appraiser focus NATIONAL ASSOCIATION OF APPRAISERS
Q4 2018
magazine
We Asked, You Answered!
How old are you?
NAA polled nearly 500 appraisers to reveal professional trends
When plannin are you g to retir e?
How long have you been an appraiser?
The Case of the Missing Adjustments PG. 9
Do you prefer your education live or online?
Considering Comparable Property Characteristics PG. 10
INSIDE THIS ISSUE
Square Footage, Gross Living Area and Finished Basements
The Secrets to Writing a Clear and Concise Appraisal Report
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Q4 2018
appraiser focus NATIONAL ASSOCIATION OF APPRAISERS
Q4 2018
magazine
We Asked, You Answered!
VA L U AT IO N
PG. 9
President
ON THE COVER
How long have you been an appraiser?
The Case of the Missing Adjustments
From the
How old are you?
NAA polled nearly 500 appraisers to rev eal professional trends
When planning are you to retire?
We polled appraisers from around the country about their jobs. Read what your colleagues in the field had to say, and what it reveals about your profession.
Do you prefer your education live or online?
VAL UATIO N
Considering Comparable Property Characteristics PG. 10
VAL UATIO N
Square Footage, Gross Living Area and Finished Basements PG. 12
INSIDE THIS ISSUE
The Secrets to Writing a Clear and Concise Appraisal Report
Meet the Team Subscribe
PUBLISHER
Teresa Walker
CONTACT
SENIOR EDITOR
George Harrison, MNAA info@naappraisers.org NAA PRESIDENT
John Dingeman, MNAA CREATIVE DIRECTOR
Traci Knight
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2018 Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in articles and advertisements herein are not necessarily those of Appraiser Focus, 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, Guerin Consulting LLC 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: National Association of Appraisers 7113 San Pedro Ave., #508 San Antonio, Texas 78216 210.570.4950
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A NOTE FROM JOHN DINGEMAN, MNAA This has been an eventful year and included some triumphs for the appraiser. The NAA succeeded with a request to the California Court of Appeal, Third Appellate District that the Court publish a recent appellate opinion favorable to real property appraisers. The appellate decision is entitled Tindell v. Murphy, and it is important to appraisers because it recognizes the significance of an appraiser’s identification of intended users in determining whether an appraiser should be held liable to a borrower. We were also victorious in our plea with the AQB to allow a licensed real estate appraiser a path to certification; persistence (three attempts) pays dividends. Additionally, we have voiced our opposition to the appraiser waiver requests from both Tennessee and North Dakota and will continue to oppose those requests as they are presented to the ASC. Finally, there is an attempt by Congress to correct what appears to have been a typo in the language restricting licensed appraisers from completing FHA assignments, and we have communicated our support for this initiative to Rep. Maxine Waters. Earlier in the April, the NAA introduced its own conference called the Appraiser’s Conference and Trade Shows (ACTS) and in its first year it proved to be extremely successful. We are excited to announce that ACTS will return in Salt Lake City from April 10-12th. The fall typically marks a busy conference season for appraisers and 2018 is no exception. This past September, The Appraisal Summit celebrated its 10th Anniversary with nearly 300 attendees. The NAA, which was founded by five appraisers during the 1st Appraisal Summit, was asked to co-host the event and 2018 marked the 7th consecutive year serving in that role. Appraisers often have very strong opinions and we are not bashful in sharing them. We appreciate all the support and requests by appraisers for the NAA to continue in that role and as a result, we are excited to announce that we have been asked to return as a co-host for the next three to five years. Please remember to join your state coalition or organization. If you do not have one, then consider reaching out to the NAA for assistance in forming – we are here to help. Once you join, find your role and participate – it will make you stronger. The NAA is hard at work in unifying a voice for all appraisers and our Board of Governors (which currently comprises 11 state organizations) is essential in making that happen. Your membership and continued support of the NAA is also necessary for our collective success in ensuring the legacy of the professional appraiser.
JOHN DINGEMAN, MNAA Connect with me about how you can participate. Reach me at john@dingeman.com
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appraiser focus magazine Q4 2018
U YES YO CAN LEARN MORE, EARN MORE.
Contents
Keep up on the latest news affecting the appraisal industry and read about how you can grow your business. Stay connected on Facebook and LinkedIn.
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06 WRITING
10 COMPARING
Tips for effective writing
A look at what they are and why they matter
THE SECRETS TO WRITING A CLEAR AND CONCISE APPRAISAL REPORT Timothy C. Andersen, MNAA
08 REPORTING
THE GENERAL-PURPOSE APPRAISAL
How long have you been an appraiser?
