USPAP, New home comps

[Tim Hicks (Texas)]

Alright, Austin this is the kind of debate I was expecting. If you buy the land and a year later build on it, it is not a sale. I suppose land values don't go up in your area. Then what do you do, give them the $20,000 more value that they think its worth now or the value that they paid for it or estimate its current market value. All three of these answers are wrong. 50% of the time the borrower lies to me about how much they paid for their lot. Just as often, they lie about construction costs. I hope you at least get closing statements for both properties and don't take their word for what they paid. USPAP clearly states that the property has to be "exposed to the open market" to be considered a comparable. This is a"black and white" issue, not a"gray" issue. Oh, a general certified appraiser is is no better than any other appraiser. That is quite "holier than thou". Don't you know any general certified appraisers that have stumbled their way through their appraisal careers. That is a weak defense. Honestly, it sounds like "appraisal speak" in an effort to justify not following the rules or being above the rules. If the home is worth a certain value, there should be "open market" comps that support it. You don't need to manufacture the comps. You are right, though, if it was done properly, do you think it would be an issue? Do you realize how bad it is abused by appraisers no matter what their designation or their license? They wouldn't have to make these rules, if appraisers did not abuse the rules we already have. Do you really think they put this in USPAP because they wanted to hinder you? Wake up, your competition is abusing USPAP, ethics and morals at such a rate that there are new angles created every day. If you are the fine appraiser that I know you are, then this simple little rule should not hinder you and you have USPAP to support you for not "creating sales". Sadly, Austin, you are probably like all the appraisers in my area that use "created sales", you will argue invalid points with poor logic and will not change until they make you change your ways and we know how long it will take for that to happen. Of course, you could stay ahead of the game and start doing it the correct way now. If it states clearly in USPAP that you can not use sales "exposed to the open market" or "created sales", do you really think you will win any argument in front of your state licensing board.

Wait, Austin I am not really directing this at you. I am directing this to every appraiser that I confronted about using "created sales" and they just threw out lame reasoning and kept on doing it.

 

[bobburnitt]

YEA TIM!!!!!!!!!!!!!

BB in Texas

 

[Rick Neighbors]

I agree with Tim and Bob. (With 1 B ) To further add to the discussion, with Texas being a non-disclosure state, we generally don't get much cooperation in obtaining closing statements on "custom" builds. Just because money changed hands doesn't make it a "sale". It is more like paying for services rendered.
I'm waiting to see what happens to the Appraiser that used the "made up" sales that Bob filed on. I happen to know of a couple of other Appraisers that did this one time, and I have seen the appraisal.
I just love this forum!

 

[bobburnitt]

Rick,

Ditto, ditto, and double damn ditto.

BB in Texas

 

[Austin]

I am still waiting for you guys to explain how you appraise a custom-built on a lot already owned by the client? All high-end houses over $400,000 in this market are custom-built on lots already owned by the client. Tell me how to do the sales comparison and cost approach. If the subject is as non comparable as your reasoning implies it is, then your reasoning excludes both the cost and sales comparison approach.
Where we differ on this issue is in the uniformity of appraisal theory. You can't have one principle and selectively apply it. It is like buttoning up your shirt in the morning, if the first button goes in the wrong hole, there is no way you can make up for it. Appraisal theory has to be the same way but unfortunately it is not.

 

[Tim Hicks (Texas)]

Points to ponder:

Our profession has a set of rules, laws and appraisal guidelines. Just like our national laws,there is no way to know every law inside and out. I am sure that somebody can point out some kind of USPAP violation on every appraisal report ever done. I am pretty sure I cover all the USPAP bases in my reports, but would not be surprised if I somebody pointed out I omitted something. However, this is an ignorance of the rules and can be corrected with education and instruction. Heck, I was trained that "created sales" were alright. I did not find out they were improper until I took a USPAP class. My fourth USPAP class. This is "ignorance". There is a difference between ignorance and contempt. We all have the ability to correct our mistakes when they are pointed out. However, when you know the rules, they have been pointed out to you, you have been educated on the rules and you still refuse to follow them, I consider this to be contempt. When an an appraiser shows contempt for the rules, they have no respect for the rules, laws, their profession and peers. This is a blatant infraction that I have no tolerance. When an appraiser is caught doing improper things, there first defense is "I did not realize this was wrong, I don't do this anymore, I have taken some classes and realize what I was doing was wrong, It will never happen again". This is true about 1% of the time. They knew what they were doing, they figured they would not be caught, they made their money, now thye want to be a good boy or girl for a while and then they will return to form. The rules only matter to those who follow them. That is my opinion, I could be wrong, but I bet I am not. Anybody, anywhere can come visit my office. I have a stack of appraisals over two feet tall with blatant fraud and contempt for our profession. Created sales are just a tip of the iceberg. I am not naive enough to think "poor, poor appraisers, we are getting blamed for everything". All you have to do is look at some of these reports and you will think we are blamed for enough of the problems. No corrupt lender, loan officer, mortgage company, salesman or developer would ever be successful without an appraiser who has contempt for the profession to play along. Just say No! Oh, wait that is for drugs, but it seems to work in this case.

