Tim Andersen, The Appraiser's Advocate Podcast

Topics such as USPAP and relevant adjustments can bring out the very worst in appraisers, because of the arguments this topic causes. This is simply because the science of relevant adjustments is taught only superficially in appraisal school. Yet we teach it is art, or we do not teach at all. This podcast is about understanding when adjustments are necessary. Then its about understanding why adjustments are necessary. But the praxis of making them is the subject of another podcast. There are plenty of them out there (here is one of mine). So, let’s talk about USPAP and relevant adjustments here. USPAP does not use the word adjustment or adjustments, thus they are not part of appraisal. Which leads us to the two questions behind this podcast. One is “How do I know when an adjustment is necessary?”. And the second is, “What size adjustment do I make?”. Please understand the first question is surprisingly easy. Follow USPAP and relevant adjustments are straightforward. This easy answer is, “An adjustment is necessary when the micro-market tells us it is”. Note the micro-market is the sole source of this wisdom, not the AMC, etc. In this instance, properties that are comparable to and competitive with the subject compose the relevant micro-market. As to the size of the adjustment, the micro-market tells us that, too. Usually, the size of the adjustment will be a low-to-high range, from which we reconcile a dollar amount. Adjustments don’t come from tables or schedules our first supervisors gave out 20-years ago. Because appraisers deal with market value, the adjustments must therefore come from the market, too. So, we make adjustments to make sure our value opinions are credible, with their bases in micro-market data. Such professionalism gives the Public reason to trust us, rather than an AVM.

In this podcast, we cover three topics, all of which are a function of USPAP and certainty. The first topic is “When is an Adjustment Correct?” Second is “What are the Ethics of Using Artificial Intelligence (AI) in a Real Estate Appraisal and Report?” Finally, we’ll consider the real source of appraisal fees – the appraiser. That should get some folks upset! But that’s OK! One of the purposes of these broadcasts is to stimulate critical thought. So you’ll know, the reason we call this USPAP and Certainty is because USPAP is not certain. That’s why we form value opinions, not value estimates. This lack of certainty is easy to find in extracting adjustments. Using market-depreciate cost will yield on adjustment, while extraction from a comparable sale will yield another. Assuming both have their foundations in verified market data, they’re both correct. But how well do you explain your choice between them? That’s the secret. And don’t get me started on USPAP and certainty when it comes to AI and real estate appraisals. Too late! I’ve started. AI in real estate appraisal is NOT the future. It is the present and is rapidly becoming the norm. Those appraisers who will not or cannot keep up with the advances in AI will be the appraisers who, within a short time, will be wishing they had. It’s a done deal. You think it is taboo to talk about appraisal fees? It may be. But after you’ve listened to this podcast, you just may agree with me – or not! Your choice! USPAP and certainty! What is certain is that USPAP remains the standard for appraisals and appraisal reports. As we know more about USPAP, it is easier to comply with it. Thanks for listening!

When it comes to USPAP and a verification model, where is that model? USPAP makes it clear we have to verify the sales data, etc. But USPAP is strangely silent on what to verify means. It is equally mute on how to accomplish the verification it demands. So, is there a reason for this lack of communication on USPAP’s part? Or, is there some method to the ASB’s madness? To both questions, the answer is “YES”. When USPAP does not define a term, it is because it sees no reason to do so. So, as we look at USPAP and a verification model, USPAP (the ASB really) concludes the standard definitions out there of verification, to verify, etc. suffice. They are sufficiently applicable to appraisal to define the terms, too, in an appraisal context. And the reason behind the ASB’s madness? Since, by definition, appraisers must be “…independent, impartial, and objective…”, this lack of a formal verification model allows (forces?) appraisers to conclude their own model(s). Since we are professionals, is this not the way it is supposed to be? USPAP and a verification model? In reality, the verification model we have is the Fannie Mae and Freddie Mac default definition of Market Value. True, that definition has a lot of moving parts. But each part is a question to ask. To ask of whom? We ask the buyer, seller, broker, builder, etc. those questions. And the more people we verify with, the more answers we get. And the more answers we get, the closer we get to the truth of the transaction. So, what is the truth of the transaction? Simple. Was the sale arm’s-length? If the answer is no, we can confidently eliminate it. That’s something we appraisers can take all the way to the bank!

Wait a minute! You say USPAP and neighborhood analysis don’t go together? In one sense, you’re right. USPAP does not use the word neighborhood in Standard 1 or 2. For reasons unknown, the GSEs continue to use the word neighborhood, even though, in a certain context, it could have racist overtones. Seems a little hypocritical to me. But the GSEs have not asked me to function as their ethics police. So, when it comes to USPAP and neighborhood analysis, does the appraiser have to analyze the neighborhood? That raises the question, “OK, how does one analyze the neighborhood?”. You have to remember that the GSEs look to us for more than merely a value conclusion. They look at us to peer, prophet-like, into the future and tell them what will happen. In this way, we aid the GSEs in understanding and mitigating risk. What risks do the GSEs take? One of their risks (among many – most not related to appraising) is underwriting the loan. From the GSEs come the money you and I use to purchase our homes. Since the GSEs want both a return on their investment, as well as a return of their investment, they must understand the risk factors of purchasing mortgage loans. So, we appraisers likely do not think of USPAP and neighborhood analysis in the same mental sentence. But the GSEs do. We help them manage risk. Since housing plays a huge part in the economy of the US, our ability to help the GSEs manage the risk of buying those loans is crucial. This is why, even in the GSE’s eyes, appraisals are a significant cog in the US’s mortgage money machine. Therefore, are we helping the GSEs manage risk, or just providing them with useless boilerplate?

Take advantage of USPAP and Extraordinary Assumptions! Their proper use can provide you with a number of advantages! On the other hand, their improper use can earn you the opportunity to spend a less-than-pleasant afternoon with your state appraisal board! How so? Read on, then listen to the podcast! To listen to the podcast is why you’re here, right? USPAP and Extraordinary Assumptions means USPAP, under very specific and limited conditions, allows you to guess as a part of your value conclusion. Guess?! Yes! How about an example? You’re appraising a proposed house from the architect’s and contractor’s plans and specs. The effective date of the appraisal is nine (-9-) months into the future, which is when the house will be complete. But right now, only the site, and plans and specs, exist. So, under these limited and specific circumstances, you guess the house will be complete per plans and specs nine (-9-) months into the future. You do not know this since the future is unknown and unknowable. But because you’ve used an Extraordinary Assumption, with a summary of the rationale for making that guess, its OK. You’ve also fully disclosed that guess (that it will be built per plans and specs in nine (-9-) months. And that full disclosure included the admission that, if your guess, your Extraordinary Assumption proves false, could affects the results of the appraisal. So, it is to our benefit as real estate appraisers to understand and educate ourselves USPAP and Extraordinary Assumptions! This lets us expand our specific scope of business practice since it is possible to appraise as if improved property that, in reality, is actually vacant. How great is that?!

To have a podcast on The Cost Approach and USPAP. How exciting (not)! You’re right. This is not exactly the conversation you’ll have when you get together with friends. Even if those friends are other appraisers! But the point is the cost approach is an untapped resource. It is the sunshine to which appraisers typically do not expose their analytics. This is a shame, really, since this approach can tell us so much about the quality of our analytics via the other approaches. How so? We all know that in older neighborhoods, there are likely to be few vacant site sales. This is where we appraisers can put the cost approach and USPAP to good use. This absence of data makes adjusting for site differences such as size, view, access, shape, etc. difficult to extract from the market. But you can use improved sales data to extract comparable site values. That takes a little practice and training, true, but once you master that protocol, life as an appraiser becomes easier. And, reports go out the door a little faster. Who doesn’t want to produce more reports, thus greater cash-flow, right? And what are the advantages to appraisers who understand the cost approach and USPAP? More than you think, frankly! But the eye-opener is that as we come to understand the cost approach, then begin to use it properly, our clients are less motivated to hire AVMs and BPOs. Therefore, they are more prone to hire us, since we provide services and insights that the other tools simply cannot. So mastering the cost approach should not be a chore. Instead, let’s look at it as the opportunity to become even more indispensable. Let’s seize the opportunity to become even more professional than we are today!    

