Is Smartexchange resulting in USPAP Non-Compliance?

Written by Woody Fincham, SRA, AI-RRS, RAA 

This blog is likely going to stir up controversy. It is likely going to have a few folks calling me a loyalist to a la mode, or other similar things.  Am I a loyalist?  I do not see myself as such, but a la mode has been the only software that I have used in my career for residential form reporting.  I do use ACI in the corporate setting as a reviewer and manager in my firm. I like and consider many of the staff at a la mode to be my friends, and I have had long relationships with them because of my time as a customer.  I will always have an affinity with those folks, but that does not make me a supporter of CoreLogic one way or the other.  I am agnostic when it comes to CoreLogic.  They exist and as such I have no choice but to deal with them on some level. They  are too big of a company in the real estate and valuation space to not deal with them on some level.   The whole point of this piece is to discuss the acceptability to standards when dealing with sharing comparable property data.  It is not a barometer for what CoreLogic means to valuation.

With all the social media chaos over the CoreLogic acquisition of a la mode, there has been some very loud commentary coming from appraisers. CoreLogic is not looked at in a positive light by many in the valuation profession, but that is not what this article is about.  I wanted to deal with the issue of USPAP compliance and their comparable data sharing product, SmartExchange.  I have seen and read many posts from others that claim it is not USPAP-compliant to share comparable property data among one another. I must disclose up front that yes, I did at one point receive compensation as part of the a la mode Labs group between 2007 and 2009.  I am no longer a paid employee or contractor with the company.  I am offering my opinion on the product  to discuss and look at the issue of standards compliance.

What is SmartExchange?  This is what a alamode posts on their site:

“SmartExchange is a nationwide appraisal network that puts property data back in your control by giving you immediate access to pure, UAD formatted appraisal data. This level of data is unprecedented and is unlike anything you’ve been able to gather from MLS systems, public records, and other sources. It’s going to improve the quality and consistency of your appraisal reports.”[1]

Image Courtesy of CoreLogic

When UAD was pushed out by Fannie Mae several years ago, they let us all know that they would be monitoring and tracking what we used for condition and quality ratings to compare against other “appraisers in” the same market.  In other words, they wanted to see if appraisers were materially misrepresenting data to support bias.  a la mode has created a tool that will allow all participating appraisers using their software to share the ratings used so that one may look at what the peer group is saying in their reports.  It is possible to opt in to the program or opt out.

So, is this something that appraisers can and should use?  I have reached out to several USPAP experts and walked through a series of questions with them and with other practicing appraisers.  I have also done my own research to come to my own opinion. Much of social media is asking an important question about this type of technology:  Is comp data shareable or does it fall under assignment results which would be deemed confidential?  Let’s look at some definitions:

ASSIGNMENT RESULTS: An appraiser’s opinions or conclusions developed specific to an assignment.

Comment: Assignment results include an appraiser’s:

• opinions or conclusions developed in an appraisal assignment, not limited to value;
• opinions or conclusions, developed in an appraisal review assignment, not limited to an opinion about the quality of another appraiser’s work; or
• opinions or conclusions developed when performing a valuation service other than an appraisal or appraisal review assignment.

Physical characteristics are not assignment results.[2]

CONFIDENTIAL INFORMATION: Information that is either:4

• identified by the client as confidential when providing it to an appraiser and that is not available from any other source; or
• classified as confidential or private by applicable law or regulation.5[3]

What we have above are two definitions central to this discussion.  The first, Assignment Results, essentially draws one to understand that assignment results are opinions or conclusions that the appraiser supports through the course of the assignment.  The obvious question is then, “Aren’t condition ratings and quality ratings assignment results?”  On the surface I felt that they may be but have further talked with others and looking at all the language in the definitions.  The reason I initially felt that the ratings might be assignment results is that assigning a property a rating requires judgment, and as such judgement is an opinion or some type of conclusion as we use the words.

After speaking with a few experts on this very issue, I changed my opinion.  Most importantly, what I was drawn to is the last line in the definition of assignment results:

“Physical characteristics are not assignment results”.

When it comes to comparable data, we are all using third-party sources to assign the condition and quality ratings for each property.  A couple of the experts, many being residential practitioners, go back to the definition for condition and quality that Fannie Mae developed.  Many felt that there is little room for opinions of even conclusions, that the ratings are -defined, and all the appraiser is doing is assigning to the most obvious tier.   So, the sharing of comparable data that is supported through MLS databases and other third-party sources, readily available to our peer group, does not violate USPAP.

Where we did get into some interesting discussions revolved around the subject property. There is certainly confidentiality involved when dealing with the subject property.  Let’s say that we are doing a refinance transaction.  There would be no way to support assigning ratings other than an onsite inspection where the information gathered was only available to the appraiser as part of the assignment.  What made the conversation interesting was that something came up that I never thought of before.  What if you find out something about the subject that could create a misleading situation to the client?

Let’s say that you do a divorce use report.  3 months later the home goes up for sale and sells.  The MLS data indicates that the home is in much better condition than you saw when you did the inspection.  Upon further research to use it as a comp, you learn that the MLS listing incorrectly indicates it is a C3 versus the C4 that you felt it should be from the previous information that you have.  Or, the square footage is wrong.  What should you do now that you are faced with what you know to be reality versus what a normal peer would be left to conclude form the data available? What I gleaned from these conversations was that we should not be using information that only we have privy to through a previous assignment.

USPAP requires that we do not mislead in our reporting, but it also says that we must stay beholden to assignment confidentiality.  This a bit of a conundrum.  If the difference in information is enough affect assignment conditions, can we take on that assignment?  If we do, how do we report what we know is contrary to what the overall market accepts as fact?  I think the correct answer is that one must recuse themselves from this situation.

Getting back to smartexchange, this led me to contact a la mode and ask the question of whether subject data was being shared or not.  What I was told is that it is only comparable property data.  That the shared database contains only the comparable properties, and that our local database (meaning available only to you and your office) contains your subject data but that is not shared with the users of smartexchnage.

Is this really any different than calling up your appraiser colleague across town and asking if they have used a comp and what they considered it?  I think the answer to that is both yes and no.  It is not different in that colleagues are sharing info, it is different in that the users have no idea where the data comes from.  When I call a colleague, it is normally someone that I respect and have a relationship with.  With respect comes trust, but without being able to see who supplies the data, it does make me uneasy.  I can see multiple uses of the data though, so I am able to see if there has been consistent codification of the comp over several users.  At least I can qualify my own rating and write something proactively if I am using a different code level.

In conclusion, is smart exchange a problem from a standards perspective?  I do not think that it is if it is simply dealing with comparable property data. It certainly can be helpful if the appraiser using it wants to compare the condition and quality ratings over a market area.  Beyond that, it could save some time with data input, but that is something that the user needs to vet carefully and fully every time, and honestly, by the time I do that I am better off just entering that myself.

[1] https://www.alamode.com/smartexchange/

[2] USPAP 2018-2019 The Appraisal Foundation

[3] USPAP 2018-2019 The Appraisal Foundation