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Guest Post (Vortex)

NeighborhoodX: In praise of secondary cities

July 5, 2017 | 4:52 pm | | Articles |

Every so often I include a guest post that I wish I had written on my own. This is one of them. It was written by my friend and colleague at NeighborhoodX. I hope you enjoy it.


In praise of secondary cities

Why the next great Brooklyn neighborhood might not be in Brooklyn.


Detail of Edward Hopper, “From Williamsburg Bridge”

Constantine A. Valhouli   |   Jun 20, 2017 10:45 AM

Not so long ago, the central question of urban planning was how to revive the downtowns and surrounding neighborhoods of major cities. In the last decade or so, those efforts have succeeded to the point where the central question has become, “where do the people go who are being priced out of these cities?”

It’s worth a moment to understand what shifted during that time.

Across the United States, the downtowns in need of revival had been damaged by misguided federal policies like redlining (a racist policy of not making loans in ethnically-diverse neighborhoods) and urban renewal (massive demolition of historic neighborhoods). By contrast, the revival of these neighborhoods was often a fragmented, small-scale effort that largely happened from the ground up. Cheaper rents and large vacant spaces provided fertile ground for creative and entrepreneurial efforts.

Many of these neighborhoods experienced the same arc. From sleepy and decrepit bargains to lively and gritty destinations, and finally to consumerist caricatures of their former liveliness. Some of these neighborhoods were victims of their own success; rents and purchase prices rose out of reach because it was now much more desirable. For other neighborhoods, rezoning created incentives to demolish those large, vacant spaces (or those small, occupied houses) for an apartment complex or condo tower aimed at more affluent residents.

Among affluent families, the shifting preference from suburbs to cities is glibly described as a ‘change in consumer preference.’ But it is more than this. The shifts are not just on the demand side, but on the supply side as well. During that time, the cities changed as well, becoming more like suburbs – and thus more welcoming to wealthy suburbanites. In turn, the demographic of these cities is coming to resemble affluent suburbs: doctors, lawyers, management consultants, and those in financial services.

At the same time, the people who made these cities interesting and dynamic – the writers and artists, musicians and actors, entrepreneurs and talented young people – are being priced out. Today, many young people who move to a major American city to pursue creative or entrepreneurial ventures require the financial support from their parents.

And yet, people are paying these higher prices because they believe that they need to be in the city in order to pursue these kinds of ventures and meet like-minded people. But is this always true? Or could smaller cities and suburbs also could provide these opportunities?

Almost every unsexy suburb within commuting distance of major cities has the basic raw elements to make for a fascinating and livable place.

In addition to low rents and purchase prices, there is often a critical mass of housing within walking distance of a historic (but largely vacant) downtown, one that evokes the opening sequence of Bob’s Burgers. But even the vacancies can be an opportunity rather than a drawback. These were the same conditions that faced the early next-wave residents of almost-suburban city neighborhoods like Williamsburg, South Boston, or Silver Lake. In each case, it was the vision and drive of the creative and entrepreneurial residents that transformed these buildings from space into an actual community.

Today, these suburbs and mill towns are overlooked by major real estate investors. But again, this can be an opportunity rather than a drawback. Even as contrarian investor Sam Zell recently sold Equity Residential’s suburban portfolio to focus on urban markets, this creates an opportunity to be a contrarian to the contrarian, by taking advantage of the lower prices because these areas are out of favor.

But not all secondary cities are created equal.

Some have geographic advantages of significant parks, protected land, or beautiful views and rivers (like Beacon and Garrison, NY). Others have architectural advantages, with intact neighborhoods of elegant historic houses for less than the price of a Manhattan studio apartment.

Former mill towns have a particular advantage – if it is used thoughtfully.

The vacant or underused factory buildings offer a potential density that might only be found in larger cities. For example, the buildings in the canal district of Lowell, Mass., would not look out of place in Tribeca in New York City. Furthermore, the redevelopment of these spaces generally doesn’t displace anyone (except for pigeons) and, if done thoughtfully, can add mixed-use liveliness that can benefit the entire neighborhood or town. The vast size of the buildings and the relative affordability of the raw space allows developers to devote square footage to, say, independent movie theaters and stages, to provide a lifestyle within walking distance for which residents previously needed to travel out of town.

While these entertainment spaces are critical to the livability of a secondary city, they do not need to be gratuitously large or fancy. In fact, they will likely be better, and more affordable, if they are not.

For example, community groups who try to raise money for a nonprofit movie theater get caught in an endless cycle of grant writing to raise much more money than they actually need to launch. People forget that at its heart, a movie theater is a black box room with a projector. Maybe with beanbag chairs. Rather than trying to compete with commercial chain theaters on technology or fancy seating, their competitive advantage can be intangible – better film programming, or video talks with the director or writer, or events or events (like Rocky Horror Picture Show) that cannot be found elsewhere.

Even buildings that are not historically significant can be re-purposed rather than demolished. Smaller towns that grew by absorbing more contemporary suburbs have examples for how to reuse functional buildings like auto body shops and chain restaurants.

In outlying neighborhoods of Austin and Sedona, some former Pizza Hut franchises have been transformed into independent restaurants. In Greenwich, Connecticut, a former Howard Johnsons was renovated into the sleek, midcentury J-House Hotel. In a rural part of North Andover, Mass., the local music venue was the Red Barn, which was exactly what is sounds like. And in suburban parts of Anchorage, Alaska, pop-up shops take the form of happily-painted garden sheds on trailer hitches, set up in parking lots or roadside which serve as mobile coffee shops or as specialty jerky shacks.

Truly, more Brooklyn than Brooklyn.

In 2006, at the final show of CBGB’s – a moment that for many marked the end of a countercultural era for the East Village – when most people were waxing nostalgic about the revelry, the community, and the closing of an institution, Patti Smith offered an unsentimental coda: “CBGB is a state of mind. Young kids all over the world are going to have their own f—ing clubs. They won’t care about CBGB because they’re going to have the new places, and the new places are always the most important.”

This sort of punk rock/DIY ethos that drove the city’s revival from the 1970s to the 1990s, and this pragmatic, grassroots approach is precisely why the next hot Brooklyn neighborhood might not be in Brooklyn.

