Recently valuation data company FNC, Inc. posted an article by its chief legal counsel arguing that appraisals are not copyrightable. The U.S. Copyright Office and appraisers who have won copyright infringement suits are among those likely to disagree. But the interesting part of the article, appearing at this link, was this:

Copyrighting an appraisal, however, does not keep its data — the facts — from being used by others, whether lenders, other real estate professionals or even the developers of automated valuation models (AVMs). The developers of AVMs are interested in the facts, not the written descriptions and comments, since it is only the facts that are modeled as the basis for estimating value. All AVMs want to use the data, which is not protected.

AVM developers and advocates have always, until this moment, been oddly reluctant to admit that AVMs were interested in using appraisals as data sources. Now we have an admission that not only are they interested, they do, even if they have to ignore a copyright notice to do it.

The sheer chutzpah needed to deny AVMs used appraisals without appraisers' permission when data companies bought up Appraisal Management Companies in the first half of this decade and companies like FNC entered into agreements to facilitate arrangements where appraisers paid for the privilege of entering their own work into databases for later re-use has always been impressive. Now that it's apparently over, the profession can more clearly see why copyrighting can be a good idea to an individual businessperson: there is a market for your work that goes beyond your client and the intended user of your report. You can let that market co-opt your work without your permission and without compensating you, or you can choose to bargain with it on your terms.

It is, and should be, up to you. Not to companies that admit to using reports which were not prepared for them, and which they have not paid for, to create a derivative product meant to put you out of business.

The issue whether a report is a collection of objective "facts" or the result of analysis, selection, judgment and expertise has been played out many times. It is certainly the case that anything in a report that any three appraisers would agree on separately is probably a "fact." That however includes very little of value in an appraisal.

The selection of comps, and the verification that they represent arm's length, free market transactions, and whether an almost-finished basement constitutes part of Gross Living Area are only a couple of the things you use your judgment to ascertain. And the appraiser down the street may very well come up with something different for both. You are both unlikely to disagree on the postal address of the property and how many cars fit in the garage, but we doubt that's all AVMs are interested in.

And if an appraisal were simply a collection of facts, a computer could do it well.

Sellers' incentives skewing property values, appraisers fear

The practice of offering incentives and concessions is nothing new. But as more and more of the country turns into a buyer's market, with more housing inventory listing for longer, incentives can more radically skew a market's' values.

Mary Umberger of the Chicago Tribune wrote about how the phenomenon is affecting real estate values in Chicagoland recently. (See the article online by clicking here; website registration may be required.)

The article included examples of recent offers for sale in the area:

Buy a rehabbed bungalow listed for $475,000 in the Beverly/Morgan Park area and get a 1990 Saab turbo convertible.

In Bloomingdale, get all closing costs plus six months of mortgage payments on a $550,000 four-bedroom home.

A week's stay for four in a beachfront condo on Maui was offered with a $739,000 home in Glen Ellyn.

In a market where homes sell shortly after listing, sometimes for more than the asking price, incentives don't happen as often. In today's market many sellers have the attitude of a seller quoted in the Tribune piece: "I said, 'Well, why not?' If it's apples to apples — if it's between my house and somebody else's house — why wouldn't somebody want the incentive of the car?" The seller is offering a 2007 Ford Focus to the buyer if the sale closes this year.

A Focus sedan might list for as much as $17,000. If a buyer agrees to buy a house for $400,000 with the promise of a new Focus, that will show up in the public records, MLS and, of course, AVM databases as a $400,000 sale, when in reality the sale was for $383,000. A four percent difference that only an appraiser with a phone who's not afraid to use it will ever notice. If the profession is not diligent about discovering and reporting incentives, a cycle of overvaluation is sure to result — at a time when the housing economy can least bear it.

Issues like this were creating problems as many as four years ago, when the Real Estate Commission and Board of Real Estate Appraisers in Colorado jointly aired their concerns over the inflationary effect of concessions and incentives on property values in the state. They recommended, among other things:

• Researching and confirming subject property and comparable sales, including obtaining details of the contract and financing terms.
• Researching and confirming all relevant information about a transaction.
• Utilizing all available data search tools, including the listing history and seller contributions features of multiple listing services.
• Making appropriate adjustments to comparables with seller contributions and inducements to purchase when developing work products.

Sound advice that's even more valuable in today's market.

Is requiring payment before report delivery a USPAP violation?

As you are hopefully aware, your Professional or Enterprise XSite allows you to "force" your client to pay by credit card online (or otherwise) before your report can be downloaded. The question arose whether not delivering your work product until the agreed upon payment is made constitutes "holding an appraisal for ransom" in violation of USPAP.

The thoughtful discussion quickly came to the conclusion that the business decision of requiring payment before delivery is not covered by USPAP. (As always, you should make up your own mind how best to comply.) USPAP prohibits contingent values, and offering or receiving anything of value for a future appraisal assignment. But it is not so counterintuitive as to make you to deliver your work product to someone who hasn't paid for it.

To be safe, you may want to be sure to spell out payment terms in advance of, or as a condition of, assignment acceptance. One thing everyone can agree on about USPAP is that it's always a good idea to disclose, disclose, disclose.

The WinTOTAL User Group is a tremendous resource for Aurora and Athena users alike. It is not sponsored by a la mode and is run by some of our customers. It is a true "user group" where appraisers discuss ideas, problems, solutions and the best ways to maximize the utility of WinTOTAL, as well as broader issues affecting your business and your profession. Click here for the home page of the Group and consider joining for free.