Home 2018 - Volume 62 - Book 2 Real Property Appraisal Standard Rules: Stating, Describing and Analyzing Data

Real Property Appraisal Standard Rules: Stating, Describing and Analyzing Data

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PROFESSIONAL PRACTICE MATTERS

Real Property Appraisal Standard Rules: Stating, Describing and Analyzing Data

By Grant S. Uba, AACI, P.App, Fellow

Member, Investigating Sub-committee

As a new member of the Investigating Sub-committee, Co-chair Kim Maber, AACI, P.App advised me of the most common Real Property Appraisal Standard issues found by members of the committee in reports subject to investigation. The most common issues have been the following:

  • inadequate description and analyses of all data relevant to the assignment;
  • lack of detailed reasoning in supporting the analyses and conclusions; and
  • failure of linking exposure time to the opinion of market value.[1]

As a Member should know, each of the three issues is a breach of the Real Property Appraisal Standard Rules (RPAS Rules) of the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) 2018.

The key verbs in the RPAS Rules that set out the requirements for the Member’s appraisal report are identify, define, analyze, state, resolve, describe, apply, detail, comment and reconcile. These key verbs can be categorized under one of three headings of ‘stating data,’ ‘describing data’ and ‘analyzing data.’

Stating Data

  • identify
  • define
  • state
  • report
  • include

Describing Data

  • describe
  • detail

Analyzing Data

  • analyze
  • resolve
  • apply
  • comment
  • reconcile

The ‘stating data’ Rules of Section 6.2 are subsections 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12, 13, 23 and 24. The ‘describing data’ Rules of Section 6.2 are subsections 8, 14, 15, and 16. The ‘analyzing data’ Rules are subsections 5, 11, 13, 14, 15, 16, 17, 18, 19, 20, 21 and 22. While the proper application of the ‘stating data’ Rules defines the assignment, the proper application of the ‘describing data’ and the ‘analyzing data’ Rules is paramount to providing an appraisal report that “the Member knows, or ought to know, is defective, erroneous, and/or misleading” (Ethics Standard Comment 5.2.1).

‘Report’ is defined in Section 2.53 of CUSPAP 2018 as follows:

Any communication, written or oral, of a professional service that is transmitted to the client or intended user of an assignment.

Note 1: These Standards do not dictate the format or style of reports. The substantive content of a report determines its compliance with CUSPAP. When using a form or document created or copyrighted by the Appraisal Institute of Canada (AIC), a Member must use the most recent version.

Note 2: Report types may include form reports, short narrative reports or comprehensive reports in complete or draft formats. Letters of opinion are not acceptable report types.

Depending on the individual appraisal practices of Members, there are Members who only prepare form reports, Members who only prepare short narrative/comprehensive reports, and Members who prepare both form reports and narrative reports. Since there are differences in the appraisal report, the reporting of the ‘stating data,’ ‘describing data’ and ‘analyzing data’ will be significantly different in conveying the appraisal with each type of report. Whether the appraisal is conveyed in a form report, a short narrative report or a comprehensive report, the RPAS Rules and Comments apply. The onus is placed on the Member to conduct the appraisal and prepare the report conveying the data, analyses, conclusions and opinions to support the appraisal in compliance with RPAS Rules and Comments.

The Member in her/his application of the RPAS Rules and Comments should always be asking herself/himself, “What would the reasonable appraiser do?” ‘Reasonable appraiser’ is defined in CUSPAP 2018 as follows:

A Member providing professional services within an acceptable standard of skill and expertise, and based on rational assumptions.

Note:  For the purposes of CUSPAP and the Professional Liability Insurance Program, the term ‘appraiser,’ when employed or referenced outside of the RPAS and Machinery & Equipment Appraisal Standard, is deemed to be generic and synonymous to ‘AIC Member,’ ‘the Member,’ ‘the practitioner,’ ‘the reviewer’ (under the Review Standard), ‘the Consultant’ (under the Consulting Standard), ‘the reserve fund planner’ (under the Reserve Fund Standard) and ‘the assessor’ (under the Mass Appraisal Standard).

