Tag Archives: ASB

MY COMMENTS TO THE ASB ABOUT THEIR EVALUATIONS CONCEPT PAPER

October 9, 2019 – Since comments sent to the ASB are made public, I will share my comments here.  Below is what I sent.  I hope everyone will send comments by the October 11th deadline.  The Concept Paper can be found at:

https://appraisalfoundation.sharefile.com/share/view/s6db453b85544d3ea

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Thank you for the opportunity to respond to The Appraisal Foundation’s request for input on its “Concept Paper – Evaluation Standards for USPAP” dated September 3, 2019. I offer my perspective as a client, preparer of, and reviewer of Evaluations on a nationwide basis since 1992.  I have ordered and reviewed thousands of commercial and residential evaluations prepared by both licensed/certified appraisers and non-appraisers.  My comments are based on 27+ years of real-world experience with IAEG-compliant Evaluations and USPAP-compliant Restricted Appraisal Reports.
GENERAL COMMENTS
Before I respond to the questions asked on Page 5 of the Concept Paper, I want to comment on some statements on Pages 1 through 4 that I believe do not reflect the real-world.
On Page 1 are the statements “One change is the increase in the market’s demand for evaluations.” and “Beginning in 2010 the use of evaluations began to noticeably increase.”  These statements are not consistent with my nationwide experience since 1992, nor with exemptions to FIRREA since 1994.  My research along with some Chief Appraisers at various banks shows that there has always been the need for about 4 to 6 times as many Evaluations as Appraisals.  The need for Evaluations did not suddenly increase after 2010, nor at any period since the major changes to FIRREA that occurred in 1994.  Mathematically the percentage of loans needing Appraisals versus the percentage of loans needing Evaluations increased in favor of Appraisals (i.e. fewer Evaluations were needed) from 1994 to 2018/2019.  The simple reason is that the thresholds set in 1994 did not increase while real estate prices about doubled in that 25-year period.  The threshold exemptions in 2018/2019 either caught the dollar amounts up with price appreciation (e.g. the commercial increase from $250,000 to $500,000) or did not quite keep up with price appreciation (e.g. the residential increase to $400,000).  In fact, the most significant threshold for Evaluations has not increased since 1994 – i.e. the $1,000,000 Business Loan exemption.  Therefore, in relation to the need for Appraisals, the need for Evaluations declined between 1994 and 2019.  Also, this relationship will increase in favor of Appraisals every year that real estate prices appreciate and the thresholds are not increased.  Any decline in property values like occurred in 2006-2010 leads to appraisals being required almost 100% of the time.  Therefore, the trend for Evaluations will continue to be downward in relationship to the need for Appraisals.
As to the ‘controversy and confusion’ mentioned on Page 2, this can be directly attributable to The Appraisal Foundation.  The financial industry is not confused and never has been!  Since the first detailed discussion of Evaluations came out in 1992, banks and credit unions have known exactly when they can order Appraisals and when they can order Evaluations.  The thresholds are black and white.  Also, the content difference between the two products has been clear and known by all since 1992 and especially since 1994 when the Interagency Appraisal and Evaluation Guidelines (IAEG) detailed Evaluation requirements.  Any confusion on the part of appraisers occurred when the ASB started answering the question of whether appraisers could perform Evaluations with a ‘Yes.’  