The Building of an Appraisal

This is Diana, with ABC-The Appraiser’s Business Companion.  Although many believe the sections of residential forms must each be treated separately, that line of thinking often leads to a disconnect from the appraisal process.  Very often the appraiser begins first with the subject section, quickly goes through the neighborhood, and then gets to the site without taking the time to recognize they jumped to the report and didn’t really give themselves opportunity to analyze.

With turn-a-round times often unreasonable the appraiser seeks the fastest way to credibly develop and often they will use the method of going to the form.  For example, if you look at the “Subject section” appraisers believe that is where the Problem Identification is found.  Is there any analysis that is required in identifying the problem?  A quick review of USPAP can answer that question.

The Scope of Work Rule, under the Problem Identification, states the following, “Problem Identification: An appraiser must gather and analyze information about those assignment elements that are necessary to properly identify the appraisal or appraisal review problem to be solved.”  Well there you have it; even in the very beginning of the assignment we are asked to analyze information about those assignment elements to “properly identify the appraisal problem to be solved.”  That was worth saying twice.  Quickly, can you think of the assignment elements and recognize between the facts and the analyses that may be necessary to fully understand the appraisal problem?

Assignment Elements:

  • client and any other intended users;
  • intended use of the appraiser’s opinions and conclusions;
  • type and definition of value;
  • effective date of the appraiser’s opinions and conclusions;
  • subject of the assignment and its relevant characteristics; and
  • assignment conditions.

How’d you do?  The USPAP document tells us that it is this information that gives us the ability to determine the type and extent of research and analyses to include in the development reminding us that communication with the client is required to establish most of the information necessary for problem identification.

For the next few weeks I think digging a bit deeper into this topic will serve us well in understanding what building an appraisal really means.  For example, think about the very first bullet, who is the client and who are the other intended users?  Consider another professional who needs an appraisal calling you to consider an assignment.  What needs would an attorney have for an appraisal, what about an accountant, an estate planner?

All those professionals require understanding the value of the property because they represent private individuals who have special interests in a real property interest.  For all practical purposes these “other professionals” will not be your client; your client will be the private individual seeking services that will include an Appraisal Report prepared by a state licensed/certified appraiser.  In other words, if it is an attorney seeking the appraisal service, they are probably the “other intended user”.  Right off the bat you need to establish who is who and who will be reading the report and relying on the information.

In legal matters the appraiser may be dealing with IRS issues such as acts of donation or damages from a disaster.  There may be a condemnation proceeding where there is an issue of the taking and/or limited access after the taking that must be further identified as to whether its state or federal condemnation.  In probate court or divorce settlement the matter will often involve more than just state laws (including definition of market value), it can also involve a “retrospective” appraisal.  Private individuals needing appraisal services can be difficult as many private individuals don’t know the answers to the questions, but legal counsel can certainly point to the applicable laws.  My point of this “tip of the week” is, do you know the questions you need to ask?  If it’s a lender, do you assume if there’s no FHA case number is the engagement to be assumed a conventional loan to be sold to either Fannie Mae or Freddie Mac?  Is that a safe assumption to make?  Shouldn’t it be confirmed so that you have documentation of why you went beyond USPAP or specifically did not go beyond USPAP?  Don’t let the work order fool you.  When you confirm the work order, confirm the expectations of the client’s needs of compliance.  What governing authorities are involved in the assignment?  One thing you can count on when you don’t take the time to double check; its ripe for a state enforcement action.

This is Diana Jacob and you’ve just had a tip from ABC-The Appraiser’s Business Companion