How Appraisers Can Add Value to the Process!

I talk about this all the time, it’s in the name of one of my companies, it’s what we do, the word is value. What we do, of course, could be considered a verb, we ‘value’ real estate, or it could be a noun, we develop an opinion of value, with value being used as a noun in that instance. While I don’t expect anybody to know or care about the grammar differences between the verb and the noun usage of the word value, I do expect to add some value to the process today by talking about how appraisers can add some value to the process. What process? The process we all do on daily basis- the process of real estate valuation, of developing an opinion of value on a piece of real estate.   

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I started asking this question of my self years ago when I began speaking and coaching in my local area because I had learned to ask that question in my other businesses.  I learned from a master business and personal coach the importance of always asking the question, “how can I add some value to the process or to my clients”, and in asking the question, we’re already staring down the path of value creation. It’s part of Jay Abraham’s strategy of preeminence. Part of the process of becoming the go-to, most highly respected and recognized leader in your field (in your market) by your clients based on your knowledge, ethics, compassion, and and the value you add to the marketplace while creating your product or delivering your service.  

It is very easy in the profession of Real Estate Appraisal to get complacent in our work and believing that the appraisal itself is the value add. The problem with that thinking, of course, is that, on its own, the appraisal, the appraisal process, and you as the Appraiser, are all commodities at some level. Many of us, as appraisers, tend to think of the final appraisal report as our product, and the process we go through invisibly back at our offices as the process. However, the appraisal, to a large degree, only has value in the loan process to the extent that it solves the borrower’s or lender’s problem of securing a loan on a piece of property OR helping the borrower and lender come to the conclusion that a particular piece of property is overpriced and there’s no market support far it.

Again, helping all parties involved come to an educated conclusion about how to proceed. The lender, the lender’s underwriter, the title company, the real estate agent, and the borrower and seller don’t really give two shakes whether its you or Andrea the Appraiser, as long as somebody solves their problem. (I wont get into all of the different problems that each of them is trying to solve in this episode because we all know that, quite often, the problem each party in the process may want solved is at cross purposes with each other).  

Let’s talk about commoditization. Understand, there are always at least three forces trying to commoditize the appraisal and the appraisal process; the client, the borrower, and the market. We could also say that the secondary buyer of appraisals is also trying to commoditize the process, that would be Fannie, Freddie, HUD, and any other secondary market buyers of appraisals, but we can safely lump them in with the market as a whole. We could take it one step further and say that our own industry is commoditizing the appraisal and the appraiser too, which I’ll talk about in a bit. But If you don’t understand what commoditization is, I’ll summarize. 
 A commodity is a good or service bought and sold by the market and is typically considered to be a necessity or useful by the market, albeit sometimes also considered a necessary evil. Commodity’s are typically distinguished only based on price though since the market regards that as typically the only distinguishing characteristic.    

A commodity is widely available and, since there is very little difference between competing commodities, being a producer or service provider of that commodity means a race to the bottom, as in who can produce it cheaper, faster, and make it more readily available. Think garden rakes or shoe strings. Are there differences or variety in those two products? Sure, there can be, and you might be willing to spend $10 or $20 more dollars for a metal rake over a plastic one, or one that has a more ergonomic handle, but you likely wouldn’t pay more than the value you feel you’d receive from the variation over the basic rake.  

Same thing with shoe strings. I have some shoe strings that I buy that are athletic stretchy shoe strings with a little cinching/tightening device that turn any pair of shoes into a pair of shoes you don’t have to tie. You simply set the tightness that you prefer for those shoes, cinch up the laces and lock them, and then you can slip into them any time without bending over to tie them. I pay a little extra for them over regular shoe strings but I am paying primarily for their uniqueness and the problem they solve for me over regular shoe strings, If I was shopping for regular shoe strings, however, I would expect to pay no more than .50 cents to a dollar between all brands. Shoe strings are a commodity. Widely available, not much variation beyond length and color, and I don’t expect to pay that much for them.  

The process of commoditization is the process of turning something that may have been unique or really valuable at one time into a product that is widely available, little variation, lots of producers of that product or service, relatively indistinguishable from other products or services like it, with the main difference only being price. 

What does that sound like to you? Does anybody recognize the appraisal process in that definition? Of course. To a very large extent, the appraisal and the appraisal process has already been commoditized. Unfortunately, the Appraiser has also been commoditized by their own kind long before the market even had to. And this is what we’re talking about today.  

