What does it mean “Can the profession be saved?” Does anyone else care except us?
The second question first. Who might care? Clients who have developed a trust for you and who are comfortable with the traditional ways of doing things. There is a group of us and of them who like doing things as always. It’s comfortable, requires little change, and is a ‘safe’ way of doing things.
But who might not care? We can break these down into two subgroups: 1) those that dislike our getting in the way of their deal; and, 2) those who genuinely want something different, more modern. For now, let’s dismiss the first group, and consider those who do want a better product, a better service.
We have often heard the adage: better, faster, cheaper – pick any two! Our competitors compete mostly on the basis of faster or cheaper. This may include AVMs, BPOs, hybrid products, evaluations by non-appraisers, and online services, such as Zillow, Redfin, and others. And some of them are getting better. Better because the data are better, and the analytics are more robust. The data and the analytics. Let’s focus just on the third element of competition: better.
OPINION OR RESULT?
What distinguishes the appraiser from competing products? Appraisers give an opinion. Our competitors provide analytical results. Appraisers produce an opinion then provide “support” for that opinion. Our competitors provide an analysis, and its outcome: a result. Appraisers provide an opinion, then justify and explain that opinion. Both appraisers and competitors produce a prediction of value. As defined in The Appraisal of Real Estate: the “most probable selling price” as of a given date.
This definition of value reveals a service (useful information) not provided by appraisers. That service is the probability of the predicted value being true. This service is provided (directly or indirectly) by AVMs and some other competitors. Strangely, the profession best able to provide a measure of probability (risk/reliability) is the appraisal profession. Why don’t appraisers do that?!
There are several reasons for the “why not?” They include familiarity with old ways, standards which enforce subjective “believability”, and training to provide “opinion” rather than analytical results. A third reason is the test of adequacy of appraisal scope: Client expectations, and peers’ actions.
This third reason creates a vicious circle of lowered expectations and median performance. Do what your client’s want. Do what everybody else does. If you have a better way, watch out. It may be in violation of the rule of appraisal adequacy. If nobody else does it, you are suspect. If you don’t provide what client’s want, you are at risk. That’s that rule.
WHAT CAN WE DO NOW?
Can it be saved? New technology can help. This can show us ways to provide a much needed product and service. A reliability score. In AVMs they call it an FSD (Forecast Standard Deviation). Appraisers educated in this reliability estimate can outperform all of our competitors. And provide a much needed service for the public good.
March 14, 2018 @ 11:04 am
I would love to be able to deliver my appraisal along with a estimate of its reliability. I agree that would be valuable to our clients.
March 22, 2018 @ 6:50 am
I have been appraising for over 20 years and done thousands of appraisals. The other day I got a order for complex jumbo loan over a $4M dollar value of a home over looking Newport Beach Bay/ coastline/ ocean, over 3,000 sq. footage of home. It was to be a FHA loan. So I would do a complex property, with a home inspection, a rush order, and have it done in two days. The fee, are you ready for this….drum roll please….$370.00. I turned down the order. Until AMC’S are out of the question the appraisal business will die within 10 years or even sooner. That appraisal in the olden time of the 80’s or 90’s would have been $1,200 to my business. The AMC’S are putting us appraisers out of business, a slow death by a thousand cuts.
Good luck on worrying about delivery of reliable appraisal or a value to your clients. That is now a afterthought. Any other way of looking at it, you are just kidding yourself.
March 22, 2018 @ 7:20 am
Keep up the good work. Sorry Sindy and I could not make your Las Vegas class. It is 487 miles and a full day there and back. Thanks for your efforts and update information on the appraisal practice. It is getting worst. The US Supreme Court ruled that Real Estate Brokers could testify to fair market value in Condemnation cases which will open the door for National Realtors Association. They have been trying for decades to be qualified to do appraisals.
Thanks Again.
March 24, 2018 @ 4:50 pm
Our missed a good class!
Britt West, SRA
March 24, 2018 @ 4:51 pm
You
March 22, 2018 @ 8:53 am
All this talk about better, faster, cheaper, shortages, that’s all well and good, but let’s just get down to the real problem with the appraisal profession, I can sum it up in just 4 words. Show Me The Money !!
