage broker may ask the appraiser to complete a “reliance letter” and re-address the report to the new lender. At this juncture typically there is no discussion of compensation.

The audacity of this mortgage broker is probably your first thought! In their industry, it’s not uncommon for them to ask an environmental consultant for a reliance letter.

Let’s clarify what a reliance letter is. A reliance letter is a letter from one party to another party allowing them to rely on the contents of a report. Reliance letters can be offered by consultants (usually an environmental consultant) in place of a formal collateral warranty to the consultant’s appointment.

With that in mind, realizing the mortgage broker’s lack of USPAP knowledge, you can understand why they might consider asking the appraiser for a reliance letter.

So, what’s the answer? Can an appraiser just re-address the appraisal report? Can the appraiser re-address the appraisal report if they are offered remuneration?

Advisory Opinion 26 provides the following clear and unambiguous answer to these questions.

The answer to the question posed above is… No. Once a report has been prepared for a named client(s) and any other identified intended users and for an identified intended use, the appraiser cannot “readdress” (transfer) the report to another party.

USPAP defines Client as: the party or parties (i.e., individual, group, or entity) who engage an appraiser by employment or contract in a specific assignment, whether directly or through an agent. (USPSP Publication)

Avoid the reliance letter minefield. The next time you are requested to readdress an appraisal, just send them a copy of this Food for Thought. And just say, NO!!

Good luck and do good work,

Rich

For more information and on this topic read the following:

ADVICE FROM THE ASB ON THE ISSUE:

Relevant USPAP & Advisory References

• The Confidentiality and Conduct sections of the ETHICS RULE

• Standards Rules such as 1-2(a) and 1-2(b); 7-2(a) and 7-2(b); and 9-2(a) and 9-2(b), which require an appraiser to identify the client, intended users, and intended use

• Standards Rules such as 2-1(a), 8-1(a), 10-1(a), which require an appraiser to clearly and accurately set forth the appraisal in a manner that is not misleading

• SCOPE OF WORK RULE, which requires an appraiser to ascertain whether other laws or regulations apply to the assignment in addition to USPAP

• Advisory Opinion 25, which covers clarification of the client in a federally related transaction• Advisory Opinion 27, which addresses appraising the same property for a new client

• Advisory Opinion 36, Identification and Disclosure of Client, Intended Use, and Intended Users 

(USPAP Publication)

Appraisal Standards Board Considering Creating Standards for Evaluations and ASB to Issue Concept Paper and Hold Public Hearing

The ASB could consider moving forward with a discussion draft or an exposure draft by late 2019.

TAF once a draw a bright line between appraisals and evaluations.

Background:

“Federal Deposit Insurance Corporation, the Board of the Federal Reserve System, and the Office of the Comptroller of the Currency issued an advisory to clarify supervisory expectations for using an evaluation for certain real estate-related transactions in response to questions raised during outreach meetings held pursuant to the Economic Growth and Regulatory Paperwork Reduction Act. Many of the questions pertained to when an evaluation is permitted for a real estate-related transaction and how an evaluation can support a market value conclusion when there are few or no recent comparable sales of similar properties.

Highlights:

Part 323 of the FDIC Rules and Regulations permits institutions to use an evaluation in lieu of an appraisal to value real property pledged as collateral for certain real estate-related transactions that are not subject to the appraisal requirements in Part 323. For example, institutions may use evaluations rather than appraisals to estimate the market value of residential or commercial properties securing real estate-related transactions of $250,000 or less except for certain higher-priced mortgage loans under Regulation Z.

The Interagency Appraisal and Evaluation Guidelines do not require evaluations to be based on comparable sales.

In areas with few, if any, recent comparable sales of similar properties in reasonable proximity to the subject property, persons who perform evaluations may consider alternative valuation methods and other supporting information when developing a market value conclusion.

Institutions that demonstrate that a valid correlation exists between tax assessment values and market values may use such information to develop the market value conclusion in an evaluation.”

FDIC FIL-16-2016   Interagency Advisory on Use of Evaluations in Real Estate-Related Financial Transactions –

According to the federal banking regulators’ Interagency Appraisal and Evaluation Guidelines (the “Guidelines”), evaluations are permitted for:

·        Transactions where the “transaction value”5 (generally the loan amount) is $250,000 or less;6

·        Certain renewals, refinances, or other transactions involving existing extensions of credit; and

·        Real estate-secured business loans with a transaction value of $1,000,000 or less and when the sale of, or rental income derived from, real estate is not the primary source of repayment for the loan. 

