USPAP Question

[Jacqueline Doty]

Joyce Potts,

Please stop posting on this thread. I am trying to research the topic of the original post and get serious replies from appraisal professionals.

Thanks,
Jacqueline Doty

 

[BRCJR]

Joyce Potts,

Please stop posting on this thread. I am trying to research the topic of the original post and get serious replies from appraisal professionals.

Thanks,
Jacqueline Doty

Your OP has been answered in post 2 and 6, for example.

 

[Pittsburgh Pete]

Please be aware......I am not an appraiser. Can any professional appraisers on this forum please answer the questions below?

1) Does USPAP require the appraiser to review the sale price / list price when appraising a home for a purchase transaction? What is the logic? Wouldn't that influence the outcome of the appraisal and go against appraiser independence?

2) Is this also true in other countries? Do any other countries prohibit the appraiser from knowing the sale price when appraising a home for a purchase transaction?

All insights and comments are welcome.

Thanks in advance!

Can't address #2.

As to #1, it is required by USPAP as you must know. What's the logic? FAQ 228 in 2012-13 USPAP (don't have a paper copy of the updated one just yet and don't feel like switching from screen to screen) states "...agreements of sale and options are generally significant to the appraisal problem in that they involve a meeting of the minds relating to the property's value between a potential buyer and the seller."

Many will tell you that it is a significant piece of info--I tend to agree. Don't feel it has any impact on appraiser independence--it is only one piece of information, although generally a significant one. Have never been influenced by one and never will. Buyers and sellers have a myriad of motivations that can come into play in an individual transaction. The agreement of sale mirrors those motivations that may or may not be in line with market activity.

 

[Joyce Potts]

Joyce Potts,

Please stop posting on this thread. I am trying to research the topic of the original post and get serious replies from appraisal professionals.

Thanks,
Jacqueline Doty

My apologies if my comments made you uncomfortable.

 

[Pittsburgh Pete]

Your OP has been answered in post 2 and 6, for example.

In the OP she wrote: All insights and comments are welcome.

Patience!

 

[hastalavista]

1) Does USPAP require the appraiser to review the sale price / list price when appraising a home for a purchase transaction? What is the logic? Wouldn't that influence the outcome of the appraisal and go against appraiser independence?

I don't think that reviewing the contract goes against appraiser independence.

There are two FAQs which discuss the relevance of a contract or listing on the analysis.

FAQ 33 deals with the relevance of analyzing a contract for purchase and addresses the concern about "hitting" a contract price.

33. VALUE OPINIONS THAT EQUAL CONTRACT PRICES
Question: I know appraisers who consistently conclude that the market value of any property they appraise is equal to the contract sales price. In doing so, they facilitate sales and financing of sales, which is apparently what keeps their clients happy. Is this a violation of USPAP?

Response: A contract sale price can be a good indicator of a property’s market value, and it may be logical and reasonable for the appraiser to conclude that they are the same. However, this is not always the case. In some situations, a contract price will exceed what is typical in a market. In other situations, a contract price will be less than what is typical. A contract sale price, while a significant piece of market data, must not become a target in an appraisal assignment. Rather, competent analysis of relevant and credible market data must be the appraiser’s basis for a market value conclusion.
If an appraiser consistently concludes that the contract sale price of any property they appraise equals market value, particularly when a competent analysis of credible market data indicates otherwise, the appraiser’s impartiality, objectivity and independence appear to have been compromised. The ETHICS RULE clearly prohibits such a practice. The Conduct section of the ETHICS RULE includes the following statements:
An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.
An appraiser must not perform an assignment with bias.
An appraiser must not advocate the cause or interest of any party or issue.
An appraiser must not accept an assignment that includes the reporting of predetermined opinions and conclusions.
An appraiser must not use or communicate a report that is known by the appraiser to be misleading or fraudulent.
An appraiser must not knowingly permit an employee or other person to communicate a misleading or fraudulent report.

The Management section of the ETHICS RULE also states that:
An appraiser must not accept an assignment, or have a compensation arrangement for an assignment, that is contingent on any of the following:
1. the reporting of a predetermined result (e.g., opinion of value);
2. a direction in assignment results that favors the cause of the client;
3. the amount of a value opinion;
4. the attainment of a stipulated result (e.g., that the loan closes or taxes are
reduced); or
5. the occurrence of a subsequent event directly related to the appraiser’s opinions and specific to the assignment’s purpose. (Bold added for emphasis)
An appraiser must develop an opinion of market value impartially and objectively. An appraiser who selects only data that complements a contract sale price or analyzes data in a manner to purposefully support a contract sale price violates the ETHICS RULE.