The average AMC Fee in Southern California where I work and live is about $350. I was getting that TEN YEARS AGO, and if the past is any reflecting of the future in another 10 years the fee might just still be $350. at best. So raise your hand for those who still want to be an appraiser. I do have one good thing to say about the appraisal business, the fee paid by most AMC’s makes for good grocery money – but don’t count solely on it to make a living unless you want to be at the bottom of the food chain.
Remember that $350. Is not all yours to keep, travel expenses, auto upkeep, gasoline, E & O license fees, educational classes to renew, and don’t forget Uncle Sam he WILL get his cut of around 25% +/-
Most surviving working appraisers that I know, all did something else before getting into the business, so they have good pensions when they had a REAL job, maybe some rental property, a wife or husband that still works, or maybe some social security. Just don’t quit your day job to become an appraiser.
Yes! Show me the money !!
March 22, 2018 @ 1:09 pm
“Something different, more modern = “a better product, a better service”. I disagree with that statement and conclusion. This second group who want modern tools (read: analytics) incorporated into real estate appraisal for the sake of “something different” is missing the point of what the professional appraiser provides. Charts and graphs, standard deviation, R factor…these are not modern tools, but rather models that have become buzzwords. Anyone want to venture a guess as to the make-up of this second group? The same people who have caused the problems – software vendors and AMCs. Until AVMs and their bastard cousins can report accurate interior features of the subject property, analytics will remain almost useless. Where is much of the data derived? Government, in the way of tax assessor offices or appraisal districts (depending on your state). MLS is a great data source, and is the only data source in non-disclosure states. However, as an appraiser of 28 years who is also a REALTOR let me explain the problem with MLS – it’s derived from public record data (government-reported GLA or sqft.) that is questionable at best. Garbage in, garbage out – much like the misuse of discounted cash flow analysis in the commercial side of appraisal practice that helped contribute to the S&L cluster. Bring on your analytics – the taxpayer is an unlimited source of buyout money…until it isn’t.
March 22, 2018 @ 2:09 pm
Jerry Reidy
Our “Profession” was born in the pain of the Great Depression (So I have read). The life blood of the real estate business was “data”. Banks held blocks of real estate and needed to know what it was “worth”. The only folks who had any “data” were the real estate Brokers. The Banks engaged them to express their opinion, as to value. The “Profession” was birthed in the great pain of the Great Depression. Now we Independent Professionals are told by various entities (you know who they are) how to “Independently” express our opinion of value and exactly how it is communicated.. Price data is now widely available. I can research price data virtually anyplace in the country and beyond and so can anyone with a computer. Every profession has a “life”. We were born because of the need for price data and we are slowly dying in the landslide of available price data. Some of us will survive but most will not. Of course,there will be “niches” where our services will still be valued and the market will be willing to pair us a fair market value price.
March 22, 2018 @ 2:37 pm
There will always be some appraisers as there are still some custom buggy whip makers and custom shoe makers. However as with buggy whip makers and shoe makers there are few. In addition, you can’t cross examine an AVM hence legal work. However one of the biggest challenges is there is no upside to the profession. An appraiser is subject to the whims of the government and the banking industry in addition to market fluctuations. BIG RISK. We have to provide for our own retirement and health care. There are few appraisers willing to rent an office and train appraisers for the following reasons (and others): if you rent an office space and the market turns (remember 2008) you will be in big trouble; you are training your competition and they will leave for greener pastures as soon as possible. Therefore who is going to train appraisers? The upside used to be to have an appraisal shop with staff appraisers however due to the previous this is not practical. In my area (San Francisco) city workers make more than appraisers and they have subsidized healthcare and retirement. Why would a well qualified person (marketable degree, e.g. finance, accounting, etc.) want to be an appraiser when they can work for the city, BART, Cal-Trans, a private business employer, or for than matter the post office and have good pay, health care, and retirement? The only reason there are as many appraisers as there are is because we are old (average age 55?) and what else are we going to do?