Advice on Pencil Searches, Comp Runs, etc.
When mortgage brokers did most loan originations, before the crash in 2007-2008, appraisers all over the country were asked if they can “come up” with a value, or provide a “ballpark” estimate or range of value before they receive the assignment. These requests are called “comp searches,” “look ups,” “pencil searches,” and other names.
According to B.J. Crowley, a Florida appraiser, “pencil search” is a long-lived term familiar to those in the title insurance/escrow business. Simply, a “pencil search” is an interim report, i.e., they do a major search in preparation for a closing. When that is done, it may be a few days/weeks until the actual closing. On the day of closing, a “pencil search” is done to make sure that the policy can be completed.
Sometimes “pencil searches” are used by construction lenders as one of the requirements for a draw. In that case, it is a search from the current date back to the last certification date. It is a term also used by title insurers for “quick and dirty” title searches that won’t involve issuance of a policy, like when the occasional appraiser calls for a pencil search on a legal back to a point in time.
Today, the term “pencil search” is also used for a preliminary value or research in certain areas, usually done for free. Sometimes, a specific value must be reached or there is no subsequent paid appraisal order.
Below is a (humorous) letter posted by Christopher Gaskins on the Internet.
Dear Superior Bank,
Thank you very much for contacting our firm and considering us for your appraisal and valuation needs. Since we are a highly responsive and adaptable company, we completed your request for a pencil search as quickly as possible. Because we have not inspected the subject property, we can not form an opinion of value on it at this time. As you know, the Uniform Standards of Professional Practice governs the entire real estate appraisal industry.
Because USPAP considers a range of values to be functionally equivalent to a point estimate, we are unable to provide the range you requested without violating USPAP and potentially losing our licenses and therefore our ability to remain in business. However, we are able to provide market data from which you may draw conclusions and base your decision on whether or not to proceed with an appraisal at this time. During our initial research we located the following comparables:
(1) Seven Ticonderoga #2 HB pencils, most of which reflected moderate depreciation in both the structure and the erasing mechanisms. Cost new is estimate at $2.49 per 10 units.
(2) We found a number of more modern steel and plastic units. The first was a Bic unit that shows significant physical depreciation due to anxious gnawing. We believe it also suffers from incurable functional obsolescence due to a lead deficiency. Cost new is estimated at $0.99.
(3) We located a slightly more upscale unit known as the “Clickster Grip 0.5mm.” This property appeared to be less than two years old and was in good condition overall. It reflects a more modern, market-typical design with an elastic copolymer sheathing and a superior lead advance system. Cost new is estimated at $1.99.
(4) Finally, the most upscale unit we located was a “Pilot Dr. Grip 0.5.” It has similar construction features as Comparable 3, but with superior mechanical systems and a stronger framing structure. The estimated cost new on this property is $5.99.
Please note that because of the increasing market share of ink dispensing writing units and the rapid proliferation of computers and printers, the market for pencils, irrespective of construction methods and materials, likely suffers from external obsolescence. This will have to be thoroughly addressed in our appraisal report. Note also that replacement cost new is not a wholly reliable means of estimating current market value, so we urge you to be cautious in your reliance on the figures we have presented. Again, thank you for your time and consideration.
Christopher Gaskins, MAI
The research and analysis that As a result, I am unable to provide you with an
However, we hope this market information provides some guidance with respect to your valuation needs. If you should require us to expand our search, there are other offices down the hallway that likely contain other pencils and therefore market data.