Falling Out - More Appraisers Quit

[Meandering]

I agree with your excellent description of how "off" statistics can be, as well as the results of an AVM.

Not to mention the fact that an appraisal is not a math question, and thus cannot be solved by mathematical means. Math ends up proving itself, in that sense the results are "accurate", the problem is, the result may have little relation or relelance to a market supported and credible value.

You go J,

What they miss is that the appraisal is an opinion that is SUPPORTED by market data, not the mathematical result of market data.

Computer accuracy is dependent upon commoditization of residential property. Then the differences between neighborhoods, style and condition can be dismissed from consideration so the computer can function on the mathematics of comparing minimal physical differences. Remember when the old URAR had a box for curb appeal? This URAR does not. Because a computer can not qualify a quantity for it's consideration.

 

[J Grant]

Because a computer can not qualify a quantity for it's consideration.

That is what they try to do with these computer run programs, quantify a quality, and they accomplish a version of it...complete with the provlem that by the time enough irrelvent data, misleading representations of property data, and unverified aspects of the data are entered, the errors multiply and aggregate. Add to that these programs can't "read" market conditions, or really tell the difference between the items that matter most to borrowers, and the results are far from reliable.

A statistical program or computer driven AVM will produce a numerical value that is only as good as the flawed data entered, thus , the numerical value is flawed as well, despite programers best efforts.

I actually dislike the word "data". Buyers don't look at data when they buy, they look at houses. Sellers are concerned with market conditions and what the house across the street just sold for, not a bunch of "data". Yes, both buyers and sellers migh ask a realtor for a CMA , and are aware of sales and listings, and read the articles in the media with charts and graphs, but even then the market participants who are number crunch oriented don't make their decisions according to just "data".

A buyer is going to live in a HOUSE, not a pile of data. An investor is placing his hard earned cash and rehab efforts in a particular property in a particular community and hopes that HOUSE (or condo, or duplex, etc) can be rented for cash flow or sold for a profit. He is not looking to rent or flip a pile of "data".

 

[residentialguy]

I actually dislike the word "data". Buyers don't look at data when they buy

Not all buyers

 

[J Grant]

Hey Res Guy, is that a picture of the "typical buyer"?

 

[David Mescon]

Hey Res Guy, is that a picture of the "typical buyer"?

Only in Joan's world.

 

[David Mescon]

One of the primary problems with the whole res. vs. comm. appraisal concept is buyer motivation. The typical purchaser of a commercial property is primarily motivated by profit - usually, but not always, the cash flow potential. Sometimes it is anticipatory value, or any one of a number of other motivators, but usually, it is mostly just bottom line cash flow. The primary motivator for the typical residential purchaser, on the other hand, is usually emotional. People tend to buy homes, not houses. They imagine themselves living in the property. They are looking for some sort of emotional connection. They typically apply the principal of substitution, but not in an absolute, straightforward way. Many appraisers utilize replacement costs in residential cost approaches, however, this is usually an inappropriate application of appraisal methodology. People usually form emotional bonds with their homes. This is where the experienced residential appraiser shines. They have an intimate understanding of the market; they understand what motivates typical buyers and sellers within the market; and they know that there is much more than simple mathematics at play. residential appraisal usually involves a substantial amount of intuition - we get a "feel" for a particular market or submarket. This cannot be defined mathematically - period. I specialized in the appraisal of very large and highly complex residential properties for many years. Things like paired sales and regression analysis rarely have any real life application in this arena. I utilized a simple linear regression analysis ONCE, in all those years, in the appraisal of such a home. After looking at the result, I might as well have just thrown a dart at a dart board. As for paired sales, good luck isolating even one.

The trend toward increasing quantification in the appraisal of single family properties will fail miserably because it doesn't mirror real life - it can't. The only reason the "powers that be" are pushing appraisers down this path is to edify investors and the public, AND, to set appraisers up for future lawsuits. Unfortunately, some of this trend has been promulgated by commercial appraisers amongst our ranks. I believe that many of these appraisers have been well meaning, but lacking in understanding of how residential appraisal works in the real world. Eventually, users of residential appraisals will either accept the fact that much of it is intuitive, or, they will completely re-define that sector of the profession, and greatly dilute its reliability.

 

[Moe Larry]

Had a meeting & class last Thursday, attended by one of the state board members. He said that there were approx. 800 appraisers in Arkansas when he took office. It is a 6 yr. term. He is in year 4. They are now down to barely 500. The most losses are in the registered (trainee) class...and they anticipate the fall will continue.

