A & E Appraisals Blog - Maricopa County Arizona - Real Estate Blog

Why do consumers prefer Toyotas or Hondas vs. Chevy's, Fords or other American cars? It would seem that most cars provide basically the same features, but year after year Toyota and Honda continue to provide reliability and value beyond that of their competitors in the eyes of buyers.

While American car manufacturers have closed the gap, the public's perception has been fashioned by years of import performance that wasn't matched by American cars. Check any of the automobile rating agencies and at the top will be a long line of “imports” with high marks for quality, performance and reliability.

The appraisal profession is faced with a similar "perception problem".

From the client’s perspective, how reliable are real estate appraisals? Are they better off by letting an AMC (Appraisal Management Company) “handle the hassle” or could they be getting something better and more reliable?

What can be done to change the market's perception of the services the professional appraiser provides? When you consider that the consumer is making perhaps the largest investment of their life with the purchase of a home, logically, they should want assurance that it is a sound investment, something a good appraisal would provide.

We all know that the purchase of a home is an emotional decision and that tends to over-shadow logic. Still, you would think that with the median price of a home in the $200,000 plus range, a $300-$400 investment by the consumer would be a cheap insurance policy and in their best interest prior to taking the housing plunge.

The reality is, consumers don’t know what we do, nor do they know what we could do for them as a consulting type assignment when they are about to make the investment of their lives. Likewise, appraisers often don’t comprehend the needs of their clients nor consider additional services they could provide “collectively” that would be valuable to the client.

The lender is making a large financial commitment, taking on the risk of underwriting the collateral with someone’s best guess (as professional as it may be) at what that property could be sold for in less than “perfect market conditions”. Even with a solid borrower profile, the lender is guaranteeing the value to the secondary market in the form of a “buy-back” commitment.

What could appraisers do to change the process, the rules and the appraisal report that would have the most positive impact on the perception of the appraisal by the client, the agent, the consumer and the secondary market? How can we reinvent the profession, to not only make it more attractive to the client, but more valuable to the underwriting process and therefore a must have?

Appraisers think they know what the client wants, "quick turn times and low fees”, however, are they really the key elements from the client's perspective or are there other factors (if provided on a consistent basis) that would shift the market's perception of the services appraisers provide?

What's missing in the equation is the appraiser's comprehension of the client's needs. Toyota, Honda and other foreign automakers capitalized on this concept by changing the public's perception of the quality of the product.

When first introduced to America, Toyota, Honda, etc. were considered low cost or cheap transportation alternatives and they didn't have much success. Subsequently, they began testing their vehicles outside of the US market, for many years before introducing the same vehicle to the American public. Essentially, they got all of the bugs out of the vehicle before the American public ever drove one, a practice that continues to this day.

Perception is reality. What do we really know about the client's needs vs. what we perceive? The client has shown us that they are unwilling to pay a premium fee for the product we deliver. Why do they consider it marginal to their needs? They have abandoned first person dealings with the appraiser in favor of having AMC’s handle the hassle.

What must we do to change the system, product and the client's perception and how can we accomplish this? Step outside the box and cite 5 factors (from the client's perspective) that are (or would be) invaluable to their valuation needs and that could be provided by the appraiser, as opposed to an AVM or BPO.

Two key factors have already been cited above, turn-time and reliability. For the “homework assignment”, low fees are not a consideration and cannot be included. In the scheme of things, cheap, is not a function of the lender, it’s a requirement of the AMCs to make their profit for handing the transaction.

Lenders pass on the cost of the appraisal and other services to the borrower, so unless the lender has an interest in the AMC (and some do), low fees should not be one of the factors on your list. Keep in mind, whatever you suggest should be something that could be mandated on a national basis and that could be completed by any appraiser in any market area.

For example, I have a standard two-page housing market addendum, with economic and demographic information that is very useful and provides the reader with supporting analysis linked to the 1004MC addendum. Aside from what I’ve mentioned above, what would you include?

What should all appraisers be mandated to do or what additional services could be provided, that would change the client’s perception of the typical appraisal?
How can the profession reinvent itself?
If you were the client, investing your money in the market, what would you want to see in the appraisal or the process that you are not seeing now?

AUTHOR: Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. He can be reached at lvreqa@cox.net Look for the new Outside The Boxes category for a collection of Patrick's articles on Appraisal Scoop!

LA - Certified said...

Absolutely Patrick, I find your article very insightful or commendably perceptive. Many of us have already expanded to more comprehensive report writing over the years and have provided our clients with additional information not mandated in the typical appraisal report, unfortunately the market is not receptive to the lengthy analysis required to provide such a superior product. As much as I enjoy conveying my conclusions with additional analysis and demonstrating other points of interest to my client, I am now being forced to condense my reports into a more uniform/basic product which can be more profitable. I see the trend moving towards a less detailed and a more hybrid version that includes only minimum standards and not the opposite. I did notice that you mentioned low fees and fast turn time requirements should not be a consideration for my response, however, you are speaking to the profession as a whole in this particular forum.

