Common errors in reporting

[Francois K. Gregoire]

TOP 10'' DEFICIENCIES

Hi All,

Really tried to stay out of this, but please let me offer some comments from another perspective. Although I can claim no familiarity with Alabama Law or their rules, much of what is published as their TOP 10 Deficiencies seems fairly consistent with what we see in Florida.

1. Failure on the part of a Supervisory Appraiser to provide adequate supervision and/or training to Trainee Real Property Appraisers

The Florida Real Estate Appraisal Board does not have a rule (or the ability to enact one) concerning Registered Assistant Appraisers (trainees). However, the statute clearly states a Registered Assistant Appraiser must provide appraisal services under the supervision of a supervisory appraiser and further states any appraisal report signed by a Registered Assistant Appraiser must be signed by the supervisory appraiser.

If the appraisal report in question was a 1004 or any other Fannie Mae form with the standard Fannie Mae Certification, the FREAB will look at the Certification signed by the Supervisor. In most cases it states: "I directly supervise the appraiser who prepared the appraisal report, have reviewed the appraisal report, and agree with the statements and conclusions of the appraiser, agree to be bound by the appraiser's certifications numbered 4 through 7 above, and am taking full responsibility for the appraisal and the appraisal report."

This is a fairly powerful statement and certification. As a result, in most cases where an Administrative Complaint is filed against a Registered Assistant Appraiser, a simultaneous complaint is filed against the supervisor.

2. Selection and use of inappropriate comparable sales or failure to use compatibles that are locationally and physically most similar to the subject property

No question , this is a judgement call. In Florida, this is NOT generally one of the citations or charges. It is not in our statute. But, when the workfile is in front of you, and you have the appraiser's printout of 60 or more sales, all clustered in a fairly tight range of size and price, and there are four circled, included in the appraisal report and wildly out of the tight cluster, you start to wonder. In some cases information in the workfile will justify a charge of producing a misleading report.

In addition, if the appraisal report uses a standard Fannie Mae Certification, statement #1 (...three recent sales of properties most similar and proximate to the subject property...) is considered.

3. No meaningful discussion or supports explain large adjustments in the Sales Comparison Analysis, and inconsistencies among the adjustments applied to the compatibles

No comment

4. Inaccurate, incomplete, or intentionally misleading description of the subject neighborhood, site, improvements, or comparable sales

In Florida, any charge is based upon an expert's review of the appraisal report and is well substantiated.

5. In appraisal of older residential properties, no information provided in support of unreasonably low effective age estimate for the Subject and/or compatibles

Not one of my top ten

6. Failure to disclose and analyze pending agreements of sale or listings of the subject property and failure to report previous sales history within prescribed USPAP time frame (l-year Minimum for one-to-four family residential properties)

Not a top ten, but it is interesting how often the prior sales and pending agreements are mysteriously overlooked when the appraisal report in question is one the FREAB has three years later because the case has been under investigation by the FBI or the Justice Department because of a flipping scheme.

7. Boilerplate reconciliation comments in the Sales Comparison Analysis that provide no meaningful explanation as to which comparables were given the most weight, and why, in determining the value estimate

We all write our reports differently. If it's a summary report.......

8. Insufficient information provided in the report to enable the reader to understand how the appraiser reached his or her conclusions, i.e. site valuation methodology, methodology employed to estimate depreciation

Ditto the comment above. If, however the appraisal report in question is claimed to be a Complete Appraisal in a Self-Contained format, more information, explanation and rationale is expected and required.

9. Failure to verify comparable sales data with one or more of the parties involved in the transaction

The FREAB has had a few recent cases where the failure to verify caused the appraiser (and their supervisor) to be sanctioned. Subject was half a duplex in an area with many of the same. Appraiser found what they believed to be sales of similar properties (half duplex) and prepared the appraisal report. Turns out the sale was for both sides. The opinion of value was 'slightly' <sarcasm> overstated. Verification (easily accomplished by the investigator and the expert reviewer) could have prevented the problem.

10. Non-compliance with USPAP Competency Rule in the development and communication of an appraisal.

Recent experience of the FREAB involves long time residential appraisers doing subdivisions. Their opinions of value were based upon several individual lot sales extrapolated to 20 Acre to 1200 Acre residential and planned developments. Too many problems with those appraisal reports to detail here.

Please do not take this as the Florida Top Ten. It's simply a view from the other side of the fence. Well, I really am on the same side of the fence as you all. Once in a while I slip over to the other side and take a good, long , hard look.

 

[Austin]

Francois:

But, when the work file is in front of you, and you have the appraiser's printout of 60 or more sales, all clustered in a fairly tight range of size and price, and there are four circled, included in the appraisal report and wildly out of the tight cluster, you start to wonder.

Reply: I am glad you noticed this, because it points out an even greater problem that I have never heard addressed. The problem is that if you have enough data and know how to use graphical methods, you can come up with almost any price by cherry picking sales from around the point that you want the price to fall. Without graphical methods, looking for comps that make the deal work is the same problem. Basically, by doing this the appraiser is changing the market value definition from “most probable price” to “highest price.” That is why I contend “most probable price” has to mean the statistically determined price with the highest probability or the one at the peak of the bell curve. This idea of reconciling by allowing the appraiser to select the comp that he/she feels is most appropriate is a license to report any price they choose in a wide range. The only way you can answer the question: “what is the most probable price” is with about 30 sales.
In my mind, this problem makes all other problems mentioned in your 10 points insignificant. Allowing the appraiser to select 3 comparable sales out of 100’s and taking his/her word for it is a travesty in my book. If regulators want to improve things, this would be a good place to start and get away from Mickey Mouse problems like verifying sales, explaining adjustments (when it is known that the accepted sequence of adjustments is totally wrong and misleading) , discussions of totally unverifiable neighborhoods characteristics, etc..

 

[jtrotta]

It would appear the top 10 are directly related to the goal the state intends to meet.

Your research is limited to the available data found in public records.
Attorneys; Realtors; and public officials are not obligated to provide you confidential information. If the documents do not contain specific dollar amounts or consession information, you cannot expect anyone else to breach their Clients confidentiality. Also, there are many instances in which the pulic records note the sale for $1.00 and other valuable consideration. SO other sources need to be used to note the price and
perhaps a meaningful statement could be used.

8)

 

[Stephen J. Vertin MAI]

Frank:

Alot of good comments. I wish I had time to talk about them; however, I am snowed under. This is a good string.

Steve Vertin