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April 30, 2011

An Inconvenient Value

An Inconvenient Value

By Rese Fox / Deloitte Financial Advisory Services LLP

Getting the true assessment of a LEED-certified building's value is worth the inconvenience

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Many companies are taking the plunge and deciding to build green LEED-certified buildings (LEED is the U.S. Green Building Council’s Leader­ship in Energy and Environmental Design green building rating system). They’re not just for granola-crunching tree huggers who appreciated Al Gore’s dramatic use of a cherry picker when discussing greenhouse gasses.

Indeed, the checkbook greenies are rejoicing in LEED-certified buildings because they save money. Recent studies show that efficiency pays off start-up costs, especially since energy prices have mushroomed in recent years. For example, contractor Robert Mader suggests that a mechanical contractor can save an owner 36 cents per square foot per year by reducing energy costs by 20 percent.1

Furthermore, with a healthier, more pleasant interior environment, LEED-certified buildings can improve personnel returns by improving productivity, reduc­ing illness, bolstering recruitment and raising reten­tion.2 Labor is a huge expense in the United States, averaging about $150 per square foot per year.3 One study suggests a 1 percent improvement in worker productivity saves $1.30 per square foot per year.4

LEED buildings generate not only energy savings and enhanced employee productivity, they also reduce stormwater runoff, increase groundwater recharge, utilize sustainable transportation systems and support other societal benefits. All told, one study shows that an investment of $4 per square foot in LEED building features adds about 50 cents per square foot to the annual rent.5 As a high-performance product, LEED buildings can generate a 7 to 12 percent increase in net operating income by reducing operating costs.6 Also, an initial invest­ment of 2 percent in green design can benefit the owner tenfold in savings.7 It’s no wonder the U.S. Green Building Council expects that in the future LEED buildings will constitute at least $200 billion of the real estate industry.8

LEED-certified buildings can generate a 7 to 12 percent increase in net operating income by reducing operating costs.

As these buildings hit the market, they will have to be bought, sold and insured; but for how much? Companies with green buildings will merge and will need to know who has what, what to keep and what to sell; but for how much? Companies with LEED buildings will go bankrupt (though hopefully not because of their buildings!) and will have to liquidate their assets, including their real estate; but for how much? Inevitably, these buildings will need to be appraised, but the appraiser might not know how to do it correctly.

If the appraisal industry were a high school student, he would like math more than theater. He would prefer the safe, predictable and calculated laws over the new, daring and startling theories. And because currently accepted appraisal principles were built in the past, it takes some finesse for the appraiser’s methodologies to mesh with LEED-certified build­ings of the future.

Long before anyone knew what a graywater system or green roof system was, the appraisal industry developed three sources to support their value opin­ions: 1) analyzing and adjusting recent sales of com­parable buildings (the sales comparison approach); 2) estimating the price of building components and accrued depreciation (the cost approach); and 3) using potential revenue and expenses to calculate an expected income and investment payback (the income capitalization approach).

To be fair, these systems are very appropriate for con­ventional building valuation, not to mention required under industry guidelines. Current appraisal standards were made to protect clients from wildly variable opin­ions and make sure everyone in the industry was using a properly sized yardstick. But when a LEED-certified building, a new type of product, enters into the ap­praisal equation, it can make the sales comparison and cost approach difficult to apply.

For the sales comparison approach, if there are no comparable buildings because no other LEED-certified buildings were bought, sold, listed or even built within a reasonable distance of the subject property, the quality of the appraisal may be low if proper adjustments are not made. When using the sales comparison approach, the appraiser should employ ways to quantify the premium characteristics and price for a LEED-certified building.

Also, the cost approach would have to be carefully applied to LEED-certified buildings. The appraiser would be wise to use actual construction costs instead of building cost averages from sources such as the Marshall and Swift Building Cost Index, as some LEED features are quite different from the industry standard. Furthermore, unlike conventional buildings, LEED-certified buildings push forward costs in equipment and technology to save on utility bills and replacement in the long run. Many LEED features, particularly those that have been commis­sioned by a third party to verify proper installation and maintenance, should have lower depreciation rates than standard features.9 The cost approach would be particularly tricky to apply to a LEED-certified building as it gets older.

Since the LEED program has only recently been put into place, de­preciation rates for LEED-certified building features are not widely available beyond anecdotal evidence. Further, using the cost approach for an older build­ing of any type with a large amount of depreciation adds uncertainty. To reliably use the cost approach for an existing building, a prudent appraiser should accurately calculate a LEED-certified feature’s ef­fective age, which measures overall condition and utility, as opposed to its actual age.

The income capitalization approach is the LEED-certified building appraiser’s best line of attack, as it includes the building’s lower operations costs. The appraiser would have to evaluate the degree of acceptance and understanding the local real estate market would have for LEED features. Next, the appraiser would have to evaluate how much tenants would be willing to pay in additional rent for those improvements.

