Relocation Appraisal vs. Mortgage Appraisal

A relocation report is very different from the traditional mortgage appraisal. Appraising a property for a relocation company is a specialized field for appraisers. Appraisers that are willing to broaden their traditional methodology of appraising real estate could benefit by diversifying their accepted assignments and expanding their client list.  Many certified and licensed appraisers have never completed a relocation appraisal.  Other appraisers have completed a few relocation assignments here and there, and have varying levels of comfort with these assignments.

 

As a relocation appraiser, your clients will include large and small corporations, government agencies, the military, and nonprofit entities.  The major industry-specific player is Worldwide ERC (formerly known as Employee Relocation Council). When there is a discrepancy between the available human resources and the needs of an organization, organizations must cost effectively move human resources to meet their needs.  A major impediment to bringing the right person to the right location is the cost and time of the move (relocation). Generally, a significant part of the relocation is the disposition of the employee’s (transferee’s) personal residence.  Companies and organizations regularly transfer employees across town, across the state, across the country and across the planet.

 

In a relocation appraisal assignment:

 

-The client is looking at selling the house within a defined period of time after acquisition, generally 120   days or less

-The client needs to know what must be done to the property right now to make it marketable within the     identified marketing period

-The appraiser’s estimate is used, with other information, to develop an offer or a “buyout” offer to the     transferee

-The analysis for an ERC assignment relies solely on the sales comparison approach and requires        forecasting as part of the analysis

-The client plans to own and market the property within the near future

-The appraiser is charged with developing an opinion of anticipated sales price, not market value

 

There are a number of differences between an appraisal assignment completed for an employee relocation and one completed for a mortgage lending transaction. The three most significant differences relate to include: the presence of an imposed assignment marketing period, the requirement for the appraiser to use forecasting and arriving at an anticipated sales price– NOT the market value.

 

The relocation appraisal assignment develops an opinion of anticipated sales price. A client will expect you to use their imposed marketing time, which is usually client-specified (typically not more than 120 days).  This time period begins on the date of the appraiser’s value opinion, and looks out into the future. I have done numerous assignments with varying assigned marketing periods. For example the typical assignment marketing period is 120 days: the client expects the appraiser to derive an anticipated sales price that would facilitate a contract within 120 days commencing on the date of inspection. Now, imagine the subject property was imposed with a 30 day assignment marketing period and the typical days on the market for this area is 100 days….this is one of the factors that the property’s sale price would be “discounted” to ensure the property will sell within the short assigned marketing period. This “discount” is linked to the forecasting adjustment. A standard addendum I use in my reports to help clarify a negative forecasting adjustment is as follows: The forecasting adjustment is noted as being a discount that will facilitate the sale of a property within the imposed marketing period. With the application of the assignment marketing period and a forecasting adjustment it would be unlikely that the market value of a property and the anticipated sales price would be the same.

 

An appraiser’s understanding of the fundamental factors of supply and demand is key to a successful forecast.  In order to make a forecasting adjustment, an appraiser must have a good understanding of local inventory patterns, days on the market, supply and demand and seasonal factors which affect the market.  The forecasting adjustment is a combination of the expected increase or decrease in the property’s sale price over the marketing period due increases or decreases in the market and also any discounts necessary to sell the property within the specified market period of 120 days or fewer.

 

In the development of an opinion of anticipated sales price, the appraiser is developing an opinion of the price at which the subject will sell within the reasonable marketing period after the date of the opinion of the anticipated sales price.  In a relocation appraisal assignment, the appraiser is taking historical data and projecting that data out into the future over the time period identified as the reasonable marketing period imposed by the client.  Typically 2 relocation assignments are ordered for the same property and then reviewed. Once the appraisals are completed, if the values are within a specified range (usually 5%), the relocation consultant prepares and presents a “buyout offer” to the transferee. If the results of two assignments are in excess of the desired percentage, the appraisals are termed “out of spread.”  The relocation professional will first work with the original appraisers to attempt to resolve the issues.  If the relocation professional is unable to resolve the difference, then a third appraisal is ordered.

 

I have done relocation assignments in Baltimore County, Baltimore City, Harford County, Cecil County, Howard County and Anne Arundel County. No relocation assignment is the same: there are differing assigned marketing times, varying conditions within the dwellings, the property owners are in various stages of the process and the amount of the forecasting adjustment changes due to circumstances within the market and/or the subject property. The complexity of these specialized reports can be overwhelming and time consuming but broadening your methods and perspective on appraising real estate will only strengthen your current skill set as a real estate appraiser. Robinson Appraisal Group has been doing relocation appraisal assignments for over 10 years and would be privileged to become part of your relocation experience.