Scope: the new rules....

[Farm Gal]

I quite agree with Bradellis in his comment on
2055 int/ext Considered a... Posted: Thu Aug 22, 2002 7:42 am

Scope is going to nearly entirely change the way we do business.

This was specifically mentioned in the AI seminar this summer, Danny Wiley and Stephanie Coleman instructing. It will likely reduce or eliminate 90% of the limited/departure stuff that gives even USPAP gurus headaches if they TRY to 'do it right'.

The part I am NOT getting and still have not seen addressed is EXACTLY how this change to "Scope Oriented" report writing is going to jell with the existing USPAP and our daily business.

Despite assurances that "It is all going to be in the scope" which I heard repeated regularly, I am not hearing much specific direction on how to construct a bulletproof scope such that it will keep me out of USPAP hot water!

Both of the two recent classes I attended "Litigation & the Apraiser" and "Crossing the Line Mortgage Fraud" both also mentioned this change, emphasized that we will be doing our business differently in the future( :evil: ) but there was absolutely NO response from the instructors as to how why when to make these pending changes...

Now since these wondrous changes will be upon us beginning in Jan (?)2003 :evil: :evil: :evil: I for one would surely like to get a heads up on how to start implementing them NOW.

Feedback would be appreciated from those who have taken the instructors curse: I have gone so far as to order the IC materials for self study, but I have a feeling that as usual we 'professionals' are going to be 'in play' with a new rule book and no coaches or trained umpires to sort out the fouls :evil: :evil: :evil: .

Anyone else see a problem with the inevitable result: State Boards :roll: and Lawyers :!: stepping in to piecemeal define the 'new rules'???

 

[George Hatch]

Lee Ann,

Scope of work has already been with us for a while now. If you are currently including a summary of your scope of work in your appraisal reports and identifying the intended use and intended user, you are very, very close to, if not already in, complete compliance with 'the new way' (even though it isn't really new).

The thing about the concept of scope of work is that as appraisers, we want our work to be judged within the context of the original engagement. On size does not fit all; different users have different needs and different criteria to fulfill. By identifying these conditions in the appraisal report, anyone who is not the intended user or who might be trying to use the report for something other than its intended use is given fair warning that the appraisal process and/or the appraisal report might not fit their needs. This is really all about protecting us and somewhat limiting our liability from third parties as well as even from our own clients when they are doing something different than what they originally told us they were going to do.

Here are an example, along with (my) suggested solution:

The 'Pre-Comp'
Client or potential client calls the appraiser up and tells them that they want to process a loan package but they don't want to spend a lot of time working on the deal unless they have some indication that the borrower's estimate of value is within reason. The Client won't take a 'data dump' and wants an appraiser's opinion based on the available data but without incurring the expense of a full blown (3 approaches) appraisal at this time.

The problem
The appraiser in this case is going to be loathe to make any estimate of value without a physical inspection of the subject and the comparable sales. The appraiser has legitimate concerns that once having expressed an opinion of value on the property that they will be forever married to that one opinion. Further, if the resulting value opinion is considered by the client to be sufficient to justify further processing, the client is going to need a full appraisal, preferably from the same appraiser. How can the appraiser fulfill the legitimate interests of the client without exposing themself to charges of failure of due diligence, working on a contingency basis, being misleading and being incompetent?

The Solution
The appraiser can fill both the Client's objectives and their own goals (CYA) by writing a proper Scope of Work and following through on it. It could look something like this:

Intended Use/Intended User
This appraisal and appraisal report was engaged by the "Fly-By-Night Mortgage Corporation, Incorporated in the Bahamas, 2002", who is considered the intended user. The intended use of the appraisal and the appraisal report is to assist the client in determining on a preliminary basis if the value of the subject property is sufficient to open and pursue a mortgage application process under the clients criteria. The intended use is limited to the Original Client only; and the intended use is limited to this preliminary stage of the mortage application process.

