Appraisers are responsible for much more than number crunching these days. The increasing accessibility of information is revolutionizing the appraisal industry. "When I started in the business 40 years ago, we used to spend most of our time gathering information," says Eugene Stunard, president of Appraisal Research Counselors Ltd. in Chicago. The analysis and presentation of the data was typically crammed into the last few hours of the fee, Stunard says. "Now we're spending more time analyzing and understanding data because it is easier to access information," he says.
The booming information age has resulted in an abundant supply of readily available data. A variety of companies, industry associations and government entities offer economic research, real estate market reports and databases full of property information. The International Council of Shopping Centers (www.icsc.org), for example, offers a variety of free and fee-based information services on local, national and international retail markets.
According to Stunard, the rise of publicly traded property owners, and subsequent financial reporting requirements, makes it easier to access information that used to be closely held among private investors. "Today, all of these transactions are very transparent," he says.
The rise of the Internet is one of the reasons behind the tremendous thirst for information. Online resources can be used to gather comprehensive information much more quickly. "Many investors are in fact already utilizing some of those tools themselves, and they have an expectation that the appraisers are familiar with those tools," says John Ross, executive vice president of The Appraisal Institute in Chicago. Data is becoming more readily available through Websites that range from fee-based multiple listing services to government offices that offer easy access to both economic and demographic information. State trade and economic development departments offer a wealth of information on economic indicators such as employment and income growth, as well as real estate trends that range from average resale home prices to stats on construction activity. The California Trade and Commerce Agency posts its quarterly report, the California Economi c Review, on its Website, www.commerce.ca.gov/economy/. "Data is becoming ubiquitous," says Ross. "The challenge is not finding quality data, but evaluating the data that is available and interpreting what that data means."
The bottom line for appraisers is that improved access to information is having a significant impact on increasing efficiencies. "There are ways to do it smarter, better and faster in terms of how we prepare our product and deliver it to clients," says Frank P. Liantonio, executive managing director at Cushman & Wakefield in New York. Technology enables appraisers to do things quicker, and helps to eliminate mistakes. Appraisal professionals have increased their average production by approximately 50% since 1994, says Liantonio.
Appraisers use the Internet on a daily basis to obtain economic information, maps and demographics. "It's helping us to be better prepared when we leave the office," says Peter Goodell, national director of valuation and consulting at Landauer Realty Group Inc. in New York, a Grubb & Ellis Co.
Appraisal firms continue to look for ways to become more efficient, says Goodell. The downside, he adds, is that technology is very expensive.
New analytical methods The greater availability of data today leads to a new set of methods for analyzing investment properties. Those methods tend be based on statistical analysis, as well as geographic information systems, says Ross. "Information that can come from viewing something in a geographic sense vs. strictly a financial sense is important for an investor's decision," says Ross. Both the availability of data and the ability to apply more sophisticated tools to the analysis of that data, allow appraisers to produce more comprehensive reports. For example, the analysis of a shopping center is based on traditional factors such as local market data and shopper demographics. The ability to gather and analyze a large pool of data allows the appraiser to conduct a comprehensive analysis on complex properties, such as the Mall of America in Bloomington, Minn., which has a regional, national and international draw.
The ability to apply more advanced tools to analyze data allows for that quicker response. For example, software programs can now be used to provide statistical analyses. Appraisers also are better equipped to test whether a particular property is typical of the market, or whether unique features will enhance or reduce value. In the past, appraisers struggled to find two or three similar types of properties that offered accurate comparisons. The small sampling made it difficult to test the uniqueness of a property. However, the greater availability of information now allows appraisers to find 15 to 20 similar properties in similar markets, says Ross. Appraisers use the larger sampling to apply more sophisticated types of analyses to compare properties and gain insight into a property's valuation and long-term viability.
The appraisal industry is continuing to look for ways to use technology to improve both the product and service to customers. The fact that appraisals typically span 125 to 150 pages and have long download times makes it difficult to use the Internet to deliver reports electronically. However, as Internet access becomes faster, appraisal companies will continue to look to deliver reports via the Internet. That capability could emerge in the next year, says Liantonio.
The appraisal reports themselves are becoming more dynamic. "Technology is playing an ever greater role in preparing the appraisals," says Keith M. Kramer, president of Keith Kramer Associates Inc. in St. Louis. Digital cameras are being used to incorporate photos directly into the reports. Appraisers also are able to download or import graphics such as topography maps and detailed land use maps. "We're really looking forward to the day when we can deliver a CD or disk, but clients still want the paper copy," Kramer says.
Appraisers have competitive edge An appraiser's ability to deliver greater analysis is giving appraisal firms an edge in an increasingly competitive market. As with other industries, the appraisal field has experienced a flurry of merger and acquisition activity. The consolidation is due in part to the client's desire to find one-stop shopping and deal with a single company for all of their real estate-related needs.
As a result, real estate firms are looking at acquisitions and strategic alliances to provide clients not only with valuation expertise but expertise that spans a variety of property types. "That's one trend that we've seen and capitalized on in the way we've structured our practice," says Liantonio. Cushman & Wakefield has an established expertise in office and industrial appraisals. The firm recently made an effort to expand its expertise in other property types such as retail, hospitality, senior housing and healthcare properties, says Liantonio.
Cushman & Wakefield has expanded its expertise in other property types by reinforcing internal staff, as well as forming strategic alliances. In 1998, Cushman & Wakefield formed a strategic alliance with Irving Levin Associates Inc., a New Canaan, Conn., firm that focuses on senior housing and the healthcare industry. In September, Cushman & Wakefield formed an alliance with Southfield, Mich.-based Norman Levy Associates Inc., a company that specializes in the valuation, auction and liquidation of machinery and equipment. "We have clients looking for expertise in the area of machinery and equipment. Likewise, we brought the real estate expertise of Cushman & Wakefield to bear for their clients," he says.