A popular appraisal analogy goes: A swimming pool installer adds a beautiful pool worth what she would consider $15,000 in her backyard in a mid- to low-income neighborhood. She is quite surprised when she decides to sell her house and finds that the appraiser did not deem her house worth $15,000 more than her neighbor’s nearly identical house. An individual component of a home does not neces­sarily contribute an equal incremental value to the house, as it depends on the local market’s demand, willingness to pay and acceptance of such a feature. An appraiser should consider that tenants may enjoy a LEED feature such as a rooftop garden that filters water and helps control erosion, but they may not be willing to pay the full cost of this feature.10 Yet, LEED-certified buildings are also an enigma in that the converse of this example could be true for some components. If an energy-efficient device is installed in a LEED-certified building, the savings on that fea­ture could potentially translate into financial benefits that exceed the cost of the product.

An initial investment of 2 percent in green design can benefit the owner tenfold in savings.

Just as developers, architects and owners who adopt LEED standards before the pack will reap the benefits of offering a new and novel product before the mar­ket is flooded with late adopters, so too will the real estate appraisers who, early on, develop a high-level understanding of LEED. Golf courses and hotels have their own appraisal categories, so why should not LEED buildings – a highly specialized “Super Class A” – have their own valuation approach?11 Green build­ers will be frustrated and discouraged if the valuation profession naively applies a one-size-fits-all approach to what should be a discerning, tailored fit.

By becoming a LEED Accredited Professional (LEED AP), appraisers announce to their clients that they know the features necessary to certify a green build­ing and that those efforts will not be overlooked. A qualified appraiser must be able to identify building features that add value and those that do not. For example, it is fairly straightforward to do a calculation proving that increased energy efficiency will lead to a higher net operating income, which would increase a building’s value. But what about a do-gooder component, such as providing an alterna­tive fueling station before the market demands one?

Another difficult-to-navigate component of a LEED building appraisal could also be the value of the land if it is thought to be contaminated (a brownfield). Some developers would see a net financial benefit with brownfields, due to low purchase prices and incentives such as tax increment financing. However, these remunerations are often localized and only available for a limited number of years. Furthermore, there is a great deal of risk with taking on a clean-up project, especially if local governance requires a strict standard of revitalization. If necessary, both the appraiser and owner should investigate the costs and benefits of a brownfield site.

Besides becoming a LEED AP, valuation profession­als have other sources to strengthen their credibility as strong LEED building appraisers.12 The Appraisal Institute and the U.S. Green Building Council have teamed up to offer one-day seminars titled “An Introduction to Valuing Green Buildings.”13 Costar is offering comp searches for ENERGY STAR® and LEED-certified buildings.14 A particularly exciting development is the creation of the Vancouver Valu­ation Accord, an agreement between valuation pro­fessionals to promote and share valuation practices that take sustainability into account. Participants will meet in 2010 to collaborate and write up agreed practices and standards.15

Appraisal clients should also take heed and educate themselves about potential valuation issues when planning a building project. Building industry profes­sionals should proceed with caution when choosing not to LEED-certify a building to avoid certification costs, then claiming the building is “able to be LEED-certified” at some level. Most appraisers are not engineers, inspectors or architects, so their ap­praisal clients should not expect them to verify any level of LEED readiness. Appraisers are able to add a caveat to an appraisal, saying they assume a build­ing meets LEED certification requirements. However, this practice could be littered with red flags. Just as you would not want someone to perform surgery on you who claims he could pass the medical boards but hasn’t done so because it’s expensive, it’s hard to assume that a non-certified building fully performs at LEED standards. It would be irresponsible for an appraiser to present an equivalent LEED-certified building value for a structure that has not gone through the certification process.

The LEED system does include many other third-party certification programs, including Forest Stewardship Council wood, ISO recycling content standards, Green Seal paints, etc. Furthermore, third-party commissioning of systems is encouraged as a way to achieve LEED certification and to verify that expensive equipment and building components function as planned. To the degree that a non-certified building follows these other standards, it will perform more akin to a LEED-certified building.

Although LEED-certified buildings are inconvenient to appraise for many valuation professionals, this difficulty offers an incredible opportunity for apprais­ers to specialize and differentiate themselves in the market. Further, there is a change in climate looming, and you do not have to believe in global warming to believe it is coming. Green buildings may become the standard instead of the outlier. Both real estate practitioners and their analyses have communicated that there is only a short window of time before incentives and rebates for green buildings transform into requirements and penalties for noncompliance,16 so appraisers should update their training before the real estate market outpaces their skill set. It seems quite certain that LEED-certified buildings will equal green for knowledgeable appraisers.

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April 23, 2011

WHY!!! WE DO NOT USE REO, SHORT SALES, PROBATE SALES, PARTIAL INTEREST OR OTHER NON-ARMS LENGTH TRANSACTIONS AS COMPARABLE SALES. AND WHY WE DO NOT USE UNSUBSTANTIATED "TIME" ADJUSTMENTS

WHY!!! WE DO NOT USE REO, SHORT SALES, PROBATE SALES, PARTIAL INTEREST OR OTHER NON-ARMS LENGTH TRANSACTIONS AS COMPARABLE SALES. AND WHY WE DO NOT USE UNSUBSTANTIATED "TIME" ADJUSTMENTS

Market Value Defined

In appraisal practice, the term Market Value is defined by agencies that regulate federal

financial institutions in the U.S. That definition is the one found in USPAP and is given

as:

"The most probable price which a property should bring in a competitive and open

market under all conditions requisite to a fair sale, the buyer and seller each acting

prudently and knowledgeably, and assuming the price is not affected by undue

stimulus."

