Restricted Reports and Estate Planning

[Deleted member 126639]

I once had an instructor teach that if you did more than the minimum it was neither a restricted nor a summary report???

Which begs the question. Why do we have a "restricted" label? Was there some benefit to not simply and finally ditching the 3 option stupidity that was created in the mid-1994 changes to USPAP that riled us (at least all us old geezers who were there) all up? Only to have TAF slowly and surely one drip at a time unravel all the dumb things they created in the 1990s...

So what next? Do we reinstate "departure" and eliminate the Scope of Work rule?...I'd hate to bet against it

The three reporting options - self-contained (as an instructor 20 years ago said, "I don't know what that means. I have a summary report that is 1,200 pages."

I don't want me or my client to be the guinea pig who gets to take this to tax court and 'perfect' the law.

We have the restricted label because of loan syndication. That is the only reason.

The Appraisal Foundation is under international pressure to conform to international standards, which for a variety of geopolitical reasons is inevitable.

What profession doesn't have a thorough Scope of Work? Eliminate the scope of work rule? What? That means you honestly do not understand what a professional Scope of Work even is.

I didn't even read this before my last report - but old guys like you still run the show and everything must be a Self-Contained Complete Appraisal Report, which correctly was never defined with every old guy having his own peculiar ideas of what garbage should go into a report.

Would any judge accept a 100 page brief for something simple like anything involving an actual appraisal report? No. They would tell the lawyer not to waste their time and submit something shorter. Same deal in appraisal.

 

[Deleted member 126639]

I think a vast difference exists between arguing and educating. I don’t want to be your fence post but, an IRS review Appraiser does not get to set law or IRS policy in an arbitrary manner. There is a process and one review Appraiser vs another is not how it should work. Problem is way too many Appraisers lay down and are afraid to stand up for what is right (or possibly don’t know themselves). I still await an IRS appraisal guideline link supporting the review Appraisers position.

The IRS is never going to waste time on such a trivial matter. The reporting guidelines for every appraisal is agreed upon scope of work. If a public or private entity has specific guidelines, that should be in your scope of work. Absent that, you have to write a real professional services engagement letter that includes the agreed upon scope of work.

There is no "what is right" when it comes to reporting detail. The question of what is right only applies to appraisal methodology, including the extent, quality, and relevance of research performed and how it was used to develop an opinion of value.

It is far easier to keep a good work file with all the research you would need and prepare a short appraisal report. If a client comes back and realizes they need more reporting detail, then you can revise your report accordingly and should you work for that client again, you'll realize the appropriate scope of work they require.

The majority of your time as an appraiser should be researching the market, and a minority of time should be spend reporting upon that research. Instead the opposite is the case, and at the national firms? Appraisers NEVER call a broker or investor or any market participant, even in their own firm! It's comical.

I'll take 5 opinions of brokers, investors, and developers familiar with the appropriate market and asset class over 20 pages of plagiarized Costar nonsense.

 

[BRCJR]

Dude, Freddie Mac is on the forefront of putting an end to appraiser nonsensical writing of appraisal reports the length of novels. The entire residential real estate market is effectively controlled by the government (and has been since the Great Depression), and they require brevity as every appraisal report is added as a datapoint in the overall economic planning of how residential real estate policy is formed. You can get in touch with the Freddie Mac Chief Appraiser easily. He's happy to discuss all manner of ways to make appraisals easier to understand. Marty Skolnick - Martin_Skolnik@freddiemac.com.

While the 50-page limit was inherited from Europe, an important difference between USPAP and all other valuation standards is that the inclusion of irrelevant information, data, or conclusions is itself misleading.

I don't really appraise anything but small multi-family properties for local lenders as the fees are high. But I review appraisals where Freddie Mac is the intended user all the time, and they comply mostly by doing stupid nonsense like putting front end components of their report template in the Addenda.

Across the board NO ONE wants to read lengthy appraisal reports unless absolutely necessary, which is probably under 3-5% of the commercial reports prepared. Appraisers are their worst enemy. You should be thinking to yourself "Wow, I don't have to include 50 pages of nonsense I know no one reads? That means I can get reports done faster with fewer errors and increase my hourly wage!".

Until the original FIRREA crowd that got into the business circa 1991 retires or dies, there will always be the mindset that anything less than a Self-Contained Complete Appraisal Report is not credible nor what clients want.

