Market Machine

The Market Machine is an excel-based stand-alone tool for real estate appraisers and other valuers, for use on PCs (not for Mac). Market Machine uses the data that you export from your MLS or other data source. It requires 2010 or 2013 (or newer) 32-bit version of MS Office Excel. Once you buy it, you have it for your use, with no monthly or annual fee. Your local data stays with you and the Market Machine transmits no data to us.

PRODUCT OVERVIEW:
You export your own MLS data, typically 24 months of sales along with all the current actives, pendings, and under-contracts. Then, within Market Machine, you generate charts, graphs, and narrative summary of the data. A notable feature is the regression model page, where you build a custom statistical analysis of property characteristics for a particular market segment – you are in control of building the model (the machine does not build the model for you). Attach pages to your appraisal report, as you deem appropriate for the assignment. Additionally, the Market Machine generates an excel file of all the data you used, for you to retain in your workfile.

NOTABLE FEATURES:

  • Generate reports and graphs in minutes, beginning to end.
  • Included are 1004MC* and ERC formats, as well as more robust and informative charts and graphs related to prices, unit prices, ages, concessions, distress sales, new properties, number of sales, supply, and other indicators broken out by month, quarter, and year, and showing highs, lows, percentiles, and central-tendencies.
  • You can choose to import just a small pool of sales and listings from your MLS, or you can import the entire “universe” of sales and listings from your MLS and run multiple sets of reports. Or, apply filters to the data after importing your data. It’s your choice!
  • Build a regression model to isolate the statistically-likely values of sq.ft., acreage, garage, distress sale, and other characteristics you included in you export from your MLS. Customize the model each time.
  • A market summary page provides narrative-type statistics, assisting in completing various parts of the URAR, 1004MC, and other forms.

*The Market Machine calculates most of the numeric fields on the 1004MC, but does not calculate the prior periods’ Active listings.

SEE MORE:
View the Market Machine playlist, including segments and entire run-throughs. The videos instruct on the workflow, buttons, fields, and screens of the Market Machine. Users are responsible for having an understanding of market trend analysis, property characteristics, data sources, and regression modeling to be able to properly understand input, operations, and output of the Market Machine. 

 

HOW DO I GET THE MARKET MACHINE?

Cost is $350 for one user; discounts apply for multiple users in an office.  By paying for, receiving, and or using the Market Machine, you agree to the Terms and Conditions/ Software disclosure.

Client versus Intended User


A student in my USPAP Update class recently asked me,

“I know I can discuss the report with the client, but I’ve talked about the report with other intended users, too. Isn’t that why they are an ‘intended user’?”

Let’s take a look at this issue in a bit more depth, starting with the definitions of “client” and “intended user” from the 2020-2021 edition of the Uniform Standards of Professional Appraisal Practice (USPAP):

CLIENT: the party or parties (i.e., individual, group, or entity) who engage an appraiser by employment or contract in a specific assignment, whether directly or through an agent.

INTENDED USER: the client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser, based on communication with the client at the time of the assignment.

The client is always an intended user for an appraisal or appraisal review assignment. But all intended users are not necessarily clients. For example:

Client:  Bank XYZ.
Intended users:  Client (Bank XYZ) and Agency-A.

In this example, Bank XYZ is the client (and consequently an intended user); Agency-A is merely an intended user, but is not the client. The above example could be written differently (since the client is always an intended user), with the same meaning, obligations, and limitations:

Client:  Bank XYZ.
Additional intended users:  Agency-A.

So, should the student be talking to other intended users (who are not the client) about his appraisal report(s)?  No.

It is important for the appraiser to identify the client and additional intended users at the time of the assignment, to clearly disclose those parties in the report, and – equally important – to understand the obligations those labels carry.

 

What difference does it make?

USPAP makes it clear there is a big difference between what “client” and “intended user” imply in the appraisal process. The appraiser can disclose assignment results (opinions and conclusions, including but not limited to value) to a client, and has client obligations related to confidentiality. By comparison, the intended user is the audience (so to speak) for the appraiser’s report; the appraiser must ensure the report is understandable to that type of (or specifically named) intended user. A key difference is that the appraiser has no direct “relationship” with the intended user, at least not in the sense that the appraiser has a relationship directly with the client related to disclosures and confidentiality.

 

Is the “agent” (from the definition of “client”) a client?

From its context in the definition of “client”, we know an agent is the party through which a client may choose to engage an appraiser for a specific assignment. However, USPAP has no definition of “agent”, since it can be found in a common English dictionary. From the Merriam-Webster dictionary, we know an agent is “one who is authorized to act for or in the place of another” (2020, May 24. http://merriam-webster.com/dictionary/agent).

For example, agents such as attorneys and appraisal management companies regularly act on behalf of the client to order appraisals, communicate about the appraisal, receive and process appraisal reports, and even ensure payment is made to the appraiser. The agent is not the client*, but the agent may be authorized to interact with the appraiser in the same or similar ways that a client normally would. The degree to which an appraiser may communicate and interact with the agent should be determined at the time of the assignment, such as through an engagement letter.

 

Who can the appraiser disclose certain information to?

