september–december, 2005 - houston chapter · maria s. aparicio wanda burton ... joseph...

Newsletter of the Southern California Chapter of the Appraisal Institute

SCCAI The TRENDS Volume 3, September 2005

THE TRENDS Keeping Appraisers Up-to-Date

Volume 3, Number 4

Inside Golf Tournament…………………. Page 1 Schedule of Events .................... Page 2 2005 Officers and Directors .........Page 3 President’s Message ..................Page 3 Golf Tournament..........................Page 4 Golf Tournament..........................Page 5 New Members..............................Page 6 New Members..............................Page 7 Conference News & Articles STDB Seminar/Trade Show .......Page 8 Conference & Cruise Seminar ... Page 9 USPAP Q&A ............................Page 10 2006 BOD Nom ....................... Page 11 1031 Exchange Article........ Page 11/12 Seattle Conf. & Chapter News. Page 13 Internet Resource Maps ....... Page 14 Ask Lindsay ............................. Page 15

THE Staff @ the TRENDS - 2005

Newsletter Coordinators Jill Gribin (818) 225-0097 Ext. 26 [email protected] Aloma B. Law (818) 957-5111 Ext. 20 [email protected]

SCCAI STAFF

2609 Honolulu Avenue, Suite 202 Montrose, CA 91020 www.sccai.org 818.957.5111 fax 818.957.0702 Executive Director Linda Zimmer [email protected] Education Coordinator Zouka Rosen [email protected] Member Services Coordinator Aloma B. Law [email protected]

September 2005

The 1st Annual BERT THORNTON Memorial Golf Tournament Held July 21st at Brookside Country Club

(A “HOLE- IN- ONE” Event)

Details and more photos on pages 4 & 5

EXECUTIVE COMMITTEE President David Gribin, MAI [email protected] 818-225-0097

Vice President Karen G. Davidson, MAI

[email protected] 714-974-9169

Treasurer Carol Lynn Chirpich, SRA [email protected] 949-458-6579

2005 Education Coordinator

Vince Maher, MAI [email protected]

818-957-1881 Secretary Stuart D. DuVall, MAI [email protected] 949-673-6733



SCHEDULE OF EVENTS September–December, 2005

SEPTEMBER DAYS ♦DATES LOCATION PROGRAM Labor Day Mon • Sept 5 Chapter Office Closed Basic Appraisal Principles Sat • Sept 10++ Pepperdine Univ, Encino 4 Saturdays Southern Branch Chapter Mon • Sept 12 Wyndham O.C. Airport Hotel Dinner Meeting - STDB Course 400-7 Hr USPAP Update Thurs • Sept 15 Ayres Suites, Corona USPAP continuing education Western Branch Chapter-Westside

Thurs • Sept 15 Spitfire Grill, Santa Monica Site To Do Business (STDB)

Valuation of Leases Seminar Tues • Sept 13 Costa Mesa Hilton Chapter Developed Seminar Board of Directors Meeting Thurs • Sept 22 Luminaries Restaurant-

Monterey Park BOD 2:00PM to 4:00PM

Joint Dinner Seminar with ASA Thurs • Sept 22 Luminaries Restaurant-Monterey Park

Appraisal Engagement Letters & Col of Delinquent Accts.

Basic Income Capitalization Mon-Fri • Sept 26-30 Glendale Hilton National Course

OCTOBER 2005 DAYS ♦ DATES LOCATION PROGRAM Report Writing & Valuation Analysis

Mon-Sat • Oct 3-8 University of Phoenix, Gardena

5.5 Days

Basic Appraisal Procedures Sat • Oct 8++ Pepperdine University, Encino

4 Saturdays

Columbus Day Mon • Oct 10 Chapter Office Open Appraising Manufactured Housing Seminar

Wed • Oct 12 Hilton Hotel, Ontario National Seminar

Business Practices & Ethics Sat • Oct 15 Glendale Hilton AI required course Eastern Branch Chapter Wed • Oct 19 Lunch – Old Spaghetti

Factory, Riverside The Purpose of Home Inspections

Western Branch Chapter-SFV Thurs • Oct 20 TBD TBD Southern Branch Chapter Mon • Oct 24 Wyndham O.C. Airport Hotel Dinner Meeting - TBD Market Analysis & STDB Thurs • Oct 27 Rio Hondo Country Club National Seminar Board of Directors Meeting Thurs • Oct 27 Rio Hondo Country Club Heritage Night – General Membership Meeting

Thurs • Oct 27 Rio Hondo Country Club Dinner Event

NOVEMBER 2005 DAYS ♦ DATES LOCATION PROGRAM Residential Highest & Best Use & Market Analysis

