TAF's Industry Advisory Council

[Terrel L. Shields]

I

think your primary objections are the "compelled by regulation to comply" aspect more than an objection to the idea of appraisers asserting certain very basic minimum standards.

perhaps. but the emphasis has to be on the notion of WHAT are we regulating under WHAT conditions. USPAP needs limited solely to BANK LENDING transactions involving COMMERCIAL or RESIDENTIAL REAL ESTATE and no appraiser should be forced to apply USPAP to any other kinds of property. Specificially, personal property, business values, financial instruments, stocks, bonds, etc. Nor should it be applicable to oil and gas, timber, or other resource materials. WHY? Look at the FDIC. They require adherence to USPAP but on the other hand they have a completely different standard for valuing mineral rights where they don't even reference "appraisers" and make it clear they are engineering calculations.

Further, state bank commission rules vary like this one...from Tx.

(4)-(10)
(11) For real estate loans, or oil and gas or mineral loans in which the
transaction value exceeds $250,000, a professional appraisal report by an appraiser or committee of appraisers, ...is required. An oil and gas or mineral appraisal may be performed by a professional engineer certified as to the mineral in question. .... The appraisal report shall be in writing and in a form approved by the American Institute of Real Estate Appraisers, the Society of Real Estate Appraisers, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or in the case of an appraisal of oil and gas or other minerals, the applicable society of engineers certified as to the mineral in question, and shall be signed by the appraiser or committee of appraisers.

(1) The FDIC or any regulated institution engages in or contracts for; and
[FONT=Arial, Helvetica]{{2-28-03 p.2240}}[/FONT]
(2) Requires the services of an appraiser.
(g) Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and acting in what they consider their own best interests;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
(h) Real estate or real property means an identified parcel or tract of land, with improvements, and includes easements, rights of way, undivided or future interests and similar rights in a tract of land, but does not include mineral rights, timber rights, growing crops, water rights and similar interests severable from the land when the transaction does not involve the associated parcel or tract of land.

from http://www.occ.treas.gov/ftp/bulletin/94-37b.txt

In many states, minerals, timber, and growing crops that have not
been severed from the land are considered interests in real estate or
real property. Consequently, if mineral rights are collateral for a
loan in one of those states, a question arises whether the institution
must obtain a real estate appraisal of the parcel or tract of land to
which the mineral rights are attached but in which the institution has
no interest.
The Board's final rule clarifies that regulated institutions are
not required to obtain appraisals of the parcel of land to which
mineral rights, or similar severable interests in real estate are
attached, if the transaction only involves the severable interest
rather than the parcel or tract of land. Where mineral rights, timber
rights, or growing crops, and the associated parcel or tract of land,
are the subject of a real estate-related financial transaction, the
services of a licensed or certified appraiser would be required unless
the transaction is otherwise exempt.
In addition, the contribution of relevant mineral rights, timber
rights, or growing crops should be included when appraising a parcel of
land which possesses any of these features. However, valuation of these
interests would not be required if they are not part of the transaction
or if they are not relevant to the analyses which the appraiser needs
to perform to arrive at an estimate of value for the parcel or tract of
land.

The fact that users of appraisals aren't always compelled to use licensed appraisers is acknowledged by virtually everyone.

But that does not address the fact that some states require ALL property whether for FRT or not to be appraised by a license or cert. appraiser and some do not; AND more importantly, ALL lic. or cert. appraisers MUST adhere to USPAP in their work is law in many states. Therefore, we tie the hand behind the back of those who live in both worlds yet do not regulate those who are non-lic. appraisers.

A timber cruiser can value a timber lot by writing a 1 - 2 page letter and attaching his timber cruise. But a timber cruiser who is also certified as a state appraiser cannot. He has to labor under USPAP (in my state at least) and write a far more odious report. He has to explain his method and then catagorize it into one of the 3 approaches.

Another example. I use industry records to determine that reserves of gas and or oil in a region is selling "in the ground" (unproduced real property rights) for $2.50/MCF and $25 a bbl respectively. I hire an engineer to estimate the reserves. say 1 BCF (billion CU. ft) of gas and 50,000 BOP (bbls of petroleum).