Consider adding this worthwhile valuation component to your list of services Michael J. Bucchianeri
David Towne, MNAA
12 MEASURING
SQUARE FOOTAGE, GROSS LIVING AREA AND FINISHED BASEMENTS A review of guidelines to follow Jonathan Stewart
18 AVALUE N OPINION OF
09 ADJUSTING
4
CONSIDERING COMPARABLE PROPERTY CHARACTERISTICS
THE CASE OF THE MISSING ADJUSTMENTS Why underestimating a property’s value is just as erroneous as overestimating a property’s value
EMPTY THAT INBOX Why decluttering your email will enhance your productivity Dustin Harris
Greg Reynolds
n n
Feature 14
WE ASKED, YOU ANSWERED! Appraisers work in every state of the country and employee a variety of methods to determine value. The NAA surveyed nearly 500 members and non-members to learn more about their practices. Read what we uncovered.
"Of course, the practice of making adjustments based on educated guesses is, at the very least, frowned upon by regulatory and oversight agencies. Does that mean that the amenity in question has no value? Absolutely not! It simply means that the onus is on the appraiser to find some quantifiable method for demonstrating the value of that amenity." -Greg Reynolds Read more on pg. 09
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TIMOTHY C. ANDERSEN, MNAA
DAVID TOWNE, MNAA
06 | The Secrets to Writing a Clear and Concise Appraisal Report
10 | Considering Comparable Property Characteristics
Timothy C. Andersen has been a real estate appraiser and consultant since 1986. He has SRPA and MAI designations and is an AQB Certified USPAP instructor. Andersen is an active member of the NAA, an affiliate member of the Association of Texas Appraisers and an adjunct instructor at the Columbia Institute. Previously, he had a real estate brokerage specializing in high-end condominiums. He earned a degree in real estate appraisal from The University of St. Thomas in Minneapolis. Maitca@bellsouth.net
MICHAEL J. BUCCHIANERI 08 | The General-Purpose Appraisal Michael J. Bucchianeri is a statecertified residential real estate appraiser and principal of MJB APPRAISAL in Healdsburg, California. He is a board member of the Real Estate Appraisers Association of the North Bay and chair of its Ad Hoc PIP committee. Bucchianeri specializes in high-balance property valuation and the general-purpose appraisal, where he mentors other appraisers interested in promoting that component of their appraisal business. Mjbappraisal@hotmail.com
GREG REYNOLDS 09 | The Case of the Missing Adjustments Greg Reynolds is vice president and chief appraiser at First Choice Loan Services Inc. He has over 30 years of experience as a residential appraiser and has been an adjunct instructor at multiple colleges in the fields of economics and real estate. Reynolds is a nationally recognized public speaker, an AQB-certified USPAP instructor, and a mentor for the TALCB. He holds an Master’s in economics, a private pilot license and a black belt in Tae Kwon Do.
JOIN THE NAA! The NAA needs you—and you need the NAA.
Dave Towne has been appraising since 2001 in NW WA State. He enjoys interacting with and educating appraisers across the U.S. Towne does not use a drone to determine property characteristics. david.dtowne@fidalgo.net
JONATHAN STEWART 12 | Considering Comparable Property Characteristics Jonathan Stewart has been the director of the Utah Division of Real Estate since 2011. He has a bachelor’s degree in sociology with an emphasis in Criminology and a Master’s degree in public administration, both from the University of Utah. jstewart@utah.gov
DID YOU KNOW
DUSTIN HARRIS 18 | Empty That Inbox Dustin Harris is a successful, selfemployed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker and consultant. He also owns and operates The Appraiser Coach, where he personally advises and mentors other appraisers and helps them run successful appraisal companies and increase their net worth. His free podcast can be listened to on iTunes and Stitcher. He and his wife reside in Idaho with their four children. He is helplessly addicted to Swedish Fish. thecoach@theappraisercoach.com
that 60 to 70 percent of appraisers are not affiliated with any professional association? Join the National Association of Appraisers and •
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appraiser focus magazine Q4 2018
Writing
Timothy C. Andersen, MNAA Real Estate Appraiser and Consultant
NAA’s Mission UNITE: Bring appraisers together to advocate for positive change.
"Put these suggestions into practice, you'll be a clearer, more precise and more persuasive writer."
The Secrets to Writing a Clear and Concise Appraisal Report Tips for effective writing
As this paper has already shown, a topic sentence previews the entire paragraph. Following the topic sentence are various secondary sentences. Their purpose is to support the topic sentence. This is where your clarity, concision and persuasion come to the fore. It is hard to persuade readers of how correct you are if they can't follow your train of thought. Therefore, the subsentences in a paragraph must be clear, concise and persuasive. They must give the reader reason to believe you. These subsentences support the paragraph's topic. Then, there is a sentence summing-up the paragraph. Essentially, it is the topic sentence restated, perhaps as a question. Did this paragraph's topic sentence serve as a preview to what this paragraph contains? Following the summary sentence, there is a transition sentence leading the reader seamlessly and logically to the next paragraph. Could that transition sentence preview something to come?
