“I would never do an appraisal for less than $250.” That – or a version of it – is what I hear many appraisers saying when the idea of a desktop of evaluation is mentioned. “Furthermore, those who are doing these are shooting themselves and the rest of us in the foot. If they would just say ‘no’ to these, the clients would have to order full appraisals.”
These are not bad arguments. I respect both of them, but I don’t see it the same way. Here’s why:
As appraisers, we are held (and hopefully hold ourselves) to a high standard. When we have our appraiser hat on, we are required to follow the standards of USPAP, for example. It does not matter if we are doing a full, URAR-UAD with MC Sheet and original comp photos, a 2055 Drive by, or an evaluation. The standards are the same. What is not the same, however, is the scope of work. Scope can make all the difference in the world when it comes to what we charge for our services. For example, I do not charge the same fee for a drive-by as I do for a multi-family with rental schedule and operating income statement. Why? It is not that the ethical standards are relaxed, it is because my time to complete the two are much different.
Appraisers are used to seeing things through the paradigm of fees. “How much are you getting on average for a full appraisal?” is a question I frequently hear appraisers asking one another. What I almost never hear among them is “What is your average pay per hour.” Well, that is not quite true among my All Star and Dream Teams. These are made up of individuals who see themselves as first, a business owner and second, an appraiser. Professionals work from a per-hour perspective and not a fee-based one.
How much do you charge for a final inspection? When you are asked to drive back out to a property and make sure the chipping/peeling paint got taken care of properly, what is your fee? I am going to make a prediction that it is not more than $200 (if it is, can I come work with you?). Why do you charge so much less for a final inspection with paperwork than you do for a full, 1004? Of course the answer is obvious; the time to complete such assignments is not even comparable.
What if I told you that you could complete an appraisal (and follow all of the USPAP standards) in less time that you could complete a final inspection? Would you be willing to do it for the same fee as a final? But what about liability, Dustin? Good question, and one you should take into account.
It is true that I am an advocate for relaxing the USPAP standards for evaluations. Clients want appraisers to complete these assignments, but many appraisers do not see how it can be done and still follow all of the USPAP requirements (including keeping a full workfile) for the fees the clients are willing to pay. Consequently, these types of assignments are going to others who are not bound by USPAP requirements (no, they are typically NOT being escalated to drive-by or full assignments). A small handful of states have already passed laws exempting appraisers from USPAP when they are doing evaluations. I hope more will follow suit. Evaluations are a multi-billion dollar industry and appraisers need to be allowed a bigger door to entry.
Evaluations have been around a long time, but they are becoming more and more popular for things like HELOCs and portfolio assessment. As appraisers, refusing to do them is a respectable business decision, but it should be a decision we each make individually without unfairly having to complete with others who are far less qualified to complete them.
42 thoughts on “Level the Evaluations Playing Field”
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Why does it not surprise me Dustin that you are in favor of these reports and want other states to follow suit in exempting USPAP standards. Do you have an army of disciples that you waiting to deploy so you can increase your hourly rate? When I say you are doing more harm to this industry than help, supporting lowering of standards so these lenders can churn out more profits, is a great example. Will the borrower still be charged $600 for an appraisal, and instead of the AMC collecting $250, will they start collecting $400? Should the AQB create a separate and lower tier license for these non USPAP compliant reports? If on a national average it only takes 70 hours to obtain a real estate license, perhaps this lower level appraiser license could be had in a similar time frame. As an American tax payer who is unfortunately part of the financial backstop for these profit and risk taking bankers, why would I want to expand their profits while fast tracking the demise of our industry? How would the public be better served with flawed automation, reduced scope of work, lowered standards, etc.? This isn’t about me raising my hourly profits a few dollars, but is big picture and way above the individual.
Seek the truth.
we are a mid size company with a volume of 90-100 appraisals per week. we have not done a desk top in 15 years and the only amc work starts at $400 net to us. we just turn it down if it is lower and then they usually accept our fees.
Hi Dustin… Good insight..
