The Valuer in The Mirror

Written by Woody Fincham, SRA, AI-RRS, RAA 

Maybe I am crazy, but I think all of us deserve a better profession as appraisers than what we have presently within the mortgage and lending world.  We are in an era where the profession is changing fast.  We have many players out there that want to limit or possibly eliminate real estate valuations for residential lending and to some degree on the non-residential side of things as well. The profession should be aligning itself to battle this, but we seem more fractured now than we have ever been.  There is too much in-fighting and disagreement among key players in the profession.  This ranges from the individuals that have appeared as leaders and with the organizations that make up the professional trade groups and professional membership organizations for real estate appraisers.

man-looking-in-mirror

The Valuer in The Mirror

The profession is fractured.  We need to take a long hard look at ourselves in the mirror.  We need to do it as individuals and as part of the various organizations out there.  We need to start seeing ourselves as we really are, warts and all.  There is not one organization out there that is going to save the valuation profession.  There is no one organization that is to blame for all the issues we deal with as a profession. Humans love to separate into groups and then immediately set upon the other groups out there as being somehow inferior to your group.

We have reached a point where we need to stop and take stock of what the profession needs.  We are at a point where the fractures are weakening what we can be as a profession.  When I was speaking on the leadership panel at AppraiserFest last year, that was the one thing I tried to get across.  Stop with the tribalism and fracturing into groups.  Stop trying to say your team is the only viable voice out there.  All valuation voices matter.

I think the answer is to start by being open to all the various groups out there and seeing the positives in each rather than the negatives.  Every professional group out there adds some positivity to the mix.  Whether you, as a valuation professional, are a member of a group or not we must see the value in a unified front.  Remember, that what we do for the US Economy is a thankless job.  One of our biggest user groups, lenders, are also one of the biggest groups that see what we do as an inconvenience rather than a protection of the public trust.  It seems with all the alternative valuation products that are constantly being pushed over traditional appraisals that they would rather see us replaced than to deal with us.

Within the organizations themselves the jockeying for individual position holds the organizations back from being truly great. The politics are cut throat and reward those seeking personal gain more than profession-oriented growth. Most of the long tenured organizations are a political nightmare that are more leadership driven than membership driven. I truly do not understand what one gets from hurting others in their jockeying for a position.  All this type of behavior does is make individual appraisers not want to participate, thus weakening both the organizations and the individuals.

What should we be doing?

The worst thing any of us can be doing is not participating in the profession.  Many, many folks are vocal on forums and social media yet have no membership or involvement with any organizations.  What good does it do to complain but do nothing?  There are lots of folks that want change to happen but that means you must get plugged in somewhere.  Anywhere.  Join a state coalition or one of the national organizations.  Sitting on the fence and complaining will get the profession, and you, nowhere.

If you have the time attend the meetings and add your voice to the mix.  Be opened minded when you are at these meetings and be open to changing your mind about some things.  Many of us that use social media get hard-headed about somethings and forget to listen.  What I notice with in-person meetings is that social graces tend to come back.  People are not so myopic in person (usually) and we tend to be politer in person.  On social media folks can sometimes lose their connection with manners.

Not one person reading this, or the knuckle-head writing this, knows everything.  If you are not open to discourse in a professional manner, then you may want to reassess yourself.  I have found myself feeling very strongly on certain things, only to find out later that I probably should have looked at it differently.  This is true of being a member of an organization.  No organization is perfect, and they all mess up time to time. All these organizations are run by people and people make mistakes.

Any valuation organization out there worth the cost of their membership should be doing multiple meetings with the other valuation organizations out there several times a year.  While we cannot expect them all to agree on all things, they need to be exchanging information and ideas.  Some sort of valuation congress.  Even the largest organizations have weaknesses that another organization can help with.  Some organizations are residentially focused where others are commercially focused.  That’s fine.  But each organization needs to accept that

What Should We Not Be Doing?

We are an opinionated lot.  We get paid to tell others our opinions, and we dig in like a tick when we make up our minds.  Many of us are great appraisers but we lack a true understanding of other things. We are a group of professionals that excel at market research that leads to supportable conclusions yet lack the same set of skills when it comes to the larger profession. I cannot tell you how many times I speak with colleagues that have some strong opinions about something related to the profession.  Then I find out that they have never read about or researched the topic at hand but had come to their seemingly strong opinion based on conjecture.  Often, they have heard another’s opinion on the topic and drawn a conclusion from hearsay. We must treat opinions from others like we do comparable sales data. Research it and find support for it, don’t just take the opinion as fact.

If we concentrate and expend energy on the negativity out there, we are taking energy away from doing something positive.  Those that seek to make money off us as professionals benefit form the distraction in-fighting creates.  While we spend time finding more reasons to fracture apart further, they continue making money off our work.  Some also are using that advantage to try and replace us.  It is okay to agree to disagree, it is not okay to try and attack someone just because they disagree with you.

Once you are involved with an organization do not put yourself before the whole.  Trying to earn a position at the expense of a colleague is not a good thing.  I have seen some colleagues turn into bullies and try to use politics to hurt others to gain a position or to unseat a colleague.  If that is your M.O. you are better off not getting involved.  Many need to ask themselves, “Are you trying to help out or is what you are doing going to hurt what the organization is doing?”

 

In the End

We are a small group of professionals.  There are, by my account, approximately 75,000 professionals nationwide.  We do not have the same lobbying power as the lenders out there.  To be honest, the only reason that we have lasted this long is that some legislators see the benefit that we add to protecting the national economy.  Since we are so small it is imperative that we cease the fracturing from within.  Find an organization that you can support and work with them.  Volunteer and stay involved.  Organizations cannot work against their members if the members do not become passive.  Passiveness is what has hurt the profession more than anything.  Well that and bad business practices, but that is another blog post for another time.

Find an organization, or a couple of them, to work with and volunteer to do some work.  Do not wait for someone else to try and solve your problems for you.  Sitting back and watching what others do will not work at all.  Between the different organizations out there look for ones that align with your thoughts and ones that seem open to you and your views.  Not every organization for everyone, and even after you lock into one, over time, you may find that someplace else ends up being a better place for you, for that time.

If you have limited time, find an organization that you can support and join.  Like anything, not everyone can always get really involved, but your support of the organization makes funds available to help the profession.

