Tim Andersen, The Appraiser's Advocate Podcast

To comply with USPAP can be such a pain in the neck!  For example, take what’s happening now.  In the past, a commission was a commission and nobody gave any thought to it.  But now, it might be nothing we appraisers should worry about, but it also might be a sales concession.  If the commission inflates the purchase price over what it would have been otherwise, we appraisers have to account for that.  And that requires cash-equivalency adjustments.  And those are such a pain in the neck!

To comply with USPAP can be such a bother!  Then there are mortgage buy-downs.  Let’s face it, mortgage interest rates are high and will likely remain  high for the foreseeable future.  So, if a seller offers the buyer a buy-down from seven percent to five percent, what buyer is going to be dumb enough to say no to that?  But, yet, we appraisers must look at that as a financing concession.  And when it comes to financing concessions, we have to perform the cash equivalency calculations.  USPAP demands we do them.  The GSE’s definition of market value demands we do them.  And, of course, every buyer wants to know they overpaid for their property, right?

To comply with USPAP can be such an inconvenience.  For example, we appraisers are supposed to verify our sales, cost, and rental data.  Yet for the lousy fees the AMCs are willing to pay, we don’t make enough money to verify data with the buyer, the seller, the broker, the builder, and so forth.  Yet, when we sign that Certification, we certify to the client we complied with USPAP.  Did we?  If you certify that you did, but you really did not, then you are going to need great legal counsel and comprehensive E&O insurance.  Contact me:  [email protected].

There’s too much going on in AppraisalWorld.  It is essentially impossible to keep track of what’s going on.  FHFA just announced, in the most neutral of tones, that appraisal waivers could now be had, under certain conditions unheard of before.  Again, conditions apply, but waivers are going to be available up to a 90% loan-to-value ratio (and 97% with a property data collection requirement).  One of the conditions that applies is that the borrower would have to possess a killer FICO score.  But that condition is current at the end of 2024.  Given current political and social forces, who knows what those will be six-, twelve-, and eighteen-months from now?  If real estate appraisal is the adult supervision of the mortgage lending industry, it appears that industry has found a way to remove the adult’s influence.

And, there’s too much going on in other areas, too.  Fannie Mae is still sending letters to state appraisal boards about time and GLA adjustments.  Certain states that do not accept anonymous complaints just trash them as a matter of course.  Other states that accept such complaints insert those letters way at the bottom of their to do list.  This may help the state with its administrative work load.  But it does not help the appraiser to sleep well at night as this hangs over the appraiser’s head, family, and business.

And speaking about there is too much going on.  There are now grumblings that USPAP needs to replace the ambiguous word credible (credible to whom and how to measure it?) with the word reliable.   This is especially true now that the ROV process assumes the borrower is an intended user of the appraisal report.

So, what to do?  Consider making friends with an administrative law attorney in each state in which you have a credential.  And please make sure you have proper E&O insurance coverage.

Financing concessions and USPAP!  More on this?  Haven’t we heard enough on concessions, cash equivalency, and stuff they don’t teach us in appraisal school?!  If you listen to what Fannie and Freddie have to say on these topics, the answer would have to be an emphatic “NO!”.  Why?  Because Fannie and Freddie continue to tell us we are not making the necessary adjustment when we need to.  If we can’t believe Fannie and Freddie, who can we believe, right?

Financing concessions and USPAP are real issues!  When it comes to making adjustments, any adjustments for that matter, education is the key.  We may not make the necessary adjustments because we don’t know we are supposed to make them.  Or maybe we don’t know how to make them.  Well, education solves those problems.  And this education is easy-to-access, as well as easy-to-afford.  So, what’s stopping you from getting the education you need?!

As you know, NAR settled the Sitzer-Burnett case.  And this case, in part, dealt with financing concessions.  Now, is the party who pays the buyer’s broker’s brokerage commission granting a sales or financing concession?  Or, is that party merely negotiating the best purchase and sale deal they can?  How you, the appraiser, choose to answer those questions is important.  One answer will require a sales financing adjustment.  One answer will not.  But there is no one-size-fits-all response.  So it will be necessary to do the analytics on this question for each and every assignment.  Critical thinking is a hallmark of a real estate appraiser.  So, think critically about your answers to the financing concessions question.  Your answers will affect how you make a living.

And don’t forget to make sure your E&O insurance is up-to-date.  If you answer the above critical thinking question properly, you won’t need legal counsel to get you out of a jam!

What do technicians, mechanics, and engineers have to do with USPAP and Real Estate Appraisal? Maybe nothing.

But, at this point, it is easiest to conclude that a technician is one who knows that something should be done, though not necessarily how, when, or why.  Technicians, mechanics, and engineers understand there is a process involved somewhere.  A technician understands this, too, but for whatever reason, is not yet familiar with it. But a mechanic understands there is a problem within the system to be solved.  The mechanic also understands there is a process involved in its solution.  Then, via training and experience, the mechanic is capable of being part of that solution.  Indeed, the mechanic understands the system sufficiently to solve the problem alone.  So, if the mechanic can take care of the system’s problems, what is the purpose of an engineer?

Technicians, mechanics, and engineers all have their respective places in the natural order of things.  Technicians help mechanics.  Mechanics work within systems and fix the problems within them.  But mechanics are limited to working with existing systems.  Therefore, there must be somebody to design and implement the systems on which the technicians and mechanics work.  So, without engineers, there would be little need for mechanics and technicians.

So, here’s the connection.  Are appraisers technicians, mechanics, or engineers?  Filling out an appraisal reporting form is the job of a technician.  Knowing what to put into the form is the job of a mechanic.  But by designing and executing the appraisal, what we appraisers summarize on the form requires we function as engineers.  We do more than fix problems.  We design systems to have the fewest problems as possible.

Oh, and make sure your E&O is always up to date.  And, when you need it, get proper legal advice.

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.