LiveValuation Magazine - February 2011

Something About a Forest and Trees LELAND TRICE, p28

prior acts:

will your past

haunt

you?

?

p20

have we

outgrown

u spa p leave your

ego behind p40

p34

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* LIVEVALMAG.COM | 3

table of contents

&

co nten ts

| contents |

Feature

28

Something About a Forest and Trees Scope Creep: What lax standards caused, unreasonable standards will not cure.

LELAN D T RIC E, SRA, F RIC S

Now that Warren Buffett would have difficulty getting a mortgage, every data point must be perfect and more data points are added every day.

Unfortunately, I am not convinced this makes for better appraisals. I am convinced it makes for very disgruntled and disaffected appraisers.

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LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM

your monthly valuation publication

9

LVM02.11 20

*

Departments 6

Publisher’s Note 8

Contributors 10

Staiger on Stats 48

Voices of Valuation 49

Directory

34

Up Front

Inside This Month

14

24

Do Short Sales Save Lenders Money?

Regression Analysis

Occupancy and attitude can make a

Appraisal is still an art, even with the

difference.

science of regression.

michael sklarz, ph . d.

Steve fergu son

patric k callison, C RA

34 18

The Law of Real Estate Appraisal

Love is Efficient!

Has real estate appraisal practice outgrown

“Relationships” from a different perspective.

USPAP?

R o g er Staiger III

Dennis A. scardilli, MA I

20

40

Who Needs Prior Acts Coverage?

State Appraiser Coalitions

Giving up prior acts coverage to save money

Leave your ego at the door and unite with

is risky business.

other appraisers.

b etsy A. magnu son

ju lie friess

22

44

Geographic Competency vs.

Competency

The Next Generation of AVMs

Competency is demanded, geographic or

sources beyond public records.

otherwise.

joe em ison

Jo rdan petkovsk i

50

For What It’s Worth

44

kri stine hu gh es

AVMs are more accurate when they use data

February 2011

cover

Something About a Forest and Trees

Something About a Forest and Trees

Scope Creep: What lax standards caused, unreasonable standards will not cure. leland trice, SRA, F RIC S

28

FEBRUARY 2011

LELAND TRICE, p28

PRIOR ACTS:

will your past

haunt

YOU?

?

p20

HAVE WE

OUTGROWN

USPAP

p34

LEAVE YOUR

EGO BEHIND p40

* LIVEVALMAG.COM | 5

PUBLISHER’S NOTE

$

THIS WAY IN.....

Scope of work, as understood

by USPAP, puts the onus on the appraiser to assure that it is “sufficient” to produce a credible result.

USPAP states,

providing much more research and analysis

than is necessary to develop a credible result.

Lenders and appraisal management companies have added layer after layer of additional requirements. Enter “scope creep.”

I’m not sure who coined the phrase “scope creep,” but it has become a part of the

appraiser’s vocabulary over the past several

years. Week after week, new orders come into

“Appraisers have

broad flexibility and significant responsibility

A Letter from the Publisher

don’t think so. Nowadays, most appraisers are

in determining the appropriate scope of work.”

It sounds like appraisers are in the driver’s

appraisers’ offices with longer and longer lists

of requirements. USPAP clearly states that scope of work is acceptable when it meets or exceeds “the expectations of parties who are regularly

seat when discussing scope of work with

intended users for similar assignments.”

their clients. Is that what really happens in

the typical mortgage appraisal assignment? I

Providing the additional details to meet

“expectations” would be fine if appraisers were compensated for the additional time it takes.

Leland Trice addresses scope creep in his

meet the team

feature article this month. Along with proposed solutions, Lee shares a list of “war stories” that 1

exemplify inane requirements that don’t really contribute to a credible result. Unfortunately, many of our readers can join in chorus with

1. Founder | Aman Makkar

these war stories. Lee argues that lax standards

2. Publisher | Ernie Durbin, SRA, CRP 3. Editor-in-Chief | Emily Vannucci

2

4. Copy Editor | Kersten Wehde

the report and not the minute details. It should

6. National Sales | David Peck

all be about the soundness and reliability of the 3

Printer | Ovid Bell Press Advertising Information | P : 858.832.8900 / E : advertising@livevalmag.com

have some war stories to share yourself. Feel

E : emily@livevalmag.com / W : LiveValMag.com 4

LVM

free to do so on our webpage, livevalmag.com.

Be sure to redact specific client and property information!

© 2011 LiveValuation Magazine.

|

appraisal report.

After reading our feature article, you might

Subscription and Editorial | P : 858.217.5332

6

but unreasonable standards will not get us out.

We have to focus on the overall credibility of

5. Creative Director | Traci Knight

All rights reserved. LiveValuation Magazine is a California limited liability company and is the publisher of LiveValuation Magazine. Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in article and advertisement herein are not necessarily those of LiveValuation Magazine, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, LiveValuation Magazine is not responsible for any errors, misprints, or misinformation. Any legal information contained herein is not to be construed as legal advice and is provided for entertainment or educational purposes only. Postmaster : Please send address changes to LiveValuation Magazine, 16745 W. Bernardo Drive Suite 450 San Diego, CA 92127

may have gotten us into the real estate mess,

On a personal note, I would like to tell my wife 5

and valentine of 30-plus years: “Velina, you are my efficiency!” Sweetheart, you’ll have to read Roger Staiger’s article to understand this. 6

6

| Publisher |

Ernie Durbin, SRA, CRP

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CONTRIBUTORS

?

44

Joe Emison

14

Patrick Callison, CRA

Mr. Callison has been an appraiser since 1977.

Currently he is the Chief Appraiser for Collateral Intelligence and performs regulatory research and data control functions as well as monitoring AVM accuracy and applications. His career history includes Owner and Chief Appraiser of the appraisal firm Callison and Associates and 12 years as a Senior Appraiser and researcher for several government agencies. He attended Portland State University and holds an M.S. degree. co-intel.com

Joe began his career by building the first Windows interface for the Apple iPod and winning the 1996 Weird Software Contest. Over the past decade, Joe transitioned from development to systems design and data analysis, creating the first BuildFax engines in 2003, the original architecture in 2007 and designing the Pragmatic Extract-Transform-and-Load (PETL) architecture that makes the current national footprint possible.

Joe graduated with degrees in english and mathematics from Williams College, and has a juris doctor degree from Yale Law School. joe@buildfax.com 877.600.2329 x444

24

Steve Ferguson

Steve Ferguson began his career in real estate as an appraiser for 20 years, starting in Cincinnati, Ohio. In 2004 he closed the appraisal chapter in his career and continued his formal education in economics where he began applying statistical tools to the field of real estate. He currently is the lead Realtor working for a medium-size firm in Indianapolis, IN where he lives with his wife and three children. steve.ferguson@livevaluation.com

40

Julie Friess

Julie FriessJohnson began appraising in 1988 in Long Island, NY. She is currently the managing director of the Northern Arizona franchise for IRR Residential. Julie is Vice President of the Coalition of Arizona Appraisers and actively involved in the appraisal industry and legislation. Julie has been a consultant to the FBI and the Arizona Department of Financial Institutions.

Contr utors 8

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22

22

Kristine Hughes

50

Fred Holtsberry

Fred Holtsberry has over 20 years experience in commercial banking and appraisal services. He is a Certified Residential Real Estate Appraiser and has evaluated over 3,500 homes in the central Ohio region over the past 13 years. He is the owner of a small appraisal company in central Ohio.

Kristine Hughes earned her bachelor’s degree in business management from Robert Morris University.

She has worked in the appraisal industry since 1990. Kristine began her career at Lender Service Inc. as a Risk Manager. In 1998, she took a position at Metro-West as Vice President of Operations.

She currently serves as Chief Collateral Officer for TSI Appraisal Services®. Kristine is a member of the Appraisal Institute and is a licensed appraiser in Michigan and Nevada.

Jordan Petkovski

20

Betsy A. Magnuson

Betsy A. Magnuson is the President of the Herbert H. Landy Insurance Agency and has been involved in Errors & Omissions Insurance for more than 25 years. betsy@landy.com | 781.292.5408

rib-

Jordan Petkovski has worked in the residential appraisal industry for most of his career. Currently, he is the Director of Staff Appraisal Operations at TSI Appraisal Services®, a wholly owned subsidiary of Title Source®. His primary focus is the successful development of operational processes based upon a greater understanding of the industry as a whole. jordanpetkovski@tsiappraisal.com 248.312.2880

34

dennis A. scardilli, Esq*., MAI

Dennis Scardilli is an attorney, admitted to practice law only in New Jersey and Pennsylvania, MAI, NJ State Certified General Real Estate Appraiser, AQB Certified USPAP Instructor, NJ Professional Planner (PP), NJ Certified Tax Assessor (CTA) and NJ Civil Court R.1:40 Qualified Mediator. He has served, in various roles, at all levels of government and in the private sector. * Admitted to Practice Only in NJ & PA

Michael Sklarz, Ph.D

14

Dr. Sklarz, President of Collateral Analytics, has more than 25 years of professional experience in real estate research, analysis and real estate technology product development in the United States. Dr. Sklarz holds a B.S. in engineering mathematics from Columbia University and an M.S. and Ph. D. in ocean engineering from the University of Hawaii. collateralanalytics.com

ROGER STAIGER III

10,18

Roger Staiger III is Managing Director for Stage Capital, LLC. His areas of expertise are commercial and residential real estate portfolio investing, corporate business; and strategic planning, forecasting, valuation, financial modeling, asset repositioning and risk mitigation through financial hedging for physical assets. He holds positions at Johns Hopkins, Georgetown, and Loyola universities. rstaiger@gwmail.gwu.edu

Leland Trice, SRA, FRICS

28

Leland “Lee” Trice holds an economics degree from the University of Maryland and has been an appraiser since 1985. Lee is Owner of The Trice Group, a regional residential and commercial firm in the Mid Atlantic. He is also a Partner in LiveValuation, a technology company developing solutions for the valuation industry. Lee is active with the Appraisal Institute, RICS and the Coastal Association of Realtors.

FEBRUARY 2011

* LIVEVALMAG.COM | 9

STATS

STAIGER on STATs Industry’s latest stats

Roger Staiger III

Bad! That was my one-word response at Christmas dinner when the family asked my thoughts on housing. Sure, equities rose and there is some talk of a 2011 bull, but realistically, are equities the best benchmark for

financial health? Equities are the smallest of the three main asset

classes, fixed income, real estate, and equity, and do not represent

the majority of household wealth in

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America. Besides, equity performance lags real estate recoveries, e.g., Great

Depression (it took 25 years to recover from the fall). So, after the family

settled and demanded holiday cheer, I suggested I begin our discussion

with fact rather than my conjecture

(which was discounted, only because it apparently was not “merry”).

One of the main drivers for housing pricing is affordability. Given the overleveraged American culture,

this means interest rates are critical for

$200,000. For a 30-year FRM at today’s

Now, let us consider that rates increase

Rate Mortgage (FRM), 30-year conforming

(note: Points are ignored for simplicity).

to Freddie Mac, i.e., 8.93%. At this rate

housing to remain affordable. The Fixed rate for November 2010 according to

Freddie Mac was 4.30% with 0.80 point.

This is basically a 40-year low. Why is that important? Based on history, interest rates

can only go one direction: UP! This makes the payment on housing increase and makes housing less affordable.

Since 1972, the average 30-year fixed rate mortgage rate has been 8.93% and the

median 8.50%. In simple statistics, the

current rate is less than half the historic

average rate. In historic terms, the rate on

housing debt is FREE, therefore the cost of owning a home can only increase.

Let us analyze the house payment for

the median priced home, approximately

rate of 4.30%, the payment is $989.74 When considering the average

American household that in 2009 earned

approximately $50,000 and pays roughly an all-in tax rate of 30%, an 80% loan on

the typical $200,000 home at today’s rate of 4.30%, will represent 34% of a household’s net income. That, of course, is at today’s

prevailing rates. Now consider that given today’s unemployment, 9.8%, a freeze

on federal pay raises for two years, and

efficiency in industry replacing hiring, a

reasonable assumption is that household income will remain unchanged in the

short- to medium-term. Thus, exposing Americans even more to interest rate

increases which would most likely occur without a corresponding wage growth increase.

to the 40-year historic average according the payment increased by $609.44 to

$1,599.18. Now, housing for the same priced home represents 54.83% of

household net income. Further, if rates escalate to 1 standard deviation above

the mean, historically, the payment for a

$200,000 home is $2,028.02. This represents 69.53% of household net income. Clearly this would require a drastic reduction

in housing prices to compensate for the

100% rise in housing cost. When looking

at the history of interest rates from 1972 to present, 95% of all the values are greater than current rates. The Fed, by keeping

rates artificially low, has not helped the

housing industry and America, but rather

forestalled our day of reckoning. Housing Armageddon is far from over! >>

FEBRUARY 2011

* LIVEVALMAG.COM | 11

A month-over-month analysis of November from October does not support a recovery. Nationally, housing reduced 1.32% according to the composite-20, Case-Shiller. This translates into a net loss of asset wealth (value) for the

U.S. residential market of approximately $264.0bn. With the current administration’s newly announced stimulus

part deux of $200.0bn with the Bush-era tax cut extension, Americans remain $64.0bn poorer. $64.0bn thus translates

to about $390/tax-paying person in the United States. Once again, the administration’s holiday cheer was a nicely wrapped invoice.