I multiple 2.50 x 1,000,000 = $2.5 million plus 50,000 x 25 = $1,250,000....did i do an INCOME approach? or was that a "SALES" approach?

The mish mash of "appraisal" regulations is info overload of the worst sort.

 

[George Hatch]

Again Terrel, these conditions speak to requirements stipulated in the regs at the various states, regulations to which USPAP yields if/when there is a conflict. The states can choose to apply USPAP across these other appraisal disciplines or not. Even if the regs call it out, they would still have to enforce it.

The ASB and the AQB don't make the call as to who is or isn't required to adhere to the standards and qualifications criteria they call out. They're wonks, not regulators.

 

[George Hatch]

One more thing; appraisal "theology" has long recognized hybrid approaches to value that employ elements from more than the three. That's why the requirements for SR1-4 condition their applicability..."When a Sales Comparison Approach is necessary for credible assignment results..." instead of referring to them as core requirements that can never be omitted.

There's nothing in USPAP that would prevent the use of specific methodology that falls outside the 3-approach box.

Incidentally, do you really think appraisers of any type should be rendering appraisal reports that don't spell out or otherwise make reference to the relevant assignment elements, assumptions and limitations involved? If you'd make an exception for appraisers of minerals and timber based on their lack of understanding of or disregard for any type of appraisal standards, would you apply that same exception - ignorance is a defense - to the residential appraisers who work in the skippy shops?

Call me an optimist, but I doubt it.

 

[moh malekpour]

The Preamble in USPAP states that the role of appraisal standards is to protect the public trust in professional appraisal practice. The term "public trust" covers a lot of ground. Not only does it include the legitimate interests of our clients and their borrowers, and the interests of the federal government, but it also includes the legitimate interests of the intended users of appraisal services. And not just the banks.

TAF has stated that the role of appraisal standards is to protect the public trust in professional appraisal practice but I am not sure if that role has been fulfilled after so many years. It would have been better if TAF has put a conditional statement after that promise of protecting the public trust to indicate “the role of appraisal standards is to protect the public trust in professional appraisal practice if all those standards are followed and practiced in their entireties". It would be like a disclaimer to the public that if standards are not followed and practiced, don’t blame the USPAP. I am not trying to blame the TAF or the USPAP standards but its credibility is on the line when it promises to protect the public while the public in reality has not been protected not because those standards were flawed but because they were not practiced in real world.
We all know that the TAF is not regulator or enforcer but it should protect its own credibility before attempting to protect the public. USPAP standards are theory and if the theory doesn’t meet the practice, that theory is useless. All laws and regulations are theories and if they are not practiced or enforced, they should be either revised or recalled. There is no sense to author a theory, which doesn’t have a practical use.
TAF has a right and ability to safeguard the USPAP standards and make sure that they are practiced. It doesn’t have to cite appraisers or regulators but just randomly watch and see if those promising standards are practiced. If they are not practiced, TAF can easily withdraw its support from the state agencies that don’t enforce those standards because if it doesn’t, the blame is going to be on TAF who has promised the role of appraisal standards is to protect the public.

 

[JSmith43]

TAF has stated that the role of appraisal standards is to protect the public trust in professional appraisal practice but I am not sure if that role has been fulfilled after so many years. It would have been better if TAF has put a conditional statement after that promise of protecting the public trust to indicate “the role of appraisal standards is to protect the public trust in professional appraisal practice if all those standards are followed and practiced in their entireties". It would be like a disclaimer to the public that if standards are not followed and practiced, don’t blame the USPAP. I am not trying to blame the TAF or the USPAP standards but its credibility is on the line when it promises to protect the public while the public in reality has not been protected not because those standards were flawed but because they were not practiced in real world.
We all know that the TAF is not regulator or enforcer but it should protect its own credibility before attempting to protect the public. USPAP standards are theory and if the theory doesn’t meet the practice, that theory is useless. All laws and regulations are theories and if they are not practiced or enforced, they should be either revised or recalled. There is no sense to author a theory, which doesn’t have a practical use.
TAF has a right and ability to safeguard the USPAP standards and make sure that they are practiced. It doesn’t have to cite appraisers or regulators but just randomly watch and see if those promising standards are practiced. If they are not practiced, TAF can easily withdraw its support from the state agencies that don’t enforce those standards because if it doesn’t, the blame is going to be on TAF who has promised the role of appraisal standards is to protect the public.

