Custom Residential Architects Network

This message has been cross posted to the following Discussion Forums: Housing Knowledge Community and Custom Residential Architects Network .
-------------------------------------------

Property = Lot + House 

Currently, there is no distinction between what portion of the real estate sale is attributed to the value of the Location and what portion is due to the desirability of the House itself. The value of a Lot in any given Location should be based on the current sales in the area and should be a market value that fluctuates from month to month. A house is a site made product, created by a company with a business model and a sales history. This product often outlasts the companies that make them and should have a much more stable value than the Lot it sits on. Today the value of a Property (Lot + House) is based on averaging the sales in the area, which is a reflection of the value of the Location only and gives the House itself no consideration for it's uniqueness, quality, or desirability at market. This is to say all houses in the same area are the same. Buyers are more likely to look in another Location for the House they want rather than accept a House they don't want because they like the Location. We put all the emphasis on the importance of Location, yet people spend months and sometimes years searching for the right house for their needs.

If the price of the Lot and the House were separated, we could more accurately track what the market is desiring about the individual houses. Companies that consistently provide the highest sales in the area should be rewarded for a job well done rather than share their success with their competitors by being averaged with those selling houses for less. Right now it is impossible for a company to have their Houses appraised at the same value as their sales history if they are always selling their product for the highest price in their area. The variable market value of a Lot and the stable value of a product with over 100 years of life expectancy would be more accurately defined as separate values and should be allowed to fluctuate independently.

The Tax Assessor already separates the value of the Lot from the House in most places. In areas with little sales data, the appraisers typically use the Tax Assessor's numbers for the Lot value when using the Cost Approach to calculate value by component. We already have an accepted system in place for identifying what the price of the "Location" is worth and it should become standardized and improved upon. The value of a new house could then be compared more accurately to other houses built or designed by the same company, rather than comparing them equally to houses made by their competitors who just happen to build in the same area. Unique houses could be calculated by component using the Cost Approach to more accurately credit unique features, energy efficiency, and more expensive materials than what is typically found in the area. Our current system of averaging values is the only reason a larger or higher quality House is considered too expensive for the area. If someone purchases a Lot at market value, then it shouldn't matter what they build on it.

Valuation of New Speculative Houses:

Speculative builders provide the largest amount of housing stock for sale at market. In order to establish value for the initial business loan for a spec house, companies without established sales histories should have their new project's value based on the average sales price in the location they choose to build, as they currently do. After a speculative builder has three sales, the value for the fourth loan should be based on an average of their sales history of the last three projects. If the value of the Lot and House were separated, then these results would be easier to calculate in terms of the House itself and could transfer to other Locations. Products that resonate with the market place will be rewarded and those who do a poor job will no longer benefit from their more successful competitor's sales results. This would also eliminate the common phenomenon of a single high sale being used as the top comp on the appraisal of every builder in the area creating a disproportionate rise in value compared to the actual sales in the area. This was one of the main reasons that Property values skyrocketed (next to fraud). The price of the Lot should be based on the average sales in the area and the price of a new House should be based on the sales history of the companies who built and designed them.

Valuation of New End User Houses (not for sale):

Custom Architectural Houses are typically designed for the Owner who plans to occupy the House. These Houses are valued by the Tax Assessor in order to collect Taxes, but they currently do not contribute to the Real Estate Appraisals in any given area as far as the banks are concerned. The value of a Location is not just based on the quality of the Houses for sale, but many people choose Locations because of how nice the schools are, how nice the parks are, and how nice the infrastructure is. These Location amenities are paid for by Taxes. The Tax Assessor's Appraiser and the bank's Real Estate Appraiser should be on the same page. If a unique house is being Taxed at a higher mileage rate due to it's uniqueness, then it should be Appraised for more by the bank for the same reason. Why are there two completely different Values for our Houses and which one is the correct one? A more consistent system will provide more market confidence and much less room for fraud. If the Designer and/ or Builder do not have a sales history for similar houses, then the Cost Approach should be used to determine value by component. If there are truly comparable Houses in other Locations, then these values could be used as well. Unique Custom Houses should be treated like all other unique, one of a kind commodities. They should not be compared as equals to mass produced items just because they happen to be in the same area. Designers with a reputation should have their work valued like other Designers with a reputation like in the fashion industry for example. If their work is desirable enough, it should be worth as much as people are willing to pay for it. A reputation like this can only be established with real sales. It is erroneous to think that just because a unique House sells for a high price, that all the mass produced Houses in the same area should also be this valuable as well. The price of the Lots in that area should rise, but not the value of the rest of the Houses themselves that are being built and designed by other companies. If someone has spent more money than average for a personal House and they are contributing more in Taxes, then their property should increase the value of the Lots in that area, not the Houses.

Property = Lot + House 


-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------

Eric, I'm not sure why you've not gotten more support on this from the CRAN community, but I suspect it is because the majority of Custom Residential clients do not have issues with financing, hence the problems with the appraisal system do not effect them, and do not prevent Custom Residential Architects from being hired. 

We all know that the percentage of homes built with an architect hovers around somewhere like 3% of all homes built in the US. They typically are high end custom desgins for clients that can afford to spend a significant portion of their budget on design fees. I suspect the margin of Custom Residential clients who are actually impacted by the disfunction of the appraisal system is an even smaller slice of that 3%. Tiny. Hence I don't believe this turns up as a problem on the radar of most Custom Residential Architects. 

Which is a shame. Because this is clearly an obstacle to architects expanding practice into a wider range of projects, to a wider range of clients - people who have not been able or willing to spend on an architect in the past, and were stymied by the way the appraisal system put no value on the investment they were making in design. 

CRAN should take this up, and make a big issue of it. I want to know what CRAN's leadership has to say about this issue. Is this convention in the Fall going to pass without any discussion of this important issue?

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------

I think the reason there isn't more support is that people have no desire to waste their time tilting at windmills.  How appraisals are created is a problem for more than just residential architects, but if you think a bunch of architects are going to change the practices of the real estate industry, you are dreaming.  Appraisals are made the way they are because it is easy, and it protects the lenders, who are the ones demanding the appraisal.  Once you try to get an appraisal of a raw piece of land, or the development rights, or anything that isn't a house in a neighborhood with recent sales, you get appraisals all over the map, because the easy path of looking up comparables is no longer available.  Look what happens in old neighborhoods when there aren't any recent sales.  The appraisals become guesses.

Just so you know that appraisers are in on the joke, they will tell you that MAI stands for "Made as Instructed".

-------------------------------------------
Ralph Olivier AIA
Principal
Ralph A. Olivier AIA
Landenberg PA
-------------------------------------------







Original Message:
Sent: 07-08-2012 13:36
From: Gregory La Vardera
Subject: Appraisal Reform - Where to begin

Eric, I'm not sure why you've not gotten more support on this from the CRAN community, but I suspect it is because the majority of Custom Residential clients do not have issues with financing, hence the problems with the appraisal system do not effect them, and do not prevent Custom Residential Architects from being hired. 

We all know that the percentage of homes built with an architect hovers around somewhere like 3% of all homes built in the US. They typically are high end custom desgins for clients that can afford to spend a significant portion of their budget on design fees. I suspect the margin of Custom Residential clients who are actually impacted by the disfunction of the appraisal system is an even smaller slice of that 3%. Tiny. Hence I don't believe this turns up as a problem on the radar of most Custom Residential Architects. 

Which is a shame. Because this is clearly an obstacle to architects expanding practice into a wider range of projects, to a wider range of clients - people who have not been able or willing to spend on an architect in the past, and were stymied by the way the appraisal system put no value on the investment they were making in design. 

