Property Sciences AMC

17 Pages·2013·1.35 MB·English

VOLUME 21 • ISSUE 5 • May 2013
www.appraisaltoday.com
Property Sciences AMC - staff and fee appraisers
Many AMCs were started by strategy when the residential In 1984, he started working for
appraisers who had a non- appraisal business changed over time, Golden Coin Savings. He was a Vice
AMC appraisal business using both responding to the booms and busts of President of Real Estate, working on
staff and independent contractor that market. residential developments. At that time
appraisers. This has not changed In stark contrast, the commercial S&Ls were allowed to do develop-
much over time, including the recent appraisal side of his business has ment loans. This was later stopped
boom in the AMC business. My arti- changed little over time, similar to when many went out of business due
cle in the April 2013 issue, "Abrief mine. Steady volume, not many to bad development loans, resulting
AMC history from 1967 to now - changes in reports, no AMCs, etc. in FIRREAregulations, which also
from 5% to over 80% of the required appraiser licensing.
appraisals!". discussed AMCs in the Abrief history of Property Sciences He started his appraisal business in
1990s. Many were started by apprais- The company was founded in 1984, doing commercial appraisals.
ers back then, similar to today's 1984. The founder, Paul Chandler, In 1986 he expanded into residential
AMCs. graduated from University of appraisals. There were very few
Most of the over 400 AMCs started California Berkeley in 1981, with a appraisers left after the 18% mort-
since HVCC were started by apprais- B.S. in business administration, gage rates from 1981 to 1985. At that
ers. (emphasis in finance). He received time, most appraisers were staff
Property Sciences is one of the few his MBA(emphasis in real estate) in appraisers for lenders. Almost all
long time appraisal companies that 1989 and his MAI designation in were laid off. Some were able to do
shifted to AMC work. It has been in 1989. jobs such as tellers at bank branches
business for almost 30 years and sur- In 1980, while still in college, he to keep employed.
vived two significant appraisal reces- started working for Corinthian Real Paul had two very experienced
sions. I have included information on Estate. He was a site locator for S&L appraisers who helped him when he
how they survived. branch offices. The second year ther, first started his business and when he
I have known Paul Chandler, MAI, he began to work for Corinthian's began doing more residential work,
the founder and CEO of Property parent company, Market Insight since he was a commercial appraiser.
Sciences since soon after I started my Corporation, consulting on market I also had two appraisers who helped
appraisal business in 1986. Paul start- analysis, acquisitions, and S&L me with lender residential appraisals,
ed his business in 1984. We both branch locations for S&Lexpansion. as I had never seen a Fannie Mae
started our businesses doing commer-
cial appraisals and shifted to both
commercial and residential due to the INTHISISSUE
appraisal boom that started in 1986. Managing multiple appraisal deadlines to increase productivity . . . . . . . . . . . . . . . . . .Page 6
Howto use the 1004MC to address uneasonable reconsideration requests . . . . . . . . . . .Page 9
Paul is one of the few appraisers
who successfully shifted his business
May 2013–©Appraisal Today–PAGE 1
form. Chief appraisers at several Paul Chandler- life beyond Residential review business - started
lenders were also very helpful, espe- appraising in the early 2000s
cially regarding what could, and When I visited the Property In the early 2000s, the appraisal
could not, be included on the forms Science office, I noticed classic base- review market was very strong with
due to banking regulations (i.e., fair ball photos and old Hollywood movie lots of business. Three of the largest
lending). posters on the walls instead of the review companies were purchased by
I left an assessor's office and got an usual blank white walls found in Fidelity, including two in California.
MBAin 1980. From 1980 to 1985 I most offices, including mine. Chandler saw an opportunity and
worked in corporate real estate for a Paul is a sports fan, with season shifted his residential business focus
biotech company. I had planned on tickets to the Oakland A's baseball from appraisals to reviews. Per
returning to appraising, but there team. He is a golfer and tennis player. Chandler, he had the largest share of
were very few appraisal jobs and He collects piggy banks from old reviews in the California review mar-
they paid much less than non- S&Ls and classic movie posters. ket.
appraisal real estate jobs. He loves to travel and went to
I got bored with the corporate life Thailand last month, with his wife of Handling the ups and downs of the
appraisal business
after awhile and really missed work- 30 years.