Wed & Thurs • Nov 2&3 Pepperdine University, Encino

National Course

15 hr. USPAP Fri & Sat • Nov 4 & 5 Pepperdine University, Encino

USPAP basic education

Veterans Day Fri • Nov 11 Chapter Office Open Litigation Seminar Fri • Nov 18 Biltmore Hotel Chapter Developed Seminar Chapter Office Closing at Noon Wed • Nov 23 Thanksgiving Day-Chapter Office Closed

Thurs • Nov 24 HAPPY THANKSGIVING

Chapter Office Closed Fri • Nov 25

DECEMBER 2005 DAYS ♦ DATES LOCATION PROGRAM SCCAI Installation Dinner Banquet

Sat • Dec 3 TBD

Eastern Branch Chapter Fri • Dec 9 Luncheon – Coachella Valley Expansion of Indian Casinos Boot Camp for 2006 BOD Tues • Dec 13 TBD Chapter Office Closing at Noon Fri • Dec 23 Chapter Office Closed Mon • Dec 26



2005 Officers, Directors and

Branch Chapter Chairs PRESIDENT David Gribin, MAI VICE PRESIDENT Karen G. Davidson, MAI TREASURER Carol Lynn Chirpich, SRA SECRETARY Stuart D. DuVall, MAI --DIRECTORS CENTRAL COAST BRANCH CHAPTER

CHAIR Alison M. Moore, MAI VICE CHAIR Jim Mackelburg, SRA, ASA

& IFA ADVISOR Blake Elliot EASTERN BRANCH CHAPTER CHAIR Paul Norlen, MAI VICE CHAIR Don Mowery ADVISOR Nancy Summers NON-VOTING ADVISOR Charles Armstrong SOUTHERN BRANCH CHAPTER CHAIR Thomas Neeson, MAI VICE CHAIR Scott Pettifer, MAI ADVISOR Keith Belsby WESTERN BRANCH CHAPTER CHAIR Thomas E. Curtis VICE CHAIR Donald Bleich, Ph.D ADVISOR TBD IMMEDIATE PAST PRESIDENT Vicki L. Gill, SRA CCOOMMMMIITTTTEEEE CCOOOORRDDIINNAATTOORRSS EDUCATION COORDINATOR Vince Maher, MAI ASSOCIATES' GUIDANCE COORDINATOR Nancy Summers MEMBERSHIP COORDINATOR

Carol Morgan, MAI

PPPrrreeesssiiidddeeennnttt’’’sss MMMeeessssssaaagggeee

David Gribin, MAI The last few month’s have been quite busy. Golf Tournament Congratulations to all, for a very successful First Annual Burt Thornton Memorial Golf Tournament held at Brookside Country Club in July. We raised close to $4,500 in scholarship money for the Mason & Mason Scholarship Fund. We had over 50 golf participants and 20 sponsors. Thank you very much to each sponsor, and player who contributed time and money to achieve this great success. The highlight of the event was the dinner and silent auction. Special kind words to Don Mowery, Joe Lucas, Nancy Summers, Carol Campbell-Morgan and Zouka Rosen for making the event so successful. We look forward to next year’s event with bigger and better prizes. Mexico Cruise The Mexico Cruise and the seminar on Historical & High End Housing was quite a success, thanks to Vicki Gill. There were over 40 participants. What a special way to learn, have a vacation and achieve extra hours. Please refer to Vicki’s article in this issue. How To Become An Appraiser The “How To Become An Appraiser” workshop was well attended with 32 attendees. With over 1,300 members in our chapter, the largest chapter in the Appraisal Institute, we continue to find ways to attract new members. Chapter Leadership Needs We need you! Leadership is what our organization requires, participation by both new and longtime members. Please call me and tell me what your interests are. Over the next 5 to 10 years, we will need new leaders to direct our chapter. Think about the “returns” you have received on your designation, and think about giving back to the organization that makes it possible. The former NYC Mayor, Rudy Giuliani suggested these six traits in a leader. (Many of you have the following traits.)

• Having strong beliefs • Being an optimist • Having courage • Being prepared • Realizing the importance of teamwork • Communicating early and often

(continued )



The Winners

The Golfers

1st Annual

Bert Thornton

Memorial

Golf Tournament



The Greens & Golfers

SCCAI Staff

The people who made it happen – Zouka Rosen, SCCAI Education Coordinator and Linda Zimmer, SCCAI Executive Director.



Joe Lucas, MAI, Chairperson and David Gribin, MAI, 2005 SCCAI Board President Tournament chairperson.