 

Is Smartexchange resulting in USPAP Non-Compliance?

Written by Woody Fincham, SRA, AI-RRS, RAA 

This blog is likely going to stir up controversy. It is likely going to have a few folks calling me a loyalist to a la mode, or other similar things.  Am I a loyalist?  I do not see myself as such, but a la mode has been the only software that I have used in my career for residential form reporting.  I do use ACI in the corporate setting as a reviewer and manager in my firm. I like and consider many of the staff at a la mode to be my friends, and I have had long relationships with them because of my time as a customer.  I will always have an affinity with those folks, but that does not make me a supporter of CoreLogic one way or the other.  I am agnostic when it comes to CoreLogic.  They exist and as such I have no choice but to deal with them on some level. They  are too big of a company in the real estate and valuation space to not deal with them on some level.   The whole point of this piece is to discuss the acceptability to standards when dealing with sharing comparable property data.  It is not a barometer for what CoreLogic means to valuation.

With all the social media chaos over the CoreLogic acquisition of a la mode, there has been some very loud commentary coming from appraisers. CoreLogic is not looked at in a positive light by many in the valuation profession, but that is not what this article is about.  I wanted to deal with the issue of USPAP compliance and their comparable data sharing product, SmartExchange.  I have seen and read many posts from others that claim it is not USPAP-compliant to share comparable property data among one another. I must disclose up front that yes, I did at one point receive compensation as part of the a la mode Labs group between 2007 and 2009.  I am no longer a paid employee or contractor with the company.  I am offering my opinion on the product  to discuss and look at the issue of standards compliance.

What is SmartExchange?  This is what a alamode posts on their site:

“SmartExchange is a nationwide appraisal network that puts property data back in your control by giving you immediate access to pure, UAD formatted appraisal data. This level of data is unprecedented and is unlike anything you’ve been able to gather from MLS systems, public records, and other sources. It’s going to improve the quality and consistency of your appraisal reports.”[1]

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Image Courtesy of CoreLogic

When UAD was pushed out by Fannie Mae several years ago, they let us all know that they would be monitoring and tracking what we used for condition and quality ratings to compare against other “appraisers in” the same market.  In other words, they wanted to see if appraisers were materially misrepresenting data to support bias.  a la mode has created a tool that will allow all participating appraisers using their software to share the ratings used so that one may look at what the peer group is saying in their reports.  It is possible to opt in to the program or opt out.

So, is this something that appraisers can and should use?  I have reached out to several USPAP experts and walked through a series of questions with them and with other practicing appraisers.  I have also done my own research to come to my own opinion. Much of social media is asking an important question about this type of technology:  Is comp data shareable or does it fall under assignment results which would be deemed confidential?  Let’s look at some definitions:

ASSIGNMENT RESULTS: An appraiser’s opinions or conclusions developed specific to an assignment.

Comment: Assignment results include an appraiser’s:

  • opinions or conclusions developed in an appraisal assignment, not limited to value;
  • opinions or conclusions, developed in an appraisal review assignment, not limited to an opinion about the quality of another appraiser’s work; or
  • opinions or conclusions developed when performing a valuation service other than an appraisal or appraisal review assignment.

Physical characteristics are not assignment results.[2]

CONFIDENTIAL INFORMATION: Information that is either:4

  • identified by the client as confidential when providing it to an appraiser and that is not available from any other source; or
  • classified as confidential or private by applicable law or regulation.5[3]

What we have above are two definitions central to this discussion.  The first, Assignment Results, essentially draws one to understand that assignment results are opinions or conclusions that the appraiser supports through the course of the assignment.  The obvious question is then, “Aren’t condition ratings and quality ratings assignment results?”  On the surface I felt that they may be but have further talked with others and looking at all the language in the definitions.  The reason I initially felt that the ratings might be assignment results is that assigning a property a rating requires judgment, and as such judgement is an opinion or some type of conclusion as we use the words.

After speaking with a few experts on this very issue, I changed my opinion.  Most importantly, what I was drawn to is the last line in the definition of assignment results:

“Physical characteristics are not assignment results”.

When it comes to comparable data, we are all using third-party sources to assign the condition and quality ratings for each property.  A couple of the experts, many being residential practitioners, go back to the definition for condition and quality that Fannie Mae developed.  Many felt that there is little room for opinions of even conclusions, that the ratings are -defined, and all the appraiser is doing is assigning to the most obvious tier.   So, the sharing of comparable data that is supported through MLS databases and other third-party sources, readily available to our peer group, does not violate USPAP.

Where we did get into some interesting discussions revolved around the subject property. There is certainly confidentiality involved when dealing with the subject property.  Let’s say that we are doing a refinance transaction.  There would be no way to support assigning ratings other than an onsite inspection where the information gathered was only available to the appraiser as part of the assignment.  What made the conversation interesting was that something came up that I never thought of before.  What if you find out something about the subject that could create a misleading situation to the client?

Let’s say that you do a divorce use report.  3 months later the home goes up for sale and sells.  The MLS data indicates that the home is in much better condition than you saw when you did the inspection.  Upon further research to use it as a comp, you learn that the MLS listing incorrectly indicates it is a C3 versus the C4 that you felt it should be from the previous information that you have.  Or, the square footage is wrong.  What should you do now that you are faced with what you know to be reality versus what a normal peer would be left to conclude form the data available? What I gleaned from these conversations was that we should not be using information that only we have privy to through a previous assignment.

USPAP requires that we do not mislead in our reporting, but it also says that we must stay beholden to assignment confidentiality.  This a bit of a conundrum.  If the difference in information is enough affect assignment conditions, can we take on that assignment?  If we do, how do we report what we know is contrary to what the overall market accepts as fact?  I think the correct answer is that one must recuse themselves from this situation.

Getting back to smartexchange, this led me to contact a la mode and ask the question of whether subject data was being shared or not.  What I was told is that it is only comparable property data.  That the shared database contains only the comparable properties, and that our local database (meaning available only to you and your office) contains your subject data but that is not shared with the users of smartexchnage.

Is this really any different than calling up your appraiser colleague across town and asking if they have used a comp and what they considered it?  I think the answer to that is both yes and no.  It is not different in that colleagues are sharing info, it is different in that the users have no idea where the data comes from.  When I call a colleague, it is normally someone that I respect and have a relationship with.  With respect comes trust, but without being able to see who supplies the data, it does make me uneasy.  I can see multiple uses of the data though, so I am able to see if there has been consistent codification of the comp over several users.  At least I can qualify my own rating and write something proactively if I am using a different code level.

