The fact that the appraiser is a "hired gun" so to speak, is why it's even more painful when you're projects are the ones that provide your competitors with the high comps that their appraiser uses to give them values exceeding their sales history, while my builders get punished by their appraisers because they are supposed to use a high, medium, and low comp to determine the "average". This means my competitors lousy sales history drags my value down to the average, making design seem not only worthless, but a penalty. This is at the heart of why we design maybe 3% of the most numerous building type in America. All it takes is one high sale to give every builder in the neighborhood access to that comp and a free pay raise for doing nothing. This is part of the mechanism that sent prices through the roof during the boom. One sale = rise in value for 20-50 new houses. Every time I've seen an appraisal from my neighborhood, my latest spec house is the top comp being used to justify value. They use that extra bump to get the starting money and use it to justify selling their houses for higher prices while spending nothing on design, little on materials, etc. When it comes to selling new houses, the sales history of the builder/ designer should be the number one factor in deciding what the most likely price the house will sell for at market. The whole neighborhood is leaching off of my efforts and I'm not getting paid like the agent, builder, etc. This is because the system doesn't value design, so no one else does. I'm finally starting to get across to the people and so can everyone here. As long as we allow the majority of America to believe we bring them no value, none of us will be paid what we're worth. The Housing Industry influences every person from every walk of life in the most personal of ways. We're not there. For the sake of the profession, we must pay better attention to Housing if we find influencing people important.
Whether or not you care for residential work, it's important to the profession as a whole for us to have greater numbers for political influence, social influence through designing the most used and personal building a person will ever own, and we must insist that real estate and structures are two separate entities and should be treated as such. God made the land, but a company (or team of companies) with a business model and sales history made the structures. The structures are products like any other and the value of the land is determined by how desirable the adjacent amenities, opportunities, and services are only expressed by how much someone is willing to spend on a house to live there. Every builder, agent, and designer knows how much the lots are worth in each area. This is no mystery and there is no reason not to separate the cost of the lot from the cost of the structure. Once separated, there is no reason to compare my houses to my competitor's houses and average our efforts. There is no argument from a valuation perspective that it is more likely that the same company will probably produce products that sell for similar prices as opposed to saying it's more likely that every company will perform at the average, regardless of sales history or track record. This is why next year's BMW will not be priced as a Honda. The center of the problem is that our valuation system takes no consideration that each house may be very different in the same area. It says everyone is average and only locations are unique. The locations may be unique, but the average lot in my neighborhood is $200K and everyone knows it. Just a few miles down the road, you're paying $400K and everyone knows it. Why is the same cookie cutter house being built by the same company in these two different neighborhoods not the same exact price minus the land? Doesn't this only make sense when we already know what the land goes for? Now your expensive Platinum LEED home won't get punished by the appraiser because they base your projects value on the average sale of the combined lot and structure. You buy a lot for $200K and then you can put a $100K code minimum shack there or a zero energy fortress (within the limits of zoning) for $2 mil. The land will rise or lower in value when people put more money in the area. People will be more inclined to invest more up front for a more efficient structure if the bank would quit thinking of the house and lot as some mysteriously sacred siamese twin sharing a heart, liver, and lungs.
Architecture is portable and modular homes, the decline of the McMansion, etc are creating more interest in manufactured and portable structures. How do we handle that if lots are inseparable from the structures that happen to be on them? The value of the lot isn't the unique factor, it's the desirability of the home. People are buying the house, not the location. They shop in locations that they like, but it isn't the dirt that makes them want to settle down, it's the house. The house sells the property from beginning to end. The curb appeal is 90% of whether they even slow down to take a real look see. How the house functions is what seals the deal. Does it have enough bedrooms, a place for their sectional, or grandma's sewing machine? Aesthetics brings them in and function/ practicality sells the house. It's the product that is created by a company that people are buying and making decisions about. People are more likely to sacrifice location if they can't find the house they need in the price range they can afford. Very few buy a house they hate without enough space just to be in the location of their dreams.
God made the land, but people made the structures.
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Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
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Original Message:
Sent: 02-15-2012 17:39
From: Alan Burcope
Subject: Legislative Issues 2012
I had a friend who was a residential appraiser who received referrals for work from banks who were making the loans. I want to say he got about $150 per assessment. I liked the guy, but he didn't graduate at the head of the class if you know what I mean. He had a strict formula, and he bent it a little to accommodate the bank's need for the appraisal to make the deal work. Asking such a person to make a qualitative judgement of value, or to make some exhaustive detailed estimate is asking too much unless you can find some way of compensating him for it.
How can you change the system to motivate this kind of appraisal? The appraiser works for whom ever sends him work, not even for his client the home purchaser, who is not likely to be a repeat client, but for the bank or real estate agent who can send him repeat business.
This is a battle that has a lot of implications, and too few who stand to benefit directly. A tough sell, but I would support it in an election because I agree with it in principal, and it could have several positive effects as you have described.
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Alan Burcope AIA, MBA, LEED AP
Saint Louis MO
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Original Message:
Sent: 02-10-2012 14:12
From: Eric Rawlings
Subject: Legislative Issues 2012
The difference between valuing a BMW and a House is that cars are valued based on how the individual company's product performs at market and Houses are valued by averaging the sales results of you and all of your competitors in roughly a one mile radius. This is why design doesn't matter and why individual effort doesn't matter. You're value is only as good as your weakest competitor. There are many Architects that experience the same thing I do. When your competition is mass produced housing, it's like shooting fish in a barrel. The problem is that my builders need more money to build these nicer houses, but the appraiser keeps giving them the same value as everyone else doing the same sized house in the same area. The mass producers need less money, but get an appraisal that exceeds their sales history. We sell the highest priced house of the same size and we get less money from the bank than we need because our competition brings us down. This is the exact reason Architectural houses, green homes, etc. aren't getting built and why the worst houses possible seem to dominate the market. If the appraiser would recognize that an individual company is more likely to repeat their same sales results, the there would be a means for the market to reward better design, rather than punish it. Basically, the Appraiser is giving everyone in the neighborhood a smiley face sticker no matter how good they do. Everyone gets a trophy for participating. Why try if everyone gets the same pay?
