Tim Andersen, The Appraiser's Advocate Podcast

One of the purposes of this podcast is to make you mad.  Another is to open your eyes to the power the analytics of the cost approach have to analyze sales.  Another is to anger you.  About what?  About the depth of its questions and what is likely to be the shallowness of your answers to them.  With any luck at all, this podcast will do both.  If it does, then you’re paying attention.  Thank you!  If it does not, then I’m not doing a proper job as a USPAP instructor.  I’ll need to work smarter to open your eyes.

Again, I want to make you mad.  It is clear most appraisers do not like to engage in the analytics of the cost approach.  Generally, we are not too familiar with it since most of its protocols are not market oriented.  And there is a lot of math involved.  Remember that four out of three appraisers do not understand math.  The GSEs make it clear that they do not think the cost approach results in a reliable indication of market value.  So, it is clear that most appraisers, because of these limitations, do not appreciate the deep analytical power the cost approach really has.  Most of us simply do not understand how the protocols of the cost approach help us to come to a credible opinion of market value.  Therefore, I’m going to ask you 10 questions on the cost approach and stuff related to it.  After we’ve finished with them, you probably will still not like to tackle the cost approach (and for the same reasons).  Nevertheless, you just may have a better understanding and appreciation of its powerful analytical capabilities. And remember to keep your E&O Insurance up to date, and understand the need for legal counsel.

This question comes up – a lot!  It is common for reviewers to conclude the appraiser did not support, for example, the GLA adjustment.  So the appraiser gets all bent out of shape and shouts, “I supported my adjustments!  Right in the narrative I write the GLA adjustment is $65 a square foot!  How can that reviewer say I did not support my GLA adjustment!?”  Now it is time to go to USPAP for great advice.  And that advice has to do with supporting adjustments.  What is that advice?  That advice is to support your adjustments.  Why is that so hard?

Honestly, going to USPAP for great advice is easier than it sounds, although its advice may be indirect.  For example USPAP does not use the term adjustment (or any of its derivatives) until AO-13.  But right there, in USPAP’s definition of credible is the Comment that makes it clear that “…credible assignment results require support by relevant evidence and logic…” Next, in the Record Keeping Rule, is the statement that the appraiser’s workfile “…must include…documentation necessary to support the appraiser’s opinions and conclusions…”  Therefore, the appraiser’s insistence the above statement is “support” for the $65 GLA adjustment is simply wrong.

Going to USPAP for great advice is both sound advice and a simple strategy.  In this example, the appraiser’s support is already in the workfile, just not yet in the report itself.  Somehow, the appraiser had to arrive at the $65 conclusion.  Assuming these component processes are in the workfile, getting them into the report is easy.  Try this:  “Analysis of five comparable sales larger than the subject with five sales smaller than the subject indicates the market recognizes a $65 per square foot factor for size differences.”  Taking USPAP’s great advice avoids E & O and legal problems.  Try it.  You’ll see.

When  you think of USPAP and the State Board, chills run up and down your spine, right?  In any given year, the typical real estate appraiser has less than a five percent chance of getting that letter from a state appraisal Board.  But what happens when that letter thuds on your desk?  It is not a time to panic, but it is a time to pay attention.  Close attention.   Life will go on.  You’ll still be able to appraise real estate so you can make a living.  But you’ll need help.  Remember, contact me at [email protected] to help you when it happens.

So what is going to happen when USPAP and the State Board become foremost in your professional life?  It is likely the state board will send you a questionnaire to complete and return to the investigator.  These questions will become the basis for the state’s investigation into any complaint filed against you.  Therefore, you must answer them completely, fully, and truthfully.  But you must not give the state the rope to hang you with. For example, One question might be, “Were you compensated for the assignment?”  Assuming you did not work for free, the entirety of your answer would be, “Yes”. No more, no less.  The state has no reason, frankly, to know your professional fee for that job.

Since the topic of this podcast is USPAP and the State Board, there are indeed more such questions I could preview.  However, time and space do not permit a greater discussion.  So, please, listen to the podcast.  But one more thing.  If you do get that letter from the state, you need to act, not ignore it!  You’ll need counsel from your E&O people, an attorney, and a USPAP expert.  This is not a job you do alone!

USPAP and Functional Obsolescence?!  You ask, “Tim, haven’t you covered this topic here on the podcast, as well as a bunch of other times, places, venues, and symposia?”  Yes I surely have.  But that was the other functional obsolescence.  Today, on this podcast, I’m going to talk about the true functional obsolescence.  Yes, the functional obsolescence the market really abhors.  And this is the functional obsolescence you will not find in some crusty, musty, dusty old house.  It is not the irrelevant functional obsolescence of aged cat urine.  It is not the functional obsolescence of a house with five bedrooms and only one bath.  No, this is a functional obsolescence factor even more insidious than any of those.

