Category Archives: Mann Overboard

After a 2-year hiatus, the Mann Overboard blog is back. This blog will cover anything and everything that comes to mind. There will be market forecasts. Suggestions regarding interesting web sites, books, or topics I think readers should check out. My continual diatribe on the real estate appraisal industry and all of its wrongs. My support for a new real property valuation profession, adopting Mortgage Lending Value in America, creating Real Property Risk Ratings in America, and introducing readers to the concept of Socionomics. Other topics will surely arise.

Feedback will be limited to approved site visitors. This is not to limit disagreement – different ideas are needed for us to advance any concept we discuss. I just want to keep the content professional. Replies whining about old subjects like AMCs and what banks have done to the industry and such don’t get us anywhere. And simpl

INCOME ACHIEVEMENT IS MORE LIKE IT

July 15, 2019 – The article at this link was just too good to not pass along.  It is always good to debunk the Fake News Media and the PC junk they promote.  Enjoy the truth, supported by facts.

https://mises.org/wire/debunking-income-inequality-research?utm_source=Mises+Institute+Subscriptions&utm_campaign=3987532102-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-3987532102-228262361

The Mann

IT’S HUMAN NATURE – THE SUBURBS WILL ALWAYS RULE

July 3, 2019 – First off, Happy Birthday to our great republic.  I hope everyone had a safe and enjoyable 4th.

The following article is just one more tidbit of data that proves that the younger generations NEVER moved into the CBDs at any rate greater than prior generations.  Since 2000, the percentage of the population in CBDs has not changed!

As I continue to tell any city planner I see speak at a conference, you best be spending 99% of your money on infrastructure in the suburbs.  It is a waste of money to spend fortunes on downtown parking garages, apartment buildings, trains, etc.  The cost is extremely high and the population using it is insignificant.

City planners simply mislead the public as it is all ABOUT THE MONEY.

Environmentalists mislead the public because it is all ABOUT THE MONEY (e.g. The USA has 17 coal plants….1600 coal plants are under construction and planned in 62 countries…the FNM tells you the use of coal is declining, when in fact it will increase 43% with just these new plants, much less new ones after these).

And vegans make it sound like plant-based food is catching on and is the future for the world.   Again, they are simply AFTER THE MONEY!  Between now and 2050, worldwide meat consumption will increase from 330 million tons to 560 million tons!  Someone please tell PETA to stop wasting all of that donation money they get on trying to make people stop eating meat.

It is sad to see how the masses get used by the Fake News Media that promotes these money-grabbing agendas.  But, as I have always said, thankfully the masses are predictable in this way and that makes it easy for everyone to profit off of them.  I guess that includes me, albeit I am not an unethical, greedy corporation.

You cannot save this planet.  Whatever you do as an individual (not eat meat, walk or bike instead of using your car when possible, buying an electric car [thanx for increasing the need for more coal plants to provide electric for all of these electric cars!], recycle, et al) is not going to help.  Nor is a multitude of Americans and Europeans doing the same thing.  China and India alone will offset any benefits provided by the climate change believers 10-fold over.  My dad had a saying for your efforts, but it is a bit vulgar so I won’t write it out.  Just shake my head about the futile efforts and how legislation continues to price the poor out of housing and automobiles.

In the end, only Mother Earth can save herself.  And she will!  She always has.  Mass extinctions.  Bubonic Plague.  Man might help with World War III and the use of nukes.  But, I believe Mother Earth will unleash a disease that will kill billions before mankind figures out how to stop it.  I won’t be around to see if that happens.  Neither will anyone reading this.  But, down the road our over success as a species will have to be corrected….or we do as I have always proposed as an option – move to Mars:)

Enjoy the suburbs, life is so much more beautiful and relaxing there.

The Mann

https://www.foxbusiness.com/features/millennials-leaving-cities-rising-costs

 

IMHO, THE BEST SOURCE OF HOUSING DATA IS THE AEI

June 20, 2019 – I have watched the American Enterprise Institute (AEI) develop their housing research over the past decade.  Major organizations provide them with all of the data that is out there and AEI simply analyzes and reports what it says.  Unlike NAR, no bias in the research and reporting.  The AEI is 100% transparent in how they arrive at their indices and use the data.  I encourage everyone to start using this as their definitive source for information on the housing market.  The following is directly from AEI (as the links might not work in me cutting and pasting their announcement, you can go to their website at www.AEI.org):

AEI Housing Center analyzes housing markets in the 60 largest US metropolitan areas

Housing markets are inherently local, making them notoriously difficult to analyze due to the lack of reliable data at the local level. The second quarterly release of a new dataset from the AEI Housing Center aims to fill this void by analyzing housing market data for the 60 largest US metropolitan areas, as well as for the nation as a whole. The current dataset looks at housing data through 2019:Q1.

AEI Housing Center Codirector Edward Pinto and Senior Research Analyst Tobias Peter explain “Our goal is to provide the public, media, and decision makers with accurate and reliable metrics to assess the state of their local housing market in near-real time. A well-informed market place and its participants will aid in promoting sustainable homeownership.

Among the national Housing Market Indicators for 2019:Q1:
  • Rate of house price appreciation (HPA): 3.8%
  • Mortgage risk index: 12.1%
  • Share of buyers of entry level homes: 57%
  • Average sale price for entry level homes: $194,000
  • Share of new construction sales (compared to all home sales): 10.5%
The Housing Market Indicators for the 60 largest US metropolitan areas, along with all associated data, are available on an interactive website here.

