Valuation magazine 2Q 2014 by Kerry Spaedy

IN THIS ISSUE

 FANNIE MAE’S PLAN TO SCREEN OUT BAD APPLES | THE TOP FIVE TECH TRENDS FOR APPRAISERS SECOND QUARTER

2014

INSIGHTS AND PERSPECTIVES FOR REAL ESTATE APPRAISERS

STAR

POWER

FOR HOMES DESIGNED BY FAMOUS ARCHITECTS, VALUE GOES BEYOND NAME RECOGNITION

APV-021

OMG! Thank You, Thank You, Thank You! - Appraiser in Kansas

Far, Far Better Than Other Maps - Appraiser in Nevada

Mapping is 1000% Better for Me - Appraiser in New Jersey

ÂŠ2014 ACI. All Rights Reserved. Google Maps is a trademark of Google, Inc. Used with permission. ACI Sky is a trademark of ACI. ACI makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions.

Got Google? We Do! ACI users now enjoy the power of Google Maps™ Take advantage of the integration power within ACI Report to create accurate and professional location maps. Powered by Google Maps, ACI Sky™ Maps will pinpoint your subject property and comparable sales with just a few mouse clicks. This enhanced service allows ACI appraisers to create location maps with real-time panning, zooming, and improved editing in both road and satellite mode.

Additionally, you can create an aerial snapshot of the subject property and save it to an extra map page in a matter of seconds. If you already subscribe to our location map service, you can begin using ACI Sky Maps immediately. If you do not currently use our location map service, please contact sales at 800.234.8727 and we’ll set you up with a free trial.

You must have a current support contract to download software updates. If your support subscription has lapsed, visit the My Account page on ACIweb.com or call Sales at 800-234-8727.

STRONG TOGETHER

The strength of Intercorp’s Real Estate Appraisers Errors & Omissions Program lies in the people behind our program and the thousands of appraisers who have secured coverage through our program over the past two decades. Our licensed agents understand your business, explain coverages and insurance terms, and guide you through the claims process if a claim or complaint does occur. Our strength lies in our 10-year relationship with an A XV rated insuring company – committed to the real estate appraisal profession.

STRENGTH: A XV rated insurance company. STABILITY: Serving appraisers since 1994. SERVICE: Intercorp is second to none!

YOU AND INTERCORP: STRONG TOGETHER TODAY. STRONGER TOGETHER TOMORROW. To learn more, call 800-640-7601 or visit us at www.intercorpinc.net

VALUATION

SECOND QUARTER

2014

PUBLISHED BY THE APPRAISAL INSTITUTE ❚ VOLUME 19, NUMBER TWO

Walter H. Gale House, designed by Frank Lloyd Wright, 1893. Many features are precursors to the Prairie style in Wright’s later designs.

FEATURES

Brand Names

Process of Elimination

perfect niche

legal proceedings

tomorrow’s trends

FROM THE APPRAISAL INSTITUTE

HOT TOPICS

04 BEHIND THE SCENES

10 REST INSURED

By JAY

W. SCHNEIDER, executive editor

A look at big names, big data and big deals.

06 ON POINT By KEN P. WILSON, MAI, SRA, president

AI enhances advocacy role as profession’s thought leader.

34 APPRAISAL REPORT

AI unveils a new certification organization; announces 2014 Annual Meeting speakers; and discusses green valuation at the White House.

By PETER

Fannie Mae has a plan to identify appraisers who produce inconsistent or problematic appraisals. By DAVID TOBENKIN

Lost at Sea

Appraisers have to navigate a flood of data as never before. Here are five ways advanced analytics is influencing technology. By MARK R. LINNÉ, MAI, SRA

NEWS & INFORMATION

T. CHRISTENSEN, general counsel,

Liability Insurance Administrators

Simple business and insurance mistakes can make appraisers vulnerable — and liable.

12 FRONT LINES By ARTHUR

L. SCHWERTZ, MAI

When specializing in historic districts like the New Orleans French Quarter, each appraisal is a learning experience.

32 TRADE SECRETS By JULIE

When appraising homes designed by famous architects, value is less in the name than in the home’s quality and marketability. By DEBORAH R. HUSO

BAWDEN DAVIS

A crisis can hit anyone at any time, and usually does so when least expected. Learn how to prepare for the worst, so your business can survive.

40 FACE VALUE

Sandra K. Adomatis, SRA, discusses energy efficiency and the evolution of green valuation.

08 UP FRONT

House members send a letter to the SBA about its going concern policy; and is rural appraisal guidance linked to GSE reform?

28 TECH BYTES

The Mophie Space Pack extends iPhone battery life and memory; Zonda tracks 250 homebuilding industry metrics; and Actiontec extends your wireless network.

29 maps & comps By JOHN

CIRINCIONE, SRA

Turn spreadsheet data into helpful maps with EasyMapMaker.

30 cool tools By R.

WAYNE PUGH, MAI

Edit reports for brevity and clarity using WordRake.

36 THE NEWS IN NUMBERS

See the quarter’s economic indicators and the PwC Real Estate Investor Survey.

04 VALUATION

2Q 2014

BEHIND THE SCENES The value inside Valuation

VALUATION President Ken P. Wilson, MAI, SRA

President-Elect M. Lance Coyle, MAI, SRA

NO SMALL PLANS A look at big names, big deals and big data By JAY

Also in this issue Jay W. Schneider is editor of Valuation magazine and AI’s e-newsletters.

How did one appraiser wind up as a defendant in a lawsuit filed by the Federal Deposit Insurance Corporation over an appraisal he never worked

Immediate Past President Richard L. Borges II, MAI, SRA, AI-RRS Chief Executive Officer Frederick H. Grubbe, MBA, CAE Director of Communications Ken Chitester, APR kchitester@appraisalinstitute.org

W. SCHNEIDER, executive editor

rank Lloyd Wright. Bernard Maybeck. Richard Neutra. These famous architects are among an elite group responsible for defining the nation’s residential landscape over the past 100 years. These individuals created the Prairie style (Wright), advanced the Arts & Crafts movement (Maybeck) and defined midcentury modern (Neutra). No doubt their accomplishments are huge, but do their notable names influence home value? In “Brand Names” on page 14, we talk to valuation professionals who have appraised properties designed by famous architects to see if a big name means big bucks. In January, Fannie Mae launched its new appraiser quality monitoring program that caused big-time confusion and concern for valuation professionals. Appraisers wondered how extensive the program would be, what issues would be targeted and how they could avoid landing on the dreaded list of appraisers whose work would no longer be accepted by Fannie. We address those concerns — and many others — in “Process of Elimination” on page 20, to find out how big a deal the AQM program really is. In “Lost at Sea” on page 25, appraiser, futurist and author Mark R. Linné, MAI, SRA, explores the five biggest trends redefining the valuation profession and how advanced analytics is influencing technology.

Vice President J. Scott Robinson, MAI, SRA, AI-GRS

on or signed? In “Accidental Defendant” on page 10, Peter T. Christensen discusses simple business and insurance mistakes that can make appraisers vulnerable — and liable. Appraising in national historic districts like the New Orleans French Quarter can be difficult, given the layers of government regulations, preservation requirements and deed restrictions that appraisers must sort through. Read about one appraiser’s experience in “History Lesson” on page 12. Check out the Face Value column on page 40 and read about how Sandra Adomatis, SRA, has made it her mission to educate her peers about energy efficiency and sustainability — an endeavor that’s made her the Appraisal Institute’s “green guru.”

Congratulations The Appraisal Institute’s video, “How Appraisers Help Attorneys Prepare for Expert Witness Testimony,” was honored with a Gold Award from the Hermes Creative Award competition from the Association of Marketing and Communication Professionals. AI’s weekly e-newsletter, Appraiser News Online, received an Honorable Mention. The video won in the video/educational category while ANO won in the e-newsletter category. Watch the winning YouTube video at www. youtube.com/watch?v=mvL34_fqSHA. Subscribe to ANO at www.myappraisalinstitute. org/ano/subscribe/default.aspx.

Have a comment, question or concern? Email me at jschneider@appraisalinstitute. org.

Executive Editor Jay W. Schneider jschneider@appraisalinstitute.org Advertising Sales Kerry Spaedy 312-335-4476 kspaedy@appraisalinstitute.org

888-756-4624; www.appraisalinstitute.org Publication Management GLC 900 Skokie Blvd., Suite 200 Northbrook, IL 60062 800-641-3912; www.glcdelivers.com Project Manager Phil Malkinson Art Director Scott Oldham Valuation (ISSN 1087-0148) is published quarterly by the Appraisal Institute. Bulk rate postage paid at Chicago, IL and additional mailing offices. Send address changes to: Valuation, 200 W. Madison St., Suite 1500, Chicago, IL 60606; 888-756-4624; 312-335-4400 (fax). Subscriptions: Nonmember annual subscription rate for Valuation is $30. Foreign rates: add $15 per year. Make checks payable to Appraisal Institute. Single copies and back issues, if available, are $10. Phone orders: 312-335-4437 Reprint policy: Copyright law prohibits any manner of reproduction of any portion of Valuation, except with the written permission of the Appraisal Institute. To obtain reprint permission, please submit a detailed written request to Jay Schneider, jschneider@appraisalinstitute.org. Copyright © 2014 Appraisal Institute. All rights reserved. www.appraisalinstitute.org Mission Statement: Valuation is published to provide timely, practical information and ideas to assist real estate appraisers in conducting their business effectively. Disclaimers: The views expressed in Valuation are those of the authors and may not reflect the official policy of the Appraisal Institute, its officers or staff. The Appraisal Institute does not necessarily endorse or warrant the products and/or services advertised in Valuation. The Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. The Appraisal Institute does not suggest, recommend or take any position as to what is an appropriate appraisal fee. Each appraiser, appraisal firm or company that offers appraisal services should determine its own appraisal fees based on its personal and independent assessment of the market.

Session Descriptions and Presenters Announced! August 4–6, 2014 Hilton Austin | Austin, Texas Keynote Speaker: Eugene A. Cernan, “The Last Man to Walk on the Moon” Featured Presentations: “The Economic Outlook for Real Estate Investors and Decision Makers” Dr. Mark G. Dotzour, chief economist and director of research for the Real Estate Center at Texas A&M University “A $19 Trillion Education: Are We Smarter Now than in 2008?” Brian Olasav, managing director, McKenna Long & Aldridge LLP

For full session descriptions, speaker information and registration, please visit: www.appraisalinstitute.org/aiconnect

06 VALUATION

2Q 2014

ON POINT From the desk of the president By KEN

P. WILSON, MAI, SRA

THE WAY FORWARD AI enhances advocacy role as profession’s thought leader

s the nation’s largest professional association of real estate appraisers, the Appraisal Institute has been recognized as the thought leader in the valuation profession for more than 80 years. AI regularly uses its leadership role to advocate for its individuals and the profession as a whole in Washington, D.C., throughout the country and around the globe. A recent example includes my March 11 visit to the White House, where I represented the Appraisal Institute at the U.S. Department of Housing and Urban Development’s Green Mortgage Appraisal Roundtable. Fellow attendees included leaders from the lending, realtor and homebuilding industries,

all working together to improve the mortgage appraisal process. Attendees also heard from Sandra K. Adomatis, SRA, who discussed how the valuation profession’s appraisal of high-performance homes has advanced. Coincidentally, Adomatis is featured on

page 40; see what else she has to say about green and energy-efficient valuation. You can read more about the White House roundtable on page 34. Another example of the Appraisal Institute’s leadership was its first-ever educational offering for valuation professionals in the Persian Gulf. AI concluded a historic week-long teaching opportunity March 18 in Kuwait City, during which Leslie P. Sellers, MAI, SRA, taught AI’s “Basic Appraisal Principles” course at Kuwait University — Real Estate Academy. Following that March visit, I was joined by AI’s Chief Executive Officer Frederick H. Grubbe, MBA, CAE, in Kuwait for a series of meetings with Kuwait University, the

The Designated Difference

Appraisal Institute Designated members: • Are recognized leaders; • Have the potential for greater financial success; and • Enjoy a competitive edge over non-designated real estate appraisers. Show commitment to your career — begin or continue your pursuit for designation today: www.appraisalinstitute.org/airesources

www.appraisalinstitute.org

Ministry of Commerce of Kuwait, the Central Bank of Kuwait and the Real Estate Association of Kuwait. During this trip, Charles T. Cowart, MAI, taught AI’s “Basic Appraisal Procedures” course at Kuwait University — Real Estate Academy.

