If the real estate appraiser is the person that cuts through the baseless opinions, rhetoric, and anecdotes in the marketplace, who is the person to cut through the baseless opinions, rhetoric, and anecdotes in the appraisal community? Hold that thought. I’m introducing another topic for a moment. And then we are going to talk about empty rhetoric and how there is too much of it, and too little critical thinking, in real estate appraisal today.
The math is in. As I write this first-person monograph in mid-November 2023, I celebrate (or lament) my 22nd year in the real estate appraisal profession. After completing the arithmetic, it appears I’ve spent approximately 85% of my career thus far as a self-employed field appraiser pulling tape measures, clicking photographs, compiling analyses, and typing reports. The balance spent gaining experience in forensic review, collateral underwriting, pre-delivery QC, and post-delivery dispute resolution. I know many appraisers across the country. However, few get the chance to leave the field momentarily and see the full life cycle of an appraisal report. Though I prefer working as an independent appraiser, mentor, and teacher, those experiences out of the field have helped me be a better appraiser. I consider it a privilege to have been afforded the opportunities.
Professionally, I’m proud of what I do. I’m active in the Appraisal Institute and travel the conference circuit regularly attending as many REALTOR® and National Association of Appraiser events as I can. I look forward to “talking shop” with my peers and the fraternity that these venues and events afford. However, I tend to keep my profession pretty low key in my social and familial circles. It’s just easier to avoid the passive “what’s my house worth” or “what’s going on in the market” questions. Inevitably there’s usually at least one exhausting self-proclaimed real estate guru in every crowd offering free advice to the room (regardless of their real background). Absorbing all the anecdotes or trying to explain many of the concepts or methodologies appraisers use, that may seem counter intuitive, is exhausting in those circles. I’d rather talk about something else.
To that end, I’d like to share two recent experiences. One involves an assumed external obsolescence and the second involves an assumed functional obsolescence. Both assumptions were based on opinions of laypersons and both assumptions were invalidated by actual market data.
Back in the summer I was visiting a property in a semi-rural/semi-suburban area. There are approximately 100 houses in the neighborhood, mostly built in the 1950s/1960s. About half the properties front or access a river while the other half do not. Broadly speaking, demand in this area has remained stable for many years, likely due to the proximity to the water and proximity to two major metropolitan areas. Inventory is always minimal. Months go by with no listings at all in this area. Again, the lack of inventory and low turnover is attributed to the water and nearby metros.
While visiting the property I was informally invited into a conversation with the property owners and several neighbors. Being in a semi-rural area and a small town, this type of thing isn’t unusual. The topic of the group conversation was the new camper (RV) parked in the neighbor’s front yard several doors down. I chose to sit that conversation out. The sentiment repeated amongst the group was “that camper affects our property values”. However, none of the conversation participants offered any support for the sentiment or concern. The presence of the camper didn’t violate any ordinances or deed restrictions. There is no formal HOA either. As neighbors, they just didn’t appreciate the view of the camper and that was their argument against it.
Appraisers are commonly approached with rhetoric, opinion, or anecdotal theories that don’t hold any merit. This was no different. Nonetheless I wasn’t going to try and change their mind. After all, I’m a professional and if they really wanted to test that theory, they could engage my services, pay the small fee, and I’d happily package the results up in a very neat and easy to read USPAP compliant report. At that moment, I wasn’t there for that.
That said, I needed to know if that camper really affected property values for personal satisfaction. As stated previously, demand has remained steady in this area and inventory is historically limited or nonexistent. I reviewed sales in this neighborhood going back two years. Some of the sales occurred prior to the presence of the camper and some occurred after. Upon review, I observed that every listing that came to market sold at or above list price, and every listing that came to market went to contract in less than 30 days, most in less than 10 days. There were no expired listings in that period either.
Again, this exercise was for my own satisfaction. Given the fact that none of the sales had a discounted sale price nor an extended marketing time, it was clear that the camper in the neighbor’s yard did not have a negative impact on property values or marketing times. The assumption that the camper affected property values and posed some sort of external obsolescence was quite simply unsupported rhetoric.