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Are there secrets to clear, concise, persuasive written communication in a real estate appraisal? Do you want to know them? OK, read on! First, make simple word choices. Exceptions to this would be words used in direct quotes, especially in scientific or technical writing. Concise language is simply easy to understand. A rule of thumb is to use words that everyone will understand, even though there might be another, lesser-known term that conveys the same meaning. For example, consider the word “yestreen,” a perfectly legitimate English word. However, nobody knows what it means. Therefore, instead of yestreen, use the terms "last evening" or "last night," which is what it means. Stick to everyday words your readers will understand.
paragraph should focus only on one topic. The topic sentence introduces that topic and then paragraph expands on it. Would you like an example?
Another secret to clear, concise, persuasive written communication is sentence length. The rule of thumb here is to write a sentence you could read aloud in one typical breath. This usually means about 15 to 20 words. Look at the sentences in these first two paragraphs. They all are less than 20 words. Short sentences can lead to choppiness, true. However, three choppy sentences are better than one long sentence that goes on breathlessly for 40 or 50 words. Read your sentence aloud. If you have to stop in the middle to inhale, it is too long.
What comes next is an admonition about the word "the." "The" is a lovely word, unique to English, without which we English-speakers would have trouble communicating. However, "the" is a dull and unexciting word with which to start a sentence, don't you think? Therefore, start a sentence (as well as a paragraph) with a word more concise, clear and persuasive than "the." So far, only one sentence in this paper began with the word "the." Did you notice? Is there an exception to this rule of thumb? Yes, and that is if you are quoting directly from another source. It is clear, concise and persuasive written communication to start a sentence with a word more exciting than "the." Do you think the next paragraph with start with the word "the”?
A third secret is the proper use of paragraphs, starting with a topic sentence. A topic sentence introduces the paragraph, giving the reader a preview of the paragraph's content. Notice this paragraph uses the singular form of “topic,” not the plural topics. Why? The reason is that a
From not starting a sentence (or paragraph!) with other the word "the,",move on to the "passive voice." Banish its use from your writer's toolbox! What is "passive voice"? Consider this sentence, "The portrait was painted by Rembrandt in 1642." First, it starts with "the." Ugh! Why not make it
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FOCUS ON WRITING
clear right up front who painted the portrait? Consider, "Rembrandt painted the portrait in 1642." Both sentences describe who painted the portrait and when. However, doesn't the second sentence have the vibrancy and illumination of an authentic Rembrandt? Which sentence is clearer, more precise and more persuasive? Which sentence would you rather read? So now that you've banished the use of the passive voice from your writer's tool box, what's next? Would you believe questions are a great way to persuade your readers to share your beliefs? Now, given that topic sentence, what do you think this paragraph covers? What happens when you ask questions in the narrative of a sentence? You make the reader stop to consider what you have just written. How does this help you to persuade the reader to your way of thinking? When your reader considers your thoughts, the reader considers nothing else. While the reader considers your thoughts, nothing else occupies his/her mind. If enough of your thoughts stay in your reader's mind long enough, whose thoughts will your reader eventually adopt? So, questions as part of your narrative are a great persuasive tool,
right? However, if your spelling is poor, could that fact diminish your persuasion's effectiveness? Since your computer has a spell-checker on it, there should never be a misspelled word in an appraisal! However, the problem is now not so much with spelling, but with typing the incorrect word. For some reason, it is common to type "work" for "word." Spell-checker will not catch this error since both have their correct spellings. To avoid this error is a function of reading (again!) what you type. Therefore, it is possible to avoid misspelled words, as well as using the incorrect words. So, what is the proper way to finish an article? Conclude any writing with a summary of what you just wrote. Why? So the reader remembers your thoughts! To persuade the reader to believe as you do! So the reader can follow your train of thought! So the article's purpose is clear and concise to the reader! Congruent with that thought, here's a quick summary what we covered: 3Keep the words in your sentences short. 3Along with short words, keep your
sentences short, too. Why? Short words and short sentences are easier to read, thus to remember. If they are easy to remember, your logic is easier to follow, too! If your logic is easy to follow, does it follow that your writing will be persuasive? 3Place questions in your narrative to make your reader stop to consider what you have just said. Good idea, don't you think? 3Use topic sentences to introduce a paragraph, a summary sentence to wind-up the paragraph, and a transition sentence to introduce the next paragraph. 3Avoid starting a sentence or a paragraph with "the," a dull, uninteresting word. 3Avoid the passive voice to make your sentences sparkle with illumination and life! 3Use your spell-checker, as well as the correct word, to persuade your readers to believe as you do! Thanks! As you put these suggestions into practice, you'll be a clearer, more precise and more persuasive writer. Other than higher fees, what more could an appraiser ask? n
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appraiser focus magazine Q4 2018
Reporting SOMETHING ON YOUR MIND? Need to get something off your chest? Hate something we do? Love something we do? Letters to the editor may be emailed to INFO@NAAPPRAISERS.ORG
Michael J. Bucchianeri Certified residential real estate appraiser and principal of MJB APPRAISAL
There are many avenues where the GPAR can be and should be utilized.
