Appraising Our Future

As I write this my heart is sinking looking out the front window.? Why can’t it just snow for a few days in December and then disappear?? I am toying with the idea of purchasing rechargeable heated gloves but until then at least I can count on a glove compartment filled to the brim with HotHands.? Negative 10 degrees is no way to start a work week!? I am also crossing my fingers that both Punxsutawney Phil and Jerome Powell fail to see their shadows next month.?

With the insanely low inventory, which translates into insanely low amounts of market data, I have experienced an uptick of Agents contacting me simply to discuss their CMAs.? A CMA or competitive market analysis is an excellent route and one I will often suggest to homeowners inquiring about listing appraisals. Unlike appraisers many agents in the area have the opportunity to view the interiors of competing homes and may even find themselves the listing agent for recent sales/listings in the subject's market. In other words, agents have a closer insight into the minds of the typical buyer as they have more direct contact with the public then we (appraisers) do. ?

I often define real estate appraising as valuing human behavior. Essentially, we are analyzing the market and evaluating participants’ behavior within a market subset in order to determine where in that analysis a particular property would most likely fall.? It is one of the reasons why I have appreciated the insight provided by agents over the years.

There are times when a unique property can be quite challenging for an agent to come up with a list price.? And even in a period of high turnover, there may simply not be enough data with which to complete an accurate CMA.? I had one agent contact me a few months ago wanting to discuss my thoughts on a newer home with above average bath count located in an older neighborhood.? There is no universal number for contributory value.? According to Investopedia Contributory Value “refers to?the amount by which a single component of an asset influences its total value as a whole. Contributory value is commonly used in the real estate industry to show how a single property feature affects the property's entire value.”

For example, a bathroom might be worth $10,000 in one neighborhood and $20,000 in another.? There are ways to calculate the values of various components, but most agents are a little more energetic than their appraiser counterparts and may not be entirely enthusiastic when it comes to the sometimes lengthy process of quantification.? So, I provided this agent with different non math ways of looking at market data in order to estimate the best list price.?

Another agent contacted me with a question about a very unique property in Ozaukee County.? The property is located closer to downtown with some commercial views and above average square footage.? She had expanded her search a number of years and still could not locate any like sales.? She called to ask how an appraiser would complete an assignment without market data.? We discussed the Sales, Cost and Income Approaches and this at least gave her a starting point.

A third agent called having difficulty with her CMA for a potential listing in Waukesha.? Her seller had rejected the original CMA she provided, claiming it was too low.? Once provided the address, I understood her difficulty.? The home is located in a smaller neighborhood of newer construction consisting of only a few streets, surrounded by commercial with older construction on the other side of the commercial.? These types of neighborhoods can be particularly challenging to price and even appraise.? I explained to the agent the differences between the neighborhood in question and surrounding area.? She thanked me and added; “I guess the seller was right.? It does sound like his house might be worth more.” In none of these scenarios did I provide the agent with an opinion of value.? Rather we discussed methods, information and data resources.?

Admittedly, Appraisers can be a rather reclusive bunch.? It may be one of the reasons why the public is not exactly certain as to our role in the financial process.? This ambiguity can further be seen with respect to other professionals in our industry.? I have had many agents ask if it is ok to meet me at the house.? I understand their concern in not wanting the appraiser to connect an introduction of information with an erroneous conjecture of undue influence.? I, on the other hand, welcome these little visits.? Not only do I meet other people in the industry but I also get to ask the agent face to face about the transaction gaining additional insight.? Appraisers typically place the most weight on closed sales; talking to agents gives me additional understanding as to what is happening at present.? This is particularly important as we are appraising per the effective date, which in most mortgage transactions is typically the date of the onsite visit.

I have been noticing fewer for sale by owners of late which most likely corelates with the supply issue but interesting all the same.? While a prelisting appraisal does not make sense for every seller, it does offer sellers additional information during stressful times.? And as anyone who has sold real estate can tell you, selling your house can be quite stressful.? For most people, the house is their greatest hard asset.? A prelisting appraisal can also help a homeowner set a realistic price.? Our home is our castle after all.? It is where our memories are made.? It is where we relax after a hard day, laugh with loved ones and make life-long friendships with our neighbors.? Sometimes it can be difficult to separate the structure from the sentiment.

Deciding to downsize a number of years ago I contacted an agent friend of mine and asked her to list my house. ?I spent an entire weekend getting rid of clutter and deep cleaning every room for MLS pictures.? I thought my home looked fabulous!? My agent friend did a once over the day before the photographer was scheduled and that is when I realized just how incredibly meticulous she can be.? Rather than praise me for the wonderful job I did cleaning, she peered into each room tsk tsking.? I listened to her suggestions and the house sold for full price in a matter of days!? A good agent can make all the difference in the world.?