The Confidentiality section of the Ethics Rule reads, in part:

An appraiser must not disclose: (1) confidential information; or (2) assignment results to anyone other than:
• the client;
• parties specifically authorized by the client;
• state appraiser regulatory agencies;
• third parties as may be authorized by due process of law; or
• a duly authorized professional peer review committee except when such disclosure to a committee would violate applicable law or regulation.

This list notably does not include intended users who are not the client. However, this list includes an agent specifically authorized by the client, such as an attorney or appraisal management company acting on behalf of the client, depending on the assignment.

*Note that in some limited states, the agent for a lender (e.g., an appraisal management company) is considered the client pursuant to state regulation. This article does not address these state-specific regulations, but rather addresses USPAP.

 

For additional information

Review the Definitions, Ethics Rule, Standards 1 and 2, and FAQs 128 and 129 in the 2020-2021 edition of the USPAP Publication.

Go to Events and Classes or Services.

COVID-19 Novel Coronavirus

Walitt Solutions encourages appraisers, firms, vendor management companies, lenders, and other interested parties to continue to monitor changes and resources in the valuation industry related to the COVID-19 novel Coronavirus and impacts of the national emergency. Below are resources:

Health Resources

World Health Organization

See WHO’s “Advice For Public” webpage.

Centers For Disease Control and Prevention

See CDC’s “Coronavirus COVID-19” webpage.

Appraisal Reports

In many cases, FHA, USDA, VA, Fannie Mae, and Freddie Mac are allowing the use of appraisals with inspections that vary from the typical level of inspections pre-typed on the lending appraisal forms. Appraisers and lenders must be aware of the different requirements in the temporary policies of FHA, USDA, VA, and Fannie Mae/ Freddie Mac:

  • inspection types
  • appraisal forms
  • Map Reference field and other special text
  • temporary Scope/ Certification language

FHA Appraisals

Go to the HUD Mortgagee Letters webpage.
Or, go directly to “HUD Mortgagee Letter 2020-05“.

Go to the FHA FAQ webpage and click the “COVID-19” filter.
Or, go directly to the “FHA Q&A” link.

Go to the Model Documents webpage. Or, go directly to the
Temporary “Exterior-Only Appraisal model certification
Temporary “Desktop Appraisal model certification“.

From the notice: “Mortgagees are reminded that Exterior Appraisal forms Fannie Mae 2055 and Fannie Mae 1075 are not FHA approved forms and are not compatible with FHA’s Electronic Appraisal Delivery (EAD) portal.” The model certification documents require the usage of 1004, 1073, 1025, 1004C.
Consult all related materials for full details.

USDA (RD) Appraisals

For temporary policy details, see “Single Family Housing… Temporary Exceptions to Interior Inspection Appraisals… in Relation to COVID-19“.

From the notice: “For purchase and non-streamlined refinance transactions, when an appraiser is unable to complete an interior inspection of an existing dwelling due to concerns associated with the COVID-19 pandemic, an “Exterior-Only Inspection Residential Appraisal Report”, (FHLMC 2055/FNMA 2055) will be accepted.”
Consult all related materials for full details.

Fannie Mae and Freddie Mac Appraisals

For Fannie Mae temporary policy details (Lender Letter LL-2020-04), FAQs, Scope/ Certification changes, and other details, see the “Fannie Mae Appraisers” webpage.

See Freddie Mac’s Bulletin 2020-05 for temporary policy details, FAQs, Scope/ Certification changes, and other details; and see Bulletin 2020-08 for additional information. Go to Freddie Mac’s “Covid19 Resources” webpage for access to the all Bulletins and related information.

From the notices: Desktop Appraisals will be on 1004, 1073, 1004C, 1025. Exterior-Only Appraisals will be on 2055, 1075, 1004C, 1025.
Consult all related materials for full details.

VA Appraisals

For VA temporary policy details, see the VA’s Circulars webpage. See “Circular 26-20-13“, which supersedes Circular 26-20-11. See also “Exhibit A” related to Circular 26-20-13.

From the notice:
“Exterior-Only Appraisal. This report option with enhanced assignment conditions will be completed on the FNMA 2055/1075 form. For manufactured homes and multi-unit (2- to-4 unit) properties, appraisers will use the 1004C or 1025 form. Appraisers are to boldly state “Per Department of Veterans Affairs, no interior inspection was provided due to COVID-19”.”
“Desktop Appraisal Valuations. This report option will be completed on the FNMA 1004, 1073, 1004C, 2025 and the appraiser will be required to attach a copy of the provided Scope of Work (SOW) Exhibit A, certifications, and assumptions in all reports. Appraisers are to boldly state “Per Department of Veterans Affairs, no interior inspection was provided due to COVID-19”.”
Consult all related materials for full details.

The Appraisal Foundation

On their Q&A page, The Appraisal Foundation has issued new Q&As related to property inspections and modifications to fixed language on appraisal forms.

Support

Walitt Solutions continues to provide services, including training on these issues, to vendor management companies, appraisers and firms, lenders, and other clients. Contact us at info@walitt.com with questions.

