More NCAB

[Tom Hildebrandt]

Brad Ellis

I wanted to make the comment that you have identified one of the core issues with the disciplinary process as proposed (and conducted) by Illinois, North Carolina, Kentucky and others. You are quite correct when you say that if the state does not prove you wrong, they have no case. That is what our legal process is about.

Unfortunately in these rogue states, the process these types of boards set up is essentially follows a peer review process. In peer review, it is up to the appraiser to prove he is right rather than than for the agency to prove that the appraiser did anything wrong. In such a system, the only thing that the board needs to find some one guilty is to have someone testify with a contrary point of view to the appraisers testimony. The board then just accepts the position they wish to accept. There is no proof of wrong doing, just that there was another way to solve the appraisal problem that the board felt should have been adopted.

The boards who do not want appraisers to testify as appraisers (comply with Standard Three) recognize this basic difference, but will not admit it. What they wish is for the investigator to be free from any disclosure or accountability for their statements. That way these unethical appraisers can make any statements they feel might be appropriate about what typical practice is, what recognized methods and techniques are, what is an error without having any requirement to back up what they say.

Remeber, these "experts" are speaking about what might have, or could have been done, spoken with the full advantage of hindsight. It is very easy for an unscrupulous and unethical reviewer to say I would not have done it this way or that this is a better way and therefore the "other guy" is wrong.

Steves case very nicely points this out. The states witness apparently felt like you, all sales in a market which might be relevant by another third party must to be considered and failure to consider all sales is either an error of ommisssion or a failure to apply recognized techniques.

I would bet $100 that this "expert" quoted no authoritative text that stated that obtaining "all sales must be considered" is what recognized methods and techniques are in this specific matter, nor did he do a survey of appraisers to see if the majority would accept the premise that "all sales" must be considered. He could not show better sales, just additional sales.

This is a merely a personal expression of a noble standard, but there are many, including myself, who would hold that this is an impossible standard to achieve. What I might consider relevant data for the solution of a given problem, may not be the same set of data that you would consider. Not only might we envision the scope of work to be different for a specific problem, we may view the value implications from the data achieved differently. That does not mean we have not appropriately applied the appraisal process or failed to use appropriate techniques.

If a board can not prove that someone is flat out wrong on factual issues like made up comps or failure to report property history, client or intended users or uses, or actual incorrect techniques or mis application of technique, almost the remaining issues addressed in standards are subject to interpretation. It boils down to opinions. Differences of opinion are not reason to be taking some ones license.

Attorneys who litigate cases for these boards recognize the inherent weakness of the states case, they do not want to have the states experts stating opinions, they want present them as if they are stating facts so the "record" will be clear. The problem is that what these "experts" are really doing is stating opinions as if they are fact. In the four years of observing ther NCAB, this is exactly what the NCAB "experts" are doing. They state their own personal opinions as if they are some sort of omnipotent appraiser but when pressed, they can not even reference a text or seminar or anything but just rely on their experience as guidance.

Fortunately for Steve, the ALJ did not allow the testimony of these unethical experts.

An appraiser who wishes to testify that another appraiser is wrong had damn well be able to quote chapter, text and verse from some authoratative source and be prepared to show that any other presentation of opinion is wrong. It is not enought to pontificate based on experience.

Otherwise, any appraiser can be found guilty by a vindictive or ignorant board.

Regards

Tom Hildebrandt GAA

 

[Austin]

