Meeting USPAP Standards with Evaluations

An Evaluation is an Appraisal in a short format. Everything is shortened: the description of the property, the analysis of the market, the depth of research into comparable rents and sales. Federal regulators allow the lenders they oversee to use Evaluations in cases where the lender's dollar exposure is low. Why should a borrower be asked to pay for a $2,500 full length Appraisal when all she wants is to borrow $100,000 against her office condominium?

The problem for appraisers has been to find the way to deliver a quality appraisal in an abbreviated, low-cost format. This office believes that it has found the way. Our Evaluations also meet USPAP (Uniform Standards of Professional Practice) requirements for Appraisal Reports. They are Evaluation/Appraisals. They have been exposed to federal regulators and have been accepted for compliance. Each is signed by a Certified General Appraiser. The same can't be said for other companies' work product. Most Evaluations are made by novices who are not subject to USPAP. Periodically, markets decline, and Appraisals come under scrutiny. Regulators will ask, who commissioned these Evaluations? We stand behind our Evaluations as fully compliant Appraisal Reports.

Regulation and licensing for appraisers began in 1989, following a market decline that damaged banks. But over the years, the stringent requirements that were first put in place were loosened, usually for good reason, by changes to the Uniform Standards: the Summary Report, the Limited Appraisal, and the Restricted Report. Appraisers were required to adhere to the Uniform Standards. But in 2010, federal regulators opened the door to non-appraisers, who were allowed to make Evaluations without any regard to USPAP. Appraisers were put in a bind: they alone were required to meet USPAP standards, while competitors without any valuation background at all could flout the rules.

The chief appraiser at a large East Coast bank and a vocal supporter of both lenders' and appraisers' interests, has noted at industry conferences that the changes to USPAP over the years have in fact put appraisers in a position to compete for Evaluation business. Today's appraisals do not necessarily require that more than one method of analysis must be applied, provided that the one method applied produces reliable results. Summary Reports already are shortened. No rule prohibits shortness, provided that nothing important is left out. Consistent with the changes to Appraisals that have already become standard practice, Westcott holds that the notion that Evaluations must necessarily be non-USPAP-compliant is a myth.

Since 2010, the challenge for appraisers who wanted Evaluation business was how to produce a USPAP-compliant product at a competitive price. The challenge at first seemed impossible. And appraisers have spent ten years watching their banking customers do appraisal business with non-appraisers. What happened to quality? What happened to USPAP?

The solution, we believe, is automated assistance. Data companies deliver fully researched comparable rents and sales instantaneously. The appraiser, of course, still needs to get the basics right: for instance, how big is the building? But research is shortened. Fact finding is shortened through access to multiple online data sources. The final shortening is in the analysis. This office makes use of a user-assisted AVM for commercial real estate, Zaxia, which estimates all of the line items in the income analysis for a rental property - the rent, the expenses, and the capitalization rate. The user - an appraiser, or a broker, or a lender - is free to override Zaxia's estimates. The result is a value conclusion that is reliable. Our reports have been vetted for Evaluation compliance. More important, they meet USPAP requirements for Appraisal Reports.

We are glad to share with others how this is done. Click here for a sample Evaluation/Appraisal. For too long, the industry has allowed novices to run down the quality of the valuations that are appraisers' pride. Appraisers can take back this business. And that would be good for everyone - for appraisers, for lenders, and for the valuation industry.

Eric T. Reenstierna, MAI