Fannie Mae’s Big Christmas Surprise: ANSI Required in 2022

Here comes Santa Claus, here comes Santa Claus … no, wait! It’s Fannie Mae.

So…Fannie Mae brought us a big ole early Christmas surprise, didn’t they? Boom! I don’t know if it’s a gift or not. You can decide. If you’re on the email list for Fannie Mae, you got the email on December 15 at 11am CST. And by the way, if you’re not on that list, jump over to Fannie Mae and subscribe to that list! That way, you’re in the know whenever they make a policy change.

Regardless, you aren’t likely to miss this one. The whole appraiser world is buzzing about it. But if by some chance you didn’t hear, here’s the big news: Fannie Mae standardized property measuring guidelines. Here’s a brief excerpt of the press release:

“Appraisers will be required to use the American National Standards Institute standard square footage method for calculating ANSI® Z765-2021 Measuring Standard (That’s the newest edition. It just came out in March, by the way.) for measuring, calculating, and reporting gross living area (GLA) and non-GLA areas of subject properties for appraisals with effective dates of April, 1st, 2022 or later, for loans sold to Fannie Mae.”

There’s a cute little video there you can click. And if you click on that fact sheet, it brings you up some facts. I guess that’s why it’s called a “fact sheet.” Here is is: Standardized Prioperty Measuring Guidelines.

Why did they make this change?

Basically, there was a lack of consistency. I mean, you could have three different appraisers go out and appraise the property and get three different answers. Right? So the whole intent of a standard is to get us on the same page, get us to have a level of consistency.

Bottom line: April 1s is your deadline. By April 1st, you’re going to start measuring by ANSI standards. And really, if you think about it, it’s kind of a good thing. I mean, there are pros and cons. But the thing is, if four appraisers measure a house, we ought to get the same answer, or at least be really, really close.

Everybody’s Biggest Problem with Measurement

As you probably know, some new changes to ANSI came out in 2021. I actually served on the consensus committee that did that. We had 44 comment letters, and 40 of the 44 were on the measurement technique for the second level on a sloped ceiling. Anyway, a couple of areas of concern in our Clubhouse Appraisal Talk group last night: Somebody was asking about the ceiling height, and that is a concern. Say you’ve got a house. And the house has a living room, kitchen, two bedrooms, and a bathroom on the primary level. Then you go upstairs, and there’s two private sleeping quarters up there and a bathroom. The only problem is the ceiling height is 6 foot 6.

Well, that doesn’t adhere to ANSI standard. So the second level in this example I just gave would not be considered square footage. That’s in accordance to the ANSI standard. Again, I think standards are good. They give us a way to try for a level of consistency. They get us all on the same page, or at least similar pages.

But that’s the area I struggle with, because we as appraisers are market analysts. We analyze the actions of market participants. Let’s look at an example. Do market participants think that that house is a two-bedroom, one-bath because of the lower ceiling height on the second level? Or do they consider it a four-bedroom, two-bath?

I think as an appraiser, I’ve got to look at that as a four-bedroom two-bath. That’s how the market looks at it. But the square footage, in accordance with ANSI, would not include that square footage. So that’s one challenge.

Comply with ANSI and get real about the market.

There are a few ways that you could comply with ANSI and also do a good job as a market analyst. One way is to say, “Okay, the square footage in accordance with the American National Standards Institute Z765 is 1,000 square feet. Whatever’s on the first level. However, market participants view this as a 1,500 square foot home, 4-bedroom, 2-bath, and that’s how I’m going to do it. So for analytical purposes, we’re going to analyze it like the market does.” I think that’d be okay.

Let’s look at USPAP. What does USPAP care about? Certainly protecting the public, that’s the first sentence of the preamble. But USPAP also cares about credible assignment results in the development aspect of USPAP, Standards Rule One. And then Standard Two, we’re concerned about not being misleading. I think I’ve achieved that if I say, “Hey, the square footage per ANSI is this. But the square footage that the market acknowledges is the higher number.” I think that’s one way that you can handle that.

Another way to handle it is: Put 1,000 square feet in for GLA for square footage. And then address the upper level, the 500 square feet in this case that doesn’t meet ANSI, as if you’re using pre-printed forms — as maybe a line item. And you would adjust it in that area.

And that’s what Fannie Mae’s fact sheet says: “If a house has a finished area that does not have a ceiling height of 7 feet for 50% of the area, some Cape Cods for example, in conformance with ANSI standard, the appraiser may put this area on a separate line, in the sales comparison grid and make an appropriate market adjustment. The report will be ANSI compliant and also acknowledge the contributing value of the non-GLA.”