When it comes to USPAP and state complaints, what is an appraiser to do? The first step is really clear: don’t do anything – yet. Why? Simply because you are in an emotionally unstable state. You’ve just been attacked personally by some stranger who has absolutely no clue how hard you work! You want to retaliate – to strike back fast and destructively. To scorch your attacker’s earth! Which is exactly why you should do nothing – yet. But when it comes to USPAP and state complaints, there are steps you can take that in the end will protect you and help – rather than hurt – your cause. Your first step is to call your E&O people. You do this because this is what your policy calls for. You have read your E&O policy, right? Those folks will thank you, open a file, and ask you if you want legal help. Thank them for the offer, but tell them you’ll get your own counsel (which, by the way, within the limits of your policy), your E&O will pay for. Your next call when it comes to USPAP and state complaints is to contact an administrative law attorney who is familiar with the workings of your state appraisal board. You can Google(r) this, or call the state bar and ask for a list of such attorneys. Once you have that attorney, they should contact the state and ask for an extension to the time limit the state gave you to respond. You and your attorney should ask for 30-days. You won’t get it, but you’ll probably get ten days. Finally, when it comes to USPAP and state complaints, follow your attorney’s advice. This is a fight you cannot win all by yourself. Bring in the necessary experts to act as your champions!

USPAP, Cows, and Competency?! Never in your life did you think you’d see that as the tagline of an appraisal podcast, right? I did not, either. But sometimes you have to change the way you look at things. Sometimes there has to be a little disruption to understand even more deeply what you think you already understand. That’s what we are going to do here. USPAP, Cows, and Competency is really about an experience my Wife had (you’ll have to listen to get the story). Basically, my Wife had to accuse a purveyor of fine meats of incompetency to get what she had ordered and paid for. Why? Because the purveyor was not going to provide the service, expertise, and satisfaction it promised in its marketing. In other words, the purveyor was going to pretend its incompetence was not incompetence. Rather, it was merely not having enough specific combinations of fine meats to meet demand. But my Wife educated a vice president in the error (and stupidity and incompetence) of his reasoning and logic in such a way that he will long remember. And those memories will not be pleasant ones, either. But he had it coming. So, really, in this podcast, USPAP, Cows, and Competency the actual subject is COMPETENCY. Cows are just a vehicle to carry the story. And why is competency the subject of this podcast, but not cows!? Because there are some appraisers out there who are just plain ol’ incompetent. Why should the rest of us care? Because those incompetents are painting the rest of us with the wide brush of their ignorance, arrogance, and poor choices. Why are we letting this happen?

USPAP and Questions to Tim was the only title I could invent for this podcast. After all, there is not one theme here. Rather this podcast consists of questions that have come in to me in the past from regulators, students, and boots-on-the-ground appraisers. Every so often, I’ll work on answering them. Most of the questions are polite, thoughtful, even respectful. Some of them are…otherwise. That’s OK. I welcome them all. After all, if I’ve made you mad enough to correspond with me, I’ve made you mad enough to think critically, which is the purpose of my professional existence (well, that and make a good living, thank you). USPAP and Questions to Tim is a theme I’ve thought about for a long time. I do a lot of teaching and some of these questions come up in classes, especially in USPAP classes. In this podcast, I talk about education. Remember education takes place not only in classrooms. There are numerous real estate appraisal conferences each year. The appraiser who wants to stay up-to-date, the appraiser who cares about servicing clients well, the appraiser who wants to stay in the business, attends at least one of these each year. This is where the real education goes on since at these conferences you get to converse one-on-one with the movers and shakers of real estate appraisal. Thanks for asking the questions! And thanks for listening to the answers!

When it comes to USPAP and MARKETING, what do you need to know? First, that USPAP says nothing about marketing. That’s business. USPAP does not concern itself with your appraisal business. But USPAP is clear about what we can market. Every license renewal cycle, we get 28 or more hours of continuing education. How efficient are appraisers at marketing our level of practical education? Appraisers must be conversant with the laws that govern them as appraisers. Do we effectively and convincingly market our expertise in this area? How about that appraisers are market area experts? Is this a flag we proudly fly? How about USPAP and MARKETING in the media? How often do you post something professional on Linked-in? A post here does not need to be long or complex. It just needs to be there. Why? Whatever positive it is you do to make your name stand out from the crowd helps you professionally, don’t you think? How about a lunch-and-learn? When it comes to USPAP and MARKETING, this may be the best money you ever spent. How so? Invite 10 real estate attorneys to lunch. You’re paying for it so its free to them. You will have a small group of relevant potential clients. Since its a small group, you’ll have their attention, too. What will you talk about? You’re the expert! Share that expertise with them! With a tip and drinks, will that cost you$300 to $400? Yes! and you’ll get all that back, and more, with the first assignment you get from just one of them! Times are slow, true. So start marketing! Act now and leave your so-called competition in the dust!  

“USPAP and That Does Not Solve the Problem” is a strange title for a podcast right? But it has a purpose. In a past podcast, I showed a list of what you were not supposed to say to your state appraisal board. Clearly, not a lot of appraisers paid attention to this. How do I know? Because the dumb stuff real estate appraisers still say to their state boards keeps coming into me. You ask for an example? Unfortunately, there are too many of them. And, once you hear some of these responses, you’ll agree with me that they are dumb. So, this title, “USPAP and That Does Not Solve the Problem”, applies to appraisers’ responses to state boards. Now, at this point, let me make clear how incredibly stupid a typical response is. Typically, the state sends you a letter (or an email) letting you know a complaint has come in. In that communication the state asks for your cooperation, a copy of the appraisal, a copy of the workfile, and whatever else it wants to ask for. It is a stupid response, and one that is altogether too typical, to ignore the letter. Upon reading the letter, the appraiser’s response is something verbal such as, “This is bullshit!”, then something physical such as running the letter through the shredder, or simply deleting the email. These actions indeed solve the problem. But only temporarily. And the problem that replaces this so-called solution is exponentially worse than the original problem. Worse? Yes, state appraisal boards tend to revoke the credentials of those appraisers who deign to defy them. So, the title, “USPAP and That Does Not Solve the Problem” is an open invitation to comply with your state board’s request to solve the problem. What’s so hard about that?  

USPAP and Cash Equivalency? No! Surely, with all the mechanics of an appraisal there are to worry about, now there is another one!? Say it ain’t so! It would be nice simply to ignore cash equivalency (since, after all, there is math involved). But the definition of Market Value dictates otherwise. USPAP dictates otherwise [see SR1-2(c)(i-iv)]. The GSE’s sales guides, etc. dictate otherwise. It’s true – we can’t escape cash equivalency. So, we might as well get used to it, get used to understanding it, and get comfortable with calculating it. We don’t have much of a choice if we want the Public to trust us appraisers. We do want the Public to trust us, right? At its essence, the concept of USPAP and cash equivalency comes down to a simple statement. Any property’s cash equivalent price is what it would have sold for if the buyer paid all cash (no mortgage) at the closing table, the seller took all cash, and they each paid their own closing costs. True, the math behind that can be a bit intimidating. However, it is also possible to pick up the phone, call a party to the transaction, and ask if the sales price was cash equivalent. No math involved in that one. True, you will probably have to explain what cash equivalency is, which means you must understand it to explain it. And, true, that party could lie to you and tell you what you want to hear. But the point is, you will have verified cash equivalency with a party to the transaction, which is all you can do. So, yes, the concept of USPAP and cash equivalency is one we appraisers must deal with. But, as we do, we give our clients a true picture of the market. That’s our job, right?

USPAP and the investigator’s questions is a topic we’ve covered before. But investigators still keep asking questions. So it makes sense to be aware of them, as well as how to answer them. That raises the question, “How do I answer the investigator’s questions?”. There is a two-part answer: part one is “from the data in your workfile”. Part two is “and those data in your workfile must have market support”. Remember, if you can’t find it in the market, why is it in your appraisal? If you can’t find it in your workfile (which is your appraisal), why is it in your report? Note there are classes to help you with this. To use the term “USPAP and The Investigator’s Questions” implies USPAP is the source of the investigator’s questions. That’s because USPAP is that source. So are the state’s appraisal statutes. But most of the questions are from USPAP. Why? Simply because USPAP is the standard. Does your appraisal meet Standard Rule 1? Does you appraisal report meet Standard Rule 2? If so, you are good to go. If not, there are ramifications to consider. Here is but one example of USPAP and the investigator’s questions. “From only the data in your workfile, please demonstrate the derivation of your GLA adjustment of X-dollars per square foot.” As far as the investigator’s questions go, this one is simple and straightforward. However, the issue is that, all too often, this derivation is not in the workfile. That adjustment is, instead, the result of rules-of-thumb and the appraiser’s “…twenty years of experience…”. Since the dollar amount of the GLA adjustment is one the market indicates, it is a fact, not an opinion. USPAP’s SR2-3 makes it clear the appraiser certifies this dollar amount is both “…true and correct…”. This means verification. And how can an appraiser certify something is true and correct if there is no verification in the workfile of that fact?