The General-Purpose Appraisal Consider adding this worthwhile valuation component to your list of services
my home’s value had greatly diminished was very upsetting. Further inquiry led me to discover the opportunity to not only get my ad valorem taxes reduced on a temporary basis, but also to receive a refund and lower tax rate going forward. 8
"Meet the GeneralPurpose Appraisal Report [GPAR]. Provided that the appraiser is competent in all requisite areas of performing this valuation, the sky is the limit. The GPAR can be utilized as narrowly, or as wide open as an appraiser wishes, to encompass all opportunities that the GPAR umbrella offers to other appraisers."
It then occurred to me that there were many homeowners in similar situations, and that I could market my services to both help them in a similar fashion while at the same time receiving some compensation. This experience was worthwhile, on several fronts: I was able to assist lowering their tax bill, and I earned some extra income, which is especially helpful in a slow or down market. This is just one of the many ways the GPAR can be utilized by appraisers to perform work that is synergistic. All benefit in this effort and are free from artificial constraints usually made by vendors or their associated companies. In a time when interest rates are rising, customary and reasonable fees are rarely customary and reasonable, and for many appraisers, this is troubling. We pride ourselves on being independent, professional valuation experts, yet we do not have the freedom and control that we would like and should have. In addition to our current vendor relationships – where we have little or no control – what if we could offer valuation services on our own terms? What if we could determine who we wanted to do business with, what deadline worked best for us, and what level of compensation was worthy of our expertise and experience? That component is available today: meet the General-Purpose Appraisal Report [GPAR]. Provided that the appraiser is competent in all requisite areas of performing this valuation, the sky is the limit. The GPAR can be utilized as narrowly, or as wide open as an appraiser wishes, to encompass all opportunities that the GPAR umbrella offers to other appraisers. I remember just after the market meltdown in 2007-2008, I received my ad valorem tax bill. Seeing the amount I still had to pay twice a year while
There are many avenues where the GPAR can be and should be utilized. There is need for this where real property is involved in divorce situations. An independent valuation is necessary to effectively compute the assets owned during the span of marriage. Another area of GPAR utilization may be when the real estate purchase transaction is all cash, and the prospective buyers may want to be reassured that they are not overpaying for the intended property. Perhaps the property to be sold (or purchased) is an atypical or non-cookie-cutter property and the employing parties may wish to have additional opinions of value conducted by a valuation professional prior to listing. A further situation that often comes up in my regular work is when there is a death in the family. It might be the parent or other family member that has passed. There may be a need for a date of death valuation for estate purposes, and most importantly, to get a stepped-up basis should the property not have had a recent appraisal. Some appraisers with whom I have spoken have shied away from this useful tool as it doesn’t fit their usual work parameters. I strongly suggest that if you want some novelty in your work mix, truly want to help more people, and can use some added compensation, you at least investigate this specialized area. n
naappraisers.org
Adjusting
Greg Reynolds VP and chief appraiser at First Choice Loan Services Inc.
The appraiser’s role is to estimate the true value of a property – not to offer a conservative opinion, nor a liberal opinion.
The Case of the Missing Adjustments
Why underestimating a property’s value is just as erroneous as overestimating a property’s value
Of course, the practice of making adjustments based on educated guesses is, at the very least, frowned upon by regulatory and oversight agencies. Does that mean that the amenity in question has no value? Absolutely not! It simply means that the onus is on the appraiser to find some quantifiable method for demonstrating the value of that amenity.
We in the appraisal world are all too familiar with the phrase “unsupported adjustments.” Whether you are an appraiser who is being questioned by a reviewer, investigator or state regulatory agency – or even an originator or Realtor who is being schooled by an appraiser on prudent appraisal methodology – we’ve all heard of unsupported adjustments. In essence, an unsupported adjustment – at least as it applies to the realm of residential appraisal methodology – is an adjustment that lacks quantifiable documentation as to the direction and magnitude of the adjustment. In appraisal methodology, comparable sales are analyzed against the subject and adjustments are applied for quantifiable amenity differences; the end result being a distillation of a supportable estimate of market value for the subject property.
Those adjustments are applied in a manner (at least theoretically) consistent with tried and true methodologies. These methodologies could include paired sales analysis, extraction, bracketing or even mathematical tools (e.g., regression). In the case where adjustments are applied sans any proven methodology, however, the adjustments are said to be unsupported. An example of this would be if a subject property had an in-ground pool, but the appraiser is unable to find suitable comparable sales with similar amenity. Intuitively the appraiser knows that the pool has value – there is, however, no demonstrable support in the market to quantify the magnitude of that adjustment. In this scenario, any adjustment applied would be made simply based on the appraiser’s educated guess at what the contributory value of that amenity might be.