Thank You to Our Sponsors… Integra Realty Resources-Los Angeles CSUN Center for Real Estate Reinhart-Fontes Associates, Inc. Gilbert Epstein, MAI-The Epstein Co. Kerry Leiman, SRA David A. Zoraster, MAI Dennis Webb, MAI Douglas a. Edwards, Inc. Gribin, Kapadia & Associates Harris Realty Appraisal Custom Aerial Photos, Inc. Parkcenter Realty Advisors Lea Associates, Inc. Property Economics Joseph G. Queen Gaglione & Dolan Integra Realty Resources-Orange Co The Bronstein Company, Inc. Pacific Appraisal Liability Insurance Adminstrators Chris Frye Scott Pettifer Don Mowery Vickie Gill Nancy Summers-Barstow Appraisal Zouka Rosen

NEW MEMBERS Please welcome our new members since January of 2005 JANUARY Clay W. Blockley Vittorio Cavina David A. Cornell Joy C. Fanning John E. Golt Vernon L. Gunther John M. Jamaica David F. Jubitz Daniel J. Kazden Kenneth Stotelmyre Larry E. Traghber

MARCH Mike G. Baaden Leslie M. Batzofin Jason Breiter Niklas B. Bringleson Bang Chan Jason N. Donaldson Nicole Green Jason M. Harris Casey O. Jones Ki W. Kim Nancy Kristofferson Michael S. Linsk Hyo M. Park

FEBRUARY Augustine A. Aguilar Michael Baker Elliot W. Barker Vido A. Gaspara Willie D. Hamer Pauline Hodgson Alan E. Irish Gitonga Kanampiu Michael P. Kearns Luis A. Lopez Don E. Parish Joseph H. Perez Yao-Hwa Tang Huy Tran Melanese D. Way MAY Steve I. Bae Charles C. Call Ethan J. Goldstock Adam W. Hunzeker Andra L. Kees Matthew Moore Douglas A. Nason Torre D. Niles Charlie Park Matthew T. VanEck Jeffrey A. Wallick JULY Maria S. Aparicio Wanda Burton Jeannine J. Cook Alexander J. Goldberg Cynthia M. Gray Ken S. Griffin Timothy D. Hiltner Charles R. Hull Jarred E. Knuth Kurt Meyer Chris R. Roberts Matthew Sunderland Jorge L. DeLaTorre Ugarte Christine Wensel

Dylon N. Phan Xuan Quach Brett I. Reynolds Kenneth Richardson Huyen T. Solozano Kevin S. Stephanoff Randy S. Walker APRIL Johnson C. Chien Alec D. Davison Marina Esquerra Edward C. Gardner David B. Gillespy Sandra Grathwol Stephen R. Hannah Patricia J. Muga Kristopher E. Nijst Elizabeth Norton Joseph Rutherford Douglas E. Willits Darrick Yu JUNE Shawn E. Atlow Justin. T. Goldberg Manisha Hunter Mellisa Kim Karen M. Park Breadley A. Wood AUGUST Marcio Baggio Castro Philip I. Chen Charlene R. Davis Kunjubala K. Desai Linda Emme John A. Foreman Andreas T. Fresh Danny Gallego Susan O. Gordon Philip A. Halbrook Molly Higley Peter S. Hwang Soo Kim Martin Leikarts John P. LeVeqie Rosa Maria B. Meneses Abel E. Morales Cheryl A. Noonan David Parrish Rinaldo M. Ramos Robert D. Roy David Sonboli Amber S. Strickland

Total Membership - 1, 307



New Member Welcome

Kunjubala Desai Energy and Desire are the key words for new Institute member Kunjubala Desai. Kunjubala came to this country from her native India in 1977, when she was just 19; She was sponsored by her uncle and arrived in Ann Arbor, Michigan not knowing a word of English, with a bad case of jitters and only $50 in her pocket.. She moved to Southern California in 1979. Learning English and working two jobs - on an assembly line making safety helmets for handicapped children and in retail sales - afforded her the ability to bring her brothers, sisters and parents to the United States. When asked how she chose to become an appraiser, Kunjubala responded “I was looking for a way out of retail and began taking real estate sales classes...which I kept falling asleep in; I decided numbers were more my game”. She took her classes in 2002, the trainee test in 2004 and is currently working with Gold Coast Appraisers in Santa Fe Springs; she has accumulated 1,000 hours. Kunjubala found the process of getting a trainee position difficult, she said “I got so many doors slammed in my face .... I think unless someone has a connection it is a difficult profession to get into”. Her goal is to get her General license and then her MAI. Kunjubala is single, a home owner and still working two jobs while attending Cerritos College studying for her AA degree. By the way - her second job is designing kitchens for Home Depot. We want to welcome Kunjubala to the Appraisal Institute♦ Rose Mary (Rosa Maria) Meneses Rose Mary has been a mortgage underwriter for 20 years; and with Countrywide for the last ten years. She took the basic appraisal classes and joined the Institute for career advancement. Since she spends hours reviewing appraisals, I asked her what common mistakes she found. She expressed her concern about utilizing comparables outside the houses neighborhood to inflate values and non-supported adjustments. Rose Mary reviews 1-4 units nationwide and has found the same issues throughout the country. She finds that many appraisers are not being thorough enough, not providing adequate information and not conveying the data in a supported manner. For instance, with time adjustment, one needs to explain why the time adjustment is warranted, providing data showing the increase in market conditions or paired sales analysis and describing how one arrived at the decision. Another example was adjustments for views ... she suggests showing a picture with the view, from both the subject and the comparable and describing what is in the view; also explain the adjustment difference between a city view and a water view. When saying that a subject or a comparable is renovated, detail the renovation by explaining what was entailed in the renovation. Rose Mary has found that there is a major difference in what is referred to as renovation from an exterior paint job to a complete interior and