And like a good agent (and yes, I heard the jingle??); a good appraiser will also deliver on service & quality.? Unfortunately, this does not always translate well in our industry as an ever-increasing pressure to automate the valuation process fails to take into consideration expertise and even at times safety.

At present a college degree is a prerequisite to becoming a Certified Residential or Certified General Appraiser.? Course work, exams, and training are required as well as applicable report experience hours depending upon the license.? Additionally, many lending clients require at least 5 years of experience in order to become an approved vendor as well as background checks.

Unfortunately, this does not seem to be the case when it comes to Property Data Collectors for Hybrid Reports.? Some AMC’s (Appraisal Management Companies) send unlicensed persons to collect data on a property.? Often times these individuals have limited oversight, in some cases limited experience, no liability, and do not require background checks.? And this difference between Licensed Professional and Data Collector is not always disclosed to the homeowner nor to the agent.?

The National Association of Realtors completed a survey in May of 2023 with the intention of gaining insight into its member’s perceptions on Data Collectors.? According to the survey 76% of contributors thought the quality of data in the appraisal reports was lower than data collected by the appraisers themselves.? 30% reported that the Data Collector had given them the impression that they were the appraiser and 51% of participants expressed safety concerns.? As an appraiser this survey created a bit of apprehension.?? But as a homeowner with children, I feel a little less than comfortable and will definitely be requiring reassurance from any future lender. ??

A Hybrid Appraisal is one in which a 3rd party inspects the property and then transmits collected data to the appraiser to complete the report.? In theory, this type of appraisal is supposed to reduce turn time and costs.? I know of quite a few appraisers who complete these assignments and maybe they are working with competent AMC’s but my experience with these assignments has not exactly given me confidence.? On one hybrid assignment the Property Collector marked the condition as ‘good’ with photos showing mold under the kitchen sink and no commentary.? The assessor listed the property as a three-family home built in the 1930’s.? The front photo from the Property Collector showed a smaller ranch home appearing to have been built in the mid 1950’s.? The interior photos were difficult to make out as they only showed partial views of the rooms.? On another hybrid assignment the building sketch provided by the AMC reported a difference in square footage of at least 200 feet from what both the MLS and assessor information stated, which would have resulted in one unhappy real estate agent had I completed the report with the information provided.

Safety is another concern with unvetted Property Collectors.? It was reported last year that one of the largest AMC’s hired a felon in this position.? The DOJ named the individual in a press release dated November 02, 2022 announcing the man had pled guilty to his role in a $1.2 million armed robbery.? Imagine being a listing agent and finding out you gave a lockbox code to this person!?

Another issue when it comes to completing hybrid appraisals is Appraiser Bias.? Now when the stories of appraisal bias started to become part of the daily discussion, I will admit to being a bit incensed.? All of sudden homeowners were questioning my professionalism simply because of what was being reported in the news.? Yes, there are bad apples in every profession, but that does not mean that every appraiser is bad.? Trying to keep an open mind, I listened to homeowner’s concerns, completed courses on appraisal bias and read the Biden Administration’s PAVE report.? This really opened my eyes and I started to understand why such concerns exist.?

And then I thought about the Hybrid reports.? If the Data Collectors do not need to be licensed, chances are they also do not need to be aware of even the perception of bias; which means they are probably not taking courses in appraisal bias.? How do these inherent biases effect the way in which this unaccountable person is collecting the data he/she/they send me?? Are they completing these assignments in a similar manner in every market?? And if they are misrepresenting themselves as the appraiser and they are unethical or even seemingly partial and I am the one signing the report how will their direct contact with the homeowner during the site visit impact me once I submit the completed report?

Like with anything in life there are positives and there are negatives.? With an increased implementation of alternative valuation products, I just hope that the misperception of professional licensed appraisers is not replaced by capricious consequences so often seen with untested inexperience. ?

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Speaking of Waukesha

On Tuesday, January 16, 2024, the current average 30-year fixed mortgage interest rate is 6.94%.?

Waukesha saw an increase in expired listings during the later half of 2023.? There were 65 expired listings between June of 2023 and January of 2024 in comparison to the 29 expired listings between January of 2023 and June of 2023.? There are at present 83 listings in the City of Waukesha with medium price of $422,250; 50% of which have offers or are listed as pending.? The medium marketing time is 54 days with medium price reductions of 3.11% between present and original asking price.? Medium list price per square foot is $216.

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*Data was compiled utilizing information provided by multiple listing services.

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If you are an agent, loan officer or homeowner with questions on the appraisal process, please feel free to contact the offices of Asap Appraisals, LLC at 262-442-2323, email us at [email protected] or visit our website at wiasapappraisals.com.