Implicit in this definition is the consummation of a sale as of a specified date and the

passing of title from seller to buyer under conditions whereby:

 *

 

buyer and seller are motivated;



 

*buyer and seller are well informed or well advised and acting in what they consider

their best interest;



 

*a reasonable time is allowed for exposure in the open market;



 

*payment is made in terms of cash in United States dollars or terms of financial

arrangements comparable thereto; and



 

*the price represents the normal consideration for the property sold, unaffected by

special or creative financing or sales concessions granted by anyone associated with

the sale.

(Source: Uniform Standards of Professional Appraisal Practice, Appraisal Foundation,

2000 Edition, page 160.)

 

 

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April 22, 2011

HUD Selects 18 Lenders for Green Housing Pilot Program

HUD Selects 18 Lenders for Green Housing Pilot Program

Solar Panel on Roof Pic

Eighteen national, regional and local lenders will participate in a new two-year pilot program that will offer qualified borrowers living in certain parts of the country low-cost loans to make energy-saving improvements to their homes. Backed by the Federal Housing Administration (FHA), these new PowerSaver loans will offer homeowners up to $25,000 to make energy-efficient improvements of their choice, including the installation of insulation, duct sealing, replacement doors and windows, HVAC systems, water heaters, solar panels, and geothermal systems.

U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan and U.S. Department of Energy Secretary Steven Chu announced the participating lenders during a tour of a family-run company that offers home energy audits and upgrades in Long Island, N.Y.

FHA's list of PowerSaver-approved lenders includes Admirals Bank; AFC First Financial Corporation; Bank of Colorado; the City of Boise, Idaho; Energy Finance Solutions; Enterprise Cascadia; HomeStreet Bank; Neighbor's Financial Corporation; Paramount Equity Mortgage Inc.; Quicken Loans; SOFCU Community Credit Union; Stonegate Mortgage Corporation; Sun West Mortgage Company Inc.; The Bank at Broadmoor; University of Virginia Community Credit Union Inc.; Viewtech Financial Services Inc.; WinTrust Mortgage; and W. J. Bradley Mortgage Capital Corporation.

http://nationalmortgageprofessional.com/news24788/hud-selects-18-lenders-green-housing-pilot-program

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A California gym that mentors at-risk kids scored a knockout legal blow against eminent domain abuse in California.

National City, Calif.—A California gym that mentors at-risk kids scored a knockout legal blow against eminent domain abuse in California. Yesterday, April 21, Judge Steven R. Denton of the Superior Court of California ruled in favor of the Community Youth Athletic Center (CYAC) and against National City, Calif., in one of the most important property rights cases in the nation. Carlos Barragan, Jr., who along with his father created the CYAC as a means of keeping local at-risk kids out of gangs, will join with other CYAC leaders at the gym at 10:30 a.m. California time to discuss the ruling with the media. The gym is located at 1018 National City Blvd., National City, Calif.

The Court struck down National City’s entire 692-property eminent domain zone in the first decision to apply the legal reforms that California enacted to counter the disastrous U.S. Supreme Court Kelo decision in 2005. This ruling, which found that National City lacked a legal basis for its blight declaration, reinforces vital protections for property owners across the state, and underscores why redevelopment agencies should be abolished.

The Court also ruled that National City violated the Due Process clause of the U.S. Constitution in failing to provide the CYAC with statutorily required information prior to an important public hearing.

Finally, in a holding with implications well beyond redevelopment law, the Court also held that when the government retains a private consultant to perform government functions—in this case, documenting the existence of alleged “blight” in National City—documents that the private consultant produces are public records subject to disclosure under the California Public Records Act. The Court also set a clear standard for what government agencies have to do in searching the records of their private consultants in response to a Public Records Act request.

“After Kelo, the California Legislature limited a city’s ability to declare ‘blight’ based on trivial things like ‘lack of parking’ and required real evidence and documentation from redevelopment agencies,” said Dana Berliner, a senior attorney with the Institute for Justice, which represented the CYAC for free. “National City completely ignored the new law when it decided to threaten the CYAC and nearly 700 other properties with eminent domain for private development. The Court’s decision holds that the new law placed real restrictions on redevelopment agencies and that National City violated the law. This is the very first case interpreting the changes to the law that went into effect on January 1, 2007, in response to the Kelo decision.”

Berliner said, “This decision will go a long way in protecting Californians throughout the state against eminent domain abuse.”

Clemente Casillas, the CYAC President, said, “I hope National City does the right thing now and throws in the towel so we can get back to focusing all our attention on helping to grow the kids in our community. The city can have redevelopment, but that has to be done through private negotiation, not by government force.”

IJ Senior Attorney Jeff Rowes said, “Redevelopment agencies always use private consultants to come up with blight studies. The Court ruled that the documents and data produced by those consultants are public records, just like government-produced documents. That ruling will help everyone trying to fight a blight designation of their neighborhood, and it will also help the media and anyone else trying to get more information about government projects. We’ve been saying for years that the city’s blight study lacked any information the CYAC needed to do a meaningful review. The court agreed, saying it was mostly jargon and that the city should have given the CYAC more time and continued the public hearing when the CYAC requested it.”

