Evaluation Liability

[Sid Holderly]

Excerpt from page 6 of the 2015/2016 winter Indiana License Law class by Tucker School of Real Estate
on practices that a Real Estate Professional can do.



Many RE agents do BPO & BOV but few have ever been in a USPAP class. It is not on their required CE list.

 

[Meandering]

I have a modest degree of familiarity with AO 13 and all that I have posted has been 100% consistent with AO 13.

I have no reason to make up stuff. I make no money by muddying the waters of appraiser understandings. Plus it's really hard to disagree with copy and pasted regulations.

But you left out that AO 13 is EXACTLY the portion of USPAP referenced in the IAEG, for when a lender choses to use an appraiser to prepare an evaluation. And, that AO 13, states that when engaged because you are an appraiser, it is only an Appraisal, not an evaluation. Hence, without regard to state law whether or not the state "allows" an appraiser to perform an evaluation, the Federal Regulation (USPAP) requires you to perform an appraisal, if you were hired BECAUSE you are an appraiser. You can't get around the double talk created by the ASB. Which in my not so humble opinion is way out of control.

Evaluations and appraisal are not the same thing. However, lenders have the option of exceeding the minimum requirements. So, if a transaction only requires an evaluation, a lender may still use an appraisal report to meet the obligation.

Lenders have a requirement to set policies for at least the minimum information required in an evaluation. Lenders have an option of ordering an appraisal instead of an evaluation. Evaluation is the MINIMUM requirement for some loans, but evaluations are not minimum appraisals, similarly that tricycles are not minimum cars.

So, there is no issue with a bank asking for an evaluation from an appraiser and accepting an appraisal report to meet that requirement. This is done every day with the full endorsement of the banking regulators. Also, most "full appraisals" I see are for lenders, and most of them note that the client is the only intended user. See the sample Intended User language that is endorsed by Fannie Mae. The myth that one cannot provide a restricted report to a lender, because there must be multiple intended users, is just that, a myth.

Danny, the Cert 23 comments to limit the intended users of an appraisal report to the specific lender client, are not part of the evaluation regulation, which HAS NO INTENDED USER, NOR CLIENT, statement specifications/requirements. Trying to run all this garbage into an overall "believable" little story ignores the years of "appraisal portability" debate/regulations/caveats, as loan packages are transferred between different lenders. The IAEG says these new lenders can use the evaluations until the market conditions change or something changes about the condition of the property, or the value has changed. (See; IAEG 2010, Sect. XIV)

The fact that a borrower may receive a copy of the report as part of disclosure obligations does not make that borrower an intended user. There is only one way to become an intended user of an appraisal report - and that is to be named as an intended user in the report. We just covered all that in my USPAP class yesterday.

Agreed, but we are not talking about appraisers writing appraisals. We are talking about appraisers writing evaluations, which, by Federal Regulation, are not appraisals. And please note, you were not teaching appraisers how to write evaluations at all. Valuations, maybe, but not if you're teaching national USPAP from the FAQs, because HOW to address intended users of an evaluation is not contained within the FAQs.

You should have been there

Day late and dollar short Dan. Already took my CE for the cycle. Got all the ASB propaganda on my desk as I type. And besides, you don't want me in your USPAP class, as I'm sure we would distract the rest of the class, because I am not the person who will "let it slide" so that you can get on with selling it to the rest of them. Maybe one day, we could hang out in a coffee shop and play dueling federal regulations with each other for grins.

If one does provide a restricted report to a lender the report content will have to be expanded to include more than the bare minimum that USPAP requires. For example, a restricted report that provided only the results and did not include the supporting data and analysis to show how those results were derived would not be acceptable, because it would not meet the IAG.

Oh come on Danny. The level of content of the report is not dependent upon who the client or intended users are. It is dependent upon the INTENDED USE of the report (std 2-3). That nasty little intended use statement is something your clients don't really like to share with appraisers they are hiring for evaluations, correct? Because, when the intended use of the evaluation is for a loan, the appraisal can not be restricted-already heavily covered in Federal regulations. However, evaluations escape such gobbilty goop, as intended use is not a facet of evaluations, which then begs the question of why, intended use is required appraisals produced for loans, for safe and sound lending, yet not for evaluations - for safe and sound lending? Or maybe it's because the borrower with their copy of the evaluation is free to use it to file for divorce, or fight property taxes. A lovely benefit for borrowers, as they are not restricted from using an evaluation, yet, borrowers can not use a lending appraisal for any thing. Ghee, could be why E&O carriers won't cover evaluations, ya think?

For most that I talk with, the real angst with evaluations is with fees.

And that's really, really sad. The angst should be over Federal Regulations, lying AMCs, and clients who make stuff up to sway the lemmings, simply to line their own pockets, and State laws that initially tried to "protect" the profession, but now create a conflict with Federal Regulations. Those, and that the ASB has so far, refused to write different Appraisal regulations for FRTs, evaluations and other appraisal uses. Trying to placate all intended users with FAQs does not relieve appraisers of liability for following USPAP under many state laws, even though USPAP says, with caveat that it is not a law, however it is a Federal Regulation.........