 Even though the regulations allow evaluations for these types of transactions, the Guidelines state that banks should establish policies and procedures for determining when to obtain appraisals for higher-risk transactions, such as those with combined loan-to-value ratios that exceed supervisory limits, atypical properties, properties outside the bank’s traditional lending market, or high-risk borrowers.

While an appraisal requires a state-certified or licensed appraiser, the Guidelines state that those who perform evaluations should have “the appropriate appraisal or collateral valuation education, expertise and experience relevant to the type of property being valued.” Examples include appraisers, real estate lending professionals, agricultural extension agents or foresters.

You can even use internal staff to perform evaluations, provided they possess the necessary training and qualifications and you take steps to maintain the independence of your real estate valuation program. Generally, that means a complete separation of the collateral valuation program from the loan production process. Maintaining such a separation may be difficult for smaller banks. According to the Guidelines, if the only person qualified to evaluate real estate collateral is another loan officer, director or bank official, the bank should ensure that person’s independence by requiring him or her to abstain from any vote or approval involving loans for which they ordered, performed, or reviewed an appraisal or evaluation.

For banks lacking the resources to hire and train their own personnel to perform evaluations, the most cost-effective way to address independence issues may be to use a third party for evaluations.

(Washington, DC) August 1, 2019 – The Appraisal Standards Board (ASB), an independent board of The Appraisal Foundation, announced today that it intends to examine the concept of creating standards for evaluations, which are alternatives to appraisals used by financial institutions.

Currently, there are no uniform standards for appraisers to follow when conducting an evaluation, which leads to greater risk to the safety and soundness of the real estate transaction and diminished protection for consumers. The ASB intends to issue a concept paper around Labor Day and will follow up with a public hearing with panels of constituents on October 18, 2019, in Washington, DC. As with all public meetings of the ASB, the public hearing will be broadcast via Livestream.

“This important development by the ASB shows how the Board has their ear to the ground, listening to the concerns of working appraisers in a rapidly evolving marketplace where there is an increasing demand for different valuation products,” said David Bunton, president of the Foundation. “They are balancing that with their responsibility to protect the public trust in valuation by creating uniform standards that are subject to oversight.”

Currently, the Interagency Appraisal and Evaluation Guidelines for federally regulated financial institutions provide guidance on evaluations, but that guidance is directed at lenders, not appraisers. Furthermore, the courts have found such guidance to be unenforceable. “This puts appraisers in a difficult, untenable position,” said John Brenan, vice president of appraisal issues at the Appraisal Foundation. “Appraisers often struggle when asked to perform evaluations, since most are mandated to comply with the Uniform Standards of Professional Appraisal Practice (USPAP). It’s almost a Catch-22 situation.”

Under federal regulations, evaluations may be performed by non-appraisers who have not demonstrated a level of expertise through education, training, and examination. If appraisers are not completing an evaluation, there is no recourse for a lender or consumer to appeal a bad evaluation. With the increased use of evaluations in the marketplace lenders and consumers are being exposed to an unnecessary level of risk not seen since the 1980s when national appraiser qualifications and appraisal standards had not yet been created.

“Appraisers are valuation experts. When hiring a licensed or certified real property appraiser to develop and report market value, the client should expect the work to be performed in accordance with USPAP,” said Wayne Miller, chair of the Appraisal Standards Board. “The Board is eager to receive stakeholder feedback from the planned concept paper and public hearing on the impediments, if any, to appraisers completing evaluations in accordance with USPAP. As always, the Board’s goal is to allow USPAP to evolve in an ever-changing real estate valuation environment while continuing to promote and maintain a high level of public trust in the valuation profession.”

For these reasons, the ASB is considering creating standards for developing and reporting evaluations, which would apply to those appraisers who want to perform evaluations while complying with state laws. The concept is to draw a bright line between evaluations and appraisals in USPAP.

Based on feedback from the concept paper and the public hearing, the ASB could consider moving forward with a discussion draft or an exposure draft by late 2019. The question of when evaluation standards would go into effect is likely to be part of the discussion in the concept paper and at the public meeting.

Dodd-Frank, Natural Disasters, and What You Need to Know about Mold

By: Francis X (Rich) Finigan © Calypso Continuing Education™ 2019

What do you know about mold? Where are the alligators lurking, as flood waters abate? Do you think you have third party liability to borrowers? If you think “no”, think again and keep reading, because there are the alligators, along with their attorneys, lurking in the receding floodwaters!

