Is That an Appraisal? USPAP Definition
Why Isn’t that an Appraisal?
APPRAISAL: (noun) the act or process of developing an opinion of value; an opinion of value.
(adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.
Comment: An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value).
In general terms the USPAP definition is elegant in its simplicity.
We all understand what it is that appraisers provide. You provide opinions of value. Call it whatever you want, but an opinion of value is an appraisal.
What about BPO’s or CMA’s?
Aren’t they really appraisals dressed up as…something else?
From the Illinois Appraiser Act:
Nothing in this Act shall prohibit a person who holds a valid license under the Real Estate License Act of 2000 from performing a comparative market analysis or broker price opinion for compensation, provided that the person does not hold himself out as being a licensed real estate appraiser.
However, under Dodd-Frank we have the following definition:
1126. Broker Price Opinions.
(a) General Prohibition In conjunction with the purchase of a consumer’s principal dwelling, broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of a loan origination of a residential mortgage loan secured by such piece of property.
(b) Broker Price Opinion Defined. For purposes of this section, the term broker price opinion means an estimate prepared by a real estate broker, agent, or sales person that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property’s condition, market and neighborhood, and information on comparable sales, but does not include an automated valuation model as defined in section 1125.
If you notice, Congress has drawn a clear and compelling parallel between value and probable selling price.
Also, they clearly target the product as one that isn’t acceptable for loan origination. It says nothing about BPO’s for REO’s, tax assessments, estates, insurance, marital dissolutions or foreclosures.
The question remains, why does Congress insist that BPO’s are unacceptable for loan origination but it is silent on everything else for which a BPO might be used?
Think about this:
If a BPO or CMA is communicated in such a way as to be compliant with USPAP…doesn’t it become an appraisal?
After all, an appraisal isn’t defined by what label you place upon it, is it?
In fact, the USPAP definition at the beginning of this article doesn’t even reference that USPAP compliance is required in order to be an appraisal.
What about AVMs?
AO-18 gives a simple, one-line definition:
An AVM is a computer software program that analyzes data using an automated process.
Let’s look at FAQ 181 on the topic:
Question:
Are the results from an Automated Valuation Model (AVM) an appraisal?
Response:
No. Advisory Opinion 18, Use of an Automated Valuation Model (AVM), states:
An AVM’s output is not, by itself, an appraisal, and communication of an AVM’s output is not, in itself, an appraisal report.
An AVM is a tool that delivers an estimation or calculation, whereas an appraiser arrives at a value opinion by applying his or her judgment and experience. An appraisal is defined as an opinion of value, which is distinctly different from an estimate or calculation of value. An AVM uses automated processes and cannot produce an opinion of value because only individuals can exercise judgment and form opinions. An AVM is just one tool among many that an appraiser might use to arrive at an opinion of value.
Appraisers are cautioned that this response is based on the USPAP definition of appraisal.
Jurisdictions that use a different definition of appraisal may reach a different conclusion.
ASB Backpedaling—
APPRAISAL: (noun) the act or process of developing an opinion of value; an opinion of value.
(adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.
How is the output from an AVM, that has been defined in an FAQ as an estimation or calculation, not consistent with the USPAP definition of appraisal?
The bright line that they’re trying to establish appears to be nothing more than an opinion of value differs from an estimate or calculation…because those aren’t opinions.
This is doublespeak nonsense.
Dodd-Frank states the following about AVMs:
The term automated valuation model means any computerized model used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured by a consumer’s principal dwelling.
Collateral worth = Collateral Value
That’s in the Comment portion of the appraisal definition, isn’t it?
Discounted cashflows, regression analysis and sensitivity analysis are all tools that appraisers might use to arrive at an opinion of value.
How can appraisers be held responsible for the output of estimation tools when the AVM developer isn’t?
If an AVM is communicated in such a way as to be compliant with USPAP…doesn’t it become an appraisal?
Carve Outs—
Here in Illinois, the Department of Transportation was able secure a carve out for another type of appraisal product:
For the purposes of this Act, the following types of valuations are not appraisals and may not be represented to be appraisals, and a license is not required under this Act to perform such valuations if the valuations are performed by an employee of the Illinois Department of Transportation or an employee of a county:
(1) a valuation waiver in an amount not to exceed $10,000 prepared pursuant to the federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended; or a valuation waiver in an amount not to exceed $10,000 prepared pursuant to the federal Uniform Relocation Assistance and Real Property Acquisition for Federal and Federally-Assisted Programs regulations.
In this instance, the legislature went so far as to redefine a specific appraisal product as NOT an appraisal.
Evaluations and Assessment Appeals
Interagency Guidelines famously spell out the following:
These regulations also specify the requirement for evaluations of real estate collateral in certain transactions that do not require an appraisal.
The Guidelines define an evaluation as:
A valuation permitted by the Agencies’ appraisal regulations for transactions that qualify for the appraisal threshold exemption, business loan exemption, or subsequent transaction exemption.
I find it curious that IDFPR routinely receives inquiries from banks as to whether Illinois licensed appraisers are permitted to complete evaluations.
Wasn’t the whole point of allowing unlicensed individuals to complete evaluations due primarily to the institution’s not requiring the services of an appraiser?
The short answer is of course; no.
Illinois licensed appraisers must adhere to USPAP. There is no ability to opt in or out depending upon what some lender wants to call the assignment today.
Lenders would prefer to have the skill sets of licensed and certified appraisers without actually referring to the document as an appraisal.
If an evaluation is communicated in such a way as to be compliant with USPAP…doesn’t it become an appraisal?
Assessors from all over Illinois frequently submit complaints on appraisal-like products.
In many cases, while the product turned in falls far short of USPAP compliance. There’s nothing IDFPR can do unless we have an unlicensed practice case or a licensed appraiser who has tossed USPAP aside.
Much of the problem lies in what taxing districts permit as evidence in an assessment dispute.
If an assessment appeal is communicated in such a way as to be compliant with USPAP…doesn’t it become an appraisal?
What separates an appraisal from BPO’s, CMA’s, AVM’s, Waiver Valuations, Evaluations and other valuation results is USPAP.
How did USPAP become this regulatory albatross?
Why do lenders and federal regulators believe that a BPO, an inherently non-USPAP compliant product is an appropriate check against an USPAP compliant appraisal?
Since 1989 the elegant definition of an appraisal has been eroded by twenty years of compromise.
Even the ASB, authors of the original definition of appraisal, have hobbled the definition with an FAQ that magically parses out an opinion of value from tools, estimates and calculations.
A tongue-in-cheek definition of compromise is “dividing a cake in such a way so that everyone believes that they’ve received the biggest piece”.
Make no mistake. Appraisers clearly have the smallest piece of cake.
By Lee Lansford – Illinois Appraiser Newsletters – Volume 4, Issue 9
- Hybrid Assignments, the Consequences - February 7, 2019
- Bankers Concerned About Appraisals - October 18, 2017
- Third Party Blues - July 19, 2017