What is also telling about the month-over-month data is the performance of the DC-MSA relative to the nation. Once again, DC outperforms the rest of the nation by a factor of six to one. Further, the commercial performance was

actually positive month-over-month. Given the 16-month lag of commercial from residential, this is overhang from

the 2008/’09 stimuli and will be short-lived, as was the bear bump in residential.

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The year-over-year

(YoY) analysis ending

November 2010 marks an important event for

the national composite

index: The YoY is again

negative, i.e., 0.80%. The

DC-MSA posted a strong YoY gain of 3.65%, again demonstrating that the true benefactor of the

stimuli is not the nation but rather the power elite situated in the

DC-MSA. The national composite-20 index

remains only 4.3% above its low point for this

recession. The current

direction, again, supports the idea that housing

has not bottomed out

and that the stimuli have only prolonged the pain, deepened the void, and

forestalled the recovery.

The Case-Shiller futures market continues to push the bottom

further to the right on the time

scale. The capital markets have priced in a new bottom of

early 2012 with the reduction from November 2010’s value being approximately 5.00%.

This contradicts this author’s analysis and recent Financial Times article stating at least another 10% reduction in

housing pricing before the

true bottom is achieved. This author contends that as a

general statement, investment in physical real estate is

akin to catching a falling

knife. The prudent investor, understanding the physical

and financial side of real estate, will look to the financial and

synthetic real estate for profits in 2011. Sell with the Bears, Buy with the Bulls! 6 FEBRUARY 2011

* LIVEVALMAG.COM | 13

U

up front

S

hort sales are a better alternative to foreclosure and REOs because they save legal and administrative costs necessary to foreclose; get someone out of a home; and then sell it, often after some repairs. But do they also result in a higher price?

Most brokers suggest that occupied homes will sell at

higher prices than empty homes, especially if they are nicely furnished. Occupied homes are also more likely to be better

maintained, with grass trimmed, plants watered, swimming pools filled with clear water and broken windows repaired.

Short sales are also likely to avoid the kind of destruction and desecration of properties committed by resentful

subprime borrowers. Our initial thought was that short

sales would not be as deeply discounted as REOs. Knowing in advance that, even if short sales observed the same kind of discount as REOs, most lenders would be ahead on

transaction and carrying costs and most borrowers would

feel more in control of their destiny, we decided to examine a host of metro markets and compare the various prices.

Collateral Analytics used sales data from the past

several years through the present to track median home prices on a per-square-foot-of-living-area

Do Short Sales Save Lenders Money?

Occupancy and attitude can make a difference.

Mic hael S k l a r z PH. D. / Patrick Calliso n, CR A

basis for non-distressed residential single-family

homes and compared these to REO sales and short

sales, where the seller was engaged in the marketing

and sale transaction. The result of this analysis for a

number of major U.S. counties is as follows:

In markets that have been hit hard by foreclosures and

where many homes are underwater by a significant margin, i.e., Phoenix and Las Vegas, we find little difference in price

between REO sales and short sales. In other markets, where there are many healthier submarkets and the underwater

gap is less, we find a significant price advantage for short

sales, i.e., Palm Beach, FL; and Chicago. We also find some markets that have been hit hard by unemployment. like

Detroit, where short sales are significantly higher than REO sales. In these markets REO sales prices are much lower than short sale prices.

Another factor that could play into the difference between

short sale and REO prices could be the change in attitudes about default. Ruthless or strategic default is defined as

borrowers walking away from negative equity situations even when they can pay. Normally borrowers will not

default unless they are significantly underwater because of 14

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the effects on their credit

rating, the inability to buy

a home and the loss of put options in the future as

well as the stigma attached to being foreclosed upon.

But in a paper by Guiso,

Los Angeles County CA Single-Family Median Sold Price Per Living Area

Sapienza and Zingales

(2009) from the European University Institute of

Economics1, the authors

surveyed those who

were underwater on their

mortgages and found that

if you knew of others who

had strategically defaulted, you were more likely to

default. That is, the more people in your situation

who walked away when they could have paid

their mortgages, the less

social stigma attached to the default. Taking the

Maricopa County AZ Single-Family Median Sold Price Per Living Area

implications of this study

further, if borrowers knew of neighbors who had

successfully completed

a short sale, they may be more willing to try and avoid damage to credit ratings.

It is a sad but important fact to consider, but in communities where

economic conditions may

propel borrowers through the foreclosure process so

w

rapidly, >>

Palm Beach County FL Single-Family Median Sold Price Per Living Area

1 Working papers # ECO2009/27

FEBRUARY 2011

* LIVEVALMAG.COM | 15

it may leave a volume

of vacant homes as REO

that may take months or

even years to be absorbed by the shrunken faction of qualified buyers.

Clearly, any lender will suffer less by accepting reasonable terms for a short sale rather than

allow the borrower to give up and, in a moment of

anger or retaliation, strip

$

or otherwise damage

Clark County NV Single-Family Median Sold Price Per Living Area

the home as they leave.

Additionally, the short

sale generally does not

leave the home vacant for any significant amount of time, mitigating

Another point to

opportunity vandalism.

appraisers is our

Another point to consider

direct our client’s

our responsibility to direct

consider as residential

as residential appraisers is

responsibility to

our client’s attention to

attention to

neighborhood trends

neighborhood trends

the subject property

subject property value.

collected within the

within the subject’s

known to impact

known to impact the

value. Using data

Using data collected

subject’s market area, we may

accurately infer

Wayne County MI Single-Family Median Sold Price Per Living Area

market area, we may

accurately infer that if short sales and non-

distressed transactions

that if short sales

are occurring to a greater

and non-distressed

extent than the REO,

transactions are

occurring to a greater

it is more likely the

it is more likely

well to prospective

neighborhood will present

extent than the REO,

purchasers. 6

the neighborhood will present well to prospective purchasers.

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Cook County IL Single-Family Median Sold Price Per Living Area

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CA License #0764257

U

up front day is about “love,” real or departed.

“What is love?” For how

can we know if we are in love without being able

to define love?! Is love the

state of euphoria when our thoughts become singular

of a betrothed or when our parlance becomes garbled

from lack of clear thought?

we are happier. When we have fallen from love, we are sadder.

Quantitatively, love

is the balance of return

(feelings), risk (personality

extremes), and correlation

(how two assets/people fit together in a relationship/ portfolio). Using portfolio theory to quantify love,

it can be considered the positive or negative (in the case of hate) marginal change in a person’s

“love” are more efficient than apart. Therefore love is all

have found love, as we will Efficiency, as defined by

Harry Markowitz, is any

point in a portfolio where return is maximized for any given level of risk.

Quantitatively, efficiency is

measured by the coefficient of variation (CV), which is the risk/return ratio.

(Note: Portfolio risk is

quantified differently than

traditional methods of risk

quantification as it accounts for the correlation of assets, i.e., risk is reduced when

negatively correlated assets

are grouped within a single

return

portfolio.) Therefore, for the chosen personality extremes (risk) that

about

by the

relationship. Regardless of which camp one falls within, the

risk

one has fallen in “love” with, the return

brought

the umpteenth time. For others, the day marks the end

LVM

persons coming together in

(efficiency)

Valentine’s, when it is socially unpalatable to end a romantic

|

real estate parlance, the two

happiness

of the breakup blackout period between Thanksgiving and

18

greater than the twos. In

have achieved efficiency.

When we are in love,

feelings for the first time – or reconfirm our feelings for

measured by efficiency,

and quantification of love.

when it has been achieved.

I

a marginal happiness, as

We will know when we

quantify love, we know

many it is the time we hold others close and profess our

assets) where the one has

build greater monuments,

For when we define and

t’s February and Valentine’s is upon us. For

from two (individual

about finding efficiency!

let us focus on the definition

Roger Sta i g er I I I

one (two-asset portfolio)

Rather than author more

poems, sing more songs or

“Relationships” from a different perspective.

single person’s life. Further, love is the creation of

This begs the question,

Love is Efficient!

inclusion of another in a

(happiness)

Love

must be

correlation

maximized to be efficient.

Each point along the efficient

whom, when combined into

are equivalent to the goals of

of efficiency, i.e., maximum

person portfolio, provides a

For a person’s goals in love a portfolio manager, i.e., to maximize efficiency.

To extract this concept

further, Markowitz’s theory supports that there is not

a single soul mate for each

individual but rather many

frontier represents a point

a two-asset/

return for any given level of

higher return than the current

risk. Therefore, there is no

relationship/portfolio. If the

single, optimally efficient

couple is euphoric but not

point, i.e., single soul mate,

efficient, this author argues

but rather a plethora of soul

they have found lust and not

mates, all having different

love, i.e., efficiency.

risk levels (personality extremes).

So, this February 14, when

found on the efficient frontier.

When one meets a person

your roses, chocolates,

personality extremes and

intention, provided lifetime

soul mates, all of whom are For all individuals whose

happiness cause the portfolio (couple) to be on the efficient frontier is therefore “in love”

as they are efficient. (This will be expanded upon in another article.)

Now that we have defined love as “efficiency” and

learned to quantify love

using efficiency measures,

i.e., coefficient of variation

(CV), which is risk/return,

we must focus on the visual

display. To truly understand a concept, I am a firm

believer that a person must

and courts them, the

is drawn graphically and

titled the “efficient frontier.”

Eff

nt F e i ic

rontier

as to whisper, “I love you!”

When one meets a

that makes your heart skip,

them, the intention,

Rather, embrace the one

the given level of risk. It

is at this point where the

look into their eyes, and

marginal contribution to happiness is maximized

understanding of portfolio

single person, and the two-

theory and love, tell them,

asset portfolio is efficient.

“You are my efficiency!”

Individuals that do not “lie” upon the efficient frontier

Note of warning to readers: I

level of risk, a greater return

very well! Good luck!!! 6

are inefficient; for the same

the efficient frontier, as

indicated by

goal, is to find the individual with whom efficiency is achieved, i.e., maximize return for the given level of risk. It is at this point where the marginal contribution to happiness is maximized from being

to be with an individual and

did not fall upon

commitment is the

tried this once; it did not go

(happiness) can be achieved.

two-asset portfolio

provided lifetime

heart, and complete financial

from being a single asset, i.e.,

characteristics of the

person and courts

with the full depth of your

a single asset, i.e.,

rontier F t n cie

Eff i

efficiency, i.e., layman’s love,

financially unsophisticated

i.e., maximize return for

form a relationship and the

all learned from Markowitz,

you embrace, do not be so

whom efficiency is achieved,

the shape of a heart with an

arrow. However, as we have

your affection, and after

to find the individual with

As an example, were a person

Y

jewels, or other token of

commitment is the goal, is

be able to draw it. Cupid

and Hallmark draw love in

you arrive home with

5

single person, and the two-asset portfolio is efficient. Individuals that do not “lie” upon the efficient frontier

the black dot,

are inefficient; for

is doomed to

risk, a greater return

the relationship failure. Efficiency/love is

the same level of (happiness) can be

not achieved because for

achieved.

the chosen level of risk

(personality extreme) there is another individual with

FEBRUARY 2011

* LIVEVALMAG.COM | 19

U

up front I realize that these are

of a claim, subject to your

and with the downturn

exclusions.

tough economic times, of the market, many

real estate appraisers are However, one of the

Let’s demonstrate how a claims-made policy works.

decisions you can make

John Smith purchased

& Omissions Insurance

policy February 1, 2000.

struggling to survive.

most important business is to continue your Errors coverage. No one ever

thinks they are going to have a claim. However, as long as homeowners continue to struggle to

meet mortgage payments

and fall short of refinance requirements due to

lowered property values,

real estate appraisals will be scrutinized and questioned.

