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!


Taking the Lead

As of late, there has been much chatter on the Internet about appraiser Independence, Customary and Reasonable Fees and Appraiser Designations. The main thrust of the conversations has been a flurry of concern expressed by appraisers that they have lost their ability to negotiate fees thereby limiting their independence and many can see no reason to keep up their professional designations since, “All licensed appraiser are equally accepted by the State” and “All certified appraisers are equally experienced”.

In short, these statements are made by appraisers out of an extreme degree of frustration and realization that the majority of residential mortgage related clients making these decisions are wanting to safeguard the interests of the lender, but the specific interests that are being safeguarded are the bottom line, “How much will it cost?”, “How long will it take?”, “Can I sell this loan package in the Capital Markets?” But the answer to these questions does not address whether or not the appraisal will accurately reflect the subject and how it relates to its marketplace.

I recently received a phone call from an appraisal management company who could not understand how I could show a market area was stable, when the press has explicitly stated that values are continuing to decline. The fact that I had conducted a “subdivision by subdivision” analysis for all home sales within 20% of the size of the subject and extended this analysis to include the previous four-years and presented this data in a tabular and graphical format would not appease the “lord of review”. “The press stated that prices are declining, and this knowledge is common so it must be addressed”, … okay.

Professional appraisers must continually exercise their independence and use technologies at our disposal to consistently present our findings in a way that is easily understood and relevant to the subject at hand. It is us, who lead the charge and shape the expectations of the marketplace. If we simply give into the silly questions and placate reviewers, then we will not improve this industry. As for me personally, I have given much of my life to this industry and asked for very little in return.

Customary and Reasonable? From my perspective what has become customary is no longer reasonable. So we can either have fees that the AMCs will pay (which they want to believe is Customary) or we can charge the public what is reasonable for the degree of expertise, knowledge and effort that we put into the production of an appraisal report. An appraisal office is not unlike any other business we have fixed costs, variable cost and a point at which we are able to break even. This point has broken the majority of independent appraisal offices and forced us to relegate ourselves to working as one man shops in small offices or out of our homes. Is this what Customary and Reasonable means to the current administration? Somehow I want to believe that was never the intent, but it sure has become the effect.

With regard to appraisal designations, I believe that lenders should use anyone who elects to educate him or herself in their chosen field and pursues an organization that governs itself and imposes a degree of professional ethics. The rub is that professional designations are only as good as the individual appraiser who has the letters behind his or her name. There are many professional appraisers who are very good at what they do who have never had a designation. There are others who have elected to drop their designations because they saw no benefit in maintaining the additional costs. And yes, there are some appraisers who obtained designations that are now serving time.

I would like to believe that “time wounds all heals”, and that the “bad guys” will eventually be caught and removed from the game. But as a realist, I am forced to believe that the only way to deal with the appraisal industry is to increase State budgets for investigation and prosecution when it is appropriate.