The answer has been ‘No’ in general with 10 States currently permitting licensed/certified appraisers to perform non-USPAP Evaluations.  Saying that appraisers can do Evaluations by preparing at least Restricted Appraisal Reports was always the wrong answer to promote and has resulted in any confusion on the part of appraisers.  But, financial institutions have never been confused about Evaluations.  Once again, The Appraisal Foundation has the opportunity to simply say that Evaluations as defined by the IAEG are outside the realm of TAF and are not Appraisals and thus users and Evaluators need to refer to the most recent IAEG.  That simple.  It has been that simple for almost 30 years now.  Appraisals and Evaluations have some things in common, but they have many differences, too.  They are simply two different products.
These statements that start on Page 3 are somewhat to entirely misleading:
“To complicate matters further, the Guidelines are written to provide guidance to federally regulated financial institutions and examiners – they are not written for appraisers or others completing evaluations. It is also important to note that recent rulings have determined that federal guidance, such as the Guidelines, is merely guidance and is therefore not enforceable. This underscores the fact that there are no true standards for the performance of evaluations. Furthermore, when evaluations are performed by individuals who are not credentialed (or are exempted from oversight by state laws), there is no publicly accountable entity to turn to if the evaluation is not completed competently, and if the results are called into question by the institution or by an institution’s customers.”
Saying that the IAEGs (which explain FIRREA) do not apply to appraisers is not logical.  That is like saying FIRREA itself is for financial institutions to follow, but not appraisers.  That is obviously 100% wrong.  FIRREA and the IAEGs are meant for financial institutions, appraisers, and evaluators.  All parties need to abide by both the law and the bulletins.  Yes, in a court of law, the IAEGs can be compared to the Advisory Opinions, Statements, and FAQs contained in the USPAP books.  However, in the real world when appraisers are required to do what their peers would do and what their clients expect to see, we know that clients and appraisers do what is said in the Advisory Opinions, Statements, and FAQs.  It is the same for IAEGs – all parties do exactly what they say.  Also, Evaluations have ONE set of guidelines.  Appraisals have numerous – IVS, SVP, UASFLA, USPAP, and others.  All clients and evaluators know they can go to a single document to know exactly what to do – i.e. the most recent IAEG.
COMMENTS ON SPECIFIC QUESTIONS
Q:  Should the ASB investigate whether it would help foster public trust in valuations if they set minimum standards for evaluations? None of the USPAP Rules or development and reporting standards currently exist for non-appraisers who perform evaluations, because the Guidelines provide only broad guidance. Would it be beneficial to give everyone performing an evaluation a clear set of standards to follow including, for example, rules related to ethics and competency?
COMMENT:  No, ASB’s involvement will only result in confusion.  It is misleading to say that the Guidelines ‘provide only broad guidance.’  The Guidelines provide specifics as to the development and reporting of Evaluation Reports.  Also, unlike USPAP which is not required in about a dozen states (!), Evaluation Guidelines apply nationwide.  Unlike Appraisals that have numerous sets of standards, Evaluations have one set of guidelines.  Also, Evaluation requirements apply to BOTH licensed/certified Appraisers and non-Appraisers!  Appraisal requirements only apply to licensed/certified Appraisers.