A couple of responses to what Tom just said:
First: I don’t think quoting authoritative text will hold up. What authoritative text can you name that cannot be questioned? If you have a copy of the AI’s workbook, look on page 60 under comments for the solution to problem and read what they say about matched pairs and regression analysis. Read some of the other comments sections after these problem sets. The problems give a demonstrated solution, then the comments explain the shortcomings of the suggest solution. In a nutshell, there is more than one way to skin a cat and nobody can claim they are the authority on cat skinning. This is from the AI the most recognized authority.
Second: In the first part of Tom’s post he accurately described the techniques being used by appraisal boards to get around the fact that there is no accepted “body of knowledge” with which to anchor a case. Basically what they are doing is using a system that is totally arbitrary and capricious. “ If you don’t do it our way, you are wrong.” What could be more arbitrary and capricious?
Bradellis has made reference a number of times to “The Reason for No Standard 3 Reviews” and that he is waiting for more evidence before he comes down on one side or the other. Well there is your evidence Brad. The reason is that without a legally recognized and universally accepted “body of knowledge” there is no basis for any disciplinary actions that would hold up to legal scrutiny. What is being done is a total travesty of justice and the fact that they have gotten away with it for all of these years makes a mockery of our judicial system for not recognizing this system for the farce it is.
Tom got it right. Given the nature of the appraisal process, short of fraud or operating without a license, there is no legally defensible reason to charge any appraiser for any method or theory violation. That is why I am pushing for peer review and a mentor attitude from boards, because that is the best we can do legally.

 

[bradellis]

Tom,

Austin clearly wants to travel his own route and that is fine.

My primary point here, and it has been the same since the beginning, is that IF you do not look at the available data, you simply have no way to know if you have or have not considered the RELEVANT data.

Now, while I will grant you that Steve found nothing MORE relevant after he did his subsequent investigations, I cannot sign off on this being the commonly accepted method or technique (Austin's personal views notwithstanding).

I worked in the Chicago market. In most of it, there is a plethora of data that will reasonably match the relevant characteristics of the subject (odd balls not included). Due diligence is met. If I look at 25 comps with the same/similar size, style, bedroom/bath count, similar lots, year built, etc., it is quite enough.

But, I have also done work in rural markets. In that case, I always expand the search to include even less similar properties. Sure, I eventually hone it down to 3-6, but only after I have seen what is out there. In most of IL's rural markets you will find 1-2 of the most active brokers who can provide data on 90% or more of the transactions. If there is an MLS system in the area, so much the better. It just makes life easier.

Let's remember that Steve had to appraise 41 properties. His sub found 25 comps. He later found another 100 or so. Is that too many to consider for 41 assignments? I think not. And that is what has been sticking in my old craw.

Steve's case, as you rightly state, is not about that, however. It is about possible abuse of power by the board. And Steve may well be right in this case- as regards the board's powers.

However, I will again state, categorically, that this is the first time I have ever heard of the IL board doing anything like that. There has never before been a legitimate charge of them doing anything like this. Sure, anyone who has been charged might complain, but these are usually sour grapes with no basis.

What I complain about here (apart from disagreements over what proper technique might be) is the leap of faith everyone is making that the IL board is some group of rogues and criminals. They are not. They might make a mistake and Steve's case might be an example, but to then assume that they are irresponsible, dumb, or anything of the like is an unsupported conclusion, and is contrary to the bulk of the data. Perhaps this is VERY similar to what has happened to Steve.

This string has folks defending Steve based upon the fact that he seems to have considered ENOUGH of the data out there to have produced credible results. And some in this string believe that this one case is ENOUGH data (even before we hear what the court says) to condemn the IL board. I say bunk.

IF you consider the universe of data, you will clearly see that the IL board does NOT typically abuse its powers. I continue to believe that Steve should have considered the other available data before choosing those 25 comps to use for 41 assignments. I am aware that this is not what his case is about.

I do not know what the NC board does. I do not know what the KY board does. But I DO know what the IL board does. I cannot and will not condemn them for generally abusing their powers in the absence of ANY adequate base of data indicating this. One case and situation, which we may or may not know everything about yet, is an inadequate basis for such condemnation.

Lumping them in with anyone else is simply wrong headed, and flies in the face of what we are all taught - find the data, verify the data, and then select the data that is most relevant. If you sent me a report in which you said you considered 75 comps but then used only one for your analysis, I'd be asking you for a lot of clarification. One comp does not make for a reliable opinion of value. It might be a perfect comp. It might be the very best, and your opinion might even be right on target. BUT, I'd still want to know why you ignored the rest of the data.