Such industry consolidation is likely to continue among both larger and smaller practitioners. Grubb & Ellis Co. acquired Landauer Realty Group last August. "I think their view is not so much that they're getting an appraisal firm, but that they wanted to provide additional consultative services to their clients," says Goodell.
Clients see appraisal differently Each client looks for different criteria within an appraisal report. Some clients use the appraisal as part of their evaluation process. Investors might even engage an appraiser early in the investigation process, perhaps for a partial appraisal, because they are looking for additional input, says Ross. Other appraisals are used primarily for lending purposes. "That element is pretty critical because it is required by the lender and becomes part of the lending decision," says Ross.
Appraisals also can relate to legal issues when there is a dispute over property, or can be an element in a portfolio-wide analysis. Regardless of the intent, appraisers offer one key element to all clients. "What the real estate appraiser can provide that may not be available from other sources is an independent view of market conditions," says Ross.
There are two types of appraisal clients - those that are looking for file fillers, and those that want to ensure accuracy, says Goodell. There has been a tremendous amount of interest from the latter type - those that need to know that they are not making mistakes. Many investors have done so well in the last five to six years that they can not afford to make a mistake now, he says.
The data and value conclusion is obviously important. However, investors are placing greater emphasis on the appraiser's market analysis. People want to know the market for this type of investment and whether that analysis is consistent with what the investor knows, says Ross. Investors also check to see if the appraisal is consistent with their views of the marketplace, and if the specifics of a property are consistent with investment objectives. Another component of the analysis is the study of a property's highest and best use. For example, could a convenience store be converted to a full-service gas station, or a neighborhood retail center be renovated and re-tenanted, he adds.
Capital markets also are shaping appraisal requirements. The rise of the commercial mortgage-backed securities (CMBS) market has increased the role of ratings. "Ineffect, [CMBS], more than any other single entity, are really dictating what is required of the appraisal community," says Liantonio. "The rating agencies are dictating the way information is presented and analyzed."
The requirements differ depending on the individual rating agency. "Most rating agencies are less interested in what a property is worth than they are in the insight that we have on a particular asset and how that particular asset competes within the competitive subset of properties in a given market," says Liantonio. As a result, agencies are emphasizing factors such as market analysis.
"The rating agencies want this data, and they want data presented in an organized and useful way," says Stunard. Taking that data and converting it to knowledge is the job of a good appraiser, he says. Rating agencies have their own processes for analyzing appraisal data. They might even throw a value out and convert data to their own analysis system. The burden is on them, because they are appraising entire portfolios.
Investors are interested in much the same information as the rating agencies. Investors want an analysis of the individual asset and how it competes in a particular market, all with an eye toward measuring the quantity, quality and durability of income stream that is produced, says Liantonio.
Another trend in the appraisal industry is writing valuation reports that can be held to an international standard. "One of the processes we're going to is writing reports that anyone in the United States, Europe or Asia can interpret the same way," Stunard says. The industry is not quite there yet, but investors are anxious to have a report that means something. A report coming out of Russia or China, for example, could be useless because those countries continue to manipulate numbers, he says.
"Overall, our clients are more astute compared to what they have been in the past," Kramer says. Investors today are more concerned with market forces that impact a property such as the strength of the local economy. For example, when evaluating an apartment property, an appraiser might also look at the lifecycle of a neighborhood, as well as nearby demographics, he says. However, clients still rely on appraisals to evaluate an accurate pricing situation, whether they are on the buying or selling side of the table, Kramer says.
The majority of valuations these days are in line with sale prices. "I think markets have pretty much peaked," says Goodell, adding the capital market correction of 1998 did a wonderful thing for bringing a level of discipline to the marketplace, which bodes well for investors.
Most markets across the country are seeing sale prices that are in equilibrium, Liantonio agrees. Low vacancy rates, a strong economy, favorable capital markets and controlled construction are keeping markets in check. "While I think we're probably approaching a peak in the market, we're probably not quite there yet," says Liantonio.
In an effort to make appraisal surfing simpler, NREI has compiled a list of Websites that provide information, data and answers to most real estate questions. In addition to what follows, the "Internet Guide for Real Estate Professionals" - published by the Appraisal Institute (www. appraisalinstitute.org) - is also a good source for links and information.
www.vandema.com - The Vandema Commercial Real Estate Resources site links hundreds of real estate Websites relating to daily news, directories, databases, company profiles, maps and real estate forms.
www.loopnet.com - LoopNet is a commercial real estate Website with information on properties for sale and lease throughout the country.
www.comps.com - This e-marketplace for commercial real estate offers information to help buy, sell, lease, finance and value properties. It is useful in finding comparable sales throughout the United States.
www.pikenet.com - PikeNet's directory provides an access point for commercial real estate information on the Internet with more than 3,000links to resources and service providers worldwide.www.nnnleased.com - This is a database of triple net leased properties throughout the country.
www.rfa.com - This subscription service provides market reports for major metro areas.
www.usgovsearch.com - A one-stop search tool that provides links to federal government sites.
www.hoovers.com - This site provides research on U.S. companies, including financials.
www.appraise.com - One of the values of this site is its appraisal chat room, which can be helpful in answering questions or solving problems.
www.refdesk.com - This is a general reference tool.
www.marketresearch.com - This site offers market research reports, newsletters, directories, reference publications and company profiles.