Q: What specific Rules or Standards Rules (in STANDARDS 1 and 2) would need to be modified or eliminated if the ASB were to develop specific standards for evaluations?
COMMENT:  I have nothing to say here as I recommend the ASB just keep to the ‘A’ that is in ASB and USPAP – Appraisals.  Evaluations are not Appraisals and should not be discussed at all (including the Advisory Opinions, Statements, and FAQs!) in the USPAP book.  Some  people believe the ASB should briefly address Evaluations in Standards 1 and/or 2 by simply referring to the IAEG for Evaluations guidelines.  This is unnecessary as all has been fine for 30 years and nothing is needed from USPAP in regard to Evaluations.  Also, this would lead to confusion since USPAP is not required by all States.

Q: If the ASB develops standards for evaluations, how would that impact Advisory Opinion 13, Performing Evaluations of Real Property Collateral to Conform with USPAP? If the ASB does not develop standards for evaluations, should the guidance in AO-13 be modified?
COMMENT:  Per above, ALL discussion of Evaluations needs to be removed from the ENTIRE USPAP book.  One straightforward FAQ answering whether appraisers can do Evaluations should simply say this is a topic outside of TAF and USPAP and the reader should refer to the IAEGs.

Q: Are USPAP Rules and Standards still the minimums required to protect public trust in the appraisal profession? If not, then are there any Rules or Standards Rules that should be considered for significant revision or elimination? Or, is USPAP a “safety code” that is best left in place despite pressure to reduce the requirements?
COMMENT: USPAP is fine for Appraisals.  The ASB addresses changing conditions in their bi-annual updates.  I see nothing that needs to be changed here – other than maybe only making changes every 5 years or such.  The major critique I hear from appraisers and clients is about USPAP changing every 2 years.  Questions are asked like are they admitting they got it wrong all along?

Q: Should the ASB modify the DEFINITION of appraisal to differentiate it from an evaluation? If evaluations were included as a separate category in USPAP, what would be the regulatory implications?
COMMENT: Probably no need to have a definition for Evaluation in an Appraisal document.  Again, they are just apples and oranges.

Q: How might the ASB help resolve the nomenclature issue so appraisers can prepare evaluation reports that comply with USPAP without the use of contradictory or confusing labels?
COMMENT: Again, appraisers in states that require them to follow USPAP cannot do Evaluations.  It is that simple.  The appraisers in those 40 States plus DC and the 5 Territories know they must meet USPAP for ALL assignments and thus perform an Appraisal.  This is known by all.  No confusion.  Telling appraisers in those areas they can do Evaluations is what causes confusion.  That needs to stop and the confusion will go away.
Q: How might USPAP reporting standards be changed and/or how might the ASB more effectively communicate the flexibility of USPAP to appraisers, regulators, clients, and policy makers?


o Veteran appraisers understand the SCOPE OF WORK RULE and think that USPAP reporting requirements provide all the flexibility that is needed for appraisers to write evaluations or offer other services. Indeed, one of the first lines of STANDARD 2: Real Property Appraisal, Reporting states: “STANDARD 2 does not dictate the form, format, or style of real property appraisal reports.”
o But not all understand or agree. For example, the Guidelines state: “Unlike an appraisal report that must be written in conformity with the requirements of USPAP, there is no standard format for documenting the information and analysis performed to reach a market value conclusion in an evaluation.” In March 2016, the Director of the Division of Banking Supervision and Regulation reiterated that there is no “standard format” for an evaluation “in contrast with the requirements of USPAP.”
COMMENT:  To clarify, and I believe TAF would agree, there is no “standard format” for appraisals either.  The ASB purposely keeps reporting format, valuation techniques, and some other items out of USPAP.  Like appraisal reports, evaluation reports must be written in conformity with the requirements of the IAEG.  Appraisal reports must meet the IAEG, which then requires compliance with USPAP, too.  Evaluations have the same requirements, except for the USPAP item.
Thanks for the time and consideration of the above.
Sincerely,
The Mann
George R. Mann, CRE, FRICS, MAI

ASB RELEASES CONCEPT PAPER ON EVALUATIONS

September 3, 2019 – As promised a month ago, The ASB has issued their concept paper with ample time for everyone to comment.  Also, there will be a webinar on September 10th and a public meeting on October 18th.

The concept paper can be found at:

https://www.appraisalfoundation.org/imis/TAF/Standards/Exposure_Discussion_Drafts/TAF/Exposure_Drafts.aspx?hkey=d6d47266-eca5-4178-8919-2d3e827a5f36&WebsiteKey=e12b6085-ff54-45c1-853e-b838ca4b9895

If this URL is too long, go to the Standards & Qualifications tab on TAF website.

After reading the document, I believe it is well explained and gives everyone a chance to opine.  I think a statement or two are slightly misleading, but they explain why they say what they say and that is just fine.  If I am up for it one day, I might add a post here listing out the items I disagree with.

My stance will never change.  Evaluations need to stay outside of TAF.  Just leave this product under the domain of federal regulators who actually do have the power to go after anyone who performs fraudulent evaluations.  The federal regulators have enforcement power that TAF and ASB do not have.

Please take the time to send them your comments.  They do read everything they receive.  Obviously, some meat to your stance will carry more weight.  Try to give some factual information.  Simply saying evaluations are more risky is factually wrong.  People like myself that have ordered and reviewed appraisals and evaluations on all property types, performed due diligence on dozens of good and bad banks, et al, know loans allowing evaluations are, and likely always will be, less risky than loans requiring appraisals.