AI’s Speaking Opportunities These exciting and sometimes historic opportunities are just the beginning of what the Appraisal Institute has on its calendar this year. Other venues at which AI presented or will present include: ■■The American Bankers Association’s Real Estate Lending Conference on April 7 in Charleston, South Carolina, at which I participated on a panel discussing the importance of the appraisal review function in community banking institutions. ■■The Federal Bureau of Investigation on June 17 in Washington, D.C., where I spoke on mortgage fraud. ■■Valuation Expo on June 25 in Las Vegas, where Immediate Past President Richard

L. Borges II, MAI, SRA, AI-RRS, will address the current state of rulemaking and regulations pursuant to the DoddFrank Act related to appraisals. ■■The Five Star Conference and Expo on Sept. 14–16 in Dallas at which AI Vice President M. Lance Coyle, MAI, SRA, will be a panelist. ■■ The American Institute of CPAs’ Forensic & Valuation Conference on Nov. 10 in New Orleans, where I will co-present a session focused on forensic and valuation issues in real estate. Additionally, AI professionals will attend the following meetings this year: ■■The European Group of Valuers’ Association; ■■Expo Real (Europe’s largest business to-business trade show for property and investment); ■■National Association of Romanian Valuers; ■■International Valuation Standards Council; ■■Chinese, Japanese and Korean appraisal and banking entities; ■■The Belarusian Society of Valuers; and

Residential Green Valuation Tools Residential Green Valuation Tools explores the six features that make a home green — proper siting, water usage, energy efficiency, indoor air quality, materials, and operations and maintenance. This new book: • is a comprehensive overview of the valuation of high-performance homes; • contains case studies illustrating common scenarios and valuation problems; • provides instructions for completing the Residential Green and Energy Efficient Addendum; and • presents tips for appraising Energy Star homes, passive solar houses, solar photovoltaic systems and net-zero energy homes.

Price: $60* | AI Price: $50* Available in print and digital formats.

To order, visit www.appraisalinstitute.org/store *Plus shipping & handling

■■Cityscape Dubai (the Middle East’s largest real estate development and investment event).

The Appraisal Institute has expanded its Valuation of Sustainable Buildings Professional Development Program’s online registries of Designated members to include Candidates for Designation, Practicing Affiliates, Affiliates and non-AI professionals who have successfully completed their respective courses. Find the residential registry at www.myappraisalinstitute. org/findappraiser/green_sustainability_ residential.aspx. Find the commercial registry at www.myappraisalinstitute. org/findappraiser/green_sustainability_ commercial.aspx. Learn more about AI’s Valuation of Sustainable Buildings Professional Development programs at www.appraisalinstitute.org/education/ your-career/professional-developmentprograms/#Valuation%20of%20 Sustainable%20Buildings.

08 VALUATION

2Q 2014

UP FRONTHeadlines and

updates from the appraisal world

POWER OF THE PEN

Letter challenges SBA going concern appraisal policy

Responding to growing concern from the real estate industry over the U.S. Small Business Administration’s policy change on the appraisals of special purposes properties, 15 members of the House of Representatives sent a letter March 6 to the SBA’s acting administrator Marianne O’Brien Markowitz seeking clarification on the matter. The letter asked the SBA to explain why it reversed a guidance issued in 2011 that allowed an appraiser to take an accepted course in order to meet eligibility requirements for special purpose properties. Since SOP 50-10F took effect Jan. 1, significant problems have been reported, including added costs and delays. In its letter, the House members asked the SBA to “provide details and analysis as to why an experienced real estate appraiser does not qualify to prepare ‘going concern’ appraisals if the appraiser is experienced in the particular property type and is competent to value special purpose properties.” Additionally, the letter asks the SBA to explain

its process for determining whether or not an appraiser is qualified to satisfy the business valuation component of the “going concern” appraisal. The Appraisal Institute supported the House letter, as did the American Bankers Association, the Credit Union National Association, the National Association of Federal Credit Unions, the Real Estate Roundtable, the National Association of Realtors, BOMA International, the National Association of Read the letter to Marianne O’Brien Convenience Stores, the Markowitz at www.appraisalinstitute. American Hotel and Lodgorg/assets/1/7/03_06_14_Letter_to_ ing Association, the Asian SBA_Admin_re_-_SOP50-10F.pdf. Read American Hotel Owners about SBA’s change on appraisal polAssociation and the Petroicy at www.appraisalinstitute.org/ leum Marketers Association advocacy/washington-report/ fourth-quarter-2013-washington-report/#SBA. of America.

STATE OF SUPERVISION

Regulators propose supervision requirements for AMCs

Six federal agencies jointly issued a proposed rule March 24 that would implement minimum requirements for state registration and supervision of appraisal management companies. Under the proposed rule, participating states would require that an AMC: ■■Register in the state and be subject to its supervision; ■■Use only state-certified or licensed appraisers for federally related transactions; ■■Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice; ■■Ensure selection of a competent and independent appraiser; and

■■Establish and comply with processes and controls reasonably designed to ensure that appraisals comply with the appraisal independence standards established under the Truth in Lending Act. The proposed rule also would require that a state’s certifying and licensing agency have certain authorities, including the authority to: ■■Approve or deny initial AMC registration applications and applications for renewals; ■■Examine the AMC and require it to submit relevant information to the state; ■■Conduct investigations of AMCs to assess potential violations of appraisal-related laws; and

■■Report an AMC’s violation of appraisal-related laws, as well as disciplinary and enforcement actions, and other pertinent information about an AMC’s operations to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. The proposed rule would allow participating states 36 months to implement the minimum requirements after the rule takes effect. An AMC that is a subsidiary of a financial institution and regulated by a federal financial institution regulatory agency is required to meet the same minimum requirements as other AMCs, but it would not have to register with the state.

Read a copy of the proposed AMC rule at www.fdic.gov/news/news/press/2014/ pr14021a.pdf.

www.appraisalinstitute.org

RURAL DEVELOPMENTS GSE rural appraisal guidance addresses congressional inquiries On March 25, Fannie Mae and Freddie Mac released guidance for lenders relating to rural appraisals. The timing, tone and tenor of the document leads the Appraisal Institute to believe that proponents seeking to pursue appraisal exemptions may be targeting government-sponsored enterprise reform legislation as a way to address rural appraisal requirements on loans sold to the GSEs. If that is the case, it would address issues well beyond those related to loans held in bank portfolios. Several members of Congress, particularly in the Senate, expressed concern about rural appraisal issues, specifically about

appraisal requirements that were imposed on lenders and how that affected the loans that banks held in their portfolios. There also was concern that an appraisal exemption would be proposed. The Johnson-Crapo GSE reform bill in the Senate may come up for a vote before the Committee on Banking this year. That bill faces a complicated road to enactment, especially with See Fannie Mae’s guidance six Senate Democrats withdrawing their at https://www.fanniemae. support, but it’s one appraisal professionals com/content/announce should be watching. ment/ll1402.pdf.

REQUIRED CHANGES

Fannie Mae updates appraisal policies On April 15, Fannie Mae announced changes to its Selling Guide that affect appraisal policies relating to appraisal updates, required photos and acceptable comparable properties. The changes must be implemented no later than Aug. 1. Among the changes, Fannie will require appraisers who are performing an appraisal update to include a photograph of the front

of a subject property so that the exterior inspection can be validated. Appraisal updates must be reported on the Appraisal Update and/or Completion Report. Fannie Mae noted that origination appraisals can be utilized for subsequent transactions if there is no change to the property condition impacting the market value and certain requirements

are met. The requirements relate to the transaction type, age of the appraisal, continuity of ownership and the lender. When identifying an addition that doesn’t have a required permit, the appraiser must comment on the quality and appearance of the work. Comments also are needed on the impact, if any, on the market value of the subject property.

Fannie Mae clarified that it no longer needs an explanation when using comparable sales that are more than six months old.

Read the complete details at https:// www.fanniemae.com/ content/announcement/ sel1403.pdf.

STATES OF MIND State legislation affecting appraisals during the last quarter

NJ bill would eliminate state appraisal board A bill pending in the New Jersey state legislature would abolish the State Real Estate Appraisers Board and transfer regulation of appraisers to the state’s Real Estate Commission. Bill A2387 was unanimously passed by the Assembly Regulated Professions Committee March 13. The Appraisal Institute’s New Jersey chapters testified in opposition to the bill at a hearing before the Assembly Regulated Professions Committee. Previously, AI had strongly expressed its concerns over the bill in a March 6 letter to the committee. The federal Appraisal Subcommittee also expressed concern in writing.

The bill’s sponsor has agreed to meet with the Appraisal Institute and other interested stakeholders to attempt to work out a mutually acceptable compromise prior to bringing the bill to the floor for a vote.

View a copy of A2387 at www.njleg.state. nj.us/2014/Bills/A2500/2387_R1.HTM.

Maryland removes references to USPAP advisory opinions On April 8, the Maryland Commission of Real Estate Appraisers, Appraisal Management Companies and Home Inspectors completed action on rulemaking that removed the Advisory Opinions and Frequently Asked

Questions of the Uniform Standards of Professional Appraisal Practice from being incorporated by reference into the state’s appraiser licensing and certification laws. The move addresses the Appraisal Institute’s long-standing concerns about increased regulatory burdens placed on professional appraisers. Prior to this rule change, the AOs and FAQs were considered by the Commission to be part of USPAP. Maryland was one of a handful of states that incorporated the AOs and FAQs into its regulations that adopted the provisions of USPAP by reference. The Appraisal Institute had pointed out this anomaly in testimony before the Commission in 2012 and at that time requested the removal of the references to the AOs and FAQs from the Commission’s regulations.

VALUATION 2Q 2014

REST INSURED Protecting your business and yourself

ACCIDENTAL DEFENDANT Simple business and insurance mistakes can make appraisers vulnerable — and liable

By PETER T. CHRISTENSEN general counsel, LIA Administrators & Insurance Services

n 2012, a certified general appraiser — let’s call him “Bob” — who owned a small appraisal firm found himself as a defendant in a serious professional liability lawsuit filed by the Federal Deposit Insurance Corporation over an appraisal that he never worked on or signed. His predicament and eventual bad outcome resulted from business and insurance mistakes — not appraisal errors. Bob is not a client of mine or of the insurance provider for which I work, but I’ve seen many appraisers fall into some of these same traps. And although the lawsuit file is public, I’ve withheld facts that would identify the individuals involved.

This Is Bob’s Story Can you spot the mistakes that led to his legal woes? Bob was an experienced certified general appraiser. His appraisal firm handled both commercial and residential assignments and was organized as a sole proprietorship that consisted of himself and an office assistant. In years past, he’d had two employee staff appraisers. For a brief period in 2006 and 2007, Bob and his firm had an informal arrangement with a less experienced appraiser — let’s call him “Junior” — who was working to get his own general certification. Bob’s arrangement with Junior consisted of renting him a desk in the firm’s office along with an email account using the firm’s domain name and access to the firm’s software and data services. The firm took care of billing for Junior and received payments from his clients. The invoices used the firm’s name because that was how the billing software was set up. When payments were received, the appraisal firm kept a portion as “rent” and the remainder went to Junior. Bob did not

consider Junior to be a partner, a co-owner or any sort of employee or contractor; in Bob’s view, Junior simply was renting access to the firm’s resources. The two appraisers ceased their arrangement in 2007, when Junior received his Peter Christensen general certification and set up his own is LIA Administra- fully independent office. Years went tors & Insurance by — then in 2012, an FDIC process server Services’ general knocked on each appraiser’s door to serve a counsel. A graduate of the University of summons and complaint. A bank had failed California, Berkeand the FDIC had stepped in as a receiver. ley’s Boalt Hall In that capacity, the FDIC was suing both School of Law, appraisers and Bob’s firm for professional he has been an negligence and related claims pertaining attorney since 1993 to a residential appraisal performed by and maintains the blog www. Junior in 2006. The loan defaulted and appraiserlawblog. the FDIC claimed, as it has in lawsuits com. LIA has against hundreds of other commercial and been offering E&O residential appraisers, that the appraisal insurance and was negligently inflated and that the failed loss prevention information to the bank would never have made the loan if appraisal profesthe appraisal had been accurate. The FDIC sion nationally sought to hold the appraisers and the firm since 1977. financially liable for the full sum of unpaid principal, interest, late charges and other damages — amounting to almost $285,000. However, only Junior had worked on and signed the appraisal, so why were Bob and

www.appraisalinstitute.org

The right type of policy that the operator of an appraisal firm needs is one that includes coverage for services rendered by the owner, as well as present and former employees and contractors.

his firm being sued? The FDIC contended that Bob and his firm’s arrangement with Junior amounted to a partnership or some other joint business venture. Accordingly, the FDIC contended that Bob and his firm were fully liable for the appraisal work performed by the “partnership.” When Bob reported the lawsuit to his E&O insurance provider (again, not our firm), Bob was shocked to hear that he had no coverage for it because Bob had an “individual” policy that did not cover him or his firm for the work of other appraisers. As a result, Bob paid for his own legal defense. His lawyers ultimately worked out a settlement with the FDIC shortly before trial for which Bob paid $90,000. As for Junior, he had no insurance coverage because he had allowed his E&O policy to lapse, and because he was nearly insolvent, his personal contribution to the settlement was only $5,000.

Bob’s Business Mistakes The underpinning to the FDIC’s lawsuit against Bob was a collection of facts that the FDIC used to paint Bob’s affiliation with Junior as some form of a partnership. Bob would have been wise to avoid the business practices that the FDIC used to suggest he and/or his firm was in business with Junior: ■■Permitting Junior to use the firm’s domain name for his email ■■Allowing Junior to use the firm’s software and data services ■■Generating invoices with the firm’s name on them ■■Collecting payments made out to the firm Bob’s operation of his firm as a sole proprietorship also put him at personal risk and helped drag him in as a defendant. An appraiser is always going to have potential personal liability for his or her own professional errors, regardless of how he or she organizes a business. However, a correctly formed and operated limited liability business entity such as a corporation or an LLC likely would have insulated Bob from personal liability for the mistakes of employee-appraisers or other actual or alleged partners in the business. As a sole proprietor, however, Bob had full personal liability for all his small firm’s potential liabilities and thus became a defendant to the lawsuit.

