NAIFA email

[Fred]

Leart3,
How did you determine that the profession is "in decline?"

Assuming it is, why is coming up with the answer to stop the decline the responsibility of appraisers who belong to organizations instead of the responsibility of appraisers who don't?

 

[NC Old Guy]

why is coming up with the answer to stop the decline the responsibility of appraisers who belong to organizations instead of the responsibility of appraisers who don't?

Steven I agree with you completely. As all of the members in all of the major appraisal organizations no longer account for the majority of appraisers, it is fascinating that those who don't pay dues or support those organizations in any way expects those same organizations to save everyone jobs. I believe the organizations are in trouble from membership declines. After all, if all 7 organizations of the Appraisal Foundation can not even say the represent as much as half of the appraisers, they don't have much clout. I don't know about you but without the major organizations, I don't think there will be anyone left to fight any battles. (Whatever happened to all of those buggy whip makers anyway?) Buggy whip makers not a good analogy because they didn't really help save a consumer from making a bad deal. Although with all of the "Fast Edies" (sorry Ed), one wonders how many are being saved now.

Frankly, if you'r not willing to help pay the freight for lobbyists, etc, then your really not willing to help. Kind of like the person who never votes but has plenty to complain about. Or the person who never pays taxes but wants to get money back, etc. You get the idea. You don't like what the different organizations are doing, have better ideas, then for heavens sake JOIN ONE of them & add your expertise to what is going on.

Leon B. Perkinson

 

[Jo Ann Meyer Stratton]

I will paraphase a famous quote of JFK's: "Ask not what the professional appraisal organizations can do for me--BUT--ask what can I do for my profession"!!!! All the professional organizations consists of volunteers, many who spend enormus amounts of their own money, their own time, away from their families and businesses to help in any way they can their chosen professionals. The professional organizations may disagree (but so do my kids amongst themselves) but they are at least making an effort to making a contribution to the profession. A person that does not belong to a professional organization, just like a person that does not vote, has not expressed their opinion in an effective manner--they have just griped. And just as my kids had to learn to get along with each other (we are a family and you can always count on family), the professional organizations are starting to learn to get along with each other too. I think this umbrella idea is great. Each organization will still retain their specialty--just like As specialty is creating arts and crafts, J is being very organized, H is a great cook, L an excellant gardener, M artistic and M is musical, etc. But we are all family and work together, helping each other when needed, supporting each other, etc.

So join the family and join a professional organization and become part of working on some solutions. When it comes to your family--time doesn't matter. So when it comes to your organization (your professional family)--time doesn't matter either.

See all of you at the next chapter meeting of your choice!!!

 

[Leon Stewart]

Leart3,
How did you determine that the profession is "in decline?"

By the decrease in the number of active appraisers. By the increase in the number of value conclusions not arrived at by appraisers. The changes by Fanny & Freddie where in some cases no Appraisal will be required. While most Appraisers operate a one-person shop the AQB is increasing the qualifications needed to become an appraiser, but will still require that one-person shop to accomidate a Trainee for the trainee to sit for the exam. It's an oxymoronish system, it can't happen. I'm a one person shop, and i'd go out backward accomidating a trainee. This stuff ain't rocket science.

This is a profession where the Lenders run the whole process, and no one seem to think they have a conflict of interest. At the same time when something happens they don't hold the Lender Responsible, it the Appraisers fault. This system is doomed for falure. So I guess you would have to admit that there are more negatives than positives in the future of the Appraisal Business.

leart3

 

[Fred]

Leon,
Impressive post! Not sure the buggy-whip analogy fits. More going from hand made whips to manufacture whips. have to think about that one.

Also, I would not impose a 50% criteria for making organizaed appraisers responsible for unorganized appraisers.

Leart,
I will accept your numbers on the decease of active appraisers for purposes of discussion.

I get the sense that you are referring to "the profession" as residential appraising for mortgage loans. If you look at the larger picture of "valuation," I think you can see that nothing is "in decline." Valuation is in the incipience of a revolution. The populaiton will double by 2037, the amount of valuation in real estate decisions will way more than double because of the speed of commerce, the accessibility to and complexity of finance markets. The degree to which licenced and certified RE appraisers particpate by riding the wave of change or get run over by it is an open question.

I think just about everything you say is true, but you are looking at things the wrong way. I don't equate less body count with "decline."
The number of people working in food production has gone from over 98% to about 1.5% of the population. Would you that food production is "in decline." One farmer prduces enough to feed thousands not just enough to feed one family.
The same effect is already well underway in appraising. I don't know how many were doing appraisals 15 years ago, but the number of appraisals done and the number of appraisals that one appraiser can do per hour have gone up quite a bit.

