INTRODUCTION

Let’s start this musing by addressing the issues of value, accuracy, and misleading.  You might have looked at them differently in the past.  We’ll tie these into the idea of the value conclusion in an appraisal being right or correct.  

State appraisal boards level charges against appraisers. It is very common for appraisers to defend themselves against these charges by insisting their value is “right”, or something similar. In reality, this argument is utterly irrelevant and carries no weight with the appraisal board.

IRRELEVANT!?

When it comes to value, accuracy, and misleading, the appraiser’s value opinion alone is irrelevant and weightless. Specifically. TAF has given state appraisal boards instructions that the appraiser’s value conclusion is not to be a part of the board’s investigation.  Nor is it to be a part of its deliberations.  Therefore, it is not to be part of the appraiser’s defense since it is not part of the charges against the appraiser.

Now you are probably saying, “Wait a minute! It was the homeowner’s complaint that my value was too low that started this entire complaint and investigation!”  This consumer’s complaint indeed started the process.  Nevertheless, because value is never to be an issue in the investigation, that is not what your state board investigates.  As you already know, your value opinion is just that – an opinion.  An opinion is neither correct nor incorrect. It is neither accurate nor inaccurate. An opinion is neither right nor wrong.  It is merely properly formed (in other words, in conformance with Standard 1), or it is not.  

IS AN APPRAISAL ACCURATE?

With the gap of value, accuracy, and misleading in mind, let’s cover another issue related to value.  This question has come to me more than once.  Its answer, pretty much right out of USPAP, clears up some confusion.  It also shows that words we sometimes use informally are not synonymous.  In this part of the blog we are going to go over the words ACCURATE, CREDIBLE, and MISLEADING.  Spoiler alert:  the adjective accurate should never describe the noun appraisal.   And, what you send into the client is not an appraisal.  Rather, it is an appraisal report.  And the difference between the two is canyons wide.

So, let’s get into it.  The top of page one of the Fannie Mae 1004 form reads  “[t]he purpose of this summary appraisal report is to provide the lender/client with an accurate, and adequately supported, opinion of the market value of the subject property”.  Here, we’ll ignore the fact there is no such animal as a summary appraisal report.  Instead, we’ll focus on the word accurate and the fact that Fannie Mae totally misuses it in this context.

TO WHAT DOES ACCURATE APPLY?

When it comes to value, accuracy, and misleading, “accurate” cannot describe an opinion of value.  There is nothing against which an opinion of value can be measured. There is nothing to determine an appraisal’s  accuracy.  For example, a meter is always a meter.  There is a standard by which to measure a meter. On the other hand, you and I could receive the same data on the same property. We could inspect that property together. We could share the same photos.  We could even verify those same data with the same sources, etc.  Yet you could appraise the property for $227,500. I could appraise it for $231,500.  Assuming both of us followed Standard 1 in developing the value opinion, then we are both “right”.  Neither appraisal is more accurate than the other.

Since an accurate opinion of value does not exist, USPAP teaches us to form our value opinions credibly.  This means in a manner worthy of belief.  This is because an opinion is neither accurate nor inaccurate.  Rather, an opinion is properly formed.  In an appraisal context, this means the opinion has its base in the unbiased gathering, unbiased verification, and unbiased analyses of those facts. If not, its base is something weaker, something less vigorous, something more porous. In these cases, the opinion of value lacks credibility.    

Now the concepts of “correct” or “accurate” are a different matter in a real estate appraisal context.  These two terms apply solely to the appraisal report and the report’s contents, but not to the appraisal itself.  Again, an opinion cannot be accurate. An appraiser merely well-forms the opinion of value or ill-forms it. 

ACCURATE – THE APPRAISAL OR THE APPRAISAL REPORT?

In the context of value, accuracy, and misleading, it is possible to report the zoning, the square footage, the utilities, and so forth accurately or correctly.  These are facts to be found via research.  However, even accuracy in these matters will not compensate for a failure to use an appraisal protocol properly in forming the value opinion.  Thus, while the data an appraiser uses may be accurate, that appraiser can still use them incorrectly.  The appraiser can report the results of that use in a misleading manner.