Spot on, Moh. So many things are like that. The NAR code of ethics is a really well written, well conceived document, for example.

The goal of protecting the public trust does deserve a disclaimer. How about, Subject to the overriding forces of the 800 pound gorillas in the room at the time (the usual suspects)?

 

[Calvin the Airedale]

As long as we're revisiting this thread, please allow for my $0.02.

Dear George,

Please see the attached:

http://appraisersforum.com/showpost.php?p=1731266&postcount=16.

This example I believe fulfills the challenge of your OP to this thread.

In fairness to TAF, USPAP and those who labor to uphold it, I realize that these standards are a foil or mirror. We hold up the standards as a mirror to discover the truth of our appearance, or in this case, the truth of how our practices appear. To see where we fall short or can do better. My problems with TAF are not high standards but it would only be human nature to show displeasure with the mirror if one did not like the appearance in it of his countenance. I suspect some of the dissatisfaction with TAF & USPAP springs from such motive.

But TAF is not an enforcer and holds little power, other than the power of persuasion to elicit cooperation, from those that use appraisal services. It does also have the power, however, to approve for participation those users whose for the sake of window dressing wish to serve on boards and councils, some of whom haven't been good to either the interests of appraisal standards or the public trust.

Perhaps it could use such power to better effect. In fact, perhaps some component of its governance could be put in place by a democratic process. As an annual contributor to its maintenance, I would love to have such a voice.

 

[George Hatch]

Calvin,

I saw it the first time you posted it. I didn't comment on it before because I don't have an opinion on the suggestion one way or the other. That is to say, I wouldn't have any problem with it if the AQB accepted the suggestion or if they declined it.

I don't think the AQBs decision to not count a service toward CE requirements would qualify as changing standards or qualifications criteria to favor the bankers, but that's just my opinion.

I do think that any board that used a pro-bono system for initial reviews would have to go to significant effort to lay out very clear requirements and criteria for those assignments. Due diligence is tough enough even under ideal circumstances - we would never want a state board assuming an "I know a bad appraisal when I see one" approach when investigating complaints. Neither would we want to encourage a hormonal lynch mob mentality among reviewers in performing those assignments for the government.

If I can be objective for my regular clients I shouldn't have any problem doing the same for my peers. And yet the way some people around here talk I'd be a little concerned about their impartiality if they were performing that sort of review.

Sad to say, but some reviewers get way too caught up in their own personal opinions of value on a review assignments to base their reviews on that "reasonable within the context of the intended use" criteria that's specified in the SOWR and SR3. It's bad enough when the assignment is for mere commerce, but when the assignment involves administrative due diligence against some appraiser's license that becomes a mightmare waiting to happen. A review in conjunction with complaints of professional misconduct is a use that's intensive enough to justify the absolute utmost in due diligence and impartiality.

 

[Terrel L. Shields]

would you apply that same exception - ignorance is a defense - to the residential appraisers who work in the skippy shops?

Are they "ignorant" of the law? Or do they interpret it differently? After all, I would hate to bet good money that a judge would not agree with a petroleum engineer that he is the proper "certified" [engineer] person to set values on mineral rights as opposed to some jack leg appraiser with a license who has never sit foot on a well site.

We all know that the TAF is not regulator or enforcer but it should protect its own credibility before attempting to protect the public.

USPAP was created for a specific purpose. It was a basis for uniform regulation of appraisers... Had there been no standards for personal property, business, etc. There would be no issue with the states. But since USPAP was applied to all disciplines although FIRREA was related to Real Estate only, it forces the not so unique situation of having "professionals" who remain outside the regulated appraisal world to have a decided edge over those of the professions (i.e.- engineers, geologists, jewelers, antique dealers, etc.) who hold "Appraisal" licenses. They adhere to USPAP or face sanction in any mandatory state.

