by Phil Spool, ASA

This article is about common mistakes in appraisal reports, whether the appraisal is for a mortgage transaction or other intended use. Most mistakes are not violations of USPAP but errors caused by a lack of common sense, trying to satisfy a client or not following Fannie Mae guidelines.

After reviewing countless appraisal reports, I noticed a pattern of common mistakes. The most include:

1. Market Area/Time Adjustment Inconsistency. In a residential appraisal report form, within the Market Area Description section, if you check the box that indicates property values are declining, then a negative time adjustment is in order for your comparable sales. Awhile back residential appraisers were hesitant to indicate that property values were declining as lenders or mortgage brokers were letting appraisers know that if they checked the “declining” box, the loan would not get approved.

The bottom line is that an appraiser is held responsible for what they write in their report and should not be persuaded by anyone telling them what to write. Therefore, if you check the box that indicates property values are declining, then truly consider using a negative time adjustment for the comparable sales. Conversely, if property values are increasing and if that box is checked, the appraiser should consider using a positive time adjustment for the comparable sales.

2. Improperly Describing Neighborhood Boundaries. As sales become more scarce and similar type properties are located further away, in comparison to when sales were plentiful and nearby, appraisers have a tendency to expand the neighborhood boundaries in order to accommodate the utilization of sales in adjoining neighborhoods. This is wrong. If a comparable sale is located in an adjoining or nearby neighborhood, the appraiser should simply state that the comparable sale is in a substitute neighborhood.

This is explained in the Fannie Mae Selling Guide, Part XI, Section 406.02: Selection of Comparable Sales, where it states: “As a reminder, although it is preferable for the appraiser to provide comparables from the subject’s neighborhood, Fannie Mae does allow for the use of comparable sales that are located in competing neighborhoods, as these may simply be the best comparables available and the most appropriate for the appraiser’s analysis. If this situation arises, the appraiser must not expand the neighborhood boundaries just to encompass the comparables selected. The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist”.

While this is a Fannie Mae guideline (Announcement 08-30 dated November 14, 2008), it is also considered appropriate for non-lender appraisals. If you are interested in more details of Fannie Mae appraisal-related policy changes and clarifications, go to efanniemae.com. At this site you will also find information on the 1004MC form and the Home Valuation Code of Conduct (HVCC).

3. Misunderstanding the Difference between Data and Verification Sources. The most common data sources include public records, Multiple Listing Service, HUD 1 statements and deeds. Verification is picking up the phone and speaking to either the buyer, seller, listing agent, selling agent, attorney involved in the transaction or the title company that handled the closing. The most common verification source is the listing agent, followed by the selling agent. Verification would include confirming the sales price, any sales concessions, condition and renovation of the property, etc. The key word is confirming.

4. Misrepresenting the Line Item in the Sales Comparison Approachwhere it asks Sales or Financing Concessions. Some appraisers have the tendency to state that the comparable sale has a conventional mortgage, ignoring that the line item is requesting any sales or financing concessions. The two most common examples of sales or financing concessions are (1) the seller contributing money toward the closing whereas the buyer usually pays his/her portion of closing costs and (2) seller offers a below-market interest rate purchase money mortgage. Stating that the comparable sale has a conventional mortgage does not necessarily guarantee that there is not a sales concession. If there were no sales concessions, then state “no sales concessions” or “no known sales concessions” but don’t put “conventional mortgage” as that is not what it is asking.

5. Improper Mathematical Adjustment for Time Adjustment. This relates to the appraiser making a negative time adjustment after determining that property values are declining and an adjustment for sales concession for that comparable sale. Basic appraisal theory dictates that when using quantitative adjustments, which is what you do in the residential appraisal form each time you make an adjustment, there is a specific order of adjustments, especially if they are percentage adjustments. If you look at the Sales Comparison Analysis section of the grid, the first possible adjustment that could be made is for Sales or Financing Concessions so that the sales price reflects the cash equivalent sales price.

The second possible adjustment is Date of Sale/Time (also referred to as Market Conditions). Therefore, if there is a sales concession for one of your comparable sales that also had a time adjustment, the sales concession adjustment has to be made first and then the time adjustment would be based on the adjusted sales price after the sales concession was made. Both of these adjustments are usually percentage adjustments (i.e. sellers contributing a percentage of the closing costs typically paid by the buyer, and time adjustments as a percentage per month basis).

For example, a house sells for $750,000 and there is a three percent seller’s contribution sales concession and you indicate that there should also be a negative 10 percent time adjustment due to the continuing declining market. The proper way of making the adjustments would be to adjust for the sales concession first: $750,000 minus three percent ($22,500) equals $727,500. Then the negative time adjustment of 10 percent would be applied to the adjusted sales price of $727,500: $727,500 times negative 10 percent equals negative $72,750. Assuming no other adjustments are to be made, the Adjusted Sales Price of the comparable would be $654,750 ($727,500 minus $72,750), rounded to $654,800. The improper way would be to take the $750,000 purchase price and subtract $22,500 for the sales concession and $75,000 for the time adjustment to arrive at the Adjusted Sales Price of $652,500.

6. Line Item Adjustment for Actual Age and Condition. The most common mistake for these two line item adjustments are when the appraiser uses the Effective Age of the subject and the comparable sales instead of their Actual Age. If the Effective Age is utilized, this would already take into consideration the condition of the improvements and only one adjustment would be made for Age & Condition. But that is not what the form asks for. The form wants the adjustment made for the Actual Age difference and then separately, an adjustment, if needed, for Condition. The key words are Actual Age, not Effective Age.

7. Retrospective or Prospective Value. This relates to the Intended Use for an estate, tax assessment appeal or a property that is either proposed or under construction. When the effective date of an appraisal is prior to the date of visit (inspection), this would be considered a retrospective value, not a current value. For example, if the appraisal is for an estate, usually the retrospective value date would be the date of death or the alternative date, six months thereafter. If the appraisal is for a tax assessment appeal, the date of valuation would be January 1 of that tax year. So be sure to call it a retrospective value.

However, if you are appraising a proposed property or a property under construction, the value would be considered a prospective value as of a date in the future (completion date). When doing a prospective value, it would be a good idea to get the estimated completion date (month and year) from either the builder/contractor or client. USPAP’s Standards Rule 2-2 (vi) requires the appraiser to state the effective date of the appraisal and the date of the report. If there is substantial difference in time between the effective date of the appraisal and the date of report, then that would indicate either a retrospective value (i.e.: date in the past) or prospective value (i.e.: date in the future).

