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Posts Tagged ‘Commercial Grade’

[Commercial Grade] CCC: The New Order Means Sifting Through Lengthy Memos

July 14, 2006 | 10:16 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks the newly created art of sifting through client memos regarding the new USPAP.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays Fridays, one of the smartest guys I know. …Jonathan Miller


The new and supposedly improved USPAP went into effect on July 1, and there has been a flurry of memos sent out by major lending institutions to “clarify” their positions. Two such institutions, amongst the largest in the country, have adopted the following guidelines:

Since USPAP now says that the terms “limited” and “complete” are obsolete, their internal guidelines calll for “comprehensive”, “condensed” and “concise,” each with its own requirements.

The three C’s. Simple! Another major institution reports that they will continue to use “complete” and “limited” in order to provide minimum standards and guidance for scope of work determination. In this case the “complete” and “limited” labels, although eliminated from USPAP, have been adopted by internal Bank policy. Its clear that other institutions will follow suit and adopt their own creative policies to communicate what they expect.

So in this new order, the fee appraiser need only to sift through a 12 page memo issued by a Bank in order to understand their defintion of different levels of Scope of Work.

[Can we make it anymore difficult for appraisers? -ed]


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[Commercial Grade] Opportunity is Knocking USPAP

June 29, 2006 | 10:45 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John asks the question: “Read any good books lately?”

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller


The confusion over the new USPAP Scope of Work rules has spawned a cottage industry in new books, seminars and aids to help the appraiser in understanding the changes going forward. For $45, you can purchase Bell’s Appraisal Guide, “handy for your instant reference.” Or from our friends at the Appraisal Institute, you can purchase Scope of Work (Coleman) at the promotional price of only $24. According to the Institute,

While misuse of the scope of work concept can be disastrous, an appraiser who knows how to apply it in practice and to communicate it clearly in an appraisal report can enjoy increased security, opportunity, and success.

Security, opportunity and success!? All for only $24!

I purchased a copy of USPAP in Plain English (Franke, Leary) for only $20. I confess that I haven’t read it yet, but plain English is what I’m after!

Last month I had the opportunity to call in to a national conference call on the subject. Don’t remember the sponsor or the price, but it was in the $150 range.

So, maybe I’m late out of the box, but when opportunity knocks, I feel compelled to answer. In response to the mass confusion that the new USPAP will generate, I will be coming out with:

  • USPAP Coloring Books: start ‘em young I say!
  • Scope of Work Sing-a-long Videos: you’ll be humming your Rules all day long.
  • USPAP 2006 Audio CD’s: play them in your sleepyou’ll get it eventually!

Just hope that nobody beats me to the market.

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Re-assign This: Just How New Is New?

June 22, 2006 | 3:51 pm |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about the complicate morass of determining a new assignment.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller


Twice this past week I was asked to re-address an appraisal that was originally prepared for one client to another. USPAP says that this is a no-no, but that it is OK to accept a “new assignment.” What exactly does that mean?

If I appraise a building as of March 1, 2006 for client A, can Client B (who is holding a copy of my appraisal report in his hand) also hire me to appraise the property as of March 1, 2006? Does this “get around” the re-addressing issue? Assuming that the scope of the appraisal is the same (prepare a USPAP-compliant appraisal), isn’t that essentially the same thing as re-issuing the original report? Or am I not permitted to accept an assignment to do a retrospective appraisal (as of March 1, 2006) for Client B? What am I missing? What exactly constitutes a “new assignment”? Some appraisers interpret this as being able to re-issue an appraisal as long as you charge Client B 100% of the original fee! (For the record, I’m not one of them!)

The rules regarding re-addressing appraisal reports is a moving target, and I have no doubt that the “rules” will change again in a year or so. First you could re-address reports, with the client’s permission; then you could re-address reports only if you said in the report that it was originally prepared for another (so that it is not “misleading”); then you couldn’t re-address the report to anyone that was not an “intended user.” But if they were not an intended user, you could appraise the property as a new assignment.

Of my two re-addressing episodes this week, one client (major financial institution) said that it was fine to have the “new assignment” identical to the original; in a separate incident another client (another major financial institution) said that the date of value had to be different for it to be a “new assignment.”

I’m pretty sure that as soon as this all gets clarified, we’ll get a new rule from our friends at the Appraisal Foundation (USPAP).

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[Commercial Grade] The Art of Appraisal Review (Wearing The Black Hat)

June 15, 2006 | 6:14 pm |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about the art of appraisal review.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller


I used to wear the bank review appraiser’s hat. I spent my days pouring over appraisal reports prepared by the bank’s external consultants (remember they are not vendors) and if something was wrong, or unclear, or illogical..or if I just didn’t agreeI would pick up the phone to discuss it.

