TAF and USPAP - great analysis

[Dublin ohio]

The only time I am aware of a 50% difference in value for a property I appraised is when I appraised a property for $12-13m and the other appraisal was like $5-6m.

The difference was not related to ethics. It was related to competence.

Not that I don't believe you. But could you elaborate more on the incompetence part. That is a ridiculously large spread to be accounted for by just incompetence

 

[Joe Flacco]

One time I desk reviewed 2 appraisals on the same property and one was at like $7m and the other was like $3m.

The low appraisal didn't properly account for quality of construction and the high appraisal did not account for the low land value location.

They both probably missed to the low side on quality of construction after seeing professional photos of the property. But no ethics issues on both sides. It was competence issues.

 

[Joe Flacco]

Not that I don't believe you. But could you elaborate more on the incompetence part. That is a ridiculously large spread to be accounted for by just incompetence

When I get back to my desk.

 

[George Hatch]

What is the "most similar"?

C3 is C3, ya?

200 yards away in the same immediate neighborhood is a more similar location than 400 yards away in a different neighborhood. 2-3 year age range among comps usually indicates to more similarity among them than a 20-30 year age range. Reviewers see examples of such on the occasional basis. That it doesn't occur the majority of the time demonstrates how many other appraisers don't have these problems. How many other appraisers who have been trained under the minimal requirements have been capable of doing the job competently. As far as I'm concerned they stand as proof of where the minimums really are insofar as how much education and training it takes to perform these assignments competently. Proof of concept, if you will.

"Didn't do it" is in no way synonymous with "Can't do it". I just saw a commercial appraisal on a small freestanding commercial that was performed by an MAI that - for no good reason - used mostly dissimilar properties as "most similar" to the little freestanding office they were appraising. That didn't happen because that appraiser didn't have the education and training to understand how to find the more similar sales which also exist in that market area. It happened because they chose not to work to their training and previously demonstrated competency.

Now I'm not picking on MAIs because in my experience such examples are pretty rare within the context of how many assignments they do as a group. I only cite this particular example because the designation itself demonstrates an above average level of qualifications and competency when compared to appraisers as a group. Regardless of our various biases nobody can say this appraiser was somehow incapable of doing the do on this little podunk property.

 

[George Hatch]

One time I desk reviewed 2 appraisals on the same property and one was at like $7m and the other was like $3m.

The low appraisal didn't properly account for quality of construction and the high appraisal did not account for the low land value location.

They both probably missed to the low side on quality of construction after seeing professional photos of the property. But no ethics issues on both sides. It was competence issues.

If you want to say the CA was a significant reason for the different value conclusions then that's really saying something. My assumption is that both appraisals still hinged on their respective SCs, with the CAs being dorked after the fact to fit the SC. I can't tell you how many times I've seen "site value by extraction" when what they really did was "SC - Depreciated costs = Site Value"

It's hard to prove intent. All we can actually know for a fact is usually limited to what the report does/doesn't say but which an adequately trained appraiser would have recognized as being significant to their analysis and conclusions.

One quirk about the COMPETENCY RULE that we don't often talk about is that the requirement isn't limited to simply being capable of doing the do, but also includes actually doing the do. So an appraiser can deliberately tell the lie (ETHICS RULE) and also not act competently (COMPETENCY RULE) in the same act of misconduct. But the reason for the misconduct accrues to the ethical elements, with the non-competent performance being the vehicle for committing that unethical act.

 

[Joe Flacco]

Not that I don't believe you. But could you elaborate more on the incompetence part. That is a ridiculously large spread to be accounted for by just incompetence

Highest sale prices in the 10 years following the financial crisis in the neighborhood were around $5-$6m. But all of those sales were inferior lots, inferior condition, inferior quality of construction.

I don't know if the other appraisers line of thinking was that the subject property was an over-improvement, or if the line was thinking was that the comps were similar lots, similar condition, similar quality of construction. Unknown.

 

[George Hatch]

All you can see is what is/isn't in the report. What the content of the report itself is depicting. Which it is the report a reviewer or user is looking at, not the individual and what they were actually thinking.

 

[Joe Flacco]

C3 is C3, ya?

200 yards away in the same immediate neighborhood is a more similar location than 400 yards away in a different neighborhood. 2-3 year age range among comps usually indicates to more similarity among them than a 20-30 year age range. Reviewers see examples of such on the occasional basis. That it doesn't occur the majority of the time demonstrates how many other appraisers don't have these problems. How many other appraisers who have been trained under the minimal requirements have been capable of doing the job competently. As far as I'm concerned they stand as proof of where the minimums really are insofar as how much education and training it takes to perform these assignments competently. Proof of concept, if you will.

"Didn't do it" is in no way synonymous with "Can't do it". I just saw a commercial appraisal on a small freestanding commercial that was performed by an MAI that - for no good reason - used mostly dissimilar properties as "most similar" to the little freestanding office they were appraising. That didn't happen because that appraiser didn't have the education and training to understand how to find the more similar sales which also exist in that market area. It happened because they chose not to work to their training and previously demonstrated competency.

Now I'm not picking on MAIs because in my experience such examples are pretty rare within the context of how many assignments they do as a group. I only cite this particular example because the designation itself demonstrates an above average level of qualifications and competency when compared to appraisers as a group. Regardless of our various biases nobody can say this appraiser was somehow incapable of doing the do on this little podunk property.

I ask the question what is "most similar" because when I select comps, there are usually various differences I am trying to address in the sales comparison approach.

When I am appraising and expanded and renovated house on a 12,000 SF lot in a neighborhood where 30's homes on 6,000 SF to 8,000 SF lots are typical, there are a number of variables to address.

If I include two comps with 12,000 SF lots but the size of the homes are very dissimilar, the condition not the same, and one of the two are located on a busy street, did I include the "most similar" comps? If I went all over the city looking for similar characteristics but very different locations, is that "most similar"?

I also need to include comps that are similar size and similar condition but are not 12,000 SF lots. And to demonstrate impact of market conditions I want to include at least one spring 2024 sale.

"Most similar" is so vague that it doesn't mean anything. I'm trying to tell a story with data and make my case for the value.

 

[George Hatch]

Generically speaking and outside of the GSE appraisal policies:

Most similar is most similar. "Bracketing" for the purpose of bracketing or analyzing for adjustments isn't actually "most similar". I can and commonly do analyze for certain adjustment factors using a separate analysis.

If I do present a high sale or rental for purposes of disclosure or bracketing I say it that way and don't otherwise give that datapoint much weight - if any - in my value conclusions except to indicate to an upper or lower limit of value. In the same vein, I also think that the practice of presenting comps soley for the purpose of bracketing the attributes distorts the results of any averaging or sensitivity analyses that appraisers use with small datasets. That's not to say its ineffective when analyzing large datasets with a wider range of variable, just that when we're only analyzing 6 or 10 "most similar" datapoints the arbitrary inclusion of less similar can have an undue effect on the outcomes.

One other sidebite; use of one protocol doesn't prevent an appraiser from using others in the same assignment. Instead of thinking we must either choose one or the other, choosing "both" might sometimes be the better solution. When such conditions are present we sometimes perform appraisals using different approaches to value prior to reconciling for our value conclusions.

 

[Dublin ohio]

Highest sale prices in the 10 years following the financial crisis in the neighborhood were around $5-$6m. But all of those sales were inferior lots, inferior condition, inferior quality of construction.

I don't know if the other appraisers line of thinking was that the subject property was an over-improvement, or if the line was thinking was that the comps were similar lots, similar condition, similar quality of construction. Unknown.

IMO those are some fairly obvious features. Sounds like some laziness may factor in