Tim Andersen, The Appraiser's Advocate Podcast

DOES REAL ESTATE APPRAISAL HAVE A FUTURE? Does real estate appraisal have a future?  This question comes in to me all the time.  And it's important! We've invested a lot of time and money to become appraisers.  Did we waste all that?  There are some who say yes to that question.  Generally, they point out the changes that are coming to real estate appraisal (or have come).  Then they point out the sacrifices to keep up with these changes are just too big.  Those changes are coming at us just too fast.  The learning curve is just too long.  These appraisers should transition out of the business So, does real estate appraisal have a future?  Of course it does.  It will be different than it is now, though.  Because UAD 3.6 demands greater reporting, it also demands more thorough appraisals.  More attention to details.  Less boilerplate.  Fewer unsupported assumptions about adjustments, market trends, and effective age.  Yet the professional education and training behind those demands will make those who stay in the business better appraisers.  How is that a bad thing?  It is also likely appraisers will need to make some transitions.  This means transitions to commercial work, non-lender work, court work, divorce work, tax appeal work, etc. Yes, all things considered, real estate appraisal has a future.  But the hallmark of that future is one of change.  Is what you read on the appraiser-oriented websites, etc. accurate?  If it is, then within 24-months of this podcast, there likely will be fifteen percent fewer appraisers than there are now.  There likely will be fewer folks getting into the business.  And those who stay are likely to be better trained.  Why?  Because the cookie-cutter house in the cookie-cutter subdivision will be an assignment of the past.  Make sure you have proper E&O insurance and proper legal counsel.  Those requirements will not change.

USPAP, Verification, and Bernoulli's Fallacy.  That's a mouthful!  What does it mean?  I'm assuming  you've heard of USPAP.  Verification is an important component of USPAP's SR1-4 (learn it, love it, use it).  But it is likely Bernoulli's Fallacy is something you don't know about.  Yet.  You will, though.  It is going to become really important in residential real estate appraisal, especially when UAD3.6 takes effect in November of 2026.  Read on to learn why. Really USPAP, verification and Bernoulli's Fallacy go together.  USPAP's Standards Rule 1-4 requires us appraisers to "...collect, verify, and analyze all information necessary for credible assignment results."  As with a lot of USPAP, this is not overly clear (hello, ASB!).  Bernoulli's Fallacy says, in so many words, in statistical inference, people often wrongly assume that a single event, or a small number of observations, directly reveals the underlying probability of a process.  We see this all the time from clients.  Most houses in a subdivision sell for between $300K and $350K.  Yet the one with the premium view and the kitchen upgrades that sold for $393K gets all their attention.  If the subject is your basic house in the neighborhood, then its value is somewhere between $300K and $350K, that one outlier notwithstanding.  One outlier's price does not predict market value, despite what the client demands. USPAP, verification, and Bernoulli's Fallacy are a package deal.  USPAP demands verification and we avoid Bernoulli's Fallacy by being very skeptical about the predictive value of one or two outliers.  This will become even more important as UAD3.6 kicks in and appraisers will need to write more in their appraisal reports.  Are you preparing for that? Questions?  Contact me at tim@theappraisersadvocate.com.   Need legal help or information on E&O insurance.  I can help you with those, too.

Having trouble choosing comps? Tim Andersen, the Appraiser's Advocate explains one possible model in this podcast.

USPAP does not specifically use the term, "...from your workfile..."   However, you'll find your state appraisal board does.  In fact, you'll find the board uses this phrase a lost.  Given that, let's spend some time on what the phrase means how we appraisers must comply with it. "From your workfile" means just that.  Under USPAP's Standard 1, the appraiser has the ethical obligation to have enough materials, data, analyses, and so forth to support everything.  In this instance, everything means every conclusion, statement of fact, opinion, etc.  A lot of appraisers ask why this is necessary.  To support everything from the data, analyses, and information in the workfile means the appraiser acted objectively.  Each opinion, conclusion, and so forth merits objective, market-based support.  If the market does not support a conclusion, if there is even a hint of subjectivity in a highest and best use or value opinion, then its credibility is fatally flawed. What about phone messages?  How is it possible to get those from the workfile!  Simple.  When you verify a sale, take notes on that call.  Who?  What? Where? When? Why?  How?  When you have the answers to those questions, you are home free.  Brokers won't return your phone calls?  Then send an email with this statement, "I know you are busy.  So, if you do not respond to this email, I'll assume the facts of this transaction are as you noted them in the MLS."  Then, make sure your workfile has a copy of the deed, mortgage, survey or plat, zoning classification and code, and everything else the County/Parish has on the subject.  This supports your objectivity. And remember, make sure you have great E&O insurance on your side, as well as a great attorney.