This was made possible by AEI’s new merged property and mortgage financing national dataset, which consists of nearly 35 million home purchase transactions.

The data are updated quarterly. The next release of Housing Market Indicators, which will analyze housing data for 2019:Q2, is scheduled for September.
Edward J. Pinto
Codirector, AEI Housing Center
240-423-2848

THE NEXT 20 MONTHS TOLD TODAY BY USING SOCIONOMICS

UPDATE July 13, 2019 – The Dow 30 hit 27,300 yesterday and thus entered the target range for a top to be put in place.  At this point the detonator has been activated and the clock is click down….we just can’t see the clock to know exactly what day the top will occur.  It appears that the stock market and gold will top out in the next month or so.  Then they will decline significantly in sync.  That should surprise the masses that believe the stock and gold markets move in opposite directions.  My belief is yesterday was not the final top.  As always, we shall see how this plays out…

The fun part for me is watching the Fake News Media come up with news stories that will be excused for the markets tanking.  The reality is the markets declining will cause the news stories!  I am sure the FNM will blame Trump’s trade wars (which obviously can’t be a reason as the market is at all-time highs after a few years of trade wars), something that Iran does (again we are at new highs after several Iran events recently), and other BS excuses.

UPDATE July 3, 2019 – The Dow 30 closed at an all-time high of 26,966.  A month has gone by since my original post below.  I can now update the range of the current top that is forming to be 27,200 to 28,300.  It is occurring sooner than I expected.  But, that is not an issue as long as the price range is met.  It can be met in a single day or may play out over several more weeks or months.  Once we get into the range, the downside target to look for to confirm that a 20%-25% bear market might be underway is 26,400 or such.  I will be updating this as the waves unfold.  So far, so good….

Most of the bad economic indicators for June have been reported.  Of course, everyone is worried that the economy is headed into a recession.  Based on the first six months being the biggest rally for some indices since 1938 or 1955, the economy should grow faster in the 3rd Quarter and even faster in the 4th Quarter.  The 2nd Quarter GDP growth should be the lowest of the year.

June 9, 2019 – As I mention now and then, I use Socionomics (not to be confused with Socio Economics) to do many things in my life.  All of my investments for the past almost 40 years have been based on this science – granted for the first 20 years it wasn’t an organized concept with that name).

Right now, the long-term picture has become clear.  This is a rarity.  But, when it happens, I take action.  And, I would like to put in writing what it is forecasting thru Inauguration Day 2021 (I don’t recall if a re-elected President has that again or not).

The Dow Jones Industrial Average (Dow 30) is the best reflection of social mood.  The current forecast is for it to move to new all-time highs this Summer or Fall.  The expected range is 27,000-28,000.  Depending on where we stand based on certain indicators in the theory, I will be liquidating all of my stock holdings and sitting on cash thru the forthcoming 20%-25% bear market.

What this upward move over the next 3-6 months is telling us is the public is expecting President Trump to be re-elected and the booming economy to continue.  That should be the mood at the end of the year and into the 1st Quarter of 2020.  Also, this suggests a very strong GDP in the 3rd and 4th Quarters of 2019 and 1st Quarter of 2020.  The growth should be significantly above the very slow rate we will see for the 2nd Quarter of 2019 that ends in 3 weeks (this was forecast by Socionomics when the Dow crumbled into its December 24th low).

Following the top this Summer/Fall, a bear market much larger than the one last Fall should occur.  As noted above, a 20%-25% decline to the 21,000 area on the Dow 30 is expected.  This should occur around the 1st Quarter/Spring of next year.  Obviously, the Presidential campaign will be officially underway at that time.  The mood should have totally changed and the public will now expect Trump to lose in November.  In fact, the Fake News Media, along with even some Republican strategists, will be talking constantly about how the Democrats will hold the House and even take over the Senate for complete control of the government.  Such an event would destroy our economy and the business world will be as pessimistic as it has been in probably 10+ years.

When examining the ‘waves’ that explain social mood, there is always an alternate scenario that is watched.  For the above, both the most likely and the alternate (i.e. less likely) wave patterns forecast the same events to occur.  However, it is at this junction next Spring that the two patterns provide polar opposite forecasts.

Most Likely Scenario – As of today, the expectation is that following a panic low around next Spring, the stock market will begin a large bull move back to all-time highs.  i.e. the Dow 30 should exceed the highs expected this Summer/Fall.  29,000 is an early target.

This bullish move means the public has determined who the likely Democratic Presidential Candidate is going to be and that person has no chance of defeating Trump.  So, for the remainder of 2020 and into early 2021, the stock market goes straight up (not literally) and Trump is re-elected and businesses are bullish on the economy going forward.

Alternate Scenario – Assuming the public thinks the Democratic Presidential Candidate is going to defeat Trump and the Democrats are going to control both parts of Congress, the stock market will be accelerating its downward spiral in Spring 2020 and drop thru the  20,000 level like a hot knife thru butter.  As this is the less likely scenario, I have not tried to determine how deep this bear market will be or how long it will last.  That will be easy to determine next Spring when this critical time juncture is occurring.

So, that is what Socionomics is forecasting for the next 20 or so months.  I am not giving my own opinion of the future.  The public does this for us.  It always has.  As time goes by and the waves unfold, it is possible to get more precise with price and time targets.

