What is Truth or Accuracy for Appraisers?

George Dell

George Dell

Owner of Valuemetrics at Valuemetrics
George Dell is the owner of Valuemetrics and author of the Analogue Blog. He is a graduate of San Diego State University with extensive post-graduate work in Economics, Statistics, Mathematics, Finance, and Information Systems, Certificate level work in Environmental Management and Geographic Information Systems (GIS). George has earned the MAI, SRA, and ASA designations.
George Dell

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What is Truth or Accuracy for Appraisers? How Do We Find Accuracy?

Are we supposed to be paid truth-seekers?

The appraiser is supposed to be accurate. What is “accurate”?

Dictionary meanings say accuracy is “the condition or quality of being true, correct, or exact.” Tell the truth. Can it be? Hmmm. A search for truth. OK. So how do we come to know the truth? Are we supposed to be paid truth-seekers? Cool.

I read that there are four ways to “know” truth: Tradition, Authority, Insistence, and Science. Wow! Let’s look at these briefly. This sounds serious! Let’s look at USPAP and The Appraisal of Real Estate.

Appraisers have long been steeped in the value of experience, learning from our mentors, and education handed down to us by our important organizations.

Per the forward to The Appraisal of Real Estate 14th ed. We have been taught that the ways of doing appraisal things are fundamental and well established. They need not be reexamined and revised:

History confirms that the applicability of certain valuation techniques may rise and fall as real estate markets move through their lifecycle, but the fundamental principles of valuation that have always been the core of this book remain unchanged.

It also gives weight to the “sound application of recognized valuation methodology.” These thoughts are also set out in USPAP (Uniform Standards of Professional Appraisal Practice). In fact, this concept pronouncement starts the “performance” of USPAP in Standards Rule 1-1, the very first sentence: “…employ those recognized methods and techniques…”

It appears that we have two recognized, traditional, pervasive sources of tradition, authority and repetition – in agreement on what is the truth. We have found it. No need to question it.

Ironically, the comment to SR 1-1 explains the opposite notion: “This Standards Rule recognizes that the principle of change continues to affect the manner in which appraisers perform appraisal services.”

Which is it? Employ recognized methods, or change? Another conflict, another dissonance for appraisers “do it this way, but also do it that way.”

So, what is ‘truth’ or accuracy for appraisers? We have the tradition – multiple editions of USPAP and The Appraisal of Real Estate. We have authority – the state laws and enforcing organizations. We have insistence – take USPAP every two years, and repetitive continuing education. But do we have science?

Yes. The traditional appraisal process is a science. Created and solidified mostly in the 1930’s and 1940’s. A valuation science designed for sparse, difficult data; no calculators; and no inkling of market analysis. Just pick comps, compare, opine. The science was good in its day.

Then things changed. We got public records and even plat maps on microfiche. No more trips to the county assessor. We got printed MLS “solds” books – every quarter! Listing books – every month! And “hot sheets” every week! It was heaven. Commercial appraisers regularly helped each other. Who you knew was more important than what you knew.

Then things changed some more. And things stayed the same…

Image credit flickr - Bill Dimmick
George Dell

George Dell

George Dell is the owner of Valuemetrics and author of the Analogue Blog. He is a graduate of San Diego State University with extensive post-graduate work in Economics, Statistics, Mathematics, Finance, and Information Systems, Certificate level work in Environmental Management and Geographic Information Systems (GIS). George has earned the MAI, SRA, and ASA designations.

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12 Responses

  1. Ross Grannan on Facebook Ross Grannan on Facebook says:

    Appraisers try to be truthful in expressing an opinion

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  2. Bill Johnson says:

    How does one at the end (appraiser), find the truth, when many before him don’t seek it? I spent the better part of yesterday (5 hours) researching my subjects zoning (V-3 West Village Urban Core Specific Plan), to ultimately discover that this SFR property is of Legal Nonconforming (Grandfathered Use) use (SFR not permitted). Off and on over the past 10 years, the property was an accounting office, a hair salon, and is now again being used as a residential home. As it relates to the impact of the subjects greater area of zoning (V1, V2, V3, V4, etc.), not a single MLS listing (several years / hundreds of properties) correctly identified itself with a valid specific zoning classification. By default, with only a few exceptions, public record files identifies all properties as being an R1 classification, thus the hours of research at the cities office. My point is this, if other parties don’t seek the truth, and publicly make it readily available (zoning classification / description), how are we to assume all parties are KNOWLEDGEABLE, and thus their actions (purchase price), have taken such facts into consideration? While some appraisers claim to complete 3 to 8 appraisals a day, or review some in perhaps 30 minutes, seek the truth and come join me in the rabbit hole.

    Good points George.

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    • I’m with you on this one in particular Bill. In Los Angeles County, the County Recorder and Assessor “Public Records” have always shown zoning by a 2 digit alpha prefix denoting the city or county jurisdiction. For example, Los Angeles City would be LAxx and Unincorporated county would be LCxx; Long Beach is LBxx and so on. It is NOT a city zoning designator. Merely a county computer reference.

      Many land use reports date back 50, 60 or 70+ years and still show R2 or R2 etc. Hence LAR2 may show where the zone should only be ‘R2’. This isn’t a huge exception area, except that when I see novices use the city designators it’s also a good indication they never bothered to check the current zoning map or they’d know it is now RD1.5 (NOT LARD1.5), AND that the LA part is NOT a zoning designation in the City of L.A.. Like your non-conforming sfr use noted above, zoning has been assumed for decades but numerous appraisers.

