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. Grievance Day, now more popular than Thanksgiving, is fast approaching and Todd laments how incredibly accurate some appraisers manage to be. …Jonathan Miller

For property owners who believe their assessments are too high, June 19, 2007 is Grievance Day. (This is for Towns in New York State Cities and Villages have different calendars) What this means for me, as the appraiser in an assessor’s office, is I get to review a few hundred appraisals done on behalf of the allegedly aggrieved owners. This can be a difficult time because frequently the property owner has a legitimate case, even when the appraisal they’ve paid for isn’t worth the paper it’s printed on.

One of this year’s top ten was an appraisal of a typical Split Level house built in the 1950’s. All of the comparables were, likewise, built in the 1950’s. However, this appraiser was SO GOOD that he was able to deduce from the market that a house built in 1953, which sold for $710,000, required an adjustment of -$400 when compared with the subject, which was built in 1951. (In his defense, this appraiser was consistent in that the age adjustment was $200 per year for the other sales as well, since they were all a few years newer than the subject.)

One of my many pet peeves is that appraisers make too many adjustments and the adjustments they make are too small. In the case of the age adjustment alluded to previously, the $400 adjustment amounts to five one-hundredths of one percent, or 0.0005, or five ten-thousandths, or one two-thousandth whichever way you want to put it – it suggests a level of precision Pratt & Whitney would be proud of but which is well beyond the reach of a real estate appraiser. When it comes to the tolerances within which various craftsmen work, they say carpenters work to the nearest eighth of an inch, cabinet makers work to the nearest sixty-fourth of an inch, while boat builders work to the nearest boat. I’m not sure exactly where appraisers belong, but I am sure they shouldn’t be grouped with people who work in machine shops building parts for jet planes, space shuttles, and stuff like that.

Although there are FANNIE MAE guidelines as to the maximum adjustments allowed, I’m not aware of any pertaining to minimum adjustments. The realities of market dynamics today are such that it is frequently necessary to exceed those maximum recommendations in order to reconcile differences within a given neighborhood, where it is not unusual to find a range of value wherein the highest sale prices are twice as high as the lowest (if not more). And the higher up in price you go the wider the range becomes.

Consider the newly renovated, pre-war, 6,000 square foot, brick mansion in a desirable suburb near New York City which sells for $5,000,000. A similar building which has not been renovated may sell for $2,500,000 to $3,000,000, warranting a condition adjustment of 40 or even 50%. At first glance some may think this adjustment excessive. But keep in mind that a renovation on this scale typically requires a year’s work (during which time the owner is living elsewhere, and paying the cost). All the risk inherent with a job of this scale combined with the unknown aspect of just how it’s going to look when it’s all done these and other factors fully justify the need for substantial adjustments.

And yet it is rare to see an appraisal with adjustments in excess of those outdated 10% individual, 15% net, and 25% gross guidelines. No matter how necessary they may be, the appraiser has to “explain” them. But no explanation is needed when the appraiser/machinist makes five different adjustments, each of which amounts to less than 1% (sometimes much less than 1%) to the comparable sale.

How about setting a standard for the minimum allowable adjustment? I’d vote for 3% but I can live with 2%. Surely, we can at least agree on no adjustments of less than 1%. Nobody’s that good!

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3 Responses to “[The Hall Monitor] Appraisers And Micrometers Don’t Mix”

  1. TheHomeAppraiser says:

    Sure I’ll field this. Appraisers tend to prefer objective adjustments over subjective adjustments since they are easy to explain and justify. Non numerical adjustments such as Average versus Good condition are open to debate where a $XX per square foot of living area or a $XXX per year adjustments are understandable and easier to extract from the market.

    Perhaps the appraiser ran a regression analysis and found $200 per year was attributed to age. Prior to the new Fannie Mae forms we would list non-curable depreciation on the age line and curable depreciation on the Condition line. Now days since most loan underwriters like to see actual age instead of effective age (it confuses them to see a positive age adjustment above a negative condition adjustment) I mostly adjust for all differences in depreciation on the Condition line.

    Now to address the small adjustments:

    Part of the appraisal process is emulating typical buyers in the market. Say you have a neighborhood of similar 1970’s Ranch style homes. Even though they may have the same size, condition and amenities the “model year” of the homes may play a part in the buyers decision making. “Hmmm, a 1973 versus a 1975 versus a 1977? I’ll take the 1977!”

    These small adjustments do not have a significant impact on the final value, but are often done to appease the homeowner. “But my house is newer than these sales” protests the homeowner. “There $200 per year, happy?” is the appraiser’s answer. Or let’s say during the appraisal inspection the homeowner really talks up her landscaping. Now the appraiser better mention that backyard “water feature” in the report or he is going to get an angry phone call. Last week I completed an inspection were the homeowner had three fountains and a waterfall turned on in the backyard. I was practically crossing my legs as I left the property, but still gave it a +$800 “Landscaping” adjustment on the bottom line of the market adjustment grid 🙂

  2. Todd Huttunen says:

    I think the answer is to redesign the grid so as to narrow the adjustment categories down to those which actually have an impact on value. Focus on the land since more than ever before, that’s where the value is (in fully built-up areas) Make adjustments for lot size, shape, views, topography and elevation. And since “small adjustments do not have a significant impact on the final value” as you stated, they have no place in the appraisal. We shouldn’t be appeasing homeowners, or anyone else.

  3. DRCed to death says:

    Yet the county assessors still adds a Depreciated Replacement Cost of $300 for a small shed and $750 for a patch of cracked concrete. What ever happened to small adjustments do not have a significant impact on the final value?