Since both scenarios above have the stock market topping this Summer/Fall, it only makes sense to me to get totally out of all stocks.  Whether or not I jump back in next Spring depends on how the waves unfold going into that timeframe.  One scenario (the most likely one) projects about a 35%-40% bull market.  The other scenario will be forecasting probably another 30%-40% bear market from the prices at that time.  Money is to be made either way.  In fact, the same amount of money can be made in either scenario.  I hope to be back here in about 9 months to explain what Socionomics is then projecting.  Do I go long….or do I go short.

I am sure almost no one makes a 2-year forecast of the future in some detail and puts it out in the public domain for all to see if it is accurate….or if they are wrong and a total fool for trying to predict the future..  But, I have spent my life doing this and not doing a bad job at it.  I put my savings and retirement on the line with the forecasts.  If I am wrong, I feel the pain.  If I am right (like I have been since Election Night 2016 re stocks and early 2000’s re gold), then it is very rewarding.

As an aside, I remember moving my wife’s retirement and my retirement to a new brokerage in 2004 when I took a new job.  We were 100% in gold investments.  Talk about ‘all in.’ :)  The new stock broker thought I was insane.  Where’s the diversification?  Gold was around $450.  We had got in below $300 a few years earlier.  By the time I left that job in 2008, gold had hit $1000.  He told me I had done better than anyone he knew.  You have to remember that by the Fall of 2008, Lehman Brothers went under and the stock market and real estate markets were crashing.  But, not gold.

In 2011, gold peaked near $1900.  I had gotten out a bit before the top admittedly.  But, was back in near the $1075 low in 2016.  Although, I think $1450 is the upside target, I just got back out last week as it hit new highs for the year.  I am not in the mood to wait around for the next $100 to the upside, as there is a good chance of a $100-$200 decline before this final top occurs.  I’ll sit and watch.  Can’t go broke sitting on the sidelines:)

Lastly, let me mention the Fed and interest rates.  Socionomics has shown that the Fed ALWAYS follows what the market tells it to do.  The public thinks the Fed raises rates and then the market reacts to it.  No!  That is the kind of junk the Fake News Media feeds people over and over.  Of course, the media is clueless about markets.

Factual data shows that when the Fed decides to raise or lower rates, the market has already made that move.  Right now, the markets are telling the Fed to lower rates 75bp thru the remainder of the year!  You don’t hear anyway talk about that, do you?  Some are calling for the Fed to lower rates (Trump included….like him or not, he reads what the markets are saying and thus knows the Fed should already be lowering rates.  He isn’t bullying them.  He isn’t trying to make some agenda come true.  He knows, like you now do, that the markets have already said the Fed needs to start lowering rates.), but most are just calling for 25bp.  That is how they will likely start.  But, if so, then it will take 3 of those reductions just to finally catch up with the market.

I’ll end it here.  As Paul Harvey would say, now you know the rest of the story…..

 

2 MORE STATES JOIN THE NON-USPAP EVALUATION WORLD!!!

June 6, 2019 – Most importantly, my thanks to all past and present Veterans on this 75th Anniversary of D-Day.  I visited Normandy and Omaha Beach last year.  So serene.  Humbling.  One of my wife’s uncles was in the second wave that landed at Omaha Beach.  He didn’t tell anyone that until a few months before he died in his 90’s.  The Greatest Generation rarely talked about the War.  But, they saved the World.  Literally.  We owe those young men everything.  God Bless them all and our Country.

Per the Appraisal Institute’s Appraiser News Online, 2 more states will allow licensed/certified appraisers to perform non-USPAP Evaluations.  As predicted, this is the year for this to finally take off across our country.

If you are an appraiser in adjacent states, you should start a campaign to get your state to pass a similar law.  Else, you are missing out on a ton of business!  I hope North and South Carolinas wake up and join the movement.  Soon, the entire Southeastern USA will allow appraisers to perform non-USPAP Evaluations.  Following is from the AI:

ALABAMA

Alabama enacted legislation, effective May 29, allowing state-licensed appraisers to perform evaluations for federally regulated financial institutions.
HB 304 states that appraisers “shall not be subject to any provision” of the state’s appraiser licensing law when performing an evaluation that includes a disclaimer stating it is not an appraisal, and the requirements for a licensed real estate appraiser to comply with the Uniform Standards of Professional Appraisal Practice do not apply.
Additionally, the law clarifies that evaluations are “governed by federal law and rules of the federal financial institution regulatory agencies, and not the board.”
LOUISIANA
Louisiana Gov. John Bel Edwards on May 30 signed HB 340, legislation that allows appraisers in the state to provide evaluations for federally insured depository institutions. The law takes effect Aug. 1.
The legislation states that appraisers are not prohibited by the state’s appraiser licensing law from providing evaluations to federally regulated institutions in accordance with “federal law, regulation or the guidance for evaluations established by the federal financial institutions regulatory agency of the depository institution.”

