I find that asking the neighborhood agents (how their phone is ringing) is helpful and a most current indicator of the market. M.L.S. activity categorically illustrated for the community and the neighborhood reveals the transparency-honesty of the spoken opinions. Most all parties have read H.C.A., M.d.C. and the “Prince” by that Italian guy. Dreamers, or Bullies, and Crazies are only a part of the market, schemers are the most dangerous.

A tear down doesn’t include the cost of demolition, nor does a burn down a cost foundation removal. Does the insured have a replacement policy or a market value policy? When a buyer negotiates a lot purchase, does that a FAIR mv. ?

Uh Oh! It looks like I am in 100% agreement with Joyce on this one. Rare, and to me, shocking. Almost disappointing because we ‘like’ to butt heads.

Extremely well said and explained. (hint – STEAL the verbiage and modify it to meet your own final comfort level!).

As Baggs also pointed out, regression often only reallocates market ‘reactions’. Sometimes more credibly than other times. Regression cannot credibly handle view adjustments; usable site area vs gross sites, most quality differences and room counts or features reported in a mandatory UAD format which may or may not be recognized in local markets.

Joyce didn’t cite all the specific pitfalls of MLR but my own research suggests the following are among some of its pitfalls.

At best, it only captures about 70% of real market participants’ perceptions. That means that the other 30% is re-allocated among the 70% items…assuring that those too are now compromised. In the end, the ‘scientifically supported method is not as accurate, or any more accurate than the appraiser’s own practical experience and market observation-based ‘opinions’ (which we no longer cite).

Again – Copy that verbiage. Modify to fit your understanding and concurrence if needed, or use it damned near as written.

Amen Joyce, by the way is the C.C.C.C. MVA for the Chicago Climate Exchange. What are the appraisal fees?

It seems to me that there are as many final value opinions as there are appraisers, and will always be. Maybe I should modify my name to don q. and expect each and every job to have an original opinion.

Great background Mark. I suspect that named product may never have gotten out but it’s ugly stepchildren did. The BEST that can be said about those things is that once in a while when all the planets are in proper alignment and the property is the median price range model, then they can be quite accurate.

As noted though, the planets must be in near perfect, linear alignment; and not vary from the area median price or property type most associated with that median.

On cloudy days though, all bets would obviously be off.

A few years back I was approached by an AMC who developed what they were calling an “AAAVM” (Appraiser Assisted Automated Valuation Model) touted to become the “be all and end all” of valuation modeling and supported adjustments. They asked if I would have an interest in conducting such reports. Having built and calibrated numerous mass appraisal models, this obviously piqued my interest.

They told me they’d be conducting individual training and requested I choose a specific property in my market area for said training. I have to admit this was a “little loaded” given my background and I effectively went into this demo intent on proving how this product wasn’t necessarily going to work for at least a couple reasons; You can’t teach Multiple Linear Regression overnight and, unless you have total control over the model, it virtually never works in the predominantly rural areas I work in.

I specifically chose a rural subject, then threw in a large twist: The site displayed Lake Michigan frontage and it had sold recently so I also had a reasonable measurement for the accuracy of the indicated value developed by virtue of this product. Long story short, the trainer kept saying “more data, more data” piling numerous sales that had absolutely no relationship to the subject into the model that would supposedly derive supportable adjustments and. In an absolutely unbelievable revelation, this product didn’t allow for site adjustments.

After almost 2 hours of “training” and not being able to come within 40% of the recent sales price of this subject, the “trainer” was unbelievably frustrated, told me I had no idea how to use this product and I “did this on purpose” (which I actually did). A few days later I got a call from management querying my thoughts on this product and if I was still interested in conducting these type assignments. I immediately questioned the inability to make site adjustments and he concurred this wasn’t currently an option and you “need to choose sales with similar sites”. Yeh, right.

To my knowledge, this product never got out of the gate and rightfully so. In 30+ years of mass and fee appraisal work I’ve never completed a report that didn’t require some adjustment(s) and, most specifically amongst rural properties with limited and diverse sales in any given 12 month period. I firmly believe that adjustments could and should be applied in most instances. But just not any adjustments, supportable adjustments.

