USPAP Myths for Appraisers

Five USPAP Myths Dispelled in 2024 USPAP

By Daniel A. Bradley, SRA, CDEI, McKissock Learning

On May 5, 2023, the Appraisal Standards Board (ASB) voted to adopt changes to the Uniform Standards of Professional Appraisal Practice (USPAP), which will become effective January 1, 2024. These represent the first changes to USPAP in four years. Many of the changes will not have a significant impact on the way appraisers practice but are nevertheless important for public trust.

Appraisers and the public have traditionally held several misconceptions about USPAP, and these changes should help to dispel some of those myths. There are five myths and misconceptions that are addressed in the changes to the 2024 USPAP.

  • Myth 1: USPAP Allows Discrimination as Long as the Appraiser’s Conclusions are Supported
  • Myth 2: The Removal of the Definition of Misleading from USPAP Reduces Liability for Appraisers
  • Myth 3: An Inspection of the Subject Property by a Third Party is the Equivalent of a Personal Inspection by an Appraiser
  • Myth 4: Appraisers are not Required to Analyze Prior Non-Sale Transfers of the Subject Property
  • Myth 5: The USPAP Update Course Cycle is the Same as the USPAP Publication Cycle

To read more, Click Here

My comments: It’s worth reading, especially if you do residential lender appraisals. Lender issues are a significant factor in USPAP and Myths 1 to 4. I suppose it is because most appraisals are done (now) for residential lending purposes. Many thanks to Dan Bradley for writing about the 2024 USPAP changes.

2024 USPAP For Appraisers

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Functional Obsolescence for Appraisers

Understanding Functional Obsolescence in Appraisals

By: McKissock

Excerpts: For appraisers, functional obsolescence can be a challenging concept because the elements that influence property values may not be obvious or immediately apparent. To help you better understand what it means and how to pinpoint it, we’re exploring some examples the different types of functional obsolescence, and how it can influence property values.

Functional obsolescence may or may not be caused by trends in buyer or market preferences, outdated design, or even advances in technology. Let’s look at a few examples:

  1. A home has three bedrooms, but to reach the third bedroom, you have to walk through the other secondary bedroom. Buyers are likely to see this as a flaw in the floor plan regardless of trends.
  2. A home has a separate formal living room, an enclosed kitchen, and a separate dining room. Today’s buyer prefers a more open, casual layout and may find the separate rooms a flaw in the floor plan, though this may change with market trends.
  3. A home with radiator heat and window unit air conditioning may be seen as functionally obsolete, and thus less valuable, as more modern homes have forced air furnaces and central air conditioning.

Measuring functional obsolescence and its effect on a property’s value can be challenging for even experienced appraisers. To ensure accurate reports, it’s essential you stay up to date and aware of market trends, and even code and building updates, as these changes over time do determine both curable and incurable obsolescence.

To read more, Click Here

My comments: All appraisers see functional obsolescence. Making adjustments can be tough. You need to know the market reaction.

For example, there are many Victorians in my market. They were built without closets and used armoires (free standing closets). It is not considered functional obsolescence as it retains a classic feature in many Victorian homes. I always wonder about what appraisers from tract home areas think about Victorians. I assume (hope) they ask local agents. When I started appraising them, that’s what I did.

I regularly tell local agents that “tandem” rooms don’t count as bedrooms. I’m trying not to think about how many listings have an incorrect number of bedrooms!

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Superadequacy Adjustments for Appraisals

How to Account for a Superadequacy

By: McKissock

Excerpts: What is superadequacy?

Per The Dictionary of Real Estate Appraisal, 6th Ed., superadequacy is defined as “an excess in the capacity or quality of a structure or structural component; determined by market standards.” It’s a type of functional obsolescence in which the structure or one of its components is overly improved to a capacity or quality than a prudent buyer or owner would build or pay.

While we provide more detailed illustrations below, a simple example would be a 5,000 square foot luxury home built in a neighborhood comprised of two and three-bedroom mid-century ranch homes.

