In This Issue Client indemnification agreements be careful! Page 1 Review market explodes lots of work Page 4 Identity theft, forgery

Completing review assignments - Scope of Work

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Completing review assignments - Scope of Work

The majority of residential review assignments are ordered using the Fannie Mae 2000/Freddie Mac 1032 form version 2005 "One-Unit Residential Appraisal Field Review Report." Desk top appraisals are ordered using the National Association of Review Appraisers and Mortgage Underwriters form 2006.

The lead-in to Standard 3 states, "In performing an appraisal review assignment, an appraiser acting as a reviewer must develop and report a credible opinion as to the quality of another appraiser's work and must clearly disclose the scope of work performed."

As with other types of appraisal assignments, the scope of work must be clearly defined. Clients vary greatly in the instruction detail for review assignments.

One client acting for Freddie Mac routinely sends out 14 pages of documentation including a report example. It is time to get out the highlighter and map out the high points of these instructions.

Clients are mandating more detail in the final reports such as the inclusion of copies of the MLS sheets for both the original comparables and replacement comparables, if any. Some clients cite specific wording that must be included in the appraisal if certain conditions exist.

A close examination of orders is very necessary prior to the inspection process due to more lenders requiring specific photographs.

Reviews for Freddie Mac require front/side and street scenes in both directions. Appraisers are asked to take photographs of amenities and special features both positive and negative. Photos of any location influences that impact the subject's value (positive or negative) must be included along with adequate commentary addressing these items.

Lastly, most lenders cite a specific margin of agreement/disagreement with the original opinion of value. Freddie Mac sets this at 10%.
Appraisers and the "Blink" moment

Malcolm Gladwell, author the popular book The Tipping Point went on to publish an equally popular book, Blink-The Power of Thinking Without Thinking. In this book, Gladwell introduces the reader to that part of the brain that leaps to conclusions, calling it the adaptive unconscious.

The jacket cover states, "Blink reveals that great decision makers aren't those who process the most information or spend the most time deliberating, but those who have perfected the art of "thin –slicing"-filtering the very few factors that matter from an overwhelming number of variables."

He starts the book by citing the case of a famous Greek statue, known as the kouros. While the statue tested well for the supposed age, experts such as Thomas Hoving former director of the Metropolitan Museum of Art looked at the statue briefly and concluded it was a fake. It just did not look right.

Real estate appraisers will never admit the presence of "Blink" in their work. However, every appraiser pulling up to a residence registers their "Blink" moment whether they admit it or not. Appraisers must be aware of the "Blink" moment when reading over an appraisal report.

A conscientious review begins with a full reading of the report under scrutiny. Review appraisers are accountable for their decisions and must not violate the rules of fairness and objectivity. Analytical ability and mature judgment are needed to conduct effective reviews. However, the sense that not all is right or something is amiss is sometimes a powerful message that should be welcomed and not ignored when reading over an appraisal slated for review.

Create a time-saving worksheet and check list

Fact checking and an analysis of adjustments make up the bulk of any review assignment.

In anticipation of review work, it may be helpful to create a supplemental worksheet and check list. Appraisers, anxious to complete the appraisal, plunge in filling out the form rather than spend time in the development stage. This is when time spent gathering information can increase productivity.

For instance, the legal description is found on the original appraisal and it is entered on the appraisal review. Underwriters reviewing the review will check to see that the two are consistent and, if not, whether the reviewer comments on the discrepancy. Items such a zoning, site size, GLA found in public records are pieces of information, if gathered beforehand, can speed the appraisal process.

A column worksheet is helpful to layout the adjustments and if any such as per square foot, what these adjustments are. This is particularly helpful for adjustments that are based on percentages. Concessions are more frequent and these take independent research. A worksheet is helpful with gathering this information.

Information gathering before the reporting stage is good appraisal practice and increases the efficiency of the process.

Field reviews and the appraisal firm's marketing plan

Marketing in the appraisal firm is done day to day, but every part of marketing has a long-range aspect. Accepting appraisal reviews may be difficult to fit in today, but there may be great benefits in the future.

There is one certainty about the lending climate today. The AMC low fee model does not have staying power. We are clearly in a cycle and decline is proving to have a long trough, but the lending climate is cyclical and there will be an upturn.

Desperate for appraisers to do review work, lenders are streamlining their application procedures and taking on new appraisers. Once on the panel, there very well may be work in the future. Review work, then, is a very easy way to expand the client list.