But what about the converse case? What about the situation where adjustments are clearly demonstrated in the market, yet the appraiser – for whatever reason – refuses to apply those adjustments? The most obvious example is the case of market adjustments – adjustments made to dated sales to account for rapidly improving markets. The hesitancy by appraisers to apply market condition adjustments most likely stems from the backlash related to the last residential real estate crash – prior to which many appraisers were only more than happy to apply generous (and often unsupported) adjustments for improving markets. Now, given the corporal punishment doled out for our past sins, it seems appraisers are very cautious about making those mistakes again. The old adage of “fool me once” comes to mind. Be that as it may, however, it is my personal opinion that the practice of not applying adjustments where the market clearly offers ample support for such is just as egregious as applying adjustments for which there is no support. In other words, underestimating a property’s value is just as erroneous as overestimating a property’s value (albeit with potentially less collateral damage). The appraiser’s role is to estimate the true value of a property – not to offer a conservative opinion, nor a liberal opinion – but to offer a supportable opinion based on the application of all quantifiable adjustments and the resulting reconciliation of those (correctly) adjusted sales. n
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appraiser focus magazine Q4 2018
Comparing
David Towne, MNAA Appraiser
Pay strict attention to property characteristics, both on the subject and the comparables.
Considering Comparable Property Characteristics A look at what they are and why they matter
SO EXACTLY WHAT ARE CHARACTERISTICS, AND WHY SHOULD THEY MATTER? Let’s answer the second part first. Characteristics are what property purchasers use, perhaps subconsciously, but in many cases prominently, to decide which property meets their needs the best. One of these, that RE Agents are fond of using, is NOT cost per square foot, as a primary consideration.
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Characteristics are not static from one house and report to another, unless the appraiser always works on the exact same type of property in conforming neighborhoods consistently. Once assignments move beyond urban areas, the characteristics become the key factors that need to be considered.
In over 17 years in this business, I’ve seen hundreds of properties. My service area encompasses urban through rural properties in an area 40 to 100-plus miles distant from the largest metropolitan area in the state. Each appraisal assignment and subject property I do is different from one day to the next. Because of this diverse experience, and some of the essays I write, I am often contacted by other appraisers across the country to discuss report situations that are challenging, complex and questionable. Such was the case recently. A technical review appraiser for a lender, licensed in my state,
called to discuss a report on a suburban location acreage property with significant outbuildings because the comparable data just didn’t look right. (I don’t know the specific property location, or who the appraiser was.) The appraiser’s refi value opinion was a head scratcher. Massive adjustments were made for the school district differences, while the significant subject outbuildings were not considered as important. As we discussed the subject and comparables, it became evident that the report appraiser did not consider and utilize comparables with similar characteristics to the subject.
What are the characteristics to consider? Well, believe it or not, they are right in front of every appraiser who does assignments using forms. Each line on the appraisal form comp grid is an important characteristic. Although, additional line item characteristics can and should be added if necessary. If you are a narrative report writer, forms are also useful to determine which items to factor into the written report. Due to the type of residential work I do, in varied locations, I use a hierarchy of characteristics, or a decision tree, to figure out the most important items, and determine how to research comparables. These are not necessarily in the same order as on the form. Often, the GLA is NOT the most important item. This process works this way (with
Be a part of the conversation. Share your ideas with your colleagues on how we can advance the appraiser profession. Reach out to us at info@naappraisers.org.
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F O C U S O N C O M PA R I N G
the adjustments done at time of report writing): 3Where in the vast universe is the subject located – urban, suburban or rural? Select comparables in the same area. School districts, trading areas and geographic boundaries should be analyzed. 3Is the property on a typical lot (site), or small or large acreage? I try to bracket the subject’s site size with comparables, but it’s not always possible. 3Are there certain amenity elements on the property important to purchasers? School district, outbuildings including type and use, acreage, fenced pastures, distance from neighbors, dwelling age, views, waterfront, etc.? Try to find properties with similar characteristic amenity items. If the subject has unusual or valuable amenities, extending your search distance or sale date to find similar comparables is perfectly acceptable. Explain why that was done. Market studies may be necessary to determine adjustments. Sometimes certain key amenities are not found. In that case, just make an appropriate adjustment to the comparable.
"Pay strict attention to property characteristics, both on the subject and the comparables. Keep comparable characteristics as similar as possible to the subject in reports. Doing so will mean your report will easily pass muster through the various review processes." 3Once the above key characteristics are understood, then proceed to the GLA (and basement) living space. I generally try to find comparables within a range 75% to 125% of the subject GLA size (or combined living areas, which is how RE agents market properties) in suburban/rural areas, and narrower size range for urban properties. 3Actual age, in a range +/- 10 years of the subject’s age. Wider age is acceptable as one moves farther out from urban areas. (Keeping age and GLA within a narrow range enables lower adjustments for those items. It also demonstrates to the reviewer that you are not using incompatible comparables as a means to push value.) 3Design (style) is also important. Try to keep comparables similar; i.e., one-story designs, multi-level, manufactured, site-built (including modular), etc. If comparables are extremely limited, you may need to mix these, and it may be necessary to do a market
study to determine any necessary adjustment when different types have to be used. Understanding and recognizing characteristics on properties is absolutely critical when doing appraisals. These items are easily spotted by experienced review appraisers and loan underwriters. When your comparables have obvious dissimilarities, your report will be dissected, and you may be asked to provide additional explanations, or find more similar comps. Worst case is your report will be totally rejected and it will be turned over to your state appraisal board as a formal complaint. Pay strict attention to property characteristics, both on the subject and the comparables. Keep comparable characteristics as similar as possible to the subject in reports. Doing so will mean your report will easily pass muster through the various review processes, including Collateral Underwriter. n
CONTRIBUTORS WANTED
WRITE FOR US Appraiser Focus is always looking for dedicated appraisers who care about the future of this profession. We are on the hunt for hard-working, forward-thinking professionals who are interested in contributing to our magazine’s coverage of the appraisal world.