I know what some of you are saying, “Blaine! You idiot, I’m the best appraiser in my market, my clients love me, I do the best work around, I get paid the highest fees”,etc., etc.” to which I would say, cool, you don’t need any help, you’re not the one I’m speaking to. You can turn off your ears, brain, keyboard, monitor, speakers, and go back to being the best in your market, you have nothing left to learn. These kinds of people too are a commodity in that they are very common. They think they have it all sewn up until one day, boom!, some big change, somebody better, or worse, somebody average but cheaper comes along and they’re gone.  

Appraisers, much like realtors and lenders, all eat their own kind to some degree. We have an appraiser in our town that drives around in a nice pick up truck with a huge sandwich board style painted plywood sign in the back that says, in huge letters, Real Estate Appraisal, $150! Its nicely done and looks professional. I know little about this guy and don’t really care to. He’s probably a nice guy and cool to hang out with, but my guess it that he’s also a part time appraiser and I have to imagine that he’s not the best appraiser out there. He might be, I don’t know, but my guess is that if he’s trying to maximize his time and be profitable, he has to cut some corners somewhere in the process to do so. 

Nevertheless, the market doesn’t know that and he’s telling the market, very loudly I might add, that the range of prices for a real estate appraisal is somewhere around $150. I’m sure the market of consumers has an idea that he may be the walmart of appraisal services and would be willing to pay a bit more to get something better, but then again, if they don’t know or care what ‘better’ means, they may not. Again, most of the users of our product and service are looking for one thing: the opinion of value on page two. I’ve seen realtors look for it, lenders look for it, underwriters look for it, homeowners look for it, attorneys look for it, and other appraisers look for it. They flip straight to page two and look for the Opinion of value.   

Quick story: when I was in the lending business, there was a company I’m sure many of you are familiar with called Countrywide Funding. They were the biggest around and had an office here in my town. As a loan originator you could have your loan file reviewed on the quick with a special service they offered, I forget what it was called at the time, but something akin to the FastPass at an amusement park. You’d have a set appointment with the underwriter to review your loan package and they’d tell you right then and there what was missing and what would be needed to get that file to sail through underwriting. I sat through many of those appointments and I can tell you that it was one of the most interesting things I had ever seen in the loan process. The underwriter had a stack of files sitting to his or her left that was at least 2 or 3 feet high. They’d grab your file off the top and begin thumbing through it with amazing speed. They always had a red pen and would begin marking things up and making notes about what was needed.

They’d get to the appraisal and do the same exact process. They’d thumb through quickly to page with the opinion of value, circle it, they’d look for a couple other things, and then move on to the next thing in the loan package. This whole process took 3 -10 minutes.    

Of course, it need not be said that Countrywide is no longer in existence and this fast-pass process is just one of the contributing factors in their demise. I also know that the system has become much more automated for them and much of that review work is initially done by the automated underwriting systems like collateral underwriter. Our appraisals, if they’re for a federally related mortgage transaction, are submitted through FannieMae’s UCDP portal which collects all kinds of information. This is part of the big data concern many have since all of the global cells in an appraisal report like quality, condition, age, and other relevant data about a particular address are being stored and compared against other appraisals of that same address. Nevertheless, the automated process has helped underwriters be more thorough in their review of the loan file. The point of the story, of course, is how what we think or consider quality to be in an appraisal or in the process, may be completely overlooked or not even considered as it makes its way through the loan process.  

So, lets talk about some of the ways how we, as appraisers, can add value to the process beyond just being 'good' at what we do? This is not a complete or comprehensive list, by the way! I would hope that some of you would begin commenting on the post or the podcast over at RealValueCast.com and expand on this. This episode is meant more just to start the discussion and raise the question that we ask in our mastermind and business planning meetings: how can we add value to the process, product, and service.    

First thought I have on this topic is that being 'good' is subjective and is viewed differently by different parties to the transaction. I say that because what I often hear from appraisers is how good their reports are, how solid and credible they are, how well they support their adjustments and work, etc. This is all great stuff in our community, of course, and keeps us in good stead with underwriters and review boards. However, I’d ask you to consider a couple things: could being the best appraiser in your market actually be a bad thing? Let me unpack the question a bit with some of my own experiences in our market. We’re one of the only appraisers in our market that puts interior comp photos in our reports. In addition to putting graphs, market and adjustment charts, data to support conclusions, and a bunch of stuff that I know none of my loan officers care one bit about, we put at least 4 interior pics of the comps into every report.  
  