USPAP and the last time? What does that mean? When you listen to the podcast you’ll find out. USPAP and the last time asks a series of questions. These ask you about the last time you considered an appraisal concept or idea. This is important simply because appraisals have too many moving parts. It is way too easy to get caught in the details and the mechanics of an appraisal and appraisal report. When we get caught that way, we lose sight of what an appraisal really is. An appraisal is really nothing more than a simple answer to a client’s appraisal question, “What’s my property worth?”. But it is common to lose sight of this simplicity when we have to worry about USPAP’s requirements, the GSE’s differing appraisal and reporting requirements, and what a state investigator may think. That’s a lot to worry about. So, in this podcast, USPAP and the last time, we take a look at some questions we might never otherwise consider. For example, “When was the last time you took a CE class for the sheer joy of learning, not just for getting CE credit?”. Or, “What does including a sale on the adjustment grid say about that property’s highest and best use?”. In our rush to meet deadlines, it is too easy to forget what an appraisal is. It is too easy to forget what an appraisal is supposed to communicate, too. That is the purpose of this podcast: to help you focus on the appraisal and what it communicates. Again, it is too easy to get lost in the details. So, when was the last time you took a look at your boilerplate to determine if it was outdated or, even worse, wrong?

USPAP and adjustments. Are they facts or just your opinion? USPAP does not use the word adjust or adjustments in Standard One, the appraisal development standard, nor Standard Two, the appraisal reporting standard. Further, USPAP does not require appraisers to make them to anything at any time. They are a function of what the GSE’s want from an appraisal report. So, when it comes to USPAP and adjustments, are those adjustments facts or just opinions? There are appraisers who advocate they are opinions. Why? Because there are no standard protocols to derive an adjustment. There are numerous ways to derive individual adjustments. Because of this lack of standardization, so long as there is market support for the adjustment you make, it is just your opinion, right? Market support? USPAP and adjustments means you have market support for them. Since there is such support, that means you extracted them from the market. Given that the market revealed to you that swimming pool adjustment, that is a market-derived fact, not your opinion. Any facts we report must, according to SR2-3, be both true and correct. This requires verification. We verify facts. We confirm opinions. So, with USPAP and adjustments, are they facts or opinions? There are classes you can take to help you answer this question. There are USPAP instructors out there you can contact who will help you navigate your way to an answer to this question. But the point is (and any state appraisal board member will tell you this) be adjustments facts or opinions, they must have market support. Without that support, they are nothing more than guesses. So, gather your data, do your due diligence, and make your decision. In the end, when it comes to USPAP and adjustments, I think you’ll agree with me: there are facts to be found.

“USPAP and my client’s demands” is a statement that has different meanings to different appraisers, in different contexts. Sometimes a client’s demands are completely doable. In other words, complying with them still allows you to comply with the USPAP and its ETHICS RULE. On the other hand, clients still assume they can direct an appraiser to violate USPAP. We appraisers do not like this situation. But because USPAP does not govern lenders, they can make any demands of us they want to. However, it is up to us to know what is ethical, what is not, and what is permissible, what is not. In one context, “USPAP and my client’s demands” is benign. For example, the client demands photos of both the comparables and the subject. As well, the client demands appraiser, not a surrogate, take those photographs. Indeed, this is a common appraisal assignment condition with which appraisers are happy to comply. However, in another context, “USPAP and my client’s demands” has a completely malevolent connotation. For example, it is common for clients to demand we appraise a parcel of industrially zoned property as if it were residentially zoned property. This is for the simple reason that there is a house on the land. However, to do so would be a serious highest and best use valuation because we cannot appraise land to one use and the improvements to another use. That would be a violation of the concept of consistent use, which is the basis of highest and best use. So, when it comes to “USPAP and my client’s demands,” we appraisers must understand those demands with which we can comply, as well as those demands we must reject outright. USPAP’s ETHICS RULE helps us make this decision.

Does USPAP demand precision? This is a question few appraisers have raised, so there is no specific answer to it. USPAP itself uses the word precision just once, in AO-23, but in the context of a discounted cash flow analysis. It uses precise only four times. But only one of those is in Standard 1. None of them is in Standard 2. And its use in Standard 1 is in the context of a precise definition of value. USPAP does not use the term in the context of the value opinion itself. But, does USPAP demand precision anywhere in Standard 2 (the report writing standard), in any context? Directly, no it does not. However, SR2-1 demands the appraisal report be clear and accurate so that it is not misleading. That same SR also makes it clear the client and the intended user(s) must be able to “…understand the [appraisal] report properly…” no matter the reporting format. So, in an off-handed manner, USPAP does demand precision, although that call could be clearer and more emphatic. So, the question, “Does USPAP Demand Precision?” raises another question: “What is precise?”, which this podcast’s purpose is to illustrate with a series of questions. For example, in twenty (-20-) words or less, answer this question: “In the final reconciliation, why did sale-X deserve more weight than sale-Y?” Here is another one: “In twenty (-20-) words or less, explain why appraisers develop value opinions, rather than provide estimates of value”. There are so many more. “Does USPAP Demand Precision?” may be too emphatic. Perhaps a more applicable question is, “Does USPAP Encourage Precision?” Given what Standard 2 says about not misleading the client, about writing the report so it is easy to understand, it looks as if the answer is in the affirmative. So, why is it that we appraisers should write precisely? (In the podcast, I mention Einstein’s E=MC-squared formula. Here is an explanatory link).

We call this one USPAP, Transformative Appraisals, and the Public Trust. Actually, this podcast is not USPAP oriented at all. I have to include USPAP for SEO purposes. However, the issues of transformative appraisals and the public trust are the orientation of this podcast. Typically, appraisers do not equate USPAP, transformative appraisals, and the public trust. But that is unfortunate. By not equating these concepts we have made it very hard for the public to trust us, what we do, and how we do it. As evidence of this, consider the GSEs’ movement toward not using appraisers in certain very-limited circumstances. This does not mean we are not necessary. It does mean, however, we are less necessary than before. How much of that is due to our failure to court and win the public’s trust in us? What happens when appraisers equate USPAP, transformative appraisals, and the public trust? In all candor, I don’t know. However, until we choose to equate them, via education and/or practical application, how many appraisals will continue to be the result of educated guesses, rules-of-thumb, and boilerplate? And how many appraisal reports will continue to be merely an agglomeration of facts, providing the client with nothing they did not already know? So this is what we mean by USPAP, transformative appraisals, and the public trust. Our appraisals must transform mere facts and data into information the client can use to make decisions. For example, merely to state the GLA adjustment is $87 per square foot of difference is a fact with no information. But what market forces made that $87 per square foot a reality? How does $87 per square foot relate to the subject’s exposure time, highest and best use, marketability, and market value? Mere facts do not answer those questions, nor do they give the public a reason to believe us. If they don’t have reason to believe us, why should they trust us? When we transform appraisals into something they can believe, when appraisal reports are reliable, then we will have transformed real estate appraisal from what it is not into the profession it should be.

There is so much writing in an appraisal report! So, what does an appraiser do when it comes to USPAP and clear & persuasive appraisal reports? Thanks for asking! Please keep reading, too! It is no secret appraisers are not trained writers. But USPAP and clear & persuasive appraisal report are not an appraisal requirement, are they? Do you remember all that report writing you did in appraisal school? I don’t either. That’s because we did not do any writing in appraisal school! We learned to fill boxes and spaces on reporting forms. That talent, by the way, is effectively passe’. When the new appraisal reports debut, box-checking and space-filling will be obsolete talents. Instead, writing clear, concise, persuasive narrative will be necessary. Anyway, USPAP and clear & persuasive appraisal reports are not part of the training appraisers receive currently. In the future, such training will not be a hallmark, either. Appraisers will have to get that training via their own initiative. But how and where? Appraisal entrepreneurs may step into that breach with such classes. But a 7-hour CE class on writing is really a waste of time. You cannot learn to communicate clearly and persuasively in 7-hours. And, no, templates will not work, since the reporting forms are almost an historical relic. When it comes to USPAP and clear and persuasive appraisal reports, learning the secrets of clear and persuasive writing will not come from CE. Rather, it will come with university-level writing classes, private tutoring, and/or private mentoring. To quote the late founder of Faber College, Emil Faber, “Knowledge is Good”. And knowledge of communication by writing is even better!

