The problem I refer to might arise as follows: Investor establishes a relationship with an appraiser. The appraiser provides free comps/market information to the investor. Later when the property is sold to an end buyer, the appraiser is used to establish value for the lender. This relationship between investor and appraiser exists over a number of months/years?.in which the appraiser works alternately for the lender and further for the benefit of the investor at the inception of the deal. A property is now sold in which the appraiser is hired by both the investor at the outset, and later by the lender to establish value for the bank and buyer. The buyer defaults fairly quickly after the origination of the loan (many times this is exactly when it happens?look at the foreclosure lists sometime). The bank forecloses, takes the property back, and loses money. An investigation ensues. (Many of these types of deals have been investigated in certain parts of the country.)
What is unearthed in this investigation is that the investor and appraiser have a business relationship extending over a period of time. The question then arises as to whether the appraiser and the investor were in cahoots to defraud the lender.
There is just enough smoke there that someone might ?assume? there is fire. You might well be able to justify your appraisal, there really might not be any wrongdoing, but the appearance is one that a relationship of some type did in fact exist. Where this might end up going is almost impossible to say. But frankly, that?s a road I wouldn?t want to be on. History is full of examples of innocent people whose lives have been significantly affected by investigations.
In my opinion, I would rather have absolutely no relationship with an appraiser as it applies to the end appraisal?.strictly arms-length. And my fear would be that dealing with an appraiser for other purposes on an ongoing basis would confuse that arms-length preference.
I am an appraiser who would like to help investors analyze deals. I feel my opinion would be worth a little more than a real estate agent in terms of actual market value of a property versus a market analysis spit out from a computer. I am ultimately looking to get the final appraisal for the property and am willing to provide free service for investors. I would help find as many comparable properties as possible and do a market rent survey for rental properties. Here are my questions to investors:
If you receive free service from an appraiser during purchasing, would you
1)Use the appraiser for permanent financing?
2)Use the appraiser to sell the property or justify a lease option price to a prospective buyer?
3)Just use the appraiser for free advice/information?
Is investment analysis worth say $25 to $50 if you received a discount of $25 to $50 on the full appraisal for the property?
Any other ideas or suggestions on how to provide service to investors would be appreciated.
According to Uncle Sam (FIRREA 1990) banks can not accept appraisals completed for anyone other than another financial institution (i.e. the buyer or seller), but not all banks play by the rules.
I’ve had borrowers come to our bank with an appraisal in their back pocket completed by an appraiser with whom they have a long relationship, but I can not accept it because when the OCC examiners come into town and see the appraiser is not on our list and was only used once, the red flags go up and the loan could be written down with the stroke of a pen.
You are doing your customer harm by having them pay you for an appraisal when they might have to pay for a second appraisal if their lender doesn’t accept yours.
Your idea of developing a relationship directly with the investor is not new, it just was quashed when FIRREA came out in 1990. In fact, that was often the norm pre-1990.
Assuming you are a residential appraiser, I understand your need for diversifying away from lenders, as much of that is being taken over by in-house appraisers and AVM’s, along with discounted fees by AMC’s. One newly developing area of appraisal business is completing pre-sale appraisals for sellers. Check out ola.com.
If you are a commercial appraiser with more detailed investment analysis experience, there may be some due-diligence consulting or feasibility work you could do for investors and/or developers. You can also get into real estate tax consulting, which can be very lucrative.
I don’t see your idea as viable in terms of getting the final appraisal.
As you know, many lenders will dictate the appraiser. You’re either on the lenders approved list, or in some case they have their own in-house appraisers.
Further, as an investor I would rather not have that type of relationship with you. The day may arrive where a problem has occurred with the property, and I certainly wouldn’t want a significant relationship with an appraiser to be a part of the investigation.
Finally, most established investors have a means of doing their own comps within some degree of accuracy. Personally I would never rely on an appraiser to do my comps, either for rent, sales, or determining final value. Likewise, I generally don’t have a problem establishing value with a buyer who I have extended terms to.
I think your marketing should be geared toward lenders and mortgage brokers. Or alternatively, maybe it’s time to look at the possibility of doing some deals yourself…if you’re going to go to the trouble of doing all this work.
Any time you add value through adding service, people may take note. If you truly are adding value, be sure you charge for that service.
A newer investor might be interested in such a service. Or perhaps an investor working in a new market area. After buying, selling, and refinancing 10 properties in generally the same area, I feel confident about determining values within the comfort zone of my familiar market area.
Your upfront time at $20 - $50 sounds short to me. Never give away your talent, unless that is your intention is, such as when working for a charity. You might want to sell the whole apprasial deal as a package, including the front and back end. If you provide the upfront info on a stand alone basis, no doubt some investors will use your free or low cost information and not use you one the other end. You’d simply have to round the numbers and see what the payback is for you upfron investmnts.
How about this. Sell The whol package, or peices thereof. If your signed up to do both ends, work in a discount. If someone signs for just the fron end or back end appraisal, charge them market rate. Or, do the up front work, charging $100. If the client uses your service to refinance or sell, deduct $50 - $75 from your final fee.
A specialty to consider might be appraisal of rehab properties where th improvements have not yet started. A construction lender I use requires plans & specs, or a scope of work, along with a fairly professional general contractor (that’d be me). That information is then given to an appraiser, who determins value of the property upon completion of the work. That value determins the permenant take-out mortgage amount, which in turn kicks loose the construction funding.
Thank you first of all for your response. I would like to clarify that I am also an investor doing deals. I became an appraiser so I could have all of the market information at my fingertips. I found myself dependent on real estate agents/other investors/ and the Saturday paper that listed real estate transfers prices but not any information about the property. These are all techniques I learned form the free articles on this board and from other reading, however, it became tedious and time consuming trying to build database of information for my farm market. I will admit I am new (1 year) to my market and my profession. I figured being an appraiser, I would be in the neighborhoods daily making my fee and gaining knowledge for my own investing. After reading some of the other responses and analyzing yours, I think my original proposition would be better suited for new investors or investors new to the market. These two groups of people would need access to the information that an experienced investor already has available.
I am curious and would like for you to explain a little further about your problem scenario. I don’t understand how getting information from an appraiser would be any different than getting the information from a real estate agent or even a mortgage broker. If a full appraisal was done and a problem developed, as long as the appraisal was done following USPAP standards I don’t understand your concern for the investigation of the “relationship”. The appraiser is responsible for everything contained in a report. I have read stories of appraisers and investors teaming together to over/under value property for their own personal gains. This of course is unethical, but if the relationship remained professional and ethical I don’t see the problem.
If you wouldn’t mind, please enlighten me. I appreciate all of your comments on this board and hope you can point out in more detail some of the potential pitfalls.
PS Lenders and mortgage brokers receive 99% of my advertising and marketing budget. I am trying to find a niche or alternative market for my skills. I am still developing relationships with lawyers because no matter what the economy is like, people are always getting divorced and they also leave this world with estates that need to be valued for heirs to divide. This is the toughest market to crack as relationships in my area run for generations. So again, any input would be appreciated.