As we fly through life often on autopilot, we are occasionally reminded that relying on autopilot could crash our plane into the side of a mountain. In our valuation careers, it is not always as obvious as a plane crash. In valuation, errors are not as dramatic because lives are not at risk; only dollars. Not only are these dollars not our dollars but frequently a perfect stranger’s dollars. Because no one is getting physically hurt it’s easier to not care as much, right?
The other day I was working on an assignment for single family residential purchase for the VA. The house was in reasonable condition and the contract price was substantiated, but there was one major problem. The 100+ year old home had a natural stone foundation. It was built below the water table and water was pouring through the wall at a rate of gallons per minute. This was obviously well accepted by the home owner because gutters were cut in the concrete floor to channel water from the problematic areas in the foundation to the sump pump crock. All the handyman engineering efforts were not entirely effective because most of the basement was wet. The visual was something that would rival most Rube Goldberg machines.
Per normal VA protocol the report was submitted “subject to” repairs. It was only a matter of time until the real estate agent called to clarify what I was expecting. I recommended getting a report from a licensed engineer and make the repairs in conformance with those recommendations. Rather than take my recommendation, they got one bid from a contractor and no licensed engineer was involved. I was presented with the bid and seriously questioned the proposed repairs. I continued to enforce my original recommendation regarding an engineer’s report. I am not a foundation expert and not qualified to opine if the recommended repairs are adequate. An engineer’s report was never obtained and the work presented on the bid was performed. When the repairs were completed, I was asked to re-inspect the property.
Reluctant to return to the property knowing that the repairs were completed without input from an engineer, I requested the underwriter to contact me. She had been involved in this almost as much as I had been. We were totally on the same page and in agreement an engineer’s report was needed before we would know whether to accept the repairs. How refreshing! I wasn’t thrown out on an island with everyone pointing at me as the reason this purchase transaction was not going through. I shared this island with the underwriter. And, as a result this island became much more habitable!
After several email exchanges requesting an engineer’s report I received an email from my island mate. She had contacted the VA which assured her we had been doing everything right. However, the VA decided to obtain a letter from the contractor stating the repairs were made correctly and the buyers were to sign a “hold harmless” clause at closing. The underwriter and the VA were concerned about liability. However, I was imagining myself standing in the basement of an REO property with this foundation issue that would leave the investors with a bill that would exceed any value the property has. What good is a letter from a contractor who could be out of business next week or a “hold harmless” contract from a buyer who abandoned a now foreclosed property? The underwriter and I both had originally wanted the engineer’s report but for different reasons. The underwriter wanted it for liability and I just wanted the foundation fixed correctly. My island mate had abandoned me!
During this assignment, I never did forget I am an appraiser. My job is to assist my client with regard to their assessment of the collateral for a lending decision. In some cases, it may require going the extra mile beyond the 1004 form-filling. You need to make sure your client has what he needs to know to make a decision if he is going to fund the loan. Maybe one common goal will help the industry avoid crashing in to the mountain in the future.
