The Georgia Trying to Eliminate Appraisal Subcommittee

[Stephen J. Vertin MAI]

I am in agreement with many that this is one of the most interesting string to be on the forum in a while. There are many good points made. Steven, first, I would like to say, I think there may be confusion as to what is meant by continuity in appraisals. When I am talking about continuity I am referring to the same appraiser appraising a portfolio of the same property type for one client. There is no doubt, and no argument from me, 6 different appraisers, most likely, will not be consistent within reports, no matter what the rules. However, most portfolio property types are not done by 6 appraisers. They are done by one firm and clients demand continuity within products produced by one firm. I believe most of the future growth in our industry is expected from accounting changes which would increase portfolio valuation.

Francois, thank you for pointing out the current system and FIRREA are fundamentally based on bullsh*t from jump. I reviewed reports for the RTC and FDIC, in Dallas Texas, for three years during the S and L bail out and worked with a number of appraisers. All will tell you about 99.9 percent of the failed assets during that period never had appraisals when the loans were issued. They were not required nor were they ordered. The Government started ordering appraisals after the asset failed. In Illinois the State board prosecutor consistently refers to the S and L bail out and how it is the State's responsibility to keep it from happening again. Everyone appraising during the 1980's knows most failed deals, were concentrated in the southwestern and later northeastern part of the country. There was never a problem in the State of Illinois. I won the contract for reviews of failed RTC/FDIC properties in the Midwest for three years running in the early 1990's. Do you no how many failed properties there were? In four Midwestern States there were only 2. Neither had an appraisal when the loan was issued. This type self righteous crap from prosecutors is court room theatrics geared to charge emotions rather than facts at hand. Appraisers should know their own history instead of continually propagating myths put forth by the banking industry. I say this for younger appraisers on this forum who are susceptible to this falsehood.

I can not remember who said it, but it is true, as a profession, we are cruel towards one another and many try eating each other alive. It is worse than a pit of lawyers. Many times there are comments on this board, with relatively few facts, about other appraisers appraisals. Mostly these post state how bad a report was and ask what should be done? You hardly see any comments in the chain requesting more information about the work. Most comments just say turn him/her in. I really do not know how anyone can could say this given the limited information presented as facts in many of these situations. Furthermore, what happened to Standard 3? This has become so pervasive in our business Standard 3 has become a phantom Standard. As Tom has pointed out in post, many regulators in many States do not even require such reviews in hearings. What is up with this? Some Standards are OK, others are not? I think this is truly a sign of the times.

I do not know about other States but I certainly have little faith in Illinois. Our current Governor was involved with a license for bribe scandal. One of these illegal license sold was used by a trucker who hit a family on the expressway causing an accident that burned them alive. It is so bad the current Governor decided not to run again. His own party is eating him alive before this years election. This is the guy who politically appointed our current board. State independence would be disastrous here. The system is so corrupt. As David said it would be a "thoroughly crippling competitive disadvantage".

 

[Francois K. Gregoire]

Frank,

First off, let me apologize for my "not mingle with us common folk" crack in my previous post. That comment has a tone that is a little more beligerent than I intended. All of the state board folks I have dealt with over the years have been very professional and helpful.

George,

No apology needed. No knowing what your level of interaction and familiarity with regulator types was, I just wanted to make you and others aware of where I believe they fit in the the Grand Scheme. (Ask folks I've tipped a shot glass of Patron with!!)

I still fail to see how removing the federal oversight will contribute to uniformity among the states. Is that not the primary goal? Maybe that is the real question here.

Now, we might be getting somewhere. Before setting out to solve the problem, should it not be defined? Without knowing the problem, how can we set the goals for solution?

Not quite sure what you mean by uniformity among the states and not sure if that is the goal.

Uniformity with respect to Appraisal Standards? Fine.

Expecting or Demanding above average knowledge of State Law and the USPAP on the part of State Regulators? Agreed.

Uniformity with respect to enforcement? Not sure if it can be accomplished or if that should be the goal. It might just be unattainable. Take a look at other laws with respect to criminal behaviour. Is there uniform enforcement? Are there uniform or similar penalties and punishment among the states for violations involving drug use and possession, murder, theft, sexual harrassment, speeding, drunk driving?

