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USPAP, Verification, and Bernoulli’s Fallacy. That’s a mouthful! What does it mean? I’m assuming you’ve heard of USPAP. Verification is an important component of USPAP’s SR1-4 (learn it, love it, use it). But it is likely Bernoulli’s Fallacy is something you don’t know about. Yet. You will, though. It is going to become really important in residential real estate appraisal, especially when UAD3.6 takes effect in November of 2026. Read on to learn why.
Really USPAP, verification and Bernoulli’s Fallacy go together. USPAP’s Standards Rule 1-4 requires us appraisers to “…collect, verify, and analyze all information necessary for credible assignment results.” As with a lot of USPAP, this is not overly clear (hello, ASB!). Bernoulli’s Fallacy says, in so many words, in statistical inference, people often wrongly assume that a single event, or a small number of observations, directly reveals the underlying probability of a process. We see this all the time from clients. Most houses in a subdivision sell for between $300K and $350K. Yet the one with the premium view and the kitchen upgrades that sold for $393K gets all their attention. If the subject is your basic house in the neighborhood, then its value is somewhere between $300K and $350K, that one outlier notwithstanding. One outlier’s price does not predict market value, despite what the client demands.
USPAP, verification, and Bernoulli’s Fallacy are a package deal. USPAP demands verification and we avoid Bernoulli’s Fallacy by being very skeptical about the predictive value of one or two outliers. This will become even more important as UAD3.6 kicks in and appraisers will need to write more in their appraisal reports. Are you preparing for that?
Questions? Contact me at tim@theappraisersadvocate.com. Need legal help or information on E&O insurance. I can help you with those, too.