What Is Conservative Appraising?

[Mike Kennedy]

A conservative appraisal is one that has been prepared without bias, using the closest, most similar comps, meets guidelines as much as possible and has no major USPAP violations. A conservative appraisal prepared by a conservative appraiser will not lean in either direction and has no intention of appeasing a buyer, seller, broker or lender. When brokers say an appraiser is conservative they are indicating that he or she will not play ball with them and their gang of thieves.

 

[Charlie]

Being a CPA in addition to a cert res appraiser, I always enjoy comparing theories between accounting and appraising. Conservative theory is widely accepted in accounting and I think it is applicable to appraisal.

Conservative accounting recognizes expenses and liabilities immediately even when there is some uncertainty regarding them, but only recognizes revenues and assets when they are reasonably assured of being received. In other words, using conservative accounting, even if there is some uncertainty regarding a loss, you should record it but if there is significant uncertainty regarding a gain you should not.

Conservative accounting is also used in other ways. For example in accounting for estimates. Using conservative accounting, if an accountant is presented with multiple estimates regarding what % of receivables will go unpaid and turn into bad debt expense, the higher estimates will be used unless there is strong data which indicates not to. Recording inventory at the lower of cost or market value is also widely accepted and based in the conservative accounting principle. It is not about manipulating results, it is about producing strong financials which can not be easily discredited or questioned during audit or examination.

Conservative principles, in accounting or appraising, are only guidelines. Accountants and appraisers should always use their best judgement to make decisions without bias based on the data available at the time.

 

[Terrel L. Shields]

Nice post @Charlie

 

[NachoPerito]

Broker definition: "Your values are low"

Appraiser Peer definition "Your adjustments are too small"