appraisal foundation presentation 2007

Worldwide Worldwide ERCERC®®

Relocation AppraisingRelocation Appraising

Alvin “Chip” Wagner III, Alvin “Chip” Wagner III, SCRP, SRA, SCRP, SRA, IFAIFA

(630) 416-6556 -- [email protected](630) 416-6556 -- [email protected]

Presented to the Appraisal Foundation in 2007 at their 20th Anniversary

About Worldwide ERCAbout Worldwide ERC®®

Founded in 1964, Founded in 1964, Worldwide ERCWorldwide ERC®® (Employee Relocation Council) was formed to (Employee Relocation Council) was formed to help our members overcome the challenges help our members overcome the challenges of of workforce mobilityworkforce mobility. .

Members come from many professions – Members come from many professions – human resources; recruiting; human resources; recruiting; government; military; real estate; government; military; real estate; financial services; moving; counseling; financial services; moving; counseling; consultingconsulting; and more!; and more!

Worldwide ERCWorldwide ERC®® provides information on provides information on current issues, trends, and best practices for current issues, trends, and best practices for the the movement of employeesmovement of employees within the within the United States as well as globally. United States as well as globally.

The Relocation The Relocation Industry and Industry and Relocation AppraisingRelocation Appraising 1985 First standardized relocation 1985 First standardized relocation

appraisalappraisal– Revisions made as necessary to Revisions made as necessary to

comply with USPAP and the comply with USPAP and the evolution of the industry.evolution of the industry.

– Revisions in:Revisions in: 19891989 19911991 19941994 20012001 20032003

The Relocation The Relocation Industry and Industry and Relocation AppraisingRelocation Appraising 2000’s and beyond…2000’s and beyond…

– Relocation is now a $30 Billion Relocation is now a $30 Billion industryindustry Appraisers are a very small part of the Appraisers are a very small part of the

processprocess

– Average costs to transfer America’s Average costs to transfer America’s employeeemployee $65,000+/- for home-owning current $65,000+/- for home-owning current

employeesemployees $55,000+/- for home-owning new hires$55,000+/- for home-owning new hires

The Relocation The Relocation Industry and Industry and Relocation AppraisingRelocation Appraising 2000’s and beyond…2000’s and beyond…

– Changes in Corporate America Changes in Corporate America affecting industryaffecting industry DownsizingDownsizing ReorganizationReorganization Mergers and acquisitionsMergers and acquisitions OutsourcingOutsourcing

The Relocation The Relocation Industry and Industry and Relocation AppraisingRelocation Appraising

2000’s and beyond…2000’s and beyond…– Result in relocation industryResult in relocation industry

60% corporations now offered home 60% corporations now offered home purchase (down from 80% last decade)purchase (down from 80% last decade)

Strong economy and real estate markets Strong economy and real estate markets reduced need for appraisalsreduced need for appraisals

Fewer relocation appraisal specialistsFewer relocation appraisal specialists


PurposePurpose– To assist the corporation in To assist the corporation in

determining the home purchase determining the home purchase offer it will make to an employee. offer it will make to an employee.


Basic ProcessBasic Process– Two appraisals and a BMA orderedTwo appraisals and a BMA ordered– BMA obtained for the purpose of marketing BMA obtained for the purpose of marketing

the property as seen through the real estate the property as seen through the real estate agent’s eyesagent’s eyes

– If two appraisals within 5%, an offer made to If two appraisals within 5%, an offer made to employee, usually based on an average of employee, usually based on an average of those two appraisalsthose two appraisals

– If appraisals not within 5%, additional If appraisals not within 5%, additional appraisals may be orderedappraisals may be ordered

– Multiple appraisals and BMA’s serve as check Multiple appraisals and BMA’s serve as check and balanceand balance

Definition of Definition of Anticipated Sales PriceAnticipated Sales Price

The price at which a property is anticipated to sell in a competitive and open market, assuming an arm’s length transaction whereby:

1. The analysis reflects the subject property “as-is” and based on its present use as a residential dwelling.

2. Both buyer and seller are typically motivated; both parties are well-informed or well-advised and acting what they consider their best interests

3. Payment is made in Cash or its equivalent 4. A reasonable marketing period, not to exceed 120

days and commencing on the date of appraisal (inspection), is allowed for exposure in the open market. The analysis assumes an adequate effort to market the subject property.

5. Forecasting is applied to reflect the anticipated trend of market conditions and prices during the subject property’s prospective marketing period.

Definition of Definition of ForecastingForecasting

Forecasting is the process of analyzing historical trends and current factors as a basis for anticipating market trends. A forecasting adjustment is then applied to reflect any impact these trends will have on the subject property’s market time and sales price

Difference between a Relocation Difference between a Relocation Appraisal and Other AppraisalsAppraisal and Other Appraisals

Several types of residential property appraisalsSeveral types of residential property appraisals

Differences can center around such things as:Differences can center around such things as:

– Intended UseIntended Use– PurposePurpose– Definition of ValueDefinition of Value

The following specifically examines relocation The following specifically examines relocation and mortgage appraisals side by side, and mortgage appraisals side by side, highlighting some of the primary differences highlighting some of the primary differences between the two…between the two…

Intended Use/UserIntended Use/User

MortgageMortgage

Used by lenders to Used by lenders to facilitate lending facilitate lending decisionsdecisions

RelocationRelocation

Used by employers Used by employers and relocation and relocation management management companies to companies to facilitate corporate facilitate corporate relocationrelocation

PurposePurpose

MortgageMortgage

Conducted to Conducted to develop an opinion develop an opinion of of Market ValueMarket Value

Seeks to answer Seeks to answer the question: the question: “What is the “What is the property property worthworth?”?”

