Scope Creep & the Imploding of Rules

Douglas G. Kues
Latest posts by Douglas G. Kues (see all)

Scope Creep & the Imploding of Rules Have Little to Do With Appraising. 

…the imploding rules then implemented, and the scope creep that evolved because the cart was leading the horse, has severely lessened the reliability of ALL appraisals in my opinion.

ANSI, while certainly worthy of discussion and taking a position on, will not solve the real “appraisal problem” that we all have. It really isn’t an effective tool anyway, but what the heck do I know. Being one of those AG certified from the very beginning, too early to get trained by anyone above me, since 1992, and licensed in real estate since 1971, and a broker since 1991, in a rural and complex market where there was no building department (or effective assessor) until the mid 1960s, with a substantial percentage of homes on hillsides and built well before permits existed, we have our challenges.

Nonetheless, years ago I could tell you what a home or small commercial property (that’s all we have around here) would likely sell for within a couple of thousand dollars by walking through it. While licensing for this ability was inevitable, and probably necessary, the imploding rules then implemented, and the scope creep that evolved because the cart was leading the horse, has severely lessened the reliability of ALL appraisals in my opinion.

Think about it… how Fannie Mae will reject a loan over a missing water heater strap; or in my case feeling the pressure to always tell them in writing that this home built 80 years ago still has a remaining economic life of over 30 years (or, more accurately, exactly 30 years so that they can do their loan if I expect to keep getting assignments from them, is what has ruined the profession). Look at FHA. The concept has gone from value to health and safety, and the appraiser has gone from valuation professional to home inspector, all with increasing liability.

Now, we all know that the primary motivation for sanctions and license revocation by BREA is allocated to terrible adjustments either intentionally or otherwise, and yet virtually all policy changes trickle down to a direct influence on the risk we take doing our jobs.

Fellow appraisers, I can generally still tell you what a home will sell for in my market within a 3-5% margin in minutes without any sort of report, but I sure do notice that my reports now are 50-60 pages long with 16 pages of disclaimer and scope of work clarifications, combined with the myriad of rules having little or nothing to do with value or marketability, and that my margin of error because of all that is now 10-12% based on following the mandated guidelines that really should not be appraisal industry standards that are enforceable.

I can still tell you pretty close by reasonable observation what your property will sell for because of all the years hanging around this market area and industry, and really don’t even need to know what the square footage is. I was so hoping to be a helpful participant in this blog and to gain some serious insight into the overall impact, but too much time wondering where all this banter is coming from, and why we can’t as a large group with a substantial voice, keep things in line without blind submission. Go figure.

Douglas G. Kues

Douglas G. Kues

Douglas G. Kues is a Certified General Real Estate Appraiser and has been licensed by the State of California to practice real estate since 1970. Primary practice has been commercial-investment and business real estate brokerage and valuation. He has been in the real estate and appraisal business and a resident of Lake County since 1988.

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24 Responses

  1. Baggins Baggins says:

    Thank you Doug.

    Scope creep. An interesting concept to be aware of.
    https://en.wikipedia.org/wiki/Scope_creep

    This is an interesting reference piece in the references:
    https://books.google.com/books?id=BnuZBgAAQBAJ&pg=PA52#v=onepage&q&f=false

    That is an interesting read, the details of scope creep.
    “To make matters worse, the purported benefits of the change are often unrealistically over estimated.”

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  2. Avatar Coach says:

    Great article Doug. Yes things were so different when I started appraising in the late 80s. I think my reports were only a few pages long.

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  3. Avatar Eric Kennedy says:

    I started in 1995 – 3 counties – no MLS and no internet. DOS program and 1-hour photo was a 30 minute drive one way. It took me as long then to complete a report as it does now. 3 printed copies sent overnight on UPS. and…. I enjoyed the job much better back then. Scopa Creepin and The Cobra Effect.

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  4. Baggins Baggins says:

    This is such a popular sentiment. They’ve piled on too much and job satisfaction with appraisers has plummeted. Work life balance, benefits, rewards, satisfaction, compensation, all the metrics they apply to their own working positions is apparently an inconsequential consideration when dealing with appraisers.

