Oftentimes when I need to look something up, Wikipedia comes to the rescue with the information I need. It did so again when I did a search on “Appraisal Standards” which took me to the Uniform Standards of Appraisal Practice. From this page, you’ll see at the bottom under the title ‘external links’ a hyperlink to the detailed standards which you can read at your leisure and decide for yourself if you are holding an appraisal that comes in at contract value whether or not it appears to follow the guidelines.
Here are a few salient standards I thought might be relevant to our discussion.
Standards rule 1-1 reads in part as follows:
In developing a real property appraisal, an appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete research and analyses necessary to produce a credible appraisal.
In developing a real property appraisal, an appraiser must:
(b) not commit a substantial error of omission or commission that significantly affects an appraisal; and
(c) not render appraisal services in a careless or negligent manner, such as by making a series of errors that, although individually might not significantly affect the results of an appraisal, in the aggregate affects the credibility of those results.
Standard 2: Real Property Appraisal, Reporting
In reporting the results of a real property appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading.
So let’s stop here and go to the standard appraiser forms that I have in hand to see how we might apply this standard. On the form there is an area for the property being described, and a column which asks for the number of units; the number of units completed; the number of units for sale; and the number of units sold. My rhetorical question to this audience is what answer would best adhere to standards rule 1-1… 200 units (50% sold!) or 13 units?
Let’s look at the question in another way. If you were from California, in the market for a luxury condo because your job was being relocated to Charlotte, and a sales person called you today about the Vue Charlotte and said…you have got to invest in this real estate…it is brand new construction; it is 51 stories high; beautiful floor-to-ceiling glass; awesome amenity deck; phenomenal location; concierge, pool, dog park…just over-the-top luxury at a premium price but worth every penny…you would be all ears right? Then if you asked the follow-up question…you said brand new…how many units have been sold? I don’t want to be the only one in there…and the answer came back, 200+…would that answer adhere to the standard 1-1 and standard 2?
Does “sold” mean ‘closed’, ‘under contract’, … something else? I actually don’t know. I have not been trained in how to fill out the form. I am just a layman reading a standard and applying it to an appraisal form, and figuring out how I would answer. And yes, I am looking at appraisals at a discount from contract that answer with the lower number. My question is, if you have an appraisal that comes in at contract, what is the answer to this question on the appraisal form? And if the answer is 200+, is there any comment in the appraisal that explains the meaning of this 200 (e.g. that the contracts were signed in a different economic environment and that there is high risk that many may default and that there is only 1 known sale of a unit that took place in today’s market?) This would seem to me to be a way to adhere to the standard of communicating in a way that is not misleading and be in compliance with the Uniform Standards of Professional Appraisal Practice as found here at the Appraisal Foundation website.
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