GUEST POST: Sally Carothers, SRA, FRICS, Chief Appraiser, CU Appraisal Services, LLC. Founding board member of the Ohio Coalition of Appraisal Professionals (OCAP)
As we move towards the middle of 2013, there are there are several key economic indicators to demonstrate appraisers must once again face the challenge of changing markets. Home prices are on the rise. But are appraisers ready to embrace the challenge and recognize that real estate markets have finally turned? Of more consequence, can appraisers be certain that this housing market is sustainable?
Last week, CU Appraisal Services LLC (CUAS) hosted two roundtable meetings attended by 70 appraisers from 6 states to discuss changing markets. The discussion focused around the Realtors Confidence Index for April 2013. [1] Today, Realtors are reporting rising prices and shorter days on market.
Data released by S & P Dow Jones Indices for its S & P/ Case-Shiller Home Prices Indices showed home prices had strong gains in the first quarter of 2013. [2] The 20-city S & P Case Schiller House price index for March 2013 climbed 10.87% on the year. This is the fasted pace increase since April 2006. On the month home prices were up 1.12%, above expectations for a 1 % rise.
Below is look at the 10 and 20-city home price index since 1988:
Despite obvious data to the contrary, appraisers are still wary of recognizing increasing price, under supply and shortened marketing times. In fact, 90% of the last 300 appraisals delivered to CUAS included the market overview below:
As appraisers, we are faced with making choices that are uncomfortable. We should refrain from generic form-filling and begin to ask the tough questions. Is property value increasing in our market and if so, is this increase sustainable? What are the current inventory levels and how is that likely to impact marketing times. For each assignment we must begin afresh to examine markets, as of the effective date of the appraisal. In short, appraisers must refrain from defensive appraising. Starting now, we must look through the windshield and limit watching the rear view mirror. Analysis and reconciliation must become the cornerstones of a credible market value opinion.
Now is the time to begin a dialogue of value sustainability. Is this merely a spring/ summer price bubble? As appraisers it is important that we research and communicate. We should be interviewing market participant and building relationships with Realtors, builders and other real estate professionals. Appraiser independence regulations protect us from pressure and give us the freedom to build these networks for better business and more accurate analysis. We must collaborate with other appraisers, join organizations, state coalitions and physically attend seminars and education events.
"As appraisers, our jobs are not merely to inspect and report but analyze and reconcile. Only then will we gain respect as professionals"
As appraisers, our jobs are not merely to inspect and report but analyze and reconcile. Only then will we gain respect as professionals. If inventory levels are low, good comparable sales are limited. We must therefore discover how to use the ones we have well. This means we make supported adjustments for key elements of comparison using recognized methods and techniques. We cannot rely on “experience and intuition”. It is time for us to revisit our tool box and begin using the skills we learnt in the classroom: matched pairs; regression analysis; market extraction; modified age life; highest and best use analysis among others. Our clients, intended users and consumers will respect the due diligence and realize the worth of our product.
Appraisers must now break out of the box our clients, the secondary market and traditional AMCs have put us in. We have fought and won many battles over the last few years: appraiser independence; customary and reasonable fees and AMC registration. Now, we must prove we are the leaders and experts in real estate value.
I challenge all appraisers to re-examine their appraisal practice. How will you be seen forensically in years to come? What will be your legacy? Now is the time to shake the cobwebs of the offensive playbook and look forward with courage, knowledge, integrity and expertise.
Sally Carothers, SRA, FRICS
Chief Appraiser
CU Appraisal Services, LLC
Phone 866-787-5111
Fax - 866-787-5112
Email - [email protected]
[1] Realtors Confidence Index. Report and Market Outlook. April 2013 Edition. Based on Data Collected April 29 through May 6, 2013. National Association of Realtors.
[2] S &P / Case-Shiller Home Prices Indices-May 28, 2013
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