exterior redo. Again she recommend showing pictures of the renovation. Rose Mary is married and has four children between 16 and 26. They enjoy camping as a family.♦

Every one Deserves a Chance to Succeed

The Appraisal Institute’s Commitment to Diversity

The Appraisal Institute is committed to creating a progressive environment for minorities and women who are interested in membership in the organization and pursuing careers as professional real estate appraisers. We have worked to enhance diversity in the real estate appraisal profession and the association through our Membership Diversity Committee

Diversity brings each of us strength in new ideas, new approaches, new experiences and new contacts. The more diverse our membership, the more competitive the Appraisal Institute and its members.

The Appraisal Institute’s goal is to provide an organizational environment for its members which if free from discrimination or harassment on the basis of race, color, religion, sex, age or disability. Harassment can include derogatory statements, conduct or treatment relating to a member’s race, color, religion, sex, age or disability.

The Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state, and local laws. ♦

President’s Message (cont’d) Conference and Trade Show Our 11th Annual Conference and Trade Show at the Ronald Reagan Presidential Library had over 300 attendees. We hope you joined us and benefited from the great speakers. Branch Meetings Our branch chapter meetings have again had great attendance results this year. Networking in close proximity to your home is a major advantage. If you have topics you would like covered, let us know. Valuation of Lease Seminar Don’t miss the “Valuation of Lease” Seminar on September 13th in Irvine. Stu Duvall has a tremendous list of highly skilled speakers for the seminar. Don’t forget the OREA requirements to obtain your 7-hours of USPAP education every two years. Also, be sure to watch for the January, 2008 changes in OREA requirements for new appraisers. “Until we meet again” Happy Trails.♦ David Gribin, MAI



October Seminar

“Market Analysis and the Site To Do Business”

A Powerful Combination Date: Thursday, October 27, 2005 Time: Check in & Continental Breakfast 7:30AM-8am Seminar: 8am to 5pm – Lunch Included Location: Rio Hondo Country Club 10727 Old River School Road Downey, CA

Instructor Jim D. Amorin, MAI, SRA

7 hours of AI and OREA continuing education credit

The Southern California Chapter of the Appraisal Institute

11th Annual Conference and Trade Show

RONALD REAGAN PRESIDENTIAL LIBRARY Friday, August 26, 2005

A tremendous success –with more than 300 in

attendance for the conference and tour

Greg Harding, Director and Anthony Majewski, Chief Enforcement Officer of the California Office of Real Estate Appraisers confer with David Gribin, MAI, 2005 SCCAI President .

The NETWORKING opportunity

Luncheon seminar attendees



Conference (Cont’d)

The food was delicious

The Vendors

GREAT presentations

“PARTY’S OVER” – Until next year.

Cruise to Ensenada Vacation and Education A 3 day cruise to Ensenada was the location for the “High Value and Historic Homes” Seminar on August 5th. A total of 42 persons were on the cruise in which a good time was had by all. The seminar was held on Sunday, the day the ship was at sea. The bad, but yet good thing was class started at 7 am. The overall consensus was to do this again next year, with another type of one day seminar. If you are interested in this type of program, please let Vince Maher, Education Chair know and what type of seminar you would like to have the chapter conduct. As you know a cruise takes longer than normal time to arrange so your response if interested is required by October 1, 2005 so that we may start searching for the best prices.♦

USPAP Q&A The Appraisal Standards Board of The Appraisal Foundation answered the following questions which we thought would be of interest to you. Question No. 1: What is meant by the term Intended User in USPAP? Response: Intended User is defined in USPAP as :

the client and any other party as identified by name or type, as users of the appraisal, appraisal review, or appraisal consulting report by the appraiser on the basis of communication with the client at the time of the assignment.