As a former banking executive, there are times when a full appraisal product isn’t required, nor is it truly needed. (Small loans, small credit lines, real estate taken for collateral as an abundance of caution,etc.). In my day, I was the lender who still wanted an impartial opinion of an approximate worth of my customers collateral just for the purpose of being diligent. But in those cases a full appraisal wouldn’t be financially sensible nor would it allow me to compete with other financial providers in costs. This is when I would order an evaluation to be completed by a competent appraiser. The analysis wouldn’t be the same as a full inspection nor would it consider all approaches to value nor would it be indepth but the range of value shown would give confidence to my portfolio if something went wrong down the road with that customer. The appraiser would get paid a lesser fee for a lesser analysis while still complying with our TN law that allows appraisers to complete these collateral evaluations when allowed. The appraiser has no liability for these products and the bank has something of value in his/her loan file. In turn the appraiser’s evaluation that was used over inferior products like BPO’s or tax assessment cloning programs kept our relationship intact for all future needs involving anything relative to real estate analysis.
I know there is a lot of fear in the appraisal industry nationwide. But the hate towards products that are different may not be based upon a firm foundation. Perhaps we look at the products we offer and see how we best compete in our markets and develop a strategy that compliments our business models.
I’m one of the first appraisers to get licensed in TN as a young man, and my firm is stronger today than ever. We serve our clients with several products that keep us in their minds no matter what need arises that’s associated with real estate valuations.
I think Dustin and I agree on much more than we disagree. I do wish my appraiser piers would pause and think about the content of his posts sometimes before responding so harshly.
Keep up the good work Dustin. I’d really like for my staff to meet up with you and yours one day. I encourage all my appraiser pals to become a member.
Tennessee has allowed Evaluations for years. I am in favor of evaluations because like anything else, you should fit the product to the situation. That is what scope of work did for appraisers when it was adopted in 2006. Before Scope of Work, we virtually all felt we always had to prepare a Complete Appraisal in a Summary or Self Contained report regardless of the underlying credit risk. Would you want to go to a car dealership and have to buy a Cadillac when all you needed was a Chevy Cruz? Why force the public to pay for a product that they don’t need. Evaluations are only allowed for federally regulated transactions where the loan amount is below $250,000 and the credit risk is low. It only makes sense to me that if you have a property that is worth $500,000 and the client is borrowing $50,000 that it is not necessary to go overboard on the analysis. Those of us that started our careers in a bank in the compliance, credit, or other similar department, understand the credit risk side of the transaction. This is not about lowering standards; it is about offering a range of products depending on the situation. The standards and expectations of appraisers has continued to increase but the fees are not following suit; therefore, appraisers continue to experience declines in their income. As a Certified General, I believe that residential appraisers should be able to increase their fees due to the added work involved in completing the appraisals over the expectations pre-recession. These are my thoughts based on my 20 years appraising and 5 years of experience working in the credit department of a bank.
@Bill Johnson-
Bill, how much do you make per hour to leave negative comments on message boards? Do you have a sponsor? Based on the volume and length of your posts you clearly have a lot of time on your hands…hope your sponsor is paying you well. Lots of work out there man, go get it and stop being such a hater.
I complete commercial as well as residential assignments, I look at the order, gather information about the subject and bid on the anticipated time the assignment will take to complete. The subject research I did before bid is included in the time allotment. I know how much I need to cover my office cost, travel cost, and make a profit on an hourly basis. Each order is bid based on time to complete.
Fellow Appraisers….
It is not the Form, but the Content.
It is not the Fee, but the Cost of Living…
We have been impacted by price increases across the board and regulatory nightmares for the past 10 years.
I will continue to fight for the Usual, Customary and Reasonable fees for this market.
We continue to be the 2nd highest Cost of Living market in the USA…. And will continue to send this message…. In a very high cost market like the SF Bay Area, most out-of-state AMCs do not understand that 60% of our properties are non-conforming and our high cost of living is atypical — these low ball AMCs email me at least 5 – 8 times a week.
Our Dodd-Frank Act compliant fee structure is based on property complexity, plus knowledge, experience and expertise in this market, all vital to our outstanding service and highly accurate valuation record. (Our fees will ALWAYS be highly than the national average)
Thanks !
