Skipping Comp Photos, Suicidal Shortcuts
Recently The Appraiser Coach posted an article and links to a podcast suggesting its no longer necessary to photograph our comparable sales.
I wrote a counter argument to the blog site (which does not appear to be posted). Additionally, a couple other (minority) appraisers pointed out valid reasons why the concept of substituting online data for proper field work is a bad idea.
I like & respect Dustin personally. I have been a guest on is podcast and would repeat the experience if I ever thought I could contribute to the body of knowledge. I also believe he is an ethical appraiser.
Having said that, respectfully he is way off the mark on this subject. Dustin advocates numerous legitimate methods of increasing appraiser efficiency. I have respected peers that follow all or some. Though none have adopted this ‘skip the comp’ photos alternative.
Apparently, we need a refresher going all the way back to fundamentals of appraisal. Most are aware that real estate appraising is an imperfect blend of art and scientifically applied principles. That does not mean it is sufficiently science based to be able to be replaced by automation and algorithms. It does not mean that the body of life experience gained as consumers and later as trained appraisers cannot be artfully applied to problem resolution.
It means that when each of the traditional three approaches to value are properly applied in accordance with established principles & practices meeting the MINIMUM standards of USPAP, that the result will be credible (worthy of belief).
An appraiser’s adherence to the fundamental steps of real estate appraisal are often (usually?) indicative of his overall depth of analysis. Property observation (inspection) of both the subject and all comparable sales is a fundamental element of a properly completed R.E. appraisal.
The profession of real estate appraisal developed largely after the Great Depression, which was truly the first ‘too big to fail’ event… albeit one without a backstop. We should avoid rushing backward to accept the same standards today as existed then. Just because data comes out of a computer does not mean it hasn’t been manipulated.
R.E. Appraisal has three basic approaches to value. The premise is that each should be mutually supportive of a defined value conclusion when properly performed. Not equally supportive, but mutually supporting. There should optimally be a reconcilable conclusion able to be derived from their results.
If the direct sales comparison data is less clearly definitive or indicative than desired, it’s not the end of the world because the other two approaches should also provide a supporting result. They also reduce the likelihood that human nature or natural bias could cause circular logic or reasoning in the analysis. If one of those approaches is not used, then the conclusion may become less credible. If neither of the other approaches is used, then sole reliance is left on the less than ideal sales comparison postulated.
Some years ago (circa 1986-1990?) many lenders stopped requiring an income approach on owner occupied single family residential property as long as verbiage similar to the following was included: “The subject is located in an area in which SFRs are not normally sold for their income producing ability. As a result, there is an absence of reliable data to develop and support a credible gross income ratio to sale price motivation / conclusion. Due to this insufficiency of data, the income approach was excluded.”
Some version of that appears in most GSE related SFR appraisals today. In fact it is so commonly used that abbreviated boilerplate is now used that loses much of the original justification for its being used in the first place. I’ve heard appraisers tell me that the fact that a property is an sfr means the income approach doesn’t need to be used. (A very few remember that it MUST at least be considered). Nowhere is its exclusion supposed to be automatic.
This is one area where elimination of the Departure Provision in favor of the Scope of Work Rule has seriously hurt the profession – but that’s another issue.
Some time in the post 2008 TBTF /TARP period, a philosophical discussion began among professional peer groups about whether the cost approach was reliable anymore due to the ‘difficulty in accurately estimating accrued depreciation from all causes’. The argument was never definitively resolved.
However, certain GSEs decided that inclusion of a cost approach was no longer required. Some appraisers were able to cobble together a semi credible paraphrased written justification for excluding it after consideration. Others said why bother – just write that the client does not require it. So common has this exclusion become, that many older appraisers and a lot of new ones no longer remember how it used to interrelate to the other approaches. Elements within the C/A are supposed to reflect (generally) other aspects of the appraisal reports descriptive opinions.
I can’t tell you how many ‘bad’ appraisals I’ve read over the years that could have been ‘saved’ simply by having a properly developed site value and depreciated replacement cost estimate & then reconciling those ‘values’ to their own adjustments… or at least recognizing there was a disparity and understanding that required some further research & explanation.
In any case, we were left with ONE approach being performed in this scenario. Some appraisers noted how much time this saved them. They could do much more work for the same fees because they weren’t ‘wasting all that time on irrelevant approaches.’
Others noted that if they used mls photos it was also slightly faster & easier than downloading camera or memory card photos and then having to ‘find’ them in the software.