One case of abuse may be a perfect example, but in the face of the rest of the data on the board's actions, a conclusion that they are irresponsible in the general course of their business is unsupportable.

It may be the case in NC or even in KY (although I have never heard any complaints about KY- not saying there are not, just that I have not heard about any). It does not extend to IL.

Brad Ellis, IFA,RAA

 

[Austin]

Bradellis:
First: In relation to your paragraph # 3 “Austin’s personal views:” Austin’s personal views happen to be what is called in mathematics “The Law of Numbers:” The law of numbers clearly states that when using data for statistical inference, after about 30 samples of comparable data sets, nothing significant is gained by going beyond that level. That means if there are 1000 comparable sales, using 30 will give the same approximately answer as using all 1000.
Second: In your third paragraph you acknowledge Austin’s personal views but drag in oddball properties. How do you know they are oddball properties unless you have done a regression analysis with a statically significant number of sales to prove they are oddball properties? Show me in an authorative source or existing appraisal method or technique where that is mentioned?
Third: Then in the very next paragraph you acknowledge the importance of less comparable properties, which I agree with, but conventional appraisal methods cannot properly deal with using oddball sales. If you used the correct sequence of adjustments you can use all of the oddballs sales you want to and be very accurate.
Forth: Then in the very next paragraph you say that using 25 out of a total of 150 possible comparable sales is not statistically significant. Nonsense. Work out the numbers. That is a dream scenario. Using 18% of the population far exceeds any statistical requirement.
Fifth: Then you attempt to defend the IL board by saying their abuse in Steve’s case is the first example of tyranny on their part you have observed. How many murders does it take to establish a pattern sufficient to get your attention?
Sixth: Then you say the IL board can’t be lumped with other bad boards. Why not? Steve’s case clearly demonstrates in my mind enough evidence to suspect that board of using its powers in a vendetta. At a minimum it raises enough smoke to warrant in investigation. “Eight years and $50,000 over not verifying the work of a highly experienced appraiser to perform a menial assignment? Based on std 2-5 orginally that no longer exists? Why does 2-5 no longer exists? ” Give us a break.

 

[Tom Hildebrandt]

Brad Ellis

All valid points of view. I take issue only with two, I disagree strongly with the standard three position by the Illinois Board and I disagree modestly with the all comps issue.

The Illinois Board specifially has requested a legislative exemption that an investigator who is an appraiser be excused from our professional standards of practice. This is a postion that is contrary to USPAPs general conduct of ethics. If this board wishes for our profession to accept their work as competent in the majority of cases, why would they be asking for some sort of exemption from an ethical provision?

Just as you have no knowledge of the NCAB, I have no personal knowledge of the Illinois Board. But I do know they, just like the NCAB, have ignored USPAP in their investigative process and now, faced with having to comply with USPAP, they are asking for exemption from this practice. I see a common thread in these regulatory agencies, and Steves case is typical of cases I have seen in the NCAB process. Guilty at any costs, lets disregard the facts and punish him.

Quite frankly, if the Illinois Board wishes to earn my respect as a professional top rank organization, they need to endorse USPAP not try to avoid it. If they want to run with the likes of boards like North Carolina and gaff off the ethics of USPAP, then they are guilty by association in my book.

On the all comps issue, I would submit that every appraiser, right from the most highly designated appraisers I know to the newest trainee, is guilty of not digging to get all available comparables.

You and I have both taken the USPAP instructors course. USPAP mirrors the appraisal process. Ultimately this process boils down to the appraiser identifying identifing the relevant property characteristics, then searching for appropriate data to solve the problem in a manner sufficient to meet the clients intended use. The scope of work developed must be sufficient to be credible. In general appraisal practice, there is no requirement to find and analyze all sales, or even to identify all relevant sales in any text I have read. The degree to which research is conducted must be in the context of the assignment. There were no specific requirements to find and report all sales in Steves assignment.

