Posted by Jonathan J. Miller -Friday, January 28, 2011, 11:27 AM
4 Comments
Guest Columnist:
Joe Palumbo, SRA
Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is currently the Director of Valuation at Weichert Relocation Resources and a user of appraisal services. He spent seven years at Washington Mutual Bank where he was a First Vice President. Mr. Palumbo holds an SRA designation, is AQB certified and he is a State Certified residential appraiser licensed in New Jersey. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his interview on The Housing Helix.
-Jonathan Miller
USPAP {Un}common Sense
It’s hard to believe that I am now reading the 4th exposure draft issued by the Appraisal Standards Board of the Appraisal Foundation on December 10, 2010. It seems like only last week when we all clamored about the 2010-2011 changes to USPAP, most notably, the changes to the Ethics Rule and the disclosure of prior services performed on a property. I leave that to rest for now since we have had plenty of time to debate the impact on the appraisal community and benefit to the public, which is the major impedes for all USPAP changes. There were certainly many lively debates that took place on the topic in and out of classrooms all over the country.
As we move on to 2011 and look ahead I want to present some perspective of the entire USPAP concept, brought to light interestingly enough, by a non-licensed appraiser- student in a 15-hour USPAP class that I had presented in November. Actually this person has very little practical experience to speak of but like many of the newcomers in the industry today she is taking all the courses in succession. This approach, while not the best approach to say the least, is what is happening these days, like it or not. The just-add-water=career concept has invaded the appraisal profession. Years ago it was the practical experience you gained first or in conjunction with the course work. Licensing has a lot to do with the “fast-track” mentality. Whatever the case or the disposition of the students, I usually give the 15-hour USPAP class the speech about how “difficult or different” the 15-hour USPAP course is say versus a Capitalization or Appraisal Principles class. Numbers and definitions are one thing, ethical concepts and interpretations are another. In a math class there can only be one answer, in a class of terms and principles, they are usually straight forward. Even so, there are several areas of USPAP that can be seen as common sense. This discovery was not mine alone but it was made by “Student X” during our 15 hours together.
Here are a few of “Student X’s discoveries. While discussing the merits of the Competency Rule, “Student X” asked, “Are there appraisers out there who take on assignments without knowing how to do an appraisal?” It seems to me like one should be confident in his or her ability or don’t do the appraisal”. “Isn’t this common sense?” “Right!” some of the students quipped, “problem is they think they are competent but their work indicates something else”. One of my favorites occurred during our discussion of Standard Rule 1-5 both “a” and “b”. This Standard requires the appraiser to “analyze” both the current agreement of sale and the prior sales that have occurred in within 3 years. When I gave examples of “shortcomings” I noted that some appraisers don’t indicate what efforts they made in the normal course of business to obtain a sales contract let alone provide a “dissection or breakdown” of the agreement. We talked also talked about the details of the current listing information sometimes missing. Student X responded about this being a “no-brainer”. Her comment was something like, “I would think the details of the contract, what the listing says would be very important in determining possible fraud, what may be included in the sale, or even just trying to piece the transaction together”. Student X went on about the 3-year prior sale, “geez aren’t most users going to ask about it anyway?”. “Just stating what it sold for does not seem like a big help either”, “a lot of this stuff seems to be common sense”. BINGO I cheered….and these types of dialogues went on a few other occasions over the 2-day class. During an extended discussion regarding Advisory Opinion 22 the concept of advocacy came up. Given Student X’s keen and consistent application of what seems logical I shouldn’t have been surprised to hear her take on advocacy relative to example of the lawyer who provides litigation support services (page A-71 line 272). His comment paraphrased was, “ I would imagine that if one were to gravitate toward advocating a client’s cause that would clash with the independence, impartiality and objectivity required when performing as an appraiser”. “Yes correct” I replied, “you cannot perform both roles at the same time, you must pick one”.
After Day 2 of the class there was an exam. As the room started to empty I noticed Student X, clearing out her belongings and leaving. “Good luck in your new career” I said. “How do you think you did?” I asked? She replied, “Ok I guess, I believe I answered most of them correctly except a few. On those that I was not sure of I just used some common sense”.