We put a kitchen, family room, bedroom, and bath pic so as to back up our assessment, and consequent adjustments for, condition, quality, features and amenities. While we think its awesome and has helped us answer some questions over the years, we’ve gotten a fair amount of push back from loan officers, appraisal managers, and underwriters. We’ve had them tell us flat out, we don’t need them, we don’t want them, please remove them. While we’ve always seen them as adding support for our conclusions, they’re inclusion in our reports has actually pissed more than a few people off. Either because they didn’t want that much evidence in the report, or because it was something extra that somebody had to review.  
  
So we think we’re being awesome, somebody else, a user and reader of our reports is rolling their eyes and may be limiting or even not sending business to us because we’re ‘too good’ at supporting our conclusions. Now, I’ll never advocate for less than great work. But we should always be asking two questions about our work: What does my client think is ‘good’ appraisal work, AND, how can I make the invisible visible to my clients. To give credit where credit is due, I first heard this concept from my marketing mentor, Jay Abraham. One of the many brilliant things Jay has been teaching for many years is the concept of making the invisible visible which simply means to stop keeping your processes and practices a secret. You know what you do that makes you good, but likely nobody else does. An important step in doing that is to write out all of your important process, the steps you take to make your appraisals the best, and then answer the question, “what’s in it for me?”, as in what’s in it for them. That is always the question the client is asking when they’re making a buying decision. It’s the question they were asking when they decided to take a chance on first using your appraisal business. “What’s in this relationship for me if I decide to use you as my appraiser?” 
  
The way I do this, and the way I recommend you do it, is by taking a sheet of paper (or my iPad) and putting a line down the center of it from top to bottom. On the left is the process or procedure that you do that you think makes you a good appraiser. On the right hand side you write out  all of the ways that your process benefits them. We do lots of things in our appraisals that we know are good things to be doing. We do lots of things in our appraisals that we MUST do to be in compliance. We also do things in our businesses and in the development of the appraisal report that we may think is totally kick ass that means absolutely nothing to our clients. We look at our appraisals as works of art and science.  Our clients generally look at appraisals as big thick wastes of paper with lots of words and some pictures with one key line…the line with the opinion of value on it. Your job is to break down some of the key components of the appraisal and appraisal process and turn those things into benefits for the client.  
  
Lets walk through a couple examples some of the things we typically think makes us good: 
  
Being good to us may mean: 
quick turn around,  
accurate reporting of market conditions,  
using great comps,  
good communication,  
Writing good narrative,  
not misleading,  
Good adjustments 
Filling the report with charts, market data, absorption rates, regression data 
All Fannie and Freddie reqs met, etc. 
  
Being 'good' to an RE agent may simply mean hitting value 
  
Being 'good' to a lender may mean ‘hitting value’ on a sale and being fast  
  
Being 'good' to the underwriter usually means providing enough solid data to adequately satisfy their risk mitigation models 
  
Theres two problems with many of the things we tend to value in our own reports: the first one is that many of those things are simply expected, the second one is that many of those things are unknown to our clients. They are invisible. How many times have you turned an appraisal around in a day or two, did everything you were supposed to, but maybe the market support wasn’t there to support the sale price only to have the lender and realtors pissed off at you? This is what happens when what is expected by clients meets up with the invisible.  
  
This is, by the way, one of the reasons I advocate that appraisers make speaking and teaching one of their main marketing activities. It has been the foundation of much of our marketing effort for many years now and it allows me to train my clients and potential clients on how we like to work, what our processes are, what goes into an appraisal, and it gives me the opportunity to make the invisible visible.  
  
So that I am adding some value to your process, lets go through a few examples of what I’m talking about. With my piece of paper in front of me I may write on the left side: 
  
Quick turn time: 
(2-3 days average) 
-Most appraisers typically take 1-3 weeks  
-No headaches for your processors with all of the other things they’re managing (title, income verifications, rent verifications, condo questionnaires, etc.) 
-leaves a cushion for revisions or additions that may sometimes come up 
-close on time 
  
Expert comp selection: 
-scientific process for choosing the best comparable sales 
-SALTS- 5 filter test utilized to determine the best comps 
-size 
-appeal 
-location 
-time 
-substitution (if this home was on the market today, would your buyer buy it instead) 
  
Accurate reporting of market conditions: 
-scientific approach to determining date of sale adjustments so that the it gets what it needs and deserves 
-sails through underwriting 
-bulletproof 
  
