Presumably, “public trust” is the foundational test.  Have our institutions, rules, regulations, standards, and social expectations failed us?

The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers. Preamble 2018-2019

Our mission is to foster the public trust of our members and the appraisal profession through compliance with the highest levels of ethical and professional standards. The American Society of Appraisers

Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. The Appraisal Institute

Some ten years ago, financial capitalism suffered a large embarrassment.  “The Great Recession.”  Most people were harmed, some were ruined, losing homes, families, retirement, and opportunity for offspring.  The fickle finger of cause pointed many ways.  One of them was the “overexuberance” of residential lending, and the manner in which collateral was “assured.”

When things go wrong, it’s time to look at the basics:  the nitty-gritty assumptions and the unanimously “acceptable” actions.  Recall that the USPAP tests of appraisal acceptability only require (in short):  1) believability (credibility); 2) peers’ actions similarity, and; 3) clients’ expectations.

Valuation, in the U.S., called “appraisal” is generally subject to the Uniform Standards of Professional Appraisal Practice.  Government agencies and “sponsored enterprises,” such as Fannie Mae, Freddie Mac, HUD (FHA), the VA and State regulators generally follow a specific definition of Market Value. Appraisers doing work for “federally-related purposes” are required by USPAP to “identify the type and definition of value.”  If this is “market value” it must reflect “the most probable price.”

The nitty-gritty goal of appraisal is “market value.”  It is exampled in USPAP Advisory Opinion AO-22.  For this discussion, we can summarize into seven bullet points:

  1. Buyer and seller are each acting prudently and knowledgeably;
  2. Price is not affected by undue stimulus;
  3. Buyer and seller are typically motivated;
  4. Both parties are well informed or well advised, and acting in their own best interests;
  5. A reasonable time is allowed for exposure in the open market;
  6. Payment is in terms of cash or comparable arrangements;
  7. Price is normal, unaffected by special or creative financing or sales concessions.

So . . .  prior to our “great recession,” what was the reality?  Is it possible we were ignoring one or more of the above seven parts of “market value”?

The truth, during this time period:

  1. Buyer and seller are each acting speculatively with exuberance;
  2. Price is affected by universal euphoria;
  3. Buyer and seller are avariciously motivated and biased;
  4. Both parties are uninformed and advised by commissioned salespeople;
  5. Market exposure was limited or non-existent;
  6. Payment is in terms of cash or comparable arrangements;
  7. Price is enabled by unrestricted special and creative financing provided by loan “experts.”

We may consider looking further at each of these truths, and how the role of appraisers and our institutions can prevent such events in the future.

If we cannot attend to this core purpose, all else is like rearranging the deckchairs on the Titanic.