Policy prohibits me from revealing if Student X passed the exam. Regardless though, that’s not the point. Here is someone who has little practical experience in our industry. She took a few concepts that give some tenured appraisers a bit of trouble and she applied rational logic. Is all of USPAP that easy to get in its entirety? NO, definitely not. I don’t know what kind of appraiser Student X will be, but I like her approach using the “common sense approach” to problem solving.
In the words of Ben Franklin, “the problem with common sense is it is not so common”. Happy New Year.
Posted by Jonathan J. Miller -Wednesday, December 22, 2010, 9:49 AM
21 Comments
Guest Columnist:
Todd Huttunen
Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox
At first glance, to the uninitiated, his insights appear to the far right of wonkiness but in reality they apply to all real estate professionals so read carefully my friends. I’m glad to have his contributions on Matrix.
The Adjustment for One Full Bath Versus Two
December 21, 2010
When valuing a residential property, an appraiser is faced with completing a form, most of which is already populated with a series of “canned comments” that do not change from one report to the next. Where the rubber meets the road is on the sales comparison grid – this is where adjustments are made to the comparable sales in order to arrive at a value estimate for the subject. Most every unit of comparison for which an appraiser makes an adjustment involves some degree of subjectivity. From a property’s location and size, to its curb appeal, to whether or not it has a fireplace or a pool or a finished basement – all these attributes will affect different people differently – save one.
There is one thing – and only one thing – in a house that is used by everyone, multiple times, every day for a variety of vitally important functions. Although we take it for granted, life as we know it would not be possible without the bathroom. The motivation for this article was to try to discover, once and for all, the value difference between a house with only one full bathroom versus one with two. And the reason for this is that when it comes to houses in my area (Westchester County) the market has spoken clearly and unambiguously. A three bedroom house with fewer than two full bathrooms near those bedrooms is considered functionally obsolete in this regard. Whether or not the functional obsolescence is “curable” in every case is an open question. In my opinion, more often than not, it isn’t. Thankfully, we have the grid to help us reconcile differences between the subject and the comparable sales. Unfortunately, in the appraisals I’m seeing, the adjustments most appraisers are making (usually $10,000 to $15,000 per full bath) between houses with one or one-and-a-half bathrooms and those with two or two-and-a-half bathrooms are wholly inadequate. In an effort to find out the appropriate adjustment for one versus two full bathrooms, I did what appraisers have been trained to do. I looked to the market for the answer.
More after the jump…
Posted by Jonathan Miller -Tuesday, April 27, 2010, 8:39 PM
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Guest Columnist:
Todd Huttunen
Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox
Jonathan Miller
Seasonality Should be Considered in Comp Selection
April 26, 2010
The Westchester numbers for the first quarter just came out today. Even with the turbulence we’ve seen in the last couple of years, there remains a consistent trend in the median selling prices as relates to “seasonality”.
Not unlike Metro-North or Hamptons rentals, there is a “peak” and an “off peak”.
Whether the overall market is trending up or down, houses that close in the second or third quarters sell for considerably more than those that close in quarters four or one.
Appraisals done “in season” (assuming 60 days from contract to closing, these would be valuation dates in the six months between February 1 and July 31) should rely, if possible, on sales that closed in the second and third quarters, if not from the year of the appraisal then on the prior year. Conversely, appraisals made between August 1 and January 31, or “off season”, should focus on sales from quarters four and one.
Adjustments are required for the difference in market conditions between “in season” and “off season” for single family houses in the New York metropolitan area. What those adjustments should be can be fairly easily calculated by looking at the historical data for median prices. Remarkably, in Westchester at least, the differences are pretty consistent either in upward of downward trending markets.
Check out that serpentine line on the Median Price chart – just for fun, print it out and draw a line connecting only quarters two and three to each other over the years. Then do the same to quarters four and one and watch how quickly that serpentine line straightens out into two lines with much more of a consistent trend to them.
I really don’t understand why appraisers are so stuck on this idea that only sales taking place within six months of valuation date should be used. Six month old sales can be the most misleading ones of all, insofar as market conditions are concerned.
p.s. I know I addressed this issue in a prior post but it bears repeating since it seems almost no one is paying any attention.
