GREC REnews, 2019 May

GGRREECC RREENNeewwss May 2019
Volume 15 Issue 5

Monthly Newsletter of the Georgia Real
Estate Commission

r

2019 Calendar
Common Violations Class Dates
June 19, 2019 Middle GA BOR 478-493-9000
June 27, 2019 Hall County BOR www.halbor.com
Georgia Instructor Training Workshops (GIT)
October 16 & 17, 2019
Link to the Georgia Real Estate License Laws, Rules, and Regulations
Link to GREC Disciplinary
Actions View Current Suspensions and Revocations

This Issue The Role of the Broker Supervision is Not an Option Disciplinary Stats Focus on Terminology The Appraisers Page

P.1-2 P. 2 P. 1 P. 2 P. 3-5

The Role of the Broker
The Broker or Qualifying Broker of a real estate brokerage firm wears many hats and juggles many roles, such as the following:
Supervisor/Manager of licensed affiliates and unlicensed office personnel Trust Account Manager Administrator and Manager of records Advisor in real estate matters Ultimate approver of advertising and contracts Negotiator Enforcer of polices Responsible party for the firm Officer of the firm organized as a company, LLC, or partnership The Georgia Real Estate Commission licenses and authorizes the broker as the individual ultimately responsible for the activities of a real estate brokerage firm. With authority comes responsibility as outlined in the License Law and Rules, particularly Rule 520-1-.07 Management Responsibilities of Real Estate Firms. The Broker is a manager and that includes managing affiliated licensees and other employees of the firm. In most firms, licensees are independent contractors and the Broker does not direct their day-to-day activities. Still, the broker is responsible for seeing that the licenses are trained and informed so that all activities are performed in compliance with the Georgia Real Estate License Law, Rules, and Regulations.
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Link to Proposed Rule
Changes

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Click here to review a legend of the disciplinary actions the Commission may impose.
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The Role of Broker

GREC RENews May 2019, Volume 15 Issue 5

...Continued from page 1

As business models evolve and brick and mortar offices are used less often or not at all, it is critical the Broker establish effective methods of communication so that he or she is available to licensees in a timely manner. The brokerage policies and procedures of the firm must also be kept updated as the firm grows and changes.
In many of the investigations conducted by the Commission, a salesperson violates a License Law or Rule and the Broker was unaware because there was not a thorough review of a contract. For example, cases result in Citations because the license number of the firm and/or the licensee was not included in the contract or the dates in the contract were not consistent with the date the trust money was deposited. These types of violations can easily be avoided if the Broker has a proper system established to review contracts.
GREC offers many resources to assist the Broker in training licensees such as those on the GREC School website, GREC Brokerage and Trust Account Courses, the GREC Common Violations Classes, and GREC online courses.

Broker Supervision is Not an Option
The Broker is held responsible for the violations of licensees affiliated with his/her firm. The Broker must ensure licensee are trained and that written policies and procedures are implemented and followed. Not only does the License Law require the Broker to train and supervise the affiliated licensees of the firm, but also it is in the best interest of the Broker to do so. Written policies and procedures can protect the Broker in the event an affiliated licensee commits a violation. The Broker will not be held responsible for such a violation if the Broker can prove the following: (1) The Broker had reasonable procedures in place for supervising the affiliate's
actions; (2) The Broker did not participate in the violation; and (3) The Broker did not ratify the violation.
bsolutely ust now Section
The Broker is required and responsible for training all licensees affiliated with his/her firm in the License Law, Rules and Regulations as well as office policies and procedures, and training, and policies should all be well documented.
Rule 520-1-.07. Management Responsibilities of Real Estate Firms
Responsibilities of Brokers or Qualifying Brokers.
(b) Every broker or qualifying broker shall be responsible to instruct licensees affiliated with the broker or the broker's firm of the provisions set forth in the License Law and its Rules and Regulations.
http://www.grec.state.ga.us/about/relaw.html

Focus on Terminology: "Responsible"
Merriam-Webster defines responsibility as "moral, legal, or mental accountability, reliability, something for which one is responsible; burden."* Synonyms include the word "liability." As it relates to broker responsibilities, the Broker can be liable for the acts of one of his/her licensees if it is clear that he/she did not train, instruct and supervise the licensee sufficiently to avoid any violation of the Georgia License Law, Rules, and Regulations. *Source: https://www.merriam-webster.com/dictionary/responsibility#synonyms
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The Appraisers Page

Georgia Real Estate Appraisers Board

May 2019

Useful Links:
GREAB Web Site

Appraisal Act

GREAB Disciplinary Sanctions


Common appraisal reporting errors Part 2 -The 1004MC
By: D. Scott Murphy, SRA
Last month I covered common errors found in a standard appraisal report in the Subject and Neighborhood sections. As a follow-up, it makes sense to jump to an addendum form added by Fannie Mae in 2009, the 1004MC. This form helps the appraiser present information regarding sales of comparable properties in the subject market area. That information will be used to complete the neighborhood section of the report, as well as to support adjustments in the sales comparison approach. When Fannie Mae released the form, they conducted numerous live training sessions as well as posting training videos online. Unfortunately, a rather large percentage of appraisers were never properly taught how to complete the form.
As we talked about in the previous article, appreciation or depreciation should be calculated
The Appraisers based on the activity of comparable properties. Different segments of the subject market will
behave differently. It is entirely possible that homes in the $100,000 - $200,000 range are appreciating at 10% per year; the $200,000 - $500,000 range at 5% per year, and the $500,000 - $1MM+ range is declining at 2% per year. The blended rate might be around 7% - that is what
Page is published in article with titles such as "Hometown neighborhood appreciates at 7% per year".
It is critical that the appraiser focuses on the subject's submarket and only use properties that are truly comparable in the analysis.

