Bryan shares a story about how a little extra forethought might head off major headaches down the road.

The Trainee

Recently, my trainee Kelsey told me she had an appraisal ready for me to review. I asked her about the two busy roads that abutted the property. “Did you make an adjustment for that?” I said.

“No, I didn’t,” she said.

“I wouldn’t have either,” I said. “But did you make a comment about it?” She did not.

And then I suggested that we probably should. “And now I’m going to tell you why.”

And so I told her a story about one of the very first appraisers I helped who had a complaint filed against her.

The Complaint

This is the story: I had an appraiser contact me, and she’d had a complaint filed. The reviewer alleged that she did not analyze and report that the subject property’s area, the whole subdivision really, backed up to a railroad track. And she called me and told me about it. And I said, “Stop talking. Let me talk.”

“If you missed it,” I said, “if you didn’t realize that the property backed up to a railroad, and you didn’t analyze that it could impact the marketability, you need to raise your hand and say, ‘I missed it. I made a mistake.’ You need to ‘fess up to that and accept the consequences, if there are any, and use it as a learning experience, and move on.”

That’s what we need to do. We need to be honest. And we need to tell what we did or didn’t do. When we make a mistake, we need to have the courage and the honor in saying, “I made a mistake. I’m human.” Because we all make mistakes. No one’s perfect. Practice makes better. There’s no such thing as perfection. Practice doesn’t make perfect.

On the other hand, if you did know that rail was there, if you did analyze that, if you did opine that there was no adverse condition as a consequence of that subject’s proximity to that rail, I don’t think you did anything wrong.

The Argument

Keep in mind that all of her comparable sales were in the immediate area. So if the subject suffered from some negative influence because of the nearby railroad track, all of her comps would have suffered a similar influence. Her value would be unchanged. She wouldn’t have made any adjustment. So really, we’re just talking about a reporting issue.

Now, maybe I would have handled it differently. Maybe the members of the regulatory commission would have handled it differently. Maybe the investigator would have handled it differently. However, we’re not here today to discuss whether this individual used best practices. We’re here to discuss whether the person met the minimum requirements of USPAP.

You see, if we talk about the pre-printed form, under the site section, it says, “Are there any adverse conditions or external factors, yes or no?” Well, in her heart, if she didn’t believe that had any impact on the subject, if she analyzed that and said there was no issue, she doesn’t have any obligation to report anything. The obligation is to report if it does have an adverse effect.

One of the things I argued on behalf of this client was, if you think she’s trying to hide that this property backed up to a rail, why didn’t she white out the railroad on her location map? The map clearly showed a railroad there. She wasn’t trying to hide it. She just didn’t think it had a negative impact.

Her case was dismissed. What I told her was that in the future, she could avoid this problem very easily. All she would have to do is say, “Hey, client. The subject property, the subdivision, backs up to a railroad track. I’ve analyzed this, and in my professional opinion, I don’t think there’s any negative impact.” That way, she tells the world, the client, that she didn’t miss it. She knows it’s there, she just doesn’t think it has an impact.

The Moral

The moral of this story is, if you think ahead, you can put this fire out before it begins. If she had said, “Hey, everybody, there’s a railroad track back there, but it’s not impacting the marketability,” then no one could have pointed at her and said, “She missed it.”

Now, you can argue about whether or not the railroad affected value. That’s a matter of opinion.

So what I suggested to Kelsey was this, in an effort to head off any problems, why don’t we say that the subject property backs to Carter Road, side to Southtown? Both of which are somewhat well-traveled, but an analysis of this revealed no negative impact. Because there’s areas of Carter Road that do affect marketability but up here, not so much. At least, that’s our opinion.

I was going to buy a house one time, and I thought, “I’ll get a good deal because it backs up to a bypass.” The bypass sat back a ways, and I thought, “That’s the Owensboro Beltline! That’s got to have a negative impact. I’ll be able to negotiate a good price on this.” No. It didn’t appear to impact the price at all. I wasn’t able to buy that house.

I get it. This is a case-by-case issue. You’ve got to look at your market, that segment of the market, and analyze your data to see whether there’s a market reaction or not.

The Dead?

What if your house backs up to a cemetery? (And by the way, what’s the difference between a cemetery and a graveyard? What does “Saved by the Bell” mean? To get the answers, you’ll have to listen to the episode!)

Either way, acknowledge the cemetery and analyze whether it has a negative impact. I certainly wouldn’t mind the quiet neighbors, but other people might be creeped out and might not want to buy that house.

The Fix

Just a thought: Let your client know, “I’m aware that the property is adjacent to a cemetery, or a well-traveled road, or a railroad track. And here is my analysis of whether or not that thing affects the value.” That way, nobody can point a finger and say that you missed it. That way, you can say you noticed it and then offer your opinion about the impact of its proximity.

External obsolescence — a loss of value caused by something outside of the property lines — isn’t something you can fix. All you can do is acknowledge it and analyze its impact on the property.

Be transparent about your thinking and your analysis, and you’ll head off a lot of problems before they ever arise.

Want more like this?

Check out Bryan’s webinar (below) about covering your appraisal (CYA) and his Cover Your Appraisal course at Appraiser eLearning.