I just returned from a daytrip to Las Vegas where I addressed the attendees of the Appraisal Summit and Expo. It was such an honor to speak at this event alongside my business mentor Roy Meyer and to meet some of the most involved and inspirational people in the appraisal industry. My only wish is that I would have been able to stay longer to build more connections and listen to more of the speakers.
Also while in Vegas, I was interviewed for an upcoming episode of the Appraiser Coach Podcast with Dustin Harris, I got to meet Jeff Bradford and demo the new Bradford Technologies Appraiser Mobile App, and I received a live a demo of ANOW appraiser business management software. Talking directly to the people behind these brands and seeing them in action is so much more valuable than visiting a website. It was definitely a worthwhile trip.
If you were at Appraisal Summit and Expo, hopefully we got a chance to meet. If we did not connect, please get in touch with me online and perhaps we can meet up at the next big appraisal event. One of the things that I most enjoy about being an appraiser is meeting appraisers from all over the country.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event. We will do everything possible to assist you.
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World class appraiser blogger Tom Horn wrote a great article titled, “Things agents do that appraisers hate.” Tom’s article inspired me to think about the opposite side of that coin. Whenever I speak at real estate offices, agents often tell me about off putting things that some appraisers do when interacting with agents. It is important for both appraisers and real estate agents to understand the thoughts and frustrations of the others so that we can conduct our work in a manner that is both efficient and respectful. Here are my top three agent irritators.
1. Agents complain that appraisers go to vacant lockbox properties without first calling and asking the agent. This is against the rules of the Portland area RMLS (Regional Multiple Listing Service) and to me, it is trespassing. Appraisers do not have the right to use the RMLS lockbox anytime we want.
2. Agents complain that appraisers will show up at the property, not talk or ask questions, and then leave quickly. I understand that appraisals are business and that time is money. It is difficult to make a living as an appraiser these days without being quick. However, the real estate agent and the homeowner hold a wealth of information. Each should be interviewed carefully by the appraiser. From my experience of having several appraisers who work for me, the ones who take time to chat with homeowners and agents build trust. Their appraisals do not get challenged nearly as often, even if the appraisal report quality is similar.
3. Agents complain that appraisers will call them and say, “Can you tell me what the concessions are on this recent sale?” Once answered, the appraiser quickly ends the call. As an appraiser, it irritates me that other appraisers would be short when someone else is helping them, but is also annoying that many appraisers would only be interested in concessions. The concessions are important, but there are many other important things that an appraiser should know about a sale that do not make it into the RMLS. In addition, agents are not only sources of information for appraisers, real estate agents are important sources for continued appraisal work. A Quality Appraisal, LLC is built on non-lender or private appraisal work. Real estate agents generate most of our private estate and divorce appraisal referrals. It is important for appraisers to be courteous, humble, and grateful on the phone or in emails when requesting information. Our company has received many referrals directly resulting from data verification emails and phone calls.
Did I leave anything out or do you want to join in the conversation? Are you a real estate agent with appraiser grievances? Let me know constructively in the comments below.
A discussion among Portland appraisers occurred recently. The debate centered on whether one of those large and exclusive infill Portland homes constructed among older and smaller homes, should be considered as an over improvement. This stems from the appraisal principle of conformity which holds that value is maximized when properties conform.
I hold that (speaking in general without regard to a specific house), “It might not be an over-improvement, just because the home is larger and does not conform.” Another appraiser posits, “If there are no other homes that large, then it is an over-improvement period.” I said, “Maybe it is, but maybe not. What if the large home is the first of a new trend in buyer demands? A new trend is much more difficult to prove, but appraisers cannot just rule it out based on it being the first big house in an area.”
An over-improvement (otherwise known as a superadequacy), is obsolescence or loss in value as a result of being larger or having more amenities than the ideal improvement. An ideal improvement is a home (or other legal structure) at its “highest and best use” that maximizes the value returned to the land. In other words, the ideal improvement is the house or building that would be most profitable to build if the land was vacant.
My thinking is that when older homes are replaced or infilled with newer larger homes, often it is because the ideal improvement (or highest and best use) has shifted to meet the demand of the times. This is particularly true if the big new home is a speculation home (spec home) and not a custom build. Click here for a blog post that explains how spec home builders and developers are particularly in tune to which home will bring the most profit.
Today, buyers of close-in Portland homes can afford and are willing to pay for much larger homes than when many of the original early 1900s homes of those neighborhoods were first built. I concede that sometimes (particularly with custom builds) the home built is in fact an over improvement. But if the house is being built to sell after construction, builders and developers have usually done their homework and are trying to maximize profits for the lot they are developing.
Here are some ways an appraiser might be able to determine if the subject is an over improvement when a big new home is the first of its kind.