USPAP doesn't mention time adjustments.  They are not useless or unnecessary.  Measuring and analyzing changes in market conditions are critical and fundamental to real estate appraisal. Indeed, they are the foundation of an accurate opinion of value. This is simply because such a value conclusion has as its base a specific date in time.  This is the effective date of appraisal. So, from within the neighborhood boundaries appraisers delineate at the beginning of the appraisal report, they must analyze sufficient sales data. To do what?   To determine if there have been any changes in market conditions over the passage of time. Typically, this time starts when the comparable goes under contract.  Then it ends on the effective date of the appraisal. Has the market has measurably changed over that period?  That change means the appraiser should market-adjust the comps up- or downward, as the market demands. Again, USPAP doesn't mention time adjustments.  But this raises the question of which time period should the appraiser measure? As you'll understand from the podcast, the GSEs assume the appraiser will measure the subject's relevant market(s) over at least twelve (12) months.  There is no black-and-white answer to the question, “How far back should I go for time adjustment data?” 12-months is a minimum, however. Since USPAP doesn't mention time adjustments, assume a twelve percent (12%) net increase over that one (-1-) year period.  Assume prices increased twelve percent (12%) from January to August but went flat as of September 1st.  If a comp went under contract September 14th, closed escrow November 27th, and the effective date of your appraisal is December 23rd, your time adjustment would be zero (-0-). The market went flat three (-3-) months ago. This is, therefore, the difference between the annual change per year and any current market trends.

A hill to die on.  That sounds way too serious for a real estate appraisal podcast, right?  These are supposed to be about USPAP, and education, and more practical stuff.  But I've been studying on this topic for some time.  Frankly, what AMCs do (or don't do) does not bother me as much as it does some appraisers.  Those appraisers complain that AMCs do not distinguish between their gross fees and the proration of that fee that goes to the appraiser.  That's true.  But when you buy a car, the dealer does not make transparent the contributory cost of the spark plugs and drive shaft, either. And the fees the AMCs pay are not, in my opinion, a hill to die on, at least not right now.  That time is coming - soon.  So, unless the AMC withholds some pertinent information from the appraiser, or somehow misrepresents the situation, then the appraiser sets the fee by accepting it.  But there is a hill to die on when it comes to AMCs.  And that hill is USPAP, of which all AMCs, you'd think, would be aware.  But while the GSEs are pushing appraisal waivers, it also seems AMCs are stressing appraisers to accept lower fees for the same quantity of work, all to sustain the AMCs' fee structure.  Remember, the AMC can ask the appraiser anything it wants to ask.  If, however, that request includes a knowledgeable request to violate USPAP, then it is time the appraiser should fire that AMC and get a new client. Today, right now, get out of AMC work and into private work.  I'll be happy to consult with you on that.  And make sure your E&O insurance is as relevant as possible.  It will help to have expert legal counsel in your phone's directory, too!

Compliance with USPAP can be a major pain! But, really, we have not choice.

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.

There are two steps to the adjustment process. First is to ascertain the market recognizes any specific adjustment. Then, measure the market to determine the quantity of the adjustment.

When  you think of USPAP and the State Board, chills run up and down your spine, right?

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!  

