They say that the appraisal community is aging… Most of us are in our mid-50s. Well, if that is true, many of you will remember Jackson Browne’s album “Running on Empty” from 1977. It is one of my favorite songs for driving. The chorus of this iconic song is,
“Running on – running on empty
Running on – running blind
Running on – running into the sun
But I’m running behind…”
In case you do not know the song, below is a link to the YouTube version:
I know that a lot of appraisers can relate to these lyrics. They feel like they are running on empty, running blind and running behind. Appraisers are overworked, inundated with new regulations, and always facing a new turn in the road ahead. One curve we are approaching is the introduction of new “alternative” valuation reports.
Today, appraisers are presented with many opportunities to produce “alternative” valuation reports. For appraisers, a positive shift has occurred in the valuation marketplace. Valuation consumers in capital markets, loan servicing, and home equity are migrating away from the wholesale use of broker price opinions (BPOs) and evaluations to valuations produced by appraisers. This new appreciation for professional appraisers has given rise to a new generation of appraisal reports with a different Scope of Work than traditional GSE appraisal products (1004 etc.).
This new breed of appraisal form reports are termed “alternative” appraisal reports. But this moniker is a bit misleading. Many of these products are appraisal reports as defined by USPAP. The “alternative” label has been applied because they are different in format from the traditional Fannie Mae/Freddie Mac appraisal form. These new appraisal formats are different than traditional appraisal forms but can be fully compliant with Uniform Standards. I say, “can be” because USPAP compliance rests on the appraiser, not the form.
The Appraisal Standards Board that promulgates USPAP makes it clear that no valuation form or product is labeled USPAP compliant. Appraisers, not forms, bear the burden of compliance with the Standards. The appraiser needs to comply with the reporting needs of the intended user and intended use of the appraisal. A comment in the very beginning of Standard 2 spells this out plainly:
“STANDARD 2 does not dictate the form, format, or style of real property appraisal reports. The form, format, and style of a report are functions of the needs of intended users and appraisers. The substantive content of a report determines its compliance.”
At Axis we understand that appraisers bear the brunt of being USPAP compliant. Because of this, we have shaped our “alternative” appraisal products with this in mind. The GEARTM (GeoScoreTM Evaluation Appraisal Report) family of products are designed with USPAP compliance at the forefront. Appraisers completing these valuation products are in control of the appraisal process and not limited by the form or format of the product. The GEARTM valuation platform and the report it produces assist the appraiser in writing a USPAP compliant report.
The Scope of Work for GEAR™ allows for different levels of property inspection. The GEAR™ AP appraisal assignment involves an appraiser inspecting the subject property. This inspection can be either interior or exterior (drive-by). The appraiser’s inspection is the same as in a standard 1004 or 2055 report, nothing new here. The GEAR™ RE does not have an inspection by the appraiser. In this assignment type, the appraiser provides a desktop appraisal based on an inspection provided by a real estate agent or professional property inspector. The appraiser utilizes Extraordinary Assumptions regarding the content provided by the outside inspector. These are similar to the Extraordinary Assumptions that would be applied to a drive-by assignment performed by the appraiser themselves (for instance assumptions about the interior of the property).
As professional appraisers know, Extraordinary Assumptions are used by appraisers when they are uncertain about the physical, legal or economic characteristics of the subject property or conditions external to the subject property. Extraordinary Assumptions allow the appraiser to value a property under the presumption that the information they have been provided is accurate. If this information is found to be different, it could alter the appraiser’s conclusions or opinions. If the appraiser appropriately notes Extraordinary Assumptions in their report, they mitigate their liability if these assumptions are found to be inaccurate or not true. Our GEAR™ products prominently disclose the Extraordinary Assumptions necessary to protect the appraiser.
Appraisers may be concerned about providing a desktop appraisal with someone else doing the inspection. As already noted, Extraordinary Assumptions alleviate the USPAP concern. It should also be noted that USPAP does not require a physical inspection of the subject property or the comparable sales. Desktop appraisals are perfectly acceptable when this Scope of Work meets the needs of the intended user and intended use of the appraisal. The intended users of GEAR RETM reports are aware of the level of inspection and the Scope of Work this assignment entails.
