Tag Archive for: Appraiser News

The New URAR: Finally, Uniform

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Since I started in this profession, we’ve been filling out something called the “Uniform Residential Appraisal Report.” URAR. A tidy acronym, an orderly idea. The problem, of course, is that it wasn’t uniform. Not by a long shot.

There was a form for a single-family house. Another for a condo. Another for a two- to four-unit property. Yet another for a manufactured home. You could practically fill a filing cabinet with the different “uniform” forms. Each one with its own quirks, limitations, and yes, checkboxes. Lots of checkboxes.

The first URAR came into the world in 1986, when Fannie Mae and Freddie Mac decided it might be nice if appraisers stopped sending in reports written on the backs of napkins or, worse, dictated into a tape recorder and transcribed by the typist down the hall.

By the mid-1990s, the form had become the backbone of mortgage lending. Every residential loan needed one. The problem was that “residential” meant a lot of things. It meant one house on one lot, sure. But it also meant a condo in Miami Beach, a duplex in Des Moines, or a manufactured home sitting proudly on a quarter-acre halfway between Humboldt and Gadsden.

Each property type came with its own form. Each form came with its own rules. Each rule came with its own set of misunderstandings.

So, what was “uniform” about it? Not much. If you were appraising only single-family homes in subdivisions, you might get away with only using the URAR. But step outside the tidy framework of cookie-cutter houses, and you’d need another form, an addendum, or some cobbled-together franken-design mess to tell the story. I have passed on condo appraisals in the past just to avoid dealing with the condo form.

The new URAR adapts to our needs. If the property has two units, the report expands. If it’s a condo, different sections appear. If it’s a manufactured home, the right data fields show up automatically. You no longer have to select from a menu of forms; the report builds itself around the property you’re analyzing.

It’s flexible, but structured. It’s detailed, but readable.

For the first time, lenders, regulators, and appraisers are all looking at the same thing. Not a PDF that tells a story one way for the reader and another for the database, but a unified, structured document that preserves the narrative and the data in one place.

For too long, we’ve treated appraisal as a stack of paperwork. The new URAR reframes it as a flow of data and analysis. The appraiser’s job is not to fill in blanks; it’s to interpret reality and record it in a way that others can trust, read, and reuse.

For too long, we’ve treated appraisal as a stack of paperwork. The new URAR reframes it as a flow of data and analysis. The appraiser’s job is not to fill in blanks; it’s to interpret reality and record it in a way that others can trust, read, and reuse.

Because a single-family home in Denver and a fourplex in Detroit don’t look alike, but they share the same fundamentals: location, condition, quality, and market forces. The new framework recognizes that and organizes it accordingly.

The story is still ours to tell, but the structure lets that story travel farther.

If, like me, you’ve been doing this a while, you might be tired of hearing about “big changes.” Every few years, someone promises revolution and delivers another PDF.

This one’s different.

The URAR redesign isn’t about forms, it’s about how we communicate. The goal isn’t to make the job harder; it’s to make the work more meaningful. The new report gives us room to explain, to narrate, to analyze. The structured data captures what’s measurable. The commentary captures what’s human. It’s a marriage of logic and judgment, of code and craft. Lenders get cleaner data. Regulators get consistency. Reviewers get clarity. Borrowers get transparency.

But the real winners might be the appraisers who adapt early. Because this isn’t just a technical update. It’s the new language and grammar of valuation. And those who learn to speak it fluently will find themselves more valuable than ever.

When you strip away the noise, the new URAR is about credibility. It says: here’s what the property is, here’s how I know, and here’s the data to back it up.

That’s what investors want. That’s what lenders need. And that’s what we’ve always tried to deliver, but with a mishmash of forms and addenda, and a mind-numbing complexity in presentation.

So yes, the new URAR finally earns its name. After all these years, “uniform” means something.

One report. One language. One process for every residential property type.

It’s the same notion we started with in 1986, but this time, we’ve got the technology and the discipline to make it work.

