Words that Matter


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When reading any laws, rules or regulations, look for the small words, they often have big meaning and they are scattered all across appraisal regulations.


Words that Matter

What’s In a word? Sometimes, everything.

Small words often have a big impact on the meaning of a sentence, the interpretation of laws and the panic felt by many appraisers. As an example, while there are many changes in FHA’s updated appraisal regulations, it’s the change of a single word that appears to be worrying appraisers the most (see below). Throughout the appraisal world there are many small words like this that have a major impact on our appraising, so let’s explain a few of the most common small words that appraisers need to understand.

FHA: Shall, Should, Must, May
Prior versions of FHA regulations stated: “The appraiser should observe all areas of the crawlspace.” The updated version has been changed to read “The appraiser must visually observe all areas of the crawlspace.”

This single word change has many appraisers up-in-arms. However, this really isn’t a change at all and here’s why. Based upon the law, the terms “must,” “shall,” and “should” are positive requirements, similar to law. The words are equal in obligation, weight, and meaning. The dictionary has the following definitions:
Must (verb):

1. Be obliged to; should (expressing necessity).
2. Obligated or bound by an imperative requirement.
Synonym – should

Should (verb):

1. Used to express obligation or duty.
2. Used to express expectation.
Synonym – must

The definitions are almost identical and each synonym references the other word. The confusion about “must” and “should” comes from our twisting of the meaning and the misuse of the words. Several appraisers right now are saying: Noooooo! That’s wrong! Believe me, I understand that thought. Years ago, I was asked to help write several state laws (licensing of mortgage brokers and later, AMCs). As part of that process, it was necessary for me to take a class on code writing. When I first heard the clarification regarding “must” and “shall” I went through the same thoughts as many are going through right now. Take a deep breath and let go of the past belief.

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Regarding “shall” and “should,” they are current and past tense of the same word – they have roughly the same meaning. The word “may” indicates an optional obligation. When regulations use the term “may” it means that the guideline may, or may not, be followed.


• The lender may review an appraisal = optional, your choice.
• The lender must review an appraisal = requirement.
• The lender shall review all appraisals = requirement.
• The lender should review all appraisals = requirement.

If you should do it, you must do it! With this in mind, one can see where the minor word change in FHA rules really isn’t significant, just different. This change from should to must, among many, was instituted to clarify the requirements because appraisers were not following through with their “required” obligations. When reading any laws, rules or regulations, look for the small words, they often have big meaning and they are scattered all across appraisal regulations.

Objective vs. Subjective
These are two other words that have big meaning in the appraisal world. Appraisers see “objective” so often we become blind to it. Here are some examples from the Uniform Standards of Professional Appraisal Practice (USPAP). APPRAISER: one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective. An appraiser must act competently and in a manner that is independent, impartial, and objective. An appraiser must ensure that his or her appraisal … and conclusions are impartial and objective. The appraiser may provide a specific reference that is factual and objective.

The term “objective” is listed nine times in Fannie Mae’s Appraisal Guidelines, 33 times in USPAP and 21 times in the Advisory Opinions. Ok, it’s important but what does the term mean?

Objective (adjective):

1. Existing independent or external to the mind;
2. Not influenced by personal feelings or opinions in considering and representing facts;
3. Based on facts rather than emotion, opinions, or personal bias.
Synonym – impartial, neutral

In other words, “objective” facts are facts without emotion or personal opinion or as Sargent Friday of the series Dragnet used to say in a monotone TV voice: “Just the facts, ma’am!”
Standards, laws, regulations and guidelines require appraisers to be “objective” in reporting information, determining adjustments, reaching value conclusions and reporting information. While it sounds easy, producing an objective appraisal is a tough thing to accomplish. Apparently, appraisers are biased and opinionated (grin).

Subjective. Appraisers, like others…er…more than others, have opinions! Boy do we have opinions and this is where a problem starts.

Subjective (adjective):

1. Taking place inside the mind;
2. Placing emphasis on one’s moods, attitudes, or opinions;
3. Existing only as perceived and not as a thing in itself (opposed to objective).
Synonym – biased, personal

While appraisers are told that we must be objective, we have also been told to use our subjective opinions. This creates confusion. Appraisals must be based upon facts. Appraisers are not allowed to lean back in their chair, scratch their belly, pull a figure out of thin air, and state “The value of the subject is X.” Appraisals must be based upon objective facts. The facts are then delivered to a client objectively and according to Standard 2. Appraisers must use facts and approved methods to finalize their “opinion” of value. In other words, an opinion based upon objective facts. Real estate agents can be subjective and opinionated which is why we often distrust their conclusions. Objectivity is the only thing that separates appraisers from real estate agents, so we must make sure we retain the separation.

Fannie Mae/Freddie Mac summarize it like this:

The appraiser’s job is “to provide a lending institution with an accurate description of the property and an adequately supported estimate of market value.”

For GSE work, appraisers must objectively classify homes into one of six quality and condition ratings. While it appears we are being asked our opinions on which classification best fits the house, in reality our emotions or biases should have nothing to do with the process. The question is simple, solid and objective: Which classification definition best fits the house?

