Things become obsolete because they fail to keep up.
USPAP (Uniform Standards of Professional Appraisal Practice) has served us well. And things have changed. And times have changed.
Appraisal standards go back quite a ways, primarily by the forerunners of today’s Appraisal Institute. Also, assessor groups sought and created standards or procedures for mass appraisal for property tax purposes. The then-current standards were conferred to the quasi-governmental body the Appraisal Foundation which has the power under the Appraisal Subcommittee to collect fees from individuals, sell books and set education levels for appraiser licensing. Here we ask the question only in regards to the standards themselves. The question is “is USPAP obsolete?” And if so — how this might have happened.
Context is everything. Most of the drafting of the standards took place from the 1930’s to 1987, wherein the ‘standards’ in their current basic terminology were conferred to the Appraisal Foundation. Since then there has been some revising and a bit of churning. From one report type, to three report types, to two report types. From one form of “departure” being allowed, to other forms of divergence being accepted. But there are two things which have stayed the same. One is the requirement, that the appraiser’s work be credible. Credible is defined as “worthy of belief”. The appraiser must be believable and worthy of this believability! Worthiness must be key. The word credible is repeated 82 times in the standards (including both the integrity standards and the performance standards 1-10). Belief feels good, feels worthy. But is it useful for the public good today?
The second unchanging concept is that it is primarily the appraiser who is judged, not the appraisal. This starts with the Ethics Rule, requiring personal impartiality, objectivity, and independence. Then after the workfile requirements, we have the Competency Rule, which requires the appraiser to be competent. This is followed by the Scope of Work Rule, which includes the appraiser’s “problem identification” and “Scope of Work Acceptability.” Problem identification specifies the property, the inspection, the data researched, and the analyses, (but does not mention the market being analyzed!). It also specifies the client, other users, use, value definition, effective date, subject and features, and “assignment conditions.”
So, what makes for Acceptability of the Scope of Work? Easy.
The scope of work is acceptable when it meets or exceeds:
- the expectations of parties who are regularly intended users for similar assignments; and
- what an appraiser’s peers’ actions would be in performing the same or a similar assignment.
Easy: 1) Do what users expect. 2) Do what everyone else does. (The “parties and peers test”).
What has changed?
Today is the day of the science of data. The goal is objective analysis, not subjective believability. The goal is quantifiable risk, quantifiable reliability, “sustainable” value, and forecast value. It means a modified data stream which can directly enter the client’s decision-making software, or a dashboard directly useful to the user, whether an underwriter, reviewer, portfolio analyst, compliance evaluator, or senior management.
What is needed is objective results. What is not needed is “trust me”.
Our regulators, our clients must begin to insist on objective analytics, not personal worthiness. USPAP must abandon the vague goal of believability. It must consider methods by which reliability, accuracy, and precision can be measured. The science is there. The data is available. The computer power is here.
We need to give up “trust me”.
We need “show your work” just like our third-grade teacher said.
July 22, 2019 @ 2:35 am
It has been my experience that our industry learned how to make a report look good for a surface USPAP or FIRREA test.
Templates were created and headings included in reports from forms software to narratives.
Some of the best looking reports are the least verifiable, least credible if one looks below the surface, meaning doing substantive research and verifications.
Sadly, we became an industry that makes itself to look good, instead of one trying to do good work.
In the world of lender appraisals, there is no reward for taking the time to do the Due Diligence of Verifying the market data relied upon, or having market derived adjustments. Price and speed rule this segment of our industry.
The Appraisal Foundation had a Committee that wrote a paper on Verification of Market Data. Shortly after it was published, they disbanded the Committee. Where do you think that pressure came from?
July 31, 2019 @ 7:16 pm
I agree with your comments whole-heartedly! I don’t much review work anymore, but when I did, there were reports that look great at a glance, that is, until I did my own research and realized much of the reporting was bogus. Not every time, but fairly often.
July 22, 2019 @ 5:34 pm
Thanks for sharing George! “Show your work” seems like such a radical concept in this day and time.
Leveraging technology is critical to our profession. Creating report templates serve a useful purpose like ensuring compliance with USPAP and FIRREA. But too often, appraiser’s believe they are finished the valuation when they have filled in all the blanks.