Too bad. There are so few to replace us. Average age is about 60.

There will also be new rules in 2015 that will require a bonafide degree. No more of the taking 20 hr. of college courses to qualify.

Give or take 5 years, we will see a huge crunch in appraisers... as the economy recovers and appraisers retire and/or return to room temperature in droves....who takes our place? With the death of a local CG we are pretty much looking at me as the sole CG on this side of the county...We had 3.

This may become a very good business for someone in about 5 - 10 years. The new rules will prevent any rapid build up of appraisers like happened with licensing was initially started...it could easily be name-your-fee. If I am still able to wheel my electric cart around these properties... hmm

If there ever is a shortage of certified residential appraisers lenders will once again accept appraisals from trainees signed by a supervising certified appraiser. Certified appraisers will higher trainees who do not have college degrees so as not to train there competition.

 

[rescom]

res. vs. comm.

Hey, thats me!!!

 

[J Grant]

Good post, David.

Yes commercial buyers are buying for bottom line results, although some of them like a prestigous location etc, one can arrive at a value based on cash flow, yield rate, income stream etc.

Though the cost approach can be of some use in residential, it is mainly based on market expereince and truly understanding market trends and buyer/seller motivation etc. Commercial appraisers often have a greater depth of knowledge of technique and theory, but the problem is, many of them do a scant amount of residential work, and thus lose touch with the market and truly don't understand the nuances of different subdivisions etc. They can make up to it to a degree by talking to realtors on assignment etc, but over the years, the lack of direct market knowledge leaves a greater and greater gap between a cert gen who does 5 res appraisals a month 60 a year, vs a res appraiser who may do 30 a month, 360 a year. In 10 years the res appraiser will have been in many of the condos, subdivisions, and new construction communities numerous times and have done 3600 res appraisals, the cert gen will have done 600 appraisals, and will never been in a number of subdivisions or condos or new communities.

There are some cert gens who do mainly residential and seem to make no or little use of the commercial end of their license.

My personal opinion is that an income approach on every res property would add another persepective and a quantative method that focuses on that indivudual property and thus makes sense, as well as bracketing the sales approach value opinion , with a real world rent survey and income and expense statement.

Lenders and other parties who want to quantative input to replace the market experience of appraisers in the sales comparision approach have an agenda that is not about more reliable or credible assignment results. Implmenting data runs as the gold standard means they have control of the process, along with a cash cow, thus the move to own or acquire software companies . (re Corelogic expaned their data division, now integrating their data with MLS). If these entities own software or data companies, they can charge for propietary data, as well as for use of software programs.

 

[David Mescon]

Good post, David.

Yes commercial buyers are buying for bottom line results, although some of them like a prestigous location etc, one can arrive at a value based on cash flow, yield rate, income stream etc.

Though the cost approach can be of some use in residential, it is mainly based on market expereince and truly understanding market trends and buyer/seller motivation etc. Commercial appraisers often have a greater depth of knowledge of technique and theory, but the problem is, many of them do a scant amount of residential a yea, and thus lose touch with the market and truly don't understand the nuances of different subdivisions etc. They can make up to it to a degree by talking to realtors on assignment etc, but over the years, the lack of direct market knowledge leaves a greater and greater gap between a cert gen who does 5 res appraisals a month 60 a year, vs a res appraiser who may do 30 a month, 360 a year. In 10 years the res appraiser will have been in many of the condos, subdivisions, and new construction communities numerous times and have done 3600 res appraisals, the cert gen will have done 600 appraisals, and never been in a number of subdivisions or condos or new communities.

Lenders and other parties who want to substitute quantative data runs for the market experience of appraisers want control of the process and a way to make money as well, if they own software or data companies, they can charge for propietary data, or for use of software programs.

J - I think that's partly true, but I have known quite a few appraisers who are do primarily commercial work, but also do a lot of residential work. Most of them just aren't that good at residential. As you said, they generally possess superior knowledge of appraisal theory. Although I can't prove it, empirically, it is my opinion, based upon much observation and many conversations with these appraisers, that they just aren't well suited to the intuitive portion of the residential appraisal process, just as many experienced and knowledgeable residential appraisers aren't well suited to much of the valuation and HBU analyses involved in most commercial appraisal work. I could be wrong - but this is what it looks like to me.