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[Vortex] Palumbo on USPAP: Dazed and Confused, Price versus Value

palumbo-on-uspap [1] Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP [2] is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox [3] and his recent interview on The Housing Helix [4].
…Jonathan Miller

The other day I observed a “Valuation Service” which looked and smelled like an appraisal. Problem is the appraiser did it by accident while labeling it an “Appraiser Price Opinion”.

Ethics: as stated in the “Ethics Rule of the 2010-2011 USPAP:”

“An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics. An appraiser must comply with USPAP when obligated by law or regulation, or by agreement with the client or intended users. In addition to these requirements, an individual should comply any time that individual represents that he or she is performing the service as an appraiser”.

The “Appraiser Price Opinion” is labeled as a price opinion, which appraisers CAN DO as part of “appraisal practice” provided it is labeled properly and the appraiser does not mix the terminology use appraisal techniques and call them something else. The appraiser has not adhered to the Ethics Rule, specifically Conduct: See AO-21 page A-69 line 176. This AO demonstrates how the appraiser has ignored definitions that MUST be adhered to when completing “a service as part of appraisal practice”. Those definitions ignored are: price, value and appraisal.

The reason appraisers have not done “price” in the past few 25 years is that they are not price experts, they are value experts.

The appraiser has indicated this product is a “A Price Opinion” yet: The report is labeled “Desktop Restricted Use Report” which is nomenclature reserved for the minimum written format for an “appraisal” (in part). On the certification page it states “This is a Summary Appraisal report”; an appraisal cannot be both; it must be one or the other. The report seems to conform to a Restricted Use Appraisal report but is missing the important disclosure: (SR 2-2 ( c ) (i) which states “The content of a Restricted Use Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum….state a prominent use restriction that limits use of the report to the client and warns that the appraiser’s opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiser’s workfile”. Further, I have material knowledge it had two different intended users….a taboo for a Restricted Use Appraisal Report.

The rest of the issues;

The overall contradictions in this assignment lead one to believe that 1) the appraiser is not competent to complete a price opinion because they do not understand the difference between value and price (Competency is required for ALL VALUATION SERVICES) 2) the appraiser is not competent to complete an appraisal if they label the reporting format in two different ways AND fail to provide the appropriate disclosures on the Restricted Use Appraisal Report. This result confuses the user and harms the public.

I am all for finding ways to cut costs and streamline….I get it. I am also a realist and I understand the pressures the appraisers are under. Here is the thing: this appraiser ended up doing an “appraisal” like it or not at one third the cost of the “other kind” of appraisal they may do on a different day…..in effect creating a market and an expectation that the Holy Grail exists and at a much cheaper cost than we all thought.

I am dazed and confused as to why the world wants to reinvent the wheel (appraisal) in light of the recent economic crisis related to real estate. We have reduced scope appraisals on minimum written formats but we have to consider the uses of these types of services and educate those that seek cheaper, better, faster. I am more dazed and confused why an appraiser would take on this assignment and give away the store. Maybe it is a going out of business sale……………..