Tim Andersen, The Appraiser's Advocate Podcast

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!

Random appraisal thoughts? So much is going on in AppraisalWorld right now, its time for some thinking. ANSI measurements standards are not the way we measure houses, etc. Desktop appraisals are here to stay, at least for Fannie Mae. The PAVE Task Force met and all bias and discrimination in mortgage lending is the appraiser’s fault. The Waters’ Hearing on the PAVE task force. Tate-Austin v. Miller wants to eliminate the sales comparison approach. Where do appraisers stand on this bias/discrimination thing? How about taking on trainees? There is a lot to think randomly about. Random appraisal thoughts? USPAP always come to mind when you think about real estate appraisal. Do desktop appraisals violate USPAP’s Confidentiality section of the Ethics Rule? What does USPAP say about ANSI? (FYI, it says nothing). Are desktop appraisals the future or real estate appraisal? For appraisals going to Fannie Mae, they are. Freddie Mac and the others (FHA, VA, etc.) have not weighed in yet. Who knows! But part of what I do is to keep you informed on all this stuff. There is so much! So this podcast has some random appraisal thoughts on all sorts of appraisal topics. True, some of them are my own personal rants. Others came in from other appraisers’ questions. Thanks for listening!

Ask Why! It’s OK! Appraisers have an ethical obligation to understand what they are doing. We call it COMPETENCY. USPAP even has a Competency Rule. Why? Because the client has the right to assume our appraisals are credible, accurate, reliable, and reproducible. Our reports must not mislead anybody. And how do we do all this? Simply, we ask “WHY?” a lot. Our client is going to ask, “Why is my property worth only $350,000?” We are the professionals, the experts. It is our job to be able to explain to the client why their property has a value of $350,000. Nothing says the client has to agree with our value opinion. But we have to understand the appraisal process so we can explain both how and why we came to that conclusion. Real estate appraisal training does an adequate job of showing us what to do. It does a mediocre job of teaching use how to do something. But, one of the areas in which real estate appraisal education is deficient, is teaching us WHY we do something. Basically, our QE and CE ignore this why question. How so? Have you ever asked your mentor how to calculate a GLA adjustment? If s/he said, “Oh, just use $65 per square foot”, you should have asked “WHY?”. Then, if s/he said, “Well, that’s the way I’ve always done GLA adjustments”, again, you need to ask “WHY?”. Then, if s/he says, “Don’t worry about it. It works fine!”, then you need a new mentor, now!. Ask Why! It’s OK! Why do you need a new mentor? Is your present mentor is incompetent? Does your present mentor know no more than you already know? Is s/he is competent to teach you anything? Is s/he is training you to fail? Ask Why! It’s OK!

10 questions Fannie Mae just has not answered? There are probably more than 10, but this podcast covers only 10 of them. Maybe we appraisers have not asked the proper questions? Maybe Fannie Mae does not trust enough to give us the answers. But the point is, we appraisers have questions. Fannie Mae has answers. But she has not gone out of her way to provide them to us. So, Tim Andersen, the appraiser’s advocate raises some of them here. This is to give the good folks at Fannie Mae a good goosing – just to get them started. 10 questions Fannie Mae does not answer for for us? How about “How are we supposed to provide a floorplan when we don’t put boots in the living room?”. Technology helps us answer this question, true. But the fact is, we had to ask it. And, Fannie Mae still has not answered it (as of this podcast). Again, that technology exists, but which technology? Even some of the AMCs are on this bandwagon. Those AMCs ask us to use their software, their apps. Does that put them “in charge” of the appraisal and its reporting? USPAP makes it clear those are our responsibilities. But USPAP does not govern or constrain lenders and their helots, the AMCs. These 10 questions Fannie Mae does not answer extend to neighborhood analysis, too. From experience, it’s likely the appraiser is already familiar with the neighborhood. But what happens when the appraiser receives an assignment in a recently-constructed subdivision? Will staying at a desk help the appraiser who is expanding into new geographical areas? How will the appraiser come to know the nuances of that new town or county? 10 questions Fannie Mae does not answer include the Selling Guide. Right now, it assumes the appraiser inspects the subject’s neighborhood. How will that be possible if the appraiser stays in the office? OK, the appraiser can get in the car and visit the new neighborhood, true. But, isn’t the purpose of a desktop appraisal to cut the time they appraiser spends outside of analyses? So, if appraisers are out inspecting neighborhoods, they are complying with Fannie Mae’s current requirements. But they are not at their desk analyzing. That’s not complying with her requirements. Therefore, is Fannie Mae going to change the Selling Guide so it is internally consistent with her adoption of desktop appraisals? When? So many questions. 10 questions Fannie Mae just has not answered include so many more, too. Let’s hope she chooses to heed our call and then answer our questions. Thanks for listening!

USPAP says support everything! That’s really great advice, but is it practical? Appraisers have only so much time and money to do an appraisal. That report must get out the door quickly and timely! So, is there really time to explain and support everything? Let’s put it this way: there probably is not. But try selling that to your state appraisal board! You won’t. Your budget and turn-around time limitations are irrelevant. There’s a reason USPAP says support everything. With support, your value conclusion is accurate, reliable, reproducible, and credible. USPAP demands the appraisal conclusion(s) be credible. Our friends the GSEs, et al, demand accuracy, reliability, and reproducibility. We appraiser can give them both. Yes, it takes more effort, more organization, and more planning. But remember that defending yourself against a formal state charge will cost a lot more than whatever you appraisal fee was. So, how to reduce the chance of such a charge? Support! In the workfile is you support for every statement of fact in the report. That’s where you support every opinion and conclusion in the appraisal. Support and explanation are the keys to keeping the state off your back and out of your wallet. USPAP says support everything! Take USPAP’s advice. If you see it, save it in the workfile! If in doubt, DON’T throw it out! Keep it in the workfile. Was a transaction not arm’s-length? Keep it in the workfile! It will come in handy when you are appraising to a standard other than market value. Did a potential comp have surplus land? Keep in it the workfile so you can measure how the market handles that issue. USPAP says support everything. There is no such thing as a workfile too thick!