Many real estate appraisers

assume that if they paid for

Who Needs Prior Acts Coverage?

Giving up prior acts coverage to save money is risky business.

D

bet sy A . m a g n u s o n

on’t be fooled by marketing gibberish implying that you don’t need to maintain your prior acts coverage in your Real Estate Errors & Omissions Insurance policy. YOU NEED IT. 20

|

LVM

policy terms, conditions and

an insurance policy, they

have coverage under that

a real estate appraiser

He renewed his policy

each year by February 1

to avoid having a lapse in his coverage. His current

policy will have a prior acts date of February 1, 2000.

Mr. Smith’s policy would respond to a claim that is

reported during his current policy period for work

he performed between

that date and February 1,

2011, subject to the terms,

conditions and exclusions of the policy form.

policy forever. This is not

SCENARIO 1

claims-made policies work.

insurance companies before

true and this is not how

If your policy is written on a claims-made basis

(most professional liability policies are), your prior

acts date is typically the

date of the first policy you purchased. Some carriers will offer what is called

“full prior acts.” This means that there is no specific date in the past by which your

If Mr. Smith were to switch his current policy expired February 1, 2011, his new

carrier should pick up his

prior acts coverage back to February 1, 2000, and the new insurance company would respond to new

claims reported during the

policy period for work done between February 1, 2000 and February 1, 2012.

prior acts are limited. Your

SCENARIO 2

forward each year if you

lapse and did not renew

prior acts date is carried

If Mr. Smith let his policy

renew your policy without

it by February 1, 2011, or

a lapse in coverage. You are then covered back to your

prior acts date in the event

went with an insurance

company that did not offer prior acts - should he have

a claim for work he did

current carrier during a

time option and cannot be

and February 1, 2011 – he

do not renew your policy,

reporting period expires.

between February 1, 2000 would have no coverage unless he purchased an

Extended Reporting Period Endorsement.

Most claims or complaints are reported several years after the actual appraisal

was performed. There are

statutes of limitations that

typically vary by state and by allegation, which may

protect a real estate appraiser from being held responsible

for damages. However, there is still the cost of defense,

which can far exceed the cost of your insurance contract.

You can purchase an

Extended Reporting Period Endorsement from your

specified time period if you retire, or switch to another

renewed once the extended

carrier who does not provide

The long and the short

It is an extension of time to

coverage may be one of the

you with prior acts coverage. respond to a claim for work done between your prior

acts date and your policy

expiration date. Costs vary

depending on the insurance company. Some may offer

free options for retirees and

Death and Disability, as well as options you can purchase

for a one-, two- or three-year period of time. An Extended Reporting Period does not

cover any services performed in the future. It only provides

an extension of time in which to report a claim for work

done in the past. It is a one-

The terms, definitions and examples of insurance coverage are used here for demonstration only. Insurance policies and coverage can vary widely amongst insurance companies and you should consult an insurance professional and your policy for more information.6

of it: giving up prior acts

worst business decisions a

professional could make. All those years of maintaining adequate protection by

renewing each year and keeping your prior acts

?

coverage would be gone – just when you most need coverage. Maintain your

prior acts coverage until you

are no longer performing any professional services, then

review your policy options and/or discuss with an

insurance professional your extended reporting period

Most claims or

complaints are reported several years after the actual appraisal was performed.

options.

FEBRUARY 2011

* LIVEVALMAG.COM | 21

U

up front 1919. The concern felt by the French was well founded

since the Germans – agreeing

Per USPAP, 2010-2011

sign the treaty in spite of

An appraiser must:

their disagreement with the terms of surrender.

These fortifications would become known as the

Maginot Line, named for

André Maginot, France’s

Minister of War from 1922

What the French didn’t

count on was a flanking of

the Maginot Line; Germany’s blitzkrieg attack occurred at the French-Belgian border,

which hadn’t been reinforced

H

French decided it would be in their best interest

to fortify the border region they shared with Germany in case of an unprovoked attack. The French were incredibly focused on defense after the Treaty of Versailles was signed June 28,

22

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LVM

Acquire the necessary

competency to perform the assignment.

Decline or withdraw from the assignment.

prior to accepting an

the Germans from attacking.

After WWI, and during the run-up to WWII, the

assignment.

of the Franco-Germanic

the best way of dissuading

istory Lesson

1 2 3

Be competent to perform the

Being Competent

border, was thought to be

Jo rdan p et k o v s k i / kri stine hug hes

Edition:

to 1924. This line of defense, stretching the entire length

Competency is demanded, geographic or otherwise.

USPAP.

to the Armistice in 1918 – were ultimately forced to

Geographic Competency vs.Competency

Competency Rule found in

with overages in the same way the French-German lines had.

At this point, you may be

wondering what any of this information has to do with

The appraiser must determine, assignment, that he or she

can perform the assignment competently.

Competency requires:

1 2 3

The ability to properly

identify the problem to be addressed.

The knowledge and

experience to complete the assignment competently.

Recognition of, and

compliance with, laws

and regulations that apply to the appraiser or to the assignment.

the modern argument about

Comment: Competency may

competency). This historical

not limited to, an appraiser’s

geographic competency (geo fact is actually analogous to what our industry is

experiencing today. So much effort has been afforded the geo competency argument that we’ve missed the

real issue: the concept of

competency in the aggregate.

The Rules As I recall, geo competency

is a derivative of a comment provided within the

apply to factors such as, but familiarity with a specific

type of property or asset, a market, a geographic area, an intended use, specific laws and regulations or

an analytical method. If

such a factor is necessary

for an appraiser to develop

credible assignment results, the appraiser is responsible for having the competency to address that factor or for following the steps

outlined below to satisfy this competency rule…

Acquiring Competency

Comment: In an assignment

where geographic competency is necessary, an appraiser who is not familiar with the relevant market

characteristics must acquire

an understanding necessary to produce credible assignment

results for the specific property type and market involved.

After reading the preceding passage, one can conclude competency has many

nuances above and beyond the appraiser possessing a

requisite knowledge of the subject’s geographic area.

So why are we continually harping on one not-so-

well-defined aspect of the

competency rule? The answer is simple: It is one of the last bastions of hope for anyone contesting the results of an

appraisal assignment, most often brought about by a

borrower, broker or banker

crying foul because the value conclusion provided has

killed – or at least maimed – their deal.

After years of experience analyzing appraisals

completed throughout the

country, the need for increased educational requirements

specific to overall competency in generally accepted

appraisal methodology

becomes apparent. Our

industry has been sidetracked as a result of this argument over a small piece of the

bigger issue. This derailment of our focus is an affront

to appraisal professionals everywhere.

Experiences

cause and effect in its purest

the nation’s most critical fields

Being a homeowner, I’ve

those appraisers who have

Continually educating the

process as a consumer. The

coverage area in order to

the property, drives the comps

is simply a retelling of what

form. Is this an indictment of

experienced the appraisal

been forced to expand their

appraiser shows up, inspects

survive? The answer is NO! It

and submits the report to my

many have experienced.

lender schedules a closing

At TSI Appraisal, we realized

my life. What if the lender,

afforded us by restricting our

report, realizes they will not

immediate market area. The

due to insufficient equity,

infinitum; instead they spend

value conclusion? I’ll admit

has increased the appraisers’

time reviewing appraisals

them to produce credible

the past, but this scenario

time. Another byproduct is

deep-dive into the appraiser’s

within their immediate

course of my research, I

are exposed to the same

traveled a distance of 40 miles

neighborhoods every day,

my property (in addition to

insight into areas ripe with

noted within the appraisal)?

benefits aside, the appraiser is

urban to suburban market

the necessary competencies

as the proverbial “chink in the

appraisal assignment outside

lender. Once received, the

of practice.

appraisers, lenders and

AMCs is our cross to bear.

Understanding:

1 2 3

Why this sale is more

competitive with the subject property than that sale.

Why regression analysis is

date and I move on with

the multitude of benefits

after receiving the appraisal

appraisers’ coverage to their

be able to refinance my loan

appraisers no longer drive ad

a result of the appraiser’s

their time appraising. This

having spent very little

overall efficiency, allowing

completed on my home in

assignment results in less

In the end, our fight may not

would immediately prompt a

their increased proficiency

client demands appraisers

report. What if, during the

market area. The appraisers

determine the appraiser

streets, subdivisions and

from their home to inspect

giving them much-needed

other perceived deficiencies

submarkets. These subsequent

That’s 40 miles in a semi-

likely competent, or can gain

area. This could be perceived

required to complete an

armor” and it would likely be

of these immediate confines.

Causa latet, vis est notissima,

What Now?

the result is well known.”

exploited accordingly.

It’s fair to say that most

appraisers would rather

The energy being spent on

in as localized an area as

competency is akin to the time

have faced is the degradation

Line: misguided, poorly

in the volume of assignments

ROI. Our focus must be on the

appraiser’s need to expand

profession. We have no choice

considered too distant. This is

of those participating in one of

provide appraisal services

contesting an appraiser’s geo

possible. The problem many

spent developing the Maginot

of appraisal fees and a decline

thought out, and yielding little

available, resulting in an

continued development of our

coverage into areas previously

but to insist on the betterment

a critical skill all appraisers must master.

When REO sales should be considered as comparables

when appraising a property for an arms-length

transaction, are all aspects

of competency that deserve additional focus.

yield traction. If the lender/ remain within a five-mile parametric distance from

their home address in order

to ensure geo competency, we may in the end capitulate. As a colleague and close friend said to me, “Guess how I

know [the lender] is right on

this? They send their business elsewhere!” It’s a challenge

trying to find a countervailing argument to that logic.

or “the cause is hidden, but I ask the industry to forgo

building our own Maginot Line. We know what will happen if we’re not able

to redirect our focus from

geo competency to overall

competency, even if we can’t figure out how we got so far

off course in the first place. 6

FEBRUARY 2011

* LIVEVALMAG.COM | 23

| steve ferguson |

Analysis: Tools of the Trade Appraisal is still an art, even with the science of regression.

24

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LVM

Valuation is seeing leaps in

automation

and data access,

and due to

ever-increasing p r e s s u r e s ,

there is a need to be

more efficient.

In 2001 I went back to school to study economics. Part math and part study of

consumer choices, it seemed like a

g

o

o

d

advancement

for my career in real estate.

In the two years that followed I worked my way through another major to the capstone in my undergrad studies:

econometrics. At the time I never knew

there was such a study but it opened my eyes to a branch of work that has only

recently gained traction in the real estate valuation industry.

In this article I will explain some parts of

Regression vs. Econometrics The field of econometrics is based on the

The formula for single linear regression is similar to the formula for slope:

independent and dependent variables,

y=a+bx

education levels and salary. Other factors

formula for the slope of a line.

development of statistical methods for

estimating economic relationships between such as gross living area and price; or

affect price and salary in this example, but by employing the correct data-generating process, all other variables can be held

constant so that the part of the gross living area that contributes to the price can be

estimated. This is called ceteris paribus, or “all other things being equal.” In

introductory appraisal classes we learn this as matched paired analysis. It is a similar principle but regression requires a larger sample. When applied correctly, it will yield statistically unbiased results.

A proper understanding of the data-

which is the same as the mathematical Econometrics uses different symbols for regression formulas. As an example, a

multiple regression formula for real estate might be:

y(price) =

β0 + β1* (square feet) + β2* (garage)….. + βkxk+u.

In the above formula, β is the estimator and u is the error term. Because we >>

generating process is important in

econometrics because we are using

observational data, not experimental data.

It would make appraising a lot easier if we

had a lab where we could study how much one would pay for one more square foot or one more garage. If this were the case then there would be no need for a valuation professional. This is an important

distinction between regression and a field of study that happens to use regression, among other statistics, as part of the

process. The reality is that we do not have experimental data in real estate; we have observational data, which is not perfect.

This is why those who use regression as part of the process of evaluating

data should understand its limitations.

Appraisers who are now using and relying on regression output need to know how to build a good explanatory model, the

strength of the methodology, and what the data means.

the regression process, as well as the art

that is part of this mathematical tool. This article explains the ordinary least squares

assumptions that underlie any good study.

FEBRUARY 2011

* LIVEVALMAG.COM | 25

cannot create a control group and an

Another assumption in OLS regression is

have an error term, which is simply all

interesting in real estate these days and

Secondly, closer examination of the 20-35

last six months. Are sales random in this

condition differences. Prior to the

experimental group, we will always

the variance in y we cannot explain in a stochastic model. It is important to

note that there are many assumptions in ordinary least squares (OLS) regression.

