Category: Articles

Express Yourself

One of our new RAC members, Rachel Massey, SRA, is a prolific writer of appraisal-related topics. She loves appraising and is passionate about appraisal education. The following is something she shared with our members, that had appeared on WorkingRE. We thought it was something we should share with you.

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Massey, RachelExpress Yourself
By Rachel Massey, SRA

The appraisal was good. In fact, it was really good. The logic was sound and the comparables used and analyzed were the best available. It was a complex property and the appraiser did a terrific job considering the likely buyer and what their alternatives would have been. Unfortunately, there was a problem.

The problem was that the report was bad. In fact, the report was really bad. None of the appraiser’s logic and analysis came through in writing. The complex property appraisal looked like a jumble of disconnected sales that had nothing to do with each other, let alone the subject property.

The disconnect was simple. The thought process that was involved in developing the appraisal did not make it from the appraiser’s head to the reader. While all the steps in the appraisal process had been followed and a logical result occurred, communicating the result, the last leg of the process, was weak. It was weak because the appraiser was unable to adequately communicate what was going on.

The house was unusual for the market. The market was rural and there were few comparable properties to choose from. There were sales in the area but the sales were just that, sales. The best sales were distant, older, and looked dissimilar with the exception of a couple key features. The key features in this instance were acreage properties with large pond sites, far from any town and close to areas with recreation land.

Start at Beginning
When you begin a report, think about the intended users, as well as the reviewers who will be viewing the report and step back to see if it contains sufficient information for them to be able to understand what the complexities of the situation are. Where do you start? Start at the beginning by describing what the problems are. Why is the property complex? How is it unusual? How many sales are there in the competitive market over the past year? How about two years? What is the competitive market? What would drive the buyer to consider this property and what would their alternatives logically be?

Had the appraiser laid out the problems unique to this property at the start of the narrative, the logic would follow that the client should not expect a pretty report. If the property was rural and unique and the market from which the likely buyer would consider properties broad, then say it. Spell it out so that the client knows what to expect. If the typical buyer for this property would only consider acreage properties with large pond sites, and eclectic style houses that were secluded from all neighbors, then perhaps the market includes properties thirty miles apart.

Convince the client that this is the case. If the typical buyer is a horse enthusiast who wants to be able to take their horse out for trail riding, then the likelihood is that they want to be within a short ride of the horse trails. Talk about it. These are very real considerations for many buyers and may be the overarching drivers as to which properties get considered.

Even on complex properties, there are usually sales that can be located, and those sales are either superior, inferior, or equal to the subject property. If the appraiser steps back and looks at the bigger picture of these sales and logically details why one is better than the subject and one not as good, without any adjustment at all, the appraiser can lay out a logical value range. Watch almost any house hunting show on television and you will see this is very much what buyers do. If buyers do this and appraisers try to reflect the actions of the market, this kind of logic can help present an answer to a difficult appraisal assignment. Even with very imperfect sales data, we can still tell the story of what makes the property unusual and how the sales we choose compete and rank in comparison. From a logical standpoint, simple bracketing with inferior and superior properties can help convince our client that the property is worth more than X and less than Z, with the telling of the “why” being up to us.

Remember that no matter how good the appraisal is in our heads, if we don’t communicate it in the report, our client may well think we have presented nothing more than a jumble of sales. It is up to us to tie everything together into a cogent and compelling story and convince our client that our value opinion is sound. After all, that is what they are paying us for.

Customary and Reasonable Fees: The Elephant in the Room

Appraisal Buzz, Spring 2016Ernie Durbin

By Ernie Durbin, SRA, CRP, RAC Member

Wikipedia describes the metaphor “the elephant in the room” as, “an obvious truth that is either being ignored or going unaddressed. The idiomatic expression also applies to an obvious problem or risk no one wants to discuss.”

Somehow, recent events in the valuation space have deflected attention away from the elephant in the room, customary and reasonable fees. Real estate appraisers are resilient folks. They can adapt to change as well as any other professional. But like everyone else, they don’t want to do more work for less pay. Most of the issues facing the valuation space today point to one simple problem- customary and reasonable fees. It’s time to address this obvious problem and the risks that it poses to our industry.

