Thursday, September 28, 2023 | The Latest Buzz for the Appraisal Industry

Don’t Start Driving until You Know Where You’re Going

This article was originally published in the Fall 2021 Appraisal Buzz Magazine here. Now is your last time to sign up to receive the Appraisal Buzz Magazine for free from the Appraisal Buzz Premium Membership!

It’s easier than you think to miss the basics. As appraisers, when we think of improving our skills and appraisal services, we often think about upping our game on market analysis, improving our report layouts, or venturing into a new property type. All of those things are great and are badly needed if you want to remain relevant to the market and competitive with your peers, but none of it matters if you haven’t mastered the basics. How important are the flashy upgrades of a home if the foundation fails?

Every appraisal starts with identifying the appraisal problem. Unfortunately, too many of us rush through that part thinking we know the answer, or worse, accepting that we’ll just figure it out as we go. To put it bluntly: if someone gives an address, asks for a fee, and you give it to them, you’re doing it wrong.

The USPAP Scope of Work Rule gives a simple roadmap for determining the appraisal problem through identification of the six assignment elements that are the foundation of every appraisal assignment:

  • Client and any other intended users;
  • Intended use of the appraiser’s opinions and conclusions;
  • Type and definition of value;
  • Effective date of the appraiser’s opinions and conclusions;
  • Subject of the assignment and its relevant characteristics; and
  • Assignment conditions

You should never agree to do an appraisal, much less quote a fee, without first clarifying each of these six elements. Why? I guarantee that if you were to identify any five assignment elements, give a fee, and let me pick the outcome of the sixth element, I could make you regret your fee. They have that much variance in what they demand of the appraisal process. But the other problem is that it undercuts the contract you’re entering when you agree to perform the appraisal. How many times have you had a client try to move the goalpost on you? “Oh yeah, we need the effective date to be two years ago,” or “actually, we want it to be appraised as if those renovations were completed, not as is.” If you haven’t clarified all six assignment elements in advance, you’re in a tricky position. You might object and get yourself out of it, but it’s a position in which you should not have put yourself in the first place. That contract or agreement you make when you accept a job is critical. If it identified all of the assignment elements in advance of the engagement and the client tries to move the goalpost (which will still happen), it allows you to make clear to them that the change of course or ‘revision’ they want is not consistent with what you agreed to do.

The Scope of Work Rule makes clear that the responsibility in determining scope of work rests with the appraiser. USPAP is also clear that any change to an assignment element, post-completion of the report, constitutes a new assignment. In that light, not clarifying assignment elements in advance creates another issue. It’s not the client’s job to understand this – that’s our job. If the idea of there being additional users or a relevant extraordinary assumption weren’t discussed up front, it’s a bad look to then tell the client it’s a new assignment when they call asking for a user to be added. But that’s exactly what you would have to do in that situation. To them, it looks like you’re just trying to get more money to make a change.

The caveat in this conversation is typically assignment conditions, which are most commonly hypothetical conditions and extraordinary assumptions. We’ve all gotten a presumably as-is appraisal assignment, gone out to inspect, and learned at the inspection that the master bathroom is gutted. One of the new FAQ’s in the 2020-2021 version of USPAP, FAQ 145, makes clear that changes to assignment elements during the course of an assignment do not constitute a new assignment. Notifying the client and deciding jointly whether it’s appropriate to complete as-is or subject-to completion is not a problem. Completing it subject-to simply introduces a Hypothetical Condition. Here’s the sticking point though. Make clear to them that they need to be sure of what they want, because there’s no going back as a ‘revision’ to change it once the report is completed. You can’t simply add or subtract assignment conditions after a report is completed. They are assignment elements.

If you do private client appraisal work, and I can’t stress this enough, have an engagement letter on every assignment and make sure the engagement letter addresses all six assignment elements. Again, you’re agreeing to solve an undefined appraisal problem without it. Don’t put yourself in that position.

Aside from the technicality of new assignment definitions, there’s a practical reason to be vigilant about this. I can’t tell you how many times someone calls our firm with a property address asking for a price but by the time we unpack the situation we jointly realize that what they need isn’t exactly what they thought. Many times, it’s not at all what they thought. By the end of that call, not only is that person impressed and thoroughly grateful for your direction, but they often won’t even bother calling someone else for a quote. Or even better, they’ll now realize that the appraiser who gave them a fee off of an address had no idea what they were doing and didn’t care enough to take just a few minutes to clearly define the problem. It won’t matter if your fee is 40% more, you’ve earned the trust. Shepherding someone through that process when they reach out with an appraisal problem is something we should take pride in doing well. It’s the foundation to a successful appraisal process and helps you cover yourself when the client tries to change the assignment on you. I’m all for sharpening the sword, developing new skills and techniques, and learning new assignment types, but we need to make sure we’re mastering the basics first.

Now is your last time to sign up to receive the Appraisal Buzz Magazine for free from the Appraisal Buzz Premium Membership!