CRAN should take this up, and make a big issue of it. I want to know what CRAN's leadership has to say about this issue. Is this convention in the Fall going to pass without any discussion of this important issue?

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------

This give up and roll over attitude is why nothing gets done. Yes, our voice is weak when it should be strong. Why is that? The so called "Architect" of every other industry other than the Building Industry is at the top of their game. They are the leaders, yet where are we? Yes, the banks are going to do what is in their best interest, but is the existing system in their best interest? If we don't speak up and lead, then someone else will. Neither the banks nor their appraisers can explain why values skyrocketed out of control, left a nation with a mortgage mess, and nearly destroyed our banking system, theirs and our businesses.

Every commodity in the world can be valued in terms of which specific product is more desirable at market than the other. Rolex-Timex, Porsche-Kia, etc. Why not buildings? This is because we tie the market value of the land to the desirability of the building in a single value. Without separating these values, we find the appraisers placing all the importance on the value of the Location, with little recognition that one building may be more valuable than another in the same area. In fact, the quality upgrades you might see for using brick or having a swimming pool are like tax deductions. For every $4 you spend, you get $1 in value. For spending $20K more on brick over siding, you get $5K more in value, so for a $15K loss, you get a more valuable building.

I think the current method of comparing recent sales is overcomplicated and could be simplified. Have you ever looked carefully at all the work that goes into a simple home appraisal? They go to great lengths to take a minimum of 3 "comps" that tend to represent a range in values for the area and then they homogenize them. They make many little adjustments to make them as similar as possible before simply averaging the final values. When looking at Spec houses, wouldn't it be easier if a simple value were established for each "area" that represents the sf cost of the land? The market value of the Lot would be a simple equation based on recent sales. The tax assessor already does something like this. Now you back the Lot cost out of the last few sales figures of the builder borrowing money, so you're looking at the cost of the House itself. What is an appraisal? It's an estimation of how much a commodity might sell for at a specific point in time. For houses, it's generally 30 days. What is the most likely price a builder will get for their next house? Perhaps something close to what they sold the last one for? Why are we using the sales results of their competitors as the most likely sales result for the product they're creating? This is to say that all houses are the same and only the Location matters.

I think the banks are more interested in figuring out how much their investments should really be worth. They were stuck with many houses that were grossly overpriced. I watched how my own projects drove up the property values in my area. Every builder was using my house sales as their top comp while their recent sales were as much as $150K less than mine. Every time we sold a more expensive house, they got an appraisal that well exceeded their own sales history. We would in turn ask for more on the next one and everyone in the area would get another free pay raise. If we were all valued by how OUR actual products performed at market, our competitors would not be getting such huge bumps in their appraised values, thus justifying a higher sales price than what someone was willing to pay just a month or two ago. We wouldn't feel justified in hiking our prices so fast. 

Separating the constantly fluctuating market value of the Lot from the more stable value of a House with a 100 year life span only makes sense. It would make life easier for the appraiser, since most designers and builders tend to have a business model, a consistent product, and tend to be in business to create more than one product. A simple separation of Lot and House would allow appraisers to compare the values of houses of the companies who actually design and build them. This is the only way we can create a brand for our work. This would be far more accurate and easy for everyone. It would be more consistent with the way everything else is valued. Real Estate is only different because you're combining two very different commodities with very different reasons for the way their value fluctuates over time. One increases or decreases over time and is far more volatile, while the other should depreciate over time in a very stable and slow way. One was made by God, the other by the hands of Man.

-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------







Original Message:
Sent: 07-09-2012 11:05
From: Ralph Olivier
Subject: Appraisal Reform - Where to begin

I think the reason there isn't more support is that people have no desire to waste their time tilting at windmills.  How appraisals are created is a problem for more than just residential architects, but if you think a bunch of architects are going to change the practices of the real estate industry, you are dreaming.  Appraisals are made the way they are because it is easy, and it protects the lenders, who are the ones demanding the appraisal.  Once you try to get an appraisal of a raw piece of land, or the development rights, or anything that isn't a house in a neighborhood with recent sales, you get appraisals all over the map, because the easy path of looking up comparables is no longer available.  Look what happens in old neighborhoods when there aren't any recent sales.  The appraisals become guesses.

Just so you know that appraisers are in on the joke, they will tell you that MAI stands for "Made as Instructed".

-------------------------------------------
Ralph Olivier AIA
Principal
Ralph A. Olivier AIA
Landenberg PA
-------------------------------------------

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-10-2012 06:48
From: Eric Rawlings
Subject: Appraisal Reform - Where to begin

This give up and roll over attitude is why nothing gets done. Yes, our voice is weak when it should be strong. Why is that? The so called "Architect" of every other industry other than the Building Industry is at the top of their game. They are the leaders, yet where are we? Yes, the banks are going to do what is in their best interest, but is the existing system in their best interest? If we don't speak up and lead, then someone else will. Neither the banks nor their appraisers can explain why values skyrocketed out of control, left a nation with a mortgage mess, and nearly destroyed our banking system, theirs and our businesses.

Every commodity in the world can be valued in terms of which specific product is more desirable at market than the other. Rolex-Timex, Porsche-Kia, etc. Why not buildings? This is because we tie the market value of the land to the desirability of the building in a single value. Without separating these values, we find the appraisers placing all the importance on the value of the Location, with little recognition that one building may be more valuable than another in the same area. In fact, the quality upgrades you might see for using brick or having a swimming pool are like tax deductions. For every $4 you spend, you get $1 in value. For spending $20K more on brick over siding, you get $5K more in value, so for a $15K loss, you get a more valuable building.

I think the current method of comparing recent sales is overcomplicated and could be simplified. Have you ever looked carefully at all the work that goes into a simple home appraisal? They go to great lengths to take a minimum of 3 "comps" that tend to represent a range in values for the area and then they homogenize them. They make many little adjustments to make them as similar as possible before simply averaging the final values. When looking at Spec houses, wouldn't it be easier if a simple value were established for each "area" that represents the sf cost of the land? The market value of the Lot would be a simple equation based on recent sales. The tax assessor already does something like this. Now you back the Lot cost out of the last few sales figures of the builder borrowing money, so you're looking at the cost of the House itself. What is an appraisal? It's an estimation of how much a commodity might sell for at a specific point in time. For houses, it's generally 30 days. What is the most likely price a builder will get for their next house? Perhaps something close to what they sold the last one for? Why are we using the sales results of their competitors as the most likely sales result for the product they're creating? This is to say that all houses are the same and only the Location matters.

I think the banks are more interested in figuring out how much their investments should really be worth. They were stuck with many houses that were grossly overpriced. I watched how my own projects drove up the property values in my area. Every builder was using my house sales as their top comp while their recent sales were as much as $150K less than mine. Every time we sold a more expensive house, they got an appraisal that well exceeded their own sales history. We would in turn ask for more on the next one and everyone in the area would get another free pay raise. If we were all valued by how OUR actual products performed at market, our competitors would not be getting such huge bumps in their appraised values, thus justifying a higher sales price than what someone was willing to pay just a month or two ago. We wouldn't feel justified in hiking our prices so fast. 

