Thursday, February 18, 2010

Reactions to Wells Fargo RVS Desktop Appraisal Announcement

UPDATE!! - The North Carolina Appraisal Board Weighs In ON RVS Desktop Appraisal Announcement - Scroll to bottom for full text.

In response to the nasty-gram emailed to me by the fine folks at Wachovia, this email was sent their way:

Mr. Ramirez,

Thank you for your message and expression of concerns.

You may wish to know the post you found to be offensive has been modified. Instead of the Wachovia email, I reference an email from another person/entity with essentially the same information. That email DID NOT come from Wachovia.

Of concern is the fact you did not take issue with any of the points made in my post on Appraiser Active. Instead, your preference was to avoid disclosure, openness and discussion.

This “product” referenced in the email sent to appraisers from coast to coast has been discussed and debated extensively among appraisers, state regulators, AQB Certified USPAP Instructors, past members of the Appraisal Standards Board and users of appraisal services over the past few days. The consensus is that there are serious problems with the terms of the offering by Wachovia.

  • It is undeniably a contingent fee arrangement.
  • The contingent fee arrangement does not comply with USPAP.
  • The contingent fee arrangement does not comply with Florida law.
  • Appraisers may be in violation of the Scope of Work Rule by accepting the assignment conditions dictated by the Client.

    In the event you would like to discuss these issues or make a statement with respect to making corrections or modifications, I would certainly be interested. State regulatory agencies from Florida to Washington State would be interested as well.

    In the meantime, I wish you well.


    Francois (Frank) K. Gregoire IFA RAA
    Gregoire & Gregoire, Inc.
    Realtor - Appraiser

    P.S. Several folks with an interest in the outcome have been blind copied on this email.
Among the "several folks with an interest in the outcome" were a selection of Administrators, Members and Attorneys representing State Appraiser Regulatory Agencies from one end of the country to the other. My email, along with links to the Appraiser Active and Matrix blog posts, were forwarded to others in their regulatory agency network. Needless to say, the Appraiser Regulatory Agency group is concerned.

Here are a few comments. The names and states have been redacted because these are not yet "official" positions.

A letter from XXXXX could be directed to the Comptroller's office describing how such practices are contrary to their need for ethical, competent appraisers to provide appraisals for collateral decisions. Wells Fargo wants to engage an appraiser, but they only pay for the appraisal is the appraiser is able to report certain predetermined results (e.g. at least two comps in the last 120 days, at least 2 comps within 1 mile, all comps must be listed in MLS, etc.). The problem, of course, is that such fee arrangements are prohibited by USPAP because they inspire unethical behavior by the appraiser.

Since we are all appraisal regulatory agencies, we are bound to process the complaints that inevitably will result from such a business practice. If the appraisers agree to those assignment conditions, they have already violated USPAP. Whether it was Wells Fargo's idea is a moot point as far as our Board. If your friend recommends you break the speed limit, and you do it, you are going to get the speeding ticket, not them.
I do not think XXXX should take an advocacy position on behalf of real estate appraisers; however, an advisory letter to the Comptrollers office on the above USPAP requirement, wouldn't be overreaching our mission statement, I think.
My opinion is what Wells Fargo is attempting to do with it's desktop program, requesting a "hit" or "no hit" is a blatant attempt for appraisers to accept assignments based on pre-determined results.
As most of you know I don't "weigh in" on most things, I sit back and observe what others are saying and doing. This group has, over the past 10 years provided me with a tremendous amount of very good advice and "food for thought" and for that I am very grateful. We have seen both good and bad times in this industry. I realize that our industry is constantly changing and evolving, some change is good and some is bad.

This current issue is bad. I only have two questions for now; 1. What are we as a group going to do about it or can we even do anything about it? 2. When the complaints start coming in (and they will) do we just accept it or do we hand it back to Wells etal and tell them that we, "Can't cure stupid"?
After 4 years of college, 3 years of experience and years of learning, we now have the opportunity to earn $25.50 per day that won't even cover most of the fees that are required to maintain the data services that are required to complete this "product." Is this a hoax? Did they leave off the first number? A BPO is better than this. No wonder the banks have needed bail outs. This is the most insulting and incredulous thing I've seen yet.
What a mess! Hard to be it could reach such a low. Seems like they will not be happy until they can have the value before the appraisal is completed!

You go Frank! We are meeting today to finalize our position on this product and hope to send an email blast to our licensees shortly.
The XXXXX Board may issue an official advisory opinion regarding this product that will address the contingent fee arrangement and advise licensees of the board’s position.
Interestingly enough, there has been no response from the fine folks at Wachovia and no defense of their "product".

From the North Carolina Appraisal Board


A new desktop appraisal product was released in February 2010. The Appraisal Board has received numerous telephone calls and emails about this product and others that are similar. Although the Board does not approve or prohibit specific forms or software used to deliver appraisal results, the Board does have several concerns about this type of assignment.