Unlike our politics, it will help if you don’t say you are a Never-Evaluations person and leave it at that.  No need to call each other Appraisalphobic or Evaluationphobic lol

Give the ASB some real substance and they will give your comments significant weight.  Give them suggested wording and they will consider it.

Just saying ‘because’ is what a 5-year old says:)

Take advantage of your chance to comment…

The Mann

 

HEY ASB, STAY THE EXPLETIVE DELETED OUT OF THE EVALUATIONS WORLD!!!

August 1, 2019 – I was bombarded throughout the day with appraisers emailing me the ASB announcement that they are going to consider drafting standards for Evaluations.  Their announcement is full of blatant lies.  It is typical of what the Fake News Media puts out.  Therefore, I will list their lies and provide the actual truth below.  Too many people who have no to minimal experience with evaluations put out Fake News all of the time.  It is criminal.  I have ordered and performed evaluations since essentially the beginning of their existence in 1992.  The truth follows….

LIE #1 – “Currently, there are no uniform standards for appraisers to follow when conducting an evaluation, ” – THE TRUTH – Since October 1994, there have been uniform standards for appraisers to follow when conducting an evaluation.  These standards were updated in the December 2010 Interagency Appraisal and Evaluation Guidelines.  And get this, these requirements apply to not only appraisers, but NON-appraisers!!!  USPAP only applies to appraisers.

LIES #2 and #3 – “, which leads to greater risk to the safety and soundness of the real estate transaction and diminished protection for consumers….With the increased use of evaluations in the marketplace lenders and consumers are being exposed to an unnecessary level of risk not seen since the 1980s when national appraiser qualifications and appraisal standards had not yet been created….” – THE TRUTH FOR #2 – First, evaluations are only allowed in transactions that are lower risk than appraisals.  Therefore, they cannot possibly add risk to lending.  In my 27+ years of working for banks, I cannot recall a bad loan that originated with the use of an evaluation.  But, all the bad real estate loans I have seen did contain an appraisal.  Inflated appraised values alone do not make loans go bad.  That is not what I am insinuating.  But, I will confidently say that no bank has ever or will ever go under because of the use of evaluations.  However, many banks have gone and will go under with appraisals being a contributing factor.  THE TRUTH FOR #3 – ‘…diminished protection for consumers.’  Everyone loves to claim they are trying to help the consumer.  I guess we can call it using the ‘Consumer Card.’  The ‘consumer’ usually means the general public that buys houses.  The fact is FIRREA does not apply to 90%+ of residential loans.  Everything that Fannie Mae, Freddie Mac, the VA, HUD, and on and on are involved in is exempted from FIRREA.  (If you are honestly concerned about the consumer, it is Fannie Mae and Freddie Mac that must be stopped from loosening appraisals standards…and remember evaluations are not in their world, so don’t get the issues confused.)  The consumer BENEFITS from evaluations as they are cheaper and faster than appraisals.  It is a flat out, despicable lie to say that the ‘consumer’ is hurt by the use of evaluations.  Actual proof has been the real world since 1992.  Evaluation volume is estimated to be 4x-6x that of appraisals.  Has anyone ever said an evaluation caused a loan to go bad or a bank to go under?  NO!

LIE #4 – “This important development by the ASB shows how the Board has their ear to the ground, listening to the concerns of working appraisers in a rapidly evolving marketplace where there is an increasing demand for different valuation products,” said David Bunton, president of the Foundation.” – THE TRUTH – Ear to the ground?  What a ridiculous statement!  Evaluations were an option when the original FIRREA was placed into law in 1989.  30 YEARS AGO!!!  The ASB reminds me of the quote attributed to Mark Twain about one of my favorite cities, Cincinnati – “When the end of the world comes, I want to be in Cincinnati because it’s always twenty years behind the times.”  When it comes to evaluations, I want to be the ASB because they are 30 years behind the times:)  The demand for evaluations has existed mainly since 1992.  (Any of you remember BC-225:) )  Nothing has changed.  Except if The Appraisal Foundation will say the truth they are scared to death of a non-appraisal product.  They want to control their fiefdom.  Hey ASB, the first step is admitting what you are!