To answer those USPAP and Whatever questions usually means going to USPAP to get an answer. Really, where else would you go? USPAP is not a difficult document to read. What affects us appraisers directly is really in the first twenty-four pages. So, in practicality, the document is not all that long. Its brevity is both a strength and a weakness. Its strength is that it does not get bogged down in the minutiae of telling appraisers how to practice real estate appraisal. What’s its weakness? Since it has no practical solutions, it can leave appraisers in the dark about what to do and how to do it. But, if you think about it, that’s really a strength. How is it a strength not to give practical solutions to answer those USPAP and whatever questions? That strength is in the fact that USPAP’s restraint makes the appraiser look to USPAP for guidance. Then, with USPAP’s guidance in mind, the appraiser comes up with her own solution to the problem. In part, this is what USPAP means by independent, impartial, and objective. Is an appraiser independent if she has to depend on outside influences to answer her every appraisal question? To answer those USPAP and whatever questions independently, etc. calls for the appraiser to take a number of steps. First is to understand where (if at all) the USPAP document covers this topic. Here’s a secret: If the USPAP document does not mention something, even in passing, is it all that important? Here’s an example: USPAP does not require the appraiser to measure the subject. Given this indifference, it is safe to assume it does not care about the standard of measurement you use. You can’t mislead the client. But other than that, USPAP says nothing. Therefore, to answer those USPAP questions is, in the main, your call.  

Appraisers have asked me about USPAP and bracketing. What they want to know is if it is really possible to bracket every difference there is between a subject and its comparables? Spoiler alert: the short answer is “NO!”. Unfortunately, the long answer is “NO!”, too. To derive an adjustment via bracketing is just as effective and practicably applicable as is paired-sales analysis. Paired-sales analysis is a great tool. But where can you find the sales of two properties exactly the same in all aspects to each other, except one? That’s the problem. With incredibly rare exceptions, such properties do not exist. When it comes to USPAP and bracketing, we appraisers have the same dilemma we have with paired sales. You won’t get the contributory value of a third bedroom by bracketing such a property with the sale of a two bedroom house and a four bedroom house. Why? All other things being equal, there are too many areas of inferiority in a two bedroom house. Therefore, there are too many areas of superiority in a four bedroom house. Given this, it should be clear that bracketing, at this level, results in a meaningless answer. Yet, our friends, the lenders, want us to bracket every difference there is between the subject and the comps. To assume this, begs the question every difference must have a counter-balancing adjustment. Simply, the market does not support this contention even if the AMC’s reviewer insists otherwise. So, when it comes to USPAP and bracketing, appraisers understand it is a tool. But just every problem a carpenter faces is not a nail, a hammer is not the solution to all carpentry problems. Therefore, bracketing is not the solution to carving out an adjustment for every difference there is between the subject and a comp. Shouldn’t this be obvious?

USPAP and breathing dust should conjure up leaders breathing fresh air, while the followers breathe the leader’s dust. So far, we appraisers have chosen to follow when it comes to what the AMCs and lending industry mistakenly call “appraisal modernization”. Without question, real estate needs to come into the 21st century. But why did appraisers choose not to lead this assault on their own mediocrity? Leaders breathe the fresh air. Followers breathe their dust. But we can change this situation! We can take the lead! This usurpation of the lead is not a matter of capacity. It is a matter of will! In a past podcast I spoke of growing a pair. Will we? When? USPAP and breathing dust foreshadows that appraisers do not like or want that subservient position. So, how will we reverse it? Education is one key. This means taking challenging, critical thought-provoking classes. It will require us to expand our professional horizons. This will mean taking classes in the scientific method of inquiry, regression analysis, artificial intelligence, adjustment techniques, and other appraisal-specific topics. It might even mean taking university-level classes on logic, reasoning, persuasive writing, public speaking, and time management. USPAP and breathing dust raises the issue of using artificial intelligence as part of any real estate appraisal and the analytics behind a credible, unbiased opinion of value. If we don’t lead in that area, we will surely breathe the dust of those who choose to make that sacrifice. So, are we going to enter the future breathing the pure air of leadership, or the choking dust of subservience?

USPAP and all information necessary comes right out of SR1-4. But now is the time to learn what “…all information necessary to credible assignment results…” really means. The USPAP document itself does a poor job of explaining it. Our 7-hour USPAP update classes do not even begin to explain this topic. And that’s a shame. If more appraisers were familiar with it, we would likely have less trouble with hollow charges of racism Washington, D.C. so erroneously levels against appraisers. USPAP and all information necessary means just that. There is nothing hidden here. Yes, it means all of the sales and listing data available to the appraiser/analyst. But that’s not all it means. “All information necessary for credible assignment results…” also means all of the cost and depreciation data necessary. And this does not refer to merely listing these data. Primarily it refers to analyzing these data. And to analyze those data means to engage in all of the protocols of the Cost Approach. Engage in them until you are as comfortable with their indication of value as you are with the indication of value from the sales comparison approach. But it means more, too. USPAP and all information necessary for credible assignment results means the property’s complete analysis. There are three analytical models, which means we analyze the the subject via the income approach, too. But my subject is not rented, you exclaim! So?! You can stick a “House For Lease” sign in the front yard, right? There are similar houses for lease in similar neighborhoods, are there not? You know there are! Your MLS tells you that! So analyze those houses and then extrapolate those rental and GRM data to the subject. We avoid bias when we analyze all the data. So, analyze all the data!

USPAP and growing a pair? Really?! Isn’t that a bit risque’ for a YouTube real estate appraisal education post? Yet, it is. But it caught your attention, didn’t it? That’s the purpose. To make you stop and think. So let’s consider this. USPAP and growing a pair means, in one sense, getting enough courage. Enough courage to do what? Courage to grow a pair and leave the comfortable – and generally lucrative – world of GSE appraisals. This is probably all you’ve done throughout your entire real estate appraisal career. It’s comfortable, isn’t it? You know what answer goes in each box, right? You’ve got your boilerplate down. You’ve used that same neighborhood analysis in the last 30 reports in this neighborhood. Life is good. So why change? That’s the second part about growing a pair. USPAP and growing a pair makes us ask about what the GSEs have recently done. That comfortable real estate business as some appraisers know and have come to love, it is poised for a tectonic shift. What shifts? Will there be fewer appraisal assignments? That’s a safe assumption. Is the number of appraisers going to decrease? Yes, but not as quickly as the number of appraisal assignments. Are property data collectors going to take from us some of the work we did in the past? It is naive to think otherwise. So, what are appraisers to do? Read on! The second part of USPAP and growing a pair means growing a new set of skills to transition out of GSE work into other areas of real estate appraisal. It also refers to growing another book or books of business to replace the GSE appraisal book. So, yes, growing a pair has a risque’ meaning. It also has a perfectly logical meaning – growth of new skill sets and books of business. Thanks for listening!    

“USPAP – It Ain’t Binary” is a phrase you’ve never heard before. Why? Well, it is not binary. Seldom in real estate appraisal is anything purely a one (-1-) or a zero (-0-). We have choices to make. There are ambiguities to unravel. What happens when we get conflicting data from the listing broker and the selling broker? County data say the subject has 3,327 square feet. But our ANSI measurements shows 3,402 square feet. A plumbing contractor says it will cost $5,823 to repair the damage from the flood in the bathroom. But a general contractor says a minimum of $9,000 to repair the flood damage since there may be damage to the sub-floor joists. This is what the title of this podcast means. “USPAP – It Ain’t Binary” also means the document itself, while the universal standard for real estate appraisers and real estate appraisals, recognizes ambiguity. How? In some states like New York, compliance with USPAP is voluntary on the appraiser’s part (within limits, of course). But in Illinois, if you express a value opinion about real estate or any interest in real estate, you’d better have a state appraisal credential. This podcast carries the title “USPAP – It Ain’t Binary” to recognize the fact that, despite what appraisers want, real estate appraisal rarely has a simple “YES!” or “NO!” solution. As USPAP instructors like to say, “Well, the answer to that questions depends…”, with some qualification to the response you never thought of before. But really, this is a benefit to us. This allows us to amass, analyze, and interpret sufficient quantities of data to come to a value opinion or an exposure time estimate via critical thinking and synthesis. In other words, there are no mechanical, rote, or pat answers in real estate appraisal.

