Tag Archives: USPAP

UP TO 6 STATES NOW, WELCOME TO THE CLUB FLORIDA

May 25, 2017 – Six states now permit licensed appraisers to perform non-USPAP Evaluations.  In those six states, licensed appraisers are finally on a level playing field.  44 states to go.  We might already have another state in the group, but some legal confirmation is needed.  And Virginia is actually delayed a year as they need to change the definition of Evaluation.  But, we are headed in the right direction.  The following is from the Appraisal Institute (but, it omits Indiana which does have this law):

Florida Makes Significant Changes to Appraiser Licensing Law

Florida Gov. Rick Scott on May 23 signed HB 927, legislation that makes significant changes to the state’s appraiser licensing law and requires appraisal management companies to comply with federal minimum requirements for registration and oversight. The law takes effect Oct. 1.

The Appraisal Institute and the Region X Government Relations Committee advocated for two key improvements to the state’s appraiser licensing law, and those provisions were incorporated into the bill.

The first provision defines an “evaluation” as a “valuation permitted by any federal financial institutions regulatory agency for transactions that do not require an appraisal” and clarifies that a state-licensed appraiser may perform an evaluation. Currently, appraisers in Florida are prevented from providing evaluations that are not in full compliance with the Uniform Standards of Professional Appraisal Practice even though federal requirements only call for compliance with the Interagency Appraisal and Evaluation Guidelines.

Evaluation services in the state have been provided by non-appraisers, such as brokers and salespersons, accountants, architects, financial analysts and data providers, all of whom do not have to meet the same licensing and standards compliance requirements as appraisers. State-licensed appraisers will now be able to perform services on these same terms in compliance with federal requirements. Florida joins Georgia, Illinois, Tennessee and Virginia in allowing appraisers to perform evaluations.

The second provision clarifies that the Florida Real Estate Appraiser Board has the authority to adopt rules allowing for the use of standards of professional practice other than USPAP for “nonfederally related transactions.” Such transactions include appraisal assignments for portfolio monitoring, financial reporting, litigation, tax and consulting, among other areas. The law requires appraisers using development and reporting standards other than those contained in USPAP to comply with USPAP Ethics and Competency Rules and other requirements adopted by the Board by rule. The law clarifies that any valuation work performed per standards other than USPAP cannot be used to satisfy the experience requirements for any Florida appraiser credential.

In 2015 and 2016, the FREAB undertook a rulemaking proceeding that would have allowed the use of standards other than USPAP if additional standards “meet or exceed” USPAP. The provisions in HB 927 remove that arbitrary threshold and grant much broader authority to FREAB to consider standards other than USPAP. Further rulemaking proceedings will need to be undertaken by FREAB to fully implement this new provision.

The Region X Government Relations Committee, under the leadership of Chair Wesley Sanders, MAI, advocated for this legislation, meeting with the state’s Department of Business and Professional Regulation about these two provisions. Additionally, AI professionals in Florida participated in Region X’s ValuEvent on Feb. 14 in Tallahassee, meeting with many legislators to urge support for the provisions.

View a copy of HB 927.

CONGRATS VIRGINIA! 4 DOWN, 46 TO GO

March 27, 2017 – I’ve been campaigning since 1994 to get states to pass laws that allow licensed appraisers to perform non-USPAP compliant Evaluations.  After 23 years, we now have the 4th state to invoke such a law.  Congrats to Virginia and all of its appraisers that can now complete on a level playing field.

We have a long way to go.  But, hopefully, this is gaining steam and appraisers in every state will get to work on getting similar laws passed sooner than later.   Florida and North Carolina have similar laws up for consideration right now.

Just fyi, I think the Tennessee law is the best, but the Indiana wording is very good, too.

My alter ego, Johnny Evaluationseed, is proud to see such progress:)

If you are trying to get this law passed in your state, please feel free to contact me.  I would be glad to help in any way I can.  In a few days I will be posting a list of Q&As that address the typical opposition to these laws.  I hope you find it useful.  Feel free to use it, albeit I would appreciate knowing where it is being passed around.  Just curious which states are considering the law is all:)

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ADDED April 27, 2017 – There has been some confusion among appraisers.  I received the following explanation which I think clarifies the law.  I hope it helps.