In this podcast on USPAP and functional obsolescence I’m going to talk about the worst functional obsolescence of all.  And what’s even more interesting is this form of functional obsolescence is totally preventable.  It is always curable, but the cure may be expensive, time-consuming, and difficult.  But it does not need to be.  So, Tim, what  in the world are we talking about here?

To talk about USPAP and functional obsolescence is to talk about that obsolescence that ends up corroding your brain and your heart!  You likely just tore out your earbuds and are staring at them aghast that I should say such a thing.  But I just said it and you just heard it.  Have you ever heard an appraiser declare, “My adjustments are based on my 20-years experience in this business!”?  That appraiser just declared her functional obsolescence set in 20-years ago!  She just proudly announced, “I have not paid attention in the last nine of my 7-hour USPAP update classes!”  Maybe I’m wrong, but isn’t a superficial ignorance that profound something to hide rather than openly declare?  Keep listening.  Thanks!

There are some of our appraisal fellows whose grasp of the concept USPAP and Competence is yet to be as strong as it could or should be.  In a 15-ish minute podcast, it is simply not possible to look into this subject with any depth or conviction.  So we won’t.  But we will look at what USPAP says about the topic.  Note to our friends on the ASB:  In the next 7-hour USPAP update class, perhaps it would be possible to devote 30-minutes to the miniscule and trivial grammatical changes you made to the document.  Then, devote 6.5 hours to something important and relevant such as competence, how to get it, and why it is important.  After all, the GSEs are sending appraisers to their state boards for discipline over the component issues of Competence and appraisers’ ignorance of them.  How about helping us out, Guys, what do you say?

OK.  Rant over.  Back to USPAP and Competence.  In USPAP, there is no definition of of competence, competency, competent, and so forth. (There is not one in the 6th ed. of The Dictionary of Real Estate Appraisal, either). This despite the fact USPAP refers to these terms over 300 times. This is not an oversight.  There are plenty of definitions out there in dictionaries and other professional texts.  Some of these are in the podcast, so please listen to hear them.  Or check them out for yourself.

So, in what we do, is an understanding of the concept of USPAP and Competence important?  Is it even relevant in real estate appraisal?     I say that it is of major importance to us, what we do, and how we do it.  Now, you’re free to disagree with me.  You should, really.  But do the research  yourself.  Eventually, you’ll agree with me.  So, why not start now?

This podcast sports a metaphysical title.  “USPAP:  Questions and Reflections”.  Why this title?  Who in their right mind wants to think about USPAP?  B-O-R-I-N-G!  I’ll concede that point.  But somebody has to think about it.  And, as a USPAP instructor, I get paid to think about it.  Really, I get paid to teach it.  But before I can teach it, I choose to think about it first.  Choose all the ways there are to explain it so that it is clearer and more persuasive than it is written.  And, frankly, it is not written overly well.  But that’s the topic of another podcast.  I can say that with impunity since nobody reads these show-notes.  So, let’s get a little metaphysical, shall we?

“USPAP:  Questions and Reflections” is primarily the results of some of the questions that come in to me as a USPAP instructor.  But Reflections comes from the processes I go through in order to be able to answer those questions.  I want to answer them cogently, persuasively, and completely.  Or, at least as cogently, persuasively, and completely as I can.  Take as one example, the first question on the podcast:  “Can I use the extraordinary assumption that the present use of the property is its highest and best use?  Like, there’s a lot of work that can go into highest and best use.  But with a $450 fee and a 48-hour turn-around time, I’d go broke – FAST! – if I had to do a real highest and best use analysis every time.  So, can I?”

So, as I reflected on that appraiser’s questions, the title “USPAP:  Questions and Reflections” just leaped into my mind.  Actually, this is a great question, worthy of deep reflection since there is not a cut-and-dried answer to it.  Even USPAP admits this.

USPAP and the Public Trust is a topic we appraisers do not address all that often.  Perhaps we should, since there is confusion on the issue.  At the base of this confusion is the fact appraisers think our job is to protect the public (i.e., the buyer, the lender, the client, the borrower, etc).  In reality, this simply is not true.   What USPAP does say is that it is USPAP’s job to promote and maintain a high level of public trust in appraisal practice. Clearly, there is a difference between the two, don’t you think?

When we think of USPAP and the Public Trust, it makes sense to put that thought into the context of protection.  USPAP itself refers to protect or protection 114 times.  Yet not one of these references is in the context of shielding someone from something or acting as someone’s champion.  Therefore, to conclude USPAP bestows on appraisers a responsibility to protect someone or something has no basis in fact nor practice.  In fact, it is clear from the context of USPAP’s definition of an appraiser that USPAP does not shoulder the appraiser with this champion’s burden.  How so?  By definition, an appraiser is one who is “…independent, impartial, and objective…”  It is essentially impossible to demonstrate these three attributes, as well as, simultaneously, to protect somebody from something.