USPAP and standing tall? What does that mean? And, how is a competent real estate appraiser like a WWF pro wrestler at a ballerina’s convention? Do ballerinas even have conventions? And why is Tim, a real estate appraisal podcaster, concerned with WWF pro wrestlers and ballerinas? Just where is this going? Believe it or not, there is a relationship. Read on and then listen to the podcast, please. USPAP and standing tall has to do with more than WWF pro wrestlers and ballerinas. It also has to do with appraisers who are willing to stand up and stand tall in and for the profession. USPAP’s Standard 1 is the appraisal development standard. That is not news. Nor is it news there are still a few appraisers out there who have no clue how to develop an appraisal. There are, however, those appraisers who have taken the time to read and understand Standard 1. As they follow that appraisal development model, they stand tall because they stand out from their peers. What does USPAP’s Preamble have to do with USPAP and standing tall? Basically, it gives us appraisers our marching orders. What are those orders? They are to promote and maintain a high level of public trust in all facets of real estate appraisal. They are to perform professionally anytime we have our appraiser’s hat on. They are to give the public a genuine reason to trust us. And remember: soldiers do not march while sitting or all hunched over and sloppy. Rather, they stand up to march, then stand tall so they stand out. So, USPAP and standing tall means professional conduct in all things appraisal any time we have that hat on. It also means we do our best to be outstanding. Thanks for listening!

USPAP and What’s Omitted? What does that mean? Really, we mean what’s omitted from your appraisal and report. It is true, you should omit very little from the appraisal, as well as from the report. Why? A sale is not a comparable sale unless it has the same highest and best use as the subject. So, appraisers cannot omit those analyses. How about neighborhood analysis? Fannie Mae wants answers to thirty-six questions about the neighborhood. There is nothing about the neighborhood the appraiser can omit from the appraisal or the report. USPAP’s SR1-6 calls for a complete reconciliation. So, no, the appraiser cannot omit that, either. Then, just what can the appraiser omit? USPAP and What’s Omitted refers to unnecessary stuff. What is unnecessary stuff in a real estate appraisal and report? You can probably omit the analyses of the Income Approach if you’re appraising your basic cookie-cutter house (although not always). Most assuredly, you do not need a level-C or -D market analysis to appraise credible a single family residence. According to USPAP, you can omit pictures, too, since there is nothing in that document calling for them to be part of the appraisal or the report. So, yes, there is stuff you can reliably omit from your typical GSE appraisal. But let’s also talk about omitting the really necessary stuff. Read your report carefully, please. USPAP and What’s Omitted refers to stuff you should not omit from the appraisal or the report. When you listen to this podcast, pay attention to what the State of Alabama did. This appraiser chose to omit from the report a summary for the analyses and market support behind all the adjustments. Omission of these analyses and rendered the appraisal not credible and the report misleading. To omit something this simple violated USPAP.

USPAP and pending contracts. What does that mean? It means its is perfectly OK to use the pending purchase and sale contract on your subject as a comparable! Underwriters will swear that is a violation of USPAP! Reviewers will need to buy red pens by the gross to mark-up reports if that happens! Heads will explode! GSEs will start to care about appraisers and what they think of the 1004 form! Civilizations will crumble! The Republican party will finally get its act together and elect a candidate to the White House! All of these are stinky hogwash since they will never happen, even if appraisers start to use the purchase and sale agreement as a comp. (OK, if appraisers start using the purchase and sale agreement as a comp, civilizations may crumble.) In fact, when it comes to USPAP and pending contracts, it may be internally inconsistent not to use contracts as comps. USPAP says nothing about this phenomenon. Actually, the Fannie Mae Selling Guide encourages it. A contract is nothing more than another data point to analyze. So, why not analyze it as if it were a comparable sale? It is a component of neighborhood trends. So why not analyze it as part of neighborhood analysis? Since USPAP and pending contracts is such an important concept, it is important to understand. That understanding starts here! Thanks for listening!

USPAP and expanding horizons. Now that the appraisal business is slow, it’s time to expand your horizons. This means taking steps you have never taken before. It means engaging in activities in which you’ve never engaged before. We will need to adopt a mindset we have never adopted before. In other words, it means change. Appraisers fight change. We are accustomed to a single set of appraisal protocols. It is common to fill out the 1004 form in the same way as always. We use the same boilerplate. It was Albert Einstein who taught us that it is insanity to continue to engage in the same activities, yet expect different results from those we achieved before. Therefore, as the real estate appraisal business changes, as the economy changes, we must be ready for those changes. When we talk about USPAP and expanding horizons, what we mean is change is inevitable. Literally, since the beginning of 2023, the progress of artificial intelligence has increased more than it has in the last two years. AI will continue to integrate into all areas of real estate appraisal, especially into the composition of appraisal reports. Are we going to expand our horizons and adapt AI to real estate appraisal? Or, are we going to fight it while the rest of the mortgage lending continuum takes advantage of it? USPAP is not a perfect document. However, it is dynamic. It is adaptable to change. So, as we consider USPAP and expanding horizons, are we adaptable to change? Are we going to take advantage of the educational opportunities these changes will demand? Are we going to capitalize on this new technology to improve the way we write our reports? USPAP and expanding horizons means we have a choice. We can keep our own status quo which essentially means we will be falling behind. Or we can adopt and adapt. Real estate appraisers tend to be smart, analytical folks. If I we’re going to bet the mortgage payment, I would bet that appraisers will adopt and adapt. What do you think?

USPAP and three questions? What does that mean? It means that, in this podcast, we are going to tackle three questions. They are questions appraisers constantly ask. This consistency means that these answers are not cast in stone. That is a shame. Therefore, we’re going to answer them in a manner that is applicable to any appraisal and report. Uspap and three questions is vital for appraisers. In short, the three questions are, “How do I confirm a comparable sale?”. The next is “What does a state investigator look for in my work file?”. And, finally, “ What is enough support in my work file?” We are also going to look at these questions from a perspective you’ve probably never considered before. So, uspap and three questions will raise novel issues. It’s also likely that as you formulate your answers to them, you’ll come to understand residential real estate appraisal, and even highest and best use, better than you did before. There are great CE classes out there. However, you’ll find none of them cover these three questions in any depth. That, too, is a shame since these questions continue to merit straightforward and unambiguous answers. Contemplate uspap and three important questions. In addition, given the fact that business has slowed for so many appraisers, this may be a great time to sharpen your saws. It might be a good time to ask an expert to audit some of your reports, just to make sure they are as clean and uspap- compliant as they should be. Thanks for listening! please hit that subscribe button! More of these podcasts are on the way. One comes out about every two weeks. Remember to contact me at [email protected] Thanks! And, as always, my best!

USPAP and (un)intentional omissions? What does that mean? Unintentional omissions makes sense. But why would an appraiser intentionally omit something? And that’s the question. Why would the appraiser intentionally omit the analyses of the cost approach from the appraisal? And why would the appraiser intentionally omit the results of those analyses from the report? These don’t make a lot of sense, right? Yet that is exactly what happens in many residential appraisals. When it comes to USPAP and (un)intentional omissions, that refers to excuses, not reasons. Excuses? How about, “the cost approach was not utilized since calculation of accrued depreciation in older houses is difficult”? That statement is not the reasoning behind its omission. It is, instead, an excuse to cut a corner. In turn, that is justification to avoid a professionally embarrassing situation. Chances are, that appraiser does not know how to complete the cost approach analyses credibly. So, to avoid USPAP and (un)intentional omissions, it is first necessary to understand when an omission is OK. But, to omit the cost approach, the appraisers must carry out the protocols. This means concluding a vacant site value. Then analyzing the property’s physical characteristics to calculate its replacement cost credibly. Next, the appraiser extracts market-based accrued depreciation. Now the cost approach is complete. Since it is complete, does it indicate anything the sales comparison did not already tell the appraiser. If it sheds no further light on the subject’s market value, then omit it from the report. But first, it was necessary to prove it added nothing. A competent appraiser does not merely assume that. Thanks for listening!

