What the Flip is ‘Geographic Competency?’

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.

geographic competencyReal 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. 

19 Comments on “What the Flip is ‘Geographic Competency?’”

  1. Pingback: What the Flip is ‘Geographic Competency?’ - Appraisal Buzz

  2. As it relates to “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”, is to not fully understand the games being played by the power brokers in these major population areas. In working the 3rd most populated county in the entire county, the 1,000 licensed appraisers within 30 miles of me can and often loose out on assignments not based on competency, but because there might be 50 appraisers within 3 miles while you are 3.1 miles away. Often times, people who commute to an office (5, 10, 15 miles away), which will be used as the starting point of ones competency (per the client/AMC), WILL NOT be eligible for work in their own neighborhoods based on some distance matrix that has no bearing on ones true knowledge. The fight for appraiser independence should start with the professional setting their qualification boundaries, not the client or their hired puppet AMC operating a super computer (hello Watson). Long gone are the days where my primary market area could be 150 miles from my office (Palm Springs, 2 trips a week), as with regional appraisal license numbers, the computer will recognize 4,000 to 5,000 closer appraisers for the job. Dustin, while some of your clients might challenge your competency on properties 3 hours away, many of us get challenged based on a few blocks, or a few miles if we are lucky.

    Seek the truth.

  3. Location competency is not the problem it is appraiser incompetence that is killing our industry. Out of fear of losing business we have allowed the Federal Government, AMC,’S , lenders, ,and many underwriters tell us what affects value,
    and in many cases now send us comparable sales they felt we should have used. Rather that stand on what we can prove in the market and stick to what we believe are the facts many appraisers out of fear capitulate to their opinions. No wonder Fannie Mae and Freddie Mac are coming up with mortgages without the use of an appraisal.

  4. One of the biggest related problems is that appraisers have zero recourse when any reviewer, including AMC reviewers, superimpose their judgement over that of the appraiser. In many cases, no amount of proof, support or logic is good enough… because there is no one for the appraiser to turn to when the reviewer does not have the needed expertise or judgment. With the big push to have all appraisals reviewed by “independent reviewers”, the common sense part that got lost was any recognition that reviews completed by less than competent appraisers are not useful. In fact, they do more harm than good. People that were not good appraisers do not make good reviewers – period. But this really becomes a problem when there is no legitimate oversight of these “reviewers” who become the sole arbiters of acceptable practices. This includes arbitrary and unilateral decisions to make up terms like “geographical incompetency”. The problem is, AMC’s have usurped the right to oversee the appraisal process, and one of the tactics that they have thus far successfully used amounts to: ‘thank goodness we are here to be your valuation experts – and to keep a very close eye on all of the scoundrels with appraisal licenses.’
    AMC’s have come up with check box grading systems and other methods to ‘assess the appraiser’ so that the “best” are hired. That sounds great if you are selling it to a bank examiner… but when you look under the hood, incompetent reviewers creating grading systems and coming up with rules such as geographic competency – is leading to the best appraisers willing to take fewer and fewer lender assignments (I have cut down sharply on lender work for exactly these reasons, replacing it with higher paying and more professionally honest valuation work). These are the unintended consequences of Dodd-Frank and its implementation by bank examiners without any true insight into the appraisal profession. I would love to see the Appraisal Institute take the lead on giving appraisers some aid in battling rogue and incompetent AMC’s.

  5. The Realtors are also starting to make noise requesting, no demanding that the appraiser be ” Geographic Competency” I completed an assignment that when I was scheduling the appointment to visit the subject the Realtor denied me access for my office was 15 miles from the community. This is the same community I live. I informed the lender and two days later I received a call to schedule the appointment but the Realtor demanded to meet me at the property and he would bring information for me. When I met the Realtor at the Property we recognized each other for I had coached his son in Little League and All Stars. I do agree with you Justin this merging of the two rules is trouble.

  6. The greatest problem appears to be the lack of understanding or familiarity that reviewers have for community and locational uniqueness, requiring urban and suburban standards for rural property and rural communities as well as old industrial communities. They seem to be more concerned with documentation or statistics than real value. The appraiser should not be required to educate the reviewer on every appraisal. Experience and expertise should be given greater weight. It is often easier to document misleading conclusions than reality. Some subjective judgement should be considered and weighted.

  7. Here’s an idea: why don’t the reviewers have to be geographically competent? It may be too much to ask considering we can’t usually get general competency from them.