There was a very significant crash
ing in the field. In 1985 I decided to He has one child, a 18 year old
in the appraisal business in 1994. I
start my own appraisal business and daughter. No, she does not want to be
went from 7 employees to myself and
worked part-time for another apprais- an appraiser (now). But, I have
a part time assistant.
er for about 6 months. noticed that some children join the
At the peak, Chandler had 6 offices
In January, 1986, when I started family business after a few years of
and 115 people working for him. In
my business, there was no appraiser so-so jobs following college gradua-
1993-1994, Inc magazine named
licensing. Lenders gave you work tion.
Property Sciences one of the "Fastest
based on your experience, education,
Transition to appraisal management Growing Companies in America".
and work samples. You interacted
In the late 1990s when the Internet Within 12 months, he downsized by
directly with the local appraisal
was starting to take off, Chandler 50% and kept his Los Angeles office,
departments of national lenders such
worked with eloan (one of the first which a partner later bought out.
as Bank of America and local
online mortgage origination compa- The next crash started in 2008,
lenders.
nies). He hired software programmers with the subprime mess. He laid off
When I started my business, simi-
and helped establish their appraisal most of his appraisers, with about 6-7
lar to Paul, I did commercial
policies, including an electronic appraisers remaining.
appraisals. But, I was able to get as
appraisal interface and set up an By shifting to AMC work post-
much residential work as I wanted,
AMC for eloan to order appraisals. HVCC, he started hiring staff
so I shifted to mostly residential. I
After a few years, he quit working for appraisers and greatly expanded his
still do both residential and commer-
eloan and dropped the AMC work. use of independent contractors on a
cial appraisals.
In 2008, anticipating HVCC, he national basis. Staff appraisers are on
Paul has always focused on lender
realized that mortgage bankers need- the West Coast. He now has 107
work and does some non-lender com-
ed someone to do their appraisals. He employees, including 72 licensed/cer-
mercial appraisals. He also has done
set up the first HVCC compliant tified appraisers.
a lot of training for both residential
mortgage appraisal portal for origina- He has a southern California office
and commercial appraisers. All of his
tors using five software programmers. in Glendale and recently started a
former trainees say their training was
Within five months of HVCC imple- Florida division. Why Florida? Abig
very good. Of course, after HVCC
mentation in 5/09, 7 out of 10 mort- mortgage market. He is already in
he did not have any residential
gage bankers were using his software, California, the biggest market in the
trainees as they could no longer sign
Accelerated Mortgage Connection, country.
appraisals.
AMCTrak.
Afer the AMC business took off, he
hired more residential staff appraisers
and expanded to a national AMC
using independent contractors.
PAGE 2–©Appraisal Today–May 2013
Commercial vs. residential subcontract to other AMCs. How many appraisals are reviewed
The number of commercial by appraisers?
appraisers remained fairly constant Numberof appraisals from each All appraisals are reviewed by
through the booms and busts. state varies Property Science staff appraisers.
Property Sciences currently has 11 Property Sciences has concentrated This is unusual. Most AMCs only
commercial appraisers. They were on California appraisals for many have the difficult appraisals or "prob-
able to shift from origination to asset years, so much of its business is in lem" appraisals reviewed by apprais-
management. There was also non- California. In 2007, it expanded ers.
lender work available. nationally. When you are a national
AMC you agree to accept appraisals How many licensed appraisers are
Use of technology from all over the country. For exam- there and what do they do?
Although Paul is not a computer ple, a credit union in San Francisco 72 (70%) of the 103 total employ-
programmer, he has developed and may need an appraisal for a member ees are licensed/certified appraisers.
used technology. He developed the who moved to Illinois. This is an unusually high number of
appraisal policies around the first appraisers for the company's size.
online mortgage origination platform How many appraisals and reviews Breakdown:
for e-loan in the late 1990s, including peryear? - Commercial appraisers: 11
About 8,500 appraisal orders per
an electronic appraisal interface. - Staff appraisers (production): 30
month. Typical for a mid-size AMC.
In the late 1990s he developed C- - QC (reviewers): 28 (1 appraiser for
Of the 8,500 orders:
loan, an online commercial lender every 321 orders, or 16 reviews per
directory for mortgage bankers and - Full appraisals: 86% day).
brokers. He sold the business in 2001 - Reviews: 14% - Other appraisers: 11 managers
to another directory that wanted to For an appraiser, this means you
How are orders assigned?
expand from residential into com- can talk with an appraiser, a signifi-
Staff appraisers are typically given
mercial lending. cant plus. Most AMCs have much
first priority, just like any other
Akey component for AMCs' suc- fewer appraisers per number of
appraisal company or AMC.
cess is software that can handle man- orders.