There is a requirement to identify relevant property characteristics. If 25 sales were sufficient for application of the sales comparison approach, and the data was applied correctly, the Illinois Board has no beef, even if better data had been found.

I would specifically refer to Lesson 5 page 57/111 in which there is discusion of errors of excess and defect in the development of an appraisal. Errors of deficiences are of course prohibitted. But we have no error of deficiency. In Steve case, we have reasonable amounts of verified data adequately analysed to provide meaningful results to the client.

What you are proposing is a measure for standard performance that would be excessive; that all relevant sales must be considered in all assignments and therefore all sales must be considered to determine if they are relevant. Laudable and noteworthy goal but impractical; this is the "one size fits all" concept regarding to development. As appraisers we make judgements relative to the scope of work limiting the degree to which research for data is analysed every day just so we do not have to identify "all possible sales" which may or may not be relevant. We just need sufficient data to produce a credible work product.

Now, I know that at one point in a prior post you said that since Steve was not working in a market area he was familiar, he should take precautions to obtain as much competency in the market as possible. I agree, and apparently Steve does to. He sent an experienced appraiser out to get the data who apparently spent four days tracking this information. For reasons unknown to any of us, she selected 25 sales as being sufficient and did not report or identify the other sales. Perhaps she felt they were just not relevant or that sufficient data was at hand. Nevertheless, after over 8 years of work, no one else, including the Illinois Board has provided any superior sales, so it would seem that the relevant data was gained. I for one see no problem with the work product.

Would Steves work been more credible had he had all the sales in his work file? Sure, but that is not a requirement under USPAP. We do not need to do excess work to make the appraisal (development) or the report (communication) bullet proof, we just need to provide sufficent analysis to make the appraisal worthy of belief (credible) and make the report meaningful for the clients use as specified at the time the assignment was undertaken.

This is a favorite argument of the NCAB (and bad reviewers) by the way; that the appraisal would have been more credible and the report would not have been misleading had there been more explanation. These folks then argue that the appraisal and the report therefore violates USPAP.

But the standard is not could it have been "more credible" but just "credible", ie, was a reasonable and acceptable level of information considered and analysed in a proper manner that led to credible results and were those results adequately communicated. It appears that level of performance was met in Steves case. Could he have done more? Sure, but apparently there was no error of ommission, no failure to apply regconized techniques, no misrepresentiton of known facts, nothing that was misleading.

But, I guess we will have to agree to disagree on these issues although I am hopeful that you will ultimately recognize the ethical and legal problems which arise from exempting investigators who are appraisers from Standard Three :roll:

Brad, I enjoy these professional discussions, thanks for sharing your time and opinions. When I am cruising in the next several months, I will miss the academic and professional rigour of these discussions.

Best regards

Tom Hildebrandt GAA

 

[Stephen J. Vertin MAI]

Brad, as I have said and others are telling you, I think the premise inappropriate methodology on my part, in my case, is a stretch, a big stretch, with little support from peers or the evidence presented in the case. I have never said or called members of the Illinois Board anything. Any time I have mentioned them I have used their own words. The truth is I believe they are misguided within the way the process is set-up. I have said their investigators have done shotty work. They have. I have said the process is biased. It is. Other than that, I for one see no reason to hammer the same points over again. If you do not see any problems in the system fine. I appreciate your point of view. But going over and over the same issues of my case, which are really non-issues at this point, is non-productive. I have basically made my point of view and I stand by it. You have made yours and I appreciate it. You are absolutely right, now it is up to the judge. And a lot, I mean a lot of people are waiting for the decision. So lets wait and see.

Well what a stir, what a stir. I think there are recognized methods in the appraisal process. We all use sales for the sales comparison approach and we all uses cost estimates for the cost approach. There is a frame in which to put the approaches to value. Furthermore, there are text that give suggested methods for accomplishing certain task.