  8. Couldn’t agree more with this post. Some appraisers FLY every week to one of their markets and have done so for years. The idea they don’t know what they’re doing just because they don’t live there is absurd…

  9. I don’t get this either. My Dad is an MAI and I grew up watching him appraise complex properties in a multitude of states. I went with him when he appraised the Denver World Trade Center and he had never appraised in Colorado before that. The rules that govern commercial appraising are the same rules that apply to residential appraising. If an MAI in Dallas can appraise a commercial property in Denver on a temporary permit then why can’t a residential appraiser appraise a home in Denver on that VERY SAME 1-time use temporary permit? If you’re going to say that an appraiser can only appraiser properties within 50 miles of their office then you need to make that same rule for commercial appraisers and tell the guy who specializes in golf courses that he can only appraise the golf courses within 50 miles of his home. Good luck with that!

  10. I agree, in rural areas especially. Actually I moved where I live recently, which also is my office address, to a more central location. Though it was only 5 miles from old. Which also is 5 miles closer to interstate. It resulted in large increase in assignments especially in certain areas. Though am just as competent as before. Which on one hand was good ,on the other hand I want to move back to the more rural area I was. Seems like would hurt my business though. Also agree guidelines reviewers create the misleading reports because no matter what they will come back and require you to comment on lack of use of certain sales, maybe closer or sold more recently, that is not truly comparable. This makes appraiser more likely to use these comparable sales instead, in order to keep the damn scoredcard or grades report in line. Which are mostly not based on the value opinion being the best possible.

  11. Excellent points, Dustin! Appraisers in our office regularly drive 1 hour, 2 hours, even 2.5 hours to some rural and remote areas in western Colorado, but they know the area, know the data sources, know the agents, and so on – and, consequently, are competent in those areas. Applying arbitrary distance-radii may actually unintentionally omit qualified competent appraisers.
    Quick FYI… “geographic competency” IS present in the USPAP, line 372 of the current 2016-2017 version. It is found in a Comment, but Comments carry the same weight as the component they describe (so is a part of the USPAP).

  12. Dustin, in my view Geographic competency is ultimately expressed in the content of the appraisal report. The biggest problem I see with Geographic competency deals with having access to local data and not relying on third parties who have an interest in the transaction providing biased comparable sales data that the appraiser doesn’t verify. Example, Southern Utah has it’s own MLS system. Some of the data is reported on the Wastach Front Regional MLS, but less than 50%. Appraisers who come from Northern Utah to do appraisals in Southern Utah do not have independent access to the available listing and sales data. I am aware of an appraiser from Northern Utah who appraised a townhouse in Southern Utah where the real estate agent provided all of the comparable sales. The problem was that the data has been filtered and included only the highest sales from a competing development. In the end there was a home next door to the subject that was listed for sale that the appraiser failed to very or disclose that was a model match to the subject that was well below the appraised value. Was the appraiser competent to perform the assignment?

    Alternatively, The Greater Las Vegas Market is huge with hundreds of subdivisions where it would be impossible for anyone appraiser to have intimate knowledge of every neighborhood. Ultimately the appraiser must visit with local experts to determine the individual neighborhood characteristics.

    Proximity to the property does not equal geographic competence in my view.

    Craig

    1. Not to say I’ve seen it all in my SINGLE COUNTY of over 3 million people+ Craig (all within 30 miles), but driving by, through, too, and on the way to other properties every day (not just a few times a year), its truly amazing the knowledge we appraisers obtain. To put in another way, I work 117 DIFFERNT ZIP CODES in the county, while many agents attempt to specialize in just a few.

      Seek the truth.

  13. I see incompetent appraisers all the time. They come from suburban areas thinking there competent to perform rural appraisals. Realtors have been complaining to me
    that the appraiser is from 75 miles away, says “yea, I was out here two years ago”. and misses the sales price by 33%. You bet those realtors are mad! This happened
    to me just a couple of months ago. How many appraiser’s have turned down a job because they were not competent? I bet it’s close to zero. Were killing ourselves.
    Here is also a note that a realtor/appraiser told me. Because the appraiser is from 50-100 miles away, they make one trip, this means if the appraiser happens
    to select the wrong comps prior to the appointment, there stuck. Now if you drive for 3 hours 1 way. There is no internet service. You selected the wrong comps.
    The public data was not correct. What are you going to do? Make sense of sales that are not comparable? This is a real issue with appraisers that are not from the
    same market area, that I see. Not all, but enough to make the local realtors mad!

    1. Jerry, its often the lenders who turn down the knowledgeable and eager appraisers who CAN and SHOULD be completing the work in question (fees, turn time, etc.). Even when presented with local expert boots on the ground facts, they will save a dollar and reassign the appraisal to someone else as the fee has been predetermined (TRID), from 25 states away.

      Seek the truth.

  14. In my 55+ year appraisal career, I have appraised properties in about one-half of our U.S. and a couple of foreign countries to boot. I believe an experienced and ethical appraiser can acquire Geographic Competency in any locale–given the opportunity and a fee to compensate fairly for the time involved.

