Appraisers – The Reason You Have No Business: Functional Obsolescence
Functional obsolescence is the reason many appraisers are going out of business. On a daily basis, appraisers moan:
“It’s because of the HVCC that my business is down” or “that AMC or X or Y or Z caused my income to decline.”
Really? Are you sure? So, why is my company buried in business and you’re not?
We’ve all heard about blacksmiths being out of work; Seems the use of horses has declined. And the need for typewriter repairmen, the demand just isn’t what it was 20 years ago. The people in these jobs failed to adapt; Maybe appraiser are having the same problem.
My company, American Home Appraisals, provides consulting and Expert Witness services to law firms, prosecutors and, government agencies. We review hundreds of appraisals in preparation for trial. We look through appraisal files and see how others operate their businesses. After examining their reports and business, I’m called to court to testify about their failures under “an appraiser’s typical standard of care.” A shame many of you can’t even reach that Standard. Appraisers, I find your failure to adapt is a problem.
Appraisers often tell me …. puff, puff: “My work is in the top 10% of my peers.” Most of the time, these appraisers have no idea how little they know and fail to recognize how bad their work really is. More than likely it’s because they are sole-proprietorships cut off from interacting with other, better, appraisers. Their lack of knowledge and skill will likely make them go the way of the Dodo bird, well unless…..
Let me stop and give you a few examples of appraisers “Failure to Adapt” then I’ll offer suggestions for improvement.
Adjustments
Our office reviewed an appraisal on a nice $5,000,000 home. The appraiser was making adjustments at a rate of $5,000 per bedroom and $50.00 per square foot. Upon reviewing his Workfile we found no data, nothing, zip, nada that indicated how he had determined the adjustments. In Deposition, he stated “the adjustments are based upon my 20 years in the business” and “these were the adjustments Underwriters would accept.” In response, I had the attorney ask:
- Do you know how to chart a “Trendline” on Excel?
- Can you perform a simple Regression Analysis?
- Can you derive an adjustment by using a GRM?
His answer was “No.” In effect he was saying that his skills were functionally obsolete
Speed
“Appraisals are taking longer.” “I’m spending a lot of time answering stupid phone calls from the review appraiser.” OK… however;
- Do you know how to download comparables directly from the MLS into your appraisal software? What! You didn’t know that was possible? Well have you taken a class on how to operate ALL of the functions of your appraisal software?
- Have you customized your appraisal software to match your individual way of entering data?
- Did you take a class on how to use ALL of the search functions on the MLS, or did you just take the class on how to find comparables?
- Have you moved the 4-6 comparable page to be located right behind Comparables #1-3 or did you leave it behind the signature page where it’s tough to find and review?
- Fannie Mae/Freddie Mac require certain interior photos, did you rebuild your 1004 form to swap out the old photo pages with the new?
If you answered “No” to any of the above, then you, the appraiser, have functional obsolescence.
Report Writing
Many appraisers do not properly describe appraisal issues, “analysis” and conclusions. As a result clients, review appraisers and, Courts are lost when they read appraisals. Appraisers who complain about “stupid review appraiser requests for more information” have often failed to efficiently convey information in the first place. The appraiser’s skills are functionally obsolete. Here’s an example. Banking auditors are taught to read appraisals. Their official Federal Auditors Handbook has the following quote:
“The objective of an appraisal is to communicate the appraiser’s reasoning and conclusions logically so that the reader is led to the appraiser’s opinion of market value.”
Did your report accomplish this task? If not then:
- Have you recently taken a refresher class on basic English Grammar?
- Have you taken a class on report writing?
- Are you using “all caps” when writing a report?
- Do you use Word or WordPerfect when writing your comments or did you use stripped down appraisal software’s addendum writer?
Are you form filling… or communicating? If you are not communicating, then your skills out of date – Functional obsolescence.
Cloning
In depositions we discovered that one bad appraiser cloned his old reports when creating new. He said: “What’s wrong with cloning old appraisals? I’ve been doing this for 30 years!”