What do you need to know about mold to produce credible appraisal reports and protect yourself, your clients, and users of your reports from liability? Keep reading to find out.

Consider the following:

  1. Where there’s water in contact with building materials, there is going to be mold!
  • The NFIP (National Flood Insurance Program) provides federally backed coverage for homeowners and small businesses throughout the country, but NFIP as of 2017 was $20 billion in debt, due to the recent succession of historically severe hurricane seasons and inland floods nationwide.
  • Whether you believe in climate change or not, climatologists predict that these events are only going to get more frequent and worse. When resources begin drying up, insurers and lawyers start looking for another pocket to reach into. Could the appraiser be the next target?
  • Here’s why I’m concerned, before Dodd Frank, and subsequently the Consumer Finance Protection Bureau’s (CFPB) interagency guidelines, our declaration, describing who the intended users are, seemed to provide us with protection against third-party liability associated with our appraisal reports.
  • The Interagency Guideline’s Interim Final Rule[1] requires lenders nationwide to inform mortgage borrower/applicants that they can receive a free copy of whatever appraisals, reviews, computer valuations and other data used in the transaction. Borrowers are entitled to see this material “promptly” after the appraisal report is completed, or three days before their loan closes, whichever is earlier. The lender will have to inform the borrowers/applicants of their rights within three business days after receipt of their mortgage application.
  • Recently, the Arizona Court of Appeals found that where an appraiser knows his/her report will be given to third parties, the appraiser owes the third parties a duty of care. The court decided this despite express language in an appraisal disclaiming the right of third parties to rely on the appraisal report’s conclusions and opinions, because they were not intended users.

Mold can be the stuff that turns an American dream into a nightmare!

As an appraiser, design builder, and environmental expert, I can tell you with great certainty, mold can absolutely have a large impact on the value of a property!

(read more)

Society has used mold to its advantage for thousands of years. Without mold we would have no cheese. Without mold we would have no wine. Heavens, where would we be without a robust blue cheese or a fine Grand Cru? In addition to the hedonistic pleasures it provides, mold has also given us one of the greatest medical achievements – penicillin. Penicillin has saved countless millions of lives.

Mold has also been recognized as a blight since ancient times, where passages from Leviticus (Chapter 14 verses 35 to 53) allude to with homes streaking of red and green on the walls being unfit for habitation. But lifestyle I and required to be torn down and disposed of in an “unclean place outside the village”. Construction technology changes in recent years exacerbate the problems caused by mold.

Americans spend most of their time indoors. In fact, many Americans spend about 90 percent of their time indoors, where they are exposed to a smorgasbord of air pollutants. According to EPA, the concentrations of air pollutants indoors may be hundreds of times greater than concentrations of pollutants in outdoor air.

Major problems with indoor air quality began in the 1970s with the energy crisis. As a way of conserving energy we built our homes as tight as a frog’s…ah, inner eyelid. Issues like inadequate air exchange and drainage and improperly installed synthetic stuccos and flashing can trap moisture in wall cavities, an ideal environment for mold to flourish.

Mold is the next asbestos – with a major difference. It doesn’t have a 30-year gestation period like asbestos. Negative effects from mold can onset within a few hours of exposure and can include skin irritation, upper respiratory congestion, headache, lack of energy and extreme symptoms like pulmonary hemorrhaging and even death. Mold can be present in any home, in any price range, anywhere in the entire country. Mold is ubiquitous!

Understanding Mold

Mold isn’t the problem it is actually a symptom of a problem…uncontrolled water or moisture in a building.

 
There are several types that have caught the attention of society today like, Stachybotrys (a.k.a. black killer mold) Penicillium, and Aspergillus. These molds grow where there are moisture, warmth, and food. They like to grow on wood or wet cellulose-rich building materials. There is lots of cellulose in the middle of the walls. Mold also like to grow in ductwork when the right conditions present themselves. Don’t think that mold is limited to poorly maintained homes; mold can be present in any home that water has been allowed to penetrate or excessive moisture buildup.

Think of a beautiful multi-million-dollar home where the framing is saturated during a rainstorm and then doesn’t fully dry.  The contractors will often insulate and close up the walls trapping moisture in wall cavities. This scenario is much more common than you would expect. Once mold spores have been incubated by a water source, mold can continue to proliferate from relative humidity of 50% or greater.

