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AVM's and AO-18 Update

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Frederick R. Ruffell

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Jan 21, 2002
Professional Status
Certified General Appraiser
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California
Is it possible to attach a pdf or word file in this forum?

I requested further information from e-value and here is what I got. a 2000 USPAP AO-18, very out of date, a limiting conditions form which basically says that this IS an appraisal, and the following B.S.



eValu and USPAP Compliance

A Review and Summary

Prepared by
Appraisal Management Company


Introduction

This document delineates Uniform Standards of Professional Appraisal Practice as they apply to eValu, an innovative property valuation tool developed by Appraisal Management Company in Cleveland, Ohio. It is a low-cost, web based, quick, and accurate tool which can be used by appraisers in every county in the United States. eValu is patent-pending.

eValu combines the proven attributes of Automated Valuation Models (AVMs) and the expert knowledge of local appraisers. It is comprised of two distinct components:

• Appraiser review of AVM for validation or rejection as a reliable source of value.
• Desktop valuation: a limited appraisal that is completed without inspection of the subject property or comparables. The value is determined using the best sources of local data, public records, and property databases.

How eValu works: The appraiser runs an AVM on the subject property, reviews the output, and determines if it is appropriate. If the appraiser does not agree with the output, s/he completes the Desktop Valuation. If a Desktop Valuation is inappropriate for a property of this type, the appraiser can request an upgrade to a traditional appraisal product.



eValu and USPAP Compliance

A summary of each USPAP rule is followed by a point-by-point discussion of their applications to eValu (discussion of USPAP rules are indented). All line numbers refer to Uniform Standards of Professional Appraisal Practice (USPAP) 2002 Edition,  The Appraisal Foundation, Washington, D.C.


1. Ethics Rule
To promote and preserve the public trust inherent in professional appraisal practice, an appraiser must observe the highest standards of professional ethics. This ETHICS RULE is divided into four sections: Conduct, Management, Confidentiality, and Record Keeping (lines 238-240).

The Ethics Rule applies not only to individual appraisers, but also to groups and organizations engaged in appraisal practice. Appraisal Management Company (AMCO), as a company managing valuation services, takes that responsibility very seriously. AMCO’s role, in part, is to act as an intermediary between lenders and appraisers, thereby promoting impartiality. Our goal is to provide clients with the highest quality appraisal products in the industry. This makes the quality of our appraisal network paramount. The procedures developed for appraiser approval, appraiser selection and quality control processes all work to continuously improve that network.

With respect to introducing the eValu product, AMCO made every effort to ensure that the product and the methodologies employed in producing it allow appraisers to conduct and manage their business in an ethical manner. AMCO provides extensive one-on-one training with appraisers approved to complete eValu. The training is supplemented by the eValu Handbook. This handbook was designed not only to address the mechanics of completing eValu assignments, but also to provide information about how the automated valuations work, where data is derived and guidance in approaching the valuation process responsibly.

2. Competency Rule
Prior to accepting an assignment or entering into an agreement to perform any assignment, an appraiser must properly identify the problem to be addressed and have the knowledge and experience to complete the assignment competently; or alternatively, must:
1. disclose the lack of knowledge and/or experience to the client before accepting the assignment;
2. take all steps necessary or appropriate to complete the assignment competently; and
3. describe the lack of knowledge and/or experience and the steps taken to complete the assignment competently in the report (lines 363-370).

The Competency Rule as it relates to AMCO and eValu: Both geographic and experiential competence are addressed. As stated above AMCO has dedicated itself to thoroughly training appraisers who complete eValu orders. We provide each appraiser with a description of the AVMs employed, how the AVM analyzes data, volume of data analyzed, where the data is derived and how frequently it is updated.

eValu orders are completed by appraisers who exhibit geographic competence. Appraisers are selected based on their coverage areas for “traditional” appraisal business.




3. Departure Rule
This rule permits exceptions from sections of the Uniform Standards that are classified as specific requirements rather than binding requirements. The burden of proof is on the appraiser to decide before accepting an assignment and invoking this rule that the scope of work applied will result in opinions or conclusions that are credible. The burden of disclosure is also on the appraiser to report any departures from specific requirements (lines 405-409).

In completing an eValu assignment the Limiting Conditions invoke Departure. Departure was made from USPAP Standards Rule 1-4 (a) and (B). Disclosure of Departures from USPAP are discussed at length in the section of this document referencing Standards Rule 1, Statement 1-2.