So it looks like they want you to do it as a separate line item. That’s one of the two options. And I think you could do that and create credible results and not be misleading.

Takeaway

Appraisers resist change. We, as human beings, resist change. Here is a change. Get over it. It’s coming. You’re going to have to embrace it. And you’re going to have to adhere to ANSI.

Get your copy of ANSI. You can do so by going to Home Innovation Research Labs. I can’t give you one. It’s copyrighted. I’d love to give you one for Christmas. Can’t do it. So you’ve got to get your own, get familiar with it, understand it.

This post is not intended to be an educational offering for you to learn ANSI, so if you want more information, guess what? Appraiser e-learning has a bunch of classes on ANSI. Hamp Thomas has created multiple courses on ANSI: a self-paced online video course and a bunch of live-virtual courses throughout the year that will help bring you up to speed. He’s also got whole bundle of courses on becoming a home measurement specialist. You don’t even have to be an appraiser to get that. So if you’re a trainee listening to this, and you want to get an additional certification under your belt — if you want to stand out from the crowd — look into getting the HMS. If you’re an appraisal office, and you have a couple of workers there who are not appraisers or trainees, they could get the HMS. I know one appraiser out of Nashville, that about 30% of his income is derived from going out and measuring houses. It’s an excellent way to have a little side business to generate income and help others. So if you’re interested in that, go check it out: appraiserelearning.com.

Stay safe. Take a little break. I mean, work, work work. I get it. How things are these days. I get it. But take some time off. Hug somebody you love. And until next time, happy appraising. —Bryan

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Hot Topics in Real Estate Appraisal: Heavy Demand, Industry Changes, and the Question of Bias

Tim Andersen shares thoughts on some of the biggest issues facing the appraisal industry this fall.

A Good Time to Buy – or Is It?

Our friends the real estate brokers have a mantra: “Now is a great time to buy a house!”

Of course, they don’t get paid if we don’t take money out of our pockets, so they might be a tad biased.

Despite the brokers’ optimism, here’s a Newsweek article with a different perspective: “Only 35 percent of consumers believe it is a good time to buy a home, according to a National Housing Survey report released by home financing giant Fannie Mae in June,” writes Samantha Lock.

So maybe it’s not a good time to buy a house just because our broker friends say it is.

(source: “Is Now a Good Time to Buy a House?” by Samantha Lock. Newsweek, 7/28/21.)

Housing Issues: Supply, Affordability, Discrimination

Counselors of Real Estate(R) [CREs] tend to deal only with commercial properties. They aren’t well known in the residential appraisal arena. However, because they tend to look at issues from the 10,000 feet, rather than at ground level as we do, they see things differently. That’s why it’s worth checking out the CRE website — have a look at the 10 issues that article raises. Pay extra special attention to #6. I’ll wait.

In this era of pandemic lockdowns and other upheavals, housing supply and affordability are massive issues that aren’t going away. And whether you agree or not, neither is the issue of housing discrimination. It’s a topic some of real estate’s finest minds are struggling with (and have not yet solved). What’s the takeaway? What are your thoughts?

The Future of Appraisal

This 2020 article from the Motley Fool has a savvy take on the likely future of real estate appraisal: “…it’s likely an appraiser will spend less time at a property using their expertise in the field and more time behind a desk finalizing a property valuation using data gathered by other professionals, such as Realtors or property inspectors,” writes Liz Brumer. That said, she predicts that demand for appraisal services will grow 7 percent over the next ten years, even as the work of appraisal may be changing dramatically. Don’t panic!

(source: “The Appraisal Industry Is Changing: What’s the Future of Real Estate Valuations?” by Liz Brumer. Millionacres, The Motley Fool, Sep 07, 2020.)

And Speaking of the Future…

Check out this post I found on the site of the private real estate analytics firm, Cape Analytics. It’s about ideas for how tech innovations might help the industry deal with the high demand for appraisals right now, potentially speeding up turnaround times … and cutting costs.

As the post author points out, the technology already exists to <corporate blather alert> “… remotely and instantly gather geospatial property condition data on tens of millions of homes across the US—delivered with the speed and coverage of traditional property record data. This includes access to neighborhood, census tract, zip code, or CBSA data, both current and aggregated over time to unearth trends that might otherwise be extremely hard, if not impossible, to do with any traditional appraisal model.”

