Appraisalinstitute2018 Q2-dl PDF

Threshold Understanding Liability
increase the project facts vs.

update influence rule fiction
Valuation
INSIGHTS AND PERSPECTIVES FOR REAL ESTATE APPRAISERS Q2 2018
Valuing
ALOHA
For appraisers in Hawaii, the islands hold unusual
real estate challenges, from legacy leasing arrangements
to limited infrastructure and even active volcanoes
2 VALUATION • Q2 2016 www.appraisalinstitute.org
Valuation
CONTENTS • Q2 2018 • VOL. 23, NO. 2
19
Industry Forecast
Threshold
of a New Era
The recent doubling of the
appraisal threshold level for
commercial real estate loans
has many appraisers wondering
about the potential impact on
the profession. A number of
lenders and appraisers say the
shift may not be as momentous
as anticipated — and may
RACHEL NAPEAR
even create opportunities for

24 appraisers who are able to
adapt, innovate and embrace
12
new ways of doing business.
Market Analysis
PRACTICALLY PARADISE
24
Best Practices
With its temperate climate, abundant recreational Under the
activities and breathtaking landscape that spans
from mountaintops to coral reefs, Hawaii is the Influence
ON THE COVER: When property is acquired
place to be. And that desirability keeps the state’s
Diamond Head, Oahu
real estate popping and appraisers hopping. But for a public project, most
Photo: Masterfile jurisdictions require appraisers
appraising here comes with challenges rarely seen
to follow the “project influence
on the mainland. rule” and ignore any change in
property value as a result of
the project. Here’s how the
project influence rule applies
in various scenarios.
www.appraisalinstitute.org VALUATION • Q2 2018 1

CONTENTS • Q2 2018 • VOL. 23, NO. 2
Valuation
AN APPRAISAL INSTITUTE PUBLICATION
888-756-4624 • www.appraisalinstitute.org
05 President James L. Murrett, MAI, SRA

President-Elect Stephen S. Wagner, MAI, SRA, AI-GRS
On Point by James L. Murrett, MAI, SRA Vice President Jefferson L. Sherman, MAI, AI-GRS
AI’s advocacy efforts have contributed to recent changes in Immediate Past President and Acting CEO
Jim Amorin, MAI, SRA, AI-GRS
legislation that will have a significant impact on appraisers. Director, Communications Ken Chitester, APR
kchitester@appraisalinstitute.org
06 Executive Editor Jay W. Schneider

jschneider@appraisalinstitute.org
Up Front Appraisal Institute and industry news Advertising Sales Jann Everhart • 312-335-4236
Dodd-Frank rollbacks include appraisal revisions; AI seeks jeverhart@appraisalinstitute.org
Publishing Services Grayton Integrated Publishing
changes to ASB Q&As; state legislative updates; and more. www.graytonpub.com
Creative Director Sheila Young Tomkowiak
10 Copy Editor Sue Khodarahmi
Legal Matters Production Editor Sue Cavallaro
by Peter T. Christensen Valuation (ISSN 1087-0148) is published quarterly by

Debunking four common myths about appraiser liability. the Appraisal Institute, 200 W. Madison St., Suite 1500,
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34
Disclaimers: The views expressed in Valuation are those
of the authors and may not reflect the official policy of
the Appraisal Institute, its officers or staff. The Appraisal
The News in Numbers Institute does not necessarily endorse or warrant the
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Quarterly economic indicators, including the PwC Real Estate Appraisal Institute advocates equal opportunity and
nondiscrimination in the appraisal profession and
Investor Survey. conducts its activities in accordance with applicable
federal, state and local laws. The Appraisal Institute does
40 not suggest, recommend or take any position as to what

is an appropriate appraisal fee. Each appraiser, appraisal
For What It’s Worth firm or company that offers appraisal services should
determine its own appraisal fees based on its personal
and independent assessment of the market. This publi-
AI 2018 Annual Conference keynote speaker Don Grossman, SRA, cation is for educational and informational purposes only
shares how he helped the FBI crack a mortgage fraud ring. with the understanding that the Appraisal Institute is not
engaged in rendering legal, accounting or other profes-
sional advice or services. Nothing in these materials is to
be construed as the offering of such advice or services.
If expert advice or services are required, readers are
responsible for obtaining such advice or services from
appropriate professionals.

On Point
FROM THE APPRAISAL INSTITUTE PRESIDENT
Advocating for AI professionals

AI takes on two issues that have significant value to appraisers
by James L. Murrett, MAI, SRA Appraisal thresholds

The Federal Deposit Insurance Corp. on
T
he Appraisal Institute takes seriously its March 20 approved a final rule on appraisal
commitment to advocate for its profes- thresholds — i.e., the amount of a transaction
sionals. Here are two recent issues — at or below which an appraisal is required. The
both with significant impact on the valuation Office of the Comptroller of the Currency and
profession — that AI has worked on tirelessly. the Board of Governors of the Federal Reserve
AI’s Government Relations Committee, its System have since adopted the rule.
Washington office, its Executive Committee The agencies did not change the $250,000
and many other volunteers and staff invested threshold level for one- to four-unit single-
extraordinary time and effort to help the family residential loans. They also maintained
Appraisal Institute produce these victories for the $1 million threshold level for owner-
appraisers. occupied commercial real estate loans. After
Looking forward, investing significant time and energy in
Banking regulatory relief encouraging the agencies to retain those levels,
the agencies’ A few months ago, the Appraisal Institute AI applauded them for their restraint and for
worked with key senators and their staffs on their focus on safety and soundness in residen-
decision increases S. 2155, the Economic Growth, Regulatory tial and business lending.
Relief, and Consumer Protection Act, which However, the final rule doubles the appraisal
the importance of would roll back many post–financial crisis threshold for commercial real estate trans
banking rules. The bill was signed into law actions, from $250,000 to $500,000.
modernizing the on May 24. The agencies’ decision was not unexpected.
While AI took no position on the bill, its Still, the Appraisal Institute finds it confound-
appraisal regulatory volunteers and staff worked extensively to help ing, given pricing and risk management con-
make changes to the legislation that advanced cerns expressed about the commercial real estate
structure, including clarifications beneficial to the public trust and market by leaders of the agencies themselves.
the valuation profession. From a safety and soundness perspective, AI
better positioning Staff from AI’s Washington office met with feels the final rule raises significant concerns.
bill sponsors and the Senate Committee on E Find a more in-depth look at the threshold
appraisers to offer Banking, Housing and Urban Affairs while the increase on page 19.
legislation was being drafted, and successfully E Read the joint AI-ASFMRA letter regarding
evaluation services. lobbied them to revise language to alleviate appraisal thresholds at http://bit.ly/2sa7Hrs.
concerns related to rural residential appraisals. E See the final rule at http://bit.ly/2x94jCS.
The revisions clarify steps that banks must take
when engaging appraisers in rural residential Appraisal regulatory modernization
markets before invoking an exemption. Looking forward, the agencies’ decision
AI led a coalition of 33 real estate valuation increases the importance of modernizing the
organizations to commend the senators for appraisal regulatory structure, including better
including these provisions, which are consistent positioning appraisers to offer evaluation ser-
with the bill’s intent and will help ensure that vices. Appraisers need to be nimbler in today’s
banks make a good-faith effort to engage local- marketplace — not only to compete, but also
market appraisers to complete assignments. to help maintain the safety and soundness of
E Read the letter regarding rural residential the real estate financial system. F
appraisals at http://bit.ly/AI-coalition-letter.

Up Front
APPRAISAL INSTITUTE AND INDUSTRY NEWS
President signs Dodd-Frank reform bill

complete with appraisal revisions
President Trump on May 24 signed into law pendence requirements. It also establishes
S. 2155, the Economic Growth, Regulatory a reasonable timeliness standard.
Relief, and Consumer Protection Act, legislation “Thank you for including several clarifying
intended to bring regulatory relief to provisions relating to rural residential
small and midsized banks by rolling appraisals to Section 103 of S. 2155,
back parts of the Dodd-Frank Act. the Economic Growth, Regulatory
The Appraisal Institute took no Relief, and Consumer Protection
position on the bill but endorsed Act,” the Appraisal Institute and
changes to appraisal exemptions a coalition of 33 other real estate
included in the legislation. The valuation groups wrote to Sen.
law clarifies that a bank must engage Mike Crapo, R-Idaho, chair of the
at least three appraisers on the bank’s Senate Committee on Banking, Housing and
approved appraiser list in the local market area Urban Affairs, in a March 13 letter.
and in compliance with existing appraiser inde- “These provisions will help ensure that banks

States of Mind
State legislation affecting appraisers
Virginia legislation Idaho adopts appraisal review SB 351 clarifies that an appraiser must
changes AMC definitions, provisions on licensing be paid according to terms established
evaluation rules Idaho Gov. Butch Otter on March 19 in the engagement
Virginia Gov. Ralph Northam in March signed HB 459, legislation that clarifies agreement, or according
signed three pieces of legislation per the state’s appraisal to terms indicated on
taining to real estate valuation. review provisions. The the appraiser’s invoice
Two identical bills, HB 1506 and law states that an if there is no contract
SB 979, change the definitions of appraisal appraiser who is licensed or agreement in place or
management in another state and is if a contract/agreement
company, providing a review of an does not establish
appraisal appraisal of a property payment terms. HB 1277
management in Idaho need only be states that there must be a contract in
services and licensed in Idaho if the place between an AMC and an appraiser
appraiser panel to match the definitions appraiser is providing a value opinion. that establishes payment terms.
in the federal minimum requirements. The law took effect July 1. E Read about SB 351 at http://bit.ly/SB-351.
HB 1453 makes changes to a current law E Read about HB 459 at http://bit.ly/HB-459. E Read about HB 1277 at
allowing licensed and certified appraisers to http://bit.ly/HB-1277.
perform evaluations that are not compliant Indiana enacts legislation
with the Uniform Standards of Professional comprising 2 AMC provisions Utah updates
Appraisal Practice when a USPAP-compliant Indiana Gov. Eric Holcomb in March AMC law
appraisal is not required under federal law. signed two bills that made favorable Utah Gov. Gary Herbert
E Find the legislation at changes to the state’s appraisal man on March 19 signed HB
http://bit.ly/2M0Lntt. agement company laws. 243, legislation that

