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Proposed Changes In The Law

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This is the string that will not die. This has got to be a record. I really believe God works in mysterious ways and through people who serve him. I received a phone message Friday from George Cox, MAI who is Chairman, of the Kentucky Real Estate Appraisers Board stating he had read my post and could I please call him. It had been a tough day in the field and since my post have not exactly been pro-Illinois Board, I thought this fellow is going to try and chastise me for my post. I thought a second wondering if I needed this type of conversation late Friday afternoon. I bit my lip and said to myself I have nothing to hide I have told nothing but the truth. I was expecting a conversation in a tone similar to ones with clients who do not like values. But I figured I would stand my ground and be done with it.

To my surprise Mr. Cox said he had read my post and was sending me money for my legal defense. He claimed that my story was the worse travesty of Board justice he had ever heard. Mr. Cox than posted his comments publicly on the AI forum. I can only have the deepest respect for a man who stands by his convictions and bucks the opinions of his peers. My hat is off to you sir.


Steve Vertin
 
Steve

That is great news and is welcomed. A tip of the hat to George Cox, MAI.

Of course you know that Larry Disney MAI and lead investigator for the Kentucky Board and Sam Blackburn, Executive Director of the Kentucky Board, are staunch advocates of not having the investigators (who are appraisers) for state boards not accomplish Standard three reviews.

I wonder if Mr. Cox would like to have his board revisit that policy.

Best Regards

Tom Hildebrandt GAA
 
<span style='color:darkblue'>Steve & All:

Partly due to its length, the investigative story did not run in the Sunday issue as planned -- also the editors wanted a stronger heading for the story, and there was maybe one other hitch (which I will describe to follow). I have been informed by "those in the know," that its new ETA (estimated time of arrival) is this coming Wednesday. I will keep you informed.

Update:

Well, since running the spellchecker on this post just now prior to posting, I received a call from the writer of the story. He indicates that he would like to quote me in the story as saying that I have reviewed the appraiser's work product and find it to be unusually good work. We (he and I) have already been through all this. No doubt this statement is entirely true, and it is particularly true considering the complexity of the appraisal assignment, and even more so true when considering that other appraisers, including the appraiser who filed the original complaint against this respondent, appear to have improperly appraised the property.

Well, here is the rub. I would rather not be identified or quoted at all, OR be quoted completely! Stories have lenght/wordcount limitations, so a more comprehensive quote is impractical. Therefore, I have requested that he:

1) either not quote me (while I understand he still plans to quote me, but just not to identify me by name as having provided the quote); or,

2) to quote me all he likes and also identify me by name BUT TO ALSO included my full report in with his story -- simply by including/printing the following URL in the story</span>

(IT'S A LIVE ONE NOW!):

www.boardwatch.org/std3 review.htm

<span style='color:darkblue'>This is my Standard 3 Review for my client who is the attorney representing the accused appraiser. One might ask: Why would I have an objection to being quoted and identified by name in the newspaper article without the inclusion of the URL and also since I will be testifying this week in the matter?

Here's why:

First please be reminded that as appraisers, all we have is our reputation and integrity. My integrity would remain fine, my reputation would take a serious hit. It would take a hit because the other "local" appraisers, who mis-appraised the subject property, would condemn me to anyone who would listen, as having *****d myself to defend the accused appraiser. Not true, I have not done this. But understand, in some cases -- such as this one -- whether something is true or not makes no difference at all. Because at least some of these appraisers, who are on the other side of this argument, still believe they are right. And they still believe the accused appraiser is wrong, and they will not be going to the hearing to get the whole story, therefore, they will feel it to be within their rights (indeed even their obligation?!) to bad mouth me as much as possible. (The ones who do go to the hearing, will at best, just keep shut on the matter.) Actually, such bad mouthing of me will be kinda self-serving for them too, right? -- Considering that they do not want to ever know or accept the possibility that they are in fact very wrong, and they sure as hell don't want other people, including their clients, to know that they were wrong. For this reason, the whole, true story will never come out, and they will have a new villain -- ME.

However, if my work (i.e., my STD-3 Review) is Published (i.e., by the URL appearing in the article), they will bad mouth me at their own risk -- at the risk of their credibility (hell, that could cost them money, since as appraisers, that's all we have -- our credibility). This is because they will not know for sure whether any given person they are about to "spout off to" is knowledgeable about the full circumstances as a function of having read the article and then also having read the Review from the URL cited in the article.