Two of these assumptions are that there is zero correlation among the variables (xi); and zero correlation between the

variables and the error term (u). These

are important assumptions to note when selecting independent variables. For

instance, is bedroom count necessarily

independent from GLA? Some floor plans may have multiple adaptations to include a three-bedroom with a loft or a four-

random sampling. This one is particularly one I have been wrestling with for the

market? The post-tax incentive market

has brought about a real shift in demand.

Much of the 2010 demand, at least for the

first-time homebuyer market, was brought forward to the first quarter. The intuition

is that lower demand after April 30, 2010, should bring about lower pricing in most markets. But when I recently tried to get

a glimpse of what the incentive did to the arms-length market, I was surprised on many levels.

1

2 sales indicated significant quality and

tax incentive deadline, average homes were selling; since then, only the cream of the crop have been selling. For the most part the comments in the MLS were not subjective in nature. The updates to these sales included new roofs, gutters, HVAC, updated kitchens and new flooring.

In other words, the sales were unmistakably upper-tier condition and quality.

bedroom with the same square footage. In

First, my methodology is to try and

Of course the only true way to determine

between the value of a four-bedroom

compare homogeneous properties within a

indicator is to look at residual analysis.

these instances you may see a distinction versus a three-bedroom and it may be

more or less than the cost to change (cure).

In general it is not very interesting to

control for square footage while separately attempting to address the bedroom count.

Bedroom count is

somewhat of a redundant square

footage

count (not

in all cases, but again, one must

be skilled

in the art of regression

to determine the

difference).

It is

minimize independent variables and

large neighborhood to estimate the impact of an event. My go-to neighborhoods,

where sales are typically abundant, were reduced significantly since May. Further,

the pricing does not reflect the theory that

lower demand

would create a

drop in pricing; at least two

variables are

above the line of best fit would be worth

further investigation, possibly indicating quality or condition differences. So how random are the sales in this market? Is this representative of the market as a

whole? This brings about the next topic: qualitative information.

number of

so with qualitative data. It is difficult in

arms-length transactions in the postincentive

market was

not sufficient to show any

significance in the coefficient

be beneficial to look at an independent

“wrong” direction. In other words, prices

interaction between the two variables.

the observations that fall significantly

Regression analysis is really efficient at

example. The

on the tax incentive, but the coefficient,

variable that takes into account the

If you have a good functional form,

at work in this

generally hard to add a bedroom and

not add square footage. Instead it may

the quality is a site inspection, but a strong

while weak, was strongly going in the have been increasing since May in the retail sector of these neighborhoods.

looking at quantitative data, but is less

real estate to remove the subjective nature of quality and condition and one must create a metric for scoring the data. So

in order for the data to be uniform, the

scoring must be done by use of primary

information, not secondary (MLS). More observations are required due to the

advanced techniques utilized to analyze the data. Many of these techniques are

not new and are used in market research, botany, and political polling to analyze consumer ratings of a product, color

qualities of a plant or a rating of how well a candidate is performing. Again, it’s not impossible, but it’s very labor-intensive

and not very conducive to a small project 26

|

LVM

of estimating the value of one property.

a property: Running the model on the

square feet2 is negative, the quadratic has

qualitative data would be minimized. A

would produce a point value estimate or,

has diminishing returns is the inflection

In normal markets the value of this

market in equilibrium has more buyers

and fewer sellers than today’s market. As a result, homes along the middle and lower

end of the quality and condition spectrum would sell instead of just the upper tier.

Sales of high-quality,

independent variables of the subject

with additional steps, a 95% confidence

interval could be used. Alternatively, set

up a hedonic model where the comparable independent variables can be adjusted based on the regression model output.

This method allows the

homes in good condition

appraiser to apply local

would balance out the

market knowledge and

lower-quality, average-

experience using the

condition observations

mathematical strength

in the sample, thereby

of the regression. The

mirroring the real

methods could be used

population. In other

to support each other or

words, the error in the sample would be the same as the general

population, which is

another assumption in OLS regression.

Application So what is the best way to use the regression

output? It depends on

the assignment. If you

are trying to determine

the effect of an event, it

would be less interesting to look at the value of an

individual property than

the coefficient measuring the effect. One of the

first assignments where

I used econometrics was

in the background of a Alternatively, set

up a hedonic model

where the comparable

independent variables can be adjusted based on the regression

model output. This method allows

the appraiser to

apply local market knowledge and

experience using

the mathematical strength of the

regression. The

methods could be used to support each other or in the background

of a typical appraisal to add strength to the

for a partial taking of

valuation.

a property. Acquiring

enough relevant sales, I was able to isolate the land value per

typical appraisal to add

strength to the valuation.

Of the many applications of an econometric study, one I have frequently

used is a way to calculate

can be used if looking at the value of

at which the slope is zero can solve the

inflection point. If you have not studied

calculus, this is achieved at the coefficient on square footage over twice the absolute value of the coefficient on square feet2.

For example, assume your output

gives coefficient on square feet $35, and coefficient on square feet2 -.01, solution is 35/2(-.01) = 1,750. In this example

there will be a diminishing return to each square foot above 1,750. Applying this to

an appraisal with proper explanation can help reduce the number of callbacks for

additional support. It looks much better in a report and will add to your credibility if

you can show the point of marginal return empirically rather than by theory.

Proper use of regression tools can

in this article, run a

regression on the model identifying the proper

independent variables.

Square footage is a

good example. If you

are looking at a neighborhood with homes ranging in GLA from 1,0001,600 square feet, at what point is there marginal return on a home with 2,000 square feet? The way to determine this

which you are interested, squared. In other

of potential value. The same method

and square feet2 and solving for the point

assumptions outlined

large sample using the

there was only one possible buyer in

interval to explain the high and low end

derivative of the variables square feet

The end users are asking for more and

is by creating a quadratic equation. Run

this transaction, I used a 95% confidence

point of the parabola. Taking the first

marginal return. In a

acre and then apply the coefficient to

the subdivided piece of land. Because

a parabolic shape. The point at which GLA

the regression again with the variable in

words, for each observation in the square footage example, add the variable square

more market support from the appraiser. increase efficiency by adding the objective substance needed for the industry. Many vendors in the industry either have or

are in the process of creating a seamless application that will sort, convert and

analyze data as a way to incorporate this

power into an appraisal. My only warning is if you have not studied descriptive

and inferential statistics, take a class or read a book and become familiar with its application and limitations. There

will be several statistics accompanying

any regression output; know what they

mean and what they measure, at the very minimum. I used a stats application in

grad school that was very powerful, but

most of the work for simple applications can be done using a spreadsheet with an

analysis pack installed. It takes a little time to clean up data but it is a good exercise. 6

feet2. When the coefficient on square

footage is positive, and the coefficient on FEBRUARY 2011

* LIVEVALMAG.COM | 27

28

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LVM

Leland Trice, SRA, FRICS

Scope Creep:

What lax standards caused, unreasonable standards will not cure.

FEBRUARY 2011

* LIVEVALMAG.COM | 29

Who had a tougher 2010: Tiger Woods or appraisers? Tiger Woods is an oversexed billionaire who can reach most par 5s with a 7-iron.

Appraisers are still the whipping boys and girls of the real estate finance industry. I have a hard time weeping for poor Tiger.

I now have more than 25 years – OUCH – under my belt in the appraisal industry. I am so used to being told I am wrong that I get nervous when someone agrees with

my value opinion. More often than not, I am “wrong” in both directions in the same day. I yearn for a Goldilocks scenario. This appraisal is too high. This appraisal is too low. Rarely is the appraisal “just right.”

I would cringe at having the reputation for being “too conservative.” Anyone in the real estate biz knows that “too

conservative” is just code for being honest and not rubber-stamping the desired

value. I now have Realtors who considered me too conservative, hiring me to help

convince sellers they need to be “realistic.”

Now that the massive real estate bubble

has popped, our industry is often chided in drive by journalism pieces as for enabling the poor, misguided buyers. Perhaps we

as a group were not conservative enough.

But in reality we were and still are trapped by conventions. To steal a line from

All appraisers love to share

“war stories.”

In order to drive home the point about how ineffective and unproductive this new level of appraisal scrutiny can be, I thought it would be useful to share examples from people in the trenches:

2

NA

Comp 2 has 1,800 SF above grade area

I appraised a property where the

I have received a request from XXXXX

how I report it. Underwriter comes

This was a rental and one of the

report; I am not permitted to put N/A

and 800 SF of basement. So, that is

back and says that their data shows

the home has 2,600 SF. I send a note explaining that it appears that the

database she is using is combining

the above grade area and the finished area. I also send copies of the MLS

and tax card, which both show 1,800 SF up and 800 in the basement.

Response from the underwriter – OK, but how can I prove which one is correct? Yikes!

K I indicated that there were no sales

concessions for the comparable sales, no adjustments were made for sales concessions. Ummmm.

|

LVM

master bedroom door was padlocked. tenants was deployed to Iraq and

didn’t want anyone going into the room while overseas. The owner

didn’t have a key to the padlock.

The underwriter demanded a

second inspection to photograph

the padlock. I guess the appraiser can never be trusted again for

anything they say and every single

property characteristic requires photo documentation. If there is an alarm system, take a photo. If there’s a

Underwriter wants to know why, if

30

During the days of property appreciation,

furnace, hot water heater, and electric panel, take those photos too; and make sure each bathroom fixture

can be seen in the bathroom photos.

Mortgage through an AMC to revise a on the 1004MC, and must write out “not available” or “not applicable”

as the case may be. The underwriter

also requires additional location maps that show the actual street name the balloon is located on, even if extra

maps are required to get the detail.

No allowance for mapping programs that may not have new streets; I had

to copy and scan pieces of ADC maps and edit with balloons in order to

comply. The whole revision process took over one hour.

?

If there are six and a half baths, you

Underwriter wants to know why

photos in the report.

rear patio of the house. Seriously???

better have six and a half bathroom

there is a ladder lying down on the

LiveValuation Magazine contributor Roger

that ratio remains at 3.3. That suggests

So other than stating what is now obvious,

on the “Greater Fool Theory.” The sales

needed to revert to historical benchmarks

problem is that two wrongs don’t make

Staiger, residential appraising is dependent comparison approach is quite simply a

recitation of what the last fools paid. And by 2005 things had indeed gotten quite

foolish. But what did our clients ask of us?

Did they ask what those fools should be paying? No. Our clients asked what the

fools actually were paying. Everyone lost their collective minds during the bubble, and market value became a reflection of that mass hysteria.

From 1959 through 2000, the average ratio of median house price to income was

about 2.2. Even after a severe correction,

another 30% fall in housing prices are

– assuming we do not have a significant increase in median income. Another

telling index is the ratio of housing price versus rent. This speaks more to the

income approach. While most decisions to purchase a primary residence are not

rooting in income potential, the trend in rents moved parallel to housing values

until 2000, when the bubble began. The

comparison of rent to price has recovered more than price versus income, but it

still suggests more correction in price is forthcoming.

where am I going with this? As I see it, the a right. We got into this mess with lax

standards and we will not get out of it with unreasonable standards. When anyone who could fog a mirror qualified for a

mortgage (or several), the only data point on an appraisal that was examined was

the value. Now that Warren Buffett would have difficulty getting a mortgage, every

data point must be perfect and more data

points are added every day. Unfortunately, I am not convinced this makes for better appraisals. I am convinced it makes

for very disgruntled and disaffected appraisers. >>

Anyone in the real estate biz

knows that “too conservative” is just code for being honest and not rubber-stamping the desired value.

Q

r The most insane trend is an

The appraiser needs to indicate his

justify just about every <bleeping>

document number of appraisals

expectation for the appraiser to adjustment with paired sales

analysis. Talk about fantasy land!

The underwriter asked that any view,

quality, and condition adjustments be supported by matched pair analysis or statistical regression – or those

comps should be replaced by more

similar sales not requiring adjustment.

exact mileage from the subject and done in the subject market over

the last 12 months. Shouldn’t the

appraiser’s “geographic competency”

be determined prior to completing the assignment?

B

be operating normally during the

appraiser’s inspection.” (Emphasis

added) Second “correction request” from AMC (six days after delivery): The statement must read exactly

“utilities were on and appeared to

be functioning properly.” (Emphasis added) Second answer (seven days after delivery): After much hair-

pulling and not a few primal screams, the appraiser complied with the pointless demand.