Uniformity with respect to Appraiser Qualifications? Technically, we have that now. In addition, Title XI permits any of the Federal Financial Institution Regulatory Agency can promulgate and require compliance with standards and qualifications above the minimum required by the ASB and AQB. Are they taking advantage of this flexibility?

Just asking questions here. Looking for answers.

Here's another view and fuel for the fire, I mean conversation.

ANOTHER VIEW

 

[Fred]

George,

In your last post, you did not address my point back there. I hope you would at least consider it.

I am not criticizing you personlly. In my view, nobody can answer the question of how to use USPAP to use or explain even the most egregious and ridiculous errors, like appraising 1,000 fold out of the range, because it can't be done. Originally you said that -
"You can't get to the $100,000,000 mark or even the $110,000 mark on that property without making a number of serious and easily enforceable violations of USPAP..."
When I asked you to do so, you cited "reconciling" and "considering," both of which have been dropped as standards in USPAP.

I think it is crucial to note how you reflexively cited standards that are now gone. I have been there and done that – which is exactly how my point of view got where it is. There is no easy way or any other kind of way to use USPAP alone to explain that appraising 1,000 fold above the range is an error. If USPAP cannot specifically identify that even the most egregious and ridiculous errors as errors, then how can anyone expect it to ever provide any uniformity.

This delivers me to my next point. The USPAP has been substantially changed. I would argue that there is no longer within the text of USPAP any "standard" for what an error is, in the new scope-of-work-loophole version. If the Uniform standards themselves are not uniform, how can they create uniformity?

My "theory" is that the current USPAP instructor recert is necessary because "old-timers" who learned USPAP ten years ago have non-existent standards in their heads. Last summer, I took two days of USPAP and the neither the instructor, nor any other student in the room, had any idea that SR 4 advocacy had been removed from USPAP.

I expect to hear appraisers come out the new USPAP instructor classes talking about how much better they understand things and how well done the course is - and some of that may even be true - but they have to come out the course with a new perspective on standards, because they will be learning a very different set of standards.

 

[George Hatch]

Steven S.,

Sorry, I should have replied to your query earlier. I will admit to the use of a knee-jerk reaction in the use of the word "considering", but not "reconciling". In regards to the specifics of the $100,000,000 condo, I would pursue the following:



Conduct section of the Ethics Rule
... An Appraiser must not use or communicate assignment results in a misleading or fraudulent manner....


SR 1-1 (in its entirety)

More specifically,

SR 1-4

In developing a real property appraisal, an appraiser must collect, verify, and analyze all information applicable to the appraisal problem, given the scope of work identified in accordance with Standards Rule 1-2(f).

a) When a Sales Comparison approach is applicable, an appraiser must analyze such comparable sales data as are available to indicate a value conclusion.



SR 1-5 In developing a real property appraisal, an appraiser must:

© reconcile the quality and quantity of data available and analyzed within the approaches used and the applicability or suitability of the approaches used.


SR2 In reporting the results of a real property appraisal, an appraiser must communicate easch analysis, opinion and conclusion in a manner that is not misleading.

SR 2-1 (in its entirety)


So let's say our appraiser uses the appropriate sales comparables and makes the appropriate adjustments to result in a relatively narrow value range in the $100,000 dollar range in the Sales Comparison. In order to jump from there to the $100,000,000 range as his final opinion of value, his reconciliation (if there is one) would have to ignore all of the other evidence he's collected. If that is the case, he has gone beyond the employment of a recognized mehod and technique. He has also failed to reconcile the data within the Sales Comparison Apprach and/or the necessity and applicability of the Sales Comparison Approach within that appraisal. Besides, that, he has violated his own scope of work, which requires the output to be credible within context of the the intended use and the intended user.

Now on the other hand, if our appraiser has properly disclosed how he got to the $100,000,000 mark in the report so that the average reader can see that he's been sucking a crack pipe, he still has to deal with the credibility issue within his own scope of work. If all the data points in one direction and he goes the other way, he needs to be able to defend his practice as being consistent with 'typical practice' as defined in lines 443 - 446. Expectations of participants in the market and what the appraiser's peers would do. This all speaks to his process, not the opinion itself.