Each order is manually assigned.
aging the appraisal orders. Some old
Property Sciences conducts prelimi-
AMCs use old "legacy" systems. How are appraisals checked and
Newer ones use online applications nary research on each property that is reviewed?
developed by software companies, to be appraised, so that any unique Lender's information is automati-
such as etrac and a la mode. factors that may increase complexity cally pulled into the system from the
are considered and addressed with lender online interface.
Property Sciences developed its
own appraisal management software the appraiser during the qualification - Rules check: Rules engine (ACI
to track and manage appraisal orders process and the best appraisal firm is Hotspot), similar to forms software
before HVCC started, which is utilized. reviews
unusual for a small to mid-size AMC. - Stage 2: Real Estate Analyst (recent
Do they broadcast orders?
It also has online software, developed college graduates):
They prefer to use appraisers that
earlier, to interface with its clients Verify basic data (match public
have worked for them before, just
(AMCtrac). records, check MLS) and
like any other type of business.
check criteria: i.e., ½ mile for comps
Property Sciences does not blast or
AMC sub-contracting - "cascading" from MLS
blindly broadcast orders for the low-
Many of the large AMCs subcon- - Stage 3 and 4: QC licensed apprais-
est fee quote or for first-come/first-
tract their overflow to mid-size er, reads reports, minimum of 10
serve assignment.
AMCs. That is one of the reasons years of experience. These are the
If they receive an order in an area
that appraiser fees are low. I call it only people who can call appraisers.
where they don't have appraisers they
"cascading". Big AMC Asubcon- More details (information sent to a
have used before or a super-rush
tracts to Mid size AMC B, who then prospective lender client):
order, they broadcast the order to
subcontracts to mid-size or small
1. Report scrubbing technology
appraisers on their panel in that area.
AMC C. Each one of these needs to
runs hundreds of automated QC rules
make money.
that instantly check the report for
Property Sciences does not partici- errors, inconsistencies, and potential
pate in sub-contracting. It does not violations. Rules results are populat-
May 2013–©Appraisal Today–PAGE 3
ed into an internal QC checklist for Do they have appraiser"tiers"?
How are cash flow problems
review by the Real Estate Analyst They have a "core" groups of about
handled?
team, who conduct a first pass manu- 10-15% of the 8,800 appraisers on
Residential lending is notoriously
al quality control review of each their list.
volatile. Labor cost is very, very high
report. They prefer to use appraisers they
for any appraisal business. AMCs
2. Preliminary QC Review process have used in the past and have estab- take in orders, but their clients don't
includes automated rules results veri- lished a relationship with. pay them when they place the orders.
fication and the compilation of prop- If they don't have cash reserves, they
erty and market specific public How are fees determined? can run out of money waiting for the
records and MLS data, where indi- They don't have set fees. lenders to pay them. AMCs have to
vidual property information as well Appraisers set their own fees. pay their staff appraisers first. If they
as general market recent sales and don't have the cash, fee appraisers
What about background checks?
listings activity through public have to wait.
They do not require them for fee
records, MLS, and other data sources
Property Sciences has been through
appraisers. They do them only for
are gathered and compiled for further
two major appraisal recessions and
staff appraisers.
analysis and validation by a senior
survived. That experience of manag-
level professional.
ing cash flow is very valuable.
What about work samples?
3. Senior QC Review. Each report
They do not require work samples.
then undergoes a line-by-line manual What are the advantages of shifting
They prefer to see how the appraiser
review by one of the senior QC pro- staff appraisers between QC and
cessionals, selected based primarily performs on the first few orders. production?
on geographic competency, volume One of the big advantages to hav-
capacity, and property or client-spe- How are lender's special ing staff appraisers is shifting them
requirements communicated to the
cific specialization They average between QC and production. For
appraiser?
over 10 years of appraisal, quality example, business picks way up.
In the letter of engagement.
control, and/or collateral due dili- Appraisers can shift from production
Requirements of the lender request-
gence experience. to QC. Fee appraisers can be used
ing the appraisal are included, not
more for production. Or, business
pages and pages of requirements of
How are conditions from slows down and and QC appraisers
all the AMCs lenders.
underwriters handled? can shift to production appraisers.
They are first screened to see if Fee appraisers will have less work.
