Stand for What is Right

The days of right and wrong seem to have been replaced with reasonable and customary.  In a world where we are afraid to stand for what is right, for fear that someone else may disagree or feel judged, we have lost our footing. If you don’t believe me, just open your eyes and watch the world losing its mind. Am I someone who believes a religious right should rule? No.

I am someone who believes that there are fundamentals in life that should not be abandoned for fear that we may upset another culture or way of life. The reality is simple: respect, courtesy, honesty, integrity, fairness these are all attributes that people appreciate from others, but it seems that they are sorely lacking in what is quickly becoming the social norm.

What does that have to do with the appraisal of real estate? Perhaps nothing, perhaps more than anyone of us realize. If the men and women of earlier generations would or could speak to us, they would remind us that the foundational ways of behaving should be the base of all activities in life. How we present ourselves and treat others is so much more important than I can possible hope to convey in this short rant.

But I will leave you with this thought: only a truly immoral society feels the need to try to legislate morality, for if we were all acting as we should, there would be no need to impose laws to encourage correct behavior.

See you around the water cooler!

UncleZev

By the way kudos to https://mamasweekly.wordpress.com which is written by my wife. Without her looking over my posts, you would have to suffer with my continued misspellings and grammatical anomalies. Thank you sweetheart (and you know you are (winking)).

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Simplicity is Genius

As the title states, simplicity is genius. Every once in a while I read reports where the appraiser wishes to blazon their diction; demonstrating their professional expertise and industry knowledge to such a degree that absolutely no one can understand their findings or opinions of value.

It is at those times that I remember a very simple, humble man who taught me to appraise and to live and enjoy my life. He would say to me,  “Never look too sharp, or speak too wise.”  Also what he said was “Simplicity is Genius”. In other words, never speak in a way that cannot be understood, or write in a way that will leave the reader confused. What he was conveying to me was the following message. The typical end user of our appraisal reports are not Harvard Graduates or PhDs. They are educated mortgage and real estate professionals who look at hundreds of files in a month’s time.

They are not english teachers nor professors, and they are not looking to be impressed with our ability to spin a tale or write a report. What they do need is for us to take situations and appraisal problems that are often complex and “boil it down” so that the presentation is simple and easy to understand.

If you must use the word fenestration to impress the reader that you took an Appraisal Institute class, fine, but take the time to explain that “the fenestration, or placement and number of windows and doors, enhances the market appeal of this property”.

As this same man taught me, if we strive to be bigger (or smarter) than the people we serve, then we will soon find ourselves replaced by others who can make those same people feel bigger and smarter. No one appreciates a boor. Although it can be fun on occasion to put a hostile client in their place, the reality is that our clients are best served when we stay humble and keep our communications simple, concise, and to the point.

In previous posts I have stated that real estate appraisal is as much of an art as it is a science. I believe this is true, although many would have us remove the artist from the equation thinking that with pure science the client will not be mislead. But the truth of the matter is that so long as we are measuring people’s reactions to a piece of property, people will need to be conducting some part of the analysis. Computers are incredible tools that allow us to create, store, analyze and send vast quantities of information, but without the artist behind the keyboard, the results, findings or conclusions lack the very “reason” that is behind a reasonable estimate.

I do not personally miss the days of IBM Selectric typewriters or Polaroid Cameras or Fox Photo to develop the film, but there was a sense of satisfaction in those days that when an appraisal was completed it was considered a document that could stand on its own. Today, with an appraisal software package and a digital camera almost anyone can create the appearance of an appraisal; however, as a professional reviewer, who conducts forensic reviews, I can tell you that the artisans are a dying breed.

See you around the water cooler!

UncleZev

Universal Appraisal Dataset or UAD

I am confident that most of us by now are familiar with the commonly known acronyms that are used in the appraisal industry. There are ASC, BEA, CFR, DESA, EPA, FEMA,  FIRREAFHA, FNMA, FREDDIE, GNMA, HUD,  IMF, JEC, KSC (ok that is actually the Kennedy Space Center – but you try and come up with a relevant K acronym), LOCIS, MSA, NAR, OTS, PHA,  UAD, URAR, VA, and SRIP  to name a few.

But how many of you are familiar with the following list. I take no credit for the majority of these as they have been around longer than the Internet.