And maybe, if we get it right, the next generation of appraisers won’t have to explain what “uniform” was supposed to mean in the first place.

 

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The Client Accommodation Trap

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Appraisers try to accommodate their client’s interests. There is nothing wrong with this per se.  Appraisers commonly write, “at the client’s instruction…” or “per the client’s request…”, then the appraiser describes what the client instructed or what the client requested, as well as what the appraiser did to comply with the instruction or request.

This language, however, implies the appraiser is trying to do the appraisal, or write the appraisal report, in a manner that pleases the client, a potential USPAP violation. By definition, a real estate appraiser must be independent, impartial, and objective. Such accommodating language not only calls into question whether the appraiser has complied with these three qualifications but also smacks of advocacy.

Omit the offending language.  For example, appraisers commonly omit the analyses of the Cost approach. However, certain clients may request the inclusion of these analyses as part of the appraiser’s value conclusion. Instead of saying, “at the client’s request, the appraiser has included the protocols of the cost approach…”, please consider saying, “the appraiser included the protocols of the cost approach as both applicable and necessary to the formation of a credible value conclusion”, never mentioning the client’s request.

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I spent $25,000, and my pool is worth how much!?

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Sometime back a Realtor acquaintance called to ask how much to adjust for a swimming pool. The question implied that we appraisers have access to some kind of secret “book” in which we maintain the dollar amounts of our various adjustments. Would that this were true! I explained to the Realtor© we had to extract our adjustments from market data. The parting comment was something along the lines of, “Well, that would take too long!” And our conversation ended. So, let’s talk about that.

It’s not particularly difficult to calculate a swimming pool adjustment. This can be done by paired-sales analysis or by regression analysis. While I prefer regression analysis, both produce perfectly acceptable results. The results are acceptable not because one or the other is “right” or “correct”. Rather, they are acceptable because the adjustment comes from the market, which must be the source of all of an appraiser’s adjustments. So let’s consider a hypothetical paired-sales analysis to extract a swimming pool adjustment from the market.

Take 10 sales more-or-less comparable with the subject that have swimming pools, and then compare those with 10 sales more-or-less comparable with the subject that do not have swimming pools. You’ll probably end up with 10 indications of the contributory value of a swimming pool. Next, arrange the differences from low to high. Take a look at this range. If there are one or two numbers that are obviously outliers, delete them. Now consider this range to determine if there is a central tendency. For example, is there a contributory value indication that repeats itself? This would be a modal value. Is there a range of contributory values that repeats itself? If so, somewhere within this range is the likely contributory value of the swimming pool.

Look at the average and median differences as well. Frankly, you probably want to avoid the average contributory value because of the inherent differences there are in swimming pools. An average weights all of the numbers in the array the same. Since the market likely does not do this, it’s best to avoid it. The median value represents the absolute middle of the range, but is not affected by extremes or outliers.

You started out with a rather wide range of contributory values, but via the above analyses you have likely narrowed it. This narrowing process is exactly what you’re looking for from paired-sales analysis.

Suppose that your analyses indicated a reasonable range from $10,000-$15,000. Out of this range you are going to choose your adjustment (even though a range is far more indicative of the market’s thinking). Also suppose that the swimming pool at your subject is relatively “plain vanilla”. For this reason, you would probably go with the low end of the range, say $10,000. On the other hand, were your subject swimming pool rather ornate, large, and/or came with an overly large patio and pool deck area, you would probably go with the higher end of the range (although, that would be your judgment call).

The point here is that you did not “guess” at the contributory value of that pool, etc. You did not try to cost out a pool as if new and then apply a depreciation factor. You did not apply a “rule-of-thumb” to determine your adjustment. Rather, you went to the market and, via analyses of the available sales within a market comparable to that of the subject, teased out of it a reasonable approximation of the contributory value of the swimming pool.