An assignment is an agreement between an appraiser and a client for a valuation service. Once an appraiser accepts an assignment, USPAP applies to the appraiser’s actions. Even if an appraiser ends up not completing the assignment or does not get paid, the appraiser must still comply with USPAP. If an appraisal report is created and sent to the client, a workfile must be produced and maintained. USPAP requires that the work file must contain enough information to produce a summary appraisal report from the workfile contents.

This is a valuation service regarding the subject property that would have to be disclosed under the 2010 change to the Conduct Section of the Ethics Rule of USPAP, even if no report was transmitted and/or no payment was received. According to the instructions for this product, if an appraiser accepts an assignment to do this type of appraisal but subsequently discovers that the subject property does not meet minimum requirements, the appraiser will not get paid. This is referred to as a “no-hit”. Since an assignment that results in a “no-hit” may not be tracked in invoicing software, the assignment would have to be entered into some other type of tracking software to make sure one complied with the new disclosure requirement in USPAP.

The Scope of Work Rule of USPAP states that the appraiser, not the client, must determine the scope of work necessary to develop credible assignment results. In addition, the Scope of Work rule states that “An appraiser must not allow assignment conditions to limit the scope of work to such a degree that the assignment results are not credible in the context of the intended use.” There are several assignment conditions in this product that are referred to as “appraisal report minimum requirements”. Some may be unacceptable.

This product requires appraisers to use MLS as the primary data source. In many areas of our state, MLS is not available or is unreliable. A better source of data might be the county tax office or a private data collection system. The product also requires that appraisers must use a minimum of three closed comparable sales and a comparable listing and/or pending sale. At least two of the comparable sales must be less than 120 days old, and at least two must be located within one mile of the subject. The GLA of the comparable sales must be within 20% of the GLA of the subject. Appraisals of condominiums with more than 15 units must include at least two comparable sales from the development within the last 12 months and at least one comparable listing and/or pending sale from the development. Condominiums with 15 units or less must include at least one comparable sale from the development within the past 12 months and, when available, a comparable listing or pending sale from the development. This product does not allow the appraiser to use the best data available and may well limit the amount of work performed to such an extent as to violate the Scope of Work Rule.

Of major concern is the assignment condition that the appraiser will not receive a fee if the appraiser cannot meet all the product requirements. As noted above, this is referred to as a “no hit”. “No-hits” are produced when the appraiser cannot produce a credible value due to insufficient subject data, the subject is an ineligible property type, the appraiser cannot meet all of the minimum report requirements, the subject is zoned commercial/industrial, or the subject is not at its highest and best use.

It appears that the assignment conditions may violate the Management Section of the Ethics Rule. For example, if the appraiser searches for comps but discovers there have been none within the last 120 days, the appraiser will not get paid. If the subject is located in a transitional area and the highest and best use would be as an interim or commercial use, it is a “no-hit” and there is no fee. The fee for the assignment is contingent on a predetermined result - the reporting of comps that meet certain criteria, or a finding that the subject meets the product requirements. This type of assignment may result in the loss of objectivity. An appraiser may be tempted to use sales that he or she would not otherwise use, or to simply concur that the current use is the highest and best use, in order to receive a fee. The fact that an appraisal may not be completed (a “no-hit”) is irrelevant. The Ethics Rule prohibits accepting such an assignment.

There are appraisal products on the market now that allow or even require the appraiser to choose comparable sales from a database maintained by the software vender or client. Most of the comps in those systems are datamined from other appraisal reports. These services are not connected directly to a local MLS system. Sometimes an employee of the software company may contact local real estate brokers to obtain comparable sales. If an appraiser uses this database for sales, the database must be listed as the source for comparable sales, with MLS or another source used for verification of those sales. In addition, if the appraiser is given comparable sales by the client or vendor, the appraiser must disclose that he or she received significant assistance in choosing comparable sales.

Some of these products give an appraiser a discount if the appraiser voluntarily “contributes” appraisal reports to the software database so that subject and comparable information can be mined. Keep in mind that doing so is a violation of the Confidentiality Section of the Ethics Rule of USPAP, as assignment results are also communicated to the database.

A final note – the low fee paid for this assignment does not in any way lessen the appraiser’s legal requirement to comply with USPAP.


Michael Tipton said...

Frank, I would also like to hear from WF/Wachovia's regulators regarding this form. It is my understanding that federal banking regulations require USPAP compliance.

Of equal concern is the concept of utilizing a desktop appraisal report for REO/Short Sale servicing purposes. Observing the condition of the subject is not possible from my desk (unlike an infamous NC based appraiser). A desktop report would probably result in a misleading report based on my prior experience with REO properties.

Unknown said...

Mr. Tipton: I am representing myself in a court case that requires documents filed by tomorrow. The Desktop appraisal [among other errors] was used in Foreclosure mediation, including outdated falsified sales statistics, etc. I am desperate for Statutes and Case law that I can quote. I am currently "reviewing" USPAP 2010-11 docs. My other issue is "Assignment" from Golden West (As trustee); World Savings Bank FSB > Wachovia > Wells Fargo. Any precise information would be sincerely appreciated.