Being Aware of Nuances of the Market, or Not

Updated: Sep 7, 2019

There are lots of sources that published national housing trend data, by state, county and even metro market trends down to the city level. publishes down to the city level, accessible by members.

No one publishes local market trends relevant to local neighborhood level. Or project level. Only appraisers could do this. National Real Estate Economists cannot do this for lack of access to local data.

I consider national, state and county data to be macro information, not adequate to use to make Time or Market Condition adjustments.

One of the things I began doing after taking the Market Analysis and Highest & Best Use course, was reporting the county and city trends in my reports from the most recent published sources, then adding the neighborhood and sometimes the market segment trends to it, all for the purpose of bringing Context to the Time adjustment.

Sometimes a particular neighborhood or market segment, or both, perform differently than the larger markets. In some instances even within a Zip Code there can be different neighborhoods and trends between them, as well as market segments within each as there might be projects that perform different than others.

There is no way a client, investor, GSE or governmental agency can subscribe to data down to this level. This is where competent appraiser can shine. Competency means understanding and employing good appraisal processes and procedures, and knowing the nuances of the local market. At least, that is what I get from reading USPAP. With USPAP out there users of appraisal services and those who rely upon appraisal to make decisions; can assume the appraiser complied with both.

This is important to understand from a liability standpoint. Suits for professional liability increase dramatically after markets turn down and the reports are looked at with a more critical eye. Every professional liability case I have worked on since 1981 that I recall, did not deal with this issue of actually measuring and reporting local market conditions correctly. Almost universally the market was reported as Stable. While, most of the time, it had been going down for quite some time.

When and if the markets are EVER stable it is not an issue. When they start up or down, and published data lags behind it is only the appraiser who can report what is happening as it happens.

With declining sales volumes this past year, we are on the cusp of a declining market, in fact some markets and market segments have been going down for 3-5 months already.

Reporting the regional trends, city trends and neighborhood or market segment trends is a good thing when one is faced with delivering a report to a client who may yet to have seen Declining indicated on any reports. It is always a tough situation in the world of lender appraisal work to be the first to report a declining trend. It is not so hard once it has been declining for a year or too.

The tendency has been in the past to continue to check Stable until someone makes the appraiser change, calls them out on it. That might come in the form of a local reviewer who has access to the data and monitors market conditions. Worse, it could come back from the investor level who refuses to buy the loan because the appraisal was misleading.

We are always at choice. We can choose to always be neutral, objective, unbiased. Or, we can choose to be accommodating to the client’s needs, wants and desires. Our industry has a history of what some call "Customer Service", pandering to the client, as opposed to objectively measuring and reporting the market and market value.

Both types of appraisers have a reputation. One might be called a Sterling reputation of one who was licensed to be neutral, objective, unbiased and who believes that is truly their job. Loan production entities might not like them, might not use them, but they usually have other clients, so it does not matter.

The accommodating appraiser may have mostly loan origination type appraisal business, and few other clients, or they might swing both ways. They are sometimes referred to as Loan Appraisers. In Mortgage Fraud cases where appraisers have been included in those indicted, the prosecutors may call them Enablers.

As this market continues to evolve, we will all be faced with having to confront our Ethics. Some may draw the line very clearly and close to the vest. Others may be a little more liberal with their interpretation of Ethics issues.

Ethics tend to lay dormant until the day we are tested. If we have been accustomed to telling the truth the best we can and measure it in a neutral, objective and unbiased way; when that day comes, it will be dealt with quite easily and a simple No will be issued, or maybe No Thank You but that is not me, you called the wrong appraiser. Followed by I am not an advocate; I am not licensed to be an advocate to help make your deal work, but to be neutral and objective, unbiased.

It may be that the number one reason why some or even many appraisers, early on in their career are so concerned with making the client happy that they began Bracketing the Sales Price or Value needed to make the deal work so that they could Bring the Value In at what was needed. This is done in the mind set of customer service. What may have started out as trying to please a client; may in fact have resulted in inflated property value estimates and misleading reports; both of which are elements of Appraisal Fraud.

Sadly, I have met appraisers who have gotten into trouble, spent some time in jail and still do not know what they did wrong. Perhaps the most dangerous thing an appraiser can do is be willfully blind or willfully ignorant of these liability issues. Civil suits and criminal suits against appraisers start picking up after housing market downturns. Where is your market at? It is a choice to Know what our markets are doing, or not Know. It is a simple choice really, made consciously or unconsciously. It is harder for some, easier for others to choose to be aware.

What do you choose for yourself from this day forward?

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