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

When you think about USPAP and ROVs (Reconsiderations of Value), gentle and peaceful thoughts are not what come to mind.  Somebody wants you to reconsider your value conclusion.  That is a gentle way to say, "I think you've made a mistake!"  But let's face facts - we all make mistakes.  And given the state of the appraisal art - with our dependence on 90-year-old protocols and techniques - that we do not make more is a surprise.



In the context of USPAP and ROVs, if a borrower initiates one, they think we have made a mistake.  Maybe we did.  But maybe not.  The point is that now there is a protocol, for ROVs, where in the past there was one but far less formal.  Not surprisingly, it favors the borrower, but is not entirely anti-appraiser.  For example, the ROV can contain only five (-5-) "comps" to analyze.  And only the borrower or the lender (or its underwriter) can initiate an ROV, not the seller, the broker(s) in the transaction, etc.  To make all this even clearer, there can be only one ROV request from the borrower. Plus, the lender pays for the ROV, not the borrower, even if the borrower initiates the request.



On the other hand, if we appraisers can't or won't co-operate with the ROV, there will be sanctions.  If it is necessary to get a second appraisal, the lender (or its underwriter) will remove the appraiser from its approved appraiser panel, thus the appraiser will never work for that lender again.  In addition, the lender (or its underwriter) will refer the appraisal and the appraiser to the state appraisal authorities.



Is there a secret?  USPAP and ROVs means the appraiser must have a killer workfile and be willing to co-operate fully when that ROV comes in.



 

There's a lot of crap on the Internet about civilization's pending collapse.  There is even stuff on the Internet about USPAP and Sasquatch.  But there is nothing on the Internet about USPAP and Hot Sauce.   So, I figured I'd add to the Internet's mindless clutter and post about Hot Sauce, USPAP, their relationship, and the demise of western civilization.  But the only problem is that there is not such a relationship.   If western civilization collapses, it will not have its base in USPAP or Hot Sauce.



Actually, the title "USPAP and Hot Sauce" is to get more clicks on my podcasts.  What this podcast is really about is the overuse of boilerplate in appraisal reports.  Deliberate amounts of hot sauce can improve the flavor experience of some foods.  Deliberate amounts of boilerplate can, on occasion, improve an appraisal report by shortening the time it takes to write one. But the overuse of boilerplate?  Nope, that can be as wrong as hot sauce in Key Lime Pie.



So, what's the problem with boilerplate?  Actually, there  are two problems:  (1) it is there, when it has no reason to be there; and (2) it serves no purpose in the report.  Ask yourself this question, "If there is something in my report that does not at least indirectly affect exposure time, highest and best use, marketability, and/or market value, why did I analyze it in the first place, and why did I put in in the report?" In the previous 12 months two reports came across my desk in which the appraisers made clear they had not invoked Departure.  You now ask, "What's Departure?"  And that is the proper question to ask since it has not been part of USPAP since 2006.  Put only what's important in the report!



 

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.