USPAP and enough iterations. What does that mean? Really, it relates to what is in your workfile. Or, what is supposed to be in your workfile. OK, what is supposed to be in the workfile? Everything. But that answer is too general and too ambiguous really to mean anything. Let’s see if we can be more specific, more inclusive, shall we? When it comes to USPAP and enough iterations, we really mean analytics. We mean the quantity of analyses necessary to come to a credible value conclusion. Wait a minute! This sounds as if we are talking a lot of work here! Frankly, we may be doing just that. You see, we cannot really analyze a comparable sale, for example, without exposing it to multiple analyses. Yes. When the GSEs talk about market value, they refer to a sale that meets the criteria in it. Specifically, there are five criteria in the definition. All of these must be present. If they are not, the sale is not a market value transaction. So, in the workfile there must be enough analyses to demonstrate both that and how we determined “…a reasonable time [was] allowed for [the subject’s] exposure in the open market…”. By doing the research to answer those five questions we engage in analytics. We have analyzed a sale to the point we conclude it was or was not a market value transaction. These are the iterations we go through to reach this decision. So, as we look at USPAP and enough iterations, we mean the extent of our analytics. We look at the extent of what we did to determine it was enough. Then, we keep all those iterations in the workfile. Why? We do that to demonstrate both our knowledge of and compliance with USPAP. You’re welcome!

USPAP and the NICK. What does that mean? Has a reviewer ever told you some part of your report was not right? Gave you a hard time on it? Told you to re-do something? That’s the nick. But there is help! There are ways to avoid the nick in the future. Read on! When we talk about USPAP and the nick, for example, did that reviewer say your neighborhood analysis was just a collection of facts? It really did not analyze the neighborhood? From reviewers, that is a common comment, as well as one that is entirely avoidable, too! Or, how about the nick from the reviewer that your reconciliation did not meet USPAP’s SR1-6? That, too, is something you can avoid. So, how do you avoid USPAP and the nick? There is not much you can do to avoid USPAP. That’s cast in granite, right? But avoiding the nick is much easier. And that’s exactly what we cover in the podcast – ways to avoid the nick. This can be easier than you might think. How? Avoid meaningless statements such as, “…the subject is in a good neighborhood”. Why? OK, what’s a good neighborhood? How did you measure that goodness objectively? You avoid this problem by instead telling your client the three, four, or five reasons the market wants to purchase in the subject’s neighborhood. You avoid USPAP and the nick, for example, by complying with USPAP to use logic and reasoning to explain why you did or did not do something as part of your appraisal. Again, you explain to your client why the market wants to purchase houses in the subject’s neighborhood. You avoid merely telling the client that the market wants to buy in the subject’s neighborhood. You avoid that nick when you communicate with your client, not merely tell the client something.  

USPAP and ammunition? What does that mean? We appraisers have made it too easy for our critics to shoot at us. Not only that, we appraisers supply our critics with the ammunition! One of the major points of contention we have with our critics is that since appraisers determine a property’s value then, in neighborhoods of color, why can’t we determine a higher number? After all, it is clear we appraisers determine value. Why is that clear? Because we say so in our reports. What do we say? We say, “…the purpose of this appraisal is to determine the subject’s market value…”, so by our own admission we determine value. But the problem is, we don’t determine value. That is a function of the market, not the appraiser. Our critics are wrong. But we’ve supplied them with all the ammunition they need. USPAP and ammunition to our critics? USPAP gives us the solution to this problem. Look at the definition of a real estate appraisal. It is the process we go through to develop an opinion of value. There is nothing in that definition about determining anything. So USPAP gives us the ammunition to shoot back at our critics. Since USPAP makes it clear we develop a value opinion, then let’s say so in our appraisal reports! When it comes to USPAP and ammunition, USPAP really lends a hand against our critics. USPAP provides us with the ammunition we need to fire back! How? Listen to this podcast. You’ll find out! Really, its straightforward. Thanks for listening!  

USPAP and sharp saws? What do USPAP have to do with sharp saws? Things are slow right now, right? Volume of orders is less than it was even two months ago, correct? So, now you have some free time. Read some books. Listen to some podcasts. Take some classes. That’s what you do when you have some free time. You sharpen that saw. When it comes to USPAP and sharp saws, what should you do to sharpen the saws you use everyday? Take some classes. Not just CE classes. Every appraiser takes CE classes. Generally, CE classes do not sharpen your saws. You need something extra. Something that will set you apart. Something that makes your client base stand up and take notice! When you are sharp, for example, you understand how to use spreadsheet programs. There are plenty of these classes on the internet. Some are free. Some have a modest tuition. All will take some effort on your part. But now you have that free time. Now you can put in that extra effort to educate yourself into excellence. USPAP and sharp saws also means become a better writer. Appraisers communicate using the written word. But there is not a class in QE or CE to teach you how to write. You need to write clearly, concisely, and persuasively. You produce a credible value opinion. But if it does not lead your client clearly, concisely, and persuasively to your value conclusion, what good is the appraisal report? All this means you educate yourself into excellence. Start now, while things are slow. In this interim, take the time to learn at least one new skill. Sharpen your saw when there are few trees to cut down. You’ll be glad you did!

When it comes to USPAP and neighborhood analysis, many appraisers think such an analysis is a waste of time. After all, every house in the US is near shopping, schools, houses of worship, entertainment, and recreation, right? But what does Fannie Mae say about neighborhood analysis? She makes her demands really clear in section B4-1.3-03, Neighborhood Section of the Appraisal Report, under “Neighborhood Analysis”. In fact, there are 36 criteria she looks for in this analysis in addition to merely highest and best use. In fact, in this podcast, we cover five of those 36 just to make sure you’re familiar with them. So, why do some appraisers think USPAP and neighborhood analysis are a waste of time? Well, first of all they are entitled to their opinions, right? Second of all, there is not enough space on that archaic and poorly designed 1004 form. Third, they think the neighborhood section is merely the location for more boilerplate. In reality, it is not such a location. In fact, if the appraiser answers all 36 of Fannie Mae’s questions, it is going to be really hard for someone to call out an appraiser on bias. How so? If the appraiser analyzes the neighborhood, and then answers all 36 of those questions, it will be obvious s/he has considered all the options. When that happens, there is no bias. So, when we appraisers pay attention to USPAP and neighborhood analysis, we are really (1) giving the client a clear picture of what’s happening in the neighborhood. And (2) we are working to cover our assets, too!

USPAP and the neighborhood. This may be hard to understand. USPAP does not even use the word neighborhood in Standards 1 and 2. So how can neighborhood analysis be even minimally important? For that, we have to forego USPAP and go straight to the Fannie Mae Selling Guide. Section B4-1.3-03 covers the subject’s neighborhood and what Fannie Mae wants to see in this part of the appraisal report. There are at least 36 questions Fannie wants appraisers to answer. These questions are not hard and the answers are straightforward. But the point is, USPAP has nothing at all on neighborhood analysis. Only the GSEs have this. So it pays to be familiar with those requirements. True, USPAP and the neighborhood screams, “boilerplate in use here!”. But, in the neighborhood analysis section of the URAR form is where we introduce the analytics of the sales comparison approach. How so? Simple. Say, for example, in the neighborhood analysis, you show prices are increasing in the subject’s neighborhood. All other things being equal, then the client has the expectation to see you adjusted the comparable sales upward, too. If the neighborhood analysis has prices increasing, yet there are no upward adjustments to the comparable sales, this is an inconsistency. We do not want inconsistencies. Your analysis of USPAP and the neighborhood is important to a successful appraisal report. Thanks for listening!

Is it time to expand and diversity your appraisal business? USPAP and non-traditional appraisals may be just the proper answer you’ve been looking for! In this podcast we do not discuss hybrid or desktop appraisals. We’ve already done that. Instead, in this podcast we consider expanding and diversifying your business by accepting assignments from other than traditional lenders, evil AMCs and the GSEs. This is because there is another universe of appraisal out there. It has the generic term “private work”. But it means appraisal work for other than refinancing an existing mortgage or applying for a first mortgage loan to purchase a house. And what’s wonderful is that we can do these private appraisals, too. USPAP and non-traditional appraisals come into play in times when mortgage work slows down. And given the increase in US interest rates since May of 2022, mortgage and re-finance work have slowed way down and may slow even more. What’s more, foreclosure and pre-foreclosure appraisals may increase as homeowners find themselves underwater if they paid too much for their house during the boom. And what about pre-listing appraisals. Our broker friends want to list houses at prices that will earn them commissions. An overpriced house does not fit that bill. Potentially, tax appeals are a source of revenue for appraisers. How so? USPAP and non-traditional appraisals will be an important feature when real estate values start to fall. Property owners will want a competent, independent, impartial, and objective real estate appraisal when it comes time to appeal their ad valorem tax assessments. Who better than an appraiser to carry this out? Brokers, who live on commissions, will have their impartiality open to suspicion in such appraisals. That’s what our mantra should be from now forward! “Appraisers do it Right!” Or, at least, we should!