Posted by Jonathan Miller -Tuesday, April 6, 2010, 7:39 AM
4 Comments
Guest Columnist:
Todd Huttunen
Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox
Jonathan Miller
In estimating the value of a house, appraisers are concerned with answering two fundamental questions.
1 – What is the value of the land, as vacant?
2 – What contribution, if any, does the existing improvement make to the underlying value of the land?
A recent study (pdf) conducted by the Lincoln Institute of Land Policy suggests that in the higher priced regions of the country, the land-to-value ratios range from 50% to 75%. In areas where “teardowns” are common, land values can actually exceed 100%, since the buyer looking to construct a new house has to add the cost of demolition to the price paid for the existing house before she can build the new one.
Although this is the reality in many parts of the New York metropolitan area, Boston, Southern California, and other regions, for a long time now banks and the appraisers who work for them have pretended otherwise. For some reason banks want to believe that the mortgages they make are on properties where the land represents between 25% and 35% of the market value and that the improvement represents the bulk of the value, 65% to 75%. Even as far back as 1985 when I started appraising and the land-to-value ratios were not as high as they are today, we were required to add a comment to our reports stating that “land values in excess of 30% of market value are common in this area,” whenever we estimated land value above that “magic number”.
Appraisers I’ve spoken to say the reason they estimate land values at say, 30 – 35% of overall value, irrespective of the fact that it may be much greater, is that they are under pressure from lenders and underwriters who won’t approve loans on properties whose land-to-value ratio is more than roughly one-third. Conventional wisdom says banks don’t want to make loans on land, so they instruct their appraisers to say the land is 30 – 35% of market value (the fact that it may really be 80 – 90% doesn’t seem to bother them, as long as the appraiser says otherwise). The reality however, based on this Land to Value Ratios study from the Lincoln Institute of Land Policy, is that in many of the country’s higher priced locations, it is the land which comprises 50% to 75% or more of the value of the property.
This is important for a couple of reasons, one of which is the fact that appraisal forms are geared toward the notion that most of the value is in the improvement, and not the land. The adjustment grid, wherein the appraiser compares the subject property to the comparable sales, gives short shrift to factors relating to the land value and focuses instead on the improvements such as square footage of the house, number of bedrooms and baths, condition, and on the amenities such as fireplaces, patios and pools. Most of the dollar adjustments appraisers make are for differences in the improvements and amenities. But if 75% of the value is in the land, then why are we bothering to make an adjustment for the fact that one property has a fireplace and the other does not? Shouldn’t the focus be on factors relating to the land instead? These would include site size, shape, views, elevations, topography, frontage, etc.
Appraisers have been subject to scrutiny in recent years, given their role in the mortgage lending process, and some have been implicated for their unethical participation in the sub-prime debacle. I believe most appraisers are ethical, professional, and serious about the work they do. But I do think it’s time to recognize reality when it comes to the allocation of value between land and improvements. If the land value represents 50% or 75% or 100% of the value of the property, as it does in many parts of the country, then appraisers have an obligation to their clients to say so in their reports. And if that means the appraisal form itself needs to be redesigned to reflect the market as it is now, and not as it was in 1930, so be it.
Editor’s note: I find it amazing how so few consumers realize that changes in value during a period like we just went through is in the land, not the building (improvements) – jjm.
Posted by Jonathan Miller -Saturday, February 13, 2010, 11:49 PM
3 Comments
Guest Columnist:
Joe Palumbo, SRA
Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller
The other day I observed a “Valuation Service†which looked and smelled like an appraisal. Problem is the appraiser did it by accident while labeling it an “Appraiser Price Opinionâ€.
Ethics: as stated in the “Ethics Rule of the 2010-2011 USPAP:â€
“An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics. An appraiser must comply with USPAP when obligated by law or regulation, or by agreement with the client or intended users. In addition to these requirements, an individual should comply any time that individual represents that he or she is performing the service as an appraiserâ€.
