WIXLIB

General Definitions of a BOK 42The complete set of concepts, terms and activities that makeup a professional domain, as defined by the relevant learnedsociety or professional standard-towards-consistent-use-terminology/ The systematic collection of activities and outcomes in termsof their values, constructs, models, principles andinstantiations, which arises from continuous discovery andvalidation work by members of the profession and enablesself-reflective growth and reproduction of the professionA. G. Romme, The Quest for Professionalism: The Case of Management and Entrepreneurship. Oxford,England: Oxford University Press, 2016Recognized Methods and TechniquesAIConnect 2019

General Definitions of a BOK43 A set of accepted and agreed uponstandards and nomenclatures pertaining toa field or profession. (Romme 2016) A set of knowledge within a profession orsubject area which is generally agreed asboth essential and generally known (Oliver 2012)Recognized Methods and TechniquesAIConnect 2019

44How is the AI BOK Developed?

45AI’s Body of Knowledge How is AI’s BOK developed? Startswith: Articlein Valuation Magazine (Author opinion) Articlein The Appraisal Journal (Author opinion) ANational Appraisal Institute Meeting presentation(Author opinion) Other Aindividual author assertion (Author opinion)question brought to the BOK CommitteeRecognized Methods and TechniquesAIConnect 2019

AI’s Body of Knowledge 46How is Al’s BOK developed? Continuesthrough peer review (transformed intopeer reviewed opinion) Afterdebate, discussion and peer review, it endsup in a seminar, course, or publication, becomingpart of the BOKRecognized Methods and TechniquesAIConnect 2019

AI’s Body of Knowledge 47Latest Example of Development BOKCommittee identified a void in leaseholdvaluation from a leasehold perspective BOKCommittee reported to the BOD withrecommendation for a seminar or course SeminarDeveloped – “How Tenants Create and DestroyValue – Leasehold Valuation and its Impact of Value” Seminarnow under revisions - Project Team coordinationwith Education CommitteeRecognized Methods and TechniquesAIConnect 2019

48Appraisal ImplicationsStephen Roach, MAI, SRA, AI-GRS

Appraisal Implications49 Youneed to do more than to say thatyou “understand” USPAP. Youneed to understand the AppraisalInstitute’s Body of Knowledge as afoundation for the RMATs in USPAP.Recognized Methods and TechniquesAIConnect 2019

50Appraisal Implications “Yourappraisal is wrong because I’mbasing my review on USPAP”? Nomatter your role in the appraisalprocess, get with it and build yoursubstantive practice theory andprocedures on the AI BOK.Recognized Methods and TechniquesAIConnect 2019

51Historical Perspective – RMATs & BOK Doesanyone know who wrote the firstvolume of The Appraisal of RealEstate? FredrickBabcock in 1924Recognized Methods and TechniquesAIConnect 2019

52Historical Perspective – RMATs & BOKAcademicians developed real property valuation theoryin the late 1800s and early 1900s. In 1924, a youngacademician named Frederick M. Babcock wrote animportant follow up to his first book on real estateappraisal, The Appraisal of Real Estate (1924).As an effect of the Wall Street crash of 1929 and theensuing Great Depression, the emphasis shifted fromthe academic to the practical.Recognized Methods and TechniquesAIConnect 2019

53Historical Perspective – RMATs & BOKIn 1932, real estate brokers founded the American Instituteof Real Estate Appraisers (the “AIREA”) and Savings andLoan financial institution appraisers founded the Society ofReal Estate Appraisers (the “SREA”).The academics went to work for the federal government inthe newly formed Federal Housing Administration (the“FHA”). Employed at the then-newly formed agency,Babcock’s second book, The Valuation of Real Estate,written in 1932, synthesized various methods andtechniques used to appraise real property.Recognized Methods and TechniquesAIConnect 2019