OREGON – WELCOME TO THE NON-USPAP EVALUATION WORLD

May 23, 2019 – Licensed appraisers will finally be allowed to perform non-USPAP Evaluations for financial institutions.  I like how the State makes it clear that Evaluations are not even real estate appraisal activity.  Strong statement.  Below is from the Appraisal Institute:

SB 109 will allow state-licensed and state-certified appraisers to provide evaluations to financial institutions beginning Jan. 1.
The new law clarifies that a person who is licensed or certified as an appraiser is not engaged in real estate appraisal activity when providing an evaluation that includes a required disclaimer and are not required to, but may choose to, comply with the Uniform Standards of Professional Appraisal Practice when providing evaluation services to financial institutions. Providing evaluations is not considered a real estate appraisal activity, and therefore appraisers are not subject to the jurisdiction of the Oregon Appraiser Certification and Licensure Board.
SB 109 also clarifies that financial institutions may utilize evaluations provided by third parties, and such activity does not constitute real estate appraisal activity. Currently, an evaluation is only exempt from the definition of “real estate appraisal activity” if it is prepared by the financial institution.
In testimony supporting the legislation, the Coalition of Oregon Real Estate Appraisers stated, “We believe Oregon’s citizens and financial institutions would be best served and protected by allowing appraisers to perform evaluation services.” COREA concluded, “We are not opposed to qualified non‐appraisers performing evaluations, however, [sic] we strongly feel that it is in the best interest of Oregonians that those most qualified to perform evaluations (appraisers) not be prohibited from doing so.”

APPLYING USPAP FAIRLY IN A REVIEW by Ted Whitmer

May 1, 2019 – This thought provoking article by Mr. Whitmer first appeared in WorkingRE magazine earlier this year.  Thanks to Mr. Whitmer for permission to publish it on my web site.

I encourage you to be open minded.  Read it once.  Mull it over.  Read it again and again.  I am thru one reading.  Quite eye-opening.  Definitely interesting information.  I have not formed an opinion, yet.  The one thing Ted does is to ‘prove’ his point with specific quotes.  I do the same when debating or explaining an issue.  I like proof to close a case.  And where there is not proof I like to say hey this is a gray area o choose your side and support it the best you can.

I hope you enjoy this article.  I would be interested in your thoughts.  I am sure Mr. Whitmer would be, too.  Our contact info is readily available on the web.  Feel free to email us.

Applying USPAP Fairly in a Review

By Ted Whitmer, CRE, CCIM, MAI, AI-GRS

The reviewer must correctly employ recognized review methods and techniques. This is not possible if the reviewer cannot distinguish how to apply the Uniform Standards of Professional Appraisal Practice (USPAP) to a multitude of different scenarios. This article sets forth common sense review methods and techniques that should be used by reviewers, as well as educating appraisers whose work may be the subject of a review, either by a client, opposing counsel, or a state board.

An appraisal review is defined in USPAP as “the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.” An appraiser is one who is expected to perform valuation services competently and in a manner that is independent, impartial and objective. An appraiser who is in fact objective must learn to apply the standards fairly in the review process.

Where USPAP does not set forth acceptable methods and techniques, it is the intent of this article to do so for appraisal reviews. This will not cover every aspect of appraisal reviews, but sets forth guidelines on how to fairly develop and communicate an opinion about the quality of another appraiser’s work.

Interpretation v. Application
The only entity that is charged with interpretation of USPAP is the Appraisal Standards Board (ASB) of the Appraisal Foundation (TAF). Every other person or entity who uses USPAP applies the standards and does not interpret the standards.

The following is from the Forward of the current USPAP:
The Appraisal Standards Board (ASB) of The Appraisal Foundation develops, interprets, and amends the Uniform Standards of Professional Appraisal Practice (USPAP) on behalf of appraisers and users of appraisal services.

All other persons and entities should apply the standards and not attempt to interpret the standards. In fact, the ASB issues Advisory Opinions (AO) and Frequently Asked Questions (FAQ) as guidance. Even AOs and FAQs are not interpretations, nor are they a part of USPAP. They illustrate the applicability of Standards in specific situations and offer advice from the ASB for the resolution of specific appraisal issues and problems.

It stands to reason that if guidance put out by the ASB is not interpretation, then a reviewer should avoid trying to interpret USPAP and merely apply the standards to a review. Instead of interpreting USPAP, if the standard can be applied in more than one way, then the standard should be applied in the best light of the appraiser and not against the appraiser. Keep this in mind as you read through this article.

One Size Does Not Fit All
Assume the same appraisal and appraisal report developed and written by the same appraiser is reviewed in the following settings: mortgage lending, board enforcement, civil court proceedings, criminal action, experience credits, to secure a job, and to become approved on an appraiser roster (list). This same report should not be reviewed in the same manner. USPAP is the same, as are all the rules contained in USPAP. However, the proof of noncompliance with USPAP should be under different standards of proof. The application of USPAP rules should change depending upon a multitude of factors.

Review Continuum
A continuum is defined as “a coherent whole characterized as a collection, sequence, or progression of values or elements varying by minute degrees” (Merriam Webster Dictionary).

Potential Harm to Appraiser
An appraisal review is an activity that can result in harm to the reputation of the appraiser. Needless to say, reputation is one of the greatest assets an appraiser has in the marketplace. Good reputation must be maintained by an appraiser. Actionable defamation is the publishing of a false fact that damages the reputation of another. Therefore, there are legal consequences to damaging the reputation by publishing false facts. However, the reviewer should go beyond just trying to avoid publishing false facts. Any allegation that the appraiser is in noncompliance with USPAP should never be based solely on the opinion of the reviewer, but should be supported with facts or other objective evidence.