It is this misuse, misapplication, or the improper application of an appraisal protocol, that results in an opinion poorly formed. This omission of proper due diligence in forming the value conclusion affects the credibility of the appraisal.  Nor does it mean the appraisal’s analytics themselves are inaccurate.  It merely means specific inaccuracies or lack of proper due diligence resulted in a poorly formed opinion. 

It is common for the good folks at the local government offices (or brokers!) not to return phone calls.  This is why appraisers have the benefit and privilege of the use of extraordinary assumptions.  The extraordinary assumption is part of the appraiser’s arsenal.  It is specifically for those instances in which the appraiser, despite his/her best efforts, simply cannot get to the bottom of a question. 

When those folks simply will not return your phone call(s) in a timely fashion, you are running out of time, and you have exhausted all other avenues of verification, What are you to do? Really, it is perfectly acceptable to assume extraordinarily that the zoning is X, or what that zoning permits is Y.  But, because we have this benefit and privilege, we also have the responsibility to exercise it properly and in accordance with USPAP.

MISLEADING?

Keep in mind the concepts of value, accuracy, and misleading. In accord with USPAP’s Standard 2, a report must not be misleading.  So, is it possible for a report to be accurate and not misleading, yet not correct?  Consider this scenario:  suppose the appraiser personally, properly, and accurately measured the subject house down to the nearest square inch. Suppose, too, the appraiser market-extracted all of the adjustments. Then further suppose that appraiser credibly came up with an adjusted value range of $250,000 to $265,000.  In other words, the value range (i.e., the appraisal) is well-formed, thus credible. Yet, despite a well-formed value opinion range, the appraiser, for reasons s/he does not explain, concluded a value of $275,000.  Everything in the report was accurate; yet the final value opinion the report communicated was incorrect, thus misleading.   

Remember as well, there is a difference between an appraisal and the vehicle by which the appraiser reports the results of that appraisal to the client (the appraisal’s report).  A value conclusion (in other words, the appraisal) is not “accurate” for the reasons we talked about earlier; it is merely well-formed or ill-formed, since it is an opinion. 

The report of that appraisal to the client, however, must accurately and non-misleadingly chronicle what the appraiser did to arrive at that credible value opinion, how the appraiser credibly did that, and why the appraiser took those steps. If the report and its chronicle of the appraisal is not accurate, in other words, if it does not paint well and truly these three pictures, it is, by definition, misleading, the credibility of the appraisal underlying that report notwithstanding.

And, because USPAP now has a definition of misleading, it is safe to conclude the states will enforce that definition when their boards level formal charges against appraisers.

CONCLUSION

From this musing on the concepts of value, accuracy, and misleading, here are the takeaways:

• It is not part of what a state appraisal board does to conclude whether your value opinion is accurate. It is the board’s job to determine if the appraiser well-formed the value conclusion, or ill-formed it;
• For this reason the appraiser’s claim a value conclusion is “correct” or “right” is irrelevant and weightless before the board;
• Despite what Fannie Mae pre-prints on the 1004 form, there is no such animal as an accurate appraisal;
• An appraiser’s opinion of value is either well-formed or it is not. It is either credible or it is not;
• Credibly is how the appraiser must use the analytical tools at his/her disposal;
• The data the appraiser includes in the report, the data on which the appraiser bases the value conclusion, must be accurate;
• Any report the appraiser sends to the client must accurately chronicle the results of the appraiser forming the value conclusion; otherwise that report is misleading; and
• USPAP now has a definition of misleading, so expect state appraisal boards to enforce USPAP in light of that new definition.

POSTSCRIPT

If I can ever be of help to you with an appraisal, USPAP, or state appraisal board problem, please contact me, Tim Andersen, The Appraiser’s Advocate, at tim@theappraisersadvocate.com.  Thank you!