Here’s a good reason: This is in regards to a 2006 appraisal for a big AMC, you know the one that didn’t pay a customary and reasonable fee. The home is in foreclosure, the bank is out of business and the FDIC is demanding that the appraiser pay the difference between his appraised value of $3,500,000 and the true market value which was $2,000,000. The FDIC was suing the appraiser for the $1,500,000 loss (Ouch!). We were tasked with reviewing the appraisal and providing expert witness testimony. The appraisal had numerous factual errors including the wrong flood map number, wrong site size, dated market information, math errors, photographs from the MLS and one sale that was not even slightly comparable. The errors resulted in a higher value for the subject.
As a method of “saving time” the appraiser cloned his report from an older one in the same neighborhood. In his rush, or due to an interruption by a phone call or Tweet, a visual scan of the report didn’t catch minor issues. Some of the facts in the appraisal were based on the other, cloned property (Oops! It’s called “Negligent Misrepresentation”)
Now for one additional point – The buyer and seller lied about the source of the down payment and the sales price was puffed. The transaction is fraudulent and the appraiser was being sued, along with the rest of the stupid people, on civil “RICO” charges. One of the five charges included the term “If not for the poor quality of the appraisal, this scam could not have succeeded.” While I don’t believe the appraiser was “in” on the deal, I do believe his negligence failed to stop the fraud. It started out as a civil suit for negligence and may end up as a criminal indictment. The prosecutors will then call the appraiser – a “co-conspirator.”
Here’s something for you to consider:
- Have you created a generic template, not a clone, but template with your company information and lots of drop down boxes designed for specific neighborhoods and/or property types?
- Have you figured out how to import current data directly from county records into your appraisal form?
If you rush the appraisal process and keep doing things the “way you were taught” way back “when,” then your methods are out of date. Soon a younger person with current skills will be applying for your job. The demand today is for an accurate appraisal. Can you deliver them without cloning?
Clients and Money
Many (not all), but many appraisers have short work days or lack focus. Appraisers often get to work after 9:00 am and/or may quit work after a long……6 hour day. Or, they may work long hours but spend time dealing with email, Twitter or the sports web site. Appraising is a complex process that requires time, hard work and focus. People often ask how I get so much accomplished? It’s easy…..I work long hours. I’m up at 5-6, at work 7-8am and often don’t go home until 8 pm. 10-15 hour days are common. I accomplish twice as much, because I work twice as long. The hours produce income and opportunities that others miss. Thomas Edison said it best: “Opportunity is missed by most people because it is dressed in overalls and looks like work.”
Your chances for success are improved if you get into the office early, focus and, work longer hours. If you don’t have an appraisal to finish, then read about an appraisal issue in the local trade magazine, or learn about your local real estate business. If you don’t, work harder and gain knowledge, you’ve made yourself functionally obsolete.
Do you still hold on to the belief that the HVCC damaged your business? Why are we busy and you are not? With the advent of the HVCC our business increased. But then again, we planned on the change and altered our “client mix” years before the HVCC. We saw what was coming and upgraded our skills in preparation.
Was your business model based on business from mortgage brokers? Guess that didn’t work to well did it! Stop blaming the HVCC. Over the past 3 years the number of mortgage brokers dropped by 70+%. More than likely, the “good” client you used to have, is out of business. Why? Well the HVCC didn’t do that. Many of the mortgage brokers simply couldn’t pass the criminal background check. Others can’t pass the licensing test. In Washington there used to be 18,000+ mortgage brokers. Fewer than 5,000 were licensed by the end of 2010. Why? Their past skills are no longer sufficient. The old fashion mortgage broker of yesterday is outdated…. functionally obsolete. You, the functionally obsolete, are trying to get business from the out-dated mortgage broker; How sad is that!
When business was good, did you obtain business from the “low hanging fruit” the mortgage brokers or other easy to please clients? Now that they are gone, do you have the ability to obtain business from fastidious clients that demand quality?