Below are the instructions on the form for the appraiser. It clearly requires the appraiser to use sales and listings that compete with the subject property.

Notice the line titled "Inventory Analysis" which reports the total number of sales over the past 12 months. The first box has 22 sales, the second box shows 14 sales, and the third box shows 20 sales. How could that be considered "increasing" (which is what I have selected on the form)? Look at the time periods at the top of the chart, the first box is for a 6 month period and the other two boxes are for 3 month periods. In order to interpret this form correctly, you must divide the number in the first box by two. This gives you 11, 11, 14 and 20 which is increasing. I have found most appraisers do not recognize that and incorrectly interpret an increasing market as either stable or declining.
It is important to note that the numbers reported in this grid are median numbers. There are arguments for using the median and arguments for using the average. The problem with using the median is that outliers and a small dataset can cause misleading results. It is very important that the appraiser not simply report the finding but analyze them and if necessary adjust the search parameters in order to report the most reliable results.
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The Appraisers Page

Georgia Real Estate Appraisers Board

May 2019

Useful Links:
GREAB Web Site

Appraisal Act

GREAB Disciplinary Sanctions


Common appraisal reporting errors Part 2 -The 1004MC
By: D. Scott Murphy, SRA
The numbers in this report are generated through the local MLS system. In Atlanta, both GAMLS and FMLS have built a report which can be generated in their system. If you would like to try it, first do a search for comparable properties using the parameters you would if looking for comparable for a typical buyer. Set the Sold or Closed parameter to 0-365 days (so you are including sales for the past year). Select all Active, Pending and Contingent listings. A good rule of thumb is that you would like to have 40-80 results (active, sold, pending and contingent). Less is okay but the smaller the dataset the less reliable the outcome. More than 80-100 results mean you are probably not using truly comparable properties. Review your parameters and consider additional filters. You can run the report with 40 results and then you can run it again with 80 results and again with 120 result if you would like and then compare outcomes. The question you have to ask is are the comparables in this report properties that a typical buyer would consider as alternatives to the subject property.

Below is an excerpt of the results of a recent search. You will note that the number of comparable sales is increasing, which is a positive trend. The absorption rate is increasing, with more homes selling each month. The number of active listings is declining (this is something to consider but this will vary by time of year and an increase in the number of listings is not necessarily a bad thing). Taking the absorption rate and the number of active listings give the months of housing supply. Generally, 0-6 months is an undersupply, 6-12 months is stable, and over 12 months is an oversupply. This varies greatly by market but 0.6 months of supply is unquestionably low and an indication of a sellers' market.

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The Appraisers Page

Georgia Real Estate Appraisers Board

May 2019

Useful Links:

Common appraisal reporting errors Part 2 -The 1004MC

GREAB Web Site

Appraisal Act

GREAB Disciplinary Sanctions


By: D. Scott Murphy, SRA
The main focus of this form is the line highlighted in green Median Comparable Sales Price. This shows the progression of the median sales prices of comparable properties in the subject market. In this case the median price has gone from $218,191 to 241,786 over the past 12 months. To calculate the rate of appreciation you would subtract $218,191 from $247,786 and divide it into $218,191, as follows:
$241,786 - $218,191 = $23,595 $23,595/$218,191 = 10.8%
So this report suggests that in the subject submarket, properties comparable to the subject have appreciated 10.8% over the past 12 months. The appraiser can then take this information and apply it to the sales in the appraisal report to properly adjust for the time lapse between their date of sale and the effective date of the appraisal.

The appraiser could also look more closely at when each comparable sale closed and line it up with the data above. This would be useful if the data suggested that the market did not appreciate in a linear form (not the same amount each month).
There are a number of factors which can impact the results from this report. The first, as discussed above, is the fact that we are using median numbers (line the data up and take the one in the middle). Another is that we are using unadjusted comparables. Let's say we had two sales in our neighborhood in the past three months. The first sold for $550,000 and the second sold three months later for $530,000. Does that mean the market is declining? (If you calculated it you would have 14.5% annual decline). Not necessarily, is one comp larger than the other, is one in better condition? Let's say they are both the same size, condition, room count, etc. However, the first comp to sell had an inground pool. If you were to exclude the adjusted value of the pool ($40,000) the market actually is appreciating from $510,000 to $530,000 or 15.7%.
The point is that the appraiser must first understand what dataset to use and how to properly develop the report. Then the appraiser must use common sense and good judgment to properly interpret the data in order to arrive at a true and meaningful result. Unfortunately for the public, this process requires considerable time and analysis and most appraisers simply default to calling the market stable and not making any time adjustments. Generally, when I am presented a "low" appraisal to review or rebut, the main reason it is low is because the appraiser did not properly adjust for appreciation.
This article is the second in a series of articles looking at the standard appraisal form and pointing out important areas and common errors. Next month I will focus on the site and improvements section. To view previous articles in this series or other appraisal articles written for the GREC newsletter, go to the GREC website and click on newPasgele2tters. The appraisal articles are always at the end of the newsletter each month.
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