The Appraiser’s Workfile – Part II

In Part 1, I explored the question “What should be in the appraiser’s workfile?” The take-away is that no two workfiles will look alike; rather, the minimum standard emphasizes retaining data and information that supports the appraiser’s analyses, conclusions, and opinions. Another common question from appraisers, clients, lenders, and appraisal management companies is “What do we really mean by ‘workfile’?”

Key to understanding the Record Keeping Rule is that all report copies must be retained as part of the workfile. So, for example, if the appraiser attaches a copy of the subject’s county assessor page as an exhibit page to the appraisal report, then she would not need to retain a duplicate PDF copy of that assessor page in her records — it’s already in the workfile by virtue of being a page in the report, because the report copy should already be retained.

Similarly, if the appraiser describes in the appraisal report details learned during a phone conversation with the subject’s listing agent (for example, details of feedback the agent received after showings), the appraiser would not need to duplicate that same information in a “telephone note” in her records. Expressed differently, the sum of an appraiser’s workfile includes the report copy(ies) plus any other additional material retained:

WORKFILE = REPORT COPY(IES) + OTHER ADDITIONAL MATERIAL.

In this way, if information is included in the retained appraisal report, that same information does not need to be duplicated (i.e., “re-retained”) as a separate identical record.

Nature of the workfile

A workfile is not a report. While Standard 2 contains obligations related to the communication of assignment results (ie, the appraisal report or appraisal review report), such as being understandable to and appropriate for the intended user(s) and not misleading, a workfile is not a report and does not have those same communication obligations: there is no expectation for the workfile to be “ready-to-read” for any party. Nevertheless, a workfile should at least be understandable to the appraiser, to the point where the appraiser can understand how the workfile information led to his analyses, conclusions, and opinions. It is conceivable that a regulator may not initially understand every component of a workfile.

For example, as a simple illustration, if an appraiser makes inspection and research notes using his own abbreviations and unique short-hand, then a regulator or other party reading the workfile might not fully understand exactly how the research notes support the claims made in the appraisal report.

I was recently contacted by a state regulator asking about a particular method that an appraiser had included in her workfile. I offered an explanation of how that particular method would typically be supported, applied, and connected to other components. But, in the end, the regulator should contact the appraiser to ask her to “join the dots” between the data and methods expressed in the workfile to the conclusions and summaries in the report, in order to demonstrate how A supported and led to Z.

A workfile is not necessarily a physical folder of papers. Instead, it can be a combination of paper, electronic documents, and references to other locations. All components must be accessible and retrievable.

A Warning on References to Other Locations for Workfile Content

The Record Keeping Rule allows for references to other locations, without making a copy of an entire record, such as by referring to a cost manual, a prior assignment’s workfile, websites, computer systems, or a data base of the appraiser’s prior research. However, the appraiser must still be able to access the same information during the time frame required by the Record Keeping Rule. Consider the following problematic scenarios:

Three years after completing an assignment, an appraiser realizes the local association converted the MLS system to a difference platform, which reduced the number of data fields and photographs. Now, he cannot reproduce the search he claims he made at the time of the appraisal and details of comparable sales are now not supported.

For a second assignment (Assignment B), an appraiser references a land study contained in a prior assignment’s workfile completed three months ago (Assignment A). Four years and 11 months after Assignment B, the appraiser has already destroyed Assignment A’s workfile which contained the land study (Assignment A’s five-year retention period expired), so the support for her land value in Assignment B no longer exists.

Two years after an assignment, the appraiser is faced with a state regulator asking for evidence that the subject is 1.4 acres and is zoned RSF-B, as stated in his report. The only support in the workfile is a reference to the county assessor website, which now shows the property has apparently been split and rezoned since the assignment. He asks the county assessor for any archived historical records, but has not yet heard back.

Looking back at a three-year old assignment, the appraiser notices the page numbers she referenced in the commercial cost manual do not correspond to the data she cited in her report. She realizes that her office has simply been discarding the superseded pages as the manual is updated and there is now no evidence for the cost rates she used in her report.

Keep a database of research and conclusions

One practice by some appraisers is to keep a “master workfile”, a database of prior research, analyses, and conclusions stored in a non-assignment-specific location and relied upon in multiple appraisals as applicable to each assignment.

For example, studies of market trends, adjustment rate studies, land sales, sell-to-ask analyses, and other research may be applicable to multiple assignments where appropriate, without “reinventing the wheel” each time. If using this approach, an appraiser must reference that prior research he relies upon and ensure the research is retained for the appropriate time frame.

It’s Not a Math Problem

In a recent case heard publicly by a state board, a party to the case made a statement similar to “…and further, the appraiser’s workfile didn’t show the math behind the $45 per-sq.ft. GLA adjustments.”

Barring a state’s regulation that may add additional workfile obligations, the Record Keeping Rule of USPAP does not specifically require that an appraiser’s workfile “show the math”. Rather, the Rule indicates the workfile must contain “all other data, information, and documentation necessary to support the appraiser’s opinions and conclusions…” (emphasis added).

