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.
The other day I observed a â€œValuation Serviceâ€ which looked and smelled like an appraisal. Problem is the appraiser did it by accident while labeling it an â€œAppraiser Price Opinionâ€.
Ethics: as stated in the â€œEthics Rule of the 2010-2011 USPAP:â€
“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 appraiserâ€.
The â€œAppraiser Price Opinionâ€ is labeled as a price opinion, which appraisers CAN DO as part of â€œappraisal practiceâ€ 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 â€œa service as part of appraisal practiceâ€. Those definitions ignored are: price, value and appraisal.
The reason appraisers have not done â€œpriceâ€ 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 â€œA Price Opinionâ€ yet: The report is labeled â€œDesktop Restricted Use Reportâ€ which is nomenclature reserved for the minimum written format for an â€œappraisalâ€ (in part). On the certification page it states â€œThis is a Summary Appraisal reportâ€; 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 â€œThe content of a Restricted Use Appraisal Report must be consistent with the intended use of the appraisal and, at a minimumâ€¦.state a prominent use restriction that limits use of the report to the client and warns that the appraiserâ€™s opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiserâ€™s workfileâ€. Further, I have material knowledge it had two different intended usersâ€¦.a taboo for a Restricted Use Appraisal Report.
The rest of the issues;
- The form concludes â€œValue Opinionâ€ and â€œtransactionâ€ is noted as: â€œMarket Valueâ€ and it concludes a â€œHighest and Best Use, which is a term relative to a market value appraisal, not â€œa price opinionâ€. There is no proof source other than â€œbecause it conforms to zoning the highest and best use is as isâ€.
- The certification refers to â€œapproaches to valueâ€ and states they are used â€œwhen appraisingâ€¦.â€
- 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 â€œthe appraiser relied on data provided by a qualified professional surveyorâ€â€¦which would be considered significant professional assistance. The certification in the report statesâ€ A â€œqualified professional property surveyorâ€ (AKA uncle Jim with his Canon powershot) not a real property appraiser) provided the appraiser with a â€œcompleteâ€ 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 â€œComment: 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 streamlineâ€¦.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 â€œappraisalâ€ like it or not at one third the cost of the â€œother kindâ€ of appraisal they may do on a different dayâ€¦..in 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 saleâ€¦â€¦â€¦â€¦â€¦..