May 22, 2025 • 33 mins
Have you ever wondered what truly determines your home's value? In this eye-opening conversation with veteran appraiser Alan, we pull back the curtain on the mysterious world of property appraisals and discover that your home's worth can be mathematically broken down into surprisingly precise components.
Alan takes us on a journey through his unexpected career path from religious studies to becoming a respected appraiser on Whidbey Island, offering rare insights into how the profession has evolved since the 1980s. He explains how the 2008 housing crisis fundamentally transformed the industry, creating a firewall between lenders and appraisers through Appraisal Management Companies to prevent the manipulation that contributed to the financial meltdown.
The conversation reveals fascinating distinctions between conventional and government-backed loans, with VA and FHA appraisals requiring more rigorous inspections of everything from attics to utilities. You'll learn why that bare wood on your deck might fail a government appraisal while passing a conventional one, and why the appraiser is checking if your oven works.
Perhaps most valuable is Alan's breakdown of the "value pie" – how an appraiser mathematically determines what your home is worth. Square footage might account for 30% of your home's value, while that stunning water view could represent 12%. Understanding these components helps explain why homes sell for what they do, and why sometimes properties appraise for $250,000 over asking price when multiple offers come in.
If you're buying, selling, or simply curious about real estate, this conversation provides essential context about how property values work in today's market. And the warning about a looming appraiser shortage might just explain why your next home purchase takes longer than expected to close.
Reid Schwartz is not just a real estate broker; he’s a dedicated leader and active participant in the Whidbey Island community. A Navy veteran and 30-year island resident, Reid brings a unique perspective and deep-rooted passion to his work. As a proud Rotarian and a founding board member of North Whidbey Hearts and Hammers, he’s committed to making a difference in the lives of those around him. He also serves as the organization’s Public Relations Director, always on the lookout for volunteers eager to give back.
Whether it’s helping clients buy or sell their homes, connecting locals with community resources, or creating opportunities for neighbors to support one another, Reid is driven by a desire to make Whidbey Island a better place. He’s always looking for creative ways to help—whether it’s growing local businesses or offering a hand to those in need. For Reid, it’s about more than just real estate; it’s about building a stronger, more connected community through kindness, collaboration, and service.
Reid can be reached:
Phone: (360) 929-4808
Email: reid@reidschwartz.com
Website: reidschwartz.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
There's a beer.
I mean, I know, I know I knowright, I know so Alan hey, we're
here to talk about appraisals.
Speaker 2 (00:07):
Tell me a little bit, how'd you get started in
appraisals, in the appraisalbusiness?
Speaker 1 (00:12):
Well, I started with the religious studies degree, so
you can see that naturallyflows.
Yeah, absolutely To appraisal.
Speaker 2 (00:18):
Like a house of God.
Appraising a house, that'sright.
Speaker 1 (00:26):
I graduated from high school here in Oak Harbor and
then was in Seattle for a fewyears going to school, was able
to come back and startappraising with Carol Seth who
had been appraising one of theearly appraisers in Oak Harbor
and on the island.
You know she was one of thoseearly, the early iterations of
some of the first banks onWhidbey.
Anyway, that's where shestarted.
So she started appraising inthe 80s.
Licensing for appraisals forappraisers came on the scene in
(00:50):
the early 1990s and that's whenshe went pretty much independent
.
Speaker 2 (00:54):
As an appraiser?
Did she just work directly forthe bank?
Yeah, she worked directly forthe bank.
Speaker 1 (00:59):
She worked directly for the bank.
There's been a lot of changesover time.
Oh yeah, it was quite adifferent working model how we
went about appraising propertiesand valuing them and the
requirements of the banks had toadhere to or lack of
requirements.
So you know, with licensingthat kind of created a sweeping
change.
So then in the late 90s I cameand started apprenticing with
(01:19):
her relocated back to the island.
I was working with her untilshe retired in about 2005.
I had brought one otherappraiser on to work with me who
subsequently moved on to otheradventures.
But I have been appraising hereon Woodby ever since, covering
mostly specializing in WoodbyIsland but a small percentage in
(01:40):
Skagit County for FidalgoIsland and Camino Island and
kind of off island market.
So I just work independentlyand I work for primarily for
lending institutions doingmortgage loans for purchases and
refinances.
But I also do private workvaluations for estates when
there's been a passing and theyneed retrospective appraisals
(02:03):
like date of death appraisalswhen there's been a passing and
they need retrospectiveappraisals like date of death
appraisals.
Land trusts who are acquiringproperty require appraisals,
various appraisals for taxpurposes and so forth.
So an appraiser is justengaging with the mortgage
market.
Speaker 2 (02:14):
When somebody has a homeowner, you know, when
somebody is buying a home, theygo, hey.
I mean I tell them, hey, it'sgot to get appraised.
The bank is the one thatactually orders the appraisal.
But how does that go?
What's that process?
Because they don't go directlyto you.
Speaker 1 (02:27):
There is an intermediary.
So prior to the great recessionof 08, lending institutions
could operate quite liberally,engaging appraisers as they saw
fit.
What kind of emerged on theheels of that collapse in 08 was
that there was a lot ofmanipulation.
So values were beingmanipulated, so work was being
(02:48):
either assigned or appraiserswere being rejected, based on
essentially developingpredetermined values.
Speaker 2 (02:55):
You don't want to appraise it for this much.
We'll find somebody that will.
Speaker 1 (02:57):
Yes and there were plenty of appraisers who were
quite unethical and regularlyengaged in that kind of behavior
and unfortunately it created alot of problems Subsequent to
that skills of the Frank DoddAct.
As we were trying to recoverour financial institutions, they
decided to change the wholeworking model.
(03:18):
So essentially, appraisers areengaged through a third party
called an appraisal managementcompany and they are the
intermediaries between thelenders and the appraisers.
And that firewall wasestablished to keep manipulation
from happening, to prevent thehidden, undisclosed pressure on
(03:38):
appraisers to hit or targetvalues.
So, as it is now, there areprobably about 130 different
appraisal management companiesthat operate in Washington state
.
Oh, wow, Just in Washington,yeah.
Just in Washington.
Many of them have become.
There were initially.
There were some regionalmanagement companies.
There still are a few of those,but mostly you're looking at
(04:01):
national organizations thatfunction in the predominance of
states.
The individual fee appraiser,like myself, will apply to
become a panel appraiser forthose different management
companies, and they ideally.
They do background checks, theylook at resumes, they look at
work product, they kind ofestablish the credibility of the
appraiser and then essentiallysend them work to bid on.
(04:22):
So usually there are somemanagement companies that will
just I have a relationship wherethey just send me work, I just
reply and go get it.
Sometimes, though, there aremanagement companies who will
put out to bid, so they'll huntfor the lowest bidder.
Speaker 2 (04:35):
And I've heard that term, having a panel, each
management company, the group ofappraisers, that is their panel
, or are there different panels?
Speaker 1 (04:43):
That's correct.
Each management company hastheir own set of appraisers that
they approve to do work.
What we've seen is that wheresome of the management companies
came onto the scene they teamedup with some of the larger
mortgage entities.
Because the industry haschanged so much we have a real
proliferation of a kind of abroker model.
So we have a lot of independentmortgage companies that are
(05:05):
writing loans.
So those AMCs represent a lotof different mortgage companies.
So I don't always know who thelender will be that I'm going to
work for.
But it's usually within thatset of appraisal management
companies.
The only caveat is for, like,veterans Affairs appraisals.
So VA has a fixed roster ofappraisers.
So to do VA appraisals you haveto be approved to be on the VA
(05:29):
roster and then lenders orderdirectly to those roster of
appraisers outside the AMC model.
Speaker 2 (05:35):
And that was something I wanted to get to was
when you're doing an appraisal,there's a difference between a
homeowner's concern with youknow what's going to go wrong on
my appraisal.