Although the client provides information to the appraiser

regarding the Intended Users, it is the appraiser who is



responsible for specifying the parties he or she is identifying as Intended Users.

Knowing the Intended Users is important because USPAP requires that reports contain sufficient information to allow Intended Users to understand the report. Without clear knowledge of the Intended Users in an assignment, an appraiser cannot be certain that the report content is appropriate. Some Intended Users will require more information than others in order to facilitate understanding. Furthermore, identification of the Intended Users is important in understanding the Intended Use or Uses of the appraisal; different Intended Users may have different Intended Uses for the appraisal. Question No. 2: AO-26 and AO-27 clarify that I cannot readdress an appraisal, and I must treat a subsequent request as a new assignment. Does that mean I must “start from scratch” since I would be performing a new assignment for a different client? Must I re-inspect the property? Response: No, a new assignment does not mean that you must “start from scratch”. You must decide the appropriate scope of work for the new assignment. This would include a decision as to whether or not it was necessary to perform another inspection. The scope of work for the new assignment can be different from the scope of work completed in the earlier assignment. As with any assignment, you might be able to use information and analyses developed for a previous assignment. Appraisers are often selected for subsequent assignments specifically because of experience and demonstrated competency in a prior assignment. One must be mindful of obligations relating to the use of confidential information. The Confidentiality section of the ETHICS RULE states:

An appraiser must not disclose confidential information or assignment results prepared for a client to anyone other than the client and persons specifically authorized by the client...

Question No. 3: I am aware of Advisory Opinions AO-26 “Readdressing (Transferring) a Report to Another Party” and AO-27 “Appraising the Same Property for a New Client.” Does that mean that guidance still apply if Lender A releases me to perform another assignment, or can I just readdress the report to Lender B since I have obtained a release? Response: It is never permissible to “readdress” a report by simply changing the client’s name on a completed report, regardless of whether the first client gave a release. The request from Lender B must be treated as a new assignment. Further guidance can be found in the Obtaining a Release section of Advisory Opinion 27.♦

FUNNY BONE

DO APPRAISERS HAVE A

SENSE OF HUMOR?

Send us your jokes, stories, etc. for the next Newsletter

ONLINE EDUCATION IN CALIFORNIA Appraisal Institute members recently received an email from the National Office that listed online education approved in California. However – PLEASE BE AWARE that not all online education is approved for all levels of licensure. Many of the courses and seminars listed are approved for the Trainee and Residential License levels ONLY. Certified Residential and Certified General Licensees should always check with OREA before taking an online course to confirm it is approved for their license level. ♦

2005 Heritage Night The most wonderful gift of all is the gift of friendship.

You are cordially invited to the Southern California Chapter’s

2005 Heritage Night October 27th, 2005 Reception 5:30 pm

Dinner 6:30 pm Program 6:30 pm – 8:00 pm

Rio Hondo Country Club 10627 Old River School Road

Downey, Ca 90241

Join us to honor our past and celebrate our future.

Information for registration can be found at:: www.sccai.org



Nominations for SCCAI 2006 Board of Directors

The Nomination Committee for the Southern California Chapter of the Appraisal Institute is please to announce the following nominees for the Board of Directors: Chapter President: Karen Davidson, MAI Vice President: Carol Chirpich, SRA Treasurer: Stuart D. Duvall, MAI Secretary: Orell C. Anderson, MAI Immediate Past President: David Gribin, MAI Regional Representatives: Barry Alperin, MAI Beverly Bayer, SRA Tom Neeson, MAI Orell Anderson, MAI Trustee of the Michael Teobaldi Thomas F. Mason Education Trust These are the nominees for the Chapter Executive Officers and the replacing of the Regional Representatives that are to serve for the years 2006 and 2007. The remainder of the Representatives are not to be replaced at this time. Voting will take place on September 22, 2005 at the joint meeting of ASA and SCCAI. Your attendance is requested to support your fellow members.♦ Members of the Nominating Committee are: Vickie L. Gill, SRA, Joyce Riggs, MAI, Vince Maher, MAI, Kerry Leiman, SRA, Chris Hardy, MAI

Two Good Zoning Websites for Appraisers

http://ceres.ca.gov/planning/zoning/city.html http://assessormap.co.la.ca.us/mapping/viewer.asp