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[Vortex] ‘Sustainability’ of Property Values [Part I of Trilogy]

May 21, 2012 | 12:08 pm |

A good friend of mine, Mark Stockton of Valuations Unlimited, LLC, has developed a powerful research tool to aid in valuation. Mark is a sharp unassuming guy who has sold technology to Wall Street before. Here is a simple overview. It addresses the significant elements of the technology. It’s not an AVM and better yet…it actually works! At least it worked when I tested it on my house in CT (a 200 year old 3 story Salt Box) and on a number of my friends’ and relatives’ properties in various parts of the US.

His technology develops the replacement cost, market analysis, land residual analysis, assessment analysis, sale price index and rental analysis and allows the user to weight the applicability of each approach.

He’s got several very interested parties at this point. As Mark has told me: “We certainly need to make decision makers aware that there is at least one solution available that can help them make better decisions and monitor their investments over time.”

He’s entered the vortex on Matrix (he wrote a guest post). It’s about a different kind of “sustainability”. A good read.


Sustainability of Property Values
By Mark L. Stockton
May 16, 2012

There has been a lot of discussion in recent months about the need to reengineer the appraisal process. There is no denying the fact that the process as it currently exists is antiquated and inadequate. Methodology is purely subjective; there is a lack of adequate analytics.

These deficiencies can be corrected. Comprehensive analytics are available to those who would demand them. Much of the subjectivity can be replaced by objective processes that will support reasonable value conclusions. However, fixing the means by which value conclusions are developed addresses only part of the problem. Those conclusions must be examined for sustainability in order to be used to make prudent lending and investing decisions.

A friend recently lost her home. She purchased it new in May of 2002 for $234,500, and at the time the price was reasonable when compared to the other 1,000+ newly constructed homes in the immediate area. I have not seen the appraisal that was done at purchase, but I imagine the value conclusion was reasonable in light of the fact that there were so many similar homes in the subdivision that were selling at the same time. There is little doubt that the appraised value was extremely close to the contract price of $234,500.

I cannot deny that the appraised value of the property in May of 2002 was – and should have been – approximately $234,500. What I can say with authority is that the appraised value at the time of purchase was unsustainable.

There are meaningful relationships in real estate markets just as there are in other markets (stocks, commodities, etc.) that must be monitored to support prudent lending and investing decisions. For example, we know there is a relationship between rents and sale prices that should be considered. From a lender’s perspective, if a buyer should have difficulty paying the mortgage, it would be comforting to know the home would bring in enough income in the form of rents to pay its own way.

There is another important relationship that has been long overlooked, and that helps us understand the sustainability of property values. It is the relationship between the market value of a home and its depreciated replacement cost (RCNLD). There is an old (often forgotten) adage that no prudent buyer would pay substantially more for a home than the cost to rebuild it on a similar site. This concept was once recognized by the appraisal industry and acknowledged in the cost approach to value. There was a time, not long ago, when appraisers had to provide commentary to support any cost approach in which the site value represented an excessive portion of the overall value. It was recognized at the time that a large disparity between the value of the improvements (depreciated replacement value) and the value conclusion (the market estimate derived from the cost approach) could be indicative of an unsustainable market value. History has, in fact, shown us that when the gap between RCNLD and sale price in traditional housing markets grows beyond 120%, market values are approaching unsustainable levels. When that ratio reaches 130%, we can be certain that a correction in home prices is imminent.

When my friend purchased her house in 2002, the ratio between RCNLD and home prices (Market Experience Ratio©, or MER©) in the immediate area was 135%. Her home and the neighboring homes were being built and sold at the high point of what would become known as the housing bubble. For those of us who watch relationships closely and have developed a means of monitoring them on both a broad scale and granular basis, this was obvious. Each time this occurs, as it has on several occasions in the past 30 years, market prices respond by declining to a level that more closely approximates depreciated replacement cost. The current MER for homes in the area of my friend’s house is 106%. The ratio is still declining slowly, but prices have reached reasonably sustainable levels.

Here’s the bad news. My friend was able to secure a 100% loan in 2002, with payments structured to start off small and increase over time as her income and her equity grew. Ecstatic at the prospect of being able to own a brand new home with no down payment, she was unaware of danger that lay ahead. So too was her lender, apparently. She can be forgiven; she was not, and is not, what is sometimes referred to as a “sophisticated investor”. How can an average consumer be expected to understand market dynamics and complex financial dealings? Isn’t that why they rely on professionals?

The lender, however, should have known better. What happened to real estate markets nationwide a few years thereafter was not an anomaly. It has happened often in the past, and it will happen again in the future. Every time investment dollars become more abundant and credit restrictions relax, you can bet this same scenario will play out in real estate markets across the country.

About a year ago, my friend lost her job. She was forced to confront the fact that she was unemployed and would have to compete with tens of thousands of other unemployed individuals for a position that would probably pay less than her old job – if she could find employment at all. The value of her home had declined by more than 12% in the decade since she had made her purchase. Instead of building equity, she was “under-water” on her mortgage. Recently, her home was foreclosed and she found herself in a position that is all too common today. While not homeless, she is facing bankruptcy and the attendant emotional and financial difficulties that are inevitable.

If the proper tools and analytics had been available to the lender in 2002, chances are things would have turned out better for all parties. It is reasonable to assume that the lender, recognizing the instability in the housing market, would have modified its lending practices and terms offered to borrowers would have become more restrictive. In fact, there is a high probability that the instability would have never reached such extremes; lenders might have acted promptly and prudently to insure that sustainability was protected, and their subsequent losses might have been significantly reduced.

My friend might not have qualified for a loan at all, and would have perhaps been forced to continue renting until she accumulated a suitable down payment. If and when she was ready to make a purchase, she might have had to settle for a “starter home” rather than opting to buy her dream house. These, by the way, are not bad things. Until recently, this was regarded as the appropriate path to home ownership in America.

So here’s the message. Prudent lending and investing must be based on more than just accurate appraised values. Values must be scrutinized for their sustainability as well. As my friend and her lender discovered, an accurate value for a home yesterday might vary substantially from an accurate value for the same home today. That does not make either value conclusion less accurate, but it does reveal that markets fluctuate and values must be viewed within the context of current market trends and long term sustainability.

If your valuation professional cannot provide you with both a reasonably accurate value conclusion, supported by industry standard analytics, and a reasonable measure of sustainability, you need a solution that does.



