Josh – Page 6 – Active Appraiser

Market Trend Analysis: Playing a Good Game

Both of my children play soccer, just as my father and I did. And as with any game, you have good games and bad games. But what is a “good game” really? What does it mean to “play well”, and do we mean as a team or as an individual player? If I say I “had a good season”, some folks might assume my team won most of its games, others might think we at least finished off the season strong, and others may even believe that I mean I improved my performance compared to the previous season. A seemingly-simple phrase or word can be interpreted numerous ways and really isn’t terribly meaningful on its own.

Business people planning

So, let’s step into appraising… “Declining”, “Increasing”, “Stable” and “Unstable” are wonderful places to start in the reporting of a market analysis, but they are certainly not good places to stop: more information is needed to report an understandable report. What will our Users believe we mean by “Increasing”, “Stable” or other trend-related words?

Many times (notably in mortgage-related work) we are not using these terms to forecast or to predict future market conditions. To avoid our Users’ believing we’re making predictions, we need to explain that we are using these terms to describe the market leading up to the effective date, and that those trend conclusions help to direct our time/date-of-sale adjustments (and possibly other areas of our analysis). Of course, in some assignments such as relocation-related work, we may in fact be developing forecasts.

3d- bar increasing

For our User’s sake, we need to define what exactly we mean by these types of terms. Just like we include a definition of Market Value and UAD codes and abbreviations, why not do the same with market conditions? Are we explaining what terms like “Decreasing”, “Increasing”, “Stable” and “Unstable” mean within the context of our report, what indicators and measurements we’ve analyzed to come to those conclusions, and how those conclusions impact other portions of our report? Without such explanation, we risk our User thinking “Increasing” means the market is going to continue increasing, that median sale prices have increased consistently over the past 12 months, or other interpretations that we possibly aren’t intending to make.

From reviewing appraisals, we can see these types of explanations are not always included in appraisal reports. So set yourself apart and include your own reliable explanations of these terms, citing available resources related to market conditions and trend analyses. For a start, take a look at HUD Mortgagee Letter 2009-09, which briefly defines a declining market. The Appraisal Foundation’s 2012 Valuation Advisory 3 provides a good list of indicators which can be analyzed for market trend analysis.

Then, take the next step: take the statistics and analyses for your particular assignment and relate them back to your definitions and specifically to the development of your appraisal.

This article was first published from here.

Listings: To Grid or Not To Grid…

Have you ever gotten into a disagreement over whether including listings in the sales comparison approach is inappropriate – or even misleading? I’d like to say I’m torn over the issue and just present my opinion as some middle-of-the-road approach; however, I really do see the benefits of including listings as part of summarizing my appraisal process in my written report.

First, some will say that the pre-printed URAR form states “Sale” at the top of the comparison grid, so it is a misleading report if a listing is included there. I disagree. It is a pre-printed word on the form, and if the appraiser states “Listing”, “Active”, “Under-Contract”, “Comp #4 is a listing not a sale”, etc. in the report (and even in the grid itself), then that report is only “misleading” if the User does not bother to read the whole report. The measure of “misleading” cannot be dependent upon a User ignoring portions of the report.

Others say that listings cannot be gridded, but can be included in the narrative portion of the report. The latter is a fine reporting style, and we need to remember that to write a USPAP compliant report, a grid has nothing to do with it. If you include a listing in your report, you’ve included it in your report – whether you’re gridding it or not. Your reconciliation will outline how much weight is given to the listing. Additionally, AI, FHA and other organizations have issued guidance in support of analyzing listings. (Perhaps some of your clients require it in engagement letters.)

A common definition of market value requires that the participants be “prudent”, “knowledgeable”, and “well-informed”. Would not the subject’s competition (ie, listings) be a part of this knowledge base for buyers and sellers to make educated decisions? If we are analyzing the market, are we not taking a look at supply-and-demand, inventory, and other items involving the current activity? And don’t those components of market analysis include listings and then, in turn, effect values?

For most lending-related appraisals, we’re asked to opine how much a typical buyer would pay today (basically). So for example, if the market has moved down and listings are lower than sales, we may be committing an error if listings are not playing a role in our determination of what a typical buyer would pay today. If he/she could buy a competing property today for $x, why would he/she pay more? “I look at the sales, because they are ‘real’ closed transactions” is a good start and is the entire basis of the comparison approach, but may not be a good place to stop if we truly want to summarize a thorough market analysis.

Listings are part of the market analysis that we should be conducting in our appraisal process. Some of the questions each of us must consider: “Do we grid them?” “Do we summarize our market and listing research in the report?” and “Are they given any weight in the reconciliation?”

Article Source

Business Management: Part 2, Managing Clients

Last week, I discussed fee and turn-time management in running an appraisal business (“Business Management: Part 1 Fee and Turn-Time Management”). Today, I wanted to further explore how to actively manage our businesses: through managing our clients.

Client Management

This summer at Valuation Expo, one of the last topics related to “scope creep”. Scope creep is the tendency for lenders and AMCs to continually increase requirements, correction requests, stips and additional information requests in appraisal reports. First, let’s look at what scope creep is not. Scope creep is not a client’s expectation that your appraisal meet USPAP requirements. Scope creep – for purposes of this discussion – is not a client’s expectation that you meet requirements that you agreed to in their engagement letter (although, yes, scope creep can result from longer and longer requirements lists). Scope creep is not a client’s expectation that you correct factual errors, provide additional detail to support your value opinion, or consider additional appropriate information such as additional sales (but, wow, I could spent a lot of time on this one).