Bob’s Insurance Mistakes Bob did not have insurance coverage for the lawsuit because he had an E&O policy that only provided individual coverage, meaning that Bob and his firm only were covered for appraisal services performed by Bob himself. This type of coverage is not appropriate for appraisers who employ other appraisers, use independent staff contractor appraisers or contract work out to other appraisers — or who have done so in the recent past. Such a policy simply does not cover claims relating to another appraiser’s work. The right type of policy that the operator of an appraisal firm needs is one that includes coverage for services rendered by the owner, as well as present and former employees and contractors. What if Bob had signed the report as a supervisory appraiser? Would that have fixed his lack of insurance coverage? Probably not, because the same E&O policies that are designed to provide individual coverage typically also have an exclusion for the supervision of the work of other appraisers. Under such a policy, coverage for the claim would have been excluded under the supervisory exclusion. Moreover, signing the report as a supervisor also would have had the effect of cementing Bob’s personal liability for claims relating to that appraisal because he would now have been one of the appraisers actually performing the appraisal. Any hope that Bob might have placed on having Junior’s insurance help to defend him against a claim related to Junior’s work also was misplaced. It is a common mistake by small appraisal firms and their owners to forgo true “firm” coverage and instead require their employee or staff appraisers to carry their own individual policies. It’s a mistake because the all-too-often outcome when a claim is made years later is that the employee or staff appraiser no longer has E&O in place or has allowed their policy to lapse and does not have coverage for the time period when the appraisal was performed — as had occurred with Junior’s policy.

Go to www.liability.com or call 800-334-0652 for more information.

12 VALUATION

2Q 2014

FRONT LINES Stories and insights from the field

HISTORY LESSON When specializing in historic districts like the New Orleans French Quarter, each appraisal is a learning experience

By ARTHUR

L. SCHWERTZ, MAI

The Upper Pontalba is a 164-year-old mixed-use building in the New Orleans French Quarter.

ppraising in national historic districts like the New Orleans French Quarter (or Vieux Carré) can be difficult, if not downright tricky, given the layers of government regulations, preservation requirements and deed restrictions that appraisers must sort through when determining a property’s highest and best use. Compounding these already challenging appraisal assignments is the fact that no two buildings in the French Quarter are identical. Even if originally constructed in the same manner, “identical” buildings have developed enough variation over the past 200 or so years that they now are unique — the atypical has become typical. A perfect example is our firm’s appraisal of the Upper Pontalba Building. The prominent New Orleans architect James Gallier designed two identical Pontalba Buildings in 1850 in the style of Parisian row house buildings with ground-floor retail and residential units on the upper levels. In 1930, the Upper Pontalba (fronting St. Peter Street on Jackson Square) was converted into all residential units by the Works Progress Administration, and then restored back to its original retail/residential mix in the early 1970s. In 1974, the building was placed on the National Historic Register. Truman Capote, in his essay “Hidden Gardens,” described the complex as “the oldest, in some ways most somberly elegant, apartment houses in America.” Based upon the plans from the most recent renovations, the Upper Pontalba has a net rentable area of 81,970 square feet and consists of two restaurant spaces and 12 retail spaces on the ground floor (containing 15,913 square feet),

French Quarter properties and their unique histories have always interested Arthur L. Schwertz, MAI, senior managing director of Valbridge Property Advisors | Argote, Derbes, Graham, Shuffield & Tatje, Inc., a full-service real estate appraisal firm that’s been servicing the Gulf Coast Region since 1986.

plus 50 residential units on the upper floors (containing 66,057 square feet), with units ranging in size from 467 square feet to 1,921 square feet. The residences are the oldest continuously rented apartments in the U.S. In addition to its atypically large size (most buildings in the French Quarter are less than 10,000 square feet), the Upper Pontalba is unusual in that it appears to be one continuous four-story building but actually was constructed as 16 separate buildings that have almost continuously been operated as a single complex. The row house design gives the impression of stretching from lot line to lot line, but the property actually contains 16 interior courtyards (the “hidden gardens” Capote referenced) that are typical of French Quarter properties but atypical of properties in other New Orleans neighborhoods. As a result, accurate field measurements are a must unless you are fortunate, as was our firm, to have the architect’s plans from the building’s most recent renovation.

Appraising the Atypical Appraising an unusually large mixed-use building in a historic district like the French Quarter quite often involves the use of atypical methodologies (along with the ingestion of

www.appraisalinstitute.org

numerous antacids). In the case of the Upper Pontalba, the methods involved the use of a hypothetical condition in the sales comparison approach. Namely, the property would be subdivided into a condominium regime, consisting of the residential units becoming one condominium and each of the commercial spaces becoming individual condominium units. This setup allowed the use of more traditional comparables for each of the areas in a condominium valuation. When valuing a historic property like the Upper Pontalba by the sales comparison approach, it’s crucial to consider the history of the building itself. In the French Quarter, the local preservation governing body (Vieux Carré Commission) assigns color

that of the Louisiana Bank Building on Royal Street, which sold at auction for a premium of 66 percent above appraised value. The premium can partially (and rightfully) be attributed to the fervor that often accompanies an auction; comments from the buyer indicated that he was willing to pay the premium because of the property’s historic nature. The bank building was designed by Benjamin Henry Latrobe, who consulted on plans for the U.S. Capitol and the White House and often is called the “Father of American Architecture.” Therefore, it was decided that a premium should be assigned to the Upper Pontalba because of its historic significance — although not as high a premium as that commanded by 401 Royal St.

(time for the second dose of antacids). Selecting rental comparables in the French Quarter is no easy task. For example, the rental rate for a bar on Royal Street might be negligible, while an antique store on that street might lease for $80 per square foot. Conversely, the rental rates for the same two properties would be reversed if the properties were located on Bourbon Street just one block north. Thus, careful attention must be paid to the location and the use of the rental comparables in the selection process. Further complicating the rental selection process is the fact that

Selecting rental comparables in the French Quarter is no easy task. For example, the rental rate for a bar on Royal Street might be negligible, while an antique store on that street might lease for $80 per square foot.

The Upper Pontalba building is on the National Historic Register. Features such as its atypical size, mixed-use, four-story walk-up design and other distinctive qualities make its valuation a complex process.

ratings to the historic buildings ranging from brown/orange (a 20th century or older building that has been significantly altered) to purple (a building of national architectural or historical importance). The Upper Pontalba Building is designated purple. One of the most recent sales of a purplerated building in the French Quarter was

Taking the Income Approach Given the size of the subject and its mixed-use complexity, it was quickly realized that the greatest weight should be given to the income approach, and a part of the assignment required us to determine an opinion of value for market rental rates for a historic landmark in a premier location within New Orleans

the Upper Pontalba Building is a four-story walk-up, which may be common in New York and other East Coast cities but is virtually unheard of in Louisiana. After a month of careful research and analysis, we were able to deliver a credible report to the client that addressed the subject’s unusual size, varying uses and unique history.

VALUATION 2Q 2014

www.appraisalinstitute.org

FEATURE

perfect niche

When appraising homes designed by famous architects, value is less in the name than in the home’s quality and marketability. By DEBORAH R. HUSO

erhaps conventional wisdom leads you to believe that a home designed by Frank Lloyd Wright would draw a premium price. After all, consumers pay more for designer shoes and clothes. Wouldn’t it be the same for designer homes? As it turns out, the name of the architect, even if it’s a global icon like Wright, makes very little difference in most instances. “What has value in terms of architecture is whether it’s good architecture,” says Brian Grey, SRA, principal, Grey Appraisal Associates in Pacifica, California. Grey says if he puts two Victorian houses side by side, each of equal size and construction quality in the same neighborhood in San Francisco, they will appraise and sell for the same amount, even if one has a bigname architect attached to its design. “What matters the most is if the property has architectural integrity and appeal,” he says.

What Determines Value? But that’s where things get tricky. In some cases, the whole reason a property has that architectural integrity is because of the talented architect who designed it. Grey says if he puts a William Wurster house next to a midcentury plain box-style house, the plain box is going to sell for less, but, he says, “that’s

because the Wurster is selling higher due to its architectural detail.” Dan Fries, SRA, president of Daniel Fries & Associates in Cummings, Georgia, says he has found that homes built by local renowned architects Neel Reid and Philip Shutze tend to appraise and sell higher, and that’s the case even if the homes, most of which were built in the 1930s, have been updated. Fries says he recently saw Reid’s so-called “Pink Castle” in Atlanta sell for almost $2 million, despite the fact it needed extensive renovations. “If it had not been a Neel Reid, it would not have sold that high,” he remarks. Fries says he evaluates value on these “name-brand” architects by comparing them to other homes built in the same timeframe, as well as to other homes by well-known architects. “I think it’s appropriate to travel outside your immediate area and look at another home by a big-name architect,” he says.

But Reid and Shutze also built relatively conventional large homes, which are still appealing to buyers. They feature high ceilings and large rooms and are great for entertaining. “Their attributes actually add to their value,” Fries says. “The ones here in Georgia are like ‘Gone With the Wind’ homes, and you are going to pay for them dearly.” He also believes that when a house has an association with a highly regarded architect, it leads buyers to overlook inadequacies in floor plans and other features.

“ Named architects cover a broad spectrum. The historical greats tend to be more respected than the moderns.”

—ALISON TEEMAN

In most cases, Grey believes, attaching a big-name architect to a home’s design is a marketing point rather than a value point. “Real estate agents will use an architect’s name,” he says. “It’s common to see [Multiple Listing Service] sheets with notations like ‘This is a Bernard Maybeck.’” Alison Teeman, Practicing Affiliate, vice president at Yovino-Young Inc. in Berkeley,

16 VALUATION

2Q 2014

California, agrees with Grey up to a point, but adds, “Named architects cover a broad spectrum. The historical greats tend to be more respected than the moderns, at least in our market.” Although, she says she sees no evidence that well-known contemporary architects draw a premium. In her experience, MLS notations on famous architects tend to draw more “lookers” than buyers to the homes. Pete Hubbell Jr., MAI, chairman of R.P. Hubbell and Company in Poughkeepsie, New York, says, “It’s so hard to quantify a premium

FEATURE

perfect niche

for a particular architect.” Hubbell has appraised a number of unusual, contemporary-style homes, including ones by Thomas Phifer and Ai Weiwei. In the case of the latter, Hubbell saw one of the homes designed by the Chinese architect recently sell for its full list price of $4.25 million, but he says the purchaser was a collector of Ai Weiwei homes, far from a typical buyer. In the case of Phifer, whose design aesthetic is very unusual, Hubbell still does a conventional market analysis, comparing the residences to other contemporary-style

Bernard Maybeck

Julia Morgan An architect’s signature style can add to or detract from a home’s appeal. For example, the Arts and Crafts style of Bernard Maybeck and Julia Morgan has a wide appeal.

homes in the same area. “Demand in the market is mostly New England-style homes from 6,000 to 12,000 square feet, something of a Colonial on steroids,” he says. Thus, demand does not promote placing premium value on contemporary-style residences, no matter how big the architect’s name. “There are anomalies,” says Hubbell, “but most of our buyers are pretty traditional.”

Does Signature Style Add or Detract? Value also depends on whether or not an architect’s signature style adds to or detracts from the home’s appeal. “The Arts and Crafts character of a Julia Morgan or a Bernard Maybeck has a wide audience,” Grey explains, “whereas a Richard Neutra is flat and plain — that kind of home has a very narrow audience.” He points out that in the case of a Neutra home, “It’s the lack of ornamentation and detail that make it a Neutra.” Hubbell agrees, noting that he’s seen Phifer homes stay on the market a year or more, often the result not just of his unusual style but also of conservation easements attached to properties. “His style doesn’t hurt value,” Hubbell explains, “but it narrows the market and lengthens marketing time.” Teeman says she’s starting to see a shift in interest toward more modern residences. “Thirty years ago people wanted traditional homes, like a Spanish or Tudor style,” she remarks. “Fifties modern homes were not in demand at all, but now they’re increasingly popular.” She ascribes this change to an appreciation for informality, clean lines, contemporary furniture and good flow between a home’s outdoor and indoor areas. And while the process for appraising a Victorian, a Mediterranean or an Arts and Crafts home by a big-name architect is pretty straightforward, things get more complex with midcentury modern buildings. “In San Francisco, a Wurster or a Neutra will have less value because they have less market appeal,” Grey explains. “One of the most popular styles here is Victorian,” Grey says of the San Francisco Bay area. “The midcentury homes, including Neutra, have far less appeal because they’re so plain.” Charles Baker, SRA, president of Appraisal Pros in Pasadena, California, says he thinks Frank Lloyd Wright homes often have similar value troubles. “The style of a Frank Lloyd Wright is definitely unique, so much so that for some people it would be a turn-off,” he says.

www.appraisalinstitute.org

So how does one go about appraising an “oddball” home? For Grey, who appraised the William Nicholson-designed Flintstone House in Hillsborough, California, a home that resembles a series of bubbles all hooked together and that mirrors nothing else around it, comps are hard to find. He got around this with the Flintstone property by using a low-appeal Ranch house as a comp as well as a more desirable Tudor and then putting the Flintstone House somewhere in between. “What made it even harder is that the Flintstone House is all round!” Grey laughs. So he had to call on geometry to get the dimensions of circular rooms. “I look at the house in the context of the neighborhood,” Baker says. “Is it a neighborhood of architecturally unique homes? In Pasadena, just about every house has architectural significance.” He says that makes it easier to measure value, but with something like the Snowden House in Hollywood (designed by Lloyd Wright, Frank’s son), it is much harder to find comps. “The house was so unique, there was nothing like it.” To appraise it, Baker looked at recently sold houses built in the 1920s across a range of styles. “Houses like this require much more research,” he adds. Baker says Wallace Neff houses in his area tend to draw premium prices, although it’s a combination of the big-name architect and the house’s quality. “He built very high-quality, durable homes that were double-studded with a lot of massing,” Baker explains. “They have fared well over the decades.”

