TAF Conflates Real Estate Appraisers with Appraisers
Why do I take the time to mention “real estate appraisers” and “real estate appraisals?” instead of just “appraisers” and “appraisals”? Personal property appraisers and business appraisers aren’t required by any state to follow USPAP, don’t pay anything for licensing and certification fees to any state, and are not subject matter experts on anything to do with real estate at all, ever. But… the Appraisal Standards Board and Appraiser Qualifications Board are chock a block full of non-real estate appraisers. Didn’t TAF/ASC arise from problems in the real estate profession? Was it ever the intent of the original remit for ASC/TAF to include non-real estate appraisal? Remember, personal property appraisers and business appraisers are non-licensed &/or non-certified.
As the only one of these professions mandated to have licensing and certification, TAF, ASC & USPAP should be governed for and by a core of real estate subject matter experts. Period.
Yes, there are standards in USPAP addressing personal property (“PP”) and business valuation (“BV”), but there are numerous trade organizations devoted to these professions. PP and BV appraisers deserve to have the sections of USPAP pertaining to their profession gifted to them with all the good wishes of TAF. Those Standards once handed off, will de-clutter the core mission of TAF: real estate solutions, real estate professionals, real estate standards, real estate appraisal requirements.
Think of how much more money there will be for the core mission of TAF (this not-for-profit is led by someone who sent this bat-shit crazy letter, once the need to cater to two unrelated professions is removed. That $40 per real estate appraiser suddenly goes to real estate appraisers.
Meanwhile, not only do personal property (“PP”) and business valuation (“BV”) professionals seat themselves as part of the Appraisal Standards Board and Appraiser Qualifications Board, each of them has a separate (funded) panel. So, personal property (“PP”) and business valuation (“BV”) are each represented twice.
No wonder there is such a muddle here. We have non-lawyers of all valuation professions pretending to be lawyers and writing standards that can and will land appraisers in hot and deep water. We have non-real estate professionals having a hand in writing standards and qualifications for real estate appraisers; there are no qualifications, or state licensing required for either of these two professions. Non-real estate appraisers are over-represented and frankly have been getting a free ride on the backs of real estate appraisers for decades now. Decades. Meanwhile, real estate appraisers are getting hammered on all sides while the PP and BV appraisers can just opt out of any responsibility for their own input into the standards that they helped write.
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The expectations of Real Appraisers stem from the associations developed from the economic failures of the 1930’s.
Those efforts from the REALTORS etc. successfully built the expectation that credentialed and practicing appraisers were expert in those fields and its parallels as responsible professionals.
When we open our MOUTH, we are responsible.
I can neither confirm nor deny I have ever completed ‘an appraisal’. Mr Miller, still hammering with that letter. Ha! Brilliance. I would add; appraisAL fee vs appraisER fee, as we have a similar situation with non qualified amc staff and improperly co mingled billing, another issue the regulatory structure heads have failed to address. How can someone bill as if they are an appraiser, when they are not licensed to do so? Then so generously share a minor portion of the fee back with the actual credentialed person doing the work… Regulated by those not qualified to fall under the regulations themselves… Make it make sense.
Some use consulting fees to a bill successfully. Remember when the appraisers were trying to redefine the word defined in WEBSTERS and other dictionaries. I had several licenses with overlapping defilations, and I titled my some of my work differently. And I used “Blacks Legal Dictionary” as references, attempting a defense.
Valid points Jonathan. When FIRREA was passed, I don’t think there was any real concern about BV or PP. Not beyond place holders in the first issues of USPAP. Place holders that I don’t think Congress cared about one way or the other at that stage.
When I worked at IRS I once naively asked my Team Manager why all accountants (AICPA) and business valuators (like NACVA) didn’t just follow USPAP like appraisers did. Her unusually candid response surprised me.
“Because some of us don’t believe in it!” About 50% of AICPA at that time, as it turns out.
Appraisers were proud that our discipline was separate from that of business valuators. Just as Forestors, Gemologists, Machinery and Equipment Appraisers and Art Appraisers were proud of their professions. We all shared very broad common concepts, but our individual techniques and rules were very different. There’s far less cross over commonality than USPAP suggests.
Though we use certain similar (same) terms for processes like income approach or cost approach or market approach our understanding of how they are applied & that of valuators & accountants are 180 degrees apart!
Taking BV training was a requirement for IRS real estate appraisers. My training-compadres (an MAI; and another who was a former state appraisal board investigator) wanted to no part of it.
We referred to BV as a process in which blue smoke was merged with chicken bones and a Quija Board to develop value conclusions. By the standards, practices and principles or real estate appraisal, its a valid description. From the standards of the degreed BV and accounting professionals – (many with masters or PhD’s) what we did was akin to a bunch of trained monkeys banging away at typewriters until we produced something arguably credible.
For example: (1) The R.E. Appraiser will check with actual tenants, agents or owners for existing or asking rents in developing an income capitalization approach. A market rent of income will be forecast. Property operating expenses are analyzed. Net operating income will be determined. A market derived (from our actual comparable sales) overall rate of capitalization will be identified. Our formula is IRV or Income Divided by Rate Overall = Value.
