I see hundreds of appraisals every week. Because of this, I see common threads in how appraisals are completed which are not developed using proper appraisal process and/or not USPAP compliant. Many of these issues are due to improper training or lack of knowledge. Part of the problem is that appraisers typically get trained by one supervisor who may or may not have been properly trained, which continues the cycle. And once trained, most appraisers tend to work solo with limited interaction with their peers.
USPAP Standards Rule 1-5 states:
When the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business; (a) analyze all agreements of sale, options, or listings of the subject property current as of the effective date of the appraisal; and (b) analyze all sales of the subject property that occurred within three (3) years prior to the effective date of the appraisal. The Comment to Standards Rules 2-2(a)(viii) and (b)(viii) requires the written appraisal report to disclose the analysis of the subject sales, options, and listings in accordance with Standards Rule 1-5. It also states, if such information is unobtainable, a statement on the efforts undertaken by the appraiser to obtain the information is required. If such information is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required.
Keys words in the above standard are ALL sales in the 3-year period and ANALYZE.
Most appraisals do a good job of reporting the most recent sales histories. However, if the subject property has transferred multiple times in the prior 3 years, then each of these transfers needs to be reported and analyzed. Many appraisals fall short on reporting and analyzing anything except the most recent prior sale. Perhaps this is being driven by the URAR form. Since the form only has enough space for one transfer for the subject, they neglect to report and analyze any other transfers that may have occurred in the 36-month window.
The second area of concern regarding the sales histories is the lack of analysis of the prior sale. What does this mean to analyze the sales history? Merely identifying that the transfer was arm’s length (or not) is insufficient. Tell the story of the value history of the subject. Any change in value from the prior sale needs to be explained even if the amount does not seem significant. For the appraiser who is performing the assignment, the reason for the change in value may seem obvious. However, what may be an obvious explanation for the change in value for someone familiar with the local market may not be apparent the reader in another part of the country. Play it safe and state the obvious.
In addition, the analysis needs to be consistent with the rest of the report. For example, if market prices are reported to be stable and an appraisal indicated that the change in value was due to market conditions, this would be inconsistent with current market conditions and needs explanation. Another example is if the change in value is reported to be due to repairs/updating but the description of the subject property indicates that no significant repairs/updating has occurred in the past 10 years.
Why is this so important? The story of the subject’s value history can identify if the current appraised value is reasonable based on physical changes in the dwelling and recent market conditions. It can highlight inconsistencies in the report which can be addresses in the review process, identify possible adjustment issues, or it can give the end user further confidence in the appraisal as a whole. Telling the whole story gives the lender a complete picture and not just a snapshot of the current value as of the effective date of the appraisal.