Bruce J. Ford
NorCal Quality Appraisals
25 Yr. Certified Residential Appraiser
Serving Sonoma, Marin and Napa (CA.) “Value driven by Excellence”
I have owned a Mortgage company for over 20 years. Am a qualifying Broker and Residential Appraiser licensed in multiple states. I agree that it is all about risk. That is why we are hired for all purchases not just those over 205k because the aggregates demand it. These desktop reports are most definitely about the time it takes when quoting. Its simply a business decision. Yet the LIABILITY is the real issue. Just because they are limited scope USPAP has only 2 definitions now restricted or APPRAISAL report. I suggest asking your E&O insurer and your State Board if a complaint or suit is filed against you if stating that you completed a desktop limits that that protects you? I do NOT think that stating I completed a desktop out of USPAP because the Lender & AMC told me to for a minimal fee with no liability is a defensible answer? The fact that you ARE an appraiser in itself makes you held to a higher standard in the public eyes. that was the reason for USPAP to protect the public. NOT the lender. In fact the blocks of mortgages are sold back on the market by the aggregates as long term stocks SOLD TO THE PUBLIC. In my office when a BPO is requested I actually charge the same as we do for a 2055 and request the client upgrade at no additional charge. It takes the same amount of time if NOT MORE to complete a BPO and fight the clients delivery system. Also the data is not in my software so we have to re-enter all comps. Theses desktops unless glorified automated valuations take us at least 4 hours to complete properly with a credible report. NOT COUNTING THE LIABILITY. OR LICENSING. If the Lender LTV is so low and they want to lend on an in house loan then they do not need a desktop. An AVM combined with assessors data and pictures of the property from a bank representative are all thats needed. Finance companies have been doing that for years. What we find is that these are being used as servicing for collateral risk mostly. The lenders dont really want a full report. they want control. As it is now they use BPO’s as the basis on short sales. They never allow the buyer to adjust short because that would eliminate the MPI or PMI insurance. That drags out these REO’s sometimes for years. If you want to get into the middle of that for 75 bucks then be my guest. it is a business decision we simply are not participating in. Good luck. In summary a plumber gets 90 just for ringing your doorbell then 90 per hour after. We are valuing the entire house not just the plumbing. If you respect your profession, licensing and E&O then consider this when pricing your time and risk. Just saying
True the author of th article does toot the horn of the industry software co.s & is a fan of making life better for the lender/clients, But these products are not so bad when full fee1004 orders are unavailable. Whenever we undertake such orders we just ask for R and C fees. It seems this is the bottom line in the equation. A minimum of $100 seems fair to embark on any order. Preferred is $200. Hopefully we shall all be compensated fairly 1 day.
Appraisers need to be willing to take on new services and be flexible about what we do, I believe the appraisal profession will be altered in the near future to a point where one appraiser can do the job of many by streaming data for field inspection or data gathering experts to computers. An appraiser will make a final reconciliation after the computer models provide their estimates similar to the way a weatherman says, “The computer models are saying snow will start about 10:00 today, but I think it will hold off for most of the area until 12:00.” An appraiser might say, “The computer models say the house is worth $375k, but the analytics suggest that there is weakness in predictive outputs with regard to the view and condition. After closer analysis, the final value is reconciled at $390k.” An analysis like this will take far less time and will be far more accurate. Appraisers who survive will need to be flexible.
Read the previous posts of Dale Floyd and Tina Tipton; they are right on! I am no longer appraising full-time but still active for the banks & attorneys in my local market. 55 years of appraising including 20 years of banking making loans on my own appraisals (and living with the consequences if necessary) gives you an appreciation for what they said.
I recently completed “evaluations” on three properties for one borrower. Two of the loans were on houses which “balloned” after being on the banks’ books for ten years. I saw no reason the bank or the borrower should pay pay for a full appraisal “a drive-by” report filled the bill. The other loan was a small commercial property that had been on the books for three years. Original appraisal report (not mine) valued it a $140,000 at a feet of $2,500. New report by the same appraisal firm would cost the same. The bank did not think it was needed, particularly at that price. I was able to complete the “evaluation” for much less than $1,000, the fee being based on the actual amount of time needed.
I admit that I have railed against Dodd-Frank from the start……..also that I went “part-time” when UAD reports were required. I have NEVER done an UAD compliant report……and none of the commercial banks I work for or for any individual want nor understand an UAD report.
Thanks for letting me vent. And thanks to Doyle and Tina for telling it like it really is.
