700 Appraisers’ Decisions

You Only have to Make 700 +/- Decisions in the Next Six Hours

by Diana Jacobs

It’s a curious time in which the appraiser finds themselves practicing.

There is greater oversight with demands for shorter turnaround time. There are appraisal management companies (AMCs) that shop the appraiser’s turnaround time and price.

There are software companies that download data the appraiser enters with graphs, market conditions analysis, regression analysis and a wide variety of maps and pictures, which makes it appear as though the appraiser has chartered a plane, shot an aerial view, contacted governmental agencies and obtained tax information, flood information, environmental information, a soils survey, zoning and of course, provided a complete breakdown of the current Multiple Listing Data.

All of this information is at the very finger tips appraisers, who are being encouraged to consider, in the future, having someone else do their inspection while they work with the data from their desktop.  The trend among users and providers is to have the appraiser focus on their “critical thinking” time.  So just how much time is involved in an appraisal and how many decisions does an appraiser have to make?

Using the form 1004 residential form (most widely used form for a large majority of lending practice) the appraiser has numerous decisions to make in roughly six to eight hours.

It breaks down like this:

Page 1              206 decisions (134 without the condition and individual blocks of choice)
Page 2              205 decisions (potential blanks to be completed)
Page 3                41 decisions (narrative blanks for the possible additional comments)
1004MC              71 decisions/blanks to complete
Total                 523 possible decisions (451 without condition of materials and blocks of choice)

All of these decisions are without directions on what the appraiser must do when inspecting the neighborhood and the subject and the comparative transactions or the Limiting Conditions or the 25 Ethical Obligations of the Signed Certification Page, which at a minimum, has to have an additional item #26 for the history of service disclosure.

Keep in mind, you have to plan your inspection and never leave a neighborhood the same way you came in.  Why?  Because you stated you inspected the neighborhood: how did you do that if you didn’t drive all of the streets or charter a plane to fly over to ensure everything is the same or similar in terms of maintenance, condition, and general conditions that create and affect the value?

What’s the running total? 523 Decisions on the form. Twenty-six (26)  Ethical Obligations to promise and be held legally accountable for by up to 30 years in prison and a fine of up to $1 million, according to Title 18 U.S. Code Section 1001 or similar state laws.

Whew! Now it’s time, of course, to consider the remaining decisions;

•         3 Directives of USPAP SR 2-1
•         12 Directives of the Written Report in SR 2-2 (a) of the 2014-2015 USPAP Appraisal Report
•         10 Directives of SR 2-3 but we aren’t going to count those 10 as they are part of the 26 on the Supplemented Form.

There are four USPAP Rules and each has very specific decisions and directives which appraisers are required to prove they have taken into consideration and/or performed.  The Ethics Rule has three subsections; the Record Keeping Rule includes nine items of musts. The Competency Rule has three directives on being competent; three directives on acquiring competency and three directives on what to do if you discover you’re not competent.  The Scope of Work and Jurisdictional Exception rules both have multiple directives of exhortations and prohibitions (do’s and must not do’s).

We’re not through yet.  Mortgage lending comes with a host of additional decisions which result in approximately 130 pages of assignment conditions of which about 40 pages relate to the residential appraisal report form and each page adds its own specific directive on the additional requirement of performing and reporting an appraisal in the secondary market.  There are easily 100-200 additional considerations that must be made under those assignment conditions.

Oh, lest we forget, 67 of those fields of the 1004 form must be UAD compliant.

784 Decisions to Make, 784 Decisions
My count, and it doesn’t break down the multiple directives of the assignment conditions or specifics of the Statements of USPAP or the Scope of Work Rule, etc., is 784 decisions for the appraiser in every residential assignment.

Don’t get me wrong, I’m all for maintaining quality management and quality control over this most serious issue of performing an appraisal assignment. When an appraiser makes a mistake they should be grateful for the opportunity to correct the error.  In the event the error was discovered after the fact, the appraiser needs to accept accountability.

Often the appraiser, in an effort to get the job done in time, will fail to keep the appropriate documentation in their workfile.  It’s not always about the intentional act of trying to withhold or mislead.  It’s simply a time issue for the appraiser.  In the appraiser’s mind if it’s available through Internet research why does it have to be printed out when it can be retrieved if needed?  Of course, that has proven to be the Achilles Heel of many state-disciplined appraisers as the workfile is the evidence needed to prove compliance with all of the regulations in those many decisions that have to be made during an assignment.