Enjoy the full article here.

 

Study Finds: First-time Homebuyers are Not Riskier

First-Time Buyers are Younger, Less Sophisticated, Poorer – but Not Riskier

Mortgage News Daily, July 10, 2015

by:  Jann Swanson

A working paper just released by the Federal Housing Finance Agency (FHFA) attempts to determine the reasons why mortgages given to first-time homebuyers perform more poorly than those given to repeat buyers.  The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment was written by Saty Patrabansh of FHFA’s Office of Policy Analysis and Research.

Given that homeownership is generally considered a societal benefit and that many government policies focus on incentivizing first-time buyers the author says it is important to understand whether first-time buyers as a group are likely to default at higher rates than repeat buyers both in order to anticipate that an increase in the rate of first-time homeownership could lead to increased foreclosures and negatively affect communities and because, if they do not default at higher rates it is important they not be treated as more risky buyers.

Read entire article Here.

In 5 Years the Banking Industry will not have Many Appraisers Left to do their Mortgages

Appraiser Shortage Could Gum Up the Works at Mortgage Lenders

American Banker, May 20, 2015

Mortgage lenders are facing a potential threat to their business that has nothing to do with new regulations or the uneven economic recovery: a persistent shortage of home appraisers.

Since the height of the housing boom in 2007, the number of individuals certified or licensed to do home appraisals has declined by 23,000, or 28%, according to the Appraisal Institute.

It’s not a crisis — at least not yet — but with older appraisers retiring and fewer and fewer college graduates entering the profession, some industry observers say that, in five to 10 years, there won’t be enough appraisers to handle the volume of home sales. For lenders, that could mean higher appraisal fees and long delays in closing loans — at a time when technology could be speeding up the process.

“In five years the banking industry will not have many appraisers left to do their mortgages,” said Rick Hiton, the owner of the Chicago appraisal firm Rick Hiton & Associates.

See entire article here

Dallas Area Home Prices Continue to Gain

 

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Steve Brown’s recent article in the Dallas Morning News, “Dallas home prices continue to gain with 7.6% rise over last year” reported the Dallas area is among the top five markets in the country for home price increases in the latest Standard & Poor’s/Case-Shiller Home Price report.

The article also quotes, Metrostudy’s David Brown to say “The Dallas-Fort Worth market is heading into 2015 with even less inventory than was in the market a year ago.”

The Dallas-Fort Worth Metroplex encompasses 13 counties, 9,286 square miles and is a very large housing market.  There are several RAC members in the Dallas-Fort Worth area, so if you need information concerning a specific sub-market, please do not hesitate to give them a call.

 

 

 

 

 

RAC Member Speaks To WSJ on Appraisal Pressure

WSJ12-2014chart

A recent article in the Wall Street Journal “Dodgy Home Appraisals Make a Comeback” expressed concern over a growing occurrence of appraisals with inflated values.

Digital Risk found that some appraised values were off the mark based on discrepancies that appeared unintentional, though, “at other times, the appraiser’s selection of [comparable properties]…is very hard to justify,” said Thomas Showalter, chief analytics officer at Digital Risk.

Falling mortgage volume is bringing out some of the bad practices that dominated the prior housing boom and makes the need for qualified and experienced appraisers essential – something that an organization like RAC is built with.

One of our members with extensive appraisal experience was able to thwart the pressure because he understood the local market, something not emphasized by lenders today as in year’s past.

Tom Allen, who says he has been an appraiser for 44 years, recalled appraising a house in April for about $450,000 for a loan application with J.P. Morgan Chase & Co. About a week later, Mr. Allen, 68 years old, says he received a request from the appraisal-management company to use two different properties as comparables that had recently sold for around $525,000 and $540,000. Mr. Allen says he refused because the homes were larger, in a more expensive neighborhood and built about 10 years after the property in question.

Communicating Appraisal Results: Tips For Improvement

mobilitymaglogo

The appraisal process is one of the most important and often one of the most misunderstood
aspects of relocation. Gargano outlines in great detail how appraisers can be more effective
in communicating their results to the primary stakeholder they serve.