The “Appraiser Price Opinion†is labeled as a price opinion, which appraisers CAN DO as part of “appraisal practice†provided it is labeled properly and the appraiser does not mix the terminology use appraisal techniques and call them something else. The appraiser has not adhered to the Ethics Rule, specifically Conduct: See AO-21 page A-69 line 176. This AO demonstrates how the appraiser has ignored definitions that MUST be adhered to when completing “a service as part of appraisal practiceâ€. Those definitions ignored are: price, value and appraisal.
The reason appraisers have not done “price†in the past few 25 years is that they are not price experts, they are value experts.
The appraiser has indicated this product is a “A Price Opinion†yet: The report is labeled “Desktop Restricted Use Report†which is nomenclature reserved for the minimum written format for an “appraisal†(in part). On the certification page it states “This is a Summary Appraisal reportâ€; an appraisal cannot be both; it must be one or the other. The report seems to conform to a Restricted Use Appraisal report but is missing the important disclosure: (SR 2-2 ( c ) (i) which states “The content of a Restricted Use Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum….state a prominent use restriction that limits use of the report to the client and warns that the appraiser’s opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiser’s workfileâ€. Further, I have material knowledge it had two different intended users….a taboo for a Restricted Use Appraisal Report.
The rest of the issues;
- The form concludes “Value Opinion†and “transaction†is noted as: “Market Value†and it concludes a “Highest and Best Use, which is a term relative to a market value appraisal, not “a price opinionâ€. There is no proof source other than “because it conforms to zoning the highest and best use is as isâ€.
- The certification refers to “approaches to value†and states they are used “when appraising….â€
- The words value opinion appear three (3) times the word value appears six (6) times the words appraisal report appears three (3) times, and the word appraisal appears (1) once.
- Adjustments to the sales are made and explained in the narrative as if the report were an appraisal.
- The use is stated for a lending transaction: the use was not for lending but to determine value to list and sell the home.
- The Scope of Work mirrors the scope of a desktop appraisal and the scope contains a section stating the “the appraiser relied on data provided by a qualified professional surveyorâ€â€¦which would be considered significant professional assistance. The certification in the report states†A “qualified professional property surveyor†(AKA uncle Jim with his Canon powershot) not a real property appraiser) provided the appraiser with a “complete†description of the subject (including its improvement(s), site, and surrounding area) to assist in providing relevant geographic market data, conditions and insight. Other than this observational assistance, no significant real property appraisal assistance was provided to the person signing this certification. The Comment to SR 2-3 states “Comment: The names of individuals providing significant real property appraisal assistance who do not sign a certification must be stated in the certification. It is not required that the description of their assistance be contained in the certification, but disclosure of their assistance is required in accordance with Standards Rule 2-2(a), (b), or (c)(vii), as applicable. Is the word surveyor accurate?
The overall contradictions in this assignment lead one to believe that 1) the appraiser is not competent to complete a price opinion because they do not understand the difference between value and price (Competency is required for ALL VALUATION SERVICES) 2) the appraiser is not competent to complete an appraisal if they label the reporting format in two different ways AND fail to provide the appropriate disclosures on the Restricted Use Appraisal Report. This result confuses the user and harms the public.
I am all for finding ways to cut costs and streamline….I get it. I am also a realist and I understand the pressures the appraisers are under. Here is the thing: this appraiser ended up doing an “appraisal†like it or not at one third the cost of the “other kind†of appraisal they may do on a different day…..in effect creating a market and an expectation that the Holy Grail exists and at a much cheaper cost than we all thought.
I am dazed and confused as to why the world wants to reinvent the wheel (appraisal) in light of the recent economic crisis related to real estate. We have reduced scope appraisals on minimum written formats but we have to consider the uses of these types of services and educate those that seek cheaper, better, faster. I am more dazed and confused why an appraiser would take on this assignment and give away the store. Maybe it is a going out of business sale……………..
Posted by Jonathan Miller -Thursday, January 7, 2010, 11:21 PM
1 Comment
Guest Columnist:
Joe Palumbo, SRA
Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller
2010-2011 USPAP changes: the need for transparency: it’s for your protection.
Over the past 2 years the “new world†has warranted many changes in the development and reporting of a value opinion: clarity, specificity, accuracy….among other things.