This was for a report that described

First “correction request” from AMC

in the quantity and quality of data.

was delivered): “Appraiser must

I submitted the report 10 days ago

appeared to be functioning properly

XXX Bank will not accept it unless I

in vivid detail the severe limitations Given such limited data in a non-

metropolitan or homogeneous market, how would one find either numerous sales of identical characteristics or

adequate data to statistically derive any adjustments?

(three days after original report

report whether utilities were on and during the inspection.” First reply (four days after delivery): “The

improvements section of the 1004

form (second section from the bottom of page 1 of the 1004) notes that “All

VI EW +/-; they informed me today that

add the word “View” after each photo on subject photo page. Each photo is labeled “subject front,” “subject street”...etc. Wow.

utilities were on and appeared to

FEBRUARY 2011

* LIVEVALMAG.COM | 31

#$ On my hit parade of Idiot Underwriter Tricks is the recent fixation on whether the subject is an “Over-Improvement” or “Under-Improvement”; ill-defined

buzzwords at best with no universally accepted meaning. When asked to

provide a definition of either term,

so far every AMC has failed, but still

insisted that I must tell them whether

in the local market. In the appraiser’s

opinion, assuming the definition given above, the subject is not an over-

improvement or under-improvement

Just received a request to change

market area. The nabobs at the AMCs

property. I spelled the way it shows

relative to competing homes in the

don’t even understand the terms they are using, but as long as we include

those ill-defined buzzwords and the

word “not” in a sentence somewhere in the report, they are happy.

the subject is or is not something they cannot define. So, even though we

h

have already told them that yes, the

“Appraiser to comment on comp

neighborhood, we have also added

different shade for each comp.”

subject does generally conform to the the following to our boilerplate: For purposes of this report, the terms

“Over-Improvement” and “Under-

Improvement” are both defined as:

Improvements which fail to conform to established market area norms of size, quality, and/or function to the

extent that prospective buyers would

! the address spelling of the subject

on the street sign in front of the house, in addition to a street map provided,

county map provided, plat provided, public records provided, and county

records provided. But apparently I am required to change my report because the title company has it differently?

Even when right, we are wrong.

photos – grass appears to be a

$

These were clearly high-resolution

“Appraiser to retake interior photos

original photo taken shortly after the

Family photos must be removed from

and good-quality photographs. Is the transaction less reliable than making an appraiser drive by the same

property months later to retake the same photograph?

with no family photographs visible.

the wall if necessary.” The people in these photos were indecipherable

unless the photo was significantly enlarged.

not consider the subject as a directly

competing alternative to other homes

Beyond the unanimous grumbling and frustration amongst

findings? Why not reserve requests for additional information

diligence” make for sound lending decisions. Are these the

fully supported and credible in the original submission? I don’t

appraisers, it is appropriate to ask if these examples of “due elements that identify collateral risk?

What is the solution? Thanks for asking! I would suggest the

following ... stop the horribly inefficient process of inflexible and rote protocols for quality control. First, ensure that those doing

or corrections to those appraisal reports which may not truly be think that suggests tolerating sloppiness but would inject some

common sense and also substantiate the QC process itself. In the era of mortgage repurchase risk, would that not satisfy the need to demonstrate good collateral risk management?

quality control have appraisal experience and knowledge and do

Appraisers are also constantly asked to “tell the story.” And I

like a Standard 3 Appraisal Review. Consider how an appraiser

the appraisal opinion. Unfortunately, the mortgage-lending

not simply follow a checklist. Second, treat the QC process more does such a review. Do they demand that the original appraiser correct every typo, add a 12th comparable, or get a better bath

photo? NO – a good review appraiser documents their finding

and opinions and whether the appraisal is sound and credible.

Why can’t such a QC report accompany the appraisal and

document the typo, document the fact that the Subject Property Value exceeds the Predominant Neighborhood Value by 5%

and the appraiser forgot to comment, and any other non-critical 32

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LVM

applaud reinforcing the need to fully and clearly communicate arena has become a “checklist” or assembly line type of process.

Worlds are colliding. Appraisers now face Scope Creep – with demands for more information, more description and more

analysis than what fits on the original forms. Once outside the

box, there are no standards, no conventions, no protocols. If the quality control side of the equation is working from a checklist, why not have the production side (i.e., the appraisers) work

from that same checklist? Wouldn’t it be more efficient if every

Q Underwriter wants an explanation for

the location adjustment when multiple aerial maps are provided of the

subjects and the comparable sales, and the subject are backing an interstate.

five of those were remotely similar. I

extensive discussion of the market

narrative comment and analysis about

Despite the pre-emptive caution and

used all five in my report and included the number of sales. You guessed it: Underwriter wants “a better, more

the comparable sale on the same street

of appraisal order: “Preliminary

still don’t understand, and state they

want photos of what the comps border and what the subject borders, despite

my labeled aerial images and narrative description. What else can I do?

7 I provided a one-line report from

the MLS showing every sale in the

subject’s small town in the past year.

There were only 20 sales, and only

not meet lender requirements for the

4

sale on the same street borders

property borders the interstate. They

the appraisal submitted, it has been determined that the appraisal does

The following was proactively

neighborhood houses and the subject

was made: “Upon underwrite of

of such sale.”

would not have the same location. The aerial map shows that the comparable

extensive discussion in the report, the following addendum request

recent sale or an explanation for lack

They say they cannot understand why

area and the limited comparable data.

following reason(s): subject is located in a declining market and we require

communicated to client upon receipt

two comparables that support the

value that closed within 90 days; and

research indicates the subject is

if not available need 3 sales that closed

located in a very small town (XXX)

within 6 months. Please review and

on YYY Bay. There are limited sales/

provide one additional comparable

listings available for use and any

to support the subject indicated

reasonably competing locations are

value within either 90 days or six

separated by long distances. It may

months. Any variation from lender

not be possible to meet all client

requirements must be fully explained

guidance regarding comparable

currency, distance, adjustments etc.

in the report.”

If this is not acceptable, please advise as soon as possible. We do not want to produce a product that will not meet your needs. Thank you.” In

the appraisal report itself there was

appraiser were prompted to address each and

Appraisers love to appraise cookie-cutter homes

am not suggesting the appraiser merely gets to

match sales within a few blocks that sold in the

every deviation from conventional guidelines? I

in tract housing communities with three model

tick off an acknowledgement that some item is

last 90 days. But alas, we also get saddled with the

out of compliance, but it would be quite easy and

assignment of the manufactured home that was

efficient to organize these items, prompt for specific

disguised with an addition, situated on 9 acres, has

analysis and commentary, and organize them in

such a manner that it is no longer necessary to flip

back and forth through pages of a report to locate a statement about whether private wells and septics were typical and accepted in the market!

Collateral risk management is a highly essential part of lending, and while we seem to be doing

more of it, we also seem, in my humble opinion, to

be far more concerned about the boxes on the form than the true risk and reliability of the appraisal professional’s opinion. And for goodness’ sake, can we all understand that “ugly” appraisals

don’t automatically equate to “bad” appraisals?!

two outbuildings, and is in a rural location with

I do think we have lost sight of the forest while cataloging every tree. Appraisers are desperately trying to fulfill our clients’ requests.

few relevant sales in the past two years. Some of the best reports I have ever read were “ugly.”

I do think we have lost sight of the forest while

cataloging every tree. Appraisers are desperately

trying to fulfill our clients’ requests. And certainly all appraisers are not created equal. However,

perhaps if we stepped back and looked at what

exactly was being asked of appraisers and how our clients are digesting and using that information, we could find a more effective way to manage collateral risk. 6

FEBRUARY 2011

* LIVEVALMAG.COM | 33

aw

| Dennis A. Scardilli, Esq., MAI | Admitted to Practice Only in NJ & PA

l

the

of

Real Estate Appraisal Has real estate appraisal practice outgrown USPAP?

34

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LVM

In the spirit of

L i v e Va l u a t i o n ’ s m o d u s operandi of bringing you cutting-edge industry issues in

the education of real estate appraisers and an important part of real estate appraisal practice.

I started to think about this issue in 2009

after taking the USPAP instructors course sponsored by The Appraisal Foundation (TAF). As an attorney, my discussions

thought-provoking articles,

with other students got me thinking about

I pose the question:

appraisal practice.

“H a s

real

estate

appraisa l pra

c

t

i

c

e

outgrown USPAP?” No, I’m not suggesting that we do away with USPAP. And no, I’m not dissing

The Appraisal Foundation, the Appraisal Subcommittee or state regulators, all of whom I hold in the highest regard.

Rather, I am merely asking what is now a rhetorical question. Real estate appraisal

real estate appraisal law and the future of

At the Appraisal Institute (AI) January

2010 Federal Update conference, it was

clear that in many ways, appraisers are

appraiser’s world. The only question was, “But, what does that mean?”

Today, there is no question that real estate appraisal practice is a regulated industry.

Under MRAPLA, it will become even more so. Everyone involved with real estate

appraisal knows that the industry is being

increasingly regulated. But few understand the relationship between that dynamic

and the law. Perhaps that is because both

fledgling appraisers and more experienced appraisers are taught only one part of the picture. That’s right, just USPAP.

increasingly dependent on government,

Yes, some states require at least a two-

under which that work is performed. The

in addition to the seven-hour USPAP

both for work and to create the regulations AI’s Washington Summit took place last

summer, days before MRAPLA was signed as part of what is popularly known as

the Financial Reform Act. Even after the

summit’s luncheon speech by MRAPLA’s

prime sponsor, Rep. Paul Kanjorski (D-PA), there was a lot of uncertainty regarding what MRAPLA meant for the industry.

hour block of state-level instruction

update. And yes, organizations such as the Appraisal Institute have a number

of courses involving appraisal and law, but those courses typically deal with

valuation litigation. No one addresses the regulatory aspects of appraisal practice,

risk management or other process-driven issues in real estate appraisal law.

practice is far from being the “cottage

The joint meeting of the Association of

As a result, I believe that it is time

I performed my first appraisal in 1980.

TAF and the Appraisal Subcommittee

educators and users of appraisal services

industry” that it was often called when The changes that may occur over the next several years could make the past few

years look relatively tame by comparison.

It’s time for real estate appraisal law to go beyond USPAP.

The Dawning of the Age of Real Estate Appraisal Law The Mortgage Reform and Anti-Predatory Lending Act of 2010 (MRAPLA) makes it clear that the law of real estate appraisal

must go far beyond USPAP.1 For the past 20 years, real estate appraisal has been a regulated industry, but the importance

of real estate appraisal law has not been

recognized. Under MRAPLA the industry

Appraisal Regulatory Officials (AARO), (ASC) brought the issue into focus.

That conference included an appraiser discipline mock trial, which was

videotaped and can now be viewed on presentations on mortgage and appraisal fraud. We were told how MRAPLA

became law and about the changes that

What does real estate appraisal law do for

Immediately after that joint meeting, the

what does it do for a lender, an attorney,

it was bringing to appraisal practice.

National Association of Realtors (NAR)

held an appraisal summit in Washington filled with industry leaders. The

a real estate appraiser? For that matter, or other users of real estate appraisal services?

presentations included how MRAPLA and

For one thing, real estate appraisal

industry.

appraisal education and regulatory

other governmental actions affected the

recognized as an important component of

appraisal law had become part of the

2

law that goes beyond litigation valuation.

What Is Real Estate Appraisal Law Going to Do for Me?

Virtually everyone with whom I spoke at

1

to start thinking about real estate appraisal

TAF’s website.2 Federal agents made

is even more regulated. The law of real estate appraisal must, therefore, be

to encourage appraisers, regulators,

these conferences agreed that real estate

11 P.L. 203 http://www.globalpres.com/mediasite/Catalog/pages/catalog.aspx?catalogId=97b75dbc-da29-4ac2-b603-caa7705cf271

law goes beyond functionally obsolete paradigms, which are currently focused

exclusively on USPAP. That’s part of what I mean when I ask if we have outgrown USPAP. >>

FEBRUARY 2011

* LIVEVALMAG.COM | 35

The answer is yes – certainly as a means of

down into some substance. The three

in regard to regulating those currently in

appraisal law are regulation, education

training new appraisers. The same is true

most important issue areas in real estate

the field; ditto for cutting-edge regulatory

and the future of appraisal practice.

legal issues for lenders. Most users of

G

appraisal services, including a majority of lawyers and judges, don’t know what I’m talking about when I utter the acronym

USPAP. When I say, “appraisal regulatory

standards,” I can see that they understand.

Let’s face it: Appraisal practice has changed. The present real estate appraiser regulatory and educational paradigms need to change with it.

