There is the law…there is what some appraisers do…and then there is something in between.
As you all know, we are required by USPAP to have geographical competency before we can perform appraisals in any area. What is geographical competency? Simply put, an appraiser must know the market he or she is working in. Certainly makes sense. “Prior to accepting an assignment or entering into an agreement to perform any assignment, an appraiser must properly identify the problem to be addressed and have the knowledge and experience to complete the assignment competently” (USPAP Competency Rule, emphasis added). The Competency Rule goes on to specify that familiarity with the market and geographical area is part of that competency.
For the majority of the assignments we complete on a daily basis, geographical competency is not even given a second thought. Okay, let’s be honest…it’s not even given a FIRST thought. Why? Because we ARE competent in the markets we work on a daily basis. The difficulty comes whenever we are asked or obligated to perform work outside of our normal coverage area. This typically happens for one of two reasons; either 1. We are asked (usually begged) by our client to travel to a rural area just outside our coverage area because they cannot find anyone else to do it, or 2. We physically move ourselves and our family to a new area and need to start making a living there. The former is easier to solve than the latter, but both provide a dilemma. If we choose to work outside of an area we are familiar with, we must have geographical competency.
From stage right…enter the Catch-22! It is difficult to gain geographical competency without the help of another appraiser and other appraisers are rarely willing to help you gain geographical competency (it’s an anti-competition thing).
What does that mean for most appraisers who want or need to work in a new area? It is time for a little honesty. Though they won’t admit it, some appraisers gain geographical competency by closing one eye and hoping to squeeze through. They do appraisals they are probably not competent to do and hope they don’t get caught until enough time as passed that they can rightfully claim geographic competency (Not that I have personally ever done this…I’m just assuming it might possibly happen). While this method is clearly wrong, illegal, shameful, and despicable, the truth is…it probably happens…a lot.
So, what is the solution to wrapping that large cane around the Catch-22 and pulling him back off stage? In my view, there is the Wrong Way, the Right Way, and the Somewhere in Between Way. The wrong way has already been outlined above. Truly not a good choice.
The right way is, of course, following the letter of the law. But what IS the law as far as geographical competency goes? In order to gain competency, USPAP requires only that an appraiser take the time to do so. “In an assignment where geographic competency is necessary, an appraiser preparing an appraisal in an unfamiliar location must spend sufficient time to understand the nuances of the local market and the supply and demand factors relating to the specific property type and the location involved. Such understanding will not be imparted solely from a consideration of specific data such as demographics, costs, sales, and rentals. The necessary understanding of local market conditions provides the bridge between a sale and a comparable sale or a rental and a comparable rental” (ibid). For those of you who skimmed that last little bit, let me summarize. If an appraiser is not competent, she must take the time to become competent. That is easier said than done, but notice what is missing from that paragraph. Nowhere does it say that one MUST find a mentor or trainer. This is a common misconception among appraisers. In fact, the paragraph continues, “If an appraiser is not in a position to spend the necessary amount of time in a market area to obtain this understanding, affiliation with a qualified local appraiser may be the appropriate response to ensure development of credible assignment results” (ibid). In other words, finding a mentor is the second option…not the first! The way I read it (your comments are welcomed below), spending significant time in an area, self-study, and true effort until you are both competent and confident in a new market is the requirement.
That, of course, brings us to the bigger question; at what point to you know you have arrived? What is the benchmark which indicates that your time, effort, and dedication has paid off? That, my friend, may involve the help of another. How? There may be several ways, but allow me to suggest two.
My brother recently moved from Idaho to Hawaii to open up shop as an appraiser. I know, it’s a tough life! When he left, he had no mentor and no former training in Hawaii. Now, he is a damn good appraiser, but….well….’he ain’t in Idaho anymore, Toto!’ In his own words, this is the course he took:
“I spent a couple of months studying out my surroundings or market area in MLS records and through internet sites before I ever accepted an assignment. I called a number of appraisers who of course were busy and reluctant to share openly information about the market with me, but fortunately I found 2 appraisers in the market with extensive experience that were willing to talk and one in particular that was willing to not only review my work but sign off as a supervisory appraiser as needed until I gained the competency I needed. I found personal study and the help of the mentor to be invaluable but honestly the biggest asset in learning the market area and gaining a familiarity with my work in the local market was by just doing the appraisals.”
As I read USPAP, his approach was spot on! That is one way to gain geographical competency. But there are, of course, others. My suggestion? Review appraisals.
There is nothing that says you can only do appraisals for financial institutions. Furthermore, there is nothing that says you must do appraisals for a third party client. So here’s the deal; do appraisals for the one person who is not going to sue you for incompetency….YOU! That is right. Do several (you decide how many) test appraisals in your new area for yourself. You are the client. Now, to help you become competent, hire a review appraisal done on your work from a variety of appraisers who are competent in the new coverage area. Isn’t the very purpose of a review appraisal to determine competency of the appraiser and to give feedback on her work? That feedback can be very valuable in your education of the new area and can also serve as documented evidence (if ever needed) that you took the time and care to become competent before you started doing appraisals for real clients with real loans at stake. The appraisers you hire to review your work do not need to know you are reviewing yourself (use a black marker on the client and appraiser sections before sending it to them). Have your spouse or a friend call and order the review.
Again, USPAP does not dictate how much time is needed in an area in order to gain competency (that is between you and whoever is prosecuting you). I would suggest your best course it to keep doing practice reports and getting them reviewed until they are consistently coming back as PASSED! If other peer appraisers in your new area are regularly passing your work as acceptable, that is pretty irrefutable evidence that you are ready to start marketing to actual clients for work in that area.
Is it a perfect model? No, but it beats what some appraisers are doing presently. The ‘Fake it till you Make it’ technique might work, but I would sure hate to be defending that method to a State Regulatory Commission.
Now, go create some value!
Dustin Harris is a multi-business owner, but he made his fortune as a self-employed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker and mentor. He owns and operates The Appraiser Coach (www.theappraisercoach.com) where he personally consults and mentors other appraisers helping them to also run successful appraisal companies and increase their net worth. He is also the Founder and President of Your Appraisal Office (www.yourappraisaloffice.com) which implements some of the systems he has developed to help lower costs and free up time for real estate business owners. He and his wife reside in Idaho with their four children. This article may be reproduced and distributed only in its entirety without permission from the author.