The Georgia Trying to Eliminate Appraisal Subcommittee

[Stephen J. Vertin MAI]

The Georgia Real Estate Appraisers Board has called upon Sen. Zell Miller, D-Ga., to introduce legislation to make broad changes to the real estate appraisal regulatory structure, including the elimination of the Appraisal Subcommittee.

In a letter dated December 18, 2001, the GREAB asked Miller to sponsor legislation that would amend Title XI to provide the following:

Require that lenders utilize appraisers classified by state regulatory agencies in all "federally related transactions";

Require that lenders require that all appraisals in "federally related transactions" be conducted in accordance with USPAP;

Authorize lenders to use any classified appraiser they choose so long as that appraiser holds a classification issued by the regulatory agency in such appraiser's state of residence;

Eliminate the Appraisal Subcommittee;

Provide that any unexpected funds collected by the ASC be paid to the Appraisal Foundation to establish an endowment to help fund the operation of The Appraisal Standards Board;

Allow members of the Federal Financial Institutions Examinations Council to contract with the Appraisal Standards Board to research issues and promulgate appraisal standards; and

Allow states to establish reasonable education, examination and experience criteria for appraiser classifications (rather than the Appraiser Qualifications Board, a private entity) after affording interested parties (for example, local appraisers, the AQB and consumers such as lenders) the opportunity to express their recommendations.

The Georgia Real Estate Appraisers Board can be contacted at 404-656-3916 or cclark@grec.state.ga.us.

 

[George Hatch]

Notice the GREAB doesn't want to replace oversight from the ASC with oversight from the AQB (not that the AQB is in the regulatory business). It looks like the GREAB doesn't want to have to answer to anyone outside of the great state of Georgia. No oversight, no standards, no accountability to anyone but themselves. Any complaints that come in could be decided by geography; if the complainant "ain't from around here", they might be out of luck.

Under this scenario, an appraisal done in Georgia could be very different than one from Florida or Virginia. The appraisers in each state would be held to different standards of conduct because enforcement would determined solely by the state board. And that could change from year to year, depending on the board's makeup that year. For a licensed appraiser, this lack of accountability among state boards would be a huge step backward for us. Unless someone actually thinks the professional organizations would police their own.

It's not like the state boards have to financially support the ASC; appraisers do it through licensing fees ($25/year). A couple days ago, someone was asking what the point of the ASC was. Why pay annual fees to have a list? If that was all the ASC does then the GREAB wouldn't be trying to get rid of it. They probably either want to take as many shortcuts as possible in enforcement, or eliminate it altogether. All in the name of a budget.

Talk about enabling the AVMs to take over.

George Hatch

 

[Joe Birrell (NY)]

George:

Very interesting twist, hmmm. When I first read the orginal posting
I thought good things might come from it, now I'm not so sure.

 

[Francois K. Gregoire]

Hi All,

Thanks for posting this. Although it seems like a radical idea, there are a number of valid points made in the Georgia Letter.

Consider these:

The AQB is not a regulatory board, it exists to specify the Qualifications of Certified Appraisers.

The AQB has promulgated Qualifications and Standards for USPAP Instructors.

The AQB has promulgated Standards for distance learning courses

The AQB has promulgated Standards for USPAP Courses and imposed Course Criteria upon State Regulatory Boards

Although all of these new initiatives of the AQB are WAY beyond Appraiser Qualifications, many have been funded by the ASC with your money.

What has the ASC done about what many consider to be wayward State Regulatory Boards?

Instead, the ASC has raised Cain with states like New Jersey for not remitting Registry Fees because of computer problems way beyond the control of the State Regulatory Board.

Read the Georgia Letter Closely. If a State Regulatory Board requires their licensees to adhere to the USPAP, why do they need federal oversight? Name another profession where the State Regulators must answer to the Feds.

 

[George Hatch]

Francois,

Your points regardng the lack of federal oversight over state regulatory boards of other occupations are well noted, as is your membership on Florida's state appraisal board. However, in light of the unfolding Enron/Arthur Anderson debacle, I don't think the timing for deregulation of the state boards is very good right now. In fact, it looks like there is some support on Capitol Hill for enacting some federal regulatory oversight over the accounting industry.