I also agree that suggested methods sometimes have flaws and in some cases do not work at all. These are the facts of our business. If you oppose a suggested method and have some other means to support your actions, so be it. I personally, would at least look for a written guide, or alternative suggested method to use in its place, rather than inventing one. If you do invent one have sound reasoning for your concept, at minimum put it in the file, or the report and hope others will understand where you are coming from.

Furthermore, if you are out there inventing appraisal theory and have sound reasoning, you should try writing it down and submitting it to the Appraisal Journal. Share it with the rest of us. We can always use new tools in our business. Additionally, your theory will go through the test of reasonability.

Like many issues in our country, there appear to be extreme points of view on two sides of a pendulum.

One side is currently being used by some States. It says, we determine appropriate methodology and process. We can do this within the context of personal biases, without support from text or referenced source. We believe we are the final authority as to what is and is not appropriate theory.

The other side says, appraisal theory is subjective. We should be free to make-up new application to keep free thought in the business. Boards should stick to prosecuting factual wrongs and stop interpreting theory. We believe Board lack the knowledge and resources to implement these type policies.

I believe Tom's view offers a solution to the two extremes. Neither side should be able to apply what ever they wish. Both sides should stick to a set of rules and procedures known as USPAP. If one side disagrees with the method used, they should clearly state why and cite some other authority besides knowledge and experiences. That is the biggest copout in our business and when it is used in court in a legal hearing it down grades our industry. We have literally, thousands of text written on various subject's.

Furthermore, I see the need for both points of view. If you have regulation the buck has to stop somewhere. However, we do not want to stagnate growth by preventing free thought and new applications or even applications of existing thought.

Case in point, I read a transcript David Johnson sent me. The NCAB was arguing a man used the wrong type of depreciation in the cost approach. However, the guy used a cited cost manual, which has recognized authority in the industry. This type crap, is inappropriate behavior for Boards. Boards should not be able to fine, suspend, revoke, license because they preferred one recognized method over an other. This is abusive.

Steve Vertin

 

[Austin]

I was in a hurry when I wrote my last post, had to take the dog to the vet, and didn’t finish addressing some issues of concern to me as brought out earlier in this debate. The issue of concern is using “the best comparable sales” or comp selection as it has been called. Some appraisal boards are saying, "the appraiser is guilty because he/she didn’t use the best comps." The reason I am addressing this issue is that appraisers are being charged and being disciplined over this issue when in my view the boards are the ones that are out to lunch.
The question is: What are the best comparable sales? Most similar in all aspects to the subject no doubt is their answer. The ideal comp sale is a house that sold yesterday next door to the subject in a cookie cutter subdivision that fits all of the requirements of an arms length transaction. The ideal set of comparable sales would be two sales beside and one behind the subject all adjoining the subject lot and all closed yesterday and all identical to the subject. Right? If these sales were available according to some in this debate, and you selected some other comparable sales, you screwed up and violated USPAP. I say absolutely wrong. Ten years ago I would have held the opposite position.
As I am sure every one is aware by now, I have spent a lot of time experimenting with regression methods. Because of my experience using regression, I have a completely different perspective on this situation than most other appraisers do. If I were faced with the above situation with the three perfect comparable sales, I would only use one of them. I would first look at the range of sale prices of these three perfect sales and use the one closest to the center of a hypothetical bell curve. Call this sale 1. Then I would pick one sale clearly larger and superior to the subject as sale 2, then another sale as sale 3 that is clearly smaller and inferior to the subject and sale 1.
Why you ax? Lots of reasons. Did I consider the other two perfect comps? Yes. I used this method of comparable selection to demonstrate and measure the gravity of the market for this type property and demonstrate the necessity of further adjustments.
For example: If the perfect comp sale identical to the subject sold for $100,000, and superior sale 2 sold for $110,000 and had 100 more square feet of gross living area but more physical amenities, and inferior sale 3 sold for $90,000 with 100 sf less of GLA and fewer amenities, what does that tell me about this market? It tells me that I might need a size adjustment, but other than that, the problem is solved. Obviously nothing else is influencing price. Using the recommended sequence of adjustments could have led me astray. For example, I might have found a perfect matched pair justifying that sale 2 had a $10,000 location advantage to the subject area. Using my sequence of adjustments, there is obviously no location adjustment involved after all physical differences are accounted for. This alone could have caused a $10,000 under valuation.
Using this sequence of adjustments, I don’t need matched pairs or anything else to support adjustments because I have a reference point to guide me, and a clear graphical picture of the gravity of the problem. Using my sequence of adjustments: big ticket physical items first like: basements; garages; porches; decks; fireplaces; then a size adjustment correctly applied, and in my market 99% of the time, there is nothing else to adjust for. How do I know that? By looking at the trend line of the adjusted prices. When the trend line is flat with a small variance about the line, there is nothing else worth the time to adjust for. The whole purpose of appraising is to determine the equation that explains the correlation of value influencing factors to price and the definition of the perfectly adjusted data set is when the data forms a perfectly linear trend line with no slope and no variance about the line.
What is my point? What board can tell me my comp selection is wrong? Show me a flaw in my logic? Further, selecting the three perfect comps could be misleading. For example: Why are four adjoining properties all being sold at the exact same time? Huh?