The following are examples of needed facts or evidence to support USPAP noncompliance.

Scope of Work

USPAP states: “the scope of work is acceptable when it meets or exceeds the expectations of parties who are regularly intended users for similar assignments, and what an appraiser’s peers’ actions would be in performing the same or a similar assignment.” A reviewer should not conclude an improper scope of work by the appraiser unless there is a showing that the work did not (1) meet the expectations of the parties who are regularly intended users, and (2) what an appraiser’s peers’ actions would be in performing the same or similar work. It should be noted that a “peer” is on an assignment-specific basis. A reviewer for a state enforcement action should not claim to be a “peer” unless they can establish they are, in fact, a peer. Additionally, even if they are a “peer,” there needs to be evidence that other “peers” would not have found the scope of work acceptable.

Making Client Requirements a USPAP Issue
Many reviewers are critical of appraisers for not detailing client requirements in the appraisal report. This is from Residential Appraisal Review and USPAP Compliance, Student Manual, published by the Appraisal Foundation, 2016: “Reviewers are responsible, as necessary, to address client and regulatory guidelines in addition to USPAP compliance (emphasis added). Some of the entities who have such additional guidelines are Fannie Mae, Freddie Mac, FHA/HUD, and VA, as well as Interagency Group Members.”

Note that the Appraisal Foundation in this publication states that regulatory guidelines are in addition to USPAP compliance. They do not say it is a part of USPAP compliance.

Reviewers often, and incorrectly, make client requirements (FNMA, FHA, etc.) equal to USPAP. The Scope of Work Rule is a development rule, not a reporting rule. The following are the assignment elements set forth in the rule:
• Client and any other intended users,
• Intended use of the appraiser’s opinions and conclusions,
• Type and definition of value,
• Effective date of the appraiser’s opinions and conclusions,
• Subject of the assignment and its relevant characteristics, and
• Assignment conditions.

This list does not include client requirements. The definition of Scope of Work from USPAP narrowly applies to the extent of the research and analysis, not the checking of boxes and inclusion of report elements. USPAP defines it as:
“the type and extent of research and analyses in an appraisal or appraisal review assignment.”

Misleading Report
“Misleading” is set forth in Conduct (Ethics) and in Standard 2. The ASB is clear that the target of the report is the client and any other intended users. As with any document, any other nonintended users, even knowledgeable reviewers, can be misled or may not understand portions of appraisal reports.

“Misleading Conduct” should only be alleged by proving intent of the appraiser to mislead and showing that the client and/or intended users were misled by the report. Standard 2 “misleading” should not be tested against anyone but the intended users. Not even knowledgeable appraisers should conclude that an appraiser was in noncompliance with Standard 2 (misleading) unless the reviewer shows the intended user was misled.

Some reviewers conclude that they are knowledgeable about appraisal theory, standards and ethics and even a particular market or property type, therefore, if they are misled by something in an appraisal report, any intended user would be misled. The reviewer’s conclusion is “intended users may not be informed enough to know they were misled.” This is an incorrect application of USPAP and ignores that the intended user may have thousands of pages of documents concerning the subject, have various studies and considerable research into the market and discussions with those knowledgeable about the property.

Failure to Correctly Employ Recognized Methods & Techniques
A reviewer should cite failure of the appraiser to employ recognized methods and techniques only if they can cite sources showing that what was done is not acceptable. In addition, the reviewer should show that there are no other alternative texts, articles or schools of thought that don’t agree with what they can produce in a text or article. Finally, any text or course that states it is “for educational purposes only” should not be used to impeach the appraiser related to the application of methods or techniques employed by that appraiser.

Wrong Comparables
There must to be a strong showing, not that there were better comparables, but that the appraiser failed to use reasonable comparables. An attorney and a doctor are given considerable leeway in judgment calls on applying trial strategy (attorney) or treatment (doctor). It stands to reason that since an “appraisal” is an opinion of value and the appraiser must exercise judgment, the judgment should only be questioned with a strong showing that there was not a reasonable basis for choosing certain comparables. In addition, the reviewer should always produce “better” comparables before concluding the appraiser chose poor or wrong comparables.

Unreasonable Adjustments
The reviewer should have to show better adjustments, with support, to communicate an opinion that the original appraiser has unreasonable adjustments. As with the choice of comparables, the reviewer should show that the judgment of the appraiser was so unreasonable that other reasonable appraisers would not have applied the adjustments. As previously stated, the appraiser should be given wide latitude to exercise judgment.

Omission of Necessary Information
The reviewer should not only have to show that omission of information concerning the subject or comparables resulted in a non-credible analysis, they should have to show (1) that it is not just a reporting error, where the appraiser did in fact consider the information but failed to report it, and (2) it wasn’t built into the comparables or adjustments and therefore did not cause non-credible results.

Use of the Report to Allege Development Error
One cannot tell from an omission in a report what the appraiser did or did not do in the development of an appraisal. A reviewer should be careful to separate a development error from a possible reporting error. For example, a report may have no analysis of the history of the subject, the highest and best use, nor land value. However, the appraiser may have done all the analysis and failed to report that analysis. A reviewer should not allege a development error when the report is absent a discussion of analysis.