Example #1: Superadequate custom fireplace

Example #2: Superadequate 12-car garage

To read more, Click Here

My comments: Although the blog post references luxury homes, this can occur anywhere. Have you ever driven closer and closer to your subject and noticed that the homes are much smaller or have standard designs? You keep getting closer, hoping it is not your subject. It Is! This definitely has happened to me. Large unusual additions, two large kitchens, very extensive landscaping, etc.

Maybe you were busy and forgot to check it out in public records, MLS or speaking with the owner or agent (if a sale) when scheduling the appointment.

Market Your Appraisal Services: 59 Ways to Get More Business Now

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UAD and Forms Redesign Update for Appraisers

UAD and Forms Redesign Update

Excerpts: Improving the Quality and Consistency of Appraisal Data

Freddie Mac and Fannie Mae (the GSEs) have worked on the UAD redesign since 2018, leveraging extensive stakeholder input to update the appraisal dataset, align it with current mortgage industry data standards (MISMO® v3.6), and replace the GSE appraisal forms with a single data-driven, flexible, and dynamic appraisal report for any residential property type.

To watch the Excellent UAD and Forms Redesign Video (3 min. 47 seconds) Click Here

For more detailed information on web page Click Here

My comments: Watch the short video. On the links list on the right side of the webpage, GSE Experts Answer Your UAD Redesign Questions is short and understandable.

The UAD and Appraisers – Past, Present, and Future

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Appraisals: Using Comps Across a Freeway?

Pulling comps from the other side of the freeway

By Ryan Lundquist

Excerpts: It can be a REALLY bad idea to pull comps from the other side of the freeway, but not always. Today I have some thoughts about location, comp selection, and lenders freaking out when schools are mentioned in appraisal reports.

I don’t normally pull comps across a highway

In so many cases it’s an awful idea to cross a major road or highway to pull comps because a highway sometimes separates markets that are far different in age, square footage, lot size, architecture, price point, school district, etc….

But, crossing the highway does work here

With that said, I want to show you an example of a local neighborhood where I have zero hesitation about pulling comps from both sides of the highway. The areas north and south of Highway 50 below represent the College-Glen area…

Why it’s no biggie to pull comps like this

A) Prices are similar: Prices are similar on each side of the highway. I’ve found this when pulling comps through the years, and I’ve also shown this when making graphs. I will say the north side tends to have a slightly larger square footage than the south side (same with west vs east), which is something to consider when we compare stats. But it’s still not a major difference.

B) Buyer Behavior …

C) School System …

To read lots more, plus maps and many appraiser comments, Click Here

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Why Comp Photos in Appraisals?

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Appraisers Riding the Waves of Up and Down Mortgage Rates 

The Surfing Appraiser

Riding the Waves of Up and Down Mortgage Rates 

By Mark Buhler

Excerpts: Riding the waves of the appraisal profession can result in a range of outcomes and emotions over time. Appraisers, and surfers, have varying levels of experience, and experiences. Most appraisers have been through some extremely busy seasons that have been very positive. Those same appraisers have gone through droughts, where appraisal orders dried up.

Appraisers have been blessed to have the independence and autonomy to create whatever they want for themselves. Most workers in America do not have the same opportunities for success and advancement that appraisers have. Look at this lull as a time of opportunity. A time to finally work on and execute a plan for your business.

During the refinance boom of the early 2020’s, the majority of appraisers did not have time to come up for air. The waves of work kept them down, and every time they got a chance-they grabbed the next order (or wave) and maximized the opportunity while it was there. Appraisers were busy cranking out appraisal reports. Now appraisers are not busy, but they should be. Do not get out of the water and put your surfboard away. Stay out there, splash around in the calm ocean, there are waves coming.

To read more, Click Here

My comments: Read the full article! This article uses surfing as an excellent illustration. In my 20s, I lived in my van for a few years and parked it near my surfer friends’ house in Santa Cruz, CA. They surfed every morning when the waves were good (Steamer Lane), cold or raining. When the waves were low, they stayed home or went over to see if there were any changes. I watched and listened to them talk about it and learned a lot. A very good analogy to appraising.