I am a certified residential appraiser. I do not have a problem with desktop; however, diluting USPAP requirements is not a good idea. I did an appraisal of a property that previously had a desk top valuation, which I was unaware of until my appraisal came in above the desk top but below the homeowners expectations. I was sent the desktop and asked to comment on why my appraisal fell short of the borrower’s expectations. The desktop was done prior to the subject being remodeled and my appraisal was done after the remodel. The desktop did not disclose that the sales used to determine the evaluation were fully remodeled and the final opinion was based solely on the sale price of the fully remodeled sales with no mention that they had been remodeled. It is understood that a desktop is done without an inspection and typically assumes the property average condition. The appraisal process should never be diluted to the point of an unsupported opinion of value. The mission of USPAP is ensure and promote public trust in the valuation process done by licensed appraisers. How much public trust in the appraisal process is generated when a borrower compares the bogus evaluation results of a desktop alongside a fully developed appraisal with a supportable opinion of value. When we put our signature on a valuation, desktop or full appraisal, we are telling the public that we are licensed and based on that credibility they should consider the opinion rendered to be reasonable. Choosing not to do appropriate research, and not maintain a work file of all public available data and ignoring information in available research is not the professionalism that should go into any valuation process. My understanding is that desktops are usually done when the note is not sold but held by the investor requesting the report. If that is the case then GSE requirements may not be necessary but USPAP standards can still be met. Without USPAP how can we as licensed professionals expect public trust in our opinions. Label it what you want, when we as appraisers use the credibility of our license and tie it to a range or specific amount it is considered by the public to be an opinion of value (Appraisal). I do desktops providing full disclosure on scope of work and reasonable opinion based on available public and MLS subscribed information. I base my fees on any assignment (desktop or full appraisal) based on the amount of work and time required.
Ricardo, if the truth is negative but most outlets only selectively report it, how does that make anyone a hater when its brought to life? When you offer a few sentences and call someone names, you ignore the reality of our troubled profession. I love how Wells Fargo did an internal investigation on the illegally opened accounts, but the 50 million dollar fine they paid for purposely over charging borrowers for BPPs a few months back, has lost all attention. Who knows if they declared themselves guilty or simply paid the fine to make it go away, but the issue of charging the borrower a fee( BPO/Appraisal) and only paying a portion of that to the professional who does the work, should sound familiar to all of us.
Seek the truth.
Kool-Aid
As a San Diego appraiser with a primarily coastal market, my average market value is now over one million. Some months back Dustin and I went back and forth as it relates to C&R fees and cost of living (he wasn’t convinced). The reasonable aspect of C&R should take into account on a local level the cost of living, but of course its limited or nonexistent.
Seek the truth.
Is that you 50 Cent? In supporting the removal of USPAP standards, and simply saying I the individual appraiser can raise my hourly output a few dollars by completing such work, is ignoring the big picture. The game for the lender is as follows, (1) ignore federal regulations on C&R (2) fight those states who are trying to enforce what the federal government won’t, and the big one (3) keep changing the rules so these hybrid forms wont’ fall under anyone’s umbrella.
Seek the truth.
Via over regulation, appraisers have been told to bend over backwards with a smile while they pucker their chocolate starfish (no offense to starfish). Flexibility is not the issue Gary, nor is it for the powers that be to continually develop cheaper forms so the raise to a $5 report can be met.
Seek the truth.
Actually – Sweet Tea…. 😉
Language, Bill.
You are correct. The standards do not change with the assignment type. They remain in place and absolute. This leads to major problems for an appraiser who attempts to follow the minimalistic outline most clients ask for desk top valuation assignment. Some of the largest issues are:
1. Standards Rule 1-1 states:
Standards Rule 1-1
In developing a real property appraisal, an appraiser must:
(a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal;
The desk top valuation models I have seen ask the appraiser to only perform a qualitative analysis and not to provide any quantitative analysis in a direct sales comparison approach to value. While a qualitative analysis can be part of a direct sales comparison approach, how is it possible to have enough market data for a direct sales comparison approach and not be able to quantify any of the adjustments? If a proper direct sales comparison approach requires quantified and supported adjustments, how can an appraiser meet standards Rule 1-1 and not show how the adjustments are quantifiably supported? The comments in Standards Rule 2-2 states the appraiser must provide enough summary discussion for the reader to understand the rational for reasoning and conclusions reached.
2. Most of the desk top valuation requests I have seen state the appraiser need not do an income approach or a cost approach. However, Standards Rule 1-4 states:
Standards Rule 1-4
In developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results.