Now, may I ask you this question?  Is the appraiser really getting the respect, support and monetary remuneration for the service they provide?  Isn’t it time for the users of the appraisal services to recognize the work that goes into the appraisal product?  Shouldn’t the users of appraisal services and the regulators of appraisers recognize the obvious potential for errors when so many decisions have to be made in such a short amount of time?  Isn’t that what our forefathers thought when they stated in the development rule of SR 1-1 (c) “Perfection is impossible to attain, and competence does not require perfection”?

About the Author
Diana Jacob currently lives outside Hillsboro, Texas on a small ranch and has been involved in real property appraisal since the latter part of the 1980s.  She holds the Certified General Certification from the states of North Carolina, Georgia and Texas and a Residential Certification from the state of Louisiana.  She is a certified USPAP instructor and represents the Texas Association of Appraisers at The Appraisal Foundation Advisory Council (TAFAC).

Article originally in workingre.com, reprinted by permission.

Looser Underwriting Standards

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News reports indicate that major banks in the U.S., including J.P. Morgan Chase and Wells Fargo, have begun lowering their underwriting standards for one-to-four family homes. The reason: continued decline in new mortgages in January, a Mortgage Bankers Association projection that total originations will decline to $1.116 trillion from approximately $1.755 trillion during 2013, and a preliminary estimate from Inside Mortgage Finance showing that single-family-mortgage-backed securities by Fannie Mae, Freddie Mac and Ginnie Mae were 10% down from December 2013, the lowest since January 2009.

This is an ominous indicator that needed to be nipped in the bud. Here’s why. Moderate, stable demand from “able” first-time buyers is the lifeblood or real estate, particularly when refinancing activity is practically non-existent. When demand declines, sellers are forced to either drop their asking prices or pull their properties off the market until it picks up again. But for everyone except the top 1%, current incomes do not support higher prices. Furthermore, going forward there is no reason to believe this situation will improve since most jobs being created are in the service sector and pay way below what’s required to buy a home at today’s prices. Banks lend because, with few exceptions, they have historically made money when they have done so. Simply stated, if they don’t lend, their profits drop, and if that happens their shareholders are unhappy, especially when their stock begins to decline. And then there’s the awful possibility that if the demand is allowed to continue to decline unabated it may result in another wave of foreclosures, one which, given the government’s many commitments and accumulated debt, would test its ability to neutralize.

Until recently, banks had focused on lending to low-risk wealthy individuals. But they account for only a small percentage of the population, and confining lending activity to that group necessarily results in a correspondingly low volume of originations. Since banks nominally compete with each other for market share, the only way for them to grow beyond that safe sector is to dramatically expand their activity to the less affluent.

Enter Wells Fargo, the largest originator. It is now originating FHA-insured loans to non-super prime borrowers, another way of saying not-so-affluent. These loans are attractive to the extent that most of the risk of default is transferred to the government and the banks can easily sell them in the secondary market, collect substantial fees, and quickly recover their capital to do the same all over again.

In the end, whatever compensatory action the Federal Reserve and its member banks take, whether to keep interest rates low indefinitely or lower originating standards, will prove insufficient unless the economic fundamental that caused the need for this action improves: the steep decline in the purchasing power of the middle class, formerly the largest demographic group. It is irrational to expect these good people to pay high prices for homes without the required supporting income and job security for a 30-year (or longer) commitment. In other words, going forward the only true fix is to create an entirely new mechanism for a far more equitable distribution of future income and wealth. We can have either low wages or high real estate prices, but we can’t have both.

Scientists’ Warnings 12/04/2013

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On December 3, 2013, a group of world renowned scientists in a wide array of disciplines issued a comprehensive report detailing the frightening consequences that will follow if global warming is not halted and reversed.  Meeting in Columbia University’s Low Library, they discussed their study and their –so far- unsuccessful effort to create a universally acceptable global plan to reduce emissions of carbon dioxide and other greenhouse gases. They also pointed out that the internationally agreed upon target to limit global warming to 2 degrees Celsius is in fact a “prescription for long-term disaster.”

The study makes it crystal clear what the costs of the current trajectory are, and that to combat the trend, a level of global cooperation entirely different from our current approach will be required.

Advanced Hydrogen Turbine

Background

Siemens Energy, along with numerous partners, has an ongoing U.S. Department of Energy (DOE) program to develop hydrogen turbines for coal-based integrated gasification combined cycle (IGCC) power generation that will improve efficiency, reduce emissions, lower costs, and allow for carbon capture and storage (CCS). Siemens Energy is expanding this program for industrial applications such as cement, chemical, steel, and aluminum plants, refineries, manufacturing facilities, etc., under the American Recovery and Reinvestment Act (ARRA). ARRA funding will be utilized to facilitate a set of gas turbine technology advancements that will improve the efficiency, emissions, and cost performance of turbines for industrial CCS. ARRA industrial technology acceleration, application, and adaptation will also benefit advanced hydrogen turbine development and existing machines in typical utility applications.