The demand for valuation is there and it will grow. Ten years from now, the ratio of general appraisers wil be much higher, the ratio of appraisers who can handle statistical analysis will be much higher, the ratio of appraiser who can produce work in several "specialties' by today's standards will increase. The percentage of valuation done in AVM-type models will increse. The market is gong to get the data dna analysis that it needs and it doesn't care WHO pruduces it, only HOW FAST and CHEAP. What market share the current batch of RE appraisers and their successors can hold with the CPA's continuing to syphon off the high-end work and the AVM's syphoning off the low-end work is an open question.

What the organizations offer is a chace to participate. Every organizaton is working feverishly to create the currucula that will keep RE appraisers in business. This is the US. Don't hold your breath waiting for someone to pass a law stopping progress. And if one passes, everyone will scamper around it. It seems you clearly see them scampering around FIRREA. The chance of success that the organzations have is dependent on the degree they can produce the right courses and the degree to which individual appraisers contribute knowledge and money to the process.

 

[Austin]

Steve: You make some excellent points. Real estate appraisal is not what it was just two years ago. The big obstacle to progress I see is USPAP. I am not against high standards, that is not the issue, the issue is new methods and the freedom to explore and use new methods and technologies. The market wants fast, accurate, and low cost appraisals. The technology is here to give the market what it wants. I did three commercial appraisals this week in three days that ten years ago would have taken me two weeks. How did I do it? New methods. They were all income producing properties or had a stable income history and some were lease option sales. I use regression methods in the income approach and have found some interesting things.
I do a conventional pro forma operating statements using average vac, expenses, etc. and derive a most probable safe net operating income. I then make one column with a range of cap rates that cover the reasonable rate range. I then find the safe operating expense ratio. I then play what-if games by picking a range of operating expense ratios that bracket the safe estimate and deriving an NOI at about 5 different ranges of operating expense ratios. I then capitalize a value indication for each NOI at each cap rate and graph the results. The results are pretty interesting. I have found that NOI differences due to different expense ratios are very inelastic meaning they have little leverage or effect on value proportionally. The big factor that really makes a difference is the cap rate. This is significant because when you have 4% shifts in interest rates in a six-month period, the game becomes a moot point. It is a waste of time doing detailed expense analyses. The last thing I do is graph an ellipse over the most probable range of cap rates and call it the most probable value range given the nature of the interest rate market. I use to spend hours supporting detailed expenses but you can be 15% off and a ½% shift in the interest rate will wipe it out. Using this method we can do five times as much work because we have the technology to see the results of what we are doing. This is just one example of what I am talking about. Regression methods in the sales comparison approach are a dream machine and the cost approach is nothing but reverse regression analysis. The future is bright and I enjoy this business more every day. USPAP in this context is an obstacle to progress as are archaic state appraisal boards.
When I took cap theory A, the instructor was the appraiser that invented the method of adjusting yield rates for property appreciation. When he first used the method he was turned into the AI Ethics Committee for violating appraisal ethics. The AI investigated him for over two years, decided he was correct, and hired him to teach other appraisers to do it. Case in point.

 

[Fred]

Austin,
The market is always going to want fast, cheap and good- with "good" having two separate meanings. USPAP is not an obstacle to that as long as you read what is written and don't bring any assumptions into it.

I disagree a bit about expenses, especially on two of the three non-cash expenses: vacancy and reserves, and one of the cash expenses: maintenance. There are obviously two broad approaches to adjust for the riskiness or relative instability of an income stream. One is by using a higher cap rate. The other is by "stabilizing" the excess risk out of the stream. I think there is a bit of a void in the literature on this and no uniformity to how appraisers treat these things. As a result, I see double-dipping all over the place, where an appraiser will, say, jack up the vacancy - and then use a higher than average cap for risky nature of subject's occupancy history.

 

[David C. Johnson]

<span style='color:darkblue'>Austin:

You have mentioned your regression and graphing methodologies several times over the last year or so. I'm sure you have "seen the light" and are on to something good. Consider writing an essay sometime. If we get it, some of us will use it, or at least be open to learning more over time. It might be a very meaningful and timely contribution to the profession.

I have come to believe a pertinent measure of "brilliance" is a mastery of the art of rendering the otherwise onerously complex, to the very simple -- being readily understandable to the masses (such as me) -- with little investment of their/my time and brain required. I once took a course we affectionately referred to as "Gentleman's Physics." It was for those who did not plan to major in the sciences (or who majored in such a curricula as Nursing such as a girl friend of mine did). The text book, which I reread recently after many years, was/is an absolute work of brilliance. (I intend to write the author before long with my praises and admiration -- he looked young in the included photo page, so probably still exists.) It covered all the basics real well and even touched on the theoretical and abstract (including Einstein) but was/is so carefully and cleverly written that it was intuitively understandable even to English Lit. majors who may have had minimal interest -- but who were required to take physics as a requirement for graduation. (Some may have switched their majors after the course.)

