An Interesting Read for Those Still working

[jay trotta]

USPAP’s Typical Buyer Standard in the Fair Housing Era​

The Irreconcilable Conflict Between USPAP’s Typical Buyer Standard and the Current Fair Housing Compliance Regime. Retain this document as a reference should you face a complaint grounded in disparate impact theory alone. The three-safeguard framework from Inclusive Communities provides a robust defense for any appraiser whose methodology is USPAP-compliant, well-documented, and market-supported. Introduction I want to state plainly what the appraisal profession has been tiptoeing around since roughly 2019: an appraiser cannot simultaneously comply with: 1- USPAP’s requirement to identify and analyze the most probable (typical) buyer of a property via market data AND… 2- comply with the current iteration...

I found this over at Appraiser Blogs, and felt it was interesting enough to bring here, although I'm out and have been for a while, I believe it provides great support for the active appraiser to keep in their "toolbox"

 

[TerryRohrer]

Sounds like a pile of...obfuscating gibberish written by someone who fails to understand the task they are engaged to complete. Reading and understanding USPAP and the definition of market value should dispel any notion that appraisers are required to identify the most probable or typical buyer. Silly, off-target, inaccurate gibberish isn't a way out.

STANDARDS RULE 1-3, MARKET ANALYSIS, AND HIGHEST AND BEST USE
When necessary for credible assignment results in developing a market value opinion, an appraiser must:
(a) identify and analyze the effect on use and value of:
(i) existing land use regulations;
(ii) reasonably probable modifications of such land use regulations;
(iii) economic supply and demand;
(iv) the physical adaptability of the real estate; and
(v) market area trends; and
Comment: An appraiser must avoid making an unsupported assumption or premise about market area
trends, effective age, and remaining life.
(b) develop an opinion of the highest and best use of the real estate.
Comment: An appraiser must analyze the relevant legal, physical, and economic factors to the extent
necessary to support the appraiser’s highest and best use conclusion(s).

Definition of Market Value​

Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale with, the buyer and seller, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

• buyer and seller are typically motivated;
• both parties are well informed or well advised, and each acting in what they consider to be in their own best interest;
• a reasonable time is allowed for exposure in the open market;
• payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
• the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

 

[DWiley]

Man, I learned a lot from that post. For example:

• Is a third bedroom important? That depends on who is buying. A young couple without children may trade that third bedroom for a larger primary suite. A family with two children will not. Identifying the typical buyer tells you whether to adjust for bedroom count and by how much.

Silly me, I thought that such an adjustment would be derived by looking at data (e.g. sales prices of 2BR homes vs 3BR homes).

And then there is this...

• Is a fenced yard important? In a neighborhood where the typical buyer has dogs and children, a fence is a significant amenity. In a retirement community, it is irrelevant.

I was unaware that those in a retirement community are not interested in privacy in their back yards; and they don't have pets. Good to know.

BTW, I am still looking for that "typical buyer" standard in USPAP. Can someone give me a citation?? I find no references to that in USPAP or in the guidance material. Help me out. TIA.

 

[gregb]

BTW, I am still looking for that "typical buyer" standard in USPAP.

Not in USPAP, location matters

 

[Vermonter]

Silly me, I thought that such an adjustment would be derived by looking at data (e.g. sales prices of 2BR homes vs 3BR homes).

Didn't you hear? Data is racist. At least that was the main theme in the most recent national bias class I took.

 

[J Grant]

Man, I learned a lot from that post. For example:

• Is a third bedroom important? That depends on who is buying. A young couple without children may trade that third bedroom for a larger primary suite. A family with two children will not. Identifying the typical buyer tells you whether to adjust for bedroom count and by how much.

Silly me, I thought that such an adjustment would be derived by looking at data (e.g. sales prices of 2BR homes vs 3BR homes).

And then there is this...

• Is a fenced yard important? In a neighborhood where the typical buyer has dogs and children, a fence is a significant amenity. In a retirement community, it is irrelevant.

