Lending – Page 2 – Active Appraiser

Exterior-only Appraisal: Thinking Outside the House

I do pre-foreclosure and home equity work for several clients, and their assignments include some Exterior-From-Street appraisals. Insurance companies and agents request this type of report as well. Recently, I heard from an appraiser who doesn’t do “drive-by” Exterior-Only assignments. I understand, as part of managing businesses appraisers make different business decisions related to the nature of the work they will and will not accept. And I’m never about to tell another appraiser what work to accept and what work to avoid. (I enjoy a good Full interior-and-exterior inspection and I often hear from homeowners they are impressed that I spent more than 15 minutes at their house – so, I’m not advocating eliminating Full inspections!) But it’s the reasoning I’ve heard over the years, for not performing Exterior assignments, that I don’t always agree with…

“How can I appraise it? I don’t even know what’s inside!”

That’s exactly why extraordinary assumptions are used. The Exterior-Only appraisal scope is specifically based on NOT knowing 100% about the property – that’s the point.

“I’ll do the sales comparison approach, but not the cost approach – after all, I don’t know the quality or condition!”

My next question is always, “Then how are you developing a sales comparison approach without knowing the quality or condition?” The extraordinary assumption enables you to “know” subject characteristics for purposes of the appraisal.

“How can I make an extraordinary assumption? I don’t know what’s in the property!”

Right. That’s what an extraordinary assumption is.

“But it’s a manufactured house and the form needs the HUD tag for me to appraise it!”

A lender might need the HUD information for lending policies, but certainly an appraiser can opine value without knowing that HUD information. And since when is a form in charge of the appraisal process?

Now, I know that there are sometimes good reasons for NOT performing an Exterior-Only, and we need to consider the availability of information, the intended use, the complexity of a property, conflicting available information, etc.. For example, I was recently asked to appraise a property from the exterior for a refinance, but county records indicated it had two single-family detached houses and a detached garage with what appeared to be sq.ft. above it. In this situation, I messaged the lender that I believed the appropriate scope of work for this assignment would be an interior-and-exterior Full inspection of the property and I insisted on an “upgrade” to that scope of work. After I quoted my fee and turn-time, they agreed, and I’m going next week.

On the other hand, an agent recently talked to me about her current listing which has had few showings and no “bites”. She has a prior appraisal (sketch, etc.), a virtual tour and MLS information and photos, and of course these sources are available to me. For this listing-related assignment, it may be possible to have a desktop scope, using data from the county, the sketch, the tour, the MLS and other sources to establish the characteristics of the subject through extraordinary assumptions, for the intended use of this assignment.

When an appraiser automatically refuses to do any Exterior-Only work, I sometimes ask, “So, does the property not have a value if you can’t see inside?” I realize they’re not really claiming that (and my response is a bit tongue-in-cheek), but for partially- or fully-destroyed properties, hostile occupants, pre-foreclosure, portfolio or retrospective work, it may not even be possible to gain access. So I maintain my point does stand: the property still has a value even if you can’t get inside, and a client may need an opinion of that value.

The question is, Can you develop a credible report by making reasonable extraordinary assumptions for the intended use of the appraisal?

WATCH Property Inspection Video

Originally printed in Appraisal Buzz. Click 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?”

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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.