This apparaisal and appraisal report is not intended to assist in the underwriting of a potential loan with a federally regulated lending institution as defined in FIRREA, is not intended to comply with minimum appraisal guidelines promulgated by FHA/VA or any GSE, and is not intended to advise the borrower or potential buyer of the value of the property for a sale transaction. It is also not intended for use by any party other than the Intended User identified above. Any third parties are hereby notified that they are not an intended user of this appraisal and appraisal report and further advised to seek an appraisal and appraisal report that is specific to their intended use from a licensed or certified appraiser.

Scope of Work
The Borrower has identified the subject property as being a single family residence and as being owner occupied. There has been no indication or representation to the appraiser that the subject property is rented or that it is located in a market segment where investor activity is prevalent or of affect on value. The Appraiser has suggested and the Client has agreed that the most applicable and necessary approach to value for the subject property under these stated conditions is the Sales Comparison Approach, and that the Cost and Income Approaches are not necessary to fulfil this intended use. The Client has also agreed that a physical inspection for the subject property and the comparable sales is not necessary so long as adequate information is otherwise available to develop credible opinion of value within the dicates of this intended use.

1) The subject property is identified by the seller as being a single family residence under owner occupancy. This appraisal is based on the stated use as well as the conclusion of the highest and best use analysis, which is also as a single family residence.

2) The subject property was not inspected by the appraiser. Information about the subject property was provided by the seller, who owns the property, by the information posted in the local MLS system, and further reported in the public records databases made available through XYZ Data Services. The appraiser believes the information about the subject property to adequate to develop a credible opinion of value within this intended use. Should additional information become available in the future, the appraiser reserves the right to amend the appraisal and appraisal report as necessary.

3) Information about the comparable sales data was available through the local MLS system and public records database, and is believed to be sufficiently reliable and adequate to fulfil the intended use. Personal verification of all the comparable sales data was not considered necessary within this intended use and was not used.

4) The area researched for relevant sales comparable data is limited to the subject market segment, particularly with regard for the geographic, economic, social and political boundaries, as well as the subject property's use and type; and are identified by the appraiser based on their geographic competence. Adequate comparable data was available within the subject's market segment unless otherwise noted in the report.

5) Of the approaches to value, the Sales Comparison Approach was deemed to be the only approach that is both applicable and necessary within this intended use; the Client has agreed. Therefore, the appraiser has employed an qualitative analysis method that consists of reviewing the data and ranking the subject among the unadjusted value range to result in a value opinion indicated by the Sales Comparison.

6) After assembling and analyzing the data and developing the value opinion, the report was completed and transmitted to the Client. Please note that this appraisal report does not include an in-depth communication of all the data, but only states the conclusions. The remainder of the data and analyses are retained in the appraiser's workfile.

7) This appraisal and appraisal report are intended to complete and fulfil the intended use as identified by the intended user. The appraiser does not anticipate any further work on this property for any other intended use without a separate engagement by the Client. Any additional work for a different intended use will be subject to additional billing and payment.

Yep, I wrote this one up on the fly and I deliberately chose an intended use that would be controversial. If the property involved was part of a sales transaction, adequate data was available from the sources cited, and only the one approach was necessary, the only thing an appraiser would have to change is the client name at the top. No need to actually fill out a grid sheet unless you wanted to and were going from a qualitative analysis to a quantitative analysis. Add a 1-page report that complies with the minimums in USPAP for what we now call a Restricted Use Report with the approriate limiting conditions and Appraiser Certification and you're done. Notice that I wrote this Scope of Work up without invoking The Departure Rule.

For instance, I did one up last year (just to see if I could do it) where the entire report fit on two pages and the only areas where the appraiser would input data was a small block with about 10 or 12 data fields at the top of the report. EDI it to your client and you're covered.

I'm sure that there are a hundred different ways to write one and that additional caveats can be included. The fee for the 'pre-comp' service being one of the things a lot of people would add. I only present this one version as a suggestion. FYI, I don't recommend anyone just take this and copy it into their report formats because there are a couple areas that will not apply to every situation. Use your head and think for yourself.


George Hatch

 

[Farm Gal]

George:

Thank you for your thoughtful reply and the effort you expended in formulating it.... I found to my interest that I am apparently already on the correct track with where I think this is headed.