California Governor Jerry Brown has proposed eliminating local redevelopment agencies across the state. These agencies, which are run by the cities they reside in, have taken properties they didn’t own only to hand that land over to those with more political power. They have driven city after city in California to the brink of bankruptcy, often for nothing more than private gain.

“National City has been labeling this area blighted since the 1960s,” said Rowes. “This decision provides another example of a redevelopment agency that is out of control and should be abolished.”

The CYAC got almost everything it asked for in this lawsuit. The Court invalidated the city’s redevelopment plan amendment that authorized eminent domain, declared that the city violated the Public Records Act, declared that the city violated the CYAC’s due process rights, and gave the CYAC nominal damages. The CYAC is finally free from the threat of eminent domain for the first time in nearly four years.

Richard M. Segal, Brian D. Martin and Nathan R. Smith from Pillsbury Winthrop Shaw Pittman LLP in San Diego, acting as pro bono local counsel, put in extraordinary time and effort on the case.

http://ij.org/about/3779

 

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April 20, 2011

AMCs, Banks May Be Misinterpreting “Customary and Reasonable”: Fed Staff

 

AMCs, Banks May Be Misinterpreting “Customary and Reasonable”: Fed Staff

Some banks and appraisal management companies may be misinterpreting Presumption 1 of the Federal Reserve’s Interim Final Rule “customary and reasonable” fee language, the Fed’s staff said April 9 at the Association of Appraiser Regulatory Agencies spring conference in San Antonio.

 

In a presentation covering the Interim Final Rule, representatives from the Federal Reserve indicated that utilizing AMC-involved assignments when assessing fees as part of a six-part test under Presumption 1 may be inconsistent with the Rule, which became effective on April 1. Federal Reserve officials indicated that AMC fees were not to be included in any assessment of recent fees paid to appraisers.

 

Further, officials suggested that use of blanket schedules for fees within states may not rise to the requirements to satisfy both “customary” and “reasonable” as defined by Presumption 1. Separately, he officials also reiterated the provision of the Interim Final Rule that states that just because an AMC requires an appraiser to sign a document indicating that the fee that they are paid for an assignment is customary and reasonable does not necessarily satisfy the AMC’s responsibility to ensure that an appraiser is actually paid a customary and reasonable fee.

 

The Interim Final Rule defines two separate presumptions of compliance. Presumption 2 relies on fee schedules adopted by government agencies or independence organizations and is more consistent with the statutory language found in the Dodd-Frank Act, whereas Presumption 1 requires adherence to a review process of several factors. In determining this amount under Presumption 1, a creditor or its agents shall review the factors and make any adjustments to recent rates paid in the relevant geographic market necessary to ensure that the amount of compensation is reasonable. These factors include the type of property, the scope of work, the time in which the appraisal services are required to be performed, the fee appraiser qualifications, the fee appraiser experience and professional record and the fee appraiser work quality.

 

Some have speculated that creditors and their agents may not be interpreting the lengthy explanation in the preamble for the customary and reasonable fee rule. Doing so may be place the creditor at risk of significant fines and penalties. Unfortunately, it is up to an appraiser to proactively rebut Presumption 1, and it’s not clear what information is necessary for a satisfactory rebuttal.

 

Federal Reserve staff indicated they take complaints on this issue seriously, although no word was given on whether the Fed plans to issue any clarifying guidance regarding Presumption 1.

 

“There is a serious problem if the very entities favoring Presumption 1 are not interpreting it correctly,” said Richard Maloy, MAI, SRPA, SRA, chair of the Appraisal Institute’s Government Relations Committee. “Not only is there obvious confusion, but there remains an ongoing potential inconsistency with the Dodd-Frank statute itself.”

 

Maloy indicated that AI’s Government Relations Committee is undertaking a thorough review of the facts and is embarking on a multi-faceted campaign to help ensure that Congress’ intent is carried out.

 

In related news, the Appraisal Subcommittee released information on April 15 on where appraisers can direct questions and comments regarding the issue of appraisal independence. According to a notice posted on the agency’s website, the appropriate agency to receive an appraiser’s concern about a creditor’s compliance with the Truth in Lending Act, including the creditor or the creditor’s agent paying an appraiser a customary and responsible fee, is the agency that enforces TILA for the creditor. If the agent or appraisal management company is affiliated with a federally-regulated creditor, the appropriate agency to receive complaints against the AMC is the affiliated creditor’s federal regulator. If the agent (or AMC) is not affiliated with a federally-regulated creditor, the appropriate agency to receive the complaint is the Federal Trade Commission.

 

The ASC notice states there are two websites that appraisers can use to find the federal regulator for a creditor. Visit the Federal Reserve System – National Information Center website at www.ffiec.gov/nicpubweb/nicweb/nichome.aspx and the FDIC website at the “Bank Find” webpage at www2.fdic.gov/idasp/main_bankfind.asp.

 

Questions regarding the appropriate interpretation of the Truth in Lending Act, including those on customary and reasonable fees, should be directed to the Federal Reserve Board at www.federalreserve.gov/feedback.cfm.