    In a recent (Yellow Book) appraisal of over 500 acres of land for expansion of an adjacent public airport, a review appraiser practicing over 300+ miles from the subject property was retained to review our report. He did not visit the subject property and had no intention of doing so since it apparently was outside his scope of work. In a discussion with the review appraiser I attempted to stress the importance of visiting the property and its environs and offered to accompany him and show him the limited market data we had to work with. He stated that he had once visited the airport many years previous to this review assignment and that was sufficient for his purposes.

    He refused my invitations and proceeded to submit a 12 page critique of our report that demonstrated his lack of knowledge of the subject market area and the influence of the pre-existing airport. His critique was replete with questions that would not have occurred with any local appraiser possessing geographic competency. It required us to educate him on many fundamental aspects of the property and the market area and data available. His refusal to gain GC delayed the entire appraisal, review, and acquisition process needlessly. It also required us to expend substantial additional hours in answering his questions and which were only partially compensable to us under our not to exceed contract.

    Be careful of accepting appraisal assignments where a Geographic Incompetent may be retained to review your work product!

  15. I agree Dustin. At the start of my career, I traveled a couple hours to my service area every week, inspected several properties, and returned to my office to complete the assignments. At that time, I was doing more appraisals than there were sales in the remote rural area. With my office location being so far away, I had to write better reports to prove each time that I was just as competent or more competent than locals who would question an appraiser who travels.

  16. Yes, what the flip is it? First off, is it defined anywhere? USPAP does in fact state we must have it as another poster has referenced (thank you). USPAP also states we must analyze any current sales contract. Analyze for what? USPAP falls short of defining the parameters in both cases, as do all other sources. This is problematic when it comes to work review and puts everyone in a tough spot. From this will always emerge the “experts” who proclaim they are right and the other guy is wrong. Its a messy business in this regard and more than a bit silly. A dose of truth here would go a long ways.

    “You must follow the rules.” “What are the rules?” “The rules are you must follow the rules.” I cant be the only one who sees this reoccurring theme in the industry.

    I think this issue strikes at the heart of a larger issue, which is that an appraisal is not definitive in the same way 1+1=2. Everyone wishes it was and why not? Of course they do. Everyone wants a better appraisal (faster and cheaper too). The thing is, the very best resource for appraisal users is the experience of the appraiser. The thing is, the very best resource for appraisal users is the experience of the appraiser. Big data is not the savior, nor is applying a radius requirement – both are so over-rated to the point of nausea. I find it stunning that so few recognize this (though less stunned the older I get). I think a possible rationale for this sentiment is that because homes are sold in dollars, and dollars are represented as mathematical integers, that most people then conclude the best appraisal method must also be a mathematical one. Well, it would be neat if that were the case, but it isn’t. What people do not recognize all too often, is that the sale prices we use and term as the “facts” of the case, are actually individual opinions. Just like two homes are never the same, two buyers are never going to pay exactly the same amount either (in both cases here the term “never” is used because the frequency in which two homes or two buyers would be the same is so low, it is reasonable to use the term never – just sayin’ for those of you who want to split words and call that statement out). What we end up with is a data set of opinions, that is best reconciled by a human, as an opinion. Which ironically, is what we have had for a very long time until only recently, when the world has gone nuts about it, in the wake of “big data is better” and “opinions ought to be proven”.

    I think a large part of the problem is that appraisers in general tend to not speak up when they ought to. We are the experts and should be telling the world how it is, not the other way around.

    What does geo-competency mean then? I live in a suburban village that has many locational nuances. I only know this because I have lived here most of my life. Any appraiser from outside the area would not have a clue, nor would they be able to figure it out in the normal course of business. Should I be the only appraiser allowed to do assignments in my village? Would this mean I could not do assignments in other areas? In order to comply with geo-competency in a perfect world, this would be the case. I shouldn’t need to explain how ridiculous a notion that is to anyone. Funny thing is, for the very same reason (knowing the area as well as I do), I refuse all mortgage assignments in my village!!! If I were to write up a mortgage report using the best comps, it would be rejected by most reviewers because the comps wouldn’t meet all of the other silly “competency” tests applied on a regular basis. I wouldn’t be able to “prove” what I “know”, at least on paper, though anyone who also lives where I do, would recognize the “truth” of my “knowledge” or “Geo-Competency” in heartbeat – lol.

    Appraisals developed by appraisers are actually better today than they ever have been. Think about it. All of them, every one. They could be even better if we were allowed to be the appraisers we are, instead of the compliance document producers our mortgage clients require. LOL. But, we will probably be replaced by an algorithm, because our money supply is tangible, big data is better, politicians are our friends and perpetual war is good. Its hard to argue the Zeitgeist.

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