Guest Appraiser Columnist:
Joe Palumbo, SRA
Palumbo On USPAP is 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 here. View his earlier handiwork on Soapbox and his just published article in the Employee Relocation Council’s Mobility Magazine.
It’s been a good year so far. I have to say “hats off” to all the appraisers I work with from Maine to Oregon. In the relocation business the litmus test for quality valuations is ultimate sale price VS the appraised value as nearly every home appraised will be exposed and sold under a normal market scenario. The typical industry standard and tolerance of such comparison is 5% between the Sale Price and The Appraisal Value. A recent 1st QTR review of accuracy across the client base has me feeling better then the media has me believing I should. This achievement is especially satisfying in what continues to be challenging market. It was Yogi Berra who said…… “predicting is difficult…..especially when it involves the future”.
So while you have my sincere thanks for a job well done..as a user of appraisal services..I (appropriately) have yet another request. Not to worry…this request does not involve additional comps, adjustments to listings… addendums, or more data. Simply put: I just need to know what you are “thinking”. When I started in the appraisal business in 1986 I asked one of the appraisers who was training me at that time, “where do all these neighborhood comments come from”? “They all seem to be the same”? “What does all sales considered mean?” Enter the “canned comment” . Canned comments can actually be used quite effectively when a micro level of specificity is applied. Many appraisers have a library of canned comments for neighborhoods, scope of work, appraisal process and other areas of often repeated …”non value add” areas of the appraisal. If you really think about it the most important part of an appraisal…the “signed certification” or even the “limiting conditions” are the biggest culprits when it comes to “canned language”. So…. you get the point…and I hope you do..that canned comments are OK by me and there are as they say ‘’far worse things are going on in the industry for that matter. There is one area though that I have to say “enough is enough”…and no “canned will do”.. This area is the Reconciliation: (see 2008-2009 USPAP) Standards Rule 1-6 In developing a real property appraisal, an appraiser must: (a) reconcile the quality and quantity of data available and analyzed within the approaches used; and(b) reconcile the applicability and relevance of the approaches, methods and techniques used to arrive at the value conclusion(s)
The ASB takes a lot of heat (as do the instructors) with regard to abstract, meaningless and or confusing Standards. Issues of interpretation…while are a much better level with the current USPAP, will always exist. I can’t say that that is the case with SR-1-6 and frankly I marvel at its straight-forwardness and simplicity yet I constantly see even a “good appraisal” lack a good reconciliation. My issue lies in part SR-1-6 (a) since (b) is nothing more than a recital of which approaches were used or not used. What I mean is this: after you take me through the market and show me the “story” that each appraisal presents, the final value and how you got there in terms of the quality and quantity of the data is essential in my defense of your valuation. Many of the valuation appeals that I see center around the question…… “Why $xxx,xxx for my home and not $yyy,yyy”. For me the answer can be very simple. Within any range of value there are certain strengths and weaknesses beyond net and gross adjustments and distance and sale date of comparables. This is where your thinking plays large role in having the user understand your though process. Sadly “all sales were considered”…the often used canned reconciliation of the go-go days of the 90’s will not cut it these days. How were the sales weighted? What other factors were considered? How do they rate in terms of comparability? Were there any unverifiable pieces of information or inconsistencies that deemed an apparently good sale not so good? These are a few things I would ask myself in defending my value.
In 2003 the Appraisal Standards Board addressed the “reconciliation issue” by moving the requirement to reconcile from the lonely location of SR-1-5 (c) to a its own standard in what we have now as SR-1-6, dedicated specifically to topic of quality and quantity of data and suitability of the approaches. The ASB cited the rationale for this change in 2003 to ..“clearly demonstrate the reconciliation is a separate component of the appraisal process rather than a function of the sales history”. In my opinion this rationale validates the thought that the appraisal process is best ended with a clear understanding of not only the process but the conclusion and the result of that process. As a separate component the ideal reconciliation would leave the reader with a clear understanding of why the value opinion has landed where it has. Given the level of subjectivity in the entire appraisal process and the reconciliation as well, there may be disagreement but having the “why” could resolve part of that issue and a quick specific commentary is all it takes. Remember standards are minimum requirements not options.
Let’s put the canned comments of years past behind us….as these are different times altogether. Again it was also Yogi Berra who said….the future isn’t what it used to be.