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USPAP and the contract are a great team! Make them part of your appraisal team, and you’ll benefit from it, too! Is that a lot of hyperbole, or what? No, it really is not since they do make a great team. But, since you are the Head Coach of that team, you must know how to pair them up. What’s your job as Head Coach? It is to know how and when to bring them together. They make a great team – but you have to know when and how to play them.
Typically, we do not think of USPAP and the contract. This is a habit we need to change. Why? Because analyzing the purchase and sale contract is part of the appraisal process. You say, “Tim, I know that already!” Yes, you do – but the problem is in the pairing. When the package of data from the lender arrives, it contains a copy of the purchase and sale agreement. USPAP says we have to analyze it. This is to determine if it is arm’s-length or not. Then, the verification is like the verification of a comparable. You talk to somebody and ask some straightforward questions to determine if it meets the criteria of the definition of market value. If it does, you say so in the appraisal report.
But USPAP and the contract have a very unique relationship. Some appraiser do not like having a copy of the contract. They think it is a contract to hit (it isn’t). It might bias them toward the contract price rather than market value (it might). Therefore, they say, keep the contract! But USPAP tells you when to read the contract, and its not as the start of the process. OK, so if that does not happen at the start of the appraisal, when does it start?
Read SR1-5, not for what it contains, but for what it means. Given that SR1-5 comes after SR1-4, the proper time to consider USPAP and the contract is after you’ve formed a preliminary value opinion. When you hold it until then, it cannot influence you one way or the other. Your value conclusion has its base in market data, not in the contract. There is no way to accuse you of the bias of anchoring to the contract. You didn’t read it until you formed your value opinion. Then you include that contract as the last comp. In the reconciliation, you then give it the weight it deserves in the final value opinion.
USPAP and the contract are a great team! But you must know when to play them!