This blog has competency as its theme. A competent appraiser is one who knows what to do in any appraisal situation [judgment], and does that (them) [execution]. A competent appraiser is a professional and (1) possesses the prerequisite judgment to form a credible value conclusion; and then (2) acts on that judgment professionally and credibly. (In USPAP, credible means “worthy of belief”, a slippery slope in and of itself, since it does not describe to whom it must be credible).
First, per THE COMPETENCY RULE (2018-2019 edition of USPAP, “[a]n appraiser must determine, prior to agreeing to perform an assignment, that he or she can perform the assignment competently” (ibid; ll. 299-304 – italics added).
Then, from SR2-3, “I certify that, to the best of my knowledge and belief…the statements of fact contained in this report are true and correct” (ibid; ll. 731, 732 – italics added for emphasis).
Finally, “…my analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with [USPAP]” (ibid; lines 749, 750).
None of these statements is foreign to the experienced appraiser. Yet, it is their deeper meanings that are important here relative to what state investigators and AMC/lender reviewers seek from the typical appraiser and his/her appraisal(s), report(s), and workfile(s). These deeper meanings, however, merit deeper explanations, even to the experienced appraiser.
Relative to competency, what does Fannie Mae require from an appraiser as part of the neighborhood analysis section of an appraisal report (see B4-1.3-03, Neighborhood Section of the Appraisal Report (09/30/2014)? What composes those analyses? Without going into details, there are nine (9) subheadings (including what is on the 1004MC form) to specify the components of the appraiser’s analyses of the neighborhood.
Here is what she says about neighborhood analysis:
“An appraiser must perform a neighborhood analysis in order to identify the area that is subject to the same influences as the property being appraised, based on the actions of typical buyers. The results of a neighborhood analysis enable the appraiser not only to identify the factors that influence the value of properties in the neighborhood, but also to define the area from which to select the market data needed to perform a sales comparison analysis” (ibid – italics for emphasis).
She specifically mentions neighborhood characteristics, too:
[Neighborhood characteristics] “…can be addressed by the types of structures (detached, attached) and architectural styles in the neighborhood (such as row or townhouse, colonial, ranch, or Victorian); current land use (such as single-family residential, commercial, or industrial); typical site size (such as 10000 sf or 2.00 ac); or street patters or design (such as one-way street, cul-de-sac, or court)” (ibid).
What composes neighborhood characteristics is easily available. Therefore, an appraiser who chooses not to be aware of these data “requirements”, and then not to analyze these variables as part of forming a credible value opinion, could generate a charge of incompetence.
That deeper meaning comes into play now. That this statement, “…the appraiser’s analyses indicate the subject’s neighborhood boundaries are Elm Street on the north, Ash Street on the east, Oak Street on the south, and Birch Street on the west…” is true is one that checking any map will demonstrate. However, USPAP demands statements of fact be correct, too. To be correct means the appraiser must be able to explain why s/he reached that boundary conclusion. “Correct” means there is some type of credible market support for that conclusion.
To appraise a property, and then report it according to USPAP, is a requirement USPAP demands and the states enforce. All too often, reviewers see in reports boilerplate (especially in the reconciliation) such as: “In my professional opinion, the value of the subject is $XXXXXX”. In the light of competency, look closely at SR1-6(a) and (b), the reconciliation standards rule. If there is nothing more in the reconciliation than this single (essentially meaningless) sentence, the appraiser has not complied with SR1-5(a) and (b), thus evidenced a lack of competency. In turn, the appraiser certified to a lie, in that, in not complying, the appraiser omitted preparing the report in accordance with Standards 1 and 2 of USPAP. To add insult to injury, the appraiser has violated SR2-1(b) in that the above statement and certification, with no other context or explanation, are misleading. Three serious USPAP violations might stem from these 11-words.
Therefore, relative to the concept of competency, the deeper meaning is that the above 11-words are capable of generating three charges from the state. In addition, they can generate questions from reviewers. When appraisers appraise the property credibly, and then report the results of that appraisal in a non-misleading manner, they avoid both attention from reviewers and from the state. Thus, in turn, they save not only time and money, they show themselves to be competent. They appear more professional. Professionals can and do charge more for their time and efforts, right? Let us, therefore, be professionals.
If you have any questions on this topic, or any other real estate appraisal-related issue, please feel free to consult with me, Tim Andersen, The Appraiser’s Advocate. My email address is tim@theappraisersadvocate.com. Thanks! Be safe and well!
Tim, thanks for the heads up. I’ll be following you in the future.
Thank you, John!
Understood! The real problem is banks/AMC are dictating the appraisal process, specifically how much time it will take to complete a report and how much the appraiser should be paid. These institutions control 90% of the appraisal business. They have hired staff appraisers and trained them based on their rules first. USPAP is third or fourth as a priority. It comes down to an issue of whether an appraiser will be able to feed his/her family. Many have taken the attitude of “I’ll do what I need to, to pay the bills, I’ll deal with losing my license when and if I get to that bridge”. Meanwhile, State boards take the position of stating that they have nothing to do with that. Their here to enforce USPAP. Like a palace guard patrolling the palace, and witnessing a murder in the crowd outside of the gate and ignoring it all!. State boards can find citations on most appraisals based on this disparity of real-world and rule book. There is talk among appraiser circles that when the budgets get low for these state departments citations are filed for a couple of common obvious mistakes, while the appraiser has a track record of no issues for several years. Another appraiser related entity making money off of appraisers! Evidence has surfaced that RELS was filing complaints against appraisers to punish them for not doing what they wanted. The state boards ignored all of this and were happy to get paid for minor mistakes. This all smells of a major lawsuit if you ask me!
I’ve worked with appraisers who have come before the appraisal boards of various states. Some boards clearly know what they are doing, as well as how to do it. Others, not so much. As to your contention that some appraisal boards bring charges merely to generate fees, that would concern me although (cynic that I am) it would not surprise me. Thanks for writing!
I agree with your discussion of neighborhood analysis, but I’ll play devil’s advocate here Tim. Speaking strictly of Fannie Mae which is the standard that the lenders (clients) adhere to I would point out that per Fannie Mae over 90% of appraisers do nothing more than the analysis on the front of the 1004 and the 1004MC (trends) with respect to the neighborhood. Also, after reviewing (machine analysis I imagine) hundreds of thousands of appraisals somewhere north of 80% of appraisers describe the same neighborhood significantly different. Given that Fannie Mae dropped the 1004MC, and hasn’t complained (too loudly) that appraisers are mucking up the neighborhood analysis then we can conclude that the level of analysis is acceptable to the client (if Fannie’s happy, the client is happy), and that there is ample evidence of what our “peers” (in a USPAP sense) are doing with respect to that analysis.
Thanks, and always look forward to your podcasts.
Mike, what scares me is that the client’s “acceptance” of a shoddy neighborhood analysis is no acceptance at all. Rather, it is putting another paper in the file to use in the future. When that loan goes south, the lender will use that shoddy neighborhood analysis as part of the plaintiff’s allegations. But, then, my Wife tells me I worry too much! Thanks!