(2) The BV or accountant will START with a cap rate for the asset class. (Usually found in Wall Street transactions; & published by Cos like PWC). THAT rate will dictate the “market Rent” necessary to provide a ‘required’ return rate for the investor.
BV & accountants think of marketing time in days (1-2?). R.E. Appraisers think of it in terms of what is typical in specific markets for specific property types- months or years even. Even the way (or when) we apply discounts vary.
In one groups technique despite all the same “methods” or “Approaches” the cart is pushed by the horse. In the other group the horse pulls the cart. Neither is necessarily right or wrong. One considers motivations of & in the sophisticated world wide overnight investing and banking market(s). The other, (traditionally) deals with the less definable emotion driven environment of non investment grade real estate. One argues for the science of math & time. The other analyzes and addresses the art of predicting imperfect human actions and reactions in imperfect, variable markets where location is more important than most other considerations, measured in arguably much longer time periods.
Overlap of process occurs on the income property side of real estate. There is huge potential for misuse and abuse here. Huge.
Quite reasonably, neither group wanted to be part of the other. We accepted that our approaches were really different in spite of visually apparent overlapping terms in some instances.
Then thanks to lobbyists and self serving interests at the TAF and their masters in real estate sales and financial markets, TAF started the process of pretzel twisting and sophistry to merge the two distinctly different professions.
First off was the name. Valuators didn’t want to be downgraded to mere appraisers. Appraisers who know better wanted no part of becoming valuators. At that time, to offer opinions as to real estate values outside of seeking to obtain a listing by a broker, was limited to licensed real estate appraisers.
Novelty hucksters like Zillow, selling advertising space weren’t allowed to cite values of market values or offer an appraisal. That’s why what they offered was a carefully attorney reviewed entertainment service called a ‘Zestimate’.
There was no AVM remotely accurate enough to pretend to be providing a ‘value’ or appraised value.
But, as time passed and TAF had to somehow twist USPAP into meeting some vague semblance of Generally Accepted Accounting Practices, distinctions in terms were blurred. USPAP itself became increasingly vague and overly broad.
TAFs goal was easy to understand. It has less to do with what Congress mandated their creation for than their desire for growth and national and international recognition as the sole source of all appraisal disciplines. “The Appraisal Foundation is the nation’s foremost authority on the valuation profession”. Self proclaimed. When they were created there was no single ‘valuation profession’. It was (& remains) multiple professions including many diverse disciplines.
Core consumer & user (The Public) protections such as the requirement for a specific case-justified Departure Provision were replaced by a much more practitioner fraud-friendly ‘Scope of Work Rule’. In the former we had to spell out what normally required principle was being massaged or eliminated. In the latter it was more of a buyer beware situation where failure to include one or more of the traditional approaches didn’t even have to be mentioned beyond saying it wasn’t in the scope of work. USERS lacking appraisal sophistication were unaware how flimsy the value predictions being made for their properties were.
One large appraisal associated organization seeking to expand opportunities for its designated membership in the business valuation world (going concerns of businesses without the R.E. ownership elements) helped bend the definition pretzels.
End result? In the near term, no reason for anyone to trust in the appraisal process anymore. We no longer (subjectively) identify who our clients are for ourselves, nor the intended use or users for who we specifically intended our work product to serve. That pretzel was delegated to FNMA and others.
We could also consider the impact of Gramm-Leach-Bliley Act of 1999 and the impact on appraisers in the run up to 2008, but in truth that’s hardly the fault of TAF or USPAP. Financial Market Willingness to circumvent USPAP was. We see that same willingness today in the form of bifurcated hybrids and bifurcated desktops that we’ll all pretend are a completely different vehicle for facilitation of fraud. Right along side of AVMs where we pretend ‘science based software’ algorithms have captured the unique ability to determine “market value” when compared with real appraisals.
What we SHOULD keep in mind though is that from the day the first draft of USPAP was exposed, special interests were already trying to modify it for their benefit (reduced regulation and requirements). Then in 1999 they succeeded in eliminating Glass-Steagall so that we could achieve the too big to fail fiasco… and blame as much as possible on participating appraisers at Countrywide or LandSafe; and WAMU.
So, in my long winded way I have to agree with Jonathan. Real Estate Appraiser regulation should be left to R.E. Professionals. Said pros should in turn limit themselves to that in which we are experts.
Accountants and BV Experts should stick to what THEY are experts in. Just for fun though, I’d like to see Art experts subjected to the same science that the art of appraisal is. No doubt FNMA CU or could come up with a science based and supported method of determining what any given Van Gogh or Matisse or Renoir is worth ‘in the market’, using linear regression analysis.
Politicians and others feeling collective guilt over their past racist or any other non PC policies over the years should deal with that guilt on their own, and leave appraisers out of it. Our principles already prohibit it.