Separating the constantly fluctuating market value of the Lot from the more stable value of a House with a 100 year life span only makes sense. It would make life easier for the appraiser, since most designers and builders tend to have a business model, a consistent product, and tend to be in business to create more than one product. A simple separation of Lot and House would allow appraisers to compare the values of houses of the companies who actually design and build them. This is the only way we can create a brand for our work. This would be far more accurate and easy for everyone. It would be more consistent with the way everything else is valued. Real Estate is only different because you're combining two very different commodities with very different reasons for the way their value fluctuates over time. One increases or decreases over time and is far more volatile, while the other should depreciate over time in a very stable and slow way. One was made by God, the other by the hands of Man.

-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------







Original Message:
Sent: 07-09-2012 11:05
From: Ralph Olivier
Subject: Appraisal Reform - Where to begin

I think the reason there isn't more support is that people have no desire to waste their time tilting at windmills.  How appraisals are created is a problem for more than just residential architects, but if you think a bunch of architects are going to change the practices of the real estate industry, you are dreaming.  Appraisals are made the way they are because it is easy, and it protects the lenders, who are the ones demanding the appraisal.  Once you try to get an appraisal of a raw piece of land, or the development rights, or anything that isn't a house in a neighborhood with recent sales, you get appraisals all over the map, because the easy path of looking up comparables is no longer available.  Look what happens in old neighborhoods when there aren't any recent sales.  The appraisals become guesses.

Just so you know that appraisers are in on the joke, they will tell you that MAI stands for "Made as Instructed".

-------------------------------------------
Ralph Olivier AIA
Principal
Ralph A. Olivier AIA
Landenberg PA
-------------------------------------------

Rand, I would offer that what it means is if CRAN takes this up as an issue, and as CRAN works to have residential architect segment of the AIA recognized and works to have the AIA respond to the concerns of residential architects, this would mean that Appraisal Reform becomes a part of the agenda of the AIA. That means crafting alternative legislation, hiring experts to do so, and lobbiests to move such legislation to law.

I might suggest that since Banking and Appraising is so culpable for the current economy that it would be a fair argument to insert licensed Architects into the Appraisal process as an independent 3rd party to evaluate the aspects of value that are currently ignored by appraisals, such as energy performance, construction quality, and even design. I think there would be wide support for the injection of a construction expert who was not beholden to the developer, or the bank. I think it would be a good change to have architects helping form the valuation of every house in America moving forward. 

Far fetched? Perhaps. But much better than not trying at all.

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-11-2012 07:13
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-10-2012 06:48
From: Eric Rawlings
Subject: Appraisal Reform - Where to begin

This give up and roll over attitude is why nothing gets done. Yes, our voice is weak when it should be strong. Why is that? The so called "Architect" of every other industry other than the Building Industry is at the top of their game. They are the leaders, yet where are we? Yes, the banks are going to do what is in their best interest, but is the existing system in their best interest? If we don't speak up and lead, then someone else will. Neither the banks nor their appraisers can explain why values skyrocketed out of control, left a nation with a mortgage mess, and nearly destroyed our banking system, theirs and our businesses.

Every commodity in the world can be valued in terms of which specific product is more desirable at market than the other. Rolex-Timex, Porsche-Kia, etc. Why not buildings? This is because we tie the market value of the land to the desirability of the building in a single value. Without separating these values, we find the appraisers placing all the importance on the value of the Location, with little recognition that one building may be more valuable than another in the same area. In fact, the quality upgrades you might see for using brick or having a swimming pool are like tax deductions. For every $4 you spend, you get $1 in value. For spending $20K more on brick over siding, you get $5K more in value, so for a $15K loss, you get a more valuable building.

I think the current method of comparing recent sales is overcomplicated and could be simplified. Have you ever looked carefully at all the work that goes into a simple home appraisal? They go to great lengths to take a minimum of 3 "comps" that tend to represent a range in values for the area and then they homogenize them. They make many little adjustments to make them as similar as possible before simply averaging the final values. When looking at Spec houses, wouldn't it be easier if a simple value were established for each "area" that represents the sf cost of the land? The market value of the Lot would be a simple equation based on recent sales. The tax assessor already does something like this. Now you back the Lot cost out of the last few sales figures of the builder borrowing money, so you're looking at the cost of the House itself. What is an appraisal? It's an estimation of how much a commodity might sell for at a specific point in time. For houses, it's generally 30 days. What is the most likely price a builder will get for their next house? Perhaps something close to what they sold the last one for? Why are we using the sales results of their competitors as the most likely sales result for the product they're creating? This is to say that all houses are the same and only the Location matters.

I think the banks are more interested in figuring out how much their investments should really be worth. They were stuck with many houses that were grossly overpriced. I watched how my own projects drove up the property values in my area. Every builder was using my house sales as their top comp while their recent sales were as much as $150K less than mine. Every time we sold a more expensive house, they got an appraisal that well exceeded their own sales history. We would in turn ask for more on the next one and everyone in the area would get another free pay raise. If we were all valued by how OUR actual products performed at market, our competitors would not be getting such huge bumps in their appraised values, thus justifying a higher sales price than what someone was willing to pay just a month or two ago. We wouldn't feel justified in hiking our prices so fast. 

Separating the constantly fluctuating market value of the Lot from the more stable value of a House with a 100 year life span only makes sense. It would make life easier for the appraiser, since most designers and builders tend to have a business model, a consistent product, and tend to be in business to create more than one product. A simple separation of Lot and House would allow appraisers to compare the values of houses of the companies who actually design and build them. This is the only way we can create a brand for our work. This would be far more accurate and easy for everyone. It would be more consistent with the way everything else is valued. Real Estate is only different because you're combining two very different commodities with very different reasons for the way their value fluctuates over time. One increases or decreases over time and is far more volatile, while the other should depreciate over time in a very stable and slow way. One was made by God, the other by the hands of Man.

-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------

Excellent idea Gregory!  Now who in the AIA leadership should this be presented?  Is this HKC being monitored by anyone there?  Ann Harris, you are in a liaison role, aren't you?  Can you help in this regard? By forwarding these comments to those in the AIA leadership who can do something about it?  It would be much appreciated.  This is the sort of issue that really matters and that can help improve our lives as practicing residential architects, as well as the economic improvement of our clients and to an extent, the rest of the country.  Thank you.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-12-2012 09:47
From: Gregory La Vardera
Subject: Appraisal Reform - Where to begin

Rand, I would offer that what it means is if CRAN takes this up as an issue, and as CRAN works to have residential architect segment of the AIA recognized and works to have the AIA respond to the concerns of residential architects, this would mean that Appraisal Reform becomes a part of the agenda of the AIA. That means crafting alternative legislation, hiring experts to do so, and lobbiests to move such legislation to law.

I might suggest that since Banking and Appraising is so culpable for the current economy that it would be a fair argument to insert licensed Architects into the Appraisal process as an independent 3rd party to evaluate the aspects of value that are currently ignored by appraisals, such as energy performance, construction quality, and even design. I think there would be wide support for the injection of a construction expert who was not beholden to the developer, or the bank. I think it would be a good change to have architects helping form the valuation of every house in America moving forward. 

Far fetched? Perhaps. But much better than not trying at all.

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-11-2012 07:13
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-10-2012 06:48
From: Eric Rawlings
Subject: Appraisal Reform - Where to begin

This give up and roll over attitude is why nothing gets done. Yes, our voice is weak when it should be strong. Why is that? The so called "Architect" of every other industry other than the Building Industry is at the top of their game. They are the leaders, yet where are we? Yes, the banks are going to do what is in their best interest, but is the existing system in their best interest? If we don't speak up and lead, then someone else will. Neither the banks nor their appraisers can explain why values skyrocketed out of control, left a nation with a mortgage mess, and nearly destroyed our banking system, theirs and our businesses.