The burden of proof is always on the appraiser to be able to demonstrate how their scope of work decision and the results are appropriate given the intended user and the intended use. The fact that scope of work has been only recently spelled out in this manner does not alter the fact that the scope of work has always been there since the beginning. It doesn't really represent a change in my mind. Nothing has really been added and nothing has really been deleted.

I am not so naive to believe that justice always prevails. Murderers sometimes go free in our legal system, a system that has been in place in one form or another from the beginning of our civilization. Presidents lie, congressmen and senators commit large crimes and small. . Our 12-year old licensing system and 15-year old USPAP are both infants compared to the legal system. But unless we're dealing with a jury nullification issue at trial, I think I could easily make the case that the appraiser made serious errors that would not have happened if the appraisal were performed competently and an unbiased value were reported. Semantics notwithstanding. I would definitely ask the appraiser to justify their appraisal process and reporting. And his other other work product would also be open for comparison to this one. Unless he's been using the same techniques all along, I can't imagine how he could justify it for the one assignment. Lack of consistency would contribute to the outcome as well.

It's a given that some of the verbiage used in USPAP is ambiguous, that terms are used that are not as fully defined as you would normally find in the law, and that the body of knowledge for real property appraisal has yet to be fully developed or codified. Attorneys make their living based on the ambiguity of the law and the artful use of semantics. That does not seem to me to be sufficient reason to throw the whole thing out or to give up. C'mon, it's only been 15 years.

George Hatch

 

[Fred]

George,
What a Herculean effort. Let me start by saying, of course, I agree with you in principle (except for one sticking point) and I think you hit the right SR's. In general, I don't think you have to quote USPAP in this group of posters. I assume we all have the books and the on-line viersion hot-tabbed. You can just give an SR number.

I will let this go now, but you still haven't drawn a straight line between USPAP and the "error" of making a 1,000% line adjustment, where the appraiser says, 'in my opinion, it's just that much better than the ones that have sold.' Without giving away all my tricks, if I had to do it, I would dig out what little there is about the limits of adjustment size (like Fannie Guidelines and a few other government agency guidelines) to argue adjustments of that size are not correctly empoyed recognized methods (SR-1). I have a second approach that I will keep close to the vest.

George, 15 years is not an excuse. In the information age, 15 years imust be the equivalent of centuries. We probably have more information on this web site then was developed worldwide from 452-1475 BC. The NAREB published their standards in 1929 and the Chartered Surveyors published theirs in 1834(?). The Ad Hoc committee did a good job in my view, but it was not a work of original creation. The idea of ethics in fiduciary relationships was not born in 1986. Much of what came after the Ad Hoc committee is an overfunded and unchecked bureaucracy fixing something that wasn't broken, someitmes making it better and sometimes making it worse.

The basis of professional standards is one sentence in the Ethics Rule that says, "an appraiser must perform assignments ethically and competently." If there is "error" in developing and communicating an appraisal, it is either
1) deliberately done to benefit someone (which is unethical), or
2) inadvertently done (which is probably incompetent, but could also be unethical if the appraiser lied about being able to do the job). And even this one quoted sentence may even be more than necessary. If someone represents him/her self out to the public as "expert" enough to appraise, then a deliberately misleading appraisal defrauds the third party and an incompetent appraisal defrauds the client.

Whether the ASB writes another 200 pages or another 200,000 pages, in pursuit of a self-executing document that answers every question (which will ultimately dwaft the IRS code), standards issues will always boil down to that one idea: did the appraiser perform ethically and competently.

So we might as well give the state boards that one rule, ehtically and competently, because no matter how much more we burden them with, they will not be any more less arbitrary or judicious, vindictive or sage.

I have enjoyed this thread, but I am falling way behind. Since most of you guys are USPAP Instructors, whose going to sign-off and give me some CE credit for this?

 

[Francois K. Gregoire]

Whether the ASB writes another 200 pages or another 200,000 pages, in pursuit of a self-executing document that answers every question (which will ultimately dwaft the IRS code), standards issues will always boil down to that one idea: did the appraiser perform ethically and competently.