Why the editors' object to including a URL (yes, it is commonly done in magazines and newspapers are starting to do it more and more) is not real clear to me.

Maybe more than you wanted or needed to know. But for those interested, the writer is now to go to bat with his editors for them to accept one or the other of my requirements, and I am to hear from him tomorrow on the decision.

If you are planning to do the right thing in appraising, you better be real "human nature savvy." I am not sure I am up to it or not. Also being on the other side of this argument sure would have paid a lot better and would have been a lot easier and a lot safer too. Appraisers are well advised to always Remember the NCAB's motto:

"No good deed goes unpunished -- well, not here it doesn't anyway"

Steve, that was excellent news about the Kentucky Board Member. It is inspiring!

Regards,

David C. Johnson, Raleigh</span>
 
David:

I look forward to reading the article. I am sure you will make the right choice. Tom, I posted your letter concerning STD3 reviews on AI's website today. I also sent it to the local AI Chapter to be addressed at the hearings to be held on the changing laws in Illinois. I gave you full credit of course. It is an excellent letter. As you know, I fully support what you have said. And as I have also said, I agree with most of what George Cox and Sam Blackburn have said in the past about the current system with exception to their stand on STD3. Possibly, when they read your letter it may have some influence on their future opinion. You never know. Keep the faith and lets keep on plugging.

Steve Vertin
 
Fellow forumites

The article David alluded to is now out and references my case in front of the NCAB. The article can be viewed by searching for Greensboro News and Record then clicking on the article titled "Land Appraisal Leads to Complaints."

After the hearing, expected to go two days, I will provide on a new thread all the details, etc. The key issues in the hearing are expected to be those identified in the article ( what was the scope of the project and the related blight) and the treatment of wetlands. Why the NCAB wants to retry the case is a mystery to me, the case has already been dismissed by the AI of which I am an affiliate member.

Steve : I will be opening a new thread on this specific issue so your thread can continue it's run for glory unimpeded!

Best regards to all

Tom Hildebrandt GAA
 
<span style='color:darkblue'>Thanks, Austin...

For Finding & Linking today's newspaper article to add to Tom's new thread titled:
"NCAB verses Tom Hildebrandt - The case of the clueless board."

(boy that was an appropriate thread title)

I am just getting back in from the Guilford County Courthouse in High Point, NC.

I will repost your link here, add a link to my Standard 3 Review (of Tom's appraisal work in the case), and also enable the link in my prior post in this thread appearing a couple of posts up in this thread.

For good measure, I will also add the link to the STD-3 review in Tom's new thread.

Greensboro News & Record front page story:
www.news-record.com/news/local/appraise17rk.htm

STD-3 Review:
www.boardwatch.org/std3 review.htm

Good night, all -- gota get some zzzzs to do the trip again -- bright & early -- to testify for Tom tomorrow.

Regards,

David C. Johnson, Raleigh, NC</span>
 
We are still having serious problems in Illinois. Even though our appraisal organizations have made great strides in changing some of the most outlandish language (which we greatly appreciate) we believe the wording as stands must be changed further. Congress authorized sources to write Appraisal Standards. The Appraisal Standards Board and The Appraisal Foundation. As representatives of the appraisal community you must ask yourself why are supplements to USPAP being added by the State and do we really want politically appointed, not elected, people randomly adding or subtracted from Standards at whim?

I was trying to figure out how to explain our problems to non-appraisers when I remembered, about a year ago I was asked to develop a way to show children how real estate appraisers estimate value. It involved the practical application of math to word problems. I had to do it in two paragraph or less. I thought this may be a viable tool in helping, those who do not appraise, understand the sales comparison approach and the current problems appraisers are facing in Illinois with implementations of the new laws. For the appraisers who have the patience to read this in full, I believe, there is a valuable lesson. Open your hearts and minds as I tell you the story of the owl who wanted to buy a tree.

There was an owl who wanted to buy a new fig tree to build her nest. The tree she wanted was 3 feet tall and had 6 large and juicy figs. The owl, being pretty smart, went out into the forest to see what others were paying for such a fine tree. She had heard that a fig tree near the farm where she lived recently sold. However, this tree was 6 feet tall but it also had 6 similar figs. When owls get hunger, figs are very important features. This 6 foot tree the owl heard about sold yesterday for $10.00. She knew this 6 foot tree was taller than the 3 foot tree she wanted to buy. She knew it cost $5.00 to cut a 6 foot tree down to 3 feet. The owl simply took the $5.00 cost to cut down the 6 foot tree from its $10.00 price in order to estimate value of a 3 foot tree. After she did the math it gave her an estimated value for the tree she was thinking of buying of $5.00 ($10-$5 = $5). She called it Fig Tree Sale 1.