Regression Analysis: 
-have to explain it first 
-makes the appraisal bulletproof 
-underwriters love them 
-very scientific method for determining the absolute most appropriate adjustment ranges for your buyers home so that they know the market value of particular features 
  
And so on and so forth the exercise goes until I’ve identified all of the little things that go into an appraisal that we likely take for granted. It becomes an exercise for me to find silly little things in the appraisal that we typically never think about. It could be something in our certification or additional comments. For example, per USPAP, we’re all supposed to have a full summary of highest and best use in the report. I review reports every week where the appraiser just checks the box that says ‘highest and best use’. Underwriters typically don’t even catch it, but when one does, its an immediate revision request. That slows down the whole train of paperwork by one day. By having a full summary of HABU in every report, I am guaranteeing that our reports will never be flagged for not having the summary, thus never slowing down their processes for that reason. Now, that may not be one of your main selling points when you’re giving a talk or a training session to a group of lenders, but you have it in the bag if you ever want to point it out. You’ve taken something that is actually required and instead of blowing it off simply BECAUSE its required, you turn it into a benefit for them. More importantly, you’re taking the invisible and making it visible to your clients. You’re teaching them something in the process and setting yourself apart as one of the preeminent appraisers in your market.  
  
So that’s the features/benefits example of how to add value to the process. Taking what are considered features of an appraisal and turning them into benefits for your clients.  
  
How about learning the whole process? I’m not referring to the appraisal process, I’m talking about the whole process from start to closing of a real estate deal. I speak with appraisers all the time who have almost no clue about what goes on in the mortgage loan process. The very process that birthed the need for an appraisal that landed in their inbox. I highly recommend researching the complete loan process from start to finish. You can, of course, google the process but I’d also recommend you calling up one of your local lenders, maybe one that you don’t get any business from yet, and ask to take them for coffee. Or better yet, ask if you can bring their whole office some lunch if you can pick their brains about the loan process for 30 minutes. Tell them you’d like to learn all the ins and outs about the loan process to help you be a better appraiser. Can you even imagine how that sounds to a lender? 
  
Having been a lender and also a realtor, I have a good understanding of the whole loan process, all of the variables and processes that are going on behind the scenes once a mortgage application has been taken, and I regularly point this out when I give talks since it almost instantly grants me some authority, as well as some credibility with the group I’m speaking with. I use the phrase, “…having had those prior careers in lending and real estate, I can fluently speak all of the languages of the real estate transaction which gives me a little more empathy for the process”. I don’t say that I am sympathetic and, therefore, hit your number. I simply say, I can speak your language and know what’s going on behind the scenes so if we have to have a discussion at some point in the process, I can bring some empathy and I understand how to frame the conversation from their point of view. There’s a huge difference between empathy and sympathy, by the way. Empathy is seeing your friend fall through the ice on a pond and having the compassion, and also brains, to throw them a rope or extend a branch to save them. Sympathy is jumping in the pond with them without grabbing a rope or branch first. One of those things is helpful, the other does almost nothing in that instance. 
  
Know the whole loan process to add more empathy to the transaction and learn the languages of all the parties involved. Of course, we are objective and unbiased. Neither of those words connote disinterest in the transaction, however. You can remain objective and unbiased and still be able to emote empathy when talking with a buyer or selling agent when an appraisal value is not coming in where they’d like it. I have these conversations almost every week, by the way. We don’t have substantive conversations about the specifics of the report or the Value conclusion, but we have very substantive communications about the market, the neighborhood, the comps available, adjustments, features, benefits, over paying, things they may not know about that neighborhood or market, sales data, market data, bracketing, FannieMae and HUD guidelines, underwriter requirements, etc.

I take a lot of time and I modulate my tone to convey both empathy and authority. One of the first lines or angles I always take is to say, “hey, I totally get where you’re coming from on this one”, or “I’m right there with you on this, but here’s the deal…”, and then I go on to explain comps, market, underwriters, Fannie, etc. Haven’t had one conversation yet in 18 years of doing this that the agent didn’t leave with a big thank you for taking the time to explain all of that. They may not have hung up the phone happy, but they hung up appreciative of the conversation and explanation.  
  
Now, I mentioned understanding all of the languages of the transaction and I’ll tell you how this has also been very valuable for me. Since I was a lender and since I was a realtor, having knowledge of the whole transaction, the pain points of everybody involved, and the language and words all of them use, I actually do some coaching on the phone if I get a sense that the agent is newer or desperate or panicking due to low value. It is not uncommon for me to give some tips regarding salesmanship and I don’t necessarily recommend this to anybody but the best articulators and most confident of our profession. But I will say something like, “listen Jim, you’ve likely been here before and will be here again.

