TAF Has Lost Its Way

Michael Ford

Michael Ford

General Certified Real Estate Appraiser at Michael F. Ford Appraisal
Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory
Michael Ford

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Foremost Authority? The Appraisal Foundation Has Lost its Way - AppraisersBlogs

How can TAF claim to be any kind of authority, let alone "THE foremost authority" for any of the other disciplines?

I personally like and respect the individuals I’ve met from TAF. My strenuous disagreement with TAF are the policies and actions. Not the individuals.

The opening or introductory remarks on The Appraisal Foundation’s web page state:

The Appraisal Foundation (Foundation) is the nation’s foremost authority on the valuation profession [emphasis added]. The organization sets the Congressionally-authorized standards and qualifications for real estate appraisers and provides voluntary guidance on recognized valuation methods and techniques for all valuation professionals. This work advances the profession by ensuring that appraisals are independent, consistent, and objective.

Vision Statement
To ensure public trust in the valuation profession.

Mission Statement
The Appraisal Foundation is dedicated to promoting professionalism and ensuring public trust in the valuation profession. This is accomplished through the promulgation of standards, appraiser qualifications, and guidance regarding valuation methods and techniques.

I suppose the best approach is to start with the TAF opening remark. The one that has nothing to do with what FIRREA was written to achieve and Congress originally authorized.

“The Appraisal Foundation…is the nation’s foremost authority on the valuation profession.” I’ll skip over the self-proclaimed imprimatur about the foremost authority for the moment. Let me instead address ‘The Valuation Profession’ as a definition of our profession

Can anyone even tell what or who they mean by that? ‘Valuation Profession’ since it is not pluralized I am led to believe there is but one valuation profession and TAF are the only experts in all it’s possible facets.

Readers of AppraisersBlogs or 100%Appraisers on Facebook already know about the Profession of Real Estate Appraisal. In fact, prior to TAF adopting the NACAO IVS agendas and chasing after International Valuations Standards we used to be collectively known as real estate appraisers. Some of us still refuse to use the other, wholly inaccurate and misleading description.

At the same time (up until approximately 2011) Business Valuation or business appraisers were referred to by themselves and those ‘in the know’ (users of their services) as ‘Valuators’. The majority of nationally recognized valuators were either AICPA member designated certified accountants or other legal and accounting professionals. Still others (including many CPAs) obtained advanced business valuation specific training and certification from the National Association of Certified Valuators and Analysts (NACVA).

Oddly, NACVA considers itself to be “The Authority in Matters of Value®”. I’m pretty sure they feel strongly about it and prepared to defend the claim since they have registered the terminology. I think the federal government agrees, since they require all IRS agents to take the NACVA training courses down in Texas.

There is a conflict in the underlying intent of the TAF and NACVA semantics.

Keep in mind this is merely one area of ‘The Valuation Profession’ that TAF claims to be the foremost authority for.

Other traditional appraisal and or valuation disciplines include the following:

  • Art appraisers – often referred to only broadly as ‘art experts’. Possibly includes antiques.
  • Gemologists or gemological experts – unregulated body of expertise including jewelers, miners of gemstones, self-proclaimed gem and precious stones and metals appraisers. In addition to the American Society of Appraisers (ASA) that is the ONLY multi discipline American educational appraisal organization, there is a GIA which proclaims “Established in 1931, GIA is the world’s foremost authority on diamonds, colored stones, and pearls. A public benefit, nonprofit institute, GIA is the leading source of knowledge, standards, and education in gems and jewelry.” I’m not making light of the training or background required to be competent in this field or profession. Their training is advertised for the following possible career paths;
  • Appraiser; Auction House Jewelry Specialist, Colored Stone Buyer, Diamond Buyer, Diamond Sorter/Grader, Estate Jewelry Dealer, Gemologist, Inventory Control Specialist, Jewelry Business Owner, Jewelry Buyer, Lab and Research Professional, Merchandiser, Pawnbroker, Retailer, Sales Associate, Wholesaler.

Maybe gem valuation isn’t a profession at all. Maybe it’s simply an alternative career path? Apologies to Gem Appraisal Professionals! Statement is only illustrative.