EDIT: WTF? Section 60.11 https://mf.freddiemac.com/docs/chapters/mf_guide_ch_60.pdf

"Appraisals submitted to Freddie Mac for loan origination in the Small Balance Loan (SBL) program must be 50 pages or less. Addenda to these Appraisals are not included in the 50-page count. Effective with underwriting packages delivered to Freddie Mac on or after August 1, 2019, appraisals submitted to Freddie Mac for loan origination in the Targeted Affordable Housing Express (TAHX) program and with an appraisal effective date of value on or after August 1, 2019 must be 75 pages or less. Addenda to these appraisal reports are not included in the 75-page count. "

Clearly the trend is for page limits. Baby steps.

But you said 50 pages were disallowed, which may be true in some cases. You now have qualified your facts, dude.

 

[BRCJR]

The IRS is never going to waste time on such a trivial matter. The reporting guidelines for every appraisal is agreed upon scope of work. If a public or private entity has specific guidelines, that should be in your scope of work. Absent that, you have to write a real professional services engagement letter that includes the agreed upon scope of work.

There is no "what is right" when it comes to reporting detail. The question of what is right only applies to appraisal methodology, including the extent, quality, and relevance of research performed and how it was used to develop an opinion of value.

It is far easier to keep a good work file with all the research you would need and prepare a short appraisal report. If a client comes back and realizes they need more reporting detail, then you can revise your report accordingly and should you work for that client again, you'll realize the appropriate scope of work they require.

The majority of your time as an appraiser should be researching the market, and a minority of time should be spend reporting upon that research. Instead the opposite is the case, and at the national firms? Appraisers NEVER call a broker or investor or any market participant, even in their own firm! It's comical.

I'll take 5 opinions of brokers, investors, and developers familiar with the appropriate market and asset class over 20 pages of plagiarized Costar nonsense.

Show me your verifiable source, ie. link to IRS written policy regarding Restricted Appraisals and I go away with respect for your position.

 

[Tom D]

i have made friends with a group of reviewers from a major banker. they absolutely do not read the report. when they want to know something, they do a word search to find it. after taking to them i dropped 10 pages from my normal report. when i did reviews i only got a headache trying to find things on a report that were important. the wasted space on nonsense, i would just give up trying to make sense of any order of important info.
i was also surprised at how many layers CU has to give them various info. i was again surprised that the reviewers could also not explain how CU figured out some things. they might see a pattern, but there was no explanation as to why for some of CU's thinking.

 

[Deleted member 126639]

Show me your verifiable source, ie. link to IRS written policy regarding Restricted Appraisals and I go away with respect for your position.

You were given a link to the freddie mac guidelines. Freddie Mac is probably the largest source of capital for residences of all types. Of course they have guidelines.

The bigger problem here is you don't grasp there is no fundamental difference between a restricted report and appraisal report besides the intended users. You do not understand the concept of "scope of work". I've said it probably three times already. In your mind, "restricted report" means something like "letter of value" and "Appraisal Report" means "Complete Self-Contained Appraisal Report". You can't reconcile the two extremes, hence the cognitive dissonance.

But your client is never going to be the IRS. The scope of work could necessitate a brief report or a detailed one. The accounting firm or attorney who hires you would provide such guidelines. I can think of many instances when a complex report would be necessary. But the majority are not. Frankly, this forum is not really for those capable of complex appraisals. I've never seen anyone post a question like "How do I appraise ocean floor land owned by the federal government and leased to a wind farm operator with 200 turbines?". Yeah, I got a bid request for that last week. That would absolutely require a high level of detail as there is no established methodology and most people do not understand the energy industry. An apartment building? No way.

It's really quite simple - the level of reporting detail should be specific to the appraisal problem being solved.

So here are the IRS guidelines. Doesn't seem radically different from USPAP, but they do mention appraisal problems that do require more reporting, i.e. partial interests, life estates, and the boogey monster conservation easements! None of those require 100+ reports either though, seriously. The people who got in trouble with conservation easements were largely sloppy with poorly researched comps, or impossible to understand due to appraiser rambling. This is why it is very important to remember that sooner than you think, USPAP will stipulate inclusion of irrelevant data or data that is not analyzed is ipso facto misleading. At the end of the day, valuing anything comes down to brevity and ethics.

Publication 561 (02/2024), Determining the Value of Donated Property | Internal Revenue Service

www.irs.gov

 

[Deleted member 126639]

i have made friends with a group of reviewers from a major banker. they absolutely do not read the report. when they want to know something, they do a word search to find it. after taking to them i dropped 10 pages from my normal report. when i did reviews i only got a headache trying to find things on a report that were important. the wasted space on nonsense, i would just give up trying to make sense of any order of important info.
i was also surprised at how many layers CU has to give them various info. i was again surprised that the reviewers could also not explain how CU figured out some things. they might see a pattern, but there was no explanation as to why for some of CU's thinking.

