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This article was published in 1993. Not much has changed in this article since then. It could have been written many years before that year.
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What is a good appraiser?
I have been thinking about what makes a good appraiser for a long time. Many appraisers, including myself, presently have more work than we can handle. We remember the “good old days” when we had much larger staffs and made more money. But finding an experienced appraiser is tough. Trainees are high risk because you don’t know if they will be able to make it as an appraiser, and there is a long training time in many states due to licensing.
Everybody has a different opinion of a good appraiser -clients, review appraisers, other appraisers, regulators, etc.
Who do you call when you have an appraisal question? I bet it’s a name from a shortlist. This article focuses on what makes those appraisers the people you call when you have a problem (and the appraisers you would like to hire).
Form fillers and boiler platers
I’m sure you have met clueless appraisers, who you would never call for advice.
In residential, I call them form fillers. They just know how to fill out a form to satisfy underwriters. They have great difficulty doing an appraisal unless they are given a value to “come up with.” When they try to do one without a “target” value, they can be way off.
I refer to clueless commercial appraisers as boilerplaters. The boilerplaters have thick appraisal reports that are empty of any meaningful, relevant analysis. They use spreadsheet templates or black box programs such as Argus and have no idea about how spreadsheets work, or how investors evaluate cash flows.
Characteristics of a good appraiser
- Personal and professional integrity.
- Has a career, not just a job
- Objective can overlook personal biases.
- Talented. Is able to take conflicting information and pieces of a puzzle, and make a good reconciliation. Get “hunches” that something isn’t quite right, and are able to find out what’s really happening (or at least make a very good effort to find out).
- Doesn’t use a “cookbook” or pull out a form, previous appraisal, seminar notebook, or textbook and fills in the numbers without considering if it is the best approach
- Very good interviewer, able to get people to talk
- Talks with commercial tenants to find out about their businesses, information on the subject property, why they are leasing that space, etc. Requires signed leases and likes to get estoppel certificates
- Reconciler, not just an accountant.
- Independent, but not too independent to ask for help or advice
- Knows when he or she has gotten in “over her head” and asks for help or declines the assignment
- When traveling, reads the real estate section of the local paper first• Listens when someone at a party starts talking about a deal, local politics affecting real estate, etc.
- Curious and wants to find out the real story. Asks questions. • Looks beyond the comps. Analyzes and considers the current and future markets, not just the past (comps).
- Not a perfectionist or over-analyzer. Realizes no appraisal report is perfect. There is always another piece of information that could be obtained. Knows when to stop obsessing and get the report out the door.
- Wants to figure out what a property is worth, not just whether it has enough equity to qualify for a loan.
- Can get “out of the box.” Flexible, willing to try new ways of analyzing, researching, or reporting.
- Easily bored. Likes new challenges.
- Always learning.
A career, not just a job
Think of the people you know who dropped out of the appraisal field. Except for the recent downturn and cutbacks, they were often people who really didn’t see themselves as professional appraisers.
They just had a business or a job. They could have been doing anything else, such as accounting, photography, or managing a restaurant. When they left appraising, they usually left real estate.
Can you learn to be a good appraiser? Yes, to some extent. But just like being a good baseball player, you have to have talent, be willing to learn, and take the time to develop your skills.
Some people have a talent and don’t really use it, some try hard but will never be really good, and some will never get it. It doesn’t mean that you are a bad person, just that you don’t have the talent for appraising.
You must be able to deal with uncertainty, have a sixth sense or hunches when something isn’t right, never stop learning more about the real estate market, and can make decisions when faced with uncertainty.
Many appraisers, particularly commercial appraisers, focus on sales verification as identifying good appraisers.
The formfiller or boilerplater confirms the price and terms and hangs up. The good appraiser wants to know “why.” Why did the buyer purchase this property rather than another one, why did the seller sell, how was the asking price determined, etc.
Commercial appraisers ask such questions as which income and expense items were actual and projected, what was the “upside” that the buyer saw, was the buyer or seller in a 1031 exchange position and desperate for a property?
The purchase contract
When the subject property has a purchase contract, the good appraiser wants to know the listing history, how many offers were received, how it was marketed, why the buyer picked this property, why the seller was selling, etc. The good appraiser carefully reviews the sales contract, including terms, date, etc.
The formfiller or boilerplater just asks what the price is, and maybe reads the sales contract. They don’t have the ability or interest to analyze the contract.
When markets are changing quickly, up, down, or stabilizing, the good appraiser can “feel” when this is happening. The good appraiser doesn’t rely on comps, which are the past, but researches listings and expireds.
The good appraiser attends local meetings of appraisal associations to keep up on the latest trends.
The good appraiser keeps track of the pulse of the market by talking with buyers, sellers, and real estate agents.
The good appraiser makes some clients upset by considering changes in market conditions when evaluating comps.
I started in appraising in the “old days” when you started in residential then moved into commercial appraising.
Now, appraisers are typically “tracked” into one or the other. Market factors are much easier to see and understand in the residential market. You can develop your “feel” for the market much easier. You don’t get bogged down in spreadsheets and numbers when you first start appraising. You do many more appraisals in a month than in commercial appraising.
Local market factors
The good appraiser reads the local newspapers and knows about zoning changes, controversial developments, and environmental problems. The good appraiser goes to the Web sites of the local newspapers looking for relevant information.
If the good appraiser gets a hunch that something is happening, he or she makes the calls to find out.
Open to new information and ideas
The good appraiser is not rigid and is willing to change a value or market opinion based on new information.
Willingness to learn new ways of appraising and reporting, use new data sources and scrap outdated ones, and always looking to expand his or her appraisal knowledge are characteristics of a good appraiser.
Why should you hire a good appraiser?
Good appraisers stay in the appraisal field. After spending all the time to train someone they won’t change careers.
Good appraisers love what they are doing. You don’t have to worry about a lot of whining.
Good appraisers are a lower liability risk to your firm. They take the extra step to make sure they are not missing something. They let you know when they are over their heads on an assignment.
Good appraisers get their work done on time and don’t obsess over the perfect appraisal.
Good appraisers are fun to work with. You can bounce ideas off each other. They can keep you up when you are bogged down in a difficult assignment or a business hassle such as a collection problem.
How to find and keep good experienced appraisers
Good appraisers are usually frustrated when working for a formfiller or boilerplater firm. They really want to analyze real estate but are forced into providing a “vanilla” appraisal product. You may be able to recruit them.
Offer the opportunity to work with other good appraisers who can help them learn more.
See if your associate appraisers know anyone who may be available. They are usually much more aware of the market for appraisers that principals. Offer a hiring bonus of $1,000 to $2,000 to the associate appraiser who recruits the new hire.
When interviewing, ask the applicant questions to test their appraisal talent.
How to find a good trainee appraiser
Everybody hates to hire a trainee who just doesn’t “get it’ and will never be a good appraiser. You can waste months of your time.
You can easily tell a good appraiser from a formfiller or boilerplater by reviewing their work and giving them sample appraisal problems when interviewing them. But trainees have no appraisal experience.
Ask about previous employment. Which jobs did they like and dislike and why? Go back in the past to the jobs they had in college.
When researching references, ask questions relating to characteristics of a good appraiser, such as curiosity, tenacity, non-perfectionism, etc.
See if the applicant is interested in real estate. Ask what the person thinks about the local real estate market. Or, if there have been any homes near their house that have sold (if the person is a homeowner). Or, how apartment rents are doing (if the person is a renter).