make a good faith effort to place the appraisal Appraisal Institute book
with local market appraisers, consistent with examines the sales
the bill’s intent,” the letter stated. comparison approach
Passage of the legislation marks the most The Appraisal Institute’s new book,
significant revision of banking rules since Valuation by Comparison, second
Congress passed the Dodd-Frank Wall Street edition, explores the reasons
Reform and Consumer Protection Act of 2010, behind current market behaviors and the
a sweeping financial regulatory law enacted logic of the sales comparison approach. Written
in response to the 2008 economic crisis. by Mark R. Ratterman, MAI, SRA, this book should
E Read about the Economic Growth, help appraisers develop a deeper understanding
Regulatory Relief, and Consumer Protection of the valuation process and a greater ability to
Act at http://bit.ly/senate-bill-2155. handle a variety of appraisal assignments.
E Read the coalition letter at E Order Valuation by Comparison, second edition,
http://bit.ly/AI-coalition-letter. from AI at www.appraisalinstitute.org/store.
aligns definitions and other provisions cations Board. Additionally, the law the Supreme Court
in the state’s appraisal management changes several definitions to make stated that the
company oversight and registration law the Nebraska Appraisal Management authority
with the requirements contained in the Company Act consistent with federal allowing experts to testify is found in
federal minimum requirements. minimum requirements. the state’s Rules of Evidence, and not in a
E Read about HB 243 at http://bit.ly/HB-243. E Read more about LB 17 at statute such as the one that allows licensed
http://bit.ly/LB-17. real estate brokers to offer broker price
Nebraska updates provisions, opinions and comparative market analyses.
definitions in AMC law North Carolina Supreme Court Importantly, the Supreme Court stated
Nebraska Gov. Pete Ricketts on March 21 allows brokers’ fair market in its decision that it took “no position”
signed LB 17, legislation clarifying that value testimony on whether the broker in this case was
supervisory The North Carolina Supreme Court in an qualified under the Rules of Evidence to
appraisers opinion filed March 2 held that real estate offer expert witness testimony, only that
need only brokers may legally testify regarding the broker was legally allowed to offer
be certified the fair market value of real property in testimony. This decision likely will have
appraisers in condemnation cases. influence beyond condemnation cases,
any jurisdiction The case, North Carolina Department of and could allow brokers to testify as to fair
for three years before they can apply for Transportation v. Mission Battleground Park market value in other legal matters where
a state appraiser credential and qualify Leaseco, LLC, involved NCDOT’s condem real property valuation is concerned.
to supervise trainee appraisers. nation in 2013 of approximately two acres E Read more about the case at
This change is consistent with modifica- of commercial property in Greensboro for http://bit.ly/2pzKfTY.
tions made to the minimum qualification a highway construction project. E Read the state Supreme Court’s opinion
criteria adopted by the Appraiser Qualifi In the opinion written by the chief justice, at https://appellate.nccourts.org/opinions/.

Appraisal Subcommittee denies During deliberations, several ASC board
bank’s request for appraisal waiver members questioned the supporting documenta-
The Appraisal Subcommittee unanimously tion provided by the bank, including information
rejected a temporary waiver request from about purported increases in turnaround times.
TriStar Bank of Dickson, Tennessee, during a The board did not see the nominal increased turn-
special meeting April 23 in Washington. The around time as representing a scarcity of apprais-
Appraisal Institute led industry efforts opposing ers, especially considering comments submitted
the bank’s request for a waiver of certification by local appraisers who had worked for the bank.
requirements that would have allowed appraisals The ASC board offered to provide TriStar
to be completed by non-certified appraisers. with the names of local appraisers who expressed
The ASC board heard a summary of interest in working with the bank during the open
comments received during a 30-day public comment period as the bank attempts to resolve
comment request published in the Federal ongoing operational issues.
Register and gave representatives from TriStar E Learn more about TriStar’s request
the opportunity to address the board. at http://bit.ly/2kM8POP.
AI releases 2017
annual report Reports in Short
The Appraisal Institute has From the Appraisal Institute
released its 2017 Annual Report.
AI’s mission is to advance AI confers 135 designation is held by appraisal accuracy, automated
professionalism and ethics, designations during appraisers who are experi- valuation models and credit
global standards, methodologies the first quarter enced in general appraisal modeling in rural areas. It
and practices through the During the first quarter review, while the AI-RRS desig- suggests that appraisals of
professional development of of 2018, AI conferred 135 nation is held by appraisers rural properties frequently
property economics worldwide. designations, comprising who are experienced in are too high.
E Read AI’s 2017 Annual Report at 57 MAI designations, 21 SRA residential appraisal review. E Read “Are Appraisal
http://bit.ly/2017-AI-annual-report. designations, 45 AI-GRS E Learn more about designa- Management Companies
E See past annual reports at designations and 12 AI-RRS tions at www.appraisalinstitute Value-Adding?” at
www.appraisalinstitute.org/about. designations. .org/designated. http://bit.ly/2kPwJJo.
Designated members E Read “Appraisal Accuracy,
make a commitment to FHFA working papers Automated Valuation Models,
advanced education and explore AMC And Credit Modeling in Rural
defined ethical requirements. appraisals, rural Areas” at http://bit.ly/2J92D1X.
The MAI designation is held appraisal accuracy
by appraisers who are The Federal Housing Finance Fraud alert issued
experienced in the valuation Agency this spring released on appraisal ID theft
and evaluation of commercial, two working papers focused The Office of Inspector General
industrial, residential and on real estate valuation. The at the U.S. Department of
other types of properties, and first explores how appraisals Housing and Urban Develop-
who advise clients on real contracted through appraisal ment issued a fraud bulletin
estate investment decisions. management companies outlining cases of appraiser
The SRA designation is held compare to those contracted identity theft and suggesting
by appraisers who are directly by lenders, and steps appraisers can take to
experienced in the analysis suggests the appraisals are safeguard themselves.
and valuation of residential statistically very similar. The E Read the bulletin at
real property. The AI-GRS second paper focuses on http://bit.ly/2r1V3wk.

Funding to redevelop the long-
derelict Packard Automotive Plant
in Detroit — a project that began
last year — includes $5.2 million
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in brownfield environmental
cleanup, reimbursable to the
development company over a
period of years.
Appraisal Institute Brownfield programs receive

requests Appraisal Standards funding and reforms
Board rework Q&As Efforts to redevelop environmentally contami-
The Appraisal Institute in an April 13 letter nated properties received a boost March 23
to the Appraisal Standards Board formally with the passage of an omnibus spending bill
requested changes to or the retraction of that included the Brownfields Utilization,
Q&A 2018-12, “Employing an Extraordinary Investment, and Local Development Act, known
Assumption when a Client Provides Inspection as the BUILD Act, which extends federal funding
Data,” and Q&A 2018-13, “Appraisal Reporting for brownfields through 2023 and makes
— Certifications and Signatures.” additional program reforms.
Q&A 2018-12 was released in January The law improves the flexibility of the program,
but retracted by the ASB shortly thereafter authorizes multipurpose grants, raises the limits
to clarify information and interpretations. It for grants per site and removes some funding caps.
was re-released March 29, the same day that It also allows the Environmental Protection Agency
Q&A 2018-13 was released. to reserve as much as $1.5 million in brownfield
The Appraisal Institute’s Professional Stan- funding each year to assist small communities,
dards and Guidance Committee expressed tribes, and rural or disadvantaged areas.
concern that the Q&As may be amending Grants can be used for training, research and
Uniform Standards of Professional Appraisal technical assistance. Additionally, the EPA will be
Practice definitions and creating new require- required to consider the potential for renewable
ments rather than interpreting USPAP itself. energy production when ranking applications for AI 2018 Annual
This situation could potentially expose brownfield grants to incentivize green energy Conference registration
appraisers and others to unnecessary liability. projects. Waterfront brownfield sites also receive deadline nears
In its letter, the Appraisal Institute cited multiple special recognition. The registration deadline for
concerns, with AI President James L. Murrett, The brownfields program was created in 2002 the AI 2018 Annual Conference
MAI, SRA, stating, “For the benefit of practicing by bipartisan legislation to assist communities with is July 8. Register today to attend
appraisers, and in the best interest of public trust, the cleanup of former industrial properties where the conference July 30–Aug. 1
we ask that the ASB reconsider, rewrite and environmental contaminants complicate redevel- in Nashville, Tennessee, at
reissue, or issue a retraction of these Q&As.” opment. When the program was authorized, the www.appraisalinstitute.org/
E Read AI’s letter to the Appraisal Standards Board EPA estimated there were 450,000 brownfield sites annual-conference.
at http://bit.ly/2Jha2bm. nationwide. More than 59,000 brownfield sites
have since been revitalized.
E Find more on the BUILD Act at http://bit.ly/buildact.

Legal Matters
PROTECTING YOUR BUSINESS AND YOURSELF
Fact vs. fiction

Don’t let these four appraiser liability myths trip you up
by Peter T. Christensen
I
worry that some myths about appraiser lia- right form can offer tax, retirement and other
bility will never go away. These myths are benefits, as previously noted. Additionally,
repeated to the point that they’re basically when there are multiple appraisers working in
accepted as fact. Here, I’ve collected four a single firm, a limited liability business form
of the most common myths concerning will serve to insulate the appraiser-owner
appraiser liability in an attempt to bust them against personal liability for the professional
once and for all. negligence of another appraiser’s work, as well
as from other business liabilities.
About the Author Myth No. 1
Peter T. I don’t have personal liability for my appraisals Myth No. 2
Christensen because I organized my firm as a limited liability Lenders require appraisers to carry E&O insurance
is LIA Admin company. because they routinely seek to hold appraisers
istrators & responsible for loan losses.
Insurance Truth: While that sounds like a reasonable
Services’ general counsel. understanding of the legal protections that Truth: A few lenders and servicers have experi-
LIA manages the Appraisal come from forming a limited liability business, mented with systematically suing appraisers
Institute’s endorsed E&O the statement is incorrect. over loan losses, but they failed in their efforts
program for appraisers. Operating a valuation firm as a limited liabil- and discovered it’s not a good business plan.
ity company, an S-corporation or a limited lia- The most spectacular failed experiment was
bility partnership can be a smart business move. backed by Impac Mortgage Holdings, which
Selecting the right business form depends on authorized third-party collectors like Llano
individual personal and business circumstances, Financing Group to sue more than 500 apprais-
with each form presenting advantages and dis- ers between 2014 and 2016.
advantages related to taxation, retirement plan- The fact is, lenders only account for about
ning, outside investment and financial liability. 30 percent of claims filed against appraisers.
However, forming an LLC, an S-corpora- Lenders typically don’t sue appraisers to make
tion or an LLP doesn’t insulate appraisers from up for loan losses; they sue when they believe an
liability for claims about their own alleged appraiser’s negligence was particularly egregious
professional negligence. The appraiser carries and clearly caused a loss. Therefore, appraisers
the license; therefore, the appraiser personally who perform residential and commercial
is responsible for the work and liable for pro- appraisals for lenders mainly have E&O insur-
fessional errors. The firm itself also has poten- ance to protect against claims filed by aggrieved
tial liability, but it’s vicarious through the work borrowers and property purchasers, who
of its staff, which is why it’s common to see account for 60 to 65 percent of current claims.
both the appraiser who performed the appraisal
and the appraisal firm named as defendants Myth No. 3
in professional negligence lawsuits stemming The only appraisers who get sued are those
from deficient appraisals. performing appraisals for mortgage lending.
This hard truth doesn’t mean appraisers
should avoid organizing their firms using lim- Truth: The origin of this myth most likely cor-
ited liability business forms. Choosing the relates with the significant amount of valuation

