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. Click on Outside The Boxes for a collection of Patrick's articles on Appraisal Scoop!
From Merriam-Webster, "Touchstone is a noun that can be a test or criterion for determining the quality or genuineness of a thing, a fundamental or quintessential part or feature.
From Wikipedia, "the metaphorical use of touchstone means any physical or intellectual measure by which the validity of a concept can be tested, akin to "acid test, litmus test, etc."
I like both of these because they embody "testing and fundamentals", something many appraisers never learned because their mentors never taught or stressed them. From my viewpoint, touchstones are benchmarks and "benchmarks are fundamental to appraising".
In my "grand scheme" of things, no plan would be perfect without a series benchmarks to measure where we have been, where we are and project, where we could be, in the market and our profession. Touchstones serve as "road signs", forming a map that all can read and understand.
What "touchstones" should we have?
In part one, I referred to touchstones in the form of standards and I believe that would be a good place to start. Other areas would include providing "market measures" in a uniform format (the Housing Market Addendum) or what we did in the form of a "Clarification to the Scope of Work" addendum, that provides the client and readers with a reference, common to all appraisal reports.
What should we mandate for all residential appraisal reports (that would provide the "actions of our peers" and define "generally accepted appraisal practice"), to impart a new standard of care? Wachovia and RELS have "Housing Market Conditions" addendum's. Are they adequate, too much, too little? Could we improve them and in doing so, better communicate with clients?
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Could we develop something more meaningful or accurate at the subject or neighborhood level to determine a declining market and not be subject to the Case-Shiller or OFHEO Indexes (that are regional in nature) and not reflective of trends at the neighborhood level?
If we agree on what the basis should be, is it reasonable that we could be proactive and communicate with "the major players", offering a solution to a problem that impales us both? Would a "standard housing market addendum", with key information on the market, provide consistency and a measure of reliability? If lenders had it, would credit ease a bit and get the market moving?
More Work, No Pay?
Since no one asked for it before, we assume its extra and therefore we are entitled to more pay for the work. The fact is, we have always been required to do it. No one held us accountable for its absence. That aside, providing it won't require significant effort if we use technology. Core information (for most markets) is down-loadable and could be "pushed to our desktops", dropped into a file and indexed so that the market matrix and graphs are updated automatically. The data would be a verifiable benchmark (by client or reader) as would the graphs that show the trends.
Why is this important? Simple, clients are often in one location and their deals in another. They need a common denominator and a uniform housing market analysis provides that. The appraiser is their "eyes on the ground" and they need eyes they can trust and eyes that are trusted by the secondary market.
Benchmarking the local economy and housing with the "acts vs. the hype", provides a level of assurance to the client. Lenders want to make deals (even in difficult markets) and Fannie and Freddie have given them the tools to do so, provided they can prove it, which is something they cannot do on their own.
Describing the Elephant
Developing standards (even De facto ones) and granting access to them is the first step. When appraisers from different locations, "all describe the elephant the same way", we are no longer blind men (or women) . This raises the confidence factors and moves the market towards stability. [Blind Men and an Elephant]
Simple facts, clients and appraisers rely on the mortgage business for a living and housing is vital to the economy. If clients or the secondary market do not have confidence in the appraisal (or appraisers), they will not make the loan and or they will set conditions, which the borrower may or may not be able to meet.
In the May 2008 edition of the US Housing Market Study by Global Insight and National City, many markets were identified as "under-priced" and or "at the level they should be", yet lenders remain overly cautious in these areas, making credit difficult to obtain. This contributes to a slower recovery process and less appraisal work.
I am not suggesting we throw "caution to the wind", I am saying we cannot have an industry that "describes the elephant differently". This is what we have and until it changes, those dependent on the mortgage business will have to sit on the sidelines and wait for "Case-Shiller" to ring the bell.
As professionals, if the benchmarks indicate the "market is declining", we need to say so. If they indicate it is improving, we need to say that too and prove either if necessary. Proof is not "it's my opinion", but rather a place a client can reference to verify "my opinion".
Meet the Lackeys
The lack of housing market analysis (contained within the report itself, in a format the client can understand) is a major contributor to how we (and housing) arrived at this point. Other contributing parties included a lack of consistency in reporting, mortgage fraud, a lack of regulatory oversight of appraisers, lenders, mortgage professionals along with a lack of funding for enforcement.
There are no secrets about this and as such, the Feds (one way or another) will deal with it and how they do, will affect our profession. Regardless of any action, we need to take the steps necessary to have a greater voice, clearer standards and more effective controls, ones that will provide the market with a sense that we are a bargain, "at twice the price".
In the final installment of "The Right Start", I will impart a few final thoughts. As is most cases, it will not be earthshaking, just me thinking out loud.
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] Look for the new Outside The Boxes category for a collection of Patrick's articles on Appraisal Scoop!
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