Third Exposure for USPAP changes expected

[Francois K. Gregoire]

Terrel,

If we're talking about cash being a big motivator for the Appraisal Subcomittee and The Appraisal Foundation, we should probably look at the numbers. The Appraisal Subcomittee subsists on the $25/year annual registry fee collected by the states from the appraisers. If you look on their website you'll see that their annual reports all have an accounting of how much money they take in and how they spend it.

George,

Not quite sure if cash is the motivation for the Appraisal Subcommittee, but they do intend to stay alive.

The Independent Auditor's Reports included as part of the Appraisal Subcommittee 2001 Annual Report contains this statement (page 25):
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Note 4. Appraisal Foundation Grant

Title XI of FIRREA provides that amounts appropriated for or collected by the Appraisal Sub-committee be used to make grants to the Appraisal Foundation to help defray those costs of the Appraisal Foundation relating to the activities of its Appraisal Standards and Appraiser Qualifi-cation Boards. Since inception of the Appraisal Subcommittee on August 9, 1989, it has made grants to the Appraisal Foundation under which approximately $5,607,500 was expended through September 30, 2001.

As of September 30, 2001, the Appraisal Subcommittee has an outstanding grant commitment of approximately $375,300 to the Foundation for the grant period ended December 31, 2001.
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Some will ponder if appraisers got their $6,000,000 worth out of The Appraisal Foundation, the Appraisal Standards Board and the Appraiser Qualifications Board.

That leaves the ASC with about $1.5 million a year to operate.

That's a lot of money to hand to a single person, but the ASC is not a single person. It's a federal governmental agency. My state appraisal board has a larger budget than that. Heck, my local water district has a larger payroll than that. Even those who despise the federal government would have to admit that any federal agency that can live on $1.5 mil a year can't be all bad. This agency deals with a very important aspect of our national financial structure. Using this perspective, the ASC is a bargain compared to other local, state, and federal governmental agencies.

Not quite sure if comparing the ASC budget to a State Regulatory Agency Budget is either fair or meaningful. State Regulatory Agencies actually do license, certify, test, investigate and dscipline appraisers. In addition, they evaluate prelicensing courses and examinations, evaluate continuing education courses and nearly all communicate with their licensees in some fashion or another.

Compare with the General Responsibilities of the Appraisal Subcommittee:

• Monitor the requirements established by the States, territories, and the District of Columbia (“States”) and their appraiser regulatory agencies (“State agencies”) for the certification and licensing of appraisers. The ASC reviews each State’s compliance with the requirements of Title XI and is authorized by Title XI to take action against non-complying States;

• Monitor the requirements established by the Agencies regarding appraisal standards for federally related transactions and determinations of which federally related transactions will require the services of State licensed or State certified appraisers;

• Maintain a national registry of State licensed and certified appraisers (“Registry”) who may perform appraisals in connection with federallyrrelated transactions;

• Monitor and review the practices, procedures, activities, and organizational structure of the Appraisal Foundation (“Foundation”); and

• Transmit an annual report to Congress regarding the activities of the ASC during the preceding year.

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The ASC's net revenue over expenses for the period ending September 30, 2001 was $351,081. (page 21, Annual Report)

By the way, have you seen their digs in Washington, D.C.? Base Rent - $163,900. Much more plush than the Foundation digs, if anyone is interested.

As to whether the individual state appraisal boards should be cut loose from all federal oversight and make all their own appraisal standards and licensing rules, thereby actually making the ASC and the AQB 'obsolete', that is another topic for another day.

George, Those of us questioning the need for the ASC have not advocated adopting State Standards for Appraisals. It's clear adherance to the Uniform Standards of Professional Appraisal Practice is required for Federally Related Transactions. States have already adopted these and, are in fact enforcing them. The ASC does not dispute this. Take a look at the results of their On Site Field Review/Monitoring Program for 2001.

(page 7 of the Annual Report)
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While most State agencies performed their Title XI-related activities in a responsible manner, some problem areas were identified:

• Compliance—In nine States, the ASC found stat-utes, regulations, or practices that were inconsistent with various provisions of the AQB’s Qualifications Criteria for certified appraisers. For example, States awarded experience credit for teaching appraisal related courses or for real estate sales experience; approved distance edu-cation courses from non-AQB recognized course providers; approved without individual review education courses offered by sponsors of the Foundation; or awarded education credit for courses with no appraisal-related content. The ASC also found that three States were not validating educational claims of applicants, as recommended in ASC Policy Statement 10;