Please note the euphemistic reference to the “traditional appraisal model,” which, the article seems to insinuate, is outdated. The author adds that appraisers’ expertise is valuable (why thank you!) but also subjective (scratch that).

What will these “process improvements that allow non-traditional valuation services” mean for us plain-English-speaking, human appraisers?

I find it interesting that such data and analytics are available to anyone capable of paying for them — except for appraisers, of course, who can’t afford such data. What are your thoughts on this?

(source: “Viewpoint: The FHFA and the Future of Real Estate Appraisals,” Cape Analytics)

The Demise of Appraisal — Greatly Exaggerated?

When it comes to the demise of residential real estate appraisal, my friend Dustin Harris, The Appraiser Coach, has a different outlook. He (and his correspondents) opine that the future is not as woebegone as some might think. Of course, Dustin does admit to being an optimist. And the post is from the Time Before, when the world felt a little less crazed.

(source: “Is It The End Of the Appraiser?” by Dustin Harris. The Appraiser Coach Blog, 8.30.2017)

A Note on Bias

I’m hesitant to add anything more on real estate appraisal bias, but here goes. What I find disturbing is not so much the number of articles in the media on this, but the fact that the mortgage lending industry is happily letting the real estate appraisal profession “…take one for the team,” even though lenders and appraisers are not on the same team on this.

Back in the day when lenders, and the FHA, were busy redlining certain neighborhoods to protect themselves from what they perceived as excess risk, the appraisal industry was not the architect of that design. Not then and not now. To whatever degree appraisers and agents played a role in a discriminatory system — and we should take an honest, hard look at this — we did not spearhead it. For that, you can look to New Deal-era government housing programs, the FHA, the big banks, the Home Owners’ Loan Corporation. These policies came straight from the top, and the results were the segregation of housing in U.S. cities for generations to come.

We describe the market as we see it; we do not define it. It’s not our job to measure risk. Underwriters do that. It’s not our job to make policy. Lenders and public officials do that. Clearly, appraisers must work to rip out any discrimination there may be in any appraisal. But why are lenders, underwriters, and AMCs not taking more of the heat on this?

We can’t solve this massive societal problem if we just keep passing blame down to appraisers.

(To learn more about the history of redlining, see this exhaustive study, Mapping Inequality: Redlining in New Deal America, complete with lots of sadly illuminating HOLC neighborhood maps.)

Some Words on Words

Speaking of avoiding bias (how’s that for a smooth transition?), you’ll want to read this article on words Fannie Mae says we shouldn’t use anymore.

Actually, she’s right.

Saying that “the subject is in a desirable neighborhood” communicates nothing (and foretells a lack of supporting analyses). What’s also missing from that boilerplate sentence is a summary of how and why the appraiser reached that conclusion. Remember, per SR2-3, every statement of fact in an appraisal report must be both “true and correct” or it is likely misleading (and USPAP’s current definition of misleading is draconian!).

And besides, the words “desirable neighborhood” call forth some old notions it’s time we put aside for good.

(source: “Why Fannie Mae Doesn’t Want Home Appraisers Calling Neighborhoods ‘Desirable’,” by Brentin Mock. Bloomberg, July 23, 2021.)

And Now for a Shameless Plug

I want to see you at the annual Appraisal Summit, please! I’m ready to shake your hand and see your face up close and personal (in other words, not on a ZOOM screen!) It’s happening on November 6 – 9 at Planet Hollywood in Las Vegas, and the National Association of Appraisers (NAA) and the Columbia Institute have a real blowout planned for us, with special events for supervisors and trainees.

See you there! (Full disclosure: I’m on the NAA board of directors.)

What are your thoughts on these and other hot-button issues our industry is facing this fall? Share them in the comments below!

About the author:

Tim Andersen is an AQB-certified USPAP instructor, consultant, and reviewer. He travels throughout the US teaching USPAP. His other areas of expertise include writing, producing, and presenting webinars on all areas of real estate appraisal. Find out more about his mentoring, consulting, writing, and podcasting at his site, The Appraisal Advocate. 

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After 2020: The Future of Appraisal Work – Survey Results

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In our Appraiser eLearning survey, real estate appraisers across the country report more work than ever before, a few savvy adaptations, and a shift in life priorities.