WOW!  "USPAP, Sasquatch, NAR, and Comparable Sales" is one helluva name for a podcast!  That's true, thank  you.  But given that the ramifications of the Sitzer-Burnett are obvious but still unknown, invoked Sasquatch.  And the fact cash equivalency adjustments to comparable sales may become more prevalent than in times past brought all of those concepts together into one big, yet unanswered question.  And that's the real conundrum.  We don't know yet what is going to happen. Not only that, but in "USPAP, Sasquatch, NAR, Comparable Sales" I ask a truckload of questions, but provide only a teaspoon of answers.  Why?  Because it is possible (not certain, merely possible) that with all of the class action suits still pending against NAR relative to price fixing, then NAR is going to be in financial hot water despite its 1.5-million members. Since this podcast is one for appraisers, not (buyer's) brokers, we appraisers need to be aware of how Sitzer-Burnett will affect us.  And, like Sasquatch, we know the affect is there, but we just can't yet prove what those affects are.  How will this decision affect us?  If NAR's structure changes, will the big brokers have their own in-house MLS systems?  If so, will they be compatible across platforms?  How many will appraisers have to join to have proper amounts of data?  Appraisers depend on brokers for data.  Will there be fewer brokers in the future?  Fewer deals?  If the buyer pays their broker how, if at all, does that impact the sales price from a cash equivalency standpoint?  Why?  So may questions still, yet so few answers! So, sit back, listen, think critically, and enjoy!  And click the link above to the Sasquatch film.  Something is there, we just don't know what it is yet.

USPAP, analysis, and synthesis are terms we do not hear all that often.  That's a shame, too.  This is because, according to USPAP, a credible appraisal and a non-misleading report are the results of analysis and synthesis.  Yes, Standard One is the appraisal development standard.  And Standard Two is the appraisal reporting standard.  But we know this, so what is so special about analysis and synthesis? Under USPAP, analysis and synthesis are necessary opposites. To analyze means to deconstruct something, or to take something apart.  On the other hand, to synthesize means to (re)assemble something - ideally into something new, or that which did not exist before that synthesis created it. Appraisers analyze markets by taking them apart.  They analyze subject properties by taking them apart (usually via the cost approach.  This is why there should always be a cost approach for a single-family residence appraisal.  We take markets apart to be able to understand them, then use that understanding to predict trends.  We take comparable sales apart to understand, via the Principle of Substitution, which components of market value apply to the subject.  Finally, we take the subject apart to conclude which components the market demands and which it does not.  These latter components are those that are super adequate and functionally obsolete. But that which appraisers have taken apart, appraisers must assemble.  This assemblage is also called synthesis.  But appraisers do not merely reassemble the parts.  Rather, they assemble the parts into something new, something that did not exist before.  From what they took apart, they synthesize to arrive at a market value opinion.  The opinion was nowhere to be found since it did not exist until the appraiser formed it in his/her head. So, USPAP, analysis, and synthesis are the appraisal process.  It's just that appraisers typically do not look at that process in that way.

Give you clients a peek into the future, as well as show your competence!

Relevant adjustments come from the subject's micro-market, not the AMC, not the box-checking reviewer, and not the lender

USPAP and Certainty is a tough topic since USPAP is not aways clear. But there are certainties in appraisal, too, some of which we address here.

When it comes to USPAP and a verification model, where is that model?  USPAP makes it clear we have to verify the sales data, etc.  But USPAP is strangely silent on what to verify means.  It is equally mute on how to accomplish the verification it demands.  So, is there a reason for this lack of communication on USPAP's part?  Or, is there some method to the ASB's madness?  To both questions, the answer is "YES". When USPAP does not define a term, it is because it sees no reason to do so.  So, as we look at USPAP and a verification model, USPAP (the ASB really) concludes the standard definitions out there of verification, to verify, etc. suffice.  They are sufficiently applicable to appraisal to define the terms, too, in an appraisal context.  And the reason behind the ASB's madness?  Since, by definition, appraisers must be "...independent, impartial, and objective...", this lack of a formal verification model allows (forces?) appraisers to conclude their own model(s).  Since we are professionals, is this not the way it is supposed to be? USPAP and a verification model?  In reality, the verification model we have is the Fannie Mae and Freddie Mac default definition of Market Value.  True, that definition has a lot of moving parts.  But each part is a question to ask.  To ask of whom?  We ask the buyer, seller, broker, builder, etc. those questions.  And the more people we verify with, the more answers we get. And the more answers we get, the closer we get to the truth of the transaction.  So, what is the truth of the transaction?  Simple.  Was the sale arm's-length?  If the answer is no, we can confidently eliminate it.  That's something we appraisers can take all the way to the bank!

Did you know your GSE appraisal and report are not about market value? They are about risk analysis!