Reviewing the work prepared by a peer is not easy, particularly if you believe something should be changed. As a banker you need to be careful not to exert influence on the appraisal, at the same time that you’re trying to get the appraiser to see things your way. This is a skill, quite unlike the skills required by a fee appraiser. You need to be tactful, and diplomatic. (talking down to the appraiser who prepared the report as if he was a moron is probably not the best approach).

Having been there, I often cringe at the poor bedside manners of some bank reviewers. So to those who need a little polishing I offer these tips:

  • Start with something positivesurely there was something that you liked about the reportthe pictures?
  • Be open-mindedrecognize that there may be more than one way to solve the “appraisal problem”this is part art, remember?
  • Acknowledge the effort that has already gone into the appraisal, and that whatever you are asking for will take even more time.
  • Differentiate between a major valuation issue and a small compliance issue. (Say something like”I know this is minor, but the regulators have told us”)
  • Don’t expect the appraiser to remember all of the details of the appraisal that you’ve had on your desk for four weeks as soon as you get him/her on the phone. Agree on when the appraiser will get back to you with answers.
  • Most importantly..be pleasant! Remember, you attract more flies with honey than with vinegar (..or something like that!)

[OMG, did he really use that honey/vinegar quote? -ed]


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[Commercial Grade] I Am Not A Vendor

June 8, 2006 | 8:53 pm |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks stuff, and how he is not a vendor.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

When I think of a vendor, I think of a booth at a flea market or a hot dog cartsomeone that sells stuff. Twice this past week I was referred to as a vendor by a clientone explained to me that the assignment that I bid on went to another vendor at a lower fee (no, I am not going there again!). This didn’t sit right with meanother vendor? But I don’t sell stuff!

I like to think that I sell my intellectuality when I am hired for an assignment, which really makes me a consultant. (In fact, I do have a client that refers to the appraisers he retains as external consultants).

This may just be a matter of semantics, but this is an important distinction which goes to the heart of how our profession is perceivedare we vendors selling a commodity, or consultants that provide a service? I know many commercial appraisal firms that call themselves Appraisers and Consultants or Real Estate Advisors, but none that advertise themselves as Vendors.


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[Commercial Grade] Separate But Equal

June 2, 2006 | 11:05 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about the wide disparity between residential and commercial valuation disciplines.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays on Fridays, one of the smartest guys I know. …Jonathan Miller

Although there are a number of appraisers who make their living appraising both residential and commercial property, for the most part the field is broken down into either residential appraisers and commercial appraisers.

Having been affiliated with a residential appraisal firm for a number of years now, I have seen first-hand how stark the differences are between these two fields. There is overlap, of course, but in my opinion, the residential and commercial appraisal fields ate so different that I think the profession would be better served if there were different organizations representing their respective interests.

The Appraisal Institute does bestow the SRA designation on residential appraisers and the MAI on commercial; state licensing boards do distinguish between general certification and licenses. But still, the distinction between the groups tends to be blurred; for example, courses tend to be geared towards one group or another and lobbying efforts tend to primarily serve one group more than the other.

I am not saying that one field is better than the other, or even harder, just different.; different with respect to:

  • The skills required to excel (commercial folks do much more writing, for example)
  • The day to day work environment (residential folks tend to be out and about much more)
  • Relevant continuing education
  • The impact of technology (commercial folks aren’t threatened by AVM’s; most don’t know what it stands for!)
  • The type of clientele
  • The source of “client pressure”
  • The future of the profession

just to name a few off the top of my head.

I can cash flow model all day long, but don’t ask me what’s an appropriate adjustment for a fireplace.


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[Commercial Grade] Garbage In, Garbage Out

May 25, 2006 | 8:21 pm |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John laments that clients are losing the ability to discern a good appraisal from a bad appraisal…[hint] its all in the data.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

What’s the difference between a good appraisal and a bad appraisal (or at least an appraisal that’s not so good?) I have used my Soapbox many times to rant about how it seems that clients consistently put fee over quality. It’s suddenly dawned on me that many people can’t tell the difference, including bankers that buy appraisal services daily?

I use better, in this case, to mean more reliable, with appropriate support in the written report. Many appraisal reports look the samethey have the same layout, use pretty pictures and mapsand have all sorts of theoretical equations and definitions built into the boilerplate. So, what makes one appraisal “better?”

I strongly adhere to the garbage in, garbage out theory; that is, every appraisal is based on an analysis of market data. If the appraisal bases his/her conclusions on poor quality data, then the conclusions will most likely also be flawed.

