By Jim Baumberger, CEO at First Choice and Certified Residential Appraiser
Larry Beard wrote a terrific blog regarding Desktop Appraisals recently. Desktops are also known as Alternative Valuations, Bifurcated Appraisals, Hybrid Appraisals, etc. We’ve received several excellent questions related to compliance and Desktop Appraisals – especially when an Inspector’s report is provided to an Appraiser, who incorporates the inspection results into a Desktop Appraisal.
Some questions focus on the various forms, while others focus on the perceived risks associated with an Appraiser relying upon an Inspector’s work. Let’s start by addressing some of the form related questions. USPAP reminds us that using specific forms – even very comprehensive, well-designed forms – in and of itself, cannot guarantee compliance.
It is the substantive content of a report, along with fulfilling Scope of Work requirements, that ensures an Appraiser’s USPAP compliance. In my opinion, then, adhering to best practices in one’s work (development) and in one’s work product (reporting) is the surest guarantee of compliance for Appraisers.
Basically, using one form or another does not make an Appraiser compliant or non-compliant. That is true whether we’re talking about a “traditional” GSE form, such as the 1004 or 1025, or one of the many next-generation Desktop Appraisal forms. Forms typically need to be supplemented with Addenda, Exhibits, Explanatory Comments, Maps, etc. to facilitate an Appraiser’s compliance, because forms do not change nearly as often as USPAP is updated and new requirements are added. The argument that a Desktop Appraisal is non-compliant based on the form itself is invalid and uninformed.
The more relevant line of questioning involves the Scope of Work. First, is there a precedent of Appraisers relying upon the work of other professionals in their appraisals? Yes, there are many examples of Appraisers relying upon the work of others in valuation services. The work of a Timber Cruiser might be relied upon by an Appraiser and incorporated into an appraisal of forest land, the Inspection of a Contractor might be relied upon by an Appraiser to determine the remaining economic life of a roof or the replacement cost for a new roof, the Quote of an Engineer might be relied upon by an Appraiser to determine the impact of necessary foundation repairs on value or to develop a cost-to-cure adjustment, or the Invoice of a Plumber or an Electrician might be relied upon by an Appraiser to satisfy a “subject to” requirement for repairs – even when the repairs are not visible to the Appraiser.
Secondly, does USPAP demand that the Scope of Work is always the same for every assignment? No, of course it does not. While clients or others might make requests or suggestions, it is the Appraiser’s responsibility to determine that the Scope of Work is sufficient to produce credible results. USPAP reminds us that credible assignment results are always measured in the context of Intended Use. An Appraiser could value the same property for different Intended Uses, and could produce different opinions of market value, all of which might be considered credible results based on the different Scopes of Work.
In addition, USPAP does not require that any property inspection be performed. Rather, the extent of a property inspection, if any, is determined by the Scope of Work. Clearly, with a well-defined Scope of Work and appropriate disclosures, Appraisers can rely upon the work of an Inspector without incurring undue risk. The Scope of Work and disclosures for Desktop Appraisals, which incorporate an Inspector’s report, typically include the following: The Appraiser did not perform a property inspection, an Inspector did perform a property inspection, the Appraiser is assuming the inspection report is reliable, and the final opinion of value might be significantly impacted if the inspection report is unreliable.
In conclusion, the argument that a Desktop Appraisal is non-compliant based on the fact that the Appraiser did not personally perform a property inspection, or because the Inspector is not a state-credentialed Appraiser, or because the Inspector’s work might be inaccurate or incomplete is also not supported by evidence, facts, or regulations. This is why the relevant question really comes down to a business decision: “Does it makes business sense for Appraisers to develop Desktop Appraisals?” “No” is a fair answer. But, I think the answer is, “yes,” and I’m happy to explain why.
You are invited to attend the Appraisal Summit in Las Vegas on September 19-21, where I’ll instruct the national premiere of my new 5-Hour CE Course: Desktop Appraisals: Next Generation Valuations on Wednesday, September 19th, from 8:00 AM – 1:00 PM. On Friday, September 21st, I’ll be speaking on “Emerging Opportunities in Desktop Valuations” from 10:30 AM – 11:15 AM. I hope to see YOU there!
Thank-you for reading!