Appraisal Scoop

Thinking Outside The Grid . . .THAT'S Where the "Magic" Happens!

AUTHOR:  Lee Ovington, SRA is a Certified General Appraiser in the State of Illinois and Owner/ President of Ovington Appraisal Services.  Lee has over 20 years of residential and commercial appraisal experience in the Chicago market. The following is re-posted, with permission, from Lee's blog Valuation411.

Appraising is not as easy as finding three comps that look like the subject, making several “rule-of-thumb” adjustments, waving the magic clipboard and saying Whala!  Miraculously, the correct value does NOT just appear before your eyes.

The appraisal form is not a magical tool that gives you the right value. Actually, the adjustment process can deceive you into thinking you have found the right value, especially if you start your analysis with the wrong comps.

The job of the residential appraiser, which has become overly focused on “filling out of the form” has caused many appraisers to adopt a form-driven approach to determining value. This is concerning to me because it is limiting the appraiser’s ability to think like the typical buyer in the market. The appraiser’s thought process is becoming too far removed from actual market participant’s. I have never seen a buyer in the market “gridding” comps before making an offer. Why should the appraiser need to “grid” comps to determine roughly what the subject is worth?

Appraisers should refrain from jumping into the analysis section of the report (gridding comparables) prior to having a good “ballpark” ideal of the subject’s value. If an appraiser does not have a “rough” ideal of the subject’s value, then he/she should not be gridding comps or making final decisions on the comparables to include in the report. Residential appraisers can sometimes fall into the trap of choosing and analyzing comparables based on solely Underwriting guidelines. This approach to the appraisal process can result in completely erroneous value conclusions.

Often, the primary cause for an incorrect value conclusion is not realizing the impact of location, which we all know has a major influence on value. Perhaps this is overlooked (especially by newer, less experienced appraisers) because location is somewhat more elusive than a factor like style, age, or bedroom count. The later are easily identifiable from the data. Merely choosing comps that “look” like the subject without adequate consideration of the subject’s location could leave the appraiser completely blindsided. It is quite dangerous to make comparable selections based mainly on overall style similarity without adequate consideration of the subject’s location.

Analysis of the wrong comps with “rule-of-thumb” adjustments and failing to recognize and account for location differences will cause the appraiser to conclude the WRONG value.

Below are some steps to avoid this mistake…

Getting On Better Quality Approved Lists

In the five years from 2001 through 2005, getting business was relatively easy for new appraisers. Loan Brokers and many Mortgage Bankers, and Banks or S&L's doing wholesale business with both; were essentially accepting anyone with a license and insurance. 

For this reason, neophyte appraisers with a forms program template that was pre-programed to keep red flags out of the report, were able to build large volume businesses.  One California appraiser was found to have had 24 trainees, all of whom solicited their own business, and used his digital signature, delivered the reports and sent him half the fee.  The appraiser who rolled over on him admitted her share of the fee in 2005 was $320,000 but that she had four people working for her, two that went out and inspected the properties and comps and two that researched and packaged the reports. Everyone was happy.

Liberal appraisal review and underwriting prevailed. This was especially trued from 2004 onward. Money Magazine listed Appraisal as one of the Top Ten Jobs in 2004-2006. Ease of entry, flexible work hours, low costs of doing business were some of the things cited by the giddy appraisers who though they were getting rich slamming reports out with reckless abandon.

This mentality was promoted by the Prep Schools, who attracted tens of thousands to the field.  The number of licenses swelled by over 20,000 in less than 3-years during the boom years. Now, many of the most recent Trainee's are finding they cannot get work, even AL's are having a hard time, as more and more loan brokers and mortgage lenders failed in the last year than in the previous five years.

Now the tide had turned, appraisers are being Black Listed for doing exactly what they had been doing, and don't know why.

Appraisal reviews have tightened up as management became concerned.  Reports are being rejected, and in some cases, the appraiser does not understand why or how to fix them.  It might be that the property was never worth the appraised value, only now the report is simply not being accepted.

Having a client base of loan brokers or Sub Prime mortgage banking firms, is the bottom of the barrel in terms of fees, time pressure and value pressures.

Getting on better quality lists or on Preferred Appraiser lists takes a conscious effort, ethics and skills.  How does an AT or AL, who was never really trained properly, and who might not even know what Good Appraisal Procedures are, upgrade their game?

Click here to continue reading . . .

Promises . . .Promises: If you'll just do this ONE "Comp Check"!

Everyday appraisers across the country are called by potential clients with offers of work IF they'll just to this one FAVOR!

Yesterday I blogged about my call from a mortgage broker in Chicago.  She asked,

"What's your fee for an appraisal in Danvers, IL?"  I told her.  Then she asked, "How you you feel about charging an extra $100 so that I could make a little something-something on the deal?" 