The biggest step to battling what you perceive to be scope creep is to first be honest with yourself: are you really writing a good report? Are you reading – and then fulfilling – the engagement letter, to the extent it is possible? Is just one client bombarding you with stips, or are most (or all) of your clients regularly sending you stips? Have you come to expect that you’ll get stips on each order you turn in, no matter who the client is? Sometimes these types of requests from lenders and AMCs aren’t scope creep at all, but rather feedback indicating that something necessary is lacking in a report.

“It’s Not Me, It’s You”

After you evaluate the quality of your own reports, perhaps you need to take a close look at your clients, by tracking the revision requests. If you work for several lending clients, but only one of them is regularly returning reports to you for revisions, we can assume they have higher expectations than other clients who are also engaging appraisers for the same intended use. These “higher expectations” might be scope creep and aren’t necessarily “bad” or “wrong”… but may be costing you extra time. “How high are the ceilings”, “Remove photo with cat”, “Add a photo showing the house number”, “Explain why these three sales were not included”, “Include photos of light fixtures”, “Change photo label to read Kitchen” and the list goes on for “requirements” that were never outlined in the engagement letter and are not expected by most other similar clients. Even quick or trivial requests can add up over time – and how many of us have extra time?

So, why do we continue working for these clients? I’m not at all suggesting that we “fire” clients the moment they ask for reasonable clarifications, point out an honest error or typo, etc.. But, just like some of us never ask for the higher fee or the adequate turn-time, some of us also never bother to seek out the quality non-abusive clients. Have we taken steps to market ourselves to local banks, attorneys, accountants, agents, and the non-predatory AMCs and national banks? What are our criteria for an Approved Client list?

Let’s say a plumber fixes a sink, and a week later the homeowner calls to say he needs to come back and fix the washer for no additional charge (even though the owner didn’t initially ask for this and it isn’t typically part of a fix-the-sink job). But the plumber returns to fix the washer anyway. The next week, the owner needs the water heater fixed, again for free. At some point, the plumber will learn that it’s not worth accepting work from this particular client, and he’ll look to get other clients. Well, I know we’re not plumbers, but business is business. And if we don’t manage our clients – by looking for the best clients who want good quality appraisal work – then, we’re not truly managing our businesses.

Source: Appraisal Buzz

Business Management: Part 1 Fee and Turn-Time Management

Hi Everyone, My name is Joshua Walitt and this is my official blog site. I hope some of you were able to read my blogs from Appraisal Buzz (www.appraisalbuzz.com) about Appraisals, Valuation,Business Management, Real Estate and among others. However, with my desire to get your inputs and comments on my writings and blogs, I have decided to place some of my articles here in my site to get your questions or comments and be able to personally answer all of your queries.

So here’s my first article taken from Appraisal Buzz blog page.

Business Management

Appraisers are really good at finding comps, measuring and drawing houses, evaluating a property’s highest and best use, analyzing the market, extracting and applying adjustments, driving to comps, and communicating final results. We have a big skill set! But what are we not always good at? Actively managing our businesses.

Sometimes it seems like we’re so busy appraising that we really don’t have time to take that big step back in order to actually review our workflow, fine-tune our efficiencies, set our goals, monitor our fees, and manage our clients. So what are some of the processes we need for a successful appraisal business? My business management includes fees, invoice tracking, turn-times, client management and other components. Let’s take a look at fees and turn-times.

Fee and Turn-Time Management

Appraisers are doing it more and more, but it’s still worth mentioning here: quote your fee and your turn time to clients. Don’t accept a mini-fee or a mini-turn-time simply because the order appeared in your Inbox. What is your time worth? Could you make double from another client? (Yes, sometimes mini-fees are that low!) Have you checked with colleagues to see if this client is good to work with, or if they even pay? If you never ask for a higher fee or for an adequate turn time for proper research and reporting, then one thing is 100% guaranteed: You will never get that higher fee or that longer turn time! No client is going to email you after you’ve accepted the assignment and ask, “Do you want a higher fee? More time?” You’re not going to get every assignment you counter, but you might be surprised by how many you will get.

Many appraisers were eager for Dodd-Frank (and the expected changes to TILA) to revolutionize and fix the mini-fee problem. But, alas, the Federal Reserve’s customary and reasonable rules which resulted from Dodd-Frank still allow predatory clients to continue paying their mini-fees. We can’t wait for the government to fix our fees (and do we really want a federal or state agency controlling our fees?), so who can we rely on to ensure adequate fees and turn-times? It has to be up to us, especially given the ever-increasing levels of narrative expected in appraisals, and the associated increase in time it takes to write up the report.

Be sure to point out any complexities that will need more research time, longer drives to comps, additional research and longer write-ups. Are you charging the same fee for the 1,000 sq.ft. property on ¼ acre as you are for the 5,000 sq.ft. house on 15 acres in a market area with only 12 sales in the past year?

And there’s no apologizing for your fees, right? If you are putting the necessary research and time into the process and reporting of the appraisal, there is no reason to be squirming when you quote your fee.