Upon further questioning, the individual criticizing the workfile did agree that even though the math was not shown or “spelled out” in the workfile notes pages, the comparable sales used in the report and additional MLS sales sheets retained in the workfile did reasonably support the $45 per-sq.f.t GLA adjustments that were applied in the report. It was argued, then, that the workfile did in fact meet minimum USPAP requirements: even though the math was not retained, the comparable sales data retained in the workfile did support the appraiser’s adjustment rate.

A Warning on “Re-creating” a Workfile

I recently received a call from an appraiser that had received a request from a state regulator for her to send in the workfiles of several assignments. Before she forwarded her workfile, she noticed that she had not retained any of the sales searches that supported conclusions in her report, such as the ranges of and predominant prices, trend conclusions, and similar conclusions. So, she decided to reproduce the sales searches that supported the claims in her report, changed dates on the search result pages, and then presented those documents to her state regulator as part of the requested workfiles.

Needless to say, it was clear she had tried to “back-date” searches, and the response from the state was not good. By responding to a request for a workfile in this manner, the appraiser was essentially claiming the documents were created years ago (at the time of the assignment), despite truly being only days old following the state’s request.

Remember, in accordance with the Record Keeping Rule: “A workfile must be in existence prior to the issuance of any report or other communication of assignment results.” Key take-aways:

  • Workfile components must exist prior to issuing the appraisal report.
  • Even if an appraiser were to “re-create” data that was not present or retrievable (in order to, for example, show the validity of the conclusions expressed in the report), it would be crucial for the appraiser to clearly indicate that the new items were in fact new and were not part of the original workfile retained at the time of the assignment.

The actions of the appraiser in this example clearly conflict with the Record Keeping Rule and, since they were intentional, also conflict with the Ethics Rule.

For more background on the Record Keeping Rule and workfile obligations, see Part 1.

Joshua Walitt is the Principal Consultant for Walitt Solutions, and conducts webinar and classroom training for appraisal firms, associations, lenders, and appraisal management companies. To schedule a USPAP course, custom training course, or compliance or valuation consulting, email joshua@walitt.com or visit walitt.com.

The Appraiser’s Workfile

Two common questions that come up when I’m coaching appraisers, training an appraisal department at a lender or management company, or teaching a USPAP course is “What should be in the appraiser’s workfile?” and “What do we really mean by ‘workfile’?” I’ll explore the first question here, and the second question in Part 2.

At a conference of state appraiser regulators I took part in during the spring of 2019, one state regulator suggested that USPAP should contain a more-itemized list of components that are required to be retained in an appraiser’s workfile. I believe such a detailed Rule is unnecessary; USPAP already sets a reasonable standard for the minimum components that must be retained in an appraiser’s workfile for appraisal and appraisal review assignments.

Rather than setting in stone a lengthy list of items for a workfile (which inevitably means that some of those items will be inapplicable for certain types of assignments), appraisers and their regulators should instead re-familiarize themselves with USPAP’s Definitions and Record Keeping Rule. From the 2020-2021 Uniform Standards of Professional Appraisal Practice (USPAP), in part:

Definition of “workfile”:
data, information, and documentation necessary to support the appraiser’s opinions and conclusions and to show compliance with USPAP.

Record Keeping Rule:
An appraiser must prepare a workfile for each appraisal or appraisal review assignment. A workfile must be in existence prior to the issuance of any report or other communication of assignment results. …
The workfile must include:
• the name of the client and the identity, by name or type, of any other intended users;
• true copies of all written reports, documented on any type of media; …
• all other data, information, and documentation necessary to support the appraiser’s opinions and conclusions and to show compliance with USPAP, or references to the location(s) of such other data, information, and documentation.
[Edited for length. Refer to USPAP for the complete Record Keeping Rule.]

What is “all other data”?

The first two bullet points shown in the Record Keeping Rule excerpt above are straight-forward and typically easy to comply with, generally by retaining the engagement letter and all report copies. However, the third bullet point shown above is less straight-forward. What does USPAP intend by “all other data, information, and documentation necessary to support the appraiser’s opinions and conclusions and to show compliance with USPAP”?

In short, the “all other data…” workfile obligation prevents appraisers from “making up” their opinions, conclusions, data analyzed, information relied upon, and so on.

Related to the content of an appraisal report (such as data, conclusions, statements, etc.), an appraiser should ask “Do I have something in my workfile that supports what I expressed, or would it look like I pulled it out of thin air?”

Easy Workfile “Rules”

While certainly not USPAP “canon”, I share three simple “Rules” when coaching appraisers to focus on the intent of keeping a workfile and to promote questions that examine whether an appraiser’s workfile meets minimum requirements. They are:

  1. If you see it, save it.
  2. If you express it, support it.
  3. Could a peer come to similar results using your workfile?

In other words, if an appraiser’s process includes researching county records, MLS records, photographs of properties, and other sources, the Record Keeping Rule indicates such items should be retained. For example, if an appraisal report includes the subject’s legal description, site size, zoning, and shape, did the appraiser retain the county records (or applicable sources) that support those relevant characteristics?

If an appraiser is not retaining such sources, an appraiser should consider: “Why would I not print the web pages to PDF when I look up county records, MLS information, and other data?”