In mid fall, my dad and I took our annual deer hunting trip together. For the last seven years we have journeyed back to the same hunting lodge. We’ve made friends with the lodge owner, guides, and several hunters and we enjoy meeting up with them every fall.
The lodge property consists of 77 acres, approximately 1,200sf lodge/bunk house, and several supporting outbuildings. The lodge also leases the hunting rights of several thousand acres surrounding, mostly from timber companies. (For illustration purposes, the lodge property could alternatively be used as a residential equestrian property without any modification.)
Until several years ago, the lodge/bunk house consisted of two bunk rooms, a living room, game room with pool table, and small kitchen/dining area. In UAD speak, it’d be a classic Q4/C4. Each bunk room had an adjoining bathroom (the bathrooms could only be accessed via the bunk rooms, not from any of the living area of the lodge). Several years ago, we noticed that the lodge owner converted the rarely used game room into a third bunk room to accommodate more hunters at one time. The addition of a third bunk room and increased capacity turned out to be a wise business decision, having immediate returns.
Last year we noticed that the lodge owner had constructed a new third bathroom.
Again, the lodge owner is a friend and I’ve always been intrigued about the hunting lodge/hunting guide business model. I inquired about why he built the third bathroom. His response was that he had some feedback (or complaints) from hunters that they did not like going through bunk room 1 or bunk room 2 to get to a bathroom. He believed he had a functional obsolescence and actually used the term in context when explaining the rational to me.
It is at this point I’d like to make a few minor personal points for the readers’ benefit. Amongst hunters, hunting lodges are not usually expected to offer the same conveniences or comforts of home or as a chain hotel brand. They’re known for being somewhat rustic. Cleanliness, hot water, and comfortable sleeping quarters are the normal expectations. Anything else is just an extra benefit. This lodge is no different.
I was not there in the capacity of a real estate appraiser. Merely went there to deer hunt with my dad and enjoy the comradery with other fellow hunters. However, once again for personal satisfaction I needed to test the theory of functional obsolescence. This time I asked a series of questions about the hunters, repeat hunters, and gross revenue.
For the 23 years the lodge has existed, approximately 60-70% of the annual hunters return every year. The number of hunters increased annually with the addition of the third bunk room; however, the ratio of returning hunters remained consistent, which was expected. That ratio stayed consistent from two bathrooms to three bathrooms, as well. Though a small sample of hunters offered feedback about the bathroom configuration, none of the hunters that returned or didn’t return cited the bathroom as the reason they did or did not return. Lastly, in vague terms there was no changes to gross revenue before or after the installation of the third bathroom.
Again, this exercise was for my own satisfaction. The fact that the ratio of returning hunters did not change despite the number of bathrooms and the gross revenue did not change despite the number of bathrooms, it is likely safe to conclude the lack of a third bathroom was not a functional obsolescence. Though several hunters cited their dissatisfaction, the actual market data reflecting the actions of market participants in this scenario did not reflect the same.
Take away 1) Even though I was not at experience one or experience two in the capacity of an appraiser, the two experiences were canon in demonstrating the extreme need for there to be someone in the marketplace that has the ability to see through the baseless opinions, rhetoric, and anecdotes through to what the market data is really saying. For all intents and purposes this person is usually the real estate appraiser. This is where the appraiser proves their worth and earns their fee. While the appraiser’s experience is important it was their ability to extract and relay the actual market data that set them apart from the layperson and self-proclaimed real estate guru.
Take away 2) if the real estate appraiser is the person who cuts through the baseless opinions, rhetoric, and anecdotes of the marketplace, who is the person that cuts through the baseless opinions, rhetoric, anecdotes, superstitions, and uninformed rules-of-thumb in the appraisal community?
There’s been no shortage of hyperbole (most of it empty of logic and reasoning) flung about the appraisal space over the last year. I’ll save the reader of this monograph the agony of me itemizing the baseless opinions, rhetoric, and anecdotes, etc. that fly freely amongst the social media, various meetings, and conference circuit. However, may I implore all my peer appraisers to approach each perceived challenge and change to our profession the same way you would approach each assignment…through critical thinking and by disregarding the rhetoric and digging into the data. Otherwise, we are no better than the cockalorum we must suffer at cocktail parties.