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[Vortex] Palumbo on USPAP: The Fool’s Gold of AMC Licensing

June 17, 2010 | 10:07 pm |

palumbo-on-uspap

Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is currently the Director of Valuation at Weichert Relocation Resources and a user of appraisal services. He spent seven years at Washington Mutual Bank where he was a First Vice President. Mr. Palumbo holds an SRA designation, is AQB certified and he is a State Certified residential appraiser licensed in New Jersey. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his interview on The Housing Helix.
-Jonathan Miller

The Fool’s Gold of AMC Licensing

Since I landed in the world of Relocation some three and a half years ago, I really did not pay much attention to what was happening in the trenches of the lending world. That changed when the concept of licensing appraisal management companies came about. My interest became more of an occupational study since these laws are so “broad-brush” and vague. As the manager an in-house appraisal arm of Relocation Management Company I was shocked and disappointed that that these laws cast a net on just about anyone who manages selects and retains appraisers for third party use. Clearly this type of legislation was created out of a knee-jerk reaction to one of the many “crisis-type” issues that came AT the appraisal community in 2008 and 2009. I am specifically referring to the attention to the “appraisal process” brought about by the ill-informed attorney general Mr. Cuomo of NY and the infamous HVCC. I agree with the basic the tenets of the HVCC and the AMC laws I just do not think there will be a net tangible positive affect and that the “real issues” are being conquered. AMC laws and HVCC are not the PANECEA. I WISH THERE WERE a panacea because some calm is needed. Being the realist and institutionally tenured manager of the appraisal process I just know reality of what happens VS what is supposed to happen.

foolsgold

For starters let me say that the relocation world has no direct OTS-like government oversight or appraisal requirements for the appraisals which are NOT intended for lending. The relocation industry is self- policing and we rely on what is set up by state licensing and our own quality control. Let me also say that while my department may perform some of the same functions that an AMC does, we do not TAKE ANY of the appraisers fee. We do select maintain, review AND USE appraisers as well as arbitrate valuation disputes. Also for the record I am not anti-appraisal management company.

Here is the issue: As pointed out by the OTS, last year FIRREA laws of 1989 already contain much of the language that the AMC Laws cite. States have also set up Appraisal Boards who are supposed to monitor fraud egregious issues and such. The problem with FIRREA and the State Boards is simple: money, resources and time. So along come laws that state it is unlawful to coerce an appraiser, unlawful not to pay them, unlawful to tell them which appraiser to use, unlawful to have people who select and review who are not “trained in real estate”, and so forth and so on. So the new laws are just restating the same of what we already had but we still lack an efficient mechanism to enforce. If the AMC laws are governed and enforced by the state boards who are short on cash and time then what makes AMC laws different? Currently 18 states have such laws on their books.

On top of the AMC laws many states are requiring AMC’s to be “registered”. This process is costly and requires plenty of paperwork. KUDOS to the Governor of Virginia, who signed his states law basically making it illegal to engage in the “appraisal nonsense” described above, but NOT requiring a registration process or fee. Also noted as being proactive is Arizona, which requires licensing and registration for AMC’s but which has a single line exemption for the relocation industry simply because: “we are not the problem” (the law reads the exemption for appraisals prepared for the purpose of employee relocation) .

Recently I was contacted by a state board attorney whose state passed AMC legislation in 2009; she stated “this law was not intended for your business model….because you use the appraisal with the client, whereas an AMC does not use…. it they get it…Q C it and pass it on”. It is great to see some realistic thinking for a change. The AMC- appraiser relationship is much like the HMO doctor relationship: mutual need mandated by external forces peppered with some mistrust. Don’t get me wrong there is a lot of merit to the underlying premise of HVCC and such I just do not think it is going to result in a changed world for the appraisal community. What the appraisers do not like about the AMC’s are the request for fast appraisals, some at a lower fee than they have seen in years, requests coming with numerous assignment conditions many of which are not realistic and unacceptable (3 comps within 3 months and 1 mile) the occasional “can you hit the number request” before the analysis gets done (comps checks)…among many others.

Many of the pressures ON AMC’s…yes I said ON AMC’S, are a result of what has transpired in the world: Increased competition, web-based valuation tools, fingertip internet real estate research, fraud, secondary market issues, and MISUNDERSTANDING of the appraisal process in general. I wonder what planet the “investors” live on that have guidelines they will not purchase loans in declining markets? I also believe that a lender than asks an appraiser to “remove a negative time adjustments” should be reported to the LVCC hot line” . Oh… that’s right there is none? Call your department of banking they say. Good luck. I had an appraiser the other day who did not read or adhere to the engagement letter I sent tell me “we have an AMC law here and you have to pay me regardless or you are breaking the law”. I stated, “great, I will take my chances since you signed the engagement letter but yet failed to meet the (simple) requirements stated in the letter, which is why I have called you three times ”. We’re not talking about value here we are talking about basic development and reporting issues that were not clear to me as user and client. Is this what the AMC laws are for?

Does anyone really think that the requirement of an AMC to fill out an application, pay a fee and require a few staff to take a 15-hour USPAP will stop the madness? Actually if the fees are an issue it could increase the cost of operating for the very folks that are presumable not paying a “fair rate”. Since the BIG 3 lenders (all using profitable AMC’s) have 60% of the market now via servicing or closing every US loan, I don’t see things changing until we see a UNIFIED industry, an industry that will unilaterally agree to push back on any conditions that are deemed to be unreasonable. It is very difficult to push back on three financial giants, but without a push, it will not happen. The other day a friend told me of a lender (his client) who is seeking to create a special list outside the AMC they use; their claim is poor service and product….betcha licensing that AMC would fix that! I also heard of a request coming from a AMC in a state that requires they be licensed and registered. The “caller” asked the appraiser if he could “hit the number”. He asked “isn’t that a violation of the HVCC and the AMC laws?”. The caller laughed…who is enforcing this stuff anyway..we do it all the time and we just send a text message to our appraisers telling them what they need”. There are approximately 97,000 appraisers in the US handling over 1 trillion dollars in mortgage money. Over 75% of the states require licensed appraisers for federally related transactions and 45% require for all appraisals. Imagine if ALL 97,000 decided to make change by just saying “no” on unreasonable compensation or assignment conditions. If we did not have state licensing there would be a clamor to get it. Remember what was stated twenty years ago? “State licensing will change everything” .

Maybe it didn’t because we didn’t MAKE it matter.

What we had already in FIRREA and state law is part of the mechanism to get us to the next level. The missing ingredient is unity. It does not mean abolishing the AMC’s or AMC laws either. Let’s look within and stop trying to reinvent the wheel with both the products and the process. We are miners of fool’s gold until we make real change happen from within, which while not easy is the only way for true meaningful change.


