Certified Appraisals, Inc. Blog

In recent months residential appraisers have come under fire from the NAHB regarding the appraisals of new construction. The NAHB claims faulty residential appraisal practices is causing builders to lose customer signed contracts due to the estimated market value stated on the appraisal are falling short of the contract price. The NAHB has stated that "flawed appraisals are killing home sales and hampering the housing recovery". 

The NAHB points to the use of "inappropriate" distressed and foreclosed sales as the major fault in the appraisal process. In today's market place there are few, if any, market areas that have not been affected by the distressed residential market conditions.  Appraisers are required to consider and possibly use distressed homes sales in the estimate of market value of a new construction, just as they would in the appraisal of an existing home.  In particular, the appraiser needs to determine the impact distressed sales/listing activity has on the subject's immediate market area. There are many residential market areas where distressed sales/listing activity is so prevalent that it becomes the marketplace. Many of these distressed market areas are "new" developments, consisting of newer constructed homes(built in the last four or five years).   

Appraisers responding to the claims of the NAHB agree that it is the responsibility of the builder to also know their market areas and to know whether or not the market supports the contract price of the new construction before starting the building process. Builders should also be aware that in a declining market, the new construction may be worth less at the end of their construction. If the builder chooses to build before doing their research, they are risking the possibility of the contract defaulting. Maybe builders should consider consulting with an appraiser prior to starting the new construction to determine current and future market conditions. There are plenty of appraisers in the field who would be happy to take on this consulting assignment.

There is no doubt that the NAHB may find appraisals of new construction that are faulty in some way. But to point the finger at the appraisal community as a cause for depressing the residential market place is nothing short of ridiculous. It appears that the NAHB is unaware of the regulations and guidelines that the appraisal community must adhere to when preparing appraisals. Further, it appears that the builders want to turn a blind eye to the actual market conditions that exist in many market areas. 

The fact of the matter is simple: builders have a product to sell and the only thing that stands in their way is the appraiser. Sorry for the inconvenience NAHB, but the appraisal community has a job and we are going to do it right.  Maybe the building community should take a long hard look at their business model and adjust to today's market conditions. The appraiser's responsibility is to their client and to continue to build confindence and trust for the appraisal community.

Many appraisers at some point during their appraisal career contemplate whether to take the road less traveled to obtain a designation from the Appraisal Institute, or from one of the other recognized appraisal organizations. Some eight years ago, I, too contemplated whether to undertake the commitment necessary to obtain an SRA designation from the Appraisal Institute. Less than five years after receiving my designation certificate from the Appraisal Institute, I am without a doubt, convinced it was one of the best appraisal business decisions I have made.

Initially, the decision revolved around the time required to take the courses necessary to meet the Appraisal Institute guidelines for SRA designation. As most appraisers will agree, this means time away from the office, and time away from the office means time away from completing appraisal work, which results in some lost income. And, of course, the classes and potential travel will cost money. At this point in the decision-making process, many non-designated appraisers stop the process and determine the cost will outweigh the benefits. But this is a flaw in the thought process. I constantly receive calls from potential clients, and when questioned on where they obtained my information, many say they found my name on the Appraisal Institute website. Many of these potential clients state they looked specifically for designated members and choose my name for just that reason. So we may lose some income and incur costs initially, but the financial benefits do eventually come.

By committing to the task of obtaining a designation, we are telling potential and existing clients as well as the public in general, that as a designated appraiser, we are going the extra distance to improve our knowledge base in order to better serve them. As a designated member, we are under more guidelines than non-designated members to act professionally and in the best interest of the public. USPAP discusses the need to promote public trust. Since becoming a designated member of the Appraisal Institute, I have raised my level of concern on how to promote public trust to a higher standard. The concept of promoting public trust and confidence is woven into my business plan and daily practice.

I need to mention that becoming a designated member does not make a designated member a superhero. We cannot tell a client that has an issue with an appraisal we completed that since we are designated, we cannot be challenged on analysis/data included in our reports. We need to recognize that earning a designation proves our commitment to the appraisal profession, but, that just like a driver's license, it can be taken away. To a certain degree, a designation is a privilege we have earned. Use it properly and you will reap the benefits.