How many clients are there?
they are reasonable and make sense. For lenders, one of the biggest
Those that do not pass the screening Property Sciences has about 20 problems is QC "bottlenecks" as there
are sent to the appraisers. "core" accounts with about 30 other are not enough QC reviewers and
small lenders.
appraisals get stalled. The ability to
What about underwriterrequests?
shift production appraisers to QC
After the appraisals are ready to What ordering and managing
helps resolve this problem.
do, they are sent to the lender client software do they use?
What does this mean for fee
They use proprietary software:
and reviewed by one of their under-
appraisers? Less work for some, but
PSManager for tracking the order
writers.
also less risk of not getting paid.
from beginning to end within the
Unfortunately, underwriters work
AMC, and AMCTrak online interface
with the specific requirements of
that connects appraisers, AMCs,
their employers. They are not
lcients and other business partners.
appraisers and have little or no
appraisal training.
Many don't understand appraisals.
Asking them to read appraisals look-
ing for answers to their questions
does not work well. Spending a lot of
time looking for answers and maybe,
or maybe not, understanding the
answers is a real hassle.
PAGE 4–©Appraisal Today–May 2013
What about exclusionary/watch How do appraisers apply forthe
lists? panel?
AMCs need to keep close track of Go to www.propsci.com and click
lender's "black" lists. If they use an on Approval Packets. They do not
appraiser on a lenders blacklist, they require work samples, although the
will have to pay another appraiser to web site refers to them.
do the appraisal and their client will
have to wait. How does Property Sciences compare
Property Sciences uses a formal with other AMCs?
committee. If the committee votes to This is my second AMC profile.
no longer accept work from the The first one, in the January 2013
appraiser, a letter is sent to the issue profiled Axis which has a simi-
appraiser providing 30 days to lar monthly volume and is similar in
respond. There are different levels of some ways and different in others.
actions: Check out their profile and compare it
- Placement on exclusionary list with Property Sciences.
- Letter of concern
- Senior review always required Should you work forProperty
Sciences?
- No action required
Just like deciding for any AMC,
what is important to you?
How are lenderrequirements
communicated to the fee - High fees
appraisers? - AMC reviews done by appraisers
Their engagement letters sent to - Timely payment of fees
appraisers are specific to each - Give you work regularly, not once a
lender's requirements, rather than year
using long "generic" engagement let-
- Low risk of payment problems
ters that combine requirements of
- Fewer stupid condition
many AMCs. Their software is set up
- Don't want to work for the big
to easily accomplish this.
AMCs
- Don't like broadcast orders
When are fee appraisers paid?
Twice per month via their choice
Contact information:
of check or direct deposit, between
www.propsci.com
net 7 and net 22 days from the
395 Taylor Blvd, Suite 250
appraiser's order completion.
Pleasant Hill, CA94523
Phone: [phone]
May 2013–©Appraisal Today–PAGE 5
Managing multiple appraisal deadlines
to increase your productivity
gridded listings. More lenders are map, appraisers will likely never
By Doug Smith, SRA demanding the cost approach, partic- realize the goal of effectively manag-
ularly in FHAappraisals. ing multiple reports and meeting
Appraisal management companies deadlines.
Editor's comment:fees are up, but
and lenders have risen to new heights Acorollary to setting out written
Scope Creep is making appraisals
in techniques for prodding appraisers goals and directions is using a priori-
take longer to complete. Efficient use
to meet deadlines. Some even send tizing system.
of your time to complete more
out monthly performance reports, sort The key to this system is sorting
appraisals is very critical now. No
of report cards on whether appraisers out deadlines in terms of long term,
one knows how long this boom will
play well with others or at least send short term or immediate. The next
last. I took a one-day business time
in reports on-time. With each gain in step is to weigh the deadlines in
management seminar many years
office productivity, clients seem to terms of return or impact.
ago. I still use the techniques I
demand still shorter report turn- For appraisers, defining and weigh-
learned every day.
around times. ing the payoff or consequence from
As appraisers adjust to the shift in
The incessant faxes, e-mails, and meeting deadlines is probably the
companies ordering appraisals,
follow-up phone calls tracking report greatest hurdle. Often, the client who
orders are flowing again. However,
progress are becoming serious inter- is the squeaky wheel gets the
these new companies have huge
ruptions in report production. response.
expectations not only in turn times,
The stress of managing multiple The word triage is commonly
but for the amount of information in
reports takes its toll on appraisers thought of as applying the assign-
reports.