 

Thanks!
Curtis D. Harris, BS, CGREA, REB
Bachelor of Science in Real Estate, CSULA
State Certified General Appraiser
Real Estate Broker
ASTM E-2018 Commercial Real Estate Inspector
HUD 203k Consultant
HUD/FHA Real Estate Appraiser/Reviewer
FannieMae REO Consultant

CTAC LEED Certification

The Harris Company, Forensic Appraisers and Real Estate Consultants
*PIRS/Harris Company and the Science of Real Estate-Partners*

1910 East Mariposa Avenue, Suite 115
El Segundo, CA. 90245
310-337-1973 Office
310-251-3959 Cell

WebSite: http://www.harriscompanyrec.com

Resume: http://www.harriscompanyrec.com/rESUME2011.pdf

Commercial Appraiser Blog: http://harriscompanyrec.com/blog/

IT'S THE LAW-Designation Discrimination is Illegal [FIRREA, Sec. 564.6]: Professional Association Membership http://www.orea.ca.gov/html/fed_regs.shtml#Statement7 Membership in an appraisal organization: A State Certified General Appraiser may not be excluded from consideration for an assignment for a federally related transaction by virtue of membership or lack of membership in any particular appraisal organization, including the appraisal institute.

CONFIDENTIALITY/PRIVILEGE NOTICE: This transmission and any attachments are intended solely for the addressee. The information contained in this transmission is confidential in nature and protected from further use or disclosure under U.S. Pub. L. 106-102, 113 U.S. Stat. 1338 (1999), and may be subject to consultant/appraiser-client or other legal privilege. Your use or disclosure of this information for any purpose other than that intended by its transmittal is strictly prohibited and may subject you to fines and/or penalties under federal and state law. If you are not the intended recipient of this transmission, please destroy all copies received and confirm destruction to the sender via return transmittal

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April 13, 2011

Entire Deduction Disallowed Due to Numerous Appraisal Failures

Entire Deduction Disallowed Due to Numerous Appraisal Failures

In Boltar v. Commissioner 136 T.C. No. 14 (2011) the Court excluded the developer partnership’s experts’ appraisal as unreliable and irrelevant. The Court sustained the IRS allowance of only $42,400 out of $3,245,000 claimed as a charitable contribution deduction on the partnership return of Boltar, L.L.C. (Boltar) for a conservation easement on 8 land-locked acres in Indiana. Boltar’s experts failed to apply the correct legal standard by failing to determine the value of the donated easement by the before and after valuation method, failed to value contiguous parcels owned by a partnership, and assumed development that was not feasible on the subject property. The Court specifically stated that the appraiser qualifications were not in question. What motivated the Court to reject Boltar’s appraisals was the multiple failures and abuses in the appraisal methodology as well as significant factual errors affecting value. The Court stated, “The problem is created by their willingness to use their resumes and their skills to advocate the position of the party who employs them without regard to objective and relevant facts, contrary to their professional obligations.” And later, “…we need not blindly admit absurd expert opinions.” And finally, ” In addition, the cottage industry of experts who function primarily in the market for tax benefits should be discouraged.” At least from the context of the decision, the Court appears to be directing the last comment at those who enable abusive appraisals and tax schemes. Learn more by visiting http://taxtrials.com/, then click on Boltar. Note that this site has many tax opinions available.


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Federal Reserve Board to Clarify Customary and Reasonable Appraisal Fees

Federal Reserve Board to Clarify Customary and Reasonable Appraisal Fees

Click Here to Sign the Petition below

this email brought to you by Lender-List.com


To: Federal Reserve Board, U.S. Congress, Federal Financial Institutions Examination Council, Federal Trade Commission

Federal Reserve Board - Jamie.Z.Goodson@frb.gov; Lorna.M.Neill@frb.gov ; Virginia.Gibbs@frb.gov ; Walter.McEwen@frb.gov ; Will.Giles@frb.gov.

Subject: Potential violations of the prohibitions in TILA against the use of AMC fees as the basis for determining reasonable and customary appraisal fees.


On October 18, 2010, the Federal Reserve Board announced an interim final rule to Regulation Z of Title 12, also known as the Truth in Lending Act (TILA). One of the elements to Regulation Z is a binding requirement upon creditors and appraisal management companies to ensure that appraisers who are not employees of creditors or of the appraisal management companies receive customary and reasonable payments for their services.

In preparing this interim final rule, the Federal Reserve Board did not specifically identify which appraisal fee schedules, surveys or studies that would be appropriate to designate as a ‘‘safe harbor’’ for creditors and their agents to comply with the reasonable and customary fee requirements of TILA. In lieu of identifying these schedules, surveys or studies, the Board basically offered two alternatives to creditors and appraisal management companies; either conduct their own surveys of fees for a locale and operate off the presumption that those surveys are reasonably accurate (Presumption 1), or rely on other fee surveys or studies conducted by objective third parties such as government agencies, academic institutions, and private research firms and rely on the presumption that they are accurate (Presumption 2).

The specific language of both (TILA) and the FRB’s interim final rule specifically exclude the use of AMC fees as the basis for identifying the thresholds for reasonable and customary appraisal fees. In fact, the final interim rule specifically refers to this prohibition several times.