The new law very clearly says that “The provisions of this chapter DO NOT APPLY” to an appraiser performing an evaluation.   So once you make the determination that: 1) you are an appraiser; and 2) that you are performing an evaluation as permitted in the law, then the rest of the law in the chapter does not apply, including anything related to USPAP compliance.   At that point (appraiser performing an evaluation), you are 100% outside of the appraiser licensing law and the VREAB would have absolutely ZERO jurisdiction over you as it relates to ANYTHING.

 

USPAP CHANGES TO REVIEW STANDARDS

January 2, 2017 – Happy New Year to everyone!

Recently, the Appraisal Standards Board (ASB) issued the Third Exposure Draft of Proposed Changes for the 2018-2019 Edition of the USPAP.  Significant changes are being proposed for appraisal review.  As such, fee and staff reviewers should read this draft and send comments on anything that you feel needs to be changed or kept as proposed.  The link is:

https://appraisalfoundation.sharefile.com/share?#/view/s54a2ccba63644aa8

I encourage you to send comments to the ASB.  Yes, they do listen to EVERYONE.  Individuals have as much clout as organizations.  Providing a good comment email/letter with examples and suggestions is the key.

I personally have seen my suggested wording end up in the final version of USPAP.  It can and does happen.  The ASB does not already have their mind made up.  They are looking for help and guidance.

The deadline for comments is January 27th.  Make your New Year’s Resolution to send a comment to the ASB:)

AS AN ASIDE – At my international web site (www.TheInternationalReviewer.com) I have a guest post on my blog.  It is a reviewer’s analysis of an appraisal in South Korea.  I suggest reading it because the same issues can occur in American reviews.

 

I HAVE HIT A NEW LOW :)

September 21, 2016 – Not too many people would use the above as a headline:)  Let me explain…

About 8 years ago today in fact, the last review I did as Chief Appraiser for the fractional bank (as it was called…or Evil Empire by other banks) was an appraisal of a vacant residential lot in Detroit.  The value conclusion was $100.  It was well supported with two sales at $100 and a listing at $200 that the appraiser adjusted downward 50%.

I had spent 22 years appraising and reviewing.  Made it to Chief Appraiser of a $100 Billion bank.  And there I sat making the big bucks to review a $100 residential lot:)  And, yes, the appraiser’s fee was higher than the value conclusion.

I have used that story many times over the years.  Now, I can top it.  I just got paid to review an appraisal of what has to be kept as a confidential property (and client).  The value conclusion was $0!  Yes, I have finally hit a new low! Now, I can finally say I have appraised and/or reviewed properties ranging in value from $0 to over $2 Billion.  That is a resume builder!  It was annoying to use $100 as the bottom of that range.

Oh, and yes again, my review fee was higher than the value conclusion.  Thankfully, USPAP prohibited me from quoting a review fee that was a percentage of the value! LOL

Everyone have a great day:)

WHAT IS THE VALUE OF THE WHITE HOUSE?

August 15, 2016 – This is a light post so you reviewers can take a break from the daily grind.  I hope you enjoy it.

The following article appeared in this week’s issue of Barron’s.   For us appraisers, two things should jump off the page at us:

  1.  Did Ms. Gray follow USPAP?  Is she a licensed/certified appraiser?  Is she competent to appraise the White House?  Did she prepare a work file?  Were any laws thus violated?
  2. The last sentence about choosing among the approaches to value to determine which one provides a ‘better advantage’ is funny.  It shows how little the public knows about appraisals.  Obviously, the Theory of Substitution leads us to the lowest of the approaches to value typically having to be the market value conclusion.

A separate item from me personally.  I thought Google Earth was supposed to blank out the roofs of government buildings and facilities.  Not too cool to show anti-aircraft missiles on the White House roof for terrorists to see.

How Much Is the White House Worth?

A hypothetical real-estate appraisal of the nation’s most famous home offers guidelines in valuing any property.

We are loath even to put the idea out there, in case it winds up in Donald Trump’s platform, but if the U.S. government turned to privatizations to pay down the national debt, how much would the White House sell for today? Here’s the classified ad that might run: “Historic American residence on 18 acres. Rare opportunity to acquire a 16-bedroom white sandstone home in downtown Washington, with a four-pillar Parthenon look.”

Ann Gray, principal at Los Angeles–based Gray Real Estate Advisors, figures the White House would sell for $90 million, but if you throw in its contents, the U.S. government could pick up as much as $250 million.

To arrive at her valuation, Gray blended the real estate industry’s top three methods of analyzing a property: How much it would cost to reconstruct such a stately home, the income that the White House could potentially produce, and how much comparable properties would fetch in this market.