ability to maintain confidence and ment of degrees of urgency to decide
Appraisers, both residential and
make sound decisions under stress. the order of treatment of wounds, ill-
commercial have in the last few
While technology now dominates nesses on the battlefield.
years embraced technology, new
our discussions and that which we While on some days appraisers
software, Internet communication
read in the trade magazines, apprais- may feel they are on a battlefield
and Web based data research to
ers must not overlook real and lasting managing multiple casualties, the
improve productivity.
productivity gains found in manage- word triage, in its first definition, is
Appraisers as well as appraisal
ment techniques and principles. Some more meaningful to the management
software companies labored mightily
of these skills appraisers apply every- of report preparation. The first pre-
and continue to work to keep up with
day. Other techniques are not new, ferred definition of triage is, "the act
the UAD changeover and make
but deserve even more emphasis. of sorting according to quality."
everything having to do with UAD
Clients represent differing qualities
work efficiently. While these
Step 1. Set goals and priorities and, therefore, deserve greater or less
improvements reduce report prepara-
Management guru Tom Peters once
priority in terms of their contribution
tion time, improve delivery to clients
said, "Effective visions prepare for
to the long-term health of the
and make research more efficient,
the future, but honor the past."
appraisal firm. For some appraisers,
appraisers increasingly struggle to
Whether it is a formal business plan
clients are not always seen to have a
meet deadlines and manage multiple
or simply a list of goals and direc-
long-term effect with only a one-time
orders.
tions, it is difficult to imagine pro-
need.
ceeding in today's business environ-
Increasing expansion of scope of However, each client must be eval-
ment without an overall plan for the
work and requests forupdates uated in terms of their possible influ-
future.
Appraisers comparing the com- ence for referring other clients. Any
Experts on time management all
plexity of appraisals point out those new client deserves careful evalua-
agree setting out future goals and
lenders are expanding the scope of tion in terms of quality and the
directions is the number one essential
work of assignments. potential they might have in a long-
of management and collectively all
More is required within reports term relationship. I
insist these must be in writing and
including the 1004MC and additional In any prioritizing system, the first
reviewed constantly. Without a road
PAGE 6–©Appraisal Today–May 2013
rule is to be aware of qualitative dif- over time is not practical and is bet- When in doubt, throw it out
ferences among clients. ter used from time to time as a diag- The handling of information both in
nostic tool. written form and on computers is so
Step 2. Rank priorities - Mind your much a part of appraising, efficient
A, B, C's Step 3. Follow yourcalendar handling is essential to meeting dead-
The second step in a system of pri- The goal of every appraiser is to lines.
oritizing is ranking priorities. have a high impact week. In high B.C. Forbes famously said, "Next to
There are several well-known sys- impact management of time leading the dog, the wastebasket is your best
tems for weighting individual priori- to greater productivity there is one friend." Simply put, working effi-
ties. Alan Lakein, in his book first commonality above all others and ciently means getting rid of the clutter
published in 1974, "How to Get that is the diligent use of a portable both past and present. Steps for han-
Control of Your Time and Your Life" personal planner. dling information or paper work
suggested an A, B, C system for There are many systems, Franklin, include:
assigning importance to items. Day Timer and Filo-Fax to mention a • Dispose of it: throw it away
More recently Steven Covey, few. More and more appraisers are • Send it on to someone else for han-
author of "The 7 Habits of Highly reporting good use being made of a dling-delegate
Effective People" promotes a system cloud based program called
• Do something with it
he describes as the four quadrants. Evernote. Evernote is particularly
• File it; archive it
The upper left quadrant being those useful for offices with more than one
• Read it or handle it later
items that are urgent and important; person. Evernote sets up multiple
If there is any delay in handling the
the upper right quadrant being those notebooks that can be accessed by
information, proper office manage-
items that are important, but not yet others in the office.
ment demands a tickler file or calen-
urgent. The lower left quadrant is the For those who are comfortable
dar file system.
dangerous trap for appraisers; those with Microsoft Outlook, the calendar
One of the remarkable tips I got
items that are urgent, yet not impor- program is fully capable of keeping
from an experienced office manager
tant. Finally he labels the time wast- track of work in progress and
was the use of a stand up sloping file
ing items in the lower right as those appointments.
divider. Appraisal files in process are
items not important and not urgent. There are a myriad of PDAorga-
nearby, visible and within easy reach.