The second marketing aspect of accepting review assignments is the lead-in to new sources of assignments. There is an increase in appraisal reviews of reports done more than 24 months previously. The number of REO properties is still increasing and along with that increase comes more and more opportunities for appraisers.

With an increase in lenders wanting to have old appraisals reviewed it is probably a good time to review pricing. A review of an appraisal done two years ago requires more research than the typical assignment and should be priced accordingly.

The first rule of marketing is to know as much as you can about the competition. The review process allows great opportunity to learn about the competition from what software they use to how they present their product In any review assignment, appraisers benefit by spending time comparing how the competitor's reports stack up to their own.

While review appraising is the right thing to do, there are immediate benefits to the appraisal firm and important aspects of marketing strategy that should not be overlooked.

Review appraising provides important incremental income to the firm that may, if segregated as incremental income, provide a source of retirement funds, for instance.

The review process is in most cases an eye opener, an opportunity to learn from bad examples as well as the good. Accepting reviews is an opportunity to increase the client list and open the doors to new business opportunities.

Lastly, doing reviews gives us first hand information about the competition.

Marketing an appraisal firm is not something to put on the shelf during busy times. There is a marketing aspect of almost everything we do and deciding to accept or reject review work is no different. The overall goal is the economic health of the appraisal firm and there may be positive benefits in the long term of accepting review work that are worthy of consideration.

Where to get more information

Published in 1998, the Appraisal Institute book, Appraising the Appraisal: The Art of Appraisal Review by Richard C. Sorenson, MAI is a good fit for the appraiser's library. It is available at

Freddie Mac recently issued Bulletin Number 2009-18 with a section exhibit at the end entitled "Best Practices: Underwriting." This is an important publication that addresses specific review issues for underwriters. The Bulletin may be found at: .

A similar but more detailed publication was issued by Fannie Mae in April of 2009, entitled "Guidance for Lenders and Appraisers. This 26 page document highlights in great detail current Fannie Mae standards and guidelines. A full review of both the Fannie Mae and Freddie Mac documents are essential to performing a residential appraisal review. This publication is found at:

Identity Theft, Forgery & Other "Altered" States
By Liability Insurance Administrators,

reprinted with permission.

Editor's note: Something unique in each appraisal can work well to identify reports you did yourself, such as an asterisk in a specific location in each appraisal report.
Identity theft is currently our nation`s fastest growing crime. According to studies conducted in July 2003, approximately 7 million people became victims of identity theft in the prior 12 months; that equals: 19,178 victims per day or 799 victims per hour.

One of the most difficult things an appraiser has to deal with is notification that he is the subject of a lawsuit or state board proceeding. Imagine the shock when he learns that the appraisal on which the lawsuit or state board proceeding is based was not even prepared by him. A few years ago, it was very infrequent that an insured called to advise that someone was forging or altering their appraisal reports. Presently claims involving forged or altered appraisal reports are reported to us on a regular basis.

As a result of the information explosion, aided by technological advances, individuals and businesses find it harder to control who has access to confidential information and find it even more difficult to safeguard this information. As appraisal practices become more technologically proficient, it is likely that appraisers will increasingly be impacted by identity theft and forgery.
Identity Theft and The Appraiser

Identity theft occurs when another appraiser or some other third party prepares appraisals in your name and with your license number. The perpetrator may select their victim`s name and license number randomly. Every appraiser needs to be aware of the problem and must be protective when it comes to the disclosure of your license number. However, most states now post all professional licenses, so your license number is easily available on your state`s website as well as the Appraisal Standards Committee online National Registry. But unless required by your state`s licensing regulations, do not display your license number on websites, business cards, stationery, etc.

The majority of identity theft claims reported to us arise from instances of forgery committed by someone the appraiser knows - usually a current or former employee. Most commonly forgeries are committed by either a trainee or independent contractor who was tired of splitting fees; or an appraiser who wanted to establish a relationship with a lender but could not find any other way onto their approved list. By signing the name of their "supervisor", the lender accepted the report and the forger received the entire fee.

Another common situation is where the insured appraiser has agreed to review and sign off on the work of a colleague. If the appraiser is too busy or unavailable, the colleague - thinking he will never get caught - signs the supervisory appraiser`s name in order to meet the appraisal due date.

