The Appraisal Problem
Gone are the days of hiring a professional appraiser to solve the appraisal problem.
For decades lenders have taken on the responsibility of shaping the appraisal process and dictating the solutions to the appraisal problem.
Savvy appraisers push back in a positive fashion to try and enable the lender to receive a report that not only meets USPAP, FIRREA, Fannie Mae, or HUD/FHA/VA an UAD reporting guidelines, but also provides the client with a report that is clear, concise, accurate and not misleading.
An appraisal report can be on time, have all the boxes checked, no inconsistencies, meet all the guidelines and yet be purposefully fraudulent or accidentally misleading or just plain wrong. The review process will not catch these reports in the due diligence process because the system is built on the idea that a perfect report is one that meets all the guidelines. In fact the opposite is true. With the rare exception, when a reviewer receives a “perfect report” that is when red flags should go off. Markets are not perfect market participants are not always consistent in decisions of buying and selling and not all characteristics, features or influences can be scientifically quantified.
Of course with a detailed correlative analysis appraisers can and do establish the predominant trend of reaction and from these reactions market adjustments are in fact derived.
But to say a report must be adjusted within a certain range or that a sale is not comparable if the sale requires adjustment greater than 15% net or 25% gross is simply wrong.
Appraiser should not only always seek and utilize those sales which require the least possible adjustment, but also those which enable the intended user to understand how the subject relates to its marketplace.
Honest appraisers try and meet the reporting guidelines but when this is not possible it is always better to honestly present the actual case rather than reaching out to other markets to find the data that meets the reporting expectations of the ivory towers.
For a residential appraisal, It is all about first determining site value and the actual highest and best use and the developing a cost approach to determine and establish the remaining economic life of the structure.
With this information established then determining the actual comparable sales is much easier and the final estimate is one that will stand the tests and audits that reviewers and market pressures will unleash onto this appraisal.
Seek first to be accurate, to use the correct methods and techniques for the appraisal problem at hand and not try to develop a “one format fits all” because the appraisal solutions need to be appropriate and reliable so the the intended user receives information that will enable them to make an informed decision rather then presenting a report that is only geared and present to get past the first line audit.
By John Reynolds aka UncleZev ~ Source Appraisers Speak Out