More than a few others realized that they could save much more time if they didn’t bother to drive the comparables at all. They just used mls pictures. Even after photo shopping them to eliminate mls logos or for sale signs they saved both time and gas money in not having to drive all those comparables; analyzing comparable neighborhoods or subdivisions, or specific site location influences and writing field notes. Food for thought- if this practice was so benign, or even better so practical and ‘forward thinking’, why did they bother photo shopping them in the first place?
The answer is not rocket science. They knew it was wrong. They knew it violated the special requirements of their client. They knew it violated the signed certification they included in their work product. They rationalized it.
“Oh, I can’t see the house. Oh, it was gated. Oh, there were gangbangers hanging out in front, Oh there was no place to park and traffic was too busy to take a rolling picture.” All plausible explanations for possibly skipping ONE comparable photo and using an MLS substitute (WITH disclosure – not photo shopping).
But, instead of being limited to isolated instances, use of MLS alternatives became a purportedly time saving mantra. One that self-serving software designers also adopted. Next even FNMA adopted the language. “Why should appraisers waste time driving comps rather than doing what they do best like analyzing data from the comfort of their desks?”
The truth is that FNMA knew that many appraisers were not doing everything they are certifying to have done. It’s no great stretch of imagination to understand why they may feel third party inspections by incompetents, and online data source used instead of direct analyses is acceptable. In their minds, that is what they have been getting all along!
There are two major errors to this wasted time premise. The first is that I am wasting any of my time. The second is the mistaken belief that what I do best and what is most important is my desk analysis. Having the comfort of my own desk is not now nor has it ever been a criteria for measuring appraisal acceptability. Even with my bad knees and ever-increasing difficulty in walking, I would never think that failing to walk a property or property perimeter is an acceptable level of inspection. Comfort is not a metric of USPAP compliance.
If all we did was measure a house and note repair needs or ‘drive by comparable sales’ without stopping long enough to analyze them, then the substandard work promoters may have a valid point.
Rarely discussed is the fact that neither I nor any other appraiser appraise the physical property itself. What we appraise are the rights of ownership associated with the property in a specific physical condition. It’s a subtle but critical nuance. Too many appraisers have lost sight of this. Perhaps because we do it automatically. While ownership rights are (or may be) affected by all physical characteristics, they are not limited to the overall condition of a house itself.
We start off by determining what ownership interest exists. In its most basic form is it a fee interest or some other lesser interest? It takes more than a review of a deed to determine this. We look for obvious signs of occupancy that may confirm or refute a fee interest. We look for easements, or encroachments that may indicate a less than fee interest exists. We look for access issues for the same reasons. We identify physical characteristics that may suggest permit issues, or bonds (such as new sewers and curbs on one block but none noted a block away). We look for development trends. We look for site specific factors that could affect the rights of ownership. At a minimum we are looking to confirm if it is a fee (or other) in average condition versus a fee in other than average condition. A right that benefits by good property condition, or a right that will immediately require infusion of money to be suited for the intended purpose.
We are also supposed to be looking for the same kind of things on each and every comparable sale, to the extent feasible. Online data is not going to show us land slippage; or identify a hog rendering plant nearby. It wont show that an HOA entry gate has been abandoned or that previously private streets were dedicated and accepted by the local government for maintenance. It wont show low areas of roads that flood out in every rainfall. It also does not show traffic – merely relative road sizes that may or may not cause more traffic. It won’t even show the no trespassing signs with or without bullet holes… which may be indicative of other ‘neighborhood specific conditions.’
Online data can be a great help in augmenting physical inspection. There is no rule or prohibition against including extra photos or satellite imagery.
In those relatively rare cases where taking photos presents a hazard to personal safety, then simply explain what that hazard is and include the available online pictures instead. While being sure to analyze all the location and site related comparable sale characteristics that are evident.
I have appraised in gang areas where some streets had tables set up in the middle of the road to collect ‘tolls’; and where any photography could potentially get one shot. I have appraised crack house apartments where ‘customers’ ran a steady pattern of pedestrian traffic down the alley to the rear of apartments. Buildings where visibly taking a picture would simply not be wise.
My camera has a zoom lens. I don’t always have to stand directly behind my subject to get a representative picture. Then I can drive by slowly or normally as is safe and make mental notes of property characteristics.
Oddly, I have pretty much the same ability to take pictures as Google-Streets, and most MLS services that send third party photographers out.
I refuse to undermine my own profession by pretending that time saving shortcuts are always acceptable just because they are ‘more modern and progressive’.
I know how long it takes to produce USPAP compliant, credible appraisal results. I charge accordingly for my time. I make no effort to compete on fees with half assed hybrids, evaluations, or single approach partially performed field work.
Respectfully, neither should anyone else. Please stop undermining our own profession.