Clearly in my practice the benefits outweigh the cost of obtaining a SRA designation; financially, ethically and without a doubt, a separation from the non-designated residential appraiser. In the long run, I am convinced that during the up and down fluctuations of the residential real estate market, potential clients that need appraisers with a solid educational background, and a commitment to raising the standards of their appraisal practice, will look for designated members from a recognized appraisal organization such as the Appraisal Institute. I see this fact constantly in my daily practice.

A few months ago, we wrote about Colorado Springs' pursuits of creating a brand. After many months of research and many dollars spent, the brand, "Live it up!," has been born. The accompanying logo depicts Pikes Peak using the colors green and purple. The purple color appeals to our local history of Pikes Peak and the "purple mountains majesty." 

The team's goal was to come up with a slogan encompassing something true, something new, and something to differentiate Colorado Springs from its competitors. The hope for the brand and logo is to help improve the image of Colorado Springs in hopes of attracting businesses to relocate here. But many others will benefit from a successful brand, including local business and the local economy as a whole. The EDC will use the brand to attract businesses, the local convention center and visitors bureau will use "Live it up!" in all of its advertising. They even have a website set up for this purpose: liveitupcs.com.

However diligently those assigned to this project worked, whether or not their efforts created a success depends on who you talk to. The end result does not seem to have had a favorable outcome, at least with the local design and marketing community. Some do not feel the brand and logo encompasses what Colorado Springs is about. They do agree with the qualitites that the team identified about the Springs, such as vibrant, rugged, and exceptional. In any situation where many areas need to be satisfied, there will certainly be some backlash. But the local marketing community feel that the team could have come up with something better. One argument against the brand/logo is that "Live it up!" is a cliche that is used in other cities and Colorado Springs needs something that is unique to our city.

The design firm, which considered over 100 taglines and three potential logos, defends their process. The brand and logo they chose were clearly the winners, after having tested them with the local community. They needed to choose a logo that would work for a vast variety of community members; families, businesses, tourists, etc. Whether or not "Live it up!" will work for Colorado Springs may depend upon how it is launched into the community. However, the design firm is willing to take another look at the brand and logo to see if it may be improved upon. Maybe you can have a second chance to make a first impression.

Changes are once again being made in the appraisal industry. Most recently, in hopes of enhancing appraisal data quality and consistency, Fannie Mae and Freddie Mac have created the Uniform Appraisal Dataset (UAD). Under the direction of the Federal Housing Finance Agency, the UAD will attempt to promote the collection of electronic appraisal data through what's called the UCDP(Uniform Collateral Data Portal). The appraisal report forms must now be in compliance with the new UAD for conventional mortgage loans sold to Freddie Mac and Fannie Mae and had an effective date (date of inspection) of September 1, 2011. The UAD will be a standard form for the VA and FHA as of January 1, 2012.

The forms included are as follows:

• Uniform Residential Appraisal Report (Freddie Mac Form 70)
• Individual Condominium Unit Appraisal Report (Freddie Mac Form 465)
• Exterior-Only Inspection Individual Condominium Unit Appraisal Report (Freddie Mac Form 466)
• Exterior-Only Inspection Residential Appraiser Report (Freddie Mac Form 2055)

The UAD was put in place to standardize certain information to show consistency in appraisal reports, regardless of the location of the property. The UAD will also standardize certain information such as variations in the formatting of numbers, dates and measures; inconsistent terminology for the same information; and inconsistent uses of certain descriptions such as the quality of construction being described.

The following is a list of UAD standardizations:

• Standardized formats for fields that include dates, values, etc.
• Allowable values from a list of choices provided for certain fields.
• Standardized abbreviations to allow more information to fit on printed appraisal forms.
• Standardized ratings and definitions for the "Condition" and "Quality" of the property and "Updated/Remodeled" status.

With these standardizations in place, there seems to be positive improvement on the side of the lenders: They will have a better understanding of appraisal definitions as well as more confidence in the quality of the appraisal, and there will be more consistency and efficiency in appraisal reviews. This will likely streamline the loan process, making less room for errors and questions regarding content of the appraisals.

