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Suspicious ingredients: are APOs the next big opportunity for appraisers or just another threat to their livelihood?

IN THE WAKE OF THE INTRODUCTION OF THE HOME VALUATION CODE OF CONDUCT, appraisers have found their businesses under increasing threat from a variety of angles. While automated valuation models and appraisal management companies have been around for some time, the adoption of the HVCC by Fannie Mae and Freddie Mac has fundamentally changed the way many appraisers do business.

And the threat to the appraisal profession does not stop with AVMs and AMCs; it has extended to other forms of encroachment, such as highly controversial broker price opinions and the proliferation, technological and otherwise, of what are generically known as appraiser price opinions, or APOs. However, the question must be asked: Are all new products a threat? Or do some offer appraisers new opportunities?


Appraisers are all too familiar with HVCC and its repercussions--both intended and unintended. Through its implementation, HVCC has spurred the rapid proliferation of AMCs, which, in theory, act as third-party safeguards between lenders and appraisers. In reality, however, appraisers across the nation have reported that AMCs often take away a large percentage of an appraiser's normal fee and keep it as a middleman fee. (See "Fee for All" sidebar on page 26.)

What this has created is a feeling of encroachment--one that starts with AMCs but extends to the rising prominence of alternative valuation methods. And this tightening of the traditional appraisal business raises the question that many appraisers are currently, or soon may be, facing: to APO or not to APO?

According to Santa Rosa, Fla.-based appraiser Robert D. Mims IV, SRA, the honest answer to this question--and perhaps no response better sums up the uncertainty and caution surrounding these emerging products--is simply, "It depends."

What exactly it depends upon is the quality of the products that exist, the state of local markets and choices that appraisers ultimately have. To better understand the APO issue facing appraisers, let's first explore the other types of valuation platforms that are encroaching on traditional appraisal business.


Broker price opinions are nothing new. What is new, though, is the explosion in lender use of unregulated BPOs for "price analyses" of properties that are on the market, but which are not federally required to receive a full appraisal. For all intents and purposes, these are largely foreclosed properties or those facing foreclosure.

As a result of their rise, BPOs have become the issue du jour in the real estate industry as a tug-of-war takes place at the state and federal levels between appraisal professionals and regulators over when--and to what extent--BPOs should be allowed for use in real property transactions and who should be able to perform them. (For more on this issue, see "A Matter of Opinion" in the First Quarter 2009 issue of Valuation, available at

As lenders turn to BPOs for price analyses, appraisers wonder: "Why are these allowed?"

Here, Mims points out that the issue tends to be based around how BPOs are used and what the client is getting.


"Isn't the implied message that the primary reason a broker or agent wants to develop a BPO is to get the listing?" asks Mims. "That would make a BPO appropriate for when the broker is trying to price the listing for sale. But when BPOs are requested for anything more than an 'analysis' of price, such as deriving an opinion of value, then BPOs have encroached on appraisals, which brings with it a rash of potential conflicts of interest."

Among Mims' concerns are that improperly performed BPOs are infringing on USPAP rules, which have been strengthened in 2010 to ensure appraisers disclose any previous relation to a property within the last three years. He is also concerned that due to a lack of regulation, BPOs could easily be inconsistent, biased and unreliable.


Donald Boucher, SRA, president of Boucher and Boucher in Washington, D.C., echoes Minis' concerns and points out that there is a bigger issue with allowing the use of BPOs for anything other than providing a price analysis to obtain a listing.

"The bottom line is that appraisers have basically been shut out of a market where we should be very involved," Boucher says. "We have been shut out because the clients using BPOs for the most part just need a quick analysis to understand what they are dealing with. It's unfortunate that the most qualified individuals are those being left out of the process."

While appraisers are losing their traditional assignments to BPOs, APOs have swept into the market to further encroach on traditional appraisal work--albeit this time with the intention of helping the appraiser gain valuation assignments.