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Appraisers and Property Data Collectors

4 Myths About Property Data Collection

By McKissock

Excerpts:

Myth #1: PDC is the same thing as property appraisal

As a professional appraiser, you know very well that what a property data collector does is not the same as what you do — even if your clients don’t always understand the difference. While there is some overlap, being qualified to perform an appraisal requires much more training, education, and expertise, and the job goes far beyond gathering physical data.

Myth #2: Data collectors are going to replace appraisers

There’s a lot of buzz right now about PDC possibly replacing traditional property appraisal, but the intent of this service is to fill a gap in the lending process. The job assignments given to property data collectors are often the types of assignments that wouldn’t come across an appraiser’s desk. For example, property data collectors (PDCs) may be engaged by lenders for very low-risk loans where an appraisal is not required.

Myth #3: PDCs are not properly trained or qualified

While there isn’t a license, PDCs are still required to be trained and competent to do their job. Both Fannie Mae and Freddie Mac require that PDCs must be professionally trained and vetted. They must adhere to Fannie Mae or Freddie Mac’s property data standards which set forth the minimum requirements for collection of the subject property data.

Myth #4: PDC is bad for appraisers

Probably the most prevalent myth is that PDC is bad for appraisers and bad for the profession in general. But in actuality, it may offer some significant upsides for appraisers. In particular, becoming a property data collector may be beneficial for:

  • Appraisal trainees in need of extra income
  • Busy appraisers who are looking to delegate tasks
  • Older appraisers who are looking to reduce physically demanding tasks or may be transitioning into retirement
  • Any appraisers wanting to grow their bifurcated and hybrid appraisal services

To read more, click here

My comments: We all know that appraisers would be the best PDCs. My article in the November issue of Appraisal Today has lots of information, including lists of which AMCs use PDCs. “Property Data Collectors (PDCs) Will Be Widely Used by Lenders in the GSEs Value Acceptance + Property Data Option”

This is an excellent diversification opportunity while business is slow. Trainees can do them.

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Strange Properties Appraisers Have Seen

Strange Encounters in Property Appraisal

By: McKissock

Excerpts: Property appraisal is not typically thought of as a “dangerous” profession per se. However, you may encounter some strange—or even spooky—properties from time to time. Recently we asked our appraisal community, “What’s the weirdest property you’ve appraised recently?” While some appraisers discussed atypical and challenging properties, others shared stories of strange encounters ranging from surprising to creepy to downright scary.

We’ve organized the strange and spooky properties described by our survey participants into the following categories:

  •  Vacant and secluded homes
  •   Spooky historic properties
  •   Properties in horrible condition
  •   Other surprising and strange site visits

“Vacant house that neighbors told me had not been occupied for almost 3 years. They were concerned that the electric was still on and could pose a danger as you could hear an electrical buzzing sound. Once I entered the house, the sound was evident and I looked for the source, probably a light fixture with a bad ballast or short-circuit. However what I found was a massive wasp nest that was approx 4′-5′ tall in one of the bedrooms.

When I opened the door, it clearly agitated them and I got out quickly and advised the lender to send in an exterminator ASAP. They were far too aggressive for me to even snap a photo. The AMC rep wanted to know if I could simply hit the nest with a can of wasp spray! Is this the actuality of ‘walking into a hornet’s nest’?”

To read more, click here

My comments: We have all encountered strange homes. I worked for an assessor’s office for 5 years in my first appraisal job. I appraised everything in a specific geographic area. I saw a lot of weird homes, especially in the more rural hillside areas. Lenders would have never loaned on them!

An appraiser I have known for many years saw a ghost in a haunted B&B he stayed in when traveling in Montana. He is about the last person you would think who saw an apparition of a woman. The owner and other visitors had seen her also.

Haunted House Appraisal Adjustments

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What level appraiser are you?

How to Level Up as an Appraiser

By Conrad Meertins Jr.

Excerpts: The key is not the letters but the competency or skill. For example, are you competent to prepare an entire appraisal from start to finish? You might answer, “Absolutely!” But what if the appraisal form was completely blank with no boilerplate text? Do you still feel the same level of assuredness? What if you could not use the URAR form at all, but still had to produce an appraisal report that could stand up in court? Are your legs shaking? These questions help us to start to gauge our current level.

