Focusing on individual adjustments to the detriment of the bigger picture… Growing up, my parents used to refer to my inability to see the forest through the trees. This simply meant not being able to see the bigger picture because focus was so narrow that I only saw what was right in front of my eyes. Fortunately, I am older now, and (usually) better at seeing the bigger picture. I suspect this is a common phenomenon in all walks of life, and particularly in our work. This can happen in many aspects of the appraisal puzzle. One of the most...
Determining the GLA Adjustment in Appraisal Reports I promised in a previous post I’d send out my method for determining the GLA adjustment in appraisal reports. Goodness! Appraisers actually found that statement buried in the prior post, and have ‘rung my chimes’ requesting this info! OK, but first, the pizza analogy. I often tell clients and other appraisers that appraising (residential) real estate is far more complex than grabbing a store-bought pre-boxed pizza (that has exactly the same ingredients from box to box no matter which store you shop in) at a grocery and then applying 425 degrees of love...
When appraisers fail to bracket… Forget college hoops and all of the upsets. This is about the upsets that occur when residential appraisers fail to bracket. Say that your subject property has a contract for $102,900. Ideally your three sales should surround the contract price like a cozy, warm blanket. Comp #1 might end up, after adjustments, at $100,000. Comp #2 might reach $102,500 and Comp #3 might conclude at $104,000. Yay! All you need is a pretty bow and you can deliver a lovely report to your client. But…it really doesn’t work that way on most days. Does it?...
Appraisal Bias & Appraiser Pressure: Why All Appraisals are Always Wrong Real estate markets cooled down in the fourth quarter of 2014, and despite historically low interest rates, refinance volumes dropped as well. The increasing pressure on lenders and real estate agents to maintain loan and sales volumes has brought about renewed interest in appraisal accuracy and increasing concern that residential real estate appraisals are inflated. A recent Wall Street Journal article asserts that “home appraisers are inflating the values of some properties they assess (appraise), often at the behest of loan officers and real estate agents, in what industry...
So, here’s the situation; you are appraising a unique property in a limited area with few sales. You inspect the subject on Wednesday and finally get to the write up on Friday morning. As you are searching the neighborhood for sales, you notice a fairly comparable home that sold on the same street. It happens to be the very best comparable you have. The problem? It sold on Thursday…the day after the inspection date. Bummer! But, can you still use it? In order to answer this intriguing question, let’s step back for just a minute and look at the bigger picture....
Regulations state that appraisal adjustments cannot be based upon an appraiser’s opinion. According to federal and state law, adjustments must be based on support and evidence- proof if you will, and an appraiser’s opinion is not considered to be “support.” Many appraisers have failed to support their adjustments and as a result have had their licenses revoked, penalties assessed and lawsuits lost, all because the they failed to understand a single but important requirement. Think about your appraisals. Are the adjustments based on your opinion or do you have proof of the adjustment in your workfile? Then one day I...
Fannie Mae’s Murphy stated that over the past year, the GSE had been focusing on “quality” and “condition” ratings of comps used in multiple appraisals by the same appraiser and found many cases where the appraiser has changed the quality and/or condition ratings on the same comparable from appraisal to appraisal. Now, based on the examination of the Uniform Appraisal Dataset (UAD) data, Fannie Mae’s focus for the next 12 months will be on adjustments. The data indicates that many appraisers are not using…
USPAP Violations… This is a list of USPAP violations most commonly encountered by the Texas Appraiser Licensing & Certification Board’s staff appraiser-investigators when investigating complaints filed with the Board. This list of violations is given for informational purposes only and does not constitute legal advice or instructions on how to properly comply with USPAP or properly complete an appraisal assignment. Most Commonly Encountered USPAP Violations: Sales Comparison Selection of Comparable Properties. Failing to select and/or support the selection of comparable sales using recognized methods and techniques. Examples include: Leaving the subject’s neighborhood when sales data is readily available in the immediate neighborhood; Searching by...
Freddie Mac will host a webinar June 26 that will highlight upcoming changes to its multifamily appraisal requirements. Freddie’s new requirements, which take effect July 1, will address tying together an appraiser’s multifamily data with their conclusions. Examples include: Tighter guidelines around the use of property condition assessments and environmental report drafts; Discussions around local market data in the capitalization rate analysis; Elimination of net income multipliers or adjustments to net operating income in the Sales Comparison Approach; Supplemental discussion of the risk of reassessment of property taxes including a quantifiable chance of a reassessment; and Documentation of the number...
Back to Basics (Part 2): The Cost Approach – An Approach to Value, Without Worth, Really? The foundations of appraisal were based upon three independent approaches to value. A system, when developed correctly, presents a check and balance within the report. The idea being that when an appraiser takes the time to develop each report, the data will show three independent motivations and three separate value conclusions. Nonetheless, the conclusions will support one another because the underlying principle for each approach is the principal of substitution. For the purposes of valuation or real estate appraisal, the principle of substitution is...
