palumbo-on-uspap Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller

The other day I observed a “Valuation Service” which looked and smelled like an appraisal. Problem is the appraiser did it by accident while labeling it an “Appraiser Price Opinion”.

Ethics: as stated in the “Ethics Rule of the 2010-2011 USPAP:”

“An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics. An appraiser must comply with USPAP when obligated by law or regulation, or by agreement with the client or intended users. In addition to these requirements, an individual should comply any time that individual represents that he or she is performing the service as an appraiser”.

The “Appraiser Price Opinion” is labeled as a price opinion, which appraisers CAN DO as part of “appraisal practice” provided it is labeled properly and the appraiser does not mix the terminology use appraisal techniques and call them something else. The appraiser has not adhered to the Ethics Rule, specifically Conduct: See AO-21 page A-69 line 176. This AO demonstrates how the appraiser has ignored definitions that MUST be adhered to when completing “a service as part of appraisal practice”. Those definitions ignored are: price, value and appraisal.

The reason appraisers have not done “price” in the past few 25 years is that they are not price experts, they are value experts.

The appraiser has indicated this product is a “A Price Opinion” yet: The report is labeled “Desktop Restricted Use Report” which is nomenclature reserved for the minimum written format for an “appraisal” (in part). On the certification page it states “This is a Summary Appraisal report”; an appraisal cannot be both; it must be one or the other. The report seems to conform to a Restricted Use Appraisal report but is missing the important disclosure: (SR 2-2 ( c ) (i) which states “The content of a Restricted Use Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum….state a prominent use restriction that limits use of the report to the client and warns that the appraiser’s opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiser’s workfile”. Further, I have material knowledge it had two different intended users….a taboo for a Restricted Use Appraisal Report.

The rest of the issues;

  • The form concludes “Value Opinion” and “transaction” is noted as: “Market Value” and it concludes a “Highest and Best Use, which is a term relative to a market value appraisal, not “a price opinion”. There is no proof source other than “because it conforms to zoning the highest and best use is as is”.
  • The certification refers to “approaches to value” and states they are used “when appraising….”
  • The words value opinion appear three (3) times the word value appears six (6) times the words appraisal report appears three (3) times, and the word appraisal appears (1) once.
  • Adjustments to the sales are made and explained in the narrative as if the report were an appraisal.
  • The use is stated for a lending transaction: the use was not for lending but to determine value to list and sell the home.
  • The Scope of Work mirrors the scope of a desktop appraisal and the scope contains a section stating the “the appraiser relied on data provided by a qualified professional surveyor”…which would be considered significant professional assistance. The certification in the report states” A “qualified professional property surveyor” (AKA uncle Jim with his Canon powershot) not a real property appraiser) provided the appraiser with a “complete” description of the subject (including its improvement(s), site, and surrounding area) to assist in providing relevant geographic market data, conditions and insight. Other than this observational assistance, no significant real property appraisal assistance was provided to the person signing this certification. The Comment to SR 2-3 states “Comment: The names of individuals providing significant real property appraisal assistance who do not sign a certification must be stated in the certification. It is not required that the description of their assistance be contained in the certification, but disclosure of their assistance is required in accordance with Standards Rule 2-2(a), (b), or (c)(vii), as applicable. Is the word surveyor accurate?

The overall contradictions in this assignment lead one to believe that 1) the appraiser is not competent to complete a price opinion because they do not understand the difference between value and price (Competency is required for ALL VALUATION SERVICES) 2) the appraiser is not competent to complete an appraisal if they label the reporting format in two different ways AND fail to provide the appropriate disclosures on the Restricted Use Appraisal Report. This result confuses the user and harms the public.

I am all for finding ways to cut costs and streamline….I get it. I am also a realist and I understand the pressures the appraisers are under. Here is the thing: this appraiser ended up doing an “appraisal” like it or not at one third the cost of the “other kind” of appraisal they may do on a different day… effect creating a market and an expectation that the Holy Grail exists and at a much cheaper cost than we all thought.

I am dazed and confused as to why the world wants to reinvent the wheel (appraisal) in light of the recent economic crisis related to real estate. We have reduced scope appraisals on minimum written formats but we have to consider the uses of these types of services and educate those that seek cheaper, better, faster. I am more dazed and confused why an appraiser would take on this assignment and give away the store. Maybe it is a going out of business sale……………..

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3 Responses to “[Vortex] Palumbo on USPAP: Dazed and Confused, Price versus Value”

  1. Edd Gillespie says:

    A couple of comments Joe,

    Thanks for sharing your experiences and thoughts with the rest of us. I believe I am better off for your contributions.

    I agree that whomever wrote the “Appraiser Price Opinion” is confrsed and confusing and missed some essential basics that he/she is supposed to know about appraising.

    However, when it comes to creating market expectations for cheap and fast appraisals, what came first, the demand or the supply? Your example is apparently directed at single family residential subject and my guess is it is intended to be used in a mortgage context. My impression of that kind of work is that appraisers are much more concerned about honesty than are the clients, and I suspect that it has been that way pretty much forever, but certainly since FIRREA imposed appraisals on residential mortgage lenders and Fannie invented a form for it.

    Not to detract from your observations and efforts to improve the profession, but what exactly do we have to offer clients who refuse to pay for or wait for quality appraisals?

  2. Joe,

    At the same time these Appraisal Management Companies dream up these alternative “products”, and instruction and direction is provided their panel appraisers that these are “OK”, “No Problem”, and fine with state regulatory agencies and appraisal standards, their media mouthpieces, professional associations and lobbyists are making the claim they are not involved in appraisal. “We merely manage a panel of appraisers for lenders”.

    Let’s face it, the AMCs are pressuring appraisers to a much higher and dangerous degree than any mortgage broker ever hoped to.

  3. Edd Gillespie says:


    Do you think the profession has died?