In my Investigations Workshop with appraisers, among other questions, we explore:

  • If a report indicates a market trend conclusion of Stable, did the appraiser retain data he relied upon to come to that conclusion? Looking at that same data, could a peer come to a reasonably similar conclusion, or is it clear that the workfile data points to an Increasing or Decreasing market?
  • If the sales comparison approach includes a $50,000 adjustment for difference in quality of construction, does the appraiser have data in the workfile that supports her adjustment?
  • For the cost approach, if an appraiser cited “Marshall and Swift Residential Handbook and local contractors”, did the appraiser retain copies of those data sources and do the data sources support the cost information used in the appraisal report?
  • While not a step an appraiser would realistically take for each assignment, if the appraiser were to ask a peer to look at the data and information in the workfile, would that peer be able to come to conclusions similar to those expressed in the appraisal report?

In Part 2, I’ll explore the question, “What do we mean by ‘workfile’?” including referencing other locations of information and a caution of recreating documentation after the assignment.

Joshua Walitt is the Principal Consultant for Walitt Solutions, and conducts webinar and classroom training for appraisal firms, associations, lenders, and appraisal management companies. To schedule a USPAP course, custom training, or consulting, email joshua@walitt.com or visit walitt.com

The Cost of Non-Compliance: Valuation Independence Training

Former Deputy U.S. Attorney General Paul McNulty famously said, “If you think compliance is expensive, try non-compliance.”

In a recent introductions meeting with an appraisal management company, we discussed my performing an overall “health” exam of the company’s daily and back-office operations. Such a visit acts as a mock audit and endeavors to discover strengths, weaknesses, and priorities that need immediate action. Issues can be from simple one-off human errors that are easily corrected, to organizational weaknesses, such as lack of required procedures, non-compliance with state requirements, and lack of training and documentation.

One failure identified recently at an appraisal management company was the lack of training. Serving multiple purposes, training:

  • demonstrates to clients that the appraisal management company is serious about its operations, for the client’s own third-party oversight
  • helps to ensure that procedures are carried out as written
  • may identify any disconnects between written procedures and real-world experiences
  • emphasizes to staff that their role is important and critical to the company
  • satisfies many states’ requirement that certain appraisal management company employees be in-the-know about specific topics.

When discussing the nuances of state requirements, a common question related to training is “Does a USPAP class satisfy states’ requirements that an appraisal management company train the company’s appraisal coordinators?” In short, no.

While a few states require certain staff to take a USPAP class, more states require deeper training targeted at valuation independence specifically. Keep in mind that the USPAP Update course is designed with appraisers in mind and generally it approaches issues from the appraiser’s perspective. Training on valuation independence, on the other hand, encompasses a broader field of topics and is best presented from the perspective of an appraisal management company employee.

For example, if an appraisal management company asks an appraiser to change her value conclusion, certainly the appraiser will be concerned about ethical standards and her certification (USPAP items), but the appraisal management company’s obligations more closely relate to the Truth In Lending Act, A.I.R., and states’ regulations, not to USPAP per se.

This is not to say that requiring certain appraisal management company staff take a USPAP course is without value. Certainly, it helps the appraisal management company employee to understand the perspective of the professional appraiser on the other end of the appraisal assignment. But a USPAP class does not meet most states’ requirements for staff training.

In a recent survey conducted by Walitt Solutions, of those responding, over 62% of state regulators indicated training for appraisal management company staff is necessary. Responses to the survey identified more than 15 subject-matter categories that regulators believe should be included in a valuation independence course. Among those numerous topics, the top four responses were:

  1. Federal and state regulation overview
  2. Violations of appraiser independence
  3. Responses to violations
  4. Quality control
  • The survey responses also indicated that the regulators believed a 7-hour USPAP course should be presented to AMC staff outside of the valuation independence training.

As I remind clients, training your staff is a small investment to comply with state requirements, as Mr. McNulty’s words routinely remind us. More importantly, though, training ensures that processes are carried out correctly and any potential violations or deficiencies are identified for escalation and corrective action.

The cost of non-compliance is not solely a monetary cost. It also carries reputational risk, which can affect an appraisal management company’s relationship with current and prospective customers.

Walitt Solutions provides custom valuation independence training for delivery to appraisal management staff on an annual basis, and top-of-mind staff interviews on a more frequent basis.

To arrange for classroom or live webinar training on Valuation Independence or to arrange a classroom 2020-2021 National USPAP Update course, contact joshua@walitt.com. The USPAP course is also offered to appraiser associations, appraiser firms, and appraisal management companies for internal and panel delivery. Go to walitt.com for more details.

Originally posted on LinkedIn by Joshua Walitt.

Appraisal-speak: New Assignment

A fellow appraiser recently reached out to me and we had an opportunity to have an appraiser-to-appraiser email exchange. The issue related to a client’s request for a 1004D form:

I received a request from a lender client to complete the 1004D Update Appraisal. I did the original appraisal four months ago. I referred my client to the 2018-2019 USPAP Advisory Opinion 3 “Update of a Prior Appraisal”, but I am still having trouble getting them to understand that this is a New Assignment.