 

[Don Clark]

8)

Austin:

Maybe when someone brings you up on such a charge before the Virginia Real Estate Appraisal Board they can explain it to you. If you are interested in not waiting that long, why not send them a request for their input on the subject at:

Chairman
Virginia Real Estate Appraisal Board
Department of Professional and
Occupational Regulation
5th Floor
3600 West Broad Street
Richmond, VA 223230

"The Golden Rule is, he who has the gold makes the rules".

Don

 

[Tim Hicks (Texas)]

Austin, the last time I checked you don't use the cost approach on your comps. The fact that it is a custom build job does not prohibit you from doing a cost approach on your subject. The whole discussion is centered around using cutom build jobs as comps. Custom build jobs can be used if offered on the open market. If it was not offered, it is not a comp. This cost approach argument is weak. Also, it is possible that you can use regular home sales on a custom build job. Your theory assumes that nobody ever re-sells their custom built homes. Weak, weak. I am sorry if the MLS system in your area is not very thorough like ours.


Yes, I used this forum for my soap box. Hopefully, just hopefully, some appraiser somewhere learned something they did not know. They can go back and tell their mentor what they learned and he can snicker at them and tell them to get back to their cubicle. But, the seed is planted. I believe for me it was after I attended my first USPAP class, I went back and said "I don't think I should be checking the supervisor inspected the property box if you did not inspect the property". Their response: He looked at my pictures and said "Now I have inspected the property, now get back to work". Enlightening, but I never forgot.

 

[Austin]

Don: Yea, but he who has the best lawyers doesn't have to go by the rules. I am still waiting to hear how you guys would appraise a custom-built when the market segment is all custom-built? I have a lot of questions I would like input on from the state appraisal board. My first question would be: "Explain how the definition of market value asks a question (what is the most probable price) and using the appraisal methods you enforce it is mathematically impossible to answer the question."
Another question I want input on is: “If the sequence of adjustments is market extracted, then why don’t you have a system that can extract the adjustments from the market?” Another would be: “Explain how the existing so called accepted appraisal methods handles covariance of variables and tell me how you verify the results of the analysis?”
Actually, I have a lot of questions for the state appraisal board and if I ever get the chance I will ask them. I am sure at least one of the board members reads this board, so maybe they will answer them here for all to read.

 

[Jo Ann Meyer Stratton]

Austin:

Purpose of Appraisal?
Intended use of Appraisal?
Scope of Work?

If a lender requests an appraisal of any property for lending purposes, the lender is asking "What will this property sell for if I have misjudged the borrower's credit and ability to pay back the loan and I have to sell the property to get my money back?" (purpose and intended use)

Appraiser's scope then becomes researching the market for market activity, what are people paying for existing properties similar to the market? Research in the costs of constructing the property is considered because of the rule of substitution but does not answer the original question--What will the market pay for the existing property? The costs of building a custom built home (or a factory built home purchased from a manufacturer), built for an individual on a lot they already own or are puchasing would not be in indication of what the total property would sell for on the open market between a knowledable seller and buyer.

And that is way Fannie Mae has in their new quidelines restrictions against created sales (custom built or land/home packages). And they will require the lender to buy back the loan if they discover the value was based on created sales as well as file complaints against the appraiser with the applicable state appraisal board. When I read their original announcement 02-02, you could probably hear my shouts of glee clear in Virginia from Arizona. Now the new guidelines supercede that announcement with very minimum revisions but the main idea is still there.

If the client says they don't care what the property will sell for but what will it cost to replace the property if damaged or destroyed than the purpose has changed and custom built or created sales or land/home packages would be applicable for that purpose.

Purpose/Intended use is lendinging--created sales are a no-no!!!!!