Appraisers rightly ask a lot of questions about USPAP and desktop appraisals. These desktop assignments have been around literally for decades. They were not common in non-GSE appraisal work, but were the norm for other types of appraisal and valuation assignments. After all, sometimes the appraiser must put boots in the living room. And other times, no boots are necessary. That decision, simply is part of the appraiser’s scope of work. And by the way, the appraiser chooses the scope of work, doesn’t she? When it comes to USPAP and desktop appraisals, some appraisers are worried. Frankly, they are worried desktop appraisals will ruin the real estate appraisal industry. Let’s face facts: some assignments simply are not appropriate for desktop assignments. But it is clear the GSE understand this (at least they do now – who knows what stance they will take in the future?). Plus, the appraiser has the right to either decline the desktop assignment, or to elevate it to a full (“typical”) appraisal assignment. But the point is, all other things being equal, why not do a desktop appraisal when that is appropriate and it will not mislead the client? USPAP and desktop appraisals must have a context, however. Some appraisers advocate it is “…the appraiser’s responsibility to protect the…public trust.” That is what USPAP says, true. But that is not the context of the quote. Rather, in its context, the appraiser has the pro-active responsibility to protect the overall public trust in real estate appraisal and real estate appraisers. It is not our mission to protect the public from itself. Nor is it our championship to protect borrowers from rapacious lenders. Simply our job is to provide the client with an uninterested, competent, independent, impartial, and objective opinion of the market value of the subject property. If our job was to look out for the interests of the mortgagor, then we could not be independent, impartial, and objective, could we? So, as we look at USPAP and desktop appraisals, remember we are in charge of that decision. So we have the choice.

You ask USPAP: “Are listings important?” This is a question that comes frequently from appraisers – especially inexperienced appraisers. It even comes in from well-seasoned appraisers, too. But the question is valid, especially in a changing market. We all understand the market in the last half of 2022 is different from the market in the first half. How so? Details are not all that important here, since you are familiar with them. But as we see the volume of sales dropping, the volume of listings increasing, and first mortgage interest rates increasing, listings become more important, too. For that matter, so do pending contracts (see the next paragraph). Listings become more important since they reflect what is happening now in any given market. In a hot market, the sales give you this information. But as markets cool, understanding the current competition in the market is a trend the appraiser must analyze. Currently, the market is cooling. Our clients and state appraisal boards expect us to stay on top of these trends and report them clearly and non-misleadingly. So in a cooling market, listings tend to represent the top of that market. Therefore, yes, we analyze listings and show them as the subject’s competition on the SCA grid. So, you ask USPAP, “Are listings important?”. That answer is clearly yes. But how about the question, “USPAP, are current purchase and sale agreements important, too?” Yes! Why? Assume you are appraising a property currently under contract of $450,000. Assume, too, this contract meets the definitions of Market Value, was an arm’s-length transaction, and so forth. Yes, this contract is another data point to collect, verify, and then analyze as you would any comparable sale. So, you ask USPAP, “Are listings important?” “Are contracts for sale and purchase important? Now, answer those questions yourself.

USPAP – what’s important now? As usual, in a real estate appraiser’s life, USPAP is always important. But in this podcast, Tim talks about some of the more important stuff – right now. For example, i-buyers. Because of the housing shortage, investors are buying single-family residences. But not one at a time. Those investors are buying in bulk. So they are paying investment value, not market value. How does this affect you? Please listen to the podcast to find out. With USPAP, what’s important now is changes in market trends. So, how does the appraiser adjust for changes in interest rates over time? Generally, as interest rates increase, the trend is for prices to fall. This is because higher interest rates mean higher monthly payments in which less of the monthly payment goes to principal, while more goes to interest. So, does the appraiser adjust the comparable sales for this trend, or just ignore it? Please listen to the podcast to find out. When it comes to USPAP, what’s important now is also what will happen in the future. Chances are, as prices fall from their unsustainable past high rates, there will be some pain among appraisers. How so? Thirty-six months from now, will that $500,000 house someone bought in a frenzy of offers and low interest rates be worth more than $500,000? Who knows? But ROVs, Tidewater initiatives, upset owners, and those who will play the racist card will be omni-present. How does the appraiser get through such anti-appraiser gyrations? Training. Have a bulletproof workfile is a great way, too. So, with USPAP, what’s important now? Remember, what impresses your state appraisal board is not the accuracy of your value opinion. It is, after all, just an opinion. What is going to impress that Board is the quality of your research and analyses leading to your value conclusion. It will also look closely at your report(s) to make sure they are not misleading.    

USPAP’s useless cost approach. It is hard to learn. Depreciation is too hard to calculate. The market does not use it. My peers do not use it. So, yes, its useless. Or is it? If you listen to this entire podcast, you may have reason to change your mind. But why? USPAP’s useless cost approach? If you look closely, the beauty of the cost approach is not in its ability to indicate a value to a parcel of real property. Instead, its beauty is an an analytical tool. But, you rightly ask, what is it capable of analyzing? What else can it tell me other than the value of the property via its protocols? Our friends at the GSEs and AMCs have snookered us. They are so set on getting an appraisal in 24-hours. It is possible, they seductively whisper, to turn appraisals around in the impossible time limit if you ignore both the income and cost approaches. Yet the income approach can be very adept at telling you what the property’s highest and best use is NOT. As for the cost approach, its analytics can tell us the highest and best use of the site as if vacant, as well as its value as improved. It is very good at extracting depreciation from the market so our adjustments for age & condition are market supported. And it is about the only way to market-extract a market-supported estimate of effective age. USPAP’s useless cost approach is really not useless. With some study and practice you can make it a formidable weapon in your arsenal of appraisal skills.

When it comes to USPAP, facts, and opinions, there is a lot of confusion out there. This podcast helps to unravel the facts from the opinions, the truth from the hype. It follows, then, this podcast points some of these out, right? Some appraisers think that with USPAP, there is confusion over what is a fact and what is an opinion. As a result of this confusion, the appraiser’s facts are often wrong, so the appraiser’s opinions lack credibility. USPAP defines an appraisal as “…the act or process or developing an opinion of value…”, but it does not define a fact. On the other hand, a fact is a “…thing that is known or proved to be true”. From these, it is clear a fact and an opinion are not the same things. To form an opinion, therefore, an appraiser uses facts. Opinions proceed from facts. Indeed, they proceed from the collection, verification, and analyses of facts. It is easy to see that for us as appraisers, an opinion of market value, without a foundation of market-specific facts, is nothing more than a guess. So, when it comes to USPAP, facts, and opinions, there is a logical and deductive model we must follow. This model leads to a credible value opinion rather than merely a guess. That model is to collect, verify, and analyze property-specific and market-specific facts. Then, from those analyses, draw a conclusion the market supports. Not one the client likes. But one the market supports. And, of course, we maintain that support in the workfile. This demonstrates we did not guess, and that we complied with USPAP. Thanks for listening! And by the way, there are only two opinions in an appraisal: highest and best use and market value. Everything else must be a fact!

When it comes to USPAP and report writing you say, “Tim, I already know how to write an appraisal report!”. That’s great! Congratulations! Now, ask yourself this question, “Do I know how to write a persuasive appraisal report? How about, “Do I know how to write an accurate appraisal report?”. And finally, “Do I know how to write an internally consistent appraisal report?”. Then, all of these questions lead to the main question, the crux of this post: “Should appraisers take a university-level writing class?”. Now, I hear you grumbling, “I don’t need a college education to appraise real estate! I’ve got 30-years experience!”. An apendectomy is not particularly hard, either. But, I bet you want that surgeon who’s going to take out yours to have gone to medical school, and then interned in surgery, right? Now you say, “Tim, there are no university-level classes on writing a real estate appraisal report!”. You are, of course, correct! But, there are not any university-level classes on appendectomies, either. There are only medical school-level classes on that. So, why did that surgeon take a writing class in college? It was not to be a better surgeon. It was to learn how to express herself clearly, credibly, and persuasively. USPAP and report writing calls for the appraiser to express herself clearly, credibly, and persuasively. We are, after all, in the communications business. Appraisers communicate for a living. We persuade for a living. How so? Consider this sentence, one that is all too common in reports: “The adjustments are as shown.” What did that sentence communicate? Nothing. How could that sentence possibly persuade our clients and intended users of the accuracy of our analyses? Simply put, it can’t. USPAP and report writing. Please complement your 30-years of experience with a university-level report writing class.