Claims against appraisers based on altered appraisals are often the most difficult to defend. Sometimes, the check mark in the "subject to completion" box is erased and replaced with a check mark in the "as is" box. Frequently the change is even more significant and involves an alteration to not only the estimate of value, but to information contained within the comparables grid. In these cases the appraiser`s signature is authentic, it is just the data within the report that has been altered. The appraiser has to show that the report in the hands of the claimant is not the same work product that left his or her office.

Besides guarding your license number, appraisers must be extremely protective of their digital signature. The signature must be password protected and should never be shared, no matter what the urgency. Situations will arise where a client is demanding a report on a Friday afternoon after you have left for the weekend. It will be very tempting to authorize someone in your office to affix your digital signature so you can continue with your weekend plans uninterrupted, but we caution you, don`t do it.

When someone uses your signature without your knowledge or consent, you have to be able to say that you have never, under any circumstances, given anyone the authority to sign your name. An appraiser will face an uphill battle trying to convince a judge or a state board investigator that although he had given a trainee or employee permission to sign his name on prior occasions, he did not grant his permission with regard to the subject appraisal of the particular lawsuit or complaint.

We are aware that many appraisers provide their password to clients or management companies, but we do not recommend this practice. If you are obligated to give someone else access to your signature, you should have a written agreement which outlines the situations where they may use your signature and those situations where they may change your original work product. If the agreement is breached, you have evidence that you tried to protect yourself and you might even have a chance to pursue the offending party for damages.

Appraisers must be selective about the people with whom they choose to work, including trainees, employees, lenders and appraisal management companies. Every appraiser knows which clients may not have the best reputation and which clients consistently ask them to "push" the value. An appraiser who refuses to give in to these demands could learn later that the client went ahead and altered a report to reflect what the appraiser refused to do. In this situation, it is imperative that appraisers keep reliable records. When questioned, an appraiser has to be able to produce a copy (preferably signed) of the actual, unaltered appraisal. In some cases law enforcement officials will secure their own copy after they seized your computer.

We`ve had several instances where an appraiser did not recall a certain property and cried forgery simply because their poor record keeping did not allow them to locate the report. As a result, the appraiser who truly has been a victim of forgery or identity theft is not always taken seriously or believed by authorities.

Consider being consistent in the way in which you prepare all of your appraisals. Some appraisers have begun to use a particular phrase in every report they prepare. Their motivation is, if a report is forged they will be able to prove that point convincingly by showing that the forged report does not contain their "signature" phrase that can be found in every report they prepared over the course of many years.
What to do when you discover you are a victim of identity theft

If you suspect you may be a victim of identity theft, take it seriously.

- Investigate suspicious calls and do not get discouraged if your messages are not returned or promised documents are never sent.

- Identity theft and forgery are criminal offenses; report incidents to local law enforcement. If you are sued months or years later you will have a police report to submit as part of your defense.

- If you know for a fact that another appraiser has signed your name to an appraisal report without your permission, report him to the appropriate real estate appraiser regulatory board.

- Contact your clients or at least the lender whose name appears on the forged appraisal and advise them that someone may be signing your name to appraisals and discuss a simple way for them to confirm that you prepared a report they receive; confirm these conversations in writing.

Being proactive may go a long way toward convincing a potential plaintiff that the report that caused them harm was truly not prepared by you; taking no action will harm your credibility.

We also suggest that you "follow the money" and determine who received payment for the appraisal. Consider that someone who used your identity to prepare appraisals might have gone further and may have opened a checking account in your name. Taking time to deal with suspicious calls without delay may save your reputation, as well as time and money should a lawsuit or board complaint develop later. In conclusion, identity theft and forgery have become the white-collar crimes of the 21st century, and you should take all necessary steps to protect your identity, reputation and work product.

Actual Claims from Lia Files
Tell Tale Claims.
No one to blame but yourself

An insured appraiser received a claim from his client alleging that he misrepresented the subject property as being complete when work remained to be done. The insured could only recall having completed a "subject to completion" report on this property. When he checked his computer, he found both a "subject to completion" report and an "as is" report. Unbeknownst to the appraiser, someone must have called the office and requested that they change the report to read, "as is". Everyone in the office had access to the insured`s digital signature password and therefore anyone of them could have made the change. So far, no one in the office has admitted to having made the change. This claim will be difficult to defend.

Consistent File Management Saves the Day

Another insured appraiser received a lender claim alleging that a particular appraisal overstated value. When the insured did a search of his files, he could not find the appraisal in question. We obtained a copy of the appraisal from the lender and the insured insisted that he did not do the report and that his signature had been forged.