1. If this property is an arm’s length new purchase, the appraiser could subtract the estimated replacement cost from the contract price to see if the remainder is equal to or greater than the estimated land value, plus site improvements. If so, then the current contract suggests that for at least one buyer, the subject is not an over improvement. One pending offer does not represent an entire market; it is just evidence. Therefore, the appraiser’s job of supporting a conclusion would not be finished.
2. The appraiser could look to other similar neighborhoods to see if there are sales of other similar large homes starting to infill, then do the math to see if those homes are over improvements or not. If there is sufficient evidence to show that trends in one neighborhood connect to the subject neighborhood, then that would provide additional evidence for the appraiser’s conclusion.
3. The appraiser could interview developers and ask about trends. If experts are saying that trends are headed toward larger homes, then that could be used by the appraiser as anecdotal evidence of the conclusion.
4. The appraiser could study the trends in relationship between land values and home value of newer homes within similar market areas (or neighborhoods) to see where the subject falls on the spectrum. If the subject is outside the typical ratio of new homes, then this could be evidence of an issue with over improvement.
5. If the property would likely be used for income, the appraiser could compare its value from estimated rent income with its estimated replacement cost and land value. If rental income supports the construction costs, that would be evidence that the subject is not an over improvement.
My point is that things in appraisal are not always as simple as they seem. High stakes are riding on appraiser opinions, therefore appraisers need to perform due diligence and always test their own perceptions or gut feelings with actual data. We owe it to our clients.
At a Portland appraisal home viewing last week, the owner had two little dogs that would not stop barking as a result of my visit. Each time the dogs barked, the owner gave them a small treat. The barking would stop for a moment, but then the dogs would start again and so would the treat process. The owner was inadvertently rewarding wrongful behavior, thereby perpetuating the process. This made me think, unintentional reward of improper behavior is something that also happens regularly in appraisals contracted by mortgage financing, lending, and appraisal management companies (AMCs).
Home appraisals for lenders or AMCs typically pass through several layers of quality review. Often, the examinations involve a checklist of things that generally characterize a well-supported or lower risk appraisal opinion. Rightfully so, lenders want to know that the appraisal can be confidently used for evaluating collateral and avoid the dreaded forced loan buyback. If a lender’s checklist items are missing, the appraisal becomes flagged as higher risk and often goes back to the appraiser multiple times for additional clarification, comments, or comparable data. Appraisers with fewer red flag issues will often be rewarded with more work, first choice of assignments, and fewer requests for revision or clarification.
Appraisers can usually receive more work and fewer revision requests from lenders simply by working harder, explaining issues, and supporting adjustments. However, often appraisers who work longer hours (for the same pay per assignment) will still receive red flags because the reports are not read thoroughly by the client or because the properties are complex with few comparable sales data. Some appraisers learn quickly that there are shortcuts to receiving more work and fewer clarification requests.
Real estate appraisers are highly trained and regulated professionals who are required by law to be independent, unbiased, and to not mislead. Most appraisers work very hard to maintain high ethical standards. However, an incentive based system exists in residential finance that rewards appraisers who mislead by making an appraisal look stronger than actual. From experience I know that this happens all the time. Here are some ways that appraisers may mislead a lender’s quality checker into thinking an appraisal value opinion is stronger than it is.
1. Recent and close proximity comparable sales make an appraisal look strong, but the most recent and closest comparable sales are sometimes not the strongest nor most like the subject (particularly on a unique property). An appraiser looking to reduce questions from a lender might use recent and close sales over the most similar sales.
2. Fewer and smaller comparable sale adjustments can make an appraisal look stronger than it is. For example, an appraiser might take a comparable sale that requires a large positive adjustment for living space but a large negative adjustment for view and just make a smaller adjustment for each. In this case, the indicated value will be the same, but the comparable sale looks really strong to a reviewer because it has few adjustments. (Here is an article that explains more about how appraisers can use different adjustments and come to the same value conclusion.) Fannie Mae, the nation’s largest buyer of loans, has recognized small adjustments as an appraisal issue and is fighting back with big data and automated review of appraisals. Click this link to read a Fannie Mae announcement that explains more and shows evidence that the majority of appraisers were adjusting too low for gross living area (GLA). Also, view a video here showing how an appraiser might support a GLA adjustment that is not artificially low.
3. Omitting or downplaying issues like a busy road or a necessary repair can reduce red flags. If an appraiser can conceal an issue or convince a lender that it is not a big deal, then the report will likely receive less scrutiny unless the deception is uncovered. This is a particularly dangerous tactic that can cause an appraiser to be sued or placed in serious trouble with their licensing agency.
The takeaway from this is that appraisers who work for lenders are often conditioned, sometimes unknowingly, into softly misleading practice that is only uncovered with more thorough appraisal review processes. Here are my recommendations for lenders and AMCs to avoid encouraging misleading appraisals.
