A Wakeup Call for the Valuation Industry: Is Anybody Listening?
On February 13, 2013 the National Association of Home Builders (NAHB) published a fascinating critique on the world of valuation. The document: “A Comprehensive Blueprint for Residential Appraisal Reform” should be read by every appraiser, every user and every client. NAHB is telling us our core systems are not working and to take another look at our process and procedures. Our systems are too inconsistent, too cumbersome, and NAHB is asking us to improve our efficiency which impacts their and our profitability. NAHB is asking the industry to provide them a uniform, consistent, quality product utilizing well trained staff. These exact same issues exist in the certified general/commercial valuation industry as well.
The concept they are presenting has significant merit in my opinion. The streamlining of regulatory
frame work and improved oversight is easy to say but a challenge to achieve. The NAHB proposed data system is essential for all forms of valuation and the more data the better. The development will change everything and is needed to improve efficiency, accuracy and timeliness of delivery. Costar/Loopnet sales data have improved a lot and for me working nationally this information is of great value. I see great value in nationwide reciprocity or a national appraiser’s driver’s license with state fees. I do this now with temporary licenses in states where I am working.
The training and development of competent people is imperative for the valuation industry to meet the needs of our clients. NAHB wants one standard for education, training, and mentoring. The clients of our services want and need consistent products to be delivered efficiently effectively and profitably.
A unified group of professional appraisal organizations should be doing this now but can’t get it together. The valuation industry should not have to be told this by one our biggest customers. Remember you as a customer shop where and when you want and if you don’t get what you want you go elsewhere! Our clients and users of our services will do the same thing if we do not provide them with efficient, effective, accurate delivery of valuation services. Is anybody listening?
The appraisal industry looks like this today. (Directly from the ASC’s appraiser credentials summary as of April 7, 2013 was Certified General 37%)
| Certified General | 38,020 | 37% | Residential Combined | Residential Combined # |
| Certified Residential | 52,389 | 52% | 63% | 63,908 |
| Licensed Residential | 11,519 | 11% | ||
| Total | 101,931 | 100% |
So when over 60 percent of us are very dependent on residential real estate we should probably be listening carefully to one of our biggest customers.
By Richard Gilmore, ARA
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Agree on some points but then I’m an appraiser so “It Depends”……LOL
I really find this interesting. According to this the “appraisal system” is broken and Appraisers are doing a poor job creating profits for the building industry. According to this article all appraisers should read this and “a unified group of appraisal organizations” should be creating training for a consistent product.
I am a certified residential appraiser in a “rural” community. There is no particular rule of thumb that would work in this environment. If everyone lived in the same box, with the same amenities, on the same lot, with the same view, this may be applicable. Here the cost to build could vary based on the location of a similar property in the same county. We do not have a competitive market for building supplies. We do not always have the luxury of “matched pairs”. I have underwriters ask me to change an appraisal because they are unfamiliar with the area and have a set of “guidelines” to go by. If I make the change I am providing a false reality in my appraisal. This I will not do. UAD already provides a false sense of reality in allowing a data base to be set for a house. Houses change with additions, renovations, fires, water damage, volatile homeowners and a home today may be entirely different in 30 days. As appraisers we should unify and defend what we bring to the table with banks, AMC’s, builders and government officials.
Data bases do not show reality for an individual house. That is why we have appraisers and provide an actual image of what is there now. Why do we allow our standards to be jeopardized to create a product based on what someone wants to hear rather than reality?
Building supply costs are too high for the current market values. How can I support the construction of a “Chalet” at $200,000 plus, when a “Chalet” in this market can be bought all day long for $150,000. (This is just an example and actual numbers may vary somewhat)
My life example, literally, yesterday I had an HVAC company provide a quote for a new install on a Mini-Split system. His numbers were very high. I asked him for pricing to just buy the unit from him which he gave me. I went online and could by the same product direct for less than half of the number he gave me and that included shipping to my home.
So I ask, is it the “appraisal system” that is broken? Or are people too encumbered to read the product and too angry when they do because it is not providing what they want to hear?
My question is, can America “afford” another housing boom built on false pretenses? How about attaining stability? Did some really forget that quickly? We’re not even through the bust yet.
In addition someone needs to look at the “cost to build” and how prices have been impacted since 2006-2008 vs. how the housing market prices have been impacted since 2006-2008. Show me that analysis and prove to me that it is the “broken appraisal” that is the problem.