In conclusion, is smart exchange a problem from a standards perspective?  I do not think that it is if it is simply dealing with comparable property data. It certainly can be helpful if the appraiser using it wants to compare the condition and quality ratings over a market area.  Beyond that, it could save some time with data input, but that is something that the user needs to vet carefully and fully every time, and honestly, by the time I do that I am better off just entering that myself.

[1] https://www.alamode.com/smartexchange/

[2] USPAP 2018-2019 The Appraisal Foundation

[3] USPAP 2018-2019 The Appraisal Foundation

Valuer’s Dozen: Mr. Volunteer

creighton

I have known Creighton Cross, MAI for a decade.  We met when I sold my firm in Virginia Beach, VA and moved to Knoxville, TN to work with David Braun, MAI, SRA, AI-GRS. I wanted to focus on my designation and wanted to get away from the city.  When I arrived there Creighton was welcoming and I found out we shared some things.  We both played soccer and watched it d for a past time, we both loved valuation and laughing.  We did not agree on college football…he is a Vols fan, and I am from Virginia.  I hope you all enjoy getting to know Creighton.

VN:  How long have you been in the profession?

CC: I got into the profession in January 2005.  So I am working on my 14th year.

VN: What is your favorite thing about the profession?

CC: The people we meet during inspections probably. I have encountered some of the most interesting and lovely people in this profession that I would have never had the opportunity to meet.  I love everything about real estate as well and it is so different throughout East TN.  One day it may be a $6 million dollar lake home or mountain home, while the next day it could be an 800 sf modular home built for the Manhattan project during WWII. https://www.manhattanprojectvoices.org/  We have an entire town built around these homes, or we may be appraising a new craft brewery or marina.

VN: Who are your mentors and idols within the profession?

CC: In addition to you, I have to certainly mention David Braun, MAI, SRA, AI-GRS.  He literally pulled me off a showroom floor selling motorcycles after college and gave me a chance.  Like a father, he had helped to shape me and guide me in the profession.   He has taught and trained people from all over, and has always been so ahead of his time with technology, Scope of Work Theory, methodology and the vision for the profession.  I am blessed to have been trained by David.  Otto Spence, MAI is another great teacher, visionary and motivator.  When I would have down times or frustrations, Otto would be on the other end of the line encouraging me to keep going and to constantly be working toward Designation.  I certainly look up to so many people in the profession, YOU have been a great friend, colleague, and advocate for our profession, Steve Roach, Leslie Sellers, Stephanie Coleman, Jim Atwood, Jim Amorin, Ben Davidson, Rick Hiton, Sandra Adomatis, Tom Munizzo, TJ McCarthy, Maureen Sweeney, Frank Lucco, Mark Verrett, Pat O’Connor, Pete Gallo, Rick Borgis, and so many more.  I would take up the entire page literally.  I really look up to those who have blessed the profession with teaching, complex theory, advanced techniques or that have taken the time to share their knowledge with the profession!

VN: What are some of your passions inside the profession?

CC:  I love to train and teach.  I am a bit of a workaholic (Clinically Diagnosed J)…but if I could just teach, train and motivate others I would do that.  I truly love the profession, and enjoy trying to bring the appraisers together for a common purpose in advancement and professionalism.  ((omit:  I believe we need to bring Sexy Back to the profession)  (Make Appraisal Great Again) LOL.)

VN: What are some passions of yours outside of the profession?

CC:  I have to say my family.  Abby has been by my side both personally and professionally for more than 13 years.  She is always encouraging, my kids are often my guiding light when I am frustrated or down, I have photos of them around the office as a reminder of why I do what I do with the integrity I do it with.  I do not take the “protect the public trust” lightly.  I truly believe that I have the responsibility to support my opinions  and protect the public, my family, etc.  I love the lake, travel, flying.  I have been trying to get my pilots license for years and Appraisals keep getting in the way.

VN: Where do you see the profession in 3 years?  5 years?  10 years?

CC: In three years I believe we will see the profession in a stronger light than we are currently.  I believe there is going to be high demand for appraisal practice due to the pending “correction” in the market I believe will occur around 2020.  That seems to bring us back into the perspective as important in the eyes of the public.  5 years, I believe we will be much more “big data” driven, automated, and will have unique specialty practices, where our analytical skillset is more applicable with less inspection and “Window Time”.  10 years….I must use an extraordinary assumption here, but I believe the profession will look significantly different.  I believe the regulations will be the most significant difference.  The real estate space will likely be vastly different, based on interest rates and the continual changing technology platforms.  I believe there will be a significant decline in appraisers, due mostly to attrition from age.  That is why I am such a proponent of appraisers taking on trainees.  I feel there is a need for this generation of appraisers to give their knowledge, expertise and work ethic  back to the next generation.  If not, the profession will not be sustainable, outside of specialty practice long term.  We must adapt, evolve and create demand for our services and set ourselves apart from other “valuation” providers.

VN: What is one thing about your personal business that you are most proud?

CC: I bought David Braun’s company in 2009-10.  I thankfully did not run his successful, 30 year old company into the ground!!!  I have continued to grow and expand since acquisition and have created national partnerships.  I have been extremely proud of the people I have worked with and trained.  We had so many trainee’s come through and continue to come through and many have gotten their designations, started their own businesses, etc.  Rusty Rolen, MAI, Seth Rohling, MAI, AI-GRS, Jason Blankenship, MAI….just to name a few that were able to get designated early.  They all worked so hard to get to where they are.  I love to give back…through Appraisal Institute Leadership opportunities, Appraisal Coalition opportunities…That makes me proud when we have a part in Appraisal Liability reform, or helping to have an impact on Appraisal Waivers or LDAC experiences.  The people we have worked with, from all organizations and around the country has been super rewarding.

VN: If you could change one thing about your business model what would it be?

CC:  We need to be more digitally driven in my office and in my model.  As much as I feel that we are cutting edge with systems, I do not have any appraisers using tablets in the field for inspections.  That’s just one of the items I wish I could alter for efficiency.  The tools are there to help all appraisers become for efficient and I just need to adapt, evolve and get to working on that.