In 2010-2011 add “enhanced transparency “. Like everything else in life that might seem painful at first, but is good in the end, this is the same premise here: “it’s for your own goodâ€.
Before we get to the “why†of this Ethics Rule change let’s take a summarize look at the other changes from the 2010-2011 issue of USPAP:Â
- Definition of “Signature
- Definition of “Jurisdictional Exception
- Definition of “Assignment
- The ETHICS RULE
- The COMPETENCY RULE
- The JURISDICTIONAL EXCEPTION RULE
- STANDARD 3, Appraisal Review, Development and Reporting
Definitions changes are usually the result of the need for additional clarity as a result of words being misused or misunderstood. In the real estate community, the use of words with presumed meaning, improper or not, is pervasive. Remember the Board only defines words that have different meaning than they do in the standard English dictionary.   The changes to the definitions in the 2010-2011 USPAP are straight forward:  the comment under the definition of “signature†was deleted and new language was relocated to the Ethics Rule, whereby the responsibility of managing one’s signature is discussed (even allowing someone else to sign for you). The definition of “assignment†was enhanced to specify that it means both the agreement to provide…… and the service itself.  “Jurisdictional Exception†was redefined to reflect that parts of USPAP may be voided when the law or regulation  precludes compliance rather than the law being seen as “contrary†to USPAP.  As such, the JER was re-written in a clear concise way including 4 specific exhortations required by the appraiser when invoking the JER. This “four-point requirement† forces one to not only know the law or regulation but cite then and then examine and report the specifics of what  part of USPAP that needs to be voided. The change to the JER is well done and makes what was a complicated issue, very clear and straight-forward.  The Competency  Rule was rewritten and divided into three sections: being competent, acquiring competency, and lacking competency.   Basically, Competency can be can still be obtained during and assignment, providing the PRIOR disclosure was made to the client as well as the written steps taken to become competent are contained  in the report.  Standard 3,  one of two standards that contain development AND reporting wrapped in one, was expanded and rewritten to meet the practical needs of current practices. Specifically Standard 3 was expanded to discuss the development and reporting where the reviewer is providing alternate value conclusions including the reporting requirements, including discussion of competence, diligence and scope of work.   Â
Last but not least, there is a change to the Ethics Rule (as written in the 2010-2011 USPAP) Â
If known prior to accepting an assignment, and/or if discovered at any time during the assignment,
 an appraiser must disclose to the client, and in the subsequent report certification:
any current or prospective interest in the subject property or parties involved; and
any services regarding the subject property performed by the appraiser within the three year period immediately preceding acceptance of the assignment, as an appraiser or in any other capacity.
Comment: Disclosing the fact that the appraiser has previously appraised the property is permitted
 except in the case when an appraiser has agreed with the client to keep the mere occurrence of a
 prior assignment confidential. If an appraiser has agreed with a client not to disclose that he or she
 has appraised a property, the appraiser must decline all subsequent assignments that fall within the
 three year period.
At first glance, this would seem overly intrusive and overkill. There are certainly arguments for and against it, like any changes. A change like this is best viewed in the context of today’s real estate world. A world in which fraud, bias and conflict of interest have become the “flavor of the dayâ€. And like any change there are always several questions. This time there were so many questions that the Board created and devoted an entire  Q & A to respond. This Q and A (April 2009) is also included in the 2010-2011 USPAP Student Manual…a first for the Foundation to include a Q & A in student material.   Rather than address those here, one would greatly benefit from the download of the Q &  A.   I feel it is best to dig a little deeper here. Note the careful wording by the board… “or in any capacityâ€â€¦which could mean…that you cleaned the windows…or cut the lawn or even painted the improvements.  While none of these things constitutes “valuationâ€, they do imply a relationship, or knowledge of the property….and indication that you knew “somethingâ€.  Question is how much and will there be another service down the road?  Sometimes the mere perception of a conflict or bias is enough to give one reason to doubt that the appraiser can be objective, independent and impartial.  Until 2010 year it was not a requirement to notify a potential client that the appraiser had a current or prospective interest in the property or parties involved, but it was a requirement  to indicate that in the certification AFTER the assignment was delivered. It seems that where there was no mechanism to ensure transparency and objectivity, there is no a sure definitive way to say to a potential client: “I have been involved with the property…in the following manner_______ and I feel I can be objective in solving the appraisal problem you seek a solution forâ€. “I just need you to know up front†. Of course this could lead those paranoid clients to engage another appraiser, but if not the appraiser will be on record should something strange arise in the future. Either way, this is the new world and disclosure like this is in-line with all the written disclaimers I see flying around in the appraisal world.    Â
So as you digest these changes and there are more ( we have just reviewed the major ones here)  think about all those things in life that you felt where, unfair, wrong or just plain nonsense. Think about how many of them later in life turned out to be for your own good. Â
Happy New (transparency) Year
Posted by Jonathan Miller -Tuesday, December 1, 2009, 1:13 AM
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For the past several years, John Cicero, my partner in our commercial appraisal venture Miller Cicero (hands down the best commercial appraisal firm in the NYC metro area), has been laboring in fits and starts to convey his views on commercial real estate valuation in the public domain.