Are you still trying to get business from a declining client base? Just like the switch from analog to digital TV broadcast… what was easy to obtain “through the air yesterday,” likely doesn’t exist today and you don’t seem to recognize the shift. Your skills are the problem, not the HVCC.
Many appraisers can only get low paying business from AMCs because their skills are out of date, archaic, outmoded…. obsolete. You’re getting paid peanuts, because that is all your skills are worth.
I’m desperate to hire appraisers with skills that meet the demands of today. Appraisers must have good – correct that – excellent working knowledge of appraisal and spreadsheet software. They must be able to create, format and insert graphics using their word processing software. If their computer has a printing or PDF issue, they must be able to find the solution and fix their problem. I have an appraiser here that downloads EVERY sale from the County’s web site and then, with customized search queries, parses them into meaningful data that auto-fills into his reports – can you do that? Now you know why younger appraisers are hired and older…. put to pasture.
In 1998 we had approximately 50,000 appraisers nationwide. At the peak there were approximately 120,000 appraisers. Bad appraisers hired anybody that could breath and as a result, our profession has many poorly trained, “Form Filling Monkeys.” These people had only enough dated knowledge to fill out an appraisal form and not enough skill to analyze the transaction and meet today’s needs.
Most of the appraisers I sit across from in trial, they only think they know what they are doing. They falsely believe their knowledge is “better than average.” In trial, these people, and their work, are an embarrassment to their clients, most should have their certificate revoked. I beat them and their functionally obsolete appraisals into the dust and enjoy doing it.
Let Me Offer Some Solutions
Improve your skills, get educated. Take classes in basic spreadsheets, word processing, appraisal software. Do not be a person with only a basic understanding (just enough to get by) of your major tools. Take these classes:
- Market Value and How to Adjust for Concessions,
- How To Determine Adjustments,
- Top 20 Questions Asked of Appraisers – and How to Answer,
- Appraiser Independence and Mandatory Reporting,
- UMDP/UAD – Fannie Mae’s New Language of Appraisal.
High paid sport athletes are paid millions. They practice several weeks each spring. They improve their skills, learn and make themselves worth more. Do you take “spring training” to update your skills? Without high quality training, you can’t make yourself worth more.
Stop working by yourself. By working in a one-man-office, your ability to measure your skills against others is gone. Your ability to become a better appraiser is archaic. Find a way to join a larger, regional appraisal company.
Join a professional trade group. Get out there and talk to other appraisers. Learn from the experienced. Get designated. The process of “designation,” makes you a better appraiser and increases your “value.” The path and hardships I had to go through to become an SRA made me a better appraiser. Anyone that says a designation isn’t important, does not know what they are talking about or can’t cut it. Listen to people who have achieved.
Stop operating out of fear. Get some guts, quote higher fees to the AMCs. Many of us have worked hard to get AMC licensing in place, but only you can make it work. Our society pays what a person makes themselves worth. By setting your fee below $500 (standard 1004), you have stated your worth at something less than $20.00 per hour. Make yourself worth more.
Appraisers, take a good look at your skills and stop blaming others. Likely, the small fee you feel “lucky” to get from the AMC or “Big-Bank” is because your “form filling” abilities are functionally obsolete, out of date, and no longer needed. To get paid more, you have to make yourself worth more and complaining isn’t the path to a higher fee. Do something positive about your problem, increase your skills and knowledge and make more money.
- Appraisers – The Reason You Have No Business: Functional Obsolescence - June 2, 2015
- Adjustments – Your Opinion Doesn’t Count - October 14, 2014
I read your article and I believe it misses the point. You make the claim that appraiser’s can’t perform a simple Regression Analysis, or adjustment by GRM? Do you realize the appraiser you are talking about are trained by SRA’s and MAI’s?I have never seen any of the courses you mentioned offered in the 10 years I’ve been in the business. The examples you use are 5 mil an 1.5 mil properties, after 10 years I have only appraised one property over a million, I would now reject that property because the AMC would offer a fee of 250 to 350 and that’s where the rub is, rather than further one’s education for a minimal fee it’ cheaper to find another way to earn a living. It’s been my experience the older established appraisal firms have the non lender work sewed up and for someone like me at my age to move my business in an office with other appraiser would mean even lower pay and less money for even more work. Now for the real reasons appraiser leave the business, more work and expense for less pay, that’s basic economics. Think about what you write before you write an article, who in they right mind would leave a thriving business with high fee’s? My guess is no one is under that scenario every appraiser would do what ever it took to stay on top.
