I want to talk today about one of my biggest pet peeves in the whole real estate appraisal industry: geographical competency. We belong to an industry in which large numbers of people are failing to make a living, and being forced to leave. It’s sad, but it can be reversed. One of the major changes that is needed regards geographical competency.
We throw this phrase ‘geographical competency’ around a lot, and pretend that it means something. Does it really? Well, if you go and take a look in USPAP, I don’t think you’ll find it there. You’ll find the competency rule, sure, and you’ll find the subset which says we need to be competent in our geography; i.e. we need to understand the market we’re working in. But you won’t find any ‘Geographical Competency Rule’. Geographical competency is just the result of the two rules that are present being conflated into something that’s ill-advised and ill-implemented.
Dodd-Frank has also been misinterpreted. It doesn’t say anything about real estate appraisers only being able to work within 50 miles of their offices. There’s no legislative basis for this rule. It’s simply the result of misinterpretation and conflation.
We’ve somehow ended up at the point where clients can enforce arbitrary radiuses around our offices, outside of which we’re no longer supposed to carry out inspections. We no longer have the ability to decide for ourselves which areas we’re competent in; that autonomy has been taken out of our hands by clients.
Real estate appraisers in more highly-populated, urban areas might wonder what the problem is with only working within a 30 or 60 mile area. Well, for appraisers like myself who work in more rural areas, mileage takes on a different perspective.
If I only worked within the immediate Idaho Falls area, I wouldn’t be able to continue as a real estate appraiser. I have to travel very long distances in order to get enough volume to make a living. In terms of total population, my 200 mile area probably covers as many people as an appraiser who works in a 10 mile area in Salt Lake City.
The notion that mileage equals competency, and you can only be knowledgeable about a place if it’s near your office, is nonsensical. There’s an area of Wyoming that I’ve been visiting for 20 years now. It’s a 3 hour drive each way, and I charge very high fees to work out there, but I keep getting called back every single week. Why? Because I know the area. In fact, I’d argue that by this point I know it better than the real estate appraisers whose offices are much closer than mine.
Are there precedents for people abusing the system? Of course there are. I’ve seen them myself, but I’ve met a lot of real estate appraisers, both through my work as an appraiser and as a coach, and I firmly believe that the vast majority of them are fine people. They’re good guys and gals, just trying to make an honest living, and they’re not going to stick their neck out somewhere that they know it shouldn’t be.
Of course I understand the underlying reasons why the 50 mile rule was implemented in the first place, but it went way too far. If we’re going to get out profession back to its former heights then the 50-mile rule needs to go, and it needs to go right now.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode 043 – Geographical Competency.