There is no good reason why most residential appraisals cannot and should not have a cost approach included in the valuation. Most homes have been built in the last 25 years and do compete, to varying degrees, with new construction. There is often no good reason for the elimination of the income approach. A good many homes are rented and this method is too often ignored. By providing other approaches that use different market data the appraiser can measure market value from different perspectives. If the results are similar, the valuation is more credible. Eliminating an approach because it adds time to the task does not lead to a more credible result. This means eliminating the approach before even considering if there is market data available to complete the approach is simply not USPAP compliant.
3. Standards Rule 2-2 states:
Standards Rule 2-2
(a) The content of an Appraisal Report must be consistent with the intended 676 use of the appraisal and, at a minimum:
(viii) summarize the information analyzed, the appraisal methods and techniques employed, and the reasoning that supports the analyses, opinions, and conclusions; exclusion of the sales comparison approach, cost approach, or income approach must be explained;
Comment: An Appraisal Report must include sufficient information to indicate that the appraiser complied with the requirements of STANDARD 1. The amount of detail required will vary with the significance of the information to the appraisal.
What reason will the appraiser use for eliminating the cost approach, the income approach or quantitative and market supported adjustments? They were too time consuming and would add too much expense to the assignment! Appraisers should be moving away from this type of fairground guess your weight type of valuation service. An appraisal should be a scientific measurement of the available data that points to a predictable outcome based upon the data available. The more measurement tools used to arrive at the outcome, the more credible the measurement becomes. A truly good coach would not ask his followers to take short cuts that undermine their credibility.
RJ. You must live in an area where the landlords readily give you their rental data and you have homes you know were originally bought as income properties. Yes the Cost Approach can be used at times for homes over 1 year old but still Sales Approach is considered the most reliable. In my area, non- disclosure state. Even agents who are selling a possible income property (ski condo) are reluctant to provide data on days or weekly seasonal occupancy. Although I have developed sources for such things. So what I am saying is in my area the Income Approach for our typical SFR is not reliable nor applicable. As for the Cost Approach is generally not applicable and used on a case by case basis. Side note I have even used other high end super custom SFR new construction homes as Cost Comps.
Because it is not as reliable is not a reason to not use the approach. You are confusing reconciliation with the required analysis of Standards Rule 1. You must do a cost approach if it can be done and lead to credible results. You can then explain that it is less reliable than the sales comparison approach later. You must determine if there is sufficient rental data and data to support a rate or a GRM before you decide not to use an income approach. You cannot simply ignore the approach without attempting to see if it can lead to credible results.
I agree that if appraisers would just take control of our scope of work (SOW) then we would not have such issues with AMCs & we would be able to provide different valuation products to fit their needs. As long as the client understands what our opinion is based on, what is the problem? We need to be in charge of the SOW & have clients who trust our opinions. As long as you feel you can come up with credible results, I say go for it. USPAP needs to catch up & quit limiting appraisers to a few valuation products.
If the appraiser is not in charge of setting his/her scope of work, they aren’t really USPAP compliant anyway right? We should not be as obsessed with negotiating fees or what is customary & reasonable for just fees, but we also need to focus on following USPAP & having the appraiser be in charge of their scope of work. I understand some clients might need some extra things, but it has gotten out of hand & the appraiser plays no role in setting the scope of work for 90% of appraisals ordered these days.
Evaluations = Cheap appraisals, why don’t they want to call it what it is? Your analogy on re inspections is way off base. I don’t market to do re inspections, they are part of the original assignment. I am happy when I don’t have re inspections. I am a business owner first and have several appraisals working for me, so yes I look at the cost versus value. Evaluations are simply bad for the profession and for the publics best interest. Just because your client wants it does not mean you should provide it for them. Its not always in your best interest, ethical or legal.
I think everyone should look at RJK last statement. Well I do not agree with all of RJK post, however RJK has nailed it on the head with one sentence. ” You can not simply ignore the approach without attempting to see if it can lead to credible results.” Although I do not think you have to develop a cost or income approach each and every time to know if its a credible approach in your market and for the type of property you are appraising. But at some point you should have developed these approaches and should check to see if market conditions have changed.