Date of Appraisal Report
I commonly see reviewers apply USPAP rules equally to ten-year-old appraisals and contemporaneous appraisals. The appraiser should be given “the benefit of the doubt” on older appraisals. If an appraiser conducts 200 appraisals per year, then an appraisal conducted five years earlier could have been 1,000 appraisals in the past. To judge that appraisal as though it is contemporaneous makes no sense. The appraiser often cannot remember what was done the previous month, much less answer questions about a five-year-old appraisal. Furthermore, there are a number of factors that cannot be assessed later such as the market, knowledge of the intended user for the property appraised, the factors in reviews contemporaneous at the time of the appraisal and many other factors set forth in this article.

Workfile & Access to Appraiser
This is related to the previous factor; the date of the appraisal report. The appraiser, appraisal and report should not be held to the same application of USPAP rules if the workfile is no longer in existence or is not available to the reviewer. Additionally, if the reviewer cannot interview the appraiser, then the “benefit of the doubt” should go to the appraisal and appraiser without additional evidence to the contrary.

Complexity of the Problem
Almost every appraisal that proceeds through board enforcement involves strange properties or markets. We almost never see an appraisal of a residence in the middle of a subdivision be a problem appraisal for board enforcement.

The following are cases that I was involved in that were subject to Board action:
• A log house in a rural area
• A power plant
• A unique small apartment property
• A subdivision
• A house that was in a gated community that was constructed like an office building
• A house with considerable excess land
• A house in a transitioning area

These are examples of properties that created a problem for enforcement and the appraiser. These properties should not have USPAP applied in the same manner as the house in the middle of the subdivision. However, in all of the above cases, testimony was that the appraiser “did not correctly employ recognized methods and techniques,” the appraiser was not “competent” and the appraiser produced a “misleading report.” These general and broad-based USPAP provisions should not be a fallback to criticism of the appraiser.

Data Availability & Number of Approaches Needed
One appraiser tells his clients that he is really good when he has five comparables that are exactly like his subject, that recently sold, and all for the same amount of money. The truth is, this does not a “good” appraiser make and the lack of data does not make the appraiser incompetent. Lack of data generally means the subject and/or market are unique. The application of the standards should slide depending upon the amount of data that is available and comparable at the time of the appraisal. As a general rule, the more approaches that are used, the better the data in the market. The omission of any of the approaches may mean there is less data available.

Premises of the Appraisal
When there are many premises supplied by attorneys in litigation, there is a greater chance that there will be drastically different values between two appraisers. A Texas case had testimony from one appraiser that a property was worth close to $25 million. The other appraiser, for the identical legal description, testified the property was worth $300,000. The difference between the two were the legal instructions given and the input from other experts.

An extraordinary assumption may be used in an assignment only if:
• It is required to properly develop credible opinions and conclusions,
• The appraiser has a reasonable basis for the extraordinary assumption,
• Use of the extraordinary assumption results in a credible analysis, and
• The appraiser complies with the disclosure requirements set forth in USPAP for extraordinary assumptions.

There is a duty to not just take instructions, but to ensure the use of an extraordinary assumption results in credible analysis. If the appraiser has done this, a reviewer should review the appraisal and report without making their own determination of the side they would be on.

Intended Use of Appraisal
There are five overarching requirements of an appraisal report. 1. It must be consistent with the intended use.
2. It must contain sufficient information for the intended users to understand the report properly.
3. It must not be misleading.
4. It must contain sufficient information to show the appraiser complied with Standard 1 in development of the appraisal.
5. It must, at a minimum, contain the requirements of SR 2-2(a).

If the appraisal assignment is being used for litigation purposes, then the content should be minimal and not detailed. The reason is that the opposing side is going to use the report for discovery and ultimately will use the report to discredit the testimony and the appraiser witness. The opposing side in a court case is almost never the intended user. The intended user is the attorney, their client and possibly the court. Not only is the other side not the intended user but (1) they will use their own appraiser’s appraisal and report, and (2) not only will they not use your report, they will make every attempt to discredit the report, the appraisal and you as an appraiser. This certainly is not an intended use.

Furthermore, in most every case, the appraisal report is not admissible into evidence but the testimony of the appraiser is. When the intended use is for mortgage loan purposes, the application of USPAP is on a sliding scale (continuum). The higher the loan-tovalue ratio, the more complex the property, the higher the risk, the more likely the appraiser would have to expand the scope of the appraisal and be more detailed with the report. If the report is for HUD or FNMA, it is more likely that minimal content is necessary. This is because (1) the intended users generally have significant information about the property and transaction, (2) the appraisal report is on a standardized form, and (3) the participants, including reviewers, are familiar with the forms and property type.

More is required in a report for unsophisticated users of appraisal reports and services and less is required for those who frequently receive reports. A reviewer should apply USPAP differently if the appraisal and report are developed and written for users who daily or frequently read reports and interact with appraisers versus users who infrequently see appraisal reports.

Factual v. Opinion-Based Noncompliance
Not all USPAP rules are created equal. Allegations of noncompliance with USPAP can be either “factual” or “opinion” based. USPAP sets forth reporting requirements in twelve rules. Seven of the 12 start with “state,” four begin with “summarize” and one rule says to “include” (the certification). However, the rules are set forth in compound sentences and there are requirements in the comments that are not in bold rules. All this creates confusion to both the appraiser, who is to apply USPAP as a minimum standard set, and to the users of appraisal services.

