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:
- If you see it, save it.
- If you express it, support it.
- 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 email@example.com or visit walitt.com