Gray then weighted these methods based on her experience, and arrived at her $90 million valuation.

LET’S TAKE reconstruction costs. The original construction back in 1792 cost $232,000, Gray says; tracking the changes in the costs of material and labor, and considering today’s dollars, that comes to $100 million. She spot-checked that figure against the cost of a similar property, as is standard practice in real estate valuations. Gray used the Smithsonian Institution’s National Museum of African American History & Culture as the comparable property, as it is about the same size and quality, and in the same neighborhood. The latest figures suggest that the Smithsonian building’s reconstruction costs are $1,428 per square foot, or $79 million, she says.

The White House has far better bones, however, and the intangibles of presidential history add a premium to the building. That’s just one reason the White House would make a terrific bed-and-breakfast. So, to do this right, you also have to factor the White House’s income-generating potential into the valuation.

The Jefferson, Washington DC is a full-service luxury hotel that, Gray claims, is probably a good White House benchmark. Deluxe suites there cost about $1,200 a night; the hotel has an 85% occupancy rate. Do the math for the 16 bedrooms in the White House, and the potential operating income generated comes out to around $5 million a year. Using a standard real estate formula for the value of that income over time, says Gray, and you end up with an $86 million price tag for the White House.

The last step is to look for a comparable property and what it might sell for. The Mar-a-Lago Club in Palm Beach, Fla., is owned by Trump. It is a 17-acre property close in size to the White House’s 18-acre spread. Both have fallout shelters in the basement, tennis courts, and tunnels—one to the beach, the other to the Capitol building. In fact, Mar-a-Lago used to be considered the southern White House, and was frequently visited by presidents and dignitaries on retreat. Trump bought Mar-a-Lago for $10 million in 1985. Today, its estimated value is nearly $100 million, Gray claims, and that’s comparable to the White House’s.

TAKE AN AVERAGE of these different valuation methods and you get a figure marginally above $90 million. But what about the White House’s contents? Two $5 million Thomas Moran paintings, a $5-million-plus James Abbott McNeill Whistler, and several other fine artworks add up to $115 million, says Barden Prisant, president of the International Art Advisors, who reviewed 750 items inside the White House. Then there are the tchotchkes, such as a $250,000 gilded-bronze table centerpiece, a $100,000 grandfather clock, and a few sets of presidential china worth about $20,000 each. Add it all together, and the White House’s contents could probably bring in another $160 million.

That means you’re going to have to write a check for a quarter of a billion dollars if you want to buy the White House and its contents. But for that price you do get some rather unique bells and whistles. There are, for example, antiaircraft missiles on the White House roof, according to Google Earth.

There’s actually a serious point to this exercise: If you are having your property valued, review the three methods used in these calculations, and see if one of these techniques doesn’t give you a slightly better advantage over another.

CONGRATS INDIANA! 3 DOWN, 47 TO GO

March 30, 2016 – I’ve been campaigning since 1994 to get states to pass laws that allow licensed appraisers to perform non-USPAP compliant Evaluations.  After 22 years, we finally have the third State to invoke such a law.  Congrats to Indiana and all of its appraisers that can now compete on a level playing field.

We have a long way to go.  But, hopefully, this is gaining steam and appraisers in every state will get to work on getting similar laws passed sooner than later.   I think the Tennessee law is the best, but the Indiana wording is very good, too.

The following is from the Appraisal Institute’s Appraiser News Online:

Indiana Law Allows Appraisers to Perform Evaluations

Indiana became the third state to allow state-licensed and state-certified appraisers to perform evaluations without having to comply with the Uniform Standards of Professional Appraisal Practice when Gov. Mike Pence signed SB 300 into law March 21.

Under the provisions of the bill, the requirements of Indiana’s existing appraiser licensing and certification law, including USPAP-compliance requirements, will not apply to:

“The performance of an evaluation of real property by an employee, an officer, a director, or a member of a credit or loan committee of a financial institution, or by any other person engaged by a financial institution, in a transaction for which the financial institution would not be required to use the services of a state licensed appraiser under regulations adopted under title XO of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.”

Under the new law, state-licensed and state-certified appraisers will be able compete with other providers of evaluation services, including brokers and salespersons, and will not have to comply with USPAP when performing evaluations for transactions in which a federally regulated institution is not required to obtain a USPAP-compliant appraisal.

The other two states that currently have similar allowances for state-licensed and state-certified appraisers are Tennessee and Georgia.

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.