ARTOR = Appraiser Really Tired of Rebuttals

BAFV = Best and Final Value

BISS = Because I Said So

CREATURE = Certified Real Estate Appraiser Turmoil Under Rebuttal Episode

FFLOP = Forum for Licensed Objective Professionals

FNMA = Florida National Mortgage Association (inside joke)

FOLO = Freaked Out Loan Officer (some times misspelled, by switching the L with the last O)

FROG = Finished Room Over Garage

FU = Functional Utility

For New Appraisers  – – IMHO = In my humble opinion

For Used Appraisers – – IMNSHO = In my not so humble opinion

Language used by the client – – RUSH = Really Unusual Sh*tty House

Language used by the client – – SUPER RUSH = A particular value needs to be reached

MC Addendum = Market Confusion Addendum

TROUSE = (Trailer house with stick-built addition)

Enjoy – – I know there are several others.. but it is late.

See you around the water cooler!

Uncle Zev

Rotten Apples

When I was quite young my father taught me a principal that I would now like to present to my readers. “What is the value of a rotten apple?”, he would ask. The puzzlement of my lurid imagination would often take the conversation way off track. But through his patient, instructive way he would gently push and pull me back on track to properly evaluate the question.

If you consider for a moment that a rotten apple attracts bugs or worms then perhaps you could account for the possibility of selling these critters as bait; however, this certainly can not be the answer. There is a certain oder to the rotting fruit that will also detract from its appeal.

It cannot be eaten or sold, the colorants may be useful in the making of dyes, but certainly not to the extent of other more vibrant fruits. “So what is the value of a rotten apple?” I would finally ask.

The answer of course is that to wrong person, a person without the ability to look into the future, a person without basic understanding, or a person who lacks time and patience, this fruit is worthless.

However, to someone who understands the nature of fruit, who has forethought and the ability to see beyond the now, a rotten apple can be worth quite a bit. The fruit itself is useless, but it has seeds. Its seeds can be cultivated and grown into a successful orchard and over time this worth can far exceed even the most ambitious expectations for an experienced investor.

So what does this have to do with real estate appraisal? Perhaps nothing, or perhaps it helps us to understand that even the most useless property has value as long as we take the time to understand the nature of the property, its location, and its potential highest and best use which, with the proper diligence, can recognize value for future generations.

Of course this may be more applicable to real estate investors, than real estate appraisers; however, in this economy I believe it is time for appraisers to put their knowledge to work and begin to plan for their futures by purchasing and managing properties for themselves. Of course and of course, I am in no way suggesting an appraiser buy something that he has appraised. This would be completely unethical and someone who does this should go to jail.

What I am suggesting is that appraisers pay attention while they conduct research, and target properties that are good investments. Put to use the knowledge that each of us has acquired and begin to profit from our skills instead of only telling others what something is worth.

This is my two cents for today! Now go and find a few “rotten apples“!  With the right management and care, who knows what kinds of  “orchards” your future generations can enjoy.

See you around the water cooler!!

Uncle Zev

Like Type Properties

Very recently, I was presented with an appraisal report that was actually a fourth revision. The appraiser had accurately completed a report and submitted the report for consideration to the lender, then over the next six weeks apparently, was barraged with a continual flow of reconsideration requests and alternative comparables, until the report appraiser finally felt pressured enough not only to re-grid alternative comparables, but also to change the opinion of value by almost 20%. I was involved in a quality assurance review and, fortunately for the appraiser, was able to reject the revision that could have ultimately placed the lender in a very bad position and placed the appraiser in jail for a report that was very misleading.

What led to this place of dark descent? This is the question that we will be exploring in the next few paragraphs. I took the time to counsel with the appraiser and offered my personal cell number for anytime that they may be faced with a similar circumstance. “Why?”, you may ask. Because it is my belief that if appraisers did not feel alone they may have the courage of their convictions and not be pressured into a place where they really cannot defend their decisions.

