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If we had an Appraisal Inspection Standard, how would it look?

To frame this question, we need to look at what we have today regarding inspections, and what is really needed in the world.  Let’s look then under common United States specifications.

What we have today is left entirely up to the appraiser.  The only general tests we have under Appraisal Foundation standards (USPAP Standard 1) is: “correctly complete research” [whatever ‘correctly” is…].  Rule 1-1 there explains how to do “correctly”:

  • Use “recognized” methods and techniques;
  • Don’t make any big mistakes; and,
  • Don’t be careless, negligent, or make a bunch of small mistakes.

Rule 1-2 goes on:

  • “Identify the characteristics of the property”
  • “An appraiser may use any combination of a property inspection and documents, such as a physical legal description, address, map reference, copy of a survey or map, property sketch, or photographs, to identify the relevant characteristics of the subject property.” [However, by exclusion, this seems to preclude appraisal inspection by a non-appraiser].
  • “determine the scope of work necessary” seems to set inspection responsibility on the appraiser.

Note:  For “hybrid” bifurcated valuations, USPAP may need to change this awkward exclusion to accommodate faster-cheaper appraisals.  Also USPAP also needs to allow others, instead of the appraiser — to determine the scope of work, prior to involving appraisal analysis.

These suggested modifications are not difficult to rewrite in USPAP.  They would place the burden of risk determination and scope credibility on the client, and remove the liability from the appraiser.  Appraisal speed might be increased, and appraisal cost might be reduced to even less than 1/10th of one percent of average transaction amounts.

What is needed in today’s world?  Risk.  The measurement of risk is ignored in today’s appraisals.  But that is for another day and another blog…  For now, we must consider an inspection standard.  Inspection is part of data collection, specifically in regards to the subject property.  For now, we also ignore appraiser inspection of neighborhood and comparable features.

Information inputs can be classified as follows:

  1. Assumptions, in universal usage and acceptance;
  2. Assumptions, as set by client scope determination;
  3. Factual information, universally accepted as deterministic, not probabilistic;
  4. Judgment, applied during the inspection (including the breadth, depth, and direction of scrutiny);
  5. Judgment applied by the analyst, based on “any combination of a property inspection and documents, such as a physical legal description, address, map reference, copy of a survey or map, property sketch, or photographs, to identify the relevant characteristics of the subject property.” [Which may or may not include non-appraiser inspection]. (USPAP 2019, SR1-2(e), Comment)

We can easily see that each of these forms of data input explicitly contain risk and reliability issues of their own.  The ultimate question is:

  Will the appraiser of the future participate in the measurement of risk or not?

At the September meeting of the Asset Analyst© community, we will be requesting input from appraisers and others as to whether the measurement of risk, should be part of the deliverables in the future of professional valuers.  You are invited to participate, this coming September, in Detroit.

For further information, click here.