Make it look good, it needs topresent well, but when it comes
to there's certain things that aVA or I guess any government
insured loan, va, fha, usda, dothey pretty much all fall in the
same rules.
Speaker 1 (05:56):
Yeah, they are very.
There's a lot of overlapbetween the requirements that VA
imposes and FHA.
It's a little bit more rigorous.
So you see things like on theconventional side, appraisers
aren't required to stick theirhead in the attic or stick their
head in the crawl space.
Va it's mandatory, fha it'smandatory.
Fha requires that we test tosee if utilities are operational
(06:18):
.
For instance, is the range ovenfunctioning, is the heating
functioning, the lights function.
So they go a little bit aboveand beyond what the traditional
conventional market requires.
So there's a little bit more.
There's a little bit more workthere for the appraiser.
But they also have some real.
They have some uniquestipulations or they have a
scope of work that they requireappraisers to adhere to.
Speaker 2 (06:42):
That's a little bit more rigorous than, say, just
traditional conventional loansthat you get I've seen come up
is uh, that I've not seen onconventional is a gfi, gfcis, oh
yeah, um okay, bare wood.
Speaker 1 (06:56):
Yes, bare wood is a big one outside of the house
bare wood, rotten wood and decksand stuff.
Speaker 2 (07:02):
Yes, that kind of goes with the bare wood thing I
would imagine pretty intuitive.
Speaker 1 (07:06):
Most of the the requirements that I make
appraisal subject to, uh, withinthe FHA and VA circles is it's
just that bare wood on fascia,maybe some rotting boards on the
deck, those sorts of things.
Um, really intuitive.
So, and then stuff that's likeanyone's going to recognize as a
problem Is the floor mushyaround the toilet?
(07:29):
Has there been a previous leak?
Is there mushiness under thevanity in the bathroom?
Because there's a slow leak,like things that you're really
are going to prettytransparently recognize loosely.
That's kind of it.
The conventional side.
They're just a little bit moretolerant, kind of an as-is.
But even VA has moved over overthe last decade kind of more
(07:51):
into that camp where they'rewilling to accept a property on
the inside as long as it'sstructurally sound and
everything's serviceable andworking.
There's bare wood or damagedfloors or those kinds of things.
They want us to just appraiseit as is.
Because there was a historywhere there was an intimidation
that came along with VAappraisers or VA appraisals in
(08:12):
which you know there was thisimplied understanding that VA
required a little bit more.
You couldn't have a sub-averageinterior condition.
Well, they've completely walkedaway from that so you can have
an inside that's in low averagecondition, but they want to make
sure enclosure is sound.
Speaker 2 (08:27):
Keep the weather on the outside, because the water
destroys everything.
Speaker 1 (08:31):
It's amazing and as appraisers, we traditionally one
of the things that is requiredby all lending institutions, but
also VA, is that we assign aneffective age of the dwelling.
So the house might be built inthe 1940s but it's been
rehabilitated, revitalized, gotan effective age of like 10
years now and they use that tobase how much life is going to
(08:53):
be there for that house.
Is the house going to lastlonger than the 30-year mortgage
is what they're reallyconcerned about.
We assign an actual, aneffective age.
But the thing that's peculiarto me is that as long as you
keep particularly in theNorthwest here as long as you
keep the roof solid and you havereal wood siding and you keep
it relatively maintained I wasin a house built in the 1930s
(09:15):
the other day and I'm, like youknow, we start out with like an
with an estimated actual age of70 to 80 years, but this house,
you know, is creeping on 90,almost 100, right, and it's
still going strong, it's stillmarketable.
So it kind of really that wholeeffective age kind of really
revolves around how am I goingto compare it with other homes
(09:35):
in the market?
And appraisers try to look atsimilar effective age dwellings.
So if a house has been taken wehave tons of these in our
market that they've been quoteflipped or rehabilitated and
you'll have a house built in the50s.
You walk in the door and itfeels like it's five years old
or three years old, like it'sbrand new right.
So it has fresh life in it.
(09:56):
It's going to have a lot ofyears ahead of it and, quite
frankly, it's more comparable insome ways with much younger
actual age homes.
So that's kind of how we lookat it.
Speaker 2 (10:06):
So when you do an appraisal, what geographic area
do you look at?
That?
A house, so a house, say, overon the east side of Oak Harbor,
you know, built in 1960, how bigof a geographic area do you
look for comps in?
Speaker 1 (10:21):
Really, I think first of all you have to tether into
the fundamental problem what isthe property that I'm trying to
value, or we're trying to value?
Who are the market participantsthat are going to be shopping
that and this?
A lot of contrast can come whenyou say another example.
Let's take a waterfront, highbank waterfront along Scenic
Heights Road, the market areathat I'm going to search for
(10:42):
comparables for that waterfront,it might be expanded
significantly so that maybe I'mmoving further south on the
island, further north on theisland I'm searching a greater
geographic proximity, becausethe typical consumer for that
type of product is looking at,well, what's available in the
market.
Typically we don't have a lot ofthose homes in the market.
And two, the location, nuanceand appeal is kind of going to
(11:06):
be different than if we say, forinstance, look at this house in
Southeast Oak Harbor.
For the house in Southeast OakHarbor I'm going to look at city
limits proper.
Ideally I'm going to look in.
I'm going to look carefully atwithin a half a mile to a mile,
what is transact.
What we've seen recently issales drop significantly.
So the sales volume has droppedoff in our market.
There's fewer data points toanalyze.
(11:29):
So when there's fewer data we goback further in time and we
search out more broadly.
But generally speaking, youknow city limits proper.
I'm going to be looking citylimits proper.
The exception is going to bewhere we've got something that's
got a significant viewinfluence or it's a very high
quality dwelling, it's a verygood or excellent quality
dwelling that's much larger.
So we're going to have to maybesearch further.
(11:50):
So in that sense that's kind ofhow.
That's how I'm going to look.
What I'm not going to do is goto city limits of coopville and
pull a comparable for citylimits of ocarbor caveat,
there's always caveats unlessI'm appraising maybe a turn of
the century and so I'm lookingfor something that was built in
the 1890s or early, early 1900s.
And then I might say, okay, I'mgoing to look maybe more
broadly and maybe I need to lookat, I need to look at city
(12:12):
limits proper of of Coopville orfor Coopville I need to look at
Langley.
So those.
There's always exceptions, butthe general rule of thumb is
that you know, the closer theproximity, the better the
indication of what the market'sdoing Right and when you're
looking at those, I mean you'relooking at, you know, a ranch
compared to a ranch.
Speaker 2 (12:29):
We're not looking at a two-story or a split.
Speaker 1 (12:32):
We depart from that only if, boy, there just haven't
been any sales and I'm going tohave to take a daylight
basement and compare it to aranch, because they were built,
similar age, they're in thesimilar immediate proximity,
similar updating and so forth.
So, but generally we want to golike for like as best we can,
and that really becomes notable,particularly when you talk
about like bathroom count andbedroom count.
(12:54):
You know, when you get down toa property that has maybe just
one bedroom or maybe twobedrooms you know I'm going to
try to model that with two orone bedrooms, three bedrooms to
four bedrooms, right, we mightlook at that range.
Where it becomes reallysignificant is we look at
bathroom utility, and everyonewho has a family knows if you've
only got one and a half bath,well, that second half bath is
good, it's somewhere people canpowder their face.
(13:15):
But when you got a family witha bunch of kids, that difference
between one and a half and twocan really drive such that
you'll say, hey, what are thepeople shopping for this product
?
What are they looking for?
Well, they're not looking for abathroom and a half, they're
looking for two bathrooms, right, and so that can really kind of
help distinguish and kind ofdirect where we go looking for
comparable properties.
Speaker 2 (13:33):
The bathroom and a half is way better than the one
bath.
Speaker 1 (13:36):
But it is always better than one bath and you get
over on the east side.
Speaker 2 (13:45):
So when you go you get these jobs from the company
that distributes them and youget to choose the geographic
area you want to work in.
So you said you mostly workhere on Whidbey Island.
Speaker 1 (13:50):
Yep.
One of the requirements thatthe uniform standards of
professional appraisal practice,which is like the rule book or
the law for appraisers, is thatwe have to have competency in
the markets that we appraise in.
Question of competency emergesregularly.
Amcs appraisal managementcompanies go to offer a job to
an appraiser.
They want to see that they havegeographic competency.
(14:10):
They want to see that they havegeographic competency.
Unfortunately, you know, notevery appraiser appraising in
Oak Harbor is going to havegeographic competency.
The way that that industry, theway that it's kind of regulated,
has allowed room for appraisersfrom significant distances to
come and appraise in our market.
Some may have competency butgenerally speaking, the rule of
(14:33):
thumb is AMCs are looking forpeople who are geographically
proximate to the property thatthey're going to be appraising.
I think it's critical If youare working in multiple market
areas and multiple neighborhoods, managing that data, tracking
the trends it's very difficultto do, particularly if you're
only doing one-offs Maybe you'redoing one every few months.
In a market, just what kind ofcompetency can you develop or
(14:55):
accrue over a length of time?
So for me, I think that's whyI've always leaned hard into
being a competent appraiser onWhidbey Island, fidalgo Island
and keeping kind of in thatmarket area.
But sometimes you may get anappraiser quite a ways away.
Sometimes I get offers toappraise in Bellingham, out in
the sticks in Concrete ornorthern Snohomish County.
(15:16):
I'll get requests even thoughI'm not competent or consider
myself competent to appraisethose.
So it's really self-policed.
Speaker 2 (15:23):
There's a lot of time involved in becoming a licensed
appraiser.
Yes, and how is that affecting?
As in many trades, we findpeople that are retiring and
there aren't enough peoplecoming up to replace them.
How is?
And I would guess that some ofthem asking you to go here is
they don't have somebody to goto concrete.
Speaker 1 (15:45):
They're running into that problem again.
I think what happened is goingback in time.
We can see the fallout from the08 recession.
It was like someone turning thefaucet off for appraisers.
The mortgage lending justevaporated.
We had a lot of attrition inthe industry.
A lot of people who wereconsidering retiring said well,
(16:05):
this is it, final draw, I'm out.
A lot of people that justcouldn't accrue enough appraisal
volume to make it a supportablevocation.
So we lost a lot of people.
We started to see, probably inthe 14, 15, 16, we saw kind of a
movement where people weretaking apprentices back on again
.
Which brings me into kind of thekind of requirements.
So appraisers to be licensed orcertified in Washington state
(16:29):
have to meet a two-yearapprenticeship requirement.
It's not just that it's twoyears, it's a certain number of
hours of experience.
Depending on the volume of theagency you're working for, you
may or may not be able to do theapprenticeship in two years.
It might take longer.
There's a minimum corerequirement of classes that are
required with exams.
There's a final state exam andthere's also an education
(16:52):
requirement.
Most recently they've kind ofrolled back the education
requirement.
It was a four-year degree.
They raced to the polls to theextremes, where there was no
education requirement.
The recession 08 hit and theysaid, oh my gosh, we need to get
competent, qualified people in.
Everyone has to have abachelor's degree.
So they kind of went that way,so that made it even harder to
bring people in.
The third leg of that is thatmost of our appraisers are
(17:18):
independent fee appraisers whowork outside of the lending
institutions.
They work as independent feeappraisers.
Some might work in smalloffices with a couple of
appraisers.
The predominance are oneappraiser offices, like myself.
And so what has happened is theburden was shifted from the
lending institutions to policethemselves to hey, here's a
(17:41):
certified state appraiser, theycan manage themselves, they can
handle that liability, and thebanks completely withdrew, and
so it left a bunch of appraisersreally not equipped to train,
bring people up bring people inand and the financial
feasibility of bringing on atrainee.
That for me became the numberone resistance or kink point in
(18:05):
the hose, because it costs a lotof money, there's a lot of time
, there is an incredible lengthyamount of training, there's a
(18:36):
lot of time, there is anincredible lengthy amount of
training, and then just managingall that is incredibly.
We see that in a lot there's alot of crossover in different
industries where there's asimilar scenario.
So that makes it kind ofdifficult to kind of roll out a
model that works.
So the end of it is that weyeah, we were seeing we've seen
a massive drop in the number ofappraisers out there.
Right now it's acceptablebecause mortgage lending has
been at such low volumes.
But mark my words, when thetide turns, everyone's going to
(18:58):
be screaming about how therearen't enough appraisers and we
can all blame the banks for that.
Speaker 2 (19:02):
State appraiser association of some kind.
Speaker 1 (19:05):
They're not state backed, but there are.
We have the appraisal institute.
We have a few other independentappraisal organizations that
have been around for hours Imean for years I should say not
hours for years.
That have been kind of theinstitutions that we affiliate
with, that provide education,regulatory updates,
(19:28):
collaboration, those kinds ofthings, but they're really not
engaged in the kind of educating, training and then pumping out
appraisers equipped to go to themarket.
That requires people likemyself, and so there's been
really no change there.
But I think we'll see it.
I think we may see more changesas we kind of emerge out of
(19:51):
this cycle that we're in and aswe see sales volume look at the
date of this recording thingsare.
The stock market's crashingright now and there's a mess.
There's a lot going on in themarket that could affect is
still pretty tight that's tightI mean people like to think it's
going
Speaker 2 (20:08):
to pick back up.
Yeah, regardless of whatinterest rate.
If interest rates come down,there'll be more sales of
individual homes, but we'llstill have a housing shortage.
We'll still have a housingshortage because we're after 08.
We're all those, because allthose appraisers got out of
business.
Yeah, all the builders, I think.
In 2006, they built like 1.8million houses in the united
states and by 2009 it was like430,000.
(20:30):
How many people did it take tobuild 1.2 million houses that
didn't have a job?
Yeah, it was a mess.
Speaker 1 (20:37):
Yeah, and you know to ground it just down in the
human level, like you and Isitting here not only am I an
appraiser but I'm a homeowner weget scared, we get nervous, we
get afraid of risk and whenyou're risk averse you know
you're not going to take thatchance to maybe write on a
contract.
Write a contract on a purchaseor maybe for that small builder
who builds fewer units they'relike I just don't want to take
(20:59):
the risk.
And so it all is multiplied sothat while you might hear in the
national news a surplus of ofhousing units in many markets or
prices declining in manymarkets I just looked at at
north, just to ground it intonorth would be a city limits
proper.
Today, on a seasonally adjustedinventory, we have about just
(21:20):
over a month supply of inventory.
On a one month basis we haveabout half a month of inventory.
A balanced market should bethree to six months of inventory
.
Yeah, so you can see reallyquick with this.
We're in a pickle with inventoryand it's not being remedied,
even though we have a number ofbigger plots that are being
built.
Right now we have several underconstruction with 30, 40, 50
(21:43):
units that are coming up quickly.
They're going into contractquickly, but the used market,
the used market is really tight.
People aren't leaving thosemortgage rates that they have
and so it's only aggravated theundersupply that we've had all
the way going back.
The last time we had a surplusor a balanced market would have
been on the heels of the 08,maybe up until about 11 or 2012
(22:06):
before we saw a correction toundersupply.
And it's been undersuppliedever since.
Sometimes just grosslyundersupplied where I'll do a
value on a property and thereare literally no other competing
properties Makes it tough andit means there's more
competition for buyers andsellers.
Sometimes it favors the buyer,sometimes it favors the seller.
(22:27):
The ground level it has been agrossly undersupplied market and
that's not changed, even thoughinterest rates have come up,
you know, even though priceshave been a bit more sluggish,
with very mild increase yearover year we're kind of back to
the median average three, fourpercent.
Yes, that's exactly where we are.
Speaker 2 (22:47):
Which I think that's one of the things that so many
people got.
When a really great thinghappens, you know you win the
lottery.
You're like yeehaw let's goshopping.
And that's kind of what happenedduring COVID is.
You know interest rates camedown and you know people just
went crazy and that's just notgoing to.
I mean that's you know.
(23:10):
Our interest rates are at theaverage of the last 40 years, 7%
is normal.
I bought my first house.
We had to get an adjustablerate mortgage to get it below 10
.
Yes, what was that?
That was in 1989, I think 89,okay that sounds right.
Speaker 1 (23:23):
Um that's right oh one maybe 88.
Fast forward to 01.
When I bought my first placeseven percent, which actually
seven was like yeah, you'relooking good baby yeah, there's
like nine point something and itwent up.
Speaker 2 (23:38):
Well, just, those are all good.
Yeah, well, they're fixed, andthen they start going up.
Speaker 1 (23:42):
Yeah, you know it's, it's easy to, it's easy to kind
of perceive uh, real estate islike this solid, permanent,
monolithic kind of entity.
But when we look at prices, wereally we have to understand
that there's a lot of nuance.
The market, it rises and falllike the tides.
(24:02):
It comes in sometime muchhigher than it does other days,
but it's in constant fluctuation.
So it's a slow, rollingmovement of prices and it's
always been that way.
The exceptions are when we havethose flaming hot markets like
the COVID, and we can see thateven against inflation adjusted
(24:22):
price changes, we still are,just, we're still under the
market peak for inflationadjustment.
So what we see is that, like,you can really see that, whoa,
that was a flash in the pan.
Someone just threw something ona hot Skittle, cooked it up for
a couple minutes and then boom,and then we moved on and then
we were at the next place and wekind of have seen that, moving
(24:43):
out of the COVID era, whereprices have settled down, the
rate of appreciation, the rateof market competition is nowhere
near like what it does.
But we get imprinted as marketconsumers and we think in our
head that a value is a value.
It's a one-time value.
Well, I've had my appraisal onmy house a few years back and it
was X.
Well, that appraisal is onlyvalid for the day.
(25:06):
I'm taking a picture of the dayof that market, all the
influences, the inventorypercentage pending of that
market, all the influences, theinventory percentage pending,
the number of buyers and sellers, the number that you know, all
of those.
It's a snapshot of a day and soI think we always have to come
back to that.
An appraisal or a value givenby an appraiser.
It's for a day.
Fannie Mae might allow you touse that for a month or two or
(25:30):
three months, depending on themarket conditions.
But generally speaking, if it'sthat if that appraisal becomes
dated, they're going to get anew, fresh one.
It's just a snapshot.
Speaker 2 (25:39):
Well, it's just like when somebody buys a house, the
value of the house is what abuyer and a seller agree to pay
on this day, yep, yep.
Not tomorrow, not last week,absolutely, it's right.
Speaker 1 (25:50):
And so, and you know, and that brings something kind
of interesting.
It's like people get people get, people get afraid.
So right now we might seesomeone, an occasion where
they're making there's somecompeting offers on a property
and it's coming up, the price isbeing driven up above list
price.
That's happening quiteregularly, no-transcript willing
(26:40):
to do or not do.
And if I, as an appraiser, I'mhanded three offers on a
property and all those offersare over list price and maybe
significantly over list price,immediately I'm saying we've got
something going on here.
That value is not grounded intothe list price by any means.
It's grounded into what werethe competing offers.
(27:01):
And so am I, as an appraiser,going to be able to appraise up
to that higher range?
Possibly, quite likely.
Yes, because, just coming backto what you just said, it's a
willing buyer, a willing selleracting in their own best
interest.
On that day, and on that day wehad three people making offers.
20,000 over list.
Is the value?
20,000 over list?
Well, probably is.
Speaker 2 (27:23):
I sold one a couple of years ago.
That was 250 over asking andappraised.
Speaker 1 (27:29):
Whoa, actually you did.
Oh, okay, yeah, but we had one.
Yeah, I did, but we had fouroffers.
Speaker 2 (27:33):
Yeah, four offers and three of them were at that same
price.
Yes, this is a dollar.
Speaker 1 (27:38):
Yes, I mean, it makes me.
Speaker 2 (27:40):
Yeah, that's where I think we first met.
Speaker 1 (27:42):
Yeah, that's where we first met down in Green Bank.
Yep, yep.
It reassures me, and it shouldthe market participants, the
agents writing and acceptingthose offers, because it's
giving us a really good pictureof what the market's doing today
.
Yeah, when it's a one offer andit was on the market maybe for
(28:02):
a month, two, three months, Ibecome less tethered to the
representation of that singlecontract offering, as though
that's really representing whatmost buyers and sellers are
doing.
So the more more offers we get,boy, the easier our job becomes
, in my opinion.
Yeah.
Speaker 2 (28:17):
Well, this has been fascinating.
Thank you very much.
Anything you think of that areal estate agent would.
I mean you've talked about alot of things that I think other
agents would get a lot ofinformation out of.
Anything you could think ofthat they may not be aware of.
Speaker 1 (28:32):
Yeah, I keep trying to reduce down my view, I keep
trying to simplify my view.
When I talk about it, it's easyto get into the weeds because,
as an appraiser, we're doingsomething that, yeah, am I
assigning a value?
Yes.
As a realtor, are you assigningvalue?
Yes, but there's a little bitof a there's a different scope
of work.
There's a different scope ofwork.
(28:53):
There's a different level ofmethodology.
There's, there's, there's adifferent level of of
sophistication, usingstatistical regression, you know
, advanced charting and Excelwork and and looking
mathematically at the problem ina way that I'm trying to show
evidence and support andcalculations that verify to a
(29:16):
level that most agents, you know, don't go to.
So what I, in order to behelpful to look at how I
perceive the big picture, if wethink of it as a pie and I'm
going to talk just about Northwould be for right now for for a
lot, but just let's just talkabout Northwoodby.
So if you look at the pie ofvalue, you can take a pie.
(29:39):
The sales price of a property,let's say, is $400,000.
Okay, that $400,000 pie I amgoing to mathematically break up
into a number of different,what we call independent
variables, the variables thatcontribute to sales price.
So we all got a feeling forwhat these are.
(30:00):
Um, how big is the house, so?
Which is square footage?
How old is the house?
How many years is it?
How many bathrooms does it have?
How many garages does it have?
How big is the site?
Right?
And and then, does it have aview?
Does it not have a view for?
Speaker 2 (30:14):
a single story, two stories, single story style,
style has a variable.
Speaker 1 (30:18):
So really we can ground down into very high
statistical confidence, um, intoabout six to eight variables of
influence.
So we can say with very highstatistical confidence that I
can map out this $400,000 salebased on square footage
accounting for about 30% ofvalue, condition accounting for
(30:41):
about 10 to 20% of value,bathrooms counting for about 10,
garages counting from about 10to 15, and then a lot, the size
of your lot can be anywhere frommaybe five to about nine
percent of the sales price.
For instance, a view influenceof that pie might, might
(31:03):
represent anywhere from aboutsix percent to about 15 percent,
right?
So you so, just if you kind ofcan take that as a framework,
then you can begin to say, okay,so now I'm going to look at a
property A, b and C that I thinkare kind of like my house, and
take that pie, drop that pieover the top, and then you can
(31:25):
begin to kind of tease out If aview in our market can affect,
let's say, 10% of sales price.
And I got a house that's got agreat view and my house has a
marginal view.
You know, maybe there's a threepercent difference, maybe
there's a five percentdifference.
It allows you to kind of useyour reasoning skills and
(31:45):
subjectively say, hey, um, I cansay this non-view and this,
compared against this full,beautiful, good quality water
view, maybe beat, that might bethat entire margin of 12 percent
, right, all of it in thedifference.
Take that 12 percent, put itinto four or, let's make it easy
, 10 percent into that 400 000,could that view influence about
(32:07):
40 000 dollars?
Absolutely, absolutely.
And so, and we can do, we cansee the same thing with the
garage if it has one or two, ifthat's about, if that's about,
12 percent of value.
We can see the same thing withthe garage If it has one or two,
if that's about, if that'sabout, 12% of value.
We can do the same thing.
So what is so, if I'm going tohave to use a comparable, uh,
that's got one garage, um, andI'm going to have to use a
comparable, that's got two, youknow where's that margin going
to fall?
Is it about five?
Is it about 5%?
(32:28):
Maybe there's about a $15,000adjustment.
You know, you can kind of teasesome of these things out.
So I think, just having thatgeneral model map of
understanding that are there amathematically verifiable
relationships between those coresix to eight variables and
(32:48):
sales price, and those, arguably, are what most appraisers
should be drilling down into tomake their adjustments to
compare A to B and A to C.
So yeah, I think that's just agreat simple way of looking at
it.
Yeah, the pie, the value pie.
Speaker 2 (33:04):
All right, Alan.
Well, thank you very much.
Speaker 1 (33:07):
That's been educational and fun.
Speaker 2 (33:08):
Yeah, you bet and hopefully, everybody enjoys that
and learned something.
There's a beer.
I mean, I know, I know I knowright, I know so Alan hey, we're
here to talk about appraisals.
Speaker 2 (00:07):
Tell me a little bit, how'd you get started in
appraisals, in the appraisalbusiness?
Speaker 1 (00:12):
Well, I started with the religious studies degree, so
you can see that naturallyflows.
Yeah, absolutely To appraisal.
Speaker 2 (00:18):
Like a house of God.
Appraising a house, that'sright.
Speaker 1 (00:26):
I graduated from high school here in Oak Harbor and
then was in Seattle for a fewyears going to school, was able
to come back and startappraising with Carol Seth who
had been appraising one of theearly appraisers in Oak Harbor
and on the island.
You know she was one of thoseearly, the early iterations of
some of the first banks onWhidbey.
Anyway, that's where shestarted.
So she started appraising inthe 80s.
Licensing for appraisals forappraisers came on the scene in
(00:50):
the early 1990s and that's whenshe went pretty much independent
.
Speaker 2 (00:54):
As an appraiser?
Did she just work directly forthe bank?
Yeah, she worked directly forthe bank.
Speaker 1 (00:59):
She worked directly for the bank.
There's been a lot of changesover time.
Oh yeah, it was quite adifferent working model how we
went about appraising propertiesand valuing them and the
requirements of the banks had toadhere to or lack of
requirements.
So you know, with licensingthat kind of created a sweeping
change.
So then in the late 90s I cameand started apprenticing with
(01:19):
her relocated back to the island.
I was working with her untilshe retired in about 2005.
I had brought one otherappraiser on to work with me who
subsequently moved on to otheradventures.
But I have been appraising hereon Woodby ever since, covering
mostly specializing in WoodbyIsland but a small percentage in
(01:40):
Skagit County for FidalgoIsland and Camino Island and
kind of off island market.
So I just work independentlyand I work for primarily for
lending institutions doingmortgage loans for purchases and
refinances.
But I also do private workvaluations for estates when
there's been a passing and theyneed retrospective appraisals
(02:03):
like date of death appraisalswhen there's been a passing and
they need retrospectiveappraisals like date of death
appraisals.
Land trusts who are acquiringproperty require appraisals,
various appraisals for taxpurposes and so forth.
So an appraiser is justengaging with the mortgage
market.
Speaker 2 (02:14):
When somebody has a homeowner, you know, when
somebody is buying a home, theygo, hey.
I mean I tell them, hey, it'sgot to get appraised.
The bank is the one thatactually orders the appraisal.
But how does that go?
What's that process?
Because they don't go directlyto you.
Speaker 1 (02:27):
There is an intermediary.
So prior to the great recessionof 08, lending institutions
could operate quite liberally,engaging appraisers as they saw
fit.
What kind of emerged on theheels of that collapse in 08 was
that there was a lot ofmanipulation.
So values were beingmanipulated, so work was being
(02:48):
either assigned or appraiserswere being rejected, based on
essentially developingpredetermined values.
Speaker 2 (02:55):
You don't want to appraise it for this much.
We'll find somebody that will.
Speaker 1 (02:57):
Yes and there were plenty of appraisers who were
quite unethical and regularlyengaged in that kind of behavior
and unfortunately it created alot of problems Subsequent to
that skills of the Frank DoddAct.
As we were trying to recoverour financial institutions, they
decided to change the wholeworking model.
(03:18):
So essentially, appraisers areengaged through a third party
called an appraisal managementcompany and they are the
intermediaries between thelenders and the appraisers.
And that firewall wasestablished to keep manipulation
from happening, to prevent thehidden, undisclosed pressure on
(03:38):
appraisers to hit or targetvalues.
So, as it is now, there areprobably about 130 different
appraisal management companiesthat operate in Washington state
.
Oh, wow, Just in Washington,yeah.
Just in Washington.
Many of them have become.
There were initially.
There were some regionalmanagement companies.
There still are a few of those,but mostly you're looking at
(04:01):
national organizations thatfunction in the predominance of
states.
The individual fee appraiser,like myself, will apply to
become a panel appraiser forthose different management
companies, and they ideally.
They do background checks, theylook at resumes, they look at
work product, they kind ofestablish the credibility of the
appraiser and then essentiallysend them work to bid on.
(04:22):
So usually there are somemanagement companies that will
just I have a relationship wherethey just send me work, I just
reply and go get it.
Sometimes, though, there aremanagement companies who will
put out to bid, so they'll huntfor the lowest bidder.
Speaker 2 (04:35):
And I've heard that term, having a panel, each
management company, the group ofappraisers, that is their panel
, or are there different panels?
Speaker 1 (04:43):
That's correct.
Each management company hastheir own set of appraisers that
they approve to do work.
What we've seen is that wheresome of the management companies
came onto the scene they teamedup with some of the larger
mortgage entities.
Because the industry haschanged so much we have a real
proliferation of a kind of abroker model.
So we have a lot of independentmortgage companies that are
(05:05):
writing loans.
So those AMCs represent a lotof different mortgage companies.
So I don't always know who thelender will be that I'm going to
work for.
But it's usually within thatset of appraisal management
companies.
The only caveat is for, like,veterans Affairs appraisals.
So VA has a fixed roster ofappraisers.
So to do VA appraisals you haveto be approved to be on the VA
(05:29):
roster and then lenders orderdirectly to those roster of
appraisers outside the AMC model.
Speaker 2 (05:35):
And that was something I wanted to get to was
when you're doing an appraisal,there's a difference between a
homeowner's concern with youknow what's going to go wrong on
my appraisal.
Make it look good, it needs topresent well, but when it comes
to there's certain things that aVA or I guess any government
insured loan, va, fha, usda, dothey pretty much all fall in the
same rules.
Speaker 1 (05:56):
Yeah, they are very.
There's a lot of overlapbetween the requirements that VA
imposes and FHA.
It's a little bit more rigorous.
So you see things like on theconventional side, appraisers
aren't required to stick theirhead in the attic or stick their
head in the crawl space.
Va it's mandatory, fha it'smandatory.
Fha requires that we test tosee if utilities are operational
(06:18):
.
For instance, is the range ovenfunctioning, is the heating
functioning, the lights function.
So they go a little bit aboveand beyond what the traditional
conventional market requires.
So there's a little bit more.
There's a little bit more workthere for the appraiser.
But they also have some real.
They have some uniquestipulations or they have a
scope of work that they requireappraisers to adhere to.
Speaker 2 (06:42):
That's a little bit more rigorous than, say, just
traditional conventional loansthat you get I've seen come up
is uh, that I've not seen onconventional is a gfi, gfcis, oh
yeah, um okay, bare wood.
Speaker 1 (06:56):
Yes, bare wood is a big one outside of the house
bare wood, rotten wood and decksand stuff.
Speaker 2 (07:02):
Yes, that kind of goes with the bare wood thing I
would imagine pretty intuitive.
Speaker 1 (07:06):
Most of the the requirements that I make
appraisal subject to, uh, withinthe FHA and VA circles is it's
just that bare wood on fascia,maybe some rotting boards on the
deck, those sorts of things.
Um, really intuitive.
So, and then stuff that's likeanyone's going to recognize as a
problem Is the floor mushyaround the toilet?
(07:29):
Has there been a previous leak?
Is there mushiness under thevanity in the bathroom?
Because there's a slow leak,like things that you're really
are going to prettytransparently recognize loosely.
That's kind of it.
The conventional side.
They're just a little bit moretolerant, kind of an as-is.
But even VA has moved over overthe last decade kind of more
(07:51):
into that camp where they'rewilling to accept a property on
the inside as long as it'sstructurally sound and
everything's serviceable andworking.
There's bare wood or damagedfloors or those kinds of things.
They want us to just appraiseit as is.
Because there was a historywhere there was an intimidation
that came along with VAappraisers or VA appraisals in
(08:12):
which you know there was thisimplied understanding that VA
required a little bit more.
You couldn't have a sub-averageinterior condition.
Well, they've completely walkedaway from that so you can have
an inside that's in low averagecondition, but they want to make
sure enclosure is sound.
Speaker 2 (08:27):
Keep the weather on the outside, because the water
destroys everything.
Speaker 1 (08:31):
It's amazing and as appraisers, we traditionally one
of the things that is requiredby all lending institutions, but
also VA, is that we assign aneffective age of the dwelling.
So the house might be built inthe 1940s but it's been
rehabilitated, revitalized, gotan effective age of like 10
years now and they use that tobase how much life is going to
(08:53):
be there for that house.
Is the house going to lastlonger than the 30-year mortgage
is what they're reallyconcerned about.
We assign an actual, aneffective age.
But the thing that's peculiarto me is that as long as you
keep particularly in theNorthwest here as long as you
keep the roof solid and you havereal wood siding and you keep
it relatively maintained I wasin a house built in the 1930s
(09:15):
the other day and I'm, like youknow, we start out with like an
with an estimated actual age of70 to 80 years, but this house,
you know, is creeping on 90,almost 100, right, and it's
still going strong, it's stillmarketable.
So it kind of really that wholeeffective age kind of really
revolves around how am I goingto compare it with other homes
(09:35):
in the market?
And appraisers try to look atsimilar effective age dwellings.
So if a house has been taken wehave tons of these in our
market that they've been quoteflipped or rehabilitated and
you'll have a house built in the50s.
You walk in the door and itfeels like it's five years old
or three years old, like it'sbrand new right.
So it has fresh life in it.
(09:56):
It's going to have a lot ofyears ahead of it and, quite
frankly, it's more comparable insome ways with much younger
actual age homes.
So that's kind of how we lookat it.
Speaker 2 (10:06):
So when you do an appraisal, what geographic area
do you look at?
That?
A house, so a house, say, overon the east side of Oak Harbor,
you know, built in 1960, how bigof a geographic area do you
look for comps in?
Speaker 1 (10:21):
Really, I think first of all you have to tether into
the fundamental problem what isthe property that I'm trying to
value, or we're trying to value?
Who are the market participantsthat are going to be shopping
that and this?
A lot of contrast can come whenyou say another example.
Let's take a waterfront, highbank waterfront along Scenic
Heights Road, the market areathat I'm going to search for
(10:42):
comparables for that waterfront,it might be expanded
significantly so that maybe I'mmoving further south on the
island, further north on theisland I'm searching a greater
geographic proximity, becausethe typical consumer for that
type of product is looking at,well, what's available in the
market.
Typically we don't have a lot ofthose homes in the market.
And two, the location, nuanceand appeal is kind of going to
(11:06):
be different than if we say, forinstance, look at this house in
Southeast Oak Harbor.
For the house in Southeast OakHarbor I'm going to look at city
limits proper.
Ideally I'm going to look in.
I'm going to look carefully atwithin a half a mile to a mile,
what is transact.
What we've seen recently issales drop significantly.
So the sales volume has droppedoff in our market.
There's fewer data points toanalyze.
(11:29):
So when there's fewer data we goback further in time and we
search out more broadly.
But generally speaking, youknow city limits proper.
I'm going to be looking citylimits proper.
The exception is going to bewhere we've got something that's
got a significant viewinfluence or it's a very high
quality dwelling, it's a verygood or excellent quality
dwelling that's much larger.
So we're going to have to maybesearch further.
(11:50):
So in that sense that's kind ofhow.
That's how I'm going to look.
What I'm not going to do is goto city limits of coopville and
pull a comparable for citylimits of ocarbor caveat,
there's always caveats unlessI'm appraising maybe a turn of
the century and so I'm lookingfor something that was built in
the 1890s or early, early 1900s.
And then I might say, okay, I'mgoing to look maybe more
broadly and maybe I need to lookat, I need to look at city
(12:12):
limits proper of of Coopville orfor Coopville I need to look at
Langley.
So those.
There's always exceptions, butthe general rule of thumb is
that you know, the closer theproximity, the better the
indication of what the market'sdoing Right and when you're
looking at those, I mean you'relooking at, you know, a ranch
compared to a ranch.
Speaker 2 (12:29):
We're not looking at a two-story or a split.
Speaker 1 (12:32):
We depart from that only if, boy, there just haven't
been any sales and I'm going tohave to take a daylight
basement and compare it to aranch, because they were built,
similar age, they're in thesimilar immediate proximity,
similar updating and so forth.
So, but generally we want to golike for like as best we can,
and that really becomes notable,particularly when you talk
about like bathroom count andbedroom count.
(12:54):
You know, when you get down toa property that has maybe just
one bedroom or maybe twobedrooms you know I'm going to
try to model that with two orone bedrooms, three bedrooms to
four bedrooms, right, we mightlook at that range.
Where it becomes reallysignificant is we look at
bathroom utility, and everyonewho has a family knows if you've
only got one and a half bath,well, that second half bath is
good, it's somewhere people canpowder their face.
(13:15):
But when you got a family witha bunch of kids, that difference
between one and a half and twocan really drive such that
you'll say, hey, what are thepeople shopping for this product
?
What are they looking for?
Well, they're not looking for abathroom and a half, they're
looking for two bathrooms, right, and so that can really kind of
help distinguish and kind ofdirect where we go looking for
comparable properties.
Speaker 2 (13:33):
The bathroom and a half is way better than the one
bath.
Speaker 1 (13:36):
But it is always better than one bath and you get
over on the east side.
Speaker 2 (13:45):
So when you go you get these jobs from the company
that distributes them and youget to choose the geographic
area you want to work in.
So you said you mostly workhere on Whidbey Island.
Speaker 1 (13:50):
Yep.
One of the requirements thatthe uniform standards of
professional appraisal practice,which is like the rule book or
the law for appraisers, is thatwe have to have competency in
the markets that we appraise in.
Question of competency emergesregularly.
Amcs appraisal managementcompanies go to offer a job to
an appraiser.
They want to see that they havegeographic competency.
(14:10):
They want to see that they havegeographic competency.
Unfortunately, you know, notevery appraiser appraising in
Oak Harbor is going to havegeographic competency.
The way that that industry, theway that it's kind of regulated,
has allowed room for appraisersfrom significant distances to
come and appraise in our market.
Some may have competency butgenerally speaking, the rule of
(14:33):
thumb is AMCs are looking forpeople who are geographically
proximate to the property thatthey're going to be appraising.
I think it's critical If youare working in multiple market
areas and multiple neighborhoods, managing that data, tracking
the trends it's very difficultto do, particularly if you're
only doing one-offs Maybe you'redoing one every few months.
In a market, just what kind ofcompetency can you develop or
(14:55):
accrue over a length of time?
So for me, I think that's whyI've always leaned hard into
being a competent appraiser onWhidbey Island, fidalgo Island
and keeping kind of in thatmarket area.
But sometimes you may get anappraiser quite a ways away.
Sometimes I get offers toappraise in Bellingham, out in
the sticks in Concrete ornorthern Snohomish County.
(15:16):
I'll get requests even thoughI'm not competent or consider
myself competent to appraisethose.
So it's really self-policed.
Speaker 2 (15:23):
There's a lot of time involved in becoming a licensed
appraiser.
Yes, and how is that affecting?
As in many trades, we findpeople that are retiring and
there aren't enough peoplecoming up to replace them.
How is?
And I would guess that some ofthem asking you to go here is
they don't have somebody to goto concrete.
Speaker 1 (15:45):
They're running into that problem again.
I think what happened is goingback in time.
We can see the fallout from the08 recession.
It was like someone turning thefaucet off for appraisers.
The mortgage lending justevaporated.
We had a lot of attrition inthe industry.
A lot of people who wereconsidering retiring said well,
(16:05):
this is it, final draw, I'm out.
A lot of people that justcouldn't accrue enough appraisal
volume to make it a supportablevocation.
So we lost a lot of people.
We started to see, probably inthe 14, 15, 16, we saw kind of a
movement where people weretaking apprentices back on again
.
Which brings me into kind of thekind of requirements.
So appraisers to be licensed orcertified in Washington state
(16:29):
have to meet a two-yearapprenticeship requirement.
It's not just that it's twoyears, it's a certain number of
hours of experience.
Depending on the volume of theagency you're working for, you
may or may not be able to do theapprenticeship in two years.
It might take longer.
There's a minimum corerequirement of classes that are
required with exams.
There's a final state exam andthere's also an education
(16:52):
requirement.
Most recently they've kind ofrolled back the education
requirement.
It was a four-year degree.
They raced to the polls to theextremes, where there was no
education requirement.
The recession 08 hit and theysaid, oh my gosh, we need to get
competent, qualified people in.
Everyone has to have abachelor's degree.
So they kind of went that way,so that made it even harder to
bring people in.
The third leg of that is thatmost of our appraisers are
(17:18):
independent fee appraisers whowork outside of the lending
institutions.
They work as independent feeappraisers.
Some might work in smalloffices with a couple of
appraisers.
The predominance are oneappraiser offices, like myself.
And so what has happened is theburden was shifted from the
lending institutions to policethemselves to hey, here's a
(17:41):
certified state appraiser, theycan manage themselves, they can
handle that liability, and thebanks completely withdrew, and
so it left a bunch of appraisersreally not equipped to train,
bring people up bring people inand and the financial
feasibility of bringing on atrainee.
That for me became the numberone resistance or kink point in
(18:05):
the hose, because it costs a lotof money, there's a lot of time
, there is an incredible lengthyamount of training, there's a
(18:36):
lot of time, there is anincredible lengthy amount of
training, and then just managingall that is incredibly.
We see that in a lot there's alot of crossover in different
industries where there's asimilar scenario.
So that makes it kind ofdifficult to kind of roll out a
model that works.
So the end of it is that weyeah, we were seeing we've seen
a massive drop in the number ofappraisers out there.
Right now it's acceptablebecause mortgage lending has
been at such low volumes.
But mark my words, when thetide turns, everyone's going to
(18:58):
be screaming about how therearen't enough appraisers and we
can all blame the banks for that.
Speaker 2 (19:02):
State appraiser association of some kind.
Speaker 1 (19:05):
They're not state backed, but there are.
We have the appraisal institute.
We have a few other independentappraisal organizations that
have been around for hours Imean for years I should say not
hours for years.
That have been kind of theinstitutions that we affiliate
with, that provide education,regulatory updates,
(19:28):
collaboration, those kinds ofthings, but they're really not
engaged in the kind of educating, training and then pumping out
appraisers equipped to go to themarket.
That requires people likemyself, and so there's been
really no change there.
But I think we'll see it.
I think we may see more changesas we kind of emerge out of
(19:51):
this cycle that we're in and aswe see sales volume look at the
date of this recording thingsare.
The stock market's crashingright now and there's a mess.
There's a lot going on in themarket that could affect is
still pretty tight that's tightI mean people like to think it's
going
Speaker 2 (20:08):
to pick back up.
Yeah, regardless of whatinterest rate.
If interest rates come down,there'll be more sales of
individual homes, but we'llstill have a housing shortage.
We'll still have a housingshortage because we're after 08.
We're all those, because allthose appraisers got out of
business.
Yeah, all the builders, I think.
In 2006, they built like 1.8million houses in the united
states and by 2009 it was like430,000.
(20:30):
How many people did it take tobuild 1.2 million houses that
didn't have a job?
Yeah, it was a mess.
Speaker 1 (20:37):
Yeah, and you know to ground it just down in the
human level, like you and Isitting here not only am I an
appraiser but I'm a homeowner weget scared, we get nervous, we
get afraid of risk and whenyou're risk averse you know
you're not going to take thatchance to maybe write on a
contract.
Write a contract on a purchaseor maybe for that small builder
who builds fewer units they'relike I just don't want to take
(20:59):
the risk.
And so it all is multiplied sothat while you might hear in the
national news a surplus of ofhousing units in many markets or
prices declining in manymarkets I just looked at at
north, just to ground it intonorth would be a city limits
proper.
Today, on a seasonally adjustedinventory, we have about just
(21:20):
over a month supply of inventory.
On a one month basis we haveabout half a month of inventory.
A balanced market should bethree to six months of inventory
.
Yeah, so you can see reallyquick with this.
We're in a pickle with inventoryand it's not being remedied,
even though we have a number ofbigger plots that are being
built.
Right now we have several underconstruction with 30, 40, 50
(21:43):
units that are coming up quickly.
They're going into contractquickly, but the used market,
the used market is really tight.
People aren't leaving thosemortgage rates that they have
and so it's only aggravated theundersupply that we've had all
the way going back.
The last time we had a surplusor a balanced market would have
been on the heels of the 08,maybe up until about 11 or 2012
(22:06):
before we saw a correction toundersupply.
And it's been undersuppliedever since.
Sometimes just grosslyundersupplied where I'll do a
value on a property and thereare literally no other competing
properties Makes it tough andit means there's more
competition for buyers andsellers.
Sometimes it favors the buyer,sometimes it favors the seller.
(22:27):
The ground level it has been agrossly undersupplied market and
that's not changed, even thoughinterest rates have come up,
you know, even though priceshave been a bit more sluggish,
with very mild increase yearover year we're kind of back to
the median average three, fourpercent.
Yes, that's exactly where we are.
Speaker 2 (22:47):
Which I think that's one of the things that so many
people got.
When a really great thinghappens, you know you win the
lottery.
You're like yeehaw let's goshopping.
And that's kind of what happenedduring COVID is.
You know interest rates camedown and you know people just
went crazy and that's just notgoing to.
I mean that's you know.
(23:10):
Our interest rates are at theaverage of the last 40 years, 7%
is normal.
I bought my first house.
We had to get an adjustablerate mortgage to get it below 10
.
Yes, what was that?
That was in 1989, I think 89,okay that sounds right.
Speaker 1 (23:23):
Um that's right oh one maybe 88.
Fast forward to 01.
When I bought my first placeseven percent, which actually
seven was like yeah, you'relooking good baby yeah, there's
like nine point something and itwent up.
Speaker 2 (23:38):
Well, just, those are all good.
Yeah, well, they're fixed, andthen they start going up.
Speaker 1 (23:42):
Yeah, you know it's, it's easy to, it's easy to kind
of perceive uh, real estate islike this solid, permanent,
monolithic kind of entity.
But when we look at prices, wereally we have to understand
that there's a lot of nuance.
The market, it rises and falllike the tides.
(24:02):
It comes in sometime muchhigher than it does other days,
but it's in constant fluctuation.
So it's a slow, rollingmovement of prices and it's
always been that way.
The exceptions are when we havethose flaming hot markets like
the COVID, and we can see thateven against inflation adjusted
(24:22):
price changes, we still are,just, we're still under the
market peak for inflationadjustment.
So what we see is that, like,you can really see that, whoa,
that was a flash in the pan.
Someone just threw something ona hot Skittle, cooked it up for
a couple minutes and then boom,and then we moved on and then
we were at the next place and wekind of have seen that, moving
(24:43):
out of the COVID era, whereprices have settled down, the
rate of appreciation, the rateof market competition is nowhere
near like what it does.
But we get imprinted as marketconsumers and we think in our
head that a value is a value.
It's a one-time value.
Well, I've had my appraisal onmy house a few years back and it
was X.
Well, that appraisal is onlyvalid for the day.
(25:06):
I'm taking a picture of the dayof that market, all the
influences, the inventorypercentage pending of that
market, all the influences, theinventory percentage pending,
the number of buyers and sellers, the number that you know, all
of those.
It's a snapshot of a day and soI think we always have to come
back to that.
An appraisal or a value givenby an appraiser.
It's for a day.
Fannie Mae might allow you touse that for a month or two or
(25:30):
three months, depending on themarket conditions.
But generally speaking, if it'sthat if that appraisal becomes
dated, they're going to get anew, fresh one.
It's just a snapshot.
Speaker 2 (25:39):
Well, it's just like when somebody buys a house, the
value of the house is what abuyer and a seller agree to pay
on this day, yep, yep.
Not tomorrow, not last week,absolutely, it's right.
Speaker 1 (25:50):
And so, and you know, and that brings something kind
of interesting.
It's like people get people get, people get afraid.
So right now we might seesomeone, an occasion where
they're making there's somecompeting offers on a property
and it's coming up, the price isbeing driven up above list
price.
That's happening quiteregularly, no-transcript willing
(26:40):
to do or not do.
And if I, as an appraiser, I'mhanded three offers on a
property and all those offersare over list price and maybe
significantly over list price,immediately I'm saying we've got
something going on here.
That value is not grounded intothe list price by any means.
It's grounded into what werethe competing offers.
(27:01):
And so am I, as an appraiser,going to be able to appraise up
to that higher range?
Possibly, quite likely.
Yes, because, just coming backto what you just said, it's a
willing buyer, a willing selleracting in their own best
interest.
On that day, and on that day wehad three people making offers.
20,000 over list.
Is the value?
20,000 over list?
Well, probably is.
Speaker 2 (27:23):
I sold one a couple of years ago.
That was 250 over asking andappraised.
Speaker 1 (27:29):
Whoa, actually you did.
Oh, okay, yeah, but we had one.
Yeah, I did, but we had fouroffers.
Speaker 2 (27:33):
Yeah, four offers and three of them were at that same
price.
Yes, this is a dollar.
Speaker 1 (27:38):
Yes, I mean, it makes me.
Speaker 2 (27:40):
Yeah, that's where I think we first met.
Speaker 1 (27:42):
Yeah, that's where we first met down in Green Bank.
Yep, yep.
It reassures me, and it shouldthe market participants, the
agents writing and acceptingthose offers, because it's
giving us a really good pictureof what the market's doing today
.
Yeah, when it's a one offer andit was on the market maybe for
(28:02):
a month, two, three months, Ibecome less tethered to the
representation of that singlecontract offering, as though
that's really representing whatmost buyers and sellers are
doing.
So the more more offers we get,boy, the easier our job becomes
, in my opinion.
Yeah.
Speaker 2 (28:17):
Well, this has been fascinating.
Thank you very much.
Anything you think of that areal estate agent would.
I mean you've talked about alot of things that I think other
agents would get a lot ofinformation out of.
Anything you could think ofthat they may not be aware of.
Speaker 1 (28:32):
Yeah, I keep trying to reduce down my view, I keep
trying to simplify my view.
When I talk about it, it's easyto get into the weeds because,
as an appraiser, we're doingsomething that, yeah, am I
assigning a value?
Yes.
As a realtor, are you assigningvalue?
Yes, but there's a little bitof a there's a different scope
of work.
There's a different scope ofwork.
(28:53):
There's a different level ofmethodology.
There's, there's, there's adifferent level of of
sophistication, usingstatistical regression, you know
, advanced charting and Excelwork and and looking
mathematically at the problem ina way that I'm trying to show
evidence and support andcalculations that verify to a
(29:16):
level that most agents, you know, don't go to.
So what I, in order to behelpful to look at how I
perceive the big picture, if wethink of it as a pie and I'm
going to talk just about Northwould be for right now for for a
lot, but just let's just talkabout Northwoodby.
So if you look at the pie ofvalue, you can take a pie.
(29:39):
The sales price of a property,let's say, is $400,000.
Okay, that $400,000 pie I amgoing to mathematically break up
into a number of different,what we call independent
variables, the variables thatcontribute to sales price.
So we all got a feeling forwhat these are.
(30:00):
Um, how big is the house, so?
Which is square footage?
How old is the house?
How many years is it?
How many bathrooms does it have?
How many garages does it have?
How big is the site?
Right?
And and then, does it have aview?
Does it not have a view for?
Speaker 2 (30:14):
a single story, two stories, single story style,
style has a variable.
Speaker 1 (30:18):
So really we can ground down into very high
statistical confidence, um, intoabout six to eight variables of
influence.
So we can say with very highstatistical confidence that I
can map out this $400,000 salebased on square footage
accounting for about 30% ofvalue, condition accounting for
(30:41):
about 10 to 20% of value,bathrooms counting for about 10,
garages counting from about 10to 15, and then a lot, the size
of your lot can be anywhere frommaybe five to about nine
percent of the sales price.
For instance, a view influenceof that pie might, might
(31:03):
represent anywhere from aboutsix percent to about 15 percent,
right?
So you so, just if you kind ofcan take that as a framework,
then you can begin to say, okay,so now I'm going to look at a
property A, b and C that I thinkare kind of like my house, and
take that pie, drop that pieover the top, and then you can
(31:25):
begin to kind of tease out If aview in our market can affect,
let's say, 10% of sales price.
And I got a house that's got agreat view and my house has a
marginal view.
You know, maybe there's a threepercent difference, maybe
there's a five percentdifference.
It allows you to kind of useyour reasoning skills and
(31:45):
subjectively say, hey, um, I cansay this non-view and this,
compared against this full,beautiful, good quality water
view, maybe beat, that might bethat entire margin of 12 percent
, right, all of it in thedifference.
Take that 12 percent, put itinto four or, let's make it easy
, 10 percent into that 400 000,could that view influence about
(32:07):
40 000 dollars?
Absolutely, absolutely.
And so, and we can do, we cansee the same thing with the
garage if it has one or two, ifthat's about, if that's about,
12 percent of value.
We can see the same thing withthe garage If it has one or two,
if that's about, if that'sabout, 12% of value.
We can do the same thing.
So what is so, if I'm going tohave to use a comparable, uh,
that's got one garage, um, andI'm going to have to use a
comparable, that's got two, youknow where's that margin going
to fall?
Is it about five?
Is it about 5%?
(32:28):
Maybe there's about a $15,000adjustment.
You know, you can kind of teasesome of these things out.
So I think, just having thatgeneral model map of
understanding that are there amathematically verifiable
relationships between those coresix to eight variables and
(32:48):
sales price, and those, arguably, are what most appraisers
should be drilling down into tomake their adjustments to
compare A to B and A to C.
So yeah, I think that's just agreat simple way of looking at
it.
Yeah, the pie, the value pie.
Speaker 2 (33:04):
All right, Alan.
Well, thank you very much.
Speaker 1 (33:07):
That's been educational and fun.
Speaker 2 (33:08):
Yeah, you bet and hopefully, everybody enjoys that
and learned something.
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