  • Foresters – These are unique (degreed) specialists in the science of forestry. The federal government hires them to value and perhaps more importantly ‘analyze’ timberland, forests and many other specific forestry related issues. They tend to be somewhat rare. I’m certain TAF could not claim any special national expertise for being ,the foremost authority, in forestry.
  • Oil & Gas Yield & Quality Experts – Determining market value or fair market value of potential ‘oil’ fields and other fossil fuels for both unexplored to extensively tested inground deposits is another ‘valuation’ discipline I doubt TAF knows anything about.
  • Assayers & Mining Engineers (may include Geologists as well) – These are specialists that determine the probable yield per ton (hence a necessary component of in ground as well as development values) of given precious metals and other minerals. Coal field deposits may either fall into this or above. I honestly don’t know. I doubt TAF does either.
  • Furnishings, Fixtures and Equipment (FF&E) or Mechanical Equipment Appraisers. In this sense I am referring to industrial or commercial use equipment or trade fixtures.
  • Automotive & Vehicle Appraisers – These may range from insurance adjusters who value a depreciated or damaged asset for loss and residual (salvage) value; or Inventory Analysts for tax compliance purposes, or even Classic Car Appraisal Specialists. I’m sure TAF will have some generic one size fits all drivel under it’s personal property Rules developed from input by the one or two other personal property disciplines they’ve had on the various boards over the years.

OK, hopefully the point is made by now.

FIRREA was passed to solve a variety of banking and savings institution abuses. Many of these may well also have related to accounting practices but they were not specified under Title XI which was reserved specifically for REAL ESTATE APPRAISERS (not ‘valuators’) and Real Estate Appraisal.

FIRREA and Title XI dealt ONLY with real estate appraisers as it was originally written.

In 2009 while employed by Treasury / IRS Large Business & International Division (LB&I), IRS referred to Business Valuators and Real Estate Appraisers collectively as ‘Engineers’ (not our choice – but rather OPMs and IRS). That did not make me an engineer- except by governmental decree & pay scale. Same applies to business valuators and real estate appraisers.

Business Valuators deal with the personal & realty ownership rights associated with various forms of ‘Entity Interests’. These included corporations, S corps, LLCs or bond holdings. The objective was to determine the Fair Market Value (FMV) per very specific Treasury and IRS guidelines that the Entity Interest held in various assets. Tangible or otherwise. Usually the form of ownership and measurement was stock or shares in the entity. Their role is more applicable to corporate banking and accounting than to individual asset valuation of specific pieces of real estate.

Real Estate Appraisers dealt with determining various values of Specified Ownership Estate Interests in REAL ESTATE that were not entity interests, (fee, leased fee, leasehold, remainders etc.) in specific legally identified parcels of real estate.

There were a LOT or areas in conflict! The truth is that the two disciplines or SEPARATE PROFESSIONS have completely different interpretations for the approaches to value that are used. Other than the term names Market Approach, Cost Approach and Income approach there is little similarity in accepted measurement techniques or requirements for open market transaction verification. Stocks are bought and sold in seconds. Real estate is bought and sold usually in months to years.

Valuators were not pleased with losing the tasks of providing valuations for non-entity interests in individual real estate. It was a significant part of their business nationally (pre USPAP). Although Treasury Dept. had fully adopted USPAP by 2009, most IRS Managers were CPA or AICPA background ‘valuators’. AICPA had NOT fully adopted (in its core) USPAP by that time. This carried over into treatment of taxpayers individual returns.

My former IRS Manager who was reportedly respected nationally in her profession said the reason Business Valuators (BV) did not adopt and use the same standards that R.E. Appraisers had to use is because not all of AICPA Members accepted those (USPAP) standards!

In fairness, as noted above the two disciplines (I would call them separate professions) are as different as day and night. The AICPA, NACVA, etc. and Generally Accepted Accounting Principles were and are much better suited for that profession than USPAP was or is. I cannot say what ASA’s viewpoint was at that time. While the main body of FIRREA had a lot of accounting related issues, Title XI does not.

BUT, federal law had already passed USPAP and federal agencies of the U.S. Government had adopted it as a required standard for all real estate appraisals performed by federal agencies (though implementation as another story).

BV analysts tended to view the return rate demanded by Wall Street (as published in various sources dating as far back as 20 years) as being evidence of the ‘market rent’ of a property.

A Real Estate Appraiser doing the same rent study would go out and knock on doors and ask what the rent is or asking rent is; or look at current market data (reported executed leases) that resulted from BOTH owner and tenant needs and negotiations.

Neither is improper for their normal intended use. When specific localized real property that is not significant enough to be bought and sold on Wall Street or individually analyzed there is treated the same way the impact of the differences in technique become significant.