New Dogs and Old Tricks The 1031 Exchange Orell C. Anderson, MAI Laguna Beach, California Region I Chairman, IRWA International Valuation Committee The 1031 section of the tax code is a significant benefit to tax payers. Tax deferred exchanges have been a part of the Internal Revenue Code (IRC) since 1921. These exchanges are a notable portion of all real estate transactions in the United States. For real estate professionals estimating total just compensation1 in expropriation, careful consideration and appropriate adjustments must be made when using exchange properties in the Sales Comparison Approach. The 1031 Exchange, as it generally relates to real estate, is a tax vehicle by which a property owner can divest him/her self of an asset and acquire different property on a state and federal tax free or gain deferred basis. This must be done within very strict tax rules. A sale of property and subsequent purchase of a replacement property does not work, there must be an exchange. The real estate professional should be aware that this type of transaction may not reflect market value (i.e., the price is above what may be considered typical for a specific property type). This is due to possible premiums being paid by exchange participants in order to avoid significant tax penalties. Section 1031 of the Internal Revenue Code states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” To participate in this program, owners must swap the property (relinquished property or down-leg) for other property of a similar or like kind (replacement property or up-leg). Like kind relates to the nature and character of the property, not the grade or quality. Therefore real properties generally are of like kind, regardless of whether the properties are improved or unimproved, of the same type (apartment or retail), or if there are multiple replacement properties. Swapping a property means that a property owner must either first sell the relinquished asset and place the precedes within the control of a qualified intermediary or have the intermediary take and hold title to the replacement property before the taxpayer finds a buyer for his relinquished property (reverse exchange). The intermediary purchases the 1 United States Constitution, Bill of Rights, Amendment V: No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.



replacement or relinquished property and transfers title (direct deeding) to the exchange participant. Under the code, participants must have held the relinquished property and hold the replacement property for a certain period of time to qualify. The replacement property must be of equal or greater value, which also includes the equity portion. Because the relinquished property may be sold before the replacement property is found, undue pressure may be placed on the exchange participant to avoid capital gains tax. The maximum tax rate on net capital gain has been reduced for individual taxpayers for sales, exchanges, or conversions of assets after May 5, 2003. The lower rates (from 20% to 15% and from 10% to 5%) apply to assets held more than one year (and installment payments received after that date). Taxes are deferred, not eliminated. As an example, the tax benefits from a California exchange are set out as follows:

Federal capital gains tax = 15% California state tax = 11% Total tax deferral = 26% Plus 25% Depreciation Recapture

The property owner must find a replacement property within 45 days of the relinquishment property’s sale. This must be done in writing. The owner has only 135 days after the replacement properties are identified and a total of 180 days to actually purchase the replacement asset from the sale of the relinquishment asset. This is restricted to when the owner’s taxes are due. After 45 days have expired, it is not possible to close on any other property which was not identified in the 45-day letter. Failure to submit the 45-day letter causes the exchange agreement to terminate and the intermediary will disburse all unused funds in possession to the taxpayer. When using exchange properties within the Sales Comparison Approach, consideration must be made in order to avoid over-valuing the subject property. Although many transactions are completed at market, studies have been conducted showing that above market prices have been paid, thus warranting an adjustment in the valuation process. Presently there is approximately $50 Billion per year in exchange transactions. One such study was done in the Phoenix apartment market in 2001 by Andres Holmes and Barrett A. Slade. They found that exchange participants paid approximately 7.9% above market for the replacement property.2 Because of the official approval by the IRS, reverse exchanges may ultimately become the favored method for 1031 exchanges. As the replacement property has already been acquired, the remaining risk for selling the relinquishment property is notably mitigated. Although the author of this article is not aware of significant studies of reverse exchanges and adverse affects on price; the inverse of the Holmes and Slade

2 Andrew Holmes and Barrett A. Slade, “Do Tax-Deferred Exchanges Impact Purchase Price? Evidence from the Phoenix Apartment Market,” Real Estate Economics 29, no. 2 (1998): 567-588.