The term “new assignment” is technically correct to use in this type of scenario. For the 1004D Update Appraisal, you are communicating a new value opinion using a new effective date, as a figure relative to the prior value conclusion. (Remember that a value opinion can be communicated as a single-point number, a range, or relative to another figure.)

Sometimes, though, clients might become confused with the term “new assignment”. If you refer to it as a “new assignment”, they might assume you mean

  • a different property,
  • a new full interior-and-exterior inspection,
  • a long turn time or inappropriate fee,
  • a disruption to their borrower
  • (even though you mean none of those things).

“New assignment”, for most intents and purposes, is appraisal-speak: it has meaning to the appraiser – but not necessarily to the client.

The Scope of Work Rule lists assignment elements for an appraisal assignment. If any of the assignment elements change after an assignment, that would indicate you have a new assignment on your hands. This is important to an appraiser because of an appraiser’s obligations under the Record Keeping Rule, determining the proper scope of work, including a correct three-year service certification, and other USPAP and state-specific requirements. So, the implications of a new assignment are critical to the appraiser.

To the client, though, they just want the report. They don’t necessarily care which items are being retained in the appraiser’s files, what assignment elements are, and so on. If your client is misinterpreting your use of the term of “new assignment” (or is otherwise confused by it), you might describe the service to your client in basic terms, without actually using the term “new assignment”:

“Thank you for the request. I can complete the 1004D Update Appraisal. As you know, I’ve previously provided a service to you on this subject property (appraisal, effective mm/dd/yy); I’ll also disclose this in the certification of my Update Appraisal report with the 1004D. As the form instructs, I’ll revisit the property, take photos from the exterior, and use that visit date as the new effective date on the form.” [Illustrative language only; your scenario may vary.]

Here are a few more questions we discussed related to this issue:

  • How does the question on the 1004D Update form “Has the market value of the subject property declined since the effective date of the prior appraisal?” affect my effective date and whether this is a new assignment?

In order to develop a value opinion as of today (which is necessary for comparing the subject property’s current value to what it was four months ago), you must employ a new effective date (today). If we look at the Scope of Work Rule, the effective date is an assignment element. Since that assignment element changed from the prior completed appraisal, we know this current service cannot be considered the same assignment, especially related to the workfile, scope decisions, and other obligations.

  • How do I ensure my workfile meets USPAP and state requirements, since this will be an easier shorter assignment?

Don’t assume your workfile obligations are different simply because an assignment takes less time. First, read through the Record Keeping Rule as a refresher. Then, check that your state doesn’t have workfile requirements that are above-and-beyond the USPAP minimum. Finally, remember that the 1004D Update Appraisal is an appraisal. So, while you might be able to re-use certain data and information from the first assignment, you will undoubtedly need to perform new research and analysis, particularly as a result of the new effective date.

And remember that the Record Keeping Rule allows an appraiser to reference the location of workfile components. For example, your new workfile might reference items contained in the “old” assignment’s workfile, rather than having to copy every item from your first assignment’s workfile into your new assignment’s workfile; of course, this will vary case by case.

  • Lines 31, 32, and 33 in Advisory Opinion 3 “Update of a Prior Appraisal” is describing the client “seeking a more current value or analysis of the property that was the subject of a prior assignment”. That’s what my client is asking for, right?

In your scenario, the client is asking for the 1004D Update Appraisal to be completed, which seems to be what that portion of Advisory Opinion 3 is describing: a new assignment as a result of a new effective date.

  • So, in this case, what time period would I research and analyze, to determine whether the subject’s value has declined (or not)?

This is an appraisal methods question and there is no blanket answer. For example, you might choose to study only the time period since your prior appraisal, a longer period leading up to the new effective date, or both, depending on factors such as market dynamics, type of data, quantity of data, the particular property, and the method(s) of analysis you choose to use.

Joshua Walitt is a USPAP instructor and teaches courses to associations, regulators, appraiser firms, lenders, and management companies. If you have USPAP questions, contact joshua@walitt.com or go to walitt.com.

Originally posted to LinkedIn by Joshua Walitt.

Nothing New Under the Sun: the varied face of appraisal

In July 2019, I spoke to the Collateral Risk Network, a group of chief appraisers, risk managers, management companies, lenders, appraisers, regulators, and legal experts, at the Collateral Matters event in Reston, Virginia. My talk focused on Property Inspections, which – to an outsider – might seem to be a straight-forward topic. However, given current changes in the valuation space, nothing is further from the truth: valuation, specifically the collection of data that supports a valuation method, has never been one-size-fits-all.

Is this so-called “new” process new at all?

During my presentation, I reviewed with the audience a number of appraisal scenarios that have been common practice for decades – often in spaces outside of first mortgage lending. So, with the changes in the first mortgage space, I asked the audience to consider several questions, when examining the varied face of property inspections that are currently in practice in the overall valuation profession.

