Appraiser – Page 5 – Active Appraiser

Paired Sales Are a Joke …

“Paired Sales are a joke” …So some folks say.

Okay, I agree that paired sales are not the be-all and end-all of adjustments, and that there are other methods for supporting adjustments, but the paired sales method really can be valuable.

Yes, paired sales are much more accurate in a textbook or in a state board’s newsletter than in an actual real-world environment. It’s wonderful if you can say “these two properties are exactly alike, except this one has a three-car garage, and that one has a two-car garage – so that means a third bay is worth $10,000”. The drawback, of course, is that it’s often difficult to find two properties similar enough (let alone, exact!) to even begin to isolate just one single characteristic for establishing adjustments. So, should we just give up on paired sales?

I think there are a few misunderstandings surrounding paired sales. Paired sales are not designed to arrive at an exact rate of adjustment to be used for each and every property you come across in each and every assignment. Simply because you calculate a $43.7982 per sq.ft. adjustment rate based on two sales doesn’t mean you’re going to use that exact rate for every assignment. Perhaps that support is only valid in a certain subdivision, or to new construction, or in a certain market area, or for certain age properties. If you determine a third garage bay is worth $15,000 for a certain segment of properties, will it also be worth $15,000 in so-called higher-end houses? Maybe, maybe not. Perhaps the $15,000 represents a percentage, not a flat dollar amount. Just like anything else, paired sales require analysis, not just calculations.

And we won’t ever find the perfect textbook example of identical-except-for-one-characteristic paired sales. But is this reason to abandon the process? Paired sales will undoubtedly require adjustments in order to isolate a single characteristic. For example, maybe one is on a larger site, but you can reasonably adjust for site size differences, and then isolate the sq.ft. rate. Or, perhaps one property has slightly different GLA, so you qualitatively know that the difference in sale prices isn’t entirely attributed to the two-versus-three bay garages, but you can still draw a conclusion regarding if and how much value a third garage bay adds still taking into account that their GLA vary slightly.

Additionally, one paired sale is not the end of the process. Over time, we should be collecting, analyzing and storing the studies so that we can develop ranges of market-supported adjustments. Maybe our data indicates a garage bay is worth between 5% and 15% of the value for a particular property type in a particular area. So, where in that range does the appropriate adjustment fall for a specific assignment? …You are the human market expert qualified to develop the reasoning to support the specific adjustment you use in a report, which will most likely be based on the range your research indicates.

Paired sales will not show an exact number or percentage. So, what do they do? What use are they? First, they establish that there is (or is not) a value contribution associated with a specific characteristic. Second, they provide a basis for the adjustments that we end up making. A basis does not mean “a number to blindly follow without thinking about it”! A basis means our adjustments are logically grounded in real analysis, and not simply pulled out of thin air.

Of course, there are other methods of supporting adjustments: regression, market interviews and similar, which can be especially helpful in rural and non-homogeneous markets. Yes, only in textbooks are paired sales perfect. But to simply write them off because they are imperfect in the real world ignores the real evidence and support they can provide.

– Let me know what your experience is!

This article was first published from here.

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.

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.