I have no fear of spreading ink on white (obviously ) but I have some real concerns as to the direction this is taking:

By redirecting the focus of our CYA efforts to ever greater wordiness we as appraisers are subjecting ourselves to GREATER danger in terms of individuals needing to quantify
ever more terms
and conditions
and what we did
and what we did not do ...
Where do we draw the line on how much detail to go into? Man on any of six standard URARs I did in that last two weeks I could forsee having to tailor the comments differently!

IF this permits greater ability to meet client need, great!
However, lacking regular and specific direction from established sources (bi-annual USPAP anyone?) I think we are running full sail onto the shoals!

So... we must now clearly( :?: ) establish who what and how and intended use/user... Are the courts going to LISTEN?

I can (mostly) DO that... but in your short example I could clearly see at least 6 instances that COULD result in a judge peering over his glasses and leaning over the bench and saying something to the effect of "What'd you go and do THAT for son, you in a heap of trouble"!

I don't mind trying to explain myself to a jury of my peers, or even what winds up sitting in a jury box :roll: , however when you throw in rogue boards, and court action lead by folks who make a living parseing the English language and throwing darts at legal contracts... (making new holes if they couldn't find any the first go round) eeek!

If the playbook is in constant change, and the players don't get clear copies, and the refs are running their own games on various versions of the book: there are going to be a lot of fouls uncalled and fouls wrongly called! And when the LAWYERS are the ones to sort out the resultant mess :!: 8O :!:

USPAP also say I am to be judged by my actions in relation to my peers... Appraisers as a group are sort of like chickens let out of the henhouse at dawn: some run at ground level, some are flying head high, and that's just in the process of getting out the door: they REALLY scatter after that!!!

Yeah I am whining cause I don't like change, but also because I am not at this point seeing this as a road to freedom, but instead sort of like what society does to prisoners: "Congratulations on your freedom!, Heres a hundred bucks, a ratty pair of sneakers, a pair of jeans and a tee-shirt, go forth and sin no more! Identification, transportation, houseing? YOUR problem Babe, you are FREEEeee! Get a job and be a productive citizen now ya hear?"

I think we are gonna wind up back in front of the judge. :evil:

 

[George Hatch]

Lee Ann,

In regards of the wordiness of the Scope of Work I wrote above, it was more wordy than normal precisely because of the limitations of such an abbreviated process. That, and I like to write. Scope of work for a more typical assignment can be a lot more brief. The one I'm using for typical summary reports now is probably only about 1/2 or 1/3 as long and not nearly as detailed.

In regards to what will happen when the prisoners (us) are set free, I don't think you'll have to worry too much about that. The thing is that we have always had this freedom, we just didn't know it. We spent so much time coming to terms with the basic framework we didn't recognize that the 'skins' we were using for developing and reporting appraisals was just that, the skin over the framework. You can change the look all you want so long as the framework remains.

Those who have looked at USPAP in the past as a means that the banks have used to control the masses will no doubt still feel that way. "He who has the gold makes the rules". Those who feel that we have no control over our work product or our destiny will still continue to feel that way. Those who feel that appraisal standards should stand still and that there is no need to work toward a better result will still abhor the change.

But those of us who have looked at USPAP as a means to protect ourselves from having to do things we didn't really want to do anyway will feel more empowered and even less restricted. Those who care to delve into the subject will see that knowledge of the subject is indeed power, and that there is no need for us to fear this evolution. The principle of change lives.

The folks who worry about how USPAP will stand up in front of a judge are stalking a dead horse. It hasn't failed significantly so far, and it already has a track record. And in the event that part of it does fail, so what? There have been a large number of laws drafted, debated and enacted by lawyers that had to be amended in response to adverse court decisions. So what if and when a court decides part of USPAP is so ambiguous as to be irrelevant. The mechanism for responding to such a decision and making the necessary changes is already in place and is well practiced. The beat will go on and no one will even blink.