54Historical Perspective – RMATs & BOKIn his book, Babcock first recognized that anunderstanding of the purpose of the appraisal mustprecede the use of a valuation method. Further, that“the purpose influences the value obtained in theappraisal.” This meant that there was no singledefinition of value, but rather it must be defined in theanalysis and that a property may have several differenttypes of value based on the purpose of the appraisal.He also distinguished between value, which must bedefined, and market price, which is a fact.Recognized Methods and TechniquesAIConnect 2019

55Historical Perspective – RMATs & BOKBabcock divided the purposes of a valuationinto two major categories valuations in making decisions of sale, purchase orinvestment; and valuations for actions that involve others, i.e. “propertytax assessment, damage determination, or publicacquisition.”Sources: Norman G. Miller, Ph.D. and Sergy Markosyan, The Academic Roots and Evolution ofReal Estate Appraisal, The Appraisal Journal, April 2003 at 176, as cited in Chapter 2H, RealProperty Valuation Law for Real Estate Financing—Beyond Traditional Appraisals by Dennis A.Scardilli, Esq., MAI, Real Estate Financing §§ 2H.04 through 2H.07 (Lexis).Recognized Methods and TechniquesAIConnect 2019

56Let’s Drill Down into RMATs Thereare 79 hits for the word“support” in USPAP 2018-2019. However,“support” is not defined. There’sa good discussion in ReviewTheory and Procedures . . .Recognized Methods and TechniquesAIConnect 2019

57Let’s Drill Down into RMATsRecognized Methods and TechniquesAIConnect 2019

58Let’s Drill Down into RMATs There are 251 hits for the word “appropriate” in USPAP(“appropriate data”, “appropriate analysis”, etc.). A reviewer’s opinion of appropriateness is specific tothe analyses presented in the work under review, andthe reviewer develops an opinion of appropriatenesswithin the context of there requirements applicableto the work. In the course of developing an opinion ofappropriateness, a reviewer must address anynecessary analysis that was not performed in the workunder review. Review Theory and Procedures at P. 77Recognized Methods and TechniquesAIConnect 2019

59Let’s Drill Down into RMATs There are 259 instances of the word “credible” in USPAP(including the definition). USPAP defines "credible" to mean "worthy of belief." TheComment to the definition provides: "Credible assignmentresults require support, by relevant evidence and logic, tothe degree necessary for the intended use." (citationsomitted). Meehan v. PNC Fin. Servs. Grp., No. 4:17-CV-2876 PLC, 2019U.S. Dist. LEXIS 98555, at *11 n.7 (E.D. Mo. June 12, 2019) SVP defines “credible” as “Worthy of belief; supported byanalysis of relevant information. Credibility is alwaysmeasured in the context of intended use.” SVP, Definitions at3.Recognized Methods and TechniquesAIConnect 2019

60Let’s Drill Down into RMATs “The Uniform Standards of Professional AppraisalPractice defines credible as ‘worthy of belief.’That definition implies that an opinion ofcredibility would need support to the necessarydegree for the intended use and purpose of thereview assignment. The Appraisal InstituteStandards of Valuation Practice makes thatimplication explicit in the definition of credibleincluded in that document: ‘Worthy of belief;supported by analysis of relevant information.’”Review Theory and Procedures, P.77Recognized Methods and TechniquesAIConnect 2019

61Let’s Drill Down into RMATs AI’sSVP defines “intended use” as“The valuer’s intent as to how theReport will be used.” RMATscan change depending onthe intended use or intended user.Recognized Methods and TechniquesAIConnect 2019

62Let’s Drill Down into RMATsUSPAP has 769 instances of the phrase “intendeduse”, including a definition. “Although appellant was listed as the"Borrower/Client" in one of the three reports, thereports do not state that the "Borrower" or"Borrower/Client" is an intended user, nor that thereport was prepared for the Borrower orBorrower/Client's intended use.” Dabney v. Metro Appraisal Grp., Inc., 2018-Ohio-4601, ¶ 32 (Ct. App.) “ the intended use "is for the lender/client toevaluate the property * * * for a mortgage financetransaction.“ Sheikh v. Multnomah Cty. Assessor, No. TC-MD 110224C, 2011 Ore.Tax LEXIS 429, at *5 (T.C. Dec. 14, 2011)Recognized Methods and TechniquesAIConnect 2019