It is our assertion that there is no language in the "Presumption 1" paragraphs that indicate that either Congress or the Board intended to allow the AMCs to include their own fees or those of other AMCs as the basis for reasonable or customary appraisal fees. We believe it is obvious that the term:

"...recent rates paid for comparable appraisal services..."

as stated in Presumption 1 *is not* synonymous with, nor should it be interpreted as:

"...recent rates paid by AMCs for comparable appraisal services..."

We also assert that ample evidence exists in the market in virtually all locales as to what local appraisers charge their non-AMC clients for such appraisal work. No AMC is compelled to actually wonder what fees the appraisers charge their non-AMC clients - all they have to do is pick up the phone and start asking.

As of the implementation date of the final interim rule, many appraisal management companies have made a good faith effort to comply with the requirements in TILA to ensure that the appraisers they engage are paid fees that are reasonable and customary for those markets. Some of these AMCs have accomplished this by employing Presumption 1 (conducting their own market surveys), while others have accomplished this by employing Presumption 2 (relying on other published fee schedules and surveys developed by objective third parties). Some AMCs have gone so far as to employ both methods as a means of ensuring their compliance. As appraisers, we applaud and support the good faith efforts of those AMCs that have chosen to adhere to the law as written.

Sadly, as of the implementation date of 04/2011, some AMCs have chosen to flaunt both the letter and specific intent of the law (TILA) as well as that of the interim final rule. Despite the specific prohibition against including AMC fees as part of those surveys, a few of the high profile AMCs have even gone so far as to erroneously assert that the final interim rule specifically allows them to reference their own fees and/or those of other AMCs in their surveys. This, despite the repeated references in TILA and the interim final rule to the contrary.

To the extent such violations are occurring in the market the results serve to undermine both the letter and intent of the law (TILA) as written. The “violator” AMCs have undermined the level playing field on which they compete in the market with other AMCs that are in compliance, not to mention seriously degrading the economic viability of the appraisers who actually perform the appraisals being used in these transactions. The damages to the professional appraiser community extend across all levels of experience and competency, and serve to induce some appraisers who work for the AMCs to attempt to compensate for these grossly substandard fees by sacrificing quality and due diligence for increased assignment volume. Obviously this has also had a negative impact on the utility of those appraisals as used by the creditors, not to mention the negative impacts on consumer interests and the federal banking regulatory interests.

Simply put, if a violator AMC is billing a consumer $500 or more for a comprehensive residential appraisal, that consumer’s interests cannot be well served on a consistent basis when that AMC makes their primary choice of appraiser based on a unilaterally imposed fee structure that is, in some cases, less than half of the prevailing rate being charged in the market to any other type of user. That some of the biggest AMCs are wholly-owned subsidiaries of the lending institutions they represent essentially amounts to an additional hidden fee being paid - by the consumers - to those lenders in those loan transactions.

We, the undersigned, represent a large number of licensed and certified real estate appraisers in the United States. We respectfully request that the Board take action to publicly reiterate the prohibitions contained in both TILA and the Board’s interim final rule against the reliance on any survey, conducted by any party, that unlawfully includes AMC fees and purports to use them as the basis, in part or in whole, for establishing the thresholds for reasonable and customary appraisal fees as referenced. In addition to public guidance, we also request that the Board act promptly and effectively to investigate complaints involving allegations of the blatant violations of these prohibitions as stated.

We thank you for your cooperation and assistance. Click Here to Sign the Petition

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April 11, 2011

An Inconvenient Value

An Inconvenient Value

By Rese Fox / Deloitte Financial Advisory Services LLP

Getting the true assessment of a LEED-certified building's value is worth the inconvenience

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http://www.awarenessintoaction.com/whitepapers/getting-the-true-assessment-of-a-leed-certified-buildings-value.html

Many companies are taking the plunge and deciding to build green LEED-certified buildings (LEED is the U.S. Green Building Council’s Leader­ship in Energy and Environmental Design green building rating system). They’re not just for granola-crunching tree huggers who appreciated Al Gore’s dramatic use of a cherry picker when discussing greenhouse gasses.

Indeed, the checkbook greenies are rejoicing in LEED-certified buildings because they save money. Recent studies show that efficiency pays off start-up costs, especially since energy prices have mushroomed in recent years. For example, contractor Robert Mader suggests that a mechanical contractor can save an owner 36 cents per square foot per year by reducing energy costs by 20 percent.1

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April 08, 2011

The following HUD/FHA Information Resources will be available during a government shutdown:

