Falling Out - More Appraisers Quit

[Terrel L. Shields]

Sales look at the PAST
Cost looks at the PRESENT
Income looks at the FUTURE

primarily motivated by profit - usually, but not always, the cash flow potential.

or in any owner operated business, it it the cash flow of the BUSINESS that motivated the buyer who sees the building in question as the best available to operate their business out of. If the business is small, then a large expensive building is out of question. The building they buy has to fit what they do. An old diner is more appealing to the Chef than a new C store. Only if the C store is really cheap and can be economically modified would it be justified to try and make it into a cafe.

I don't buy the idea that the Com appraisers lose touch with the nuances of subdivisions. On the contrary, I see appraisers ignore competition from nearby subdivisions that I argue have the same market appeal to concentrate on sales that are impacted by statistical noise. The fact I have 2 REOs in a small subdivision does not mean the entire subdivision is going south. It can be mere the way the cookie crumbled.

Appraisers need to run more regression analyses of their market data and see if the data actually is significant or merely a couple of outliers. I saw a lot of claims about how the market was changing 20-30% in a single quarter, when if fact, it probably wasn't changing at all. Just a couple of below or above market sales skewed the microeconomic pix for a single quarter...statistical noise, not a real trend.

Locally we have a couple of data providers who consistently for 3 years or so indicated that year to year sale averages have fell by 5% or so annually. Plotting the sales by the month and the data line looks far more ragged... that's noise. The MSA has a uniform appeal for the most part, access to work revolves around the Univ. of Arkansas, the poultry industry, and Wal-mart and the 3000 or so Wallyworld vendors who have a presence in the region...

 

[J Grant]

I want to preface my comments to say that having done quite a bit of reviewing, I have seen bad, as well as fraudulant res reports done by both residential and cert general appraisers. The reviewer rarely sees the good appraisals, therefore of course there are are good reports done by res appraisers and cert generals as well.

Having said that, I truly believe that a commercial appraiser who rarely ventures into the res market does lose touch with individual subdivision or building/ community appeal and trends. How could they possibly keep up, since they rarely visit the areas and have few conversations with realtors and owners, vs a res appraiser who is immersed 12 months a year?

Re, the comments below:

On the contrary, I see appraisers ignore competition from nearby subdivisions that I argue have the same market appeal

On what basis can you argue that the competing subdivsions have the same market appeal to a buyer, since you rarely venture into these subdivisions?(or perhaps never were in some of them) Again, the commercial appraiser falls back on statistics. You can throw all the statistics you want at a buyer, they still prefer certain subdivisions for reasons that have nothing to do with statistics, and subdivisions are NOT interchangeable to them.

If the competing subdivision had the same appeal, why isn't the buyer in contract to purchase there, instead of the subdivision they are buying in? Yes, there are times when subdivisions have equal appeal, but many times they don't. Some buyers for a specific type property will ONLY buy in a certain subdivision, or would pay more, or less, to exchange locations.

to concentrate on sales that are impacted by statistical noise.

Not sure what this statement means.

The fact I have 2 REOs in a small subdivision does not mean the entire subdivision is going south. It can be mere the way the cookie crumbled.

Two REO's in a subdivision can mean not much of anything, or mean a great deal, depending on size of subdivision, but more importantly, on other trends in the market. Are there short sales present? What is the listing inventory...are there many REO and short sale lisitngs, or none, or only a few? Which of the listings are going to contract, and at what prices?


Appraisers need to run more regression analyses of their market data and see if the data actually is significant or merely a couple of outliers.

A regression anaylsis is again, addressing the problem as numbers, as points of data. Past data might show more, or less REO's than now, etc. It still does not tell you what competition the subject has in current inventory, or where the market is going, or why. See the above paragraph I wrote about the listing inventory, to know if the if the 2 REO' s were a random occurance or a trend...re above paragraph at anaylzing listing sale types and what is in contact etc.

I saw a lot of claims about how the market was changing 20-30% in a single quarter, when if fact, it probably wasn't changing at all. Just a couple of below or above market sales skewed the microeconomic pix for a single quarter...statistical noise, not a real trend.

Again, this is all focusing on numeric information.. . though we res appraisers also pay attention to statistics and rely on them to see if prices are going up or down etc, , looking at past data has to be intresected with present market knowledge and knowing the present inventory and boots on the ground driving through subdivisions, knowing their quirks and the influences on value etc.

Statistics and regression analysis are tools but not stand alone tools, and the results must be tested against real world market interaction. Statistical results may apply to an area, or even a subdivision, but yet be invalid when applied to a particular subject property, for any number of reasons.

 

[David Mescon]

I don't buy the idea that the Com appraisers lose touch with the nuances of subdivisions.

I would assert that the majority of commercial appraisers just don't possess the requisite skillset to be good residential appraisers, and vice-versa. You, of course, Terrel, are one of the exceptions to that rule.

 

[J Grant]

I would assert that the majority of commercial appraisers just don't possess the requisite skillset to be good residential appraisers, and vice-versa/

This may be true. The difference is, we don't see res appraisers who don't possess the requisite skillset dabbling in commercial appraisal, while we do see commercial appraisers who lack the requisite skillset dabbling in residential.