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[Vortex] The Hall Monitor: Seasonality Should be Considered in Comp Selection

April 27, 2010 | 8:39 pm |

Guest Columnist:
Todd Huttunen

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox

Jonathan Miller


Seasonality Should be Considered in Comp Selection


April 26, 2010

The Westchester numbers for the first quarter just came out today. Even with the turbulence we’ve seen in the last couple of years, there remains a consistent trend in the median selling prices as relates to “seasonality”.

Not unlike Metro-North or Hamptons rentals, there is a “peak” and an “off peak”.

Whether the overall market is trending up or down, houses that close in the second or third quarters sell for considerably more than those that close in quarters four or one.

Appraisals done “in season” (assuming 60 days from contract to closing, these would be valuation dates in the six months between February 1 and July 31) should rely, if possible, on sales that closed in the second and third quarters, if not from the year of the appraisal then on the prior year. Conversely, appraisals made between August 1 and January 31, or “off season”, should focus on sales from quarters four and one.

Adjustments are required for the difference in market conditions between “in season” and “off season” for single family houses in the New York metropolitan area. What those adjustments should be can be fairly easily calculated by looking at the historical data for median prices. Remarkably, in Westchester at least, the differences are pretty consistent either in upward of downward trending markets.

Check out that serpentine line on the Median Price chart – just for fun, print it out and draw a line connecting only quarters two and three to each other over the years. Then do the same to quarters four and one and watch how quickly that serpentine line straightens out into two lines with much more of a consistent trend to them.

I really don’t understand why appraisers are so stuck on this idea that only sales taking place within six months of valuation date should be used. Six month old sales can be the most misleading ones of all, insofar as market conditions are concerned.

p.s. I know I addressed this issue in a prior post but it bears repeating since it seems almost no one is paying any attention.


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[Vortex] The Hall Monitor: It’s the Land Value, Stupid

April 6, 2010 | 7:39 am |

Guest Columnist:
Todd Huttunen

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox

Jonathan Miller


In estimating the value of a house, appraisers are concerned with answering two fundamental questions.


1 – What is the value of the land, as vacant?

2 – What contribution, if any, does the existing improvement make to the underlying value of the land?

A recent study (pdf) conducted by the Lincoln Institute of Land Policy suggests that in the higher priced regions of the country, the land-to-value ratios range from 50% to 75%. In areas where “teardowns” are common, land values can actually exceed 100%, since the buyer looking to construct a new house has to add the cost of demolition to the price paid for the existing house before she can build the new one.

Although this is the reality in many parts of the New York metropolitan area, Boston, Southern California, and other regions, for a long time now banks and the appraisers who work for them have pretended otherwise. For some reason banks want to believe that the mortgages they make are on properties where the land represents between 25% and 35% of the market value and that the improvement represents the bulk of the value, 65% to 75%. Even as far back as 1985 when I started appraising and the land-to-value ratios were not as high as they are today, we were required to add a comment to our reports stating that “land values in excess of 30% of market value are common in this area,” whenever we estimated land value above that “magic number”.

Appraisers I’ve spoken to say the reason they estimate land values at say, 30 – 35% of overall value, irrespective of the fact that it may be much greater, is that they are under pressure from lenders and underwriters who won’t approve loans on properties whose land-to-value ratio is more than roughly one-third. Conventional wisdom says banks don’t want to make loans on land, so they instruct their appraisers to say the land is 30 – 35% of market value (the fact that it may really be 80 – 90% doesn’t seem to bother them, as long as the appraiser says otherwise). The reality however, based on this Land to Value Ratios study from the Lincoln Institute of Land Policy, is that in many of the country’s higher priced locations, it is the land which comprises 50% to 75% or more of the value of the property.

This is important for a couple of reasons, one of which is the fact that appraisal forms are geared toward the notion that most of the value is in the improvement, and not the land. The adjustment grid, wherein the appraiser compares the subject property to the comparable sales, gives short shrift to factors relating to the land value and focuses instead on the improvements such as square footage of the house, number of bedrooms and baths, condition, and on the amenities such as fireplaces, patios and pools. Most of the dollar adjustments appraisers make are for differences in the improvements and amenities. But if 75% of the value is in the land, then why are we bothering to make an adjustment for the fact that one property has a fireplace and the other does not? Shouldn’t the focus be on factors relating to the land instead? These would include site size, shape, views, elevations, topography, frontage, etc.

Appraisers have been subject to scrutiny in recent years, given their role in the mortgage lending process, and some have been implicated for their unethical participation in the sub-prime debacle. I believe most appraisers are ethical, professional, and serious about the work they do. But I do think it’s time to recognize reality when it comes to the allocation of value between land and improvements. If the land value represents 50% or 75% or 100% of the value of the property, as it does in many parts of the country, then appraisers have an obligation to their clients to say so in their reports. And if that means the appraisal form itself needs to be redesigned to reflect the market as it is now, and not as it was in 1930, so be it.

Editor’s note: I find it amazing how so few consumers realize that changes in value during a period like we just went through is in the land, not the building (improvements) – jjm.


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[Vortex] Palumbo on USPAP: Dazed and Confused, Price versus Value

February 13, 2010 | 11:49 pm |

palumbo-on-uspap Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller

The other day I observed a “Valuation Service” which looked and smelled like an appraisal. Problem is the appraiser did it by accident while labeling it an “Appraiser Price Opinion”.

Ethics: as stated in the “Ethics Rule of the 2010-2011 USPAP:”

“An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics. An appraiser must comply with USPAP when obligated by law or regulation, or by agreement with the client or intended users. In addition to these requirements, an individual should comply any time that individual represents that he or she is performing the service as an appraiser”.

The “Appraiser Price Opinion” is labeled as a price opinion, which appraisers CAN DO as part of “appraisal practice” provided it is labeled properly and the appraiser does not mix the terminology use appraisal techniques and call them something else. The appraiser has not adhered to the Ethics Rule, specifically Conduct: See AO-21 page A-69 line 176. This AO demonstrates how the appraiser has ignored definitions that MUST be adhered to when completing “a service as part of appraisal practice”. Those definitions ignored are: price, value and appraisal.

The reason appraisers have not done “price” in the past few 25 years is that they are not price experts, they are value experts.

