Appraisal Niches, Scotman Guide 2-2016

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Reprinted from Scotsman Guide Residential Edition and ScotsmanGuide.com, February 2016

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Much of an appraiser’s work is done for conventional, sin-gle-family home loans. Every now and then, however,

something considered unusual comes along. Maybe it’s a vacant lot. Maybe it’s a modular or manufactured home. Maybe it’s a high-end or otherwise one-of-a-kind house.

When it’s time for a loan for a property that’s not just like the others, it’s vital to have a relationship with an appraisal management company (AMC) that, similarly, is not like the others. The appraisers should be able to step outside the cookie-cutter mold to best evalu-ate these unique properties, and to give their originators and lenders some peace of mind.

Residential mortgage lending relationships, like those between an originator and an AMC, are predicated on producing quality results. Be-cause they are part of a larger financial transac-tion, the appraisal work and end product must be timely, accurate, cost-effective and satisfy all regulatory and institutional demands.

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Work with Appraisers Who Stand OutAppraisal management companies should have access to the necessary expertise and resources to handle specialized nichesBy Michael Dresden

Michael Dresden is executive vice president of Dart Appraisal, an independently owned, nationwide appraisal management company founded in 1993. As the chief integrator for all branches of Dart Appraisal, Dresden works closely with the company’s leadership team to create and fulfill a comprehensive strategic plan that delivers consist-ent, reliable and customized service. Dart Appraisal excels at creating custom solutions that serve the complex needs of any appraisal customer. Visit dartappraisal.com. Reach Dresden at [email protected].



tion and decorum to handle these sensitive assignments. The mature appraiser will re-sist being intimidated by multimillion dollar properties or by meeting a homeowner who might be a national celebrity. Obviously, se-curity and confidentiality are at a premium in these cases.

Even with distinctive luxury homes de-signed by world-class architects, however, experienced appraisers under the supervision of an assigning AMC will generally be able to find necessary comparables. The incidenc-es of contested appraisals involving luxury homes are not at a higher level than with any other appraisal niche.

Many of these high-end homes are owned through a trust or limited liability corpora-tion, or are part of a wealth-management portfolio — arrangements that often man-date periodic appraisals, perhaps once a year or every other year.

Transactional dynamicsBeyond having access to a pool of appraisers that have a high comfort level working with specific property niches, an AMC also must have access to appraisers who can func-tion in a variety of contexts and situations, including assignments involving new con-struction, redevelopment and mixed-use developments, bankruptcy or litigation, or eminent domain.

In addition, an AMC should have appraisers in its network who have experience working with property types that may have a higher percentage of private sales, which compli-cates the researching of comparables. An example would be the co-op developments found in metropolitan areas such as Chicago or New York City.

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The unique challenges posed by appraisal niches highlight the value of partnering with an AMC that has national coverage; the neces-sary panel of appraisers for a given property type; state-of-the-art reporting, regulatory- compliance and auditing systems; and the

When it comes to specialized appraisals, the overriding goal of AMCs and the ap-praisers they work with should be to bring the same transaction certainty and overall efficiencies as they seek to attain with any other residential assignment. The fundamen-tal components of a residential appraisal are land at a specific location, plus the structure.

Each specialized appraisal, however, will have its own nuances and challenges. These can involve the uniqueness of the physical property, the architectural distinctions of a luxury home, or even the transaction dynam-ics. Successfully managing the challenges of specialized appraisals depends on the indi-vidual appraiser’s level of training and experi-ence as well as the logistical resources that an AMC can bring to the assignment.

Vacant landIn appraisal assignments involving land tracts, it is important for the appraiser to spend suf-ficient time with the client discussing the ex-pectations and requirements that may be con-sidered outside “the normal scope of work.” For example, a lender may require that the landowner be present during the inspection. It also is not uncommon for a lender to request a series of photographs that might include views in all four compass directions as well as views of the parcel boundaries, any power lines or railroad tracks, and aerial images of ad-jacent property that might impact valuation. The AMC must have a reporting system that can accommodate this photographic compo-nent, as well as related narrative entries.

Land values can be impacted by many variables, including natural features; existing versus potential uses (i.e., agricultural land that is to be rezoned as residential or as mixed zoning); quality and availability of onsite and nearby utility and transportation infrastruc-ture; and adjacent land uses — for instance, residential, commercial or agricultural.

One of the biggest challenges in vacant-land appraisal can be in finding comparables, be-cause many of these assignments involve rural properties. It may require some travel time to

find the appropriate comparables, but apprais-ers experienced in vacant-land assignments will already have a good handle on where to find comparable properties. A qualified AMC should be able to easily identify which ap-praisers have the experience and competency necessary to complete vacant-land assign-ments. The principles of vacant-land appraisal also apply to many manufactured-home and high-value home assignments.

Manufactured and modular homesManufactured and modular homes repre-sent a significant segment of the housing market today, and the quality and value of these residences continues to improve. Fed-eral rules require manufactured homes to be constructed on a permanent chassis or frame, whereas modular homes must adhere to the same state, regional and local building codes as site-built homes.

Appraisers often must “combine” ap-praisals of a to-be-bought manufactured or modular home located on a dealer’s lot or prefabricated in a remote facility with that of the vacant land where the dwelling will be lo-cated. This “split entity” valuation can present challenges in finding an appraiser, given that individual has to be well-versed in appraising manufactured or modular homes as well as vacant land — and also be located in close proximity to the land and the prefabricated dwelling. It also can be difficult to find appro-priate sales comparables between existing, lived-in manufactured or modular homes and today’s better-grade new product.

Additionally, manufactured and modular homes are closely scrutinized by regulatory agencies. Consequently, it is critical that the appraiser is up to speed with the current reg-ulatory environment, as well as familiar with the differences among state codes.

High-value homesAssignments involving high-end luxury homes (those valued in excess of $2 million) require that AMCs have access to a carefully developed appraisal panel whose practi-tioners have the necessary expertise, discre-

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ability to fully understand and implement lender requirements.

Matching the right appraiser to the specific assignment is even more critical in light of fed-eral regulations implemented this past April that establish minimum requirements for state registration and supervision of AMCs. The new rules require states to assure that AMCs “have processes and controls reasonably designed to ensure that the AMC, in engaging an ap-praiser, selects an appraiser who has the req-uisite education, expertise, and experience to complete competently the assignment for the particular market and property type.”

Often, specialized appraisals do entail more time, research or verification and doc-umentation than traditional single-family residential appraisals, making them more costly. The goal of a national AMC with full expertise and resources should be to control those added costs as much as possible, while fulfilling all of the assignment’s quality, audit and strategic objectives. n

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Appraisal Niches, Scotman Guide 2-2016