Every commodity in the world can be valued in terms of which specific product is more desirable at market than the other. Rolex-Timex, Porsche-Kia, etc. Why not buildings? This is because we tie the market value of the land to the desirability of the building in a single value. Without separating these values, we find the appraisers placing all the importance on the value of the Location, with little recognition that one building may be more valuable than another in the same area. In fact, the quality upgrades you might see for using brick or having a swimming pool are like tax deductions. For every $4 you spend, you get $1 in value. For spending $20K more on brick over siding, you get $5K more in value, so for a $15K loss, you get a more valuable building.

I think the current method of comparing recent sales is overcomplicated and could be simplified. Have you ever looked carefully at all the work that goes into a simple home appraisal? They go to great lengths to take a minimum of 3 "comps" that tend to represent a range in values for the area and then they homogenize them. They make many little adjustments to make them as similar as possible before simply averaging the final values. When looking at Spec houses, wouldn't it be easier if a simple value were established for each "area" that represents the sf cost of the land? The market value of the Lot would be a simple equation based on recent sales. The tax assessor already does something like this. Now you back the Lot cost out of the last few sales figures of the builder borrowing money, so you're looking at the cost of the House itself. What is an appraisal? It's an estimation of how much a commodity might sell for at a specific point in time. For houses, it's generally 30 days. What is the most likely price a builder will get for their next house? Perhaps something close to what they sold the last one for? Why are we using the sales results of their competitors as the most likely sales result for the product they're creating? This is to say that all houses are the same and only the Location matters.

I think the banks are more interested in figuring out how much their investments should really be worth. They were stuck with many houses that were grossly overpriced. I watched how my own projects drove up the property values in my area. Every builder was using my house sales as their top comp while their recent sales were as much as $150K less than mine. Every time we sold a more expensive house, they got an appraisal that well exceeded their own sales history. We would in turn ask for more on the next one and everyone in the area would get another free pay raise. If we were all valued by how OUR actual products performed at market, our competitors would not be getting such huge bumps in their appraised values, thus justifying a higher sales price than what someone was willing to pay just a month or two ago. We wouldn't feel justified in hiking our prices so fast. 

Separating the constantly fluctuating market value of the Lot from the more stable value of a House with a 100 year life span only makes sense. It would make life easier for the appraiser, since most designers and builders tend to have a business model, a consistent product, and tend to be in business to create more than one product. A simple separation of Lot and House would allow appraisers to compare the values of houses of the companies who actually design and build them. This is the only way we can create a brand for our work. This would be far more accurate and easy for everyone. It would be more consistent with the way everything else is valued. Real Estate is only different because you're combining two very different commodities with very different reasons for the way their value fluctuates over time. One increases or decreases over time and is far more volatile, while the other should depreciate over time in a very stable and slow way. One was made by God, the other by the hands of Man.

-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------

Rand and Gregory,

I have contacted Eric Rawlings about this matter and we are trying to get a conference call together to discuss a strategy and plan.  I will be contacting a few AIA Staff members that would be helpful in the process.   Would you be interested in being included in this group, and are there others that are also interested in getting involved. Please send me your contact information directly.  Thanks for everyone's interest and comments on this subject.
-------------------------------------------
Mark Demerly AIA
CRAN Chair 2012
Demerly Architects
Indianapolis IN
-------------------------------------------







Original Message:
Sent: 07-13-2012 07:15
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Excellent idea Gregory!  Now who in the AIA leadership should this be presented?  Is this HKC being monitored by anyone there?  Ann Harris, you are in a liaison role, aren't you?  Can you help in this regard? By forwarding these comments to those in the AIA leadership who can do something about it?  It would be much appreciated.  This is the sort of issue that really matters and that can help improve our lives as practicing residential architects, as well as the economic improvement of our clients and to an extent, the rest of the country.  Thank you.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-12-2012 09:47
From: Gregory La Vardera
Subject: Appraisal Reform - Where to begin

Rand, I would offer that what it means is if CRAN takes this up as an issue, and as CRAN works to have residential architect segment of the AIA recognized and works to have the AIA respond to the concerns of residential architects, this would mean that Appraisal Reform becomes a part of the agenda of the AIA. That means crafting alternative legislation, hiring experts to do so, and lobbiests to move such legislation to law.

I might suggest that since Banking and Appraising is so culpable for the current economy that it would be a fair argument to insert licensed Architects into the Appraisal process as an independent 3rd party to evaluate the aspects of value that are currently ignored by appraisals, such as energy performance, construction quality, and even design. I think there would be wide support for the injection of a construction expert who was not beholden to the developer, or the bank. I think it would be a good change to have architects helping form the valuation of every house in America moving forward. 

Far fetched? Perhaps. But much better than not trying at all.

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-11-2012 07:13
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------

It's great to see the passion behind this issue!  I have a few comments.  There are some similar evaluations developed into the energy-related and green features into the appraisal process.

AIA Stickers on Electrical Panels - Energy Star certification of home receives a sticker on the electrical panel stating such. HVAC contractors routinely put their sticker on the thermostat. I would love to have a similar type of AIA sticker that could be placed in a location such as the electrical panel or where ever else an appraiser might be required to look that stated primarily the name and contact information of the AIA Architect - maybe even a QR code.  There could be variations of stickers such as one that was for new construction, one for remodeling, one for inspection (although I'd hate to see the logistics of the latter hold up the development of the former, etc.)
One of the statements to fill in could be to specify the location of the permanent set of drawings that belong to the house, not the owner. A requirement of a future appraisal would be that the drawings and possibly specs/manual stay with the house. Maybe we wallpaper a closet with the drawings?!*

Appraisal Form - there is now a form for green features. http://www.appraisalinstitute.org/education/green/default.aspx  I think we could parallel the process and help AIA create a voluntary form.  I believe that RESNET may be behind at least the energy features part of the green form and similarly AIA could be behind the development of design one. 
Especially in the limited service design services that Eric describes and which I also provide, I have seen some very nice homes and sets of plans that come from those that are certified AIBD http://www.aibd.org/professional_certification.html  and I wonder if we could be more effective if we teamed up with them? On the form we could at least acknowledge their certification in the evaluation of a design as we could the structural engineer, etc.
The subjective part of a design evaluation concerns me since I routinely have clients ask about a seemingly wasted space (in a home designed for someone else), why is such and such a feature there?, only to have me state because it was very important to the original client.  This would be something we'd really have to give a lot of thought too. I'd be glad to participate in a discussion and development of such an evaluation.

Here is the form for the green features appraisal: http://www.appraisalinstitute.org/education/downloads/AI_82003_ReslGreenEnergyEffAddendum.pdf

-------------------------------------------
Debra Rucker Coleman, AIA
Architect
Sun Plans Inc.
Mobile, AL

-------------------------------------------



Original Message:
Sent: 07-13-2012 09:54
From: Mark Demerly
Subject: Appraisal Reform - Where to begin


Rand and Gregory,

I have contacted Eric Rawlings about this matter and we are trying to get a conference call together to discuss a strategy and plan.  I will be contacting a few AIA Staff members that would be helpful in the process.   Would you be interested in being included in this group, and are there others that are also interested in getting involved. Please send me your contact information directly.  Thanks for everyone's interest and comments on this subject.
-------------------------------------------
Mark Demerly AIA
CRAN Chair 2012
Demerly Architects
Indianapolis IN
-------------------------------------------

Appraisals are way too square footage oriented. The fallacy in the appraisal industry is every square foot is created equally. Of course we know this is not true. A bedroom SF in our area can be built for $60/SF a MASter Bath will run $400/SF. So what about efficiency of spacial design? What about how well a house is laid out to deliver cost-effective "livability" of a home?
Subjective? Of course it is but could there be an cost efficiency ratio like there is in commercial real estate? Gross to Rentable for example. Gross to Livable/Usable whatever. I don't know but I always tell my clients "Not all Square Feet are created equally. Maybe the appraisers should learn this.