When Do USPAP Rules and Standards Apply
USPAP does not establish who or which assignments must comply. Neither The Appraisal Foundation nor its
Appraisal Standards Board is a government entity with the power to make, judge, or enforce law. An appraiser
must comply with USPAP when either the service or the appraiser is required by law, regulation, or agreement with the client or intended user. Individuals may also choose to comply with USPAP any time that individual is performing the service as an appraiser. In order to comply with USPAP, an appraiser must meet the following obligations:

FOREWORD
USPAP has five sections: DEFINITIONS, PREAMBLE, Rules, Standards (including Standards Rules), and Statements on Appraisal Standards. For convenience of reference, USPAP is published with this Foreword and a Table of Contents. The publication also includes the Advisory Opinions and Frequently Asked Questions (FAQs) as additional reference materials. These reference materials are forms of “Other Communications” provided by the ASB for guidance only and are not part of USPAP.

So hopefully, your company is not soliciting evaluations from appraisers in states that require, by law, appraisers to follow USPAP when completing valuations, being complicit in the violation of state law - possibly an AMC registration/regulation/oversight issue for the state appraisal boards.

After all, as professionals, all appraisers should firstly care about their profession, which is in jeopardy of losing relevance in many areas, or under depressed market conditions, unless the ASB gets it straight that it exists because of FRTs, and intended users of appraisal services, and the state laws realize the era of protectionism is over for valuations and values within a state, because those properties can be "valued" via evaluations by non-appraisers, and the state can't stop it, because that's by Federal law.

The simple answer to that is to set the fee at a level that is acceptable to you and don't accept anything less. I was far more concerned with the hourly rate than the gross amount. My former firm did a lot of evaluations at $100 - $125, and found that with the admin staff we had to support the appraiser, that fee actually resulted in a higher per/hour billing rate than doing 1004s. YMMV, especially if you don't have any admin support.

There is no "simple" answer. And most certainly, the answer has nothing to do with the fee AMCs are willing to pay appraisers.

The answer is to get state laws changed to allow appraisers to "chose" to comply with USPAP, or not.


Oh what a tangled web we weave.


.

 

[BRCJR]

Gee whiz....
An Evaluation is an Evaluation.
A Restricted Appraisal is a Restricted Appraisal.

Two different animals, period.

Let the lender use either one any way they want. Not your problem as an Appraiser.
Let the lender call either one whatever they decide to call it. Not your problem as an Appraiser.

 

[Deleted member 134708]

If you are engaged as an appraiser, it's an appraisal.

If you are engaged as citizen zzz-xx-xxxx to give a value, it's an evaluation.

 

[J Grant]

Any time an appraiser signs their name next to their value opinion, (or verbalizes such opinion), no matter how short or long the form, or who inspected it , per USPAP we did an appraisal. USPAP says in effect the work file contains sufficient information to form an appraisal.

Whatever a client wants to call a value we sign our name to, whether they label it as marketing or assignment verbiage an evaluation , a desktop, a hybrid etc, as an appraiser our work file and development has to be USPAP compliant.

 

[Sid Holderly]

In the English language, dictionary Evaluation & Appraisal are synonyms of each other. They may be defined differently, or more precisely, by each state, USPAP, or the federal government.
Therefore until they are uniformly specifically defined for a unified group of users ( appraisers, Real Estate agents, Bankers, Mortgage Brokers, State & federal regulators or real estate & appraisers) the
precise application of either in any of our work will be unresolved.

For FDIC if it is not a federally regulated mortgage an appraisal license is not required. Many bank loans are not federally regulated mortgages. Most banks request appraisals thinking they are more supportable is ever questioned, the legal department wants it appraiser signed. A limited scope of work product needs some sort of limitation on retaliation for errors (as it was requested with a limited scope), and the industry needs to find a way to accept and protect it. Based on possible retaliation we as appraisers are hesitant to do very limited products because of scope creep and expectations we have seen in the past.

I see no near-term solution.

 

[J Grant]

IF a non appraiser performs an evaluation, that person does not have to be USPAP compliant.

An evaluation performed by an appraiser, and an evaluation performed by a non appraiser could have equivalent content and look much the same. The difference is how the value was developed and the work file of the appraiser must be USPAP compliant. USPAP does not control what a client calls our work (including calling it a piece of crap). They can call it evaluation...

What I have experienced offered are very low fees and expectation of short times /can be done in a half hour). Perhaps a speedster appraiser can to fill out and upload an evaluation in a half hour, but can they also create a USPAP compliant work file in that same half hour?

 

[Deleted member 134708]

As someone who holds an appraisal license. I'd have no problem doing an evaluation and not an appraisal.

As long as I was engaged as my name, in the capacity of an evaluator. I would state very clearly I was engaged as an evaluator due to prior appraisal experience, and in no way am I representing myself as an appraiser for this assignment. Blah, blah...