If you're doing bank reviews, just focus on what matters the most. Check the math, check the taxes, check the reasonableness of rate selections and adjustments, summarize the other garbage. If I didn't think this profession was going to get a major regulatory whack, I'd do reviews all the time. When everyone puts out garbage, I can do a $750 review in an hour.

The entire reason I can state this many facts is day in and day out, I see incomprehensible garbage shoveled out by all the national firms. All present the same incomprehensible garbage, so that's a positive. I can plow through their reports fast. Regional firms vary in the NYC tri-state area. Some are as good are better than the nationals in their niches. I get the impression 90% of the members of this board of independent, so I won't say anything too specific. A real mixed bag in the NYC metro area. I'm reviewing a report now by a regional firm that is beyond awful.

 

[BRCJR]

You were given a link to the freddie mac guidelines. Freddie Mac is probably the largest source of capital for residences of all types. Of course they have guidelines.

The bigger problem here is you don't grasp there is no fundamental difference between a restricted report and appraisal report besides the intended users. You do not understand the concept of "scope of work". I've said it probably three times already. In your mind, "restricted report" means something like "letter of value" and "Appraisal Report" means "Complete Self-Contained Appraisal Report". You can't reconcile the two extremes, hence the cognitive dissonance.

But your client is never going to be the IRS. The scope of work could necessitate a brief report or a detailed one. The accounting firm or attorney who hires you would provide such guidelines. I can think of many instances when a complex report would be necessary. But the majority are not. Frankly, this forum is not really for those capable of complex appraisals. I've never seen anyone post a question like "How do I appraise ocean floor land owned by the federal government and leased to a wind farm operator with 200 turbines?". Yeah, I got a bid request for that last week. That would absolutely require a high level of detail as there is no established methodology and most people do not understand the energy industry. An apartment building? No way.

It's really quite simple - the level of reporting detail should be specific to the appraisal problem being solved.

So here are the IRS guidelines. Doesn't seem radically different from USPAP, but they do mention appraisal problems that do require more reporting, i.e. partial interests, life estates, and the boogey monster conservation easements! None of those require 100+ reports either though, seriously. The people who got in trouble with conservation easements were largely sloppy with poorly researched comps, or impossible to understand due to appraiser rambling. This is why it is very important to remember that sooner than you think, USPAP will stipulate inclusion of irrelevant data or data that is not analyzed is ipso facto misleading. At the end of the day, valuing anything comes down to brevity and ethics.

Publication 561 (02/2024), Determining the Value of Donated Property | Internal Revenue Service

www.irs.gov

I do understand the difference in a Restricted Appraisal and Appraisal Report. Pretty basic understanding is all that one needs to be capable of differentiating such. A Restricted Appraisal could have the same content as the retired "Self-Contained" if the appraiser deemed it necessary.

I still find no disallowance of an IRS Restricted Appraisal in the link you posted. It speaks of content but does not speak to reporting format.

To your Freddie Mac reference you have not provided evidence nor support for your opinion they disallow over 50 pages.

I am not trying to debate your position only asking for a written source that specifically addresses your position. Posting, "here are Freddie Mac guidelines" is pretty vague. What chapter and section do you find your position supported in? Let me help you, it is not specially stated 50 pages is the limit. I read and study Freddie Mac guidelines, in my role, for the lender I work for as we sell our loans to Freddie Mac. Pretty confident I could debate Freddie Mac guidelines with most anyone.

As in my previous post requesting support for your opinion, I still await such. Post your sources specific location of the "guideline" you speak of.

Also, your IRS link is related to donated property. This post started as an estate valuation. Difference in an estate appraisal and one of donation.

Respectfully, we are finished unless specific written guidelines are evidenced supporting your position.

 

[Terrel L. Shields]

I would argue that many of the responses saying "no" are coming from those who still believe a commercial appraisal report should be 100+ pages of irrelevant data

Very few commercial appraisers do such lengthy reports. I have seen some of the narrative writing programs that left a tremendous amount of white space or had margins set in 2" with 12 pt. fonts, etc. But the so called SOW 'broiler-plate' is the product of countless "stips" from UWs wanting appraisers to address minutiae and after a few years all that piffle builds up...prolly never been asked a second time on the subject if you didn't change the "boiler-plate".

there will always be the mindset that anything less than a Self-Contained Complete Appraisal Report is not credible nor what clients want.

I don't know many people who did "self-contained" reports. As I pointed out, some of the movers and shakers around labeled very large reports "Summary" - like the 1200 page monster I alluded to. That report was a multi-month assessment of the feasibility of moving geothermal energy from thermal "hot-spots" to somewhere closer to where electricity was being needed. Involved estimating the ROW for the various power lines - cost etc.