If one of the following is missing from an appraisal report, it is factually noncompliant. There are some rules that are conditional. For example, if the value definition is “market value” and there is a reference to exposure time, then a statement as to the exposure time is necessary. If the value definition does not include exposure time, then there is no USPAP requirement for stating the exposure time. The same goes for many other provisions, such as competency. One must look at the conditional precedents of USPAP before applying a rule to an appraiser.

For example, the following 15 items are required to be stated in an appraisal report: Identity of client, identity of intended users, intended use of report, real property interest appraised, substantiation of real property interest by title descriptions or other documents, type of value, definition of value, cite the source of value, if in terms of cash or other non-market financing & summarize terms if not cash, exposure time if developed in compliance with SR 1-2(c), effective date of the appraisal, effective date of the report, use of the real estate existing as of the date of value, use of the real estate reflected in the appraisal, and report option.

The following are required to be “summarized” in an appraisal report: information to identify the real estate involved in the appraisal, physical property characteristics relevant to the assignment, legal property characteristics relevant to the assignment, economic characteristics relevant to the assignment, scope of work used to develop the appraisal (research & analysis used and not used), extent of significant professional assistance, information analyzed, appraisal methods & techniques employed, reasoning that supports the analysis, opinions & conclusions, provide sufficient info to understand the rationale for opinions & conclusions, must contain sufficient info to understand the reconciliation of data and approaches per SR 1-6, results of analyzing subject sales, etc. per SR 1-5, if info for SR 1-5 is unattainable steps taken to obtain info is required.

Another example of this is found in SR 1-4. The rule says that when the sales comparison (cost or income) approach is necessary, then the rules following apply. This means that if the certain approach is not necessary, then the rules don’t apply. The condition precedent to the application of the rules is that the approach is necessary for credible results.

There is one requirement to “explain”: the exclusion of any approaches to value. There is also potentially one requirement to “describe.” This is in the Competency Rule: the steps taken for an appraiser to become competent. There is one requirement to “include” a signed certification that has ten parts. Signed certification in accordance with Standard 2-3:

I certify to the best of my knowledge and belief:
1. Statement of facts
2. Limited by…
3. No interest
4. Prior services
5. No bias
6. No predetermined
7. Compensation
8. Per USPAP
9. Inspection
10. Significant assistance

The following must be “sufficient,” and according to the comment in SR 2-2(a) (viii), the detail depends upon “significance.” Other parts of Standard 1 are arguably in the state and summary requirements of Standard 2.
1. Aware of, understand & correctly employ recognized methods and techniques.
2. Not commit a substantial error of omission or commission.
3. Did not render appraisal services in a careless or negligent manner.
4. Any personal property, trade fixtures or intangibles that are not real property but are included in the appraisal.
5. Any known easements, restrictions, encumbrances, leases, reservations, covenants, etc.
6. Whether the subject property is a fractional interest, physical segment, or partial holding.
7. Determine scope of work necessary for credible results.
8. Effect on use and value of existing land use regulations.
9. Reasonably probable modifications of land use.
10. Economic supply & demand.
11. Physical adaptability of the real estate.
12. Market area trends.
13. If applicable, the assemblage and refrain from valuing the whole by addition.
14. Anticipated public or private improvements.
15. When applicable, personal property, trade fixtures or intangibles.

If the appraisal report excludes any of the above and the condition for inclusion is met, then it is factually not in compliance with USPAP. However, if the requirements above are in the report, then a reviewer could say they are not summarized enough. This is not fact-based but opinion-based. The reviewer could say that the description of the subject is not adequate. It is clear that a property and a market description could take hundreds of pages to write and could include many details of the subject and the market. A reviewer can always find an aspect of the subject, market or data and say the appraisal and appraisal report is deficient and does not comply with USPAP.

Similarly, allegations that the appraisal did not correctly employ recognized appraisal methods and techniques, that the report is misleading or the scope is insufficient are opinion-based issues of noncompliance. A reviewer should err on the side of the appraiser, unless there is little potential harm to the appraiser for such an allegation. For example, if one is reviewing an appraisal for mortgage loan purposes, the reviewer should have greater leeway to be critical of the application of the opinion-based standards versus if one is reviewing for court testimony, civil suits, criminal cases or board enforcement. Those settings should require evidence and not mere conjecture or opinion of the reviewer.

The reviewer should never make an allegation of noncompliance by the appraiser for not employing recognized methods and techniques without citing references to the proper methods and techniques. This should not be done with any text or course materials that warn the reader that the contents “are for educational purposes only.”

The Supreme Court in Alaska in the Wold case said there should not be allegations of violations of USPAP that the appraiser used the wrong comparables or adjustments without showing the correct comparables or adjustments. Even with a showing of a different set of comparables or adjustments, one must keep in mind that an “appraisal” is by legal definition “an opinion of value.” If selection of comparables and adjustments made to the comparables was definitive, then an appraisal is not an opinion of value and could be performed by an algorithm in a computer program. Rather than an immutable mathematical algorithm, as Dr. Charles Gilliland, PhD says, an appraisal is an interpretive art.

A client’s intended use, principals’ motivations, number of competitors and a myriad of other circumstances can impact observed market transactions. All of these factors drive modern appraisal applications. These complicating factors guarantee that no single hard-and-fast formula can reliably produce a credible estimate of market value. An appraiser is called upon to skillfully transform market information into an estimate of value for a subject property. That estimate must reflect the realities of the economic and legal environment of that subject property. The results rely on a set of assumptions and interpretations designed to capture those realities.