VN:  What are some present goals for you and what you do are doing in the valuation space?

CC:  I am wanting to grow our company.  I am looking to hire/partner with like minded people in surrounding states to be able to provide our clients with the greatest level of service possible.  It is a passion I have in meeting people and creating a network, systems and a TEAM.  I would love to start teaching, and have some opportunities for more volunteer service with AI and other national organizations.

VN:   If you could change one thing in valuation, what would it be?

CC:  Man…just one thing…..I’m torn, so I am giving you two.   1) I would eliminate the maximum number of trainees we can have or increase it at least.  In TN it is 3.  I believe that there is a need and there are supervisors out there that could take more on and create amazing, qualified and excellent appraisers.  There would need to be limitations to this I know, but I believe it is restraint of trade in some regards.  It should be a business decision for the number of trainee’s one can take.  Other professions are not limited on the number of apprentices, Paralegals, dental hygienist, etc.  they may hire or staff they train, so It frustrates me.  I have had to turn away or refer excellent candidates away before when we are full of trainee’s.   That is unfortunate.  Some just give up when they cannot find a supervisor and that is a poor reflection on the profession.  2) I believe (non-USPAP) valuation products should be legal in all 50 states.  Our clients have a need for a product that does not and should not meet USPAP…For FRT work, it is understandable, but there are times it is not and should not be necessary.  Unfortunately, Appraisers are hand-cuffed into meeting USPAP or turning work down many times.  Our clients that want and trust our opinions are then stuck with providing an internal evaluation or BPO type product that is frankly less qualified than an appraiser’s opinion.  No matter what anyone says, it takes time, and creates hurdles to meet USPAP (When properly and completely done).  There needs to be alternative standards that allow for appraisers to provide our valuation services outside of USPAP in the lending space specifically.  Evaluations in TN is a great example of this type of service, but this needs to be nationally considered in some fashion.  It is in the best interest of the public and the clients to have a qualified, professional appraiser provide any and all opinions of value, period.

VN:  What advice would you give someone just getting in the profession?

CC: GET INVOLVED.  Thankfully with Social Media this is a much easier thing to do than it used to be…but get involved with your local chapter of the Appraisal Institute, ASA/NAIFA, NAA, Coalitions, IRWA, AGA, RAC…etc.   Go to Classes…DO NOT TAKE QUALIFYING EDUCATION ONLINE….In TN it is mandatory that all QE is in class, but I know that is not the case in much of the country, and I believe that is wrought with trouble.  The most education I ever received was talking with my peers in class, at break, lunch, after class.  It is so rewarding to be able to get others perspectives from around the country and you make career friendships you can rely on for future reference.

VN: This last one is for you to discuss or talk about whatever you would like.

CC:  I want to thank you for your leadership to the profession and time with this blog.  I know your heart is tremendously advocating for the Appraisal Profession and I respect and admire that.  It is truly people like you that are making our profession stronger.  I want to make sure that I have clarified throughout this interview as well that we are in the Appraisal Profession….not the Appraisal Industry as well…..You and I feel strongly about the use of these terms, as they are not synonymous.

*****

There you have it folks.  Creighton is a great appraiser and has been a friend of mine for a decade.  I have always admired him for being a strong family man and his willingness to be an innovator with his business.

Does The Government Want to Do Away With Appraisals?

ai logo

The Appraisal Institute has put out legislative action link that will let you communicate with your representatives on the federal level.   Follow the link to make your voice heard

 

Urge the Federal Banking Regulators to Protect Consumers and Safety and Soundness!

 

The Federal bank regulatory agencies have proposed to increase the residential appraisal threshold level from $250,000 to $400,000, exempting nearly three quarters of residential real estate related financial transactions from appraisal requirements.

In 2017, the exact same proposal was evaluated and answered as part of the federally mandated EGRPRA (regulatory relief) process – a process that encompassed four different notice and comment periods and six public hearings. From that process, the same agencies decided it “would not be appropriate” to increase the threshold from $250,000 based on safety and soundness and consumer protection considerations.

Now, in an apparent attempt to pacify rural community banks, the agencies will increase the threshold unless they hear convincing comments and evidence from stakeholders, including consumers and appraisers.  Standing unified in opposition to the proposal, a coalition of nationally recognized professional appraisal organizations will be submitting comments on the proposal. These organizations encourage all appraisers to do the same by the February 5th comment deadline.

To comment, simply fill in the boxes below, and hit submit. Then, a page will be displayed with talking points provided for you. Feel free to edit them, and/or add personal anecdotes, observations, and evidentiary materials as you see fit.

Read the Federal Banking Agencies’ proposed rule.

 

Knowing Green Can Save You Green

liability-shutterstock217936357

Liability Headaches

Real estate practice, both valuation and brokerage, are professions that are open season for law suits.  Let’s face it, consumers can be very litigious in many situations.  Reducing liability is something we should all try to do in our professional work.  But outside of decreasing liability, what agents do, as well as appraisers, is work with an important element of the economy.  Housing is an integral element of the overall economy and it is our collective jobs to try and protect it.  That is why it is so important that we all get as competent as we can.

Pricing and valuing homes is sometimes tricky, and it is important that we all understand our markets.  One area that I get lots of feedback from agents and builders, and even consumers, is dealing with high-performance, or green homes. We are starting to see data that supports homes are being both under-listed and undervalued.

Support for My Claim

Ken Harney, the real estate columnist for The Washington Post wrote a piece last fall about high-performance homes and why it is important to work with experienced green professionals.  He wrote:

“Adomatis (An appraiser interviewing agents), told me that in interviews, some agents who listed certified green properties in California admitted they “had no clue what they were selling.” A few even said, “I don’t know what makes a house green.”

That’s a direct violation of the code of ethics of the National Association of Realtors, which prohibits members from marketing types of property that are “outside their field of competence” and training. The association offers members in-depth courses on green-home marketing and has urged MLS’s across the country to include “green fields” in their listings.”

In 2017, I was part of a team of experts, led by Sandra Adomatis, SRA, that did a study on the Pearl home certifications.  We found in that study that the certification could add 5% in value.  That’s a big number in some cases, and one that requires some marketing to achieve.  We found that in some cases that agents were not marketing homes that had the certifications, thus the potential buyer pool was unaware of the features.