8. Improperly Putting Listing(s) along with the Sales. I have noticed that many appraisers who utilize listings add them at the end of their sales grid as if it were an additional sale, giving it a false or misleading indication that it is a sale and not a listing. While the appraiser does state that it is a listing, the listings should be on a separate page by themselves and hopefully the software program the appraiser utilizes has a heading “Listing” and not “Sales.”

Summary
I hope this information is beneficial to you. Just remember, anything you write in the report has to be supported. Just don’t assume that an adjustment you make is appropriate due to your many years of experience. It is better to explain any unusual or questionable adjustment within a Text or Supplemental Addendum and do as much explaining in this addendum as it takes to leave little doubt as to what you did and why you did it. It is easier to explain what you did than to explain afterwards why you did not explain it.

About the Author
Philip G. Spool, ASA, is a State-Certified General Real Estate Appraiser in Florida and has been appraising for over 36 years. Formerly the Chief Appraiser of Flagler Federal Savings and Loan Association, he has been self-employed for the past 17 years. In addition to appraising, he is an instructor with the Institute of Real Estate Studies (IRES), teaching residential appraisal classes as well as continuing education courses. He can be reached at pgspool@bellsouth.net.

FROM THE DESK OF THE OUTGOING NGC REP

Lynne Milner, AACI, P.App

National Governing Council Representative

The Board of Directors of the Appraisal Institute of Canada is embarking upon a new planning exercise with a view to improving future prospects for our members.

Many challenging changes are taking place in our profession and the road ahead is rocky. Today, we all live on ‘Internet Time’ where major changes happen overnight.  No business plan has the luxury of leisurely change.

Our Issues

We face two issues that can be simply summed up as:

How can the AIC function effectively with a falling membership?

How do appraisers increase their incomes?

New members will join the Institute if they see a promising economic future.  Without this prospect, membership will continue declining.  In other words, solving the membership problem requires leadership in advising members on how to increase appraisal incomes.  The other side of this equation is that members provide the type of reports that contain quality information that will be valued for their content.

Raising Incomes

Appraisers do not know the value of what they know.  Perhaps this is because we are so focused on that point-in-time value.  Not only were we taught that point-in-time values were the most important part of an appraisal but we were told that history dictated value.  How times have changed!  In the new economy big bucks are paid to knowledge workers – those people paid to think.  Appraisers must be seen as knowledge workers.

Today, users of our services are very clear on what it is that appraisers provide in their reports that are of value:

Highest and Best Use

Neighbourhood data

Rent Rolls

In fact, when it comes to complex commercial property appraisals, sophisticated lenders say that the value of each of these components is often greater in aggregate than the fees quoted by an appraiser for their entire report.  Many a major lender says that if they do not know the value of the commercial property they plan to lend money on, they do not know their business.  What these lenders look to appraisers for is excellent Highest and Best Use sections, detailed neighbourhood data and thorough and independently researched rent rolls.

Appraisers who meet these requirements in their reports can increase their fees and take the opportunity to break out the Highest and Best Use sections, neighbourhood data and rent rolls as independent assignments.

rating the appraisal institute

I believe that the major measurement of a professional organization is the welfare of its members.  As the economic cycle ebbs and flows, so does the income of members.  Today, the economy is very strong but our members are being negatively affected by technological change.  In these circumstances, how does a member evaluate the effectiveness of their professional organization in addressing member concerns?  Listed below are a number of issues for members to assess.

1.        The quality of the strategic and business plan of the organization.

2.        The effectiveness and execution of these plans.

3.        Visible proactive leadership by all members of the National Board.

4.        Visible success of management staff in implementing Board policies.

5.        The average income of members.

July 9 (Bloomberg) — The $3.5 trillion commercial real estate market is a ticking “time bomb” that may lead to a second wave of losses at large U.S. banks, congressional Joint Economic Committee Chairwoman Carolyn Maloney said.

About $700 billion in commercial mortgages will need to be refinanced before the end of 2010 and “doing nothing is not an option,” Maloney, a New York Democrat, said at a committee hearing today. This “looming crisis” may lead to significant losses for banks, force shopping center and hotel owners into bankruptcy, and impede economic recovery, she said.

The response by banks to this “growing threat has been slow and inadequate,” said James Helsel, a partner at RSR Realtors in Harrisburg, Pennsylvania, and treasurer for the National Association of Realtors. “The lack of liquidity and banks’ reluctance to extend lending are also becoming apparent in the increasing level of delinquent properties.”

There were 5,315 commercial properties in default, foreclosure or bankruptcy at the end of June, more than twice the number at the end of last year, with hotels and retail among the most “problematic,’ Real Capital Analytics Inc. said in a report yesterday. Losses on commercial mortgage-backed securities, or CMBS, will total 9 percent to 12 percent of the market, or as much as $90 billion, said Richard Parkus, a research analyst for Deutsche Bank Securities in New York.

Bottom Not Near

The bottom is several years away, and it will be at least 2012 before there is “palpable improvement” in the commercial real estate market, Parkus told lawmakers at the hearing. “It’s hard to imagine fundamentals improving in an environment where we are beginning to see massive increases in defaults.”

The largest concentration of distressed properties is in New York City, Helsel said. Las Vegas, Los Angeles, Detroit, Phoenix, Chicago, Dallas and Boston also have high distress rates, he said.

A tightening in issuance of CMBS, which used to account for about 30 percent of financing, has exacerbated problems, Jon D. Greenlee, the Federal Reserve’s associate director for banking supervision and regulation, said in prepared testimony today. A disproportionately high number of small and medium-sized banks have “sizable exposure” to commercial real estate loans, and delinquency rates at around 7 percent in the first quarter are almost double from a year ago, he said.

“Market participants anticipate these rates will climb higher by the end of this year, driven not only by negative fundamentals but also borrowers’ difficulty in rolling-over maturing debt,” Greenlee said. “In addition, the decline in CMBS has generated significant stresses on the balance sheets of institutions that must mark these securities to market.”

Fed Programs

The Federal Reserve has expanded its Term Asset-Backed Securities Loan Facility, or TALF, to new and existing commercial mortgage backed securities to jump start the market. Maloney said the Public Private Investment Program, or PPIP, may also help with the problem as officials release more details of its potential use.