63Let’s Drill Down into RMATs “The intended use is the appraiser’s intentregarding how the report is to be used.Identifying the intended user and intendeduse of an assignment is essential for thedetermination of the scope of work. That is,the appraiser must identify who needs theservices and for what purpose that person(or entity) will use the information theappraiser provides.”The Appraisal of Real Estate, 14th Edition, page 50Recognized Methods and TechniquesAIConnect 2019

64Let’s Drill Down into RMATs There are 117 instances of the word “misleading”in USPAP, but no definition.In the real property section of USPAP, misleadingis stated in: Ethics Rule (3 times)SR 2-1(a)SR 3-3(b)(i)Standard 4SR 4-1(a)Recognized Methods and TechniquesAIConnect 2019

65Let’s Drill Down into RMATs “The magnitude of net adjustments is often a less reliable indicator ofaccuracy. The net adjustment is calculated by totaling the positiveand negative adjustments. A net adjustment figure may bemisleading because the appraiser cannot assume that anyinaccuracies in the positive and negative adjustments will canceleach other out. For example, if a comparable property is 20%superior to the subject in some characteristics and 20% inferior inothers, the net adjustment is zero but the gross adjustment is 40%.Another comparable sale may require several adjustments, allpositive or all negative, resulting in a net adjustment of 30%. Thisproperty may well be a more accurate indicator of the subject’svalue than the comparable sale with the 0% net adjustment, whichhad large positive and negative adjustments that cancel each otherout mathematically.”The Appraisal of Real Estate, 14th Edition, p. 394Recognized Methods and TechniquesAIConnect 2019

66Let’s Drill Down into RMATs “Although four key components can be identified within adiscount rate—the safe rate plus considerations ofilliquidity, management, and various risks—a discount ratethat is constructed by adding allowances for thesecomponents can be misleading and inaccurate. Theband-of-investment concept can be helpful inunderstanding these components, especially indifferentiating marginal risk considerations, but these bandof-investment methods should not be represented asdeveloping a market discount rate.”The Appraisal of Real Estate, 14th Edition, p. 458Recognized Methods and TechniquesAIConnect 2019

67Let’s Drill Down into RMATs “The apparent simplicity of the comparative-unit methodcan be misleading. To develop dependable unit costfigures, appraisers must exercise judgment and carefullycompare the subject building with similar or standardstructures for which actual costs are known. Errors canresult if appraisers select a unit cost that is not comparableto the building being appraised. When it is correctlyapplied, however, the method produces reasonablyaccurate estimates of cost.”The Appraisal of Real Estate, 14th Edition, p. 587Recognized Methods and TechniquesAIConnect 2019

68Let’s Drill Down into RMATs “In 2011 and 2012, the government-sponsored entities(GSEs) active in the secondary mortgage market in theUnited States and the US Department of Housing andUrban Development developed the new Uniform AppraisalDataset (UAD) to be used with four of the Fannie Maeresidential forms (1004, 2055, 1073, and 1075). . . . However,the GSEs are only requiring this new language for singleunit dwellings and condominiums. It would be misleadingto use the language in reporting the appraisal of amanufactured home or two- to four-unit properties.”The Appraisal of Real Estate, 14th Edition, p. 652Recognized Methods and TechniquesAIConnect 2019

69Let’s Drill Down into RMATsThere are 149 instances of the word“reasonable” in USPAP, but no definitionof the word. Black’s Law Dictionary defines it as “Fair,proper, or moderate under thecircumstances.” Black’s Law Dictionary, 8th Ed., p. 1293Recognized Methods and TechniquesAIConnect 2019

70Let’s Drill Down into RMATs TARE provides some ”reasonable” examples ofthe word ”reasonable”: “Appraisers who rely on projections prepared by marketresearch firms should have a clear understanding of themethodology used to make the projection. Otherwisethe data may represent little more than a blind data set.To test the reasonableness of small area projections,comparisons should be made between thedemographic data and the supply data collected inthe specified market.” The Appraisal of Real Estate, 14th Edition,p. 121Recognized Methods and TechniquesAIConnect 2019

