Illustrations (AO-18)

1(a).  Staff Appraiser D, who has access to market databases, is asked to use an AVM to process information. When Appraiser D runs the AVM, she has done no other appraisal research. Appraiser D does not apply any of her appraisal knowledge or judgment in operating the AVM. Appraiser D has entered only property characteristics provided by the client and does not know how the AVM analyzes the data. Is the AVM output an appraisal?

 

No. The AVM output by itself is not an appraisal. Appraiser D did not apply her appraisal knowledge, judgment, or expertise, nor did she represent that the output was her own opinion of value.

Appraiser D must be very careful in communicating the AVM output to ensure that there is no misunderstanding as to her role in operating the AVM or communicating its output. For example, Appraiser D should:

    1. not communicate her opinions or conclusions as an appraiser regarding the credibility or reliability of the AVM’s output;

    2. not provide an appraiser’s certification or statement of limiting conditions in connection with the AVM’s output; and

    3. ensure that her role as only an AVM operator is clearly indicated if her signature or other identification mark appears on documents used to communicate the AVM’s output.

1(b).  Staff Appraiser D receives AVM output from a coworker who is not an appraiser. Appraiser D is requested to determine if the AVM output is credible, given the intended use. What can Appraiser D do?

 

Appraiser D should not express an opinion regarding value. However, the request involves an aspect of value and, therefore, Appraiser D can indicate if the AVM output is credible.  USPAP includes no specific performance standards for this kind of service. However, because performing the service requires an appraiser to consider an aspect of property value, it is part of appraisal practice. Appraiser D must, therefore, ensure compliance with the Conduct, Management and Confidentiality sections of the ETHICS RULE, the COMPETENCY RULE, and the JURISDICTIONAL EXCEPTION RULE.

 

1(c).  After staff Appraiser D has received the AVM output, can she incorporate the information into the appraisal process?

 

Yes. However, Appraiser D must be able to understand how the AVM works and determine that the information analyzed is credible and reliable.

 

2.     Appraiser V provides residential appraisals to Client A, whose intended use is to document security for equity lines of credit. Appraiser V has determined that Orange Box AVM is sufficiently reliable to use as a tool in these appraisals. Orange Box AVM was recently used by Appraiser V on a house in a suburban single-family residential subdivision. 

 

Client B requests Appraiser V to use Orange Box AVM, alone, for a relocation appraisal assignment on an identical house in the same subdivision. Can Appraiser V use Orange Box AVM alone in this relocation appraisal assignment?

 

AVM itself and the AVM output for Client A’s needs may not be appropriate for Client B’s need

 

Client A’s intended use of the appraisal is to document security for an equity line of credit. Typically, Client A’s lending decision is based primarily on the homeowner’s capacity to pay the debt and only secondarily on the value of the house. The reliability expectation of the value opinion needed by Client A is relatively low.

 

The intended use of the relocation appraisal for Client B is to develop an opinion of a sale price of the house under very specific conditions. Typically, the reliability expectation of the opinion needed by Client B is relatively high because his or her intended use involves a near-term transfer of the house, with immediate financial implications. Appraiser V must determine if Orange Box AVM’s output is sufficiently reliable to meet Client B’s stated expectations.

 

3(a).  Appraiser A developed a regression analysis model that suggests a relationship between the size of a residence and the price per square foot of similar residences in a specific market. This relationship has been confirmed by market behavior, and the database used is believed to be reliable. Can the appraiser use the regression analysis model in other appraisal assignments of similar properties in the same market?

 

Yes, because the appraiser knows how the regression analysis model works, has independently tested the conclusions it provides, and believes the database is reliable. However, the appraiser must consider whether the AVM output is credible and reliable for each assignment on a case by case basis.

 

3(b).  Appraiser A’s friend, Appraiser B, works in a different market area. Appraiser B is impressed with Appraiser A’s model and wants to use the model in Appraiser B’s market area. Can Appraiser B use Appraiser A’s model?

 

Yes, if Appraiser B understands how Appraiser A’s model works and verifies by independent testing that the model produces reliable results in Appraiser B’s market area and that the database used by Appraiser B reflects behavior in Appraiser B’s market area. However, the appraiser must consider whether the AVM output is credible and reliable for each assignment on a case-by-case basis.

 

4(a).   A client of Appraiser A requests that Appraiser A use Blue Box AVM. The client says, “Since we are only doing residential appraisals, you can skip the cost and income approach. To lower the cost of the appraisal just use the Blue Box AVM results as the basis for your value conclusion.” The client also says, “Blue Box AVM makes thirteen adjustments, and that is all that the appraiser needs to be concerned with.” The Blue Box AVM developer feels that appraisers cannot understand this new technology and that appraisers do not need to know how the thirteen adjustments are made. What should Appraiser A do?

 

Appraiser A should:

  1. learn how the Blue Box AVM works;

  2. determine if he can use the AVM properly; and,

  3. given the intended use, determine if the output of Blue Box AVM is credible and sufficiently reliable for use in the assignment.

If Appraiser A cannot understand how the Blue Box AVM works or concludes that the results are not credible, given the intended use, Appraiser A should discuss the issue with the client. This discussion may result in a modified scope of work or in the appraiser declining the assignment.

 

4(b).  Another client requests that Appraiser A consider Green Box AVM. The client indicates that Appraiser A can modify six of the thirteen items analyzed in Green Box AVM, such as the distance within which the comparables are selected and the size range (square footage) of the comparables. The developer of Green Box AVM will also describe how the AVM works and provide the results of test data, which indicate that the model is reliable. What should Appraiser A do?

 

Appraiser A needs to follow the same steps described in 4(a).

 

5.      Appraiser C’s client has licensed the Red Box AVM. The client requests that Appraiser C use the Red Box AVM as a tool in an appraisal consulting assignment. The client knows that Appraiser C has a reliable internal residential database. The client also knows that Appraiser C has tested Red Box AVM and has found it to be reliable. Further, the software developer of Red Box AVM has given Appraiser C information about how Red Box AVM works and test data showing its results. Can Appraiser C apply the Red Box AVM in the appraisal consulting assignment?

 

Yes, if the Red Box AVM is used for that part of the process for which it has been determined to be credible and reliable. However, the appraiser must consider whether the AVM output is credible and reliable for each assignment.

 

  

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USPAP 2008–2009 Edition
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