The appraiser has indicated this product is a “A Price Opinion” yet: The report is labeled “Desktop Restricted Use Report” which is nomenclature reserved for the minimum written format for an “appraisal” (in part). On the certification page it states “This is a Summary Appraisal report”; an appraisal cannot be both; it must be one or the other. The report seems to conform to a Restricted Use Appraisal report but is missing the important disclosure: (SR 2-2 ( c ) (i) which states “The content of a Restricted Use Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum….state a prominent use restriction that limits use of the report to the client and warns that the appraiser’s opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiser’s workfile”. Further, I have material knowledge it had two different intended users….a taboo for a Restricted Use Appraisal Report.

The rest of the issues;

  • The form concludes “Value Opinion” and “transaction” is noted as: “Market Value” and it concludes a “Highest and Best Use, which is a term relative to a market value appraisal, not “a price opinion”. There is no proof source other than “because it conforms to zoning the highest and best use is as is”.
  • The certification refers to “approaches to value” and states they are used “when appraising….”
  • The words value opinion appear three (3) times the word value appears six (6) times the words appraisal report appears three (3) times, and the word appraisal appears (1) once.
  • Adjustments to the sales are made and explained in the narrative as if the report were an appraisal.
  • The use is stated for a lending transaction: the use was not for lending but to determine value to list and sell the home.
  • The Scope of Work mirrors the scope of a desktop appraisal and the scope contains a section stating the “the appraiser relied on data provided by a qualified professional surveyor”…which would be considered significant professional assistance. The certification in the report states” A “qualified professional property surveyor” (AKA uncle Jim with his Canon powershot) not a real property appraiser) provided the appraiser with a “complete” description of the subject (including its improvement(s), site, and surrounding area) to assist in providing relevant geographic market data, conditions and insight. Other than this observational assistance, no significant real property appraisal assistance was provided to the person signing this certification. The Comment to SR 2-3 states “Comment: The names of individuals providing significant real property appraisal assistance who do not sign a certification must be stated in the certification. It is not required that the description of their assistance be contained in the certification, but disclosure of their assistance is required in accordance with Standards Rule 2-2(a), (b), or (c)(vii), as applicable. Is the word surveyor accurate?

The overall contradictions in this assignment lead one to believe that 1) the appraiser is not competent to complete a price opinion because they do not understand the difference between value and price (Competency is required for ALL VALUATION SERVICES) 2) the appraiser is not competent to complete an appraisal if they label the reporting format in two different ways AND fail to provide the appropriate disclosures on the Restricted Use Appraisal Report. This result confuses the user and harms the public.

I am all for finding ways to cut costs and streamline….I get it. I am also a realist and I understand the pressures the appraisers are under. Here is the thing: this appraiser ended up doing an “appraisal” like it or not at one third the cost of the “other kind” of appraisal they may do on a different day…..in effect creating a market and an expectation that the Holy Grail exists and at a much cheaper cost than we all thought.

I am dazed and confused as to why the world wants to reinvent the wheel (appraisal) in light of the recent economic crisis related to real estate. We have reduced scope appraisals on minimum written formats but we have to consider the uses of these types of services and educate those that seek cheaper, better, faster. I am more dazed and confused why an appraiser would take on this assignment and give away the store. Maybe it is a going out of business sale……………..


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[Vortex] Palumbo on USPAP: Transparency, It’s For Your Protection

January 7, 2010 | 11:21 pm |

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Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller

2010-2011 USPAP changes: the need for transparency: it’s for your protection.

Over the past  2 years the “new world” has warranted many changes in the development and reporting of a value opinion:  clarity, specificity, accuracy….among other things.

In 2010-2011 add  “enhanced transparency “.  Like everything else in life that might seem painful at first, but is good in the end, this is the same premise here:  “it’s for your own good”.

Before we get to the “why” of this Ethics Rule change let’s take a summarize look at the other changes from the 2010-2011  issue of USPAP: 

  • Definition of “Signature
  • Definition of “Jurisdictional Exception
  • Definition of “Assignment
  • The ETHICS RULE
  • The COMPETENCY RULE
  • The JURISDICTIONAL EXCEPTION RULE
  • STANDARD 3, Appraisal Review, Development and Reporting

Definitions changes are usually the result of the need for additional clarity as a result of words being misused or misunderstood.  In the real estate community, the use of words with presumed meaning, improper or not, is pervasive. Remember the Board only defines words that have different meaning than they do in the standard English dictionary.   The changes to the definitions in the 2010-2011 USPAP are straight forward:  the comment under the definition of “signature” was deleted and new language was relocated to the Ethics Rule, whereby the responsibility of managing one’s signature is discussed (even allowing someone else to sign for you).  The definition of “assignment” was enhanced to specify that it means both the agreement to provide…… and the service itself.  “Jurisdictional Exception” was redefined to reflect that parts of USPAP may be voided when the law or regulation  precludes compliance rather than the law being seen as “contrary” to USPAP.   As such, the JER was re-written in a clear concise way including 4 specific exhortations required by the appraiser when invoking the JER.  This “four-point requirement”  forces one to not only know the law or regulation but cite then and then examine and report the specifics of what  part of USPAP that needs to be voided.  The change to the JER is well done and makes what was a complicated issue, very clear and straight-forward.   The Competency  Rule was rewritten and divided into three sections: being competent, acquiring competency, and lacking competency.   Basically, Competency can be can still be obtained during and assignment, providing the PRIOR disclosure was made to the client as well as the written steps taken to become competent are contained  in the report.   Standard 3,  one of two standards that contain development AND reporting wrapped in one, was expanded and rewritten to meet the practical needs of current practices. Specifically Standard 3 was  expanded to discuss the development and reporting where the reviewer is providing alternate value conclusions including the reporting requirements, including discussion of competence, diligence and scope of work.    

Last but not least, there is a change to the Ethics Rule (as written in the 2010-2011 USPAP)  

If known prior to accepting an assignment, and/or if discovered at any time during the assignment,  an appraiser must disclose to the client, and in the subsequent report certification:

any current or prospective interest in the subject property or parties involved; and

any services regarding the subject property performed by the appraiser within the three year period immediately preceding acceptance of the assignment, as an appraiser or in any other capacity.

Comment: Disclosing the fact that the appraiser has previously appraised the property is permitted  except in the case when an appraiser has agreed with the client to keep the mere occurrence of a  prior assignment confidential. If an appraiser has agreed with a client not to disclose that he or she  has appraised a property, the appraiser must decline all subsequent assignments that fall within the  three year period.