      Verifying zoning which is a first step in determining highest and best use as if vacant (also usually not done), as well as HBU as improved (assumed, by Skippy).

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      • Baggins Baggins says:

        You guys have two practical choices to correct the matter.  Get with the state regulatory authority and have them begin to levy fines and penalties to the majority of participators whom do not verify properly, or speak with the assessors and building department offices and ask them why they’re not including accurate zoning in rss and other data feeds which all the data aggregators operate under.  The problem is clear, the aggregation of data does not include a valid property zoning type indicator along with other information.  The solution is also simple and straight forward, penalize those whom don’t take the necessary additional data step or update the systems to include such data.  Cheers.

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    • don says:

      Legal Non-performing frequently has limited life after a fire and cannot be rebuilt in some communities. Those are pertinent truths. That may be an unacceptable truth to a lender

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      • Baggins Baggins says:

        But CA is a different animal.  I’ve read a few stories where, if there is a side of a wall left, 5 ft high, the entire rest of the property can be built non conforming but still be grandfathered into conforming varied type, because so much of the original structure was left standing.  I read this article once where a construction contractor was lamenting how they’d pull it off, because they had to leave a wall up, but the wall was worthless…  With such ridiculous trickery promoted by authoritative agencies, the appraiser’s job at times may actually be easier, disclose, disclaim, disregard on assumption.  Then again, could be a lot more difficult.  I’d say match them categorically without regard for zoning, then see what fits after that and hopefully have a few valid all around examples left.

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        • It’s an oversimplification Baggs. Yes, “90%” rebuilds are treated as remodeling vs new construction. In the City of Los Angeles it can mean saving from 1/2 to a year of the building approvals process. BTW the “90” is just a local euphemism. I’ve heard it based on a rear load-bearing wall, or only part of a foundation. It’s never been worth memorizing the wording of the ordinance (since it changes from time to time).

          Trickery is and always has been the name of the game. That’s why we have ‘den’s with closets instead of third bedrooms by local code. 2BR and den used to require lower parking and fees. Townhouse used to be a type of condo (always) whereas a condo wasn’t a townhouse if the land under it was not owned individually (circa 1970’s). So “Townhouse-Style” was invented (lots over concrete roofed common parking with deeded garages inside common garages area).

          What short-sighted builders and agents overlook is the instability in pricing and future appraisal challenges for owners. Then again, they couldn’t care less after they get the profit they want by any means possible. ALL properties are “Cream Puffs.”

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        • don says:

          Disclose, disclaim, disregard and assume are items important to HYBRID appraisals. Most appraisers have done them, and they fit better on a narrative format than on a 1004.

          All appraisals must be read carefully as they contain information important other than loan info. Lenders, attorneys, litigants, governments, and Estates among many others need all kinds of stuff.

          Appraisers can measure the value of a shared seepage pit and other stinky stuff.

          If appraisal standards and appraisers are measured by Lender standards we cheat our future.

          If we promote appraisals as something more than a cheater of standards, as Made As Instructed, as being made for cheating client, we may deserve our future.

          I enjoyed this format for the possibility that it could promote the appraiser as a professional rather than a technician, as a benefit to his society, as someone who charges justified fee and collects it.

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          • Don I would respectfully strongly disagree that most appraisers have ‘done hybrids’…at least of the type currently being hawked by the fraud promoters. The nuances are important here (mho). Also, disagree that traditional narrative for sfr is EVER a superior format to the form+text narrative.

            A form makes it very obvious which approaches or techniques are being omitted. Users rightly expect to see omissions explained. In traditional narratives, the devil lies in what is NOT cited or stated, more often than in the scope that is stated. That’s the real reason hired gun EWs really prefer narratives.

            A properly completed desk appraisal is superior to every single hybrid format I have seen to date. Without exception. ALL online proprietary form hybrids read to date include reassuring default language about appraisers ‘deeming’ the unknown third party inspectors to be competent and reliable. They further state that the appraiser has deemed exclusion of cost and income approaches to be credibly supported or not having a bearing on value credibility. None of these things actually happen with the hyped hybrids.

            The problem is they dress themselves up like a real appraisal, with the deliberate intent to mislead. Desk appraisals usually do not do that.

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  3. Tony says:

    Truth, no one wants the truth. Look at everything that is going one. Faster, cheaper and remove appraiser from the equation.

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    • Bill Johnson says:

      When you say “remove the appraiser from the equation” Tony, unfortunately some of our own are doing that. New order arrives, no problem off to India it goes. Out in the field, no problem my office staff will determine in advance the complexities and my geographic competence. Independently research a sale/comp, no way I have a la mode total and will simply use a version from a peer. Say yes to a hybrid assignment that puts the inspection on someone else, sure I can do 10 a day. Check the zoning compliance legal box instead of the nonconforming box, sure no one checks our work and I have another 4 to complete today. Throw together 10 sales and outsource the typing/reconciliation to India again, sure no one will know.

      Those who follow the rules, are unfortunately competing against those who break them. No thanks Pro Teck, I will not do that La Jolla CA property ($8,000,000) that you just sent over for $350 due in a week. Perhaps my competition can outsource the work (minus the inspection), and make a profit, but I can’t.
      Seek the truth.

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      • Baggins Baggins says:

        When the amc advertises they have 40,000 available vendors, please be aware you are willingly participating and are one of those vendors.  Everything after that is just hot air.  That is one institution you can not change from the inside, not if you’re an appraiser.

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What is Truth or Accuracy for Appraisers?

by George Dell time to read: 2 min