This is the HUD national homeownership center reference guide mailing list for real estate industry professionals that are interested in updates to HUD Mortgagee letters, notices and guidebooks, & FHA Housing Industry Training. Please visit our homepage at: http://www.hud.gov/offices/hsg/sfh/hsgsingle.cfm Servicing lenders can visit HUD's National Servicing Center at: http://www.hud.gov/offices/hsg/sfh/nsc/nschome.cfm This list does not provide HudHome property listings.
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All-
Frequently Asked Questions for FHA Clients during a Government Shutdown:
The following HUD/FHA Information Resources will be available during a government shutdown:
· HUD/FHA Resource Center: (800) 225-5342
· HUD/FHA National Servicing Center: (877) 622-8525
· HUD’s primary internet site:  http://www.hud.gov  (but will not be updated)
· The Resource Center FAQ site:  http://www.fhaoutreach.gov/FHAFAQ
HUD/FHA staff will not be available to respond to case specific questions.  All questions that cannot be answered by contract staff at the Resource Center and the NSC will be deferred until the government re-opens.
Please be aware that HUD Staff will not be available to process incoming mail during a government shutdown so business partners should suspend shipment of documents and approval packages during the term of the shutdown.  The following are examples of such documents:  Submission of FHA Test Cases, HRAP condominium approval packages, NAID requests, etc.  
1.   Origination:
Q: Will the government shutdown affect the processing or closing of FHA-insured loans?
A: The shutdown may delay the processing or closing of an FHA-insured loan dependent upon where the loan is in the process.  As noted below, FHA will not endorse closed loans or be able to provide case specific underwriting support.  All FHA underwriting and processing requirements remain in force during the government shutdown and no loan may proceed that cannot fulfill those requirements.
Q: Will Lenders have access to FHA Connection?
A: Lenders will be able to access FHA Connection, however FHA Connection interfaces to other systems may not be available, or if available these other systems may not be fully supported so FHA Connection processes may not be fully functional. At this time we do not have complete information on the potential impact on some FHA Connection functionality. Below questions and answers reflect our best effort at defining what will be available.
Q: Can a lender obtain a new FHA case number?
A: Yes. Lenders will be able to obtain a FHA case number from the FHA Connection.  Please note that all FHA underwriting and processing requirements do remain in force on loans originated during the government shutdown regardless of system limitations during the shut down period..
Q: Will Credit Alert Interactive Voice Response System (CAIVRS) be available?
A: CAIVRS access may not be available to determine if a borrower has a delinquent federal debt so that verification process may not occur when requesting a case number.
Q: Will FHA TOTAL Scorecard be available for lenders?
A: Yes. FHA TOTAL Scorecard will be available within systems.  As noted above,  all FHA underwriting and processing requirements do remain in force on loans originated during the government shutdown.
Q: Will lenders be able to get password resets for FHA Connection?
A: Lenders will be able to continue to utilize the automated password reset options on FHA Connection, but resets that require FHA employee direct assistance will not be available.
Q: Will FHA insure any loans during the government shutdown and does this also impact lenders with Lender Insurance (LI) approval?
A: No.  FHA loans will not be endorsed during the government shutdown period.  This also includes FHA and Lender Insurance authority as FHA systems will not be enabled to process LI approvals during a government shutdown.
Q: Can a lender submit loans for approval if the lender is in test case status?
A: No. FHA staff will not be available to underwrite and approve loans.
Q: Can lenders submit packages for condo approvals?
A: DELRAP approvals can continue to be processed, but HRAPS cannot be processed and should not be submitted for processing during the government shutdown.
2.   Servicing:
Q: Will lenders be able to submit FHA Mortgage Insurance Premiums during a government shutdown?
A:
·      Upfront Premiums –Lenders will be able to submit UFMIP for approximately 10 days (specific end date will be forthcoming).
·      Monthly Premiums - Yes. Lenders are required to submit monthly MIPs during the shutdown.
Q: Can lenders file a claim and convey a property if there is a government shutdown?
A: Yes. Lenders can file a claim and convey a property. The properties will be assigned to an Asset Manager and listed for sale. Claims will be paid.
Q: Can lenders submit extension and variance requests through the EVARS System?
A: Yes.  Lenders will be able to continue to submit extension or variance requests through EVARS.  However, FHA staff will not be available to process requests on forward mortgages.  Requests will remain in the system until the government reopens.  Please do not submit duplicate requests.
Please note that responses to the following email boxes will not be provided until the government re-opens:
hsg-lossmit@hud.gov            sfdatarequests@hud.gov       extension_requests@hud.gov
hecmhelp@hud.gov                mcmnsc@hud.gov
3.   REO/HUD Home Sales:
Q: Will I be able to place a bid on a HUD-owned property via the HUD Home Bid site during the shutdown?
A: Yes. FHA contractors will handle the sale of HUD Homes and the bidding site at: http://hudhomestore.com/HudHome/Index.aspx  will be available and maintained during the shutdown.
Q: Who can I notify about a health or safety issues on a HUD-owned property?
A:The staff at the FHA Resource Center can provide contact information for contractors responsible for the maintenance of HUD-owned properties.
Q: Will HUD Broker Name Address Identifier (NAIDs) applications be processed?
A: No. Name Address Identifier applications will not be processed during the government shutdown.
4.   Lender Approval/Monitoring:
Q: Will FHA’s partners be able to submit routine compliance reporting to FHA-managed systems?
A: No, in most cases.  Due to limited system availability, electronic compliance reporting will be suspended for some programs.  Once reporting systems are back online, FHA will require all partners to submit compliance data for the shutdown period retroactively.
Q: Can lenders submit applications to become an FHA approved lender?
A: No. FHA will be unable to accept lender applications during the government shutdown. 
Q: Will FHA recertify a lender’s request to renew their FHA approval?
A:No. FHA will not recertify any lenders status as an FHA approved lender during the government shutdown.
Q: Will lenders be able to submit audited financial statements to the Lender Assessment Subsystem (LASS)?
A:No. LASS will not be available during a government shutdown.
5.   Housing Counseling:
Q: Will the Housing Counseling System (HCS) be available to HUD-approved agencies

 

A: The Housing Counseling System (HCS) will not be available.  Consequently, counseling agencies will be unable to update agency profile information, submit activity data, or otherwise utilize the functionality in HCS.  Once HCS back online, FHA will require all counseling agencies to submit activity data for the shutdown period retroactively.

