Appraisal mysteries - Working too hard? - by Bill Pastuszek

June 10, 2016 - Appraisal & Consulting
Bill Pastuszek, Shepherd Associates Bill Pastuszek, Shepherd Associates

Appraisal mysteries - Working too hard? It’s a busy time for commercial appraisers. Lots of assignments and often the ability to pick and choose clients and assignments. But too much work, tight deadlines, often forces appraisers to moving hastily from one assignment to another, leading some to rely a little too much on quick intuitive leaps and skips over data, rather than producing sound judgments based on solid data.This is a time to be vigilant. Workloads and client pressures conspire to create quality control issues that could turn into future problems.

What are some areas of concern?

Out of Control Community, Economic, and Demographic Data. Anybody can cut and paste information obtained on the Internet. Clients know this.

Pages and pages of community, job/employment/unemployment data, major employers, etc., does nothing to enhance a report except to bore and frustrate clients and reviewers. The report’s quality is not necessarily enhanced by the quantity of this data. Include only what is relevant to the assignment, and then explain why it is relevant.

Robo Market Analysis. Clients are looking for the Appraiser to demonstrate solid economic signs of life in the Market Analysis. This is a critical section of the report. The relevance of any information included needs to be established: it’s not a data dump! And, the material presented needs to be summarized.

For specific property types, a wealth of information that can be obtained with a few clicks of a mouse. Clients know this also (and can do it quite well, thank you very much), and many clients probably can access more (and better) information. The appraiser’s value add is relating this information to the subject.

Pertinent, tightly written summaries of survey information enhances the credibility of an appraisal. There is a credibility gap when the appraiser fails to stamp his or her own opinions and analyses on the material.

Non-Attribution of Data Sources. At the very least, this is sloppy and exposes the appraiser to unwanted responsibility for the facts and opinions of others. At worst, it’s plagiarism.

Inadequate or Careless Property Descriptions and Analyses. Many readers, including property owners and others, read the property description carefully. An accurate, consistent property description makes the valuation analysis much easier to follow and minimizes inconsistencies and contradictions.

Mailed In Highest and Best Use Analysis. It’s not just boilerplate. This part of the report matters--it really does. Here is the appraiser’s opportunity to explain the advantages/disadvantages of the subject, alternative uses, and how the highest and best use opinions will impact the valuation analysis to follow.

Misdirected Reliance on Averages or Medians to Arrive at Value Conclusions. Appraiser deal in small, not statistically significant, datasets. Appraisers are paid to provide and explain logic and reason in their analyses, not mindlessly to apply misplaced, spurious statistical measures.

Survey Excesses. As secondary data, surveys serve to support and supplement direct market data. Presenting and analyzing primary market data is what an appraiser gets paid to do. Comparison with national surveys that survey dissimilar asset classes, different buyer and financing profiles, in non-competitive and widely dispersed geographic locations does not lend credibility to the results.

Screen Shot Fever. Why reproduce an entire chart for one or two numbers? Everyone knows how to take a screen shot. The client would like the appraiser to make the choice of what is relevant rather than have to guess at what the appraiser found to be relevant.

Close Enough Rental Data. Some appraisers put in all the data that fits, note the range, perhaps develop a min, max, mean, and median, and arrive at rental conclusions. The infusion of logic and discussion allows the reader to understand how the appraiser arrived at the conclusion and why the data selected for analysis is important.

Mysterious Capitalization Rate Conclusions. Capitalization rate conclusions that are mystifying, i.e., picked from a wide enough range, say 5-9% (essentially a dart board), reflect an appraiser’s haste and lack of focus on this important opinion.

Presentation. A clean, well-designed presentation with good photography and above average graphic quality will create a favorable, professional, and lasting impression but won’t overcome unsupported opinions, questionable data, and erroneous judgments.

Editing and proofreading is a manual, human task. Completely necessary. Software only goes so far.

Reconciliations – Generally and Specifically. USPAP requires reconciliation in each approach and as part of the final actions in an appraisal. This is the essence of what appraisers do, i.e., to logically and systematically support the opinions resulting from the analysis of not entirely consistent and sometimes seemingly contradictory data.

Pursuing Perfection. USPAP tells us that “perfection is impossible to attain.” Perhaps there are appraisers that would dispute this, especially those who perceive that “they are legends in their own minds.” USPAP also says that a series of small errors can lead to a larger, erroneous result. USPAP places great emphasis on credibility of assignment results and not producing misleading appraisals. Standards 1-1 and 2-1 of USPAP are serious on these two points: read them soon.

When the loan gets into trouble two years from now, no one will give the appraiser a pat on the back, saying, “it’s OK, we remember how busy it was in 2016.” In the long run, shortcutted work product risks the appraiser’s license and reputation and exposes a client to unacceptable risk.

In this busy time, appraisers (and reviewers) can’t afford to turn in hasty or substandard work. The stakes are too high. More to come.

Bill Pastuszek, MAI, ASA, MRA, heads Shepherd Associates, Newton, Mass.

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