The more you learn about the use of an EXTRAORDINARY ASSUMPTION, the more you realize it is a power tool in the formation of a credible value opinion.

To have a podcast on The Cost Approach and USPAP.  How exciting (not)!  You're right.  This is not exactly the conversation you'll have when you get together with friends.  Even if those friends are other appraisers!  But the point is the cost approach is an untapped resource.  It is the sunshine to which appraisers typically do not expose their analytics.  This is a shame, really, since this approach can tell us so much about the quality of our analytics via the other approaches.  How so? We all know that in older neighborhoods, there are likely to be few vacant site sales.  This is where we appraisers can put the cost approach and USPAP to good use.  This absence of data makes adjusting for site differences such as size, view, access, shape, etc. difficult to extract from the market. But you can use improved sales data to extract comparable site values.  That takes a little practice and training, true, but once you master that protocol, life as an appraiser becomes easier.  And, reports go out the door a little faster.  Who doesn't want to produce more reports, thus greater cash-flow, right? And what are the advantages to appraisers who understand the cost approach and USPAP?  More than you think, frankly!  But the eye-opener is that as we come to understand the cost approach, then begin to use it properly, our clients are less motivated to hire AVMs and BPOs.  Therefore, they are more prone to hire us, since we provide services and insights that the other tools simply cannot.  So mastering the cost approach should not be a chore.  Instead, let's look at it as the opportunity to become even more indispensable.  Let's seize the opportunity to become even more professional than we are today!    

Yes, it is going to happen. You'll get that letter from the state. So, be prepared!

USPAP, Cows, and Competence?! That does that mean?!

USPAP and Questions to Tim was the only title I could invent for this podcast.  After all, there is not one theme here.  Rather this podcast consists of questions that have come in to me in the past from regulators, students, and boots-on-the-ground appraisers.  Every so often, I'll work on answering them.  Most of the questions are polite, thoughtful, even respectful.  Some of them are...otherwise.  That's OK.  I welcome them all.  After all, if I've made you mad enough to correspond with me, I've made you mad enough to think critically, which is the purpose of my professional existence (well, that and make a good living, thank you). USPAP and Questions to Tim is a theme I've thought about for a long time.  I do a lot of teaching and some of these questions come up in classes, especially in USPAP classes.  In this podcast, I talk about education.  Remember education takes place not only in classrooms.  There are numerous real estate appraisal conferences each year.  The appraiser who wants to stay up-to-date, the appraiser who cares about servicing clients well, the appraiser who wants to stay in the business, attends at least one of these each year.  This is where the real education goes on since at these conferences you get to converse one-on-one with the movers and shakers of real estate appraisal. Thanks for asking the questions!  And thanks for listening to the answers!

If you are not marketing your appraisal services, why are you selling yourself short?

"USPAP and That Does Not Solve the Problem" is a strange title for a podcast right?  But it has a purpose.  In a past podcast, I showed a list of what you were not supposed to say to your state appraisal board.  Clearly, not a lot of appraisers paid attention to this.  How do I know?  Because the dumb stuff real estate appraisers still say to their state boards keeps coming into me.  You ask for an example?  Unfortunately, there are too many of them.  And, once you hear some of these responses, you'll agree with me that they are dumb. So, this title, "USPAP and That Does Not Solve the Problem", applies to appraisers' responses to state boards.  Now, at this point, let me make clear how incredibly stupid a typical response is.  Typically, the state sends you a letter (or an email) letting you know a complaint has come in.  In that communication the state asks for your cooperation, a copy of the appraisal, a copy of the workfile, and whatever else it wants to ask for.  It is a stupid response, and one that is altogether too typical, to ignore the letter.  Upon reading the letter, the appraiser's response is something verbal such as, "This is bullshit!", then something physical such as running the letter through the shredder, or simply deleting the email.  These actions indeed solve the problem.  But only temporarily.  And the problem that replaces this so-called solution is exponentially worse than the original problem. Worse?  Yes, state appraisal boards tend to revoke the credentials of those appraisers who deign to defy them.  So, the title, "USPAP and That Does Not Solve the Problem" is an open invitation to comply with your state board's request to solve the problem.  What's so hard about that?  