-------------------------------------------
S. Jones AIA
Owner
S Berry Jones - Architects
Memphis TN
-------------------------------------------







Original Message:
Sent: 07-13-2012 07:15
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Excellent idea Gregory!  Now who in the AIA leadership should this be presented?  Is this HKC being monitored by anyone there?  Ann Harris, you are in a liaison role, aren't you?  Can you help in this regard? By forwarding these comments to those in the AIA leadership who can do something about it?  It would be much appreciated.  This is the sort of issue that really matters and that can help improve our lives as practicing residential architects, as well as the economic improvement of our clients and to an extent, the rest of the country.  Thank you.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-12-2012 09:47
From: Gregory La Vardera
Subject: Appraisal Reform - Where to begin

Rand, I would offer that what it means is if CRAN takes this up as an issue, and as CRAN works to have residential architect segment of the AIA recognized and works to have the AIA respond to the concerns of residential architects, this would mean that Appraisal Reform becomes a part of the agenda of the AIA. That means crafting alternative legislation, hiring experts to do so, and lobbiests to move such legislation to law.

I might suggest that since Banking and Appraising is so culpable for the current economy that it would be a fair argument to insert licensed Architects into the Appraisal process as an independent 3rd party to evaluate the aspects of value that are currently ignored by appraisals, such as energy performance, construction quality, and even design. I think there would be wide support for the injection of a construction expert who was not beholden to the developer, or the bank. I think it would be a good change to have architects helping form the valuation of every house in America moving forward. 

Far fetched? Perhaps. But much better than not trying at all.

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-11-2012 07:13
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------

I'm not sure how standardized appraisal methodology is from state to state, but I find the same to be true. Floor area and the number of beds & baths seems to drive 90% of the appraisal. It's very difficult to judge beauty or desirability using a check list. Only the market place can determine whether one house is more desirable than the other. This is why it's important to separate the value of the Location from the value of the House itself. We need the opportunity to prove our worth and when all houses are judged the same, then no one can account for why the home owners desired one house over another.

As Mr Isch points out, people are responding to design over Location in the poles. Personally, I've always found that people are going to buy the house they like over Location. If they can't find the House that works for them, they look in a cheaper Location. At the end of the day, people are buying a house, yet we rationalize how everything else is somehow more important than the way the house is laid out or it looks. Debra Coleman points out the various certifications popping up (G House) that advertise professional designers. We have a professional finisher and a professional landscaper, but where is the Architect? Who is designing the renovation to the building itself OR is this just an interior design job? The houses I renovate need serious Architectural help, as most are about 50-100 years old and simply don't function for today's needs. It's one thing to move a wall, but to completely reconfigure a building needs more than a structural engineer, interior designer, or a builder. It requires Architectural design. This is yet another illustration of how absent we are from Housing. Designing million dollar houses isn't enough. We need to be designing at all income levels!

One pitfall we must be wary of is the check list mentality. Builders are masters of the checklist. No matter what requirements you come up with a builder will find a cheaper, less tasteful way to satisfy the checkbox. Because appraisals have never been able to judge beauty and desirability, builders have always assumed their work is just as good because they have satisfied the check list of floor area, beds, and baths. I've watched these guys use the same finishes, fixtures, cabinets, etc and say to the appraiser that their mass produced box is the same as my unique house because they have the same stuff in it. We need to break this mentality that mass production is the same thing. Custom does not mean the same floor plan dressed up differently. Recently, an appraiser in my area refused to give a cookie cutter builder the same value as my unique houses because they said the plans were out of date (2002) and our houses are one of a kind, new designs. This is after a decade and 70 some projects in my neighborhood that I'm getting noticed for higher value based on reputation. If more of us could get down in the trenches and produce middle class housing, the appraisers everywhere would take notice that design matters.

If the homebuyer were purchasing a Lot at market value and were able to specify how much they thought the House itself was worth to them, we could establish value for our work based on the desirability of the actual building and not just any old building that happens to be in this Location that happens to satisfy the checkboxes.


-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------







Original Message:
Sent: 07-16-2012 10:39
From: S. Jones
Subject: Appraisal Reform - Where to begin

Appraisals are way too square footage oriented. The fallacy in the appraisal industry is every square foot is created equally. Of course we know this is not true. A bedroom SF in our area can be built for $60/SF a MASter Bath will run $400/SF. So what about efficiency of spacial design? What about how well a house is laid out to deliver cost-effective "livability" of a home?
Subjective? Of course it is but could there be an cost efficiency ratio like there is in commercial real estate? Gross to Rentable for example. Gross to Livable/Usable whatever. I don't know but I always tell my clients "Not all Square Feet are created equally. Maybe the appraisers should learn this.

-------------------------------------------
S. Jones AIA
Owner
S Berry Jones - Architects
Memphis TN
-------------------------------------------







Original Message:
Sent: 07-13-2012 07:15
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Excellent idea Gregory!  Now who in the AIA leadership should this be presented?  Is this HKC being monitored by anyone there?  Ann Harris, you are in a liaison role, aren't you?  Can you help in this regard? By forwarding these comments to those in the AIA leadership who can do something about it?  It would be much appreciated.  This is the sort of issue that really matters and that can help improve our lives as practicing residential architects, as well as the economic improvement of our clients and to an extent, the rest of the country.  Thank you.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-12-2012 09:47
From: Gregory La Vardera
Subject: Appraisal Reform - Where to begin

Rand, I would offer that what it means is if CRAN takes this up as an issue, and as CRAN works to have residential architect segment of the AIA recognized and works to have the AIA respond to the concerns of residential architects, this would mean that Appraisal Reform becomes a part of the agenda of the AIA. That means crafting alternative legislation, hiring experts to do so, and lobbiests to move such legislation to law.

I might suggest that since Banking and Appraising is so culpable for the current economy that it would be a fair argument to insert licensed Architects into the Appraisal process as an independent 3rd party to evaluate the aspects of value that are currently ignored by appraisals, such as energy performance, construction quality, and even design. I think there would be wide support for the injection of a construction expert who was not beholden to the developer, or the bank. I think it would be a good change to have architects helping form the valuation of every house in America moving forward. 

Far fetched? Perhaps. But much better than not trying at all.

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-11-2012 07:13
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------

I posted earlier today, then an email regarding appraisal came in regarding a new G Homes rating process:
http://www.resnet.us/blog/the-hers-index-as-an-appraisal-tool/

AIA Architects should be in this statement: The G Home is being used to brand remodeled homes that are pre 1990. All G Homes use a professional design by a licensed Interior Designer, a Landscape Architect and a certified RESNET Home Energy Rater.

They are proposing a large window sticker. It even has a section for Design. AIA, please get architects to be added to such forms.

