NEW LEGISLATION HAS BEEN CREATED THAT HAS CHANGED THE APPRAISAL BUSINESS. THE IDEA OF THIS LEGISLATION WAS TO CREATE A THIRD PARTY IN WHICH APPRAISAL ORDERS ARE MADE. THIS WAS TO KEEP THE LENDER FROM PUTTING PRESSURE ON THE APPRAISER FOR INFLATED VALUES, OVER LOOKING REPAIRS, ETC.
THIS SOUNDS GOOD BUT A GOOD REPUTABLE FIRM DID NOT SUCCUMB TO THIS PRESSURE AND DID NOT NEED THIS APPRAISAL MANAGEMENT COMPANY.
WHAT THIS HAS CREATED IS A WALL BETWEEN LENDERS AND APPRAISERS. ESSENTUALLY APPRAISER HAVE NO LENDER CLIENTS ANYMORE WITH OUR CLIENTS BEING THESE NEW APPRAISAL MANAGEMENT COMPANIES.(AMC)
THIS REALLY UNNEEDED RULE HAS CREATED NEW PROBLEMS FOR THE CONSUMER.
FIRST, THE APPRAISAL FEES WILL BE HIGHER DUE TO PAYING FOR AMC COMPANIES.
SECOND, THESE COMPANIES LOOK FOR THE CHEAPEST APPRAISER FOR THE AREA REGUARDLESS OF THEIR EXPERTISE, EXPERIENCE, AND REPUTATION. THIS KIND OF REMINDS ONE OF THE OLD JOKE ABOUT ASTRONAUTS THINKING THEY ARE BEING SHOT UP IN SPACE IN A CRAFT THAT WAS BUILT BY THE LOWEST BIDDER CONTRACTORS IN CONSTRUCTION AND MATERIALS.
THIRD THERE CAN BE NO COMMUNICATION BETWEEN THE LENDER AND THE APPRAISER. ALL COMMUNICATION HAS TO BE COMMUNICATED THROUGH THE AMC. THAT MEANS LONGER TIMES FOR APPRAISAL WORK, ADDENDUMS, SOMETIMES GAINING ACCESS TO THE PROPERTIES, ETC.
AS ONE CAN SEE THIS RULE IS FAR FROM BEING PERFECT ANY REALLY RESTRICTS A FREE BUSINESS ENTERPRISE AS I CAN NO LONGER HAVE LENDER CLIENTS THAT I HAVE WORKED WITH IN MY ALOMOST THIRTY YEARS OF BUSINESS. WHAT A SAD DAY, AND THIS RULE WILL LEAD TO MANY MORE PROBLEMS IN THE FUTURE.
INCLUDED IN THIS BLOG IS AN ARTICLE FROM THE APPRAISAL INSTITUTE NEWSLETTER ABOUT CHANGES AND A NEED TO CHANGE ON THE STATE AND LOCAL APPRAISAL RULES AND LEGISLATION.
Utah, Arkansas Governors Sign Nation’s First AMC Laws
Earlier this week, the governors of Utah and Arkansas signed the nation’s first laws that will bring appraisal management companies under the regulatory oversight of their state’s real estate appraiser boards. In addition to the registration requirements, the new Utah and Arkansas laws, which are effective on May 12, 2009 and January 1, 2010 respectively, require that AMCs have systems in place to verify that only licensed or certified appraisers are used. AMCs must also ensure that all appraisals comply with the industry’s Uniform Standards of Professional Appraisal Practice. Additional language is included in each law to ensure that appraisers are free from inappropriate influence and coercion from AMCs.
One element that is unique to the Arkansas law is a requirement that AMCs operating in Arkansas post a $20,000 surety bond with the board. Any party, including an appraiser that has a claim against an AMC, can bring suit to recover funds from the bond. The only exception is that a consumer’s claims takes precedence over all other claims. In lieu of a surety bond, an AMC can make a deposit of cash or securities.
In a letter to Gov. Jon Huntsman, the Appraisal Institute and other appraisal community organizations stated, “We congratulate the State of Utah for its leadership role in becoming the first state in the nation to enact requirements that appraisal management companies register with, and be regulated by, a state agency.” The appraisal organizations will also be writing to Gov. Beebe to thank him for his action on his state’s version of this important legislation.
According to the chief sponsor of the Utah law, Rep. Michael Morley, appraisal management companies may be inclined to hire the lowest-cost appraisers rather than the most appropriately qualified in order to boost profits. Rep. Morley added that appraisal management companies often hire inexperienced appraisers who are susceptible to pressure from lenders or mortgage brokers to come up with a predetermined valuation.
Utah State Rep. Jack Draxler, a member of the Appraisal Institute from North Logan, Utah added, “If we want the integrity of the process to go forward, if we want to prevent mortgage fraud, appraisal management companies should come under the same set of standards as the rest of the people operating in this very, very critical industry.”
To view the new Utah law in its entirety, visit http://le.utah.gov/~2009/htmdoc/hbillhtm/HB0152.htm, or to view the Arkansas law, visit www.arkleg.state.ar.us/assembly/2009/R/Acts/Act628.pdf.
BROKERS PRICE OPINIONS ARE VERY VALUABLE WHEN ONE WANTS TO LIST HIS/HER HOUSE. IF THE BROKER IS VERY CAREFUL, HE/SHE WILL TRY TO CONSIDER THE BEST PRICE TO PLACE ON THE SUBJECT TO CREATE A WILL TO BUY AND THE HIGHEST PRICE THAT A SELLER WOULD LIST WITHOUT OVERPRICING TO KILL A BUYERS WANT. SOMETIMES THE BROKER WILL UNDERLIST THE PROPERTY FOR A QUICK SALE. THIS IS INTERESTING IN THAT THE BROKER IS TYPICALLY PAID A COMMISSION ON THE SALE. BY UNDER PRICING FOR A QUICK SALE, THE BROKER IS ACTUALLY CUTTING HIS/HER INCOME IN SELLING AT A REDUCED PRICE.