By: James R. Gargano, Jr., IFAS, CRP

The ability to communicate effectively is the cornerstone to any successful relationship,  whether it be between spouses, parent and child, teacher and student, coach and player, or between an employer and employee. Simply stated, most relationships are negatively
impacted when productive communication channels are not fostered. It is no exception to the Relocation Industry, as it relates to the Appraisal Process. The following items represent keys toward accomplishing the effective communication of the appraisal process.

1. The Accomplished and Savvy Relocation Appraiser Recognizes That he/she is  Communicating an Appraisal to Multiple Parties.

Various Segments of the appraisal analysis should cater to each potential reading segment. As stated within the Definitions & Guidelines of the Worldwide ERC Appraisal Form, the intended user of the appraisal report are the appraiser’s client and the employer. A vast majority of corporations also allow their individual transferees to review the appraisal. The intelligent and
accomplished relocation appraiser recognizes that his/her appraisal report potentially is going to be reviewed by a variety of users. The writing style and content of the report needs to recognize that each user may have a differing level of understanding for appraisal methodologies. Certain elements of the report should be geared directly to the relocation management company and/or corporate client needs, while other content should be aimed at the transferee.

For example, the relocation company and corporate client may desire more analytical elements, such as absorption studies/supply-demand analysis, detailed commentary ofs décor and appeal, and a keen understanding of the rationale for the application of a forecasting adjustment. On the other hand, the transferee is potentially interested in more specific information related to the actual home. Including a detailed list of the transferee improvements made during the term of ownership, affirms to the transferee that the items were, in fact, considered in the overall valuation, (regardless of the actual contributory value of the improvements applied by the appraiser toward the anticipated sales price).

Additionally, when the transferee offers market data for consideration in the appraisal analysis, a thorough discussion should be dedicated toward explanation when such a property is not utilized as a primary value indicator. Offering detailed explanation as to
the omission of transferee-offered market data, will give the employee a better understanding of the rationale behind the search criteria utilized in locating the most valid comparable data.

Furthermore, dedicating a section within the report detailing the positive and negative marketing aspects of the subject property and/or marketplace, may offer valuable insight to the transferee as to the overall rationale of the anticipated sales price.

2. The Professional Relocation Appraiser Avoids the “Form-Filler Syndrome”.

Quite a few appraisers fall prey to this condition, leading to a predictable and “robotic” style of writing. Appraisers in general need to be more creative, analytical, and descriptive in their appraisal presentation. The accomplished appraiser attempts to reinvent his/her style periodically. Generating the same type of analysis year after year, is not a trait of a dedicated relocation appraiser. Simply checking the boxes of the form, and adding little detail and substance to the areas of the appraisal form, does not add value to the appraisal process. In general, clients tend to appreciate a more detailed and descriptive analysis, adding substance to the adage that the appraiser truly represents the “eyes and ears” of the client.

Along those same lines, the accomplished relocation appraiser avoids the use of “canned commentary” throughout the body of his/her appraisal. Each transferee needs to feel that the appraisal being performed on his/her residence specifically addresses the location and physical attributes of the home. Commentary concerning market conditions should never be based purely on seasonal expectations. There have been many instances when particular markets actually are robust between November and January -the heart of the holiday season. Similarly, the beginning of the Spring Market does not automatically translate into an active market environment. Markets also can be quite fluid in many regions of the U.S. A market that was considered active 30 days ago, often can become saturated quickly. Regardless of the particular time of year, the analysis of the “pulse” of a particular market must be supported by quantitative data.

Special attention should be given to the commentary utilized to describe the Listing and Comparable Sales data. Many clients have expressed a desire to have appraisal reports incorporate greater detail in this area of the report. Simply repeating what already has
been clearly outlined in the comparable grid sections does not add any value to the analysis. Telling the reader something more specific about each property, can make the appraisal report far more valuable to the corporate client, third-party reviewer, and the
transferee. Another area of the report which can provide an excellent source of information is the section for photographs. Generous use of photographs, with detailed descriptions can tell the reader about the positive and negative aspects of a particular property. For instance, detailing the décor elements of the individual interior rooms can substantiate further an appraiser’s suggestion to address the items of personalization.  Additionally, taking photographs of various positive or negative site characteristics can be a valuable reference to the reader.