Here is more about G Homes:
http://www.gstreetinc.com/g-home-certified/

On Facebook, I saw this large sticker:
https://www.facebook.com/photo.php?fbid=355661251150744&set=a.355160951200774.99166.108573825859489&type=3&theater
-------------------------------------------
Debra Rucker Coleman, AIA
Architect
Sun Plans Inc.
Mobile, AL

-------------------------------------------







Original Message:
Sent: 07-13-2012 07:15
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Excellent idea Gregory!  Now who in the AIA leadership should this be presented?  Is this HKC being monitored by anyone there?  Ann Harris, you are in a liaison role, aren't you?  Can you help in this regard? By forwarding these comments to those in the AIA leadership who can do something about it?  It would be much appreciated.  This is the sort of issue that really matters and that can help improve our lives as practicing residential architects, as well as the economic improvement of our clients and to an extent, the rest of the country.  Thank you.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-12-2012 09:47
From: Gregory La Vardera
Subject: Appraisal Reform - Where to begin

Rand, I would offer that what it means is if CRAN takes this up as an issue, and as CRAN works to have residential architect segment of the AIA recognized and works to have the AIA respond to the concerns of residential architects, this would mean that Appraisal Reform becomes a part of the agenda of the AIA. That means crafting alternative legislation, hiring experts to do so, and lobbiests to move such legislation to law.

I might suggest that since Banking and Appraising is so culpable for the current economy that it would be a fair argument to insert licensed Architects into the Appraisal process as an independent 3rd party to evaluate the aspects of value that are currently ignored by appraisals, such as energy performance, construction quality, and even design. I think there would be wide support for the injection of a construction expert who was not beholden to the developer, or the bank. I think it would be a good change to have architects helping form the valuation of every house in America moving forward. 

Far fetched? Perhaps. But much better than not trying at all.

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-11-2012 07:13
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------

Eric;  As I mentioned in my earlier post to you, the AIA could set up a Bank/ Appraiser rating score system to keep them aligned in producing values, of both land and structure.  They need governing, as we all agree, to reduce the politics of their business and make them more equitable resulting in a more fair assessment in the Owners' interest.

With regard to your reasoning about separating the land from the house to make a realistic appraisal, that is impossible.  You cannot ask a bank to place its' depositors monies in jeopardy by investing in a loan for a home in an undesirable neighborhood and give it the same value as the same home in a more highly valued neighborhood.  For them to do what you seem to be suggesting they would have to loan money for the house separate from the land because it is the land that fluctuates the most dramatically.  Houses floating in air can be appraised easily and would recognize the design and amenities, just like an automobile with amenities.  But, where you place the house in a community is the real jeopardy for their funds.  Only spectacular design can mitigate the land values in a neighborhood but that would be very expensive to construct and impossible to find comps for.  An appraisers' real nightmare.

Regarde,   Bob
-------------------------------------------
Robert Morris AIA
Canterbury CT
-------------------------------------------







Original Message:
Sent: 07-12-2012 09:47
From: Gregory La Vardera
Subject: Appraisal Reform - Where to begin

Rand, I would offer that what it means is if CRAN takes this up as an issue, and as CRAN works to have residential architect segment of the AIA recognized and works to have the AIA respond to the concerns of residential architects, this would mean that Appraisal Reform becomes a part of the agenda of the AIA. That means crafting alternative legislation, hiring experts to do so, and lobbiests to move such legislation to law.

I might suggest that since Banking and Appraising is so culpable for the current economy that it would be a fair argument to insert licensed Architects into the Appraisal process as an independent 3rd party to evaluate the aspects of value that are currently ignored by appraisals, such as energy performance, construction quality, and even design. I think there would be wide support for the injection of a construction expert who was not beholden to the developer, or the bank. I think it would be a good change to have architects helping form the valuation of every house in America moving forward. 

Far fetched? Perhaps. But much better than not trying at all.

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-11-2012 07:13
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-10-2012 06:48
From: Eric Rawlings
Subject: Appraisal Reform - Where to begin

This give up and roll over attitude is why nothing gets done. Yes, our voice is weak when it should be strong. Why is that? The so called "Architect" of every other industry other than the Building Industry is at the top of their game. They are the leaders, yet where are we? Yes, the banks are going to do what is in their best interest, but is the existing system in their best interest? If we don't speak up and lead, then someone else will. Neither the banks nor their appraisers can explain why values skyrocketed out of control, left a nation with a mortgage mess, and nearly destroyed our banking system, theirs and our businesses.

Every commodity in the world can be valued in terms of which specific product is more desirable at market than the other. Rolex-Timex, Porsche-Kia, etc. Why not buildings? This is because we tie the market value of the land to the desirability of the building in a single value. Without separating these values, we find the appraisers placing all the importance on the value of the Location, with little recognition that one building may be more valuable than another in the same area. In fact, the quality upgrades you might see for using brick or having a swimming pool are like tax deductions. For every $4 you spend, you get $1 in value. For spending $20K more on brick over siding, you get $5K more in value, so for a $15K loss, you get a more valuable building.

I think the current method of comparing recent sales is overcomplicated and could be simplified. Have you ever looked carefully at all the work that goes into a simple home appraisal? They go to great lengths to take a minimum of 3 "comps" that tend to represent a range in values for the area and then they homogenize them. They make many little adjustments to make them as similar as possible before simply averaging the final values. When looking at Spec houses, wouldn't it be easier if a simple value were established for each "area" that represents the sf cost of the land? The market value of the Lot would be a simple equation based on recent sales. The tax assessor already does something like this. Now you back the Lot cost out of the last few sales figures of the builder borrowing money, so you're looking at the cost of the House itself. What is an appraisal? It's an estimation of how much a commodity might sell for at a specific point in time. For houses, it's generally 30 days. What is the most likely price a builder will get for their next house? Perhaps something close to what they sold the last one for? Why are we using the sales results of their competitors as the most likely sales result for the product they're creating? This is to say that all houses are the same and only the Location matters.

I think the banks are more interested in figuring out how much their investments should really be worth. They were stuck with many houses that were grossly overpriced. I watched how my own projects drove up the property values in my area. Every builder was using my house sales as their top comp while their recent sales were as much as $150K less than mine. Every time we sold a more expensive house, they got an appraisal that well exceeded their own sales history. We would in turn ask for more on the next one and everyone in the area would get another free pay raise. If we were all valued by how OUR actual products performed at market, our competitors would not be getting such huge bumps in their appraised values, thus justifying a higher sales price than what someone was willing to pay just a month or two ago. We wouldn't feel justified in hiking our prices so fast. 

Separating the constantly fluctuating market value of the Lot from the more stable value of a House with a 100 year life span only makes sense. It would make life easier for the appraiser, since most designers and builders tend to have a business model, a consistent product, and tend to be in business to create more than one product. A simple separation of Lot and House would allow appraisers to compare the values of houses of the companies who actually design and build them. This is the only way we can create a brand for our work. This would be far more accurate and easy for everyone. It would be more consistent with the way everything else is valued. Real Estate is only different because you're combining two very different commodities with very different reasons for the way their value fluctuates over time. One increases or decreases over time and is far more volatile, while the other should depreciate over time in a very stable and slow way. One was made by God, the other by the hands of Man.

-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------

Part of the ridiculousness of our current system is how do you rebuild an undesirable neighborhood? Right now, this can take decades because of the comp system. The only reason why we say a new building is over priced for a neighborhood is because we're comparing new construction to old run down buildings as if they were the same thing. If an area is so run down that the Lots are only worth $1, then that's part of the fiscal equation. If you put a new building on an old lot, then the new construction should be worth what new construction is worth + $1 for the Lot. In simple house terms, we have areas where the Property (Lot+House) is worth $80K. We say this is what the house costs, but this is both the Lot and the House. These houses tend to be old and run down, thus the area is old and run down. In these cases, the Lots with no House at all tend to be appraised at the same value. Most of these houses do need to be demolished and provide little value as a structure. It would be more accurate to determine what renovating an old building or building new would be worth in terms of focusing on the building and then add back the cost of the Lot to determine the value of refurbishing an old run down neighborhood. If you were to build a $200K house on an $80K existing, run down Property, then why should the new Property only be worth $80K because the neighborhood is full of condemned houses that aren't worth anything? The new house should be worth something more than the run down houses. In this case, perhaps the old House is valued at $30K (after decades of depreciation and disrepair) and the Lot itself is worth $50K. The new developed Property should be worth $250K.