The argument is always Location and my argument is that the value of a Lot is the easiest thing to determine in any given area. The tax Assessor already does this. A BMW is property and you can park that car in a bad neighborhood or a good one, yet the car itself is still the same price. Architecture can be portable. We have mobile homes, container homes, modular homes, etc. Have you seen the houses they can move on the Discovery Channel? Who says we won't move our structures in the future? Why does the Structure's value have to be mixed up with the Lot's value? When you take away the mystery of Location, then the value of a house should be based on the designer's/ builder's performance at market selling just the Structures, not the House and the Dirt it sits on averaged out with all the lousy massed produced homes in your area.
The way we can fix this is if we organize and do something about it as a profession. I've tried contacting the President, Senators, National Association of Home Builders, etc. An individual can't do this and a few of my interested colleagues aren't capable of making such a change either. What I'm proposing doesn't really change the resources used or the methodology. It just asks one to use the same resources and methods with a different way of thinking. The Comparative Approach is most common where recent sales have occurred and this is where they simply average everyone's effort. The Cost Approach often uses the Tax Assessor's value for Lots and bases the value of the house on a component by component basis like a cost estimate, but less sophisticated. This seems time consuming, but the way they try to homogenize comps in the Comparative method is very time consuming and not at all an exact science by any means. All I'm saying is that if a particular Architect or Builder with a higher than average sales history is involved, then the value of the next project should be based on their most recent sales of similar houses. If a company hasn't established an adequate sales history, then the standard cost values from their standardized resources are used, just like they do now in areas with few to no sales. Green homes would benefit from a more careful cost approach. Those selling lousy houses for lousy prices will get lousy appraisals, while those selling houses for higher prices will be rewarded with a higher appraisal and therefore a larger loan to start the project with. This will allow a 2 bed Platinum LEED home that costs $700K to exist in the same neighborhood as a 6 bed code minimum house for $500K. The current system forces quality/ cost homogenization forcing us into a one size fits all mentality for each area. This can be deadly to an industry and in the case of housing, it's deadly to a culture.
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Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
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Original Message:
Sent: 02-09-2012 10:10
From: Alan Burcope
Subject: Legislative Issues 2012
All true. But how do we change it? The custom home market predominantly wealthy individuals who don't consider their houses to be an investment as much as a cost of living well. They are typically sophisticated enough to understand that real estate valuation methods will not value their homes accurately, and that value is in the eye of the beholder. Those who cannot afford custom homes are going to be less interested in the subjective value because they are concerned about resale value and are also typically less discerning consumers who are willing to live in a tract home so long as it fits their practical needs. The stable valuation of their homes is more important to them as it is to the economy as a whole.
Design does have different perceptions in different industries such as autos or fashion, but the lowest common denominator effect is prevalent in every industry, even if the effects look a little different. The BMW for instance, may sell for more money than the VW Beetle, based on the market's willingness to pay, however, BMW must design their cars based on the prevailing price for auto's in the same class based on what the market has been shown to bear for like models. As you stated, your homes sell for more, and that is the market working as it should.
Company stock is another similar situation. Do the analysts set the price or does the market set the price? The market reacts to the analysts, but the analysts are trying to predict the market. Ultimately, the lowest common denominator sets the initial price, but if the stock outperforms, the market takes over and the stock goes higher.
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Alan Burcope AIA, MBA, LEED AP
VP Project Development
HBE Corporation
Saint Louis MO
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Original Message:
Sent: 02-08-2012 06:37
From: Eric Rawlings
Subject: Legislative Issues 2012
My problem with the system is that value is not based on an individual company's performance at market, YOUR value is based on the average sales results of your Community of Competitors in a one mile radius. This allows ZERO room for design to have a perceived value, rather the whole area gets "valued" as a whole. By separating the Lot value from the Structure, a builder or designer could have their projects valued based on their sales, no matter what location. Averaging the sales results of just the comparable Structures that are designed/ built by a specific company and then adding in the Lot price of that particular Location will yield much more consistent results between appraisal and actual (eventual) sales price. Because my houses always sell for the most, they have never appraised any where close to the price they would eventually sell for. The rest of my competitors bring me down. Right now, the system obsesses on location alone and forces us to compare houses that aren't comparable. It's much easier to determine what the price of a Lot is in any given area than it is to determine the price of the combined enchilada based on the standard Comparative Approach. It's much easier and a far more accurate prediction to use a company's sales history to "guess" what THEIR next project will sell for, not every other builder/ designer in the one mile radius. After all, an appraisal is nothing more than a certified "guess" at what a certain item may sell for within a given time period. By ignoring the sales results of the successful, we ignore the will of the free market. By ignoring the will of the free market, we create a race to the bottom. This system is designed to ignore design and that's why it's important to our profession to be justly judged by the appraiser. Otherwise design will continue to never matter in real estate, but it does when it comes to every other commodity known to man in every country in the world. Why does a BMW automatically get valued higher than a Honda? Why does a Gucci always sell for more than a Gucce? In every other market other than Architecture, design matters. If we want to matter, we need this to change!
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Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
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