Today I've got a great example of how one broker went Fishing For Appraisers.  As you read the letter below, ask yourself: Is the mortgage broker looking for a free appraisal or is he really just shopping for the appraiser with the highest Comp Check value?

After-all, he knows the appraiser ". . .can't hit every one" but if the value "looks good" the appraiser will qualify for their list.   Read on!

Dear Sir:

I am a mortgage banker with XYZ Home Loans and need QUALIFIED APPRAISERS ASAP.

We are a mid-sized lender performing just shy of 1 billion annually in loan volume and have just recently entered your state. We originate mortgages in half the country with over 150 mortgage bankers centrally located in Any-town, USA.

In addition we have just started a sister company XYZ Home Settlement Services that provides title and appraisal services for our company and a list of others.

We have just begun to market in your area, which means at present we do not have any appraisers in your area. We drop over a million pieces of mail on a monthly basis and to test your region we dropped 50K mailers last week with overwhelming response.

For any new area we break into, we must find competent appraisers. Since we do not have any appraisers in your area, you could be the first approved appraiser in XYZ APPRAISAL NETWORK, which could mean anywhere between 10 to 25 appraisals per month.

However, let us go one-step at a time. Let us start by running a comp check.  If it looks good, we will go forward.

I also need a copy of your current E&O, appraiser's license, W-9 tax information, area of coverage, and contact information.

If you can legitimately get some values and of course, we know you cannot hit every one but if it looks good, we can get you in as an approved member of XYZ APPRAISAL NETWORK.

Once that happens then all 150 Mortgage Bankers that have workups will call you first because you will be the only one approved in your area.

So let me give you the name and address of the property in "ANYWHERE" County where I already have a deal:

123 Your Street

Any Town, USA

I look forward to doing more business with you in the future.

Have a great day,

John Doe

Author: Brian J. Davis, RAA - Brian Davis & Associates - Brian has over 23 years of appraisal experience in Central, IL and hosts the Appraisal Scoop blog and the WinTOTAL Users Group an email forum for appraisers.

Business Development: A Culture of No! -

About a month ago, Barb Tores, ASA posted a very popular tongue-in-cheek article titled Real Estate Appraiser says: "Just say Noooooooo!  In THIS article Patrick Egger, a Certified General Appraiser located in Las Vegas, NV., will take a look the other side of the issue:

The other day I read and interesting article by Edward Marshall titled, "How to transform a "Culture of No" into a "Culture of Yes."   While Marshall's focus is on the many issues that exist in the corporate world, relative to new ideas and changing direction to meet tomorrow's challenges, his insights also apply to cottage industries, such as appraising.

The central theme of the article is exposed by the title. After reading the piece it made me step back and consider the appraisal profession and the issues we have addressed in the past and are certainly faced with now.

In reading posts on various appraisal related forums, it would appear that often we are quick to reject new ideas or thoughts rather than to find a way to embrace the idea, expand upon it and improve. The same applies when our appraisal reports come into question by others from outside the group, such as underwriters, reviewers, agents and the like. 

Considering the turmoil on Wall Street and in the secondary market (the true intended user of most lender reports) is it not reasonable to expect on onslaught of requests for additional comparables (including listings and pending sales) as requested by Countrywide and Landsafe in a recent memo?

Is it even more apparent, given the state of the national housing market and considering the rapid decline of home prices in many market areas, that expanding the market comments area to provide the client with greater analysis on local housing market conditions would be necessary to produce a "creditable value opinion"? It would seem so to me.

When housing prices were on a rapid upswing, most of us were providing additional comparables, including pending sales to support our time adjustments. Many of us were also providing addenda (clips from news stories, local housing statistics, market reports, etc.) that detailed the velocity of the local market and chronicled the rapid price changes. We did so to support our logic then and we need to do the same to support our logic now. 

Before we vent frustration with posts and comments on the "stupid underwriter request", we need to examine the reasons for the request, from the client's perspective.

Click here to continue reading . . .

Proving Market Data Adjustments

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors,  Redlands, CA, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support.  All opinions expressed in this post are the author's and may not reflect those of the Appraisal Scoop blog.

How were you taught to prove your market data adjustments? Or were you taught to do that at all?

I was not.  I was given a list of adjustments to use, and instructed to use them in every area, quality and price range. From day one, I argued that this was WRONG, WRONG, WRONG. The first day I proved that their Time Adjustment was wrong. My boss made it clear that I was not management material.  52 Weeks later I quit.

It is sad to think one had to quit a bank job to be able to do appraisals correctly. I was not learning anything there. In five more years I would have known what I knew after one. I knew nothing. Actually, I had to get into trouble before it became an imperative for me to do things right. 

Talk about not being able to find a Mentor.  Don't even bother, just take advanced course work, not CE seminars. There are lots of good advanced courses for the residential appraiser, through the AI, NAIFA and others. My learning was to eventually come from course work.