I was unaware that those in a retirement community are not interested in privacy in their back yards; and they don't have pets. Good to know.

BTW, I am still looking for that "typical buyer" standard in USPAP. Can someone give me a citation?? I find no references to that in USPAP or in the guidance material. Help me out. TIA.

You have been removed from the market for too long. An appraisal is defined in USPAP as an OPINION. It is not defined as a mathematical formula or a statistical formula.

It is an opinion of value, said opinion based on observing the market, and of course, considering the data. An appraisal was not designed for the two to be exclusive of each other. Though of course it is more profitable and under the stakeholders' control if we shift what an appraisal is into being simple data as numbers, which allows them to claim that an appraiser is not needed to crunch numbers/data - AI or a non-appraiser person can do it.

We are all looking for what the typical buyer is in every assignment.

USPAP does not provide a citation for it, because the word typical buyer is a concept, meaning the typically motivated buyer for a penthouse in Manhattan is different than the typically motivated buyer for a starter family tract home in Wisconsin, but both represent typical for their market segment and price range.

To frame how a typically motivated buyer and seller would behave for the hypothetical MV opinion, the motivations of a typically motivated buyer and seller are spelled out in the market value definition used in an appraisal.

To get specific, usually, fenced yards are not present in retirement communities. If that is not true of a certain area, then of course that would differ. In addition, fenced yards are often prohibited in retirement communities per HOA docs. So yes, it would be idiotic for an appraiser not to know that. But an appraiser knowing what local communities allow or prefer , after years of appraising and getting feedback from RE agents, buyers, and sellers - that would be contrary to the narrative that it is just "data".

 

[CGinMN]

Pretty sure the standard texts have always told appraisers that a HBU conclusion discusses use, timing, and market participants/users or most probably buyers. That said, definitely not in USPAP.

 

[DWiley]

Not in USPAP, location matters

Wait, what?

The title of the Article is,

USPAP’s Typical Buyer Standard in the Fair Housing Era​

but you are saying it is actually not in USPAP??

 

[DWiley]

You have been removed from the market for too long. An appraisal is defined in USPAP as an OPINION. It is not defined as a mathematical formula or a statistical formula.

It is an opinion of value, said opinion based on observing the market, and of course, considering the data. An appraisal was not designed for the two to be exclusive of each other. Though of course it is more profitable and under the stakeholders' control if we shift what an appraisal is into being simple data as numbers, which allows them to claim that an appraiser is not needed to crunch numbers/data - AI or a non-appraiser person can do it.

We are all looking for what the typical buyer is in every assignment.

USPAP does not provide a citation for it, because the word typical buyer is a concept, meaning the typically motivated buyer for a penthouse in Manhattan is different than the typically motivated buyer for a starter family tract home in Wisconsin, but both represent typical for their market segment and price range.

To frame how a typically motivated buyer and seller would behave for the hypothetical MV opinion, the motivations of a typically motivated buyer and seller are spelled out in the market value definition used in an appraisal.

To get specific, usually, fenced yards are not present in retirement communities. If that is not true of a certain area, then of course that would differ. In addition, fenced yards are often prohibited in retirement communities per HOA docs. So yes, it would be idiotic for an appraiser not to know that. But an appraiser knowing what local communities allow or prefer , after years of appraising and getting feedback from RE agents, buyers, and sellers - that would be contrary to the narrative that it is just "data".

So, do you derive bedroom adjustments based on the number of children that the typical buyer has (as the article states)? How does that work? Is it $1,500 per child? $3,500? Does the adjustment change when the child moves out?

 

[J Grant]

IDK why the OP posted what they did- it is confusing.

The follow-up on the topic here is interesting in addressing buyer behavior, but the OP seems interested in some kind of preventive defense against a biased claim.
The USPAP reference to that is an unbiased opinion. Which is not saying the same thing as must be a blind spot to the market behavior, numerical, only data-driven opinion.

It means, imo, that an appraiser can not allow any personal bias to influence their opinion of value or other conclusions about properties.