work performed for lending purposes — the
more lending work, the greater the liability risk,
the thinking goes. However, 20-plus years of
appraiser claim records in LIA’s insurance pro-
gram disproves this myth. Expert witness work,
tax work, estate work and arbitration work all
produce liability claims against appraisers.
In one case, an appraiser serving as an expert
was sued by his client because the client’s win
wasn’t financially rewarding enough. The client
claimed in a subsequent professional liability
lawsuit that the appraiser wasn’t suitably persua-
sive as a testifying expert.
IKON IMAGES/MASTERFILE
Appraisers should recognize there is potential

liability risk for non-lending work because fail-
ing to do so actually increases their risk.
Myth No. 4
Liability risk for appraisers is out of control.
that these types of claims are not and never
Truth: Some appraisers see potential liability have been out of control.
risk at every turn, but the reality is, lenders and Are some appraisal assignments riskier than
mortgage investors sue appraisers in small others? Certainly. There are three areas that
numbers — even at the height of the most generate an inordinate number of claims (rela- Appraisers should
recent recession and mortgage crisis. For the tive to the volume of assignments):
most part, lenders and investors eat their losses 1. Appraisals used in offering statements, recognize there
or sue each other. sales documents or prospectuses for equity
There also are appraisers who believe that investments in the subject property. is potential liability
valuation work for litigation purposes must be 2. Appraisals used to support federal income tax
filled with liability risk — a line of thought deductions for conservation and building risk for non-lending
not unlike those who believe lending work façade easements.
results in copious claims. 3. The reporting of construction progress by work because failing
For example, appraisers who perform appraisers for purposes of construction loan
appraisals for condemnation cases may have disbursements. to do so actually
liability fears rooted in a belief that they will
be sued if they serve as an expert witness for If you work in any of these three areas, take increases their risk.
a government agency and the property owner heed and know your risks. However, overall
whose land is being condemned is unhappy liability risk for appraisers is manageable,
with the valuation. While these lawsuits hap- and liability fears should not discourage you
pen — and appraisers are right to exercise cau- from taking an assignment for which you are
tion and protect themselves — the reality is qualified. F

Market Analysis
Practically
PARADISE
Appraisers in Hawaii face challenges that are vastly different
from those on the mainland — and mahalo for that!
by Rebecca Kavanagh
“E
veryone wants to come to Hawaii for its warm weather, sandy
beaches and beautiful scenery,” says Brian J. Walther, SRA,
AI-RRS, president of Uyetake, Uyetake & Associates in
Honolulu.
“Everyone wants to own a piece of Hawaii,” adds Curtis J. Bedwell,
MAI, president of Kauai Valuation in Koloa, citing as examples movie
stars and billionaires on one hand and people working three jobs to
scrape by on the other.
With its temperate climate, abundant recreational activities and
breathtaking landscape that spans from mountaintops to coral reefs,
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Hawaii is the place to be. And that desirability keeps the state’s real
estate popping and appraisers hopping — even as Kilauea erupts and
spews lava on the Big Island.
“Kauai is a very small market, so I’ve found that I had to broaden my
expertise to be all things to all people, so to speak,” says Bedwell. In
addition to service on Kauai — the island he’s called home for seven
years — Bedwell performs appraisals on Maui and the Big Island. These
jobs always start and end with an airplane commute.
But even some projects on his own island require flight: Bedwell recently
took a helicopter to appraise a site on the top of a mountain. “Those jobs

keep things interesting, but it’s nice to get some
easy ones occasionally,” he laughs. “Every once Leasing the land
in a while I get an easy one.” Hawaii has a significant number of ground
Despite Hawaii’s laid-back atmosphere, lease properties, especially on Oahu, where,
most projects would not be described as “easy” by some estimates, more than 40 percent
for the state’s busy appraisers. Situated more of the land in urban Honolulu is leasehold.
than 2,000 miles from the U.S. mainland on “Appraising leasehold properties can be
one end and about 4,000 miles from Japan on a challenge and requires you to analyze and
the other, Hawaii is the most populated remote compare ground lease terms,” says Brian J.
land on Earth, and as such it presents unusual Walther, SRA, AI-RRS. “A lot of times, lease
real estate conditions. rents were set many years ago and do not
“Land use controls Extreme scarcity of developable land. Astro- reflect the current market, and buyers are
nomical building costs. Conditional zoning often cautious when it comes to purchasing
on Maui are very laws. Shifting county ordinances. Infrastructure real estate with upcoming lease rent
challenges. Entitlements. Ground leases. Volca- renegotiation dates.”
stringent, especially noes. Kuleana land. Chris Ponsar, MAI, SRA, adds that prices
Kuleana? “Our website homepage says, ‘Real of leasehold properties with upcoming lease
with regard to shore- estate is different here — this ain’t the main- expiration dates often see a significant drop
land,’” says Chris Ponsar, MAI, SRA, president in value. “It makes for a lot of opportunities
line management. of Ponsar Valuation LLC in Honolulu, explain- for appraisers,” he says. He explains that one
ing that Kuleana refers to legacy parcels of land complex rent negotiation might involve five
Regulations can set aside in the mid-1800s for tenant farmers to seven MAIs — as arbitrator, as expert
and their descendants. (For insight into how witness, as rebuttal witness.
be different from Kuleana rights come into play, look up stories E For a deeper dive into ground leases,
about Facebook founder Mark Zuckerberg’s see “Uncommon Ground,” Valuation Q1 2017,
one side of the road $100 million, 700-acre property on Kauai.) http://bit.ly/2koAsgN.
Born and raised in Southern California, Pon-
to the other — you sar has lived and worked on Oahu for 16 years.
He only has to look out the window of his Fukuda Valuation & Consulting in Wailuku,
might need addi- 20th-floor ocean view office to remember it who was born and raised on the state’s second-
ain’t the mainland — and for that, mahalo largest island and has appraised there for 14
tional approvals for (Hawaiian for “gratitude”). “Oahu is the cross- years. “Regulations can be different from one
roads of the Pacific, where all sorts of cultures side of the road to the other — you might need
the same sort of come together,” he says. “Downtown Honolulu additional approvals for the same sort of project
is the cleanest, most pleasant downtown in the depending on where you are. Input from the
project depending world. And while the Neighbor Islands [Maui, community can extend a development’s entitle-
Kauai and Hawaii] shut down at 8 p.m., urban ment process because residents don’t want to
on where you are.” Honolulu has a nightlife. It’s special here.” end up as urbanized as Oahu.”
Considered by many the center of every- Fukuda sees Maui as the most balanced of
—Shane M. Fukuda, MAI thing, Oahu houses the state capital, the U.S. Hawaii’s eight major islands, offering acclaimed
Pacific Command military bases, 80 percent restaurants and tourist attractions but retaining
of the state’s population and as many as wide swaths of untouched rainforest and the
100,000 daily tourists. As such, it’s the state’s “old” Hawaii vibe. Maui’s stunning natural
economic driver, but it’s viewed as a cautionary beauty, high-end luxury resorts, championship
tale when Neighbor Islands discuss develop- golf courses and big wave surfing make it a
ment versus preservation. world-class destination, and tourism is the
“Land use controls on Maui are very strin- main catalyst for much of the island’s devel
gent, especially with regard to shoreline man- opment and its strong economic growth.
agement,” explains Shane M. Fukuda, MAI, of The very things that Hawaii is famous for can

MASTERFILE
significantly affect property values. Walther, imity to Oahu’s prized beaches and world- Attractions such as Waikiki
who was born in Japan, grew up in Alaska and renowned surf spots. Beach and shopping on Kalakaua
moved to Honolulu in 2005, notes that during Avenue draw some 100,000
appraisals, he and his team must consider a lit- Meanwhile, common deficiencies Hawaii’s tourists each day to Oahu,
any of items, including: appraisers might encounter include: Hawaii’s most populated island.
• Climate. Property values can be affected by • Settlement caused by unstable adobe soil.
how well a home takes advantage of the trop- • Homes built against volcano-created hill-
ical conditions, with indoor/outdoor features sides, which can be susceptible to rock slides,
such as detached living areas with breezeways among other hazards.
or courtyards, windows that let in the trade • Subterranean and flying termites, which love
winds, and sliding pocket doors that connect Hawaii’s climate as much as people do and
the living areas to the outdoors. can cause major damage to wood homes.
• North Pacific. Buyers typically pay a premium • Salt damage caused by ocean spray.
for homes with ocean views. The upper end • Beach erosion that can change the amount of
of Oahu’s residential property values is often usable land area on oceanfront properties.
set by oceanfront properties. • Natural disasters, ranging from major flood-
• Beaches. Buyers also pay a premium for prox- ing to tsunamis to, well, volcano eruptions.

Although most of the state’s volcanoes are reports that visitors support 165,000 jobs
extinct or dormant, the Big Island’s Kilauea annually and contribute $1.9 billion in taxes
has been active since 1983 and has been each year.
especially active this year, with massive lava The tarnished flip side of that shiny coin is
flows destroying hundreds of homes and other homelessness and overcrowding, which have
properties. increased on Maui over the past several years,
Locals take it all in stride, placing ti leaf offer- says Fukuda. “In 2006, Maui passed an afford-
ings in the lava path and praising the Hawaiian able housing ordinance that was supposed
volcano goddess Pele for creating new land. to help — but then the market crashed.
Indeed, when asked about the scarcity of devel- Nobody was building anything at all, let alone
opable land, more than one appraiser said not taking care to make a percentage of it afford-
“There’s a lot to worry — Kilauea was in the process of mak- able,” he says. In the years since, the ordinance
ing more.
of land in Kapolei, Unfortunately, Pele can-
not help forge new ground
but it’s perceived by on the island of Oahu, Between hello and
where volcanoes have been
many as too far away dormant for hundreds of goodbye
thousands of years. Instead,
from the action.” says Ponsar, humanity is
taking matters into hand
—Chris Ponsar, MAI, SRA and building out from
Honolulu. “There’s a lot of
land in Kapolei, but it’s per-
ceived by many as too far
away from the action,” he
says. Meanwhile, in town,
industrial buildings are
being used well beyond a
normal 50-year lifespan; Hawaii lawmakers in 1986
usable life is stretching to passed the Aloha Spirit law,
80 years because high land legislation that requires each
prices mean that demolish- person to emote good feelings
ing and rebuilding often is to others. The traits of character
not financially feasible. that express the charm, warmth
Instead, “tenants are faced and sincerity of Hawaii’s people
with choosing between very are spelled out as:
old, highly depreciated Akahai, meaning kindness,
buildings in town or newer to be expressed with tenderness.
construction 20 miles out of Lokahi, meaning unity, to be
town — for about the same expressed with harmony.
rent,” Ponsar says. Oluolu, meaning agreeable,
to be expressed with pleasantness.
Over the rainbow Haahaa, meaning humility,
ED GIFFORD / MASTERFILE
Tourism is Hawaii’s No. 1 to be expressed with modesty.