LIE #5 – “Currently, the Interagency Appraisal and Evaluation Guidelines for federally regulated financial institutions provide guidance on evaluations, but that guidance is directed at lenders, not appraisers.” – THE TRUTH – OMG, the misleading statements get more ridiculous.  This is like saying the 5 appraisal requirements in FIRREA are directed at lenders, but not appraisers.  Just not true.  Appraisers must provide Market Value ‘As Is’ per FIRREA, not USPAP.  That applies to both appraisals and evaluations, BTW.  Appraisals must be written per FIRREA, not per USPAP.  The IAEG requires the subject property be inspected for evaluations.  USPAP doesn’t even require an inspection for appraisals!  As a reminder, the IAEG requirements apply to BOTH appraisers and non-appraisers for evaluations.  Just imagine if USPAP applied to non-appraisers!  That idea is as ridiculous as the ASB trying to provide standards for evaluations.

LIE #6 – “Under federal regulations, evaluations may be performed by non-appraisers who have not demonstrated a level of expertise through education, training, and examination.” – THE TRUTH – Do you ever wonder why people tell a lie that can easily be proven wrong?  Here is what the IAEG says about who can complete an evaluation – “An institution should maintain documentation to demonstrate that the appraiser or person performing an evaluation is competent, independent, and has the relevant experience and knowledge for the market, location, and type of real property being valued. Further, the person who selects or oversees the selection of appraisers or persons providing evaluation services should be independent from the loan production area.”  The requirements are the exact same for appraisals and evaluations.  Shouldn’t the ASB be made to retract their lie?  Shouldn’t they have to issue a new announcement with truths, instead of lies?  How does a group of people look themselves in the mirror each morning knowing they published numerous lies to the public they love to claim they protect?  I have never understood how people live like that.

LIE #7 – “If appraisers are not completing an evaluation, there is no recourse for a lender or consumer to appeal a bad evaluation.” – THE TRUTH – Why not?  I have asked for evaluations to be revised.  I have rejected evaluations.  I have done both for appraisals, also.  There is no difference in how these products are treated in this regard.  Whoever did the evaluation can be sued as easily as one of us appraisers that did an appraisal.  And it is likely an evaluation doesn’t contain that funny limiting condition that many appraisers put in appraisals about their liability being limited to the appraisal fee:)  That one has always cracked me up.  I am sure lawyers have been stopped in their tracks when they see that clause, not!

Those are what I would label as bald-faced lies.  (I learn something every day….there are bald-faced and bold-faced lies and they are different….interesting.)  Below are just statements that are hyperbole or unsupported or such.

“Appraisers are valuation experts. When hiring a licensed or certified real property appraiser to develop and report market value, the client should expect the work to be performed in accordance with USPAP,” said Wayne Miller, chair of the Appraisal Standards Board” – COMMENT – No, they should not.  USPAP is not a law, as we all know.  USPAP has never been the only set of standards for valuation.  Many states do not require USPAP for all appraisals.  (Read my blog post of a few years ago where I contend that all ‘Mandatory’ laws are in violation of Federal Law.  I believe this issue was settled by a Federal Court ruling in 2004 in Pennsylvania.)   Many large clients do not either.  The Yellow Book (UASFLA as the word police are now wanting it to be referred to) is its own set of valuation standards.   USPAP says the following:

“USPAP does not establish who or which assignments must comply. Neither The Appraisal Foundation nor its Appraisal Standards Board is a government entity with the power to make, judge, or enforce law. An appraiser must comply with USPAP when either the service or the appraiser is required by law, regulation, or agreement with the client or intended user. Individuals may also choose to comply with USPAP any time that individual is performing the service as an appraiser.”