Maloney said the TALF program expires at the end of this year, which may short cut its effectiveness “just as it begins to ramp up.” She also said that uncertainty about the future of the PPIP has kept many investors “on the sidelines, so there’s some urgency to the Treasury providing additional clarity about the program.”

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: July 9, 2009 12:14 EDT

By David Ellis, staff writerFebruary 4, 2010: 4:32 AM ET

NEW YORK (CNNMoney.com) — Luckily for banks, the commercial real estate time bomb just keeps on ticking.

Industry observers have issued dire warnings for more than a year, suggesting that lenders are on a collision course with potentially billions of dollars worth of commercial real estate losses.

But for all the gloomy talk, the fallout has remained relatively well contained.

Banks have already recognized about $50 billion in losses, or about 60% of the estimated cumulative losses, according to real estate research firm Foresight Analytics.

And despite a steep drop in the price of apartments, office buildings and industrial properties nationwide over the past year, there have been recent indicators to suggest that the market may have finally hit bottom.

After 13 months of consecutive declines, overall commercial property values climbed 1%, according to the most recent monthly reading by Moody’s/REAL Commercial Property Price Index.

Even well-respected bankers have offered a glass half-full outlook on the state of the commercial real estate market.

“Commercial real estate is a train wreck, but it’s already happened,” JPMorgan Chase (JPM, Fortune 500) chief executive officer Jamie Dimon said during a company-sponsored conference last month.

But some commercial real estate industry experts have been quick to caution that the problems aren’t over yet.

High-profile purchases that were made at the height of the real estate bubble have started to implode left and right. Last month, owners of New York City’s Stuyvesant Town and Peter Cooper apartment complexes went into default.

Farther south, lenders that helped finance the Four Seasons Resort and Club just outside of Dallas are moving ever closer to foreclosing on the swanky 400-acre property.

And with the nation’s unemployment rate still hovering at 10% and consumer spending still at sickly levels, it stands to reason that borrowers that deal in retail stores and office buildings will feel even more squeezed before long.

“Businesses just aren’t taking office space and consumers aren’t buying things at retail stores,” said Mark Riedy, the executive director for the Burnham-Moores Center for Real Estate at the University of San Diego.

That’s a deadly prospect for the thousands of community and regional banks nationwide that hold roughly $860 billion in commercial mortgages and construction and development loans.

Georgia’s Synovus Financial (SNV), Zions Bancorp (ZION) of Utah and Buffalo, N.Y.-based M&T Bank (MTB) are just a few banks whose loan portfolios are highly concentrated in commercial real estate, according to credit rating agency Standard & Poor’s.

But trying to gauge the scope of those problems has proven difficult as banks have been slow to recognize losses on many of those loans.

That’s because many lenders have not seen the need to foreclose on a borrower that is still current on their payments even if they are upside down on their loan, or owing more than their property is worth, experts said.

At the encouragement of industry regulators, banks have extended the terms of many of their commercial real estate loans, hoping that property values or occupancy levels will improve before long.

“There is an element of ‘extend and pretend’ going on,” said Tanya Azarchs, credit analyst and managing director for Standard & Poor’s. “It is in their [banks'] interest to do that.”

Unfortunately, the consensus is that neither prices nor occupancy rates will improve anytime soon.

Estimates published last November by the Urban Land Institute and PricewaterhouseCoopers suggest that commercial real estate vacancies will continue to increase in 2010, while prices could tumble further during the year. Prices could fall as low as half their peak levels from 2007.

If that happens, that would only darken borrowers’ hopes that banks will refinance their outstanding loans. And some $1.4 trillion is commercial real estate debt is expected to come due over the next three years.

Matt Anderson, partner at Foresight Analytics, said that can mean only one thing for banks: more losses.

“When you combine that with [property] value declines, you have a big problem,” he said. 

Technology has permeated all aspects of modern life and, it is changing the real estate appraisal industry in dramatic and exciting ways. GPS mapping systems help to quickly find subject property locations and comparables. Laser measuring tools and computer-based sketching along with wireless connectivity expedites the physical inspection chore. Mobile communications allow more field time and reduce overhead costs of fully staffing an office. As in most businesses, time is money, and lenders and brokers are no exception. With the advent of automated underwriting, the mortgage process has sped up significantly, and lenders are seeking appraisal turnarounds that match the competitive nature of the mortgage business today. The ability for appraisers to produce reports in a shorter amount of time, without sacrificing quality, has become a key success factor for appraisers seeking continued business growth in today’s market. A fast response to the client appraisal requests, prompt booking of borrower appointments, and swift submission of complete and accurate reports will pay dividends in repeat business from happy, loyal clients.

Not only can technology add to an appraiser’s productivity, it can also help drive new business. Many in the appraisal profession are taking advantage of referral services and direct marketing campaigns over the internet to connect with customers. New service forums or networks now offer customers the ability to filter and match products and providers by risk criteria, geography and pricing. The introduction of new and innovative technology platforms in the mortgage and appraisal industries now incorporate intelligent matching of customer requirements, aiding lenders in the art of balancing risk, time constraints, and cost. These platforms, such as Values’” offered by Solidifi, streamline the order fulfillment process through technology, and offer electronic payment options to lenders, brokers and borrowers, eliminating the need for the appraiser to invoice the broker/lender, or to collect funds at the door.

As a valuation professional, some forms of technology can seem like more of a threat than an asset. The increasing acceptance of AVM (automated valuation model) technologies has eroded a portion of the valuation product market traditionally performed by accredited appraisers, but there are some inherent weaknesses with AVMs that leave opportunities for the savvy valuation professional. For example, for properties located where the data is not available, which are of poor quality, or where the result of the AVM is not satisfactory, the lender will turn to a more thorough traditional form of valuation service.

AVMs will never be robust enough to handle properties that do not fit the conventional mold, such as luxury properties, multi-family residences, and properties in distress due to delinquency. These cases are more complex and, therefore, require qualified professionals that can adapt the level of due diligence, and ensure that this work effort is commensurate with their pricing.

While AVMs have received much attention over the past decade as the most significant application of technology in the mortgage appraisal industry, material advances have been made that have also positively impacted appraisers. Consider the following categories, which include some of the most popular areas where technology is permeating today’s traditional appraisal practice.

