By James Baumberger, CEO at First Choice and Certified Residential Appraiser
Evaluations and Appraisers
Why should residential real estate Appraisers in Oregon be passionate about evaluations? We believe evaluations are one of the keys to creating a vibrant, rewarding future for Appraisers. Lending institutions spend BILLION$ on evaluations, but almost all of that revenue goes to non-appraisers.
One authority at the 2018 Appraisal Summit & Expo stated that for every 1 appraisal ordered in America today, there are approximately 4 evaluations ordered. Another way to express this tremendous potential is to consider that the appraisal industry is forecast to reach approximately $2.8 Billion in revenue this year, while evaluations are forecast to reach $8 Billion!
In a business environment with declining demand for mortgage lending appraisals, it would be absolutely transformative if Appraisers could unlock an $8 Billion industry. But, are Appraisers qualified to complete evaluations? Yes, they are! In fact, no other group of professionals is even remotely as qualified as Appraisers to complete evaluations. Let’s examine that bold pronouncement in detail, before we proceed with an Action Plan.
The Interagency Appraisal and Evaluation Guidelines (“Interagency Guidelines”) – developed, promulgated, and required by federal regulatory agencies such as the CFPB, FDIC, FRB, NCUA, and OCC – define the content of evaluations as well as establish the qualifications of the evaluation preparers. Evaluation preparers should be “knowledgeable, competent, and independent….” That sounds like Appraisers, right?
The Interagency Guidelines also state that three approaches to value – Sales, Cost, and Income – may be considered for an evaluation. The guidelines also require that evaluation preparers must be well qualified. We believe that Appraisers are the most qualified experts at developing the three approaches to value. It would seem to be a matter of serious national concern that the most well-qualified group of professionals to complete evaluations is prohibited from completing them.
It is past time for that prohibition to end! The prohibition against Appraisers completing evaluations weakens the public trust, threatens the solvency of our financial institutions, and results in additional risk for America’s credit and financial systems. Some would say that Appraisers can complete appraisals as substitutes for evaluations; however, that is a specious argument because financial institutions that need evaluations reject appraisals as unsuitable substitutes. The reason why appraisals are unsuitable substitutes for evaluations is a topic for another article, so let’s focus on the prohibition against Appraisers and what action is needed in Oregon.
We cannot compete in the evaluation space because Appraisers completing evaluations must comply with USPAP. In other words, we can only complete an appraisal, but not an evaluation. The market demands both types of valuation services. We believe that Appraisers should be allowed to perform evaluations, in full compliance with the Interagency Guidelines, but without being forced to comply with USPAP.
First Choice Appraisal Management (FACM) is joining with the Coalition of Oregon Real Estate Appraisers (COREA) to advocate for a USPAP Carve-Out to empower Appraisers to perform evaluations in Oregon, as a handful of other states have already done! Introducing such legislation is the first item on COREA’s Action Plan for the 2019 legislative session and has our full support. Please join our cause, lend your voice, and help us shape a positive future for Appraisers.
COREA’s website: http://www.coreappraisers.com
Why do I believe this USPAP Carve-Out empowering Appraisers to perform Evaluations is an existential issue for Oregon’s Appraisers? There are two primary reasons: first, the GSE’s are beta-testing alternative valuation services and secondary market investors will almost certainly begin accepting alternative valuation services in addition to traditional appraisal products soon. Secondly, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) are recommending an increase in the residential De Minimus – the threshold above which appraisals are required – from $250,000 to $400,000.
Our next Blog will be a Call to Action for Appraisers to provide comments before the exposure period expires on February 5, 2019 for this proposed rulemaking:
Thank-you for reading!
Jim Baumberger, Appraiser