Do Buyers Want to Be Stewards?

And when it comes to historic designation, Grey thinks any type of landmark status that imposes restrictions on what owners can do with a home has a negative impact on value, particularly when restrictions apply to interior features of the home, as well as to the façade. “We had a Frank Lloyd Wright home built after his death that was based on his plans and that has never resold,” Teeman says, noting that the house, near Miranda, California, had so many restrictions it just sat and sat on the market. “Being a steward is very tough for a lot of people.” Teeman points to another home in her market, known as the Spring Mansion, Architect Neel Reid’s “Pink Castle” in Atlanta recently built by John Hudsold for almost $2 million, son Thomas, which despite needing extensive has been on the renovations.

“ I think it’s appropriate to travel outside your immediate area and look at another home by a big-name architect.” —DAN FRIES, SRA

18 VALUATION

2Q 2014

FEATURE

perfect niche

MEET THE ARCHITECTS While pretty much everyone is familiar with Frank Lloyd Wright, the names of some of the nation’s other great architects may be less recognizable. Here’s a quick rundown on who’s who. ■■Ai Weiwei is a Chinese architect and artist known for his minimalist style. His residences often feature gray brick walls and “matchbox” forms. ■■Bernard Maybeck worked mainly in the San Francisco Bay area during the first half of the 20th century and was known for heavy natural features, including shingle siding, rough redwood interiors and hand-wrought iron fireplaces. His homes include Mission, Gothic, and Arts and Crafts styles. He mentored fellow design stars Julia Morgan and William Wurster. ■■Julia Morgan worked heavily in and around San Francisco and designed hundreds of homes in the wake of the city’s 1906 earthquake and fires. She is known for an Arts and Crafts style that incorporated exposed beams and natural building materials, and residences that blended into the landscape. She is perhaps best known as the architect of Hearst Castle for tycoon William Randolph Hearst. ■■Wallace Neff is responsible for developing the southern California style we know today as “California style” with its Mediterranean influences, including stucco exteriors and arched doorways and windows.

The Thomas Phifer house in Madison, Wisconsin, has a weaving exterior masonry ribbon and an interior consisting of four spheres with views to the outside. market a couple of years. The 12,000-squarefoot concrete house is on the National Register and is both too big to live in and yet has restrictions on being cut up for other uses, like multifamily housing. In 2005, the house sold for $6.5 million; today it is languishing at $4 million.

The Impacts of Modern Upgrades While architectural purists may argue that changing a historic home built by a famous architect is a sacrilege and certainly will detract from its value, that’s not necessarily

Ai Weiwei

Richard Neutra

Thomas Phifer

■■Richard Neutra is known for creating California Modern style, which deftly links indoor and outdoor spaces, building midcentury modern homes out of simple materials like concrete, often with flat roofs and cantilevered elements. ■■Thomas Phifer is based in New York City and known for creating sleek and ultra-modern homes. ■■Neel Reid worked in Atlanta at the turn of the 20th century where he designed many lavish homes in the Beaux Arts style that incorporated European influences. ■■Philip Shutze is another Atlanta architect who frequently designed palatial residences alongside Reid in styles ranging from Italian Baroque to Greek Revival. ■■John Hudson Thomas was another San Francisco Bay-area architect working in the first half of the 20th century, whose work blended an array of architectural styles, including Mission, Arts and Crafts, Gothic, Tudor and Art Nouveau. ■■Frank Lloyd Wright is world-renowned for his innovative organic architecture. Working through the first half of the 20th century, he designed structures with open living areas, flat roof lines and a deep connection to the outdoors, and he founded the Prairie and Usonian styles. ■■William Wurster was a California-based architect who mainly worked from the 1920s through 1940s and is known for his direct and simple ranch-style homes.

the case. In fact, Frank Lloyd Wright homes with their typically small kitchens and lack of connection to living spaces could negatively impact value. “You can’t keep a 1921 home in absolute 1921 condition,” Grey says. “Redoing the interior of the house is very important to the value of the house. If you have a house with a 1921 kitchen, it’s going to sell for less money.” Baker says that Wright, despite his global significance, can be a tough sell and often does not draw premium prices. “So many of his homes are built with concrete block,” he explains, “and that’s hard to add onto.” He points to a billionaire investor who bought the Wright-designed Ennis House in Los Angeles two years ago. “The house fell into disrepair, and the investor plans to spend millions on renovations.” But Baker feels the investor is more of a “collector” than a buyer. “There’s not enough data to determine if Frank Lloyd Wright houses get a premium,” he says. Yet in another case, Baker says the Snowden House in Hollywood sold very quickly, in large part because it had received a major kitchen expansion that made it more livable. Grey says he recently appraised a

9,000-square-foot Maybeck home that had only two bedrooms and two baths. The owners added additional bedrooms to the attic. “Did that destroy the home’s quality?” he asks. “No, it enhanced its value.” Older features, Grey finds, actually tend to detract from value. “Functional utility is as important as style and quality,” Teeman adds. She says a Maybeck home, which traditionally has a small kitchen, will appraise for more if the kitchen has been expanded and modernized. Often appraisers are left to decide, as Teeman says, whether a home designed by a famous architect is “a trophy property or a white elephant.” That’s particularly the case with more unusual homes. Deborah R. “Where does the line begin to Huso is a Blue change?” she asks. Grass, Va.-based For Baker, “Context is every- freelance writer thing.” Where is the home and a regular located? What’s been done to contributor to it? “One of these famous archi- the Appraisal tect-designed houses,” he says, Institute’s e-newsletters, “wouldn’t draw a premium at Appraiser News all if it was located in a tract Online and Resineighborhood.” dential Update.

20 VALUATION

2Q 2014

FEATURE

legal proceedings

equired

ter

w List

✓ ❑ No Action Required

✓ ❑ No Action R

❑ Educational Letter

❑ Educationa

❑ 100% Review List

❑ 100% Revi

❑ Do Not Use

PROCESS OF

ig data, the storage and manipulation of vast quantities of data enabled by advances in IT and business processes, has changed the landscape for many professions.

In January, appraisers felt its reach when the government-sponsored enterprise Fannie Mae implemented its new Appraiser Quality Monitoring program. The AQM program is designed to detect appraisers who show patterns of inconsistent or otherwise problematic appraisals and target them for either counseling and warning (through educational letters), or for more serious patterns, for

placement on one of two new lists that will notify lenders about appraisers whose work will be subject to 100 percent review or will be rejected altogether. Landing on either list may represent a career death sentence for residential appraisals. “Placement on the 100 percent review list is all it takes to end a career,” says Mark Rattermann, MAI, SRA, an Indianapolis-based

appraiser who serves as an instructor for the Appraisal Institute, as well as at his own proprietary school. “If I am a lender and I have to review all of your work, I won’t use you. The only exceptions might be in some markets where there are so few appraisers that I have to use you.” Appraiser reaction to the AQM program runs the gamut from outrage and fear to confusion and indifference, and in some cases, to the quiet satisfaction of those who think it will weed out incompetent or unscrupulous practitioners. Some say it’s difficult to

www.appraisalinstitute.org

Required

❑ No Action Required

✓ ❑ No Action Required

✓ ❑ No Action Requir

al Letter

❑ Educational Letter

❑ Educational Lette

iew List

❑ 100% Review List

❑ 100% Review Lis

✓ ❑ Do Not Use

❑ Do Not Use

n o i t a elimin

Identifying appraisers who produce inconsistent or problematic appraisals

determine just how to react without a better idea of how extensive the program will be, how accurately the GSE will target problematic appraisals and appraisers, how exactly the program will be administered and how it may evolve. But Fannie Mae and some appraisers who are well-informed about the program say that the worst fears may be overblown.

A More Targeted Tool Than Feared Since the announcement of the AQM program last December, the driving question among

appraisers has been whether they will be ensnared in a computer-driven program that could end their appraisal livelihoods for honest mistakes or occasional inconsistencies. Fannie Mae and several appraisers who have taken time to thoroughly investigate the program and question GSE officials say that the answer is “no.” “I don’t think the vast majority of appraisers have much to worry about,” says Woody Fincham, SRA, director at Charlottesville, Virginia-based F&M Associates Appraisal Services. “While some appraisers feel

DAVID TOBENKIN

penalized because this is more work … when we are new appraisers learning the profession, we are taught that [Uniform Standards of Professional Appraisal Practice] requires appraisers to write reports clearly and concisely so the intended users will understand it, adjusting the presentation in the reports to the level of knowledge of the clients. Often when I review an appraisal report, I’ll see common abbreviations and know what they mean, but I wonder whether the end user will recognize them,” he says. Fincham adds that Fannie Mae went to great lengths to create

22 VALUATION

2Q 2014

FEATURE

legal proceedings

concise and clear definitions for data fields, such as condition and quality. Fannie Mae has emphasized that qualified human reviewers, including appraisers, will be involved in the AQM program. “One of the biggest misconceptions is that the AQM is a fully automated process,” says Robert Murphy, director of property valuation and eligibility at Fannie Mae. “Fannie Mae leverages data and technology to identify potential issues with appraisals and flag them for review. But before any letter outlining concerns is sent to an appraiser, the appraisal is reviewed by multiple ‘eyes on the issues,’ including licensed or certified appraisers from various teams and departments within Fannie Mae.” The objective of the AQM program is to identify patterns of inconsistencies and other behaviors to determine who will be provided a letter, says Murphy, who cites an example Lenders can apply for access to the updated AQM list through Fannie Mae’s Technology Manager app. The list is currently unavailable for appraisers.

of the type of conduct that could warrant a letter and land an appraiser on one of the lists. “Changing property characteristics multiple times for a specific property transaction might result in a letter to an appraiser informing him or her of the issue and reminding the appraiser of Fannie Mae requirements. An appraiser who is completing appraisals with a revoked, suspended or terminated license will receive a letter indicating these more egregious issues and placement on either the 100 percent review list or the do-not-use list.” Still, Fannie Mae has been relatively tightlipped about some aspects of the program, such as how many appraisers have been sent educational letters and placed on either of the lists. While Fannie Mae provides copies of the updated 100 percent review and do-notuse lists to lenders and other partners on a monthly basis via a secure section on its website, the lists have not been made available to appraisers, save for those individuals who have been placed on either one of the lists.

“ Placement on the 100 percent review list is all it takes to end a career. If I am a lender and I have to review all of your work, I won’t use you. The only exceptions might be in some markets where there are so few appraisers that I have to use you.” —MARK RATTERMANN, MAI, SRA

Appraisers familiar with the program say that the honest mistakes or inconsistencies that can result in an appraiser receiving an educational letter do not necessarily mean they will progress to the 100 percent review or the do-not-use lists because Fannie Mae is taking great care as to who is placed on each list. That is in no small part a matter of self-interest, as, given that placement on a list likely will end an appraiser’s career, mistakes by Fannie Mae could open it up to lawsuits by wrongly accused appraisers. Another reason that appraisers who occasionally make minor mistakes or exhibit minor inconsistencies are unlikely to end up on the lists: They are not the AQM program’s primary target. Rather, Fannie Mae’s immediate priority is to use the AQM program to target the industry’s bad actors: those appraisers whose work is frequently inconsistent or who are perceived to lack ethics or competency that run counter to Fannie Mae’s efforts to minimize risk in the purchasing of mortgages. The AQM program now allows Fannie Mae to identify patterns of possible misconduct and to target problematic appraisers with precision. “Fannie Mae has been able to identify appraisers who complete a high volume of inspections on a given day — sometimes to the extent of it being an improbable number of inspections,” Murphy says. “For example, an appraiser completing 15 inspections for appraisals in one day while the distance between the closest property and the

www.appraisalinstitute.org

farthest property exceeded 150 miles. This certainly is questionable.” Fannie Mae refers appraisers on its do-notuse list to its fraud division, and Murphy notes that the GSE does not hesitate to refer problematic actions by such appraisers to state appraiser regulatory agencies for further disciplinary action when appropriate. Fannie Mae is not alone. A Freddie Mac spokesperson says it uses a similar process to monitor appraiser quality: “We routinely monitor appraisals and investigate appraisers with a pattern of poor quality,” says Freddie Mac spokesperson Brad German. “Based on the findings, we may place them on our exclusionary list, a proprietary list available to our lenders that identifies appraisers and other vendors they cannot use with loans they are selling to Freddie Mac. This process began in the mid-1990s and is continually updated. For example, we now use information gleaned from the Uniform Appraisal Dataset to monitor appraisal quality.”