For individual physical real estate sold or financed in Oshkosh, Detroit or Louisiana the interested parties don’t care what Wall Street thinks the return rate SHOULD be for a categorically similar REIT portfolio, they care about what the actual return rate IS or is likely to be in the local market for that specific property. Particularly if there was a big flood or hurricane the prior week.

I’ve over simplified it. Even by my standards space is limited.

The point is that Business Valuation and Real Estate Appraisal were never the same professionnor should they be. It’s not a case of one being better than the other. It’s a case of neither one being sufficiently alike be governed by the same ‘one size fits all’ standards, rules OR qualifications!

I should not be making rules or policies for Business Valuators, nor should they be making rules and standards for me as a real estate appraiser. Neither of us should be establishing or even voting on the qualifications for the others profession.

To get AICPA officially on board with USPAP, TAF had to make some significant PR concessions. One of those is that we all became ‘Valuators.’ One of the biggest deceptions ever foisted on the American Public in general, and real estate appraisers in particular. Studying the history of NACAO and IVS may be helpful. It was around twenty years BEFORE the S&L crash. I’d say it’s record of success hardly warranted it becoming, influencing or creating TAF.

If TAF can’t distinguish between their two largest governed professions, how can they claim to be any kind of authority, let alone "THE foremost authority" for any of the other disciplines? They tried the experiment of pretending that we are all the same ‘profession’ to try to justify making USPAP… uniform even where it is not and should not be. That experiment is a failure and it is time to end it.

They have strayed too far in accommodating the needs & wishes of their sponsors. That is why USPAP is rewritten every two years. It’s also a common technique used by those interests seeking to thwart federal (or state) regulations over long periods of time. Slip in a lot of little, seemingly innocuous changes that no one notices or cares about enough to fight. It preconditions us to blindly accept the big changes that we would fight, if not for the special interests carefully laid long term minor modifications. TAF either needs to get back on track or to have Congress revoke its mandate.

For near thirty years TAF has steadily decreased the real estate expertise on its boards while letting an increasing majority of non-real estate ‘valuators’ determine what our standards and qualifications are. It’s not really much different than podiatrists telling neurosurgeons what their standards and qualifications must be (& vice versa). Meaning, all doctors are alike, right? All “health care professionals” & practitioners are also doctors too? Don’t manicurists also deal with health issues? Obviously they should fall under the same rules, right?

Need more proof?

Ask yourself, WHY the organization charged by Congress to develop standards (USPAP) as the minimally accepted standards for use in federal transactions thinks it is ok to teach enforcement classes to state investigators that tell them they don’t have to follow USPAP when they do appraisal and work-file reviews? Even though USPAP says that the measure of our compliance is what our competent peers would do in similar circumstances. Anyone found a state investigator that was a true peer lately? Are they uniformly competent for all they investigate? Are they even marginally competent?

DO as we say, but not as we do.”

By the way, THAT was really supposed to be the end here, but I never expected to be side tracked by the very first sentence with the false and braggadocios claim of TAFs website.

Soon to follow: (1) A call to ALL coalitions to request representative attendance at the TAF enforcement classes; and (2) A discussion of International Valuation “Standards” and whether there is any reasonable applicability to the appraisal of United States Real Estate.

Image credit flickr - GPS
Michael Ford

Michael Ford

Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory

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4 Responses

  1. Baggins Baggins says:

    Simply the best article to hit this blogs site in a very long time. Three cheers for Ford! Very educational, thank you.

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  2. Jack Of All Trades says:

    Nice article, but the residential appraiser field has lost its way a long, long time ago. 

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  3. Jeffrey Patterson on Facebook Jeffrey Patterson on Facebook says:

    The Foundation has NOT lost its way …. it still providing the public a sense of security. If your under the illusion it was about the residential real estate appraisers. Let me clarify it for you. Government board are put in place to magically provide the public sense of security. Perhaps your finally realize what that its not magic …just a trick?

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  4. realrose says:

    When TAF adopted their motto as being the foremost authority on real estate appraisal I just about dropped my jaw. They stole that from the Appraisal Institute when they neutered the organization because they are political. They have no enforcement powers over USPAP and could care less if states are in compliance with law. They let AMCs ruin the profession; no other profession has been replaced by computers. It is all because of bank and realtor lobbyists. Congress doesn’t know what we have to learn and do and they think a computer program is appropriate for estimating market value, so they are just window dressing.

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TAF Has Lost Its Way

by Michael Ford time to read: 9 min
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