4. Jurisdictional Exception Rule
If any part of these standards is contrary to the law or public policy of any jurisdiction, only that part shall be void and of no force or effect in that jurisdiction (lines 461-462).


5. Supplemental Standards Rule
These Uniform Standards provide the common basis for all appraisal practice. Supplemental standards applicable to assignments prepared for specific purposes or property types may be issued (i.e., published) by government agencies, government sponsored enterprises, or other entities that establish public policy. An appraiser and client must ascertain whether any such published supplemental standards in addition to these Uniform Standards apply to the assignment being considered (lines 482-487).

Standard 1: Real Property Appraisal, Development
In developing a real property appraisal, an appraiser must identify the problem to be solved and the scope of work necessary to solve the problem, and correctly complete research and analysis necessary to produce a credible appraisal (lines 502-504).

Standards Rule 1-1: states that an appraiser must: “be aware of, understand and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal; not commit a substantial error of omission or commission that significantly affects an appraisal; and not render services in a negligent manner…”

Further, Comment to Standards Rule 1-1(a) (lines 514-526) states “This rule recognizes that the principle of change continues to affect the manner in which appraisers perform appraisal services…the appraisal profession is constantly reviewing and revising appraisal methods and techniques and devising new methods and techniques to meet new circumstances”. This statement is an acknowledgement of the necessity and permissibility of developing and employing new techniques and methodologies such as eValu in the valuation of real estate.

Standards Rule 1-2 (a through d):

The eValu form clearly identifies the client, intended users, intended use of the opinions and conclusions, purpose of the assignment, definition of value and effective date of the appraiser’s opinions and conclusions.

(e) Identify the characteristics of the property that are relevant to the purpose and intended use of the appraisal (lines 567-568)


(f) Identify the scope of work necessary to complete the assignment. Scope of Work (as defined on page 5, paragraph 1): is the amount and type of information researched and the analysis applied in an assignment. Scope of work includes, but is not limited to, the following:
• the degree to which the property is inspected or identified;
• the extent of research into physical or economic factors that could affect the property;
• the extent of data research; and
• the type and extent of analysis applied to arrive at opinions or conclusions.

The scope of work necessary to complete the assignment is delineated in the eValu Limiting Conditions below. It is important to note that the appraiser can, at any point in the execution of an eValu assignment, request an upgrade to a traditional product. Standard reasons for requesting an upgrade include but are not limited to the following:
• Insufficient data available for subject or comparables
• Unique/complex property
• Site/View amenity could significantly affect value
• EValu is not appropriate for valuation of property type (e.g. multi-family, duplex, manufactured housing, etc.)
• Variations in condition of properties could substantially affect value

Statement of Limiting Conditions and Appraiser Certification

eValu is a Limited Appraisal Report. As such, departure was made from USPAP Standards Rule 1-4 (a) and (B). Disclosure of departures from USPAP are delineated below.

1. Per prior agreement with the client, the Appraiser did not inspect the subject property or comparable sales in preparation of this report. The client has been made aware that the accuracy of the value estimate in the eValu Report may be significantly affected due to lack of these inspections. Further, the client has been made aware that the following assumptions were made:

• The subject and comparables are physically present as described
• The condition of the subject property and comparable sales is assumed to be typical of the neighborhood
• The subject and comparables do not suffer from any significant deferred maintenance
• The subject and comparables are not affected by any adverse easement, encroachments, or influences that are atypical of the neighborhood
• The subject and comparables are not affected by any adverse environmental conditions
• The subject and comparables not adversely affected by any physical, functional, or economic obsolescence that is atypical for the neighborhood
• Title is free and clear

2. Per prior agreement with the client the appraiser has not completed the following:

• Cost approach
• Income approach
• Site valuation
• Examined FEMA maps to determine the proximity of the subject to a Special Flood Hazard Area
• Neighborhood description and analysis
• Sketch, living area calculation or floor plan of the subject
• Photos of the subject or comparables

Contingent and Limiting Conditions: The appraiser's certification that appears in this report is subject to the following conditions:

1. The appraiser will not be responsible for matters that are legal in nature that affect either the property being appraised or the title to it. The appraiser assumes that the title is good and marketable and, therefore, will not render any opinions about the title. The property is appraised on the basis of it being under responsible ownership.

