The point made earlier was that other industries provide more information to assess their products than potential home buyers have at their disposal. This is crazy when you think that most people's largest investment is their house. This is why I agree with Mr. Rawlings that there is a need for appraisal reform, and collectively the architects should lead the call. We have much to gain from it. We are revered to a point that other professions are using our title to increase their stature (another discussion). Let's capitalize on it and leverage ourselves as the industry experts to weigh in on this "Mortgage discussion". It's not just the mortgage system that need help, but the appraisals that they are based on that needs fixing. If we had a better system of assessing the value of a house and the property it sits on independent of one another, the real estate bubbles we witnessed would not have been so inflated. Our current system needs better metrics to define value.
An appraisal system that separates land and house would allow the fluctuations of neighborhood appreciation or decay while keeping the value of the structure on it comparable to like structures. Three houses of same design built in three different neighborhoods should be the same value, and the neighborhood location should be the variable of the assessed value. The house assessment should be tied to quality of construction, energy performance, and intangibles; my term for luxury or custom designed items such as upgraded aluminum clad windows, interior finishes, pools, additional living spaces, etc.
The building code is a minimum standard of construction quality and would set basic metrics that are reviewed and revised every three years. All spec houses would qualify, but they would have to do more to increase their value. We already have regional and national standards in place for Green or Energy Efficient Design that could be recognized for additional credit beyond the basis. If a house has been certified for meeting a green standard, it should receive additional credit based on the accreditation level it received.
Custom or luxury homes will require another basis since they are usually larger, but not always. Appraisals should take into account the investment of fit and finish, and allow for "intangibles" such as pools, wine cellars, home theaters, masonry fireplaces, extensive millwork, home automated systems, etc. Currently, these items are not given much if any credit. Perhaps, there would be credit given for being custom designed. If a LEED project is given credit for having a LEED AP, is it so wrong to give credit for a home designed by a registered professional?
The goal is to put in place real metrics like exceeding code compliance and being certified energy efficient as performance criteria, while acknowledging other intangibles like "luxury" and "custom" home classifications as additional upgrades for assessment. This is no different in how the automotive industry has established the value of their products. There are different sizes based on occupancy, but after that the evaluation is based on performance and luxury. A family sedan can be a Mercedes C class, a Toyota Prius, a Ford Taurus or a Honda Accord; each has 4 tires, 4 doors, seats 4 and gets you there, but the prices vary. However, a 4 bedroom family home could be a code compliant spec house, a green certified house, a semi-custom spec house with finish upgrades,etc. or a custom designed house. Yet, if all were built on the same street, their respective costs would not be reflected in their respective assessed values under the current situation.
If a revised system was put in place, the value of energy efficient and well designed homes would increase as more are built in the market place because there would be a basis from which to value them. We are qualified to help define that basis. Not only should the appraisal system be revised, but the education of the appraisers and the bankers should follow, but that's another story.
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Cooper Pierce AIA
Principal
Jones Pierce Architects
Atlanta GA
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Original Message:
Sent: 07-11-2011 07:14
From: Eric Rawlings
Subject: "Market" Value?
My point is not to make a system that favors unique houses or Architect designed houses. My point is to have all new spec houses be valued like all other products on the market. Let the market decide what is best and worst. Let sales history dictate the amount of the next business loan that a builder takes out to build a new spec house product. This simple tweak would be a more accurate way for the banks to predict the future performance of the same company producing similar products.
The disconnect here is that most Architects assume spec houses can only be repetitious, cheap boxes, but that's not the type I design. Each of my spec houses are unique, they only have to be built to sell to be considered spec. One of my colleagues has a spec house that will be LEED certified and offered at over a million dollars. Getting one of these houses started is the problem, as the initial business loan to build at spec is very difficult to get, especially when your Community of Competitors is dragging the appraisal values down by selling the cheapest boxes.
If energy efficiency is important to Americans, then the market will tell us, if we let it. I find it interesting that the system generates very specific results that favor the big corporate subdivision builders. Right now all the laziness of 90% of the spec builders is averaged out with the success of the other 10% and it's impossible to know what the true will of the market is. I say we let them build cheap and see how they react when their appraisal for the next loan reflects their actual sale.
Because my houses always sell for the highest price, my appraisals for the next project always come in well below the actual sales price of the last one. Every single client has had to go underwater just to buy one of my houses, yet the sales history is very consistent. If I could just once get one of my houses to appraise any where close to what people actually pay, I could die a happy man. This is the most frustrating part. It's typical for one of my houses to sell at around $750-800K, yet the next appraisal for the business loan is usually closer to $700K. On the flip side, If everyone of my competitors had to sell their houses for more than the appraisal, like me, I'd be the only one left standing.
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Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
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