Why do consumers prefer Toyotas or Hondas vs. Chevy's, Fords or other American cars? It would seem that most cars provide basically the same features, but year after year Toyota and Honda continue to provide reliability and value beyond that of their competitors in the eyes of buyers.
While American car manufacturers have closed the gap, the public's perception has been fashioned by years of import performance that wasn't matched by American cars. Check any of the automobile rating agencies and at the top will be a long line of “imports” with high marks for quality, performance and reliability.
The appraisal profession is faced with a similar "perception problem".
From the client’s perspective, how reliable are real estate appraisals? Are they better off by letting an AMC (Appraisal Management Company) “handle the hassle” or could they be getting something better and more reliable?
What can be done to change the market's perception of the services the professional appraiser provides? When you consider that the consumer is making perhaps the largest investment of their life with the purchase of a home, logically, they should want assurance that it is a sound investment, something a good appraisal would provide.
We all know that the purchase of a home is an emotional decision and that tends to over-shadow logic. Still, you would think that with the median price of a home in the $200,000 plus range, a $300-$400 investment by the consumer would be a cheap insurance policy and in their best interest prior to taking the housing plunge.
The reality is, consumers don’t know what we do, nor do they know what we could do for them as a consulting type assignment when they are about to make the investment of their lives. Likewise, appraisers often don’t comprehend the needs of their clients nor consider additional services they could provide “collectively” that would be valuable to the client.
The lender is making a large financial commitment, taking on the risk of underwriting the collateral with someone’s best guess (as professional as it may be) at what that property could be sold for in less than “perfect market conditions”. Even with a solid borrower profile, the lender is guaranteeing the value to the secondary market in the form of a “buy-back” commitment.
What could appraisers do to change the process, the rules and the appraisal report that would have the most positive impact on the perception of the appraisal by the client, the agent, the consumer and the secondary market? How can we reinvent the profession, to not only make it more attractive to the client, but more valuable to the underwriting process and therefore a must have?
Appraisers think they know what the client wants, "quick turn times and low fees”, however, are they really the key elements from the client's perspective or are there other factors (if provided on a consistent basis) that would shift the market's perception of the services appraisers provide?
What's missing in the equation is the appraiser's comprehension of the client's needs. Toyota, Honda and other foreign automakers capitalized on this concept by changing the public's perception of the quality of the product.
When first introduced to America, Toyota, Honda, etc. were considered low cost or cheap transportation alternatives and they didn't have much success. Subsequently, they began testing their vehicles outside of the US market, for many years before introducing the same vehicle to the American public. Essentially, they got all of the bugs out of the vehicle before the American public ever drove one, a practice that continues to this day.
Perception is reality. What do we really know about the client's needs vs. what we perceive? The client has shown us that they are unwilling to pay a premium fee for the product we deliver. Why do they consider it marginal to their needs? They have abandoned first person dealings with the appraiser in favor of having AMC’s handle the hassle.
What must we do to change the system, product and the client's perception and how can we accomplish this? Step outside the box and cite 5 factors (from the client's perspective) that are (or would be) invaluable to their valuation needs and that could be provided by the appraiser, as opposed to an AVM or BPO.
Two key factors have already been cited above, turn-time and reliability. For the “homework assignment”, low fees are not a consideration and cannot be included. In the scheme of things, cheap, is not a function of the lender, it’s a requirement of the AMCs to make their profit for handing the transaction.
Lenders pass on the cost of the appraisal and other services to the borrower, so unless the lender has an interest in the AMC (and some do), low fees should not be one of the factors on your list. Keep in mind, whatever you suggest should be something that could be mandated on a national basis and that could be completed by any appraiser in any market area.
For example, I have a standard two-page housing market addendum, with economic and demographic information that is very useful and provides the reader with supporting analysis linked to the 1004MC addendum. Aside from what I’ve mentioned above, what would you include?
- What should all appraisers be mandated to do or what additional services could be provided, that would change the client’s perception of the typical appraisal?
- How can the profession reinvent itself?
- If you were the client, investing your money in the market, what would you want to see in the appraisal or the process that you are not seeing now?
AUTHOR: Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. He can be reached at lvreqa@cox.net Look for the new Outside The Boxes category for a collection of Patrick's articles on Appraisal Scoop!
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