    May I please bring to your attention, todays RE Colorado RESO compliant Corelogic Matrix brand Denver area MLS publication on structure type and attributable size… Refreshing like a can of cold soda on a summer day.

    Forgot the link. Here you go.
    https://cdn.recolorado.com/files/helpcenter/Square-Footage-Companion.pdf?

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    • Avatar hammering hank says:

      Nice color graph.

      Except the bi-level & tri-level examples BOTH have below grade/basement living spaces.

      Hence bi-level is 2 levels above grade- tri-level is 3 levels above grade.

      Both pics utilized show below grade/basement spaces.

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      • Baggins Baggins says:

        Hank, you just don’t get it. Let me put forth some more data here.

        Whatever you believe to be the proper property definition and description… Is only applicable where you are at, if it is even applicable at all. municipal building codes where you provide professional services. Now we have appraisers outright ignoring municipal building codes and fnma is backing them up. These are violations of the USPAP competency and conduct rules.

        You know what RESO? The Real Estate Standards Organization. Keyword standards. And every single MLS in this country is supposed to be RESO compliant sooner than later. Just several years ago the industry at large and a vast majority of major influences and top league corporate participators all unanimously agreed to adopt the RESO standards. They’ve had hundreds of people on those workgroups for years and years. I did not like that but that is what happened. ANSI does not get to over ride them, neither does FNMA because FNMA supports RESO!

        Right here where I’m sitting. Operating under the umbrella of a substantially sized MLS member group. Abiding mostly uniform municipal building code and space definition standards in this jurisdiction and many many neighboring counties jurisdictions. That’s not a basement. It’s garden level. Just because garden level and basement share the same line on the 1004 form does not mean they are the same thing. The standards set forth by the municipal authorities in these jurisdictions, are what guided the above definition and recognition of qualified building space, which is adopted and supported by the local real estate professionals. Ever hear of a legal concept called law of the land?

        Basements and garden levels are not the same thing. You don’t get to define that. The details are defined by your local municipal authority.
        https://appraisersblogs.com/ansi-measuring-standard-required-by-fannie-mae-in-2022/#comment-34180

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        • Avatar hammering hank says:

          I am not arguing basement vs. gardens. You arguing apples vs. oranges. Not apples to apples.

          Most MLS data is incorrect because realtors dont input correctly and/or know design styles. Much less what is or cares about below & above grade GLA.

          RESO? Dont make me laugh!

          What I am saying is -bi levels and tri levels have BELOW grade square footage. That is common real estate sense. That is BASEMENT level. Below grade. Get it? Duh.

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          • Baggins Baggins says:

            You are disregarding the importance of municipal building codes, local standards, the importance of adhering to local rules and regulations, and the importance of secondary verification sources. In the link provided, USPAP references. A lot of appraisers appear to have disregarded these important concepts. The USPAP is supposed to guide our entire practice but this one FNMA ANSI mandate via the jurisdiction clause arguably wipes out half of our guidelines and innate protections.
            Again, unlike in these other dysfunctional areas, our area is highly efficient, functional, and cohesive. The realty agents copy assessment data, because MLS gives them easy auto import tools. They describe type and report size in a uniform manner already, because through their own member service groups effort, they have clear guidance for this reporting and recognition of size. And of course the guidance to come up with this PROFESSIONAL MLS PRODUCT, is the municipal building codes in THESE JURISDICTIONS. So now your argument progresses to the licensed assessor does not know design styles and are incorrect. Ignore the absolute fact every single house built in this jurisdiction was (in it’s original state) built to those exacting specifications detailed in the municipal building code guidelines, and the far majority were reported accurately as such. We already have a uniform standard. None of those municipal rules matter anymore? Newsflash, that is the legal standard for the market at hand. To be competent is to know your local rules and regulations. Incompetent practice is to ignore these local market factors. The question remains if FNMA is providing adequate standing to answer the question of superseding local regulations to qualify the jurisdictional exception clause. Remember when you’re up in court or being targeted for complaints and suits, this lack of verification source, failure to adhere to professional standards everyone else is held to without jurisdictional exception, falling back on flimsy ansi disclaimers may not be enough. What on earth makes you guys think the ANSI disclaimers carry more weight than our existing USPAP guidelines?