Thanks Mike Ford, and I agree with you, especially about the Al Gore carbon credits and footprints, as well as the Don Quixote and spread sheet analogies. Great stuff! LOL

It never ceases to amaze me the level of perfection we all pontificate over when dealing with an imperfect market. Sometimes the biggest challenge for appraisers is getting out of their own way.

Excellent practice. MLS pics as extras are very helpful. Used instead of personal inspections; they are just misleading the readers. A torn down house is a land sale…amazing how many will try to adjust them for size, etc, anyway.

Hey Mike, over the years I’ve gone to shoot photos of the comps, and either they weren’t there (razed) or totally different looking (remodeled) then when they were purchased. I generally add CMLS photos because that’s what the property looked like when purchased.

What you describe re millage rate bumping is rampant in Texas from what I’m told (specifically Laredo area). Its a non disclosure state. I’ve heard trustees deeds are even used in some cases to argue value.

Anther allegations are five largest families in area with huge ranch holdings pay relative pittances while average folk son typical sfr lots pick up the slack. Again, political and a patronage issue.

No question though. When County Board decides they need more money the assessed valuations go up because apparently, the millage rate itself is limited. Tax Protest work can be very good down there from what I hear.

Thats a huge drawback of non disclosure states. Consumers and owners think “Privacy” is the big deal, while they have no way of knowing if big money is shifting the burden to their backs. Non disclosure is a horrible rule that ONLY HARMS those affected by unfair assessment..

Hey Mike,

Glad to hear from the front line. Given it didn’t affect me, like many other things, I just never followed it. Because of property churn (5 to 7 years) I can see where this could work. Assessed values, in a way, are somewhat of an “afterthought” given that when local government runs amuck, they simply apply the mill rate necessary to raise the capital for the approved annual budget predicated upon the total municipal assessed value.

For the most part, and in theory, the purpose of the assessor is to establish market (assessed) value for the purpose(s) of creating parity in tax burden. It’s rather incredible how many people view the assessor as the “tax man” when, in fact, they truly have no control whatsoever over your tax burden outside of attempting to support parity.

When I ran a revaluation firm (bringing jurisdictions into Department of Revenue statistical compliance for assessment purposes) I never ceased to be amazed at taxpayer revelations. Once we produced the assessment roll and presented it for public inspection at the (City, Town, Village) Hall, many would show up to check the values. While we’re statutorily required to send a “change notice” if there’s any change in a property assessed value, this would still draw a crowd. It really didn’t have a significant impact on the percentage of owner’s contesting their assessments, but when I’d question people about coming in to inspect the roll, they almost always had the same response. “I’m not necessarily happy, but I had to make sure my neighbor is getting screwed the same as me”.

Most jurisdictions are relatively smart about this, realizing their constituents are anticipating a “bend over” moment, and they adjust the mill rate for that year down accordingly. However, the mill rate does have a bad habit of running rampant in the following years.

While it certainly isn’t supposed to be political, I could cite numerous occasions where the “powers that be” lobbied for “favorable” status for certain property owners. I’m not a political animal where valuation is concerned and, in a slight degree of irony, many didn’t like the fact I was fair across the board. Nevertheless, it was a great run, unbelievably insightful and nothing short of absolute affirmation for why adjustments are, in fact, both appropriate and necessary.

As a side note, being an assessor and developing these models has lead to my making consistent adjustments in an appraisal report regardless of how potentially miniscule they may be. Everything (in my reports) is adjusted appropriately and rounded to the nearest “$100”. I know a lot of appraisers won’t adjust for what they deem to be nominal differences (e.g. 100 s.f. GLA. 1,000 s.f. site difference, etc.) and, it’s quite possible that’s true in their market. Kind of interesting though, after numerous reviews, how this is often used to meet “bracketing” expectations..

Hi Mark – Interesting anecdote re extension cord hazard.

As for Prop 13 (Now Article XIII of our State Constitution), relatively (exceptionally?) few properties are still at 1975 levels +2% per year. A bigger and more beneficial side of Prop 13 is that new buyers pay 1% of the (new) sale price as their tax base, which is also capped at 2% of the 1% per year (plus any special locally voted assessments; typically another 0.0015-0.0025).

Prop 13 has been an exceptionally good thing for owners and assessment districts alike (though they like to argue otherwise because it stops THEM from arbitrary annual increases to fund union employee pensions). (I’m not anti-union pensions – I’m just anti-government incompetence in funding them).