Still the wise old owl knew one sale was not a lot of information to go on, so she really was not sure $5.00 was the right price to pay. Someone in the forest told the owl about a 3 foot tree with 6 similar figs selling two days ago for $8.00 in the big city. The savvy country owl knew big city owls paid more for trees and knew it cost $4.00 shipping and profit to move the tree from one place to the other. This indicated a 3 foot tree with 6 figs already near her place on the farm would be worth about $4.00. She figured this by simply deducting the $4.00 shipping and profit cost from its $8.00 purchase price. She called it Fig Tree Sale 2. Finally, the owl used one more sale someone happened to mentioned. It was a 3 foot tree which sold a week ago for $3.00. But it had no figs. The owl knew it would cost $3.00 for enough fertilizer to grow 6 similar figs. The owl did the math and it indicated an estimated value of $6.00 for a 3 foot tree with 6 similar figs ($3.00 + $3.00). She called it Fig Tree Sale 3. Given her analysis the owl felt sure the fig tree she was thinking of buying was worth between $4.00 and $6.00.

Notice, all the owl was doing was adding and subtracting from the comparables based on features relative to the tree she was thinking of buying. This allowed the owl to estimate its value. There is absolutely no difference between this process and the process used in the sales comparison approach in the appraisal of real estate.

The valuable lesson I promised is it is immaterial what comparables are used by the owl in order for her to indicate a creditable value as long as the owl knows how much to adjust. For example, another 3 foot tree with 6 figs sold last year near the owls house for $2.00. She called it Fig Tree Sale 4. But the owl knew fig tree prices had increased $3.00 since the time of Fig Tree Sale 4 selling. Again this indicates a $5.00 value ($2.00+$4.00). Fig Tree Sale 4's adjusted value really did nothing to change the owls mind over indicated value but it lends support to the overall conclusion. The process of adding more and more sales after a while truly becomes redundant because markets work on fundamental economic principles and the data will keep showing similar results or as economist say "markets tend towards equilibrium." This is why appraisers only need between 3 and 6 sales. Adding more sales rarely changes the out come, if the process is being performed correctly.

As long as all of the variables are accounted for and the proper amount of adjustments are made it makes little difference what trees are used for comparables by the owl because after a while market principles indicate trends continually point in the same direction. Getting into the various nuances of the comparables is irrelevant to final value conclusions if those nuances have been properly adjusted for.

In order to save on investigation cost the State of Illinois along with many other State's are omitting value as an issues from the purported USPAP violation. The anchor of theory is simply removed. Without this anchor to relevant theory irrelevant issues can be addressed as relevant i.e., claiming big city fig trees should not be used to measure the value of farm trees because they are to far away. Or tree sales over one year old are no good because they are to old. Or, how could anyone think a tree with no figs is comparable to a tree with figs? Or, the adjustments to some of these fig trees exceed 25 percent.

As one can quickly see the more variables the endless the permutations as to why comparables are not good enough. When an accused appraisers is defending their report they logically ask how any of the variations within the comparables as brought forth by the State are relative to value? Especially since the factors have been adjusted for. The State or the prosecution for the State simply claims value is not at issue. This in itself becomes a circular argument to spark irrelevant issues as relevant and allows them to continue within faulty reasoning.

There is no defense for this type attack for the accused because there is anchor (final value) or is there any appraisal literature with a check list for selecting the best comparables in proper sequence. The last text trying to organize something of the nature was the 9th Edition of the Appraisal of Real Estate. The technique was never fully developed because much of it was subjective and restricted the flexibility of the sales comparison model. And it was flexibility that allowed the sales comparison approach to work in every market under almost any circumstances with any type property. As appraisers know it works with lots of sales and it works with few sales. In theory it should yield little differences in results under either condition. If this were not true the sales comparison approach would have little credence and the theory of market equilibrium would be a sham.