Largely because Miller Cicero is humming on all cylinders…
At first John’s efforts were a regular column on my former Soapbox Blog called Commercial Grade which has been merged into a stand alone blog called, surprisingly, Commercial Grade. when he revamped the Miller Cicero corporate web site.
His latest is a post on commercial rent control. Check out the blog and check it often.
Posted by Jonathan J. Miller -Sunday, September 13, 2009, 8:39 PM
1 Comment
Guest Appraiser Columnist:
Joe Palumbo, SRA
Palumbo On USPAP is written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions here. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller
I received a call the other day from an appraiser who had recently completed an appraisal for my organization. The file had gone through “review†and there were no “hitchesâ€. The appraiser was calling only to ask me some questions about my “suggestions†regarding some of the redundant and unnecessary commentary in the report, including some technically incorrect labeling. He was very polite in seeking some guidance, and we chatted for 25 minutes or so. I said “if time is money, I think I can save you someâ€. He was eager to engage me in this discussion, probably because it had nothing to do with the appraisal he submitted but more because he said he was always looking to streamline the process to be more productive. He recognized my name from both working with us in the past as well as from an article I had written this year for an industry magazine so he was aware of the potential for me to quote USPAP which, of course, I will ONLY do if absolutely necessary. Anyway, I started to tell him about the aggregate changes that have taken place over the several years and some of the retired terms and concepts. His reply was “gee I get so bored in that USPAP class it is hard to absorb anythingâ€. “Yesâ€. I said, “I understandâ€. “ Imagine how difficult it is for me to present what has a reputation for being boringâ€. “too many changes†he said…â€I cannot keep upâ€. Again I said, “I understandâ€.
Imagine what I go through…. It’s mandatory for me to understand that stuff; being bored is not an option when you are a speaker or instructor â€. “Let me give you some tips†I said: “ USPAP changes every two years and those changes will always effective occur at the beginning (January) of the third yearâ€. “The reason for the changes are because appraisers and users of appraisal services ask questions, raise new issues, revisit old issues under new circumstances or because the Standards Board observes something as not applicable, no longer meaningful or something new as pertinent and topicalâ€. USPAP is a working document an evolutionary doctrine that will change with the needs of the business. All you need to do is pick up a few past issues and look inside. Hindsight will really be 20/20 because looking backwards will reveal what was needed most of the time. Along the way the ASB will provide public exposure drafts (with specific rationale) and obtain public comment. Once changes are decided the summary of changes will be made available a few months prior to implementation and when the new edition is published there are a few pages dedicated to what the changes are. Other professions have to deal with similar issues as it relates to CE, changes in laws or regulations. While too much change can be cited as confusing and time consuming it is arguable that not changing at all can be considered detrimental. One cannot argue that today’s issues are different than those from five or ten years ago. Change is a scary word for most people and that is part of the challenge.