We noted in the study that listings that conspicuously placed the green certifications up front in the listing and marketed the features saw the best return. From the study:

“MLS marketing practices in promoting Pearl-certified home features varied and may account for some of the pairs that show little or no sales price premium found. For instance, in Silver Spring, MD, and Great Falls, VA, the pairs with the highest negative results were sales where Pearl Certificates and documents were not included in the MLS listing as attachments or as jpg files in the photograph gallery.”

This is a potentially big oversight if missed.  I would think that many agents would want to cover all their bases and inquire when taking on a listing if the home has any green certifications or features.  There are readily available databases that will tell you.  Resnet has a data base where agents and appraisers can locate HERS rated homes.  Pearl Has one as well located here.  It may be a good idea to search these and other databases prior to accepting a listing.  In truth, all home certification programs should have a searchable database, but many do not.  That is why when you see much of my writing that I write about Pearl and Resnet so often, they have these databases.  I would challenge that any certification program without a searchable database is not worth using. How else are agents and appraisers going to track quantifiable data?

What Can Agents Do?

What happens when you find out the home has a viable energy certification?  You must make sure the consumers are aware, and that comes from careful and transparent marketing.  This could mean placing feature signage throughout a listing that highlight the features. Having a well laid out feature sheet that includes the features an infographic or two dealing with the high-performance features.

Taking it a step further, it would not be a terrible idea to also include language in your contracts that a competent appraiser must be retained to do the work.  This means the lenders will have to locate and utilize an appraiser that has experience doing it.  With Fannie Mare, FHA, USDA and Freddie Mac this means that the appraiser has demonstrated competency, or rather has done this kind of work before.  While the agents cannot be involved in selecting the actual appraiser used, limitations can be placed on not using unqualified appraisers.  I have seen this and have been chosen for assignments in the past because I am one of a few appraisers in my market area that do the work.

The National Association of Home Builders published a blog discussing the issue of high-performance homes and appraisals.  It states:

There are several reasons for this, but ultimately the issue is that too many green appraisal jobs are going to appraisers who simply aren’t trained to recognize the features and adjust valuations accordingly. This is unfortunate, because it hinders growth in high-performance homes. Builders and owners are simply less likely to invest in features they aren’t sure they can recapture when they sell.

The blog goes on to showcase a builder who requires that a qualified appraiser be used

Appraisers

Homes with solar panel valuation are complex valuation assignments and so are homes with green certifications.  The biggest problem sellers run into with appraisers on these homes is that the appraisers with no experience will sometimes write off the features as having no value.  The appraisers will make comment like, “I cannot find any homes with solar panels; thus, the market recognizes no value.” This is not true in many cases. Perspectives like these can create a unique liability for that appraiser as well, because that is simply not sound valuation theory or logical.

When an appraiser catches an assignment like this, there is lots of involved research to undergo.  One of the simplest ways to debunk the lack of comps argument with solar panels is to ask, “Have you spoken with all the local solar panel companies and asked about all of the installs over the last 12 to 24 months?”   The premise to this question is that installs do show demand.  I will agree that it’s difficult to ascertain a supportable market value when you have no sales, but there are other methods to use.  The Appraisal Institute (AI) teaches a class on using a discounted cash flow analysis to support value.  One can also capitalize the savings gained, among other things.

I wrote a blog for appraisers last year that deals with appraisers can do to help themselves become competent.  The demand is strong out there for this specialty practice but there are not many appraisers doing the work.  I have a strong suspicion that is because the lenders and appraisal management companies are not trying to hire appraisers that do the work.  If they were, I feel like more appraisers would be grasping at the opportunity.

Lenders and Appraisal Management Companies (AMC)

The lenders and Appraisal Management Companies should be making sure the appraisers retained are qualified, but borrowers will often not mention or have any clue the home under contract needs such expert valuation services. I sometimes get on site for a lender and must call them and explain that the subject home has a large solar array and is a platinum Pearl home.  It is not the lenders fault that the borrower failed to communicate the information to them.  But I do hope that the lenders are asking about high-performance features during the application process.

If you are a lender or work with an AMC there is a great resource through the Appraisal Institute (AI).  You can locate appraisers that are trained in the valuation of green homes through their registry.  This is such a great resource that the AI allows non-AI members to be included on the registry. There truly is a responsibility on the lenders that extends to the AMCs to locate and utilize competent appraisers.  I have yet to find one lender or AMC that qualifies appraisers based on high-performance homes. Some do ask if I do them, but they never ask for sample reports which show demonstrated competency (something required by the secondary market and agencies).

When you sign up with a lender or AMC, they always want sample reports, but I have never been asked for a high-performance home sample report.  They usually want a sample of an FHA report, a condo report and some type of complex assignment.  Some lenders that do lots of new construction even ask for a new construction sample. That no clients are asking for high-performance home reports is concerning.

Conclusion

In the end, high-performance homes offer a unique and complex assignment type for both agents and appraisers.  The only way to competently accept this work is to get educated and get some experience to do the work.  For agents, who can advocate for their clients, it is important that you communicate what you are selling to the consumers, to the lenders and finally to the appraisers when they come out to do their inspections.  That is a lot of responsibility, be mindful of it.

The Six Elements of Green Part 2 The First Two Elements

Now that we have talked about how important communication is between agents and the consumers and the agents and the appraisers, let’s get into the meat and potatoes, as they say. As an appraiser, one must be able to understand and identify high performance home (HPH) features.  As I eluded to in the first part of this series, green washing can be a real a problem in this space.  It is easy to add a few “green” features and have an agent advertise a home as being an HPH.

HPH or “green” homes are not just about saving energy.  To accomplish a truly HPH one must look at the “building as a whole” entity and not just the systems.  Another way to look at it is a “cradle-to the grave” approach, or from design phase of the home through the razing of it and returning to a site. What many appraisers and consumers don’t see immediately with HPH is how much more comfortable they are to live in.

The US Environmental Protection Agency describes green building below:

green building. The practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building’s life-cycle from siting to design, construction, operation, maintenance, renovation, and deconstruction. This practice expands and complements the classical building design concerns of economy, utility, durability, and comfort. Green building is also known as sustainable or high-performance building.