How It Works The AQM program uses an automated system, which is initially provided in the language of the UAD and stored in the Uniform Collateral Data Portal, to enable Fannie Mae to review appraisals and detect patterns. This information collection has been required since September 2011. What type of patterns is Fannie Mae looking for? The GSE’s letter to lenders in December noted concern about data accuracy issues, including instances when the same appraiser has provided inaccurate, inconsistent or contradictory information on the same property and same transaction across multiple appraisals. “Fannie Mae reviews appraisal reports for patterns of discrepancies and inconsistencies related to property characteristics, such as gross living area, sales price, room count and lot size, as well as condition, quality, view and location ratings,” the letter said. Fannie Mae provided two specific examples that were flagged (see “Inviting Trouble,” this page). One of three fates awaits appraisers who are flagged through the system: ■■Appraisers whose reports exhibit a pattern of minor inconsistencies, inaccuracies or data anomalies will receive a letter from Fannie

Mae (the first went out this past January) that draws attention to the problematic appraisals and advises recipients what concerns Here are two examples of factual patterns that Fannie Mae says will were noted so practices can get appraisers into trouble: be corrected. “The intent 1. An appraiser used the same property and sales transaction as and expectation of coma comparable sale across multiple appraisals. In one report, the municating these issues to appraiser showed a sales transaction of $400,000 for a property appraisers is for training with 2,354 square feet of gross living area. In 10 other reports, the and educational purposes, appraiser listed the sale price of the same property at $375,000 and to provide them with and the size as 2,034 square feet. Those 10 other reports were an opportunity to improve consistent with Fannie Mae’s verification of public records, as well their work,” Fannie Mae as sale price and square footage reported in 13 other appraisals noted when it announced the that included information on the sale of this property. Fannie Mae’s program. “Future appraisal Selling Guide requires appraisers to report property data accurately reports from those appraisand consistently. ers will be monitored to 2. An appraiser assigned a condition rating of C4 to a property on a assess improvement.” Lendspecific transaction. The same appraiser used the same property ers would not be informed of transaction as a comparable sale in a subsequent appraisal and such contacts and appraisers assigned the property a condition rating of C3. Fannie Mae requires are offered the opportunity the appraiser to consistently report the physical characteristics to respond to Fannie Mae of the property from appraisal to appraisal when referencing the regarding their concerns. same transaction. The Uniform Appraisal Dataset mandates that ■Appraisers ■ with more rating selections be determined on an “absolute” basis and not serious patterns of mistakes on a “relative” basis. The rating should not change when that will be selected for 100 perproperty transaction is compared to other properties (UAD Update, cent review and all loans April 2012) except in rare cases when more accurate property data will be subject to a postbecomes available. acquisition quality control review; affected lenders will be notified so they can perform appropriate due diligence. If during the post-acquisition review a loan is found to be ineligible for delivery to Fannie Mae for any reason, it will be subject to the standard remedies per the GSE’s Selling Guide, including repurchase. ■Fannie ■ Mae will place appraisers with egregious issues, like potential fraud, to the appraiser. The GSE also states that it will on a do-not-use list and will inform lendconsider removing appraisers from the 100 ers that it will not accept appraisals from percent review list once an appraiser demonthose appraisers. strates an improvement in appraisal quality. The AQM program allows appraisers to rebut any identified issues after they are placed Will Some Appraisers Be at on the 100 percent review or do-not-use lists; Heightened Risk for Being Flagged? in rare cases, appraisers may be allowed to do There is concern that appraisers working in so before landing on a list. Fannie Mae progeographic areas with certain types of propvides information on how to do so in its letter erties may be subjected to greater scrutiny

INVITING TROUBLE

24 VALUATION

2Q 2014

FEATURE

legal proceedings

under the AQM program. “A concern is that those working in some areas of the country, like low-income areas, as I do, might be flagged more often due to the many complexities of working in those areas,” says Nicholas Monastero, Practicing Affiliate, an appraiser at N. J. Monastero & Associates who works in lower-income areas in the Brooklyn, Bronx and Queens boroughs of New York City. “There are more loans defaulting there, there are very few sales and many times there is no [Multiple Listing Service] in the area. When the market softens, it’s the first area with fewer comps and they aren’t alike. Also, the residents often use rooms in unconventional ways, changing them to fit the family in ways that are not under UAD.” Indeed, Rattermann says that the risks of being flagged under the AQM program may be higher in areas where there are few comparables so that the same properties are used over and over again. Responding to such concerns, Murphy says, “We are looking for patterns of inconsistencies and other egregious issues, and the fact that there are a limited number of comparables in and of itself isn’t going to result in a letter to the appraiser.” However, he adds, “If the appraiser changed the characteristic information about the transaction from report to report, that will probably get you a letter.”

How to Lower the Risk There is much that appraisers can do to lower their risk profile, says Rich Heyn, SRA, co-owner of Heyn, Molitor-Gennrich, LLC, which produced a webinar on the AQM program that the Appraisal Institute broadcast in February.

“Avoiding inconsistencies and discrepancies is the easiest and best way for an appraiser to avoid intersecting with the AQM,” says Heyn. “If a transaction is rated as C3 for property condition in one report, it should be rated as C3 in subsequent reports unless, of course, the appraiser discovers ‘better’ information regarding the transaction. If an appraiser’s data differs from public records of MLS data, he or she should make appropriate comments in the appraisal report. Maintaining a database of comparable properties used (and rated) in previous reports is now a necessity.” Significantly, data on appraisers’ reports may be compared to that of other appraisers, not just other examples of their own work, says Heyn’s partner, Dawn Molitor-Gennrich, SRA. “This is why it’s important for an appraiser whose data differs from public records or MLS data to explain the reason for the difference in the report,” she says. Some appraisal software may help in this respect, as many products have comparable databases that, if accessed when drafting later reports, will ensure the data fields for that comparable will be completed in a consistent manner from one appraisal report to the next, Rattermann notes. Some Appraisal Institute coursework also can help appraisers comply, says Fincham. He notes that an advanced report writing class (www.myappraisalinstitute. org/education/course_descrb/Default.aspx?prgrm_nbr=301R&key_type=C ) can be useful — especially one that focuses on

consistency throughout different reports and explaining abbreviations and definitions, which seems to perfectly align with Fannie’s objectives. Another useful class, he says, is “Thinking Outside the Form” (www.myappraisalinstitute.org/education/seminar_ descrb/Default.aspx?sem_nbr=825&key_type=S ). “It tries to get the appraiser to think about the purpose of the form, not just the data that the form is asking for,” says Fincham.

Future Developments Some appraisers raise concerns about how or if the AQM program will evolve. “I’m worried about possible creep,” says Monastero. “They may say they are looking at one thing now, but as they progress they may add more things and change it.” Murphy had no comment when asked how the AQM program may evolve. Rattermann says that if appraisers are disconcerted by the use of big data for purposes like the AQM program, they should get used to it because he predicts more is likely to follow. “Some day in the future, we’ll be able to see which appraisers have the largest differential between the appraisal and the eventual sales price,” Rattermann says. “That may not be equitable. Some appraisers work in areas that are difficult to appraise. For instance, an appraiser in California could have looked good in 2007 and horrible in 2012 given the change in market values. It would look inflated, but the truth is that the market changed. I could see them David Tobenkin tracking data like that, even is a freelance though it wouldn’t be fair. I’ve writer based in always anticipated that they the Washington, would use UAD for this.” D.C., area.

✘

✘ ✘ ✘

The Appraisal Quality Monitoring website provides more information about the program at www.fanniemae.com/ singlefamily/appraiser-quality-monitoring. Fannie Mae provides answers to frequently asked questions in its FAQs at https:// www.fanniemae.com/content/faq/ appraiser-quality-monitoring- faqs.pdf. A lender letter described the launch of the program: https://www.fanniemae.com/ content/announcement/ll1310.pdf.

FEATURE

www.appraisalinstitute.org

tomorrow’s trends

Appraisers have to navigate a flood of data as never before. Here are five ways advanced analytics is influencing technology. By MARK R. LINNÉ, MAI, SRA

he “big data” phenomenon is having a significant influence on the valuation profession and related stakeholders. The seemingly endless influx of information, facts, figures, numbers and charts is leading regulators to hold banks to higher standards, and banks, in return, are holding appraisers to more stringent requirements. To help manage the data overload, appraisers have adopted various technologies, but the valuation profession remains woefully underserved where innovation is concerned.

26 VALUATION

2Q 2014

For example, most technologies developed for appraisers are desktop applications, although desktop computers are a dying breed and laptops have seen a dramatic decline in the last 24 months. Mobile technology is the clear direction for the future; an informal poll of appraisers revealed that about 30 percent use iPad or Android technology in performing market analysis. Appraisers are, by and large, still clinging to the precept that the appraisal process is tied to the form, and all solutions relate to making the form faster in order to increase efficiencies. However, the truth is that solutions tied to the residential appraisal form or the smart word.doc for commercial appraisals are likely to founder.

FEATURE

tomorrow’s trends

Those clients include government-sponsored enterprises Fannie Mae and Freddie Mac. With the Uniform Appraisal Dataset, both GSEs have enhanced their ability to analyze a database that’s expected to grow to more than 100 million properties within a decade, making them privy to the most granular data ever collected on residential properties. How would it look if clients knew more than the professionals hired to analyze the data? Appraisers must promote decision-making based on predictive analytics. In a world that turns everything into data, valuation professionals who master big data stand a chance to help their clients, outperform their competitors and widen their lead.

By sifting through aggregated data, appraisers can use regression analysis to uncover the levels of correlation that are hidden to casual and, in some cases, even expert observation. Techniques such as regression analysis have only within the last decade been embraced by many in the valuation profession. It is an effective tool, but there are others, such as geographically weighted regression, non-linear modeling and Monte Carlo analysis, that hold great promise in looking even deeper into data as a means of gaining market insight. Real estate organizations are seeing the potential in advanced analytics as well. When the National Association of Realtors

The amount of data available to us has exploded, and analyzing large datasets — the so-called big data — is something that appraisers will have to be comfortable with in order to maintain their competitive edge. Cloud Computing

Big Data

If the promise of big data is to be fulfilled, there needs to be a way to store, process and analyze data. Cloud computing is the answer. In the simplest terms, cloud computing refers to saving, storing and accessing data off-site instead of on an individual computer hard drive or other local storage device. The Internet provides the connection between the device and the database. The importance of cloud computing to the typical appraiser is that it leverages virtual servers that can be linked so that data can be efficiently and effectively processed and analyzed. And as the move toward mobile devices continues, the power of the cloud will be necessary to provide the computational power required for robust analytics.

The explosion of big data and cloud computing leads to a need for new analytics tools that augment an appraiser’s market knowledge; spreadsheets are becoming a thing of the past. Simple regression analysis, among other techniques, is leading to improved predictions.

Big data is one of the five biggest trends redefining the valuation profession and related industries and it’s one that appraisers must embrace if they want to thrive. Four other big tech trends — which are coming at us with breathtaking speed — are cloud computing, advanced analytics, augmented reality and mobile technology.

New Analytics

announced the hiring of Todd Carpenter as managing director of data analytics in October 2013, its news release noted, “Today’s ever-evolving technology world is transforming the real estate industry, not only with new applications and tools, but also in generating volumes of information about how people approach and conduct real estate transactions.” It’s important to remember that an appraiser’s intuition and experience still plays a part in data-based decision-making. The ideal real estate valuation professional is one who integrates intuition with number-crunching to gain market insight.

Augmented Reality Augmented reality is a way to use technology to place a virtual layer of data over the real world with geographic specificity — in other words, anchoring the data to a specific address or other label so as to facilitate market analysis and valuation. It is no longer about what you can see but about what you can’t see — linking elements such as demographics, zoning, economics, legal information and market data trends through the appropriate geography. The result essentially is the landscape of valuation. Touch one point and know all the data

www.appraisalinstitute.org

relevant to that geographic area. the lead in virtually all consumer Augmented reality essentially is and business needs. Until recently, a blend of technologies that allows mobile devices had less robust appraisers to experience a digitally analytics capabilities, but that’s enhanced real world. Applications changed, and the empowering by ZipRealty and Trulia, for examinfluence of cloud computing will ple, allow augmented reality views continue to make mobile devices of homes for sale. The technology the obvious technology choice. appears to be maturing beyond the Efficiency suggests that it would The ZipRealty app “gimmick” stage, with market partici- offers users a layered make the most sense to use a single pants such as CoStar’s Go application view of homes for sale. device to gather, analyze and layering a multitude of different data deliver an appraisal rather than layers into one application tied to a property’s multiple devices that need to be synchronized. physical location. Users can look at plat maps, And with that single device in the palm of floor plans, listing brochures, exterior and their hands, appraisers will be able to cominterior photographs, demographics and neigh- plete an appraisal in the field without having borhood-level analytics, among other items. to return to the office.