 

[Meandering]

And one other thing, about this;

When Do USPAP Rules and Standards Apply
USPAP does not establish who or which assignments must comply. Neither The Appraisal Foundation nor its
Appraisal Standards Board is a government entity with the power to make, judge, or enforce law. An appraiser
must comply with USPAP when either the service or the appraiser is required by law, regulation, or agreement with the client or intended user. Individuals may also choose to comply with USPAP any time that individual is performing the service as an appraiser. In order to comply with USPAP, an appraiser must meet the following obligations:

So the IAEG 2010, a FEDERAL REGULATION applicable to the assignment of an evaluation,, which most clearly states:

VI. Selection of Appraisers or Persons Who Perform Evaluations
The appraiser selected to perform an appraisal holds the appropriate state certification or license at the time of the assignment. Persons who perform evaluations should possess the appropriate appraisal or collateral valuation education, expertise, and experience relevant to the type of property being valued. Such persons may include appraisers, real estate lending professionals, agricultural extension agents, or foresters.17

with footnote 17 stating

17 Although not required, an institution may use state certified or licensed appraisers to perform evaluations. Institutions should refer to USPAP Advisory Opinion 13 for guidance on appraisers performing evaluations of real property collateral.

And USPAP is also a Federal Regulation, that states:

Advisory Opinion 13
An evaluation, per the Agencies’ Guidelines, provides an estimate of market value. When that estimate of market value is the opinion of an individual who is required to comply with USPAP, that opinion (i.e., the evaluation) is, per USPAP, an appraisal. Therefore, an appraiser who is required to comply with USPAP must meet both the Agencies’ requirements for an evaluation and the requirements of STANDARDS 1 and 2 and
other applicable parts of USPAP.

Conclusion
An evaluation, when performed by an individual acting as an appraiser, is an appraisal. In addition to
complying with USPAP, the appraiser must be aware of and comply with any additional assignment conditions
and reporting requirements imposed on the assignment.

and since USPAP, a Federal Regulation, consists of 5 parts, including definitions:

USPAP DEFINITION:

APPRAISAL PRACTICE: valuation services performed by an individual acting as an appraiser, including but not limited to appraisal and appraisal review.


Comment: Appraisal practice is provided only by appraisers, while valuation services are provided by a variety of professionals and others. The terms appraisal and appraisal review are intentionally generic and are not mutually exclusive. For example, an opinion of value may be required as part of an appraisal review assignment. The use of other nomenclature for an appraisal or appraisal review assignment (e.g., analysis, counseling, evaluation, study, submission, or valuation) does not exempt an appraiser from adherence to the Uniform Standards of Professional Appraisal Practice.

Oh darn, evaluation performed by an appraiser is still appraisal practice and calling it an evaluation, does not relieve appraisers from adherence to USPAP, even if State law says the appraiser does not have to follow USPAP, the Federal Regulation, IAEG and USPAP, require an appraisal to follow USPAP. Darn, and it's an appraisal, not an evaluation.

And all of this is then followed up in AO 13 as:

If an individual is engaged to provide information or analysis that does not include an opinion of value, the
assignment is neither an appraisal (per USPAP), nor an evaluation (per Agencies' Guidelines). However, if the individual providing that service is acting as an appraiser (as defined in USPAP), the assignment would be
appraisal practice and the appraiser would be obligated to comply with the ETHICS RULE, the COMPETENCY RULE, and the JURISDICTIONAL EXCEPTION RULE...

Appraisers who believe certain requests for evaluations of real property collateral are inconsistent with USPAP
or contrary to law or regulation should explain their concerns to the potential client. If necessary, additional
information and advice may be obtained from the appropriate federal regulator regarding the Agencies’
Guidelines. If the client does not agree to an assignment that allows the appraiser to comply with USPAP and
applicable law or regulation, the appraiser must decline or withdraw from the assignment.

So, this gets to be even more fun, because the Federal Regulation (USPAP) says that if the appraiser performs the evaluation, it is an appraisal, and, USPAP does not allow for the appraiser to chose to not comply with USPAP, because USPAP is mandated when required by Federal Regulation, the IAEG is the FEDERAL REGULATION, the refers the lender to AO 13 of USPAP, which then binds the appraiser to producing AN APPRAISAL - NOT AN EVALUATION,
AND, now this is a BIG "AND",

if the "evaluation" ordered from an appraiser is being performed for a loan, secured by the borrowers principal dwelling,
THEN,
the whole thing is subject to the TRUTH IN LENDING ACT, as an APPRAISAL, which is required via the previously stated FEDERAL REGULATIONS,

And as an APPRAISAL, under the TRUTH IN LENDING ACT,

The AMC must compensate the appraiser the C&R FEE for the Appraisal, which is not an evaluation, because of the Federal Regulations,

Hence your $100 dollars will put your AMC in jeopardy of state registration, with state boards who
ARE REQUIRED via Federal LAW, (FIRREA)

to supervise AMCs are following the IFR which is incorporated into the truth in lending act.

DARN!

BLOWS it all out of the water,

Don't it?

Reading, it's fundamental.

.

 

[Sid Holderly]

In Indiana a broker doing a BPO/Evaluation for a fee must follow USPAP, part of state code.