There are several appraisal standards.  One, which is financed through appraiser licensing fees is called USPAP – Uniform Standards of Professional Appraisal Practice.  In theory, USPAP is for “federally related transactions.”

This Modernizing Appraisal series is about the analysis process, not FannieMae and FreddieMac reporting requirements. The process is identical:   1) The problem;  2) The data;  3) Predict or adjust;  4) Communicate.  We continue here on #1 – defining the  problem to be solved.     Read the earlier parts of this series here.

In practice, these standards are claimed to be “Authorized by Congress” with the Appraisal Foundation being “The Source of Appraisal Standards and Appraiser Qualifications.”  As a result, USPAP becomes the common default for appraisals for other purposes.  States must enforce USPAP, as well as administer licensing, as published by the Appraisal Foundation.  In turn, the Appraisal Foundation has oversight by the (congressional) “Appraisal Subcommittee,” which has the sole power to terminate real property loans by states not in compliance.  (This gross, singular power has never been used.)

The states and territories, in attempting to enforce these appraisal and licensing rules, have sometimes delegated their legislative duties to the Appraisal Foundation through its publishing of revised standards every one to three years.

Actual application of standards tends to be inconsistent  between states, including the quality of enforcement and repetitive administrative “approval” of continuing education.

USPAP, particularly Standard 1 (real property appraisal development), has been relatively unchanged since its handover some 40 years ago — from the auspices of professional appraisal organizations such as the Appraisal Institute and the American Society of Appraisers.

Appraisal Reporting has been dominated by the GSEs (Fannie Mae and Freddie Mac).  These too seem to be quasi-governmental organizations in one form or another.

Standard 1 comprises only four pages, yet engages millions of dollars of annual public and appraiser cost, since 1986.  Fees paid by real property appraisers support a number of other (some competing) activities and committees of the Appraisal Foundation.  These include non-realty property (personal property, businesses, intangibles, and ‘mass’ appraisals) and valuation work performed by non-appraisers – such as AVMs, inspectors, management companies, “evaluations,” “price opinions,” and valuations simply performed “in house” by the GSEs using their own models and algorithms under “appraisal waiver” rules.

None of these competing valuation services have appraisal licenses, nor do they pay any fees.

Different standards for different competitors.

The result has been the decimation of the human expert (the appraiser) in the valuation process.  The range of regulation is from inconsistently overreaching to zero.   From licensing/standards/fees for appraisers, to zero fees by AVMs using secret algorithms, and zero with GSE “appraisal waivers.”

USPAP subjects appraisers to the standard of ‘credible’ opinion, defined as “worthy of belief.”  There is no real standard for any other form of valuation or property-risk assessment.  None.

There is a need for a universal standard, based on measurable results.  The basic requirement is simple:  appropriateness, trueness, and sureness. This means: right question/assumptions, accuracy, precision.

Given today’s robust data, we can do better.