research may prove true, as some participants may not readily trade their relinquishment assets within the IRS safe-harbor guidelines, which may cause them to sell at a discount. A recent development under the 1031 tax code is the Tenant-in-Common (TIC) industry. TICs are legal structures that defer capital gains tax for two or more owners sharing the ownership of a real estate asset. They are not a partnership but are individual ownership, and can be sold like other fractional interests. Like the typical exchange participant, investors are seeking to re-invest the relinquishment property sales proceeds by using 1031 to defer their taxes. The IRS has clarified in Revenue Procedure (Rev Proc) 2002-22, issued in 2002, which considers the condition under which the IRS may consider the purchase of a TIC interest an investment in real estate. According to Rev Proc 2002-22, “The central characteristic of a tenancy in common…is that each owner is deemed to own individually a physically undivided part of the entire parcel of property. Each tenant in common is entitled to share with the other tenants…the associated rights to a proportionate share of rents or profits from the property, to transfer the interest, and to demand a partition of the property.” The TIC therefore receives a deed at closing and undivided percentage interest in the entire property. TIC participants receive 100% of the cash flow and 100% of the profit proportionate to their ownership percentage. Investors pool their capital with other investors to own properties that are of higher quality, in superior locations and tend to produce higher returns on equity then they could generally own. Ownership interests (percentages) of each TIC may be equal or unequal. Benefits and obligations are shared by TICs in proportion to percentage interest in the property as specified in the Co-tenancy Agreement. This governs the rights and obligations of the TICs. This financial instrument mitigates the risk of finding and closing the replacement property. Presently only 2% of exchange transactions are TIC programs. It is anticipated that in less then five years 10% will be TICs. The affect on market value, if any, like the reverse exchange, likely remains unknown from a statistical level of relevancy as of the publishing of this article.3 In conclusion, …appraisers must use caution when considering these replacement property transactions for use as comparables in the sales comparison approach. Specifically, appraisers must eliminate these sales from the list of possible comparable sales or they must perform a thorough investigation of the transaction to reliably estimate the conditions of sale adjustment.4♦

3 Orell C. Anderson, “Real Estate Market Trends Seminar,” The Southern California Chapter of the Appraisal Institute, January (2004): Personal discussions with key market participants. 4 Barrett A. Slade, PhD, “Conditions of Sale Adjustment: The Influence of Buyer and Seller Motivations on Sale Price,” The Appraisal Journal, Winter (2004): 50-56.



Continuing Education Seattle Way

Wins Applause from Attendees! The Appraisal Institute’s 2005 Summer Conference, held July 7-9 in Seattle, played host to about 400 appraisers, who were treated to a variety of educational sessions, appraisal-related tourist events, 25 exhibitors and keynote speaker Ken Harney’s opening breakfast address. Chapter members attending included Carol Chirpich, SRA, Dave Johnson, MAI, Allen Bergstrom, MAI, Scott Buell, Dave Riach, MAI, Mike Song, MAI, and John Wynhoff. Harney, a nationally syndicated real estate columnist, spoke at the July 8 breakfast and gave an overview of the current state of the industry including recent comments from Federal Reserve Chairman Alan Greenspan, who stated that a national housing price bubble is not likely but that some local home market show signs of “froth.” Harney also commented on the issue of lender pressure, stating that the Ney-Kanjorski Bill (H.R.1295) currently on Capitol Hill should force the issue. Another issue Harney raised was the resurrection of RESPA reform, recently proposed by HUD. At that afternoon’s lunch, Gerald A. Kifer, chief of the Veterans Administration’s appraiser program, provided attendees with an update of the VA’s goal to increase its Appraiser Panel. In 2003, the VA announced a goal of adding 2,000 appraisers to the panel in two years. Kifer said that currently there are about 7,000 appraisers on the panel, and that the deadline had been extended to October 1. Over the three-day conference attendees took in education sessions ranging from appraising specialty properties – from hospitality to wineries to high-end homes – Carol Chirpich was a panelist in the Hot-button topics session that included discussionssuch as who’s training the trainees? Scope of work, and Time Management. As part of the high-end properties seminar, attendees took a boat tour where they saw many of the high-cost homes in the area, including that of Bill Gates. ♦

Pictures above is Carol Chirpich, SRA, 2006 SCCAI Treasurer and Bill King of Federal Way Washington. Cruising on the High Value Property seminar cruise on Lake Washington for high value homes.

Southern Branch Chapter (SBC) News

On July 18th, the South Branch Chapter held a dinner meeting in Costa Mesa. Our featured speaker, chapter member Dennis Webb, MAI, discussed possible new opportunities for residential appraisers working in conjunction with MAI’s in the Fractional and Partial Interest niche. Dennis has recently published a book through the Appraisal Institute, Valuing Undivided Interests in Real Property: Partnerships and Cotenancies. One lucky attendee, Manish Hunter received an autographed copy of his book, while Scott Pettifer won the drawing for a free seven hour chapter seminar. All attendees received pen and pencil sets brought back from the Seattle Summer Conference by Carol Chirpich. ♦

Chapter Incentive For AI Members Only… An incentive program for all AI members. A raffle drawing at every Chapter event to win a FREE attendance at an OREA and/or AI CE event of your choice. A value of more than $125. See your Chapter Chairperson for details.♦

OREA Completion Certificates Effective September 1st OREA Completion Certificates will be sent to you via email. Please make sure we have your correct email address information so that you receive your certificates in a timely manner.