Mobile Technology

What Should You Do?

Goodbye desktop and laptop, hello tablet, iPhone and iPad. Desktop technology has been diminishing in popularity among all segments of the market and industry analysts say this trend will continue. Originally, the shift was from desktops to laptops, but recent sales figures show that tablet and iPad and Android devices have taken

The valuation profession is changing because of big data, and appraisers need to utilize new technology and resources and take advantage of everything that comes with that. It’s true that any new technology faces challenges to adoption, and any new technology carries with it a certain amount of risk, but if the valuation profession fails to have the

necessary tools to mine, refine and understand key data, analytics could be the problem and not the solution. However, it’s important to note that new technology will never replace the experience and know-how of traditional valuation professionals, but instead needs to be integrated into the process. Appraisers Mark R. Linné, have the opportunity to MAI, SRA, is CEO transform themselves into the and Chief Ananation’s foremost real estate lytics Officer for analysts; the profession needs San Diego-based ValueScape appraisers who are confident Analytics LLC. in both their experiential He is a leading knowledge and advanced valuation futurist, analytics. the author or The best way to prepare co-author of four books and is by being aware. Embrace more than 50 new techniques and leverage articles, a course courses and books to help developer, an you hone statistical skills. expert witness Appraisers who actively seek and a serial new technology and new tools, inventor with two patents. He and figure out how they can can be reached effectively use data and tools at MLinne@ together, will have the comvaluescape. petitive advantage. com.

The Appraisal of Real Estate, 14th Edition The newest edition of the Appraisal Institute’s esteemed textbook: • is restructured to mirror the organization of the valuation process; • moves clearly from problem identification through to the report of defined value; and • builds on past editions and examines the changing role of real estate appraisers in the business community.

Available as a textbook and in digital formats.

Now Available!

SAVE with package pricing: Book + PDF | Book + Dictionary of Real Estate Appraisal

To order, visit: www.appraisalinstitute.org/buythebook

28 VALUATION

TECH

2Q 2014

bytes

Tools that make the job easier

POWER PLAY

Mophie Space Pack pumps up iPhone memory capacity and battery life The Mophie Space Pack for iPhone performs a double duty — it extends both the iPhone’s battery life and its memory capacity. Essentially, the Space Pack is an external hard drive and battery rolled into one. To pull off the added space and battery life, the Space Pack packs a 1,700 mAh battery that can sustain up to eight extra hours of talk time — and up to 40 hours of music play time — along with either 16 GB or 32 GB of additional storage, depending on which package is purchased. In order to access the files on the Mophie Space Pack, users need to download a complementary app, which lets them access photos, videos, music and documents. Unfortunately, users can’t transfer music files to the iPhone’s music ecosystem, but they can be played through Mophie’s app.

For more information, visit www.mophie.com. The list price is $149.95.

TAKE YOUR BEST SHOT

The Nikon D3300 packs in features For those looking to upgrade to a dSLR camera, the Nikon D3300 is a great choice. It features a 24.2-megapixel sensor and a redesigned version of Nikon’s Guide Mode that helps pick settings for specific shooting circumstances. A new collapsible lens and the camera’s lightweight construction make it easy to control.

For more information, visit www.nikon.com. The list price is $649.95.

VALUE APPS What’s new for your mobile device?

Mercury Mobile gives appraisers portable access to its network The Mercury Mobile app from a la mode lets appraisers immediately respond to new Mercury Network orders, eliminating the need to enter a Web portal. The app addresses a problem many appraisers have faced: a delay in accepting an order because they were busy when it was received. Mercury Mobile immediately notifies appraisers of pending orders so they can respond on the spot. Mercury Mobile now gives appraisers more information about a job, such as the fee or due date, information about the client and vendor, as well as specifics about the assignment. There also is a field for comments.

For more information, visit www. mercuryvmp.com/mercurymobile. The app is free to download, but requires a Mercury Network login to access.

Zonda app provides homebuilding information for mobile devices

UpWord Notes is a more robust notes app for iOS devices

The Zonda app is dedicated to providing on-the-go information about the homebuilding industry. Information in the app is well-organized and cleanly presented, making it easy to find data when it’s needed. Resources available in the app include an interactive heat map that can zoom out to show the whole country and zoom in to a single U.S. zip code, robust searching, the ability to save and monitor hot spots, demographic information like school locations and crime rates, historical context and instant report generation. Overall, the app tracks more than 250 metrics, taking all of this information and putting it in a package that’s easy to use by anyone familiar with a smartphone or a tablet interface.

For those who find the standard Apple Notes app wanting in features, the UpWord Notes app has them covered. It is a gesture-based app that allows for more robust note formatting and management. Just like Apple’s app, new notes are created by tapping on a plus sign. However, UpWord provides options for how the text is organized; swipes and taps will create bulleted lists and to-do lists (that can be crossed off as tasks are completed) and apply formatting such as bold or italics. UpWord’s search feature helps users find notes by searching note titles and content. Additionally, users can share notes by email, SMS, Twitter or Facebook. UpWord notes can even be opened by text editors on your computer; some formatting will be lost, however.

For more information, visit www.zonda.co. The app is free for registered users.

For more information, visit www.upwordnotes.com. It costs $0.99.

www.appraisalinstitute.org

MAPS&COMPS Tips and tricks with mapping software By JOHN

CIRINCIONE, SRA

Turn spreadsheet data into helpful maps with EasyMapMaker

T EXTEND YOUR NETWORK Actiontec Wireless Network Extender gives Wi-Fi a boost

Actiontec has a solution for those spots in your home or office that never receive great Wi-Fi service. The company’s Wireless Network Extender Plus Powerline Network Adapter kit will extend the range of a wireless network up to 1,000 feet. The kit comes with two adapters, one that plugs into the Ethernet connection and another that can be placed wherever there is poor connectivity. Each adapter plugs directly into the wall, so it can be used anywhere there’s an outlet. In addition to extending the wireless network, the adapters also have two Ethernet output ports so they can extend the reach of a wired network. Setup is easy, with each unit coming pre-installed with a network name and password so it works right out of the box.

For more information, visit www.actiontec.com/ products. The list price is $89.99.

he ability to geocode property John’s Tip Sheet data on a map by street address, city Looking for more robust geo-mapping? name or zip code has There are a few others I recommend, but been available for a they will cost you. number of years, but the ■■www.batchgeo.com (Pro version process of translating runs $1,200/year) data into mapping coor■■www.maptive.com ($1,250/year) dinates has often been ■■www.click2map.com (Some services cumbersome. are free, others run $39/month; Fortunately, recent $390/year) advances in mapping ■■www.zeemaps.com (Pro version runs technology have made $19.95/month) the task much easier, ■■www.mapbusinessonline.com and EasyMapMaker ($74.95/month; $249.95/year) (www.easymapmaker. ■■www.mapbox.com (Fees range from The top map shows data for a single-family com) is one of several $5 to $499/month) residential property, including listing ID, user-friendly sites I’ve ■■www.imapbuilder.com (Software current list price, original list price, last sale found. The free service packages range from $185 to $7,253) price, days on the market, square footage, lets users enter, visubedroom and bathroom count and parking alize and analyze their type. The bottom map shows data and available services for a fast-food restaurant. spreadsheet data in a map in just a few steps. If you can copy and paste data, you can How It works map it, as long as the spreadsheet’s head1. Copy and paste spreadsheet data into the form at ings include a street address or a location www.easymapmaker.com. Up to 250 addresses can be component, such as zip code, city, state or geo-coded; a bulk geo-code feature recently was latitude/longitude coordinates. added so users can add up to 2,200 addresses once the Appraisers can add and edit informainitial 250 are set and saved. The data can be grouped tion to the mapped addresses, including or categorized and displayed in a pie chart when the work log files, multiple clustering option is enabled. listing service data, pub2. Set the appropriate options (privacy filters, direction lic record data, appraiser feature, etc.). production activity, 3. Click “Make Map,” and address location data will be various statistics, ratios translated into latitude and longitude and placed on and cap rates, among the map. When the map looks good, save it and an other items. The data can email with a URL for the map will be sent; the URL John Cirincione, SRA, is the be linked to a photo or can be renamed. Property data can be edited once a Appraisal to an external website. map is made and URL is generated. Institute’s Users can select filters As always, refer to the site’s security, privacy policy representative that allow them to mark and map limitations sections for terms of usage and to MISMO for maps for private viewing additional information. residential data standards, and or hide sensitive data. serves as chief Have a mapping tool or tip? I want to hear The site offers a driving appraiser for Colfrom you. Send your suggestions to me at directions feature to lateral Analytics jcirincione@collateralanalytics.com. each property. in Honolulu.

30 VALUATION

2Q 2014

COOLTOOLS Wayne’s world of software & gadgets By WAYNE

PUGH, MAI

Edit reports for brevity and clarity using WordRake

s real estate appraisers, we often have a background in finance or economics, or in other technical fields that rarely focus on writing skills — and yet we communicate substantial portions of our appraisal analysis in narrative form. Therefore, it’s critical we make appraisal reports brief and clear, especially with regard to our descriptions, analysis and findings. WordRake is an editing tool that can help with that.

How It Works WordRake (www.wordrake.com) operates similarly to spell check, but instead of scanning a document looking for spelling and grammatical errors, it looks for overused or unnecessary words and phrases and then suggests ways to make the document clearer and more concise. The electronic editor highlights suggested changes in a format similar to how changes are tracked in a Word document; users choose which suggestions to accept or reject. The program originally was created to help lawyers tighten and strengthen R. Wayne Pugh, MAI, is a past president of the Appraisal Institute and the current CEO of R. Wayne Pugh and Co., a real estate consulting and appraisal firm he founded in 1975 in Baton Rouge, La. He also heads Software for Real Estate Professionals Inc., and is a principal member of Real Estate Counseling Group of America, a national organization of analysts and academicians founded by the late William N. Kinnard, Ph.D. For information on his Appraisal Institute Cool Tools seminars, visit www.appraisalinstitute.org/pugh.

their legal briefs, but the technology nicely adapts to appraisal reports, which can be similarly complex (and wordy). WordRake is not a one-button fix for all writing, however, and it only works if users review all proposed changes to determine which ones truly are improvements. I found WordRake easy to use and helpful for improving my writing style. After only a short time working with the program, I was spotting unnecessary words; it was training me to edit my work before I even clicked the “rake” button. In the same way that the best spellers still rely on spell check, talented appraisers will find themselves using WordRake to help them complete a report — quickly and efficiently.

How to Get It Go to www.wordrake.com and choose the free three-day trial option to see if this program is something you’ll find useful. If you like it,

WordRake suggests ways to make a document clearer and more concise. The user can decide which suggestions to incorporate into the file. WordRake is a smart purchase at $99 (for a one-year license); there’s a small discount when signing up for a multi-year license. Volume purchasing also is available at a discount. Currently, WordRake is only supported on PC, and is an add-in for Word 2007, Word 2010 and Word 2013, running on Microsoft Windows 7, Windows 8, Windows Vista or Windows XP. After installation, the WordRake tab appears within your Word software. Once installed, using WordRake is simple. Open your Word document and look in the menu for a tab identified as WordRake (for Word 2010 or 2013) or “Add-Ins” (for Word 2007). Users can start “raking” the document by clicking on the W icon.

I want to hear from you, so send me product recommendations. I love being able to share exciting new products submitted by real Cool Tool experts. Email your suggestions to wayne@laappraisal.com.

www.appraisalinstitute.org

DO. MORE.

SCAN CAM

Book. Do. Bill. provides tools for managing your business Book. Do. Bill. is Web-based business management software designed specifically for professionals like real estate appraisers. The program allows users to track orders, process payroll, integrate their calendar and store client contacts. Users also can contact and interact with customers and employees through Book. Do. Bill. Because Book. Do. Bill. is Web-based, it can be accessed from any device that has an Internet browser. This accessibility lets users manage their business on the go, and it also means that important data will never be tied to one device or location. For more information, visit The software allows users to create www.bookdobill.com. It is a responsive website and to create free to try and subscripcustom business forms that can be tions start at $69/month. personalized with logos and colors.

The Mini 5 Hover Cam scans documents on the go The Mini 5 Hover Cam is a portable USB document camera that scans documents using any laptop or USB-enabled device. When not in use, it folds up so that it fits into a purse or pocket, and when plugged into a USB port on a laptop, the camera folds out so that it has an overhead view of a work surface. Users place documents on the surface and scan them with the Mini 5â&#x20AC;&#x2122;s 5-megapixel camera. Users can scan up to 30 documents a minute, and the company says the scanner performs better than apps that use a smartphone or tabletâ&#x20AC;&#x2122;s camera to scan documents. Having a dedicated camera and scanner also has other advantages, such as the ability to share documents in real time with colleagues on a conference call. Other Mini 5 features include memo and contact software that integrates with the scanner and a snapshot button to do instant scans. It also comes with a carrying case that conFor more information, visit verts into a stand and a USB cable so www.thehovercam.com. users can scan documents without The list price is $249. the Mini 5 attached to a laptop.

