The Appraisal Foundation Appraisal Standards Board periodically publishes a Q&A newsletter on USPAP issues and concerns voiced by appraisers. We always find them interesting and, many times, scenarios are presented that may have not been encountered or thought of as an issue. In the Appraisal Foundation’s October 28, 2014 publication, three questions were posed, and answered, by The Appraisal Foundation. We thought we would share them in a short, four-part series for everyone’s knowledge and consideration when these issues may arise in your appraisal orders and assignments.
Appraisal Reporting Requirements Regarding Explanations for the Exclusion of Approaches to Value
USPAP requires an appraiser to explain the exclusion of the cost approach, sales comparison approach, or the income approach(es) to value. In short, the question asked was whether or not it is sufficient to state that the cost approach was considered, but not developed, and note that it was not considered necessary for credible results as the reason for not developing the approach? And, if this is not sufficient, what is an appraiser required to do to be compliant with USPAP?
The answer was that simply stating that an approach was not developed and was not considered necessary for credible results does not equate to an explanation of why it is not necessary for credible results. The reader should be provided with enough information to understand the logic and reasoning that led the appraiser to the conclusion that the approach would not produce meaningful results. Without providing the reader with such an explanation, a report would not meet the USPAP requirement to explain why it was not developed, according to The Appraisal Foundation. More often than not, what we see at VMG is that when an appraiser omits an approach it is primarily for one of two reasons: the buyer pool in the market does not analyze the worth of a property using that method, or there is not sufficient recent market data available to develop the approach. The reader of an appraisal report should expect to see an explanation of the logic and reasoning for omitting an approach to value.
Our next blog will discuss USPAP issues faced by an appraiser when the value conclusion in their report is below the contract price. Stay tuned.
Valuation Management Group is a national, full service appraisal management company that manages the appraisal process for community banks, mortgage bankers and credit unions. We take the process from ordinary to extraordinary.