Field tools:

Measuring tools

Mapping and locator tools

Sketching tools

Comparables search

Tablet PCs

Report preparation:

Form templates

Digital photography

Electronic signatures

Authentication and security

Back office:

Customer management

CRM software

Order receipt, status and delivery

Appraisal records management

Billing automation

As the appraisal industry grows and evolves, so will technology. Work smartly and take regular inventory of your appraisal practice by examining the areas where you may be able to increase your revenue, while leveraging technology to reduce operational costs. Embracing change and staying ahead of the curve may take some time and dollar investment today, but can reap dividends for years to come.

BY KEVIN WALTON, CFA

VP OPERATIONS, SOLIDIFI

Walton, Kevin “Residential real estate appraisal in the age of technology“. Canadian Appraiser, The. FindArticles.com. 09 Mar, 2010. http://findarticles.com/p/articles/mi_qa5398/is_200701/ai_n21295671/

For the past few years, BC Assessment has welcomed from 12 to 15 appraiser candidates annually. Next year, however, the crown corporation anticipates hiring 40 to 60 people into the appraisal stream. This increase reflects a new reality. As baby boomers begin to retire, the turnover rate of employees involved in appraisal work is jumping from 45% to 10-12%.

“Generally, these new hires are candidate members,” says Doug Rundell, AACI, P. App, Chief Executive Officer and Assessment Commissioner for BC Assessment. “It is a significant challenge for us to get people who have the education and training experience to come in at working grade. A majority of our people are hired at the appraiser trainee level, which requires only a few appraisal courses. They continue their education with us and move right through to their accreditation.”

As demand for these appraiser trainees increases, the spotlight is focusing on the candidate experience, from recruitment, to training, to accreditation, within either an institutional setting or a fee-for-service situation. Although both settings share many similarities in their approach to candidates, certain differences are also evident.

“Unlike a fee-for-service company, where a candidate might be focused on residential work for a continuous period of time, here you have the opportunity to be involved with a wide variety of properties,” notes Rundell. BC Assessment is responsible for the annual market value assessment on 1.8 million properties in the province of British Columbia, including commercial, residential and industrial properties, as well as linear structures, pulp mills, saw mills and mines.

The corporation has 600 permanent employees, with 380 in the appraisal stream who have all required appraisal training at one point or another. Working under the direction of senior appraisers, they eventually acquire either an AACI or a BC Real Estate Institute (RI) designation, both of which are recognized by BC Assessment. Presently, about 65% have one or both of these designations.

Many of the candidates were first hired by the corporation as temporary seasonal employees to work in property and information collection for new construction and development. “It is a large recruiting pool for our permanent positions,” notes Rundell. “It gives them a taste for the type of work that is going on in the office, so they can better decide if this profession is for them. We also do considerable recruiting , through university colleges, community colleges, career fairs and the appraisal program at the University of British Columbia.” BC Assessment is a customer-focused organization . which seeks people who exemplify excellence in customer service as well as an aptitude for appraisal work.

“For young people interested in becoming appraisers, my advice is to find out as much as they can about the profession,” says Rundell. He recommends they take a foundations course from UBC in order to gain a deeper understanding. “It is a small initial investment that can help them better decide if this is a career in which they may be interested.”

While he stresses that students need to take responsibility for initiating a process of inquiry, Rundell also underlines the role of employers in promoting the benefits of the profession and of their own organizations. When candidates come on board, it is important for their mentors to be patient and supportive. “None of us learned the profession overnight,” notes Rundell. “We are making an investment in a new person. We have to ensure we are providing adequate training and mentoring opportunities. That requires both a system of ongoing coaching and a feedback process.”

While the corporation relies on professional educators to provide formal training on the valuation side, specialized training is provided in-house, along with coaching and mentoring, all of which occur in the local office within a team of senior and working grade appraisers. This team facilitates knowledge transfer and ensures candidates are exposed to progressive complexity in their work over time.

“On the job training is a key component,” says Rundell. “We are in the mass appraisal business, so there is a lot of technical modeling and computer-based valuations that are learned on the job. We provide training for all those aspects.”

He adds that, because BC Assessment values property at market value, it is essential for staff to understand not only all the appraisal principles and standards, but also how they apply in a legislated assessment environment. At the same time, candidates are also exposed to defending their work at the Property Assessment Review Panel or the Property Assessment Appeal Board. Participating in the process of having their assessments challenged is an experience they would be unlikely to have when working with fee appraisers.

Institutional candidates also have he opportunity to act as witnesses at hearings. This requires that they meet the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP). Because case law also comes into play, candidates are often compelled to become familiar with its application as well.

Although candidates and appraisers share much of the same work, they each hold a separate place within an organization. Defining those roles is an important part of the best practices an employer needs to establish in order to maintain a respectful mentor/candidate relationship. “What is key is having a robust orientation program,” says Rundell, “so that there is a clear understanding of the roles and responsibilities as well as what is appropriate and inappropriate, right off the mark. That is not only for the candidates, but also for their mentors or supervisors.” In addition, he stresses the importance of continuous feedback. To avoid potential problems, it is essential to create a climate where a candidate is never afraid to ask questions.

At Graver, Elliott & Co. Ltd., Larry Dybvig, AACI, P. App agrees on the importance of creating a nurturing work environment for upcoming appraisers. The company’s candidates work in a group with appraisers who rely on their assistance for the successful completion of individual assignments. Like their colleagues, the appraisers-in-training have a nicely furnished office equipped with up-to-date technology.

“It is important to create a positive environment where they feel like the professionals they will be when they achieve their designations,” says Dybvig. “The culture of the office is a big part of that.” He notes that two thirds of the company’s appraisers are young – 32-years-old or less.

“These younger people tend to be more social, both in and out of the office, than the older, more familyoriented appraisers,” adds Dybvig. “People want to feel reward from their work, that they are part of a team, and that others on the team are people they personally like and respect professionally.”

Nine of the company’s 11 appraisers were all candidates in the office at one point or another. Over the years, to meet growing demand for its services, Graver, Elliott & Co. hired a number of appraisers. At one point, the company decided it only wanted to hire people who were fully trained and designated. “That did not work out very well,” recalls Dybvig. “We found that we had certain ways we wanted to see things done related to the kind of work we had, but, often, we would end up interviewing people who did not have the training in these specific areas.”