2. The appraiser has obtained the information in this report from sources deemed to be reliable and accurate. In addition, information regarding the subject property’s physical characteristics was obtained from third party sources. The appraiser does not assume responsibility for the accuracy of such items that were furnished by other parties.

3. The appraiser will not give testimony or appear in court because he or she completed an eValu Report of the property in question. The report or its conclusions may not be used as the basis for expert testimony. If either should be required or anticipated, arrangements should be made for a Licensed (or Certified) appraiser to perform a full appraisal of the property.

4. The appraiser will not disclose the contents of the appraisal report, except as provided for in the Uniform Standards of Professional Appraisal Practice.

5. The appraiser has no knowledge of any hidden conditions, including but not limited to, environmental conditions (i.e. the presence of toxic substances or hazardous wastes) that would impact the value of the subject property. The appraiser has assumed that no such conditions exist and makes no guarantees or warranties, expressed or implied, regarding the condition of the property. The appraiser will not be responsible for any such conditions that do exist or for any engineering or testing that might be required to discover whether such conditions exist. Because the appraiser is not an expert in the field of environmental hazards and has not inspected the subject property, this report must not be considered as an Environment Assessment of the property. If the subject property was built prior to 1978, the dwelling may contain lead-based paint.

6. Use of this report by unintended users (anyone other than the client) is strictly prohibited.

7. The appraiser must provide his or her written consent before the client specified in this report may distribute this report, including conclusions about the property value, the appraiser’s identity, his firm’s identity, and/or professional designations, affiliations, or associations to anyone other than the borrower, the mortgagee or its successors and assigns, the mortgage insurer, consultants, professional organizations; any state or federally approved financial institution; any department, agency, or instrumentality of the United States or the District of Columbia; except that the lender client may distribute the property description section of this report only to data collection or reporting service(s) without the appraiser’s prior written consent. The appraiser’s written consent and approval must also be obtained before the report can be conveyed by anyone to the public through advertising, public relations, news, sales, or other media.

In addition, a summary of the procedure followed by the appraiser is outlined in the paragraph on the eValu form directly below the Subject Property Information section. The paragraph states:

This report is designed to allow the appraiser to incorporate automated valuation models (AVMs) in the valuation process. The appraiser will review the AVM to determine the reasonableness of the output. If the appraiser determines that the output of the AVM is unacceptable for this assignment, then a manual search for comparables will be conducted. The appraiser will complete the sales grid below and render an opinion of value based on this analysis. In the event the desktop analysis is deemed insufficient for this assignment, the appraiser will request an upgrade to a more comprehensive appraisal.





Standards Rule 1-3 (Highest and Best Use analysis):

Appraiser is still bound by Standards Rule 1-3 when completing an eValu assignment. If there is a question regarding the potential highest and best use of the subject property, an upgrade to a traditional appraisal is requested.

Standards Rule 1-4: In developing a real property appraisal, an appraiser must collect, verify, and analyze all information applicable to the appraisal problem, given the scope of work identified in accordance with Standards Rule 1-2(f).

Departure from Standards Rule 1-4(a) and (B) is invoked in paragraph one of the Limiting Conditions section of the eValu report. The client is clearly made aware that the appraiser will not complete a cost or income approach in order to arrive at a value conclusion. If the appraiser deems these or other methods appropriate to meet the intended use, an upgrade to a traditional appraisal will be recommended.

Standards Rule 1-5: In developing a real property appraisal an appraiser must: analyze any current Agreement of Sale, option, or listing of the property if such information is available in the normal course of business. Further the appraiser must analyze any prior sales of the property that occurred within one year for one to four family properties.

The Sales and Listing History section of the eValu form provides an appropriate section for the appraiser to enter this information.

Standard 2: Real Property Appraisal, Reporting
In reporting the results of a real property appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading (lines 714-715).

Standards Rule 2-1: Clearly and accurately set forth the appraisal in a manner that will not be misleading; should contain sufficient information to enable intended users of the appraisal to understand the report properly and clearly and accurately disclose any extraordinary assumption, hypothetical condition, or limiting condition that directly affects the appraisal and indicate its impact on value.

The departures and assumptions and their possible impact on value are clear and plainly described in the eValu Limiting Conditions section of the eValu report . The lack of inspection of the subject and comparables, departure from Standards as well as the potential consequences of these limitations is prominently displayed.