Covey emphasizes addressing those nizers for smart phones and tablets. I
I found this to be superior to a file
items in the upper right quadrant that submit, however, that if the appraiser
drawer system where reports may
are important, but not yet urgent. does not now use a personal planner,
become "out of sight, out of mind."
Assigning priorities depends on indi- making the leap to a palm type orga-
Again, systems are individually dri-
vidual preference. nizer may not result in meaningful
ven. Some appraisers use a log sys-
However, the essential step is rank- management of time. Like the draw-
tem independent of each individual
ing those priorities. In this step, ing programs, if an appraiser can't
files to track the progress of files.
appraisers have an advantage because draw a house on paper, they never
Others log progress on the files them-
prioritizing is an everyday skill will do it well with a drawing pro-
selves.
honed as part of the appraisal process gram.
Office management and handling
comparing one property with another. The personal planner keeps pro-
may seem to be so much common
Once a set of priorities is set out, jects and deadlines in view at all
sense. But, I have benefitted greatly
ranking is accomplished by compar- times. Appraisers are out of their
by having an experienced office man-
ing the first priority, to the second offices frequently, inspecting and
ager review my office procedures,
and then comparing the more urgent collecting information, therefore
location of file drawers and work-
of those first two on the list to the portability of the daily planner is
space arrangement.
third working down. essential. Lastly, the personal planner
Of course, the best advice was
With priorties in place, the next as a constant companion keeps
"clean up this place." Out went the
step is to view the greater time appraisers from losing tract of the
old phone books, out of date maga-
frame, not just the day, but also the small items, requests and those ideas
zines and useless clutter that apprais-
week and the month. Some benefit that come out of no where.
ers are likely to keep. Have an outside
from keeping a time log in the short I learned one lasting lesson in time
expert review your system and objec-
term to diagnose activities that may management seminar that has stayed
tively critique the appraisal office as
contribute to inefficiency and the with me. It is "When you think it-ink
an office workplace.
resultant stress. Keeping a time log it."
May 2013–©Appraisal Today–PAGE 7
Knowing when to say no residential appraiser, saying you Concentrating, then, on the man-
Appraisers face too many requests don't have an opening in two weeks agement aspects of productivity can
for their time. Having a system in dodges the issue. It is better to say pay great dividends, increase produc-
place is not enough. Sometimes the no up front and invite a subsequent tivity, reduce the constant sense of
ability to meet deadlines and handle order than to state an impossible urgency and make appraising a less
multiple projects requires an apprais- completion time. stressful enterprise.
er to say no. In client communication, there are
The typical preliminary client two word commonly misused. These Where to get more information
request is predicated on three ques- words are "can" and "how." The There are many books, online arti-
tions, question "can I help you?" implies a cles, audio recordings, etc. For me,
1. Can you do an appraisal in a cer- yes or no answer. "How may I help taking a live seminar on business
tain area? Answered affirmatively, you?" seeks information. time management worked best. They
the next two questions are: In your discussion with clients all have the same basic concepts dis-
cussed above. Google your location
2. How much is the appraisal? concentrate on how you may help. In
for any live seminars. Google the
3. What is your turnaround time? the same way, when an appraiser
topic for online articles. Go to ama-
Appraisers have a number of stock says no, explain why and offer alter-
zon.com and look at the books,
answers to turnaround. Any other native solutions.
video, and audio resources.
commercial enterprise, when asked Saying no requires preparation.
these questions, qualifies the cus- When the request comes in, apprais-
About the author
tomer. Appraisers can do this by ask- ers must know where they are in
Doug Smith has an appraisal prac-
ing, "What is the range of your report production to effectively
tice in Missoula, Montana, and is a
required turnaround time." In other accept or decline an order.
certified general appraiser doing both
words, begin the process of establish- Lastly, probably no business enter-
residential and commercial apprais-
ing just what is expected. Repeat prise can be over-marketed, but in
ing with a specialty in hotel apprais-
clients sometimes have set deadlines the law of supply and demand
ing and feasibility studies.
and turnaround times. In some cases appraisers must be discerning in all
He has an MBAfrom the
these may be negotiated. matters of accepting or rejecting
University of Montana and the SRA
The second question about price is potential business or clients. The
designation from the Appraisal
also a qualification measure. Asking, long-term health of the appraiser's
Institute. He can be contacted at
what is the expected cost in this area business depends on it.