The company then tried hiring candidates at the beginning of their courses and starting them on appraisal work. “The problem was that there was a steep learning curve,” he explains. “The time required for training can be onerous. The productivity of candidates at the beginning of their appraisal career is not what it needs to be in order to cover the bottom line.”

So, by mid-2006, Dybvig decided to take a different approach. Now, anyone conning into the firm is hired as an ‘appraisal assistant,’ performing support functions including some clerical work. Assistants will also do some report drafting, market research, data base entry and basic research. An accredited appraiser then reviews and verifies the work.

“Appraising is a process,” notes Dybvig. “Determining value is still a step, but, if you cannot do the 99 steps before that, then you will struggle at completing the final one. I have conclud ed that it is important for people to start by developing a solid grasp of the first 30 steps. Then, the next 70 are much easier for them to do.”

Because ‘assistants’ do not provide significant professional assistance, they do not need to sign their names to appraisals or to be insured and registered as candidates with the Institute. In fact, the AIC has recently created a non-insured Student Membership category which supports programs such as Dybvig’s.

When hiring trainees, Grover, Elliott & Co. looks for people with analytical skills and an undergraduate degree, who are taking or are interested in taking appraisal courses. “I want somebody who shows passion for the work,” says Dybvig, adding that he will choose someone who enjoys going to open houses and reads the business section of the newspaper over someone who does not. “When I was a candidate, most people got into appraising as a second or third career. Now, many people get into it while they are still in university. That is a positive thing. The earlier you can get them and the lower the level you can bring them in at, the quicker they are going to be productive.”

Dybvig also has some advice for young people thinking of entering the profession. “They need to make sure they understand the educational and other requirements,” he says. “This can be a lot of work.” To learn about real estate, he suggests people interested in appraising start by doing such simple things as reading the real estate section of their local newspapers and visiting the properties described. Or, they can go to their municipal web site and learn about planning land use controls in their community. They can also read market reports available on web sites for local residential and commercial brokerages and go to see the properties and neighbourhoods discussed therein.

“Then, if you are still serious, take courses,” he continues. “Employers prefer serious applicants who have completed some of the classes to others who have not. And, if you do not yet have a degree, the best one to get is a business degree that makes you eligible for the AIC/UBC Post Graduate Certificate Program.”

Dybvig requires anyone he hires to give the company a three-year commitment. Another one of his best practices is to require everyone joining Grover, Elliott and Co. to have taken the Standards and Ethics Seminar before starting work with the company. As they progress, they train any incoming appraisal assistants.

When they finish their course load, they register as candidates and become junior appraisers under the primary supervision of three senior AACIs in the office. “Then, it is up to the supervising appraiser to ensure that the candidates work within the standards in everything they do,” says Dybvig.

To assure the public that candidates who co-sign reports are provided appropriate guidance and supervision, Institute policy provides requires designated members to register four candidates only. However, this ratio has proven to be challenging for a company such as Graver, Elliott, where candidate training and supervision is spread out over a number of AACIs.

Dybvig appreciates the great advances the Institute has made in educating and grooming future appraisers. He notes that trainees and candidates continuously find similarities between case studies in courses and the work that takes place in the office. He also reflects on the great strides made since he trained as an appraiser in the early 1970s: “Today, I do not think you could find a valuation organization that has a better connection with its education and actual practice in the field.”

His advice to employers is to maximize on the excellent training provided to today’s candidates. On the other hand, he cautions that bringing on a candidate is not necessarily “for everybody.” “It is a long-term commitment,” he explains. “You have to be prepared to invest time in people. But, if you do it, the youthful enthusiasm is a real asset.”

“Focus on candidates“. Canadian Appraiser, The. FindArticles.com. 09 Mar, 2010. http://findarticles.com/p/articles/mi_qa5398/is_200701/ai_n21284661/

For most of us in the appraisal industry, when we think of security, we think of signatures, data storage, internet, office, etc. Although my new profession (an appraiser since 1997) is changing the way I think of security, I find that my prior profession still urges me to look around a little more than the average appraiser – especially from a ‘personal safety’ security point of view.

Female membership in the Appraisal Institute of Canada (AIC) is on the rise and this is a trend that is likely to continue. This changing demographic is apparent in the Institute and the workforce in general, and this is one factor leading to the possibility that personal security may well become a greater concern in coming years. Certainly, neither gender has an advantage in terms of natural attributes required for completing appraisal related assignments. However, it is clear the females are more likely to be assaulted by people who could be unhappy clients, serious violent predators, or individuals with other motives. Although I am not aware of any specific serious assaults on our members, I do know of several potentially dangerous situations that either my partner (female) or I have encountered in the past few years.

Prior to making a few suggestions on avoiding compromising situations from a personal security point of view, I would like to make two points that will help keep this article in perspective.

1) The intent here is not to unnecessarily alarm members by pointing out our vulnerability to the actions of a few disturbed people in isolated situations. While serious assaults are widely publicized, the fact remains that they are few in number in our relatively safe society.

2) While understanding the above, the axiom “do not gamble what you cannot afford to lose” is particularly relevant. Although odds are great that we will go through our careers and not have one serious violent act committed against us, the consequences of one incident can be devastating. It is one thing to be careless when picking lottery numbers and only $5-$10 is at stake, but, when our health may be on the line, we should exercise more care with our judgement.

Now, a good question is, “why would anyone do harm to one of our members?” Actually, there are a variety of reasons, with the most common motive being simple frustration caused by personal problems such as divorce or bankruptcy. In the vast majority of these situations, our members are subjected to only verbal abuse. On the other hand, motives for a more serious assault might include obtaining money or other valuable items (e.g., jewelry, vehicle, etc.) to support an addiction habit, sexual, hiding of identity, real or perceived threat, or mental instability.

Another common question is, “how can we identify potentially violent people?” It is difficult, if not impossible, for most of us to distinguish who is potentially violent/dangerous and who is not. Experience tells us that violent people do not look any different than the rest of us. In fact, the more potentially dangerous a person is, the more skilled he or she may be at hiding their real personality. There are countless examples of ‘citizens of the year/ or similarly well-respected individuals, turning out to be serial murderers or worse – effectively fooling everyone for years.

What should we be doing to minimize our risk of becoming a victim? Although there are exceptions to every rule, we know that seriously violent offenders generally target victims that are ‘accessible’ and ‘vulnerable,’ rather than basing their victim selection on factors such as victim appearance. For these most serious offenders, accessible and vulnerable includes the consideration that a particular victim offers the assailant the opportunity for anonymity. Accordingly, our members are less likely to be targeted if we simply take a few standard precautions.