Standards Rule 2-2: Each written real property appraisal report must be prepared under one of the following three options and prominently state which option is used: Self-Contained Appraisal Report, Summary Appraisal Report, or Restricted Use Appraisal Report.

Paragraph one of the eValu Statement of Limiting Conditions and Appraiser Certification clearly states: eValu is a Limited Appraisal Report. As a Limited Appraisal Report, eValu complies with all reporting rules noted in lines 863 through 965 summarized below:
• Identity of client and intended users
• Identify the intended use of the appraisal
• Summarize information sufficient to identify real estate involved…including physical and economic property characteristics relevant to the assignment
• Identify real property interest appraised
• Purpose of the appraisal, including type and definition of value and it source
• Effective date of the appraisal and the report
• Summarize sufficient information to disclose to the client and any intended users the scope of work used to develop the appraisal
• State all assumption, hypothetical conditions, and limiting conditions that affected the analyses, opinions and conclusions
• Summarize the information analyzed, the appraisal procedures followed and the reasoning that supports the analyses, opinions and conclusions
• State the use of the real estate existing as of the date of value and the use reflected in the appraisal; and when the purpose of the assignment is market value, summarize the support and rationale for the appraiser’s opinion of the highest and best use
• State and explain any permitted departures from specific requirements of STANDARD 1 and the reason for excluding any of the usual valuation approaches
• Include a signed certification in accordance with Standards Rule 2-3

Standards Rule 2-3: Each written real property appraisal report must contain a signed certification that is similar in content to the following: (see lines 1058-1097).

Each eValu report contains the following signed (with an electronic signature) certification:
Appraiser’s Certification: The appraiser certifies and agrees that:

1. I have incorporated the use of a computer automated valuation model in my analysis, or as described on page one of this form, I have performed a manual analysis of the subject property. If I performed a manual analysis, I have researched the subject market area and have selected a minimum of three recent sales of properties most similar and proximate to the subject property for consideration in the Sales Comparison Approach. Differences between the subject and comparables were evaluated to arrive at the value conclusion in this report. Utilizing the Sales Comparison Approach, I placed most weight on the comparable(s), that are, in my opinion, most similar to the subject.

2. I have taken into consideration factors that I am aware of that have an impact on value in my development of the value conclusion presented in this report. I have not knowingly withheld any significant information from this report and I believe, to the best of my knowledge, that all statements and information in this report are true and correct.

3. I stated in this report only my own personal, unbiased, and professional analyses, opinions, and conclusions, which are subject to the assumptions, contingent and limiting conditions specified in this report.

4. I have no present or prospective interest in the property that is the subject of this report and I have no present or prospective personal interest or bias with respect to the participants in the transaction. Neither my analysis nor my report was based partially or completely on race, color, religion, sex, handicap, familial status, or national origin of either the prospective owners or occupants of the subject property or of the present owners or occupants of the properties in the vicinity of the subject property.

5. I have no present or contemplated future interest in the subject property, and neither my current or future employment nor my compensation for performing this report is contingent upon its conclusion.

6. I was not required to report a predetermined conclusion that favors the cause of the client or any related party, the attainment of a specific result, or the occurrence of a subsequent event in order to receive my compensation and/or employment for performing this report. I did not base this report on a requested conclusion or the need to approve a specific mortgage loan.

7. I performed this report in conformity with the Uniform Standards of Professional Appraisal Practice that were adopted and promulgated by the Appraisal Standards Board of the Appraisal Foundation and that were in place as of the date of this report.

8. Based on prior agreement with the client, an inspection of the subject property and comparables, the Cost Approach and Income Approach were excluded from this report. I have considered these exclusions and determined that the exclusion of an inspection, the Cost Approach and the Income Approach would not result in a report that is misleading to the client.

9. Although I have not personally inspected the subject property and the properties employed as comparables in this report, I certify that I have no knowledge of any hidden or unapparent conditions of the property or adverse environmental conditions within the immediate vicinity of the subject property.

10. I have personally prepared all conclusions and opinions about the real estate that were set forth in this report. If I relied on significant professional assistance from any individual(s) in the preparation and reporting, I have named such individual(s) and disclosed the specific tasks performed by them in the general comment section of this report.