Therefore, USPAP and the Public Trust refers to the reasons we give to the public to trust us, what we do, how we do it, and why we do it.   For example, when it comes to adjustments, do we understand that merely because there is a difference between the subject and a comp, there might not be an adjustment?  When we know when to make an adjustment, then we give the public reason to trust us.

When it comes to USPAP and written reports, the response of the typical appraiser is to stifle a yawn.  “Who cares about writing reports?  We just fill in a form, send it to the client, and hope it does not come back for revisions!”  But, adding the narrative addenda items to the form is report writing, isn’t it?  And a common response to that is, “I just cut-and-paste stuff from other reports.  For $400, I can’t spend a lot of time writing!”  This is true.  But that appraiser will have a truckload of trouble selling that logic and reasoning to a state appraisal board.

In fact, USPAP and written reports is such an important topic that basic appraisal texts usually devote one entire chapter to writing the report.  If you’ll think about it, the phrase “…writing the report…” conveys little meaning.  Rather, we should speak about “…communicating the appraisal to the client…” since this is really what we are hired to do.  Clients hire us to communicate to them, in a precise format, the results of our analyses leading to a credible value conclusion.    What clients do not want is a report.  Rather, clients want (and need!) our analyses of the relevant data.  Our analyses should transform the raw market data into information the client uses to make informed, timely decisions.

So, yes, USPAP and written report is a major topic – one to which we all are well advised to pay more attention.  Because, really, we are not merely writing reports.  We are (or should be) communicating to our clients.  They want answers to value questions (among other things).  That’s why they hired us, the experts, the appraiser.  So, are we providing our clients with answers?  Or do we merely provide them with filled-out forms?

When you think about USPAP and ROVs (Reconsiderations of Value), gentle and peaceful thoughts are not what come to mind.  Somebody wants you to reconsider your value conclusion.  That is a gentle way to say, “I think you’ve made a mistake!”  But let’s face facts – we all make mistakes.  And given the state of the appraisal art – with our dependence on 90-year-old protocols and techniques – that we do not make more is a surprise.

In the context of USPAP and ROVs, if a borrower initiates one, they think we have made a mistake.  Maybe we did.  But maybe not.  The point is that now there is a protocol, for ROVs, where in the past there was one but far less formal.  Not surprisingly, it favors the borrower, but is not entirely anti-appraiser.  For example, the ROV can contain only five (-5-) “comps” to analyze.  And only the borrower or the lender (or its underwriter) can initiate an ROV, not the seller, the broker(s) in the transaction, etc.  To make all this even clearer, there can be only one ROV request from the borrower. Plus, the lender pays for the ROV, not the borrower, even if the borrower initiates the request.

On the other hand, if we appraisers can’t or won’t co-operate with the ROV, there will be sanctions.  If it is necessary to get a second appraisal, the lender (or its underwriter) will remove the appraiser from its approved appraiser panel, thus the appraiser will never work for that lender again.  In addition, the lender (or its underwriter) will refer the appraisal and the appraiser to the state appraisal authorities.

Is there a secret?  USPAP and ROVs means the appraiser must have a killer workfile and be willing to co-operate fully when that ROV comes in.

There’s a lot of crap on the Internet about civilization’s pending collapse.  There is even stuff on the Internet about USPAP and Sasquatch.  But there is nothing on the Internet about USPAP and Hot Sauce.   So, I figured I’d add to the Internet’s mindless clutter and post about Hot Sauce, USPAP, their relationship, and the demise of western civilization.  But the only problem is that there is not such a relationship.   If western civilization collapses, it will not have its base in USPAP or Hot Sauce.

Actually, the title “USPAP and Hot Sauce” is to get more clicks on my podcasts.  What this podcast is really about is the overuse of boilerplate in appraisal reports.  Deliberate amounts of hot sauce can improve the flavor experience of some foods.  Deliberate amounts of boilerplate can, on occasion, improve an appraisal report by shortening the time it takes to write one. But the overuse of boilerplate?  Nope, that can be as wrong as hot sauce in Key Lime Pie.

So, what’s the problem with boilerplate?  Actually, there  are two problems:  (1) it is there, when it has no reason to be there; and (2) it serves no purpose in the report.  Ask yourself this question, “If there is something in my report that does not at least indirectly affect exposure time, highest and best use, marketability, and/or market value, why did I analyze it in the first place, and why did I put in in the report?” In the previous 12 months two reports came across my desk in which the appraisers made clear they had not invoked Departure.  You now ask, “What’s Departure?”  And that is the proper question to ask since it has not been part of USPAP since 2006.  Put only what’s important in the report!