[email protected].
of reports received is a polite way of
establishing the price point of the Summary
potential client. If the client is truly To effectively manage multiple
shopping and reluctant to discuss appraisal deadlines, working from a
their fees, they are most likely acting set of clear goals and prioritizing
on the lowest bid. They also are workflow allows the appraiser to
probably not a good fit in the focus.
appraiser's business plan. Proper planning in the form of
adherence to the use of a portable
How to say no personal planner eliminates procrasti-
But at that point, how best to say nation, neglect and confusion.
no? Having a system in place to handle
The simplest way is to prepare the information and paper work gives the
listener for the turn down and say so appraiser control over workflow.
early in the conversation. "I would Finally, practicing effective com-
really like to help you with this munication with potential clients and
assignment, but I can't." being able to say no builds both per-
Some appraisers leave the door sonal power and strength in the
open by stating when they have appraisal firm.
opening in the future. For commer-
cial appraisers, lead-time is greater
and this is a realistic approach.
In today's market, however, for the
PAGE 8–©Appraisal Today–May 2013
How to use the 1004MC to address unreasonable
reconsideration requests
By Denis DeSaix, SRA manner that is impartial, objective, 1. In general, homes in the immediate
and independent, and maintains a neighborhood would be more similar
positive, business-like rapport and to the subject than those in the larger,
Stakeholders in the residential
relationship between the appraiser competitive market; and
mortgage finance process can ini-
and client? 2. As a rule, homes within the com-
tiate a request for reconsideration of
One relatively simple and impartial petitive market are better substitutes
value. Typically, that reconsideration
method is to rely upon the appraisal's vs. homes outside of the competitive
includes some data that the stake-
market analysis and 1004MC form- market.
holder suggests the appraiser consid-
driven analysis to be the primary By definition, a comparable for the
er and, after consideration, may
evaluation process to determine the subject will be in the competitive
result in a modification of the value
appropriateness of new data provided market area.
opinion.
in the reconsideration request. Defining the neighborhood pro-
The request for reconsideration is a
Indeed, this is the initial test the vides a rationale for the appraiser to
legitimate component in the mort-
appraiser uses to determine what argue that a home in the neighbor-
gage lending process:
sales are comparables; it should hood may be superior to a home out-
• Reconsideration requests are
therefore be the credible test to deter- side of the neighborhood (but inside
specifically cited in Dodd-Frank as
mine the appropriateness of any new of the competitive market); alterna-
not being an infringement on
data. tively, if the appraiser excludes
Appraiser Independence
homes within the neighborhood, then
• FHA(for example) requires that its
Step 1: Market Analysis - defining the appraiser should be able to sup-
fee panel appraisers evaluate recon-
the market
port that rationale as well.
siderations as part of the engagement
The first step is for the appraiser to
Nevertheless, the data considered
and to do so at no additional charge
define the subject's neighborhood
as comparables are those properties
• The GSEs have no prohibition on and competitive market area.
that are within the competitive mar-
reconsiderations
The Dictionary of Real Estate
ket; data outside of this defined area,
• Many clients have reconsideration Appraisal (4th ed.) defines the term
by definition, is not relevant unless it
language as part of their engage- "neighborhood" as: "Agroup of com-
is necessary to go to a "competing
ment-agreements plementary land uses; a congruous
market". In most cases, if appropriate
An underlying premise of the grouping of inhabitants, buildings, or
data exists in the primary market,
reconsideration is that the new data business enterprises."
there is no reason to go to a compet-
given to the appraiser be appropriate. The subject's competitive market is
ing market.
Not all stakeholders have the where- where it competes against other, sim-
The two definitions can be used as
withal to evaluate what constitutes ilar properties for the same buyer
part of the regular template in an
appropriate (vs. inappropriate), and pool. The Dictionary of Real Estate
appraisers report. For each assign-
not all stakeholders are objective in Appraisal defines "Competitive
ment, the subject-specific boundaries
their reconsideration-data selection. Market" as: "The geographic or loca-
are identified and described. An
On the other hand, some requests tional delineation of the market for a
example is included below:
are legitimate; both in the data selec- specific category of real estate, i.e.,
tion and in the motivation for provid- the area in which alternative, similar Defining the market area - An
ing it, and those instances warrant properties effectively compete with example from an appraisal report
the full attention of the appraiser. the subject property in the minds of The Dictionary of Real Estate
Achallenge that many appraisers probable, potential purchasers and Appraisal (4th ed.) defines the term
face is: users. "neighborhood" as:
A. How to quickly and efficiently As a rule, the competitive market Agroup of complementary land uses;
screen the reconsideration data to will be equal to or larger than the a congruous grouping of inhabitants,
determine its appropriateness, and neighborhood. Defining the market buildings, or business enterprises.