Mold wants to reproduce — not an unreasonable expectation for any of God’s creatures. It does so by sending out into the air mold spores that land on surfaces of damp cellulose or wood. The mold “knows” it is competing with other creatures for space so, some molds emit toxic gas, mycotoxins, in order to poison other creatures competing for the same space. These mycotoxins do not affect only select people, like typical allergens. When inhaled, mycotoxins affect everyone to some degree. Those at greatest risk are individuals whose immune systems are compromised, such as infants, the elderly or someone recovering from pneumonia or the flu.

Protecting Yourself from Liability

You don’t have to dress like this to protect yourself from liability!

If you want to protect yourself from liability, be aware of conditions that mold thrives in. Conditions include; negative drainage, leaking foundations, dampness in basements and crawl spaces, leaky plumbing, improper flashing, that can allow water into wall cavities, improperly installed synthetic stucco, excessive moisture in crawl spaces and attics and more. Be sure to have these areas reviewed if they show signs of moisture or water penetration. Last but not least, make accurate disclosures to your client regarding what exists.

To learn more about recognizing conditions that can support mold growth and appropriate ways to disclose your observations, spend three hours of your valuable time taking our “Mold a Growing Concern” course. It’s approved for three hours of continuing education in most states. You’ll be glad you did!

Good luck and do good work,

Rich


[1] 12 CFR Part 1002 – Equal Credit Opportunity Act (Regulation B) specifically 1002.14 Rules on Providing Appraisals and Other Valuations.

Highflying Appraisal Practices!

New gear, yahoo!!!! Who doesn’t want new toys, especially one that can make you better at your profession! Drones, whether you love them or want to shoot them out of the sky, appear to be here to stay.

The real estate industry has been quick to dive into this new and innovative technology and appraisers are no exception. With the use of drones increasing The Appraisal Foundation found it important to produce an FAQ (FAQ 214) to answer some of the questions surrounding the use of aerial viewing and its relationship to credible appraisal results.

The main advantage to using a drone, in appraisal practice, is making hard to reach places easily accessible.

Here are a couple of examples of how drone use can reduce your liability and create a more credible appraisal report. In regions where drive-by inspections are not uncommon, the addition of a drone can turn a drive-by into a flyby. You could potentially uncover conditions at the subject property that would’ve otherwise been missed from the street, producing a more credible appraisal result.

How about making rugged or wet terrain more accessible and being able to capture a birds-eye view.

I’ve even heard from one appraiser, in Colorado, who used it to demonstrate the view from the third floor of a proposed construction, thereby being able to document the benefit of the view.

The uses are virtually endless, but they are not unregulated.

Here are a few facts that you need to be aware of before you start using a drone in your appraisal practice.

Drones are flown by either remote control or by an onboard computer. In technical terms, aerial drones are referred to as UAVs or unmanned aerial vehicles. Appraisers would use small drones, less than 55 pounds. Small drones are also referred to as sUAS (small Unmanned Aircraft Systems).

In August 2016, the commercialization of drone use was enacted by the Federal Aviation Administration.

The FAA’s final rule has revolutionized commercial operations of small drones. The rule replaced its previous commercial sUAS regime requiring individual, case-by-case adjudications and establishing a broad authority for pilots to operate within certain parameters.

Commercial operators, which would include appraisers using them for site inspections, of sUAS weighing 55 lbs or less will no longer need to petition for a Section 333 exemption if the operation falls under the new rule (also known as Part 107). Part 107 requires remote pilots-in-command (RPIC) to maintain visual line of sight with the sUAS at all times and to operate at a maximum altitude of 400 feet, at a maximum speed of 100 mph, during daytime hours, and not above non-participants. The RPIC will need to pass an initial aeronautical knowledge test, be at least 16 years old, and be vetted by the Transportation Security Administration. The first test was administered on August 29, 2016, at FAA-approved knowledge testing centers.

Small drones used for recreational, commercial, governmental or other purposes must be registered with the FAA. The registration only cost five dollars and is valid for a period of three years.  Here is a link to the FAA Drone Registration page.   https://faadronezone.faa.gov/#/

Prices of camera drones have come down. You can buy an entry-level camera drone for less than $350 USD. For close to $1,500 USD you can purchase a drone with professional image quality and performance. My recommendation is to buy an $89 drone without a camera to practice around your own property and drive your family crazy! Choose a drone that features an auto return to home when the battery runs low, for obvious reasons.

In the future, we will be releasing a seven-hour accredited continuing Ed course that will include a simulator to help you get started. It will include forms and phrases to help you integrate this highflying technology into your everyday practice.