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An even better example relates to adjustments. Appraisers are required to be objective when making adjustments and reaching a value conclusion. Objective- meaning without bias or personal opinion. Appraisers must use facts, not outdated opinions of what adjustments should be. In the past, reviewers had minimal ability to check the facts. Today’s wiz-bang computer algorithms measure the facts objectively, without emotion or personal beliefs. This objective information can be checked to determine if an appraiser is using facts or simply slapping emotional adjustments on the grid. In instances like this, objectivity beats subjective opinions every time. Welcome to the (Fannie Mae’s) Collateral Underwriter.

Fannie Mae:

The following are unacceptable appraisal practices:

• use of adjustments to comparable sales that do not reflect market reaction to the differences between the subject property and the comparable sales;
• not supporting adjustments in the sales comparison approach;

The only way an appraiser would “know” the market’s reaction is by measuring it. Fannie Mae is clearly stating that emotional, subjective adjustments must not be included in the appraisal.

What’s an appraiser to do? The solution is to do everything possible to take your emotions, personal biases and past beliefs out of all descriptions, classification, comparable selection, adjustment process, and the final value conclusion. Adjustments, for instance, must be based upon objective facts – what does the market indicate the adjustment for location, quality, condition, etc. should be? Appraisers shouldn’t guess. Measure the market’s reaction for the differences and make the adjustment. Often the adjustments are going to be larger than you believe. That is the problem with using beliefs and past information instead of the facts. If you can’t prove (support) an adjustment, then don’t make it. There are more than 25 different methods that can be used to objectively measure the market. Pick one and use it, but don’t guess, because that’s emotional.

I’m trying to keep you safe out there.


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About the Author
Richard Hagar, SRA is an educator, author and owner of a busy appraisal office in the state of Washington. Hagar now offers his legendary adjustment course for CE credit in over 20 states.  The new 7 hour online CE course How to Support and Prove Your Adjustments shows appraisers proven methods for supporting adjustments. Up your game with defendable adjustment practices! Learn how to improve the quality of your reports, avoid problems, blacklisting and legal actions and be a more sought after appraiser who can command higher fees. OREP members save on this approved coursework. For more information on this popular and highly acclaimed offering, visit www.OREPEducation.org.


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Comments (6)

  1. Excellent Richard! Keep up the hard and valuable work you are doing in instruction. The trade and its practitioners desperately need the guidance you are providing.

    Thanks. Press on!

    - Reply
  2. It is really becoming ridiculous to be in the appraisal business. After thirty years of inspections it is clear that FHA has no regard for appraisers. We are expected to be zoning experts, environmentalists, home inspectors, structural engineers, etc. As time goes by no appraiser will be willing to take on FHA inspections. Mary Thompson above has it right just require a full home inspection on all these loans. But of course this is all about lenders unwillingness to pay reasonable fees to appraisers. Unfortunately appraisers never stand together when it comes to accepted fees. It is a life long problem in the industry. No organization has been created to lobby in Washington on our behalf. It will not change until a national organization with monthly dues is created to generate the money to pay off lobbyists and politicians. This is the way the USA works whether you understand it or not.

    - Reply
  3. Sorry, but your explanation does not make sense.

    If “should” and “must” are synonyms and identical, then why was the Handbook modified ?

    Your statement :

    “This change from should to must, among many, was instituted to clarify the requirements because appraisers were not following through with their “required” obligations.”

    confirms “should” and “must” are not the same.

    The words are very different and have a huge impact on the Appraiser’s liability.

    The entire Appraisal User community (including the HUD staff) know the Handbook 4000.1 appraisal requirements far exceed an Appraiser’s expertise and no Appraiser (including HUD staff appraisers) is complying with them.

    The HUD Handbook needs to be modified to be reasonable, match what the HUD staff are saying and be enforced with the Appraisers. None of these are currently occurring.

    - Reply
  4. While the words Should and Must may be similar or basically the same in the dictionary, bottom line is they CHANGED it to MUST for a reason….To make it crystal clear what is required of the Appraiser. There was some room for interpretation with the word Should…but now there is no doubt about it. Appraisers MUST inspect all areas of the Crawl Space. We are all missing the one very important point here….Appraisers are NOT inspectors and by changing that one word for a reason by HUD, they are making it crystal clear that they are forcing us to be inspectors. They need to just require and inspection of the Crawl and Attic by an inspector for all FHA loans and be done with it. We should NOT be conducting FHA appraisals under the wording laid out for us with the new changes, UNLESS we are trained inspectors OR we call for inspections for every home on a crawl and every attic that we cannot see in its entirety because if we do not then HUD will make the wrong assumptions with statements such as “head and shoulders or full body inspections of the crawl or attic revealed no issues” to HUD this means that all is good with these areas and we not qualified to make that determination. Just my 2 cents anyway! The amount Lenders are paying for FHA is not near enough for the additional liability that the Appraiser’s have doing FHA appraisals.

    - Reply

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