When is it right to exit GEAR

A ship approached the coast of New England as a heavy fog set in. The ship’s radar detected what appeared to be another vessel in its path, so the captain sent the following message: “Change your course 10 degrees port.” Shortly they received a reply: “Change YOUR course 10 degree starboard.” The captain became annoyed and said: “I am a Lt. Commander of the U.S. Navy. Change your course.” This was the response: “I am a seaman 3rd class. Change your course.” By now the captain was furious. His message read: “This is a battleship! Change your course.” Moments later a message came across the wire that said: “This is a Lighthouse! Change Your Course!” I think everyone can agree, even when something appears to be the best possible solution on the surface, sometimes a different course of action is required when the full details are uncovered.

If you’ve been following our discussion regarding GEAR, you already know it is a USPAP compliant appraisal report intended to exceed the required guidelines as both an evaluation and an appraisal. You already know GEAR is designed to allow appraisers to quickly and easily produce a compliant well-supported value conclusion. You also already know there are two GEAR’s (GEAR AP and GEAR RE) available at competitive price points that also ensures appraiser profitability. What you might not know is that GEAR, like any other valuation product, may not be the right solution for every assignment. In short, not every assignment is compatible with the GEAR scope of work. In these situations, a different course of action is necessary.

Per USPAP, An appraiser must collect, verify, and analyze all information necessary to produce credible assignment results. If relevant information is not available because of assignment conditions that limit research opportunities, an appraiser must withdraw from the assignment or modify the assignment conditions. In other words, an appraiser can’t allow assignment conditions to limit the scope of work to such a degree that assignment results are not credible in the context of the intended use. This is true even if the client’s risk tolerance doesn’t require a more detailed scope of work.

In regards to GEAR, there are two main concerns to consider when making a decision about the acceptability of the scope of work for an assignment:

  1. Level of inspection (exterior vs. interior)
  2. Limitations on approaches used (cost and/or income approach).

A more detailed inspection may be required if a property is new or located in a non-disclosure state where reliable public record data about the subject improvements are not available. Estates and homes with large acreage and/or multiple outbuildings may also require a more detailed inspection. Again, per USPAP, if assignment conditions limit necessary research (such as level of inspection) needed to produce credible assignment results, the appraiser must withdrawal from the assignment or modify the assignment conditions and scope of work to include appropriate research (more detailed inspection level).

The GEAR scope of work is specifically designed to only develop the market approach to value. The following is the actual language in the GEAR scope of work that addresses this concern.

  • APPROACHES TO VALUE: The appraiser has concluded that the Sales Comparison Approach is the most reliable method for developing an opinion of market value for the subject property and this approach has been applied in this assignment. The cost approach and income approach were considered, but they were not completed because they are not necessary for credible results within the definition of Market Value and the Scope of Work of this Assignment.

Per USPAP, if an approach to value is considered necessary to develop credible assignment results, it must be included in the appraisers research and analysis. USPAP goes on to instruct an appraiser to be prepared to support the decision to exclude any method or technique that would appear relevant to the client, another intended user, or the appraiser’s peers. Again, if an approach is applicable it needs to be developed or explained why it isn’t considered necessary. Given this directive, income producing properties, mixed-use properties, and new homes may not be a good GEAR fit since the cost and income approaches may be necessary to produce credible assignment results.

So now that we know and understand that not every assignment may be appropriate for GEAR, we need to take it to the next level and ask who and when should the decision be made to shift out of GEAR.

In regards to the first question, it is the appraiser’s responsibility to determine and perform the appropriate scope of work. Direction from the client is acceptable if the appraiser is able to develop credible assignment results. However, if the scope of work requested by the client prevents credible assignment results, the appraiser must (a) request the client to agree to an appropriate scope of work, or (b) decline the assignment.

When should the decision be made? The preference is as soon as possible and prior to accepting the assignment. However, determining the appropriate scope of work is an ongoing process. Information or conditions discovered while completing an assignment can cause the appraiser to reconsider the appropriate scope of work. If this happens, the appraiser should stop immediately and provide Axis with the details regarding why the GEAR scope of work is not appropriate. Axis, after consultation with the client, will then decide if a different product with a different scope of work is needed or if the assignment should be canceled.

GEAR is a great alternative to the traditional valuation but it isn’t the solution in every situation and assignment. The best advice comes from our good friend Kenny Rogers – You’ve got to know when to hold ’em. Know when to fold ’em. Know when to walk away. And know when to run.

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