Proposed legislation would raise appraisal fees

North Carolina proposes legislation to establish fair “customary and reasonable” fees for appraisers. Prompting the FTC (Federal Trade Commission) to go to bat for the AMCs.

While the state North Carolina is trying to ensure that the public receives quality appraisal services and pay fees that are “customary and reasonable” using data from the Veterans Association studies, etc., it looks like the FTC has chosen to protect the AMCs.

In North Carolina there is currently proposed legislation designed to establish what customary and reasonable fees are in specific regions. The legislation would establish that AMC fees are not always considered “customary and reasonable” and are precluded from being part of any average.

The state of North Carolina is not fixing fees, but establishing what “customary and reasonable” fees are for specific regions in that state. For instance, it costs an appraiser more money in the rural, mountainous, less populated regions of North Carolina to develop a credible appraisal than it does an appraiser in the city of Raleigh, North Carolina.

For the second time in the last two months, the FTC is accusing a state of pursuing appraisal fee laws that could restrict price competition and violate federal antitrust laws.

The FTC would be better served to look closer at the AMCs that charge the lending institution servicing fees that are sometimes greater than the amount of the appraisal itself.  Ultimately, those fees are paid for by the consumer, they are just not called an appraisal fee.

May 2017, the FTC filed a complaint against the Louisiana Real Estate Appraisal Board, accusing the Board of “unreasonably restraining price competition for appraisal services in Louisiana” by stipulating that appraisal management companies must follow the state’s established policies for the fees that AMCs pay to appraisers. The FTC suggests that the bill “may have the effect of displacing competition for the setting of appraisal fees and ultimately harming consumers in the form of higher prices.”

The North Carolina General Assembly is currently considering a bill that seems to be aimed squarely at the AMCs, because it would establish a single resource for determining what is customary and reasonable when it comes to fees in specific regions. Legislature includes a method for determining how the state’s appraisers are paid based on “academic studies, government fee surveys (Veterans Administration studies), and independent private sector surveys,” rather than allowing the fees to be set by market competition.

The North Carolina Assistant Attorney General requested the FTC issue a comment regarding its opposition to the North Carolina bill.

According to the FTC, North Carolina’s proposed legislation has some of the same issues as the proposed Louisiana legislation.  In its comment, the FTC states that the bill’s method for establishing appraisal fees “is not mandated by – and, in fact, may be inconsistent with – federal law.”

Authors note: Something can be inconsistent without violating the law!

The FTC claims that North Carolina’s proposed legislation goes beyond the rules established in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank requires appraisal management companies to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.”

The FTC states in its comment that it believes federal law does not require states to impose standards for customary and reasonable fees beyond what federal law provides, or to set customary and reasonable fees at any particular level.  FTC claims that North Carolina’s proposed legislation establishes a specific price schedule for appraisal fees that is not representative of the market place.

According to the FTC, the North Carolina legislation establishes the following rules for paying appraisers (from the FTC comments requested by NC AG Ouellette):

 

  • The bill states that “Compensation and offers of compensation provided to an appraiser shall be presumed reasonable” if the amounts are “reasonably related to recent rates paid by the consumer for comparable appraisal services performed in the geographic market of the property being appraised.”
  • The bill then states that “Recent rates paid shall not include those amounts paid by appraisal management companies.”
  • The bill further states that “Customary and reasonable rates shall be based on objective third-party information, such as academic studies, government fee surveys, and independent private sector surveys.”
  • Finally, the bill requires the Board to “adopt rules necessary to enforce this subsection.”

Those rules carry a number of issues, the FTC said in its comment.

The bill, as structured, could “effectively preclude AMCs from negotiating market-based fees with appraisers,” the FTC said. “We are concerned that this approach restricts free-market determination of appraisal fees and therefore may ultimately result in higher prices for consumers.”

Additionally, one piece of the North Carolina legislation’s language could lead to appraisers being paid the full amount that buyers are charged for the appraisal, rather than AMCs taking a portion for their services.

“The bill also expands this definition to include ‘recent rates paid by the consumer.’ We question whether it is appropriate for appraisers to receive the full rate that the consumer pays,” the FTC said.

“Typically, the consumer pays for additional services beyond the appraisal (e.g., other services provided by the AMC), the costs of which might be recovered by the lender as a lump-sum fee for the loan,” the FTC continues. “Thus, this provision also might have the effect of inflating the prices paid by AMCs for appraisal services, above the levels that would otherwise exist in a competitive market.”