At first glance, this would seem overly intrusive and overkill.  There are certainly arguments for and against it, like any changes. A change like this  is best viewed in the context of today’s real estate world.  A world in which fraud, bias and conflict of interest have become the “flavor of the day”.  And like any change there are always several questions.  This time there were so many questions that the Board created and devoted an entire  Q & A to respond.  This Q and A (April 2009) is also included in the 2010-2011 USPAP Student Manual…a first for the Foundation to include a Q & A in student material.   Rather than address those here, one would greatly benefit from the download of the Q &  A.   I feel it is best to dig a little deeper here.  Note the careful wording by the board… “or in any capacity”…which could mean…that you cleaned the windows…or cut the lawn or even painted the improvements.  While none of these things constitutes “valuation”, they do imply a relationship, or knowledge of the property….and indication that you knew “something”.   Question is how much and will there be another service down the road?  Sometimes the mere perception of a conflict or bias is enough to give one reason to doubt that the appraiser can be objective, independent and impartial.  Until 2010 year it was not a requirement to notify a potential client that the appraiser had a current or prospective interest in the property or parties involved, but it  was a requirement  to indicate that in the certification AFTER the assignment was delivered.  It seems that where there was no mechanism to ensure transparency and objectivity, there is no a sure definitive way to say to a potential client:  “I have been involved with the property…in the following manner_______ and I feel I can be objective in solving the appraisal problem you seek a solution for”.  “I just need you to know up front” .  Of course this could lead those paranoid clients to engage another appraiser, but if not the appraiser will be on record should something strange arise in the future.  Either way, this is the new world and disclosure like this is in-line with all the written disclaimers I see flying around in the appraisal world.     

So as you digest these changes and there are more ( we have just reviewed the major ones here)  think about all those things in life that you felt where, unfair, wrong or just plain nonsense. Think about how many of them later in life turned out to be for your own good.   

Happy New (transparency) Year


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[New Blog] Commercial Grade Goes Solo

December 1, 2009 | 1:13 am |

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For the past several years, John Cicero, my partner in our commercial appraisal venture Miller Cicero (hands down the best commercial appraisal firm in the NYC metro area), has been laboring in fits and starts to convey his views on commercial real estate valuation in the public domain.

Largely because Miller Cicero is humming on all cylinders…

At first John’s efforts were a regular column on my former Soapbox Blog called Commercial Grade which has been merged into a stand alone blog called, surprisingly, Commercial Grade. when he revamped the Miller Cicero corporate web site.

His latest is a post on commercial rent control. Check out the blog and check it often.


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[Vortex] Palumbo on USPAP: It’s OK To Be Bored…Just Pay A Little Attention!

September 13, 2009 | 8:39 pm | |

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Guest Appraiser Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions here. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller

I received a call the other day from an appraiser who had recently completed an appraisal for my organization. The file had gone through “review” and there were no “hitches”. The appraiser was calling only to ask me some questions about my “suggestions” regarding some of the redundant and unnecessary commentary in the report, including some technically incorrect labeling. He was very polite in seeking some guidance, and we chatted for 25 minutes or so. I said “if time is money, I think I can save you some”. He was eager to engage me in this discussion, probably because it had nothing to do with the appraisal he submitted but more because he said he was always looking to streamline the process to be more productive. He recognized my name from both working with us in the past as well as from an article I had written this year for an industry magazine so he was aware of the potential for me to quote USPAP which, of course, I will ONLY do if absolutely necessary. Anyway, I started to tell him about the aggregate changes that have taken place over the several years and some of the retired terms and concepts. His reply was “gee I get so bored in that USPAP class it is hard to absorb anything”. “Yes”. I said, “I understand”. “ Imagine how difficult it is for me to present what has a reputation for being boring”. “too many changes” he said…”I cannot keep up”. Again I said, “I understand”.

Imagine what I go through…. It’s mandatory for me to understand that stuff; being bored is not an option when you are a speaker or instructor ”. “Let me give you some tips” I said: “ USPAP changes every two years and those changes will always effective occur at the beginning (January) of the third year”. “The reason for the changes are because appraisers and users of appraisal services ask questions, raise new issues, revisit old issues under new circumstances or because the Standards Board observes something as not applicable, no longer meaningful or something new as pertinent and topical”. USPAP is a working document an evolutionary doctrine that will change with the needs of the business. All you need to do is pick up a few past issues and look inside. Hindsight will really be 20/20 because looking backwards will reveal what was needed most of the time. Along the way the ASB will provide public exposure drafts (with specific rationale) and obtain public comment. Once changes are decided the summary of changes will be made available a few months prior to implementation and when the new edition is published there are a few pages dedicated to what the changes are. Other professions have to deal with similar issues as it relates to CE, changes in laws or regulations. While too much change can be cited as confusing and time consuming it is arguable that not changing at all can be considered detrimental. One cannot argue that today’s issues are different than those from five or ten years ago. Change is a scary word for most people and that is part of the challenge.

Let’s be fair here, being bored in the classroom is not exclusive to USPAP. I took some pretty boring classes myself during the past 43 years: college courses, appraisal courses, on-line courses. “Boring” can also be an instructor attribute and one can suffer through some tough classes even if the material commends excitement. I remember my Economics class at the University of Maryland… 8 AM or something…with 100 or so students. Boring stuff for an 18 year old but I had a great animated instructor who did his best to make the supply curve interesting. I am glad he did because despite my boredom, I did learn something…and I did not have to sit in the front row and take 10 pages of notes each class. I also had history teacher in high school, who despite being boring herself, DID manage to successfully explain the nuts and bolts of the Confederacy. What’s not boring? It really boils down what you absorb and IF you want to pay attention. In today’s world we go to the movies with IPODS in our ears and we text while we watch. I see the same in classes: newspapers, laptops and magazines. It seems as if we set ourselves up for minimum absorption capabilities.

Getting back to my appraiser friend from the other day. He was very appreciative that we were able to trim his “canned” addendum from 2.5 pages to 1 page. We eliminated terms from his report that are no longer considered up to date or not accurate (limited appraisal, Departure Provision/Rule) and crafted an appropriate “2009” type reconciliation. “WOW”, “I guess really need to pay a little attention because I missed all this stuff! “Yes”, I said “but imagine what you could absorb if you wanted to.”