The mistake made in the original report was a common one. The property was vastly over-improved, not only for its site, but also for its neighborhood market area. The appraisal did not 1) take the time to discuss the listing history of the property, showing market resistance to this being an over-improvement; 2) take the time to explain to the reader how the subject related to the surrounding competing sales;   and 3) take the time to find like/type properties with similar over-improvements and market resistance. Without finding the proper comparables, an appraiser is easily challenged even if their sense of value is correct. This is why an appraiser must follow the valuation model when conducting an appraisal; and most importantly – 4) develop friendships with other appraisal professionals. Join some social networks, read some appraisal blogs stay active and interactive.

In this way the appraiser can stand up to the “clients from hell” and not be pushed off the field of practice by making choices that they will regret in the long run. Remember this is a small industry but it is an industry that serves giants. Only if we stand together can we keep from being bullied by the giant.

See you around the water cooler!

“Measure it in Micrometers and Cut it with an Axe”

Having grown up in an appraisal family, as have so many of my peers, we can all smile when remembering the wisdom and humor that was discussed during family dinners, and “get togethers” of all kinds. I am tempted to write a book some day dedicated to all the one line quips that my father and mother, both appraisers, use to say. My parents were the single driving force that shaped me into the kind of appraiser I am today, so if you don’t like how I do things… Blame them! (smiling).

You are wondering by now why you are continuing to read this particular post, or perhaps even this blog. Actually I am wondering the same thing, but still I have this innate ability to stretch out a punch line until it is almost painful. So what does any of this have to do with the appraisal process? Or does this post have any point what-so-ever?? Great questions. Surprisingly, the answer is that this almost meaningless post has an incredible resemblance to so many appraisals that I have read and perhaps even written over the years, that the process of writing the post is worth the effort.

“What in the heck am I talking about?!” That is my point actually. So many reports are filled with fluff and irrelevant data just so that the appraiser can fill up white space and “impress” the user of the report. Actually, an impression is made, however, I am sorry to tell you that the impression is not one that is favorable.

My father used to say, when developing an appraisal you have to take the time to identify all the relevant information and data that relates to the subject and then measure this data very carefully, very precisely, then once all the analysis is complete, you back up off of the data and take your best guess. His actual words were “measure it in micrometers and cut it with an axe“. This approach should also be used in the presentation as well.

For any of my readers who have ever used an axe, you will appreciate this saying. The use of an axe is final, you don’t hack about or you will completely destroy what ever you are attempting to cut. You plan the strike, you take the proper stand, and you let the blade fall. When you are skilled with an axe you can fell a tree, or cut a very large log to firewood in a matter of moments. Still, the use of an axe is not as precise as one might expect from a “professional appraiser”. Nonetheless, I submit for your consideration, the market data that we often have is not precise, it is often not complete and confirmation or verification is second-hand at best. Therefore, when you read a report that has exact adjustments like $5367 or $3,332 it is clear that the report appraiser did not know how to turn on the rounding feature in the appraisal software. Unfortunately some intended users are not sophisticated enough to realize that these adjustments, although taken from the market, are “best guesses” and these users can be really upset if the “guess” is wrong. Trust me, you have no desire to find yourself in court in front of a judge and have the opposing attorney ask you “So {Insert Name Here}, please share with the court the deductive reasoning that was used to prove why this gross living area adjustment should be $5367 and not $5,500 or $5,000.”  When you take a stance of being so very exacting with your presentation, you place yourself up as being this “all-knowing appraisal guru” but the reality is that the presentation is weakened because anyone who has been in the business longer than a presidential term can tell you that market data is never that detailed and never that exact.

Take time to analyze the data and measure it as precisely as possible, but at the end of the analysis when you are reporting your final conclusions, let your opinion fall where it may. Remember a professional never strives for perfection, a professional strives for excellence.

See you around the water cooler!

Was it something that I said?

How many times have you had a phone call from review appraiser, underwriter or investigator to question your work? The majority of appraisers never get these calls, then why are we so paranoid about how we write a report, what we say, and if we can give evidence to support our statements? The answer is simple, the questions that people ask are not the questions we dread. The questions that we dread are those question that linger in the mind of the reviewer, or investigator. The questions that lead to having us removed from a panel or placed under subpoena. Generally speaking, it is less than 4% of residential appraisers that find themselves in court or a very large percentage of us lose work or our professional standing because of a report that was poorly presented.

