This is Diana, with ABC-The Appraiser’s Business Companion. In the building of an appraisal, we begin with a foundational understanding of the Uniform Standards of Professional Appraisal Practice (USPAP). If you’ve taken your 7-Hour Update you know there is a lot of time being spent up front on the phrase “Assignment Results”. Why did the definition change, is there something I don’t understand about what an assignment result is?
Ah hah you are asking the right questions! One answer to one of the questions is “NO”, the definition did not change. Why then is this being emphasized in the 7-Hour USPAP Update? Because the regulators have presented the need to have clarification, given that so little is being written in the residential world, about the stated results. Now in our current edition of USPAP you will see “assignment results” pop up in the Ethics Rule as well as in several other places where reporting issues require minimum content. That brings us to another Standard Rule (SR), SR 2-2(a)(viii), specifically looking at the comment section, ….
”Comment: An Appraisal Report must include sufficient information to indicate that the appraiser complied with the requirements of STANDARD 1. The amount of detail required will vary with the significance of the information to the appraisal.
The appraiser must provide sufficient information to enable the client and intended users to understand the rationale for the opinions and conclusions, including reconciliation of the data and approaches, in accordance with Standards Rule 1-6.
When reporting an opinion of market value, a summary of the results of analyzing the subject sales, agreements of sale, options, and listings in accordance with Standards Rule 1-5 is required. If such information is unobtainable, a statement on the efforts undertaken by the appraiser to obtain the information is required. If such information is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required.”
Last week we touched on the analysis of a contract. The research in our hypothetical example revealed several sales that afforded the ability to draw certain conclusions; 1) the dominance of financing, 2) the predominance of the type of financing, 3) the range of concessions paid, 4) the types of concessions (financial, no personal property was reported), 5) the majority of concessions falling into a narrowed range (the example indicated 3%-4%). In an assignment result, the result is a consequence of the analyses performed, one of which is a contract analysis. In the revision of Advisory Opinion #1, there are examples of statements that can be made about the listing and sales history. It is clear the Appraisal Standards Board (ASB) believes the results of a contract analysis require more than just stating the known facts about the transaction. I think a frustration about what is expected in the commentary can come from the conversation you are having with your client, through your vehicle known as the written Appraisal Report. Think of answering each statement you make with “why” and/or “how”.
Example notice the section of the residential form that discusses the contract and, notice that is comes after you’ve identified the subject and prior to the neighborhood. The form does no follow the appraisal process but it certainly follows the needs of the client and intended users the appraiser has identified in communication with their client.
Yes or No did you analyze the pending contract?
1). If No, what does USPAP say must be reported?
“When reporting an opinion of market value, a summary of the results of analyzing
the subject sales, agreements of sale, options, and listings in accordance with
Standards Rule 1-5 is required.
If such information is unobtainable, a statement on the efforts undertaken by the appraiser to obtain the information is required. If such information is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required.”
2. If Yes, then what is the result of the analysis and why?
You’ll notice the Contract Price is a statement as is the Date of the Contract. Asking the question, “how did the contract price come into being?”, you will then proceed to comment.
- It was not offered on the open market; it was a For Sale By Owner who limited their marketing to a sign in the yard.
- It was offered on the open market via a licensed real estate brokerage who was also a participant in the MLS. It began exposure on ___/___/___ MLS # _______. After ________ DOM the list price was reduced to $____________, having an offer on ___/___/___ known as the Date of the Contract after _______ DOM.
- What were the terms of the contract:
- Financial concessions and/or
- Sales concessions
Remember, ask the questions, “How”, “Why”? Comments may be:
- Only financial concessions not to exceed $_______ were paid on behalf of the buyer from the seller towards closing costs of the loan. There was/was not any additional seller monies paid toward a home owner warranty. This amounts to a ___% of the sale price (concessions paid on loan amount only) falling in the range of _____% – _____% within ____ sales observed and believed to be relevant to the analysis of the contract for the subject. This contract occurred within ____ days after the list date on ___/___/___.
- The sale passed with the owners agreeing to leave a riding lawnmower, the washer, dryer, refrigerator and upright freezer. The appraiser is not a personal property appraiser. However, when it comes to appliances the ability to leave in place is often a preference of the seller given the damage that can occur in the moving of appliances that may have very little remaining economic life. Based on the make and year of the ________ lawnmower, the value could vary depending on its condition and if it were to be sold off site such as an auction. No value was considered, researched or concluded on the personal property. Any difference between the conclusion of the market value and the pending price may be impacted by the personal property exchanged. The financial concessions agreed to were no greater than $_______ which represents ____% of the sale price. The days on the market with these concessions made known as part of the offer was _____. This is within the range of DOM seen in the comparable transactions.
As you can see these aren’t just statements, they go beyond a factual description. Other issues that come up are when no contract was given to the appraiser. At that point, as discussed earlier, the appraiser must offer their reason for not analyzing the contract, the steps they took to obtain the contract in the normal course of business and if denied. Did you notice the ASB did not state clearly the impact of not receiving the contract? “If such information is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required.” When you link this to the beginning of the instructions from the Standard Rule, reporting a market value and in accordance with SR 1-5, you recognize it’s connected to the analysis of the agreements and pending sale and sale history of the subject over the past three years. It’s not connected to the value. This is why it’s also a good practice to state, “The lack of the contract impacts the ability of the appraiser to analyze the contract as is required when available to the appraiser during the appraisal assignment. However, it is not relevant to the value. The list price is known as $_______ but without the sale price $_______ there can be no result of the ratio of difference or conclusion about the comparison of the subject’s marketing, offer and acceptance to the comparable transactions.
Are you getting the point about an assignment result? Its more than just a statement of facts. This is Diana Jacob and you’ve just had a tip from ABC-The Appraiser’s Business Companion.