The physics Ph.D. author so understood the field (and his intended readership), that he managed to greatly simplify (i.e., communicate) -- but not at the expense of literal accuracy -- all by his choice of wording and selected analogies presented, etc. It must have taken endless hours of drafts and edits. His work must have awed, and frustrated and/or pissed-off advanced cutting-edge physics academia in universities around the country. "Dam*-it, what you wrote is certainly true -- that's not the point -- there's so much more to it than that!! -- it's just not that simple!!" Well, yes it is -- at least for starters...

He did all the work for the students. All they had to do was read. They could not help but understand.

Just a thought.

dcj</span>

 

[Stephen J. Vertin MAI]

Austin:

Thank you. Sometimes I have problems wording exactly what I am trying to say and I think you have cleared some of my thinking. The problem is not so much USPAP the actual written document, which there has been an effort to upgrade and adapt to modern markets. The problem is the ability of Government to adapted to said changes and possible future changes within actual markets. If governments could easily adapted to market shifts, communism would be a variable economic system. However, they can not, thereby the collapse of such systems. If you have a market shift a change in USPAP would required a year. Since there is only one addition annually. Furthermore, many State enforcement agencies are USPAP illiterate. Some operate under the assumption they are the appraisal theory police. It is their way or the highway. Many of these State Board hearing issues have little to do with USPAP. It is more or less did they like or dislike the appraisal. Others do not do any enforcement at all. While still others understand the document and enforce it accordingly. These are major problems in our industry and these problem effect its future growth. AI is predicting there are major changes currently on the horizon for the commercial real estate appraisal business. However, it will have major impacts on residential appraising also.

The changes that are expected are changes in how U.S. companies value assets. Currently, U.S. corporations use straight line depreciation to value real estate on their books. Using this method requires no appraisal. The rest of the world uses "fair value". Using this method requires an appraisal. The depreciated value accounting method we use has nothing to do with actual values. However, the "fair value" method does. Again, most of the world, with the exception of the U.S. uses "fair value".

In order to have global continuity the U.S. is being forced to consider fair value accounting. The reason is so stocks can be traded globally. In a global stock market you have to have a common measurement system so apples can be compared to apples. Under the current system you can not compare the value of a U.S. company to one in a country using fair value. Fair value changes will mean most U.S. companies will need real estate appraisals annually. This is a major boon to commercial appraisals. It is the first hint of growth in our industry in a decade.

Can USPAP adapt to these changes? Possibly, but a more fundamental problem is can appraisers adapt? There are serious obstacles. Currently, we have changes occurring in USPAP, and 50 state boards adapting to these changes at different rates and varying degrees. This new "fair market" appraisal market requires continuity in the appraisal process just as in the accounting process and this can not happen with 50 different versions and 1,000 different interpretations of USPAP. Furthermore, our reciprocity situation is a nightmare. We were suppose to have reciprocity 5 years ago. Now appraisers are having to force States, via law suites, to allow something clearly stated in the law.

How does this effect the average residential appraiser? If residential appraisal work is dying and there is a need for commercial appraisers, the residential appraiser labor pool is an excellent source to fill the demand. However, if we can not adapted to needed changes, accountants and investment analyst will be taking a large portion of this business. It sickens me to say this but I am afraid this is a real possibility.


I have come to the realization the banking industry would like nothing better than to dump the appraiser. And if the truth be known half the appraisers out there would like to dump the banking industry. If fair value accounting comes to fruition you will see a mass exodus out of commercial banking work from a number of MAI's. Much of this work will open up to a number of others in the industry.

 

[Austin]

Tom: You mentioned me writing an essay or book on regression. It is funny how things happen in time. Yesterday I went by my 80-year-old parent’s home and my brother was there. My brother had given the parents some books to read and they were going through the bookshelf looking for them. Grandma also gave him flour other books from her shelf. One was a book written on cardiac intensive care nursing written my by cousin Betsy who use to be head nurse at Duke Heart Center. Two were PhD thesis’s written by two other cousins. One other cousin had a PhD but we never got a copy of his thesis. Two other cousins wrote another book about the Ricketts Family. The point is, nobody ever read a word of any of them. The book on nursing may have done some good, but the rest were just dust collecting academic papers, just what the world does not need any more of. Just for the record, none of my PHD cousins has enough sense to poor urine out of a boot. All Liberal Democrats. Live off endowments. They have all of the answers if the idiots of world would just give them the money and power to run things.