Sunday, December 10, 2023 | The Latest Buzz for the Appraisal Industry

The Value of Words in Valuation

Summary, What Does it Mean?
I do several reviews every month and most normally fail to meet minimum standards. As a minimum basis, a real property appraisal report written for the government sponsored entities (GSEs) and agencies are what USPAP (Uniform Standards of Professional Appraisal Practice) refers to as Appraisal Reports. Standard 2 is the specific standard that addresses the reporting of appraisals. Standards rule 2-2 specifically. The word that is meaningful to the premise of this blog is summary. The word summary is either completely misunderstood or ignored by many appraisers out there.

When trying to understand the meaning of words in this manner, there is a legal premise that applies specific to understanding the language called the plain meaning rule. Since USPAP is part of our regulations and laws that oversee our profession, it is the best place to start here as a professional. When reading contracts, words will always have their ordinary meaning unless defined otherwise. Below is the definition from Webster’s online dictionary of the plain meaning rule:

Plain meaning rule
a rule in statute or contract interpretation: when the language is unambiguous and clear on its face the meaning of the statute or contract must be determined from the language of the statute or contract and not from extrinsic evidence[i]

With that defined, let’s look at the definition of summary:

1: COMPREHENSIVE especially: covering the main points succinctly
2a: done without delay or formality: quickly executed a summary dismissal
b: of, relating to, or using a summary proceeding a summary trial

an abstract, abridgment, or compendium especially of a preceding discourse

USPAP does give us some direction on the matter in the form of advisory opinion AO-38. Of course, The Appraisal Foundation is always keen on pointing out that advisory opinions are not a part of USPAP but are included in the USPAP publication. The intent is providing a form of guidance that the Appraisal Standards Board issues to illustrate the applicability of USPAP.

Author’s Note: Maybe it is just me, but if you publish the advisory opinions and frequently asked questions with USPAP in every publication, then how is it not a part of USPAP? In addition, outside of software and hardware manuals, why does a simple set of standards need so many additional FAQs and advisory opinions.

Here’s AO-38:

What is an example of the difference between “state” and “summarize” in the context of a real property appraisal report?

The following presentations of the zoning section of a commercial appraisal report are used to exemplify the content differences in the two appraisal report options. These examples show a relative illustration of depth and detail of presentation and are not intended to characterize the format for an entire appraisal report. The examples are not intended to imply that information on zoning is necessary in all appraisal reports. Furthermore, an appraiser may need to provide additional information in the valuation of a complex property wherein the issues of what is physically possible, legally permissible, financially feasible, and maximally productive are explored in much greater detail, to enable the client and intended users to understand the report properly.

Example of “summarize” – zoning

The General Business B-4 zoning classification applies. Its purpose is to encourage local commercial development of banking facilities, retail stores, and service establishments along arterial streets on minimum lots of 10,000 sq. ft. with a width of 100 feet. Building coverage is limited to 50% of the lot, and building height is limited to two stories or 20 feet. John N. Forcer of the Anytown planning and zoning office indicates that the existing use and subject improvements conform.

Example of “state” – zoning

General Business, B-4; existing use and subject improvements conform.

The purpose of the above examples is to show one view of the differences between the application of the terms “summarize” and “state.” The examples should not be extended beyond this Advisory Opinion to every section of an appraisal report.[ii]

Author’s note: I am not really thrilled with this advisory opinion as it uses a zoning description as an example. Why would the example not include something with more intentional analysis and a degree of technique besides making a zoning ordinance more legible in a shorter format? Why not use a sales comparison approach narrative or a highest and best use narrative? For a set of standards that get so much attention that we have to retake continuing education (CE) on them every two years and that we pay for, one would think the effort here would be more apparent on The Appraisal Foundation’s part.

As we can see, the intent in USPAP is that a more comprehensive approach be used versus succinct statements. This is specific to appraisal reports and not to restricted appraisal reports. The way most appraisal reports are written, they conform more towards the restricted appraisal reports than the other. Of course, the example above is just showing how the zoning description may be written to meet this bar. This applies to any part of the report that relies on analyses, opinions, and conclusions. Stating the information and not helping the reader understand what methods and techniques were used and the reasoning on your conclusion is not meeting the bar.

Simply stating that you made an adjustment for GLA at this rate (Etc.) is not enough. It is a good practice to discuss why you are making the adjustment (and why you may not be making one) and also how you came to the adjustment that is being made. Did you use depreciated cost, paired sales analysis, group paired sales, etc.? Almost every single report that I review has significant issues with summarizing and reconciling anything. It is almost impossible to read a residential report written on a FNMA form that has enough summary information to understand how an appraiser got from A to Z. Mortgage companies and AMCs are ok with this practice until the audits start occurring after the market slows and normalizes. The buy backs, like post-2008, will swing on the fulcrum of poorly written appraisal reports.

This certainly is not an attempt to knock the many great appraisers out there. Unfortunately, there are a good number of appraisers that are not following simple standards. I do not think that they are doing it intentionally, I just think the nuance has slipped by their collective judgment. It is also likely that many did not have mentors that taught them to do this. As the market slows, AMCs and lenders will have more time to dissect reports and actually read them. They are going to question these things, and in many cases, they will have good reasons to do the questioning.


[ii] Uniform Standards of Professional Appraisal Practice Advisory Opinions 20-21

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