3. The Professional Relocation Appraiser Understands & Cites the Worldwide ERC  Relocation Appraisal Guide

Published by Worldwide ERC, and created with the input and skills of many of the most talented appraisers throughout country, this guide should be sitting on any good appraiser’s desk as a constant source of reference. Using the guide as a specific source, can provide needed clarity and substantiation for an appraisers methodologies.

In addition, the dedicated appraiser, regardless of experience level, should also occasionally take the time to read and review the firs page of the Worldwide ERC Appraisal Form. The definitions & guidelines section of the form serves as a comprehensive refresher of the primary elements associated with the relocation appraisal process. Furthermore, it is a constant reminder of how different the mechanics and concepts of a relocation appraisal are, in comparison to mortgage related appraisal forms.

Corporations and third-party companies should consider including the first page of the Worldwide ERC Appraisal Form as part of the materials presented in a relocation information packet to transferring employees. By reading the definitions & guidelines section of the appraisal form prior to the initiation of the appraisal process, a transferee can gain valuable understanding of the parameters upon which the eventual anticipated sales price will be based upon. How many times have we heard in the appeal process of a transferee claim that the condition, modernization and/or upgrading of their home is anything but “average”. By reviewing the guidelines of the appraisal report, one would realize that an “average” classification simply refers to a rating which describes an attribute as generally typical for the particular marketplace. For instance, a newly constructed, upper-bracket residence, still can be correctly be classified as “average”, based upon Worldwide ERC guidelines, if it is located within an area/marketplace of similar residences.

4. Skilled Relocation Appraisers are Proactive in their Appraisal Presentation –

Addressing ambiguous items of a particular appraisal directly within the body of the report, can avoid a lengthy appeal process. There are many instances in a relocation appraiser’s career when an appraisal assignment can be classified as anything but “cookie-cutter”. Further explanation is required to clearly state the position of the appraisal opinion.

Primary issues that can cause a reviewer grief is the treatment of additional rooms, (what is actually a “site improvement” and what constitutes “finished space”); gross living area; and attic space. As noted in the previous section, the appraiser should be familiar with
the Worldwide ERC Relocation Appraisal Guide. This source is very clear in the proper treatment of these areas. Conformance to the guidelines outlined in this source, creates an “appraiser protocol” that should be followed to avoid serious inconsistencies between
appraisals, and in turn, alleviate the confusion and anxiety level of the appraisal reviewer.

For a wide variety of reasons, there also may be instances when a property is a unique appraisal subject. Clearly state the unique conditions of the subject property, and discuss in a direct and open manner what rationale was used when locating comparable data for the property. On the surface, the reader may not understand why a certain set of properties were used as comparables in an appraisal. For instance, there actually may be a very good reason why an appraiser uses a home that is physically or is in another
location as a comparable in a particular assignment. The appraiser needs to clarify the primary search criteria used, and why a particular property was relied upon in the analysis.

An adherence, or better awareness of the previous steps, can help the appraiser to communicate more effectively within an appraisal report. Many appraiser’s are more “technically-oriented”, and possess the necessary skills to produce a credible estimate of the
anticipated sales price. However, further emphasis needs to be placed on the writing skills necessary to convey with creativity and detail the elements supporting the estimate of value.  As the appraisal process represents one the most important components of the entire relocation process, the continued improvement in this area needs to be a requirement of the entire appraiser community.


James R. Gargano, Jr., IFAS, CRP is a Partner and Principal for Bomba Gargano Valuation, Inc., a full-service appraisal firm, with a specialty in Relocation.  Mr. Gargano is the Secretary for RAC, as well as serving as the organization’s Admissions & Membership Chairman from 2003-2007.  He was also honored as RAC’s 1st Annual Report Writing Contest Winner. Mr. Gargano served on Worldwide ERC’s Mobility Editorial Advisory Committee in 2005-2006.

(Reprinted with the permission of Worldwide ERC from February 2006 issue of Mobility).

 

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