We had more than eighty responses from appraisers all over the United States. Respondents were split nearly 50-50 between folks whose main source of income was assignments from AMC vs. assignments from lenders, with a few reporting that they mainly do litigation support. More than half work as solo practitioners and about one-fifth in firms of 2-5 employees. Most respondents said they had not retooled their firms for remote work — presumably because many solo entrepreneurs already worked from home before the pandemic. A few did retool how and where they worked, at least partially, and some said that prompted them learn new tech and new ways of delegating — and allowed them to become more productive than before.

Here’s where it gets interesting. More than half — 57% to be exact — reported having more work in the past year than they did before the pandemic. Lots more. “We inspected 450 properties in 2020,” said D Lawson from Texas. “That is 150 more than our normal year. And nobody in my 3-girl office got Covid.” And TMM, also from Texas, wrote, “The pandemic has been the best cash cow in 16 years in business.”

Several people reported doing more desktop and drive-bys this year, and many said that costs were down and income was up, or WAY up. “We are able to choose work and raise fees with little pushback,” wrote Greg, an appraiser in Texas. “Business is great, and I haven’t changed anything because of the pandemic. “We had already changed to a work from home situation. Our costs have never been lower and fees are the highest ever.”

Below, we’ll break down the numbers and dig into some of the detailed responses that people sent in. We think you’ll find it fascinating and illuminating, and probably familiar.

Thanks to all who took the time to answer this survey!

How did your work/income change over the past 12 months?

What are some ways you adapted your appraisal work or business strategy to this pandemic year?

Which of these professional challenges did you face over the past year?

“People are chasing appraisers on foot and in their cars. They beat on the appraiser’s window, windshield and other parts of the car. If the appraiser opens the window, they hit the appraiser repeatedly in the head. They file false police reports that the appraiser threatened them. I was in an online class where everyone had a similar experience weekly. It’s unsafe to be an appraiser now.” —Sandy (CA)

How will you prepare for future unknowns that affect our industry, such as recessions, interest rate hikes, housing crises, or other global emergencies like COVID?

Going forward, what will change about how you do business after the pandemic

“I think that we will continue to support our staff working from home and likely downsize our investment in facilities in favor of technologies to continue to support our network.” —DRD (MO)

“We sold our office building during the economic crash of 2009, over 10 years ago and while it hurt at the time, it wound up being the best decision we ever made. We consider ourselves blessed to have made that decision when we did. We worked off a remote server, communicated by phone and email constantly and met regularly, but never missed a beat. It was different but helped us get ‘lean and mean’ opening up the budget for better equipment and higher salaries.” —Victor Andrews (TN)

“Roll with the punches.”

—Scott Cullen (MN)

“I concentrated on local lender clients that value my services (as opposed to AMC’s). I added additional services for them (evals and restricted desktops); this was much more lucrative and rewarding.” —MWW (AL)

“This past year I took off more weekends, which allowed me to de-stress and actually do some relaxing. I tried to look at 2020 as a “gap-year” where I accepted less work, but was able to have more downtime.” —Linda K (TX)

“Going forward I’d like to incorporate more technology and get a trainee on board.” —MER (MO)

Were there any surprise revelations for you this year—the good kind? Lessons learned, shifts in priorities?

These answers were wildly variable. Lots of people said, simply, “no.” Others spoke of gratitude — for having a livelihood still when so many did not, and of being able to do the work safely (for the most part). Several appraisers mentioned taking much-needed down time during 2020 and enjoying time spent with family. A few were disappointed with how they were treated by clients and the people whose homes they inspected, while others saw their faith in humanity renewed by kindness.

“Who knew that the housing market would be booming during a pandemic?”

—SMK (OH)

“I continue to be amazed at the lack of knowledge in general about what appraisers do. Literally no one cares about us. They didn’t care if we got sick; didn’t care if we spread Covid to the universe; plain flat didn’t care. I contacted CAL BREA to see if we had any kind of special dispensation to receive the vaccine and they could have cared less whether we lived or died … I never received a single order that did not require me to do an interior inspection. Very disappointing!” —Allison (CA)

“Our biggest surprise of the past year was the amount of work out there for the appraisers who wanted to challenge themselves and not just take cookie cutter assignments. I personally learned that family is important. The year brought challenges due to elderly parents and providing care for them while trying to keep a business running smoothly.” —D Lawson (TX)

“Realized that remote workflow with tech tools and delegation works great. Actually increased productivity and volumes dramatically this year. Perspective changed with new model.” —Glen Calderon (MD)

“Learned to be more efficient and streamline the appraisal process. Was able to spend time on education and learning new systems. This year is starting off good.” —Norman Jones (KY)

“I don’t look half bad on Zoom.”

