FEATURE ARTICLE, MARCH 2005
SETTING THE VALUE
An appraiser offers a look at the process that goes into an appraisal.
William Pastuszek Jr.
Commercial appraisers are overworked and underappreciated. Perhaps not as much as residential appraisers, whose work tends to be viewed more and more as a commodity as time passes. Many of the same pressures that plague residential appraisers — unacceptably short turnarounds, low margins, constant value pressure and unappreciative, unethical clients — are a fact of life for many commercial appraisers. Lending, the bread-and-butter work of the business, is prone to sharp peaks and valleys. While, in general, commercial appraisers rely less heavily on lending clients, the pressures don’t change that much between client types.
However, clients’ appraisal needs have continued to evolve. “What is the value?” is often the first question; increasingly, clients want answers to other questions to support ever more complex business decisions.
Similarly, reporting has changed. The old days of producing a report that fills the file are gone. Clients need — and demand — a report that supports the value conclusions, the intended use of the appraisal, and the requirements of the client and the client’s regulators.
Many commercial appraisers still haven’t recovered from the shock of R-41C in the 1980s or the requirements of FDIC/RECOLL during the early 1990s or the limited appraisals and the DEPARTURE RULE of the later 1990s. More recently, the move toward greater technological sophistication and more efficient and targeted reporting formats has continued to befuddle many appraisers. Some feel, with some justification, that these factors foster a “commoditization” of the commercial product similar to the ongoing process in residential appraising. On the other hand, there are many clients that consider accurate, objective and unbiased appraisals absolutely essential to make informed decisions. So there is hope for appraisers willing to find clients who need more than the minimum.
Here are 10 ways appraisers may approach issues, identify problems and seek solutions.
1. Scope of Work. What does the client need done? What has to be done to meet the client’s needs and the appraiser’s own professional responsibilities? What kind of analysis and information is relied upon? How do the components of the appraisal fit into what the intended use of the assignment is?
2. Know the Intended User(s). The key to providing efficient and appropriate services is to understand how the intended use of the assignment shapes appraisal development and reporting.
3. Understand Client Needs. Uniform Standards of Professional Appraisal Practice (USPAP) have been around long enough that it’s given that the client wants a USPAP-compliant report. The appraiser should want one too — after all, there is an appraisal license on the line with every signed report. So what do clients look for? The local client appreciates different information from that of a national lender; the national lender may want market specifics that provide a comfort level beyond bare minimum requirements. The appraiser should ask questions and work with a client to find out what that client may want in addition to the value. For new clients, asking “What do you find to be ongoing problems in reports that you receive?” will be highly useful in understanding their mindset. For existing clients, don’t take for granted that they are satisfied.
4. Anticipate Affirmatively. An appraisal report should answer obvious and not-so-obvious questions. It’s a lot easier for an appraiser to deal with an issue in the original report than have to stop everything to address an issue in a report from 2 weeks ago. As part of the preceding topic, understanding client needs allows for anticipating problems.
5. Data Integrity. Appraisers should assume the appraisal and report will be reviewed. The document should be written with the expectation that the client will have access to as much or more information than the appraiser has. Access to public record data has been revolutionized by the Internet, so it had better be right: deviations and discrepancies in data, especially in public record data, need to be noted in the report to ensure credibility.
6. Disclose, Disclose, Disclose. If in doubt about something, an appraiser should talk about it and more importantly, write it into the report. It’s what isn’t said that may harm the integrity of the report. Sometimes that may not make an appraiser popular, but is part of his or her job. This may be true of physical aspects of the property, market and neighborhood conditions, and market data not considered relevant to the valuation problem and not developed as comparable data. It may nonetheless need to be mentioned so no impression is left that it was omitted to mislead.
7. Market Area Analysis. Beware of boilerplate analyses or reports: clients know it when they see it. Informed appraisal users want “on-the-ground” intelligence about the property’s specific market niche and location. There is a wealth of information available on the Internet, some of it free and some not so free: this type of information can be worth its weight in gold, provided it is backed up by high-quality, specific information. The appraiser’s experience and contacts pay off big in this respect and, many times, these little nuggets of information that seem irrelevant, tangential or obvious to the appraiser are worth gold to the client and the client’s perception of the appraiser.
8. Reconcile Regularly. Each approach needs to be reconciled and a final reconciliation is needed. The various reconciliations in a commercial report are just as important as the final reconciliation. Appraisers should use opportunities to make the case for the value convincingly.
9. Reporting Requirements. The reporting format is only a beginning: different clients require different amounts and kinds of information. A property owner will likely need a different type of emphasis than an experienced lending client familiar with an appraiser’s work. An attorney may need something else entirely. There is no one-size-fits-all report.
10. Client Pressure. An appraiser should be an objective, impartial, independent professional in these situations. He or she should not be led astray by client objectives, short turnarounds, promises of more work for just one favor or other pressure tactics. An appraiser may interview clients and choose with care.
William Pastuszek Jr. is principal of Shepherd Associates in Newton, Massachusetts.
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