Matrix Blog

Commercial Grade is a post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John is a partner of mine in our commercial real estate valuation concern [Miller Cicero, LLC](http://www.millercicero.com) and he is, depending on what day of the week it is, one of the smartest guys I know. …Jonathan Miller

I think that I finally understand what the problem is.

We just need to go back to basics and make sure that the real estate lenders are being property educated. I recently came across a textbook written for lenders: The Complete Guide to Financing Real Estate Developments (Hardcover) by Ira Nachem ( 2007, McGraw-Hill, New York), List price $79.96. Seemed like a respectable enough book, which is why my jaw dropped and I had to read the following section three times to make sure that I wasn’t imagining things

A section in Chapter 5 with the heading “Influencing the Appraisal”,

Since appraisers want to continue to receive assignments, they generally have a desire to satisfy you, their client. You sometimes can play on that desire and get the appraiser to produce a report with values a bit higher (or lower) than he otherwise would report.If you want to make sure that the appraiser is not undervaluing the property, you should tactfully indicate your concern up front

Do you believe this stuff?!

As I was reading this I kept on waiting for Alan Funt to jump out and tell me that the whole thing was a joke. He didn’t. (I guess he couldn’t since he died in 1999.)

It gets better

A third reason to go against a conservative valuation involves market conditions and competition among lending institutions. When more lenders are in the market, competition for business increasesTo be more competitive, loan officers who receive higher appraised values can make larger loans

Over the years I’ve spoken to numerous loan officers that truly don’t have a clue as to how the appraisal function is supposed to fit into the underwriting process. Unfortunately books like this do little to educate them.

I look forward to reading future books in this series: “Shmearing the Building Inspector” and “Tax Evasion for Dummies”.

Tags: Soapbox Blog, Appraisal Process, Commercial Grade

11 Comments

This post was also presented on Matrix.

In one of the more poorly thought out layers of legislation being proposed in Congress to help the housing market and credit problems pertains to the appraisal element within the Homeownership Preservation and Protection Act of 2007. This bill is being championed by US Senator Dodd. The whole concept of bonding the appraiser demonstrates a lack of understanding of how we fit into the lending process.

I’ve touched on this legislation in a previous post about how the act misses the mark because it provides no tangible solution to the appraisal element of the mortgage lending process (emphasis added: no). The legislation seems to be stuck at the moment but I am not so sure how long that will last.

Because I am familiar with the topic (it’s my profession), it really scares me to think of the thousands of pieces of legislation that are crafted in bills by Congress every year that are probably just like this one. I am sure Senator Dodd’s intentions are honorable, but the bill completely misses the issue at hand.

A key concern brought up by this bill is the cost of bonding an appraiser. As if obtaining a bond makes an appraiser suddenly ethical and/or not subject to intensive, economically incentivised pressure?

Since I have never had to obtain a bond, I am not completely confident of my thinking here, but I suspect I am on the right track:

The Dodd legislation says:

Appraisers must obtain bonds equal to one percent of the value of the homes appraised.

Ok, so if I say Miller Samuel appraises $5,000,000,000 worth of Manhattan real estate in a year, that amounts to a $50,000,000 bond (1%).

I couldn’t find any published quotes for appraisal surety bonds, but if we say the cost is 2% of face value of the bond, then $50,000,000 x 2% = $1,000,000. In other words, our firm will need to spend $1,000,000 this year in order to comply with legislation that does nothing to address the problem (insulating appraisers from pressure).

Issue 1: If appraisers wish to remain in business, they will have to pass along the costs to their clients (ultimately the consumer in most cases). Common sense says that most appraisers will be forced out of business or no longer perform appraisals for lenders if this interpretation is correct.

This means I have to pass costs of $1,000,000 to my clients (appraising is a razor thin margin business). That really means I am going to have to raise my fees many times just to break even and I am doubtful that my client base will readily absorb the significant increase in fees. As I mentioned in the prior post, I think this will actually make more good appraisers leave the profession.

Issue 2: Appraisers may have to obtain these bonds individually, not in lump sum as in the example above. Try doing this thousands of times in the course of a year. Additional staffing costs, paper work and time has costs associated with it. Total it up and the bill makes appraisals cost prohibitive and will lengthen the appraisal process.

Issue 3: Appraisers may have to violate their appraisal license when obtaining the bond for each assignment. In order to get mandated coverage, they have to provide the value before doing the appraisal (it’s called “cart before the horse”), a direct violation of the licensing law mandated by Congress in 1989 via FIRREA/USPAP. I would think the appraiser’s value estimate for the bond would error on the high side to make sure the property is covered, adding even more costs.