The three levels that we are going to discuss are “Beginner,” “Intermediate,” and “Pro.” Now, we could go deep and say that there are levels within the levels, but for now we will keep it simple and explore these three main levels. Some view each level as a stepping stone, and some view each level as a permanent parking space. It’s your choice which level you choose to pursue. The goal here is for us to evaluate which level we are at and determine which level we want to achieve.

Level 1 – Beginner

This is where we all start. There is no shame in this level. Depending on how you were trained, at the beginner level you typically view appraisals as forms — forms with checkboxes to be checked or left blank. If all the right boxes are checked and your report is signed with a value, mission accomplished!

Level 2 – Intermediate

At the intermediate level, you realize there is more to appraising real estate than checking boxes. Here is where you provide more explanations. If you say the market is stable, perhaps you add a sentence or two to expound on that. If you say that comp #1 was the best comp, you add a sentence explaining why. If you don’t adjust for the subject being on a busy road, you add a sentence about the neutral impact of the busy road and a comparable to support that conclusion—before being prompted to do so by the underwriter.

Level 3 – Pro

There is a subtle difference between Level 2 and Level 3. But one indicator that you have crossed the line from intermediate to pro is understanding how all the pieces fit together. For example, you understand that you do not need a form to produce an appraisal.

To read more, click here

My comments: Hybrid Appraisals are coming fast for lender appraisals, when any “human” appraisals are done. Full appraisals that Level 1 and most Level 2 appraisers cannot do will be done by Level 3 appraisers. I am writing two long articles for the November issue about Hybrid Desktops and Property Data Collectors. Both positive and negative sides for appraisers. If you want to continue to do AMC appraisals, this is an option.

What if you don’t want to do either one? If you have done AMC lender appraising only, you only appraise homes that conform to GSE requirements. You have a low skill level.

If I did lender work now, I would be in the “top tier” to be called when other appraisers said no. For as long as I have been appraising, lenders had special lists for the tough ones, or for a valuable bank client that borrows money from the bank and has large deposits.

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NAR Member Survey on Appraisal Data Collectors

NAR  Member Survey on Data Collectors

Excerpts: In May 2023, NAR surveyed its members pertaining to data collectors in the appraisal process. Here are a few of the many survey results.

Survey respondents

Sales agents accounted for the largest proportion, with 45% of participants holding this license. Brokers followed with 24%, and appraisal-certified professionals comprised 14% of the respondents. Broker-Associates and Appraisal Licensees accounted for 13% and two percent, respectively, while the remaining two percent reported holding other types of real estate licenses.

According to the survey responses, the majority of participants (76%) perceive the quality of property data collected by data collectors to be lower than that collected by appraisers themselves. Conversely, 23% of respondents believe that the quality of data collected by data collectors is comparable to that of appraisers.

The survey findings indicate that 30% of respondents reported that a data collector had given them the impression that they were the appraiser or had a role other than merely collecting property data.

Fifty-one percent of respondents expressed safety concerns with the data collection process.

To read more, click here

My comments: Now we know what NAR members think about it. Not very positive. I was surprised at how negative they were. Read the full report. Very interesting. I am working on an article on Hybrid Appraisals for the November issue of Appraisal Today. To me, the big issue is who is doing the inspections. Only appraisers do the appraisals. I see very different levels of inspectors.

Before Covid, I talked with various AMC upper-level managers who were testing it. What they were doing about inspectors had a wide range. They included appraisers, real estate agents, and someone with a week, a month, or online video training. They should definitely not be paid the same. An AMC can offer different levels to their clients, depending on how much reliability their lender customers want or need.

On a more positive side, I have done thousands of drive by appraisals since 1986. I drove by the house and looked at what was nearby, etc. For example, I’m appraising a Victorian built before 1910. There is no way to know what the inside looks like or the foundation (many are brick). Using MLS photos is a joke, as real estate agents don’t take photos of defects. A buyer gets a seller’s disclosure statement for that information. I would be more comfortable if someone used an app that was set up to take specific photos, do floor plan, etc. At least I would have some independent photos.

Data Collectors: Appraisers vs. Uber Drivers

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