When the phone rings or you receive that ominous email, take the opportunity to glean the reviewers thoughts. Don’t waste your time with bluster or posturing, this is not a contest to see who has better control of their urinal flow. It is indeed an opportunity to make a connection with your client, possibly to help them understand your reasoning or your market area, or it is an opportunity to for the appraiser to learn and improve.

Either way, take advantage of this contact and do not waste the limited times that you actually have to interact in person with a real live client, or potential client.

Remember to properly document your work files, and stay focused. A challenge does not mean you have done something wrong, often times it is a client that did not clearly understand the report. Still, if we remember that our first job is to present a report in a way that is easy to follow and not misleading, if we are receiving too many calls it may be time to reconsider the manner in which we are presenting our appraisals.

Remember not to take yourself too seriously. Nobody else does. And for the parents, the next time you feel like you are getting too “puffed up” just spend some time talking to your pre-teens or teenagers and you will be reminded very quickly just how little you really know.

See you around the water cooler!

Time Adjustments

A recent review has prompted this post. It has become painfully clear that many appraisers are still unable to justify time adjustments. It appears that many believe that the MC Addendum is the “perfect” tool to justify increasing or declining prices; however, the reality is that this form was never designed to be an economic forecast model. In order to prove trends, a solid sample is required to show the price changes. Trying to prove a trend with a hand full of sales is a lot like predicting the annual rainfall in Texas based upon the observed weather patterns in Dallas for only six weeks.

Some appraisers are using some pretty wild assumptions and, in my opinion, had better be really careful not to over-analyze the data. The danger is that someone might take them seriously and actually make a lending decision based upon the prediction that they are making; values declining or rising. Either way, if the client loses money based upon this “expert” opinion, this is a lawsuit waiting to happen.

It is every appraisers responsibility to know their individual marketplace and to report prices and the direction of prices as of the date of value; thus, to carry this out, the appraiser should be looking at market areas for a few years and establish an actual trend. Then, the data within the last 12 months can be narrowed to show the subject property. This is, of course, not the only way to show market patterns, but it is one of the safest ways, because then you allow the data to speak for itself. Any adjustments can then be developed using a trend or regression analysis that will give results that are a little more reliable than the Texas weather patterns.

Just a point to ponder. See you around the water cooler!

How big is my house?

Do you ever get those questions? “Well ABC appraised my house last year and my house was 3,726 square feet. Why do you say it only contains 3,698 square feet?”. I have always wanted to say, well as your house gets older, the wood begins to shrink… Everyone knows of course that houses come in different sizes, shapes and that walls can be built at angles other than 90, 60 or 45 degrees, thus accurate measuring can be a challenge. When you factor in roof pitch for upstairs rooms, or many shrubs, or rose bushes or other obstacles around the perimeter, any given measurement can be off by a few inches one way or another and then you take the variance of a few inches and multiply that by a run of 45 feet or more. The estimated house size can easily vary due to the different methods that are used to measure the home as well.

Many old timers, like me, still use a 100′ steel tape to measure the exterior perimeter of the home. There are, of course, several alternatives available today:  steel, fiberglass, and vinyl measuring tapes. There are also measuring wheels, and sonic and laser measuring aids. There is no one device that is better or more reliable. However, you must understand the degree of reliability that each device offers before you decide to use it to determine size. For instance, the measuring wheel can skip when it encounters rough terrain. The sonic device may give false readings if there is an obstacle between you and the wall that you are measuring. The laser sight can find interference from direct sunlight, or can give false readings if an obstacle is blocking a clear path between you and the distance you are attempting to measure. A vinyl tape will stretch over time thus 1 inch becomes more than an inch. A steel tape requires maintenance to keep it from rusting and cutting your hands or fingers. The fiberglass tape and steel tape are the most reliable, in my humble opinion.