The FTC also states that if North Carolina begins dictating that AMCs use a fee survey as the basis for how they pay appraisers, the free market will be removed from any role in determining the price of appraisal services, and might inflate appraisal fees above competitive levels.

“In other states that have commissioned fee surveys, methodology issues have resulted in a report of appraisal fees that may not accurately reflect market rates, and may have been significantly higher than market rates,” the FTC states.

“These fees, when paid by AMCs, are then passed on to consumers,” the FTC continues. “Where surveys report only median or average fees, rather than a range, the surveys fail to account for the variability of appraisal circumstances and fluctuations in the real estate market.”

The FTC concludes its comment with a bit of a warning for North Carolina.

“We urge the North Carolina General Assembly to consider whether HB-829 will promote competition and benefit consumers,” the FTC states.

“We are concerned that, if HB-829 were enacted, real estate appraisal fees in North Carolina might not be based on competitively set market rates, and that AMCs – and, ultimately, consumers – might face higher prices for real estate appraisal services,” the FTC concludes. “As evidenced by the recent filing of the FTC Board Louisiana Complaint, we will continue to investigate and, where appropriate, recommend that the Commission challenge potentially anticompetitive actions by real estate appraisal boards.”

Whomever is spearheading this at the FTC should consider taking a closer look at the fees AMCs are charging on top of the appraisal fee, which ultimately costs the consumer much more money than paying appraisers customary and reasonable fees.  They should consider whether these fees are not “other service”, but an extension of the appraisal cost and not the FTC doubletalk (above).

Let’s hope that the state of North Carolina prevails and their legislation passes creating an example that might be followed by other states throughout America.

Here’s a novel idea, real estate appraisers organizing and developing appraiser owned co-ops that would displace the AMCs and pay appraisers fair and reasonable fees. Co-ops would make money the appraisers would make more money (than they currently do), and the lending institutions would pay less money. Meanwhile, greater fees being paid appraisers would promote and stimulate the continued evolution of appraisal reports that is required by today’s higher standards.

Are you Feeding the Monster?  

AVMs run on data, your data. Has Freddie or Fannie paid for your data lately? Maybe indirectly. Don’t feed the beast!

There are a lot of discussions these days about AVMs displacing appraisers. Is this a tempest in a teapot, a kerfuffle over nothing, or is there a real threat to the appraisal profession? The answers to that compound question are, no, no, and maybe. Freddie Mac refers to their AVM as an Automated Collateral Evaluation or ACE.

According to Scott Rueter, Freddie Mac’s chief appraiser and director of evaluation, “An appraiser is part of a risk decision. If there is a subset of loans where we can make that risk decision without an appraisal by leveraging responsible innovation, then we should do that. Our charter calls on us to provide liquidity; it doesn’t say order an appraisal on every single property. While the ACE is something that goes counter to my appraiser DNA, I understand it, and for a small subset of the safest loans, Freddie’s goal is to better serve the public.” You might say that Freddie Mac’s ACE up their sleeves, for better serving the public, is an AVM. What could go wrong?

Rueter went on to say, “We will overwhelmingly still need to order, grade, score, and consume appraisals. Our data systems are modeled from appraisal data, so it won’t work without appraisals. That doesn’t mean we will need appraisals on 100% of loans.”  So, there it is, are your appraisals feeding the machine? Did you give Freddie Mac permission to use your appraisals beyond the initial loan contemplated by the assignment?

What if every appraiser in America added a simple phrase to their appraisal report. Something like the following, “The data, conclusions, and opinions collected and rendered in this appraisal report are the intellectual property of the appraiser and provided to the client and users of the report for the exclusive use relating directly to the sale transaction contemplated by this assignment.” So, the lender, Freddie Mac, and Fannie Mae get to use the data for that loan, as anticipated.  Would Freddie and Fannie just use the data for their AVM (ACE) without telling you, or perhaps without even realizing the use is unauthorized?

An interesting thought, but of course it would take organization to motivate the vast number of appraisers across America to work in unison to prevent the unauthorized use of their data in an AVM.

Other things appraisers might consider doing, if they feel they may lose some of their work to AVMs, is diversifying their careers. Consider adding certified business appraisals and/or building and home inspection services to your professional offerings.

We will explore some of your options later in a Food for Thought we call, “Diversify, Diversify, Diversify” as a way to ensure your financial future, and have greater control over your schedule.

Before I sign off, if you can take a minute and let us know what courses you would like to see developed, we will be more than happy to consider them and try to make them a reality.

Good luck and do good work, Rich