Reprinted with permission of
the Employee Relocation Council from the May 1996 issue of MOBILITY magazine.
Appraisal
Report:
Appraising for a Group Move
May
1996
By Arnold M. Schwartz, SCRP
A
group move involves a number of unique challenges to everyone involved,
including the appraiser. The typical problems occurring with one relocation
appraisal may be magnified many times, depending on the size of the group and
the timing of the move.
ERC
research has shown that a group move is not the same as a number of individual
relocations over a longer period. It is likely that there will be different
corporate policies and procedures for the group move. Some unique
characteristics are as follows:
·
The
transferee's existing job at the same level, without promotion, usually is
being relocated, so the employee is moving to keep his or her job. This leads
to greater questions regarding job security.
·
There is a
much greater impact on the community and the real estate market, both at the
departure and destination locations.
·
Transferees'
fears and concerns are magnified, and they always have more questions.
Appraisers
need to be aware of the tendency toward greater-than-normal transferee anxiety
in a group move, and respond accordingly in their interactions with these
employees. While appraisers may look forward to multiple assignments during a
group move, proper planning and a commitment to service will be required to
meet the client's needs. There may be different guidelines with regard to
turnaround time, and the appraiser must use his or her "window of
time" efficiently.
While
a complete and comprehensive appraisal report is required in a relocation
assignment, it is especially critical in the group move.
Accuracy of the Valuation
The appraiser should select and analyze the most comparable market data.
Analysis of competing properties may be more significant than comparable sales,
due to the impact of a group move on housing inventories. It is possible the
appraiser will have more than one assignment in a particular neighborhood, and
will be able to use certain sales and competing properties in multiple reports.
This makes the data selection process even more critical, and time actually
will be saved in the long run by thorough research and a comprehensive verification
process. The appraiser should be encouraged to consider sale properties that he
or she may have appraised in the past. This will ensure accuracy of the data.
Corporate sales are an additional resource, as the appraiser is able to judge
his or her analysis of a property based on the price at which it actually sold.
Consideration
of homes that currently are under contract also is imperative, as these
transactions will offer market evidence of how buyers already are reacting to
the anticipation of increased competition and increased inventories. A
comparison can be drawn between the price levels of past comparable sales and
price levels of competing properties. Any difference may indicate a change in
the direction of the market.
The
accuracy of the valuation begins with the accuracy of the data analyzed. This
data will allow the appraiser to identify any anticipated rates of absorption,
to understand the mood of the market and what type of house is selling, and to
make the appropriate adjustments in the valuation process.
Simplification of the Review Process
Fifty transfers yield at least one hundred appraisals for review by the
corporation or relocation management company. Consistent data will help
facilitate the process, and this begins with consistent information describing
the subject property. Special care should be taken to accurately measure and
calculate gross living area, and to thoroughly describe the improvements and
market conditions in the appraisal report. Ensuring that these sections of the report
are completed accurately will save time by reducing callbacks and eliminating
unnecessary questions. A high level of consistency should be maintained
throughout the appraisal report, particularly in the description of comparable
sales. The use of common sale properties is very likely, and the accuracy of
the data will directly impact the ease of the review process.
Reducing the Number of Appeals and Third Appraisals
Surveys have shown an increased number of appeals during a group move. A
proactive approach should be taken, and only the most comparable sales and
competing properties should be analyzed. This will greatly reduce transferee
concerns about the appraisal process and a comprehensive, well-written
appraisal report will help to increase their level of understanding.
Consistency and accuracy of data may help in reducing the number of third
appraisals required, and this will keep the group move on schedule.
Identifying Problem Areas
By thoroughly analyzing supply and demand characteristics, the appraiser not
only will be able to identify a problem property, but will be able to identify
a problem market. A neighborhood that already has an oversupply of homes or
extensive competition from new construction may be significantly impacted by
additional inventory from the group move. Any problem areas or concerns should
be communicated directly to the client, as specific information may be shared
with others involved in the relocation process.
Accuracy of Adjustments
Certain property characteristics may be more significant than others when
appraising in a group move market, and these items may require additional
consideration. Property condition always is a concern, but with the
anticipation of additional competing properties, a home with excessive deferred
maintenance may require a larger adjustment than usual for repairs and
improvements. Personalized decor or custom improvements may have a more
significant negative impact on appeal and marketability, considering increased
levels of competition; an adjustment made for a specific characteristic in a
market with a normal inventory may be different than the adjustment for that
same item in a market with increased inventory from a group move. The appraiser
must remain objective in identifying those features that require adjustments.
The
techniques of the appraisal process, and the format of the ERC Residential
Appraisal Report provide the tools for the appraiser to accomplish these
objectives.
Analyzing
market trends and developing a forecasting adjustment represent a real
challenge to the appraiser during a group move. The forecasting analysis is
similar to appraising in any changing market--the group move simply represents
a quick change. Certain characteristics can readily be identified that lead to
a changing market, such as increased number of listings, increased or decreased
interest rates, job layoffs, foreclosure activity, extended marketing periods,
or changes in listing prices and sales prices. The one major change in a group
move market is the significant increase in listings, which impacts supply and
demand.
The
appraiser must stay current with market activity. Begin with the macro-market
and use available MLS statistics. The appraiser should track the relationship
of homes listed to homes sold, and the number of expired and withdrawn
listings, the number of pending sales, changes in listing prices and length of
time on the market, and any changes in concessions paid by the seller, and
should review prior sales of both competing properties and comparable sales.
This procedure will lead to an analysis of each micro-market by refining these
statistics to individual neighborhoods, and will provide a clearer picture of
market absorption rates, what type of home is selling, the number of potential
buyers for that particular neighborhood, and price range. It is important to
stay in contact with brokers working in these market segments to obtain an
immediate sense of how buyers are reacting to any market changes. This analysis
should provide evidence of potential buyers' reactions to increased levels of
competition. It also is important to identify those homes that should sell
readily, as they will likely set the standard for continued resale activity as
the inventory of homes increases.
Other
considerations basic to any relocation appraisal must be emphasized. Defining
the subject neighborhood or market segment will help to identify potential
buyers. The appraisers should determine if the area will appeal to another
transferred buyer, what the impact of new construction will be, and whether or
not there will be any seasonal market influences. The level of sales activity
and competing properties over the past 120 days can be analyzed to project
market activity during the upcoming 120-day period.
Competition
in a particular market segment must be identified. Other competing areas also
must be considered, and those amenities that will attract buyers can be
determined.
The
positive and negative characteristics of a specific property should be
identified. Investigate the good points of homes that have recently sold, and
attempt to ascertain those desirable common characteristics that appeal to the
market. Prospective buyers generally will react more negatively to property
deficiencies, such as needed repairs and improvements, or negative external
influences when there is a large supply of homes from which to choose.
The
appraiser must find the proper mix of objective and subjective analyses to
reflect the impact supply and demand will have on market conditions when
appraising for a group move. The anticipation of a large number of homes being
placed on the market can influence buyers' attitudes toward price levels
greatly. The appraiser must understand that the transferee reacts differently
during a group move than he or she would during a more typical move, and that
the housing market will be influenced by different factors. What must not
change is the appraiser's emphasis on a comprehensive market analysis leading
to an accurate valuation.
Arnold M. Schwartz, SCRP,
is president, Arnold M. Schwartz & Associates, Inc., Atlanta, GA, and
chairman of ERC's Appraisal Standards Council (ASC). He oversees and
coordinates the work of the various ASC task forces and represents the
relocation industry on the federally recognized Appraisal Foundation.