Exposure Draft USPAP 2018-19 - Appraisal Foundation

[Mike Kennedy]

The Appraisal Foundation is pleased to announce that the Appraisal Standards Board (ASB) has issued the First Exposure Draft of proposed changes for the 2018-19 edition of the Uniform Standards of Professional Appraisal Practice.

Link: https://appraisalfoundation.sharefile.com/d-se27abf233484d3b8

Issued on April 12, 2016
Written comments requested by June 12, 2016
Send Comments to ASBComments@appraisalfoundation.org

 

[DJBanas]

I made a general assumption that the extraordinary assumption definition wold be clarified. Or should that have been a specific assumption? I'm more confused than ever now. And what specifically would fall into the general assumption category?

 

[Peter LeQuire]

How do these proposed revisions promote public trust?

Under the definition of "report" - if an appraiser communicates assignment results but doesn't provide the mandated signed certifications, it's not a report?

What is gained by scouring around to replace "extraordinary" because certain regulators and appraisers "have difficulty" explaining what it means? Or they ascribe tertiary synonyms for the word? When exactly did the term "extraordinary assumption" come into the professional lexicon?

 

[residentialguy]

I found this to be quite interesting.

So does this mean that it's not an appraisal when we say house X is worth $300,000, since it is not authorized by the client in lieu of a written report. If that's the case, I applaud this change. So sick and tired of hearing "you just did an appraisal and must be held to standards blah blah blah" when you told your friends at your BBQ that the house next door is worth about $500k.

 

[residentialguy]

I made a general assumption that the extraordinary assumption definition wold be clarified. Or should that have been a specific assumption? I'm more confused than ever now. And what specifically would fall into the general assumption category?

And what are they going to do about the forms that have the other verbiage?
Dear Lender, I'm sorry but I can't check box 4. I don't know what that means anymore.

 

[DWiley]

I have taken a quick pass through the ED, and I anticipate providing LOTS of feedback

The proposed change to the definition of REPORT is full of irony. On the one hand, the ASB has long emphasized the importance of a signed certification, because it is the appraiser's attestation that he/she knows the ethical obligations associated with being an appraiser. But the effect of the proposed definition would be to render 2-3 unenforceable. Any document that did not have a certification would, by the USPAP definition, not be a report - so, it would not require a certification. I have commented on this logic loop before, and I am disappointed to see this one resurface.

That definition of REPORT will also conflict with most state laws. Gee. Just what we need.

Also, the proposed definition of Intended Use is in direct conflict with what is stated in STANDARD 1. No big deal. Right?

The COMPETENCY RULE would now apply to all valuation services?? Seems like a pretty big shift to slide in as a "related edit."

And that's just the stuff I found in the first 10 minutes of reading

 

[hastalavista]

In regards to defining a report:
I like the changes. There are some complex assignments where back-and-forth improves the communication process given the intended use of the report. I see this less as an infringement on the appraiser's development-process (i.e., how I valued the subject and why I did used the valuation methods I did) and more an assist on the communication process (Client: "You know, I read what you wrote here but it still doesn't isn't clear what you are saying given what we are trying to achieve [intended use] by obtaining the appraisal.").

An example might be: Litigation purposes. The analysis is done and the number is set in concrete. The report is going to be used to as part of the argument for the client to achieve X. The client reads the report and has an idea of the other sides questions (line of attack) and what the other side is going to advocate for. So, the client asks the appraiser to expand the comments on certain parts of the appraiser to get more granular/detailed/or perhaps explain the issue in a less appraiser-techno speak and more Joe/Jane Six-Pack speak.
The client isn't asking the appraiser to change the results. The client is asking the appraiser to do modify the communication of the results so the points the client wants to make are crystal clear.
I don't see anything wrong with this; I see it as an improvement of the communication of the assignment results. Of course, a client could ask the appraiser to present something in a misleading manner (that can happen no matter what the USPAP says); we have to assume that the appraiser will follow the all of the USPAP (including the Ethics Provisions); if we don't, then it doesn't matter what changes happen to the USPAP.
The main argument I hear against "draft" or "Preliminary Reports" is that banks/mortgage lenders will shop for a value. The ASB states that this is clearly in violation of Federal Law, so the changes suggested in this proposal do not allow for such activity anyway.

