How Long Does It Take to Read the Instructions?

This is Diana with ABC-The Appraiser’s Business Companion.  I was assisting an appraiser whose workfile included the print out from the AMC.  I know you know I know what they’re all about.  I was reminded about how many pages are contained in their directives, how it affects the appraiser’s Scope of Work.  In this particular case it was also contradictory.  It’s amazing how some directions state, “if your client is _____, _____, ______, etc. etc. you don’t have to do a Cost Approach.”  Immediately I thought about the position of authority the AMC was taking in appraisal assignments.  Those directions were instructing the appraiser’s development and reporting of the assignment’s scope of work.  Hmm, let’s think on that a moment.  Although the Uniform Standards of Professional Appraisal Practice, (USPAP), is written for appraisers and the users of appraisal services, only the appraiser is held accountable.  I have often asked the question of appraisers, “when’s the last time you read your certification statement?”; now I think its appropriate to ask, “when’s the last time you read the instructions issued by the AMC in completing the assignment?”

When I looked at the directions I felt like I needed a cup of coffee and an “all-day sucker”; whew, that’s one very lengthy set of instructions.  One of the directives that caught my eye was the Appraisal Report of a 37-year-old property that had been updated over the years but not completely remodeled.  Items like exterior doors were replaced, floor covering was replaced.  The countertops were not of any high-quality granite or polished concrete, it was recently replaced with Formica.  The neighborhood age range reported was 5-44 years with predominant age of 35.   The underwriter was FHA.

Imagine my surprise when I found a Cost Approach.  You see the client listed in the “one size fits all” directions from the AMC the names of the clients wanting a Cost Approach and, in this case, the appraiser’s client was not in the group that required a Cost Approach.  The directive was clear, “not in the group, don’t develop the Cost Approach”.  Well now, there are two issues, 1) the client who hired the AMC and said, “regardless of age we expect a Cost Approach to be developed”, and 2) the AMC who said, “unless you’re in that previously mentioned group, no Cost Approach is to be developed.  I’m sorry, when does the appraiser get into this decision-making process?  I recognize client needs and fully embrace that conversation, but when did the development of an appraisal process become the client’s decision?

Under the USPAP Standard Rules, it is the appraiser who is held legally responsible and accountable for the development and the reporting.  That means “pre-determined” decisions about what is necessary for credible development must be tendered with the understanding that the appraiser is the one to make that determination.

When I asked the appraiser, “why the Cost Approach”, on the FHA assignment with no major renovations the response was, “I always do the Cost Approach; it just saves time in case someone want’s it after the fact. You know, after I’ve turned the appraisal in”.  Okay, now we have another issue, regardless of the assignment, regardless of the age and condition of the property, is it safe for the appraiser to automatically determine a Cost Approach needs to be developed?

Here’s the real issue appraisers, the charge in every appraisal assignment is to determine and perform, AFTER you’ve identified the appraisal problem, the appropriate scope of work.  You have at your disposal, analytical tools, preliminary analyses such as Highest and Best Use to determine the appropriate approaches to value.  We don’t operate or at least we shouldn’t operate, in a “one size fit’s all” appraisal process.

Now I want to be clear on one issue, just because a property is aged, doesn’t mean the Cost Approach isn’t a viable indicator of value.  The key is in the decision making for what analyses and approaches to value give you the most credible results.  Nothing in this Appraisal Report indicated a credible development could be expected from the Cost Approach.  Nothing in the Appraisal report indicated it was necessary for development.  Remember, quantity of data, quality of data and appropriateness of the approach, those are the three key factors in the decision making for final reconciliation.  Given those criteria, the same thought process should be reasoned through when deciding if the approach is necessary or not.

If the client says, “I don’t care what the appraiser says, I want it”; then develop the indicator of value and state in the report, “The client’s decision to request from the appraiser a development of the Cost Approach had no influence on the appraiser in the development of the market value opinion.  This reported information is not to be constructed as relevant to the economic decision making of the loan.  The strength of the conclusion of value emanates from the decision making of the appraiser, required in the scope of work necessary to develop a credible conclusion of value.  The client was informed this approach would be developed and reported for their information benefit but was not considered contributory to the final value decision of market value.  Affirmed in the statement of certification, it was the evidence from the Sales Comparison Approach that led to the final reconciliation of market value.”  By the way, its also a good idea to report how you relied on the comparable adjusted sale prices when you came to that conclusion.  Each comparable contributes to the final decision.  Do yourself and your client a favor by communicating that reasoning.

This is Diana Jacob, and you’ve just had a “tip of the week” from ABC-The Appraiser’s Business Companion.