This is why you make so much more than appraisers do. This is the point in the transaction when you sit down with the selling agent (or buying agent) and talk about what you and I just discussed, hopefully you’ve taken some notes. If not, I’m happy to go over it again. You are free to use my words and use me as the scapegoat if needed. But you can keep this deal together by explaining all of this to the other party in much the same way you and I just discussed. Some, at this point, think the easy thing to do is just get another appraisal, or even a new lender, but you are likely to run into the same issue a month from now after all the delays of taking that route since we all have access to the same comps and we all have to follow the same requirements. That doesn’t mean another appraiser wont see things differently than I do, but there is absolutely no guarantee that an underwriter will buy that other appraisers report either. Now you have 2 different lenders, 2 different appraisals, a pissed off buyer, a pissed off seller, 30 days of delay, and likely a dead deal. Wouldn’t it be much easier to do some selling and sell the other parties on why this deal makes sense?” 
  
They always end up agreeing at the end of the conversation. I don’t always know how the deal ends up. Maybe they hang up and try to get another appraisal. Maybe they hang up and the deal dies. What I do know is that the conversation added value to the process for the parties I was speaking to in that example and it added value to some of the parties who had no idea the conversation was taking place. But if the person on the other end of the line uses any of my talking points or any of the language that I was able to give them in the conversation, it added value. Of course, I do see a lot of those types of deals come back across my desk when the revision request comes over to change the sale price down to the appraised value which tells me somebody did their job. I see those as huge wins!

They never get mentioned on Facebook when the lender is posting pictures of the closing party. Nobody sends me a cake. Nobody gives us a shout out on social media for keeping the deal together. But that’s ok, we’ve gone  above and beyond and added value to the process and it pays off in spades in new business, new relationships, referrals, endorsements of you and your work to their colleagues, etc. When you can work like that and still maintain your ethics and appraiser independence, you’ve helped to dispel the myth that appraisers have too much subjective control over the transaction, that appraisers don’t give a shit, and I believe it elevates the profession. When appraisers say appraising is part art, part science, they should also include part sales since we are always selling our work to a variety of people in the value chain.  
  
The last thing that I strongly recommend when we talk about adding value to the process is community outreach. By community outreach I mean giving talks, workshops, training courses, doing videos, blogs, podcasts, or whatever method fits with your personality. This podcast is one of the ways I like to think I’m adding value to my industry and to the process. I like to believe that I may be helping my fellow real estate professionals give some thought to some of these topics and possibly be better for having done so. Another way we do that is by giving talks and workshops to realtors, lenders, and homeowners on a variety of related topics. I’ve talked before how this has had a tremendous business multiplying effect and helped us develop a name in the community. I cant recommend it enough as a way to add value to the process. It’s a value add for your clients who ask you to come speak and teach, it’s a value add for the participants, and it’s a value add for everybody in the value chain, which is all the people your participants will come in contact with and have new information and views to share on the topics you spoke on.  
  
Now, I get it, fear of public speaking is one of the most cited fears of the majority of people on the earth. Not everybody is cut out for it and not everybody will do it. Some people will be downright bad at it. But nobody has ever gotten better by not doing something. You have to start somewhere and I guarantee, its my solemn promise to you, you will get better the more you do it. I don’t really know if I’m any good at it myself but I have lots of experience doing it. Having owned a large martial arts business and traveling around the world teaching to 1000’s of people for decades has helped me work some of the bugs out of my process, eliminate lots of the fear, and develop a better process for scripting and research.

I am quite sure, however, that I was horrible at it when I first started. I also know that I’m still in development and constantly working on it 25 + years later. The process cant start until you do though so I encourage you to get started. You can do this by simply talking to one or two realtors at a coffee. I’ve given talks to small real estate and lending offices with three to five people. And I’ve given talks to groups of hundreds of people in an auditorium. The size of the group is up to you to some extent. Nobody says you have to speak to that large of a group. But you will find if you start on this journey that speaking to a group of 300 is very similar to speaking to a group of 3 or 30 because you are really only speaking to those who want what you have to offer. You focus on a select few in any given audience at any one moment and speak directly to them. When you’re able to do that, you’re able to deliver your message in a personal way yet still be engaging and educating the whole group. Start small and work up.  
  
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