RelocationRelocation

Conducted to Conducted to develop an opinion develop an opinion of of Anticipated Anticipated Sales PriceSales Price

Seeks to answer the Seeks to answer the question: question: “What will “What will the property the property sell sell forfor?”?”

Marketing TimeMarketing Time

Mortgage Mortgage AppraisalAppraisal

Because it develops Because it develops an opinion of an opinion of Market Market ValueValue, it assumes , it assumes the property’s the property’s exposure to the exposure to the market market precedesprecedes the date of the date of appraisal, analyzing appraisal, analyzing historical market historical market datadata

Relocation Relocation AppraisalAppraisal

Because it develops Because it develops an opinion of an opinion of Anticipated Sales Anticipated Sales PricePrice, the marketing , the marketing time occurs time occurs afterafter the the date of appraisal, and date of appraisal, and consideration is given consideration is given to what trends will to what trends will occur during the occur during the prospective marketing prospective marketing periodperiod

Decision PeriodDecision Period


As mortgage As mortgage terms can last up terms can last up to 30 years, it is a to 30 years, it is a long-term decision long-term decision making toolmaking tool


Based on a short-Based on a short-term decision, term decision, typically up to 120 typically up to 120 days, implying a days, implying a greater level of risk greater level of risk and need for higher and need for higher degree of accuracydegree of accuracy

Reporting FormatReporting Format


Provides data in Provides data in the Uniform the Uniform Residential Residential Appraisal Report Appraisal Report (URAR)(URAR)


Reports data in the Reports data in the Worldwide ERCWorldwide ERC®® Summary Appraisal Summary Appraisal ReportReport

Both reports follow the Uniform Standards of Both reports follow the Uniform Standards of Professional Appraisal Practice (USPAP), but Professional Appraisal Practice (USPAP), but

relocation appraisals typically include an relocation appraisals typically include an expanded analysis of market trendsexpanded analysis of market trends

Property Condition/AppealProperty Condition/Appeal


Property’s condition Property’s condition will likely be reflected will likely be reflected in the purchaser’s in the purchaser’s offering priceoffering price


Greater emphasis is Greater emphasis is placed on items such placed on items such as appeal and décor, as appeal and décor, as the appraiser is as the appraiser is attempting to reflect attempting to reflect how a potential buyer how a potential buyer will react to the will react to the property’s property’s appearanceappearance

While both types take into account a property’s While both types take into account a property’s condition…condition…

Financing ConsiderationsFinancing Considerations


No adjustments No adjustments made for costs paid made for costs paid by the seller if they by the seller if they are typical for that are typical for that marketmarket


Adjustments made for Adjustments made for all seller paid sales or all seller paid sales or financing concessionsfinancing concessions

While both types value the property on a cash While both types value the property on a cash equivalency basis…equivalency basis…

Comparable Comparable Properties/ForecastingProperties/Forecasting


Considers historical Considers historical market datamarket data

No forecastingNo forecasting

Relocation AppraisalRelocation Appraisal

Considers historical sales, Considers historical sales, as well as as well as analyzing analyzing pending sales and pending sales and competing propertiescompeting properties

ForecastingForecasting is applied to is applied to reflect the anticipated reflect the anticipated trend of market trend of market conditions and prices conditions and prices during the subject during the subject property’s prospective property’s prospective marketing periodmarketing period

Reasonable Market TimeReasonable Market Time


Based on what is Based on what is normal in market, normal in market, without limitwithout limit


Develops an opinion of Develops an opinion of anticipated sales price anticipated sales price during a reasonable during a reasonable marketing period, not marketing period, not to exceed 120 days, to exceed 120 days, and commencing on and commencing on date of appraisaldate of appraisal

Differences can perhaps best be remembered by Differences can perhaps best be remembered by the two separate questions each type of the two separate questions each type of appraisal seeks to answer…appraisal seeks to answer…


What is the property What is the property worth?worth?


What will the What will the property most likely property most likely sell for?sell for?

Difference between a Relocation Difference between a Relocation Appraisal and Other AppraisalsAppraisal and Other Appraisals

Appraisal ChallengesAppraisal Challenges

First extended “down” residential real estate First extended “down” residential real estate market in over 25 yearsmarket in over 25 years

Understanding how to read Market ChangeUnderstanding how to read Market Change Understanding how to ForecastUnderstanding how to Forecast Understanding impact of Décor/Appeal and Understanding impact of Décor/Appeal and

condition in a soft marketcondition in a soft market Oversupplied inventory, new construction and Oversupplied inventory, new construction and

effect of substitution on marketplaceeffect of substitution on marketplace ForeclosuresForeclosures ConcessionsConcessions Extended Days on MarketExtended Days on Market Lack of “good” comps, homes just aren’t sellingLack of “good” comps, homes just aren’t selling

AppraisalAppraisal TrendsTrends

Appraisers Leaving the ProfessionAppraisers Leaving the Profession Fewer experienced appraisersFewer experienced appraisers Less Relocation WorkLess Relocation Work Less Educational OpportunitiesLess Educational Opportunities Less SpecializationLess Specialization

Worldwide Worldwide ERCERC®®


Alvin “Chip” Wagner III, Alvin “Chip” Wagner III, SCRP, SRA, SCRP, SRA, IFAIFA

(630) 416-6556 -- [email protected](630) 416-6556 -- [email protected]

appraisal foundation presentation 2007

Documents

relocation appraisals

relocation industry

tool relocation appraisal

corporate relocation

relocation appraising

lending decisions relocation

mortgage appraisals

appraisal foundation