REACH OUT TO US FOR MORE INFORMATION. TERESA@NAAPRAISERS.ORG.
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appraiser focus magazine Q4 2018
Measuring
Jonathan Stewart Director of the Utah Division of Real Estate
NAA’s Mission PROMOTE: Encourage continued education and high standards of conduct.
There were some differences of opinion among appraisers and real estate agents about the value of basement square footage and whether it should count toward GLA.
Square Footage, Gross Living Area and Finished Basements A review of guidelines to follow
the basement, which property should have a higher valuation? Most, if not all, would say that the property that is 100% above-grade would have a higher valuation. In most cases appraisers compare and adjust for differences in basement size separately from differences in above-grade GLA. In addition, these appraisers have said that they do not include basement square footage in GLA for the reasons I have mentioned above, mainly for consistency when comparing one property to another.
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To understand this better, here are guidelines from Fannie Mae and FHA/HUD that appraisers may be required to follow when appraising a property: GROSS LIVING AREA
This year in several locations on CARAVAN we had discussions about measuring residential home square footage, and specifically whether a basement square footage should be included in the Gross Living Area (GLA) calculation. There were some differences of opinion among appraisers and real estate agents about the value of basement square footage and whether it should count toward GLA. When an appraiser appraises a residential property, there are different guidelines they could be required to follow, depending on the financing and type of property. Ultimately, the appraiser and lender should determine what standards should be followed when appraising a property for lending purposes. According to Thomas Hardwick, a certified general appraiser from Michigan:
“There are generally recognized guidelines (including the Fannie Mae Selling Guide, FHA/HUD Handbook 4150.2, Employee Relocation Council (ERC) Appraisal Guide, and the American National Standards Institute (ANSI) Z765-2003). To varying degrees, these guidelines define Gross Living Area, [and] basement/below grade floor area… The appraiser and the lender should determine the level of detail necessary in calculating the home’s square footage.” The main message I’ve received from appraisers is that these guidelines are used to create consistency in valuing properties. For example, if you had two properties in the same neighborhood, exactly the same square footage, and exactly the same quality, but one property had 3,000 square feet on the main level and the other property had 1,500 square feet on the main level and 1,500 square feet in
Fannie Mae Selling Guide, May 1, 2018 B4-1.3-05, Improvements Section of the Appraisal Report The most common comparison for one-unit properties, including units in PUD, condo, or co-op projects, is above-grade gross living area. The appraiser must be consistent when he or she calculates and reports the finished above-grade room count and the square feet of gross living area that is above-grade. When calculating gross living area 3The appraiser should use the exterior building dimensions per floor to calculate the above-grade gross living area of a property. 3For units in condo or co-op projects, the appraiser should use interior perimeter unit dimensions to calculate the gross living area. 3Garages and basements, including those that are partially above-grade, must not be included in the above-grade room count. Only finished above-grade areas can be used
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FOCUS ON MEASURING
in calculating and reporting of above-grade room count and square footage for the gross living area. FHA/HUD Guidelines 4150.2 Property Analysis Gross Living Area is the total area of finished, above-grade residential space. It is calculated by measuring the outside perimeter of the structure and includes only finished, habitable, abovegrade living space. BASEMENTS AND BELOW-GRADE FINISHED AREAS
Fannie Mae Selling Guide, May 1, 2018 B4-1.3-05, Improvements Section of the Appraisal Report Fannie Mae considers a level to be below-grade if any portion of it is below-grade, regardless of the quality of its finish or the window area of any room. Therefore, a walk-out basement with finished rooms would not be included in the above-grade room count. Rooms that are not included in the above-grade room count may add substantially to the value of a property, particularly when the quality of the finish is high. For that reason, the appraiser should report the basement or other partially belowgrade areas separately and make appropriate adjustments for them on the Basement & Finished Rooms Below-Grade line in the Sales Comparison Approach adjustment grid.