USPAP and Cash Equivalency?  No!  Surely, with all the mechanics of an appraisal there are to worry about, now there is another one!?  Say it ain't so!  It would be nice simply to ignore cash equivalency (since, after all, there is math involved).  But the definition of Market Value dictates otherwise.  USPAP dictates otherwise [see SR1-2(c)(i-iv)].  The GSE's sales guides, etc. dictate otherwise.  It's true - we can't escape cash equivalency.  So, we might as well get used to it, get used to understanding it, and get comfortable with calculating it.  We don't have much of a choice if we want the Public to trust us appraisers.  We do want the Public to trust us, right? At its essence, the concept of USPAP and cash equivalency comes down to a simple statement.  Any property's cash equivalent price is what it would have sold for if the buyer paid all cash (no mortgage) at the closing table, the seller took all cash, and they each paid their own closing costs.  True, the math behind that can be a bit intimidating.  However, it is also possible to pick up the phone, call a party to the transaction, and ask if the sales price was cash equivalent.  No math involved in that one.  True, you will probably have to explain what cash equivalency is, which means you must understand it to explain it.  And, true, that party could lie to you and tell you what you want to hear.  But the point is, you will have verified cash equivalency with a party to the transaction, which is all you can do. So, yes, the concept of USPAP and cash equivalency is one we appraisers must deal with.  But, as we do, we give our clients a true picture of the market.  That's our job, right?

USPAP and the investigator's questions is a topic we've covered before.  But investigators still keep asking questions.  So it makes sense to be aware of them, as well as how to answer them.  That raises the question, "How do I answer the investigator's questions?".  There is a two-part answer:  part one is "from the data in your workfile".  Part two is "and those data in your workfile  must have market support".  Remember, if you can't find it in the market, why is it in your appraisal?  If you can't find it in your workfile (which is your appraisal), why is it in your report?  Note there are classes to help you with this. To use the term "USPAP and The Investigator's Questions" implies USPAP is the source of the investigator's questions.  That's because USPAP is that source.  So are the state's appraisal statutes.  But most of the questions are from USPAP.  Why?  Simply because USPAP is the standard.  Does your appraisal meet Standard Rule 1?  Does you appraisal report meet Standard Rule 2?  If so, you are good to go.  If not, there are ramifications to consider. Here is but one example of USPAP and the investigator's questions.  "From only the data in your workfile, please demonstrate the derivation of your GLA adjustment of X-dollars per square foot."  As far as the investigator's questions go, this one is simple and straightforward.  However, the issue is that, all too often, this derivation is not in the workfile.  That adjustment is, instead, the result of rules-of-thumb and the appraiser's "...twenty years of experience...".  Since the dollar amount of the GLA adjustment is one the market indicates, it is a fact, not an opinion.  USPAP's SR2-3 makes it clear the appraiser certifies this dollar amount is both "...true and correct...".  This means verification.  And how can an appraiser certify something is true and correct if there is no verification in the workfile of that fact?

USPAP and the last time?  What does that mean?  When you listen to the podcast you'll find out. USPAP and the last time asks a series of questions.  These ask you about the last time you considered an appraisal concept or idea.  This is important simply because appraisals have too many moving parts.  It is way too easy to get caught in the details and the mechanics of an appraisal and appraisal report.  When we get caught that way, we lose sight of what an appraisal really is.  An appraisal is really nothing more than a simple answer to a client's appraisal question, "What's my property worth?".  But it is common to lose sight of this simplicity when we have to worry about USPAP's requirements, the GSE's differing appraisal and reporting requirements, and what a state  investigator may think.  That's a lot to worry about. So, in this podcast, USPAP and the last time, we take a look at some questions we might never otherwise consider.  For example, "When was the last time you took a CE class for the sheer joy of learning, not just for getting CE credit?".  Or, "What does including a sale on the adjustment grid say about that property's highest and best use?".  In our rush to meet deadlines, it is too easy to forget what an appraisal is.  It is too easy to forget what an appraisal is supposed to communicate, too.  That is the purpose of this podcast:  to help you focus on the appraisal and what it communicates.  Again, it is too easy to get lost in the details. So, when was the last time you took a look at your boilerplate to determine if it was outdated or, even worse, wrong?