Real estate appraisal practice must deal

with certain facts of life. Its future is as an

Most users of

regulation

appraisal services,

Perhaps the greatest regulatory issue in

including a majority of

real estate appraisal law today is how

lawyers and judges,

MRAPLA will affect the industry. That

don’t know what I’m

act brings about the greatest changes in

talking about when

appraisal regulation since the passage

I utter the acronym

of the Financial Institutions Reform,

USPAP. When I say,

Recovery and Enforcement Act of 1989

“appraisal regulatory

(FIRREA). MRAPLA’s Subtitle F, Appraisal

standards,” I can see

Activities, establishes a significantly

that they understand.

revised regulatory regime for real estate

increasingly regulated industry. Appraisal

appraisal practice at the state/territorial

practice is in the midst of change that has more “unknown unknowns” than even known unknowns. The issue is how to

structure that change so that it does not ruin the industry.

Those facts lead me to believe that

real estate appraisal law is a steadying influence in an uncertain world. Law

is based on precedent. The Latin term

stare diesis means “to stand by things

decided.”3 This bedrock principle of law

can be described as “intended to ensure that people are guided in their personal and business dealings by prior court

decisions through established and fixed principles…”.4

and federal levels. In addition, both judicial rejections of the Supreme Court’s

MRAPLA and the other acts in what is

instances, the “established and fixed

Act affect a wide range of real estate-

parameters of dramatic cultural change,

activities for a wide range of real estate

against precedent.

regulation, thereby creating a knowledge

Appraisers should embrace real estate

law.

similar “established and fixed principles”

One area of that demand should be

cottage-industry history of appraisal

appraisal practice services. Unfortunately,

unpopular majority opinion. In both

popularly known as the Financial Reform

principles” of the law established the

related services. Thus, real estate appraisal

even when the court’s decision went

practitioners will be affected by statute or economy demand for real estate appraisal

appraisal law as a means of delineating that go beyond the common law and

among providers, and regulators, of

practice. Real estate appraisal practice has

the regulatory knowledge of most appraisers and regulators is limited to USPAP. Even more unfortunately, the lack of a body of information on state disciplinary actions and interpretations has caused USPAP’s application to essentially be anecdotal.

seen a topsy-turvy world of change over the past several years. The Government

Accountability Office (GAO) statutorily

Courts typically follow precedent,

mandated study on the valuation

except when that precedent needs to

be broken, such as in Brown v. Board of

Education5, the 1954 landmark civil rights

decision by the U.S. Supreme Court. At

industry, along with the myriad rules and regulations that will be evolving out of MRAPLA, portend even more changes

in the relatively near future. Real estate

USPAP actually evolved from what would

necessary to keep tumultuous change from

appraisal organizations created USPAP

appraisal law can provide the structure

be akin to common law. In the mid-1980s,

destroying the industry.

by meshing their individual ethics rules.

the Supreme Court’s 2005 landmark

Issue Areas

law, just like the legal standard before the

Justice Thomas established the basis

Now that I’ve told you why real estate

the law and making written decisions of

other times, court decisions include a

dissenting opinion that creates societal

change, such as Justice Clarence Thomas’ brilliant dissent in New London v. Kelo , 6

eminent domain case. Through his dissent, for numerous political, legislative and 36

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LVM

Those rules were essentially common

relatively modern practice of codifying courts available to the general public.

appraisal law is important, let’s drill

3 Black’s Law Dictionary (8th Ed.).

Corby v. McCarthy, 154 Md. App. 446, 840 A.2d 188 (2003).

Brown v. Board of Education, 347 U.S. 483, 74 S. Ct. 686, 98 L. Ed. 873 (1954).

6 Kelo v. City of New London, 545 U.S. 1158 (U.S. 2005).

4

5

USPAP was designed to be like the

participants will also need to know this

estate appraisal practice. It sets up a broad

performing BPOs.

Uniform Commercial Code, but for real general national standard that is then

information, including real estate licensees

U The Future of Appraisal Practice

applied to specific facts and circumstances

7

Hot Topics brings up the future of

process. This was true under FIRREA and

Education

needs to be integration between a

by a state-level statutory and regulatory

will be increasingly true under MRAPLA.

The Appraisal Qualifications Board (AQB)

USPAP is merely a guide to be used by

criteria for both the qualification of new

regulators to make decisions, under its

standards, similar to the manner in which the UCC is employed. State legislatures

use the UCC as a general guide. Then, they draft specific state-level laws based on

has proposed a significant change in

real estate appraisers and requirements

for the upgrading of existing appraisers, with a projected implementation date of January 1, 2015.

the UCC within a jurisdiction. This is

Today’s young blood in real estate appraisal practice is going to want courses that provide credit for both academic requirements and appraiser qualification. Current appraisers

due to the lack of a publically available

certification status will similarly demand

certain provisions of that general guide.

Courts and administrative bodies look to

these specific laws, and the case law based

on them, in adjudicating matters involving virtually impossible to do with USPAP

body of law on the interpretation of that

general guide by state appraiser regulatory entities.

Litigation will inevitably develop in

regard to disputes under MRAPLA’s

provisions for appraiser independence,

mandatory complaints against appraisers and appraisal management company

regulations, and unknown issues that will arise out of the mandated GAO studies.

Appraisers are not the only ones who

appraisal practice. At all levels, there real estate appraisal law curriculum

and other cutting-edge courses in real estate appraisal practice. Such course topics could include sustainable real

estate development, administration of the outsourcing of appraisal work to developing economies, and digitally

driven future valuation methodologies

exemplified by NAR’s development of a

national database of sales and listings as well as Freddie and Fannie’s mandated XML formatted 1004s.

who seek to upgrade their license or

The future is here. Now we have to deal

courses that provide both appraiser and

the future is to understand the past. Real

academic credit.

Nonprofit real estate education providers will have to determine the elements of

with it. But how? One way to address

estate appraisal law can help provide the

necessary structure to both understanding the past and addressing the future.

real estate appraisal laws that should be

How can appraisers rely on the law when

providers of continuing education will

How many times have you heard that

included in appraisal education. Profit

have to determine what can be profitably marketed to practicing appraisers. It will

come down to what elements of real estate appraisal law should be included, for

whom, when, and how those elements will

“the courts aren’t even enforcing USPAP”? from appraisers? I recently searched

the LexisNexis database for cases containing both the words “appraisal” and “BPO,” and found that courts routinely confused the two. What kind

be presented.

of future does a regulated industry have if

soon be using appraisal concepts and,

This may surprise you, but I believe that a

between a regulated valuation and an

world-level accounting standards of Fair

could be built around the current 15-hour

need to know about real estate appraisal law. For example, accountants will

along with appraisers, will be applying Value. Lawyers and courts will need to know how appraisals are supposed to be performed and how appraisals are

regulated beyond USPAP. This need goes well beyond representation of appraisers

in disciplinary matters before state boards.

Just ask lenders about the appraisal-related conundrums they face with regulators

and investors, let alone borrower lawsuits.

Numerous other real estate industry

real estate appraisal law academic course

the courts do not understand the difference unregulated one?

USPAP course. Other topics should be

Don’t think that I’m criticizing the courts.

and federal regulation. Ethics and critical

and their attorneys bring before them.

added, such as risk management and state thinking would become an important part of such a curriculum. Hot Topics should also be included. These elements could

then be mixed and matched to a variety of academic and continuing education offerings.

Judges only address issues that litigants

That’s their job. Judges are not the USPAP

police. Look to activities that are generally

considered professions. Courts understand what they do because a body of law has

been developed for each profession. That body of law combines with, and builds

upon, the body of technical information >> FEBRUARY 2011

* LIVEVALMAG.COM | 37

for each recognized

profession. The result

Wrap-up and Next Step

of competence and

Real estate appraisal practice

is a public perception

treated as professionals,

there needs to be a body of real estate appraisal law developed that is

recognized by the courts, embodied in precedent,

16, 2011. At that esteemed conclave, I

will be moderating a panel of equally

esteemed real estate appraisal industry

will never go back to being

professionalism.

If appraisers expect to be

Real Estate Society (ARES) April 13-

experts who will be discussing the thesis

a cottage industry. For real I recently searched the

LexisNexis database for

cases containing both the words “appraisal” and

“BPO,” and found that

courts routinely confused

and accepted by related

the two.

professions. A body of

of this article. The panel presentation

estate appraisal practice

will primarily consist of a lively and

to achieve the recognition

productive interactive discussion among

necessary to maintain the

public trust, it must go beyond relying upon its common law

tradition, recognize its nature coherently present itself to of appraisal services. Real

estate appraisal law provides the structure

“established and fixed principles” of law

changes that the industry has experienced

in this field. Such principles would then

help control the type of change that could destroy the industry.

for that process, especially in light of the and will undergo in the next few years.

I hope that you will participate in that discussion. See you in Seattle.

Disclaimer:

Where can we go with the issues discussed above? Well, for one thing I’m going to

be my academic manuscript on the issues March 1, 2011, on the ARES website.

law would help create a perception of professionalism by delineating

starting point for that panel discussion will discussed in this article, to be posted by

as a regulated industry and

both practitioners and to users

real estate appraisal

panel members and the audience. The

This article is published only for educational purposes. It does not constitute the establishment of an attorney-client relationship nor does it constitute legal advice. If you need legal advice, you should establish an attorney-client relationship with competent legal counsel. 6

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a p p r a i s e r co a l i t i o n s go e ur o e y v a Le

at

th

e d oo r

and unite with other appraisers.

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Up in the Pacific Northwest, an ill-advised scheme was afoot.

Residential builders in Washington state were working hard

to persuade the legislature there

to

require

“ g r een ” continuing education (CE)

for all appraisers, regardless of whether an appraiser works

on such appraisals.

Every appraiser there would have had to take seven hours of “green” CE credits

out of the 28 hours of instruction required for biannual license renewal. Add in the

USPAP coursework and that would have

left just 14 hours for other elective credits.

Enter the Appraiser Coalition of

Washington (ACOW). Among the

pioneering industry coalition groups, ACOW went to work dispatching its

lobbyists and members to explain why such a blanket requirement would be

inappropriate and counterproductive

to the professionals who would have to adhere to it.

The residential builders and lawmakers backed down. Why? Because ACOW spoke up, organized and focused on protecting its members’ interests.

It’s the sort of unity that should exist in

every state across America, but sadly that’s not the case. In many states, appraisers

don’t have such an assertive and organized voice and, as you’re probably aware, the

results can be disastrous for the industry and the public whose interests we serve.

We get scapegoated for the housing

disaster, pushed around by lenders and

regulated by legislators who have no idea how our business works.

Consider this your wake-up call. If

of pressure. What we really want is some

appraiser needs to join their state coalition.

from the lending community, and to be

you want to see serious changes, every

If none exists, get one going. The future of your livelihood depends upon it.

semblance of balance, rational behavior

treated fairly and with respect like other

professionals in the business community.

In setting out to write this piece, I shot

I’m not trying to preach; I’m one of you.

national appraisal organizations seeking

ourselves. We can be unwilling or

off emails to several credible state and information about their groups and

soliciting ideas for how to promote unity among appraisers both statewide and

nationally. Among the many encouraging

and heartwarming responses was one from Tom M. Ferstl, President of the Arkansas

We appraisers can be terrible at marketing incapable of socializing with one another or even getting to know one another. We may believe we’re doing this out of self-

preservation, but we’re actually destroying our profession with this approach.

Appraisers Association, who shared a

What we overlook is that we don’t need

steps he recommends for organizing an

together for our shared interests. Believe

document that included a laundry list of appraiser coalition.

The key line was this:

to be in love with one another to work it or not, not all real estate agents like

each other. Agents also compete intensely, but realize that there is strength in unity;

Have a meeting with at least one representative of each group present (NAIFA, AI, etc.) … You ask them to leave their egos at home and come to the meeting with the idea that they are doing something to benefit all the appraisers in their state, not just their individual organization’s point of view.

and in through cooperation, they are

Ferstl cuts to the quick with

change the way we deal with each other or

that zinger. Appraisers, he

is acknowledging (and I am

agreeing), can be their own worst enemies. We shut ourselves up

empowered by their massive numbers.

They too may gossip about one another

behind each other’s backs or revel in petty mockery of another agent’s hairstyle or fashion sense, and may totally resent

successful or overachieving competitors.

But when it comes to legislative power, they have it and we appraisers do not.

However, by now it should be fairly

obvious that we need it, so we can either perish as an industry.