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[Vortex] The Hall Monitor: In Their Own Words

August 3, 2009 | 11:12 am |

Guest Appraiser Columnist:
Todd Huttunen

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers readers tongue-in-groove insight on appraisal and housing issues. View his earlier work on Soapbox.
Jonathan Miller



Not unlike the wording found in real estate contracts prepared by lawyers – “The party of the first part…” etc., — fully 95% of what you read in a real estate appraisal consists of boilerplate language which is the same in every report. This is standard procedure, and there is absolutely nothing wrong with it. One would assume, however, that since the boilerplate language is only actually typed out one time and then copied verbatim ad infinitum, that the grammar and spelling would be correct. Now I realize that I am more sensitive to these things than most people (I’ve agonized for years over whether or not to use a hyphen with the phrase “anal-retentive”). But with tools like Spell Check that make it truly difficult to butcher the English language, one can only look on with “shock and awe” at the following examples of boilerplate, taken from actual appraisals prepared by licensed appraisers. As I was typing these comments my keyboard was practically smoking from all the mistakes, but — I assure you — every keystroke is a faithful reproduction of what was written in the appraisals.

THE EXTEND OF THE APPRAISERS INVESTIGATION INCLUDED (1) REVIEW OF PUBLISHED RECORD DATA FRO THE SUBJECT PROPERTY, WHERE AVAILABLE; (2) INTERIOR AND EXTERIOR INSPECTION OF THE PROPERTY IMPROVEMENTS AND INSPECTION OF THE SITE, UNLESS OTHERWISE STATED IN THE IS REPORT (3) INSPECTION OF THE NEIGHBORHOOD AND ANALYSIS OF REGIONAL CHARACTERISTICS; (4) RESEARCH OF SUBSCRIPTION SALES DATA, PUBLIC RECORDS AND OTHER PUBLISHED DATA SOURCES AND CURRENT LISTINGS; (5) ANALYSIS OF THE SELECTION COMPARABLE SALES AND LISTINGS INCLUDED VERIFICATION OF THE REPORTED DATA; (6) CONSIDERATION AND ANALYSIS OF THE HIGHEST AND BEST USE OF THE SUBJECT SITE; (7) CONSIDERATION AND APPLICATION OF THE APPLICABLE APPROACHES TO VALUE (ALL THREE APPROACHES TO VALUE WERE CONSIDERED AND USED EXCEPT WHERE NOT APPLICABLE OF OTHERWISE NOTED); (8) FINAL RECONCILIATION OF THE DATA TO ARRIVE AT THE ESTIMATED MARKET VALUE.

THERE APPEARS TO BE ADEQUATE FINANCING IN THE SUBJECT AREA AT COMPETITIVE RATHES AND TERMS. BASED ON ANALYSIS OF PREDOMINANT MARKET PATTERSN, EXPOSURE TIME FOR THE SUBJECT IS APPROXIMATELY 30 TO 180 DAYS WHEN PROPERLY MARKETED.

APPRAISER HAS REVIEWED THE CONTRACT, HOWEVER SINCE THE APPRAISER IS NOT AN LAWYER HE HAS NOT ANALYZE THE CONTRACTS.

WINDOWS WERE NOTED AT THE TIME OF THE INSPECTION.

THESE TOWNHOUSES ARE ON 4 LEVELS WHEN YOU INCLUDE THE TANDEM GARAGES. THEY ARE FOR THE MOST PART NARROW. CLIMBING THESE UNITS DOES APPEAR TO HAVE AN NEGATIVE IMPACT. THE INSTALLATION OF ELEVATORS APPEARS TO HAVE A BIG POSITIVE IMPACT. MOST LISTINGS WITHIN THIS COMPLEX HAVE COMMENTS THAT ELEVATORS CAN BE INSTALLED.

This next description of market conditions follows the appraiser’s checking boxes on the appraisal form indicating property values are declining, there is an over supply of homes on the market, and marketing time is over six months:

MLS RESEARCH INDICATES AN ACTIVE RESALE MARKET WITH A NORMAL SUPPLY OF AVAILABLE PROPERTIES. LOCAL MARKET CONDITIONS INDICATE MANY HOMES SELLING AT OR ABOVE THE LISTED ASKING PRICE. MARKETING TIMES ON AVERAGE ARE LESS THAN 90 DAYS FOR PROPERLY PRICED HOMES IN GOOD CONDITION.

COSMETIC REPAIRS ARE NOT REQUIRED; HOWEVER, THEY ARE TO BE CONSIDERED IN THE OVERALL CONDITION RATING AND VALUATION OF THE PROPERTY, WHICH THE APPRAISER VIEWED THAT THERE WAS NORMAL DEFERRED MAINTENANCE AND DID NOT RISE TO THE LEVEL OF A REQUIRED REPAIR.

My personal favorites are these last two, both of which were written by a self-proclaimed Notre Dame alumnus.

MARKET CONDITIONS ARE CURRENTLY APPEAR TO DECLINING AND FOR THE GENERAL MARKETING AREA SINGLE FAMILY DWELLINGS. THE GENERAL MARKET FOR LOANS APPEAR TO BE DIFFICULT TO OBTAIN RATES AT THE TIME OF THE INSPECTION.

MARKET CONDITIONS ARE CURRENTLY APPEAR TO HAVE SOFTENED AND FOR THE GENERAL MARKETING AREA CONDO’S OF REAL ESTATE SELLING AT A STABLE RATE, THE GENERAL MARKET FOR LOANS APPEAR TO BE DIFFICULT TO OBTAIN RATES AT THE TIME OF THE INSPECTION.

I wrote these selections in all caps because that’s how their authors wrote them. Perhaps it’s just a coincidence that the worst writing I found was from appraisals typed entirely in capital letters, but I don’t think so.

My wife Carol, an executive recruiter, suggested that, given these phrasings, the absolutely perfect candidate for a career in real estate appraisal would seem to be none other than Sarah Palin herself. If you saw William Shatner reading her “tweets” on the Tonight Show the other night, I’m sure you’d agree.


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[Vortex] Palumbo on USPAP: The Industry Reality And The Unenforceable (Truth) Law

July 28, 2009 | 12:16 am | |

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Guest Appraiser Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions here. View his earlier handiwork on Soapbox and his published article in the Employee Relocation Council’s Mobility Magazine.
…Jonathan Miller

There are many debatable topics in the appraisal world and within USPAP. There is one that is not really a USPAP issue but an issue of law….though it does draw some parallels in that some “interpret” things differently. To me there is only one correct interpretation which boils down to common sense. This time around I thought I would step outside of USPAP issue and a practical specific relationship to a valuation assignment and talk about something that has been “bugging me” over the past several years. I was reminded of this issue after reviewing the Appraisal Standards Board Q and A for Feb 2009. I can also recall debating this issue with a former supervisor of mine, who while extremely intelligent and knowledgeable in appraisal and (other matters) seemed to take the find any crevice in order to disagree with me. It got me so hot that I got a friend of mine (now unfortunately and untimely deceased) on the NJ State RE Appraisal Board to write me an e-mail explaining how my “view” was correct in fact and law…which I sent to multiple parties who “disagreed” with my view and the topic was never discussed again. Here is the issue as taken from the Q and A:

Must a Review Appraiser be licensed or certified in the state jurisdiction where the subject property is located?