Nothing like a pure BS article one that pats his own back on how amazing he and his company are and how others suck and can’t do this or that to start the morning. Lol.
Some interesting points. Working alone is like creating your own religion. Your practices become your dogma and become unchangeable. Best instruction I ever got was working for a Freddie Mac reviewer. Every adjustment supported and a reconciliation that left no doubt. Now I’m playing “Beat the CU” and winning, but they are wasting my time/ $$ with “alternate comp” suggestions they want me to analyze. Aren’t these a product of the algorithmic (sp?) software machine the author suggests we embrace? Zillow brags about 92% accuracy. I guess it would be okay if I appraise this $300,000 sale at $276,000 or $324,000. Works for them.
oh yay, yet another article about prosecuting appraisers, and “look, i have all this knowledge and experience, and because of that, the rest of you have no clue what you are doing.”
contrary to what the condescending writer thinks, appraisers do read and strive to do better, and they read blogs and forums like this because they are trying to learn something and improve themselves. think about it – there isnt one appraiser that i know of that wants to open themselves up to any scrutiny, prosecution or costly lawsuits.
so, i have an idea – why dont we actually try to HELP appraisers for a change!
lets start today, by looking at empty comments like “analyze the transaction”, and “the objective of an appraisal is to communicate the appraisers reasoning and conclusions logically so that the reader is led to the appraisers opinion of value”. well, D-U-H. empty comments like these can be found all day long in articles like this and in almost every page of USCRAP. here’s an idea – how about giving the readers EXAMPLES of what that means?!
http://goo.gl/qESg5O
if the writer thinks there are some perfect examples out there, (probably written by him of course), then lets see them, i am willing to learn. i have never taken any course, at any level of schooling or elsewhere, that didnt provide EXAMPLES. oh, and i am talking about simple, to the point, residential examples using a little common sense, and not examples that look more like the writer is appraising a massive strip mall or LAX.
obviously the writer has a great deal of experience in areas that most of us will never have. fan-tastic. but wouldnt it be nice to see for a change, an article written by someone with that all experience, that actually contained something we could all learn from besides “you had better do this or we will prosecute you for it”? for a very long time, i tried to “analyze the contract” in my reports. my commentary was never good enough for some people, but when i asked for any examples of what they wanted, i would always get “we cant tell you that”. REALLY? is this the typical response we expect to hear from a teacher, or our parents when we need help?
news flash – if you ask ten people to draw a fire truck, you will get ten different pics of fire trucks. some drawings may be better than others, but thats their artistic capability at the time and their opinion of what a fire truck looks like. some fire trucks may be red, some may be orange, some trucks may be new, some trucks may be old, but i dont think any of them are wrong. if a much more experienced artist is capable of drawing a better fire truck, wouldnt it be nice (and made more sense) if that teacher actually spent a little time to show the rest of the class some details of how to draw a better fire truck?
until we all start helping each other and use a little more common sense . . . . .
the bleeding continues . . . . .
PS – designations arent all they are cracked up to be either. we have a few appraisers locally who have AI designations, and write worse reports than most appraisers i know who dont have any designations. and “i beat them and their their functionally obsolete appraisals into the dust and enjoy doing it” is something to be proud of and helps our profession how? wow, and we still cant figure out why we continue to lose more and more people every year, right? uh, huh.