In recent months, desktop appraisal products have been introduced by a variety of companies. FirstAmerican, Valligent and Dwellworks, to name a few, have released APO-type products.

As new products such as these come out, they spark debate over their validity as USPAP-compliant valuation tools.

When First American Valuation and Property Solutions recently unveiled its AppraiserValidatedPriceOpinion, or AVPO, it sent up red flags across the appraisal profession that this product was in direct violation of USPAP. According to the company, AVPOs are not appraisals, but rather expert opinions that provide a second level of review for broker price opinion users, without the need to build in-house review functions. But appraisal experts, including the Appraisal Institute's senior manager of ethics and standards counseling, Stephanie Coleman, MAI, SRA, argue otherwise.

According to First American, under an AVPO, a licensed appraiser confirms the specific set of values determined by a local real estate agent by looking at comparable sales and verifying accuracy. If discrepancies are found, the appraiser provides a new set of values, complete with an explanation of how they were determined.

Despite the company's language, Coleman considers these AVPOs to be appraisals in disguise. According to Coleman, appraisers are "uniquely positioned" to develop opinions about market value, but appraisers must recognize that there is a fine line between simply pricing a property consistently with its competition and developing an opinion of the property's market value.

And she's not alone in her thinking. In February, the North Carolina Appraisal Board released a memo regarding APO-type products. In the memo, "Guidance Concerning Desktop Appraisal Orders," the NCAB strongly voiced its opinion that APOs are essentially full appraisals and must be performed as such.

"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," the NCAB memo states. "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."

Donald Rodgers, executive director of NCAB, says the board released the memo because it was "primarily concerned with the contingency regarding the fee for services. Clients were attempting to dictate the scope of work and were not allowing the appraiser to determine if the scope was adequate for credible results."


"The (memo) was written for a type of assignment, not a specific product," he adds.

The NCAB memo also reminds appraisers that just because a low fee is paid for an APO assignment, that low fee does not in any way "lessen the appraiser's legal requirement to comply with USPAP."


As questions linger over the validity of APOs, another variation of the appraiser-based product has entered the market, though this product delineates itself as not being an APO and purports to be in full compliance with USPAP. Known as the Col lateral Valuation Report, or CVR, this product was created by AppraisalWorld to serve as the starting point for a new class of appraisals: transparent ones that statistically support the value conclusion.

"We wanted to produce a desktop appraisal that was supported by statistics and could be performed in short order," says Jeff Bradford, president of Bradford Technologies, which owns AppraisalWorld.

The CVR serves as a summary appraisal desktop report. It has raised questions across the appraisal profession regarding its compliance but so far has been able to answer its critics.

"We have had many USPAP instructors review our report," Bradford says. "As we expected, it has always been deemed compliant."

On a broader level, AppraisalWorld's CVR represents a larger shift in the manner in which appraisals are performed. The cheap cost and quickness of obtaining a BPO has altered the face of the appraisal profession. Appraisers, in many cases, simply can't compete.


"The BPO market is a billion-dollar market," Bradford notes. "I believe that appraisers can and need to compete but not simply at the same level as the broker with a BPO; they need to provide something much better."

According to Bradford, appraisers need a higher quality product than a BPO. Unlike brokers and real estate agents, who often have a bias in a given deal, the appraiser is the only truly objective party involved in that real estate transaction.

Bradford believes appraisers have the skills, training and education that clients desire, but, he adds, appraisers also need to take advantage of emerging technologies to be able to compete.

"Appraisers need to regain the 'trusted advisor' stature they once had with their clients by competing at all levels of the valuation business," Bradford says. "If they can compete with a quality product, they will get more business."

So, should appraisers who find their business crumbling due to the proliferation of AMCs and acceptance of BPOs use products like CVR to help them compete with encroaching alternative valuation methods? Or will legislative efforts to regulate AMCs and ban BPOs win out and compel appraisers to return to more traditional appraisal practices?