In regards to the clarification of "General" and "Specific" assumptions:
I see this as a positive change. We sit on this forum and argue what is an "extraordinary" vs. "ordinary" or "general" assumption all the time. I find myself in the reports for mortgage lenders, when I describe something and reach a conclusion, I will say something like, "Based on all of the above, I am assuming X. This is not an extraordinary assumption, but a general assumption blah, blah,blah."
So I'm already alerting my client when I use the term "assumption" that is outside of the pre-printed list of assumptions, that what I'm assuming isn't "extraordinary" (for GSE work, triggering the requirement to indicate that as such by checking an EA box).
For non-mortgage work, getting rid of "Extraordinary" by substituting the term "Specific" makes great sense (for the reasons the rationale of the draft cites).
And, we don't need the USPAP to allow us to do what it suggests anyway; an extraordinary assumption doesn't have to be labeled as such. But what has to happen is the inclusion of the advisement that if found to be false, it may affect assignment results. This doesn't change; that requirement remains no matter what we call it.
So, again, I think this suggestion is an improvement: it adds clarity that is easily understood (without having the USPAP translation book at hand).

In regards to the changes to the Appraisal Review Standards:
This doesn't change anything. I think the ASB wanted to fill the gap of a "Standard Rule 4" when they removed the Consulting Standard.

In regards to the proposed AO-37:
The thrust of this advisory opinion is, "if you are going to use these automated or statistical tools, you have to have some reasonable competency as to how they work so that you know when the results are reliable, unreliable, etc."
I couldn't agree more. I just taught a class last night in Sacramento about supporting adjustments. One of the PP had the advice that if you are going to use your own analytic methods or some off-the-shelve product, you better have a basic understanding of how it works and why it should be applied to the particular problem. I said,
"The last thing I want to have happen is for someone to ask me, 'Hey, Denis... you used this tool to arrive at this result. Can you explain how it works and how you interpreted its indication?"
and for me to reply,
"Well, I'm not exactly sure how it works. But everyone else is using it!"

My 2-cents!

 

[DWiley]

The main argument I hear against "draft" or "Preliminary Reports" is that banks/mortgage lenders will shop for a value. The ASB states that this is clearly in violation of Federal Law, so the changes suggested in this proposal do not allow for such activity anyway.

Yes, they cite the federal law, but when I talk with them they don't want to discuss state laws. If that definition is adopted, it will create a situation where a document is not a "report" according to USPAP, but is a "report" according to most state laws. So, the "draft" that is perfectly legal (ignoring for a second the provision in the COMPTENCY RULE to know and abide by applicable law) under the USPAP definition of REPORT violates the state law. Think that is a good situation?

It is interesting to me that one of the ASB members who is most "pro-draft" lives and works in a state with the following definition of "report" in its state law:

"Appraisal report" means any communication, written or oral, of an appraisal.

 

[George Hatch]

These draft guys just won't give up. They seem bound and determined to take us back to the 1990s labels-based appraising, applying the requirements based on the wordlplay instead of the actions of the individual and the expectations of the users.

By the time these people get done with appraisal standards we'll all be able to a letter opinion of value or a comp check or a "valuation" for a client and as long as we don't include a certification then its not an appraisal report.

I realize these people value highly the prospect of sending appraisal reports to their lawyer clients that are immune from discovery, but that benefit must be weighed against all the other applications and unintended consequences that these changes will also enable.

I mean, if there's a more efficient way for the ASB to undermine our assertions of independence or impartiality or accountability with the public I can't think of it. They seem to be working on a plan to shorten the remaining economic lifespan of the appraisal profession.

 

[hastalavista]

Yes, they cite the federal law, but when I talk with them they don't want to discuss state laws. If that definition is adopted, it will create a situation where a document is not a "report" according to USPAP, but is a "report" according to most state laws. So, the "draft" that is perfectly legal (ignoring for a second the provision in the COMPTENCY RULE to know and abide by applicable law) under the USPAP definition of REPORT violates the state law. Think that is a good situation?

