Wednesday, July 19, 2017

What Kind of Shape is Your Report In?

by Michael Logan, ISA CAPP

Michael Logan, ISA CAPP
When was the last time you evaluated your appraisal report to see if it was meeting ISA and USPAP guidelines? When was the last time someone else reviewed one of your reports? Many people would say they haven't had a report reviewed since they took the Core Course 15 years ago or applied for CAPP. As you might suspect, things have changed a little since then. In fact, report requirements are constantly changing. Though many people may feel like what they are doing is fine if nobody is complaining, I'd like to encourage you to take the time to review one of your recent reports. I think it will surprise you. Also, if you don’t have a Core Course manual that is less than two years old (the 2016 revision is current), you need to get one.

As an instructor of the Core Course, Requalification and Antiques, Furnishings + Decorative Arts, I have noticed many common errors made in reports in each of these classes. I've compiled them into a list below to assist you in making sure your reports are up to date and up to ISA standards.

What to Include

  • An ISA report must have three sections: 1) A cover document written in letter form on your company letterhead; 2) A body which includes the appraisal specific information about the items being appraised; and 3) An addendum, which can include many things but must include your professional profile or CV which is normally the last thing in the report. Refer to the Core Course manual for more details on what each section of your report should include.
  • The Core Course manual contains an Appraisal Checklist on page 20-2 and following. Use it to make certain you have included everything applicable.
  • The Core Course manual also contains a couple of sample cover letters for reports beginning on page 19. There's no need to reinvent the wheel - though you will need to change parts of these sample documents so they pertain to your report (names, dates, conditions, etc.), these letters provide great guidelines for what your cover letter should contain. The language in them has been specifically chosen for its brevity and meaning. When you make changes to the wording of these letters, you will want to do so carefully to ensure that you clearly state the required information for an ISA compliant report.
  • Include in your report, preferably in the beginning, a statement that says, "The objective of this report is to ___________ for the intended use of ________." For instance "The objective of this report is to estimate the replacement cost of the items for the intended use of obtaining insurance coverage."
  • Shoot for three good comparables if at all possible and explain your justified reasoning for the value conclusion.


ISA and USPAP Guidelines

  • It is important to remember you are writing an ISA report and it must be in compliance with ISA and USPAP Standards. In fact, in your report in the USPAP Certification you certify that "This appraisal has been prepared in conformity with and is subject to the current version of The International Society of Appraisers Appraisal Report Writing Standard and Code of Ethics. In addition, my analyses, opinions and conclusions were developed and this report has been prepared in conformity with the current version (2016-2017) of the Appraisal Foundation’s Uniform Standards of Professional Appraisal Practice (USPAP)." You can be certain that if your report meets ISA requirements it will meet USPAP.
  • If you are used to using a format that came from some other source, don’t use it with your ISA logo or credentials. Often, report formats from outside sources don’t meet either ISA or USPAP standards. If you belong to another organization as well as ISA and use their guidelines for your report, then use your credentials from them on the report and in the USPAP Certification, not ISA's.


Terminology

  • Check and recheck your terminology. Terms may have changed. We Determine Value, Estimate Cost and Calculate the Present Worth (or Value) of future income. No other descriptors will do!
  • Clearly define the market you are using. The markets are: Retail, Wholesale, Orderly Liquidation and Forced Liquidation. Within these markets are a variety of sources. Different items in an appraisal may require different markets.
  • Once you know the objective you must select the correct approach to value/cost. There are three approaches: the sales comparison approach, the cost approach and the income approach. Again, use the correct terminology. NOTE: Some terminology is different for Canadian appraisals. Choosing the wrong approach is one of the most frequent mistakes, especially for the new appraiser, followed closely by selecting the incorrect market for comparables; for instance using gallery asking price for fair market value comparables. Good for replacement cost, not so good for fair market value.


Formatting Your Report

  • Accept the help your spell check is offering. It won’t catch everything and you may occasionally need to override it, but it is worth a look.
  • Take good photographs (not always required but always a good idea).
  • Number all pages "Page x of y." Put them in the same font and size, and in the same location on each page.
  • Finally, remember you are writing for your client’s understanding. Make sure the report flows and is easy to read. If you use terms that may not be familiar to them put them in a glossary (another good item for your addendum). Don’t be repetitive. There is no bonus for extra pages.
Is the above everything you need to know? No, but it will get you well on your way to a quality ISA Appraisal Report that will set you apart from the pack. Remember, your report is often all your client knows about your work! You want to be sure it will stand up to scrutiny.

- Michael Logan, ISA CAPP

3 comments:

  1. Very helpful and thorough report. thank you, Micky!
    Len de Rohan ISA AM

    ReplyDelete
  2. Thanks so much! This is a great refresher! Mo Aubry, ISA CAPP

    ReplyDelete
  3. Thanks for posting this "cheat sheet", very helpful

    ReplyDelete