The Member is reminded that, in addition to the RPAS Rules and Comments, the Definitions in Section 2 of CUSPAP 2018 are compulsory. In addition, the Member is reminded of the usefulness of the Practice Notes:

Practice Notes [see Section 18] provide guidance in meeting the reasonable appraiser test. Practice Notes are not compulsory or binding. They are intended to provide a convenient resource for everyday application, giving examples for application of Rules for real property appraisal, review, consulting, reserve fund planning, machinery and equipment appraisal, and mass appraisal assignments. Practice Notes are intended to promote discussion and provide leadership to Members in understanding how to comply with Standards.

Now to the three common issues found by investigators, which are as follows:

  • inadequate description and analyses of all data relevant to the assignment;
  • lack of detailed reasoning in supporting the analyses and conclusions; and
  • failure of linking exposure time to the opinion of market value.

In addition to using the guidance in the Practice Notes to ensure that a Member’s report does not contain any one of these three common issues, the Member may consider the following:

  • re-acquainting herself/himself with AIC’s ‘book of knowledge’ – The Appraisal of Real Estate, Third Canadian Edition;
  • acquiring a library of publications on specific property types available through the Appraisal Institute (US);
  • having reports peer reviewed by an associate (subject to meeting the Confidentiality Standard); and
  • submitting reports voluntarily to the AIC Peer Review Program.

In addition, the Member may consider several of the Continuing Professional Development (CPD) courses offered through the Real Estate Division of the Sauder School of Business, University of British Columbia. Co-Chair Maber advised that, where a Member is found to have breached CUSPAP, the main CPD courses that Members are required to take are one or more of the following:

  • Highest and Best Use Analysis
  • Creative Critical Thinking: Advancing Appraisal to Strategic Advising
  • Exposure & Marketing Time: Valuation Impacts
  • Adjustment Support in the Direct Comparison Approach

The descriptions for these CPD courses are as follows:

CPD 105: Highest and Best Use Analysis

Pre-requisite: None.
This lesson examines real estate market analysis in terms of how it impacts the most profitable legal use of property. This lesson offers a broad overview of how market forces shape residential, commercial, recreational and community land uses. It then examines highest and best use analysis in detail, first offering a general overview of underlying theory and techniques, and then discussing highest and best use for both vacant and improved properties.

CPD 110: Creative Critical Thinking: Advancing Appraisal to Strategic Advising

These three lessons provide an introduction to the conceptual foundations underlying consulting and advisory services related to real estate. Students will learn how to: critically analyze the context for real estate problems, creating an effective foundation for further in-depth analysis of issues; effectively apply traditional and online research skills; identify risk and describe how it can be managed in real estate decisions; and develop the ‘meta-skills’ necessary to succeed in the real estate service supply chain.

CPD 117: Exposure and Marketing Time: Valuation Impacts

This course explores how the concepts of exposure time and marketing time impact market value appraisals, and the requirements these pose for appraisers. Students will gain an understanding of how to justify and support opinions of exposure time and marketing time, and of the requirements of CUSPAP related to these two concepts.

CPD 123: Adjustment Support in the Direct Comparison Approach

This single lesson course addresses ‘best practices’ for adjustment support in appraisals when applying the direct comparison approach. Appraisers face time and data constraints, and this course explores practical methods for supporting and substantiating adjustments. A ‘hybrid technique’ is explored that combines aspects of both quantitative and qualitative adjustment methods in reaching valuation conclusions, ensuring that they are both defensible and attainable.

These CPD courses, as well as the other CPD courses available through Sauder, will enhance the Member’s professionalism and expertise, while meeting the requirements of AIC’s Continuing Professional Development program for Members. The link to Sauder’s offering of CPD courses is http://www.sauder.ubc.ca/Programs/Real_Estate_Division/Credit_Programs_and_Professional_Development_Courses/Professional_Development_Courses.

Since a Member is required to comply with CUSPAP, it is recommended that Members continually ask themselves if their appraisals and the reports conveying the appraisals meet the ‘reasonable appraiser’ test. In the context of this article, it is also recommended that Members critically review their most recent report(s) to assess whether they have met the requirements for ‘stating data,’ ‘describing data’ and ‘analyzing data’ of the RPAS Rules.

End note

[1]  Co-Chair Maber advised of a fourth issue, which is reliance on templates for assumptions and limiting conditions without editing for inconsistencies relative to the characteristics of the property being appraised.

 

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