IF it were not for Prop 13 our property taxes and property values would tend to mirror those of Oregon, or perhaps Washington State. Existing long term owners are not forced out of their pad off houses by ever increasing taxes. Public Agencies benefit from a majority of houses resale tax increases about every 5 to 7 years.

An existing house bought in 1985 for $150,000 may have only a $1,500 tax base (+ a bunch of 2% increases taking it to around $2,300+- total). When it now sells in 2019 for $850,000 the new tax is $8,500 Plus voter special assessments of $1,275 for a total of $9,775. Without Prop 13 that 1985 price would only be around $300,000 today and the tax perhaps $4,500+-.

Residents benefit from the lower millage rates which prevent similar property value increases other states. With typical American property turn over every 5 to 7+- years, government benefits too by greater longer term increases than they would otherwise see.

It may be the only thing we’ve done right in the last 60 years aside from air pollution laws of mid 1960’s to around 1990’s (then went nuts again and banned many bakeries)

Interesting take.

There are very few people who can afford to pay all cash for their home, although down-payments can vary significantly and, in some cases, this may be possible when down-sizing. In terms of incentivization,, I can’t see how you could directly do so relative to indebtedness. I’m certainly not intimately familiar with it but, to a degree, it appears California’s “Prop 13” does so in a way that, capped at 2% annually, one could complete major repairs and/or renovations without being assessed at the full market value of such.

Regardless of the type of system (ad valorem, partial, etc.) the intent is to establish an equitable base whereby every property owner’s pays what’s deemed “their fair share” relative to maintaining local government and infrastructure. It’s nice in theory but, at least residentially, I don’t necessarily see how a $1,000,000 property owner places more “wear and tear” on the infrastructure than does a $100,000 property owner. A debate for the ages.

It’s always been a game of cat and mouse. Merits of your “reward” aside, this isn’t necessarily always a bad thing.

I was scheduling inspections one year for assessment purposes based upon building permits issued the year before. One of these was permits pulled for a “fix and flip”. The building inspector had to conduct an inspection on this dwelling as well, so we decided to go together and save the owner an additional trip. Upon arriving we found the entire interior had been re-drywalled. The building inspector stated :I explicitly told you not to drywall until I inspected and signed off on the electrical”. He then said “I’d hate to have to make you tear all the drywall out, but I have to do something”. He took a keyhole saw out to remove a portion of the drywall at a GFI outlet in the kitchen and check the connection at the box. He found the owner (rehabber) had wired the entire kitchen and family room with extension cords instead of romex. This could have saved somebody their life had the dwelling burned down.

In terms of suggestions, I guess there’s always California’s “prop 13” that caps the base assessment as 1975 value with no more than 2% annual increases unless and until the property sells. Can’t say whether that’s bad or good, but I’ve never been a major fan of anything happening in California where laws are concerned.

Wouldn’t it be something if the government leveled the playing field by recognizing cash equivalency in mortgage costs regarding taxable assessed value base? I mean, the guy whom got raked over the coals with a high rate, he gets to enjoy the same tax base as the guy whom paid cash. His final sales price may be equivalent to other homes sales prices, but his out of pocket costs which include a measure of pass through taxation coming down from the lending services, that’s a lot higher. In a way, people whom borrow to buy are double taxed compared to those whom pay cash.

I don’t know though, the mip deduction is sort of like a pass through taxation credit back, so the presence of such a possible taxation relief benefit ultimately entices more people to stay indebted and continue to seek out mortgage services, rather than less.

How can we adjust the taxable approaches to real property to incentivize and encourage complete non-indebted home ownership as well as encouraging better more thorough home maintenance? Well cared for homes make for a more healthy individual and community where as higher taxation will tend to grow government which results in a less healthy community and higher quantity of unhealthy and run down homes. Are the innovations through the assessment community really all that welcome when the advancements ultimately further the cause of more taxation rather than less?

Well, it’s the permitting game. Homeowners whom can do it all themselves without getting all those permit records are the only ones whom can beat the tax man. The 4th is also about protecting citizens from excess taxation.