USPAP and adjustments.  Are they facts or just your opinion?  USPAP does not use the word adjust or adjustments in Standard One, the appraisal development standard, nor Standard Two, the appraisal reporting standard.  Further, USPAP does not require appraisers to make them to anything at any time.   They are a function of what the GSE's want from an appraisal report. So, when it comes to USPAP and adjustments, are those adjustments facts or just opinions?  There are appraisers who advocate they are opinions.  Why?  Because there are no standard protocols to derive an adjustment.  There are numerous ways to derive individual adjustments.  Because of this lack of standardization, so long as there is market support for the adjustment you make, it is just your opinion, right? Market support?  USPAP and adjustments means you have market support for them.  Since there is such support, that means you extracted them from the market.  Given that the market revealed to you that swimming pool adjustment, that is a market-derived fact, not your opinion.  Any facts we report must, according to SR2-3, be both true and correct.  This requires verification.  We verify facts.  We confirm opinions. So, with USPAP and adjustments, are they facts or opinions?  There are classes you can take to help you answer this question.  There are USPAP instructors out there you can contact who will help you navigate your way to an answer to this question.  But the point is (and any state appraisal board member will tell you this) be adjustments facts or opinions, they must have market support.  Without that support, they are nothing more than guesses. So, gather your data, do your due diligence, and make your decision.  In the end, when it comes to USPAP and adjustments, I think you'll agree with me:  there are facts to be found.

When the client demands something of you, do you comply? Why?

Does USPAP demand precision?  This is a question few appraisers have raised, so there is no specific answer to it. USPAP itself uses the word precision just once, in AO-23, but in the context of a discounted cash flow analysis.  It uses precise only four times.  But only one of those is in Standard 1.  None of them is in Standard 2.  And its use in Standard 1 is in the context of a precise definition of value.  USPAP does not use the term in the context of the value opinion itself. But, does USPAP demand precision anywhere in Standard 2 (the report writing standard), in any context?  Directly, no it does not.  However, SR2-1 demands the appraisal report be clear and accurate so that it is not misleading.  That same SR also makes it clear the client and the intended user(s) must be able to "...understand the [appraisal] report properly..." no matter the reporting format.  So, in an off-handed manner, USPAP does demand precision, although that call could be clearer and more emphatic. So, the question, "Does USPAP Demand Precision?" raises another question:  "What is precise?", which this podcast's purpose is to illustrate with a series of questions.    For example, in twenty (-20-) words or less, answer this question:  "In the final reconciliation, why did sale-X deserve more weight than sale-Y?"  Here is another one:  "In twenty (-20-) words or less, explain why appraisers develop value opinions, rather than provide estimates of value".   There are so many more. "Does USPAP Demand Precision?" may be too emphatic.    Perhaps a more applicable question is, "Does USPAP Encourage Precision?"  Given what Standard 2 says about not misleading the client, about writing the report so it is easy to understand, it looks as if the answer is in the affirmative.  So, why is it that we appraisers should write precisely?  (In the podcast, I mention Einstein's E=MC-squared formula.  Here is an explanatory link).

When residential real estate appraisers transform their appraisals and appraisal reports into a combination the public believes, then the public will have reason to trust us, what we do, why we do it, and how we do it.

Real Estate Appraisers write for a living, and writing in communication. So, do we real estate appraisers communicate clearly?

To answer those USPAP and Whatever questions usually means going to USPAP to get an answer.  Really, where else would you go?  USPAP is not a difficult document to read.  What affects us appraisers directly is really in the first twenty-four pages.  So, in practicality, the document is not all that long.  Its brevity is both a strength and a weakness.  Its strength is that it does not get bogged down in the minutiae of telling appraisers how to practice real estate appraisal.  What's its weakness?  Since it has no practical solutions, it can leave appraisers in the dark about what to do and how to do it.  But, if you think about it, that's really a strength. How is it a strength not to give practical solutions to answer those USPAP and whatever questions?  That strength is in the fact that USPAP's restraint makes the appraiser look to USPAP for guidance.  Then, with USPAP's guidance in mind, the appraiser comes up with her own solution to the problem.  In part, this is what USPAP means by independent, impartial, and objective.  Is an appraiser independent if she has to depend on outside influences to answer her every appraisal question? To answer those USPAP and whatever questions independently, etc. calls for the appraiser to take a number of steps.  First is to understand where (if at all) the USPAP document covers this topic.  Here's a secret:  If the USPAP document does not mention something, even in passing, is it all that important?  Here's an example:  USPAP does not require the appraiser to measure the subject.  Given this indifference, it is safe to assume it does not care about the standard of measurement you use.  You can't mislead the client.  But other than that, USPAP says nothing. Therefore, to answer those USPAP questions is, in the main, your call.  