It is NOT needed for all assignments.  Appraisers do NOT need to comply if it is not necessary.  Clients do NOT need USPAP appraisals all of the time.

“The Board is eager to receive stakeholder feedback from the planned concept paper and public hearing on the impediments, if any, to appraisers completing evaluations in accordance with USPAP.” – COMMENT – This one is simple.  The lone impediment are the state laws that require licensed appraisers to meet USPAP for ALL appraisals, including those for financial institutions.  As I note above, I believe these laws are unconstitutional and have ignored them my whole career.  Federal law trumps state law.  My grass roots campaign since 1994 to get the Tennessee Law, as I refer to it, passed in all other states has gained traction in the past few years.  Numerous states now allow us licensed appraisers to perform non-USPAP Evaluations.  That is the solution.  Change the state laws, one by one.  And keep the ASB the heck out of the Evaluation world!  The banking agencies already set the standards for evaluations and they can enforce them.  Probably much better than the states have enforced USPAP!  People who violate FIRREA are subject to civil money penalties and jail time.  That applies not only to lenders or credit people or anyone else in a bank or credit union, but also to appraisers and evaluators!

In closing, let me point out the obvious….remember what the ‘A’ stands for in USPAP, TAF, ASB, et al.  Evaluations are NOT appraisals.  Appraisals are NOT evaluations.  They may coincidentally have some similarities, but they also have significant differences.  They each have more than adequate standards.

Some facts that I have had to share over and over for 25+ years….Evaluations have been around as long as appraisals in regard to FIRREA.  They are not something new.  They have not negatively affected the appraisal industry.  The volume of appraisal work has increased significantly over the past 25-30 years – evaluations have been done all along.  Mostly by non-appraisers.  Passing state laws like TN and GA and FL and LA and VA and others now have is all that is needed to open this world to appraisers.  Those who do not want to do them, don’t do them.  Your business decision.  But, don’t stop your peers from making a living that includes doing them.  That is selfish.

I am 100% positive that evaluations have not negatively affected the banking industry or our economy over the past 30 years.  They will not over the next 30 years.  If you understand the transactions they can be used on, you understand that almost always, if not always, evaluations are involved in lower risk loans than appraisals.  If you are concerned about the banking industry, the economy, the consumer, then figure out how to provide appraisals that are more accurate than the plus or minus 20% minimum range of accuracy that numerous studies have proven them to be!  How do you convince the public that a professional doing a valuation is adding something of value (no pun intended…or is it) when their appraisal on a $1,000,000 property is not more accurate than $800,000 to $1,200,000?  Do you not think that most of the public knows to a smaller range than that what their property is worth?

I am sworn to secrecy about a similar professional study on the accuracy of evaluations that showed the range to be plus or minus 5%.  Now, tell the world that there is more risk when using evaluations than appraisals.  See how that flies with people that know that plus or minus 5% is far superior to plus or minus 20%.

Folks, know what the facts are versus the Fake News about evaluations that is passed around by individuals and organizations with a bias.  I try not to have any bias as I have made my living off of both products in one way or another for 27+ years.  I have spent 25 of those years trying to help the appraisal industry see the light and get their state laws passed so they can access the non-USPAP Evaluation world.  That is what will help appraisers.

What will not help appraisers is the ASB putting out their own standards for evaluations.  Who is going to follow them anyway?  The banking/credit union world already have evaluation standards.  Why would they want to amend Federal Law to require that evaluations follow some new ASB standards?  Hopefully, the ABA, MBA, and others will be sure to squash that idea.  The Federal Agencies that have examined banks all along can factually say that although evaluation programs can be improved overall, they have not added any risk to banks or the economy or consumer.  They know the most.  If there was a concern, it would have been made public already.

What will not help appraisers is appraisers wanting to only provide the Black Model T Ford.  If you think evaluations will lower the quality of appraisals, you have been proven wrong for 30 years.  If you think evaluations will lower appraisal fees, you have been proven wrong for 30 years.  (The continuous decline in appraisal fees is due to many other factors, but I am certain it has nothing to do with evaluations.)  If you think evaluations will add risk to the financial industry, you have been wrong for 30 years.