The insured pointed out numerous differences between the "forged" report and his standard appraisals. He always uses a digital signature whereas the forged report had a manual signature, each report he prepares has the file number in the top right hand corner of every page and his company name in small letters at the bottom of every page; the appraisal in question had no file number and no company name. Lastly, the insured uses software that prepares every sketch and the forged report's sketch was drawn by hand.

The insured has invited a lender representative to come to his office and randomly look at any appraisal file. He maintains that the lender will see that his reports consistently have certain features, which are missing from the forged report. It appears that the lender is convinced and has not pursued this claim further.

Fooled by Mr. Nice Guy

An insured appraiser had an arrangement with a colleague (just a friendly appraiser he had met at a seminar) that he would from time to time review and sign off on assignments that might be "over the head" of the colleague. The insured received notice of a state board complaint and when he searched for his work file, he found no record of the subject appraisal. The insured discovered that this colleague signed his name to the report without his authorization. The insured managed to convince the board that they should take no action.

Our National Claims Counsel advised the insured to lodge a complaint to the board against this colleague. The insured was hesitant to do so; he told us that this colleague was a "nice guy" and that he probably did not realize that signing someone else's name to an appraisal report was forgery. The insured later discovered that this colleague had his license revoked several years previously and had continued to prepare appraisals without a license.
Just Don't Do It

An appraisal firm in an adjoining state who wished to form a working relationship contacted our insured appraiser. The appraisal firm had clients who did work in her state, but no appraisers in the firm were licensed in the insured's state. They proposed that the insured would complete assignments in her state and then forward it to the appraisal firm. The principal would then review the reports and send them to their clients. The insured would share in a portion of the fee. The firm requested the insured's digital signature and password so they could open her reports and make changes, if necessary, and the insured obliged.

Months after entering into this agreement the insured received a call questioning an appraisal she had prepared. She could not find a copy of the appraisal and asked the caller to fax a copy. When she received the report she realized that the appraisal firm was performing appraisals of property in her state and putting her name and signature on the reports. The insured severed the relationship and reported the appraisal firm to both her state board and to their state board. To add insult to injury, the insured received notice of an administrative complaint against her made by her own state board based on her failure to properly protect her digital signature.
About Liability Insurance Administrators (LIA)

LIA is an insurance administrator and program manager licensed and able to transact insurance in all 50 states. In addition to insurance LIA also provides education in risk management and loss prevention via articles, Claim Alerts and Loss Prevention Seminars..

The Appraisers Liability Insurance Trust is the oldest and largest Errors and Omissions (E & O) Insurance Program for Real Estate Appraisers in the U.S. It was created in 1987 under the Federal Risk Retention Act of 1986 as a purchasing group.

For more information, go to

Over 60 ways to cut costs and increase cash flow
When business is strong, we sometimes forget about being frugal. Business has slowed down for most of us and it's time to think about cutting costs.

Even if your business hasn't slowed down, why not try to spend less money? Then there will be more money in your pocket.

Some of the advice in this article is for larger appraisal firms, but most applies to all of us. If you're the only one in your office, your spouse or another appraiser may be able to provide feedback.

For appraisal firms, some of the costs are variable, based on volume of business. For example, if your work volume drops, your gasoline expense and appraisal fee split labor also drop.

But fixed costs, such as car payments and data services can cause financial problems when appraisal assignments drop off quickly.
Where are you spending your money?

Go through your accounting records (or checkbook) and credit cards looking for expenses that may not be necessary. Do this for your personal and business expenses.

As I usually do when writing an article, I did this myself. I am now saving over $500 per month and expect to be saving $900 in a few months ($400 due to downsizing my office space.)

Look for regular credit card charges.

Often we forget about monthly, quarterly, and annual services that we don't use much. Although they often are not much individually, they can really ad up.

These are typically for online services. Review your credit card statements.

Here are a few I found:

• A data service I don't use much and downgraded my plan.

• Cut my Netflix to fewer rentals at a time.

• Cut my cable tv by eliminating services I don't use much.

• Stopped a monthly computer checkup that I can do myself.

A few ideas for what you can look for:

• MLS in areas you don't work very often. Find another appraiser or real estate agent who can help you.

• A less expensive public records data service.

• Lower priced online services such as remote connecting.

• Downgrade your Internet service to a slower speed.

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