industry, displacing sugar Ahonui, meaning patience, to be
and pineapple production expressed with perseverance.
about 20 years ago. The
Hawaii Tourism Authority

Kauai P A C I F I C O C E A N
Niihau
Molokai
Oahu
Maui
Lanai
Kahoolawe
H AWA I I A N
ISLANDS
Hawaii
Island hopping: From Gathering Place to Forbidden Island

More than 9 million people visited Hawaii • Maui. Nicknamed the Valley Isle due owned by billionaire tech entrepreneur
last year to enjoy the sun, sand and to the great valley that lies between Larry Ellison. Most of the island remains
probably a mai tai or two. The state its two major volcanoes, Maui is undeveloped, although resorts and golf
comprises more than 100 islands, but known for its stunning natural beauty, courses account for Lanai being the
most are tiny and uninhabited. The eight its high-end luxury resorts and its fifth-most visited island.
main islands are: popular tourist attractions — a triple • Molokai. Known as the most Hawaiian
• Oahu. Known as the Gathering Place, threat ranking the island among the of the islands and where many say hula
Oahu is home to the largest population world’s top vacation destinations. was born, Molokai was characterized in
of people, the state capital (Honolulu), • Hawaii. Geologically one of the youngest ancient times as the Island of Powerful
Pearl Harbor and a range of tourist places on earth, the Big Island is about Prayers because the kahuna (priests)
attractions, from Waikiki shopping and a million years old and twice the size of gathered there to worship. Some resi-
nightlife to North Shore surfing. Oahu all the other islands combined. Domi- dents still lead a subsistence lifestyle and
also has been the setting for dozens of nated by an active volcano, which has are averse to large-scale development.
movies and TV shows through the years. been erupting continuously since 1983 • Niihau. Privately owned and known as
• Kauai. Known as the Garden Isle, Kauai (destructively so, at the time of this writ- the Forbidden Island, Niihau’s 69 square
is a breathtaking island characterized ing), the island continues to grow. Hawaii miles are used for raising livestock by
by tropical rainforests and one of the is known for its deep-sea fishing, coffee roughly 200 residents who maintain a
wettest mountains on earth, Mount farms, exotic flowers, macadamia nuts, simple, tech-free way of life.
Waialeale. Along its stunning beaches is well-preserved historic sites and some of • Kahoolawe. The smallest of the eight
the Napali Coast, where waterfalls crash the world’s most advanced astronomical major islands, Kahoolawe is uninhabited
into the ocean. The island is known for observatories at the top of Mauna Kea. and access is prohibited. It has been
adventure tourism — helicopter rides, • Lanai. Once nicknamed the Pineapple used as a target by the U.S. military,
river kayaking, backcountry ATV Island because it was almost entirely a which is still cleaning up unexploded
adventures and zip line tours. Dole plantation, most of Lanai is now artillery shells.

has been revised to be more appealing to devel- stock on the market for first-time buyers have
opers, reducing one big barrier for local and nowhere to go.”
national homebuilders. Ponsar says that on Oahu, low-grade housing
Other barriers include development costs. sells for prices that would astonish mainlanders,
“We have to ship everything in,” says Fukuda. noting, “If you don’t live in a house that barely
“We don’t have plants that make anything looks habitable, your next option is to live
on Maui, with the exception of concrete.” under a bridge.”
Everything from lumber to copper wire comes Bedwell says at this rate, the next generation
across the ocean, primarily on ships. “And of locals won’t be able to stay in Hawaii and
much of what we need goes first to Oahu, then raise families there: “The very county ordi-
gets transferred to a barge, distributed by a nances that were intended to provide affordable
“Not having wholesaler and sold at retail, being taxed at housing for local residents are, in part, making
every turn,” Fukuda explains. “Incremental it unaffordable and unattainable.”
middle-market expenses add up.” A report by the Hawaii Appleseed Center for
Adding to those costs is the Merchant Marine Law and Justice notes that half of the state’s
housing means Act of 1920, known as the Jones Act, which 23,000 vacation rentals are owned by nonresi-
requires all cargo shipped between domestic dents, meaning that not only are rentals reduc-
that people who ports be aboard U.S.-built and -owned vessels ing the housing stock, but locals aren’t benefiting
with at least 75 percent of crew members being from the income. The report concludes, “Fami-
could move up to a American citizens. lies who have lived in Hawaii for generations are
With so many requirements both on land being displaced from their homes and their
larger property and and sea, “the difficulty in getting a project islands by a steady flow of short-term visitors.”
started goes far beyond the scarcity of land,” Of course, Hawaii misses those visitors when
then put smaller says Bedwell. “Once you successfully get the they’re gone. The recession hit the state hard,
entitlements — which is not easy — and then Bedwell says. “The first thing people gave back
housing stock on get planning commission approval, the devel- to the bank was their second home, and people
oper is going to get a 30-point list of this, that stopped taking vacations.” Real estate declined
the market for first- and the other things they will have to provide.” in just about every asset class. Businesses that
He says the list could call for extending water were in industrial parks moved into their
time buyers have service beyond the development or doing road garages. Other businesses closed. Renovations
improvements on a state highway. “Added slowed, except for a handful of hotels that took
nowhere to go.” together, the details often make a project unfea- the opportunity to phase major renovations
sible,” he laments. during the downturn. Bedwell notes that every-
—Curtis J. Bedwell, MAI Bedwell says the assumption is that big thing was tight until the mainland began to
developers should be able to afford the plan- recover and people resumed pleasure travel.
ning commission requirements and should “Now we’re at less than 2 percent unemploy-
want to better the community. “But landown- ment on Kauai,” he says. “Even with people
ers are realists, and when they pencil out the working two and three jobs to make rent or pay
project and see that they’ll be in the hole, they mortgages, employers can’t get the help they
do nothing.” need.” Bedwell says there’s a café he enjoys that
Development requirements are one reason started closing on Wednesdays because it doesn’t
Hawaii lacks sufficient middle-market housing. have the staffing numbers. “Instead of working
Another is the fact that existing homes increas- everyone harder or closing completely, they
ingly are being used as vacation rentals through decided they’re shutting their doors in the mid-
services such as Airbnb and VRBO. “A big dle of the week. Maybe they’ll go surfing.” F
piece of the cycle is missing on Kauai,” Bedwell
says. “Not having middle-market housing Rebecca Kavanagh is a freelance writer based
means that people who could move up to a in metro Detroit.
larger property and then put smaller housing

Industry Forecast
Threshold
of a new era
The increased threshold for commercial loans
requiring appraisals is bringing uncomfortable
change — but perhaps opportunity as well
by Peter Haapaniemi
ILLUSTRATIONS: MASTERFILE

F
or more than 20 years, banks have ance of a property’s value before making
been required to get formal apprais- loans for properties below the $500,000
als for commercial real estate loans threshold, and that typically means eval
of more than $250,000. This spring, uations, which can be completed by
that requirement changed dramatically. non-appraisers. Banks have been using
In April, the Federal Deposit Insur- evaluations for years, and a key concern
ance Corp., the Federal Reserve Board for appraisers is that the practice will
and the Office of the Comptroller of the significantly increase in some markets due
Currency issued a final rule that doubled to the threshold change.
that threshold to $500,000. Some ques-
tioned this loosening of the rules at a
time when several observers — including
“Some of the larger lenders some in those very agencies — expressed
concerns about increased risk.
have been performing Many appraisers consider the new
threshold unwelcome because they see it
evaluations for a while, reducing the need for their services.
However, a number of lenders and
and the community and appraisers say the shift may not be as
momentous as anticipated — and may
regional banks are starting even create opportunities for appraisers
who are able to adapt, innovate and
to realize that to compete embrace new ways of doing business.
with the larger banks, they Limits to the problem

The $500,000 threshold represents a sig-
are going to have to use nificant change, but there are several fac-
tors that might temper its impact on
that type of product.” appraisers, including what hasn’t changed:
Regulators did not alter the long-standing
—Rex S. Garrison, MAI, SRA, AI-GRS $250,000 threshold level for one- to four-
unit single-family residential loans. They
also maintained the $1 million threshold
level for business loans for owner-occupied
commercial real estate.
Geography also will play a role in who is
affected. In large urban areas, for example,
most commercial loans will be well above
the $500,000 threshold, while loans for
projects outside large metropolitan areas
could very well be under the threshold.
“It’s going to be the smaller and rural
areas that are affected the most,” says Rex
S. Garrison, MAI, SRA, AI-GRS, owner
of Garrison Appraisal Services in Johnson
City, Tennessee. Garrison says that while
prices in some major cities have spiked and
therefore shouldn’t see much change from
the threshold increase, “in our market, it’s
going to make a big difference.”
Of course, lenders will still need assur-

The question is, how much? Here, it’s Street Bank in Seattle. For example, agri-
important to recognize that the dollar cultural land or land being considered for
amount of the loan is just one factor that commercial development might not be a
helps determine whether an appraisal or an good candidate for an evaluation. “There
evaluation is appropriate. “Evaluations are may be entitlements or water rights
supposed to be for low-leverage, low-risk involved, or questions about whether it
loans,” says Justin Slack, MAI, SRA, can be built on or not. So a request for a
AI-GRS, AI-RRS, first vice president and land loan might technically qualify for
commercial appraisal manager at Home- evaluation based on the dollar amount on
the loan, but be the wrong property for an
evaluation,” he explains.
Douglas A. Potts Sr., MAI, AI-GRS,
vice president and chief appraiser at Com- “There may be entitlements
merce Bank in St. Louis, says his institu-
tion studied the impact that the new or water rights involved,
threshold might have on appraisals. “Our
bank has a robust evaluations program or questions about whether
that we have administered in-house for
10 years,” he says. “As a result, we were it can be built on or not.
able to easily look at our commercial real
estate transactions between $250,000 and So a request for a land loan
$500,000 and see how many can convert
to evaluations — and it was well under might technically qualify
10 percent. In our case, there should be
relatively little impact on appraisals.” for evaluation based on the
Other lenders could see more of an
uptick, in part because of the increasing dollar amount on the loan,
prominence of the evaluation option. “I
have had several clients contact me after but be the wrong property
they received word that the threshold had
been increased, asking what they can do for an evaluation.”
about evaluations,” says Garrison. “Seeing
the threshold increase has really opened —Justin Slack, MAI, SRA, AI-GRS, AI-RRS
the door for them to jump in and try to get
evaluations.” They are also looking at the
competition, he adds: “Some of the larger
lenders have been performing evaluations
for a while, and the community and
regional banks are starting to realize that
to compete with the larger banks, they are
going to have to use that type of product.”
The evaluation opportunity

— and challenge
While the numbers vary by lender and
region, the use of evaluations is expected to
increase, continuing a trend that has been
underway for a while. This shift has
brought a number of national providers
into the market to perform evaluations —
often without engaging appraisers.