32 VALUATION

TRADE [secrets ]

2Q 2014

Business intelligence for appraisers

KEEPING AFLOAT DURING A CRISIS S

mall-business owners aren’t immune to life’s ups and downs. A sudden health diagnosis, a divorce or an unforeseen financial stress can make an entrepreneur feel isolated and desperate. When a small-business owner comes to such a critical crossroads, the decisions By JULIE BAWDEN DAVIS made can have profound and lasting effects on the company. “There is almost always hope for business owners — even when they think there is nothing left to do,” says David Wimer, co-author of “INSIGHT: Business Advice in an Age of Complexity,” which addresses this topic. “Owners need to know there are many options for obtaining advice and assistance and how to prevent crisis situations from occurring when at all possible.”

A crisis can hit anyone at any time, and usually does so when least expected. Learn how to prepare for the worst so your business can survive.

Inevitable Crises There is no doubt that problems will arise, and given the fact that the small-business owner is in charge of so many critical pieces of the company, it can be a stressful time. “A lot can go wrong,” says Wimer, who also is founder and managing principal of David Wimer Advisors. He works with privately held, family businesses to navigate business transitions and prevent financial crises. “Many owners casually accept the risks of business ownership while discounting the potential impacts of those risks, such as loss of intellectual property, This article originally loss of customer relationships, loss of legacy was published on information, loss of entrepreneurial spirit, loss www.openforum.com. of business value, loss of cash flow and even

more,” he says. “Whether any of these problems become crises is usually within the control of the business owner.”

Be Prepared The surest way to weather a setback is to anticipate potential disaster before it has a chance to strike. “When key executives and managers know exactly what to do if you’re not there, they can respond accordingly, and knowing there is a plan in place is comforting,” Wimer says. “Planning helps to keep everyone oriented, especially when they are emotionally stressed. Otherwise, the situation becomes highly reactive and hyper-stressful.” Not having a preparedness plan in place could even mean losing your business, says Wimer, who tells the story of a business owner who appeared to be in perfect health and elected not to take out a key-person life insurance policy suggested by his financial advisors. “A year later, he was diagnosed with stage four pancreatic cancer,” he says. “His wife and son were active in his thriving five-year-old home health-care business, but because he didn’t have a plan in place, they lost their option to run it, so the company had to be sold while he was undergoing aggressive chemotherapy. Had the owner elected to secure the insurance, there would have been the funds to hire a key executive to run the business while the owner recovered.”

Share the Burden Seek help from trusted advisors during a crisis. While this may take some humility and courage, discussing the problem and getting it out in the open is critical. “Avoid denying there is an issue, and don’t convince yourself you can solve your problems better than others who can be objective,” Wimer warns. “Relay

The $1,000,000 Question You Are Faced With Every Day...

How Do You Make More Money? Answer: It’s the best kept secret and a great complement to what you’re already doing... Certified Machinery & Equipment Appraisal! 3 Questions You’re Probably Asking... 1. Do you need to know anything about equipment? Answer: No! Why? Because you’ll be schooled in the art of finding values no matter what type of equipment you come across.

your troubles to those who have been in a scrape or two themselves and can provide you with viable options. And whatever you do, don’t go it alone or wallow in pity.”

2. Are assignment fees similar to what I’m earning now? Answer: They are better! You determine what your assignment fee may be. It’s rare that you will deal with a management company.

Respond Positively By their very nature, crises are negative, says Karen Zeigler, an author, business coach and life strategist for women in leadership. “Avoid letting your mind go totally negative, because the negativity will permeate every area of your life, including your health,” she says. “Respond in positive and empowering ways by celebrating the good in your life, as well as the lessons learned and opportunities that inevitably result from a crisis.”

3. Is there a demand for Certified Machinery and Equipment Appraisals? Answer: Absolutely! Lenders, CPAs, attorneys, business owners, and others are all demanding a Certified Equipment Appraisal by a Certified Machinery & Equipment Appraiser (CMEA).

Reconnect Spiritually Life gets busy, and when things are going well, we tend to run past those activities that fill our spirit and bring us peace, Zeigler says. “Often it isn’t until the shock of a crisis hits that we realize we have lost sight of those things. It is often the anxiety of the crisis that drives people to their knees. Reconnecting spiritually helps get you back on your feet. You can do this by spending time alone in nature, journaling and meditation.”

Reinvent if Necessary If circumstances occur that slow down or stop business, such as a financial downturn, consider reinventing your business and yourself, Zeigler suggests. “If the money is no longer coming in, look to see where it’s going, and then consider changing gears so that you are in the right market.” “Crises tend to shake things up, and almost always there is some portion of your business that needs a shaking,” she adds. “Take this opportunity to make sure your business comes out not only having survived the crisis, but better because of it.”

Julie Bawden Davis is a writer and speaker specializing in small business and personal finance, among other things. She has authored five books and contributed to numerous media outlets and publications, including MSN Money.com, Parade.com, Entrepreneur and Better Homes & Gardens.

You are missing out on a significant amount of business and money! We are an industry leader for a reason. We provide our members with a complete and proven turn-key system of education, certification, service, forms, tools, and support. If you are a CMEA, you will earn more money, increase your business, surpass competition, reduce the risk of liability, and capture significant equipment appraisal assignment fees. Isn’t it time you make more money? Find out how you can excel as a CMEA. You’ll be glad that you did!

(866) 632-2467 www.nebbinstitute.org

34 VALUATION

2Q 2014

APPRAISAL

report

News from the Appraisal Institute

HEAR AND THERE

AI announces 2014 Annual Meeting speakers The Appraisal Institute announced April 23 that Mark G. Dotzour, Ph.D., chief economist and director of research at the Real Estate Center at Texas A&M University, and Brian Olasav, managing director, McKenna Long & Aldridge LLP, will be general session speakers at the 2014 AI Annual Meeting. Retired astronaut Eugene A. Cernan previously was announced as the keynote speaker for the meeting, which will be held Aug. 4–6 at the Hilton Austin in Austin, Texas. Mark Dotzour currently is doing market research to monitor how global and national trends are likely to impact residential and commercial real estate markets, and he will share his insights with the audience. He also

will talk about the outlook for job growth, interest rates and inflation, and will address the outlook for absorption of commercial real estate, trends in commercial real estate values and transaction volume. Mark G. Dotzour, Brian Olasav will address Ph.D. “A $19 Trillion Education: Are We Smarter Now than in 2008?” According to the U.S. Department of the Treasury, household net worth plunged by more than $19 trillion during the financial crisis, and a significant portion of the loss resulted from an unforeseen national depression in residential and commercial real estate values. Olasav will discuss what real estate markets

and professionals — particularly appraisers — can learn from that event and how they can incorporate the lessons into their businesses. The 2014 Annual Meeting will offer attendees firstBrian Olasav class education and exciting networking options, the opportunity to earn Appraisal Institute continuing education credit and state CE, cutting-edge exhibits and an awards dinner.

See more on the 2014 Annual Meeting at www.appraisalinstitute.org/annualmeeting.

GREEN IS GOOD

AI addresses ‘green’ issues at White House appraisal roundtable On March 11, the Appraisal Institute participated in the U.S. Department of Housing and Urban Development’s Green Mortgage Appraisal Roundtable at the White House to help identify ways in which the mortgage appraisal process can be improved. The Appraisal Institute was represented by 2014 President Ken P. Wilson, MAI, SRA, and representatives from AI’s Washington office. Meeting attendees also heard from Sandra K. Adomatis,

SRA, who discussed ways in which the valuation profession has advanced relative to the appraisal of high-performance homes. She also talked about key issues that still require attention by policymakers, lenders and real estate agents, including limited data, inadequate populating of energy-efficiency fields in data systems, a lack of standardized reporting of energy ratings and information, a lack of mortgage industry knowledge and weaknesses within the appraisal ordering process.

Meeting participants generally agreed that more attention should be paid to bridging the gap in green and energy-efficiency information, and that more education for all parties involved in these transactions would address many issues relating to the mortgage process.

View Adomatis’ presentation at the Green Mortgage Appraisal Roundtable at www. appraisalinstitute.org/file.aspx?DocumentId=887.

www.appraisalinstitute.org

OPPORTUNITIES ABOUND

Appraisal Institute unveils new certification organization On May 8, the Appraisal Institute announced the formation of a new certification organization: the International Center for Valuation Certification. The ICVC will confer cross-disciplinary valuation certifications to individuals who meet select criteria, while addressing current market needs and opportunities, advancing professionals, and serving the public and clients. “The new entity will establish a future generation of cross-disciplinary valuation professionals and will enhance their marketability in a competitive job environment,” said Appraisal Institute President Ken P. Wilson, MAI, SRA. “Creating a certification organization will allow the new entity to demonstrate leadership in cross-disciplinary valuation principles, standards, methods and ethics.” The ICVC is an Illinois nonprofit organization. Its first Board of Directors consists of: ■■Richard L. Borges II, MAI, SRA; AI-RRS ■■Charles T. Cowart, MAI;

■■Jeffrey S. Enright, MAI; ■■James L. Murrett, MAI, SRA; ■■Misty K. Ray, MAI; ■■Faith A. Roland, SR/WA; and ■■Sara W. Stephens, MAI. The new certification organization is one of the three major strategic initiatives that the Appraisal Institute announced in October 2013. The other two were: ■■Proposed Standards of Valuation Practice that could serve as an alternative for valuation professionals where national or other standards are not required; ■■Expanded delivery of Appraisal Institute education, becoming more proactive in identifying and pursuing appraisal educational opportunities. The Appraisal Institute already has issued for comment two exposure drafts of the proposed Standards of Valuation Practice. The proposed standards could serve as an

alternative for valuation professionals when current national or other standards are not required. These standards could be used when Uniform Standards of Professional Appraisal Practice, International Valuation Standards or other standards are not required and the use of the proposed standards would be appropriate. Further, they would serve as an alternative set of standards that could be used independently, and not as an additional set of required standards. The proposed standards would not supplant USPAP or other national standards. The Appraisal Institute also is expanding its delivery of Appraisal Institute education through a wider number and scope of providers, becoming more proactive in identifying and pursuing educational opportunities.

More information on ICVC will be available later this year.

REPORTS IN SHORT Member news in brief

Appraisal Institute designates 204 new members During the first quarter of 2014, the Appraisal Institute welcomed 204 new Designated members, including 107 who received their MAI designation, 43 who received their SRA designation, 30 who received the AI-GRS

designation and 24 who received the AI-RRS designation. Designated members make a commitment to advanced education and defined ethical requirements. The MAI designation is held by appraisers who are experienced in the valuation and evaluation of commercial, industrial, residential and other types of properties, and who advise clients on real estate investment decisions. The

SRA designation is held by appraisers who are experienced in the analysis and valuation of residential real property. The AI-GRS designation is held by appraisers who are experienced in general appraisal review, while the AI-RRS designation is held by appraisers who are experienced in residential appraisal review.

Find more information on designations at www. appraisalinstitute.org/ designated.

Borges named to Appraisal Subcommittee advisory post On March 25, Richard L. Borges, II, MAI, SRA, AI-RRS, immediate past president of the Appraisal Institute, was named to an advisory committee of the Appraisal Subcommittee. Borges will participate in the agency’s exploration of new rulemaking powers granted to it under the Dodd-Frank Act in specific areas, such as state enforcement and reciprocity.

See a list of advisory committee members at www.asc.gov/documents/ othercorrespondence/advisory%20 committee%20member%20list.pdf.

36 VALUATION

NEWS

2Q 2014

the

numbers Economic and market data

NIGHTMARE SCENARIOS

When appraisers were asked to name their biggest professional concerns, 66.1 percent said that low fees worry them the most, according to the 2013 â&#x20AC;&#x153;Voice of the Appraiserâ&#x20AC;? report released Nov. 3 by October Research. The report gathered responses from more than 1,400 industry professionals.

Lack of client loyalty

Blacklisting

Low fees

Frequently canceled assignments

Scheduling conflicts

Unsure who to talk to about problems Appraisal review conflicts

Download a copy of the 2013 Voice of the Appraiser report at www.valuationreview.com/ VR/Voice-of-the-Appraiser2013.aspx.

www.appraisalinstitute.org

PwC REAL ESTATE INVESTOR SURVEY First Quarter 2014

REGIONAL MALL 1Q 2014

CBD OFFICE

WAREHOUSE

APARTMENT

4Q 2013

1Q 2014

4Q 2013

1Q 2014

4Q 2013

1Q 2014

4Q 2013

Discount Rate (IRR) a Range

6.50% 12.00%

6.00% 12.00%

6.00% 11.00%

5.75% 9.00%

5.75% 9.25%

6.00% 14.00%

Average

8.92%

8.81%

8.04%

8.05%

7.50%

7.34%

8.17%

Change (b.p.)

