It's a house of cards.
I was an appraiser for 14 years, specialized in mortgage work, just like nearly all professional appraisers out there.
Out of the handful of appraisers out there that don't do mortgage work, many, if not most, started in mortgage work or were taught how to do appraisals from a mentor that was versed in mortgage work as their first introduction to the appraisal of real property.
What I'm getting at here is the influence of mortgage work on the entire Professional Appraisal Practice is much more than substantial, it has been a defining force in the industry, permeating all aspects of real property appraisal and by association, the appraisal of personal property too.
This is of course due to the need for appraisers in the first place. Without the need created out of the finance industry, very few real property appraisers would exist. I might guess the numbers would be similar to the number of Personal Property Appraisers that exist today who are by the way, governed in many cases by the same "rule book" of professional standards as Real Property Appraisers are, called the Uniform Standards of the Professional Appraisal Practice or USPAP for short. (The Antiques Road Show on PBS television is a documentary series covering Personal Property Appraisers and their Appraisal Clients in a conference hall setting).
USPAP itself is not the law. However, numerous law enforcement agencies have adopted the text into law, some federal agencies, some state agencies, and even some local agencies in a few cases. Insurance companies have adopted USPAP in some cases. The IRS has adopted USPAP in some cases. Etc etc. USPAP is a self-governed document for the appraisal practice profession, a trade organization document one might say. But there are some very sinister things everyone ought to know about the USPAP document.
USPAP was originally written in the 1980's after the Savings & Loan crisis (maybe some of you remember that event) where the fact of the matter was, banks were employing appraisers the same way they do now, to value an asset for purposes of underwriting a loan however, loan brokers and appraisers were too "cozy" with their work together, and were even employed by the same bank and working in the same office in many cases, where fraud began to find it's evil way into one bank, then another, then another.
The important part to remember here is that while each bank is it's own entity, the industry acts as a whole sometimes, similar to how the real estate market acts as a whole sometimes. For instance, when prices go up or down within a market segment, all of the individual buyers and sellers are affected. In the case of the S & L crisis of the 1980's, and in the case of today, the finance industry has been intertwined with numerous forces that shape the consumer landscape. Each and every problem discussed in this thread, save for the complaints of poor customer service from individual appraisers at the personal level, stem from this dynamic, where mortgage appraisals are but one piece of a larger formula we all know and love as the ability to obtain funds using credit or OPM (other peoples money, as is commonly phrased by many investors here on BP).
USPAP was taken over by the Appraisal Standards Board or ASB since the 1980's, under the oversight of the Appraisal Subcommittee, the entity granted the power of over-sight by the United States Congress. What that means, is USPAP started as a trade organization document born from the input of appraisers only, while today it is written and updated according to the ASB, which allows input from parties other than appraisers, for example financial institutions. The affect is that the modern USPAP end up serving multiple masters in a situation when the entire purpose of the profession was to separate the masters from each other.
Seems the smart people have found a way to keep the loan brokers and appraisers cozy after all without anyone realizing it's happening. But why? How? Is it accidental and I've let my cynical mind get the best of me? Could it be that the only thing needed is a few rewrites? Perhaps. Perhaps not. I keep going back to how smart people are smart, powerful people are powerful, and if a person was smart enough and powerful enough, they might come up with a scheme. Then, when I consider how USPAP shapes the world, I can't help but notice it makes for the most perfect scheme that could have been thought of - LOL - a defining example of a conspiracy theory right??? Well, as the old saying goes, theory is something unproven, while facts are things we know to be true. I won't be able to prove collusion, but I can prove conspiracy, even if the conspiracy did not intend to create adverse consequences.
Everyone still with me here or have I written too many sentences? The background and context to this story must be understood.
Here's the problem and here's why the government stepped in to regulate. The financial industry means housing, housing means loans, and when the whole thing collapses from bad practices people lose their houses and lose their money and in addition to that, the over-all economy suffers too. This happened on a country level in 1980 and happened on a global level in 2009. The term "housing bubble" became a household word from each of these events.
People believe real estate markets are driven buy the individual decisions made of buyers and sellers and that's true. What is also true, is that the individuals are additionally influenced by policy. Therefore, the purchase or sale decision of individuals is not as free and pure as many people perceive it to be (including misperceptions from incompetent appraisers sometimes). Indeed, policy can and does influence prices and the economy. It's a great tool for government, it's a great tool for society, it's a great tool for business, it can also be a very bad thing. The question then becomes do we accept to take the good with the bad? One interesting thing about laws, is they are much easier to create than they are to get rid of. Another interesting thing is often they are too complicated to understand what might be wrong with them. I might conclude the complicated nature is the problem, but other people would argue the complication is necessary and so it must exist.
Some of those "bad things" are the things being expressed in this thread today. Ignorance for starters. Confusion. Anger. Financial loss. I would like to take one topic, an enormous one, and explain how the regulated world of loans for housing has the adverse consequence of perpetual increases to housing prices all across the country, witnessed personally by all of us in the last 20-30 years, where few comprehensive answers to why markets continue to increase in price have been found. I will demonstrate how it is the USPAP, in combination with other forces, that accomplishes an artificial and perpetual increase in prices. I will need at least one person to like this post to do that however, as I am not going to waste my time on a crowd that isn't interested. It took a considerable amount of time to write as much as I have already. If all any of you want to do is take a moment to vent about the appraiser, even in the presence of a former appraiser, I won't say another word about it, you go ahead and enjoy yourselves. I'll throw in how annoying it is to have a stranger enter my home and take pictures of everything!!!
Be well.
My advice? Every investor must learn to be their own appraiser or they will likely fail.
Second piece of advice? Never read a mortgage appraisal unless you're an underwriter and your job requires it as due diligence. You will poison your minds and drive yourselves crazy attempting to make sense of any of it - the evidence of that statement is found right here in this thread.