There are no doubt appraisers that are good at both...why a commercial appraiser who is good at what they do and busy would want to take on res work is a mystery, but maybe they enjoy it.

 

[David Mescon]

This may be true. The difference is, we don't see res appraisers who don't possess the requisite skillset dabbling in commercial appraisal, while we do see commercial appraisers who lack the requisite skillset dabbling in residential.

This is very true the vast majority of the time. It has stuck like a feather in my craw for years.

 

[Terrel L. Shields]

On what basis can you argue that the competing subdivsions have the same market appeal to a buyer, since you rarely venture into these subdivisions?(or perhaps never were in some of them)

Who valued the subdivision in the first place? The Residential appraiser? or a commercial one? Do you not think the same economic factors affect an entire community? Do you think that commercial appraisers ignore residential data when appraising a new subdivision? So in your world are the subdivisions all gated and "KEEP OUT YOU REJECTS FROM RITZY PARK SUBD" are on the walls? Are each of your precious little communities so red lined that you have walls between 'em?

You apply precision adjustments calculated by so-called paired sales then argue that statistics isn't meaningful. You practice sorcery, ergo am smarter than i.

Property isn't homogeneous little pockets in a hetrogeneous checkerboard. Demographics is statistical by nature. Subdivisions compete with other new subdivisions in the same quality - price - age classes. If they have equal access to schools, etc. then they are typically similar in price and appeal.

 

[George Hatch]

I did a lot of SFR reviewing for a couple years back during the last boom. Not quite full time, but close. I was reviewing the appraisals coming in on the wholesale side for a national big-box lender. They also tapped me to appraise a few of the high risk 1-4s on the retail side due to the complexities involved.

I certainly did see some CGs fail to take their SFR assignments as seriously as they did their other work. It's apparent they were not doing enough of them to be in the groove. When I jammed them, a couple of them were obviously using runners and not even doing those appraisals, so that was pretty bad. The other smart aleck comment I got a few times was that they just couldn't get excited about a dirt simple tract home appraisal. Again, that's no way to win friends or influence people.


However, I have never, ever seen a CG screw up an SFR appraisal as badly as the commercial appraisals I've seen the res appraisers screw up. I just saw another one today - they stuffed it on a Fannie 2055 and and added 1/2 page of additional comments on an addendum page. And yeah, it looks horrible. I see at least a couple of them every year and it's always the same.

I think I've seen maybe a couple where the value itself was okay. I've never seen one yet that was similar in content and analysis to what the CGs normally do on such properties. I'm sure they're out there, but not in evidence so far.

 

[Michigan CG]

This may be true. The difference is, we don't see res appraisers who don't possess the requisite skillset dabbling in commercial appraisal, while we do see commercial appraisers who lack the requisite skillset dabbling in residential.

There are no doubt appraisers that are good at both...why a commercial appraiser who is good at what they do and busy would want to take on res work is a mystery, but maybe they enjoy it.

I have seen residential appraisers "dabbling" in commercial work. It isn't pretty.

I do residential work because I live in a mostly rural county and because I enjoy it. I am about 1/3 residential, 1/3 commercial and 1/3 agricultural.

I would assert that the majority of commercial appraisers just don't possess the requisite skillset to be good residential appraisers, and vice-versa.

I would say that the majority of MAI appraisers do not have a grasp on residential appraising as they don't perform that type of work typically. However I do know of some who are very good at it and scare the typical residential appraiser when it comes to litigation although these folks are few and far.

 

[David Mescon]

I would say that the majority of MAI appraisers do not have a grasp on residential appraising as they don't perform that type of work typically. However I do know of some who are very good at it and scare the typical residential appraiser when it comes to litigation although these folks are few and far.

I agree with you 100%. I would also add, that the CGs who are also competent residential appraisers tend to be truly stellar residential appraisers, because, as has been said earlier, they tend to have a better grasp on both the understanding and application of relevant appraisal theory. I did a REALLY big and highly complex SFR for an MAI buddy of mine years back. He had limited experience appraising single family properties at the time. When he reviewed my report he only asked me three or four questions, BUT, they were excellent questions. VERY few residential appraisers I have known would have thought of these things - I remember being really impressed by those questions, (even though I can't remember a single one all these years later). Likewise, my original mentor, who is approaching 45 years as an appraiser now, is both an excellent commercial appraiser and an excellent residential appraiser. He's not designated, but I've only met a handful of MAIs who can touch his overall understanding of theory.

 

[J Grant]

I would agree that a res appraiser, unless they have special training, would tend to screw up a commercial report, which is why they shouldn't do them (I suppose the ones you reviewed were done for private clients, since a res appraiser can't do commercial for lending work?)

I would agree that a very astute commercial appraiser, would have some insights into a res report a res appraiser might miss.

There are good appraisers and bad appraisers of both license types, and one of the hallmarks of a good appraiser is they know what kind of work they can do well and what kind they can't do well. Thus, a number of commercial appraisers choose to refer the res work out. And some commercial mainly do res work with an occasional commercial job on the side. I don't care what anyone does, but if someone is not good at a certain aspect of appraising, imo they are doing the borrower or user of the appraisal a diservice.

I turn down certain kinds of res work that I don't feel comfortable with.