So, to the buyer of appraisal services, I offer these tips for assessing the reliability of your appraisal:

  • Are the sales comparables used in the appraisal recent? The real estate markets have been moving very quickly and there has been considerable sales activity across property types. The appraiser should have a good reason for basing his analysis on sales over 6-12 months old. In most cases, this represents data that the appraiser has in his file, but is usually not the best data.
  • Similarly, are the rent comparables recent? I have seen many appraisals where the rent comparables do not include a date of lease; there may be a big spread between a listing and an actual executed lease?
  • How much detail is given about the comparable? The report should have sufficient detail to enable the reader to relate the comparable to the subject. If the appraiser knows nothing about the comparable except what it says in the public records, then he probably can’t do a very meaningful analysis.
  • What was the source of information? Verifying comparable data is a time-consuming and difficult job; it’s also the most important in getting it right. I have seen plenty of instances where conclusions were based on comparable data that was not arm’s length, was part of a portfolio sale, or had some other issues that would invalidate it.
  • Flip to the Appraiser’s Qualifications in the addenda; in all likelihood the most junior person listed is doing the majority of your appraisal. You may be paying a lower fee, but you are also (possibly) getting a relatively inexperienced person’s professional opinion.

Remember, most appraisers are compensated on a fee split basis. Therefore, the sooner they get a report out, the more they will earn. This is at odds with thoroughly researching the market to ensure a reliable opinion of value.


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[Commercial Grade] The Appraisal Profession: A Future Undefined, Without Remedy

May 11, 2006 | 9:32 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about an uncertain future of the appaisal profession.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

In the Spring 2006 issue of The Appraisal Journal, Donald H. Bleich, Phd., a professor in the College of Business and Economics at California State University Northridge published an article titled Factors That Influence University Student Interest in the Appraisal Profession. Dr. Bleich surveyed 166 students in the University’s Department of Finance, Real Estate and Insurance. Each student filled out a questionnaire that measured their psychological profile, value systems, financial reward expectations, academic performance, appraisal education and personal contact with members of the appraisal profession.

The result is that the appraisal profession consistently scored at the bottom of the list of 13 real estate disciplines in terms of “desirability” of the profession, students’ interest in joining the profession and financial rewards. Coincidentally, I read this article on the same day that I was officially notified by the administration of New York University’s Real Estate Institute that they will no longer be offering Valuation as a concentration option in their Masters program, due to lack of student interest.

Though Dr. Bleich indicates that these negative attitudes can be changed by greater exposure to the profession, in my opinion the problems run much deeper than lack of exposure. Part of the reason for low student interest was described in the same issue of the Journal where a report was given regarding the status of the Appraisal Institute’s Professionalism Project Roundtable. It was noted that as a result of state licensing “less experienced appraisers are offering lower fees in order to compete with more experienced appraisers.the quality of reports and professionalism offered from non-designated appraisers may be below that of designated appraisers.(and that) state licensing boards are not providing the disciplinary teeth to ensure quality.”

The fact that the “Appraisal Institute will continue to research these issues and consider possible remedies” does not give me much confidence about the future of our profession.


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[Commercial Grade] Just Say No: The Agony Of The Appraiser As A Businessperson

May 4, 2006 | 12:05 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about the disconnect between clients and appraisers over fees.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. Jonathan Miller

The Wages of Fear

This past week I received a call from a clienta major lender. I had delivered a completed report a week earlieron time. Difficult assignment: affordable housing, proposed construction, tax credits, bond financing, tax abatements. Since I completed the report, the project had changed slightly. My client wanted to return the reports so that I could incoporate the developer’s changes.

The changes would ripple through the report. Would take me an hour, maybe two, maybe threedon’t know. I responded that I would be happy to (we are, after all, a service business) and that I would charge a nominal hourly rate for our time plus production costs. (The fee was quite low to begin with but I suppose that’s irrelevant, since it’s what I had bid. No response. A week later, my client calls and tells me that there is an error in the appraisal and that I know you wanted money to make the changes, but since you have to make corrections anyway can you incorporate the changes.

I explained that I didn’t think it was fair to ask me to do additional work beyond the original scope of the assignment without being compensated. The response..well, I have to review the appraisal twice also. As it turns out, we didn’t make an error and, therefore, didn’t need to make any changes.

I am still puzzledwhy was my client expecting me to do additional work without being compensated. I can think of no other profession, or job, or trade (call it what you will) where people seem to have no qualms asking you to work for free.

[Editor’s long-winded note: I think the mindset with the appraisal community is that we don’t respect ourselves enough as a profession evidenced by the fact that the majority of us are perfectly willing to undercut our competitor with no real direct long-term benefit to us. Clients still represent an imposing force and our knee-jerk response to this thought: “If I don’t do this freebie, I will never hear from this client again. The client gets used to this mentality and keeps asking as the status quo. It results in an erosion of the validity of the services we provide, which end up being relegated to just paperwork for the file.]