The undersigned appraiser certifies this eValu report in accordance with and subject to the Statement of Limiting Conditions and Appraiser Certification paragraphs of this report. The certification may only be made by the appraiser who has completed this report, with encoded password access to this report. The box must be checked in order for this report to be valid and acceptable. This certification shall act as the appraiser signature in accordance with the Electronic Records and Signatures In Commerce Act. 15 USC 7001 et. seq.


Appraiser Information
The following Appraiser has been verified as having completed this AAVM:
Appraisal Firm:
Appraiser Name:
License Number:
Expiration Date:
Date Report Signed



Standards Rule 2-4: Regarding oral real property appraisal reporting.
Not relevant to eValu compliance.

Standard 3: Real Property and Personal Property Appraisal Review, Development and Reporting
In performing an appraisal review assignment involving a real property or personal property appraisal, an appraiser acting as a reviewer must develop and report a credible opinion as to the quality of another appraiser’s work and must clearly disclose the scope of work performed in the assignment (lines 1108-1111).

eValu is not used to review assignments involving another appraiser’s work product. Standard 3 does not apply.



Standard 4: Real Property Appraisal Consulting, Development
In developing a real property appraisal consulting assignment, an appraiser must identify the problem to be solved and the scope of work necessary to solve the problem, and correctly complete the research and analysis necessary to produce credible results (lines 1296-1298).

Standard 4 deals with the appraiser’s conduct regarding consulting assignments. Aside from describing the differences between appraisal, review, and consulting assignments, Standard 4 addresses the same issues as Standard 1. Please see the section above referencing Standard 1.

Standard 5: Real Property Appraisal Consulting, Reporting
In reporting the results of a real property appraisal consulting assignment, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading (lines 1425-1426).

Standard 5 deals with the communication of the results of a consulting assignment. The comments regarding Standard 2 apply.


Standard 6: Mass Appraisal, Development and Reporting
In developing a mass appraisal, an appraiser must be aware of, understand, and correctly employ those recognized methods and techniques necessary to produce and communicate credible mass appraisals (lines 1557-1559).

eValu is not designed or employed as a mass appraisal product

Standard 7: Personal Property Appraisal, Development
In developing a personal property appraisal, an appraiser must identify the problem to be solved and the scope of work necessary to solve the problem and correctly complete research and analysis necessary to produce a credible appraisal (lines 1964-1966).

eValu is not designed or employed as a personal property appraisal product

Standard 8: Personal Property Appraisal, Reporting
In reporting the results of a personal property appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading (lines 2183-2184).

eValu is not designed or employed as a personal property appraisal product








Standard 9: Business Appraisal, Development
In developing a business or intangible asset appraisal, an appraiser must identify the problem to be solved and the scope of work necessary to solve the problem and correctly complete the research and analysis steps necessary to produce a credible appraisal (lines 2562-2564).

eValu is not designed or employed as a business appraisal product


Standard 10: Business Appraisal, Reporting
In reporting the results of a business or intangible asset appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading (lines 2692-2693).

eValu is not designed or employed as a business appraisal product









The following was taken from the Uniform Standards of Professional Appraisal Practice 2002 (USPAP), “Frequently Asked Questions (FAQs)”. Page 44, Question 74.



DRIVE-BY AND DESK-TOP APPRAISALS

Question:
Does USPAP permit real property appraisers to perform drive-by or desktop appraisal assignments? If so, are they Limited Appraisals?

Response:
Appraisals performed with only an exterior inspection of the property by the appraiser are what are meant by the term “drive-by appraisals” and appraisals performed with no inspection of the subject property are often labeled “desk-top” appraisal assignments. When properly disclosed in the appraisal report, USPAP permits real property appraisers to perform appraisals with different levels of inspection of the subject property. However, the disclosure does not relieve the appraiser of the responsibility to determine whether adequate information about the subject property is available to develop an appraisal that is not meaningless or misleading.

In developing a real property appraisal under USPAP, an appraiser is responsible to adequately identify the real estate being appraised. Inspection of the subject property is not specifically cited in STANDARD 1. Consequently, there is no departure caused the appraiser’s decision not to inspect the property, and the appraisal is not a Limited Appraisal for this reason because the appraiser has not invoked the DEPARTURE RULE.

Based on the response to the question above it is clear that USPAP permits a “desktop” appraisal (no inspection of the subject property). It is also evident that determining whether or not there is adequate information about the subject to develop a credible appraisal is the responsibility of the appraiser. The eValu instructions and procedure permit the appraiser to exercise their judgment in making this decision.
 
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