FHA/HUD Guidelines 4150.2 Property Analysis Finished basements and unfinished attic areas are not included inCONTRIBUTORS total gross living area. WANTED The appraiser must match the measurement techniques used for the subject to the comparable sales. It is important to apply this measurement technique and report the building dimensions consistently because failure to do so can impair the quality of the appraisal report. Another standard appraisers may voluntarily use, but is not required, is the American National Standards Institute (ANSI) squarefootage method for calculating: ANSI Z7652013. Simply put, ANSI states: “The above-grade finished square footage of a house is the sum of finished areas on levels that are entirely above grade. The below-grade finished square footage of a house is the sum of finished areas on levels that are wholly or partly below grade.” According to ANSI, above-grade and belowgrade square footage should be reported separately to more accurately compare properties. It is important to understand that one of
the main reasons for these guidelines is for consistent reporting of the square footage from one property to the next. Above-grade square footage should be compared to above-grade square footage, and below-grade to below-grade. Fannie Mae does allow appraisers to deviate from these guidelines if a property is built into the side of a hill, where the majority of the lower level is outside of the hill, and the interior finish is equal to that of the rest of the house. In these cases, the appraiser could include the lower level in GLA, but Fannie Mae is clear that appraisers should be consistent when deviating from guidelines.
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THE APPRAISERS CONFERENCE AND TRADE SHOW IS COMING TO SALT LAKE CITY!
Craig Morley, former chair of the Appraiser Certification and Licensing Board, has the following advice for appraisers: 1. Know what measurement standard is being used by the data verification source so that inappropriate adjustments for size are not being made due to inconsistencies in measurement standards. 2. Appraiser should be aware of the various measurement standards and explain to the client what standard is being used. If there are inconsistencies, the appraiser should understand and explain the inconsistencies and explain why or why not adjustments are made. 3. Don’t be too mechanical in the application of size adjustments. If it is evident that the subject is the same or a similar model, but the data source is reporting inconsistent areas, either don’t make adjustments or explain the rationale of your adjustments. 4. Be consistent with what is customary in the market you are working. Most of the GSE’s expect that the appraiser will do what is customary for the local market area to preserve the integrity of the analysis. If the appraiser is not consistent with the market, there can be some significant errors in the value conclusions. Appraisers have a difficult job when valuing real estate and accurately calculating square footage, and GLA is vital to a credible appraisal report. Keep in mind that although appraisers may not include below-grade square footage in the GLA, they will still give value to the square footage, especially if the finish is of high quality. We all want consistency in valuing real property, and when appraisers use appropriate standards and are consistent in their approach, appraised values will be more accurate. n
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We Asked, You Answered! NAA polled near ly 50 0 a p p r a i s e r s t o rev eal profes s ion a l t re n d s
How old are you?
n are yo u g to retir e?
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How long have you been an appraiser?
Do you prefer your education live or online?
35% of appraisers were between the ages of 55-64. There were more appraisers over age 75 than there were ages 18-24.
In what state(s) do you currently work?
Texas 16.95% 81
California 19.46% 93
ANSWER CHOICES RESPONSES
Arizona 10.25% 49
ANSWER CHOICES RESPONSES
Florida 4.39% South Carolina 3.77% Tennessee 2.72% Nevada 2.51% Mississippi 2.30% New York 1.88% New Mexico 1.67% Ohio 1.67% Pennsylvania 1.67% Illinois 1.46% Oregon 1.46% Georgia 1.26%
Michigan 1.26% North Carolina 1.26% Washington 1.26% Louisiana 1.05% Maryland 1.05% Arkansas 0.84% Virginia 0.84% Wisconsin 0.84% Idaho 0.63% Minnesota 0.63% Oklahoma 0.63% Alabama 0.42%
ANSWER CHOICES RESPONSES Connecticut 0.42% Indiana 0.42% Iowa 0.42% Kentucky 0.42% Missouri 0.42% South Dakota 0.42% Delaware 0.21% Massachusetts 0.21% Montana 0.21% New Jersey 0.21% Rhode Island 0.21% Alaska 0.00%
Is your office paperless?
TOTAL
WE TRY
48%
27%
What, if any, professional credentials do you have? ANSWER CHOICES RESPONSES MNAA SRA RAA IFA ASA AI-RRS MAI AR
65.99% 23.86% 8.63% 8.12% 7.11% 6.09% 5.08% 4.57%
478
Have you ever written a Restricted Appraisal Report (or a Restricted Use Appraisal Report)?
NO
26%
ANSWER CHOICES RESPONSES Dist. of Columbia (DC) 0.00% Hawaii 0.00% Kansas 0.00% Maine 0.00% Nebraska 0.00% New Hampshire 0.00% North Dakota 0.00% Vermont 0.00% West Virginia 0.00% Wyoming 0.00%
YES
YES
Utah 5.65% 27
Colorado 6.69% 32
ANSWER CHOICES RESPONSES GAA IFAS RICS AI-GRS IAAO SRPA
3.55% 2.54% 2.03% 1.02% 0.51% 0.00%
Total Respondents: 197
70%
NO
30%
Do you prefer your education live or online? LIVE
ONLINE
BOTH
49% 12% 39% Most of our appraisers prefer to receive continuing education in person rather than online.