Friends, Romans, Countrymen–
Lend me your ears…
You , the working appraiser, MUST know your final “end game” hourly wage and you must know your INTERNAL and EXTERNAL costs… (I believe Dustin has touched on this point , in the past)
In fact , you should be very similar to the MIND SET, of your favorite local Construction contractor… This guy (or gal) know the costs of Redwood 4 x 4’s and every unit of framed drywall, and every inch of PVC, down to the dime… He / She also knows the projected Labor cost, local Permits & Fees and Taxes…. and at the end of the DAY, he / she also knows what kind of PROFIT MARGIN it takes to run his / her business… It does not matter what (FORM) the bldg. takes… he must know what it costs and how to stay PROFITABLE, year in and year out…
So… my hard working Appraisers… do you know your COSTS? Do you know your PROFIT MARGIN? (Remember, it is not the FORM or whatever they call it , but the Labor / Profit, it takes to build it)
Again, do you know your PROFIT MARGIN?
If not… why not?
Now… go create some value… uh, er…. some valuable bottom line COST figures… so you know much MONEY you want to MAKE !!
Bruce
The discussion appears to be very timely. The Appraisal Foundation has just announced a webinar on May 18, 2017 on Restricted Appraisal reports and the forms they approve that…
“- Are a USPAP-compliant alternative to evaluations
– Permit state licensed and certified appraisers to comply with state laws
– Allow clients to receive abbreviated reports”
I just today received notice from the North Carolina Real Estate Appraisers Association that this webinar is coming up.
Of course, when I proceeded to the website the program is already at capacity. Perhaps with enough feedback on this posting by the TAF they will have some more dates.?
Bill, you have a great tag line “seek the truth”. I don’t agree with all you’ve stated, but glad you put it up…all of your comments.
The funny thing about the truth Frank, especially in our industry, is what’s true for you, might be false for me, or vise versa. If my truth doesn’t fit the majorities truth (as is often the case here), then I must be a negative hating paid troll with nothing to do all day. I’m sure if above ground pool Mike (Mikey, Mick, Michele, ??) was still here he would agree about the troll part. Remember, my two cents are worth a dollar.
Seek the truth.
I think as appraisers we all look at what WE want to produce. We are a service industry in the end. We are hear to supply a product/service to our clients. If you are not interested in providing a particular product/service, that is completely your decision, but don’t try to state that no one else should be providing it. That would be like the owner of a steakhouse trying to ban hot dog vendors because steaks are much better than hot dogs. The client is not wanting you to provide them a steak (full appraisal), they are wanting a hot dog (a restricted use desktop valuation). If you only want to serve steaks, more power to you but don’t try to tell the rest of the industry they shouldn’t be selling hot dogs.
That may be quite an analogy, but I hear from way too many appraisers that want to tell the client (their customer) what they are going to give them instead of providing what they want. This goes back to someone’s comment above. The client sets the scope of work, not us. As long as that scope of work does not cause an issue with any appraisal regulations, that is what we should be doing, if you agree to take the job. If you don’t like the scope of work or fee associated with it, don’t take it. I was on the phone with a peer one day and she was complaining about a client that was asking her to do something that was completely within any appraisal methodology or regulation, but it was not the way she determined she wanted to do it. I told her I agreed that it probably wasn’t the way I would choose to do it either, but if that is what the client is asking, they set the scope of work so I’d go ahead and do it. She fired back at me with, I don’t the let the client dictate to me the scope of work, I tell them. I was floored with this thinking and finally realized, our profession has “jumped the shark” to the point we no longer care about satisfying our customers at all.
Don’t get me wrong, many times customers and clients ask for things which as appraisers we can’t do, but we seem to think should be telling them what they want.
Sorry for the probably randomness of that, but had to rant for a minute.
I have five words for you Jim (or is it sixteen), “Hit ’em with the Hein”.
The client does not determine the scope of work. the appraiser is responsible for determining the scope of work needed as stated in the Scope of Work Rule of USPAP:
An appraiser must properly identify the problem to be solved in order to determine the appropriate scope of work. The appraiser must be prepared to demonstrate that the scope of work is sufficient to produce credible assignment results.
It is the appraiser who is responsible for determining what the appraisal problem is and what the proper methods are for answering the appraisal problem. If the client limits the scope of work to such an extent and to not meet minimal analytic requirements of USPAP the scope of work rule goes on to state:
An appraiser must not allow assignment conditions to limit the scope of work to such a degree that the assignment results are not credible in the context of the intended use.
Comment: If relevant information is not available because of assignment conditions that limit research opportunities (such as conditions that place limitations on inspection or information gathering), an appraiser must withdraw from the assignment unless the appraiser can:
• modify the assignment conditions to expand the scope of work to include gathering the information; or
• use an extraordinary assumption about such information, if credible assignment results can still be developed.