The inspection done by an agent or professional inspector is very thorough. This inspection includes multiple data points as well as numerous photographs. There is more information than typically provided by simply driving by the property. Appraisers can utilize this detailed inspection in their desktop valuation. If for any reason the appraiser determines there is not sufficient detail for completing the assignment, the appraiser can inform Axis that the assignment should be escalated to a different type of report. We trust our appraisers to make this decision.
Beyond the inspection, for an appraisal to be USPAP compliant, the appraiser must be in control of the appraisal process. Comparable selection must be made by the appraiser. Many alternative products on the market now ask the appraiser to endorse or approve comparables provided to the appraiser. These other alternative products restrict the appraisers input in the process. The GEARTM products put the appraiser in the driver seat.
As with any compliant appraisal process, the appraiser must be able to select the best comparables for the subject property. Our GEARTM reports provide appraisers with the ability to select whatever comparables they deem appropriate. Once the address has been determined by the appraiser, the details of the comparable are imported from public record files. The appraiser can edit any of these details and correct inaccurate information. The process is streamlined to reduce unnecessary typing, but nonetheless, fully under the control of the appraiser.
The adjustment process is made by the appraiser through our patented GeoScoreTM system. The system enables appraisers to make consistent adjustments to all the comparables quickly. Again, the appraiser is in full control of the process. Adjustments can be made throughout a continuum and the adjusted value of the comparable is displayed immediately. Using the GeoScoreTM methodology, a recommended reconciled value for the subject property is displayed in real time. The appraiser can and should reconcile this value to their own opinion before completing the report. To reiterate, the appraiser is in the driver seat.
USPAP also requires appraisers to keep a detailed work file. When the report is complete, the appraiser can download a PDF version of the final product as well as electronic file of comparables considered and utilized. These can be printed out for a paper work file or included in an electronic file if the appraiser works paperless. MLS records and other details the appraiser utilizes from their desk should be stored in this paperless or paper file.
Some ask why we have the word “evaluation” in the name of the product. This is a reasonable question since, by and large, evaluations are not USPAP compliant. The answer is simple, GEARTM products meet the requirements of both evaluations and appraisals. The marketplace has sought to use evaluations in place of appraisals, thinking that they were less expensive and generally faster than traditional appraisal products. In an effort to appeal to the broadest portion of the market, GEARTM products provide the additional data points necessary to be an “evaluation.”
The use of evaluations all centers on Title XI of FIRREA. If the property is going to be valued for a federally related transaction, it needs to comply with Interagency Guidelines. Evaluations are products that apply under Appendix A, “Appraisal Exemptions.” Clearly the gold standard for the Agencies is an appraisal provided by a licensed or certified real estate appraiser. Evaluations as an exemption are allowed when transaction values are under $250,000 and no new monies are extended. GEARTM products meet the gold standard, they are appraisals as well as complying with the necessary elements to be called an evaluation.
In developing the product, we studied Advisory Opinion 13 of 2014 USPAP titled “Performing Evaluations of Real Property Collateral to Conform with USPAP.” This advisory opinion states that, “an appraiser who is required to comply with USPAP must meet both the Agencies’ requirements for an evaluation and the requirements of STANDARDS 1 and 2 and other applicable parts of USPAP.” Our GEARTM report guides the appraiser to fully comply with USPAP by producing an appraisal report while at the same time meeting Interagency guidelines regarding evaluations.
Axis has made every effort to develop an alternative appraisal product that leads and assists the appraiser in USPAP compliance. The GEARTM family of valuation products are designed for appraisers to provide appraisal services that compete directly with evaluations and BPOs. The platform that produces GEARTM reports is highly efficient and allows appraisers to do what they do best, analyze value.
We do not want our appraisers, running on empty, running blind or running behind. We believe you will be comfortable completing GEARTM assignments that are USPAP compliant. You will not be running blind with these reports.
The next article will be discussing why GEARTM assignments are more profitable per hour than conventional appraisal work. We think you will find GEARTM assignments can help you fill your tank instead of “Running on empty.”