—dcs.value (NC)

“I was surprised how many people had no problem or issue with me coming into their house during a pandemic as long as they can get that lower interest rate. I had only a handful of borrowers cancel when they found out I had to come inside. I also finally realized that the work will always be there, take some time for yourself to recharge. Step away, put yourself as ‘on vacation’ or ‘out of the office’ with your clients. The time you missed out on doing things you love and just being with loved ones because you had deadlines, can’t be retrieved. It’s gone. Make some money – but don’t forget to make some memories”. —MER (MO)

On a scale of 1 to 10 (with 1 = maximum concern & 10 = extremely optimistic), how do you feel about the near future of your business?

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ACTS Attendees Share Their Experiences

In “The Appraisal Update,” Bryan Reynolds asks four ACTS attendees to share their reasons for coming to the conference and their takeaways from the week. Here are a few highlights of Bryan’s questions and his interviewees’ answers, condensed and edited for clarity:

Why did you decide to attend ACTS this year?

Jason Covington, an appraiser in Nashville, TN and first-time attendee:

“The timing was right for me to go experience what everybody’s been talking about, to meet the people who’ve been doing this longer than me, people I can learn from … names you’ve heard of, people you work in and around but never have met directly. This gave me the avenue to have conversations with those people and actually see the answer to the question, ‘How do I make change? How does my voice impact my industry? How does my voice count?’”

Nakia Manning, a trainee in Atlanta, GA and first-time attendee:

“I found it was necessary for my growth as an appraiser to go out and meet other appraisers. Up until now, my only contact with the appraisal world had just been my mentor. I felt like it was essential that I join this organization so I could learn more and come to this event, For me, it wasn’t the continuing ed. It was more that I felt the need to meet other people in my profession.”

Mark Skapinetz, an appraiser in Atlanta, GA and first-time attendee:

“For me [the motivation was], meeting people I’ve been wanting to meet for a long time. Having good conversations. You are building relationships with people you can call when you have a problem. I’ve had those people. Now I’ve gained more people to go to when I have a problem, to help me solve it. That alone is worth its weight in gold.”

How was your experience?

Ken Williams, an appraiser in Jackson, MS, second-time attendee, and splendid fisherman:

“This was probably my greatest experience at an ACTS conference. This meeting was really special. Of course, catching that fish didn’t hurt things at all.

“The first conference I was a newbie and everybody was a stranger to me. But I came back with a lot of knowledge and brought it back [to Mississippi] … This time around, I knew a lot of the people. It really brought the camaraderie together. I could loosen up a little bit and freely mingle, having fun and not being offensive. Come to find out it’s hard to offend you guys. But the camaraderie, the information, is what it’s all about. I think [NAA is] a wonderful organization, it’s going to do good things. And I do know that in numbers we’re going to accomplish a lot more. And I think we have that with this association.”

Mark Skapinetz

“I loved it. I liked the setup, I liked the way it was run. I liked the topics I was there for. That mock trial, along with what Craig Capilla added in his presentation after that, hands down, was the best thing I’ve heard in so long. It was something well needed, from somebody that knows what he’s talking about. Hopefully we do another mock trial. Most people have never been in front of a board. You don’t know what you’re up against. That opened my eyes as well. Really well done.

“It was different from other conferences in the sense that it didn’t seem so robotic to me. I liked the intimacy of it. I like that everyone was getting to know each other. I’m looking forward to next year.“

Nakia Manning

“It was amazing! … As soon as I was introducing myself, the central theme was, ‘Hey, you’re a trainee. Take my information. If there is anything I can do to help you, just give me a call.’ What stood out to me about the conference? It was the family atmosphere. It was still more than just a profession. It was all love, it was all community and family. It felt like more than just work. It felt like people who were genuinely interested in my well-being as an appraiser, and my well-being as an individual as well.”

“It felt like more than just work. It felt like people who were genuinely interested in my well-being as an appraiser, and my well-being as an individual as well.” —Nakia Manning

Jason Covington

“I found myself in an environment where I felt like I mattered and my voice was heard. There were platforms where I could get involved and petition for change. It felt wonderful to be a part of something like that.”

Will you come back to future ACTS conferences?

Nakia Manning

“Indeed! I’m from South Carolina, so it will be a pleasure to go to Charleston. Hopefully I’ll be able to puff my shoulders up and actually be an appraiser, not a trainee.”

