Tim Andersen, The Appraiser's Advocate Podcast Timothy Andersen - USPAP Instructor

WOW!  "USPAP, Sasquatch, NAR, and Comparable Sales" is one helluva name for a podcast!  That's true, thank  you.  But given that the ramifications of the Sitzer-Burnett are obvious but still unknown, invoked Sasquatch.  And the fact cash equivalency adjustments to comparable sales may become more prevalent than in times past brought all of those concepts together into one big, yet unanswered question.  And that's the real conundrum.  We don't know yet what is going to happen.



Not only that, but in "USPAP, Sasquatch, NAR, Comparable Sales" I ask a truckload of questions, but provide only a teaspoon of answers.  Why?  Because it is possible (not certain, merely possible) that with all of the class action suits still pending against NAR relative to price fixing, then NAR is going to be in financial hot water despite its 1.5-million members.



Since this podcast is one for appraisers, not (buyer's) brokers, we appraisers need to be aware of how Sitzer-Burnett will affect us.  And, like Sasquatch, we know the affect is there, but we just can't yet prove what those affects are.  How will this decision affect us?  If NAR's structure changes, will the big brokers have their own in-house MLS systems?  If so, will they be compatible across platforms?  How many will appraisers have to join to have proper amounts of data?  Appraisers depend on brokers for data.  Will there be fewer brokers in the future?  Fewer deals?  If the buyer pays their broker how, if at all, does that impact the sales price from a cash equivalency standpoint?  Why?  So may questions still, yet so few answers!



So, sit back, listen, think critically, and enjoy!  And click the link above to the Sasquatch film.  Something is there, we just don't know what it is yet.

USPAP, analysis, and synthesis are terms we do not hear all that often.  That's a shame, too.  This is because, according to USPAP, a credible appraisal and a non-misleading report are the results of analysis and synthesis.  Yes, Standard One is the appraisal development standard.  And Standard Two is the appraisal reporting standard.  But we know this, so what is so special about analysis and synthesis?



Under USPAP, analysis and synthesis are necessary opposites. To analyze means to deconstruct something, or to take something apart.  On the other hand, to synthesize means to (re)assemble something - ideally into something new, or that which did not exist before that synthesis created it.



Appraisers analyze markets by taking them apart.  They analyze subject properties by taking them apart (usually via the cost approach.  This is why there should always be a cost approach for a single-family residence appraisal.  We take markets apart to be able to understand them, then use that understanding to predict trends.  We take comparable sales apart to understand, via the Principle of Substitution, which components of market value apply to the subject.  Finally, we take the subject apart to conclude which components the market demands and which it does not.  These latter components are those that are super adequate and functionally obsolete.



But that which appraisers have taken apart, appraisers must assemble.  This assemblage is also called synthesis.  But appraisers do not merely reassemble the parts.  Rather, they assemble the parts into something new, something that did not exist before.  From what they took apart, they synthesize to arrive at a market value opinion.  The opinion was nowhere to be found since it did not exist until the appraiser formed it in his/her head.



So, USPAP, analysis, and synthesis are the appraisal process.  It's just that appraisers typically do not look at that process in that way.

Preview, Foreshadow, Predict.  In the context of a real estate appraisal, what do these mean?  Some time ago, I did a podcast on writing the appraisal backwards.  I never meant this to confuse anybody with this.  What I meant was to impart wisdom.  It is wise not to open the reporting form on your computer the instant the appraisal order arrives.  Rather, once it arrives, do the appraisal first.  In other words, come up with a credible value opinion first, then write the report.



Why?  Because when you know the end from the beginning, you can preview, foreshadow, and predict.  Why are these important?  Simple!  When we enter information on page one of the reporting form, we are predicting what's on page two.  With a quizzical look on your face, you are now asking, "WHAT?!"  And frankly, that is the question you should ask when presented with that statement.



For example, we preview, foreshadow, and predict when, in One-Unit Housing Trends, we indicate the subject's market is stable. How is that predicting anything?  By marking stable you foreshadow that, in the sales  comparison approach grid, there will be no adjustments for changes in value over time.  This give your client a little peek into the future.



It also foreshadows that among your comps may be one or two "old" sales.  You have previewed that such sales are OK since there is no particular change in the market from, say, times past until the effective date of the appraisal.    So, up front, you are preparing the client not to see a time adjustment.  And you know this trend to be both true and correct since you have all the data to support in the workfile if anybody wants to see it.  And that demonstrates to the client we are competent, don't you think?