Let’s be fair here, being bored in the classroom is not exclusive to USPAP. I took some pretty boring classes myself during the past 43 years: college courses, appraisal courses, on-line courses. “Boring†can also be an instructor attribute and one can suffer through some tough classes even if the material commends excitement. I remember my Economics class at the University of Maryland… 8 AM or something…with 100 or so students. Boring stuff for an 18 year old but I had a great animated instructor who did his best to make the supply curve interesting. I am glad he did because despite my boredom, I did learn something…and I did not have to sit in the front row and take 10 pages of notes each class. I also had history teacher in high school, who despite being boring herself, DID manage to successfully explain the nuts and bolts of the Confederacy. What’s not boring? It really boils down what you absorb and IF you want to pay attention. In today’s world we go to the movies with IPODS in our ears and we text while we watch. I see the same in classes: newspapers, laptops and magazines. It seems as if we set ourselves up for minimum absorption capabilities.
Getting back to my appraiser friend from the other day. He was very appreciative that we were able to trim his “canned†addendum from 2.5 pages to 1 page. We eliminated terms from his report that are no longer considered up to date or not accurate (limited appraisal, Departure Provision/Rule) and crafted an appropriate “2009†type reconciliation. “WOWâ€, “I guess really need to pay a little attention because I missed all this stuff! “Yesâ€, I said “but imagine what you could absorb if you wanted to.”
Posted by Jonathan J. Miller -Tuesday, July 28, 2009, 12:16 AM
3 Comments
Guest Appraiser Columnist:
Joe Palumbo, SRA
Palumbo On USPAP is written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions here. View his earlier handiwork on Soapbox and his published article in the Employee Relocation Council’s Mobility Magazine.
…Jonathan Miller
There are many debatable topics in the appraisal world and within USPAP. There is one that is not really a USPAP issue but an issue of law….though it does draw some parallels in that some “interpret†things differently. To me there is only one correct interpretation which boils down to common sense. This time around I thought I would step outside of USPAP issue and a practical specific relationship to a valuation assignment and talk about something that has been “bugging me†over the past several years. I was reminded of this issue after reviewing the Appraisal Standards Board Q and A for Feb 2009. I can also recall debating this issue with a former supervisor of mine, who while extremely intelligent and knowledgeable in appraisal and (other matters) seemed to take the find any crevice in order to disagree with me. It got me so hot that I got a friend of mine (now unfortunately and untimely deceased) on the NJ State RE Appraisal Board to write me an e-mail explaining how my “view†was correct in fact and law…which I sent to multiple parties who “disagreed†with my view and the topic was never discussed again. Here is the issue as taken from the Q and A:
Must a Review Appraiser be licensed or certified in the state jurisdiction where the subject property is located?
Question:
Does a review appraiser have to be licensed or certified in the state where the subject property is located?
Response:
Appraiser credentialing requirements are not covered by USPAP. However, since this question is often asked, we have provided the following response from the Appraisal Subcommittee (ASC):
“Included in ASC Policy Statement 5 is the ASC’s position on when an out-of-state review appraiser must obtain a credential for purposes of performing a technical review. The ASC has concluded that for federally related transactions, so long as the review appraiser does not perform the technical review in the state within which the property is located, and so long as the review appraiser is certified or licensed by another state, that appraiser need not be registered for temporary practice or otherwise credentialed by the state agency where the subject property is located. With that said, state law may be more restrictive than federal law and may require a temporary practice permit or other credential. It is therefore imperative to consult with the state where the property is located.â€
(ASC Policy Statements may be downloaded)
It is important to point out here that the “problem†I have is with a technical review that INCLUDES as part of the scope an alternate value conclusion (= APPRAISAL) even concurrence and NOT the Standard 3 Qualitative Review.