This project is managed by the DOE’s National Energy Technology Laboratory (NETL). NETL is researching advanced turbine technology with the goal of producing reliable, affordable, and environmentally friendly electric power in response to the nation’s increasing energy challenges. With the Hydrogen Turbine Program, NETL is leading the research, development, and demonstration of these technologies to achieve power production from high hydrogen content fuels derived from coal that is clean, efficient, and cost-effective, minimizes carbon dioxide (CO2) emissions, and will help maintain the nation’s leadership in the export of gas turbine equipment.

Project Description

Siemens Turbine
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Under the ARRA funded program, Siemens Energy will focus on advancing state-of-the art large natural gas fired turbine technology to produce turbines specifically designed for operation on hydrogen and syngas fuels derived from industrial processes that capture a large percentage of CO2. Advanced technologies and concepts will be evaluated, down selected, and validated. The advanced technologies, component designs, and manufacturing processes will be developed and verified in sub-scale and full-scale tests and process verifications to demonstrate that the program goals can be achieved. Some of the key enabling technologies needed are as follows:

• Fuel-flexible, ultra low NOX, long-life combustion system operating at the increased firing temperatures needed to achieve high efficiency. Siemens will work to develop a premixed combustion system capable of operating on hydrogen fuel at high temperatures with minimal dilution flow. As part of this development, modeling tools for thermal acoustics and computational fluid dynamics will be adapted for hydrogen fuels and validated with test data. The primary path for the hydrogen combustor is a modification of the current Siemens premixed natural gas burner to operate on hydrogen. In addition, as risk mitigation, several alternative combustion technologies will be evaluated to determine if they can provide an improvement for high-temperature hydrogen operation.

• Development and optimization of higher temperature material system (base alloy, bond coat, and thermal barrier coatings [TBCs]) capabilities that allow operation in challenging environments, thus ensuring that the turbine components achieve high reliability and long life.

• Advanced manufacturing processes and techniques essential to producing the novel turbine cooling schemes that are being pursued in this program. Siemens will be producing full-sized engine parts using advanced core making technology, performing investment casting trials, conducting destructive and non-destructive evaluations, machining prototype parts using a proposed production process and conducting full-scale engine testing on final products.

• New sensors and diagnostics to allow more efficient, fuel-flexible, and safe gas turbine operation. Customer interviews determined key sensing needs and sensor specifications for these needs. Based on these results, Siemens will work with sensor vendors to design, develop, and validate sensor designs for engine validation or use in on-line control.

Goals/Objectives

The objective of the ARRA activity is to identify a set of gas turbine technology advancements that will improve the efficiency, emissions, and cost performance of gas turbines for industrial applications with CCS. This extension will accelerate the key technologies needed to significantly improve the efficiency of gas turbines in industrial applications, apply these technologies to the advanced hydrogen turbine, and adapt to existing turbine frames as applicable.

Government funding for this project is provided in whole or in part through the American Recovery and Reinvestment Act.

AWARD NUMBER: DE-FC26-05NT42644

Mass Exodus From The U.S. Workforce – Nov. 2013

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The unemployment rate has been declining, but so has labor force participation. Media attention tends to focus on the former and to ignore the latter; as a result, some people wrongly assume that the employment situation is improving and that it’s only a matter of time before things get back to “normal.” Here are some sobering facts.

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The November 2013 Labor Department report shows a clear decline in both unemployment and labor participation. While the economy added more jobs than expected –incidentally, largely in the low-wage retail and leisure sectors- more people dropped out of the workforce altogether. In all, 91.5 million people of working age –37.2% of the labor force- are not working. At this rate, they will surpass the number of workers in about four years.

There are several reasons for this, all negative. While some baby boomers will have non-government income from retirement savings, that will require selling securities. If the number of sellers exceeds the number of buyers, asset prices may decline. If that happens some may be forced to sell even more, triggering a nightmarish cycle. And that’s not all. Generally, people on fixed incomes budget more and spend less, bad for local businesses –but not quite as crucial for multi national corporations- and the government, whose revenue stands to decline accordingly.

Speaking of taxes, safety-net programs such as welfare, food stamps and the new medical insurance program, as well as the military, need lots of taxation to support them; if tax receipts decline, the government will have to decide, gridlock permitting, whether to accelerate the rate of deficit spending, cut expenditures, increase tax rates, or some combination thereof. In any event, the trend does not herald better times ahead, particularly for working class people. We need a new, powerful incentive to get back to work.