• Temporary Practice—The ASC found inconsistencies with Title XI and ASC Policy Statement 5 in ten State temporary practice programs. These inconsistencies, among other things, included limiting a certified or licensed appraiser to only a single permit per year, issuing permits
for less than six months, not issuing permits within five days of receipt of a complete application, or not providing appraisers with an easy way to renew permits. At year-end, these prob-lems had been, or were in the process of being, resolved; and

• Enforcement—Ten States did not resolve com-plaints expeditiously; were inconsistent in applying disciplinary sanctions; or did not adequately document enforcement-related files. One State did not forward disciplinary actions to the ASC, as required by Title XI and ASC Policy Statement 9. The ASC sent field review letters to each State agency, detailing the ASC’s concerns and followed up on these concerns. In addition, one follow-up visit was conducted to more closely monitor a State’s progress in correcting identified deficiencies. The resulting changes continued to improve State appraiser regulatory programs.
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It does not appear as though the ASC uncovered a vast State Conspiracy to escape their responsibilities of licensing, certifying appraisers and enforcing the USPAP and State Licensing laws. Read the Field Review Letters on the ASC site. Most cite minor technical deficiencies and do not allege abandonment of their duties to enforce the law.

It's been over ten years. We continue to have problems. In fact, many claim the problems now are much more severe than when Title XI of FIRREA was enacted. If what was proposed as a solution has not worked, why must we hold on to it?

 

[George Hatch]

Frank,

As I have said several times before, there are several areas in this debate where you and I are in complete agreement. We both recognize that there are problems with the existing system. Where we differ is on how to solve the problems.


First off, the money.

Since inception of the Appraisal Subcommittee on August 9, 1989, it has made grants to the Appraisal Foundation under which approximately $5,607,500 was expended through September 30, 2001. ...

..Some will ponder if appraisers got their $6,000,000 worth out of The Appraisal Foundation, the Appraisal Standards Board and the Appraiser Qualifications Board.

The $6,000,000 is over a period of 11 years and includes the huge effort that was spent getting the system up and running from scratch. I would be very surprised if the Financial Accounting Standards Board or the American Bar Association have spent less in the last 10 years on their corresponding functions. As far as I'm concerned, only $6,000,000 over 11 years is a bargain.

George, Those of us questioning the need for the ASC have not advocated adopting State Standards for Appraisals. It's clear adherance to the Uniform Standards of Professional Appraisal Practice is required for Federally Related Transactions. States have already adopted these and, are in fact enforcing them.

I did in fact mention the possibility of having the states set their own appraisal standards and enforcement. However, I was not trying to imply that the states would actually write their own standards. Rather, that the actual standards as enforced in the various states will be different by virtue of the manner in which they do and/or don't enforce their own laws and USPAP. Look at the examples we have already of 'independent' states. In New York, an appraiser can apparently get away with almost anything as long as no one gets shot. In some of the other states, an appraiser had best be looking over their shoulder if their opinion of value differs from the state investigators, regardless of their compliance with the minimums in USPAP and regardless if they are right. Thus, what is effectively illegal in one state is perfectly legal in another. This is neither uniform nor standard practice.

While (some of) the states are advocating dismantling the current system of federal oversight, I believe the easiest and most effective fix would be to give the ASC some more enforcement tools to work with. Right now, the only disciplinary tool the ASC has over the state boards is the power to decertify that state's appraisers because the state has refused to comply with Title XI and its requirements vis a vis the federal registry and the fees. It's pretty ironic that if a state board messes up their constituants, the appraisers, are the ones who have to take the heat. Looking at this disciplinary tool, it is an effective tool only for putting all of the appraisers in a state out of business. It's like an atrom bomb; it works great - once. The effects of having just the one tool is that (some of) the state boards apparently feel free to do whatever they want so long as they don't trigger the bomb. Hence the failures of the current system.

What the ASC needs is a few more enforcement options. For instance, the ability to haul a state board up in front of Congress to explain why they aren't doing their jobs in enforcement, or why some of them are chasing minor infractions or only accepting complaints that are filled out in triplicate on the proper form. And especially, the ASC should establish a uniform standard of enforcement for the states to model their programs after. The ability to establish minimum board member qualifications and maybe even testing for state board members.


No matter how its done, lying, cheating, conspiring and stealing should be punished equally, everywhere.


If the states are actually serious about improving appraiser regulation, they can band together and establish a common standard of enforcement on their own as a group. There is no reason they could do so and come up with a tighter set of standards than required by FIRREA; one that coexist within the current system. No reason that we couldn't all be worrying more about state standards than the federal standards. Matter of fact, if this whole thing was really about making this system or any other system work, the states would have already done this. After all, they have had 10 years, too.

Show me what the states, as a group, have done so far to establish a common standard. If it's any good at all, it might be a winner.