Ken Williams

“Did you have to ask that question? <laughs> Absolutely! I’m already looking forward to [the next] one.”

What would you tell other appraisers about this conference?

Nakia Manning

“If there are any trainees listening, don’t wait like I did until the end of your training period to realize the need to get out and meet other appraisers. People have different ways of arriving at their opinion, and it would help you tremendously to see things from other perspectives. It was education about what we do, but there was also education about how to run your business — not just the job itself, but how to be more effective from a business standpoint. Really great people, really good information, and the CE is just the icing on the cake.”

Jason Covington

“Take a chance. Break out of the normal routine. Take a few days to meet some people. The topics and the speakers were top-notch. Wonderful information! The information I received was incredible. Give it a try!”

Ken "Big Fish" Williams
Ken “Big Fish” Williams

About the Author:

Bryan S. Reynolds, CDEI™ is a KY/TN Certified General Real Property Appraiser, a registered agent with the TN State Board of Equalization and an AQB Certified USPAP Instructor. He has testified in various courts, planning and zoning boards as both an expert and as an agent making valuation arguments before local and state hearing officials and Administrated Law Judges. Reynolds is the owner of Bryan S. Reynolds & Associates, Reynolds Appraisal Service and a partner in Appraiser eLearning. He provides residential and commercial valuation services, educational offerings, mentoring, consulting, and litigation support services throughout the country. He is available for lectures and is well known for his Think Outside the “Check” Box approach.

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Shadow Inventory

Business is booming for real estate appraisers right now. But the “shadow inventory” is looming. Do you have a backup plan?

If you’re a real estate appraiser, you’ve probably been busy for awhile now. Real estate agents are crazy busy. We appraisers have been swamped with purchase transactions as well as refinancing. Interest rates are on our side.

Remember the 1980s, when interest rates were sky-high? When 10 percent seemed like a great rate? Six percent for long-term mortgage money is really a great rate, historically speaking. I’m like you: I want 2.5 percent, but four or five, even six percent? We have been in fantasy land. I’m sure consumers are loving it. Appraisers are loving it. Real estate agents are loving it.

In terms of the market, Covid has done the opposite of what we expected. We thought nobody would want to sell their houses. We thought people wouldn’t want agents coming into their houses to show. We thought people would wait until this was all over to put their houses on the market.

To a degree, we thought wrong. Certainly some people probably didn’t want agents and lookie-loos traipsing through their houses during a pandemic. But here’s the thing: Scarcity equals value. And in the wake of Covid, people are changing their ideas about where and how they want to live. So there’s a lot of desire right now, and there’s a limited supply.

But what is lurking in the shadows?

I’m not trying to scare you, but if you haven’t heard of this term, Google it: Shadow Inventory.

What does that mean? In this context, it means delinquent loans. REO properties. Foreclosures on the horizon. Loans that were delinquent but there’s a reasonable expectation that they’ll become delinquent again. All of these make up what is known as “shadow inventory.” And this shadow inventory is on the rise.

It makes perfect sense. With Covid, a lot of folks haven’t been able to work, haven’t been able to make their mortgage payments. Renters are behind, landlords can’t kick them out, and that leaves property owners in a fix. Forbearance programs on government-backed loans have held off a wave of evictions and foreclosures, but when those programs end, an estimated 1.8 million mortgages will be in delinquency. And the delinquency rate for FHA mortgages has soared.

What’s gonna happen when those moratoriums lift?

The Real Deal: New York Real Estate News reports mortgage delinquency rates jumped to the highest in two decades. As we look at some of these numbers, it gets our attention.

I don’t know what will happen. Maybe big government will step in. But what if they don’t? Are we gearing up for a new housing crisis? At least banks aren’t making crazy loans anymore. Stated income. 125 percent loan-to-values. So it’s different now. But is it that much different?

Appraisers, you’re probably gonna be fine. If a lot of these houses go into foreclosure, you’re probably gonna have REO work to do, foreclosure work to do. But the shadow inventory is something to think about, and I encourage you to diversify your practice. If all your eggs are in one valuation basket — if you’re only doing refinances, if you’re only doing purchase transactions — what happens if (when) these rates start to go up?

“If you’re only doing refinancing and purchase transactions, you might want to diversify your practice.”

I hope it won’t be this year or next year. But at some point, these rates are going to go up. And if you’re only doing refinancing and purchase transactions, you might want to diversify your practice.