We have the restricted label because of loan syndication. That is the only reason.

You apparently were not around when the 1994 six options were included in USPAP. The argument for it was the 'good ole boys' wanting a letter appraisal like they used for years before. So restricted allowed them to write a letter appraisal - 2 , 3 pages and a cert page.

The restricted report should be eliminated and the appraiser should write the report consistent with the expertise level of the users with some consideration that we assume they have an adequate education and cognitive ability to read it. While I agree with the premise that the IRS does not explicitly forbid a "restricted" report, I don't want to be the court guinea pig if my client's gifting is rejected because some agent somewhere decided the restricted report is not adequate.

The problem from the get go in 1994 was that people equated the "restricted" report with a reduced SOW. The restricted report is a Std 2 issue only. Std 1 can be fully fleshed out with 3 approaches, etc. and still be presented as a "restricted" report. The pages of this forum are filled with queries of folks saying they couldn't find sales or the property was unique so they wanted to do a "restricted" report. The lack of data is not a factor in a 'restricted' report.

I just finished a report (all mine are narratives) and it was 22 pages long including cover page and table of contents. I did it as a report (aka formerly as a "summary") for a tiny mineral interest of a woman who was required to get the appraisal in order to get Medicaid. I fleshed it out over a "restricted" report largely because neither the client nor the Dept of Social Services are experts in mineral valuation. Had I been doing it for an experienced oil man, a restricted report would have been fine. But the work would still be the same to develop the appraisal. The fact I was doing it pro bono did not influence my reporting. I cannot read the mind of the Dept of Social Services nor can I read the mind of the IRS. That is why I do them as summaries.

 

[Deleted member 126639]

I do understand the difference in a Restricted Appraisal and Appraisal Report. Pretty basic understanding is all that one needs to be capable of differentiating such. A Restricted Appraisal could have the same content as the retired "Self-Contained" if the appraiser deemed it necessary.

I still find no disallowance of an IRS Restricted Appraisal in the link you posted. It speaks of content but does not speak to reporting format.

To your Freddie Mac reference you have not provided evidence nor support for your opinion they disallow over 50 pages.

I am not trying to debate your position only asking for a written source that specifically addresses your position. Posting, "here are Freddie Mac guidelines" is pretty vague. What chapter and section do you find your position supported in? Let me help you, it is not specially stated 50 pages is the limit. I read and study Freddie Mac guidelines, in my role, for the lender I work for as we sell our loans to Freddie Mac. Pretty confident I could debate Freddie Mac guidelines with most anyone.

As in my previous post requesting support for your opinion, I still await such. Post your sources specific location of the "guideline" you speak of.

Also, your IRS link is related to donated property. This post started as an estate valuation. Difference in an estate appraisal and one of donation.

Respectfully, we are finished unless specific written guidelines are evidenced supporting your position.

EDIT: WTF? Section 60.11 https://mf.freddiemac.com/docs/chapters/mf_guide_ch_60.pdf

Is that not sufficient for you?

You don't seem to get it - there hasn't been a "report format" for 15 years. The level of reporting detail is a function of the scope of work you are supposed to agree as part of your engagement. No matter what the level of reporting detail, your work file must contain all relevant support and methodologies used in developing your opinion of value. You can give a verbal opinion of value, but if done in the capacity of a licensed appraiser, that verbal opinion has to have a complete work file behind it.

The only difference between a restricted appraisal report and an appraisal report is the former must specify the intended users specifically while the latter can include broad intended users like "and/or assigns". For both report types, you must specify what you report and the level of detail (in accordance with USPAP).

How do you pass your USPAP update class without understanding this?

What if the estate in question has, say, 10 Class A apartment buildings in Manhattan and 5 Class A office buildings in the Financial District? In the case of the former, you don't have a 25% vacancy rate (arguably higher) and have no need to perform a fundamental market analysis. In the case of the latter, you would have a hard time claiming your report is credible without performing at least a Level C market analysis. The apartments are rather simple to appraise without extensive reporting necessary as the market is stable and demand remains high. In the case of the office buildings, a credible report that is USPAP compliant is much more complex.

That said, the number of times I've seen even a basic attempt at forecasting demand and capture rates is rare. Most MAI designated appraisers probably have never performed a Level C market analysis except for their demonstration report. In general, I would say appraisers have little to no understanding of supply and demand dynamics.

For most assets, those dynamics drive the extent of research analysis you must perform.

But for the last time, no matter how you convey your opinion of value, your work file must have everything necessary to support that opinion. There are no shortcuts in appraisal methodology, only the extent you report your research, analyses, and conclusions.