When measuring a home, the garage, porch, patios, and any non-heated or cooled space is not included in gross living area; however, these spaces are measured so that the appraiser can account for the cost of these items. Additional flatwork, or extra concrete (i.e. driveways, parking pads and the like are also measured for the cost approach). Finished attics can be included if properly finished, including venting for heating/cooling. The pitch of the roof can inhibit the space which is counted due to clear space (overhead). Generally speaking, any space below 3′ is not considered habitable space. Also when measuring a second floor, many appraisers will measure the interior walls of each room and add the space together. This is practical for a small condominium or other type dwelling that does not have a lot of space; however, it is not a practical approach because interior walls should be included in the GLA. In other words a 12 x 12 bedroom right next to a 12 x 12 bedroom (i.e. 144sf + 100sf) will not equal 288 square feet of gross living area. Why? Because there is a 5-1/2 inch wall in between the rooms and exterior walls on each side of the room. Therefore, this span is actually 25.37 x 12 or 304 square feet. How can this space be added to gross living area?, I have been asked this time and time again. Let me ask a question though. When a home is built, do you believe these walls are simply built without cost? Of course there is a cost, and the only proper way to account for cost is to include the space at the time of measuring.

The accepted method of measuring a home is the ANSI method; however, there is no law that requires an appraiser to use this method. The law, USPAP, requires that an appraiser communicate the appraisal report in a way that is not misleading; thus as long as the sketch is presented in a way that is easy to follow, and the dimensions that are presented are reasonably accurate, the appraiser has met the intent or spirit of the law.

Keeping in mind the variables that can come into play when measuring a house, it is understandable why no two appraisers are likely to arrive at the same square footage estimate unless the house is a basic shape, with no angles, no fences, no shrubs and no pets. Any of the oddities or variables can cause appraisers to write different findings, and different findings will cause different results.

All of this being said, appraisers should be able to agree within 10% of size each and every time. If a sketch is off by more than 10%, there is a distinct possibility that someone is in error.

See you around the water cooler!

Stay Small

While talking to businessmen who have owned their own companies and stayed successfully in business for decades, I found one common thread among them. It did not really matter the type of business, the size of the business, or the condition of the economy. There are common threads of success when it comes to maintaining and/or growing a business. These threads are not limited to the few I am posting here, but the ones that are mentioned are believed to be the most important.

1) Develop relationships. The one-on-one approach is still the best way to foster business relationships. If you are a small business then this means developing a consistent level of communication between yourself and your multiple clients, vendors, and/or associates.

2) Focus on keeping your word. Although trite, the truth really does set you free. When we are completely above-board about what we can or can not do, the client will gain respect for us and will soon discover they prefer to know the truth upon which they can rely, rather than receive a “pretty lie”, as it were, that turns out be unreliable.

3) Know your product/service better than anyone else. Striving for excellence so far exceeds perfectionism that it does not even bear mentioning. In fact, a company that is excellent is never really perfect but their clients really appreciate the degree of professionalism that goes into each and every transaction or service request.

4) Stay Small. Wait, what? That is right, stay small. No matter how large a company becomes the first mistake that many corporations make is that they become bigger than the people they originally sought to serve. Their growth pushes them beyond the “little people” that contributed to their success. If you do not think this is true, try calling an insurance company, or a bank, or a telephone company or an airline. Customer service is not about having some $8-hour person talking from a script to try to solve your concerns. Customer service is about a company that always enables every single employee, associate or manager to speak intelligently about the product or service they are selling and to ensure the client does not have to be transferred many times until the hassle of the call outweighs its benefit.

As real estate appraisers weather the rough seas of this turbulent economy, it is time to focus on customer service, customer contact and customer communication. Know what your customers are thinking, what they are needing, and how they are benefiting from your service. I am painfully aware that this type of communication has been almost completely eliminated by the legislation that was enacted by our current regime, however, remember that this legislation has made it just as hard and cumbersome for your clients as it has been for you. Reach back out to your contacts and ask for referrals. They are now speaking with other managers, other appraisal management companies and the like. Work the network and develop the names. Marketing is the single most important part of keeping an appraisal company alive especially in this day and age.

Of course the social networks that are online are also a great way to reach out; just remember that you as an individual have something to offer that your competition does not. Why is that?, you may wonder. It is simply because you know your  specific market area, specific niche that you have carved better than anyone. If you take the time to evaluate your skills and your expertise you will find the reasons that make you better than your competition. Of course if you can’t find these reasons, then it is time to develop your skills and knowledge base so that you can compete in this new world in which we have all found ourselves.

To sum this up – “Never become bigger than the people your serve”. Even the President of the United States of America serves people; in fact, in the case of this highest office in the land, this position should be the most humble because this office serves to protect us all.

See you around the water cooler!