The beauty of licensing and using USPAP as the basis for the laws and regulations is that we are judged on the one set of standards as they exist on the effective date of the appraisal. When they change the USPAP, we are covered so long as we keep track of those changes and comply. The courts can't nail an appraiser who is within standards, just like they can't send a law-abiding citizen to jail. Someday, it will be the same way with all the individual state boards instead of just some of them. Nevertheless, an appraiser's best defense is a sound understanding of the basics. look around on the forum and you'll see that most every time an appraiser locks it up with an attorney over appraisal issues, the appraiser is well covered so long as they have known what they're talking about and have done what they know.

The truth is that I don't really care what changes end up being made with the USPAP so long as we can figure out how to use those changes to our best advantage. So long as the rules in place apply to everyone equally, and are interpreted and enforced the same way everywhere. Does it really matter to any of us whether we have to report a sales history for one year or three for an SFR? No, what matters is that, with a little study, we can all come to an understanding of not only the 'what' but also the 'why'.

You were a little nervous before that your current description of Scope of Work wouldn't be sufficient, but now you probably feel a little different. That's the way it's supposed to work; you follow the rules, attain a certain depth and then you have a much more defendable position. CYA all the way. That's always been the real name of the game.

George Hatch

 

[Jo Ann Meyer Stratton]

Thank you George!! My sentiments regarding licensing and USPAP for years!

 

[bradellis]

George,

Quite excellent. Hit the nail right on the head.

LeeAnn,

You are way out in front- stay there. Tell the client what you did, how you did it, and that is was done in that manner to conform specifically to the intended use/users that they have specified, and why it is adequate for the use they have in mind.

I'd suggest that everyone start creating their own wording for the types of work they typically do. Easy to cut and past specific paragraphs from most word processing programs.

OR- we can all pay George to do it for us!

All the best,

Brad Ellis, IFA, RAA

 

[Farm Gal]

George, Jo Ann & Brad (and all you lurkers out there ):

As you may suspect, I really DO have a fair understanding of what is coming, but it is stone amazing how few of our fellows are aware and beyond that how few even care... so in self-defense I kind of like to keep the edumecation process going. Remember that judged by actions of 'peers' thing? 8)

Your responses are indeed beautiful!

However, on this one it isn't just Devils Advocate or acting as 'Stupid Student', I actually am feeling a bit adrift in terms of expectation/ commercial reality reasonableness on the scope thing.

Boilerplate notwithstanding it seems to me that there is going to be more assignment specific 'stuff' in these reports if you REALLY want to cover your anatomy. I have nothing against string bikinis on the young and fearless, but at my age I prefer something with a little more material! And there are som-bodies out there who really should act their age

Those of us who really care and try to do our work 'right' certainly spend more time hashing out the finer points on this stuff :wink: . Reassurances by folks whose opinions I value helps... Thanks !

Having more fun every day :roll:
(I sure wish there was a cross eyed emoticon!)

Lee Ann

 

[Jo Ann Meyer Stratton]

Lee Ann, you have just caused me to understand why I write 3-5 pages addendums! It is my age that is showing and my favorite outfit around the house is my mumu (called patio dresses nowadays), I am trying to get up the nerve to wear them in public. It covers everything! And that is what I attempt to do with all my addendums. So far it has kept me out of trouble every since I got my first designation in 1982. But then I haven't received todays mail yet.

 

[Frederick R. Ruffell]

OK, so How do we get up to speed on this new approach to appraisal process and reporting. What CE courses are available now to get us on the right track? George, it sounds like we could always have done a "comp search" as long as we spelled it out? Is what you described an appraisal, a limited appraisal, or some form of consulting work. Would you provide a single figure or a range?

 

[Don Clark]

8)

Frederick,

Go to www.appraisalfoundation.org there you will find the entire Instructor Certification course material. Download the section on scope of work. That would be a good start. There may be a shortage of USPAP Instructors in early 2003 and it may take awhile to get this whole idea acrosss. George has done an excellent job by stating his above post. There are even gretaer and better changes in store. See my post "Who owns the appraisal". That lays out another change. The scope of work will eventually eliminate the Departure Rule and clean up a lot of the mess we have now, as will the changes relative to what I have posetd in Who owns the appraisal.

George,

Great post.

Don Clark, IFA