Admittedly I am not familiar with the cost and process of obtaining a bond so I would welcome feedback and insight on this. I am amazed how little information exists out there. Nothing of significance has been written about bonding appraisers that I am aware of.

Appraising is my profession. Lack of common sense is now my bond.

UPDATE: I have been told that the cost of the bond is based on the prior year’s valuation.

Tags: Soapbox Blog, Appraisal Process, USPAP

2 Comments

This post was also presented on Matrix.

Back in September 2007, US Senator Dodd from my home state of Connecticut submitted what appears to be hastily conceived legislation to solve the mortgage crisis in response to the prior month’s credit market meltdown. I believe it was created to address subprime lending, but because it was so loosely presented, it casts a wide blanket over the lending process to little effect and likely causes more problems because it embraces conventional wisdom rather than actual practices. As far as appraisals go, it clearly doesn’t recognize the fundamental problems that New York AG Cuomo has already recognized.

The appraisal related language in the bill is sloppy and contains slang, suggesting that someone with little experience drafted it or the the bill was not understood by the Senator. I am very disappointed. It found co-sponsors because it contains buzzwords like “appraiser”, “mortgage” and “meltdown”.

In fact, the language of the bill was so vague and misdirected (the appraisal part) that most appraisers never took it seriously, instead focusing on efforts by Senator Frank and NY AG Cuomo. However, it still has life and is being taken seriously.

The bill is now in the Banking, Housing and Urban Affairs Committee.

I think Senator Dodd’s introduction of the concept of bonding was to incentivize the appraiser to do good by having “skin in the game” but it does nothing to solve the current lending problem. Is this the best that can be done by Congress? It’s damaging to the lending industry and poorly written and thought out, and in my opinion, it allows Congress to say this takes care of the problem, when in fact, it makes it worse.

Here is the appraisal-related content summary provided by Senator Dodd’s web site.

V. Require good faith and fair dealing in appraisals.
– Prohibit pressure from being brought to bear on appraisers.
– Hold lenders liable for appraisals to avoid the appraisal problems created in the current climate.

Here’s the actual language of the appraisal related portion of the bill:

Title IV Good Faith and Fair Dealing In Appraisals

Requirements for Appraisers

• Appraisers owe a duty of good faith and fair dealing to borrowers.

My comment: Generic boilerplate that probably needs to be said. On that note I propose legislation that government officials never abuse their power, the public shouldn’t commit crimes and all school kids show do their homework. In other words, its an ideal, but it has nothing to do with addressing the core systemic problem – remove the possibility of collusion from the process.

• No lender may encourage or influence an appraiser to “hit” a certain value in connection with making a home loan. In addition, a lender may not seek to influence an appraisers work, nor select an appraiser on the basis of an expectation that he or she will appraise a property at a high enough value to facilitate a home loan.

My comment: They actually use the word “hit” in the legislation. Who wrote this? How is a lender prevented from attempting to “seek to influence an appraisers work.” These are just words.

• A crucial cause of the current mortgage meltdown has been inflated appraisals. Many ethical appraisers complain that lenders will only use appraisers who consistently value properties at the levels necessary to allow the loan to close. Appraisers who do not cooperate simply do not get hired. This is particularly detrimental to the homeowner because it leads the homeowner to believe he or she has equity where little or none may exist.

Comment: “A crucial cause” implies appraisers initiated the problem. Wrong. They were the enabler of the lenders and the bad ones were rewarded for unethical practice. They actually use the word “meltdown” in this bill? This paragraph also infers that good appraisals are always low. You can say stuff like this all day long but that doesn’t stop it from happening.

• Appraisers must obtain bonds equal to one percent of the value of the homes appraised.

Comment: “How do the costs of the bonding enter into this? I am not familiar with getting bonded I assume that means appraisers would file for a bond with a predetermined amount so we get enough coverage. That violates federal licensing law (USPAP). This does nothing to fix systemic fraud and burdens the appraisers that do the right thing with additional costs. How does it keep a bad appraiser from doing bad work? They charge the bond costs to their unwitting (or not) clients and it’s no skin off their back. Good grief.

• Remedies available to borrowers

— Lenders must adjust outstanding mortgages where appraisals exceeded true market value by 10 percent or more.