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[Commercial Grade] Appraiser Qualifications Board (AQB): Take 2

April 27, 2006 | 9:29 pm |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about going back to the drawing board and re-thinking the AQB.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

When Congress created the Appraisal Foundation in 1987 in response to the S & L debacle, it seemed like a logical response and perhaps even a major step forward to validating our profession. However, the state licensing system that the Appraiser Qualifications Board (AQB) put into place is, in my opinion, a dismal failure.

I maintain general certification in two states, New York and New Jersey, in addition to my membership in the Appraisal Institute as an MAI. Each state and the Appraisal Institute (AI), however, maintains its own continuing education requirementsdifferent cycles, different number of credit hours and often times different courses accepted for credit. So, if I sit through a seminar given by the AI, New York State may not accept it. Similarly, a course accepted for credit by New York State may not be accepted by New Jersey.

The need to satisfy these various continuing education requirements presents an additional burden on the appraiser, in terms of both time and expense. Not that I have anything against education – my wife is a full-time teacher, and I teach appraisal courses at New York University), but I think the continuing education system for appraisers is highly inefficient and unnecessarily burdensome.

While my appraisal practice is local, national appraisal firms that have assignments all over the country are the ones hit the hardest.

Speaking from experience, most clients want their appraisals within four weeks, and often insist on two or three. If an appraiser is going to another state for that assignment, he/she either needs to maintain on-going certification there or apply for a temporary permit. The temporary permit application process, however, can often take up to 6 to 8 weeks (depending on the state)and it hardly makes sense to maintain certification in all states.

State certification is here to stay, but I would love to see the AQB go back to the drawing board and come up with one uniform set of continuing education requirements to apply to all 50 states, with all states accepting the same courses, and a mechanism to issue a temporary practice permit within one week. Makes sense, doesn’t it?

[webmaster’s note: the current licensing laws have actually reduced the quality of appraisers, so a changing in course requirements are unlikely to be a detriment to appraisal education.]


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[Commercial Grade] Hope for the New Scope

April 20, 2006 | 12:01 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about his hope for a usable scope.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

In his article Scoping Out the New Appraisal Standards The RMA Journal, May 2006, author Thomas Boyle explains that the new standards “effective July 1will mark the final step in a fundamental paradigm shift in appraisal.”

There’s been a lot of buzz about the new USPAP appraisal standards and appraisers are supposed to be spending the first half of 2006 getting acclimated to the new rules, so that we’ll be ready when they go into effect in July.

The main difference, as I understand it, is that the concepts of complete and limited appraisals will become obsolete; rather, each and every assignment must be individually scoped out and tailored to it. Mr. Boyle goes on to explain that “with this freedom comes responsibility. The appraiser, not the lender, is ultimately responsible for determining the appropriate Scope of Work.”

Under the new USPAP, the dialog between client and appraiser before the assignment is critical to fully establish the scope of work to be undertaken. It remains to be seen how the new standards will work with the on-line bidding systems and email quote solicitations that many lenders have adopted. Without the dialog up front, will you be bidding against another appraiser that has scoped out the assignment differently? And with extensive dialog up front, what’s the point of an on-line bid?

If the new USPAP serves to eliminate on-line bids and forces lenders to scope out the best appraiser for the job, it will be a “fundamental paradigm shift” indeed.

[I swore off using the phrase “paradigm shift” a while ago -ed]


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[Commercial Grade] What’s The Use

April 12, 2006 | 8:33 pm |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about the dilemma facing appraisers when unintended users are wearing our tires out ’til they’re bald. Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

In appraisal parlance, every appraisal report must state who the intended user is. USPAP mandates that the intended user be specified in the report to establish the appraiser-client relationship.

I frequently receive phone calls from review appraisers or underwriters at financial institutions who are looking at an appraisal that I prepared for another client. (This week I received two such calls.) These institutions are participating in the loan and, therefore, feel justified in calling me to “ask just a couple of questions.” They were never “intended users.”

What is my responsibility to these callers this case? Per USPAP we are not permitted to discuss the report without prior permission from the client. Surprising that the review appraiser is not aware of this.

If I do get permission to discuss the report, my appraisal has already been thoroughly reviewed (questions asked and answered) by my client; should I have to go through another full review? If there are a number of participants, should I answer to a dozen different reviewers, each asking different questions?

The reality is, though, that even though answering to different reviewers was not within the original scope of services, not co-operating with the participant is simply bad business. After all, the participants are also potential clients.

[This is the harsh reality of the commercial appraisal world. Contrarian viewpoint: Its up to them to get the original client allow the conversation with you. Of course, this would never happen so I say charge them for your additional time – calling for permission, speaking to several parties, etc. It all adds up. If the new client doesn’t value your time as a professional, then I am not so sure they are going to send that much business your way in the future. -JM]


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