So we might as well give the state boards that one rule, ehtically and competently, because no matter how much more we burden them with, they will not be any more less arbitrary or judicious, vindictive or sage.

Steve,

In the past, I've been a proponent of the "Ten Commandments" model for Appraisal Standards. In other words, short, simple directives. However, you have very nicely condensed the standards to even simpler and more direct terms. As an added benefit, the directives are positive rather than "Thou Shalt Nots".

Bravo!!

 

[George Hatch]

Ditto.


George Hatch

 

[Don Clark]

8)

What I have to say will be short and sweet, and reminds me of a story I read about a Fish Peddler around the turn of the Century, in one of the markets I do business in. "Sam was a very tall, muscle hardened black fish peddler with a voice a baratone voice that echoed off the walls and street of the city around the turn of the century(1900), an who daily peddled his fish. He would sing out in that great baratone voice ....Fish, Fish, fresh Fish, for sale, the best money can buy. You could hear him for blocks away. People knew that the fish man was coming. Now Saul was a short, wizened sort of fellow who also sold fish, but had neither the voice or personality of Sam. So, he simply followed about a half block behind, and as folks came out of their houses, he screeched in the best voice be could muster, Me Too, Me Too".

I sometimes feel like old Saul, following up on the comments of my esteemed peers and posters. However, having been critical of the Foundation, the ASB, and the AQB, and having taught USPAP from the very beginning when all I had was a fax copy to go by, just let me say that it is my opinion that we would accomplish more by working within the current system than aboloshing it for some unknown system that may be even worse. I have great respect for Steven Santora, Frank Gregoire, and all the others who have commented here. So that we can all have some input into what controls us all why not start by regularly writing letters to the Appraisal Foundation, attending and speaking at their meetins, and attending our states appraisal boards/commissions. You can make a difference. In my state I worked through my local delegate and got the composition of our state board changed. It did have 4 appraisers on a 9 member board, not it has 6. We were also able to have the requirement for a seal removed when signing an appraisal. The story is in the December 2000 Communicator Magazine(How one appraiser changed the system). This is not to blow my own horn but to give you an example on how the system can be changed. Let's all do our part.

Don

 

[Jo Ann Meyer Stratton]

The Appraisal Standards Board is holding public meetins around the country. Go to appraisalfoundation.org and check their events calendar. They will be holding a public meeting April 9, 2002 in Scottsdale, AZ--I'll be there!

 

[Tom Hildebrandt]

Frank

I like much of what you say but I disagree with the following comment.

Uniform interpretation of the USPAP is a laudable goal, but diffucult to achieve for a number of reasons. The first being the structure and content of the document itself. It is not the job or responsibility of the ASB to interpret the Standards; it's their job to develop them. For example, Legislatures do not interpret the laws. Courts have the task. Courts and State Regulatory Boards have the repsonsibility to interpret and enforce the USPAP. Just as Appraisers have differences of opinion, these entities will interpret from their point of view and perspective.

The ASB is chartered to specifically by the Appraisal Foundation as the agency that exclusively has the responsibility to develop, publish, interpret and amend USPAP on the behalf of appraisers and users of aprpaisal services. This is from the first paragraph foreword in USPAP 2002 and is what tha ASB teaches in its instructor seminar. In fact, this is specifically what Statements in USPAP are intended to do, provide definitive interpretation of key issues.

The concept that the regulators have the responsibility to interpret USPAP is misguided and one of the major problems with our profession today. Our profession can not have 50+ agencies applying different interpretations to the core issues as being presented nationally. If a regulatory agency can not find appropriate guidance in the core USPAP documents, and they wish to embark on some interpretation that is different than Advisory Opinions, or if they wish to make specific requirements in a specific state more stringent, they have the right to create supplemental standards. These should be published and implemented in a manner that is consistent with due process so that those practitioners can implement those supplemental standards in their practice.

Regulators have the job of enforcement of USAP. They have the task legally to prove that an appraiser violates USPAP in an adminsitrative legal preceeding. They do not have the right to fundementally reinterpret USPAP every time it suits their fancy. Not that every board does, but we know that many do.

Regards

Tom Hildebrandt GAA