Topics such as USPAP and relevant adjustments can bring out the very worst in appraisers, because of the arguments this topic causes.  This is simply because the science of relevant adjustments is taught only superficially in appraisal school.  Yet we teach it is art, or we do not teach at all.  This podcast is about understanding when adjustments are necessary.  Then its  about understanding why adjustments are necessary.  But the praxis of making them is the subject of another podcast.  There are plenty of them out there (here is one of mine).



So, let's talk about USPAP and relevant adjustments here.  USPAP does not use the word adjustment or adjustments, thus they are not part of appraisal.  Which leads us to the two questions behind this podcast.  One is "How do I know when an adjustment is necessary?".  And the second is, "What size adjustment do I make?".



Please understand the first question is surprisingly easy.  Follow USPAP and relevant adjustments are straightforward.  This easy answer is, "An adjustment is necessary when the micro-market tells us it is".  Note the micro-market is the sole source of this wisdom, not the AMC, etc.  In this instance, properties that are comparable to and competitive with the subject compose the relevant micro-market.



As to the size of the adjustment, the micro-market tells us that, too.  Usually, the size of the adjustment will be a low-to-high range, from which we reconcile a dollar amount.  Adjustments don't come from tables or schedules our first supervisors gave out 20-years ago.  Because appraisers deal with market value, the adjustments must therefore come from the market, too.  So, we make adjustments to make sure our value opinions are credible, with their bases in micro-market data.  Such professionalism gives the Public reason to trust us, rather than an AVM.

In this podcast, we cover three topics, all of which are a function of USPAP and certainty.  The first topic is "When is an Adjustment Correct?"  Second is "What are the Ethics of Using Artificial Intelligence (AI) in a Real Estate Appraisal and Report?"  Finally, we'll consider the real source of appraisal fees - the appraiser.  That should get some folks upset!  But that's OK!  One of the purposes of these broadcasts is to stimulate critical thought.



So you'll know, the reason we call this USPAP and Certainty is because USPAP is not certain.  That's why we form value opinions, not value estimates.  This lack of certainty is easy to find in extracting adjustments.  Using market-depreciate cost will yield on adjustment, while extraction from a comparable sale will yield another.  Assuming both have their foundations in verified market data, they're both correct.  But how well do you explain your choice between them?  That's the secret.



And don't get me started on USPAP and certainty when it comes to AI and real estate appraisals.  Too late!  I've started.  AI in real estate appraisal is NOT the future.  It is the present and is rapidly becoming the norm.  Those appraisers who will not or cannot keep up with the advances in AI will be the appraisers who, within a short time, will be wishing they had.  It's a done deal.



You think it is taboo to talk about appraisal fees?  It may be.  But after you've listened to this podcast, you just may agree with me - or not!  Your choice!



USPAP and certainty!  What is certain is that USPAP remains the standard for appraisals and appraisal reports.  As we know more about USPAP, it is easier to comply with it.  Thanks for listening!

When it comes to USPAP and a verification model, where is that model?  USPAP makes it clear we have to verify the sales data, etc.  But USPAP is strangely silent on what to verify means.  It is equally mute on how to accomplish the verification it demands.  So, is there a reason for this lack of communication on USPAP's part?  Or, is there some method to the ASB's madness?  To both questions, the answer is "YES".



When USPAP does not define a term, it is because it sees no reason to do so.  So, as we look at USPAP and a verification model, USPAP (the ASB really) concludes the standard definitions out there of verification, to verify, etc. suffice.  They are sufficiently applicable to appraisal to define the terms, too, in an appraisal context.  And the reason behind the ASB's madness?  Since, by definition, appraisers must be "...independent, impartial, and objective...", this lack of a formal verification model allows (forces?) appraisers to conclude their own model(s).  Since we are professionals, is this not the way it is supposed to be?



USPAP and a verification model?  In reality, the verification model we have is the Fannie Mae and Freddie Mac default definition of Market Value.  True, that definition has a lot of moving parts.  But each part is a question to ask.  To ask of whom?  We ask the buyer, seller, broker, builder, etc. those questions.  And the more people we verify with, the more answers we get. And the more answers we get, the closer we get to the truth of the transaction.  So, what is the truth of the transaction?  Simple.  Was the sale arm's-length?  If the answer is no, we can confidently eliminate it.  That's something we appraisers can take all the way to the bank!