Appraiser/Appraisal Requirements: Scope of Work and Defensible Reporting

Verification steps take time! Being clear in what we do in this regard, includes letting the client and users of the appraisal know what steps we took, what we did and did not do.

As market cycles go, when a down turn occurs, suits against appraisers go up. Those who were the cheapest, most aggressive about the values they needed, will be the first to sue. Unless we do our jobs right, instead of our reports becoming our best defense, they leave us in deep doo-doo.

I don't recall who sent me these Appraiser/Appraisal Requirements? View this photo Probably a lender or client?  Regardless, they make for good procedure and would make any report more supportable/defensible.  Try embracing them on one report per week to start, until you get used to the procedure. Then, work it into your routine, until it become a natural part of your processes and procedures.

Being sued, even with insurance is nerve wracking, unsettling to most. Maybe not to those with a criminal mind. Being tied up in a suit for years, aggravates the average person and has an impact on all aspects of ones life.

Embracing and employing good appraisal procedures is a good thing, even mo-better in a down market. It might be the best insurance one could provide, as it becomes deterrent to law suits.

READ ON . . .

It doesn't matter how much experience or education we have, in a down market, all of us become more vulnerable to being sued. It doesn't have to be a legitimate suit either. I was sued for coming in low on a refinance, for $5,000, in punitive damages, on a property I never even appraised, never inspected the house. OK, my son-in-law did the appraisal and he was approved with the lender. They sued my company and me. We did nothing wrong, but it still took 5-years to get out. The borrower was a lawyer who kept it going. Our client cut us loose even though they knew we did nothing wrong.The buyer alleged we collude with the lender to low ball the appraisal so they could not refinance their rate reduction loan. ARRRGGGHH, sputter, splat * @ % &* !.

The absolutely best defense is to prepare reports that are defensive to begin with, which means actually embracing USPAP, not just giving lip service to it, and employing good appraisal procedures.

If you ever do get sued, for gods sake, don't ask for a jury of your PEER's, appraisers are the most critical group in the world it seems. I worked on one case that involved Grand Jury testimony. After an hour of direct testimony, the Jury gets to ask questions. They send written ones to the Foreman who filters them along wit the DA. There was one appraiser empaneled on the Jury { I found out later }.

As the questions started getting more pointed, more specific, I began to think something was up. One of the questions was "Isn't appraisal more of an art than a science?".  It was a great question, since at the time, I was taking a painting class and learning art. My answer reportedly took 23 minutes.

There is a member of the Inland CA forum who has a child in college, studying art too. We have had discussions of what the learning process is, the similarities and differences between art and appraisal. I have painted for three years now, I paint on every vacation, sometimes daily. I do have a distinctive style and can paint without ever touching a brush to canvas or paper. I am not good, but distinctive and fast. Ask me an I will give the answer to the question, but that is another story in itself.

All of us are distinctive in our writing styles. For the form report preparer who uses a template, the style might be homogenized. This is best exemplified by appraisers trained by Home Savings or other large lenders who overused abbreviations.

If we were trained to not use good English, whole sentences, but to abbreviate; we read one way. The use of the same repetitive phrases, words or sentences, is fast, but does not distinguish us from the crowd.

Giving custom thought and writing effort to each new subject neighborhood and property, takes a little extra time, but makes us look so much better than the crowd. Writing with authority about what is going on in the area with regard to supply/demand and value trend issues, can be done in one good paragraph. Doing the primary research quickly is a learned skill, but can be done. It is like learning to plan your painting. A good painter thinks about each stroke, each color selection. Just as an artist may place contrasting colors next to each other, the appraiser can compare and contrast, can include graphs and charts to provide the same level of push-ups for the eye-ball the artists does, but for the brain, for the understanding of the reader.

Letting the reader and users of the report know what we did to do our job, instead of quoting what a Scope of Work is; will separate each of us from the crowd. And, that is a good thing because as this market cools, higher level clients and investors are going to be looking for the pearls, the appraisers who can bring critical thinking, primary research and good verification skills to bear.

When you think of SOW, think of writing not only what was done, but what was not done that the client might have expected or anticipated. Defuse future problems with a custom written SOW, not the F-2 key or stored phrases.

Often, clients are refreshed when the appraiser tells them what they did not do, more so than just knowing what they did do. They no longer have to guess, they know how to take the report, seriously, or not.

Increasing the confidence level in the report and the value conclusion can be done with little added effort once the skills are mastered. Templates and F-2 keys in a softening market will only create liabilities for the appraiser as the reports will be the first to be attacked when defaults occur.

Increasing the confidence level in ones reports can lead to a better quality client base and assignments. 

It is kind of like baking bread.

In every supermarket across America, we can buy bland bread by one of the super large "Allied Bakery" types.  And we can buy interesting crusty bread from the boutique local bakery. The bland bread may go for 2 for $5 type pricing, be use as a loss leader. The really good bread may cost $5 a loaf and not always be on the shelf.

There was a story about a bakery that opened in the Hillcrest district of San Diego a few years ago. Their goal was to bake better bread. Over time, in a few months, there were huge lines and the store was selling out daily.  They bake bread that you cannot find in other stores.  A similar story from a few years earlier floats about a Washington DC bakery, where limousines started lining up outside and the store sells out early in the day.

Stimulating our readers to the point they feel confidence in our research and valuation analysis, is a good thing. It is just like the push-ups for the eyeballs artists strive for, and the taste the boutique baker wants their customer to come back for.

Do a little more market research and analysis and report to the client what is going on now, is a good thing.

Writing articulately about the site, its attributes and amenities; creates added confidence in the reader.

Giving the reader a property tour with our description of the improvements, as if to say "You don't need to come see this property, I have told you all you need to know to make an informed decision"   Verifying market data to find out the motivations of the buyer and seller, and find out what was included in the deal; and then deducting for it, is a good thing, one that builds confidence.

Top that off with a few market derived adjustments, and we have created a report that will lead to additional demand, one that sets us apart from the "Allied Bakery" crowd.

Demand is growing now for the articulate and skilled appraiser, even as the market decreases, more dependable appraisers are being sought.

Author: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373 -  Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training through the Association of Real Estate Professionals.  Phone 909-798-8855, Fax: 909-798-0139