I think your argument that the ASC hasn't been doing its job properly certainly has some merit. The ASC clearly hasn't been as active as it should have been in regards to those few 'wayward' boards. I only know a few of the generalities of the New Jersey case, so I'll take your word for it that New Jersey's board couldn't come up with a single PC configured to pass along the state registry, or borrow (even rent) a nearby state's system to do it.

I would suggest that the idea of dismantling the ASC because it has not been doing its job properly has no more merit than the idea of dismantling the state boards because they aren't doing THEIR job properly. If anything, the ASC should be persuaded to be MORE active, not dismantled. Having USPAP and laws on the books making USPAP the minimum standard of conduct is great, but hardly sufficient by itself to achieve the goals intended by FIRREA. Uniform enforcement by the state boards is the next great frontier. Such uniformity can only be achieved in this case from the top down. The states have had 10 years to do it from the bottom up, with clearly mixed results.

Deregulation will serve no good purpose. If the GREAB or any other board wants to clean up the weaknesses in the current system, they should do so from within. If the GREAB's program was so strong that it surpassed the ASC's requirements then the ASC would pose no problems.

George Hatch

 

[Fred]

George,
I am chuckling at the notion that appraisals in Georgia could be done very different than in Florida. When I started out in a "shop," appraisals could be done "very different" depending on whether the assignment was done by me or the guy at the next desk. I was the "conservative" appraiser. Among other things, it was (and is) my considered opinion that rezoning is the job of the zoning board and the legislature, not an appraiser in search of higher results.

As to the Enron bankruptcy, I think I have now heard that used for an excuse for everything. Last week, my wife made me come home early from Sushi night because of it.

Now George, correct me if am wrong, Title XI creates the ASC and its sub-bureaucracies to lord over appraisals for Federally Related Transactions and not all appraisals in the state of GA or FL. It was largely the input of appraisers that caused USPAP to be "adopted" by state legislatures and other client groups, eg HUD, VA Why can't we change our minds and un-adopt USPAP and just leave it for the FRT's? I don't know if I would call that "deregulation." It could actually result in increased regulation,.

As to the wording of the GA request-
Aren't those first two items on the list the same as the current system? Especially that second one that says appraisals according to USPAP in FRT's? That's what Title XI calls for, isn't it?

 

[George Hatch]

Steven,

To be sure, I am using the "appraisals could be different" scenario to make a point. However, I can easily envision a situation where appraisals done in different states could end up differently not because of different interpretations of the standards but because of different levels of enforcement. If a state board elects to not enforce for any but the most criminal of activity, that still leaves a lot of wiggle room for appraisers in that state. They are basically free to pump value, lowball value, discriminate against minority borrowers or otherwise conduct themselves in an unethical manner. All they have to do is avoid using a gun. Whereas the same appraiser in a different state could effectively be held to a much higher standard. In fact, some states could 'overenforce' with impunity. Both sides of this coin are equally noxious. Neither contributes anything positive to our industry.

Sure, FIRREA already includes some of the requested items. Did you notice the one where a lender could choose an appraiser as long as that appraiser was licensed in his/her home state? So which state would that appraiser have to answer to and how responsive would any state board be to a complaint about an appraisal done out-of-state? I don't know how you feel about it, but I'm sure there are a lot of appraisers who are not anxious about competing with an essentially unregulated out-of-state appraiser. Get licensed in one state and pump out AVMs all day long, covering the entire nation. Find the right state (with a weak enforcement program), and that individual is virtually invulnerable.

So a lender doesn't like the way an appraisal would turn out using local appraisers who are subject to that state's rules, all they have to do is get an appraiser from a more 'friendly' state, one in where enforcement is not an issue. Presto, a federally insured loan is on the books with effectively no recourse against the appraiser. An appraiser gets their licensed yanked in one state, they can simply set up a mailing address in another state and conduct business, at home, without missing a beat and without ever having to deal with his state board again.

It appears to me that some, maybe even most, of the state boards want to get the feds off their back so they can conduct their business as they see fit. They don't want to have to deal with reciprocity, temporary practice permits, standardized enforcement, or even standardized interpretations of USPAP. And they particularly don't want to have to spend any of the money they are already collecting from the appraisers in licensing fees for the uses intended. This is a classic States Rights vs. Federal Rights argument. Except that the financial bailouts will end up coming from the feds, not the states. Hence FIRREA's mandate to protect the interests of the United States Government.

