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   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2016

Work With Appraisers Who Stand Out

Appraisal management companies should have access to the necessary expertise and resources to handle specialized niches

Work With Appraisers Who Stand Out

At a Glance

The role of appraisal management companies

Mortgage originators are precluded under federal law from selecting an appraiser for a property in which they have a financial interest. AMCs are independent companies that play a third-party administrative role in the appraisal process by serving as a bridge between lenders and appraisers. An AMC — which has access to a network, or panel, of certified appraisers — works with mortgage lenders to arrange, track and oversee real estate valuations for residential properties and shepherds the final reports to the lenders.

Much of an appraiser’s work is done for conventional, single-family home loans. Every now and then, however, something considered unusual comes along. Maybe it’s a vacant lot. Maybe it’s a modular or manufactured home. Maybe it’s a high-end or otherwise one-of-a-kind house.

When it’s time for a loan for a property that’s not just like the others, it’s vital to have a relationship with an appraisal management company (AMC) that, similarly, is not like the others. The appraisers should be able to step outside the cookie-cutter mold to best evaluate these unique properties, and to give their originators and lenders some peace of mind.

Residential mortgage lending relationships, like those between an originator and an AMC, are predicated on producing quality results. Because they are part of a larger financial transaction, the appraisal work and end product must be timely, accurate, cost-effective and satisfy all regulatory and institutional demands.

When it comes to specialized appraisals, the overriding goal of AMCs and the appraisers they work with should be to bring the same transaction certainty and overall efficiencies as they seek to attain with any other residential assignment. The fundamental components of a residential appraisal are land at a specific location, plus the structure.

Each specialized appraisal, however, will have its own nuances and challenges. These can involve the uniqueness of the physical property, the architectural distinctions of a luxury home, or even the transaction dynamics. Successfully managing the challenges of specialized appraisals depends on the individual appraiser’s level of training and experience as well as the logistical resources that an AMC can bring to the assignment.

Vacant land

In appraisal assignments involving land tracts, it is important for the appraiser to spend sufficient time with the client discussing the expectations and requirements that may be considered outside “the normal scope of work.” For example, a lender may require that the landowner be present during the inspection. It also is not uncommon for a lender to request a series of photographs that might include views in all four compass directions as well as views of the parcel boundaries, any power lines or railroad tracks, and aerial images of adjacent property that might impact valuation. The AMC must have a reporting system that can accommodate this photographic component, as well as related narrative entries.

Land values can be impacted by many variables, including natural features; existing versus potential uses (i.e., agricultural land that is to be rezoned as residential or as mixed zoning); quality and availability of onsite and nearby utility and transportation infrastructure; and adjacent land uses — for instance, residential, commercial or agricultural.

Often, specialized appraisals do entail more time, research or verification
and documentation than traditional single-family residential appraisals.

One of the biggest challenges in vacant-land appraisal can be in finding comparables, because many of these assignments involve rural properties. It may require some travel time to find the appropriate comparables, but appraisers experienced in vacant-land assignments will already have a good handle on where to find comparable properties. A qualified AMC should be able to easily identify which appraisers have the experience and competency necessary to complete vacant-land assignments. The principles of vacant-land appraisal also apply to many manufactured-home and high-value home assignments.

Manufactured and modular homes

Manufactured and modular homes represent a significant segment of the housing market today, and the quality and value of these residences continues to improve. Federal rules require manufactured homes to be constructed on a permanent chassis or frame, whereas modular homes must adhere to the same state, regional and local building codes as site-built homes.

Appraisers often must “combine” appraisals of a to-be-bought manufactured or modular home located on a dealer’s lot or prefabricated in a remote facility with that of the vacant land where the dwelling will be located. This “split entity” valuation can present challenges in finding an appraiser, given that individual has to be well-versed in appraising manufactured or modular homes as well as vacant land — and also be located in close proximity to the land and the prefabricated dwelling. It also can be difficult to find appropriate sales comparables between existing, lived-in manufactured or modular homes and today’s better-grade new product.

Additionally, manufactured and modular homes are closely scrutinized by regulatory agencies. Consequently, it is critical that the appraiser is up to speed with the current regulatory environment, as well as familiar with the differences among state codes.

High-value homes

Assignments involving high-end luxury homes (those valued in excess of $2 million) require that AMCs have access to a carefully developed appraisal panel whose practitioners have the necessary expertise, discretion and decorum to handle these sensitive assignments. The mature appraiser will resist being intimidated by multimillion dollar properties or by meeting a homeowner who might be a national celebrity. Obviously, security and confidentiality are at a premium in these cases.

Even with distinctive luxury homes designed by world-class architects, however, experienced appraisers under the supervision of an assigning AMC will generally be able to find necessary comparables. The incidences of contested appraisals involving luxury homes are not at a higher level than with any other appraisal niche.

Many of these high-end homes are owned through a trust or limited liability corporation, or are part of a wealth-management portfolio — arrangements that often mandate periodic appraisals, perhaps once a year or every other year.

Transactional dynamics

Beyond having access to a pool of appraisers that have a high comfort level working with specific property niches, an AMC also must have access to appraisers who can function in a variety of contexts and situations, including assignments involving new construction, redevelopment and mixed-use developments, bankruptcy or litigation, or eminent domain.

In addition, an AMC should have appraisers in its network who have experience working with property types that may have a higher percentage of private sales, which complicates the researching of comparables. An example would be the co-op developments found in metropolitan areas such as Chicago or New York City.

•  •  •

The unique challenges posed by appraisal niches highlight the value of partnering with an AMC that has national coverage; the necessary panel of appraisers for a given property type; state-of-the-art reporting, regulatory-compliance and auditing systems; and the ability to fully understand and implement lender requirements.

Matching the right appraiser to the specific assignment is even more critical in light of federal regulations implemented this past April that establish minimum requirements for state registration and supervision of AMCs. The new rules require states to assure that AMCs “have processes and controls reasonably designed to ensure that the AMC, in engaging an appraiser, selects an appraiser who has the requisite education, expertise, and experience to complete competently the assignment for the particular market and property type.”

Often, specialized appraisals do entail more time, research or verification and documentation than traditional single-family residential appraisals, making them more costly. The goal of a national AMC with full expertise and resources should be to control those added costs as much as possible, while fulfilling all of the assignment’s quality, audit and strategic objectives. 


 


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