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            • Avatar JAMES SCHOLL says:

              The NY state assessors manual mandates splits and raised ranches lower level as square footage if finished in a similar fashion to the upper level. They are referring the level that is partially below grade and partially above. This only applies to these two styles. Agents and home owners get their square footage from the assessors. I will follow the state and opt out of ANSI as necessary. In Fannie Mae’s recent update of FAQ’s they finally acknowledged municipal exceptions. See FAQ #6, I think it was the second paragraph. Not sure why they did not highlight this as it seems a big deal to me.

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        • Avatar hammering hank says:

          No Bags you don’t get it. But nice novel as usual. It is real simple stuff Sherlock…. BELOW grade is lower level/ basement. Bi levels & tri levels- hence 2 or 3 levels ABOVE grade have below grade square footage. That square footage livable or not… is a BASEMENT. Common sense.

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  5. Avatar Wildmanjoe- says:

    I agree. Now there is a collateral underwriter, guessing inexperienced real estate agents and public data. All with differing living area, years built, room count and many other things. Bottom line nothing works. Regression is only good with good data. Which one do you use for reference. As I sit here after having a widow maker I thinking of taking my SSI benefits and working in a different capacity to make up the difference. Up to 18000$.

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  6. Avatar Bill Johnson says:

    I’ve been seeking appraisal / real estate truth and asking others to do the same since the 90’s. Relating to knowing ones market, does it really matter anymore?

    I did two inspections today where both were over 2.5 million (contract prices), but yet each had the no appraisal contingency box checked. One will be cut a value of over $500,000, while the other should be cut by $200,000. Both will close escrow (50% LTV), no one will care what I have to say, and each neighborhood will again be pushed up in value. Wake me up when I can stop making $50,000 a month time adjustments.

    Seek the truth.

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    • Baggins Baggins says:

      That’s big league appraisal right there Mr Johnson. Impressive.

      For the luxury market they don’t even need to bother with contingency options? Is that a thing?

      I fielded a sort of ibuyer quasi buyer in place thing, they guaranteed the entirety of the loan amount in cash regardless of the appraisal result. Apparently still needed the appraisal for compliance to push the GSE loan though.

      This industry is changing much to rapidly than even the best of us can keep up with. That’s my opinion at least. And what I just learned today from the Denver area MLS (link above), ANSI does not jive with RESO. The broken record skips on.

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      • Avatar Bill Johnson says:

        Don’t be to impressed. Although one will be a challenge , the other one is just a high dollar PUD.

        As it relates to San Diego, my unofficial estimates show that 30 to 40% of all purchases I do have the NO appraisal contingency box checked. It’s either they have the money and don’t care, or have to attempt to out negotiate 5 other offers. So yes, no appraisal contingency purchase contracts are an every other day thing in my world.

        Seek the truth.

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        • Avatar hammering hank says:

          Same here in Chicago…except I am blowing the deals away.

          Just because there is no supply= value.

          Just suckers. Like 2005. Repeat.

          Lets revisit those same properties in 5+/- years when they are selling for approx .50 cents on the dollar of what they sold for.

          I bet on it. Bubble time.

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  7. Avatar Bryan says:

    “Fellow appraisers, I can generally still tell you what a home will sell for in my market within a 3-5% margin in minutes without any sort of report, but I sure do notice that my reports now are 50-60 pages long with 16 pages of disclaimer and scope of work clarifications, combined with the myriad of rules having little or nothing to do with value or marketability, and that my margin of error because of all that is now 10-12% based on following the mandated guidelines that really should not be appraisal industry standards that are enforceable.”

    EXACTLY!!!!!! Well put. My first report was 5 pages and accurate! 1 day with 5 Appraisers and this industry could be faster, less expensive (BTW – we are not currently expensive – Title insurance companies are expensive), and accurate. But why involve us?

    1
  8. Baggins Baggins says:

    New work around method for ANSI. Does not change your room counts, room adjusts, or net/gross. Thank you.

    https://appraisersblogs.com/solving-the-ansi-measuring-dilemma-a-simple-work-around#comment-34587

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Scope Creep & the Imploding of Rules

by Douglas G. Kues time to read: 2 min
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