Comment: Can you imagine the litigation costs that would result if this passes? Who determines whether the value is off by more than 10%? Another appraiser who is hired by the homeowner? An AMC? A real estate broker? Zillow? A lender using an Automated Valuation Model? What is “True” market value? Is this a new definition of market value and all other forms like “Fair” used by GAAP are “False”? I find it hard not to say the word “true” in this application without sounding sarcastic.

— When an appraisal exceeds market value by 10 percent (plus or minus 2 percent) or more, a borrower has a cause of action against the lender. A consumer who is awarded remedies under this section shall collect from the appraiser’s bond.

Comment: Can you imagine the the costs that will be endured by the consumer? I understand that bonding costs for the typical appraiser would be $10,000 to $40,000 per year (per appraiser). For what? Appraising is already a razor thin margin business. Two things are going to happen: appraisal services are going to probably double, and many good appraisers will be forced out of business.

— Actual and statutory damages up to $5,000.

Comment:The further destabilization of the lending industry is worth $5k?

Here are the Senators who think this is a good idea:

Sponsored by Christopher Dodd(D-Ct), with co-sponsors: Sen. Daniel Akaka [D-HI]
Sen. Barbara Boxer [D-CA]
Sen. Sherrod Brown [D-OH]
Sen. Robert Casey [D-PA]
Sen. Hillary Clinton [D-NY]
Sen. Richard Durbin [D-IL]
Sen. Dianne Feinstein [D-CA]
Sen. Thomas Harkin [D-IA]
Sen. Edward Kennedy [D-MA]
Sen. John Kerry [D-MA]
Sen. Amy Klobuchar [D-MN]
Sen. Frank Lautenberg [D-NJ]
Sen. Claire McCaskill [D-MO]
Sen. Robert Menéndez [D-NJ]
Sen. Barbara Mikulski [D-MD]
Sen. Barack Obama [D-IL]
Sen. John Reed [D-RI]
Sen. Charles Schumer [D-NY]
Sen. Sheldon Whitehouse [D-RI]

I’ll bet if the situation was explained to the Senators with clarity, they would have issues with the bill as written. Time is of the essence, but the solution needs to solve the problem. The problem is about self-dealing and allaying investor’s concerns with the products they are purchasing.

Tags: Zillow, Soapbox Blog, Appraisal Process, Redlining and Predatory Lending, USPAP

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Adam Johnston, SRA, is a long time appraisal veteran, and currently a chief appraiser for a national real estate settlement services company (and a longtime fan of Soapbox). On a daily basis, he speaks with appraisers and lenders across the country having observed the rise and fall of the sub-prime lending market. I am glad to have him share his views with us …Jonathan Miller

For those that recall, Baghdad Bob was the embattled former Information Minister for Sadaam Hussein. He achieved international fame by rendering delirious proclamations of Iraqi victory while the rest of the world watched Sadaam Hussein’s regime collapsing with historical speed. Baghdad Bob was forced to humiliate himself by contradicting reality with fictitious stories of Iraqi battlefield victories. This is akin to the Captain of the Titanic steering the ship while it sank to the bottom of the ocean.

The parallel between Baghdad Bob and my friend the appraiser should become more evident as this blog post continues.

This week, I was challenged with an appraisal that made my eyes water. The author was reportedly an appraiser with 45 years of experience, certified general licensure, and possessing a prestigious designation with a prominent appraisal organization. By all standards, this appraiser is a patriarch of the industry and should be admired by the legions of lesser accomplished appraiser’s-myself included.

Yet, his work betrays a different story. Case in point; the subject property is located in a mixed-use area with residential and commercial land uses. The appraiser acknowledges in his appraisal that he failed to verify zoning (or attempt to verify the zoning). Consequently, he omits a determination of zoning and zoning compliance. Yet, the appraiser managed to conclude that the highest and best use of the subject property is it’s current use. I found this conclusion baffling since one of the four mandatory tests for highest and best use is legal permissibility. The appraisal contained no discussion regarding the basis for his conclusion of highest and best use. Thus, having no verification of the subject’s specific zoning, and consequently what uses are legally permissible, it becomes impossible (without assumption or specific assignment condition) to answer the question of highest and best use.

Sadly, when confronted about the apparent problem in his appraisal, the appraiser admonished me and suggested that my concern constituted a lack of trust in his abilities. Thus, he essentially ignored my questions in favor of a disapproving glare. As a consolation, he directed me to review his resume for assurance and peace of mind.

The Lesson Learned: Your appraisal, as opposed to a self-composed list of resume qualifications, represents the most trustworthy resume.