Precautionary steps are illustrated for the following phases of appraiser/ client contact:

1) From your office:

* Follow already established recommended procedures that include completion of a ‘letter of engagement.’ Many potential culprits will already feel exposed if their names have been documented.

* For cases where we are going to meet someone other than the client, clearly identify who you will be meeting at the inspection site.

* Be sure and ask if there are dangerous dogs at the site.

* Make sure someone else knows your schedule of inspection that includes times and addresses.

* Make sure you have a charged cell phone.

* Do not be afraid to ask another appraiser (or some other person you can trust if you are a oneperson operation) to come with you on assignments that may have an elevated level of risk. Better still, do not accept such assignments if you are at all concerned about dealing with the elevated level of risk.

* Develop convenient exit strategies (from a building) to get back to your vehicle without showing you are alarmed or concerned about something. For example, having to get your camera is usually believable.

2) Upon entering the property:

* Be aware of where neighbors are in rural settings – in the event you need help in a hurry.

* Upon entering property, think of how you are going to exit the property if things go sideways on you.

* Always try to find a place to park so that you can move in both forward and reverse – and preferably with forward being the most direct route to exit the property.

* As well as from human risks, do not forget to look out for signs of dogs and be especially wary of the quiet ones.

* Do not get out of your vehicle if dogs are a concern – call your client and be careful. If your original inquiries indicated that there were no dogs at the property, but dogs are present, you may be at the wrong property or there is a stray one around and that is not good.

* Before getting out of your vehicle and when your host can see you is a good time to confirm with your office where you are – showing your host (potential bad guy) that someone else knows where you are and when you are there.

3) Making contact with the client or property owner:

* Either outside or at the front door, identify yourself with confidence and confirm the identity of your host. If your host is not the person you expected, find out why and be careful.

* Trust your first instincts. In nearly every violent incident, the victim gets some prior insight about something going wrong, but proceeds regardless.

* Always keep your cell phone in a position to speed dial your office or 911.

* If at all suspicious, explain how you do the exterior first and do not go inside. Simply go to your vehicle and exit the property.

* If your host is obviously under the influence of alcohol or some other intoxicant, find a way to exit the property ASAP. This is not the time to be polite you do not have to explain anything – use your developed excuses to go to your vehicle and leave. People under the influence of intoxicants are displaying poor judgement and cannot be trusted.

4) Inside the building:

* Similar to the property as a whole, know where your exits are and try to find more than one.

* Once inside, if the actions of your host are improper, stay as calm as possible without tipping your hand and try to get out of the building and to your vehicle. It is better to overreact 100 times than to under-react once with the wrong person. The more believable your exit excuses are and the calmer you are, the better chance it will work.

* Without your host’s knowledge, use your cell phone and your prearranged speed dial. If you cannot talk on the phone, at least the office or 911 operator can send help.

* If you are the victim of a serious assault, fight like hell and do whatever necessary to stall for time. Remember – fortunately, almost all of us will never have to deal with this type of incident.

Actions to avoid

* Do not get in a client’s vehicle unless it is clear the vehicle is the only way to achieve the required inspection.

* Do not take clients in your vehicle.

* Do not rely on dog/bear spray to repel human assailants. These sprays are only l/10th the strength of sprays used by police on humans. I can assure you that dog/bear spray will do little to deter a violent offender.

* Do not give unpleasant news to your client at the property. You are at far less risk if you relay this type of information over the phone later.

In summary, do your pre-inspection homework, be professional, make sure your host knows that other people know where you are and who he or she is, trust your first instincts, do not be afraid to walk away from a job now and then, and do not gamble with your health – something you are not prepared to lose.

By Gerry Gehlen, AACI, P. App

Retired from RCMP in 1998 after 25 years of service in various locations throughout Alberta

Gehlen, Gerry “PERSONAL SECURITY considerations“. Canadian Appraiser, The. FindArticles.com. 09 Mar, 2010. http://findarticles.com/p/articles/mi_qa5398/is_200701/ai_n21284674/

I slaved over this article. It is a masterpiece, a symphony of verisimilitude. . .full of truth and wisdom. Who would not read The Six Functions of One Dollar – Revisited? Answer: lots of us.

There is a universal rule in writing. Capture the reader’s interest or imagination in the first few lines and do not let it slip away. In this article, I will explain why this is important and how to lock onto your audience.

When you write for a technical or trade journal, such as Canadian Property Valuation (formerly Canadian Appraiser), you have a major leg up on most writers, since you have captured a subscription readership already interested in real estate valuation and profession-related topics. You still need to compete for reader’s interest.

People have a great ability to skim and process information. Who reads a magazine cover to cover, almost no one. Readers tend to skip to the index, look for interesting titles (appraisal secrets to retire early) and flip to the article. On a sub-conscious level, our minds apply a spam filter to evaluate the title and first few lines of an article. Is the article likely to be informative, topical, entertaining, useful, or the opposite: confusing, boring, and un-informative?

What makes an article topical, informative and interesting? How can I write a paper with high relevance to readers? Here are some tips to persuade readers you have something they should definitely read.

1. A topical article is one that deals with one or more contemporary problems or issues facing a large number of valuation professionals. For example, the impact of the sub-prime crisis on tightening credit and bank valuation reguirements is topical. An article on highest and best use may be interesting to some members, but since the topic has been covered in multiple AIC articles, it is not topical. Tip: check the AIC website for back issues of the Canadian Appraiser or the bibliography search index to see if your subject has been covered in previous articles.

2. To lock in your audience’s attention and provide a sense that the article will be interesting and worthwhile, the first few sentences need to be very carefully scripted. Tell readers what the article is about, the key messages, and your hypothesis, or your point of view on an issue. Is your goal to inform, educate, argue for a new valuation best practice, or provide a solution to a problem? The rest of the article is your presentation of the facts, research and other information to support your findings.

3. Think and write like an investigative journalist. If you can objectively say that your paper gives readers a W5 or who, what, where, when and why, you are a success. Since appraisers have notorious inflated egos, it is a good idea to ask someone you trust to give you an honest review of the article, perhaps a teenager.