Nevertheless, there are opportunities Estate Appraiser Commission on April 17
for appraisers in this changing landscape. issued a Q&A on how appraisers can
“Some of the other [non-appraiser] evalu- complete evaluations.
ation providers that are starting to come “The approach I have taken is to create
in are less qualified,” says Slack. “I would an LLC, a separate company, to be able to
rather hire an appraiser to do what I call a do evaluations,” Garrison says. He started
limited scope appraisal that would tech- the company about a year ago with a busi-
nically qualify for an evaluation. Apprais- ness model designed around evaluations,
ers are the most qualified and the best but only recently started marketing it. “It
suited for it.” was slow at first, as it took smaller banks
There also are regulatory challenges to time to get comfortable with the evalua-
consider. A majority of states require that tion product, but now I’m starting to see
“The products wouldn’t any type of valuation comply with the an increase in volume,” he says.
Uniform Standards of Professional Garrison adds that he had been reluc-
have to meet USPAP, but Appraisal Practice, making it difficult for tant to make the shift to evaluations, but,
appraisers to do evaluations. Some states “as in any profession, if you do not adapt
there could be a reasonable have loosened those regulations, while to the demands of the marketplace, you
others have non-mandatory requirements will no longer be relevant.” He expects the
set of standards and guide- for USPAP. This patchwork means that threshold increase will force many
for the time being, the opportunity could appraisal firms in smaller markets to
lines for them, which would be limited by where the appraiser works. reevaluate their business model.
“Every lender client that I have talked Potts says he expects evaluations “to be
create another source of with says they want appraisers to do the a heavily commoditized sector of the
evaluations,” says Garrison. “However, in business, like residential appraising. But
business for appraisers.” most states, appraisers either can’t do evalu- I think there is a way for appraisers to
ations or aren’t willing to do them because do them profitably.” For example, the
—Douglas A. Potts Sr., MAI, AI-GRS they are concerned with USPAP issues. industry could develop several standard
Right now, we have two reporting formats: evaluation products, then appraisers
the appraisal report and restricted appraisal could compete on those. “The products
report.” Many appraisers who are writing wouldn’t have to meet USPAP, but there
evaluations are doing so under the restricted could be a reasonable set of standards
appraisal format, Garrison explains. “A lot and guidelines for them, which would
of lenders’ loan policies say they can’t accept create another source of business for
restricted appraisals. It’s a conundrum for appraisers,” Potts explains.
appraisers and clients.” Appraisers might also build on that
In addition, evaluations have become approach by offering suites of various
commodity offerings, which means products with different pricing, tailored
appraisers may have to adopt new tech- to specific client needs. These could
niques in order for them to be profitable. include products that support certain
On a personal level, many might find loan refinancings, where banks want
it hard to adjust to doing anything outside more than an evaluation but less than
USPAP standards. “That’s the only world an appraisal. Or, suggests Garrison,
that many appraisers know,” says Garrison. appraisers might look at providing
market trend reports, which can be
Adjusting to a changing market required when lenders are using evalua-
Appraisers who want to take advantage of tions. “I am often asked for information
this changing environment will need to be about the market — what it’s doing,
innovative. Garrison says that in Tennes- what property types are doing well, what
see, new regulations allow appraisers to types aren’t doing well. So appraisers in
perform evaluations separately, outside of the smaller markets may want to get into
USPAP requirements; the Tennessee Real a consulting type of thing,” he says.

Regulatory change: Finding Today, there are more than 25 million
long-term solutions loans with a total value of $3.2 trillion. “I
In many states, regulatory change will be tell people that the volume of work has
required to make business innovations gone up by three times in that period,
practical. and I ask them if they are three times
Potts explains that appraisers currently busier today,” says Potts. He notes that Fortunately, many
operate under a “regulatory trifecta,” the answer, typically, is silence.
where “first there’s a definition that says Fortunately, many states are rethinking states are rethinking their
that anything that’s a value estimate is an their regulatory approach to appraisals.
appraisal. And then we say, If you are “States have started saying, We think regulatory approach
doing appraisals, you’ve got to be licensed. appraisers are probably the best valuers out
And then close up the loop and say, If you there, so let’s let them do that,” says Slack. to appraisals.
are a licensed appraiser, the only standard What about states that aren’t rethinking
you can follow is Uniform Standards of their approach? Potts suggests appraisers
Professional Appraisal Practice.” Together, lobby them to do so: “They can work
he says, those rules have essentially kept within their states to help modify regula-
appraisers out of the evaluations business tions to provide more flexibility for
— while marketplace demand for such appraisers to practice under additional
products is growing. standards or for allowances for evalua-
To underscore the impact of the regu tions.” He acknowledges that can take
latory trifecta and the growing demand time, “but when we find solutions to the
for new types of valuation products, regulatory trifecta, we’ll free up the creativ-
Potts points out that in 1995 there were ity of a lot of very smart people.” F
about 9 million loans in the U.S. with a
total value of about $900 billion, most Peter Haapaniemi is a freelance writer
of which were secured by real estate. based in metro Detroit.

Best Practices
Under the
influence
How the project influence rule can affect your appraisals
by Bradford B. Kuhn
W
hen property is acquired for a operate as both a sword and a shield for prop-
public project, most jurisdictions erty owners and public agencies, preventing a
require appraisers to follow the party from being under- or overcompensated.
“project influence rule” and ignore Here’s how the project influence rule applies
any change in property value as a result of the in various scenarios.
project. In its simplest terms, the rule says the
determination of compensation must be con- Disregarding negative project influence
sidered as if the public project hadn’t happened. How can a proposed public project negatively
The project influence rule has been applied influence property value? If a government
throughout the country* and is intended to agency intends to construct a sewage treatment
* See, e.g., United States v. Reynolds (1970) 397 U.S. 14, 90; St. Louis County v. River Bend Estates Homeowners’ Ass’n, 408 S.W.3d 116, 130 (Mo. 2013) [under
“project influence” doctrine, juries are prohibited from considering either enhancements or depreciation brought about by construction of improvement for
which property is being taken, so that value should be determined independent of any proposed improvement]; State Road Dep’t v. Chicone, 158 So. 2d 753
(Fla. 1963); Merced Irrigation Dist. v. Woolstenhulme, 4 Cal. 3d 478, 490, 93 Cal. Rptr. 833, 483 P.2d 1 (1971).

Disregarding project enhancement
How might a proposed public project enhance
value? If a government agency intends to con-
struct a new freeway through a rural area, for
example, the value of nearby commercial prop-
erties may increase. If an appraiser is valuing
one of the properties to be acquired for the free- In situations
way, the appraiser may need to avoid relying
heavily on recent sales of other properties near where environmental
the planned freeway corridor to the extent their
sales prices increased because of the project. cleanup is triggered
This concept recently was seen in Santa Mon-
ica, California, with the new Expo Light Rail by the project for
Transit project connecting downtown Los
Angeles to the famous Santa Monica Pier. The which the property
project’s first phase is complete and operational,
and the second phase is under construction. is being taken, the
Home prices in Santa Monica already were
improving thanks to a favorable real estate cli- project influence rule
mate, but did the light rail project also affect
prices? Market data suggested it did, as sales may arguably be a
prices went up dramatically for properties close
to the proposed transit route, especially since basis for excluding
the city changed its zoning ordinances to allow
for denser, transit-oriented development along evidence of
the route. Similar properties about one mile
away from the route were selling for around contamination.
$250 per square foot, while properties a half-
RACHEL NAPEAR
mile away were selling for around $450 per

square foot. Properties even closer to the route
were selling for upwards of $600 per square
foot. While other factors may have contributed
to the increase, there was a strong correlation
plant in a residential neighborhood, for exam- between increased property values and proxim-
ple, the value of homes in that neighborhood ity to the rail line, which was further verified by
may become depressed because of the deleteri- market participants.
ous effects of the proposed treatment plant. If
an appraiser is valuing one of the homes to be Project influence in partial takings
acquired, it could be problematic to rely on How does the project influence rule apply in
recent sales of other homes in the neighborhood partial takings? Using the example of a new
to the extent that their sales prices were impacted freeway exit ramp once again, if the ramp was
by the proposed project. constructed in a rural area, property in the
As another example, say a public agency has immediate vicinity could be expected to increase
acquired thousands of homes in a residential in value. Therefore, while the property’s high-
community over a period of 10 years as part of est and best use might have been farmland
an airport noise mitigation program. The before the ramp was built, it could be highway-
remaining homes become less desirable as the oriented retail once the project is complete.
acquired residences are razed and the area dete- A total taking of a parcel for the exit ramp
riorates. The valuation of the remaining homes would require it to be valued at its original
should disregard these negative impacts on the highest and best use, as if there hadn’t been an
neighborhood. exit ramp project. If, however, only a portion of