The only reason why we have this disconnect is because we've accepted this comp system like it's gospel. The current comp system yields unexplainable results like a brand new $200K house construction can somehow be worth less than the cost of construction? The comp system tells us that perfectly good money spent on the wrong Lot automatically loses value. You could literally harvest the components from the bad Lot and sell them on the street for more money than they are worth attached to the $50K Lot because we're comparing old run down houses as if they were the same thing as a brand new house because they all sit in an area. This IS the argument against this absurdity! How can a piece of dirt make a new $800 Marvin window worth $8 and then you simply take it off the property and it's magically worth $800 again...POOF! Just like that??? This makes ZERO sense! The depressed cost of the dirt should be the fiscal hurdle, not devaluing new building components too. We only accept it because the appraiser is comparing old run down houses to the new house as if they're equals.

Architecture is portable. How do you value an RV, a camper, a modular house? Can't they all be moved? Aren't they all inhabitable structures? I've seen them move some rather amazing 100 year old houses on the Discovery Channel. They can move anything. A BMW in the ghetto is still the same value when it's parked in Beverly Hills and it's considered property that is taxed. The problem with the Comp system is that we're trying to compare two completely different commodities that gain and lose value for completely different reasons at completely different rates. If the Lot and the House were appraised separately, then we can come up with a total Property price for the bank to lend on that takes into consideration what each of the components is really worth and not hold the building hostage to what the Lot is worth.

What drove values up in addition to fraud was the fact that mass production box builders expect their cheap houses to be considered the same as the more expensive houses selling in their area. They spend considerably less and get a similar appraisal, just because they build in the same area and have the same number of beds. This is what we need to end. We can't continue allowing these guys to pass off 3rd rate junk as if it's the same thing. The market will decide if we let them, but we need to separate the Lot value from the House value so everyone knows what they're paying for the Location and what they're willing to pay for the House. When these values are combined, appraisers have no idea if one house sold for more because the Location has become more desirable or if it's because the product this particular designer/ builder has created is more desirable. Now we just assume it's always a communal thing, the Location, thus we all get a pay raise in the form of comps when just one guy does better at market.

-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------







Original Message:
Sent: 07-13-2012 09:08
From: Robert Morris
Subject: Appraisal Reform - Where to begin

Eric;  As I mentioned in my earlier post to you, the AIA could set up a Bank/ Appraiser rating score system to keep them aligned in producing values, of both land and structure.  They need governing, as we all agree, to reduce the politics of their business and make them more equitable resulting in a more fair assessment in the Owners' interest.

With regard to your reasoning about separating the land from the house to make a realistic appraisal, that is impossible.  You cannot ask a bank to place its' depositors monies in jeopardy by investing in a loan for a home in an undesirable neighborhood and give it the same value as the same home in a more highly valued neighborhood.  For them to do what you seem to be suggesting they would have to loan money for the house separate from the land because it is the land that fluctuates the most dramatically.  Houses floating in air can be appraised easily and would recognize the design and amenities, just like an automobile with amenities.  But, where you place the house in a community is the real jeopardy for their funds.  Only spectacular design can mitigate the land values in a neighborhood but that would be very expensive to construct and impossible to find comps for.  An appraisers' real nightmare.

Regarde,   Bob
-------------------------------------------
Robert Morris AIA
Canterbury CT
-------------------------------------------







Original Message:
Sent: 07-12-2012 09:47
From: Gregory La Vardera
Subject: Appraisal Reform - Where to begin

Rand, I would offer that what it means is if CRAN takes this up as an issue, and as CRAN works to have residential architect segment of the AIA recognized and works to have the AIA respond to the concerns of residential architects, this would mean that Appraisal Reform becomes a part of the agenda of the AIA. That means crafting alternative legislation, hiring experts to do so, and lobbiests to move such legislation to law.

I might suggest that since Banking and Appraising is so culpable for the current economy that it would be a fair argument to insert licensed Architects into the Appraisal process as an independent 3rd party to evaluate the aspects of value that are currently ignored by appraisals, such as energy performance, construction quality, and even design. I think there would be wide support for the injection of a construction expert who was not beholden to the developer, or the bank. I think it would be a good change to have architects helping form the valuation of every house in America moving forward. 

Far fetched? Perhaps. But much better than not trying at all.

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-11-2012 07:13
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------

Unfortunately, not enough Architects are involved in housing and therefore the overwhelming majority of houses on the ground of a similar level of quality if not nearly identical. The big box builders benefit greatly when design doesn't matter. I've reached out to NHBA and didn't get much traction. This government, Congress in particular, is worthless. They've spent gobs of time focused on what? I've sent letters to several politicians and only Obama was gracious enough to have a staffer send me a thank you note with a genuine rubber stamp signature from the President himself.

As an individual, I'm not getting very far. What seems to be helping is all of you going out and talking about it to all who will listen. I have colleagues in GA that have been doing just that and they seem to be getting some interest stirred up. Unfortunately, this issue is about as complex and controversial as Health Care and it's too hard to present a compelling argument in a short letter. Without explaining enough, the skeptics punch holes in it. If you present enough, it tends to be too much information to process and it puts people to sleep.

At the end of the day, I truly believe the banks would rather have a better understanding  of the value of the real estate they are financing and the system as it stands yields rather unexplainable and very inconsistent results. I think going to the banks themselves would be the right direction, but I can't do this as an individual and be taken seriously. If the argument was compelling enough, the banks would have the power to instigate change with the appraisers. I don't see it happening the other way around. The banks are lending the money and the appraisals are a component in their contracts, so it would ultimately be their decision as to whether or not anything changes. I think there are like minded people from all related industries and bringing them together to argue the same thing could sell it even better.

Clearly, it would benefit the Architects the most if our buildings were allowed to be valued based on how well the market place desires the building itself. I've convinced several builders that quality is an avenue of competition that is far less risky than building 10 houses at once with drips of profit from each. The banks would be taking on much less risk as well. While the banks are still frightened of taking on too much risk, this would be the chance to sell it to them. The fear they have with giving too much value away to one project is because everyone in the area expects to get the same appraisal as the last guy. If we change the system so each house is valued independently of the lot they sit on, we will quickly see how much the market thinks cheaply built track houses are worth next to similar sized Architectural houses. When builders are told that their work is not as desirable as the other guy's, then they will change their tune. As long as the system continues to value all houses in the same area as the same, then we will continue to see the Walmart method of home delivery dominate and we will continue to design maybe 3% of the homes built. If we change this one problem, it will open up possibilities to expand the profession and our influence in this country. We could quickly double our numbers while giving regular middle class people the opportunity to live in beautiful houses.


-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------







Original Message:
Sent: 07-11-2012 07:13
From: Rand Soellner
Subject: Appraisal Reform - Where to begin

Eric,
You make good, sound, rational points.  The main question is: to whom should those arguments be made?  Voicing them to the CRAN will likely be received well, because we are all on your side.  To what organizations and what people should your well thought-out requests for adjustment be made?  That is truly where a continuation of your pleas for correction might be taken to a higher level.  And thank you for thinking through this issue; it is something whose adjustment could benefit everyone.

