What the Flip is ‘Geographic Competency?’
I want to talk today about one of my biggest pet peeves in the whole real estate appraisal industry: geographical competency. We belong to an industry in which large numbers of people are failing to make a living, and being forced to leave. It’s sad, but it can be reversed. One of the major changes that is needed regards geographical competency.
We throw this phrase ‘geographical competency’ around a lot, and pretend that it means something. Does it really? Well, if you go and take a look in USPAP, I don’t think you’ll find it there. You’ll find the competency rule, sure, and you’ll find the subset which says we need to be competent in our geography; i.e. we need to understand the market we’re working in. But you won’t find any ‘Geographical Competency Rule’. Geographical competency is just the result of the two rules that are present being conflated into something that’s ill-advised and ill-implemented.
Dodd-Frank has also been misinterpreted. It doesn’t say anything about real estate appraisers only being able to work within 50 miles of their offices. There’s no legislative basis for this rule. It’s simply the result of misinterpretation and conflation.
We’ve somehow ended up at the point where clients can enforce arbitrary radiuses around our offices, outside of which we’re no longer supposed to carry out inspections. We no longer have the ability to decide for ourselves which areas we’re competent in; that autonomy has been taken out of our hands by clients.
Real estate appraisers in more highly-populated, urban areas might wonder what the problem is with only working within a 30 or 60 mile area. Well, for appraisers like myself who work in more rural areas, mileage takes on a different perspective.
If I only worked within the immediate Idaho Falls area, I wouldn’t be able to continue as a real estate appraiser. I have to travel very long distances in order to get enough volume to make a living. In terms of total population, my 200 mile area probably covers as many people as an appraiser who works in a 10 mile area in Salt Lake City.
The notion that mileage equals competency, and you can only be knowledgeable about a place if it’s near your office, is nonsensical. There’s an area of Wyoming that I’ve been visiting for 20 years now. It’s a 3 hour drive each way, and I charge very high fees to work out there, but I keep getting called back every single week. Why? Because I know the area. In fact, I’d argue that by this point I know it better than the real estate appraisers whose offices are much closer than mine.
Are there precedents for people abusing the system? Of course there are. I’ve seen them myself, but I’ve met a lot of real estate appraisers, both through my work as an appraiser and as a coach, and I firmly believe that the vast majority of them are fine people. They’re good guys and gals, just trying to make an honest living, and they’re not going to stick their neck out somewhere that they know it shouldn’t be.
Of course I understand the underlying reasons why the 50 mile rule was implemented in the first place, but it went way too far. If we’re going to get out profession back to its former heights then the 50-mile rule needs to go, and it needs to go right now.
For more information on this subject, please listen to The Appraiser Coach Podcast Episode 043 below.
- Be Nice or Be Quiet - July 2, 2021
- Being Liberal with Values Hurts Homeowners - June 28, 2021
- Why Are Appraisers Banned? - April 15, 2021
Often complaints of geographic non-competence are red herrings. A lot of the geographic competence complaints are attempts to discredit appraisals that may not support the sales price/estimated value. Geographic competence is a legitimate issue, but many of the claims about it are not so legitimate.
As it relates to “Real estate appraisers in more highly-populated, urban areas might wonder what the problem is with only working within a 30 or 60 mile area”, is to not fully understand the games being played by the power brokers in these major population areas. In working the 3rd most populated county in the entire county, the 1,000 licensed appraisers within 30 miles of me can and often loose out on assignments not based on competency, but because there might be 50 appraisers within 3 miles while you are 3.1 miles away. Often times, people who commute to an office (5, 10, 15 miles away), which will be used as the starting point of ones competency (per the client/AMC), WILL NOT be eligible for work in their own neighborhoods based on some distance matrix that has no bearing on ones true knowledge. The fight for appraiser independence should start with the professional setting their qualification boundaries, not the client or their hired puppet AMC operating a super computer (hello Watson). Long gone are the days where my primary market area could be 150 miles from my office (Palm Springs, 2 trips a week), as with regional appraisal license numbers, the computer will recognize 4,000 to 5,000 closer appraisers for the job. Dustin, while some of your clients might challenge your competency on properties 3 hours away, many of us get challenged based on a few blocks, or a few miles if we are lucky.
Seek the truth.
Too bad real estate isn’t about location, location, location!
Companies Like Wells Fargo and AMCs like Core logic don’t care. They ask me to go well out of range all the time. I don’t accept and they still persist with another rep calling a day later. One rep stated, Just go out , name your fee…
Although its been many years Tom since I’ve done a non VA appraisal for Wells Fargo, their computer matrix at the time frowned upon any distance further than 5 miles from ones starting point. What these companies do is often city, county, regional, and state specific, thus what they do in my area, WILL almost always be different from what they do in your area. If prior to HVCC ones coverage area included one county (3 million people) (as most appraisers do in my area (Ocean to the West, Mexico to the South, Desert to the East, Government land to the North), and post HVCC your area became a 5 mile radius, then by default the lenders reduced ones geographical competency area by 80%. In my opinion, many appraisers in the higher population centers (more appraisers in the area), face these unusual circumstances. Its one thing to earn less money (AMCs), take twice as long to complete the reports (scope creep), but an entirely different animal when your work area is reduced to 20% of what you used to cover. Not saying this is the path I took (AMC enslavement), but with 80% of the work being filtered to AMC’s, this is the path for many.
It’s not the client’s responsibility to determine competence. However, if that’s what they’re selling to “their client” then that’s their problem.
I’ve stated from the beginning of this illegal activity – GC is anti trust since the sales (production) groups collude by employing this tactic to slander and deny access by misrepresenting the facts to their Sellers and Buyers of the contribution of the appraiser process. Class Action Now.