a property were taken for the ramp, the com- demnor purporting to exercise its police power
pensation question would require a before and by enacting a zoning ordinance has in reality
after comparison of values. discriminated against a particular parcel or
In the after condition, the appraiser would parcels of land in order to depress their value
have to factor whether the value of the remain- with a view to future takings in eminent
der property has been damaged by the taking domain. In such a situation such action has
(due to a change in size or configuration, for been vigorously condemned as confiscatory
example) or enhanced by it, thereby reducing or and the condemnee may attack the validity of
Challenging a offsetting some damaging components associ- the zoning ordinance in the eminent domain
ated with the project. action and if successful require that his prop-
zoning regulation erty be valued free of its restrictions.”].)
Admissibility of project-influenced data
by a public agency There is no specific authority stating that any Contamination-related project influence
project-influenced data must be wholly Can the project influence rule be applied in
as a de facto or excluded, but to the extent such data is relied cases of environmental contamination? In situa-
upon, it may expose the appraiser to thorough tions where environmental cleanup is triggered
regulatory taking cross-examination about whether comparable by the project for which the property is being
data is reliable and how the appraiser disre- taken, the project influence rule may arguably
typically is a difficult garded any increase or decrease in value due to be a basis for excluding evidence of contamina-
the project. However, disregarding all influenc- tion. But how far could or should the rule
procedural maze ing data may leave appraisers with little to no extend? If environmental cleanup is necessary
comparable data, or leave them relying on sales regardless of the project but the contamination
that rarely results outside the geographic region of the subject is found by the condemning agency, should its
property, thereby creating more questions. impact on market value be excluded because of
in liability. Appraisers can handle this dilemma by rely- how it was discovered?
ing on nearby comparable data — even if My interpretation of the rule is that the con-
project-enhanced — and make sales adjust- tamination should be considered if it would
ments to account for project enhancement if have been discovered by a potential buyer per-
those adjustments have some objective basis forming reasonable due diligence.
(such as discussions with market participants,
brokers, or other studies or data). (See, e.g., City Taking project influence too far
of Los Angeles v. Retlaw Enterprises, Inc. [1976] Attorneys for property owners have attempted
16 Cal.3d 473, 482-483.) recently to extend the project influence rule well
beyond its intended reach. I was involved in a
The project influence rule and case where a transit agency condemned an access
government regulations easement from an industrial property as part of a
Challenging a zoning regulation by a public proposed new transit station and then termi-
agency as a de facto or regulatory taking typi- nated the property owner’s license to cross over a
cally is a difficult procedural maze that rarely railroad right-of-way, which was the property’s
results in liability. However, if an agency ulti- primary access point. The license had been in
mately decides to acquire a property, the other- existence for more than 50 years, but was termi-
wise value-suppressing activities may be nable on 30 days’ notice and contained a provi-
disregarded under the project influence rule. sion by which the property owner waived any
For example, it is appropriate to disregard an rights to seek damages because of its termination.
agency’s actions in down-zoning or otherwise The owner’s appraiser concluded that absent
preventing property development along the the project, the license would have remained in
proposed path of a freeway widening project effect, or potentially converted to an easement,
if such regulations were done to depress the and damages due to the direct loss of access
property’s value before acquisition. (See City caused millions in severance damages. The pub-
of San Diego v. Rancho Penasquitos Partnership lic agency’s appraiser did not consider the loss of
[2003] 105 Cal.App.4th 1013; Department access because the owner only had a revocable
of Public Wks. & B. v. Exchange Nat. Bk. [1975] license that contained a waiver of damages in the
31 Ill.App.3d 88, 334 N.E.2d 810, 818 event of termination. The key issue was whether
[“Although in most situations a collateral the project influence rule meant the agency’s
attack upon zoning is not permitted in an emi- action to terminate the license must be ignored.
nent domain proceeding, that principle is The court sided with the public agency, con-
inapplicable to the situation where the con- cluding that regardless of the rule, the owner

had contractually waived any rights to seek If the public project was disregarded,
damages for the license termination. In other the hotel owner would have completed the
words, the project influence rule does not write remodel well before the acquisition and
out of existence the parties’ contractual agree- the hotel would have been fully operational,
ments with respect to compensation. The leading to significant damages claims due
owner also argued that because of the project, to the temporary loss of access. If the hotel
the property experienced a change in the qual- was treated as unoccupied, there were no
ity of access, which caused severance damages. damages because there was no interference
The court once again explained that because with actual use of the property. Ultimately the About the Author
the owner had waived damages over the license matter was resolved because both parties Bradford B. Kuhn
termination, the owner could not recover sev- wanted to avoid litigation. is a partner
erance damages for this change in access. The influence of a public project can be sub- at the Irvine,
Another example involved an owner in the stantial and can take many forms, and because California-
process of a substantial hotel remodel and a pub- of its significant impact on valuation assign- based law firm
lic agency project that would completely cut off ments, the project influence rule can regularly Nossaman LLP, where he is
access to the hotel during the project’s years-long be fertile ground for disputes between property chair of the Eminent Domain
construction, and possibly in perpetuity. The owners and public agencies. and Valuation Practice Group.
owner halted his remodel, waiting out comple- Appraisers who fully evaluate a project’s He can be reached at
tion of the public project — which was delayed, potential influence and learn the full scope and bkuhn@nossaman.com.
so the hotel remained vacant for several years. eventual operation of the project should be able
There was no debate that access to the hotel to properly disregard project influence.
was blocked during construction, but for valu- I also recommend that appraisers discuss a
ation purposes, there was significant dispute project in detail with an attorney to ensure
about whether the hotel should be treated as proper application of the law, as many impacts
occupied or unoccupied. of a project may or may not be compensable. F

Front Lines
REPORTS AND INSIGHTS FROM THE FIELD
A family chapter
Business is relative for multigenerational appraiser families
in the Pittsburgh Metropolitan Chapter
F
or many appraisers, real estate valuation is a chapter’s education committee. She says a big
family business. The Pittsburgh Metropoli- advantage to working with her father is access to
tan Chapter of the Appraisal Institute, like information and experience. “A family member
many other AI chapters, has an abundance of is more likely to give you time and thoroughly
multigenerational Designated Members. What’s answer your questions,” she says. However, the
it like to work with family? key to working with Dad is knowing when the
“I work with my father and my younger day stops: “The most important thing is keep-
brother, and we’re convinced that a number of ing work at work,” she adds.
people think my brother and I are the same Her father, a past chapter president and cur-
person,” jokes Bryan Barone, MAI. He and
rent education chair, agrees. “When I entered
brother Brad Barone, MAI, are the third gener- the profession, I worked with my father, and
ation to be Designated Members of the one problem we had was separating work from
SHUTTERSTOCK.COM
Appraisal Institute. Bryan and Brad work with family,” Mark says. His advice: “Do not bring
their father, Steve Barone, MAI, at Valbridge up family issues during work, and do not bring
Property Advisors. up work during family time.”
In 2016, Steve and his brother Rob Barone, When Teresa Love, SRA, AI-RRS, served as
SRA, received the Barone-Berman award for 2017 chapter president, she assumed a role her
The Pittsburgh outstanding excellence in the appraisal profes- late father held 30 years prior. When her
sion and dedication to their chapter. The award nephew, Michael Leahy, MAI, received his
Metropolitan had special meaning for the brothers (both past designation, she presented it to him at the chap-
chapter presidents), as it was co-named in honor ter’s installation banquet. While Teresa and
Chapter was of their father, Ray Barone, MAI. Michael don’t work together (she runs her own
“Our family had the benefit of inheriting our firm, Love Appraisal Services, and Michael is
organized in 1932. father’s professional reputation and integrity, director of the CBRE Pittsburgh office), they
and we have benefited from his leadership and both see significant value in being part of a val-
dedication to his profession and family,” says uation family.
Rob Barone, president of Barone & Sons. He “I worked at one time for my father and my
says he hasn’t experienced a downside to work- brother,” says Teresa, whose son, Tyler, has
ing with family, a sentiment shared by others. joined her firm. “There are great advantages to
“We work with a level of professionalism that family — you can count on them and know
doesn’t get impacted by family ties,” says Bryan. they have your best interests in mind.”
Adds Steve: “Working with family has always Michael, who worked with family for 19
been a good thing. We have always been sup- years, credits them for his professional start. “I
portive of each other, and it’s comforting to would not be where I am today without that
know that help is there if needed.” Steve notes experience,” he says, adding that the key to a
E Passing the torch? Read that his daughter, Laura, recently graduated from good family/work dynamic is establishing goals.
about how to plan a successful college and is entering the valuation profession. “It’s important for everyone to be clear about
family business succession at Alison Smeltzer, SRA, followed in her family’s their individual goals to ensure that they shape
http://bit.ly/222SUplan. footsteps in becoming a Designated Member. and inform the goals of the business.” Doing
She works with her father, Mark Smeltzer, MAI, that, he says, “It’s possible to build a legacy that
SRA, AI-RRS, at Ditio Inc., and serves on the can be passed down to future generations.” F

Tech Bytes
TOOLS THAT MAKE THE JOB EASIER
Seek lets users find

smartphone infrared
camera options
The Seek Compact line of
thermal imagers attaches to
iOS and Android smartphones
to convert their standard
cameras into thermal imaging
tools. The standard Compact
offers a temperature range of
- 40°F to 626°F, a 206 x 156
thermal sensor, a 36-degree field
of view, a choice of nine color
palettes to highlight different
Dell XPS 13 laptop is

thermal features, and a 1,000-
HP Envy provides foot detection distance. The
desirable laptop/tablet
smaller, thinner, stronger
Compact XR version offers an
combination 1,800-foot detection distance.
The Envy x2 is HP’s entry in the E The Seek range starts at $249.
popular tablet/laptop combo Learn more at www.thermal.com/ The redesigned Dell XPS 13 laptop is smaller, thinner and lighter
market. The 12.3-inch device compact-series.html. (2.67 pounds) than the previous version, and features a 13-inch
offers touch capacity but also InfinityEdge display screen. The unit is cut from a single block of
works with an HP Digital Pen and aluminum for added durability, and the palm rest is made of carbon
Windows Ink. The tablet converts fiber and woven glass fiber. The laptop has 8th Generation Intel Core
to a laptop with the addition of a processors and offers up to 1TB of storage and 16GB of memory.
soft keyboard. The Envy features Battery life is claimed to be nearly 20 hours. The XPS 13 responds to
Windows 10S, Microsoft’s user voice commands from up to 14 feet away using Microsoft
Cortana digital assistant, Bang Cortana and Waves-enabled speech technology. Users can pair iOS
& Olufsen speakers, 5-megapixel and Android smartphones to the laptop. E The XPS 13 starts at
front-facing and 13-megapixel $999.99. Learn more at https://dell.to/2J8n7rA.
rear-facing cameras, a 4G LTE
modem, and up to 256GB of
storage and 4GB of memory. Newest Apple iPad doesn’t fall far from the tree
The portable package weighs The new Apple iPad — the sixth genera-
under 3 pounds. E The Envy tion — is similar to the previous model,
sells for $999.99. Learn more but has a faster A10 Fusion processor and
at http://bit.ly/2JfXtNz. now supports the Apple Pencil (a separate
$99 product). The tablet weighs about
one pound and has a 9.7-inch display
with 2048 x 1536 resolution, two cam-
eras (an 8-megapixel rear camera and a
1.2-megapixel front camera), and two
stereo speakers at the bottom of the device.
Standard storage is 32GB; a 128GB version
is available. The newest color is gold, which
joins traditional silver and space gray offer-
ings. E The new iPad starts at $329. Learn
more at www.apple.com/ipad-9.7.

