Category: Articles

Relocation Appraisal as market niche

 

Every appraiser has a type of assignment that is near and dear to them. One of my very favorites is Employee Relocation “WERC” work. These are a specialty assignment within the realm of the residential expert. They have long been a favorite type of appraisal work for me, because the relocation client has a real problem that needs to be solved correctly. Their problem relates to potentially purchasing the home of a transferring employee, which is offered to help make the transferee’s move more seamless and less stressful. This is a laudable goal, because anyone moving from one location to another is going to have many mixed emotions, and the stress of a home sale should not be an additional stressor.

Because of the real need for a supported answer, companies hiring appraisers to handle this type of work want to ensure that the appraiser they retain knows how to handle the problem correctly. There are differences between relocation work and most residential assignments. The differences largely relate to the definition of value, which on a relocation assignment is “Anticipated Sales Price” versus “Market Value”. Within the definition of Anticipated Sales Price, is the component of “Forecasting”, which includes the analysis of what has happened in the past, compared to the current market, and projecting out in time within a defined period (usually 120-days), in order to affect a sale within this period. This can be tricky in changing markets, as the past may not predict the future, and the appraiser has to be sensitive to what is happening, right here, right now.

This forecasting adjustment, whether it is positive, negative or zero, must be considered and made. In rapidly advancing markets, the prices may be rising at each sale, leap-frogging each other. The appraiser has to consider this as a possibility/probability, just as when the market is starting to retreat. Even when the market is balanced and stable, seasonality comes into play and may require an adjustment. For example, in the market in which I work, we tend to slow down after the Fourth of July, and the appraiser should consider that, just as much as they would want to consider how the market normally picks up in February. This is because we are projecting out in time to what the house will likely sell for within a marketing time of 120-days.

Another stark difference between the relocation assignment and a mortgage assignment is the detail involved in the market conditions section. The form, as developed, allows the appraiser to truly analyze the market segment they choose as representative of the subject’s competition. Appraisers can use whatever they consider relevant, and personally I like to lay this out as an annualized monthly data run. Some appraiser run it as quarter-to-quarter, others year-to-year, and so forth. This allows flexibility and can help organize the thought process to what is happening in the market as of the effective date of the report. In fact, this format is easy to use for any residential appraisal problem, and would be a benefit in lieu of the 1004MC.

In addition to the forecasting that is made, another difference in relocation assignments relates to décor, far more than with a mortgage assignment. The form guidelines specify that we consider the property’s appearance as it was shown, as of the date that we saw the property. Sometimes we are asked to value “as if vacant” – this is another challenge as the transferee may have a very coordinated color décor with wall hangings, furniture, and so forth, but when all of that is gone, what’s left may be personalized wall or floor coverings. Personalized colors and special design features that may be attractive to the transferee, may actually be a detriment to marketing the house. This needs to be addressed. For example, consider the built-in hot tub in the main bedroom (not the bathroom), or the 5,000 sqft house with pink vinyl siding, or the house where the teenagers thought painting the walls and ceilings black was a good idea.

Just as in a mortgage assignment, functional issues with a property have to be addressed. We have all seen houses with a captive bedroom which requires that you have to go through one bedroom to get to another, or where the bedrooms are on the second floor, and the only bathroom in the house is on the main floor, next to the kitchen. In an increasing market, the buyers may be more forgiving of these types of quirks in a property, but when the market slows, they can be make-or-break situations. As the relocation company and employer could well be offering a buy-out to the transferee on their property, it is of critical importance that these types of quirks are well analyzed and described.

Unlike a mortgage appraisal with the current UAD requirements, relocation appraisals require the appraiser to rate the quality and the condition based on relative versus absolute factors. If a house is almost new, and all the sales used are almost new, and the neighborhood consists largely of similar properties, then the condition is going to be “average” compared to these properties. If the house has amenities that are atypical for the market, then these may be “excellent” or “good” compared to others that compete. Or if there is a functional issue, this may or may not be average for that market, because other properties that are comparable may have a similar functional problem. The ratings are addressed in the Definitions and Guidelines page of the ERC form, and anyone who is considering completing this type of work should make themselves familiar with these guidelines, as well as with the definition of Anticipated Sales Price and Forecasting.

In relocation appraisal assignments, we are judged not only by the analysis that is presented in the report, but in comparison to another appraiser. It is quite common for the two appraisers who are completing the relocation assignment to use common sales or listings, but to include different information. This is common with items such as basement bathrooms, which the MLS may report as on the main floor, as opposed to a basement. Or maybe the ubiquitous days on market for the listings, when the reports were prepared at different times. If the Anticipated Sales Price for two reports are outside of a spread (commonly 5%), then the requirement is often a third appraisal report, allowing for possibly more noted discrepancies far after the fact. The appraiser handling relocation assignments has to be prepared to answer multiple questions from the relocation company in a prompt and professional manner. Appraisers who are not familiar with relocation appraisal guidelines can cause more call backs and requests for information. This is because of the compare-and-contrast function in the review of these assignments — one appraiser may consider a forecasting adjustment necessary and support it, while the other may not adequately address it. If you decide to do this type of work, educate yourself on the process and be prepared to answer questions on most reports that you complete.