If anything I agree with you on developing a more enhanced supplemental addendum to the 1004MC including other basic information which is of interest and readily available in some areas including economic/employment forecasts, household incomes, housing turn-over ratios, new housing starts, etc.

August 08, 2009 at 01:15 PM

Patrick Egger said...

We often see larger problems from one perspective, our own. How does this issue affect me, vs. what could be done to eliminate the issue so that I am not affected?

I’m not ready to share all of my thoughts, but just as USPAP provided guidance for appraisers, interpretations of USPAP created a least one huge problem for lenders.

As a former VP with a major lender, I’ve seen both sides of the appraisal, what we do before we send it and what the client must do after they receive it.

I think this is the area appraisers need a better comprehension of. What changes could we make on our side (collectively) that would have a major impact on their side?

Like you, I have always included a lot of addenda material, stats, etc. to help the reader. After spending time with our UW’s, I quickly came to understand that providing the data benefited me more than the client, not because it wasn’t useful, but because they didn’t understand how to use it.

You can have the best tool for the job, but its only valuable if the person on the job knows how to use it and how it benefits them if the require it and employ it. Therein is the core of the problem and the opportunity.

I teach CE for appraisers and for agents. One class for agents, “Demystifying the Appraisal”, has repeatedly shifted opinions from what they were pre-class to what they are post class.

Our product will only excel when we provide the client with both the tool and how to use it, something we can accomplish through a variety of existing channels.

Thanks for the comments

Patrick

August 08, 2009 at 01:41 PM

Michele Kennison said...

Thank you for your great article.

Since the market downward trend in 2005/2006, I have always had a market analysis explaining the trends.

Since the 1004MC, my analysis is more thorough and typically is 3 to 4 pages of addendum. In the analysis, the 1004MC is graphed in excel, there is a paired sales analysis, 5 rolling quarter charter and overall comments to support my conclusions.

My clients are local banks and credit unions. NO AMC Work. They appreciate the amount of time and work involved and pay a very fair fee. No turntime pressure, no value pressure and typically no conditions.

If we would all hold ourselves to a higher standard and do the work that is required, maybe then we would get some respect. Unfortunately, until many appraisers leave the business and that will include some really good appraisers, I think things will remain the same.

AMCs have their place in the business, but until appraisers stand up for themselves, they will be run over by the AMC freight train.

Thanks again for you time on this article.

August 09, 2009 at 12:06 PM

Patrick Egger said in reply to Michele Kennison...

Hello Michele,

I agree that the “collective profession” needs to take a higher road. Unfortunately, we lack the “collective roadmap” that points to which route east and west or north and south.

Many appraisers are providing “added services”, just not in a manner that makes them productive and must haves to the client.

The only thing consistent in the appraisal report is the URAR. Beyond that, appraisers have a lot of custom addenda. If you are an underwriter, finding the information and answers needed to compete various underwriting checklists is time consuming and confusing for many.

This is one area we could improve. Technology makes all things possible. We could tweak the system to provide UW answers on the fly, with little or no effort on our part and a valued added service from the client’s perspective. When you see the appraisal from the client’s perspective, you’ll see a lot of opportunity to make improvements.

Thanks for the comments.

August 09, 2009 at 12:40 PM

Michele Kennison said in reply to Patrick Egger...

I couldm't agree more.

My two major clients have recently advised that my
appraisals are thorough and complete and the underwriter is spending much less time reviewing them compared to some of their other appraisers.

But, I am always up for improvements and have plans
on sitting with an underwriter soon.

August 09, 2009 at 12:47 PM

Always nice to get good feedback from a client. When you meet with the UW, post what you learn, so that others will benefit from the experience.

August 10, 2009 at 01:45 PM

Brian Davis said...

Reposted on behalf of LA Certified:

Reposted on behalf of LA Certified

August 10, 2009 at 09:00 AM

Rita Bradley said...

Hi Patrick, I'm not sure I like the sound of mandating anything else in an appraisal report. With overall appraisal fees dropping, longer and longer forms with increased liability makes me feel a little sick.

That being said, to begin with, I think some of the keys to what underwriters are looking for will come from appraisal "stips". Anticipating and addressing those items might be a start. For instance, the appraisal could include a list of seemingly (to a non-appraiser or person who isn't doing the appraisal) comparable sales which where not used in a report with reasons why. I know a lot of appraisers resent being asked to provide this information but it seems to come up a lot on forums so I have to believe it's important to underwriters.

Some have suggested forecasting future value trends in the neighborhood or area. I'm fairly sure investment minded lenders and home buyers would like this information. The problem I see with providing it is added liability for the appraiser. This year in particular we've had a couple of rather sudden government interventions and banking manipulations that could blow a forecast to bits. Could those appraisals come back to haunt the appraiser in the future?

You (we?) have our work cut out for us in trying to make appraisals more relevant or be perceived as more relevant.

August 10, 2009 at 04:26 PM

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Reinventing the Appraisal Process: What can be done to change the market's perception of the services the professional appraiser provides?

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