LinkSquare answers the measure 5.8 and 6.2
‘What is that?’ question inches, respectively;
LinkSquare is a handheld device that allows users Intelligent Scan identifi-
to scan and identify virtually anything composed of cation (a combination
physical matter in a liquid or of facial recognition and
solid state using near-infra- iris scan); real-time
red spectroscopy materials translation; and a physical earphone jack.
analysis. Users shine the E The S9 and S9+ sell unlocked for $719.99 and
near-infrared light onto the $839.99, respectively, and are available from all
surface of a given material major carriers. Learn more at http://bit.ly/2stkkPy.
to cause the molecules to
vibrate and bounce light Google shrinks the home assistant
back in a unique signature. The reflected light is The Google Home Mini takes the battle of voice-
then passed through a spectrometer that separates operated speakers to a new
it into different wavelengths, and that unique level — a miniature one. The
optical signature is analyzed to determine what the Mini is only 4 inches in
material is made of. E LinkSquare sells for $299. diameter, but it offers all the
Learn more at https://linksquare.io/products.html. power of Google Assistant
available in the full-sized
Samsung S9 and S9+ redefine Google Home. Users can
smartphone cameras listen to music, make hands-free voice calls, set
Samsung’s new flagship smartphones, the Galaxy reminders and calendar events, and get answers to
S9 and S9+, have dual-aperture lenses that general-knowledge questions, news updates and
automatically switch between various lighting reviews of local events. The Mini also can be used
conditions so users can take high-quality pictures to control other connected devices in a home or
whether it’s bright or dark, day or night. Other office. E The Mini sells for $49. Learn more at
features include edge-to-edge screens that http://bit.ly/google-home-mini.
Value Apps RescueTime offers all-in-one No need for signatures

What’s new for your mobile device activity management on paper with DocuSign
RescueTime time-tracking and productivity DocuSign is the leading platform for
Get exchange rates, global software monitors electronic signatures,
money transfers with XE an individual’s time and while it allows
The XE Currency app and associated spent on websites, digital signatures
website offers live apps and email, from any device (as
exchange rates for 85 providing activity well as serial or parallel routing and eight
currencies, as well as rate tracking and reports forms of authentication), it also supports
charts, rate alerts and an (including time many other functions, including integration
API for business purposes. Additional spent away from the computer) so users with multiple file types, automatic conver-
features include calculators for foreign can set and meet productivity goals. A sion to signable fields on PDFs, and form
exchange charges, credit card fees for website blocking feature can be employed functionality (detection of incorrect entries,
foreign exchange transactions and travel to reinforce goals. E The basic version of such as the wrong phone number).
expense conversion. XE also provides a RescueTime is available for free; the E DocuSign starts at $10 per user per month
no-fee international money transfer Premium version costs $9 per month/$72 with a 30-day free trial. A free app is available
service. E XE is available free in the Apple per year with a 14-day free trial for individu- in the Apple App Store, on Google Play
App Store and on Google Play. Learn more als, and $9 per month per user for organiza- and in the Windows Store. Learn more at
at www.xe.com. tions. Learn more at www.rescuetime.com. www.docusign.com.

Cool Tools
Software and gadgets for valuation professionals • by Wayne Pugh, MAI
Any.DO can help you manage tasks and task lists

If you want to work more efficiently, be How is Any.DO collaborative?
more productive and reduce stress, then A cloud-based scheduling function allows
I think the Any.DO task-management app office managers and other staff to schedule
might be the perfect tool for you. tasks or appointments for appraisers, who
This stylish and dependable app has a will then be notified about them by email.
feature-rich free version and a Premium The setup also allows appraisers to report
version that includes features that I think back to the office manager that a job was
are worth the nominal cost. Each version completed.
has received positive reviews, and the
app has 20 million registered users. Pricing
Both the free and Premium versions The free version is, well, free. The Premium
can be synced across multiple platforms, version costs $2.99 per month, or $25.08
and they work with iOS and Android annually for use on a single device or
mobile devices (including the Apple Watch) $26.88 annually for use on an unlimited
and desktops equipped with the Chrome number of devices.
browser. The Premium version integrates
with Slack and Alexa. Bottom line
Any.DO is a well-designed, multiplatform
What can you do with Any.DO? app that manages tasks and goals.
Appraisers can use the app to create Appraisers should find it a welcome tool
to-do lists and set tasks and reminders, for both business and personal use. I give
and then view those items by category it five out of five stars.
(such as personal or work) or by date, E Learn more at www.any.do/home.
which can be specific or as general as
“tomorrow” or “someday.”
The free version lets users set up What are Any.DO Moment and Any.DO Assistant is
simple recurring to-do tasks, such as those location-based reminders? in development
occurring daily, weekly, monthly or yearly. Any.DO Moment encourages better The Any.DO Assistant feature is under
Use the Premium version to enter anything task-management practices by allowing development, and will use artificial intelli-
more specific, such as a recurring task that users to review and edit their schedules gence to review tasks and mark the ones it
takes place every Monday and Wednesday at a specified time. When that time arrives, can do for you. With your approval, you’ll be
for a 12-week period. the app displays a list of all the day’s tasks connected to a group of smart robots and
Premium users also can attach notes to and helps users schedule their time more diligent humans collaborating to accomplish
tasks, collaborate with other users, attach effectively. I set mine for early morning approved tasks. A fee will be associated with
files of any size, choose colors for custom- to help me coordinate my day. As I cycle each completed task. Sign up for the waiting
ized themes, use location-based reminders through my tasks, I can choose to leave a task list at www.any.do/assistant.
and qualify for VIP support. as scheduled or postpone it for another day.
Any.DO is intuitive and can help users Users of the free version can access
of both the free and Premium versions Any.DO Moments but are limited to five
quickly input new tasks and reminders. per month. Premium users are unlimited. About the Author
For example, when making a note to call Location-based reminders are perhaps R. Wayne Pugh, MAI, is CEO
someone, the app displays a list of matching as important as Any.DO Moment. They let of real estate consulting and
contacts as you type each new letter. And users set a reminder when adding a task, appraisal firm R. Wayne Pugh
both versions make good use of touch and the reminders can be scheduled upon and Co., the head of Software
gestures in mobile versions. arrival or departure from a location. I’ve for Real Estate Professionals Inc. and a
The two best features: Any.DO Moment found these reminders save me time and principal member of Real Estate Counsel-
and location-based reminders. These are the cost of having to drive back to a location ing Group of America. He formerly served
the items that I think make the Premium to pick up an item. This feature is only as president of the Appraisal Institute and
version worth buying. available in the Premium version. as chair of the Louisiana Appraisal Board.

WorldPenScan X portable scanner
has smartphone integration
WorldPenScan X is a handheld Bluetooth scanning pen that
works with an accompanying app to upload and save both
text and images to a user’s mobile device. The data can be
accessed using multiple editing programs, including Microsoft
Word and Excel, and can be redistributed or reproduced in
hard copy. The pen supports recognition and machine
translation of about a dozen languages. E The WorldPenScan X
sells for $149.95. The accompanying app is available in the Apple App Store and on Google Play.
Learn more at www.penpowerinc.com/product.asp?sn=735.
Maps & Comps

Tips and tricks with mapping programs • by John Cirincione, SRA
OptiMap helps appraisers plot

the best route for visiting properties
A reader emailed me asking if I knew of a
routing program that would enable him to
enter addresses for multiple properties and
then use a designated starting point (such
as his office) to determine the best route for
viewing all the properties in one trip.
I recommended OptiMap, a free route
optimization tool. It reportedly calculates
the best route for visiting up to 100 prop
erties (I’ve discovered it works best with
15 or fewer properties) by using data from
an Excel spreadsheet and then exporting it
to Google Maps. The route can be accessed
via smartphones and GPS devices, such as
Garmin and TomTom. fastest roundtrip,” which takes you back You also can add notes for each
Here’s how it works: to the starting address, or “calculate property.
• Create an Excel spreadsheet that includes fastest A-Z trip,” for one-way travel. E Tutorials are available on the OptiMap
the starting address (your office, for • Export the Google Maps route to a mobile website at https://gebweb.net/optimap/.
example) in the first row, followed by device by clicking on “send directions to
the addresses and ZIP codes for each your phone” by email or text. Then simply About the Author
property in subsequent rows. The starting open the notification and start the John Cirincione, SRA, is
address can be set as the default. routing with turn-by-turn instructions. chief appraiser for Collateral
• When your Excel spreadsheet is complete, Analytics, which develops real
go to https://gebweb.net/optimap/ and An “edit route” button enables you estate analytics products and
select the “bulk add addresses” tab. Copy to rearrange stops once a route is deter- tools for appraisers, financial
and paste the data from the spreadsheet mined, and new properties can be added institutions, institutional and retail investors,
into the data field. Click “add list of on the fly by manually entering street and property capital market activities.
locations” when ready, and click addresses and ZIP codes. I had no trouble E Have a mapping tool or tip? I want to hear
“Calculate!” to produce the route map. rearranging and editing the stops in from you. Send your suggestions to me at
Route options comprise “calculate the Google Maps on my smartphone. jcirincione@collateralanalytics.com.
All prices subject to change.

The News in Numbers
Growth markets
A
ppraisers who grow their business beyond traditional property
appraisals tend to favor estate valuation, with divorce and review
assignments also popular, according to the 2017 Voice of the
Appraiser report released Oct. 25 by October Research. What types of
assignments do appraisers say they regularly accept?
Estate . . . . . . . . . . . . . . . . 81.4%
Divorce . . . . . . . . . . . . . . 71.0%
Review . . . . . . . . . . . . . . . 59.4%
Probate . . . . . . . . . . . . . . 51.0%
Rural . . . . . . . . . . . . . . . . . 45.4%
Litigation . . . . . . . . . . . . 42.2%
Bankruptcy . . . . . . . . . . 40.8%
Taxation . . . . . . . . . . . . . 37.2%
Government . . . . . . . . . 26.5%
Forensic . . . . . . . . . . . . . . 26.4%
Eminent domain . . . . . 20.6%
Right of way . . . . . . . . . 17.7%
Personal property . . . . 7.4%
MASTERFILE
E Download the 2017 Voice of the Appraiser report at bit.ly/voice-of-the-appraiser-2017.

Economic Indicators | PwC Real Estate Investor Survey, Q1 2018
The PwC Real Estate Investor Survey is available to Appraisal Institute
Designated members, Candidates for Designation, Practicing Affiliates
and Affiliates, as well as to those who subscribe to the print version of
Valuation magazine.
E To view the latest survey, log in with your username and

password at www.appraisalinstitute.org/news/market-data.
E To subscribe to Valuation magazine, visit

www.appraisalinstitute.org/valuation/subscribe.aspx.
Conventional home mortgage terms, US averages

New homes
Mar 2015 Mar 2016 Sep 2016 Mar 2017 Sep 2017 Mar 2018
Interest rate (%) 3.93 3.92 3.56 3.73 3.98 4.33
Term (years) 29.2 29.3 28.6 28.6 28.8 28.9
Loan ratio (%) 78.2 79.2 78.1 79.6 78.1 79.1
Price ($ thousand) 445.7 453.2 460.7 411.7 456.7 434.9
Existing homes
Interest rate (%) 3.95 3.87 3.61 4.12 4.00 4.49
Term (years) 28.2 28.6 28.6 28.5 28.5 28.7
Loan ratio (%) 76.9 78.8 80.4 80.0 79.4 79.3
Price ($ thousand) 419.3 426.6 377.4 388.3 369.7 400.1
E For continuously updated economic indicators, visit

www.appraisalinstitute.org/news/market-data (login required).