+ 11

-1

+ 16

The PwC Real Estate Investor Survey is available to Appraisal Institute Designated members, Candidates for Designation, Practicing Affiliates and Affiliates. Subscribers who are not AI professionals Overall Cap Rate (OAR) a Range

4.25% 9.00%

Average

6.56%

Change (b.p.)

have to the-survey in4.00% the print of Valuation magazine. 4.25% - access 3.75% - version 5.00% 5.00% 10.00% 8.00% 9.00% 7.50% 7.75%

3.50% 10.00%

Please log in with your username and password to view the latest indicators: 6.56% 6.27% 6.45% 6.16% 6.22% 5.79% www.appraisalinstitute.org/myappraisalinstitute/downloads/National_Market_Indicators.pdf. 0

- 18

-6

3.50% 10.00% 5.80% -1

To subscribe to Valuation magazine, visit: www.appraisalinstitute.org/valuation/subscribe.aspx. Residual Cap Rate Range Average

4.50% 11.00%

4.75% 11.00%

4.75% 9.00%

5.00% 9.00%

5.50% 8.50%

4.25% 9.50%

4.25% 9.75%

7.02%

7.08%

6.82%

6.86%

6.65%

6.76%

6.23%

6.29%

Change (b.p.)

-6

-4

- 11

-6

a. Rate on unleveraged, all-cash transactions Definitions: b.p. basis points Discount Rate (IRR). Internal rate of return in an all-cash transaction, based on annual year-end compounding Overall Cap Rate (OAR). Initial rate of return in an all-cash transaction Residual Cap Rate. Overall capitalization rate used in calculation of residual price; typically applied to the NOI in the year following the forecast. Source: PwC Real Estate Investor Survey, formerly known as the Korpacz Real Estate Investor Survey. Personal survey conducted by PwC during January 2014. For subscription information, please visit www.pwc.com/us/realestatesurvey or call 1-800-654-3387.

For continuously updated economic indicators, visit www.appraisalinstitute.org/ano/econ_indicator/indicators.aspx.

CONVENTIONAL HOME MORTGAGE TERMS New Homes

Existing Homes

Average U.S. Interest Rate 3/14 9/13 3/13 9/12 3/12 3/11

Average U.S. Term (years)

4.35 4.44% 3.65% 3.62% 3.72% 4.98% %

Average U.S. Loan Ratio 3/14 9/13 3/13 9/12 3/12 3/11

3/14 9/13 3/13 9/12 3/12 3/11

Average U.S. Interest Rate

28.6 28.3 27.4 28.4 28.3 28.5

Average U.S. Mortgage Loan ($ thousands)

77.5 77.5% 77.3% 76.4% 76.2% 74.7%

3/14 9/13 3/13 9/12 3/12 3/11

427.2 388.5 361.7 370.9 365.8 328.8

3/14 9/13 3/13 9/12 3/12 3/11

Average U.S. Term (years)

4.38 4.53% 3.66% 3.68% 3.96% 4.98% %

Average U.S. Loan Ratio 3/14 9/13 3/13 9/12 3/12 3/11

3/14 9/13 3/13 9/12 3/12 3/11

27.9 27.4 27.1 27.2 27.1 27.4

Average U.S. Mortgage Loan ($ thousands)

78.5 78.0% 77.2% 75.5% 74.6% 75.8%

3/14 9/13 3/13 9/12 3/12 3/11

358.4 358.3 356.5 348.9 343.8 277.3

38 VALUATION

2Q 2014

NEWS

the

numbers

0.5 0.4

3.25%

Reserve Bank Discount Rate Federal Funds Rate

n.a. n.a. 0.21% 0.24% 0.29% 0.28% 0.08% 0.04% 0.11% 0.14% 0.14% 0.16% 0.05% 0.02% 0.09% 0.11% 0.08% 0.10%

0.3% 0.2% 0.1% 0% 6-Month Treasury Bills

3-Month CDs 3-Month Treasury Bills 5.0% 4.0%

3.62 3.79 3.16 2.88 3.28 4.51 2.72% 2.81% 1.96% 1.72% 2.17% 3.41% %

3.0% 2.0% 1.0% 0%

1.64 1.60 0.82 0.67 1.02 2.11 %

U.S. 10-Year Bond

U.S. 30-Year Bond U.S. 5-Year Bond 10.0% 8.0%

5.06% 5.47% 4.85% 4.84% 5.23% 6.03% 4.56% 4.85% 4.14% 4.01% 4.51% 5.52%

6.0% 4.0% 2.0%

4.38% 4.64% 3.93% 3.49% 3.99% 5.13%

4.48 4.15 Boston-Lawrence-NH-ME-CT* 4.15 4.44 Chicago-Gary-IN-WI* 4.44 4.39 Cleveland-Akron* 4.39 4.47 Dallas-Fort Worth* 4.47 4.53 Denver-Boulder-Greely* 4.53 4.43 Detroit-Ann Arbor-Flint* 4.43 4.44 Houston-Galveston-Brazoria* 4.44 4.66 Indianapolis 4.66 4.63 Kansas City, MO-KS 4.63 4.41 Los Angeles-Riverside* 4.41 4.55 Miami-Fort Lauderdale* 4.55 4.73 Milwaukee-Racine* 4.73 4.56 Minneapolis-St. Paul-WI 4.56 4.32 New York-Long Island-N. NJ-CT* 4.32 4.43 Philadelphia-Wilmington-NJ* 4.43 4.63 Phoenix-Mesa 4.63 4.43 Pittsburgh 4.43 4.58 Portland-Salem* 4.58 4.58 St. Louis-IL 4.58 4.29 San Diego 4.29 4.15 San Francisco-Oakland-San Jose* 4.15 4.22 Seattle-Tacoma-Bremerton 4.22 4.55 Tampa-St. Petersburg-Clearwater 4.55 4.35 Washington, DC-Baltimore-VA* 4.35 Atlanta

4.48

+0.92 +0.67 +0.76 +0.81 +0.94 +0.92 +0.97 +0.95 +1.06 +1.14 +0.76 +0.95 +1.06 +0.98 +0.89 +0.83 +0.97 +1.01 +1.02 +1.05 +0.70 +0.58 +0.75 +0.93 +0.82

3.56

3.91

5.00

3.48

3.83

4.95

3.68

4.03

5.09

3.58

3.71

4.81

3.53

3.80

4.77

3.61

3.87

5.11

3.46

3.95

5.10

3.49

4.01

4.97

3.60

3.93

4.93

3.49

2.82

5.26

3.65

4.00

5.04

3.60

4.05

5.12

3.67

4.15

5.05

3.58

3.99

4.99

3.43

3.84

4.85

3.60

3.91

4.79

3.66

4.14

5.16

3.42

3.52

4.78

3.56

4.06

4.96

3.53

3.71

5.02

3.59

4.02

5.04

3.57

3.96

4.95

3.47

3.81

4.94

3.62

4.22

5.02

3.53

3.86

5.05

HIGHEST Milwaukee/Racine

0% Corporate Bonds (A)*

Corporate Bonds (Baa)* Corporate Bonds (Aaa)*

LOWEST San Francisco/Oakland/San Jose Boston/Lawrence/NH/ME/CT

10.0%

4.15

8.0% 6.0%

4.54 4.75 3.76 4.84 4.21 4.74 %

4.0% 2.0%

3.75% 3.94% 3.07% 3.89% 3.37% 4.47%

Highest & Lowest Rates per Quarter

0% Municipal Tax Exempts (A)*

20 11

3.25%

0.75% 0.75% 0.75% 0.75% 0.75% 0.50% % % % % % 0.26 0.28 0.28 0.41 0.45 0.42% 0.08% 0.08% 0.14% 0.14% 0.13% 0.14%

Prime Rate (monthly average) LIBOR-3 month rate %

3.25%

20 14

3.25%

20 12

3.5 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0% %

3/14 9/13 3/13 9/12 3/12 3/11

CONVENTIONAL HOME MORTGAGE RATES By Metropolitan Area ch a pre nge vio fro us m ye ar 1Q 20 13

MARKET RATES & BOND YIELDS

Municipal Tax Exempts (Aaa)* *Source: Moodyâ&#x20AC;&#x2122;s Bond Record

*Consolidated metropolitan statistical area

4.73

www.appraisalinstitute.org

OTHER BENCHMARKS 3/12

Per Capita Personal Disposable Income and Savings Rate

3/11

2.04 2.13 2.19 2.21 2.09 1.90 %

Consumer Price Index

36,7 81

9/12

37,9 80

3/13

39,7 82 39,6 77 $ 39,7 31 $ 38,8 04 $ 37,9 81

9/13

3/14

Stock Dividend Yields

236.3 234.1 232.7 231.4 229.4 223.5 Unemployment Rate

3.8%

5.6%

5.4%

4.6%

3.9%

3.8%

3.6%

6.7% 7.2% 7.6% 7.8% 8.2% 8.8%

79.2 78.3 78.0 77.0 76.9 76.3

M1, M2, $-Billions $-Billions 3/14 2,744.7††

11,160.8††

9/13 2,587.2††

10,523.9††

3/13 2,476.4††

10,805.6††

9/12 2,383.7††

10,160.8††

3/12 2,221.9

9,782.1

3/11 1,891.0

8,920.4

Savings as % of DPI

4Q 2 013 3Q 2 013 4Q 2 012 3Q 2 012 4Q 2 011 3Q 2 011 4Q 2 010

Industrial Production Index*

Monetary Aggregates†

* On June 25, 2010, the Federal Reserve Board advanced to 2007 the base year for the indexes of industrial production, capacity, and electric power use. This follows the November 7, 2005, change to a 2002 baseline, from the previous 1997 baseline. Historical data has also been updated. † Seasonally adjusted †† Revised figures used

40 VALUATION

2Q 2014

value The final word in valuation

SANDRA K. ADOMATIS, SRA Sandy Adomatis, owner of Adomatis Appraisal Service in Punta Gorda, Florida, has made it a mission to educate her peers about energy efficiency and sustainability — an endeavor that’s made her the Appraisal Institute’s “green guru.” When she’s not focused on green valuation, Adomatis spends time behind the camera, snapping photos of her 10 grandchildren and serving as a volunteer photographer at her church.

Appraisal Institute: What led to your specialization in green and sustainability? Sandy Adomatis: In 2007, I was doing the final inspection on a new house that had been appraised from plans and specs by another appraiser. The builder/owner met me in the driveway and asked if I was aware it was a green house. I replied that the appraisal done by the other person made no mention of the house being painted green, and I could see that the house was definitely not green. That was not the answer she wanted to hear, and I was given a tutorial on the home’s green features and shown a home energy rating report. I had been an appraiser for 25 years at that point and had never heard of a green house or a HERS report. I figured I wasn’t the only appraiser in this situation, so I asked the builder to help create a seminar for appraisers, lenders and real estate agents that highlighted the features of a house built for energy efficiency and sustainability. Ever since then I’ve been studying green technology, HERS reports, passive solar and the like. A few years ago, I was ready to give up the green crusade because of pushback I received from peers and the lending community. However, the message is finally being received, and for the first time in my career I’m seeing agents, appraisers and builders coming together to solve an issue.

AI: What was behind the development of AI’s Residential Green and EnergyEfficient Addendum (www.appraisalinstitute.org/greenaddendum)? SA: I found it difficult to use the Fannie Mae report form to create a narrative of a home’s green features and when you put the narrative in a text addendum, it’s rarely read by the underwriter. A dedicated form — such as the addendum — is more likely to be read and also serves as a handy checklist for appraisers and real estate agents.

AI: How do you see green valuation evolving over the next few years? SA: Green valuation will become less difficult when databases are improved. There are more than 100 green building certifying organizations but no central collection that appraisers and real estate agents can use to find details on green certification for a given address. This issue needs to be addressed so we can move forward.

AI: Tell us about your book, “Residential Green Valuation Tools,” that was published in April. SA: It was exciting and challenging to write, and I think people will be surprised that I pulled no punches. Everyone working in real estate must take responsibility for and work to improve weaknesses in the green mortgage transaction process. It’s easy to blame the appraiser, but no one is blameless. (Find the book at www.appraisalinstitute.org/store/books.)

Have a suggestion for Face Value? Email us at facevalue@appraisalinstitute.org.

Photo: Brian Tietz

Sandra K. Adomatis, SRA, stands in front of a “green” home in Punta Gorda, Fla., that’s designed to earn a LEED rating from the U.S. Green Building Council. Adomatis consulted with this builder after he, too, experienced difficulties with an appraisal process that failed to recognize the home’s sustainable features.

Knowledge Experience COMES FROM

LIA is the strongest name in the valuation industry. Since 1978 our main focus has always been Appraisers E&O. Our 9 senior staff

members have a combined 176 years experience insuring appraisers. ...................................................................................... OUR LEGAL EXPERTISE AND DEFENSE IS GUIDED BY CLAUDIA GAGLIONE AND PETER CHRISTENSEN. ......................................................................................

Call today at 800-334-0652 and benefit from our experience.

Specializing in Errors and Omissions With LIA, you can count on FREE PRE-CLAIM ASSISTANCE

EXPERIENCE

FDIC & REGULATORY AGENCY CLAIM COVERAGE SUBCONTRACTOR APPRAISER, TRAINEE & STAFF COVERAGE MOLD CLAIM COVERAGE NO FEES

1600 ANACAPA STREET, SANTA BARBARA, CA 93101 PH: (800) 334-0652 www.liability.com

FAX: (805) 962-0652

lia@liability.com

CA License #0764257