No where does it state that the appraiser should do accept the scope of work the client requests because it is their request and will lead to a payday.
The sooner appraisers begin to treat their assignment as they are meant to be – measurements of market value by scientific methods- the sooner appraiser will begin to be treated as professionals rather than palm readers at the carnival.
I routinely am paid much higher than my competition. This may be because I provide more detailed analysis. I show quantitative support for adjustments. I complete a cost approach that can be replicated by the reader and I show cost comparison in addition to cost service estimates. I develop an income approach when I have knowledge of similar rentals and I can develop a market rate or multiplier. While the rest of the industry appears to be racing to see who can do the assignment faster and cheaper, a decided a while ago to go the other direction. It has worked out well for me.
Let me re-phrase my comment as RJ is correct. The client does not set the scope of work. We determine Scope of Work based upon the clients requests, requirements and their needs. My point was that the client does have a major factor in our Scope of Work.
And RJ, I do agree with all your other statements. You must be able to have a credible result, etc. etc. etc. Again, my comment was directed towards the view that as appraisers we should not be doing “valuations” or “cheaper products.”
I know an appraiser that is no longer physically able to do interior inspections. He makes a living by being able to do desktop and drive by appraisals. I just wish appraisers had a more open mind in terms of different approaches to their business model and if someone has a different approach, then they must be damaging the profession.
Interesting how many appraiser believe that in order to be USPAP compliant it must include certain analysis techniques. USPAP simply states the appraiser must be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal. Key words being “recognized” and “credible”. Does anyone think that methods and techniques don’t change over the years, or from location to location, depending on what data is available or what peers are doing? How many would have been putting charts, graphs, and tables to support adjustments in reports in 1987 when USPAP was first developed? How many truly rural appraisers have sufficient data to do that now? If you can trend enough data to produce a “credible report” without all the bells and whistles that aren’t required by USPAP, for the sales comparison approach, USPAP requires simply that we analyze such comparable sales data available to indicate a value conclusion and to summarize the information analyzed, the methods/techniques employed and the reasoning that supports the analyses. That’s pretty much it. We have to analyze the information available and state how we analyzed it and why we concluded what we did. Why do so many want to think that only a report that meets certain analysis criteria can be credible? Cost approach, is it necessary to be credible? If so, complete it, if not, we are only required to provide information on why we didn’t develop it. Same with the income approach.
I would dare say that most appraisals completed before the wide-spread use of computers and all the various methodologies that could then be included were every bit as accurate in determining value as the most data intense reports are now, because the appraisers knew their markets and knew what factors mattered, and didn’t rely on computer based data that might include such a wide array of factors that it becomes almost meaningless when being applied to a specific property. I don’t care how many sale you have that show that a home in XYZ neighborhood should be worth $1.49, if your subject isn’t in great condition, it may only sell for 89 cents. Or if it’s all spiffed up, it may sell for $1.99. The appraiser is the one who best knows how to analyze that, and the computer modeled statistics may only muddle the equation. In spite of Fannie Mae’s efforts with UAD, condition and quality still remain highly subjective, but matter greatly in the real world.
Unfortunately, this oversimplified expression of what is required for a “minimal” analysis under USPAP is simply not correct. While Rule 1-1 does state you must know and properly use the methods that are necessary to develop credible results; Standards Rule 1-4 states:
In developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results.
Standards Rule 2-2 states:
The content of an Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum:
(viii) summarize the information analyzed, the appraisal methods and techniques employed, and the reasoning that supports the analyses, opinions, and conclusions; exclusion of the sales comparison approach, cost approach, or income approach must be explained;
Comment: An Appraisal Report must include sufficient information to indicate that the appraiser complied with the requirements of STANDARD 1. The amount of detail required will vary with the significance of the information to the appraisal.
The scope of work Rule of USPAP states:
An appraiser must be prepared to support the decision to exclude any investigation, information, method, or technique that would appear relevant to the client, another intended user, or the appraiser’s peers.