TEA, and that’s why people these days are often more interested in consumerism than home remodeling, you only get taxed once when you buy an item off the shelf, upgrade your tech, customize your whip. When you remodel your kitchen like a good boy or girl using the permit process, you’re rewarded with an increased taxable value that keeps on giving year after year. I’m talking about opting out of mill levies here. I’m open to suggestions. Ha!

Pool is not a good example though. It’s all about how people manage them, if they’re sturdy and clean, have an alligator living in them, etc. It’s the maintenance costs both deferred and future which drives pool analysis bonkers.

For things like decks, finishing points, general quality of materials, always important to estimate something if there is observable difference.

If a regression software indicated $X, but you knew your subject was well over quality norms, you’d have to adjust $X+. But I wonder if appraisers whom use regression also diminished an indicated adjustment elsewhere, removing the + difference applied to the other item. Regression just seeks to break up the whole and distribute value assignments through available defined categories. To actually perform regression properly, it would always take a lot of time because you’d have to constantly change parameters and proportions for sensible distribution based on the individual market quality and amenity norms. I don’t even bother with it and just wing out sensible logical lump adjustments instead and back into ppsf. More often than not a 1/5th allotted adjust back compared to the avg ties it all up nicely, be it land, ppsf, etc. Tag them $3-5k for the deck, $10k+ or some other metric figure for observable quality differences like all hardwood vs all carpet or stock K vs granite & new cabs, etc.

The end result is a logical defensible appraisal where the grid looks clean, is understandable, and adjustments were always based on tangible identifiable differences, while also including observable quality differences adjustments.

This logical approach brings far less uncertainty because I could not get the numbers to line up nonsense. Either the deal is fair to the market or it’s not, the adjustments come after careful consideration of the sale scenario at hand, fair comparative placement of the subject in the high/mid/low category, and important but standard adjusts for things like land location and size.

Anyways, appraisal is like really boring. Adding unnecessary tech does not make it like, exciting or glamorous or such.

You hit my number one objection on mass models /regression (including and especially Collateral Underwriter). All have a built-in fudge factor. Touted and sold as the science-based alternative to subjective (experience based) market perceptions; the mere process of data scrubbing introduces subjective data interpretation into the ‘science’.

Coupled with flawed databases my position has always been that the ‘tool’ is no better than local broker surveys; or cost based derivatives. Certainly less reliable than true pairs, & often times broadly paired ‘sensitivity adjusted’ adjustments.

I too still love the oddball stuff I do, though if I were dependent on loan production, non-complex appraising with today’s ridiculous turn times; low fees and equally assinine stips and ROVs I’d seriously consider going back to running a small marine maintenance and salvage company. Too old & worn to do the diving work anymore but I can manage, and teach.

I deem it an honor coming from you.

I’ve been approached through the years by a number of companies developing CAMA (computer assisted mass appraisal) programs to assist in design and development. Kind of cool, but all statistics with a “fudge factor” override (used incorrectly and way too often). That said, as of late my state has required a USPAP Statement be included in the annual assessment roll and I was somewhat shocked at the amount of assessor’s that contacted me regarding what and/or how they should meet this requirement. I haven’t done assessment work per se for almost 19 years, but was the only (moron?) who actually included a USPAP Statement in his annual roll(s). I actually called some appraiser’s out for USPAP violation(s) during 70.85 hearings (contestments), but a story for another day given the state had no idea how to act.

Unquestionably, at least as of now, lenders won’t (don’t) accept a range of value. And certainly, if you’re lending money, prudence would dictate choosing the lower end of the indicated value range. However, without adjustments, are we really that good? I posit we aren’t, especially in heterogeneous markets with wild 12 month sales swings. And, for those of us that conduct review assignments, if 10% is a “reasonable difference of opinion” then what’s wrong with a range of indicated value? Especially if the determination of indicated value is within the supposed “difference of opinion” value range?

I’m not a political animal, which is why I drifted away from assessment work. However, it’s unfortunate and unquestionable at the same time that regulators tasked with enforcing USPAP have no concept of its meaning and wield it as a “scare tactic” sword. Fortunately not personally, but I have somewhat recently assisted my better half through such a colorectal exam having nothing whatsoever to do with the specific original complaint. The lender simply “coached” these people because they didn’t get the value desired and resulting commission. Again, story for another post.

I reiterate I love what I do and, I’m fairly good at it. But this industry is starting to make it hard to “jump out of bed” in the morning.