So, what goes into looking at an HPH? I am glad that you asked.  Well, there are six elements[i]

  1. Site
  2. Water efficiency
  3. Energy efficiency
  4. Indoor air quality
  5. Materials
  6. Operations and maintenance

We are going to dig into the first two elements in this article.

 

site pic

Site

When I am contacted by builders or borrowers that want to maximize their values from creating an HPH, I spend some time discussing site orientation.  It is important.  Obviously the homesite will have a huge influence on the home.  The site will dictate what can be built. Location of the site within a market is a big deal.  Every site has pluses and minuses and from the concept of location, it can mean a long commute to the store or a short walk.

One of the tools that I use on my appraisals, and one that is available in many multiple listing systems (MLS) is walkscore.com. This metric will give you an idea of how “walkable” a location.  It takes into consideration distance to important market locations such as the downtown area of an MSA or shopping and retail areas.  The more “walkable” the property and the surrounding neighborhood are, the higher the score.

Site is not just about market area location, it is also about several other factors.  An important one is site orientation.  How a site is orientated, meaning how does it lie when considering north, south, east and west orientation can impact the building in significant ways.  Considering where the southern exposure of a home lies will affect the way solar energy interacts with the property.

Orientation, done correctly, can take advantage of passive solar technology. It can also minimize the amount of light that impacts the home through windows.  Solar radiation really does affect the indoor temperature, which mean sit can require more heating or cooling to accommodate too much or too little solar radiation. Orientation can also impact the availability of optimal solar PV system placement.  If done right, the site will allow better incorporation to the southern exposure for solar panels.

Drainage of the site is also an important consideration.  In areas that allow for cistern storage of rainwater this can help reduce the amount of water needed to water the lawn or other vegetation on the site.  Having less impervious surfaces that allow natural absorption and usage of water can enhance the “greenness” of the site.

Normally, educated builders and consumers will recognize the importance of site orientation and location right away.  It is important for appraisers to recognize it as well. Sometimes homeowners insist on placing the home in an odd orientation to maximize views.  Depending on what market you are in a mountain view or bay-view premium may trump a truly beneficial southern exposure vantage.  When both performance and view combat one another in a consumer’s mind, the appraiser must be aware and able to measure impact of the issue to the overall value of the home. With proper planning, there are usually acceptable compromises that can be incorporate din the design phase of the home.

water image

Water Efficiency

This element directly impacts the consumer’s monthly budget and because of that, it can be measured directly.  This element is more than low-volume toilets and installing low-flow faucet aerators.  It, like all things, require careful planning.  It also includes lessening the amount of water needed to water plants.  This can include rain barrels, cisterns, and the like.  There is also advantages to utilizing gray water; this is the waste water from the kitchen, tubs, washers, etc.  Everything except water that has been exposed to sewage.  As mentioned in the site planning portion, some local governments prohibit the use of rainwater. So as part of site planning, it may be necessary to choose to live someplace other than a rainwater restrictive location.

Some of the things that homeowners can do include the flowing items.  With retrofitting, one of the big water savers is finding and fixing any leaks.  Upgrading appliances to more efficient models.  This includes dishwashers and clothes washers.  Installing low flow faucets and toilets are another big water saver.  Utilizing the correct plants for your locality is a game changer as well.  The correct plants include using native species and other species that grow and live best in the climate where you are located.  This prevents the need to do extra watering.

Valuation Thoughts

The recognition of site attributes is not overly difficult but can be troubling for appraisers that have never seen or know about some of things that we have discussed thus far. Water efficiency technology may be easier to see if components are properly labeled. When you are not sure, ask questions.  The homeowners may be familiar with these types of improvements, as well as the agent or builder.  The best that an appraiser can hope for is that the homeowner and/or agent are up to speed as to what is present in the site and home.  Homeowners that built the home will most likely be pretty I enthusiastic to share, where as a homeowner that is the second, third or more homeowner after the build or retrofit may not be as aware of the features present.

What are some proactive ways to get more competent?  Take some classes. The Appraisal Institute offers three classes in sustainable residential properties. The AI also offers a list of appraisers that completed the program at Appraisal Institute’s Residential Registry for Sustainable Buildings.  Earth Advantage  also offers a three-day class on sustainable homes.  They also maintain a designation called the Accredited Green Appraiser (AGA). You can also affiliate with an appraiser that has experience in these types of homes.

We will get into some valuation methods in a later part of this series.  There are several tools in the tool box for appraisers that will prove familiar to most of us.  We will also discuss the very important Appraisal Institute Residential Green and Energy Efficient Addendum Form.  Another important topic we will discuss are the various home certifications out there in the markets.  Knowing what these are is extremely helpful.

[i] Residential Green Valuation Tools by Sandra Adomatis, SRA LEED GA

 

The Six Elements of Green Part 1 Speaking the Language

The purpose of this series of articles is help appraisers and agents see why communication is so important.  For agents it can be important for ethical market and for appraises it can be a major property productivity analysis item.

*****

As residential real estate professionals we keep getting smacked over the head with the term “green” homes.  What does green really mean? It certainly is not the color of the home or the carpet.  Most of the time, agents or consumers use the word green to describe some features within a home that show some form of energy efficiency.  This can range from having one single energy star branded appliance to a home that produces all the energy it will need without using power company generated energy that is purchased. The difference between these two examples can be stark, and as a result the market will perceive each home differently.  Meaning they’ll both have different marketability.  Right out of the gate I want to do away with a term that all of us should lose: green.  I prefer the use of the term: high-performance home (HPH).

The word green is a misused word when dealing with HPHs.  There is a term used often among real estate professionals, “green washing” which means that a home may have a few “green” features and is then marketed as a “green home”.  Sellers and agents, not realizing what they are doing, may try to communicate that a home is very green when in fact it may only have a few features to merit such description.  That is why concise and meaningful language is needed for this type of, and all, real estate valuation.

HPHs are becoming a normal thing in my market area and many other markets as well.  Technology and building science continue to evolve and the costs to implement the technology is coming down.  I want to create some introductory and easy to grab onto suggestions for real estate professionals to understand that this is a language that we all need to understand and use effectively. The most pragmatic reason from a business perspective is that clear communication can reduce professional liability. And remember, communication is a two-way street.  We must clearly convey ideas and information, so the receiver can clearly receive the ideas and information.