Economic Indicators | Market rates, bond yields and other benchmarks
Market rates and bond yields
Reserve bank discount rate 0.75 1.00 1.00 1.50 1.75 2.25
Prime rate (monthly average) 3.25 3.50 3.50 4.00 4.25 4.75
Federal funds rate 0.11 0.36 0.41 0.82 1.16 1.69
3-month Treasury bills 0.03 0.29 0.35 0.75 1.06 1.76
6-month Treasury bills 0.11 0.46 0.47 0.89 1.24 1.93
LIBOR 3-month rate 0.30 0.65 0.84 1.14 1.33 n/a
U.S. 5-year bond 1.52 1.38 1.30 1.93 1.95 2.70
U.S. 10-year bond 2.04 1.89 1.77 2.40 2.35 2.87
U.S. 30-year bond 2.63 2.68 2.50 3.02 2.88 3.07
Municipal tax exempts (Aaa)* 3.15 3.10 2.47 3.30 2.91 3.19
Municipal tax exempts (A)* 3.72 3.67 3.02 3.96 3.44 3.70
Corporate bonds (Aaa)* 3.64 3.82 3.41 4.01 3.63 n/a
Corporate bonds (A)* 3.85 4.16 3.68 4.23 3.88 4.14
Corporate bonds (Baa)* 4.54 5.13 4.31 4.68 4.30 n/a
Stock dividend yields

Common stocks—500 2.02 2.23 2.14 2.02 n/a n/a
Industrial Production Index†,‡

78.1 75.1 75.1 75.5 75.7 78.0
Unemployment rate (%)‡

5.5 5.5 5.0 5.0 4.2 4.1
Consumer Price Index

236.1 238.1 241.4 243.8 246.8 249.6
Abbreviation: LIBOR, London Interbank Offered Rate.
* Source: Moody’s Bond Record.

† On June 25, 2010, the Federal Reserve Board advanced to 2007 the base year for the indexes of industrial production, capacity and electric power use. This follows
the Nov. 7, 2005, change to a 2002 baseline, from the previous 1997 baseline. Historical data has also been updated.
‡ Seasonally adjusted.

Economic Indicators | Conventional home mortgage rates by metropolitan area
Q1 2015 Q1 2016 Q1 2017 Q1 2018
Atlanta 3.89 3.82 4.12 4.38
Boston-Lawrence-NH-ME-CT* 3.72 3.72 4.10 4.11
Chicago-Gary-IN-WI* 3.95 3.81 4.11 4.42
Cleveland-Akron* 4.02 4.02 4.30 4.24
Dallas-Fort Worth* 3.95 3.77 4.04 4.39
Denver-Boulder-Greeley* 3.88 3.73 4.09 4.31
Detroit-Ann Arbor-Flint* 3.84 3.86 4.21 4.48
Houston-Galveston-Brazoria* 3.91 3.77 4.06 4.38
Indianapolis 4.14 4.01 4.24 4.42
Kansas City, MO-KS 3.94 3.89 4.38 4.42
Los Angeles-Riverside* 4.01 3.93 4.24 4.45
Miami-Fort Lauderdale* 4.08 3.85 4.20 4.45
Milwaukee-Racine* 3.89 3.72 4.10 4.54
Minneapolis-St. Paul-WI 3.92 3.89 4.08 4.40
New York-Long Island-N. NJ-CT* 3.84 3.71 4.03 4.20
Philadelphia-Wilmington-NJ* 3.99 3.85 4.22 4.20
Phoenix-Mesa 3.99 3.87 4.16 4.53
Pittsburgh 4.01 4.02 4.12 3.96
Portland-Salem* 3.95 3.80 4.06 4.51
St. Louis-IL 3.82 3.71 4.12 4.21
San Diego 3.89 3.64 3.93 4.32
San Francisco-Oakland-San Jose* 3.78 3.56 4.00 4.26
Seattle-Tacoma-Bremerton 3.82 3.72 4.08 4.30
Tampa-St. Petersburg-Clearwater 4.11 3.95 4.29 4.44
Washington, DC-Baltimore-VA* 4.00 3.96 4.24 4.26
* Consolidated Metropolitan Statistical Area.
Highest and lowest rates, Q1 2018
Highest
Milwaukee-Racine
4.54
Lowest
Pittsburgh
3.96

For What It’s Worth
THE FINAL WORD IN VALUATION
AMCs receive files from lenders

and forward them without How to report
reviewing or determining the appraisal fraud
correct allocation of resources. E FBI: https://tips.fbi.gov
Many also believe that AMCs E Federal Trade
take 25 percent of the fee just Commission: www.
to push files around. The reality ftccomplaintassistant.gov/
is that good AMCs have an E U.S. Department of
appraisal compliance team that Housing and Urban
reviews each report, ensures Development: www.
revisions are made and commu stopfraud.gov/report.html
nicates with the lender on behalf E Fannie Mae: https://
STEVE PUPPE
of the appraiser. fims.secure.force.com/

MortgageFraudReport
AI: Tell us about your experience
investigating appraisal fraud.
Don Gossman on AMC DG: Things started changing in
2002. Lenders seemed more con
DG: In October 2006, I was
approached by a lender seeking
misconceptions, fraud cerned about aligning property

values with loan amounts than
an appraisal for a home with a
sale price of $1.473 million but
and working with the FBI with obtaining credible opinions

of value. I wasn’t comfortable
with an MLS price of $699,000.
The lender said the buyer and
D
with that, so I changed my focus the seller agreed to the higher
onald J. Gossman, SRA, is the chief appraiser at Pendo, an to relocation, legal and review amount and the appraisal
appraisal management company in Kansas City, Missouri, work for subprime lenders. The needed to match the contract
where he’s involved in state audits, compliance work and the review work opened my eyes to price. I told the lender I wouldn’t
appraisal of complex properties. He has more than 40 years of experi- the amount of fraud occurring take the assignment.
ence and operated his own firm for 28 years. In 2006, he helped the FBI within the industry — things like I attended an Appraisal Insti
bust an appraisal fraud ring, and later wrote about his experience in My changing the age of the home, tute fraud seminar soon after
Client the FBI. Gossman will be a keynote speaker at the Appraisal Insti- the square footage and the prop where an FBI agent talked about
tute’s 2018 Annual Conference, July 30–Aug. 1 in Nashville, Tennessee. erty condition. I started seeing mortgage fraud rings operating
patterns from specific appraisers, in Kansas City, Missouri. I told
Appraisal Institute: Appraisers so I kept tabs. After multiple bad the agent about my experi
have mixed opinions about reports, I reported them to the ence, and after I mentioned the
AMCs. How do you respond? appraisal board. seller’s name, there was a long
Don Gossman: Not all AMCs pause. It turns out the seller was
are the same. There are plenty AI: How pervasive is running for mayor!
I would never do business with, appraisal fraud? The FBI asked if I would call
but there are many that respect DG: I wish I could say fraud is a the lender back and tell them
and value appraisers and ensure thing of the past, but unfortu I changed my mind about the
they have the support staff and nately it isn’t. Appraisers are the appraisal. I secretly recorded
resources they need to produce eyes and ears for property values, conversations for three weeks.
credible and compliant reports, so it’s up to us to protect buyers I testified at a federal grand jury
and are paid a reasonable fee in and sellers and to ensure the valu in January 2007 and was the
a timely manner. ation profession remains credible. government’s lead witness in
federal court in November 2007,
AI: What are the biggest AI: You worked with the where guilty pleas and convic
misconceptions about AMCs? FBI to break up a mortgage tions were secured for nine
DG: Some appraisers believe fraud ring? individuals. F


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Threshold Understanding Liability

increase the project facts vs.

even create opportunities for

www.appraisalinstitute.org VALUATION • Q2 2018 1

05 President James L. Murrett, MAI, SRA

06 Executive Editor Jay W. Schneider

Legal Matters Production Editor Sue Cavallaro

by Peter T. Christensen Valuation (ISSN 1087-0148) is published quarterly by

40 not suggest, recommend or take any position as to what

2 VALUATION • Q2 2018 www.appraisalinstitute.org

Advocating for AI professionals

by James L. Murrett, MAI, SRA Appraisal thresholds

www.appraisalinstitute.org VALUATION • Q2 2018 5

President signs Dodd-Frank reform bill

6 VALUATION • Q2 2018 www.appraisalinstitute.org

www.appraisalinstitute.org VALUATION • Q2 2018 7

8 VALUATION • Q2 2018 www.appraisalinstitute.org

Appraisal Institute Brownfield programs receive

www.appraisalinstitute.org VALUATION • Q2 2018 9

Fact vs. fiction

10 VALUATION • Q2 2018 www.appraisalinstitute.org

Appraisers should recognize there is potential

www.appraisalinstitute.org VALUATION • Q2 2018 11

12 VALUATION • Q2 2018 www.appraisalinstitute.org

www.appraisalinstitute.org VALUATION • Q2 2018 13

14 VALUATION • Q2 2018 www.appraisalinstitute.org

www.appraisalinstitute.org VALUATION • Q2 2018 15

Tourism is Hawaii’s No. 1 to be expressed with modesty.

16 VALUATION • Q2 2018 www.appraisalinstitute.org

Island hopping: From Gathering Place to Forbidden Island

www.appraisalinstitute.org VALUATION • Q2 2018 17

18 VALUATION • Q2 2018 www.appraisalinstitute.org

requiring appraisals is bringing uncomfortable

change — but perhaps opportunity as well

www.appraisalinstitute.org VALUATION • Q2 2018 19

with the larger banks, they Limits to the problem

20 VALUATION • Q2 2018 www.appraisalinstitute.org

The evaluation opportunity

www.appraisalinstitute.org VALUATION • Q2 2018 21

22 VALUATION • Q2 2018 www.appraisalinstitute.org

www.appraisalinstitute.org VALUATION • Q2 2018 23

24 VALUATION • Q2 2018 www.appraisalinstitute.org

mile away were selling for around $450 per

www.appraisalinstitute.org VALUATION • Q2 2018 25

26 VALUATION • Q2 2018 www.appraisalinstitute.org

www.appraisalinstitute.org VALUATION • Q2 2018 27

28 VALUATION • Q2 2018 www.appraisalinstitute.org

Seek lets users find

Dell XPS 13 laptop is

30 VALUATION • Q2 2018 www.appraisalinstitute.org

Value Apps RescueTime offers all-in-one No need for signatures

www.appraisalinstitute.org VALUATION • Q2 2018 31

Any.DO can help you manage tasks and task lists

32 VALUATION • Q2 2018 www.appraisalinstitute.org

Maps & Comps

OptiMap helps appraisers plot

All prices subject to change.

www.appraisalinstitute.org VALUATION • Q2 2018 33

E Download the 2017 Voice of the Appraiser report at bit.ly/voice-of-the-appraiser-2017.

34 VALUATION • Q2 2018 www.appraisalinstitute.org

E To view the latest survey, log in with your username and

E To subscribe to Valuation magazine, visit

Conventional home mortgage terms, US averages

* Source: Moody’s Bond Record.