Are You Violating USPAP Every Day?
Are you in “violation” of USPAP?
If you pick comps the old way, you may be violating USPAP every day!
The old way of selecting data worked well for the old days. Gather seven or eight that look good, go look at them, make a couple of phone calls, and pick four or five for your report. That was the way I was trained. That was the way the Appraisal Institute courses taught me. When I took the AI demo report course, three words were drilled into me: Explain, Justify, and Support.
Then I took the required USPAP course. (Back then it still belonged to the AI). There was no quasi-governmental organization charged with changing the standards every year or two. Then to now, one USPAP thing never changed—the way I was told to select data pick comps. I was told to pick comps as available. I was ok. No computer to help me. No online data. Just comp books updated every three months, and listing books, and public records, and my trusty landline to call brokers and sellers.
It was Standards Rule 1-4. It said I “must collect, verify, and analyze all information necessary.” Then it went on to say I “must analyze such comparable sales data as are available.”
Again, no problem. Data was hard to get. I was taught it was only necessary to use only three or four comps. And only a few comps were available. I did learn the importance of bracketing from my trainers (it was nowhere in my appraiser education). I was diligent, and of course, I picked my necessary and available comps carefully.
Then things changed. No one noticed. MLS came on line. Income properties came online. Public records came online. All relevant sales became available. Instantly. Without thinking, I ignored the “as available” rule. But stuck to the ‘as necessary’ rule. And heck, everybody used just three comps. In fact, USPAP says I should do what my peers would do. And they all used just three or four.
So, what changed?
Today in most areas, all the sales are available. But are they necessary? Well no. All my peers use just three or four, so it is ok. But what if I want to do more than achieve credible results?
What If I want to provide more reliable results? Not just believable-credible results. What if I want to use all available comparable sales? I know that a comparable sale is one that is competitive to the subject. What if there are 14 sales which competed directly on the date of value? Should I discard all those beyond three or four?
Well, USPAP says “must” use all available competitive sales. Yet USPAP says do what my peers do. Do what your clients expect. And they all use four, not fourteen!
Are you in “violation” of USPAP?
If you use just 4 comps, in instead of 14, you may be in ‘violation’ because STANDARDS RULE 1-4(a) says analyze sales as are available. On the other hand, if you use 14, and your peers do not do that, you do not meet client expectations (as required by the Scope of Work Rule)— you may be in violation.
Is it possible, just possibly possible that I and you are forced to violate USPAP in every appraisal? And evidence can be brought against you either way.
But there is more. In a coming blog and (paid subscription) TAAR* issue, we look at why a credible/believable “standard falls below what is possible, with simple data science tools.
- *TAAR (The Asset Analyst Report) is a paid subscription report, which goes more deeply into topics critical to appraiser survival and prosperity in the coming “data disruption” of the entire industry.