For appraisers it can be a difficult job sorting through the data out there about what is and is not valuable.  One of the biggest issues that appraisers have is with the basic researchers’ tool when it comes to HPHs: the multiple listing services (MLS).  Most MLS systems are not set up in an appraiser friendly manner. Take my own MLS for an example.  The first image shows the searchable fields for inputs that agents can use when creating a listing. The second is just one of those fields expanded to show the options, in this case heat is used.  Most fields have a similar number of options.

carr 1

CAAR MMLS

caar 2

CAAR MMLS

 

So that gives us 13 fields with somewhere around 10-15 options for each field.  Let’s say there are 10 options for each field, that is a total of 130 possible indications of HPH property characteristics. Seems impressive right? Guess how many of these features show up on a standard full list sheet report?

 

None.

 

If the MLS user does not create customized fields on the output report and unless the listing agent puts HPH related details in the comments section, then these features are lost to a researcher.

 

Communication is a key element in any type of valuation assignment.  Per normal, it falls on the appraiser to ask the questions and understand what we really need to look for in order to do our jobs properly. It falls on the agent to ask the correct questions of the sellers to make sure the features of the home are accurately conveyed to consumers and appraisers. The biggest take away that I can give agent sis to reference a study that I helped prepare in 2017 for a HPH certification.  It was obvious after we compiled our research that even the “greenest” home we looked at would not sell at a premium if it were not marketed as an HPH.  Agents that spent time highlighting the comfort and efficiency of the home saw a better return when the home was purchased.

 

One of the common things that I hear around the country when I talk to other appraisers is that the market doesn’t recognize “green” yet.  Maybe it does, and appraisers miss it because they do not realize that the MLS is a flawed data set that requires the researcher to take additional steps to complete the proper due diligence.  It would be great if all MLS systems would be open to adopting a uniform way to report such things, until that happens agents must be thoughtful in how the homes are listed and appraisers must spend time learning how to research these homes.

I appraise homes regularly that are not marketed on the MLS in a way that a quick read of a listing sheet will allow one to get any insight as to whether a home has HPH features or not.  It isn’t until I am on site and I see things that prompt me to ask questions.  Or I see a feature sheet on a counter that delves into the HPH features.  I have seen this on net-zero homes, LEED certified homes, Pearl Certified homes, and homes with HERS scores.  Many appraisers will blame the agents for not communicating effectively and while there is truth to this, in the end, it falls squarely on our shoulders to do an effective property productivity analysis. Appraisers must ask the right questions.

One resource that is of note, concerning HERS rated homes, is the Appraisal Institute member accessible  database.  HERS rated homes are a common home certification that is seen on a national level.  This is a searchable database that allows one to look for homes that have HERS scores. This offers the appraiser quantifiable information that can be used to help develop adjustments and gain insight to sales premiums.   Below is an example of the information that can be found for a HERS rated home in that database.

 

 

hers

RESNET

In conclusion, the real meat of this article is to remind agents and appraisers the importance of clear communication. Appraisers cannot value properly if they are not aware of all the features a property may have.  It is paramount that an effort is made from both the agent’s perspective and from the appraiser’s perspective.  Agents should always communicate all features they think are important; a feature sheet is always a good idea.  Appraisers should trust their instincts and ask the right questions.  If something seems unclear, ask about it.

Experienced and New: A Review of Appraiserfest 2018

Originally posted at :

http://appraisersblogs.com/experienced-n-new-appraiserfest-review

Experienced and New: A Review of Appraiserfest 2018
By Tom Horn, SRA and Woody Fincham, SRA, AI-RRS, RAA Member of RAC

A Newbie Conference Attendee’s Take on Appraiserfest 2018
Tom Horn, SRA

I just got back from the first ever Appraiserfest conference, held in San Antonio, Texas, and while it is fresh on my mind I thought I would share my thoughts. This is my first national appraisal conference to attend and I have to say it did not disappoint.

I have been an appraiser for quite a while but have never been interested in spending my money or time to attend a conference that was not close by where I live. This may be the same way other appraisers think also but I hope this article gives you some insight into what happens at one of these conferences and what you can get out of it.

One analogy that I have heard about appraisers, and one that was mentioned at the conference, is that we are very similar to lone wolves. Many of us work by ourselves and we do not get a chance to talk with other appraisers whenever we need another professional’s opinion.

Ithink one of the messages that the conference wanted to get across is that appraisers must try and shake off this mentality. We must try and go from lone wolves to a pack of wolves. It is only through this transition that we will be able to affect change at the national level because there is strength in numbers.

This change can start at the most basic level, like that offered by social media groups. One of these groups that comes to mind is the 100% Appraiser Group, started and ran by appraiser Mark Skapinetz. I truly believe that this conference would not have been as strong as it was without the camaraderie that this group has built, or at least the friendships that appraisers have developed online.

The natural progression of these online friendships is to move them offline and in person. Taking this a step further these relationships also develop into state appraisal coalitions that have been so effective over the past several years. Again, when appraisers work together like this it becomes a more effective method for communicating with government officials to get things changed in a positive way for the appraisal industry.

The underlying themes for Appraiserfest 2018 included:

  1. Finding alternative forms of appraisal work that do not involve lenders
  2. Making yourself the local expert by analyzing the market and reporting your findings to other local real estate professionals
  3. Being aware of antitrust laws so that you stay out of trouble
  4. Learning as much as you can about your state appraisal laws in order to avoid mortgage fraud
  5. Educating ourselves on the new technologies such as blockchain so that we can position ourselves as valuation experts
  6. Staying on top of the main economic indicators so that we can plan for market changes in our businesses
  7. Learning how to use social media to our advantage in order to grow our non lender business and finally
  8. Thinking differently about the current real estate appraisal model by providing value to consumers by helping them manage the equity of their largest asset, their home.

In addition to getting value from the above noted curriculum the ‘fest also provided great value in other ways also. The friendships that were built online were taken offline and strengthened even more. While I don’t have any other national appraisal conference to compare it to I have attended regional or local get togethers and this was much different.

This gathering had a special vibe to it because everyone seemed to already have a bond with each other because of their online communications. It was this aspect of the ‘fest that I believe sets it apart from all others.

A very special part of the weekend involved a ceremony that honored all of the appraisers that had served in the military. Each of their names were displayed on the big screen and they were all given medals. This was an emotional time for everyone attending.

