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 email@example.com or visit walitt.com.