What skill set do you have that may help you in other areas? Maybe you get your home measurement credential. Take a class, take a second class, contact Hamp Thomas and take a written exam (it’s administered online right now), and you can become a home measurement specialist. There’s a whole book of business right there. Go to the brokerage firms and offer to measure houses. Offer to do a restricted appraisal report.

Look at the opportunities available to you. Maybe you take your appraiser hat off and provide consulting services. Maybe you become a real estate agent. Maybe you get into the tax appeal arena. There are so many ways to make money in this business.

One thing’s for sure: Most things change. If you don’t believe that, look in the mirror. Be ready and willing to adapt, or resist and be left behind — you get to decide.

In the meantime, Google “shadow inventory.” Do a little research. That inventory is growing. It’s gonna be interesting to see what happens.

We’ve been living in extremely interesting times for over a year now. Covid will hopefully go away soon, although perhaps not entirely. But the effects will linger, and the aftermath may also be … interesting. Be ready. Start increasing your knowledge base. Open your mind to opportunity.

We’ll talk about the near and far future at the ACTS Conference on April 14-16 in Bay St. Louis, MS. We’ll celebrate the past ten years of the NAA and discuss the future of our profession. Please join us! We’d love to have you.

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Appraising During Covid – What You Need to Know | Webinar Overview

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The Client Accommodation Trap

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Appraisers try to accommodate their client’s interests. There is nothing wrong with this per se.  Appraisers commonly write, “at the client’s instruction…” or “per the client’s request…”, then the appraiser describes what the client instructed or what the client requested, as well as what the appraiser did to comply with the instruction or request.

This language, however, implies the appraiser is trying to do the appraisal, or write the appraisal report, in a manner that pleases the client, a potential USPAP violation. By definition, a real estate appraiser must be independent, impartial, and objective. Such accommodating language not only calls into question whether the appraiser has complied with these three qualifications but also smacks of advocacy.

Omit the offending language.  For example, appraisers commonly omit the analyses of the Cost approach. However, certain clients may request the inclusion of these analyses as part of the appraiser’s value conclusion. Instead of saying, “at the client’s request, the appraiser has included the protocols of the cost approach…”, please consider saying, “the appraiser included the protocols of the cost approach as both applicable and necessary to the formation of a credible value conclusion”, never mentioning the client’s request.

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I spent $25,000, and my pool is worth how much!?

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Sometime back a Realtor acquaintance called to ask how much to adjust for a swimming pool. The question implied that we appraisers have access to some kind of secret “book” in which we maintain the dollar amounts of our various adjustments. Would that this were true! I explained to the Realtor© we had to extract our adjustments from market data. The parting comment was something along the lines of, “Well, that would take too long!” And our conversation ended. So, let’s talk about that.

It’s not particularly difficult to calculate a swimming pool adjustment. This can be done by paired-sales analysis or by regression analysis. While I prefer regression analysis, both produce perfectly acceptable results. The results are acceptable not because one or the other is “right” or “correct”. Rather, they are acceptable because the adjustment comes from the market, which must be the source of all of an appraiser’s adjustments. So let’s consider a hypothetical paired-sales analysis to extract a swimming pool adjustment from the market.

Take 10 sales more-or-less comparable with the subject that have swimming pools, and then compare those with 10 sales more-or-less comparable with the subject that do not have swimming pools. You’ll probably end up with 10 indications of the contributory value of a swimming pool. Next, arrange the differences from low to high. Take a look at this range. If there are one or two numbers that are obviously outliers, delete them. Now consider this range to determine if there is a central tendency. For example, is there a contributory value indication that repeats itself? This would be a modal value. Is there a range of contributory values that repeats itself? If so, somewhere within this range is the likely contributory value of the swimming pool.

Look at the average and median differences as well. Frankly, you probably want to avoid the average contributory value because of the inherent differences there are in swimming pools. An average weights all of the numbers in the array the same. Since the market likely does not do this, it’s best to avoid it. The median value represents the absolute middle of the range, but is not affected by extremes or outliers.

You started out with a rather wide range of contributory values, but via the above analyses you have likely narrowed it. This narrowing process is exactly what you’re looking for from paired-sales analysis.

Suppose that your analyses indicated a reasonable range from $10,000-$15,000. Out of this range you are going to choose your adjustment (even though a range is far more indicative of the market’s thinking). Also suppose that the swimming pool at your subject is relatively “plain vanilla”. For this reason, you would probably go with the low end of the range, say $10,000. On the other hand, were your subject swimming pool rather ornate, large, and/or came with an overly large patio and pool deck area, you would probably go with the higher end of the range (although, that would be your judgment call).