Everyone in the group has a genuine love for appraising and the desire to continue providing value and help to consumers, because without an unbiased third party involved in the mortgage transaction this could negatively affect the national economy.

So, my final thought about Appraiserfest 2018 is that I would definitely attend another one because the value received was so much more than the cost and time involved and the 14 hours of continuing education doesn’t hurt either. If I can answer any questions about attending the ‘fest feel free to contact me.

An Experienced Conference Attendee’s Perspective
Woody Fincham. SRA, AI-RRS, RAA Member of RAC

Appraiserfest 2018 has ended. I admit it, I was a skeptic that it would ever happen. Not only did it happen but is was an astonishing success.

Wow, what an experience. I think all of us that attended had a bit of withdrawal when we got home. This is one of many valuation conferences that I have attended in my career. It was certainly different than most. This was my sixth and final one this year. Appraiserfest is a different beast than what most appraisers would be familiar with. It is not just one stuffy panel after another. Pretentiousness was checked at the door and we were all simply appraisers working towards a single goal. That goal being successful valuation practice.

Starting out, the energy was vibrant.  Everyone that attended expressed how much positive energy they felt there. In a time where residential appraisers feel isolated and preyed upon by lenders, AMCs and GSEs, this conference helped turn some frowns upside down. The networking was excellent. I was able to meet many appraisers that I have emailed with or spoken to on the phone or exchanged correspondence with over social media. It was great to shake hands and get hugs from folks I have befriended over the last few years.

The introductions that were done included music, video and lots of pumping up the crowd. The leadership that put together the fest did it right. Phil Crawford has a great ability to interact with the crowd, very personable. Mark Skapinetz “Skap” is well…Mark, it is hard not to love the guy. They keep saying this is a “Happening”, it was more like a “Skapening”. He is certainly a genuine person who wants to see good things happen for all of us as professionals. Lori Noble, as we say in the south, was certainly the belle of the ball. Everyone, Phil and Mark included, had such wonderful things to say about her and it seems she was the glue holding much of it together. These three deserve all the accolades for getting this thing to work.

A personal highlight for me was being able to sit on a leadership panel with Mike Ford, Maureen Sweeney, George Dell, John Russell, Jonathan Miller and Jim Park. It was neat to see the crowd from the stage. It was a perspective only a few of us got. The biggest take away for me sitting up there: Appraiserfest is a diverse group. The number of women appraisers that attended seems much higher in comparison to other conferences that I have attended. That is great!

Over the next couple of days there were a slew of great presenters and lots of networking. I walked away with dozens of business cards. That is always a great thing about attending conferences and classes in person.  You can meet folks and not feel like you are an island unto yourself. Many of us are single appraiser entities and we forget that there is strength in fellowship and unity. I mean the Fest even brought David Samnick back to the 100% Appraiser Facebook page. Many missed his “As the Liver Turns” posts, I am glad to see that he is back as well.

I will certainly be attending the next one, and I hope to be a part of the leadership and presenters again. I do hope to see a larger cross section of the profession at the next one. I was surprised at the absence of the Appraisal Institute. This was a large gathering of residential appraisers and this would have been a great platform for the AI to reach out and talk with the boots on the ground appraisers out there. Maybe next year.

So now you have a new conference attendee’s perspective from my friend, Tom Horn. (By the way, I had never met Tom in person, it was great to finally do so.) He liked what he saw at the Fest. You have my perspective from a veteran conference attendee, and I have no issue saying it is unlike anything else out there. It is worthy of your time and resources to attend next year.

Appraiser Fest

Folks, we are just a couple of weeks from AppraiserFest. If you serve the housing and financial services sector, The Henry B. Gonzalez Convention Center in San Antonio, TX is the place to be this November 1-2-3. The Appraisers Economic Forum (AppraiserFest) is a unique conference offering to the valuation profession that I am very interested to see.  This is the inaugural event and it is bringing together diverse mix of professionals. It is truly rare that a conference founded by appraisers, for appraisers and run by appraisers even exists.

I have attended just about every notable valuation conference there is and mostly they are events set up by specific organizations that require or solicit membership.  The Appraisers Economic Forum however brings folks from all over the valuation sphere.  To the benefit of appraisers, AppraiserFest brings a lot of folks together that have had to pass on other education offerings because they may not be members to certain organizations and even other conferences that are focused on certain specialties.  Just looking at the conference agenda it is apparent that there is a little something here for everyone.

Lori Noble, SRA and member of RAC, is one of the coordinators of the conference.  She shared some of her personal insight about AppraiserFest:

“One of the great things about AppraiserFest is that it’s bringing so many of us together for the first time which is something appraiser have said they wanted. The venue is spectacular, and I am confident it will be a memorable presentation for everyone because we’ve cut no corners to make it exceptional. There is expected to be a lot of fun and laughter; Mark (Skapinetz) and Phil (Crawford) will make certain of that. I’m also excited about the takeaway of knowledge we can all use in our businesses from the speaker series. Real estate markets are a central role in the welfare of local and global economies and AppraiserFest brings some of the best speakers on appraiser economics to the forefront.”

Lori has done a phenomenal job putting together an excellent 14-hours of continuing education that is approved in most states with more coming on board each week.  It certainly makes it a worthwhile way to write off a quality education conference.  Yes, it can seem expensive, but the investment in ourselves is an intangible value that comes out of a quality education conference where relationships are built through the networking and the personal connections that we make in person. The value of bringing together folks from all over the valuation space means a lot.  We will have members from the ASA there, the AI, the AGA, RAC, TAF, the ASC and more.

This business, unfortunately, creates small clicks of folks that tend to see their group as the best option for everyone.  Valuation, because of how small it is, needs to remain agnostic when it comes to organizations.  There are lots of good ones out there and what is important is most important is that we come together as a whole.

AppraiserFest offers that opportunity and I hope the momentum continues.  Many that know me know that I spend lots of my time working with the AI.  That is my personal preference.  But I welcome the opportunity to work with members form the AGA, the ASA and the other organizations that are out there.  All of them bring something worthwhile to the table and a space like AppraiserFest allows a neutral ground for folks to check their “colors” at the door and see what common ground there is to work as a community.   I hope this is a theme that continues to grow and that we see more direct participation from the various groups out there in future conferences.

I look forward to seeing many of you there.  Make sure you say hello as I will be there enjoying the event with everyone.