If the appraisal is credible then the appraiser is competent. We should be judged by our work product, not by our location.
When an issue of competency arises USPAP seems to be very clear to me. Or if you are unsure then the process is to become competent and state in your report the steps you took in an unfamiliar market as to how you researched to become competent.
The industry at large promoted ready substitutability but now the consequences present. Appraisers who undercut the competition is what drove proximity concerns in the first place. If the fee was direct consumer to appraiser, there would be far less appraisers driving such great distances to undercut the work away from others. Appraisers with unique specialty would not be questioned about rising to the challenge of servicing under served areas. If the goal is volume it seems rather illogical to maintain a working location in a sparsely populated area.
Just because you are close to a property, doesn’t make you competent. It doesn’t even make you more competent. I’ve seen numerous examples of Appraisers that are geographically close, but grossly incompetent. The fallacy of GC has been sold by Realtors and the NAR.
My license (certification) is valid for the entire state of California. Subject to compliance with reciprocal license laws it is valid anywhere in the USA and territories.
While very rare, I have performed appraisals of property in New York, Florida, and Pennsylvania. I helped develop a system for appraisals in Delhi India. I bid on jobs in Mexico and the Caribbean. Every one of these assignments included added time to familiarize myself with my subject markets.
In the case of the India assignment it meant learning fundamental differences in simple (Vedic based) counting, and translating that to western numeric concepts. It also meant understanding government imposed (presumed) values or ‘circle rates’; and the grey market sales that predominate.
Before becoming an appraiser, the worst value mistake I ever made was in the area I grew up in, about 1/2 block from my high school. It was also my real estate sales ‘farm’ area. I knew it like the back of my hand.
However, the market didn’t limit itself to the physical boundaries I knew about since I was a child. The competitive market had already expanded the area I knew so well. That mistake prompted me to become an appraiser.
Geographic Competency (GC) is one of those buzz phrases people like to throw around without having to learn what it means. By itself it means nothing.
A good appraiser performing to accepted practices and principles can appraise anywhere in the United States competently…as long as they take the time and exert the effort to do so. That costs extra.
So, my take on GC when used by a lender is “We are too cheap and unrealistic in our turn around times to pay for a competent professional, or to allow them enough time to do the job properly. Therefore we will settle for ‘next best’.” Perhaps someone that knows the area like the back of their hand and that wont have to bother with all those pesky appraisal standards.
Y’all know them. They already know that the adjustment for GLA is $25 sf (maybe even $40 or $50 in high cost areas) just like it was in 1986; and that bedrooms are $10,000; common rooms and full baths are $5,000 and half baths are $2,500 and that no line adjustment will ever exceed 10%. The ones that learned rote adjustment from the Property Science Mill…or FNMA.
There are plenty more reasons why appraisers are leaving this profession, geographic competency is one of them , included are the dirt bag AMC’s , the ignorant Fannie Mae and Freddie Mac including the very ignorant FHA and so so much more. These entities have made a complete debacle of the industry and are playing for keeps, they will do whatever it takes to protect what they have and steal more money from appraisers with there AVM’s. The goose has been cooked for a long time guys and girls.
Jack, disagree re FHA ignorance. Call your regional center-usually outstanding folks and well informed barring exceptions. They may adopt dumb policies about every ten years or so, but they usually fix them when folks stop doing work for them and tell them why. Remember the old mandatory use of M&S and no allowance for market driven entrepreneurial profit beyond that allowed by cost service? I stopped working for them for three years that time.
When cost savings are not returned to borrowing consumers, the appraisers discount becomes an enticement to select, otherwise known as a violation of the management rule and providing a thing of value. With no ethical managers in place with fee shopping companies, it’s not surprising the management rule is perhaps the most overlooked rule in appraisal ethics today. I like proximity rules, it keeps the discount 2 hour appraisal guys from south denver and fort collins out of my areas, when clearly I am available at C&R rates and provide a more detailed product. This is the city and the suburbs after all, not expansive semi rural and farm.
As someone who services one county (100+ zip codes) with 3 million people in it all within 30 miles of me, there are nearly a thousand licensed appraisers located in my county alone (competition). If one has serviced a single county for 10, 15, 30+ years, etc. and via government involvement (HVCC / amc’s), ones geographic competency by definition of a client gets shrunk from a single county to within a few miles of ones home/office (some computer matrix), then many will disagree with your liking of proximity rules. I could be the most qualified, but via proximity rules, have 300 other appraisers be closer than the ten miles I am from the property in question. As I previously stated, its one thing to get paid less for a report that may take twice as long to complete, but its another thing on paper/computer for ones work area to be reduced/eliminated by up to 80%. Not saying this is the path I took (VA covers the entire county), but when 80% of residential work gets filtered via amc’s and their computer algorithms,, this is fact for many.
100% correct!
GC is ridiculous. With our ever-expanding world and the ability to commute farther distances, it just doesn’t make sense. I know several people in others sales-related industries whose regional territories require them to commute to offices over an hour and a half each way (definitely over 50-60 miles), and they are very familiar with those markets in which they work. A good appraiser always evaluates his market, regardless of distance.
“Geographical competency” is protectionism, restraint of trade, and I wouldn’t be surprised if it is a violation of some anti-trust law. If you don’t know an area, you will know it by the time you develop your area analysis, neighborhood analysis, market analysis, etc. I have never heard the term “geographical competency” come out of the mouth of a commercial or certified general appraiser. Residential appraisers, on the other hand, are very territorial and like to stomp out competition.