Appraisers are already complaining that the jerks can do business in their state and nothing happens to them. This proposal can only contribute to that problem by allowing the state boards to opt out of the loop. If we think the state of affairs in our industry is bad now, try taking enforcement out of the picture.

I see too many negatives and not even a single positive in this proposal. But then, I'm not a state board, nor am I an 'uber-appraiser', trying to conduct business all over the United States. If there was anything here that would lead to a better mousetrap, it might be worth some serious consideration. I'm just not seeing it.

George Hatch

 

[Stephen J. Vertin MAI]

George:

You have hit the nail on the head. If anything the Feds should take a more active roll. Especially in wayward States. I will get back to this in a bit, but first I would like to say am licensed in three States. It would be four if Illinois did not have reciprocity with Wisconsin. All of these boards are distinct in their approach to USPAP and the gap is widening annually. This is an important issue to commercial appraisers and it should be to others appraisers as well. Most commercial clients want continuity in verbiage, information location and terminology within a report.

Appraisers can not provide continuity with four different boards and 20 different interpretation of the same issue in USPAP. Those who do only residential appraisals have to understand, exclusive local expertise means little when appraising regional malls or a 250,000 square foot warehouse. In fact, in some cases it maybe a determent. The reason is the market for these type properties may not be limited to local buyers and sellers. The appraisers has to be knowledgeable about many markets or comparison with data in other markets can not be analyzed. In these cases lenders, who are not necessary banks, want continuity in product in the manner explained. Thereby, many commercial appraisers travel from State to State.

Steven is right values can easily vary between two honest appraisers. However, when I started with RERC reports were continuous (in verbiage, information location, and terminology) no matter where the appraised properties were located. They were edited to have similar language which made it sound as if it were written by the same author (the same results are obtained when using one reviewer) and if you wanted to find a certain bit of information you could find it in the same section of every report.

In Illinois our State board's expert witness claims it is misleading to use the term "we", in the royal sense, in a report. What other State does this? So now appraisers can use royal "we" in 49 states in the U.S; however, not in Illinois? This type non-sense blows continuity in verbiage. Our board is adamant they define the location of information within a report. If you have, personal property included in the appraisal it can not be added to the value of the real estate anywhere in the report. Even if the report clearly states the value of the real estate is x and the value of the personal property is y and both values add to z. Even if your client request the combination of information in one area of the report so they do not have to sit and add numbers all day. This blows continuity in location of information. In Illinois the standard verbiage, directly from AI text, used to describe what a summary report is, and the comment concerning other information retained in files is not sufficient. You must state exactly what the other information is and its contents. This type non-sense blows continuity in terminology. Now place your self in the future with 50 state boards having total independence. The though of that brings me to the issue of the Feds taking a more active roll. State boards have total independence of any checks or balances. Even AI recognized the need for a national appeal process of regional chapter hearings back in the 1930's, currently States do not have this. They have no checks and balances. I believe there should be a national appeal system overturning some of this lunacy coming from at least 2 States. Now appraisers have to take issues to court. Enforcement continuity would be maintained if States knew they eventually had to answer to the Feds.


The way USPAP is currently written we should be able to give the market products it needs, instead independent regulatory boards are tying our hands in the most fundamental ways. This is seen in the uneven enforcement within States and barriers in reciprocity.

 

[Fred]

George, you say
"I can easily envision a situation where appraisals done in different states could end up differently not because of different interpretations of the standards but because of different levels of enforcement. "

George, it is my experience that you would be lucky to find two appraisers who agree on the time of day, no less two appraisers who agree what the standards mean and what acts would be standards violations.

I could go on quite a bit, but I'll just use one example. There is a complaint. You are on the Board. The appraisal subject is a condo unit from a project with one floor plan. Every unit that has ever sold was priced at $100,000. The appraisal in question finds the market value of one of these units to be $100,000,000. Please tell me how you use USPAP to explain that this is "wrong." You can even use SR 1-1 "recongized methods" to mean every book, article or course manual ever written. The appraiser testifies on his own behalf that USPAP says an appraisal is an "opinion;" and that's his "opinion."

 

[Fred]

Steve,
You do rasie a question that has been bugging me for a long time. Why doesn't the AQB make the state board members pass their new USPAP course firs, and make them take tested update courses - and then worry about the instructors and the appraisers.
Steve