Please understand that the best you can do is approximate the contributory value of the swimming pool. This is because individual buyers and sellers react to such an amenity differently. As a result, your adjustment of, say, $10,000 does not mean the market sees the contributory value of a pool to be merely $10,000. Via your analyses, you demonstrated that the market sees a range of contributory values. From that range you, the appraisal expert, concluded that an adjustment of $10,000 approximated the contributory value of the swimming pool at your subject.

In other words, you supported your conclusion. This is all a client can ask for. Your client may not agree with your conclusion. However, your client must agree that your adjustment is based on logic, reasoning, and market evidence. That’s really the best you can do.

So, the point here is, while you may not be able to prove exactly how much a swimming pool contributes to the market value of a specific property, you can show the range of that value. Then, from it, you choose an individual number, even though that range makes more sense in the market. It’s your opinion that the swimming pool at the subject contributed $10,000 to overall value. You base your opinion on market data, therefore your opinion is well-formed. As such, you have formed an independent, impartial, objective, and credible opinion of the contributory value of that particular amenity. That’s what appraisers do.

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Complexities

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Complexities in appraisal work come up periodically, depending on the market you work in and the types of properties that are common to the area. I office in Colorado and have had the opportunity to appraise in rural and extremely remote areas. In the case of one particular market area, the trip one-way takes over two hours and is over 1,500 square miles; in this particular market, you’re lucky to have 30 sales over any two-year period – and that’s counting all residential properties, whether on a lot in town or a large-acreage parcel, a 90-year-old small house or a custom log house. You can bet there are complex assignments in this area. However, it doesn’t take a remote area to result in complex appraisal assignments.

Typically, complexities originate from two sources:

  1. Physical or locational characteristics of the subject property itself, and/or
  2. Limited sales or uniqueness in the area.

Complexities are a double-edged sword. If you only have two dozen sales in the entire area over a multi-year search period for selecting comps, and your subject is not located in a subdivision, you have to decide whether the glass is half-full or half-empty. Likely, there is no “model match” to your subject; however, you don’t have too many sales to sift through to choose which will give the best perspective in evaluating the subject’s value.

An appraiser doesn’t need to cover rural markets to experience similar dilemmas. All it might take is that 3,000 square foot GLA over-improved house in a subdivision of 1,500 square foot GLA houses, or the house with an indoor pool in the area with only starter houses, to appreciate that complex assignments area a test of our appraisal abilities.

But complexities are not an automatic reason to decline an assignment. Let’s be sure we’re prepared!

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USPAP Compliance and Desktop Appraisals

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Many appraisers are worried that a so-called desktop appraisal will not be USPAP compliant if a third party to inspects and/or photographs the subject property.

USPAP does not make an issue of who inspects the property, nor who photographs it. USPAP does not require the appraiser to inspect the subject property. Nor does USPAP require the appraiser to photograph the subject property or the comparables. USPAP requires the appraiser to disclose the extent of the inspection of the subject property, which includes no inspection at all. Further, USPAP makes no mention of the need to include photographs of the subject as part of the formation of a credible value opinion. Both these requirements are a function of lender requirements, not USPAP.

Fannie Mae requires the appraiser to inspect the subject property, as well as to inspect the comparable property from at least the road in front of the it (assuming that’s possible). However, Fannie Mae has no requirements the appraiser take these photographs. In other words, a contractor the appraiser hires to take photographs could do this and the report would still be fully Fannie Mae, as well as USPAP, compliant.

An individual lender may require the appraiser to take the subject and comparable photographs him- or herself. If the appraiser agrees to this condition, then the appraiser has no choice but to do so. However, the key point here is that the appraiser personally taking the photographs of the subject and/or the comparables is a lender requirement, not a requirement of USPAP, and not necessarily a requirement of Fannie Mae.

Therefore, under certain conditions, an appraiser doing a desktop appraisal is perfectly USPAP compliant.  Providing photos is not significant appraisal assistance. The appraiser is under no ethical obligation to disclose the photographer’s name, nor the extent of his/her assistance.

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