What do you need to worry about? There is a lot out there in AppraisalWorld to keep you busy! But since you’ve already got worries enough, this podcast covers some of them for you. However, don’t get all excited! There is no reason to give those away here, so we won’t! Please check out the podcast for details and specifics, though. Some of these may hit close to home. Others will not seem all that much of a problem – at least for now. This podcast also covers what you need to worry about, and what you don’t – at least for now! Here in AppraisalWorld, more has happened in the last two years than in the last 10-years. For instance, Fannie Mae has promised a new appraisal reporting form. Originally, she called for a 2024 roll-out. However, given all that’s going on in AppraisalWorld now, 2026 may be a more doable target date, so don’t worry about it! In addition, how about 2023 USPAP? Well, the ASB’s working on it. But they are under a lot of political pressure to remove the bias and discrimination our critics claim is in it (which really are not). You don’t have to worry about those. But the ASB does. What you need to worry about does not include interest rates. Those are increasing, so rates of price increases are slowing. Will prices fall? Probably, so don’t worry about those either. What else do you need to worry about AppraisalWorld? Keep working hard! Please keep writing clear and persuasive reports! Always keep learning! Keep being professional! Keep listening to these podcasts! When you do these, you’ll have less to worry about!

What’s a comparable sale? Does USPAP answer this question? (spoiler alert: NO!) Can the GSEs answer this question? (same spoiler alert!). You’re an ethical, curious, well-trained and well-educated appraiser. What are you going to do? In this podcast, Tim Andersen, The Appraiser’s Advocate takes a stab at the answer! Think highest and best use since that is the key to a comparable sale. There is no “official” definition of a comp. But the best description, however, is one with the same highest and best use as the subject. There are sales and then there are comparable sales. What is the difference between them? In essence, one difference is your verification of that sale. You turn a plain-vanilla sale into a comparable sale! How? Use Fannie Mae’s definition of market value as your verification model. If a sale ticks all the boxes in that model, and it has the same highest and best use as your subject, you have a comparable sale! When they don’t have the same highest and best use, you don’t have a comparable sale. It’s that simple. Yes, finding comparable sales takes some work. But this is what our ethics demand of us. Now what? You found the sale. You’ve verified it according to the market value definition model. It has the same highest and best use as the subject. Now you analyze that verified sale. Why? Between your original research and your file data, you may have 15 comparables. Now, analyze them to determine those that are are most similar to the subject. Which of them presented the lowest gross adjustment ratio? Is the most recent sale physically proximate? Are all the comps cash equivalent? Can you support the adjustments? What’s a comparable sale? Listen!

USPAP and the contract are a great team! Make them part of your appraisal team, and you’ll benefit from it, too! Is that a lot of hyperbole, or what? No, it really is not since they do make a great team. But, since you are the Head Coach of that team, you must know how to pair them up. What’s your job as Head Coach? It is to know how and when to bring them together. They make a great team – but you have to know when and how to play them. Typically, we do not think of USPAP and the contract. This is a habit we need to change. Why? Because analyzing the purchase and sale contract is part of the appraisal process. You say, “Tim, I know that already!” Yes, you do – but the problem is in the pairing. When the package of data from the lender arrives, it contains a copy of the purchase and sale agreement. USPAP says we have to analyze it. This is to determine if it is arm’s-length or not. Then, the verification is like the verification of a comparable. You talk to somebody and ask some straightforward questions to determine if it meets the criteria of the definition of market value. If it does, you say so in the appraisal report. But USPAP and the contract have a very unique relationship. Some appraiser do not like having a copy of the contract. They think it is a contract to hit (it isn’t). It might bias them toward the contract price rather than market value (it might). Therefore, they say, keep the contract! But USPAP tells you when to read the contract, and its not as the start of the process. OK, so if that does not happen at the start of the appraisal, when does it start? Read SR1-5, not for what it contains, but for what it means. Given that SR1-5 comes after SR1-4, the proper time to consider USPAP and the contract is after you’ve formed a preliminary value opinion. When you hold it until then, it cannot influence you one way or the other. Your value conclusion has its base in market data, not in the contract. There is no way to accuse you of the bias of anchoring to the contract. You didn’t read it until you formed your value opinion. Then you include that contract as the last comp. In the reconciliation, you then give it the weight it deserves in the final value opinion. USPAP and the contract are a great team! But you must know when to play them!

“What’s in your workfile?” An even better questions might be, “What’s is not there“. A follow-up question to each is “WHY?” Scrutiny of what we do now comes from clients, from state appraisal boards, from GSEs, and from HUD. We appraisers will soon see scrutiny from the Department of Justice, too! So, what’s an appraiser to do? An appraiser’s best defense against a complaint or a lawsuit is a thick workfile. Remember those two words: THICK WORKFILE. So, “What’s makes a workfile thick?”, you ask. There is no cut-and-dried answer to that question. Each appraisal assignment is different, and will have a different scope or work. Is your assignment a cookie-cutter house in a cookie-cutter subdivision? Great! You need a thick workfile. Is your assignment a custom-designed and custom-built mega-mansion in Wyoming near the Grand Tetons? Great! You need a thick workfile. What’s in your workfile will vary from assignment to assignment. But there are some contents that need to be in there no matter the assignment. To bulk-up that workfile with relevant data and analyses requires you have a complete history of your scope of work. WHY? You say you have all of the necessary MLS printouts in the workfile? Great! But those printouts are just not enough support. What the appraisal police are demanding from us now are our iterations. And those are…what? Suppose the market does not speak clearly on the GLA adjustment. Your analyses show that adjustment could be from $75 to $95 per square foot. Which do you use? The short answer is iterations. Go thru them all to see the bottom line they produce. When one makes more market-sense than the others, you use that one. You need a thick workfile. That’s an appraiser’s best defense. Keep those iterations in the workfile

Did you mislead your client today? How? Why? You say, “Of course not! That would be unethical!” And you’d be right. To mislead your client, intentionally or unintentionally, would be highly unethical and a major USPAP violation. But, again, did you mislead your client today? You may have done just that. You’re wondering how, right? You’re wondering how using data right out of MLS could be misleading. That answer is in the podcast, so please listen. (SPOILER ALERT! In the report you have open on your computer right now, did you merely state the subject’s neighborhood boundaries, or did you also explain how and why you determined those boundaries? Did you explain why they are important? How do those boundaries affect the subject’s exposure time? Or its marketability? How about its market value? If all you did was state them, not explain how and why you chose them, then this podcast is for you!) So, did you mislead your client today? If you did, that certainly was not your intent! But, good intentions pave the road to hell, right? So, your intentions do not count (at least from a USPAP standpoint). What counts is an appraisal that is credible, accurate, reliable, and reproducible. Thanks for listening!

Is your appraisal house haunted? How about your appraisal business? Are you a ghost? You know what a ghost is. It is the nebulous apparition of a dead person. Usually you can’t see them, but sometimes you think you maybe caught just a glimpse of one. But, probably not. After all, we are talking about ghosts here, right? But, is your appraisal house haunted? You say that makes no sense. But think about it for a minute. Do you ghost your clients? Are you a ghost when it comes to returning the client’s emails and phones calls? When that Reconsideration of Value arrives, do you turn into the nebulous apparition of a dead person? Most appraisers have been up-to-their-earlobes busy the last 36-months. So, when the ROV arrives, everything else has to stop to take care of what could be a significant problem. At that point, to keep up with the work load, some appraisers have turned into ghosts. In other words, they are not returning phone calls or emails. These appraisers hope that by becoming nebulous apparitions of dead persons, they can escape the problem of that ROV, so still keep the cash flowing. Why is your appraisal house haunted? You insist it is not, right? Ask your clients. Can they get you on the phone? Do you answer their emails? Clients are reporting ghost appraisers to their state appraisal boards. Those boards sanction appraiser-ghosts. This usually means a fine and education (that does not count for CE!). Stay ahead of USPAP. Stay out of the jaws of your state appraisal board. There is no reason to be an appraiser-ghost. Conduct business with your clients the same way you want others to conduct business with you. That’s the professional way to run an appraisal business!