This means you!

in our offices, constantly afraid

The time has come for every appraiser to

by charging too little, questioning the

coalition. These groups are inexpensive to

business practices. We want independence,

to network, be proactive and, instead

independence there is pressure to hit

constantly about the state of the business,

appraisal fees and some measure of

much control as we wish to have, but we

are firewalls, AMCs with increasing

problems that we face. Get out of your

that others will steal our clients

become a member of their state appraisal

integrity of our work, and other nefarious

join but provide invaluable opportunities

yet we don’t want independence. Without

of feeling powerless and complaining

values, daily threats, but appropriate

do something about it! We all have as

freedom, but with independence there

must proactively decide to confront the

“scope creep,” reduced fees, huge time

house, office or basement and start >>

constraints and a completely different kind FEBRUARY 2011

* LIVEVALMAG.COM | 41

doing something about everything and

anything that upsets and unsettles you.

I was recently elected vice president of the Coalition of Arizona Appraisers (CoAA).

Last year, I was a Director to the Board.

That’s a pretty quick ascent, given that

I only started attending meetings about 18 months ago and initially felt like an

Coalition of Appraisers in Nevada (CAN),

State coalitions are nonprofit and run

to the Merriam-Webster Dictionary, he

aim is to support the maintenance and

defined the word “coalition.” Pointing

said a coalition is “a temporary alliance of distinct parties, persons or states for

joint action; the act of coalescing; union.”

Very specifically, groups of people unite to become coalitions.

outsider in a group made up mainly of

When responding to my outreach about

newcomer with a loud New York voice

CAN. He said that in 2008 the Nevada

zealous Phoenix-area appraisers. I was a and opinion, who drove more than two

hours each way to appear at every meeting

I could, and no one knew who I was. Other people I knew advised me not to go or

told me that this group was dominated by cliquey industry insiders from the

coalitions, Brunson spoke openly about Real Estate Commission formed a BPO

task force to deal with the problems they were having with BPOs. Two appraisers,

Pam Kinkade and Tony Wren, put together

a committee, conducted research, and gave a presentation. This was the group that

by volunteer appraisers. Their primary improvement of the Uniform Standards of Professional Appraisal Practice (USPAP) and its effective enforcement at the state

level. As Brunson explained in Las Vegas, coalitions raise funds to carry out that mission, which also entails fostering

greater public trust and confidence in

professional appraisal practice through

nonpartisan interaction with legislative

bodies, government regulatory agencies and other related groups. The mission statement of my organization, CoAA,

specifically refers to using a “united voice” to carry out these aims.

(NAIFA), among others.

That’s all it takes to get started. Looking

That was a misconception. While some

key factors that made them successful.

What kinds of things do the state coalitions do and accomplish that benefit the appraisers in their states?

CAN and the other active appraisal

ACOW is, of course, an

supported a common position. Mike said,

most of the coalitions, ACOW

Appraisal Institute (AI) or the National

Association of Independent Fee Appraisers

CoAA members are affiliated with other appraisal organizations, many are not, and all turned out to be great, nice,

energetic, hardworking volunteers striving to improve the status and reputation of

appraisers across the Grand Canyon State.

Each member takes time away from their practices to address important appraisal

issues with no compensation. There are no ulterior motives.

Certainly, some members can be highly opinionated, and some have quit or

stopped attending after failing to force

their agendas on the group as a whole.

But that’s standard for any group of

professionals, and those bad apples are far fewer than the vast majority of my fellow members, whose attitudes and behaviors are uplifting, respectful and collegial.

The point is, you can sit on the sidelines or get in the game.

It’s your call.

At the recent Appraisal Summit in Las Vegas, Mike Brunson, President of the 42

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ignited the spark that lit the fire.

back, he also said that there were several First off, they had a unified voice. organizations came together and

“I realize that not everyone is going to

agree on every point, but having multiple appraisal groups presenting conflicting

views is detrimental to the credibility of all appraisers.”

This point is very important and we all need to keep it in mind: a united voice

and a common position. If we want to be treated like professionals,

impressive example. Like advocates and lobbies for members and provides

educational programs. Last year they

managed to get a state AMC law passed, one that ACOW President Justin Slack

predicted will be a model for the nation.

They also succeeded, as noted earlier, in preventing the legislature from foisting requirement that bears

we need to behave like

no relevance to many

professionals. Being a part

appraisers. Preventing bad

of a coalition is one way

laws is at least as important

to show support for your

as fostering good ones.

profession. By voicing your

opinion, paying the nominal

The Illinois Coalition

dues and supporting your state coalition, you are

Appraisers, he is

giving back to your industry acknowledging (and I am as well. The few appraisers agreeing), can be their who are presently doing the work need your help. They can’t do it all alone.

an arbitrary licensing

own worst enemies.

of Appraisers (ICAP), meanwhile, boasts a

full-time lobbyist and an extremely active

organization, says Randy

Neff, Seminar Committee

Chair for the group. It’s critical that they

property that he or she appraised within

it is at the state level that most legislation

this triumph has attracted many appraisers

work in unison across the state because

impacting appraisers passes or fails, and

120 days of doing the work. Ferstl believes

statute loopholes, among other frontburner issues.

to their association.

These are just a few examples of what

administered by state governments.

There is some dissent about what ought

States, coalitions offer encouraging stories

The Arkansas Appraisers Association was

is to unite the state coalitions, sharing

licensing and certification programs are

formed in 2005 and may have the highest percentage of statewide participation of

appraisers of any organization in the U.S. Ferstl said about 40 percent of Arkansas’ 1,000 appraisers are members. They

employ a professional lobbyist when the legislature is in session. Ferstl asserted their membership continues to grow

because they are successful and because many appraisers want a “home” in the

industry without paying exorbitant dues.

The Arkansas example was particularly

fascinating because that state’s lawmakers

passed an appraiser lien law that gives the appraiser the ability to file a lien on the

to happen next. A long-term goal of ICAP information and networking across state lines. A National Appraisal Coalition is

in its beginning stages. Ferstl, however,

doubts a national coalition will be effective or practical given the diversity across the country.

I side with ICAP on this one. If the

realtors can do it, so can we! We should

never underestimate what the appraiser community is capable of!

state coalitions do. Across the United

of appraisers going to bat for appraisers.

If you don’t want to be vocal or active

but still want to show your support for

the goals and work that others are doing, you’re still permitted and encouraged to join your nearby group. Some state coalitions, like ours in Arizona, allow appraisers to attend meetings via a

conference call phone line because so

many of us are spread out and time is so

valuable. Many coalitions also offer more localized meetings as well.

CoAA also employs a lobbyist who

The cost of joining is very little, but the

in April 2010 of the AMC bill and now on

for information about the coalition in your

helped us work first toward the passage its implementation. In addition, we are

working to alter Arizona’s appraisal board

support goes far. Feel free to contact me

state. Let’s get that attitude changed out there! 6

FEBRUARY 2011

* LIVEVALMAG.COM | 43

| joe emison |

the

n o i t a r e n ge AVMs are more accurate when they use data sources beyond public records.

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of

M o s t

automated valuation models (AVMs)

estimate property values

by

looking

at

the internal characteristics of properties

as part of a “hedonic model,”

and by looking at historic sales around

the properties

“The most accurate way to value a property is to find out how much someone will pay for it. Unfortunately, sales data is only updated when a home sells.

However, building permit data allows us to take property sale values and bring

them up to date, thus giving us a newer, better way to value properties.”—Holly

Tachovsky, President of BuildFax, a national aggregator of building permit data.

as part of a “repeat sales index.”

In theory, the combination of the hedonic and repeat sales evaluations captures the full range of factors necessary to value a property automatically. In practice, the

quality of the data that drives the hedonic model leads to imperfect results. This article describes a better type of AVM using building permit data.

The Structure of Automated Valuation Models Automated valuation models provide instantaneous property values using

mathematical formulas and property data.

Most AVMs consider the age of a structure, its square footage, number of bedrooms

and other characteristics that make up the property. These characteristics are used as part of a hedonic model, which is a

specialized term for a type of mathematical formula that estimates value from a list of characteristics.

However, property characteristics cannot

determine a property’s value on their own.

The real estate agent mantra “Location, location, location” implies that two

structures with identical characteristics

may command different prices depending on their location. So the hedonic model is

not enough; AVMs need a way to capture

the market conditions around the property.

Most AVMs achieve this through a repeat sales index, which calculates localized

market fluctuations by looking at repeat sales of the same properties over time.

http://www.zillow.com/howto/DataCoverageZestimateAccuracy.htm

1

is inaccurate. Property characteristic data

Market Conditions / Historic Sales (Repeat Sales Index) Property Characteristics (Hedonic Model)

comes almost exclusively from tax assessor offices and MLS listings (largely derived

from tax assessor data). Tax assessor data has a lower level of accuracy because

it must be filled out for the Computer

Assisted Mass Appraisal (CAMA) system Fig.1 - The Structure of Most AVMs

to run and calculate taxes. If a value is not known, the CAMA system can’t run, so

The Problem with Property Characteristics “Effective Year Built” is merely a term used

values—accurate, inaccurate, or guessed— are entered into the system.

in Florida mass-appraisal of properties. It does

Tax assessors are efficiently calculating

or many upgrades which may impact the

which the CAMA method enables.

built data should never be used by insurance

appeals process for correcting inaccurate

actual physical inspection of property, nor

resulting in taxes that are either accurate

constructed or the current condition.—Lori

political as well as a personal standpoint.

County.

The problem arises when third parties take

Even with the sophisticated structure of a

it not in the proprietary and specific way

sales index, AVMs are not perfect. Zillow,

completely accurate determination of

facing AVM, says that at least 20% of the

leads to many problems with the

the sales price, and in some top metro

Why? Four Reasons:

the sales price more than 40% of the time.1

First, there is no dialogue between the

One of the main reasons that automated

the underlying values used to calculate

underlying property characteristic data

be corrected when the assessor’s office >>

NOT reflect the actual age of the property,

accurate estimates for tax purposes,

condition of a property. Our effective year

Every tax assessors’ office has a working

companies and others as a substitute for an

values (and thus the tax amount itself),

for determining the true year a property was

or underestimated, which is fine from a

Parrish, CFA, Property Appraiser, Broward

data from tax assessor offices and interpret

hedonic model weighted against a repeat

that the assessors use it, but rather as a

the provider of a widely-used consumer-

property characteristics. This practice

time, their estimate is more than 20% off

resulting hedonic models.

areas, their estimate is more than 20% off

valuation models are inaccurate is that the

1

hedonic estimate and the homeowner. If property tax are significantly off, they will

FEBRUARY 2011

* LIVEVALMAG.COM | 45

and homeowner take a closer look at the

County has stopped showing “year

homeowner is not directly notified and has

are concerned about others relying on

actual home. For the hedonic estimate, the

2

no way of correcting the value.

Second, hedonic models now rely on data that is stored in many different locations,

built” on their website because they

it. Moreover, Roger Arnemann, Vice

President of Global Consulting and Data Services at Risk Management Solutions,

has examined many different commercial

Market Conditions / Historic Sales (Repeat Sales Index) last sale + Property change log (building permit data)

insurance portfolios and has found that

Fig. 2 - R eplacing the Hedonic Model with Last Sale + Property Change Log

construction information. Further, in

As the property “change log,” building

single family dwelling portfolios can have

cannot reveal the absolute or total value of

among other field-level accuracy issues.

permit data coverage starts, often no more

model part of AVMs is sound, the accuracy

effective when paired with a starting point,

ground.

data is that it happens infrequently and

at the tax assessor’s office, but not so

Correcting the Property Characteristics Problem with Building Permit Data

is where building permit data comes in.

are many cases in which the data is wrong wrong to make the homeowner notice the

changes to the property since the last sale.

error or want to go through an annoying

What can be done about this inherent

dispute process. It is in these same cases

problem with the crucial hedonic model part of AVMs? The solution is to replace the standard hedonic estimate—based

Testing an AVM Based on Building Permit Data

on square footage, number of bedrooms,

One note on pulling values from building

year built, etc—with a different formula,

permit data: Each building department

driven by more accurate data, that delivers

has its own criteria on what constitutes a

the same underlying estimate of the non-

proper valuation for a particular project.

market-adjusted value of the underlying

For many jurisdictions, permit valuation

structure. In short, use the last sales

is a measure of the cost of materials; for

amount of the property, and add to it the

some, it also includes the cost of labor.

values of the building permits issued on

For the purposes of the tests below,

the property since the last sale.