IN MISSISSIPPI, BPO'S ARE LISTING TOOLS ONLY. IF YOU PERFORM A BPO FOR A FEE, THEN IT IS CONSIDERED AN APPRAISAL AND HAS TO BE COMPLETED IN A MANNER TO PASS THE UNIFORM STANDARDS OF PROFESSIONAL PRACTICE. (USPAP) AN APPRAISER IS A DISINTERESTED THIRD PARTY AND THE OUTCOME OF THE VALUE DOES NOT AFFECT THE INCOME OF THE APPRAISER AS HE/SHE IS PERFORMING THE WORK FOR A STATED FEE. THE APPRAISER CANNOT GET A FEE ON A PERCENTAGE OF THE OUTCOME OF A VALUE. THERE ARE MANY REASONS WHY A CERTIFIED APPRAISAL IS MUCH BETTER THAN A BPO BUT THIS MATTER OF THE APPRAISER NOT BEING A PARTY OF INCOME ON THE OUTCOME OF THE VALUE CONCLUSION IS A GOOD REASON WHY ONE SHOULD GET AN APPRAISAL VERSES A BPO. MORE ON THIS LATER......
I AM STARTING A BLOG ON MY WEBSITE THAT HOPEFULLY WILL BE ON INTEREST TO MY FRIENDS AND CLIENTS. I WILL DISCUSS ITEMS FOR HOUSES AND COMMERCIAL PROPERTIES. HERE GOES MY FIRST BLOG....
I HAD A CALLER THE OTHER DAY ASK ME A GOOD QUESTION. I HAVE AN ACRE COMMERCIAL SITE. I WISH TO IMPROVE THIS SITE FOR INCOME FOR MY RETIREMENT. WHAT WOULD BE THE BEST IMNPROVEMENT AT THIS TIME?
THIS IS A VERY GENERAL QUESTION THAT IS NOT EASILY ANSWERED. YOU HAVE TO KNOW MANY ITEMS SUCH AS THE LOCATION, ZONING USES, MAKE UP OF THE NEIGHBORHOOD SUCH AS WHAT ARE THE SURROUNDING PROPERTIES, CASH TO INVEST VERSES AMOUNT TO BE FINANCED, REQUIRED RETURN ON THE INVESTMENT, TERM OF THE INVESTMENT, MANAGEMENT OF PROPERTY, ETC. AS ONE CAN SEE WE ARE ASKING ALOT OF QUESTIONS DUE TO THIS BEING A LONG TERM INVESTMENT.
THE ANSWERS TO HIS QUESTIONS WERE LIKE THIS:
COMMERCIAL OFFICE, MOM AND POP RETAIL USES, WITH OFFICES, LIGHT INDUSTRIAL, MULTIFAMILY SURROUNDING THE SITE. THE AREA IS A LOWER TIER COMMERCIAL DESIREABLILTY. COMMERCIAL VACANCIES ARE A BIT HIGH 15-20% AT THIS TIME AND MANY NEW COMMERCIAL BUILDINGS ARE UNDER CONSTRUCTION AT THIS TIME. CURRENT RENTAL RATES ARE AROUND $12 PER SQ. FT. THE AREA HAS A LIMITED COMMERCIAL FUTURE.
I TOLD THE CALLER THAT A POSSIBLE CHANGE IN ZONING IS LIKELY DUE TO THE NUMEROUS MULTIFAMILY UNITS IN THE IMMEDIATE AREA. I WOULD CHANGE THE ZONING AND BUILD THREE DUPLEXES. THE COST TO BUILD IF HE CONTRACTS AND SUBS OUT WOULD BE APPROXIMATELY $135,000. DUE TO THE "GO ZONE" DESIGNATION OF OUR AREA AND THE STATE INCENTIVES FOR AFFORDABALE HOUSE WHICH ACTUALLY GUARANTEES 5 YEARS RENT, INVESTORS ALL OVER THE USA IS COMING TO OUR AREA FOR THE TAX INCENTIVES WITH GUARANTEED RENT. THIS IS NOT AVAILABLE NO WHERE ELSE IN THE NATION OTHER THAN THE KATRINA AFFECTED AREAS.
HE COULD SELL THE UNITS FOR $250,000 - $275,000 EACH. HE COULD THEN PERFORM A TAX DEFERREED 1031 EXCHANGE ON THE PROFITS AND TURN THIS ONE SITE INTO MANY OTHER PROPERTIES. THIS $300,000 CAST CANE BE SPREAD AMONG MANY PROPERTIES AND GROW THE INVESTMENT MANY TIMES.
AS ONE CAN SEE MANY ASPECTS HAVE TO BE CONSIDERED WHEN THINKING ABOUT LONG TERM INVESTMENTS. ALSO A GOOD ACCOUNTANT OR TAX ATTORNEY IS NECESARY IN MAKING THESE INVESTMENTS. BEFORE YOU START ANY PLAN LOOK AT ALL OF THE TAX PROBLEMS AS THIS CAN KILL ANY INVESTMENT
LET ME KNOW ABOUT OTHER INVESTMENT VEHICLES AS I AM SURE ANY ONE READING THIS BLOG WOULD BE INTERESTED....
UNTIL NEXT TIME...............DAVID