  • Are these “other” inspection-and-valuation processes appropriate for lending?
  • Are there certain lending-risk scenarios – related to credit, employment, income, and loan-to-value – that might allow (or preclude) the use of these varying types of inspection processes?
  • Do the Uniform Standards of Professional Appraisal Practice (USPAP) and the Interagency Appraisal and Evaluation Guidelines (IAEG) allow such processes?
  • Have the requirements of the Uniform Residential Appraisal Report (URAR, form 1040/70), the standard lending appraisal form since 2005, become so ingrained in valuation practice that valuers cannot imagine following other processes?

As way of background: currently, many banks hire appraisers to perform desktop appraisals, where the appraiser relies on photographs and information collected by other parties; this process is sometimes referred to as “bifurcated”. As illustration, when the bank orders the appraisal from the appraiser, the bank provides the inspection report to the appraiser, which shows various photographs as well as the answers to questions about the physical and locational characteristics of the subject property; using that data, the appraiser evaluates the condition and characteristics of the subject property and then proceeds with the valuation process under the assumption that the provided data is correct (unless known otherwise).

GSEs (Government Sponsored Enterprises, including Fannie Mae and Freddie Mac), in their current modernization initiatives, are piloting instituting these types of “bifurcated” data-collection processes. The current pilot of the 1004P form has caused anxiety among appraisers, regulators, investors, and others, opening conversations regarding which data collection process is “right” for lending valuations. But is this so-called “new” process really new at all?

Here are several of the scenarios I asked the audience to contemplate:

  • The appraiser determines physical characteristics of the subject structure from limited-data county records, recent family photos showing two rooms, and a 15-year old appraisal.

While this scenario is commonly performed for insurance valuations (think: burned-down property), it is likely that most parties agree this data set would not be adequate for a first-mortgage lending assignment, in terms of establishing as-is condition and limiting risk to safe and sound lending. Nevertheless, it reminds us of the broad spectrum of scopes of work possible in appraisal practice.

  • The appraiser relies on a diagram and descriptions to determine the physical characteristics of the residential structure.

This type of data-collection is not uncommon; in fact, appraisers regularly rely upon plans and specifications supplied by builders and borrowers to use a hypothetical in valuing the property “as-if” already fully built. In this way, we see that appraisers regularly use data that is sourced from non-appraisers. (In fact, many current data sources used by appraisers are often maintained by non-appraisers, such as MLS, county databases, etc.)

  • The appraiser personally views the subject from the street.

This scenario is also not uncommon, often written on the Exterior-Only Appraisal Report (form 2055) or other proprietary bank forms. This data-collection process gets the appraiser to the property (at the street) and the appraiser then makes assumptions about the interior based on observing the exterior (think: the exterior appears to be in well-maintained condition, so I assume the same for the interior). If this scenario is already a recognized data-collection process for lending assignments, is it much of a stretch to use data supplied by an individual who is trained for data collection, but who is not the signing appraiser?

  • The appraiser personally views the subject from the street, performs an as-is appraisal and an as-remodeled appraisal, and issues a report with two value opinions.

For banks that provide so-called “fix-and-flip” financing, asking for two value opinions in one appraisal report is commonplace. Depending on the risk scenario for the transaction, the bank might allow an exterior-from-street viewing or opt for the more-detailed interior-and-exterior inspection. Some banks require the signing appraiser to perform the inspection, while other banks allow another party to perform the property data collection. Again, while these inspection-then-valuation scenarios might seem “outside of the box” to appraisers and regulators whose experience includes only the standard URAR scope of work, these alternative scopes may seem “new” – despite being in practice for decades.

  • A determination must be made whether appliances and utilities are functional and/or whether the property meets local codes.

While rather specific, I point to this scope requirement on certain appraisals (mainly associated with FHA appraisals) to reinforce the central question to my presentation: Simply because a certain data-collection process is performed for one group of appraisals, does that mean that same process is then required for all other appraisals? In other words, the scope and method of inspection for appraisals can legitimately vary from appraisal type to appraisal type: just because we do a “full” inspection on some, does not mean that same “full” inspection is necessary for all.

  • The appraiser relies on a non-appraiser to measure and collect subject property data.

At first glance this might seem I am describing the “new” GSE process being piloted (in fact, it does). However, I included this scenario in my presentation not because it was the GSE pilot process, but rather because it is the ordinary process found in many county assessor offices: a non-appraiser is tasked with the collection of property data, to be used in the appraiser’s analysis. Any time an appraiser chooses to rely on data, the appraiser must determine if there is any reason to mistrust the information; so, the training, expectations, and scope of the inspectors should be understood by the appraiser, in order to properly understand and communicate what assumptions were made.

  • The appraiser relies on a property condition report issued by a property inspector; the appraiser relies upon the information to develop and report an as-is value opinion.

For 203K appraisals, an individual performs an inspection of the subject property for HUD or the lender as a separate order from the valuation assignment. For the valuation determination, the property condition report may then be provided to the appraiser, after evaluating and prioritizing foreclosure and listing strategies. This HUD scenario, although certainly not identical to GSE pilots or other current bank bifurcation processes, offers another window into procedures that include a decisioning step between the inspection and the valuation.

  • An appraiser performs an Exterior-from-street appraisal and reports a value opinion of $500,000; the next week, she performs a Exterior-and-Interior appraisal on the same property and reports a value opinion of $630,000.