September 12, 2005 Site To Do Business - STDB George Dell, MAI will highlight the Site to Do Business at a dinner meeting in Costa Mesa. Our October 18th dinner meeting is yet to be determined, but look for an exciting topic that will help you expand your book of business.♦



IMPORTANT USPAP Education Reminder

Effective January 1, 2005, the 15-hour National USPAP Course may NOT be used to satisfy the 7-hour National USPAP Update Course continuing education requirement.

Therefore, only the 7-hour National USPAP

Update Course may be taken to satisfy the continuing education USPAP requirement after January 1, 2005. If the 15-hour National USPAP Course is taken on or after January 1, 2005, as continuing education, the course can be applied towards the overall continuing education hours only

FREE INTERNET RESOURCES Can’t Get Enough Maps: NATIONALMAP.GOV Always looking for free data on the Internet, I came across another data and mapping tool online at www.nationalmap.gov that uses databases that various government agencies have created and allows the user to zoom in and create printable maps in .pdf format. These maps can also be converted (using cut and paste) into electronic picture files for modification and insertion into reports. The National Map also allows the user to download vector (line-based) features and raster (image-based) data where available. At www.nationalmap.gov click on the link to “Go to Viewer.” A new window will open which is essentially a map of North America. Use the mouse and tools along the left side to navigate, zoom in and out, identify features, measure distances, and find elevations. Turn on and off layers such as roads, geographic names, topographic quads, satellite and aerial photos, etc. Depending on the location and scale of the map, different layers may be available. Examples of maps made at www.nationalmap.gov include the following:

USGS Topographic map of Santa Catalina Island

Aerial photo of Avalon Bay with roads layer turned on marked with locations of subject and comparables

Aerial photo of Avalon Bay

Aerial photo with wetlands layer turned on marked with location of

subject property

Be sure to check future SCCAI newsletters for additional free internet resources. If you’d like to share a little-known site that you use a lot (or a well-known site that you use a little), contact Nancy Summers of Barstow Appraisal at [email protected]. Next time: Caltrans traffic counts.♦



Ask Lindsay Q I accepted an assignment from a lender client to appraise 4 units. When I started researching the property and went to the site, I discovered the site was legally 4 units over commercial property. My license allows me to appraise investment properties but I have never done so. What shall I do now?

A First, contact your client and explain to them that the property is not just four units. Because the property you were to appraise

has “changed” in nature, this actually is considered a new assignment. You have a few options: one is to turn down this new assignment because you are uncomfortable doing it. The second is to inform the client that, with their permission, you will be working with another appraiser who will provide you the assistance you will need to be competent in appraising this property. It is up to your client if they accept the latter. If you have already been paid a fee, you may want to renegotiate fees if you decide to accept the assignment. If you turn down this new assignment, it is a business decision whether you return all of the fee or just the amount that would cover the work already completed, such as site inspection and research.

Q I was sued last week and I am trying to provide a response to the court, per their request. What should I write?

A Once you are served a summons and complaint, it is important to first notify your insurance carrier if you have one. They will

take care of retaining an attorney for you to provide the response the court will accept. If you do not have insurance, you should immediately find an attorney who has some background in defending appraisers or other real estate professionals, such as real estate agents or home inspectors. Unless you have some legal training, a letter to the court in response to a civil lawsuit will not be considered acceptable and may result in a default. Also, it is important to find an attorney promptly since the response to a civil lawsuit must be made within a short time period. Don’t throw the lawsuit in a pile, thinking you can deal with it later when the work slows down. If the plaintiff does obtain a default against you for failing to respond in a timely manner through proper legal channels, the plaintiff can obtain the entire judgment against you and it may be too late for you to be defended.

Q The State Board recently called me, asking me questions about a former employer. Was I right in answering their questions?

A The state board is cracking down on “appraiser mills” and is seeking to shut down those appraisers who may be “training” too

many appraisers. In order to find out what type of training the appraisers were experiencing from an appraiser, they are also questioning those not involved in the complaint against the trainer. First verify that the person speaking with you is from the state board. This can be done by calling the state board and verifying that the person is an investigator. Second, verify that you are not the target of any complaint. Third, listen carefully to the questions asked and, if you believe you want some time to answer, ask them to put their questions in writing and you will be glad to respond. This will then give both of you a written record of the questions and the responses you made to avoid confusion later. For answers to your appraisal questions in this newsletter, please send them to Lindsay McMenamin at [email protected]. No legal advice will be offered nor will any questions be answered outside the scope of the newsletter. Lindsay McMenamin is a former SRA and currently a defense attorney at Gaglione & Dolan in Los Angeles.♦

september–december, 2005 - houston chapter · maria s. aparicio wanda burton ... joseph...

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