As an appraiser I recently was approached by a builder mad because I killed his deal for the construction of a new home. When I pointed out to him my cost was very similar to the cost he had provided to the bank. The difference was the land value. That homeowner was going to have to include his loan on the land into the total causing the deal to fall through because the buyer was trying to build without putting any additional money into the deal. Essentially having no out of pocket cost. Even when you purchase a home the bank requires some type of commitment usually 20% from the buyer. Many builders in this rural market do not understand this and blame the appraiser for the loan not going through. My opinion the builder did not understand the loan process and blamed the appraiser for loosing out on the new construction contract.
There’s a very simple solution. Have the GSE’s, Feds and/or Regulators change the definition of Market Value for new homes.
The appraisers are generally only following the lenders’ and Fannie/Freddie appraisal guidelines. There are generally multi-level and cascading price levels between different types of residential properties in most markets: New Construction; Arm’s-Length Resales; Short Sales and REO/Bank Owned or distressed sales. You can’t have a one size fits all definition of market value and expect the appraisers to adhere to specific guidelines and that same defintiion and at the same time hold them responsible for impeding the housing recovery.
Dear NAHB
You are wasting your time. The appraisal industry is both brainless & clueless. I would love to say it’s a classic example of the blind leading the blind but that would be far too generous. No intelligence exists ANYWHERE within the industry. Similarly, no leadership exists other than small factions with their own agenda.
In short the “profession” is like a herd of chickens roaming the country hunting and pecking each morsel of food thrown out by an AMC. Throw the feed in Nebraska and they’ll flock to Nebraska. Throw the feed in the Pacific ocean and they’ll all jump off the cliff into the Pacific.
Pathetic at best, laughable at worst.
Obviously, the NAHB thinks a lot of itself when they can make the decision to censure another profession outside of their own realm. These people “build” houses. They do not provide valuation products of any sort. I read the white paper and I was substantially disturbed by the reasoning applied to the appraisal profession. Basically, nothing new was stated within this paper that has not been discussed by most of us in the appraisal profession or the god forsaken bankers. Various groups of provocateurs have been rubbing shoulders with one another since the market crash attempting to find someone to blame and funny enough it seems to always point towards the appraisers. The NAR has outright blamed appraisers for “low appraisals” which have kept the market in an under performing level if compared to the peak just before the crash. Never mind the fact that many of us work in markets which are still seeing declines due to over supply, distressed property and basic lack of consistent economic growth including slow job growth. What I really find reprehensible is the fact that appraiser’s are rarely involved unless of course one counts the Appraisal Institute which tends to be non-committal and only supports the Appraisal Institute members and not the entire profession. WE HAVE NO LOBBY OR REPRESENTATION TO HELP PROMOTE OUR PROFESSION. Until we do get organized and force folks like the NAHB to listen to our side, we will continue to be forced to take what the peanut gallery delivers which is basically a bunch of half-assed commentary from “arm chair appraisers”. The reality is that the appraisal profession MUST create a substantive educational process which includes collegiate goals so we can ascertain the level of respect we once enjoyed in the pre-collapse world. The appraisal profession must move to investigate and test new techniques and methodology for valuation to ensure better accuracy so we can establish the “value” of a professional appraiser. When we establish a solid educational pathway nationally, offer designation for proficiency (outside of AI or ASA) and effectively make our voices heard in an organized fashion speaking for appraisers everywhere we will be able to enjoy the label of “profession”. Unfortunately, I’ve noticed that our profession is in a consistent state of cannibalization over the past five or more years. Who could blame young people looking for a good profession in which they can balance private and professional life, as well as make a decent living from avoiding residential real estate appraisal. Most of us work 70 hours a week and take little to no vacation time on top of the ridiculous fees we now receive to perform work which is always open to litigation. If we allow ourselves to let groups like the NAHB to shape our industry, then we might as well shutter the doors. How long will we tolerate the foxes watching the hen house in our profession?! We are the last vanguard against fraud, over priced property, etc. Builders always want the top price for their homes. Realtors always want the top selling price to collect nice commissions. Banks always want to loan money to make money. Therefore, we as appraisers have the unsightly duty to be the risk mitigation people. When the values were high no one complained about an appraised value being “too high” except the appraisers. Now since we’ve been on the other end of the stick, anytime the deal doesn’t work the appraiser is automatically “incompetent” and deserving of a thrashing financially and legally. Complete dreck on every level.