Palumbo On USPAP is written by Joe Palumbo, SRA, 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 on Soapbox.
If there is one thing that is NOT debatable about USPAP, it is that everyone knows (and agrees) that sales that occur 3 years or less from the effective date of the appraisal need some “attention and addressing”. That is the easy part. Now for the hard part: SR 1-5 (b) indicates that such sales need to be “analyzed”. At a minimum, that translates to “making sense out of the prior sale with whatever information is available in the normal course of business” and beyond if you seek a higher standard of quality.
Analyze like many other words used in USPAP is not defined but is taken as the “normally used context in the English language.
ANALYZE: to study or determine the nature and relationship of the parts of by analysis. synonyms analyze, dissect, break down mean to divide a complex whole into its parts or elements. analyze suggests separating or distinguishing the component parts of something (as a substance, a process, a situation) so as to discover its true nature or inner relationships. dissect suggests a searching analysis by laying bare parts or pieces for individual scrutiny
I realize appraisers are always under the gun when it comes to the search for critical info. Sometimes information conflicts with fact, is available in bits and pieces, does not make sense, is sometimes wrong, and sometimes even raises more questions.
When all is said and EVEN beyond the course of normal business when extra efforts are made there is very little to be found. In those cases where a effort has been made, narrative commentary would likely suffice for the reader to ensure the report contains sufficient information (2-2 ( b)) for the users to understand the report.
Problem is most times appraisers do a great job of STATING sale prices and dates and doing little if anything to “dissect” these sales (if the do, they do not tell me in the report).
There is a whole advisory opinion (AO-1) on what the language can be used as it relates to the normal course of business and prior sale information. In keeping with my previous articles mantra (thou shall not be boring), I will not recite the AO or even aggregate. Maybe there is nothing to say on a prior sale maybe there is? In today’s environment one would be prudent to investigate concessions (they are giving away vacations and 4-wheelers with homes these days people). Some sales have limited exposure to the market and may not be arm’s length some sales take MONTHS to close and some are not even in line with “market prices” (my wife to me for $1).
Here is the point: an appraisal is like a story and the reader (often a client) is seeking to connect the dots. In relocation appraisal both past and future price trends are part of the analysis; in a market value (mortgage appraisal) the historical trend is inherent in the (dated) sales if they exist. When you present your conclusion, and the analysis unfolds, there should be some consistency with the market trends, or the story you told. If Mr. X paid $100,000 10 months ago and you have indicated the market has been stable for the past 12 months and conclude $80,000 I need to understand more about that $100,000to make a business decision. And by the way.NO, I am not asking for two appraisals (someone accused me of that once) just the info THIS one is supposed to have. Sadly the last discussion I had that spurned this blog article (we get two appraisals on every file) went this way. Client: “Hi Mr. Appraiser #1 & Appraiser #2 , I see in your report the subject sold 2 years ago. You have stated the price and sale date (thank you) but have not analyzed that sale”. Appraiser #1 response: “I can not comment on value without doing an appraisal per USPAP”. Appraiser #2 response: “I did not do the appraisal on the home 2 years ago so I can not comment”. Just for the record, these appraisals were “ok sans this issue” and the appraisers are long-time partners that we have worked successfully with for several years, so please refrain from the “your using the wrong guys” thought. This problem is PERVASIVE in the appraisal industry. I have personally experienced this dozens of times.
Here is the wrap. This home sold new 2 years ago and was the builder’s last model prior to a subsequent price decline for such model. It contracted and closed new in less than one month and included a laundry list of “extras” that increased the purchase price substantially. The sale included a concession and a copy of the (major lender’s) appraisal the we received (later) once the owner screamed of his “recent purchase” revealed no way was the sale price market at that time (all 3-bedroom comps, 1-bedroom home). That’s a whole other story but isn’t that how we got here?? Now the appraisers would not have the appraisal but my simple research from 1000 miles away got me the other information. Second disclaimer: 3-year sale analysis is ONLY a requirement for Market Value Appraisals and a relocation appraisal is not market value. Still though, the report did not contain sufficient information (2-2 (b)) and the prior sale issue is just plain common sense and a prudent practice in all appraisals.
So again I askhelp out an old friend, leave the macro paragraph about the future uncertainty of the bailout, economy and the stimulus effect (blah, blah, blah) out and give me a few sentences on that prior sale..just a few quality sentences..please?
Tags: Joe Palumbo, Soapbox Blog, USPAP, Palumbo on USPAP
Thanks for reminding the profession Joe, and please continue to remind appraisers that their real job is to analyze all of the relevant facts and arrive at a supported and credible conclusion.
Appraisers have little significance if they don’t use the facts, analyze them and make a supported conclusion. Unfortunately there is an entrenched habit reflected in the majority of appraisal reports I see including recitation of secondary information (as well as prior sales) with no analysis of it whatsoever. The quality of appraising must improve, period. Of course as always, I think appraisers should be paid a reasonable fee for quality, and thorough analysis does take time.
Someday, intended users like you will recognize that quality appraising is not produced cheaply, overnight on assembly line. No way that quality appraising cam be consistently produced by the fastest, cheapest bidder. Frankly, I believe that until a majority of appraisers rise to the minimum standards published in USPASP one might as well obtain a BPO and discount it for inventory according to Johnathan’s chart in Curbed. I fear that until your comments reach a cacophony of many voices, you will find yourself saying this again.
I’m own proof reader and have a fool for a client.
I intended to express agreement with what you are recommending and this comment “Someday, intended users like you will recognize…” should be stated, “Someday, intended users, like you, will recognize…” Please, keep up the good work, far too many reviewers are allowing their personal preferences and biases rather than the standards be their guide. As a result there is a plethora of misguided thoughts shared on lots of stuff that there shouldn’t be.
Thanks again. Henceforth required prior sales if not all prior sales shall be analyzed, not simply mentioned.
I hadn’t thought about it that way before.
I agree that the form asks the appraiser to ‘analyze’ 36-month ‘transfers’ (not just sales). But I think the very minimum boiler-plate response is adequate because a good appraiser doesn’t give a rat’s rear-end about past sale prices…..doesn’t factor past sale prices into an estimate of present market value, at all!
The inference being that Joe isn’t a good appraiser or is wasting his quota of rat’s rear ends.
Have you ever heard of flipping Craig?
Um, Craig, its a USPAP requirement reprinted by Fannie! If you follow USPAP, you really don’t have a choice whether to do it or not, and it doesn’t matter whether you give a rat’s rear end about it or not.
Maybe you can reconsider signing the form appraisal and certification if it says you followed USPAP.