While this type of situation may seem entirely bizarre to those outside of valuation and lending, both value opinions may be credible (ie, worthy of belief) based on their different scopes of work. For example, in the exterior-and-interior inspection assignment, the scope of work may have revealed greater upgrades, a better condition, and or a larger size than considered in the exterior-from-street assignment. If prepared and communicated properly, neither of the reports is necessarily “wrong” or “right”. The issue becomes a question of precision: if the risk factors of the transaction and borrower are low (ie, considering loan-to-value, credit, and income), what level of precision for the valuation does the lender need?

  • An appraiser who lives on Grand Cayman performs appraisals and appraisal reviews on properties located in Denver, Colorado.

While we might all dream of living on a tropical island and performing various types of desktop services, relocating to a tropical destination may not be in the cards for most people. However, this scenario does point to the fact that competency is not necessarily tied to the appraiser’s distance from the subject property. For example, can an appraiser be competent from a town away, a county away, a state away, or across the country? An appraiser can be competent in all of those situations, as long as he has access to the appropriate data sources, expertise in the type of property and assignment, and knowledge of the market. The separation of the inspection process from the valuation process could lead to appraisers gaining competency in various areas.

As the lending appraisal process modernizes, better valuation solutions will step forward, to better meet the needs of clients, in compliance with the USPAP and IAEG. A client determining to use one process over another will be decisioned based on risk factors, such as loan-to-value, credit, income, prior valuations, and market trends.

The GSEs’ and clients’ reliance on varying valuation solutions is pushing the valuation community to provide expanded lending valuation services, beyond the historical one-size-fits-all 1004 model.

Walitt Solutions provides support related to valuation products to appraisers, management companies, and financial institutions. Go to walitt.com for more details.

Originally posted to LinkedIn by Joshua Walitt.

Can I solicit a listing during my appraisal?

I was recently part of a discussion where an appraiser asked the group:

I am an appraiser as well as a real estate sales agent. After I complete inspecting a property for an appraisal assignment and before leaving the property, can I then solicit the owner about the prospect of being his listing agent or buying agent if he needs one in the future? I have no current interest in the house being appraised. Would this action violate USPAP?

-Appraiser

Remember that determining compliance or non-compliance with USPAP would ultimately be determined by your state regulator. Certain states may have position statements, guidelines, or specific instructions on how to handle yourself in these types of dual-license situations. That being said, let me discuss with you several important passages from USPAP which relate to an appraiser soliciting his or her sales services to a homeowner during the appraisal visit.

To start, the Conduct section of the Ethics Rule states that an appraiser “must not misrepresent his or her role when providing valuation services that are outside of appraisal practice”. Part of understanding whether we are “misrepresenting” our role is to consider our interactions from the point of view of the parties involved, in this case the homeowner. In your case, you are clearly performing services as an appraiser, since the homeowner was told an appraiser would visit the property, an appraiser’s office called to set the appointment for the appraisal visit, an appraiser arrived to measure and photograph the house as an appraiser, and so on. If, while you are perceived to be an appraiser, you solicit business related to sales services and later list the house for sale, might the homeowner think you are listing her house as an appraiser? After all, you solicited the homeowner when acting as an appraiser and the homeowner knows you by your appraisal work.

Soliciting for a listing while performing the appraisal as an appraiser can mislead a homeowner in terms of his or her understanding of what service you are providing now and what service you might provide in the future. The Management section of the Ethics Rule states “An appraiser must not advertise for or solicit assignments in a manner that is false, misleading, or exaggerated.”

Keep in mind, too, that the Conduct section of the Ethics Rule states “an appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.” Offering sales services as you described may cast doubt on whether you are truly acting impartially and without accommodating your personal interests.

Further, and perhaps most to the point, your act of soliciting or promoting your services as a listing or sales agent creates a prospective interest in the property or parties. To illustrate, ask yourself: Why are you advertising your sales services to her? Invariably, your intent is to obtain the listing and/or sell a house to her in the future – a prospective interest.

If you have an interest, USPAP then requires two disclosures for appraisal and appraisal review assignments. The Conduct section of the Ethics Rule requires: “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 each subsequent report certification: any current or prospective interest in the subject property or parties involved”. The initial disclosure to your client might take the form of a phone call or email, and the disclosure in the report certification should follow the example of Standards Rule 2-3. (Note that if you are performing appraisal practice that does not result in an appraisal report or appraisal review report, the initial disclosure to your client is still required.)

But disclosure aside, while USPAP allows the appraiser to have an interest in the property and parties, many intended uses prohibit the appraiser from performing the assignment if he or she has any interest. For example, the I.R.S., the GSEs, and federal financial institution regulators have regulations speaking to the appraiser’s interest related to the property or parties. So, while USPAP allows it, you would likely need to decline or withdraw from the assignment if you have a current or prospective interest.

In the scenario in question: by soliciting sales services, you are creating a prospective interest which must be disclosed and likely precludes you from performing the assignment.

To restate the oft-cited “hat” metaphor: bring only and wear only your “appraiser hat” for your appraisal assignments.