Which brings us back to our original question: Should appraisers perform an APO-type service in asset management and loss mitigation situations, assuming it is USPAP-compliant?

The immediate reaction of many appraisers may be "no," but another school of thought believes APOs may be less a threat than an opportunity.

Mark Maschger, SRA, an appraiser in Lee's Summit, Mo., has expressed disappointment that many appraisers perceive APOs as a threat to their businesses instead of an opportunity to recapture business lost to other appraisal alternatives.

According to Maschger, lenders and other clients use alternative valuation products when appraisals aren't required and when a quick evaluation is acceptable. He believes lenders prefer to have some type of collateral evaluation, but wince at the cost and time frame of appraisals when their lending decision is based primarily on other factors.

"Lenders want to work with appraisers--even for APO assignments," Maschger notes. "There's an intrinsic trust (for) appraisers. And unless the use of alternative valuation methods is prohibited at the state and national levels, I think it benefits appraisers to expand their businesses to encompass APO-type products."

Jay Delich, SRA, an appraiser from Scottsdale, Ariz., agrees that APOs offer appraisers opportunities.

"Appraisers have the training, ethics requirements and employ the valuation methodologies that set us apart from brokers," he says. "Our industry is led by client demand, and we as appraisers must be visionaries and develop products that both meet our clients' demands and maintain strong appraiser protections. At present, our clients are demanding quicker analysis and lower cost for shortened assignments."

Ultimately, the choice of whether to embrace APOs rests with each individual appraiser. If business is good and BPOs or APOs are not impacting an appraiser's business, then the choice not to APO may be clear. But for appraisers struggling to compete with the slew of alternative valuation products, APOs may offer a chance to expand their outreach and gain new clients.


Activity on the state level regarding appraisal issues--particularly, legislation related to appraisal management companies and broker price opinions--has been fast and furious during the first five months of 2010.

Four states--Indiana, Oregon, Virginia and Washington--have enacted legislation this year that will establish a regulatory framework for appraisal management companies. They join Arkansas, California, Louisiana, Nevada, New Mexico and Utah, which enacted new AMC laws in 2009. At least 16 additional states are also looking at AMC legislation.

So far in 2010, both Mississippi and Nebraska have contemplated legislation that would expand the ability of real estate professionals to perform BPOs outside of their traditional use as part of the real estate listing and sales process, including as part of loan origination.

Mississippi's H.B. 1118 was ultimately defeated in February, after a massive campaign by the Appraisal Institute Mississippi Chapter and others.

However, Nebraska passed their BPO bill (L.B. 931) in April, becoming the first state to allow the use of BPOs and CMAs specifically for loan origination purposes where an appraisal is not required under federal law.

L.B. 931 was enacted with an emergency clause, making the new law effective April 15.

H.B. 1118 is available at L.B. 931 can be viewed at


As reported in Appraiser News Online, the Appraisal Institute has called on the Department of Housing and Urban Development to ensure that lender-management fees are not misleadingly represented as fees to appraisers on the Good Faith Estimate and HUD-1 documents.

Clarification, AI says, will allow consumers to see the actual costs of all services and alleviate concerns that pit the profits of appraisal management companies against customary and reasonable fees to appraisers. Such clarification also will help educate consumers who may be under the false impression that appraisal fees are going up.

To read the April 8 letter to HUD Secretary Shaun Donovan--written jointly with the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers and the National Association of Independent Fee Appraisers--visit

Aaron Hultgren is a communications specialist for the Appraisal Institute as well as a staff writer for Valuation and the organization's Appraiser News Online e-newsletter. He can be reached at

By Aaron Hultgren, Appraisal Institute communications specialist
COPYRIGHT 2010 The Appraisal Institute
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Title Annotation:BEST PRACTICES
Author:Hultgren, Aaron
Publication:Valuation Insights & Perspectives
Date:Mar 22, 2010
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