USPAP requires that you exhaust the potential sources of market data in your valuation. To ignore data that can lead to credible results is to not abide by Rule 1-4 which requires that you collect, verify and analyze all data needed to develop credible results. You cannot decide whether an approach leads to credible results until you have at least attempted to approach to value. While I will agree that if there is insufficient market data to complete a method so that it leads to a credible measurement of market value, I will not agree that you can preemptively decide what approaches lead to credible results and which do not before you have completed the market research for each assignment. What excuse would you use for not completing a cost approach on most residential home desk top appraisal assignments? It takes too much time and will force me to charge too much. How is that in any way a measurement of the credibility of the results of the approach to value?
An appraisal is more credible when it uses multiple approaches with discreet sets of market data and arrives at similar outcomes. We should be in the business of creating more credible valuations, not less credible valuations.
Bravo.
“142 The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote and maintain
143 a high level of public trust in appraisal practice by establishing requirements for appraisers. It is essential that
144 appraisers develop and communicate their analyses, opinions, and conclusions to intended users of their
145 services in a manner that is meaningful and not misleading.”
IMHO, all appraisers, including you RJ, should read this over and over and over again. Then when reading USPAP, think back on it. Ask yourself, how is this portion of USPAP I am reading connected to the preamble definition of purpose. Everything written in USPAP goes back to the purpose statement. Once that context is understood, the meaning and intention of all other USPAP content becomes much more clear, which is that USPAP is telling us how to interact with our clients – it actually says very little about how to go about doing an appraisal, and it does so on purpose.
Appraisers are all too often stuck in a mental rut. It’s not surprising, the bulk of the workload is mortgage work and mortgage work comes with all the regulations and all the emotion and hard work that goes into doing that type of work. USPAP however, was not written specifically for mortgage work only, rather written for all types of work. These types of appraisals Dustin refers to are allowed under USPAP. Why? USPAP does not prohibit any one sort of work type. What is important in these types of “alternate” assignments (important in all assignments actually), is that the appraiser communicate with the client to determine just what the appraisal problem is and what the client expects. I think the big problem lies right there, where most of us are not accustomed to having that conversation with our client and are our clients are not accustomed to having the conversation with us (because most of us do mortgage work which has been established for ages). However if an appraiser were interested in this type of work, a conversation with the client would be the place to start. That can prove difficult, as many of these clients who have this type of work have so much of it that they establish how it is going to go down and then get appraisers to sign up, they simply don’t have the time to have a personal conversation with each and every one of us. Further, they don’t understand USPAP. Further, these types of assignments have not been around long enough for a standard to be established. I think the clients of these assignments would do well to consult with a knowledgeable appraiser to establish a written statement of appraisal problem, statement of client expectation and statement of acceptable scope of work – then the appraiser could read it and decide if they feel it measures up, or not. I was on board to do these a year or so back and quite liked the work. However, I had to stop after a while because there were too many grey areas not defined and the client had an elaborate system that was not easily changed, so change didn’t happen and I walked. Too bad for both parties.
Ignoring the customers desire for a product or service will not make it go away. The customer will seek and find alternative sources. We each get to make choices about what type of business we want to run. Those choices will dictate our income, our time expenditures and lifestyle. If your still making desktop PC’s when everyone wants a tablet be prepared for early retirement.
Justin’s point is more about remaining relevant than anything else. As an industry, with better computer aided technology and statistical analysis than ever before, we have a lot of tools at our side. And if you work in highly populated urban markets, it would behoove us as professionals to use these tools whenever possible. If anything else, they can bolter your appraisals while providing additional market information to support your conclusions. In unique and rural markets, the grind will continue. Remaining viable will be a challenge for a long time. I’ve worked in rural markets on highly improved properties most of my career.
Historically AVM’s tend to be more reliable in stable to upward trending markets, but when they are coupled with statistical analysis and human interaction, we have the capacity to produce a work product that can potentially satisfy clients needs in level to downward trending markets too.
There are several scenarios where a complete appraisal report is not necessary. Low risk borrowers, HELOC’s with a low loan-to-value, etc. Unless there are obvious physical, external or functional issues with a property, a desktop appraisal or limited scope analysis is more than adequate. This type of product will not work in all markets. But more often it does work, and we are closing the doors on ourselves by not providing a product to fulfill the need. Most lending institutions are already using some type of AVM or another in their underwriting process anyway. Imagine doing 5 to 10 evaluations a day for a fee that ranges from $75 to $150 per assignment. For many appraisers, your gross income would increase considerably and your expenses would also decrease. Think how that could increase your hourly rate?!
Smell the coffee folks. Times are changing!