As a chief appraiser, reviewer or national valuation partner, i want my appraisers to identify what is unique about the property, where the risk lies and provide some original thought and analysis that leads me to a credible value conclusion. I understand what fee and time compression has done to fee appraisers. But quality doesn’t necessarily have to take longer?
July 22, 2019 @ 6:41 pm
Our profession still appears to rationalize reports which are sufficiently arcane as to foster an “emperor’s new clothes” pattern that stiffles real understanding as few readers will let on that they do not understand what they are reading fearing to be appear ignorant be they reviewers, borrowers. underwriters, or fellow appraisers. I believe this practice is driven by a CYA mechanic which allows the appraiser to then “explain” his/her report allowing for the report itself to be beyond the reach of criticism. What is the answer? Clear writing coupled with real knowledge (a plethora of appraisers appear to be wanting in both). Maybe the “insurance policy style” of USPAP has contributed to this practice. It is common in both our profession and in academia where I spent 25 years teaching in both.
July 22, 2019 @ 9:03 pm
USPAP is all about ethics and credibility, and supporting your opinions. If appraisers do not have credibility as a profession there is no point
in having or using appraisers.
July 24, 2019 @ 1:40 pm
I would say definitely, but it is necessary. However, the issue I have with USPAP is they are unrealistic standards for a form residential appraiser to comply with. The FNMA and FMCC form reports as they stand, are not USPAP compliant.
If a Residential Form Appraiser was to supplement the form to make it USPAP compliant, they would not pay the bills. Interesting discussion though. Keep up the good work!
July 26, 2019 @ 9:28 am
OK, Armon. you started it: Risk. Is USPAP ‘necessary’ as you say.
Back in the day, and for me that’s a loooong way, there were actual standards, ’cause there existed, Risk. Risk was all over the place. As kids our folks told us to save, save and took us to the local bank to start a savings acct. We 9yr olds were in fact introduced to this burly guy in a waistcoat who solemnly shook our hands & gave us a deposit booklet. Bank of Hibernia, never forgot it, still have the thing w/a beehive graphic on the cover. My bud, Joe Dimag (from a real different ethnic grp) got one too, from the Bank of America; a bank started by a guy who knew Risk because he personally knew every borrower and knew they were good for it. Joe and me were warned back then by our folks, families, pastors about every Risk you can imagine: don’t play with yourself, don’t lust after Mary Jane, don’t be late for school, yadda yadda, Risk was Real, not just a word. Save, and you’l be saved.
Then, things began to change. Banks, we were told aren’t for saving, the’re for borrowing! Change was everywhere. Some guy named B Bernanke told us, don’t save, you idiots, SPEND. Admonitions from those aforementioned ‘folks’? Not a peep. And then lo and behold, we hear from Bernanke and some gal, miss Yellen, that there’s no more recessions, depressions, mortgage bankruptcies, all gone all disappeared! Now we name it ‘Great Recession’ and following Tricky Dick, we simply print fiat out of our ears and call bitcoin ‘crooked’. Ya see, Armon, you think you’ve got all kinds of Rights. Nope, you only have Naming Rights. You’re a boy but wanta be a girl? Just dig up another name! You are good to go. Unless somebody else named it (US patent law, the passing joke of the rest of the world). USPAP was just an over-reaction to Risk. Buuuut, let’s use it like a weapon In a new world of no standards, let’s make it the standard. Paradox, but it works. Charge the appraisers every two years to alter the nonsense and beat them with it. In this new world, Armon, arithmetic conquers all. Algorithms erase Risk, bundle those bank loans, take’em out of the bank’s hands get them phony credit approval, then sell’em to some stupid Germans who think naive Americans are actually honest (wow, talk about Risk!). No more risk in banks, loans, mortgages, credit. Other week, I’m wandering in my local church garden (named appropriately the Garden of Eden) and my pastor murmurs to me, Merv you look pensive. Well, I’m worried, Rev. Ah, don’t, Merv, hell, just last year we got rid of sin! No kidding, Rev. What’s it called now?
Armon, in a world of ‘naming’, where there are no standards, USPAP is only a necessary evil, OK?