I used the permit valuation as it was

square footage values are either accurate

Building permit data is essentially a

that any professional AVM that uses

formula coefficient associated with square

work for an increase in the value of the

adjustments to permit valuation amounts

and often updated infrequently or not

at all. Thus, even if the tax assessor fixes the problem in the assessor’s data, the majority of the tens of thousands of

copies of that data in existence will not be

3

updated, and the inaccuracy will persist.

Third, hedonic models are much more

sensitive to small inaccuracies than CAMA systems. This is largely due to the fact that they are estimating much larger numbers: home values, which are around 100 times larger than property tax amounts. There

that the hedonic estimates are far off,

because the errors are significant when

4

applied to estimating home value.

Fourth is the inaccurate-data feedback loop that retains a level of inaccuracy

over even accurate assessor numbers.

Because the hedonic models assume

that the data is correct, the underlying

mathematical formula assigns incorrect coefficients. For example, if household or underestimated, then the hedonic

footage will be too high, as it compensates for numbers that are too low on average.

A coefficient that is too high because only some of the data points are inaccurate

will adversely affect all of the estimates generated by the model.

The quote from Lori Parrish, Broward

County’s property appraiser, shows that county’s belief that their “year built”

designation is inaccurate, and Broward 46

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they can have up to 50% inaccurate

residential portfolios he has found that

permit data has one core weakness: it

up to 20% inaccurate number of stories,

a property that was built before available

While the theory behind the hedonic

than 20 years. Building permit data is only

of the underlying data is on much shakier

the sales data. The core weakness of sales is only effective right after sales, which

to date by logging all of the significant

stored by the jurisdiction. I would expect

“change log” for a home. Every permitted

building permit data would apply some

underlying property, from an addition to

on a jurisdiction-by-jurisdiction basis.

to an electrical upgrade, is logged by

I recently conducted an analysis of

through public record request. And most

capture individual property characteristics

extremely high level of accuracy. Unlike

supposed to work.2 Using a random

to estimate or guess about the presence of

different cities in Florida and sales data

a roof replacement to fire damage repair the building department and available

whether building permit data does in fact

importantly, building permit data has an

in the way that a hedonic model is

tax assessor’s data, there is never any need

sample of 10,000 properties across 10

a building permit.

from AVM data supplier Real Info,3 I

2

LVM

Building permit data brings sales data up

looked at those properties that had been

Full details on the analysis are available in BuildFax Internal Research Paper No. 15; email joe@buildfax.com to request a copy.

3 For more information on Real Info’s AVM data, please contact Jacob Garcia at jgarcia@real-info.com.

sold at least twice in the past 20 years to

issued, ignoring the building permit data

In particular, where extensive permitting

first sale would more accurately predict

the building permit data improves the

building permit data provides a more

see whether building permit data after the the amount of the second sale.

For example, a home in Apopka, Florida, sold for $306,000 on April 21, 2000. The

same property sold again on June 12, 2006.

leads to less accurate results. Including

repeat sales index, and may obviate the

need for the hedonic model altogether, as

it captures the underlying property value from a more accurate data source.

The repeat sales index for the local area

showed that prices of comparable homes

Enhancing Today’s AVMs with Building Permit Data

had increased by roughly 75% between

those two sale dates, which would give an

“We are continuously developing new datasets

estimate of around $535,000 on June 12,

to be on the forefront of enhancing AVMs,

and we believe that building permit data will

2006. Tax assessor data available on June

12, 2006 was unchanged from its April 21,

2000, values, and a mixed (hedonic model and repeat sales index) estimate for the home on June 12, 2006, was $522,000.

However, building permit data on the

property shows that in late 2000, an inground pool, cool deck, boat dock and boathouse were all built, for a total of

$44,861 in permit valuation. Ignoring the

be a must-have AVM data source in the near

work has been done on a property, accurate estimate.

Second, as explained above, one insidious aspect to the inaccuracies in tax assessor data is that they make the mathematical formula less accurate for all—even

accurate—property characteristic values.

Building permit data can be used in the

creation of the hedonic formula to mitigate this issue.

term.”—Jim Kirchmeyer, CEO of Real Info, Inc.

Finally, last sale + property change log

It may not be necessary to discard hedonic

as a third estimate of valuation in AVMs,

models altogether. Building permit data can be used in a blended repeat sales

index/hedonic model AVM in at least three different ways. First, building

permit data can be used to establish better confidence levels on AVM estimates.

(building permit data) could be added and weighted just as both the hedonic

model and repeat sales index are weighted against each other. This could provide

significant lift to existing AVMs without

having to start development from scratch. 6

Fig. 4 – Building Permit Data-Enhanced AVM Beats the Simplified, Traditional AVM

hedonic estimate and instead adding this to the 2000 sales amount and including

the repeat sales index estimate, we get a

total of roughly $580,000. The actual sales amount on June 12, 2006 was $590,000.

In this case, the AVM based on building

permit data was less than 2% off the actual value, whereas the traditional model was more than 11% off.

To the right are two charts from my

analysis showing how building permit data increases the accuracy of a pure

repeat sales index model.4 The first shows that on properties with permits totaling more than $25,000, the building permit data AVM estimates the proper value

within 5% for around four times more

properties; the second looks at properties

that had any number of permits and finds that the building permit data AVM still

beats the repeat sales index model across the board.

In summary, in the situations where

significant building permits have been Unfortunately, it was not possible for me to get historical values from a blended repeat sales index/hedonic model AVM, although it is unlikely that such a model would have yielded significantly different values from a repeat sales index because the average time between the two sales was four years, which is very little time to expect updates in even the most up-to-date tax assessor data.

4

FEBRUARY 2011

* LIVEVALMAG.COM | 47

VOICES OF VALUATION

8

VOICES OF VALUATION Last month’s articles sparked a lot of debate. Here are some responses from our readers.

1

The Appraisal “Review”

BOB Interesting story. I am a Certified Residential appraiser and have been a desk review/reconciliation specialist since 2005. I recently responded to an ad for reconcilers. A few days later I received a phone call from the company’s President. At that time I was told that

part of the job was to travel to India from

time to time to train people as reconcilers.

I took a pass.

3

7

LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM LVM

do you have something to say?

www.livevalmag.com 8

AMCs: The Good, the Bad and the Oligopoly

2

GuyM1 Mr. Verrett is dead on in his opinion that hair-cut pricing will still exist. I currently do work for an AMC that recently decided to create a preferred fee appraisal panel for preferred appraisers. The rub of course is that you are only “preferred” if you’re willing to accept the lower preferred fee. It has nothing to do with quality of your work, just the dollars and cents. The writing is on the wall that this AMC is trying to create a lower fee standard in hopes that the final “reasonable and customary” definition will change and will be what the AMC was paying before the April deadline.

The Low Purchase Appraisal

Bankers1 Ken, you missed an important point, the appraisers ability to market themselves and directly solicit bankers/brokers is now so limited that it takes the “spirit” away from old timers like me to “chase” business. After 24 years in the industry, I have spent hundreds of thousand hours and countless $$$ to “land” a new client or generate an income stream. Some how we are no longer in business. Just my 2 cts.

anonymous I agree, the article is well said. I would like to add when I discuss value to Realtors I make a point that a part of establishing the value of a property is that there is a knowledgeable buyer - would that buyer make the purchase if the market indicates a lower value? Many of the buyers are not exposed to what has sold and rely on information provided by their agent, which is based primarily on what is currently on the market.

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2

directory

PRIDE.

DIRECTORY ACI

800.234.8727 aciweb.com

Buildfax

877.600.2329 buildfax.com

Collateral Analytics 808.732.0754 collateralanalytics.com

Collateral Intelligence 508.655.0342 co-intel.com

Easystreet Realty 317.205.4320 easystreetrealty.com

Intercorp

800.640.7601 intercorpinc.net

IRR Residential 913.261.1800 irr-residential.com

LANDY

800.336.5422 landy.com

Law Office of Dennis A. Scardilli, L.L.C. 105 Woods Road Absecon, NJ 08201 609.568.0432 scardillilaw.com

LIA Administrators & Insurance Services

PASSION. PROFESSIONALISM.

800.334.0652 liability.com

Mid-Ohio Appraisal Services 740.522.0011 midohioappraisal.com

Relocation Appraisers and Consultants 972.658.9216 rac.net

SFREP

Relocation Appraisers & Consultants RAC is a nationwide organization of Independent Appraisers who are trained professionals in relocation appraising.

What distinguishes RAC from all other appraisal organizations l

appraising and consulting. l

202.640.8912 rstaiger@gwmail.gwu.edu

The majority of our organizational activities are devoted to education,

800.523.0872 sfrep.com

Stage Capital, LLC

Our exclusive focus on relocation

research, and client outreach. l

Each of our select group of members is considered the relocation appraisal experts in their respective markets.

Title Source 888.848.5355 titlesource.com

The Trice Group 888.440.8258 tricegrp.com

TSI Appraisal 877.762.5342 tsiappraisal.com

For more information visit our web site at: www.RAC.net

FEBRUARY 2011

* LIVEVALMAG.COM | 49

}

FOR WHAT IT’S WORTH

}

FOR WHAT IT’S WORTH

While the TSA pursues a “check every

detonate? Yet the TSA pursues the same

with minimally skilled and low-wage

believing that “eternal reliance on the

passenger down to their skivvies” strategy, employees empowered to do all kinds of

things that would have been unthinkable just five years ago (even after 9/11), the

AMCs pursue a strategy of “zero defects” – blasting every report, regardless of its

source, with multiple levels of overlapping and, sometimes, contradictory oversight; with minimally skilled and low-wage employees empowered to make all

kinds of demands that would have been unthinkable just five years ago. In both

cases, they are intensely focused on the

bark of a single tree instead of the health

Reactionary Insanity – Fighting the Last War

Fred Holtsberry

is horribly ill-suited to countering the

threat against which they are deployed.

Likewise, the AMCs / lenders have

arrayed a massive arsenal of “solutions” to find every tiny little “flaw” in individual

judgment and local experience of those

It has been noted that those demands are merely a response to past failures. Such

demands may have been beneficial had

they been instituted several years ago, but they are now just a response to a threat

that no longer exists – or at least no longer exists in the same form. In short, they are

“fighting the last war.” (Google “Maginot Line” for a classic example.)

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LVM

scrutiny of today’s AMCs, but if my recent review engagements are any indication, those enhanced procedures have not

accomplished much (although the reports with critical flaws do tend to include a lot of pointless gibberish designed to

“check a box” on the AMC’s enhanced QC checklist).

levers of the machine are: fairly low on assigned to an impossible task; NOT

empowered to employ any degree of

common sense, and required to employ

strategies that are ill-suited to the stated goals. The best and brightest seem to

believe that if they just write enough rules and procedure manuals, their checklists

can imitate a meaningful eyes-on review.

Whatever could possibly go wrong with such a system?

“best in class” appraisers/appraisal

While there is ample evidence available

tender mercies that have encouraged

oversupply of poorly trained and/or

companies. Very much like the TSA’s those who can to pursue alternative

travel options, the enhanced QC reviews and picayune demands of the AMCs

and lenders are driving those appraisers

who can – including those with the most

experience – to abandon the AMC segment of the market.

In both cases, the chosen strategies are highly bureaucratic and needlessly wasteful, creating an adversarial

relationship between the users and

indicating an unfortunate and diminishing unethical appraisers, the AMCs/lenders would be far better served to identify

those who are reliable and afford them the respect they have earned instead

of treating all “passengers” as if they

are uniformly blank slates that can be made equal through application of

ever-more oppressive (and wasteful) QC

requirements – requirements which very

rarely have anything to do with the central purpose of the appraisal.

providers of the underlying services,

In both cases, we would all be better

in the long run. How many attacks on

for the terrorists/incompetent appraisers

and have little chance of being successful large jets have gone undetected over

the past five years – until they failed to 50

have been passed through the enhanced

the skills meter; minimally compensated;

one-size-fits-all approach – one that

a number of years, then relying on the

insane demands on appraisers.

many appraisal reports with critical flaws

The TSA, it seems, pursues a ham-fisted,

companies that have proved reliable over

between the TSA and AMCs’ increasingly

sufficient strategy. We can only guess how

In both cases, the employees operating the

engaging only those appraisers/appraisal

I realized there is a near-perfect analogy

incompetence of your adversary” is a

of the forest.

reports – instead of identifying and

A friend recently sent me some information about the manic and impotent blunderings of the Transportation Security Administration (TSA). While reading,

destined-to-fail strategies, apparently

served if the powers that be, were looking instead of assaulting the dignity of every passenger/appraiser to no avail. 6

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