 

[Stephen J. Vertin MAI]

Austin:

You are preaching to the choir I have been saying that USPAP violations based on comparable selection and comparable selection alone is totally out of pocket. It is whacked. There are many more additional reasons the logic of this approach is screwed up. That is one of the main issues organizations are fighting OBRE in Illinois. Illinois is trying to pass a protocol for comparable selection. They are doing it to save money and the cost of proving appraisers wrong. All they are doing is saying, hey, here is another comparable, is it in your file? No!, spank, spank, spank..... It is crap.

Steve Vertin

 

[Austin]

Steve: I have also invented the perfect protocol for data selection. I can filter my database of about 2,000 sales from the MLS and office files and in about two minutes have the 25 most comparable sales possible. All selection criteria researched and accounted for. For example, if you wanted a 1000 sf rancher with a basement and carport in the green subdivision in the western part of the county, in two minutes I can give you the 25 sales that best match that criteria. Most of the time in modern subdivisions I can graph the GLA vs sale prices and see the answer at that point. If I use all 25 sales, who can say I didn't use the best comps?
That raises another interesting point. If I wanted to do a jacked up appraisal, I can pick the three comparable sales highest above the trend line and use a conventional marketing grid. If I want the most probable price, I pick three sales closest to the trend line, and If I want to low ball the subject, pick three from the lower end of the range. Without this system available, who would ever know the difference?
If these boards and people like Brad Ellis keep pushing this use all available sales crap, it is forcing regression methods and AVM. How else can you comply with that requirement and be safe from persecution? Maybe I uncovered something there!

 

[Farm Gal]

Austin,
I must gently explain that your area seems pretty unique:

Highly stable and it appears that folks don't much care which bloc they live in versus the equivalent phsycial house located elsewhere in pretty largely defined neigborhoods.

GIGO applies also, some realtors are a lot better at data entry particularly accurate data entry than others (this is my attempt at avoiding my oft-voiced loud volume opinion that many local realtors are @#$&%*XYZ !! Mo-Rons).

I agree with the other posts that when a board attempts to legislate 'the best' comps and compselection alone, they are on very thin ice.

I want to play with regression in my area to assistm me in quantifying what/where some of the "I can't find WHY" value differences are in that part of my local market covered by the MLS. 1/4 million people with attitudes about where they want to live and why they will pay more HERE than THERE has to be more than long term realtor prejudice... I think.

I see some intellegent articulate folks with highly disparate preferred methods and approaches to the valuation of real estate coming together quite strongly on this issue:

Some policeing MUST occurr to throw out the unethical or uneducated few (whose focus is solely on chasing the decreasing money in this profession), HOWEVER, unethical policing may be worse than none at all! :evil: