Geographical Competency
Can we stop equating distance with geographical competency?
There was a recent study completed that proved, beyond a doubt, what I have essentially suspected for years. The topic was what causes criminals to do what they do. After much study and consternation, it was discovered that all criminals, regardless of the crime and in 100% of the cases, have one thing in common. They all had a mother.
There is an old debate trick called “Hasty Generalization.” Basically, it means taking something that may be true in some cases and applying it to all cases. “The Hansen family home schools their children, and their kids are pretty weird. Therefore, all home schooled kids are socially backward.” It is unfair, but it happens all of the time.
The same thing is happening today regarding Geographical Competency of appraisers. The “Competency Rule” in USPAP requires that an appraiser have the background, experience, and expertise to complete a particular assignment (or gain that competency by taking the necessary steps). Geographical Competency speaks directly to the area that the appraiser may be working in.
Obviously, any sane professional can see the wisdom in requiring that appraisers understand and have proper ability in their particular coverage area. That is a no-brainer. Hasty generalization, however, is equating distance to the subject with appraiser competency. They may relate, but they do not equate. Yet, it is becoming a standard in our industry (among AMCs, Lenders, regulatory boards, reviewers, and even appraisers themselves) to blindly connect the two.
Many engagement letters are coming over with an interesting (and relatively new) instruction:
“If your home or office is located more than 30 miles from the subject property, please contact our office before proceeding with this assignment.”
What is the purpose of this statement? Geographical Competency. It is my argument, however, that distance may have little if anything to do with competency. Allow me to give a few examples.
I know a man who currently lives in New York state. He moved there 3.5 years ago from Florida. He still has a vacation home in Florida. For 4 months each year (you can guess which months), he lives in Florida. He is a certified appraiser in both New York and Florida. He knows the Florida real estate market very well (he lived there longer than he has lived in New York). However, he has a very difficult time convincing his clients that he is competent in an area that is over 1,000 miles from his home and office.
In Idaho (my home base), it is almost essential to a viable business to cover a large geographical area. I personally cover 12 counties (including 2 counties in another state). It is not unusual for me to travel an hour and a half to my subject. These are very rural areas. One of my counties has a population of less than 1,000 people. When I say there are more sheep than people in that area, it is not an exaggeration. There is not one active appraiser among the 982 people who live in that county. I travel 80 miles (one way) to get to that area. Much of my coverage area is similar. However, I have been covering these areas for over 15 years. I understand the market as well (I would say better) than any of my peers.
When my office calls to set up an appointment with a borrower in Wyoming, they will often get the question, “Why are they sending an appraiser from Idaho to appraise my property in Wyoming?” Fair question, but when they learn that I have been licensed in Wyoming for 18 years and travel to their area once or twice a week, well…
I was recently sitting in an appraiser conference and the speaker said, “We are seeing appraisers sometimes travel two to three counties away from their office to appraise homes. There is no way an appraiser can be and stay competent doing that kind of thing.” Well, I would respectfully disagree. Can we stop equating distance with geographical competency? They are not the same. And while we are at it, can we stop equating all home schoolers as strange?
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The city of Chicago has 77 MLS market areas. The high end properties are in the Area 8007, Lincoln Park, and Area 8008, Near North side. When the subject property is on the border line of two competing market areas what is the appraiser’s comp search area?
Exactly! Well written and so true. It seems the real estate world latched on to this a few years back because of the “low” value issue.
-appraiserJenn
Right on the money Dustin! It is as true three years down the road as from when you first wrote this article. Another technique that has worked for many decades is fro the appraiser to spend enough time in an area talking with local brokers. Its COMMON in many markets to include multiple counties or even states (DC, MD & VA or DE,NJ & PA, etc.).
Back in the early days of mls computers where speed was measured in baud rate; and possession of one was not universal, it was common practice to either ‘charm’ local agents; beg, or bribe them outright (ok, pay a fee for their time) for comp assistance AND a discussion of the local market we were operating in. It may cost a lunch. But it WORKED! Using sound, generally accepted appraisal techniques almost always negated being ‘new’ to an area. You of course had to bill enough to spend that extra two to three hours dong interviews. THEN keeping an open mind when a dispute arose was critical! In fact I’d argue going into unfamiliar areas is a GOOD thing for agents and developers since the appraiser was far less apt to be arrogantly dismissive of value objections.