This may be a positive move for the lenders, but what does it mean for appraisers? We need to stay tuned in the coming months and see how it all plays out.

The Mayor of Colorado Springs has recently hired a task force to brainstorm the creation of a brand in an effort to improve Colorado Springs' image, both socially and economically. Individuals, companies and industries in the U.S. envision Colorado as having a cold, snowy, and harsh environment. We need to change this image and let people know what a mild climate there is here, and what is available here socially and economically. If a brand would help change our image, perhaps Colorado Springs will see more companies relocating here, thus increasing employment which would increase Colorado Springs' population, setting the city up for growth potential.

The "task" of the task force is to find out why people already live here. Residents have been questioned, as well as travelers at the Colorado Springs Airport, local historians and local economists, all in hopes of finding the essence of Colorado Springs. This research will bring the task force closer to creating first a slogan, and eventually, a brand.

"Branding" seems to have been successful in other U.S. cities; whether or not this will be the case for Colorado Springs remains to be seen. A brand would certainly not hurt the local social and economic situation, and may improve on an already good thing. It will be exciting to see what the branding task force accomplishes none the less.

The Pikes Peak region and the Colorado Springs area has much to offer with varied residential neighborhoods, beautiful scenery and plenty to do for those with or without an active lifestyle.  Nearly all areas offer something distinctive; where you end up simply depends on what you are looking for. The area boasts neighborhoods varying from open landscapes, neighborhoods set in the foothills, a vibrant downtown residential area, areas with small lots to acreage; the Colorado Springs and surrounding area offers much to choose from.

The central part of Colorado Springs includes a vibrant downtown which boasts a small "city" feel for those who enjoy walking or biking to unique restaurants and shops, while enjoying breathtaking mountain views. Many live and work right within the downtown area, where residents are also able to walk or bike to work. There are many outdoor activities within reach including two nearby parks. The Santa Fe Trail also resides just west of downtown, and can also be accessed from north and south of town. Downtown is home to the National Olympic Committee as well as museums, theater, and Colorado College.

If an older neighborhood with large homes is more your style, there is the Old Broadmoor area. Here you will find the city's zoo, which is up Cheyenne Mountain and has sprawling scenic views of the city. Also close to this neighborhood is the tourist attraction of Seven Falls, a beautiful hiking park set amidst the forest. In this well established and sought after area, you will find the Old Broadmoor Hotel, a five star hotel, which houses first class restaurants, shops, and a scenic golf course. People from all over the country stay at this luxurious hotel for vacations, weddings, and special events. Many conferences are held here as well.

For those seeking an open landscape with easy access to a plethora of shops, restaurants and movie theaters, the Powers area may be just the place. Here you will find newer neighborhoods and establishments built in the past ten years. There is also a large, first class movie theater surrounded by chain restaurants and larger stores.

The West area has an abundance of trees and wildlife, yet is still close to shops and restaurants. Old Colorado City and Manitou Springs are two neighborhoods which boast a small-town charm set in the foothills of Pikes Peak; the uniqueness of the shops and restaurants here make it a popular tourist destination. Both are close to such attractions as the Manitou Cliff Dwellings and Cave of the Winds. Hwy 24 is just to the west and will take you to many of the wonderful ski towns Colorado is known for.

The Northwest is home to the Air Force Academy, with its miles of open space as a backdrop to some of the neighborhoods in this area. Residents here enjoy seeing the flight of the T-birds before each football game and are close enough to enjoy fireworks on July 4th. Since the neighborhoods here are close to the foothills, you will find many trees and gently rolling hills. Residents have become accustomed to visiting deer and an occasional bear or bobcat. Even with all of this wildlife in your backyard, shops and restaurants are still close at hand, as well as easy access to other parts of the city and beyond.

Many young families prefer the Briargate area, with its award-winning schools and family feel. Here you will find moderate sized lots in neighborhoods close to schools with abundant trails. There are newer fitness facilities where the kids can join in their choice of sport while parents attend workout classes. Many family friendly restaurants reside here with a newer movie theater and shops.

