REQUIRED READING: If you look at a satellite photograph of the mainland U.S. at night, you can see the illuminating glow from the lights of the major cities. In between these metropolitan areas, however, there is a significant darkness. In a way, this is the perfect symbolism for the challenges that appraisers face when trying to determine property values in the small towns and villages of rural regions – getting an accurate appraisal on a residential property located in a rural community is among the most challenging tasks that an appraiser faces.
The key problem here involves information – or, to be more accurate, the lack thereof. In the appraisal process, the most accurate information is based on the amount of available data, its accuracy and its ease of access.
In rural areas, the available information is frequently limited on so many levels that trying to determine the correct property valuation can require an extraordinary amount of travel and an equally astonishing level of investigative research.
Fundamentally, doing an appraisal at the basic level is about solving a problem: There's a market-value estimation needed on a property, and the appraiser's job is to come up with a solution that the lender would understand and accept. However, there is no national appraisal standard to work from, and many appraisers need to rely on the judgment of their peers when solid information is not available.
The unique challenge facing mortgage lenders dealing with rural property appraisals is that appraisal guidelines are meant to follow the general population. But in rural communities, there is no such thing as a ‘typical’ market.
Seek and you shall…
For starters, try finding a multiple listing service (MLS) that covers the thousands of small communities in rural areas. Without the benefit of an MLS, appraisers are forced to go to the courthouse in the rural community and search through the public records. This can be a very time-consuming process, because these courthouses are typically understaffed and not open every day. In fact, there is one courthouse in North Dakota that is only open twice a week, and only by appointment. Imagine trying to get a rush job done in that market!
After dealing with the rural courthouse, the appraiser has to drive around to see what the houses look like in the area, and then determine if they are somewhat similar to the property being appraised. Considering that many of these residential properties are isolated geographically, this can require a lot of driving – which is no fun with today's rising gasoline prices.
Furthermore, the volume of residential property turnover in rural communities is much lower than in suburban or urban markets. There are some areas where a house goes up for sale once every three months. Thus, finding four sales total within a 10-mile span may require appraisers to research back two years or more just to find similar properties for an appraisal comparison.
Then, there is another issue: Most rural counties do not have zoning commissions. Many of these areas have private roads that have been modified over the years to whatever the homeowner wants. This is great for the homeowner, but it is horrible for the appraiser, because every house is totally different and finding comparables that are similar is nearly impossible.
As for trying to do a basic-needs analysis, this can often be a headache. Things such as cell phone coverage, high-speed Internet access, and public water and sewer systems may seem like standard requirements for today's population, but that is not always the case in rural areas. Believe it or not, many smaller communities across the country have no cell phone coverage, only have dial-up or ‘satellite’ Internet service, and enjoy nothing that resembles public water and sewer systems.
These basic needs are a factor when the appraiser is trying to identify market comparables. Even a 20-mile distance between communities is no guarantee that the rural town at one end of the road has the same needs as the more developed area at the other end of the road.
Thus, lenders in these areas should not be surprised when they get appraisal reports from rural areas that cost $1,000 and take four weeks to compile.
Mortgage lenders that considering an expansion of their business into rural communities need to understand these difficulties when communicating with appraisers that work in these areas. And any appraiser who is not up to the challenge that goes with determining valuations in this market will probably remember Eva Gabor's lyric from the ‘Green Acres’ theme song: ‘Darling, I love you, but give me Park Avenue!’
Brian Coester is CEO of CoesterVMS, based in Rockville, Md. He can be reached at email@example.com.
(Photo courtesy of TVLand.com.)