Contract Analysis Paralysis
The most critical failure found in appraisal reports that come before the Board, whether residential, commercial, or agricultural, is a lack of analysis. Appraisers seem to think that citing or reporting is synonymous with analysis.
Analysis – to study (something) closely and carefully: to learn the nature and relationship of the parts of (something) by a close and careful examination.
The URAR asks: I did or did not analyze the contract for sale for the subject purchase transaction. Explain the results of the analysis of the contract for sale or why the analysis was not performed.
Yet many will write: Standard contract. No concessions.
That isn’t analysis, is it?
Analyzing a contract begins with whether the appraiser has all of the pages, all of the riders, and whether it has been signed by all parties.
We rarely see a proper contract analysis.
Throughout the URAR and other forms appraisers certify that they: research, verify, and analyze data from reliable public and/or private sources.
That; I researched, verified, analyzed, and reported on any current agreement for sale for the subject property.
And; I researched, verified, analyzed, and reported on the prior sales of the comparable sales for a minimum of one year prior to the date of sale of the comparable sale.
USPAP uses the word analyze twenty times from the Defnitions on up through Standard 3.
Analysis requires more than empty sentences like:
“…the subject property has had updates since the short sale eight months ago.”
“…the subject’s market rent is derived from rental comparables on this form.”
Each appraiser who appears before the Board in a settlement conference says the same thing.
“I guess I should’ve written more.”
Filling the document with endless boilerplate about comps over a mile away or about digital signatures being fine and dandy in this day and age aren’t what your readers are looking for.
If a property’s sale price spikes 80% in a six-month period, yet the property’s condition is unremarkable, that’s going to need analysis.
Analysis is the reason behind the action or fact. The Board can see it a mile away.
By Lee Lansford – Illinois Appraiser Newsletters – Volume 7, Issue 2
- Hybrid Assignments, the Consequences - February 7, 2019
- Bankers Concerned About Appraisals - October 18, 2017
- Third Party Blues - July 19, 2017
I just had a discussion with a reviewer about a FHA list of items I required the builder to correct. The reviewer did not know the Thee S” Rule for FHA properties. After I sent him a copy of handbook 4150.2, page D-22, he agreed with me. The builder must do the corrections.
How many Realtors and/or Appraisers use the ANSI system for the square measurements numbers for the finished attic and or lofts?
If the ANSI system is not used it is possible that the gross living square footage number is incorrect.
A great article. Funny title. Sometimes you can go into ‘analysis paralysis’, because there are so many potential items of concern, it’s easy to go overboard trying to cover all of them. And the people who originate loans don’t always understand what other loan handlers down the line look for in appraisal reports. Credible valuation often comes from thoughtful consideration. With such increasing emphasis on automation, I think appraisers are too focused on passing the first gate of mostly automated review, and not focused enough on thoughtful, individual analysis. All my analysis and form filling of key areas, is always manually typed for every report. I take pride in providing certifiably original and meaningful entries, for the specific appraisal at hand. I speed type entries in just a little longer time than it would take to sort through all the ready made entries anyways. Form filling is about talking in the language of real estate for that specific scenario, not cleverly filling forms with the same old narrative.
Outstanding practice, clearly explained.
I go into so much detail when it comes to the OPINION of the Value. This is what we promise and certify. People often believe that the opinion of value is a number and it isn’t. It is the “OPINION” of the value. And, it always seems like I see more of everything else and less of what we promise and certify when I see a commercial report (or , any report). I ask myself: how in the world did these people get a Certification, but seriously, I know how (I just like the rhetorical questioning). I will always look at my reports and I compare it – (wow) – it is amazing!
Even the Appraisers who want to complain, as well, are guilty. Many of these Appraisers who want to complain truly believe they reported an “Opinion” of value in detail and competently, even if they didn’t use a boiler plate. However, there are plenty who do have the valid privilege to complain.
When I see these commercial reports (and, residential reports I have been receiving lately now) I am reminded that the General Public observes these reports. What do they think of us as a whole? I am ashamed to say this is my Profession, sometimes. It is the General Public that hurts the most and puts a cloud over the entire Profession.
For each Approach to Value I report a Scope of Work and Problem to be Solved (along with SOW Amendments and assumptions and conditions) for each and, a thorough Reconciliation. My Scope of Work may eclipse one page and including my Reconciliations. I also show the allocation, extraction and abstraction of each Improved sale I use for underlying land market prices. Sometimes, I write paragraphs under each picture. Each analysis itself ‘will’ eclipse one page. One of the top 3 items that a report should showcase is the “OPINION” of the value. It is truly amazing what I see when someone hands me a Commercial Report (lately now, residential reports); I always see an “Incompetent.”
So many Appraisers have been mentored or trained to be a slave, a form filler, or an unethical, an incompetent or whatever else there may be, BUT the fact is that stupidity has surpassed ignorance long ago. I am speaking mostly from a General Appraiser perspective here. These Appraisers need the proper training or they should be removed. Unfortunately, these Appraisers are not reported that often. It would do this Profession Justice to remove these Skippies (especially in the General Appraisal area, because it can serve as preventive care, per se). They are in fact Skippies – period! There is a huge spotlight shining on them and Appraisers are to busy whining about a fee and taking the wrong route to be honest with you. If Appraisers are so concerned about the Fee, then removing these Appraisers must be a priority (one priority). Removing the culprits giving into these Fees can be reported by showing their incompetent ways (as shown in the article), being unethical at many times and the simple fact the boards need to revisit how these individuals received a Certification in the first place. I cannot fathom how many General Appraisers become Certified in the first place; I guess it goes back to the beginning of this paragraph.
For the record: I cannot fathom filling out a form! I am so grateful that I do not have to fill out a form. Even when I conduct an Appraisal for residential or the underlying land, I will never fill out a form! Forms have dumbed down this Profession.
I found the article to be a very interesting and interpreted well. This article is definitely a keeper. Thanks for the article.
the reason anyone “rarely sees a proper contract analysis”, is because nobody really knows what that means. i have asked, and the response has always been “we cant tell you”. can you give me an example of what you want? “no, we cant tell you that”. it wasnt until a few years that i stumbled upon an article like this one and finally found out what it meant. unfortunately, not every appraiser will ever get to see this article.
in every report i do, i have two addendum pages filled full of subject specific commentary and comp specific commentary, on top of the 25 other pages that are required now in an appraisal. even with all that, i guarantee you, there will always be a request by someone to explain more, simply because they want to justify their existence. we need to do away with that. an “enough” point has to come some time.
I agree with Benji for the most part but differ on one point. He feels that appraisers are ignorant/stupid when it comes to contract analysis. I think it is more basic. They are just being lazy and probably are not ignorant/stupid. They should know what makes a good analysis but are too lazy to type up something. Most likely because their mentor trained them to do that, as this was the acceptable way, back in the 90’s and early 2000’s. With AMC fees being as low as mid-$200’s, the appraisers feel forced to do 2-3 appraisals a day to earn a living. I don’t care what anybody says, a competent and complete appraisal needs more time. I’ve reviewed some appraisals that were written in the “minimalist” fashion. My conclusion was that I couldn’t tell if the value was correct because there was not enough information in the report to be able to tell. In my opinion, there should be a review required for every appraisal that has a fee of less than $300. Those are the ones that are most likely to be performed by the “form filler monkeys” and will probably violate the USPAP requirement, that the report not be misleading. Someone needs to be held accountable for lax performance. It hasn’t happened in any significant numbers yet but, it needs to happen.