1. Lenders and AMCs should be very careful to select and hire the best appraisers.
2. Lenders and AMCs should make sure that appraisers are paid a sufficient fee so that they are able to take the time necessary to do the assignment correctly without cutting corners.
3. Lenders and AMCs should judge appraisers using well trained individuals and make sure that appraiser grading and subsequent job assignment is not tied to appraisal red flags, something that might also relate to property complexity, not just appraisal quality.
Here are my recommendations for appraisers who do work for lenders.
1. Appraisers should be cautious about working with the type of lenders and AMCs who regularly reject well documented and explained appraisal reports just because the subject properties are unique.
2. Appraisers should be extremely careful not to compromise their work quality just to avoid the headache that often comes when appraisers tell it like it is.
3. Appraisers should seek out working for clients that have well trained appraisal review departments. In my experience, these tend to be the smaller local or regional banks and credit unions; not the nationwide lenders.
If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event. We will do everything we can to assist you.
Do not miss the above parody video on Portland tiny homes. It is the hilarious and the perfect introduction for an article on Portland accessory dwelling units.
An accessory dwelling unit (ADU), also known around Portland, Oregon as “granny flats, mother-in-law apartments, and carriage houses” is a second residential living unit on an existing single-family home site. ADUs became popular in Portland in 2010 after the city waived many development fees as a way to increase density and affordability. Portland ADUs come in many shapes and sizes. An ADU can be created by building a small detached home next to (but a minimum of six feet away from) an existing home, by adding an attached unit onto the existing home, or by converting a portion of the existing home, garage, basement, or attic into a unit.
Appraising ADUs is difficult because each is unique and because there are often few comparable sales of other accessory unit properties. Additionally, it is common that ADUs have been built without proper permitting, and income from accessory units is not directly comparable to other more common income properties such as apartments or small detached homes. Rather than write a book about appraising accessory units, here is a list of some interesting appraisal-related facts about ADUs in Portland.
1. All residential zones in Portland allow for accessory units. This means that when an appraiser considers the highest and best use of a property in Portland, adding an accessory unit should be a legally-permissible consideration.
2. In the City of Portland, ADUs and the main house can usually be legally rented, just as with a traditional duplex. However, many of the municipal areas surrounding Portland do not allow renting. It is important for appraisers to understand the legal uses of the ADU because that could change the type of buyers who would be interested in the property.
3. In Portland, ADUs cannot exceed 800 square feet or 75 percent (including basement) of the main home.
4. The kitchen defines an accessory unit in Portland. Simply having a bedroom or a second living space is not considered an accessory unit. Also, ADUs do not require the separately metered utilities or additional parking that are common with a typical duplex.
5. Many ADUs in Portland were created outside of the permitting process. Such units may be unsafe and might not add value to the home. Legally permitted ADUs can be extremely valuable and many are becoming more valuable with the popularity of the “tiny home” and the proliferation of vacation rentals like Airbnb.
6. Sometimes accessory units will have very high site development costs due to sidewalks, permits, the need to match the existing home, utilities, and such. Builders have indicated to me that a person can spend $50,000 before even beginning construction of a detached unit.
7. When building an accessory unit, your entire house could become subject to additional tax due to reappraisal of the whole property and not just the addition of the accessory unit. (Click here for a recent article that shows citizens are upset about this and that reappraisal requirement might be changing in the future.) However, remember that tax laws are complex. Anyone considering building an ADU should first consult with the assessor.
8. Mortgage lenders often are not experienced with providing loans on homes that have ADUs, nor do many appraisers have experience with valuation of them. These two factors, combined with very few comparable sales, different ways for appraisers to report appraisals of homes with ADUs (as a Duplex on a 1025 form or a Single Family with ADU on a 1004 form) can make it challenging to refinance or purchase a home with an ADU. If you need to get a loan on a home with an ADU, I recommend the following.
a. Find a lender with experience in ADUs and income-producing properties. Often local credit unions will have more experience and offer loan options for borrowers with ADUs.
b. Ask your lender to select an appraiser who has experience in ADUs.
c. Provide the appraiser and your lender with documentation that your ADU was legally permitted. Also, list information about rental income, expenses, and detail construction costs (if your unit was recently constructed).
d. If you’re an appraiser, it is important to openly discuss the ADU appraisal with the client before accepting or proceeding with the assignment. Lenders who do a lot of loans for ADUs will often have a specific list of appraisal requirements to follow when appraising ADUs. Following lender guidelines will help appraisers avoid the problems and delays that come from client expectations not aligning with the final appraisal product.
If you want to learn more about appraising ADUs in Portland, I recommend taking Taylor Watkins’ class at Earth Advantage on February 18th, 2016.