Bob Keith has a distinguished career in the appraisal industry as a former executive with the Appraisal Foundation and Association of Appraiser Regulatory Officials, an instructor, and currently the treasurer of the National Association of Appraisers and compliance officer with First Choice Appraisal Management.
So when Keith talked with Valuation Review about the compliance of appraisal reports, there was plenty to share.
“I would say, that a big deficiency is the appraiser’s failure to start with the end in mind,” Keith told Valuation Review. “There is an old sailor’s axiom that says ‘to him who knows not what harbor he seeks, no amount of light will guide him.’ The appraiser has to know what the end is. The end is not just what your opinion of value is; that’s the assignment result. The end should be to clearly and concisely communicate what you did in the appraisal and why.”
To “begin with the end,” Keith said appraisers needed to do their reading.
“You start with the end in mind by reading the whole engagement letter or order pertaining to the assignment in its entirety in the first place,” he said. “Often times, these engagement letters are multiple pages long. I’ve even seen some letters with a Table of Contents attached. This is a lot of information for the appraiser to deal with, but to not read it and not know what is being asked and what you are agreeing to upon acceptance of the assignment, is fool hardy.”
An appraiser is really a story teller, according to Keith.
“Remember as a kid when you had those connect-the-dots puzzle books?” Keith asked. “You start by drawing lines from dot one to dot two and you’re halfway through and you still don’t have a clue as to what you have in front of you. But once you finish connecting the dots it hits you as to what it is you’re drawing. The appraiser must connect those dots and tell the story so it is easily understandable for those reading his report. This is what the appraiser does every time they take on an assignment.
“What you did, how you did it, and why you did it are three things appraisers must effectively communicate within their appraisal report,” Keith added. “If they can do that, they are basically home free.”
Presentation also is critical for appraisers to understand, Keith said, in particular, the narrative addendum comments. The narrative further illustrates the what, where and why you did something when assessing valuation. This becomes critical, especially to the people (non-intended users) reading the report.
“You go to a party and you’re asked to bring something,” Keith said. “You go to the market and pick up one of those pre-packaged vegetable trays. You go home, get a big bowl and dump everything together inside the bowl. Everything mixed together is what an appraiser’s narrative report sometimes looks like. The original tray had everything labeled, in its particular section, and you knew where to find things. It was easier to understand. In the bowl, everything is there, but it is all jumbled together.
“Presentation is critical to understanding the ‘story’ of the report and communicating that to a non-appraiser or non-lender,” Keith added. “Appraisal addendums are often noisy or messy. In writing these, though, appraisers can improve upon that by using bold headings and fonts so as to clarify what is being talked about, using shorter paragraphs and not capitalizing the entire text because that is just too difficult to read.”
Keith also compared an appraisal report to a Rubik’s Cube, saying a report should not resemble one of those. Whoever is reading an appraisal report should not have to sit down and study it intensely, examining the content from every angle in order, to be led to the same conclusion(s) as the appraiser.
“Appraisers benefit by making presentations more clearly and easily understood,” Keith said.
Other experts within the appraisal industry have assertively stated that an appraiser never can have too much information included in the report. Keith didn’t agree.
“I saw one report with a five-page narrative addendum that had everything but the kitchen sink written up,” he said. “There is the understanding by appraisers to include everything to avoid potential liability. But certain information that was not specifically asked for as an assignment condition or what is relevant to the particular assignment should be left out of any appraisal report.
“I believe the majority of appraisal reports pass on the first try,” Keith added. “From a quality control standpoint, when the first report comes to the AMC or lender, they usually pass. Still, many appraisers are asked to change or revise something which leads back to my ‘start with the end in mind’ theory.”
Appraisers, though, still commonly complain that the engagement letter is too long. Keith has one simple solution.
“Don’t accept the assignment,” he said. “If you do, know all that is being asked of you, and do it.”