Aquafacture Details

Characteristics

Basically, aquafacture is a process that uses a dedicated grid of solar-generated electricity and seawater to produce hydrogen. The hydrogen is then pumped up to a nearby mountaintop to a cluster of 5 or more power plants using Advanced Hydrogen Turbines that do not require fuel cells. The hydrogen is burned and its byproduct –pure water- is captured and condensed. The water is then pressurized and piped down using gravity exclusively to a series of terraced hydroelectric plants on the same mountain. Dams are unnecessary. Thus, the electricity generated by these additional hydro plants using the same manufactured water consecutively would not only recover the energy loss inherent in producing the hydrogen, together they would actually generate a surplus of energy proportional to the number of hydro generators and the volume of manufactured water.

Requirements

1) One natural below-sea-level depression in a desert near an ocean or mountains close to an ocean.

2) A sea-level canal to fill the depression by gravity.

3) Numerous dry lake beds near the depression adjacent to or surrounded by suitable mountains, to expand the system.

4) Absence of war or the threat of war.

Advantages

Unlike coal, a solid, aquafacture’s raw materials –seawater, solar energy and gravity- require no mining. Hydrogen can be transported by pipelines or tankers, depending on the destination. The process generates enough electricity and water to support an entire new economy anywhere regardless of drought. For the first time in recorded history, humans would be able to use renewable energy exclusively to “grow” their own water  anywhere and to make a profit from it.

Basics

Introduction

We are now in the 21st century, the age of weapons of mass destruction, computers, the internet, and interplanetary exploration. But when it comes to water, we still depend on natural precipitation to fill our reservoirs, lakes, rivers and aquifers, much like ancient civilizations did thousands of years ago. We may have learned how to cultivate our food, but we certainly have not yet figured out how to manufacture pure water cheaply and abundantly wherever and whenever we need and want it. That, of course is precisely what we need to make our deserts green and reduce carbon dioxide in our atmosphere, a step in the struggle to reverse global warming. It would also meet mankind’s current and future demand for water anywhere, and help prevent unnecessary wars and famine.

We live in a water world. 70% of the world’s surface is covered in water. Yet the vast majority of it – around 97% – is salt water. Another 2% is locked up in ice caps and glaciers. Only around 1% of the world’s water is fresh, and of that, humanity can only easily access about a tenth, or 0.1%. For decades, desalination and electrolysis have been considered deeply anti-environmental processes, primarily because they consume enormous amounts of energy and release huge amounts of greenhouse gases. Not necessarily.

The Concept

If we found a way to use solar energy exclusively to disassociate saltwater molecules to produce hydrogen at a profit, it would be possible to build a global infrastructure to burn the hydrogen and produce water anywhere in the world. The problem with that is that there is a net energy loss, and hence financial, associated with hydrogen production. The laws of energy conservation dictate that the total amount of energy recovered from the recombination of hydrogen and oxygen must always be less than the amount of energy required to split the original water molecule. We cannot remove this obstacle, but we can go around it by invoking other equally immutable laws:

1) Hydrogen is the lightest element in the periodic table, so light that in its gaseous form it quickly rises in the atmosphere and dissipates. This is extraordinarily useful because it means that the force required to pump gaseous hydrogen upward is minimal; it’s already headed that way.

2) In any volume of water, the ratio of hydrogen atoms to 1 molecule of water is 2:1. The mass of a mole of water molecules is 18g on average, so 2 moles of hydrogen atoms are in 18g of water. There are 3785.4g of water in a gallon (assuming the water is 39.2 degrees F), so there are 3785.4/18 = 210.3 moles of water molecules in a gallon. For every water molecule there are two hydrogen atoms giving 2 x 210.3 = 420.6 moles of hydrogen in a gallon of water. A mole is 6.023 x 1023 atoms. So there are 420.6 x 6.023 x1023 = 2.533 x 1026 hydrogen atoms in a gallon of water. Since each mole of hydrogen atoms has a mass of 2g, there are 420.6g of hydrogen in every gallon of (rather cold) water.

In other words, 1 mole of water is 9 times heavier than 1 mole of hydrogen. It is this difference in mass that makes it possible to use gravity to not only recapture the energy loss but to actually generate a surplus, manufacture pure water, and make a profit -simultaneously. Currently, there are no known commercial facilities anywhere taking advantage of this fact.