Just by visiting, one can see that the neighborhoods of the Colorado Springs area is very diverse. Colorado Springs has continually been rated highly for being a great place to raise a family, has been voted as one of the fittest cities, and is one of six cities that can boast the best value. The area has great schools to choose from, limitless outdoor activities, entertainment, and sporting events; all with a backdrop of the beautiful Pikes Peak mountain range. Colorado Springs is also close to some of the top ski resorts in the country. It's no wonder its residents include people from all over the country; that says a lot.

Your appraisal company may or may not work with AMC's, but if you are trying to diversify your client base you should be working with at least a couple. When an AMC sends you a contract agreement package to sign, make sure you read the contract carefully before signing the agreement. In fact, it would be prudent to contact your E&O insurance company and have them review it. They will be able to give you expert advise on the legitimacy of the contract. Our office has contacted our E&O insurance company on numerous appraiser contract agreements and have been supplied with detailed analysis of these agreements. Though the E&O insurance company may not advise the appraiser as to whether or not to sign the agreement, on occasion they have mentioned that a specific agreement may put the appraiser in a precarious position. The decision is ultimately the appraiser's, but it is good to know we have a point of reference before signing on the dotted line.

Signer beware. 

Residential appraisal clients have slowly but steadily been requiring appraisers to include more and more data/information in our appraisal reports without allowing the appraiser to negotiate their fee. This is a phenomenon known as "data creep."

For example, how many of your clients require the cost approach?  The cost approach, though useful with the appraisals of new construction, is not required by most lenders.  Though the option to prepare the cost approach still must be considered by the appraiser, the preparation of the is approach does consists of time and the accessibility to reliable data.  Time is money, and the data is not free.  Marshall and Swift is not a free publication.  How about the requirement to disclose in the appraisal the parameters utilized in the comparable search? How about the inclusion of an aerial photo in the appraisal, or the inclusion of the engagement letter in the appraisal report? Why does one client pay the same fee as another client, but one does not require the cost approach, or the inclusion of the comparable search parameters, or an aerial photo?

Most appraisers strive to continue to improve the quality of their appraisal work.  To prepare a well thought out and informative work product is at the front of our minds when we are prepare an appraisal.  But the data creep phenomenon will continue to be pushed by many clients until the appraisal industry demands additional fees for the requirement of additional information in our appraisal reports. 

As real estate professionals we are constantly aware of the scrutiny our industry is under and the continued uncertainty of the marketplace. Appraisers are not to be influenced by members involved in a transaction due to regulations, but are entitled to accept comparable information from homeowners and real estate agents. 

For example, when doing a relocation appraisal the appraiser may be supplied comparable information from the homeowner, which the homeowner may have received from real estate agents or other appraisers. The appraiser should consider these when choosing comparables in the relocation appraisal process.

During the appraisal process of a sales transaction, the estimated market value often falls below the sales price stated in the sales contract. In situations when the estimated market value may be an issue, most experienced real estate agents should be aware that there may be value issues prior to the appraiser beginning the appraisal process. In these situations, if the agent has comparable information available, the appraiser is entitled to accept that information without being in violation of appraisal guidelines, as long as the appraiser is not being influenced or pressured.

In a VA sales transaction, if the appraiser's estimated market value falls below the sales price, the VA requires the appraiser to contact the real estate professional involved in the sales transaction and offer the opportunity to supply comparable information that he or she believes is appropriate.  In these situations, the appraiser must consider this additional comparable information, if supplied, but are not required to utilize the additional information if it is the appraiser's opinion that the additional comparables will not have an affect on the estimated market value or that the additional information is not appropriate for the particular appraisal. 

There will be many instances where the estimated market value on an appraisal will be an issue.  In our appraisal process, we should remain open to the offering of comparable information from other sources, as long as we stay hard and true to our guidelines of not be influenced and/or pressured.  The appraiser may find that they have overlooked a legitimate comparable sale or listing that could affect the estimated market value stated in our appraisal.