71Let’s Drill Down into RMATs “The appropriateness of the current zoning andthe reasonable probability of a zoning changemust be considered. Highest and best userecommendations may rely on the probability ofa zoning change. . . .”The Appraisal of Real Estate, 14th Edition, p. 196Recognized Methods and TechniquesAIConnect 2019

72Let’s Drill Down into RMATs “In many professions in which opinions areimportant, the quality of work is often judged bythe reasonableness of the opinions presentedrather than by objective criteria because thosecriteria serve as more of a community standardthan an absolute.”Review Theory, p. 68Recognized Methods and TechniquesAIConnect 2019

73Let’s Drill Down into RMATs “reasonable care. As a test of liability fornegligence, the degree of care that a prudentand competent person engaged in the sameline of business or endeavor would exerciseunder similar circumstances.”Bryan A. Garner, Black’s Law Dictionary, 10th ed. (Eagan, Minn.: ThomsonWest, 2014), p. 68Recognized Methods and TechniquesAIConnect 2019

74Let’s Drill Down into RMATs “reasonable person. A hypothetical person used as alegal standard, especially to determine whethersomeone acted with negligence; specifically, aperson who exercises the degree of attention,knowledge, intelligence, and judgment that societyrequires of its members for the protection of their ownand of others’ interests. The reasonable person actssensibly, does things without serious delay, and takesproper but not excessive precautions.”Bryan A. Garner, Black’s Law Dictionary, 10th ed. (Eagan, Minn.: ThomsonWest, 2014), p. 68Recognized Methods and TechniquesAIConnect 2019

75Let’s Drill Down into RMATs “In the context of review, reasonableness has fouraspects: 1. Common sense (i.e., realistic, credible, and usingpractical judgment) 2. Rational (i.e., using balanced and sound thinking, notexcessive or extreme) 3. Fair (i.e., impartial, objective, even-handed, andopen-minded)4. Acceptable (i.e., suitable)” Review Theory, p. 69Recognized Methods and TechniquesAIConnect 2019

76Let’s Drill Down into RMATs “The purpose of the tests of reasonablenessperformed by a reviewer is to address the needsof the users of the appraisal report. That is, thetests of reasonableness are performed in thecontext of the intended use of the appraisal.”“What other appraisers would do in the samesituation is a standard test of reasonableness.”Review Theory, p. 69Recognized Methods and TechniquesAIConnect 2019

77Let’s Drill Down into RMATs “A reviewer’s opinions of completeness, accuracy,adequacy, relevance, and reasonableness aredeveloped within a defined context, which must beconsistent with the scope of work of the reviewassignment. The context includes any laws,regulations, and other assignment conditions and therequirements of the intended user that are applicableto the work. The primary context for most tests ofreasonableness is the intended use of the work underreview.”Review Theory, p. 72Recognized Methods and TechniquesAIConnect 2019

78How can I get theAI BOK?Recognized Methods and TechniquesAIConnect 2019

79AI’s currently available textbooks,monographs and Guide Notes,excluding compilations of articles?These are availableon the AI Web siteRecognized Methods and TechniquesAIConnect 2019

80Current nationally-developedAI courses and seminars?You have to sign up and take thecourse to get these materials.Recognized Methods and TechniquesAIConnect 2019

Recognized Methods &Techniques of RealEstate Appraisal.81Where do you look?AI’s Body of Knowledge!APPRAISAL INSTITUTE NATIONAL MEETING 2019 – DENVERLESLIE P. SELLERS, MAI, SRA, AI-GRS; STEPHEN D. ROACH, MAI, SRA, AI-GRS;DENNIS A. SCARDILLI, ESQ., MAI

The Appraisal of Real Estate, 14 th Edition, page 39 “In developing a real property appraisal, an appraiser must be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal ” USPAP 2018-2019, Standard Rule