If you think appraisers like yourself are the best people to provide non-USPAP Evaluations and have been missing out on a ton of revenue for 30 years and that clients would prefer to be using licensed appraiser to do non-USPAP evaluations, YOU ARE RIGHT…..

mic drop

The Mann

(Obviously feel free to share the above…it is out on the web, not like there is any taking it back lol  I will post something new if an error is pointed out or I hear lies about what I said or misinterpretations et al…so check back now and then….and be sure to let the ASB know what you think when they open this up to public comment.)

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.

USPAP CHANGES FOR 2018-2019

February 24, 2017 – The ASB has posted a summary of changes at the following link:

https://appraisalfoundation.sharefile.com/share?#/view/s305094efde84bbda

For those performing appraisal review, you will want to read about the changes and plan ahead if there will be changes needed for your review documents.

The definition changes are also worth noting.  We have 10 months to get ready for the changes.

FF&E – FIRREA vs. USPAP

January 7, 2016 – Below is a question I received followed by my reply.  Happy New Year to all.

George – Hope your holidays were great and 2015 is finishing off strong.  I was hoping to get your opinion on an item below.

It’s just how non-realty items are reported in the appraisal report. No change at all in the new USPAP – I’ve just been inconsistent in how I treat it. Sometimes I show a $ allocation, sometimes I don’t and just say it is included in the value and has a positive effect on value. Either way, I’m always clear on whether non-real property items are in the value or not.

So just trying to nail down exactly what is right or what USPAP expects. I’ve seen personal property treated many different ways and some appraisers still don’t say anything about it… USPAP doesn’t say much on the topic.

Thanks for any input!

As stated in Standards Rule 1-4, part (G): When personal property, trade fixtures, or intangible items are included in the appraisal, the appraiser must analyze the effect on value of such non-real property items.

My question is what is the extent of “analyzing the effect on value?” For instance, in a multifamily property with appliances necessary for continued operation, do we need to actually state the estimated amount that the appliances contribute to value or is it sufficient to note that the market value includes all personal property items which contribute to the market value?  If the value needs to be broken down and allocated between real property and non-real property items – can the allocation be stated once near the beginning of the appraisal report or does the allocation have to be every place where there is a market value stated?

Just curious because I have heard several versions and I didn’t really see any Advisory Opinions on the topic.

============  MY REPLY ============================

Your question only exists because the ASB and AI and others won’t specifically address the various differences between USPAP and FIRREA.
The bottomline is USPAP does NOT require a value on the FF&E.  Albeit, it would probably help all clients to know such.  More info cannot hurt.
However, FIRREA DOES require values be allocated to FF&E and Business/Intangible Assets so that the appraiser provides the ONLY required value per FIRREA – Market Value As Is of REAL ESTATE ONLY.
So, when doing an appraisal for a Federally-Related Transaction, you MUST provide a value for the non-realty items.  It has been that way since 1990/1991.
Where you place it….well that is up to you.  But, technically, when you state Market Value As Is (as well as Upon Completion and Upon Stabilization) it should just be the Real Estate Only number.
However, 99%+ of appraisers state Market Value INCLUSIVE of FF&E and Biz Value and then have some kind of footnote or wording in parentheses saying ‘the above includes $1,400 of FF&E’. Something like that.  They let the Bank do the math to get to the real estate only number.
So, you can do it that way and you will be in line with your peers.  As I always tell appraisers though, if you want to stand out from the crowd provide what your client really needs, and in this case, state MV without the FF&E and Biz Value and then let the footnote say how much the FF&E and Biz Values are worth.

The reason banks need the Real Estate Only number is it is Federal law (FDICIA of 1991) that LTV must (!) be calculated on this number only.  Any MV number that includes FF&E and/or Biz Value is worthless to a bank!

Now, for non-Bank clients you can forget all of the above.  However, I still recommend providing the separate values.
I hope this helps.