So. Do I eschew the regulated real estate work and only do mineral appraisals as a geologist?? Screw USPAP? Give up my appraisal certs? or do I go thru the USPAP hoops trying to make a report that a state regulator without any such experience can understand? I am looking at an engineers report that is about 5 pages long plus calculations. His quality of work (reserve estimating) is superior to mine without a doubt. He has more specialized training. He has a superior computer program. Vast years of experience dealing with different kinds of production problems. He calls the results "fair market value"...while not actually defining the rights appraised. The rights are mineral rights but one could argue that it was a valuation of the income stream ("portfolio" value? "personal property" value? "on-going business" value?)...donno.

 

[Calvin the Airedale]

Calvin,

I saw it the first time you posted it. I didn't comment on it before because I don't have an opinion on the suggestion one way or the other. That is to say, I wouldn't have any problem with it if the AQB accepted the suggestion or if they declined it.

I don't think the AQBs decision to not count a service toward CE requirements would qualify as changing standards or qualifications criteria to favor the bankers, but that's just my opinion.

I do think that any board that used a pro-bono system for initial reviews would have to go to significant effort to lay out very clear requirements and criteria for those assignments. Due diligence is tough enough even under ideal circumstances - we would never want a state board assuming an "I know a bad appraisal when I see one" approach when investigating complaints. Neither would we want to encourage a hormonal lynch mob mentality among reviewers in performing those assignments for the government.

If I can be objective for my regular clients I shouldn't have any problem doing the same for my peers. And yet the way some people around here talk I'd be a little concerned about their impartiality if they were performing that sort of review.

Sad to say, but some reviewers get way too caught up in their own personal opinions of value on a review assignments to base their reviews on that "reasonable within the context of the intended use" criteria that's specified in the SOWR and SR3. It's bad enough when the assignment is for mere commerce, but when the assignment involves administrative due diligence against some appraiser's license that becomes a mightmare waiting to happen. A review in conjunction with complaints of professional misconduct is a use that's intensive enough to justify the absolute utmost in due diligence and impartiality.

My bad, I thought I was making a different point. The other thread was only partially about whether my proposal was a good idea or not. I'm used to not having my way. Afterall, I've been married for 37 years.

No, my point was an example of inaction at a time when TAF via AQB could have made some positive public step, albeit small, to abate a growing problem.

The suggestion was made at a fraud symposium in late 2006. By then it was all too obvious what a growing problem fraud had become, especially in the Sub-Prime and Alt-A paper. But this fraud was only a symptom of the housing bubble.

You're a surfer. Aren't there times when you spot a large swell on the horizon, note a deep retreat of water at the shore line and calculate that one hell of a wave is about to break? There were plenty of people, me included, in 2006 that could see this Tsunami of a foreclosure crisis bearing down on us. We all understood, or should have, the implications the bursting housing bubble would have on the trust the public places in our profession. It's at moments such as these, that action is required, leadership, if you will.

As far as I'm concerned, we haven't seen it yet. Not from TAF and not even from AI, ASA and others. It's a particular disappointment at this stage of my career, but no more a disappointment than is being felt by most in the general public.

 

[Terrel L. Shields]

It's at moments such as these, that action is required, leadership, if you will. As far as I'm concerned, we haven't seen it yet. Not from TAF and not even from AI, ASA and others

I don't know what action could be taken but yes, we saw it coming. But like every other Cassandra, all we heard in response was what "Chicken Little's" we were.
What bugs me? When the media wants a comment on property values, who do they turn to? The Realtors. When they want comments on mortgage fraud, who do they turn to? The FBI, politicians like Cuomo, and bankers themselves. It isn't an issue of whether we have credibility so much perhaps as it is visibility. We are the invisible until one of our ilk is arrested in a mortgage fraud scheme. Why are appraisers so distained? No higher percentage of our group has been arrested than Mortgage brokers, Realtors, Bankers, etc.