Electrolysis

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Principle

An electrical power source is connected to two electrodes, or two plates (typically made from some inert metal such as platinum or stainless steel) which are placed in the water. Hydrogen will appear at the cathode (the negatively charged electrode, where electrons enter the water), and oxygen will appear at the anode (the positively charged electrode). Assuming ideal faradaic efficiency, the amount of hydrogen generated is twice the number of moles of oxygen, and both are proportional to the total electrical charge conducted by the solution. However, in many cells competing side reactions dominate, resulting in different products and less than ideal faradaic efficiency.

Electrolysis of pure water requires excess energy in the form of overpotential to overcome various activation barriers. Without the excess energy the electrolysis of pure water occurs very slowly or not at all. This is in part due to the limited self-ionization of water. Seawater has an electrical conductivity about one million times more than pure water. Many electrolytic cells may also lack the requisite electrocatalysts. The efficacy of electrolysis is increased through the addition of an electrolyte (such as a salt, an acid or a base) and the use of electrocatalysts.

Currently the electrolytic process is rarely used in industrial applications since hydrogen can currently be produced more affordably from fossil fuels.

Solar Cells 44.7% Efficient

September 23, 2013

The Fraunhofer Institute for Solar Energy Systems ISE, Soitec, CEA-Leti and the Helmholtz Center Berlin jointly announced today having achieved a new world record for the conversion of sunlight into electricity using a new solar cell structure with four solar subcells. Surpassing competition after only over three years of research, and entering the roadmap at world class level, a new record efficiency of 44.7% was measured at a concentration of 297 suns. This indicates that 44.7% of the solar spectrum’s energy, from ultraviolet through to the infrared, is converted into electrical energy. This is a major step towards reducing further the costs of solar electricity and continues to pave the way to the 50% efficiency roadmap.

Back in May 2013, the German-French team of Fraunhofer ISE, Soitec, CEA-Leti and the Helmholtz Center Berlin had already announced a solar cell with 43.6% efficiency. Building on this result, further intensive research work and optimization steps led to the present efficiency of 44.7%.

These solar cells are used in concentrator photovoltaics (CPV), a technology which achieves more than twice the efficiency of conventional PV power plants in sun-rich locations. The terrestrial use of so-called III-V multi-junction solar cells, which originally came from space technology, has prevailed to realize highest efficiencies for the conversion of sunlight to electricity. In this multi-junction solar cell, several cells made out of different III-V semiconductor materials are stacked on top of each other. The single subcells absorb different wavelength ranges of the solar spectrum.

“We are incredibly proud of our team which has been working now for three years on this four-junction solar cell,” says Frank Dimroth, Department Head and Project Leader in charge of this development work at Fraunhofer ISE. “This four-junction solar cell contains our collected expertise in this area over many years. Besides improved materials and optimization of the structure, a new procedure called wafer bonding plays a central role. With this technology, we are able to connect two semiconductor crystals, which otherwise cannot be grown on top of each other with high crystal quality. In this way we can produce the optimal semiconductor combination to create the highest efficiency solar cells.”

“This world record increasing our efficiency level by more than 1 point in less than 4 months demonstrates the extreme potential of our four-junction solar cell design which relies on Soitec bonding techniques and expertise,” says André-Jacques Auberton-Hervé, Soitec’s Chairman and CEO. “It confirms the acceleration of the roadmap towards higher efficiencies which represents a key contributor to competitiveness of our own CPV systems. We are very proud of this achievement, a demonstration of a very successful collaboration.”

“This new record value reinforces the credibility of the direct semiconductor bonding approaches that is developed in the frame of our collaboration with Soitec and Fraunhofer ISE. We are very proud of this new result, confirming the broad path that exists in solar technologies for advanced III-V semiconductor processing,” said Leti CEO Laurent Malier.

Concentrator modules are produced by Soitec (started in 2005 under the name Concentrix Solar, a spin-off of Fraunhofer ISE). This particularly efficient technology is employed in solar power plants located in sun-rich regions with a high percentage of direct radiation. Presently Soitec has CPV installations in 18 different countries including Italy, France, South Africa and California.

Solar Batteries

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June 21, 2013

SMA Solar, Germany’s largest solar company and the world’s largest maker of inverters, a device to feed solar-generated energy into the electricity grid, announced the introduction of a new battery set to store surplus daytime solar energy for up to three hours of nighttime use.

The new combined inverter battery will give a four-person household up to three hours of extra energy during the evening, the equivalent of up to 50 percent of their own solar power.

The company’s figures are based on conditions in Germany, where clouds and precipitation limit exposure to direct, unobstructed sunlight throughout the year.

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