George Hatch

 

[jtrotta]

Bradellis

I'm wrong and you've provided good input, one question though -

you said: "Her boss told me that their staff folks kill many more deals than do the outside contract appraisers they use - by percentage".

To provide an "unbiased opinion", you need to be free to research without "undue influence"; if your statement above is true to your word I do not understand your analogy. Undervalueing a property is equally as devastating as overvalueing a property; after all we are providing this data to the public at large who seek an "unbiased opinion of value".

There are many reasons why a loan goes bad, especially today, it does not reflect (in most instances) the value of the property, it is reflective of the owners ability to pay and anything can create that circumstance. part of the problem also may ley within the "Banks" ability to be able to negotiate a "solution" to loans that are slipping. During the late 80' & mid 90's - I had an inside track on a Bank that was getting into trouble based on their direct assault on the public and taking back all the property (greedy). Needless to say that Bank no longer exists - for a time they thought they were in the Real Estate business - guess not :!:

8)

 

[bradellis]

jtrotta,

Of course we are talking about those deals in which the value is not there. Not intentionally undervaluing- which I completely agree is just as bad as overvaluing.

And you are quite correct in your view that loan losses are more often the result of bad underwriting than of bad appraisals. And sometimes, of course, the loan loss is really no one's fault in particular. Loss of job, illness, and a host of ther things outside the borrowers control and outside the banks ability to forecast.

If we all just had crystal balls...

Keep on providing the clients with your best work- free from pressure and reflecting your honest opinion. I continue to believe that the bulk of our profession, in an overwhelming percentage, does a great job.

Brad Ellis, IFA, RAA

 

[jtrotta]

bradellis


And I quote specifically: "If we all just had Crystal Balls" 8O :lol: :lol: :lol:


yep, that'll do it every time- either in full control OR totally out of control

8)

 

[David C. Johnson]

<span style='color:darkblue'>Got a question for Brad, jtrotta and anyone else who might like to play (crystal) ball regarding "Crystal Balls."

If you have had your third dream three nights in a row that property values would be dropping by 50 percent in a particular neighborhood a week after you will be turning in your appraisal for a property in that neighborhood -- while all other indicators indicate the opposite even though these indicators have proven not to be near as accurate over the years as your "three dream" experiences -- would you adapt your market values accordingly based on this "reliable insider knowledge"?

(Yup, it's a trick question.)

Well...?

Anybody...?

dcj</span>

 

[Mike Garrett RAA]

50 boards setting their own standards would be a like every school board in the country setting its own standards. Wait, don't they already do that????

Did I miss something in the numbers???

Lets say there are 90,000 appraisers who need the USPAP class. If most are on a 3 year license cycle, that would be 30,000 a year. If there are 200 instructors nationwide, that would be 150 students per instructor. I would think 3 or 4 classes a year would handle it.

 

[Austin]

Mike backed into the correct answer in his above post. The best fleecing racket going right now is CE. These people are making so much money that the tail is wagging the dog. Up until this year here in Virginia, every two-year cycle we had to take a three-hour state appraisal law class. Guess who the teachers were at $150 per pop? Right! The former and then present chairmen of the state appraisal board. Guess who passed the rule that we had to have this law class? Right again. You guys are pretty smart. I took this class about 5 times and every time knew less after the class then when I walked in the door, just $500 lighter when you add in two nights in a fancy hotel at about $120 per night. Same story on the new USPAP class. The first time I took a USPAP class was in about 1988, from the AI. I really learned a lot. The next three times I took it, it was total BS and I learned nothing at $200 per pop. The last time there were about 60 students for a grand total of $12,000 in fees not including room, and board for a two day session. Now you know the rest of the story.

 

[Mike Garrett RAA]

Austin, the schools might be getting rich but not the instructors. I get $50 an hour to facilitate the 75 hour registered appraisers class. Now it is going to 90 hours, for the life of me I don't know why except more money to the schools.

Wish I could afford the $120 a night rooms...will be staying at La Quinta in Denver this weekend for $69 a night.

If I get through the class and am ask to teach the 7 hour USPAP, my fee will be $750 plus expenses. I can see doing a lot of traveling to out of the way places out here in the wild wild west. Usually the only way to get there is to drive or if you fly you will mostly likely take a couple of days. Guess I could dust off my license, get current, and start flying again. NOT!

Totally agree about the USPAP 4 hour updates. That is the reason they are going to federally certified instructors and producing the course materials nationally.

 

[Austin]

Mike: When I was licensed in North Carolina, they would not approve any on-line distance CE classes or any classes they had not approved. All classes had to be approved by NCAB. They sent me a list of approved classes. Guess who sponsored 98% of the classes? The local state community college no less. As I said above, this is a case of the tail wagging the dog. Now you know why they don't approve on-line distance education.