Conclusion
The Preamble to USPAP states…”The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers.” The frequent practice of applying USPAP the same way to all reviews does not “promote and maintain a high level of public trust in appraisal practice.” This article did not provide an inclusive list of all factors that should be considered in the application of USPAP rules. However, it does provide the basics for a fairer application of USPAP rules.

Click here for Guidelines for Proper Application of USPAP.

About the Author

Mr. Ted Whitmer, JD, MBA is an appraiser, attorney, instructor, asset manager and consultant. Mr. Whitmer holds the MAI & AI-GRS designations from the Appraisal Institute. He is CRE & CCIM member of the National Association of Realtors, a licensed broker and Certified General appraiser.

2019 – THE YEAR EVALUATIONS BREAK THROUGH

April 19, 2019 – It has been exactly 25 years that I have been campaigning for non-USPAP Evaluations to be performed by licensed/certified appraisers.  Most of the time it has been a one-man campaign.  Thankfully, times have changed and appraisers have come around to the need for Evaluations.

It looks like this year will see many States pass the requisite law to allow its most qualified valuers to finally perform non-USPAP Evaluations.  If your State isn’t mentioned below, I encourage you to take action.  For almost 30 years, non-appraisers have been doing all the Evaluation work in your State.   With Evaluation volume about 4x-6x that of Appraisal volume think how much business you have missed out on:(

The following are from the Appraisal Institute:

Utah Allows Appraisers to Perform Evaluations for Federally Regulated Lenders
Utah Gov. Gary Herbert on March 26 signed SB 140, legislation that allows state-licensed and state-certified appraisers to perform evaluations for federally regulated financial institutions.
Under the new law, appraisers who provide evaluations in compliance with the Interagency Appraisal and Evaluation Guidelines are exempt from compliance with the Uniform Standards of Professional Appraisal Practice. Appraisers will sign the evaluations, certifying that they comply with the IAEG. However, they must still abide by the basic elements of USPAP’s Ethics, Competency, Scope of Work and Recordkeeping rules. This concept has been advanced by several Appraisal Institute chapters in recent years.
The legislation takes effect May 14.
• Evaluations
Alabama (HB 304) Louisiana (SB 42) and Oregon (SB 109) are considering bills that will amend appraiser licensing laws so that appraisers can perform for financial institutions evaluations that do not comply with the Uniform Standards of Professional Appraisal Practice when not required by federal law. If the laws pass in these states, they will join Florida, Georgia, Illinois, Indiana, Tennessee, Utah, and Virginia in allowing appraisers to perform these services.

 

New AEI dataset: Housing Market Indicators in the 60 largest US metropolitan areas

April 9, 2019 – In my opinion, the AEI provides the most neutral analysis of the housing market.  They likely have the most data.  Unlike NAR, there is no bias.  Below is their major announcement today.  I hope you find their reports useful.

Just to be transparent – I am not a member of AEI (not even sure if such exists).  I do not contribute to them.  I have attended some of their meetings on housing.

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New AEI dataset analyzes the 60 largest US metropolitan areas

Housing markets are inherently local, making them notoriously difficult to analyze due to the lack of reliable data at the local level. A new dataset from the AEI Housing Center, the first in a series of quarterly reports, aims to fill this void by analyzing housing market data for the 60 largest US metropolitan areas, as well as for the nation as a whole. The current dataset looks at housing data from 2018:Q4.

AEI Housing Center Codirector Edward Pinto and Senior Research Analyst Tobias Peter explain “Our goal is to provide the public, media, and decision makers with accurate and reliable metrics to assess the state of their local housing market in near-real time. A well-informed market place and its participants will aid in promoting sustainable homeownership.”

Among the national Housing Market Indicators for 2018:Q4:

  • Rate of house price appreciation (HPA): 3.9%
  • Mortgage risk index: 11.1%
  • Share of buyers of entry level homes: 55%
  • Average sale price for entry level homes: $197,000
  • Share of new construction sales (compared to all home sales): 11.2%

The Housing Market Indicators for the 60 largest US metropolitan areas, along with all associated data, are available on an interactive website here.

This was made possible by AEI’s new merged property and mortgage financing national dataset, which consists of over 34 million home purchase transactions.

The data are updated quarterly. The next release of Housing Market Indicators, which will analyze housing data for 2019:Q1, is scheduled for May.

Codirector, AEI Center on Housing Markets and Finance
240-423-2848

GOLDMAN SACHS – THE ULTIMATE CONTRARIAN INDICATOR

February 28, 2019 – Some may remember about 3 years ago when Gold was around $1100 and I was buying it that Goldman Sachs was forecasting a significant decline.

In the past week, Gold hit the high end of my current target range closing at $1347 on February 20th.  Goldman Sachs is now bullish on Gold and forecasting it to hit $1425.  Ahhhh, bullish right at the top.  Good to see it.

Now for the decline to below $1250….(by March 1, Gold has already gone below $1300)

The stock market made an extremely rare ‘V-shaped’ bottom on December 24th.  It has nearly recovered all of its losses.  The indication is that 3rd Quarter GDP should recover nicely from a low figure in the 2nd Quarter.  1st Quarter GDP was announced at a still strong 2.6% today.  I would expect to see it revised downward a bit in the future.

The Mann