In a real estate appraisal, bracketing serves the appraiser well. Unfortunately, our friends the AMCs and lenders don't know how to use bracketing, so what they ask of us is generally wrong.

USPAP and breathing dust should conjure up leaders breathing fresh air, while the followers breathe the leader's dust.  So far, we appraisers have chosen to follow when it comes to what the AMCs and lending industry mistakenly call "appraisal modernization".   Without question, real estate needs to come into the 21st century.  But why did appraisers choose not to lead this assault on their own mediocrity?  Leaders breathe the fresh air.  Followers breathe their dust.  But we can change this situation!  We can take the lead!  This usurpation of the lead is not a matter of capacity.  It is a matter of will!  In a past podcast I spoke of growing a pair.  Will we?  When? USPAP and breathing dust foreshadows that appraisers do not like or want that subservient position.  So, how will we reverse it?  Education is one key.  This means taking challenging, critical thought-provoking classes.   It will require us to expand our professional horizons.  This will mean taking classes in the scientific method of inquiry, regression analysis, artificial intelligence, adjustment techniques, and other appraisal-specific topics.  It might even mean taking university-level classes on logic, reasoning, persuasive writing, public speaking, and time management. USPAP and breathing dust raises the issue of using artificial intelligence as part of any real estate appraisal and the analytics behind a credible, unbiased opinion of value.  If we don't lead in that area, we will surely breathe the dust of those who choose to make that sacrifice.  So, are we going to enter the future breathing the pure air of leadership, or the choking dust of subservience?

You think everything you need for a credible appraisal and non-misleading appraisal report are already in that report, right? Well, after this podcast, maybe you'll have your eyes opened!

Get out of your appraisal silo and grow a pair! A new pair of skill sets! A pair if new books of business! A new pair of clients! Whatever! But get out of your GSE mindset and grow a pair!

Appraisers, change is inevitable. Are we going to adapt to that change or, for are own benefit, are we going to demand the status quota continue? If we are not keeping up, we are getting left behind!

Appraisers must stand up and stand tall to stand out!

USPAP and What's Omitted?  What does that mean?  Really, we mean what's omitted from your appraisal and report.  It is true, you should omit very little from the appraisal, as well as from the report.  Why?  A sale is not a comparable sale unless it has the same highest and best use as the subject.  So, appraisers cannot omit those analyses.  How about neighborhood analysis? Fannie Mae wants answers to thirty-six questions about the neighborhood.  There is nothing about the neighborhood the appraiser can omit from the appraisal or the report.  USPAP's SR1-6 calls for a complete reconciliation.  So, no, the appraiser cannot omit that, either.  Then, just what can the appraiser omit? USPAP and What's Omitted refers to unnecessary stuff.  What is unnecessary stuff in a real estate appraisal and report? You can probably omit the analyses of the Income Approach if you're appraising your basic cookie-cutter house (although not always).  Most assuredly, you do not need a level-C or -D market analysis to appraise credible a single family residence. According to USPAP, you can omit pictures, too, since there is nothing in that document calling for them to be part of the appraisal or the report.  So, yes, there is stuff you can reliably omit from your typical GSE appraisal.  But let's also talk about omitting the really necessary stuff. Read your report carefully, please.  USPAP and What's Omitted refers to stuff you should not omit from the appraisal or the report.  When you listen to this podcast, pay attention to what the State of Alabama did.  This appraiser chose to omit from the report a summary for the analyses and market support behind all the adjustments.  Omission of these analyses and rendered the appraisal not credible and the report misleading.  To omit something this simple violated USPAP.

Really! It's OK to use the pending purchase and sale contract as a comparable on the sales comparison approach grid.