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How long have you been an appraiser? ANSWER CHOICES 0-4 years 5-10 years 11-15 years 16-20 years 21-25 years 26-30 years 31-35 years 36-40 years 41-45 years 46-50 years 50+ years
RESPONSES 2.73% 13 3.56% 17 19.71% 94 23.90% 114 14.47% 69 16.35% 78 9.85% 47 4.40% 21 2.73% 13 1.47% 7 0.84% 4
TOTAL 477
Almost a quarter of appraisers surveyed said they have been in the profession for 16-20 years. 16
When are you planning to retire? ANSWER CHOICES 26+ years 21-25 years 16-20 years 11-15 years 6-10 years 2-5 years 1 Year or less Never
RESPONSES 6.29% 30 8.18% 39 10.06% 48 12.79% 61 18.66% 89 18.45% 88 3.77% 18 21.80% 104
TOTAL 477
The largest percentage of appraisers said they plan to retire in two to 10 years, while 22% said never.
a la mode
What software do you primarily use?
ACI
68%
Bradford
18%
SFREP
9%
5%
What measurement standard do you use?
American National Standards Institute ANSI 79%
American Measurement Standards AMS 4%
International Property Measurement Standards
IPMS .22%
NONE 16%
What percentage of your work is lenderbased? 76%
What percentage of your work is nonlender-based? 24%
Does your state have an association/coalition of appraisers? YES
72%
What percentage of your appraisal reports are narrative? 11%
If your state does have an association/coalition of appraisers, do you belong to it? NO
34%
I DON'T KNOW
14%
Have you ever testified as an expert witness? NO
46% YES
54%
NO
14%
What percentage of your appraisal reports are form-based? 89%
YES
66%
The majority of respondents said they have testified as an expert witness.
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appraiser focus magazine Q4 2018
Opinion
Dustin Harris Certified Residential Real Estate Appraiser
My method is nothing revolutionary, but guess what? It works.
NAA’s Mission PROVIDE: Offer services designed to benefit our membership.
Empty That Inbox
Why decluttering your email will enhance your productivity
actually less effective at the task you’re trying to concentrate on (completely unrelated to email). That nagging weight simply never leaves you alone. You need a system in place to keep your inbox clear and keep that weight off your shoulders. I’m going to share my own system with you today, but if that doesn’t appeal to you then please find one that does. Before you can actually implement a system, you need a clean inbox to begin with. If you’re like my beloved wife, for example, there could be literally thousands of emails cluttering up your inbox. Don’t mess around here: simply select all of them, and hit that “delete” button. Put your sentimentality aside and enjoy the fresh start. Otherwise, you will never get it done.
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Call me what you like: obsessive compulsive, completely crazy… I don’t care! I just hate seeing a messy inbox. It’s one of my biggest pet peeves in life. Seriously, it drives me nuts. By contrast, I absolutely love having a nice, clean, empty inbox. When I hop onto my Gmail account, and see that empty inbox, it gives me a warm, fuzzy feeling inside. For the most part, the target of achieving an empty inbox is one I manage to hit regularly. That’s saying something, because I get a lot of emails: I average around 30-40 per day, and over a weekend I can get 100 or more. I’m definitely not unique in that respect: As real estate appraisers, constant communication and availability is part of our job. As most of you know, I regularly mentor other people as part of my role as The Appraiser Coach. I can’t tell you how many times I’ve glanced at my mentee’s laptop or phone screen and seen an inbox that’s full to bursting. Now that makes me crazy in itself, but aside from my personal quirk, it’s simply bad practice. An inbox packed with unanswered emails hangs over you like a dark cloud. It’s almost impossible to relax in the evenings or on the weekends, because you’ve always got that nagging weight on your shoulder: that response that really needs to be sent, but you haven’t got around to yet. The same thing happens at work. Numerous studies have shown that when you have a backlog of emails you haven’t addressed, you’re
With that accomplished, you can begin the process of maintaining an empty inbox. That all starts with checking your emails regularly. Note that I said “regularly,” not “incessantly.” Set a regular schedule for checking your inbox – every hour, four times per day, or in between other tasks (my favorite method) – and stick to it. Constantly checking your emails, or failing to turn off the alerts you get when you receive a new message, is a sure-fire way to ruin your concentration throughout the day. The second part of my process revolves around how long it takes to sort out your inbox. Let’s say you check your emails and have five new messages. Immediately get rid of any spam (and I mean actually unsubscribe from it, don’t just delete it). After that, quickly scan the other emails and identify the ones – perhaps from the subject line, or a brief look at the contents – that you don’t actually need to respond to. Delete those too. Now you’ll be left with messages that require a response. I have a 3- to 5-minute rule when it comes to these: If I think I can reply to those messages in 3-5 minutes, I’ll do so there and then. I’d estimate that this applies to at least 90% of my emails. If a response would take longer than 5 minutes, put it into a separate folder. Once per week, allocate some time in your schedule to responding to these trickier emails. I call my folder “Monday,” for example, because I make replying to these messages a task every Monday. When I come to it, I usually have 10-15 emails waiting for me there, and going through them takes about an hour. That’s about it! My method is nothing revolutionary, but guess what? It works. Follow it – or devise your own process – and with a regularly empty inbox you’ll quickly find your productivity levels increasing, while your stress levels go in the opposite direction. n
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