Danny, you know better than I that the USPAP doesn't trump state law, so it would be incumbent on the appraisers in those states to understand what is applicable to them. This is the rule now, is it not?

I appreciate the argument of "Why do something that will likely add confusion rather than clarity". It is a powerful argument and goes to the practical outcome of some of the suggested changes.

Nonetheless, I'm in favor of the conceptual changes that are being proposed regarding the definition of a "report". I see some practical benefits that would work well in the real world. I don't see the "comp check concern" (with all due respect to George) being that significant.
And, BTW (as some may recall who have been on this board long enough) I completed what many would call a "comp check" when I had broker clients. It was a written report with a certification. It had a specific SOW and intended use. I required my broker-clients to submit the request to me on an engagement request form I designed. I would give them their answer on a report form I designed. Sometimes, based on the property and the data, I'd tell them, "Sorry; I cannot complete a credible assignment given the data. Do you want to order an appraisal for the mortgage finance?" I even shared examples of what was included to others that were interested. One of the biggest advocates against appraiser pressure and against the "comp check" process at that time was Pam Crowley. I sent her a copy and she even had to come to my defense a few times on this forum and vouch that the service I provided was not a comp check but an appraisal (and Roger aka Mentor, who is sorely missed, and I collaborated on ensuring it was so).
I did this for my good clients. They clearly understood that the results of the restricted report may be radically different than the results of an appraisal report completed with the SOW consistent for a mortgage loan (which sometimes happened).
So, the ability to do a "comp check" still exists. And the effort to do it in a compliant manner isn't that hard to muster.
But guess what? No one orders "comp checks" anymore. We don't have broker clients like we used to. I think the comp check concern is not as significant due to state and federal laws and the different composition of our client base.

The USPAP is useless if we don't accept Ethics Rule compliance is axiomatic.

So, this is how I read it (and I'd appreciate anyone pointing out any flaws in how I interpret it):

The preliminary or draft report is a consequence of an "assignment" which is defined (in the proposal) as


The proposed Ethics Rule states the following:



So, the proposed ethics rule now identifies "report" and "assignment results" as being verboten to be reported in a misleading or fraudulent manner.

But if it is a "draft/preliminary" report without a signed certification is "preliminary", are those results contained within the draft "assignment results"?
Well, the proposal has the following statement in its Ethics Rule:



Let's re-word this:

You can always communicate assignment results in a report (and when you do, that report must have a signed certification.
BUT, if you report any portion of the assignment results outside of a report, then you must clearly and conspicuously disclose that the communication is preliminary; i.e., not the appraisal report. And by the way, whenever your communicate assignment results in whatever form, they cannot be misleading or done so in a fraudulent manner.​

So, does this change weaken the integrity of our process, diminish our role, or increase the prospects of the public trust being damaged by virtue of allowing misleading or fraudulent assignment results to be communicated?
If we are talking about an appraisal, then the development standards don't change. They have to be done competently and consistent with the USPAP.
The Ethics Rule (proposed) requires us to not communicate a report OR assignment results in a misleading or fraudulent manner.
Assignment Results can be communicated in a preliminary document but must be labeled clearly as such.
The requirement to produce credible results and communicate them in a non-misleading/non-fraudulent manner hasn't changed; that requirement is the same regardless if those results are communicated in a preliminary draft or in the final report.

So, I don't see (conceptually) how this weakens the system. I've given one example (and I'm sure there are more) where a preliminary communication makes a lot of sense; it can enhance and improve the communication of the results in a manner that is very consistent with the intended use and that certainly maintains the integrity of the process.

There is a practical complication; that is the potential conflict with state laws. I'd like to see if there are any practical means to eliminate this conflict.

I don't see this resurrecting a rush for "comp checks". I don't see this impacting the integrity of the profession. I can appreciate that others will disagree, and I don't dismiss any disagreement due to lack of merit. I just don't share the same level of concern.