 

Q: Will clients be able to utilize Housing Counseling search engines? 

 

A: The HUD.GOV counseling agency search site and toll-free search option will be available during the shutdown.  However, no updates to the underlying data will be available until the government resumes normal operations.
Q: Will HUD-approved agencies be able to access HUD grant funds through the LOCCS System?
A: While the LOCCS system should be functioning, there will be no HUD staff available to approve requests for disbursements.  Consequently, no grant disbursements will occur during a shut down.
Q: Can counselors continue to take on-line courses through EClass?
A: Yes.  This web-based loss mitigation training program will be available for use.  However, non-FHA approved Housing Counseling Agencies cannot receive approval to access EClass until the government reopens.
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Bulk subscriptions:
            Some industry folks have asked, "How do I sign up my entire staff for FHA email updates?" It is easy... Just list your staff email addresses like this:
aaa@xyz.com
bbb@xyz.com
ccc@xyz.com
You can send in one email address or thousands. Email your list to: jerrold.h.mayer@hud.gov
If you have a mortgage or real estate industry friend who you want to subscribe to the national hoc reference guide mailing list, there are 3 other ways to sign up: 1. send them this link: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ref/hsgregst they can sign up for the email list there; or 2: forward them this email; or 3: Visit: http://www.usa.gov and subscribe at: http://apps.gsa.gov/FirstGovCommonSubscriptionService.php  To unsubscribe - go to: http://portal.hud.gov/portal/page/portal/HUD/subscribe/mailinglist  and click on "National Homeownership Center Reference Guide" and follow the unsubscribe instructions on that page.
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For FHA technical support, please contact the FHA Resource Center at: http://www.fhaoutreach.gov/FHAFAQ/  Search our online knowledge base & find answers to our most commonly asked questions. You can also get email technical support at: info@fhaoutreach.com  or phone FHA toll-free between 8:00 a.m. & 8:00 p.m. ET (5:00 a.m. to 5:00 p.m. PT) at: (800) CALLFHA or (800) 225-5342. Call FHA TDD at: (877) TDD-2HUD (877) 833-2483).
FHA publications at HudClips: http://www.hud.gov/offices/adm/hudclips/index.cfm  Order hardcopies at: http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/dds
FHA forms: http://portal.hud.gov/portal/page/portal/HUD/program_offices/administration/hudclips/forms
FHA Homeownership Centers: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hoc/hsghocs
Events & Training Calendar: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/events/events
Contracting Opportunities: http://portal.hud.gov/portal/page/portal/HUD/program_offices/cpo
Career opportunities: http://www.usajobs.opm.gov/
Grant opportunities: http://portal.hud.gov/portal/page/portal/HUD/program_offices/administration/grants/fundsavail
Presidentially Declared Disaster Areas: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/nsc/disaster
Foreclosure Assistance: http://portal.hud.gov/hudportal/HUD?src=/i_want_to/talk_to_a_housing_counselor
Making Home Affordable: http://www.makinghomeaffordable.gov/pages/default.aspx
This listserv does not provide HudHome property listings. To see the latest list of all HudHomes nationwide please visit: http://hudhomestore.com/HudHome/Index.aspx
This list will often provide training opportunities and event announcements for non-profit and local government HUD partners. HUD does not endorse the organizations sponsoring linked websites, and we do not endorse the views they express or the products/services they or their community/business partners offer. For more information on HUD’s web policies please visit: http://www.hud.gov/assist/webpolicies.cfm
Thank you!!!!
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April 03, 2011

Commercial Appraisers (MAI) Headed to Trial in $24 Billion Case in Idaho

Tuesday, March 8, 2011

Commercial Appraisers (MAI) Headed to Trial in $24 Billion Case in Idaho

When I first saw the complaint filed by the plaintiffs in this lawsuit in federal court in Idaho about a year ago, I thought it was most remarkable for its conspiracy theories and the amount of alleged damages -- $24 billion. The complaint is a diatribe against bankers at Credit Suisse and commercial appraisers at Cushman & Wakefield, who are alleged to have conspired to create what the plaintiffs call a "Loan to Own" scheme under which Credit Suisse, aided by inflated appraisals, purposely lent hundreds of millions to the developers of four extravagant resort communities as part of an evil plan that the developers would default and that Credit Suisse would then foreclose and obtain ownership of the resorts at below market value.  The plaintiffs in this lawsuit, however, are not the broke developers as we would usually suspect -- and they are not the appraisers' clients or anyone that the appraisers might have imagined as being intended users of their appraisal reports.  The plaintiffs are wealthy individuals who purchased homes or lots in the resorts that were master-planned by the developers to whom Credit Suisse lent development funds.

http://www.appraiserlawblog.com/2011/03/commercial-appraisers-headed-to-trial.html

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