FAQ 221 speaks to the relevancy of analyzing listings.

221. OFFERS TO PURCHASE SUBJECT PROPERTY
Question: Are offers to purchase the subject property, prior to the effective date of the appraisal, pertinent information required to be considered under Standards Rule 1-5?
Response: Standards Rule 1-5(a) states:
When the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business:
analyze all agreements of sale, options, or listings of the subject property current as of the effective date of the appraisal;…
Standards Rule 1-5(a) does not require that an offer to purchase the subject property, that is prior to the effective date of the appraisal be considered and analyzed. Agreements of sale and options are generally significant to solving an appraisal problem because they involve a meeting of the minds about the property’s value between the potential buyer and seller. A listing of the subject property is likewise significant in that it indicates the property’s availability in the market. A mere offer to purchase by a potential buyer, however, does not necessarily correlate to the property’s value or even to the owner’s desire to sell. Furthermore, information about a purchase offer is
often confidential and sometimes may not be available to the appraiser in the normal course of business.
Nevertheless, the appraiser is required by Standards Rule 1-1(b) to not commit a substantial error of omission or commission that significantly affects an appraisal. If information about a purchase offer is available to the appraiser, even if the offer is not current, and that information is relevant to solving the appraisal problem, it must be considered. In some cases, an offer would be relevant to the appraisal problem only because it points to other information concerning the property or the market about which the appraiser should know. For example, if the appraiser learns of an offer that seems out of character with market trends, additional research might lead the appraiser to discover property or market characteristics that support that offering price.

It seems to me that underlying concept of both of the FAQs is that a purchase contract or offer to purchase the subject property can be relevant market information; if so, then it should be evaluated in the analysis; where it fits within the analysis is up to the appraiser to determine. But it shouldn't be ignored if available for review, and it may be a reliable piece of information to use in the final value reconciliation.

 

[timd354]

Please be aware......I am not an appraiser. Can any professional appraisers on this forum please answer the questions below?

1) Does USPAP require the appraiser to review the sale price / list price when appraising a home for a purchase transaction? What is the logic? Wouldn't that influence the outcome of the appraisal and go against appraiser independence?

2) Is this also true in other countries? Do any other countries prohibit the appraiser from knowing the sale price when appraising a home for a purchase transaction?

All insights and comments are welcome.

Thanks in advance!

Hiya Jacquie,

The answer to question #1 is yes,in a market value aprpaisal USPAP Standards Rule 1-5(a) requires an appraiser to "analyze all agreements of sale, options, and listings of the subject property current as of the effective date of the appraisal".

I personally have no issue with this requirement as I think that in a true arm's-length transaction in which the subject property has been adequately exposed to the market, the contract price is valid piece of market data that is at least somewhat indicative of the possible market value of the property. I don't see how considering such a piece of market data goes against appraiser independence. If an appraiser is overly influenced by the contract price, it is not because the appraiser's independence has been compromised, it is because that appraiser is mentally weak and should not be appraising in the first place. Additionally, I don't believe it is at all realistic to believe that it is possible to keep the appraiser from knowing or finding out the contract price in most sales transactions.

Regarding your second questions, I have no knowledge regarding this issue in other countries.

 

[BRCJR]

In the OP she wrote: All insights and comments are welcome.

Patience!

She was also insulting.

Comprehend!


SO I AM ON IGNORE DUE TO THIS POST.

 

[PropertyEconomics]

Joyce Potts,

Please stop posting on this thread. I am trying to research the topic of the original post and get serious replies from appraisal professionals.

Thanks,
Jacqueline Doty

WOW .... so let me throw my $0.02 in ... IM SHOCKED (well not really) someone from an Appraisal Management company, that professes to "manage the appraisal process", doesnt know contract review is a USPAP requirement.

My suggestion, you and every one of your colleagues should sign up for the 15 hour USPAP class. If you are going to attempt to manage the process it might be helpful to have professional instruction as to the standards that affect those you hire.

My guess is you may have an appraiser on your panel to apologize to.

 

[Ken B]

A simple question was asked. Sometimes people ask questions for which they already know the answer in order to gain greater understanding of the reasons for the answer. Sometimes they ask questions to ascertain the audiences general knowledge of the answer.

I have seen worse questions asked by those whose basic licencure should imply they already know the answer. The question was asked by someone who readily admitted she was not an appraiser.