From what we hear and see about the appraisal profession, it would appear that a real estate appraisal should be a very accurate measurement of the worth of a property and that the property only has one precise value. Further, appraisers are highly trained, and it is up to the appraiser to determine what this amount is. In cases where appraised values are called into question, many suspect incompetence on the part of the appraiser or some form of bias to include fraud. As members of the real estate industry and as citizens, we have been conditioned that appraisers are highly trained and that, upon certification, they have the unquestionable skills and competence to perform precise estimates of value, which very narrowly represent the value of a property.
Well, I am here to tell you that not all is black and white in the real estate appraisal world. There is ample gray to cause pause when we use opinions of value developed by licensed appraisers. This is not to say that all we have been led to believe about the impeccable reputations of individual appraisers or the integrity of the profession as a whole should be viewed with a jaundiced eye. The truth is that an appraisal, which is defined as an "opinion of value," is just that, an opinion. Having been in a position over the last 30 years not only to perform appraisals, but also to review thousands of them, I confess that, under the best of circumstances, there are shortcomings in the process. Having said that, without question, we in the United States have the best body of knowledge, appraisal theory, training and regulatory system in world, and overall, our evaluation capabilities are the envy of all on the planet. Given the previously stated, I direct your attention to a few facts and conditions that may cause a more sober look at the reality of the appraisal profession. This article will not deal with intentional bias, fraud, and/or corruption, but only deal with the challenges faced by appraisers and their limitations as professionals, given the environment in which they work.
There is a plethora of topics and issues that could be examined relative to the limitations confronting appraisers; however, for the purposes of this article, we will stick to a few of the more apparent and basic ones.
In order to become a licensed appraiser today, one must generally spend a minimum of three years in education and training. For those aspiring to obtain additional skills, it could take four or more years to obtain a state general certification. To obtain a creditable general designation, many appraisers spend five to 10 years developing their talents. This does not take into account the many years of on-the-job experience, in some cases, reaching 40 to 50 years, which experienced appraisers have.
My experience and observations have taught me that real estate appraisal is a field where wisdom prevails, and that short-term training programs and educational courses provide a good foundation, but fall short of preparing the appraiser for the most challenging assignments. While it is not my goal to criticize the inexperienced appraisers—those having the minimal training to qualify for licensing—simply do not have the background to tackle complex issues. Those with less experience, often find themselves less equipped to address difficult assignments and sometimes provide value opinions that are less accurate than those of seasoned appraisers.
The past three years have been the most challenging for appraisers of any that I have experienced in my 30-plus years of appraising. This is due to a less-than-fluid market, where sales data is either unavailable or compromised by short sales or foreclosure actions. Developing a creditable value opinion in a market, a market where, except one foreclosure, there have been no sales of properties within a year and where there are 20 listings at various prices, is a challenge for any appraiser. I would venture to say that, under such circumstances, we would get varying opinions from the most competent and experienced appraisers. In such a case, if two appraisers appraise a property and end up with substantially different values, it would perhaps be hard to prove either of the appraisers wrong.
Even when appraisers are the most competent and when all other conditions are excellent, how much difference should we expect to find in-value estimates between two appraisers? In my experience, having previously ordered two or more appraisals on the same property from different appraisers, it is not unusual to get varying opinions. Some of this can be written off to the lack of competence on the part of one of them. However, competence is not the only issue here. Some issues are viewed differently by different appraisers, even when both appraisers are seasoned professionals. This is especially true with challenging assignments. There must be some acceptance of this fact, when ordering and using appraisals. What is an acceptable variance? I say it depends upon the market. In some markets where conditions are good, appraisals should be within two or three percent of other appraised values. In others where market conditions are challenging and hard to predict, a 10 percent variance may be welcomed. This must be weighed on a case-by-case basis.
Scope, research and analysis
Yes, all appraisals, no matter how thorough, should provide an accurate opinion of value. This having been said, if we order an appraisal with a curbside inspection on the least comprehensive appraisal form, and ask for only approach-to-value, we will likely get what we pay for. The appraiser, who is assigned a project and given proper inspection access, time, budget and direction, may be held to a higher standard than one where the appraiser is asked to do a drive-by inspection and submit their report within 24 hours. Simply stated, the appraiser who is permitted to devote ample time and effort to an appraisal will do a more thorough and accurate job if everything else is the same.
No, appraising is not an exact science. There are many variables to consider when evaluating an appraisal and the value conclusion it provides. There are factors, both within and outside of our control, that impact the accuracy of the appraisals that we order on a property. Accuracy may be associated with an appraiser’s competency, as well as market conditions and the scope of the work assigned to the appraiser. One of the most controllable variables is that of the selection of the most skilled appraiser available for a given project. Further, the appraiser should be given the proper resources, including time, budget and property access, to complete the assignment in a professional manner. Adverse market conditions are harder to overcome in rendering the most accurate appraisal, except for the fact that the best appraiser is likely to do the best job. The expectation of a perfect appraisal should be tempered with an understanding of the competency of the person doing the job and current market conditions.
Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, e-mail email@example.com or visit his company’s Web site, www.appraisalsanywhere.com.
- Mortgage Advisor - Peoples Home Equity, Inc. - San Diego, CA
- 16-02 - Mortgage/Loan Processor - Park Street - Jax Federal Credit Union - Jacksonville, FL
- Mortgage Loan Underwriter - TwinStar Credit Union - Lacey, WA
- Mortgage Loan Originator - Andrews Federal Credit Union - Springfield, VA
- Mortgage Loan Underwriter - TwinStar Credit Union - Lacey, WA
- 1010 Chief Lending Officer - Members Choice Credit Union - Houston, TX