There was a recent study completed that proved, beyond a doubt, what I have essentially suspected for years. The topic was what causes criminals to do what they do. After much study and consternation, it was discovered that all criminals, regardless of the crime and in 100% of the cases, have one thing in common. They all had a mother.
There is an old debate trick called “Hasty Generalization.” Basically, it means taking something that may be true in some cases and applying it to all cases. “The Hansen family home schools their children, and their kids are pretty weird. Therefore, all home schooled kids are socially backward.” It is unfair, but it happens all of the time.
The same thing is happening today regarding Geographical Competency of appraisers. The “Competency Rule” in USPAP requires that an appraiser have the background, experience, and expertise to complete a particular assignment (or gain that competency by taking the necessary steps). Geographical Competency speaks directly to the area that the appraiser may be working in.
Obviously, any sane professional can see the wisdom in requiring that appraisers understand and have proper ability in their particular coverage area. That is a no-brainer. Hasty generalization, however, is equating distance to the subject with appraiser competency. They may relate, but they do not equate. Yet, it is becoming a standard in our industry (among AMCs, Lenders, regulatory boards, reviewers, and even appraisers themselves) to blindly connect the two.
Many engagement letters are coming over with an interesting (and relatively new) instruction: “If your home or office is located more than 30 miles from the subject property, please contact our office before proceeding with this assignment.” What is the purpose of this statement? Geographical Competency. It is my argument, however, that distance may have little if anything to do with competency. Allow me to give a few examples.
I know a man who currently lives in New York state. He moved there 3.5 years ago from Florida. He still has a vacation home in Florida. For 4 months each year (you can guess which months), he lives in Florida. He is a certified appraiser in both New York and Florida. He knows the Florida real estate market very well (he lived there longer than he has lived in New York). However, he has a very difficult time convincing his clients that he is competent in an area that is over 1,000 miles from his home and office.
In Idaho (my home base), it is almost essential to a viable business to cover a large geographical area. I personally cover 12 counties (including 2 counties in another state). It is not unusual for me to travel an hour and a half to my subject. These are very rural areas. One of my counties has a population of less than 1,000 people. When I say there are more sheep than people in that area, it is not an exaggeration. There is not one active appraiser among the 982 people who live in that county. I travel 80 miles (one way) to get to that area. Much of my coverage area is similar. However, I have been covering these areas for over 15 years. I understand the market as well (I would say better) than any of my peers.
When my office calls to set up an appointment with a borrower in Wyoming, they will often get the question, “Why are they sending an appraiser from Idaho to appraise my property in Wyoming?” Fair question, but when they learn that I have been licensed in Wyoming for 18 years and travel to their area once or twice a week, well…
I was recently sitting in an appraiser conference and the speaker said, “We are seeing appraisers sometimes travel two to three counties away from their office to appraise homes. There is no way an appraiser can be and stay competent doing that kind of thing.” Well, I would respectfully disagree. Can we stop equating distance with geographical competency? They are not the same. And while we are at it, can we stop equating all home schoolers as strange?
Now, go create some value!
Dustin Harris is a multi-business owner, but he has found most of his success 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 consultant. He owns and operates The Appraiser Coach (www.theappraisercoach.com) where he personally advises 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.
Excellend article Dustin!
To your point, “geographic competency” is often used as an immediate excuse by agents and mortgage professionals alike when an opinion of value falls below their own perceived value. They use it without any consideration of the facts.
I completed an appraisal for a refinance. Apparently, the homeowners have an agent (who lived in the Subject neighborhood) as a friend who kindly refuted my value. The homeowner and the agent communicated their disagreement with the loan officer. The proceeded with a ROV which used sales in a completely different neighborhood with a value range approximately $200k higher than the Subject’s. Not comparable. The ROV was denied. So the complaint that I was geographically incompetent was made.
Of course this was bunk! You see, I walked to the inspection. Why? Because I live down the street from the Subject property. It seemed senseless to drive 10 houses down in a tract neighborhood. I have lived in the neighborhood for 9 years. I am the HOA President and have been since 2006. I was on the Planning Committee for more than 5 years until just recently when I resigned to participate in a neighbohood stakeholder committee for a road construction project. Geographic incompetency – I do not think so.
On the flip side, the Phoenix area is quite large or spread out with very little verticly growth. I frequent a gated, guarded, 55+ plus community with all of the ammenities you can imagine and am highly competent in the area. Yet I have completed reviews on the appraisals in the neighborhood where appraisers who live relatively close (closer than I) use sales outside of the community. This is a no-no! I am 40 miles from this master planned community. Am I geographically competent? I think so.
I have made the argument that AMCs and Lenders are going down a slippery slope. The appraiser determines geographic competency not the Client!
Coach, a pet peeve of mine is the use (in USPAP) of the terms experience and expertise in the same sentence. You can have an experience in a given market area without having gained expertise in the area. In Washington,DC, an area of less than 10 square miles there are many sub-market areas each having their own boundaries and you can go one block in any given direction and be in another market area that would require a location adjustment yet, may appraisers have no clue even if they have a fair amount of experience in appraising in Washington, DC and I’m sure it must be the same in other large cities and metropolitan areas. However, my other pet peeve is your use of the term “Creating Value”. I can understand how you you create value for the appraiser by helping him become more productive but, you also use the term to tell appraisers to go out and create value. Appraisers do not create value unless they fudge the market data to inflate value. Market value is created by the market interaction of buyers and sellers and is influenced by other sources such as interest rates, supply, and demand. Please do not imply that appraisers create market value as I wrote an article in 1996 on an appraisal review that demonstrated how one bad appraiser created value by misrepresenting the property as being totally renovated when in fact it was still a shell.
Great article. Ten years ago I moved from the NE corner of my county to the SW corner – which is located along the coast. I now live over 40 miles from the town where I was born and raised, yet due to the 30 mile rule, I am no longer competent in my home town? I am also further handicapped by this rule as more than 1/2 of my 30 mile radius is ocean.
One more brief comment on Geographic competency:
True wisdom is knowing what you don’t know. – Confucious
If you are unaware of your own lack of knowledge, you don’t know you lack GC. – Paul Charron
Thank goodness!!! Finially, a voice of reason. Excellent article Dustin. I agree 100%. How many miles from the subject property you are located should NOT be the primary criteria to determine competency. I have worked in areas where I drove 3 hours to get to the property, but have worked the area on a regular basis and am very competent. Your example of your friend from NY was a prime example.
I was in a Broker’s CE class just 2 weeks ago and the instructor was a broker and an appraiser. The subject of appraisers coming from neighboring counties came up and one broker mentioned that an appraiser had recently came from a neighboring state and it concerned her. Her most memorable comment?…”Thank goodness the number came in ok.” The instructor’s response?…”If you EVER have that situation again, call the state appraisal board and file a FORMAL COMPLAINT! No appraiser should be coming from another state, they are NOT geographically competent.” WHAT???? And you are an appraiser??? This really shocked me that an APPRAISER would recommend a formal complaint to the appraisal board based on NOTHING! And we all know that the only way a broker would file a complaint is if the appraiser doesn’t “hit their number.”
With friends like this, who needs enemies.
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Been appraising 30 years in state A. Moving, relocating to a different State B. Step one I would assume is acquiring a license in that state. Step two is how and best way to begin the process of becoming geographically competent in that market.