-------------------------------------------
Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
-------------------------------------------







Original Message:
Sent: 07-10-2012 06:48
From: Eric Rawlings
Subject: Appraisal Reform - Where to begin

This give up and roll over attitude is why nothing gets done. Yes, our voice is weak when it should be strong. Why is that? The so called "Architect" of every other industry other than the Building Industry is at the top of their game. They are the leaders, yet where are we? Yes, the banks are going to do what is in their best interest, but is the existing system in their best interest? If we don't speak up and lead, then someone else will. Neither the banks nor their appraisers can explain why values skyrocketed out of control, left a nation with a mortgage mess, and nearly destroyed our banking system, theirs and our businesses.

Every commodity in the world can be valued in terms of which specific product is more desirable at market than the other. Rolex-Timex, Porsche-Kia, etc. Why not buildings? This is because we tie the market value of the land to the desirability of the building in a single value. Without separating these values, we find the appraisers placing all the importance on the value of the Location, with little recognition that one building may be more valuable than another in the same area. In fact, the quality upgrades you might see for using brick or having a swimming pool are like tax deductions. For every $4 you spend, you get $1 in value. For spending $20K more on brick over siding, you get $5K more in value, so for a $15K loss, you get a more valuable building.

I think the current method of comparing recent sales is overcomplicated and could be simplified. Have you ever looked carefully at all the work that goes into a simple home appraisal? They go to great lengths to take a minimum of 3 "comps" that tend to represent a range in values for the area and then they homogenize them. They make many little adjustments to make them as similar as possible before simply averaging the final values. When looking at Spec houses, wouldn't it be easier if a simple value were established for each "area" that represents the sf cost of the land? The market value of the Lot would be a simple equation based on recent sales. The tax assessor already does something like this. Now you back the Lot cost out of the last few sales figures of the builder borrowing money, so you're looking at the cost of the House itself. What is an appraisal? It's an estimation of how much a commodity might sell for at a specific point in time. For houses, it's generally 30 days. What is the most likely price a builder will get for their next house? Perhaps something close to what they sold the last one for? Why are we using the sales results of their competitors as the most likely sales result for the product they're creating? This is to say that all houses are the same and only the Location matters.

I think the banks are more interested in figuring out how much their investments should really be worth. They were stuck with many houses that were grossly overpriced. I watched how my own projects drove up the property values in my area. Every builder was using my house sales as their top comp while their recent sales were as much as $150K less than mine. Every time we sold a more expensive house, they got an appraisal that well exceeded their own sales history. We would in turn ask for more on the next one and everyone in the area would get another free pay raise. If we were all valued by how OUR actual products performed at market, our competitors would not be getting such huge bumps in their appraised values, thus justifying a higher sales price than what someone was willing to pay just a month or two ago. We wouldn't feel justified in hiking our prices so fast. 

Separating the constantly fluctuating market value of the Lot from the more stable value of a House with a 100 year life span only makes sense. It would make life easier for the appraiser, since most designers and builders tend to have a business model, a consistent product, and tend to be in business to create more than one product. A simple separation of Lot and House would allow appraisers to compare the values of houses of the companies who actually design and build them. This is the only way we can create a brand for our work. This would be far more accurate and easy for everyone. It would be more consistent with the way everything else is valued. Real Estate is only different because you're combining two very different commodities with very different reasons for the way their value fluctuates over time. One increases or decreases over time and is far more volatile, while the other should depreciate over time in a very stable and slow way. One was made by God, the other by the hands of Man.

-------------------------------------------
Eric Rawlings AIA
Owner
Rawlings Design, Inc.
Decatur GA
-------------------------------------------

Ralph, I'm not sure what you are saying? That the AIA would never take this up? Or are you saying that if they did they would never succeed?

The financial sector of housing has never been more down, more suspect, more culpable than they are now, than they have been for the past 4 years, appraisal industry hand in hand with them. If the AIA can not muster a response now that would effect positvie change, well then they likely never will. 

You think they can't? Or you think they should not even try?

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-09-2012 11:05
From: Ralph Olivier
Subject: Appraisal Reform - Where to begin

I think the reason there isn't more support is that people have no desire to waste their time tilting at windmills.  How appraisals are created is a problem for more than just residential architects, but if you think a bunch of architects are going to change the practices of the real estate industry, you are dreaming.  Appraisals are made the way they are because it is easy, and it protects the lenders, who are the ones demanding the appraisal.  Once you try to get an appraisal of a raw piece of land, or the development rights, or anything that isn't a house in a neighborhood with recent sales, you get appraisals all over the map, because the easy path of looking up comparables is no longer available.  Look what happens in old neighborhoods when there aren't any recent sales.  The appraisals become guesses.

Just so you know that appraisers are in on the joke, they will tell you that MAI stands for "Made as Instructed".

-------------------------------------------
Ralph Olivier AIA
Principal
Ralph A. Olivier AIA
Landenberg PA
-------------------------------------------

I know that I don't respond to every discussion item on here, but this is one that CRAN has been working on.  It actually goes further than just the Appraisal issue to include other allied professionals (NARI, NAHB, CEDIA, etc) that have an influence on the practice and expansion of Residential Architecture into all levels of the residential community.  One of the key elements is developing stronger relationships with all of these groups to have an influence in issues like these and others.  

I know that many of us are or have been involved at both a local and national level with many of these groups.  Please contact me if you area interested in getting involved on a CRAN subcommittee that is addressing one of these issues.  Your participation on a focus committee will include the development a strategy and implementation plan that CRAN will use in conjunction with AIA's Alliances and Advocacy departments to make a change.

CRAN has and will continue to be that voice within AIA that supports, advocates and educates on behalf of the Residential Architect.  The AIA is listening and changes are happening!  Please help CRAN by getting involved.

-------------------------------------------
Mark Demerly AIA
President
Demerly Architects
Indianapolis IN
-------------------------------------------







Original Message:
Sent: 07-10-2012 13:43
From: Gregory La Vardera
Subject: Appraisal Reform - Where to begin

Ralph, I'm not sure what you are saying? That the AIA would never take this up? Or are you saying that if they did they would never succeed?

The financial sector of housing has never been more down, more suspect, more culpable than they are now, than they have been for the past 4 years, appraisal industry hand in hand with them. If the AIA can not muster a response now that would effect positvie change, well then they likely never will. 

You think they can't? Or you think they should not even try?

-------------------------------------------
Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
-------------------------------------------







Original Message:
Sent: 07-09-2012 11:05
From: Ralph Olivier
Subject: Appraisal Reform - Where to begin

I think the reason there isn't more support is that people have no desire to waste their time tilting at windmills.  How appraisals are created is a problem for more than just residential architects, but if you think a bunch of architects are going to change the practices of the real estate industry, you are dreaming.  Appraisals are made the way they are because it is easy, and it protects the lenders, who are the ones demanding the appraisal.  Once you try to get an appraisal of a raw piece of land, or the development rights, or anything that isn't a house in a neighborhood with recent sales, you get appraisals all over the map, because the easy path of looking up comparables is no longer available.  Look what happens in old neighborhoods when there aren't any recent sales.  The appraisals become guesses.

Just so you know that appraisers are in on the joke, they will tell you that MAI stands for "Made as Instructed".

-------------------------------------------
Ralph Olivier AIA
Principal
Ralph A. Olivier AIA
Landenberg PA
-------------------------------------------