Great post Mike. Informative and well worth the time to read. Thank you.
There is tremendous pressure on the valuation profession because whenever the dial is turned, this can result in money going in, or going out, of various pockets. All eyes on the valuation process. I could have never imagined that being a licensed appraiser would put me on the front lines of an ongoing legislative war as opposing forces wrestled for power and control irrespective of the harm they cause to the people and long standing bureaucratic protection mechanisms along the way, most of which long since abolished.
I’ll comment with the same thing as stated in other recent and well thought out blog communications here; We may not know exactly what we are seeing but make no mistake about it, these are products of the creature from jekyll island. It’s all brought to us by the federal reserve and a fiat monetary system. Over a hundred years of not being federal and not having any reserves. The allure of something for nothing, it is inevitable that what can be exploited, will be. It’s never too late to demand a return to the principals of article I section X. Can you imagine if every time these power players needed a cash infusion or bail out they had to bark orders at precious metal miners and demand they get back in that hole, or borrow from those with wealth whom would hold them truly accountable, rather than pilfering the general wealth through monetary deflation? The chicken bones and ouija board will be the first thrown directly out the window, along with whomever provided faulty investment and valuation advice in the first place.
Sound valuation practice is a result based task, considered and reconsidered again after the fact, developmental alterations applied which change with the times and tools at hand, again measured in real time with real money. In their failure to comprehend that price does not equal value, many believe that the miracle of technology is the only solution from here forward. Tech nerds writing code for clickbait profit on what were initially novelty systems. If you peek behind the curtain the code is weak, the algorithm shrouded in mystery (hardly a qualifiable ounce of transparent oversight applied), and the profiteers exploited this particular tool the moment it magically transformed from a gimmick to a supposedly reliable software valuation tool.
Wake me when the miracle of advanced processing actually rolls up it’s sleeves and performs real labor services to harvest the only true source of wealth on this planet; natural resources. It is the raw materials argument; money is a product of the efforts of labor applied in harvesting raw material, nothing more and nothing less. Money is an instrument of exchange, the measurement unit a reflection of the wealth generated by the raw material. Without raw materials there is no actual acquisition of real wealth and all transactions after that are mere transfers of the the wealth harvested before.
The house of cards has to fall eventually but the bureaucrats will continue to rewrite rule after rule to transfer what wealth exists, shifting power as it suits them, passing risk and accountability down the line. The grand illusion that everyone can enjoy something for nothing has expanded beyond ‘the national monetary commissions’ original intent, as over time as people learned we are creating something out of nothing, more people demanded a slice. These days cash is literally dropped from a helicopter and you can’t go a single news cycle without learning of some new bail out proposal, which in other terms is just a continuation of illusionary wealth transfer.
If the public only understood the rank injustice of the banking system, revolution by morning. These arguments changed my mind and world view forever more. I’ll never escape the realization that everything which came afterwards is destined for failure and mere shadows of honestly applied financial stewardship and governance by the people. The question remains; whom is governing who and is anyone really in charge? All wars are bankers wars as the continual structural changes of governance now merely pass the burden of risk further down the line.
The exact details hardly matter because absent a fundamental change with a return to the principals of sound money, every system of management, governance, etc, built on the sand. What we are observing as is detailed by these experienced insights of truly qualified and well experienced professionals, highlighting the management and structural failures, is actually but a small glimpse into the acceleration of this entire systems failure, as evident by how quickly the bureaucratic structures now need to shift and trade risk as the basis for their very existence continually crumbles beneath their feet. Testing this theory is as easy as examining systems in other industries. There is financial chaos every where one may dare to look. The final act is inevitable, most dare not admit. We take heart because in this time it is possible to re establish the principals of liberty, justice, and self governance. A return to sound morally based principals of financial and governmental structure management, actual accountability. With much respect.
https://www.federalreservehistory.org/essays/federal-reserve-act-signed
And that how it was, Thanks Mike.
Where do we go from here?
Baggins. I thought the island of Jacqual was in the teens or twenties, and one of them was a major ART collector who escaped from censure
https://archive.org/stream/pdfy–Pori1NL6fKm2SnY/The%20Creature%20From%20Jekyll%20Island_djvu.txt
It’s a specific book reference; the creature from jekyll island. Free these days.
This is a popular reference which is commonly understood that the creature from jekyll island is synonymous with the creation of the federal reserve.
A courageous book about several millionaires planning a strategy to take monies out of political control.
Jekyll Island, off the coast of Georgia was the home of several participants.
Andrew Mellon enjoyed a presidential appointment for several terms, and when his party fell from popularity, he moved to another continent, and began collecting valuable art. I believe he had a major responsibility building a museum afterward.
There are several books, and the authors which write of them that are key to some understanding of MONEY, but so what? banks’ balance out check books, don’t they?
A consortium of private interests managing the public money. They’re doing a great job today! Article 1 Section X. You can pretend Andrew Jackson did not exist or you could pretend we’re not facing a repeat of the Continental dollar today, but you’d only be pretending.