4. To maintain your audience’s interest, use the first person when writing, not the third person. Rather than saying “the appraiser’s opinion, or the appraiser did this or that,” speak plainly, and tell the reader.. .”I believe this. . ..or we did that. . .” Writing in the third person is a good way to put the audience to sleep guickly. Writing in the first person is a great way to personalize some potentially dry technical material, by telling us how you overcame diversity to solve a problem or reach an important conclusion. “I hiked 10 miles in a driving snowstorm, survived an avalanche, pepper sprayed a bear, swam a raging torrent, and inspected the property.”

5. Another tool for maintaining interest is to challenge your perceived conventional thinking. Be provocative. If you said “…there have been no advances in appraisal theory and practice since 1950,” you have my attention. Now you have it prove it to me.

6. Use an outline. Writing from an outline keeps you organized and helps you build a logical progression for your hypothesis or key messages. A good outline results in a consistent, logical paper. Readers will appreciate the order, consistency and progression of thinking in your article. Your paper will be a joy to read, provided it does not carry on for 50 pages. Articles written without an outline are easy to spot, since paragraphs are out of order, logic is lacking, and it is impossible to pick out the key messages. These articles are quickly identified and eliminated by our personal spam filters.

7. Use short sentences and plain language. It is okay to break a few literary rules when writing for a trade magazine. In my last article, I pointed out some useful web resources to improve your writing skills.

8. Do not tell us what we already know. A sure audience killer is to begin by reminding us of the three approaches to value.

9. Give us a quick summary at the end of the paper, purpose of the paper, what we learned, and the key findings.

I have given you nine tips for successful writing. My last tip is the most important. Take advantage of the expertise of AIC communications staff. They can help you overcome writer’s block and move your article idea from concept to black ink.

Peebles, John “Does your writing have reader relevance?“. Canadian Appraiser, The. FindArticles.com. 09 Mar, 2010. http://findarticles.com/p/articles/mi_qa5398/is_200804/ai_n27901051/

What is the behavioural descriptive interview (BDI)?

The purpose of the BDI is to provide a formal, face-to-face meeting between appointed AIC designated members and the Candidates. The meeting is to assess the Candidate’s qualities and competencies in areas considered critical for success in the appraisal profession. The five competencies being tested include market analysis, integrity, communication, critical thinking, relationship-building and selfdevelopment.

What it is not?

It is not about evaluating the Candidate’s technical competencies. The fact that the Candidate was successful at the AIC final written exam establishes that he or she has acquired the knowledge, technical abilities and skills required to do the job.

The BDI allows AIC to verify that the Candidate has mastered the five professional competencies associated with superior performance in areas of appraisal. The AIC professional competency interview is designed to test only behavioural competencies. These must be observable, measurable, linked to professional requirements for designated members of AIC, and based on strong performance.

The process:

You will be asked one interview question about a subject from each of the five competency categories and must provide a satisfactory answer for each, in order to succeed in the interview. Candidates must be prepared to discuss at some length their personal experience related to each of the five AlC-identified competencies.

It is helpful to keep a file of experience gained in these competencies from the beginning of your Applied Experience program. This will assist you in selecting your best examples prior to your interview.

When answering the questions, be sure to provide full details to the interviewers – include the five Ws (Who, What, Where, When and Why) and How of the situation as well as what your specific role was, what follow up you did, and how you communicated throughout the situation. It is important to note that the Candidate must be prepared to verify all examples for the panel.

It is suggested that the Candidate use the STAR method (Situation – Task- Action Result) to review the list of topics that will be addressed for each competency in the interview, as per below. The BDI model of interview utilizes the STAR method, which helps you structure your response to the interview questions:

Situation: What was the situation? What was the background and context?

Task: What specific task did you need to accomplish?

Action: What specifically did you say and do? What were the actions you took?

Result: What were the results of your actions? What was the impact? What did you learn?

To read more about preparing for the BDI, please visit the AIC website at:http://www.uiconudu.co/ cmsPoge.ospx?id=173

Dominique Racine-Dickie, CAE

Manager, Professional Affairs

Racine-Dickie, Dominique “behavioural descriptive interview – the final step toward designation, The“. Canadian Appraiser, The. FindArticles.com. 09 Mar, 2010. http://findarticles.com/p/articles/mi_qa5398/is_200907/ai_n35630493/

Getting to the stage of writing the applied experience exam requires exceptional time and hard work. As such, Candidates should not take this exam lightly and must ensure they are appropriately prepared for this challenge. This article details the steps that Candidates should consider to confidently and competently promote successful achievement.

What is being examined?

Befo re you start preparing, thinkabout what is being asked of you throughout this exam. It is your opportunity to show the marker that you have acquired sufficient experiences and competencies through guided mentorship, such that you can apply the First Principles of Value appropriately in a given situation.

This exam is not one you can study for from a text book. Therefore, before you apply to write this exam, ask yourself whether or not you have attained sufficient experience to successfully write it. Ask your mentor for an honest opinion, because it is better that you gain more experience first than learn of this need through failure.

HOW to nrwwirp fnr thp pvam

AIC has prepared several online tools to help Candidates prepare for the applied experience examination:

* The Revised Edition of First Principles of ‘Value

* Sample CRA and AACI Applied Experience Exam

* Sample Grading Sheet and Marking Criteria

* Tips for Writing the Examination

* Exam Writing Strategies

The AIC Applied Experience Written Examination web site can be found at:http://www.aicanada.ca/ cmsPage.aspx?id=164

The UBC Real Estate Division’s web site also summarizes these resources at: wwwrealestate. uk.ca/aeexam

You cannot study for this exam as you would for a regular course exam, but you can prepare. Review the First Principles of Value very closely, and be prepared to speak to each with reference to your own value-related experiences. Refer to the sample exam questions so that you know what to expect, and read the sample exam in advance so that you do not have to read the instructions during the exam time. Think of good examples fromyourwork experience that highlight challenging problems related to one or moK First Principles, and structure answers that discuss them – this will helpyou become familiarwith the logic and style of answer required, and you may be able to use these examples on your exam. Ensure that you know the address or can adequately describe the locations of these examples.

How to write the exam efficiently and effectively

You have talked to your mentor, you have sufficient experience required to tackle the exam, you have reviewed t\\? First Principles of Value, you went through the sample exam so you know what kind of questions to expect, and, most importantly, you looked at the grading sheet and criteria for the allocation of marks. Now what?