B. If found inappropriate, how to in this manner provides two ratio- The subject's neighborhood is there-
address that issue to the client in a nales for comparable selection: fore identified by the following
May 2013–©Appraisal Today–PAGE 9
boundaries: Bernal Av (SE), Foothill Appraisers should add an addi- dum regarding the comparable search
Rd (SW), W. Las Positas Dr (NW), tional filterscreen to this initial process. An example of such a com-
and the 680 Frwy (NE). search to identify and eliminate ment is included below.
The subject's competitive market is outliers. Outliers can skew the data Note that the citation includes:
where it competes against other, simi- (a low sale due to a significant condi- • Areference to the defined competi-
lar properties for the same buyer tion impairments, etc.). tive market area
pool. "Competitive Market" is With additional screening, the The significant elements of compari-
defined as: The geographic or loca- appraiser can be confident that the son that were used as a primary
tional delineation of the market for a search has resulted in those properties screen
specific category of real estate, i.e., that are most similar to the subject • The fact that outliers were excluded
the area in which alternative, similar and that are located within the com- on a second screen
properties effectively compete with petitive market area. These are the sales most similar to
the subject property in the minds of Assuming the appraiser has con- the subject and these are the sales
probable, potential purchasers and structed a reasonable market-screen considered by the appraiser. This is
users. for the subject, the results are all the consistent with the following certifi-
The subject's competitive market is properties that should be used for cation in the GSE reporting form:
identified by the following bound- comparable selection.
aries: Foothill Rd (SW), Castlewood Many MLS systems provide a for- Evaluating the reconsideration data
Dr/Sunol Blvd/Sycamore Rd (SW), mat report that is similar to the The prior process is part of the nor-
open space (E), Vineyard Ave (N), 1004MC grids. In addition to the grid mal procedure in developing and
1st/Bernal Av (N & NW), and the 680 summary, they also provide a list of reporting an opinion of market value
Frwy (NE). the data considered in the analysis. for a residential mortgage loan.
Adequately defining the subject An example of an MLS-print out of Appraisers complete these steps, and
Neighborhood and Competitive a single-screen form is presented on appraisers can use this process to
Market is the first filterto use for the previous page. screen the reconsideration data. In
screening reconsideration data. This is the data that the appraiser summary, the steps are:
has determined are the most relevant 1. Define the competitive market and
Step 2: The 1004MC Analysis and appropriate comparables to con- the subject's neighborhood (these may
The 1004MC analysis is designed sider. If there are sufficient data be the same geographic area, but the
to provide the client with a summary points within this sample, then competitive market will typically be
of the properties within the subject's reliance on the primary competitive at least as large as the neighborhood).
competitive market that directly com- market for comparable selection is 2. Define the significant elements of
pete with the subject. established. If the data sample is not comparison (GLA, condition, etc.)
In other words, these homes are sufficient, then additional searches that are used to select the best substi-
those properties that the appraiser has may be necessary in competing mar- tutes for the subject within its defined
determined are the likely/best substi- kets. competitive market.
tutes a likely buyer (the market) Note: the 1004MC is designed to 3. Analyze the area (defined in Step
would consider when evaluating the provide the client with information 1) with the first screening filter
subject in a purchase-decision. on the subject's competitive market (defined in Step 2) and review the
The search parameters for likely only. The 1004MC search parame- results.
substitutes are typically based on the ters should not be artificially 4. Complete a second screening of the
significant elements of comparison. expanded if there are few sales. data and exclude the outliers.
For example, such parameters may be Indeed, one purpose of the analysis is 5. The resulting data collected from
Condition to support the decision to go outside the two-step process becomes the
• GLA to competing markets if necessary. data used in the 1004MC analysis.
• Location Therefore, the 1004MC results 6. In the report, include a summary of
• Bed/Bath Count should only include those found in all the data analyzed (most MLS sys-
• Lot Size the identified competitive market. If tems or 3rd party 1004mc products
• Any other special amenity the appraiser uses sales from a com- are capable of this task) in the
Data is initially searched using peting market, these should not be 1004MC. These represent all the
these parameters. included in the 1004MC results. data points considered relevant for
The final component is to provide the assignment.
commentary in the 1004MC adden-
PAGE 10–©Appraisal Today–May 2013