The truth is that no line item adjustment is the same in all areas, all price ranges or qualities. Anyone who is making the same adjustments for the same line item all the time in all areas, is simply doing it wrong. 

My recommendation is to not use a template or stored phrases (F-2 keys), but to think your way through the report, about what is the truth about your market, and the various boxes you are asked to fill in.  Think of writing a sentence or paragraph about each box that provides the support and analysis for it.

How-To: Market Trends - Simple Charting with MS Excel

Have you noticed a CHANGE in the climate recently?  No, I'm not talking about global warming!  I'm talking about the new interest, from lending clients, on the analysis aspects of residential appraisals.   

That's the way my post Market Area Analysis - What's in YOUR "Workfile"? started out.  That came on the heals of Fannie Mae's recently issued guidance to lenders and appraisers on the importance of accurately reporting or disclosing declining markets.

Today we welcome a new author to Appraisal Scoop! Kathleen "Kat" Bryce of Fort Myers, FL.  Kat was a Technical Writer in a previous life and took on the challenge of documenting the process of going from raw MLS data to a finished Excel spreadsheet graph with trend line analysis!

I think Kat did a FANTASTIC JOB!  If you think so too . . .be SURE to leave a comment!   Her source files (data, spreadsheet, and chart) as well as a complete Word document can be found at the end of this post.

It has been said that a picture can say a thousand words. This is even more true when that picture reflects what the value trends in the marketplace is doing. With the markets across the nation in transition, it even more important than ever to be able to relay to our clients just exactly what the market is doing.

One of the best methods of understanding complex ideas such as market trends is to demonstrate them with pictures. Pictures that tell a story.

Using very simple calculations within a spreadsheet programs, these pictures can be easily presented to your clients, in the form of a simple chart. This is a rather simple process, yet provides very dramatic results.

The following steps will walk you through creating a chart from raw market data. This document is not intended to teach basic Excel procedures and assumes the reader knows the basics. For basic Excel training, Microsoft offers excellent training articles. http://office.microsoft.com/en-us/training/default.aspx

The best place to start is to export your data from MLS or other data provider such as RealQuest.  The preferred export format is comma delimited or *.csv format for working with Excel.  Contact your MLS technical service if you need assistance with exporting your data.

Data for this demonstration is from the MLS system Rapattoni.  It allows the creation a custom data export.  All examples that follow are for data that was exported from Rapattoni and imported into Microsoft Excel.

One of the most important parts is choosing what data you intend to graph.  Based on your assignment problem and the scope of work you have selected, you may want to graph and entire zip code to just a narrow range of the neighborhood.  At the very least the date of sale, sale amount and GLA must be exported.

Click here to continue with the lesson . . .

Economy: What direction will housing take?

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 [email protected]

With the turmoil on Wall Street, a declining housing industry and the forecasts of doom and gloom, etc., one has to wonder when or if we will ever get back to the ways things were?

It's a question I'm often asked and my answer (for many years and through various cycles, downturns and upswings alike) is never. We never get back to the way things were.

As we move through the cycles, changes, etc., good times and bad, we adapt, adjust and somehow manage over time to get back to a place that resembles the place we were, but it's never really the same. While mistakes will manifest themselves with different tags or monikers, "The S&L Crisis", "various housing recessions" or "energy crunches", through the years the problems in the economy, housing and employment have been similar.

"Bad news sells" and if you listen to the media, you're going to be disappointed.  The media exploits the negative aspects to grab our attention, while promoting the products of their advertisers. Good news isn't a story, it doesn't sell airtime and the sound bites don't keep you glued to the set.

There will be a lot of talk about mortgage and housing stocks and nervous investors will sell (advised by the same brokers that make commissions from those sales). Take a look at Manhattan condo market (where those same brokers live). Is it declining like other real estate or in demand by those same brokers?

Are there problems in the economy? Absolutely, there always is. The same mortgage and housing industry that grew at breakneck speed is now contracting or correcting. No down mortgages (which never made sense) are history and we're back to requiring that buyers have equity in the deal, imagine that concept. 

So where to from here?

The first step is primary research. Track the indicators, compare them to historical numbers and ratios (during normal times) and get some perspective on where we are vs. where we've been and ideally, where we should be.

Click here to continue reading . . . .

Housing Affordability, Household Income and Housing Values

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training  909-798-8855, fax: 909-798-0139

We may all be faced with clients wanting us to not only measure the present market value, but also consider the amount of supply presently on the market, as well as the number of buyers in the market. They may want us to check on and know how many sales occurred in the last month, how many listings there are on the market now, and how many pendings there are.

