ACI’s 2016 Compliance Series
As we develop new products for appraisers, compliance with industry standards is always front and center. Our objective is to help improve appraisal quality and provide efficiencies to the process. Everybody wins by connecting industry needs with appraisal reporting techniques through technology, industry guidance, and practical advice. This is ACI’s contribution to the industry – and we hope you find it informative and helpful. Enjoy.
The expression “some things are better left unsaid” is true, but not in the case of appraisal reports. Sometimes, what you don’t say can hurt you under USPAP’s Scope of Work Rule.
Appraiser Rhonda lives and works in an area where a nuclear power plant is located. In addition to the plant itself, several high-voltage corridors emanate from the plant, which is located on the shore of Lake Michigan. High-priced lakefront homes are located north and south of the plant, but are effectively buffered by densely wooded areas. The traffic from the plant utilizes a service road that connects with a major arterial several miles from the nearby homes so traffic is not an issue.
Rhonda has worked in the area for decades and has undertaken extensive research as to how the power plant and high-voltage corridors affect property value. Her data is well documented and tells her that for the lakefront homes the plant is not an issue. Her sales analysis demonstrates no significant difference in value between homes that are close to or farther from the power plant and her conversations with local real estate agents confirm the sales data. In short, lake frontage is scarce and always seems to be in high demand, regardless of the proximity to the power plant. The plant is visually isolated by the woods, emits no odors or noise other than a faint hum, which is also buffered by the woods.
One day Rhonda receives a call from a reviewer regarding a report she completed a few months prior on a lakefront property. The reviewer has looked at aerial imagery and wants to know why Rhonda did not make an adjustment to reflect the subject’s location 2 miles north of the power plant. Rhonda explained that she did not make an adjustment because none was warranted. The reviewer is skeptical about this so Rhonda sends him a substantial amount of data that supports her position. The reviewer reluctantly concedes, but informs Rhonda that she is flirting with a USPAP Scope of Work Rule violation by not providing this information in the initial report. Rhonda is thinking the reviewer doesn’t know what he is talking about but wants to be rid of him and doesn’t pursue the point.
A few days later, Rhonda is working on a report on another lakefront property a few miles from the power plant. Remembering the reviewer’s claims and wondering how the Scope of Work Rule applies, she opens up her current edition of USPAP and reads through the rule. Lo and behold, she notes in the Comment under Scope of Work Acceptability:
An appraiser must be prepared to support the decision to exclude any investigation, information, method, or technique that would appear relevant to the client, another intended user, or the appraiser’s peers.
Interesting, she muses, as she now understands what precipitated the reviewer’s comments. After reading the paragraph a few times, she believes the reviewer is somewhat overzealous in his interpretation of USPAP, in that the comment states the appraiser must be “prepared” to support the decision to exclude information that might appear relevant to the client. In her case, she reasons that she was “prepared” and demonstrated that by supplying data that supported her decision. After all, the comment does not state the rationale for exclusion must be summarized and reported, it just states the appraiser must be prepared to do so.
Rhonda, nevertheless, has heard stories of her State Regulatory Agency doing some odd things and figures an ounce of prevention is worth a pound of cure. She goes back to the report on which she was working before her USPAP excursion and inserts a few sentences on the proximity of the power plant and it’s lack of influence on the subject.
The takeaway here, of course, is that any time an intended user or peer might consider something a potential positive or negative influence, it’s worth discussing it in your report, even if it’s not really a factor. Sometimes our intimate knowledge of local factors blinds us to issues that others may see as potential positive or negative influences. Remember that reviewers and quality control staff are looking at aerial imagery of your subject and comparables. To save yourself time and aggravation, consider doing the same.