I just searched the word “arrogance” this morning in Webster’s dictionary and found a photo of Richard Hagar beside the definition. Rarely do I have the urge to borrow a fire hose and administer a fire hose enema to people but the thought crossed my mind more than once while reading Mr. Hagar’s article.
now, now. you’re all sounding like a bunch of grumpy old appraisers. oh wait, statistically we are. anyway, richard gets paid $300 an hour as an expert witness destroyer. admit it, we all know there are really bad appraisers out there. i think it’s perfectly fine for richard to stand at the top of the hill so he can better throw stones at the rest of us. we, the plantation workers need to be made more better. me, i like this article. i tell everyone, “you never want your appraisal reviewed, they have all day to find every mistake you made and everything you left out.” that’s why $300 an hour is what a ninja assassinator gets, they’re that damn good.
heck, nobody even needs all day to find every mistake in a report, and thats what i was getting at before. our guidelines vaguely reading “analyze the contract” can be interpreted in many different ways. an appraiser can “analyze the contract” and put into their report what he/she feels is enough to satisfy that requirement, but anyone can claim that it wasnt enough and it should have been done differently. again, nobody does anything the same way, and we all draw different fire trucks. if someone really wants to prosecute an appraiser for anything, it wouldnt be hard at all. comforting isnt it?
and because prosecuting appraisers can be so much FUN! . . . . .
the bleeding continues . . . . .
Appraisers shouldn’t be required to analyze the contract. That’s a got you right there, the opposing attorney can ask if your qualified to analyze the contract and your answer has to be no because you’re not a lawyer. The entire process needs to be changed. The process is based on opinion and judgment and that’s the problem. Banks want to sue appraisers to have a scape goat from their lack of due diligence.
For those that have gleaned the negative from this article, please read it again. Sadly, the article is a spot-on description of many appraisers’ work product. As a former Tax Tribunal Judge with the Michigan Tax Tribunal, I reviewed valuation evidence that covered everything in this article. This article was not meant for those appraisers that can properly articulate their work. The article is meant for those individuals that have a license but lack the professional tools to be viewed as a consummate professional.
Consummate professional make more than $30 to $40 per hour. I don’t believe were looked upon as professional since most folks think we don’t do anything.
Respectfully, I am not relying on the actions of uneducated licensed individuals to solidify my background as a professional real estate appraiser. I understand the realities of this field but I won’t make excuses for those people that refuse to learn, grow, and change.
Your Honor
I firmly believe that the “consummate professionals” fled in droves when the fee went from $50 per hour to less than minimum wage. I also firmly believe that the author has an extraordinarily high opinion of himself.
I think you need to re read the intended use of an appraisal. It was never intended to help the legal system pursue cash settlements for irresponsible lenders. Appraisal reports written by appraisers and then manipulated by lawyers. Do you see anything wrong with this picture yet?
I sincerely apologize for the misconstrued tone of my statements. In this uphill climb, I have worked very hard to conduct myself (as I am sure you have) in an objective, impartial, unbiased manner. I care deeply about my profession and livelihood. Every profession struggles with individuals that take shortcuts in an unprofessional manner. Your arguments are about the pitfalls of this field are well taken but it is not a justifiable reason for any licensed person to be anything other than professional.
Wow! I love all these replies. Mr. Hagar appears to enjoy destroying other peoples livelihoods so that he can have one. Does he think the parties that hire him as an “expert witness” respect his ability or that of his office whiz kid to run appraisal software spreadsheets and regression statistics? This is not a rare commodity Richard. You are only there to agree with the people that are attempting to feed off an E & O insurance settlement. A mouthpiece! Factual data in a appraisal reports is manipulated by lawyers for this purpose. This is the reason I no longer accept review assignments. Besides, I have more work than I need and from respectable clients. If you ever asked me in court whether I cloned reports or was able to run regression statistics, you would be the next one on the witness stand. Who was that guy’s lawyer?
By the way, I’m one of those fifty something appraisers and I run 30 miles a week starting at 4:30 am rain or snow, can bench 300 lbs and all before my 14 hour work day begins. Judging from your photo, I doubt you’re qualified to hold my jacket.
While reading this article the line from the old Clint Eastwood movie came to mind. In that movie Clint was talking about someone being a “legend in their own mind”. I truly believe that the author of this foolishness fits that quote to a “T”.