I’ll use the info from my friend at the NJ State Board to elaborate on this using NJ as an example. NJ is mandatory state which also requires a temporary practice permit should anyone with an out of state who wants to “appraise†a property. Simply put you need a NJ APPRAISAL LICENSE OR TEMPORARY PERMIT to appraise a property here. If you are a realtor, asset manager, outsource company, AMC, and you are “reconciling VALUES†between appraisals on NJ properties YOU NEED the specific permission granted under NJ LAW. If you want to do the qualitative Standard 3 review WITHOUT a value conclusion as stated above, that is acceptable. This restriction on “appraisals†would logically extend in any states that require practice permits. I fail to see how this can be interpreted any other way yet it does all the time. Ask yourself why the states would go through the legal process of protecting consumers and then allow someone that is (legally) unqualified to value a property? It flies in the face of why licensing came about. As an example, If a Pennsylvania appraiser without a temporary practice permit does a review with an alternate value conclusion on a NJ property and the valuation is flawed loans are made based on the valuation and things fall apart; whose economy is affected? Certainly this burdens NJ more than PA? What is the difference between getting in a car driving across a state line inspecting, measuring, photographing, conducting a quality and condition survey and rendering a value opinion OR rendering a value opinion from the desk after reviewing someone else’s report? Other than a difference in scope THERE IS NO DIFFERENCE, both are appraisals. And just to be clear I am not saying that you cannot be geographically competent because you can be….. but there is a technicality in that in the license MAY be required first. The problem is that this scenario presents a very difficult enforcement task from a timing perspective. Even further, this situation is taking place all over the country with major lending institutions who see the mandated use of a state-asset-specific appraiser to be a (costly) inconvenience. Hence we are left with the truth about how unenforceable the “e-review†is from a realistic perspective. The last thing any state board has is the resources to police cross-border electronic appraisals. ( the state would have to issue the cease and desist). The only real policing is for those in the industry to recognize the issues here and do a bit of self policing and refuse the review or for the banks to set up staffing and appraiser panels to comply. I worked at a large bank that did just that and I will not deny that it was very challenging economically and from a staff efficiency point of view. It was however the right thing to do for consumer the bank and the licensed staff. Current economics have made that more difficult but not IMPOSSIBLE.
The ASC does imply some driver’s license logic above; one must have a driver’s license to drive and that simple qualification extends the license to do so in any other state without additional requirements. That is where an appraisal license and a drivers license differ: An appraiser MAY have to have a specific license rather than just “any license†whereby automatic temporary practice is granted for driving from here to California. While some states do grant reciprocity most require the application and (fee of course) so there may be a state or two with “automatic driver’s license†reciprocity but based on my research they are a very small minority.
I have also heard the argument that the law only applies to those who ARE licensed and that the layperson can do anything….because the laws and subsequent restrictions only apply to those licensed. This was a statement made to me by the President of a AMC who was trying to justify the use of “non-licensed specialists†to reconcile appraisals via review with alternate conclusions. This is the most ridiculous thing I have ever heard which brings me back to the driver’s license analogy: Do the laws apply just to the licensed drivers? No unlicensed drivers can cited as well.
Defending your position based on what you have to gain is nothing new for business. At least in the case of major lenders using out of state appraisers they have “a†license. I guess they believe in half truths or bending laws unlike those who practice valuation with indifference altogether. They probably have their share of motor vehicle moving violations The amount of hypocrisy in this industry never ceases to amaze me.
Posted by Jonathan J. Miller -Monday, June 15, 2009, 6:00 AM
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Guest Appraiser Columnist:
John Cicero, MAI, CRE, FRICS
John provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. He is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, depending on what day of the week it is, one of the smartest guys I know.
…Jonathan Miller
Bob Knakal, Chairman of investment sales brokerage firm, Massey Knakal Realty Services, recently released an excellent commentary on a 25-year history of the New York City multifamily market. Using actual sales data from 1984 to the present (including cap rate data from 2005 to 2008 compiled by my firm, Miller Cicero, LLC).
In addition to examining historical cap rates and gross rent multipliers over time, the report analyzes cap rates relative to mortgage rates and the yields on 10-year T-bills. An excerpt:
From 1994 through 1999, we saw slow steady declines in cap rates, with slightly positive leverage and risk premiums within a range of 100 to 250 basis points…Throughout the 25 years of this analysis, this period was the most stable-and I attribute this stability directly to the very disciplined lending practices of debt providers.
It’s actually fascinating (at least for a commercial appraisal nerd like me!) to see how many NYC multifamily property was routinely purchased with negative leverage (i.e. at cap rates below mortgage rates. In fact the past five years has been the biggest period of negative leverage buying since the mid 1980’s. However, with the more stringent underwriting now in place, the NYC multifamily market seems poised for another (surprisingly rare) period of positive leverage.
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