If the sales comparison approach model did not have flexibility and all that was required was a simple check list for picking and selecting comparables I would choose an AVM over an appraiser any day. Computers never make math errors and are excellent list organizers. You could simply program the computer to follow a list set of criteria for data selection and let it extract statistical supported adjustment. Turn it on and it would rip out highly accurate numbers all day long. However, data selection by human appraisers is based on interpretation of market information judged to best answers a clients question within the context of the scope and intent of the report.

Because markets work in certain predictable manners a number of different comparables can be used to answer a number of questions within the sales comparison approach model. If clients want only sales occurring within the last year, the model works. If the clients want to know the adjustments from location to location, the model works. However, the model breaks down when sound appraisal principles are not applied. For example, if the owl did not adjusted for the comparable tree being 6 feet compared to her subject's 3 feet she would have made an error of omission. Or, if she knew the adjustment for a 6 foot tree was $5.00 and she adjusted $7.00 than her adjustment would have been biased or misleading.

One appraiser using different comps as compared to what another appraiser would have used is common. This does not violate USPAP or sound appraisal principles. I am very skeptical when I hear one appraiser say another used the wrong comparables without further clarification. Again, since we have no criteria to select the exact right comparable how could you select the wrong comparable. I imagine if the owl had selected a peach tree to compare to a fig tree it could be considered the wrong comparable. Or, if an appraiser used a gas station and compared it to a single family home it could be considered the wrong comparable. However, the Illinois OBRE claims to know the "right comparable." And they are trying to force the appraisers within our State to except their misguided conclusions.

I believe the "right comparables" a red herring. Where does it say anything about it in USPAP? Show me in a major text with a hierarchy of selection so we may all know how to select the "right comparable"? If someone is using a comparable that is a mile away, and there is no adjustment for location, when there needs to be adjustments for location or the adjustment is unreasonably low or high than that is, in my opinion a violation of USPAP. But how, if there is an adjustment and the adjustments are appropriate, does the violation exist?

Because of the inherent flaws in the State of Illinois red herring "right comparables" mentality, OBRE has set out to remove the flexibility of the sales comparison approach by implementing their holly grail "right comparable" check list, ergo, new laws. In other words, if the State cannot get theory to adapt to their way of thinking they will simply change theory by implementing new laws.

These quick fix theory changes pose whole new sets of problems. In the long run, they cause more problems than they are designed to fix. They are not adding to but detracting from the USPAP and appraisal theory. The reason they detract from our USPAP is they are wrapping the appraisal process. This in turn extracts flexibly to answer clients questions. This in turn hurts legitimate business for appraisers. Furthermore, these new laws open the gate for totally subjective enforcement based on nonexistent criteria. These laws can take anyone out at whim. It is a simple matter of saying I do not like your comparables.

Steve Vertin
 
This letter was sent to Ms. Thomas concerning some of our concerns.


October 9, 2002

Vicki Thomas
Executive Director of JCAR
Fax: #(217) 785-8998

Dear Ms. Thomas:

We are entering this at a later date because we believed our concerns were addressed by other organization concerning Title 68: Profession and Occupations, Chapter VIII: Part 1455 Real estate Appraiser Licensing. Although there have been many changes to the original we are still concern with some portions of this act. I am writing to you as a representative and Chairmen of the appraisal group called FAIR. The acronym stands for Fee Appraisers Involved in Regulations. We are dedicated to keeping uniformity within the Uniform Standards of Professional Appraisal Practice (USPAP). More details concerning our group and its membership can be found http://appraisersforum.com/, under user groups. We are adamantly opposed to some of the new changes in the law. Specifically those outlined in Subpart F Section 1455.259 e, f, g 2), 4), 5), 7), and 8). We believe the wording vague and the reasoning unfounded within appraisal principles and theory. We see them as detracting from not adding to USPAP.

We find paragraph f) within said section particularly unfair, unlawful and possibly a violation of appraisers constitutional rights. This section imposes unjust vicarious liability to the secondary signer of any appraisal. In the case of Ranquist -v- Stackler, First District 1997 the Courts ruled the predominant purpose of the State in licensing a trade or profession is the prevention of injury to the public by assuring the occupation will be practiced with honesty and integrity, excluding from the profession those who are incompetent or untrustworthy. The wording within paragraph f) as proposed by this law would allow the Board to impose penalties on appraisers who may not be aware problems or violations existed at the time of signing. Especially, in cases involving fraud and deceit by one appraiser where the secondary signor is totally unaware such issues exist. Furthermore, this type wording was in the original USPAP under Standard 2.5 but was removed in 2000 because of its possible abuse by regulators. We find this "cut them all down and let God sort them out" thinking disturbing when propagated by regulatory bodies. It does not add honesty or integrity to the profession and may remove competent and trustworthy appraisers from practice. While it may cut down on investigation cost and judicial review it does nothing to protect the public.