Tags: Soapbox Blog, Appraisal Process, Adam Johnston, Musings Of An Appraiser

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Sounding Bored is my semi-regular column on the state of the appraisal profession. This time it’s on video.

I caught this on the CBS Evening News last night – about appraisal and mortgage fraud…worth watching.

See the full post on Matrix: [Blackmail & Hot Potato] Appraiser Edition

I was quoted in an article by Emir Efrati of the Wall Street Journal, who has done a great job following the appraisal situation as it unfolds, saying:

“In my opinion, 70% to 80% of appraisals that were done during the housing boom are probably not worth the paper they’re written on because the appraiserswere rewarded with more volume,” said Jonathan J. Miller, a New York appraiser and longtime critic of industry practices. He estimates that home values are overvalued nationwide by at least 10% because of inflated appraisals.

Glenn Beck of CNN read the quote in the WSJ and invited me on the show.

Here’s the clip.

A booker at Fox Business News read my quote in the WSJ above and asked me to speak on the show.

We discussed the agreement between Fannie Mae and New York State Attorney General Cuomo’s office covering appraisal pressure.

Here’s the clip.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud, Jonathan Miller

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The appraisal profession has been front and center in the discussions between NYS Attorney General Cuomo and the GSE’s. Hopefully there will be some sort of resolution soon. Here are some recent posts about the latest developments:

• [Talking Points] The National Appraisal Clearinghouse
• As Fannie And Freddie Hemorage, Little Incentive To Reform?
• Cuomo Makes Progress In Appraisal Disconnect Problem

There will be a lot more appraisal commentary on Matrix to come over the next few weeks as this situation unfolds. This is a seminal moment in our profession so it is a real shame that we do not have a meaningful way to show our collective voice.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process

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Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP].

This week Joe recalls his time at WAMU. It looks like the stock price could use a wing or two. …Jonathan Miller

October 6th 2006 was my last day as a First Vice President and NE area Manager at Washington Mutual. It was bitter sweet, having attained what I desired all my professional life: a high visibility, well respected position in a major company where I could be an appraiser and a manager all in one. With the help of my staff we managed appraisers both in house and on our vendor list. We had proven efficiencies with regard to cost of service, turn around and quality. We were appraisers talking with appraisers, solving problems, getting the business done while never compromising our standards or ethics. We had the numbers to prove it and the plan “b” solution as well if “cuts” needed to be made. No one was listening, minds were made up.

Still, the bank had grown very fat over the “boom years” and the efficiencies got lost in the fact that we “cost too much”, especially since mortgage volume was way down. Hey what do you do when it stops raining? Yeathrow out your umbrella? The solution was supposed to be simple: replace 323 staff appraisers including management with two large behemoth outsource companies (that take a slice of the action on the APPRAISER Side, while charging the lender even MORE than typical). Why not? Appraisals are all the same, appraisers are all the same and as long as you can get someone to sign the form you can make a loan. Who needs management of appraisals?

Well well, now the bank is in the headlines for collusion with the very business partners that were supposed to save the day. Something about “things wrong with these values: fix it or no more work” per the New York Attorney General. As a result there were “inflated appraisals”.

Some of the appraisals I saw from the Appraisal Management Companies were a far cry from inflated but rather conservative. What happened on October 7th to change all that? Nothing. What did happen was that Washington Mutual decided to remove an integral communication piece within the banking operation that made sense out of these “value” things and replaced it with a “message service”. The AMC “clerk” leaves the appraiser a “message”: “The bank does not like the value.please call us back”. No translation of information or discussion on the complexity of the issue.

Today as I see the WAMU stock price I can not be so naïve as to think it is ALL attributable to the demise of the in-house appraisal department. I do think that there are some things in business that you can not try to “wing”.

Like my friend, (also an appraisal manager for 17 years there) at a major national lender says. those in the ivory tower sure know the cost of everything..and the VALUE of nothing.

Tags: Joe Palumbo, Appraisal Management Companies, Soapbox Blog, Appraisal Pressure, Appraisal Process, USPAP, Palumbo on USPAP

3 Comments

Jim MacCrate, a regular contributor to Soapbox through his “Straight from MacCrate” column recently wrote a research paper with Noreen Whysel called:

Appraisal Reviews and Their Importance

which was recently listed on Social Science Research Network’s Top Ten download list for Litigation, Procedure & Dispute Resolution Journals. This article may be of interest to attorneys and others who read and review real estate appraisal reports. To view the top ten list for the journal click on its name Litigation, Procedure & Dispute Resolution Journals Top Ten and to view all the papers in the journals click on these links link(s) Litigation, Procedure & Dispute Resolution Journals All Papers.

Appraisal review is a big issue. We regularly perform reviews of other appraiser’s work in litigation and they review ours.

Tags: Soapbox Blog, James MacCrate, Appraisal Process, Straight from MacCrate

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

Besides showing all of us he is smart enough to read things deeper in emotion than a Stephen King novel, Todd makes the case that DELIVERING INFORMATION IS NOT JUST ABOUT CONTENT. …Jonathan Miller

Shall I compare thee to a summer’s day?
Thou art more lovely and more temperate.
Rough winds do shake the darling buds of May,
And summer’s lease hath all too short a date.
Sometimes too hot the eye of heaven shines,
And often is his gold complexion dimm’d;
And every fair from fair sometimes declines,
By chance or nature’s changing course untrimm’d;
But thy eternal summer shall not fade
Nor lose possession of that fair thou ow’st;
Nor shall Death brag thou wander’st in his shade,
When in eternal lines to time thou grow’st:
So long as men can breathe or eyes can see,
So long lives this, and this gives life to thee.

SHALL I COMPARE THEE TO A SUMMER’S DAY?
THOU ART MORE LOVELY AND MORE TEMPERATE.
ROUGH WINDS DO SHAKE THE DARLING BUDS OF MAY,
AND SUMMER’S LEASE HATH ALL TOO SHORT A DATE.
SOMETIMES TOO HOT THE EYE OF HEAVEN SHINES,
AND OFTEN IS HIS GOLD COMPLEXION DIMM’D;
AND EVERY FAIR FROM FAIR SOMETIMES DECLINES,
BY CHANCE OR NATURE’S CHANGING COURSE UNTRIMM’D;
BUT THY ETERNAL SUMMER SHALL NOT FADE
NOR LOSE POSSESSION OF THAT FAIR THOU OW’ST;
NOR SHALL DEATH BRAG THOU WANDER’ST IN HIS SHADE,
WHEN IN ETERNAL LINES TO TIME THOU GROW’ST:
SO LONG AS MEN CAN BREATHE OR EYES CAN SEE,
SO LONG LIVES THIS, AND THIS GIVES LIFE TO THEE.

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

WE THE PEOPLE OF THE UNITED STATES, IN ORDER TO FORM A MORE PERFECT UNION, ESTABLISH JUSTICE, INSURE DOMESTIC TRANQUILITY, PROVIDE FOR THE COMMON DEFENCE, PROMOTE THE GENERAL WELFARE, AND SECURE THE BLESSINGS OF LIBERTY TO OURSELVES AND OUR POSTERITY, DO ORDAIN AND ESTABLISH THIS CONSTITUTION FOR THE UNITED STATES OF AMERICA.

The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.

THE MOST PROBABLE PRICE, AS OF A SPECIFIED DATE, IN CASH, OR IN TERMS EQUIVALENT TO CASH, OR IN OTHER PRECISELY REVEALED TERMS, FOR WHICH THE SPECIFIED PROPERTY RIGHTS SHOULD SELL AFTER REASONABLE EXPOSURE IN A COMPETITIVE MARKET UNDER ALL CONDITIONS REQUISITE TO A FAIR SALE, WITH THE BUYER AND SELLER EACH ACTING PRUDENTLY, KNOWLEDGEABLY, AND FOR SELF-INTEREST, AND ASSUMING THAT NEITHER IS UNDER UNDUE DURESS.

The definition of Market Value may not inspire the same emotions as Shakespeare’s Sonnet #18 or the Preamble to the Constitution. But whatever appears on the written page is far more pleasing to the eye when the majority of the letters are lower-case.

It’s harder to read text when it’s written in all capital letters. To illustrate how easy it is for our brain to read text in small letters, try to read the paragraph below. This would be almost impossible to read in capital letters:

Aoccdrnig to rscheearch at an Elingsh uinervtisy, it deosn’t mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteers are at the rghit pclae. The rset can be a toatl mses and you can sitll raed it wouthit a porbelm. Tihs is bcuseae we do not raed ervey lteter by it slef but the wrod as a wlohe.

Another result of writing in all capital letters is that the reader feels like you’re shouting at him. Not to mention the fact that it makes the writer look careless and lazy. Why would you, a professional appraiser who wants to be taken seriously, send out reports that make it look like you don’t pay attention to details?

If enhancing the quality of your work is not reason enough to unlock the caps, then do it for a more practical reason. You’ll save money by using less paper and toner.

Tags: Soapbox Blog, Todd Huttunen, Appraisal Process, The Hall Monitor

2 Comments

[Alvin “Chip” Wagner III, SRA, IFA, SCRP is third generation appraiser from Chicagoland who is a public figure and well respected within the appraisal industry. Along with his business partner, Bob Headrick, they run the firm [Headrick-Wagner Appraisal Group](http://www.headrick-wagner.com/), which has been providing appraisal, consulting and research services throughout the Chicagoland market for more than 35 years. I met both Chip and Bob through [RAC (Relocation Appraisers & Consultants)](http://www.rac.net). When I met Chip in the late 1990’s we both spoke together at a national conference about our appraisal web sites, both among the first in the country. I have learned a lot from Chip and I am thrilled to use his firm’s market stats on my Matrix blog and post his Chip Shots column on Soapbox. Like me, he has an enthusiasm for market analysis.

In this week’s Chip Shots column, Chip lays out the discipline of relocation appraising, and its within spread (inside joke).
…Jonathan Miller

Okay, my recent posts have been negative, my own personal gripes. This week I’m going to talk about relocation appraising, something I love. If you are a “good” appraiser, you should love this type of work too.

I specialize in corporate relocation appraisals. This is a niche in the residential appraisal profession when a corporation or the government transfers one of its home-owning employees. Two appraisals are averaged together to form a buyout offer to purchase the home of a corporate transferee. There is a different definition of value called “Anticipated Sales Price.” The appraiser is asked to provide a prospective value into the future, a reasonable period up to 120 days. The appraiser is asked to provide an as-is value and make market-driven adjustments based upon the decorating and appeal of the home. The appraiser is asked to analyze three competitive listings in addition to closed sales. Pending sales that can be confirmed are encouraged to be used. They are asked to analyze the supply and demand, inventory levels, as well as marketing time (days on market). The appraisal principle of substitution is a key concept especially in the competing listings. “Why would a buyer purchase the property you are appraising for more than its competition?” is a question that is often asked of a relocation appraiser.

In a nutshell, it is the epitome of all residential appraisals. These concepts are not found on the 1004. The main reasons are because of the low tolerance for inaccuracy and cycle times, the fact that a peer appraiser is involved on every assignment, and a specially trained reviewer scrutinizes every last word you write.

Transferring America’s employees has been around since the 1950’s, and is a billion dollar industry for Realtors, appraisers, home inspectors, moving companies, mortgage companies, attorneys, relocation management companies and the corporation’s human resources department.

It is difficult to find your way onto an approved list to do relocation appraisals. Once you find client(s) that entrust you to do relocation appraisals, you better perform and meet their cycle times if you wish for repeat business.

The industry is tight, and clients typically seek out the best of the best. They keep track of your appraised value and what the property eventually sells for, and accuracy is a must to remain on the list.

When accepting and completing a relocation appraisal, you agree to cooperate by answering questions a client may have about your report. Some examples might be: “The other appraiser says the subject has 2 fireplaces, and you only note 1 fireplace. Could you reconfirm?” That is an easy one.

Or another example might be: “Your appraisal and the other appraisal both have a shared comparable, and you state it has a remodeled kitchen and make an adjustment, yet the other appraiser does not mention it.” If you did your research properly, that should be an easy one as well.

Sometimes it is: “could you expound on your Forecasting and Market Change adjustments.” That gets a little bit trickier – especially if the other appraiser does not agree with you.

I like this niche because it is recession proof and keeps me busy throughout the year. When the real estate markets go south, the importance of accurate relocation appraisals goes up.

Many appraisers do not like this type of work because of the frequent communication with the client and mandatory cycle times. Others do not like being measured against a “peer” appraiser’s work (probably because they have quality issues). Others cannot accurately appraise the properly (we are graded on what the home eventually sells for). And others have told me “they take too long to do” (there is a learning curve with the new form and what is expected).

It is definitely more work, as the report has extensive sections for narrative writing, and every appraisal needs three competitive listings and three comparable sales gridded. Photos of every room are needed. An adequate description of the home’s interior condition and décor/appeal is required along with suggestions as to what the client may need to do to competitively market the home. The additional work approximately is double the time of accurately completing a URAR, and the fee you charge would also be approximately double.

The volume of this type of work is going to vary from region to region. The major metropolitan areas with corporate presence are likely to have a high volume of job transfers for home-owning employees. The smaller markets may have limited volume of this work.

Many appraisers often ask me how to get into relocation appraising. I was fortunate as I was born into it (literally, my father had been doing this type of work since the middle 1960’s).

My advice is to first join the Worldwide Employee Relocation Council (ERC is the trade association for the relocation industry); take classes if possible (the ERC has an on-line appraisal course); train with an experienced relocation appraiser if possible (most appraisers do not want to train their competition); and make it known that you are available to do this type of work. My biggest referral source is Realtors who are listing these properties often refer appraisers that they know that specialize in relocation appraising).

Getting involved with the ERC will let you know who the clients are that order these types of appraisals. Getting involved includes reading their monthly magazine called Mobility, attending their conferences (they have an annual Spring convention every May), and earning the Certified Relocation Professional (CRPTM) designation from the ERC.

For more information on relocation appraising, visit the website of the Worldwide Employee Relocation Council and the Relocation Appraisers and Consultants.

Tags: Pending Home Sale Index, Soapbox Blog, Chip Wagner, Appraisal Process, PHSI, Relocation, NAR, National Association of Realtors

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[Alvin “Chip” Wagner III, SRA, IFA, SCRP is third generation appraiser from Chicagoland who is a public figure and well respected within the appraisal industry. Along with his business partner, Bob Headrick, they run the firm [Headrick-Wagner Appraisal Group](http://www.headrick-wagner.com/), which has been providing appraisal, consulting and research services throughout the Chicagoland market for more than 35 years. I met both Chip and Bob through [RAC (Relocation Appraisers & Consultants)](http://www.rac.net). When I met Chip in the late 1990’s we both spoke together at a national conference about our appraisal web sites, both among the first in the country. I have learned a lot from Chip and I am thrilled to use his firm’s market stats on my Matrix blog and post his Chip Shots column on Soapbox. Like me, he has an enthusiasm for market analysis.

In this week’s Chip Shots column, Chip shows his annoyance with the “dumbed-down” check box appraisal culture and elaborates on one of critical measures of being good appraiser: having the ability to accurately measure the property he or she is appraising.
…Jonathan Miller

All appraisers have been taught how to calculate Gross Living Area. Often times mistaken with the term “square footage,” Gross Living Area it a very important component in real estate appraising, but is often overlooked and rarely challenged for accuracy.

As defined by the Appraisal Institute’s Dictionary of Real Estate 4th Edition: “Gross Living Area (GLA) – The total area of finished, above-grade residential space excluding unheated areas such as porches and balconies; the standard measure for determining the amount of space in residential properties.”

What has been bothering me in recent weeks? Today it is the appraiser who cannot measure. I have been challenged 5 times in the past week on my measuring ability. I have been right on every appraisal, and I’m getting tired of this trend. This is high school geometry, not physics or engineering. Please understand, I admit to making mistakes and am far from perfect.

I was brought up in this business during a time where we didn’t have APEX, Win-Sketch and the sketching programs out there. I had the graph paper and architectural rulers and drew floorplans and manually calculated my Gross Living Area.

If you are doing residential appraisals only for lenders, you are likely never challenged on how accurate you can measure a home. You go about your business with your tape measure, Roto-wheel, or laser device, while others just may be lazy and use the survey or blueprints and don’t measure anything. Not even a spot-check against that survey.

I specialize in corporate relocation appraisals. This is a niche in the residential appraisal profession when a corporation or the government transfers one of its home-owning employees. Two “relocation” appraisals are averaged together to form a buyout offer to purchase the home of a corporate transferee.

When doing this type of work, the two appraisals have to be within 100 square feet of each other. This is a reasonable request, given one appraiser might round up or down a couple of inches, or measure an open two story foyer differently by a couple of inches.

But more and more often, I am hearing: “you and the other appraiser both measured the subject property, yet you are 250 square feet apart.” (Not on a 5,000 square foot home, but on a 1,900 square foot home, mind you). So, you politely tell the reviewer that you will be happy to take another look at your measurements, and would also like to review the other appraiser’s sketch. This is common-practice, and I get to review a lot of sketches of my peers some good, some bad. A good reviewer will look at both sketches, find where the differences are and try to get to the bottom of it. A lazy or untrained reviewer will simply allow the appraisers to hash it out.

But the other appraiser sketches I have seen recently makes me really embarrassed for my profession. Pulling a tape measure isn’t a requirement for your appraisal license, it is just expected for you to pass high school math!

Some sketches are hand-drawn and have simple multiplication errors. Okay, it happens if you are living in the 1980’s. Use your appraisal software with the sketching programs. If you are using a computer but still hand drawing your sketches and scanning them into your reports, take a few minutes to learn how to use these programs the are great and once you learn to use them, they are accurate 100% of the time.

Other discrepancies might be the other appraiser misses an “overhang” or a cantilever. Although I strive for perfection, I have been known to miss that one from time to time. Nobody is perfect all of the time.

One of the more common problems I see is measuring open areas of two story foyers. Did you know that the first stair tread is considered part of the second floor? Stupid as it sounds, that is one of the most common mistakes an appraiser makes. Approximately half of the appraisers measure by removing the entire open foyer space, the other half measures correctly around the stair treads. Assuming that an average stair width is 3.5′ and 10′ long, this can change the sketch by 35 square feet. Not a big deal? It is when the two appraisers GLA’s are different by 125 square feet. Measuring the foyer properly will bring the difference to less than 100 square feet, and no calls and exchange of sketches will be needed.

Another common problem I see is the other appraiser rounds up or down to the nearest half-foot, or even the nearest foot. Again, the guidelines for calculating Gross Living Area requires the appraiser to measure to the nearest inch or 1/10 of a foot.

How about dormered areas on second floors ever heard of the 5′ rule? At least half of the appraisers competing with me for relocation appraisal work apparently have not. Gosh, I’ve even seen some appraisers swear that a cape cod without dormers is measuring the first floor and multiplying by 1.5; and if there are dormers, you multiply by 1.6; and if there is a shed dormer, you multiply by 1.7.

Then, there are renderings that don’t even look remotely like the house. I can recite many sketches where one appraiser calls a wall a 50′ straight wall on the rear, yet there are clearly bay windows, 3′ extensions, and enlarged and extended rooms. Hey, if you are using that survey, it probably only gives the dimension at the foundation, not any siding that goes over the foundation.

And by the way, never trust the blueprints or the survey I see errors all the time. Blueprints often change during construction. They are a great guide, but spot-check them on at least 50% of the dimensions. And the survey? I have a collection of inaccurate surveys as well. I suspect most are typographical errors in this case, but surely don’t rely upon someone else’s calculations. Again, spot check that survey before you leave the property.

You don’t believe me? What are these “guidelines” I am referring to? Yes, there is a guideline for calculating the Gross Living Area. Check out the ANSI guidelines (American National Standards Institute and purchase the “Method for Calculating Square Footage” guideline ANSI Z765-2003. The original standard was developed in 1996 and adopted by dozens of organizations including appraisal associations, builder associations, National Association of Realtors, Fannie Mae, Freddie Mac, and ERC to name a few. Updated recently in 2003, the standard describes the procedures to be followed in measuring and calculating square footage of detached and attached single-family homes. It is the purpose of this standard to describe a method of measurement that will make it possible to obtain accurate and reproducible measurements of square footage in single-family homes. The ERC Relocation Appraisal Guide, the book describing how to complete a relocation appraisal, has instructions following these guidelines.

Our profession continues to be “dumbed-down” by box-checking forms, and accurately measuring a property is quickly becoming a lost art. In the Sales Comparison Approach, the GLA is obviously an item of comparison. The Cost Approach seems to not be relevant to anybody anymore (another Blog topic), but if you don’t measure the home accurately, your Cost Approach to Value will be flawed. And although the Income Approach is seldom considered appropriate in residential appraisals, if it is relevant, you better accurately measure the home to apply to the Gross Rent Multiplier.

A final thought, not only will mis-measuring a home lead to a flawed value through any of the three approaches to value, it could lead to a lawsuit down the road for the appraiser. Take a few extra moments to make certain you are doing the job right.

Chip Wagner’s field measuring tools include: Leica Disto Classic 5A laser measuring device, 3′ tape measure on a keyring attached to the Disto, Laser Shades (for the bright sunny days), “Rite-in-the-Rain” paper (for those rainy days), 7-inch pocket size angle tool (for homes that are not square), legal-size clipboard with one-inch hash marks carved into the underside (old-school trick I learned from my father), Lufkin 100′ fiberglass open-reel tape measure (collecting dust) and a Rhino heavy-duty six-foot flexible fiberglass folding engineer’s ruler (my retired appraiser-father’s tool of choice, not used in 2+ years).

Tags: Soapbox Blog, Chip Wagner, Appraisal Process, Home Inspection

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Here is an appraisal-related post on our other blog Matrix: Another Appraisal Firm Enters Pressure Realm + 20,000 Reports that discusses the new appraiser subpoena and how that appraiser seemingly has superhuman time management skills.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process

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