The point here is that you did not “guess” at the contributory value of that pool, etc. You did not try to cost out a pool as if new and then apply a depreciation factor. You did not apply a “rule-of-thumb” to determine your adjustment. Rather, you went to the market and, via analyses of the available sales within a market comparable to that of the subject, teased out of it a reasonable approximation of the contributory value of the swimming pool.

Please understand that the best you can do is approximate the contributory value of the swimming pool. This is because individual buyers and sellers react to such an amenity differently. As a result, your adjustment of, say, $10,000 does not mean the market sees the contributory value of a pool to be merely $10,000. Via your analyses, you demonstrated that the market sees a range of contributory values. From that range you, the appraisal expert, concluded that an adjustment of $10,000 approximated the contributory value of the swimming pool at your subject.

In other words, you supported your conclusion. This is all a client can ask for. Your client may not agree with your conclusion. However, your client must agree that your adjustment is based on logic, reasoning, and market evidence. That’s really the best you can do.

So, the point here is, while you may not be able to prove exactly how much a swimming pool contributes to the market value of a specific property, you can show the range of that value. Then, from it, you choose an individual number, even though that range makes more sense in the market. It’s your opinion that the swimming pool at the subject contributed $10,000 to overall value. You base your opinion on market data, therefore your opinion is well-formed. As such, you have formed an independent, impartial, objective, and credible opinion of the contributory value of that particular amenity. That’s what appraisers do.

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Complexities

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Complexities in appraisal work come up periodically, depending on the market you work in and the types of properties that are common to the area. I office in Colorado and have had the opportunity to appraise in rural and extremely remote areas. In the case of one particular market area, the trip one-way takes over two hours and is over 1,500 square miles; in this particular market, you’re lucky to have 30 sales over any two-year period – and that’s counting all residential properties, whether on a lot in town or a large-acreage parcel, a 90-year-old small house or a custom log house. You can bet there are complex assignments in this area. However, it doesn’t take a remote area to result in complex appraisal assignments.

Typically, complexities originate from two sources:

  1. Physical or locational characteristics of the subject property itself, and/or
  2. Limited sales or uniqueness in the area.

Complexities are a double-edged sword. If you only have two dozen sales in the entire area over a multi-year search period for selecting comps, and your subject is not located in a subdivision, you have to decide whether the glass is half-full or half-empty. Likely, there is no “model match” to your subject; however, you don’t have too many sales to sift through to choose which will give the best perspective in evaluating the subject’s value.

An appraiser doesn’t need to cover rural markets to experience similar dilemmas. All it might take is that 3,000 square foot GLA over-improved house in a subdivision of 1,500 square foot GLA houses, or the house with an indoor pool in the area with only starter houses, to appreciate that complex assignments area a test of our appraisal abilities.

But complexities are not an automatic reason to decline an assignment. Let’s be sure we’re prepared!

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USPAP Compliance and Desktop Appraisals

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Many appraisers are worried that a so-called desktop appraisal will not be USPAP compliant if a third party to inspects and/or photographs the subject property.

USPAP does not make an issue of who inspects the property, nor who photographs it. USPAP does not require the appraiser to inspect the subject property. Nor does USPAP require the appraiser to photograph the subject property or the comparables. USPAP requires the appraiser to disclose the extent of the inspection of the subject property, which includes no inspection at all. Further, USPAP makes no mention of the need to include photographs of the subject as part of the formation of a credible value opinion. Both these requirements are a function of lender requirements, not USPAP.

Fannie Mae requires the appraiser to inspect the subject property, as well as to inspect the comparable property from at least the road in front of the it (assuming that’s possible). However, Fannie Mae has no requirements the appraiser take these photographs. In other words, a contractor the appraiser hires to take photographs could do this and the report would still be fully Fannie Mae, as well as USPAP, compliant.

An individual lender may require the appraiser to take the subject and comparable photographs him- or herself. If the appraiser agrees to this condition, then the appraiser has no choice but to do so. However, the key point here is that the appraiser personally taking the photographs of the subject and/or the comparables is a lender requirement, not a requirement of USPAP, and not necessarily a requirement of Fannie Mae.

Therefore, under certain conditions, an appraiser doing a desktop appraisal is perfectly USPAP compliant.  Providing photos is not significant appraisal assistance. The appraiser is under no ethical obligation to disclose the photographer’s name, nor the extent of his/her assistance.

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