Paragraph g) subsection 2 states "Reports a sales of a comparable that cannot be independently verified". We have posed this challenge to appraisers all over the country and have yet to receive a creditable response citing an authoritative text. In all of the combined text books written on appraisals none has a specific definition of verification. The reason is it means many things to various appraisers throughout the country and State. We would like to hear what the State is defining as "verified". Data is kept in various forms and in various manners. Verification means different things in different markets. Some verification is simply a manner of speaking to a party involved with a sale or rental. What happens if the party dies, moves, or is no longer available for various reasons?. This clause is especially disturbing in commercial properties where multiple properties may have been sold as a portfolio package yet individual sales prices attributed to each parcel. The package price would be on the deed transfer but individual prices for the property may be parts of internal documents. The decision maker or holder of the internal document or the record of division may be long gone by the time of an investigation. This is because commercial sales may have occurred 2 to 3 years prior to the date of appraisal. Investigators have up to 5 years to bring forth a case. In some instants it may be 8 to 10 years from the date of sale to the date of independent verification. We believe this clause removes the burden of proof from regulators and places it squarely on the shoulders of appraisers in cases where legitimate sales occurred but independent verification sources no longer exist or can not be located. It assumes guilt until proven innocent. While it may cut down on investigation cost and judicial review it does nothing to protect the public.

Paragraph g) subsections 4 and 5. We are concerned with the wording "legitimate question as to the appropriateness of the comparable sale". We as appraisers realize there are legitimate questions as to the appropriateness of any sale. This wording is vague and leaves open abuse by regulatory agencies. Furthermore, this leaves open severe penalties, fines and possible revocations for simple typographical or transposition errors on the part of appraisers. While it may cut down on investigation cost and judicial review it does nothing to protect the public.

Paragraph g) subsection 7 indicates appraisers should be omniscient and omnipresent. It indicates appraiser should know of every sale within the market. This is unrealistic and unprecedented in any profession. There are many transactions that are not made part of the public record or MLS. There is no way anyone can know of all the data within Illinois markets. The burden of research has been determined in the current USPAP as the amount agreed upon by the appraiser and his/her client. The State is claiming all sales should be known by the appraiser by implication. If any sale is left out, appraisers are subject to fines and penalties. To comply with this law appraisers in some areas would have to do days of research. This would bring the average cost of an appraisal of a single family home (now at $300 to $400) to $1,000 to $1,500.

What we find particularly disturbing is the fact the State, by implication is indicating sales in and by themselves determine value. When in fact it is sales adjusted to the subject that indicate value. This leave open the gate for government to be the last say within comparables selection rather than dealing with the real issue of appropriateness and support for the adjustments to the comparables. The former is easier and less expensive to enforce while the latter is based on sound appraisal principles, yet requires thorough investigations. While it may cut down on investigation cost and judicial review it does nothing to protect the public.

Paragraph g) subsection 8 is extremely vague and again uses the word "a legitimate question".

It is our opinion, the writing of USPAP should be left to the Appraisal Standards Board and The Appraisal Foundation who was authorized by Congress as the Source of Appraisal Standards and Appraiser Qualifications not to appointed public officials solely for the purpose of winning cases. All of the above changes presented by the state are not part of USPAP. These changes in effect take the uniformity out of the Uniform Standards Of Professional Practice and serve to lessen the burden of proof on investigators and boards. They do nothing to serve the public.


Respectfully Submitted
FAIR



Stephen J. Vertin, MAI
 
Stephen, I hate to be the heretic here, but most of the proposals seem like good things to me. I have heard some rumblings from the Missouri Board about whether reciprocity should be extended to Illinois appraisers; partly because your state was not doing some of the things that the proposed rules would change. Most of your proposed changes are already fact in Missouri (of course, not worded identically).

Concerning the investigator not having to comply with USPAP, however. Now that is just wrong!

Suggestion, since these are proposed changes to the state law, why not take your concerns to the top - your state legislator?
 
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