Have a mental plan in place for how you will approach the exam. Some points to keep in mind:

* Equate marks with time available and words required: The exam is three hours – allot your time accordingly. You have one case study and three work experience questions to answer. You have read the marking guide, so you know how the grading is weighted – if you have a 40-mark question, you should be allotting roughly 72 minutes forthat portion ofyour exam. If you finish after an hour of writing, you may want to review your answers to ensure there is enough content to justify the 100 marks. Ensure your work experience examples give enough detail for the marker to identify the specific property and understand the scenario being described.

* Get easy marksfirst. Answer first the questions that you find the easiest. This will help your confidence, calm you down, and may even give you extra time to tackle the more challenging questions later on in the exam.

* No marks if we cannot read it: write legibly! We realize it is three hours of writing, but you must ensure that you write legibly and preferably with a pen (leave the pencils at home; you can cross things out and use additional exam booklets if needed). Remember, if the marker cannot read your writing, the chances of receiving a successful grade are reduced dramatically.

* Answer the question – no more, no less: Read each question fully. You will receive no marks for answers to questions that are not being asked. This cannot be stressed enough . . . READ THE QUESTION.

* Paint a picture, not a sketch: When asked to describe a property, do not be vague in your answer. For example, “A house with a basement on a quiet street,” will get you zero marks. A more appropriate response would be, “A 1,200 square foot 1970s bungalow, with full-finished basement, located at the NW corner of Main and Fraser Streets, Woodpile, Saskatchewan. Neighbouring and adjacent properties are similar in age in utility. Middle and high school are within walking distance, transit is available on the corner, neighbourhood strip mall with 12 units one block away. Neighbourhood is stable and considered to have average demand. Pricing levels have been stable for the last year due to stable local economic conditions.”

You have to paint a picture for the marker, realizing that we likely come from a different part of Canada than you. For property location, if you cannot remember the address, then give a description the marker must be able to tell that it is real, not a hypothetical example.

* Expbinyourassumptbns: Assumptions are acceptable and expected when answering the case study portion of the exam, as long as they are reasonable and kept in perspective of the situation being addressed. If the case study indicates there has been no market activity in the area, do not respond by assuming that you have adequate sales in the area to support an estimate of market value. Assumptions should not be used as a crutch to easily get through the case study; this will return a failing grade. For example, saying, “Highest and best use is assumed to be the current use” without explanation equals zero marks. You must explain to the marker the steps you would take to arrive at that conclusion.

* Give answers, not questions: Do not answer the case study question with more questions, this will likely result in a failing grade. Asking a string of erroneous questions does not demonstrate to the marker that you have logically thought through the First Principles of ‘Value to arrive at a conclusion forthe situation presented.

* Appropriate work examples: Your work experience examples should be appropriate foryour level of experience. If you are writing the CRA exam, then avoid work examples of properties that do not conform to the CRA limitations. As a CRA Candidate, if you discuss properties beyond the CRA’s limitations, then be cautious to explain the limitations of your role and where additional assistance was required. Otherwise, it is a breach of professional ethics.

* Cautious terminology: Avoid slang terms, acronyms, and improper terminology. For example:

- In Canada, we use CUSPAP, not USPAP;

-If you are describing a retrospective report, do not call it a retroactive report;

-AIC uses market value, not fair market value (an accounting term);

Avoid using acronyms in your examples, as markers are from various regions of Canada and may be unfamiliar with the terms, e.g., Accredited Municipal Assessor of Alberta (AMAA), Property Assessment Appeal Board (PAAB), etc.

* Answer/flyf/�/^Tryandgetananswerdown for all questions. If you miss answering one of the work experience examples due to lack of time, it leaves little margin for errorto pass the exam, given the minimum total pass mark of 70% needed on both case study and work experience.

* Be general and comprehensive: When answering the case study portion of the exam, avoid answering it solely from the specialized or limited perspective of your current job. Explaining to the marker that you need not be concerned with market value because of assessment law in your province will undoubtedly not cover all First Principles of Value. Answer the question from a wider, more general, and more comprehensive perspective.

* Consider Point Form: To best answer the case study, you must work through all of the Rrst Principles of Value. Using expanded point form to go through each principle can be an efficient and effective way of ensuring you are covering all aspects of the case study.

* 7′ not ‘we’: Be careful about the ‘team’ approach – when answering the work experience example questions, explain to the marker what ‘you’ did, not what ‘we’ did. This does not preclude teamwork, but you must tell what you did in that team to address the First Principle being described.

* Explain suitability: There are three parts to the work experience question: description, suitability and details. The second part is easily overlooked, but, if answered appropriately, it segues nicely into the details of the example.

Answer the 5 Ws and do not forget the H

Finally, keep in mind these last few important points for success:

* Answerthe who, what when, where, why, and do not forget the how. At the end of the day, the how is what the marker is looking for. How did you determine highest and best use, how did you find market evidence to justify the adjustment made, how did you analyze the economic variables of the situation, how did you ensure that you reviewed all possible legal issues that could have an effect on your estimate of market value, how did you ensure the property rights were those of the fee simple. …and so on.

* Make it easy for the marker to logically go through your exam and understand how you have related everything back to the FirstPrinciples of Value. Keep the verbosity in check. For example, “It is assumed that the property rights appraised are those of the fee simple interest.” Do not go into an elaborate dissertation on the concept of the Bundle of Rights if unnecessary.

* Last, but not least, remember you are putting forward a professional argument for review and examination. Do not assume the marker knows what you are trying to say, fe//the marker what you are saying. Logic of argument, composition of material and rationale behind assumptions all play a factor. Writing clearly, logically, and thoroughly without being long-winded and repetitious will serve you well in presenting a well-written exam.

By Duane Bates, AACI, P. App, Member, Learning Advisory Committee

Learning Advisory Committee

David Highfield, AACI, P. App -Chair

April Green, Candidate

Suzanne de Jong, AACI, P. App

Wayne Kipp, AACI, P. App

Vikki Leslie, Qualifications Officer, AIC – ON

Charles Abromaitis, AACI, P. App

Duane Bates, AACI, P. App

David Shum, AACI, P. App

To contact this committee email: lac@aicanada.ca

Bates, Duane “Write once, write right: How to successfully complete the applied experience written examination“. Canadian Appraiser, The. FindArticles.com. 09 Mar, 2010. http://findarticles.com/p/articles/mi_qa5398/is_200910/ai_n42859246/