If you enjoy the analysis, and describing your analysis and conclusions, then I would encourage you to explore the process in more detail. The Worldwide Employee Relocation Council has an introductory webinar series to relocation appraisal that is found on the website with the following link: https://academy.worldwideerc.org/relocation-appraiser-resources/
Chip Wagner has also developed and perfected a class on relocation appraisals which addresses unique situations that arise in this type of work. If you are interested in learning about relocation work, I highly recommend the class. You can also ask your local education provider to host it.

Of course, if your goal is to become the best relocation appraiser you can be, check out the RAC organization. RAC (Relocation Appraisers and Consultants) which is dedicated to advancing the relocation appraisal profession, but also includes members who specialize in appraisal of complex residential properties often involving litigation. First and foremost, however, it is a relocation appraiser organization, to which I am very happy to belong to. Each year, RAC hosts a 2-day conference dedicated to the residential appraisal profession, with emphasis on relocation appraisal. This is a great place to meet professionals in this field, and to learn more about this niche market. For more information about RAC, please visit the website at www.rac.net.

Relocation appraisal work offers the appraisal professional an opportunity to do their very best work, showcasing their writing and analytical abilities. Our conclusions have to stand up not only by way of comparison with another professional appraiser, but also with the eventual sales price. We will be measured on both of those fronts, as well as in our professional demeanor. There are few options available for this type of work outside of the litigation arena. In relocation work, we have the opportunity to do excellent work, as well as test it, and even more importantly, to serve those with a very real need.

This article first appeared in Appraisal Today, and was republished with permission.

Appraiser competency for relocation assignments

Am I competent to complete this relocation assignment? Who on earth wants to ask themselves that question? Who on earth thinks they may be incompetent?  We have to remember to ask ourselves whether we have the competence to complete an assignment, or whether we can gain the competency to do so by the time we deliver our appraisal report.

The Uniform Standards of Professional Appraisal Practice addresses competency as its own rule, which stresses how important this rule is.  The appraiser has to be competent to perform the assignment, or if lacking, acquire the necessary competency to perform the assignment.  The appraiser must inform the potential client before accepting the assignment about any lack of competency as well as address it in the report and what they did to become competent. If the appraiser will not be able to perform in a competent manner, they have to decline or even withdraw from the assignment. It does happen occasionally that in the midst of an appraisal, a problem arises that the appraiser will not be able to solve. At that point, they will either need to get assistance or withdraw.

What happens when the property type and location are something that we have familiarity with, but there are assignment elements that we do not? How about accepting a relocation assignment without understanding that the definition of Anticipated Sales Price is not Market Value, and that there are steps that are involved in this type of assignment that are not found in a mortgage report?

Relocation work is fascinating, and allows the appraiser to apply their knowledge of the market, and what drives value in a very detailed manner.

Being in touch with trends within your own community related to what buyers want in various market segments is key, as well as understanding supply and demand, and the fact that the past may not dictate the future is important. Understanding and being able to measure what is happening in the market, right now, as well as what is likely to happen in the very near future related to the listings that are on the market and competing with your property are critical.  At the very least, an appraiser who takes on relocation work who has not taken classes or learned the process, needs to disclose this to their potential client. Let the client decide if they want to use the appraiser, or chose someone who does understand this work and has the experience to do it properly. Relocation work does allow the appraiser to gain competency while working on the assignment, as long as the report is competently completed by delivery.

There are appraisers who have made this type of work one of their primary specialty, and most are happy to help someone who sincerely desires to learn and understand the vagaries of the product type. The first place to start if you have not completed this type of work, is to visit the Worldwide ERC website and sign up for the Relocation Appraisal Training Program https://academy.worldwideerc.org/relocation-appraiser-resources/the-relocation-appraisal-training-program/. There is a cost for this program, but if the desire is there to take on a different type of assignment, this is a small price to pay, and a good foundation of knowledge.  In addition to the training above, WERC sells the guide for relocation appraisal, found at https://erc.org/Resources/USRealEstate/Pages/Relocation-Appraisal-Guide.aspx. The cost for the guide is $95 for members and $195 for non-members, but is a “must-have” for the new relocation appraiser. Another option is to go to the ERC 2010 form report itself, and study the first page. This first page lays out the requirements of the form and helps the appraiser understand the process.

Asking relocation appraisers for help is another great way to learn, but please be respectful of their time as well, as they are likely helping without any compensation. Much of what we need to become competent in this type of work is readily accessible, and there are articles written addressing the differences between Market Value and Anticipated Sales Price, and elements that may be important in a relocation assignment. Some things to watch for related to this work is that we do not use UAD language; condition and quality is relative, not absolute; floor plans are cross-examined by a peer appraiser’s work; and colors, modernization and property oddities might be extremely important here, as well as general upkeep. Anticipated Sales Price does require the analysis of forecasting, and listings and pending sales are very important in the relocation process. Where the subject property is positioned in relation to the listings is something to consider and address, and the appraisal report WILL be compared to another appraisal report (or two).

Relocation work is rewarding and interesting work, but the appraiser has got to be competent in the product, not just the property type and location.  If a call comes in to complete a relocation assignment, and you have never done one, let the potential client know. It is possible that they will be fine with someone new to this field, but will want to ensure that the work was completed in a manner that meets the needs of the client. Although it is uncomfortable to admit that we may lack competency in a type of assignment, this is one where we can actually gain it during the process. That is, if we are open to learning.

By Rachel Massey, with great assist from Chip Wagner

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.