Question:

Does a review appraiser have to be licensed or certified in the state where the subject property is located?

Response:

Appraiser credentialing requirements are not covered by USPAP. However, since this question is often asked, we have provided the following response from the Appraisal Subcommittee (ASC):

“Included in ASC Policy Statement 5 is the ASC’s position on when an out-of-state review appraiser must obtain a credential for purposes of performing a technical review. The ASC has concluded that for federally related transactions, so long as the review appraiser does not perform the technical review in the state within which the property is located, and so long as the review appraiser is certified or licensed by another state, that appraiser need not be registered for temporary practice or otherwise credentialed by the state agency where the subject property is located. With that said, state law may be more restrictive than federal law and may require a temporary practice permit or other credential. It is therefore imperative to consult with the state where the property is located.”

(ASC Policy Statements may be downloaded)

It is important to point out here that the “problem” I have is with a technical review that INCLUDES as part of the scope an alternate value conclusion (= APPRAISAL) even concurrence and NOT the Standard 3 Qualitative Review.

I’ll use the info from my friend at the NJ State Board to elaborate on this using NJ as an example. NJ is mandatory state which also requires a temporary practice permit should anyone with an out of state who wants to “appraise” a property. Simply put you need a NJ APPRAISAL LICENSE OR TEMPORARY PERMIT to appraise a property here. If you are a realtor, asset manager, outsource company, AMC, and you are “reconciling VALUES” between appraisals on NJ properties YOU NEED the specific permission granted under NJ LAW. If you want to do the qualitative Standard 3 review WITHOUT a value conclusion as stated above, that is acceptable. This restriction on “appraisals” would logically extend in any states that require practice permits. I fail to see how this can be interpreted any other way yet it does all the time. Ask yourself why the states would go through the legal process of protecting consumers and then allow someone that is (legally) unqualified to value a property? It flies in the face of why licensing came about. As an example, If a Pennsylvania appraiser without a temporary practice permit does a review with an alternate value conclusion on a NJ property and the valuation is flawed loans are made based on the valuation and things fall apart; whose economy is affected? Certainly this burdens NJ more than PA? What is the difference between getting in a car driving across a state line inspecting, measuring, photographing, conducting a quality and condition survey and rendering a value opinion OR rendering a value opinion from the desk after reviewing someone else’s report? Other than a difference in scope THERE IS NO DIFFERENCE, both are appraisals. And just to be clear I am not saying that you cannot be geographically competent because you can be….. but there is a technicality in that in the license MAY be required first. The problem is that this scenario presents a very difficult enforcement task from a timing perspective. Even further, this situation is taking place all over the country with major lending institutions who see the mandated use of a state-asset-specific appraiser to be a (costly) inconvenience. Hence we are left with the truth about how unenforceable the “e-review” is from a realistic perspective. The last thing any state board has is the resources to police cross-border electronic appraisals. ( the state would have to issue the cease and desist). The only real policing is for those in the industry to recognize the issues here and do a bit of self policing and refuse the review or for the banks to set up staffing and appraiser panels to comply. I worked at a large bank that did just that and I will not deny that it was very challenging economically and from a staff efficiency point of view. It was however the right thing to do for consumer the bank and the licensed staff. Current economics have made that more difficult but not IMPOSSIBLE.

The ASC does imply some driver’s license logic above; one must have a driver’s license to drive and that simple qualification extends the license to do so in any other state without additional requirements. That is where an appraisal license and a drivers license differ: An appraiser MAY have to have a specific license rather than just “any license” whereby automatic temporary practice is granted for driving from here to California. While some states do grant reciprocity most require the application and (fee of course) so there may be a state or two with “automatic driver’s license” reciprocity but based on my research they are a very small minority.

I have also heard the argument that the law only applies to those who ARE licensed and that the layperson can do anything….because the laws and subsequent restrictions only apply to those licensed. This was a statement made to me by the President of a AMC who was trying to justify the use of “non-licensed specialists” to reconcile appraisals via review with alternate conclusions. This is the most ridiculous thing I have ever heard which brings me back to the driver’s license analogy: Do the laws apply just to the licensed drivers? No unlicensed drivers can cited as well.

Defending your position based on what you have to gain is nothing new for business. At least in the case of major lenders using out of state appraisers they have “a” license. I guess they believe in half truths or bending laws unlike those who practice valuation with indifference altogether. They probably have their share of motor vehicle moving violations The amount of hypocrisy in this industry never ceases to amaze me.


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[Vortex] Commercial Grade: A Quarter Century of Cap Rates (a commercial appraiser’s dream!)

June 15, 2009 | 6:00 am |

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Guest Appraiser Columnist:
John Cicero, MAI, CRE, FRICS

John provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. He is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, depending on what day of the week it is, one of the smartest guys I know.
…Jonathan Miller

Bob Knakal, Chairman of investment sales brokerage firm, Massey Knakal Realty Services, recently released an excellent commentary on a 25-year history of the New York City multifamily market. Using actual sales data from 1984 to the present (including cap rate data from 2005 to 2008 compiled by my firm, Miller Cicero, LLC).

In addition to examining historical cap rates and gross rent multipliers over time, the report analyzes cap rates relative to mortgage rates and the yields on 10-year T-bills. An excerpt:

From 1994 through 1999, we saw slow steady declines in cap rates, with slightly positive leverage and risk premiums within a range of 100 to 250 basis points…Throughout the 25 years of this analysis, this period was the most stable-and I attribute this stability directly to the very disciplined lending practices of debt providers.

It’s actually fascinating (at least for a commercial appraisal nerd like me!) to see how many NYC multifamily property was routinely purchased with negative leverage (i.e. at cap rates below mortgage rates. In fact the past five years has been the biggest period of negative leverage buying since the mid 1980’s. However, with the more stringent underwriting now in place, the NYC multifamily market seems poised for another (surprisingly rare) period of positive leverage.


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