Create buzz and develop your relationships
Understanding real estate appraisals reports can be frustrating. One of the requirements of an acceptable real estate appraisal is that the assignment results (in this case a written appraisal report) be communicated to the client in a way that is not misleading. Generally accepted standards of professional practice for appraisals go on to describe requirements for appraisal reporting so as not to mislead the client or intended user by being clear and accurate in appraisal reporting. But such clarity is directed to the client, not the inquisitive home buyer involved in the process, for example.
From a home buying perspective, the degree of difficulty placed on the property appraisal is lower than one might expect. News articles and social media activities often relate the frustration experienced by some home buyers trying to understand the property appraisal when they are going through the home buying process.
However, a recent National Association of Realtors (NAR) report found that of the various areas where the home buying process caused difficulties for the 6,572 respondents, the property appraisal ranked as one of the least difficult.
Degree of Difficulty in Home Buying Process
53% Finding the right property
16% No difficulties
16% Understanding the process
14% Getting a mortgage
12% Making a down payment
5% Property appraisal
Source: Home Buyer and Seller Generational Trends Report released March 11, 2015, by the National Association of Realtors as reported in Second Quarter 2015 Valuation Magazine (Volume 20, Number Two) published by the Appraisal Institute. Note that percentages add up to more than 100% because respondents were able to select more than one area of difficulty in the home buying process.
The NAR report poses many opportunities for real estate agents and brokers (helping home buyers in finding the right property, advocating for reduced paperwork requirements, and helping home buyers understand the process), and lenders (identifying where paperwork can be simplified or reduced, helping home buyers understand the process, give clear advice to home buyers on how to get a mortgage, and how home buyers can better meet down payment requirements).
But even though the property appraisal report ranks relatively low in the NAR report for home buyer difficulty it still reveals that some home buyers are finding it a difficulty. As such there is room for improvement by real estate appraisal practitioners. Can we as valuation services practitioners improve upon this 5% baseline?
As the real estate appraisal and valuation services industries continue to mature, practitioners seem to be more willing – at least in the last several years – to embrace new thinking. We’ve gotten more involved in green buildings and continue to pay close attention to how technology is rapidly changing how we perform and deliver our appraisal and valuation services to our clients.
However, as we head toward the future I believe that a systems analysis approach will be needed. Appraisal and valuation service providers will need to take into consideration the fact that home buyers – to continue our earlier example – while not being direct clients, are certainly important stakeholders in the real estate appraisal outcome.
Of course there will be challenges. Change is rarely easy. First and foremost is properly addressing client confidentiality concerns and requirements. Another challenge that quickly comes to mind is the need to limit the scope of appraisal reporting to the intended users of the report. If the definition of intended user is to broad it causes additional work that may not be needed and may even threaten client confidentially requirements.
But we can no longer fall back on statements like “That’s the way we have always prepared our reports” or “That’s all what the regulations require.” Old ways can be changed, and for the better. And even outdated regulations can be changed with effort, or at least ways can be explored to constructively work within such boundaries. The public is increasingly demanding greater access to information and transparency. Just look at how much the desires and wants of the general public have changed the access to real estate information over the last 10 years.
Of all of the various real estate appraisal and valuation services organizations I believe that the Appraisal Institute (AI) has recognized the need for a broader approach. Although there are many examples in the last several years, one that immediately comes to mind is the February 18, 2014, AI press release entitled Appraisal Institute Tells Homeowners How to Prepare for Appraisal.
Let’s begin a focused discussion about how we practitioners see the appraisal and valuation services changing over the next five to 20 years. Make no mistake that we’ll either be conducting this discussion in parallel to or in collaboration with other stakeholders. In an ideal world we would have time to develop our core ideas as practitioners and then approach identified stakeholders. But we may not have the luxury of time. So let’s get to it!