A Knowing is a term I learned from Dr. Wayne Dyer.  A belief system he says, is one that is given or imposed upon us.  A knowing is something that comes from within, from our own personal discoveries, from knowledge we gained first hand. Our beliefs can be shaken or changed by outside influences. Our knowing cannot, as it is a part of our fabric. 

Actually knowing the inventory levels of the markets we maintain geographic competency in is a good thing.  Conveying our knowledge to the stream-of-commerce that relies upon our reports is a good thing too.   Why not do everything we can as succinctly as possible to demonstrate our knowledge of the market?  Why not create demand for our services by creating a product that stands head and shoulders above that of the average Dick and Jane appraiser?

Our reports can actually be a form of advertising of who we think we are as appraisers.  If we think we really know what we are doing, or have the desire for that type of reputation, we can start, each of us, down a path that will allow us to reach a knowing.

Those appraisers who actually know where the market is and what it is doing in their area, cannot be pushed around by clients of any type or sort.  Those that do not know, can.

The point of this article is to provide a simple technique that all can embrace and employ that will allow for a certain level of knowing about your markets. With just a few steps we all can make ourselves sound smarter on paper than our competition. What a competitive advantage ! 

Read the following paragraph and then the learning begins: Click here

Who does the appraiser work for?

Kelly Koehler of The Housechick Blog asked the following questions, in her original blog post, after reading an article authored by an appraisal organization:

Okay, remind me again, who typically pays for the appraisal? Oh yeah - the BUYER. And who gets a copy of it? Oh yeah - the lender. And who has to make a request to receive a copy? After they paid for it? Is there a disconnect here or is it just me?

• Who does that appraisal really protect? The buyer or the lender?
• What percentage of appraisals come back at exactly the sales price? 80%? 90%?
• You know the appraiser usually has a copy of the contract in hand when they do the appraisal, right? Is that appropriate?
• Are we looking for an actual value or are we just mitigating risk for the lender at the Buyer's expense?

My Response:

Kelly - I recall the article that you're talking about and thought much the same as you on the "self-serving" aspect. That said, I think what they were getting at is that most of the other parties to the transaction either have a vested interest in the "deal" (buyer/seller) or they are on "commission" and won't be compensated UNLESS the deal is consummated. Appraisers on the other hand are paid for their service and will be paid regardless of whether the loan goes through or not. (Just like the home inspector, the termite inspector, etc. etc.)

"Who does the appraiser work for" depends on the type of assignment. The Uniform Standards of Professional Appraisal Practice (USPAP) govern all State licensed and certified real estate appraisers. http://tinyurl.com/n4s5h

Each appraisal will identify the "Intended User" and the "Intended Use". In the typical lending transaction the lender is the intended user (client) and the intended use is to underwrite the risk associated with making the loan.

So the basic answer to your question (in a lending situation) is that the appraiser works for the LENDER. Just because the buyer pays the appraisal fee does NOT make them an "Intended User" of that report. These relationships must clearly be stated on all appraisals.

Click here to continue reading . . .

Video: Apex Medina v4 Update Announced - Free update is loaded with NEW features!

I have to admit that I was a little "under-whelmed" by the initial release of Apex Medina.  I actually caught a lot of flack from appraisers on email forums as I tried to drill down to the key features that set Medina apart from its desktop sketching predecessor V3. Turns out, maybe Randall Garrett, CEO of Apex might have felt the same way?

In an email, Mr. Garrett says:

"Tomorrow, we should begin releasing the long-awaited update to Apex v4.0 “Medina.”  For the record, I was not really happy with v4.0 – too much fluff, not enough content.  The first thing I did was to strip out all the crud which was needlessly bloating up the core code.  Next, we started optimizing the core wherever we could get the most bang for the effort.  Once I was satisfied that the core was where it needed to be, we started fixing bugs, enhancing old features and adding new ones."

It looks like Apex is on schedule to release v4.1 this week and this update should be a HUGE one.

Randy says that "Most people would feel that it is worthy of being labeled an upgrade vs. a “point release” update.  Even so, I felt that I owed you folks “the real deal” and still keep it labeled so that it would be an update.  That is, v4.0 users get it for free… "

Apex's Robert Smoote, VP Product Development for Apex has put together a fantastic video.  Here is a link to a preliminary “teaser” video he put up: http://www.apexwin.com/v5/whats_new_apex_41.php 

The new version has so much in it, though, that even his quick video doesn’t show everything I feel is important.  Apex will continue to produce videos this week and next so you can get an idea of what they've done. 

Randy says, "We’ll start with “feature overview” types but I want to transition quickly into more “How to..” videos so you can get the most out of the product.  I still have more to do and within the next two weeks, we should turn on the auto-updater so you’ll once again start getting notices when we’ve enhanced things or added stuff automatically." 

I've watched the video and put together a "short-list" of features that really caught my attention!

Click here for my list . . .