Editor’s Note: This Q&A comes from the Working RE / OREP webinar: Top 5 Questions Asked of Appraisers and How to Answer, presented by Richard Hagar, SRA. Find the recorded webinar at WorkingRE.com/Webinars.
Top 5 QUestions Asked of Appraisers and How to Answer
By Richard Hagar, SRA
Question: Where can we find information on the “correct” appraisal rebuttal process by banks, if the borrower does not agree with value?
Answer: As part of my answer, let me pose a question back to you: Would you need a rebuttal process if the appraised value was higher than what they thought? Likely not.
Now the better question: Why should there be any rebuttal process just because the value isn’t what the borrower thinks it should be? There is no reason to establish a rebuttal process since it appears that the borrower is attempting to influence the appraised value, which is illegal.
Exception to the above – If the borrower can identify incorrect information within the appraisal, the borrower should prepare a written document pointing out the errors and submit the document to the lender. The lender should review to determine if there is incorrect information. If there is, then the document should be forwarded to the appraiser who can determine if the errors are significant. If the appraiser determines that the errors are minor, then no further action is required. If in the appraiser’s opinion the errors are significant, then the appraiser should supply an addendum addressing the errors and impact on value.
The process is simple, every lender must review every appraisal for compliance with USPAP. If the appraisal passes the review, then make the loan. If the appraisal fails the review, order a new appraisal. The borrower’s opinion of value has no bearing on the appraisal process or value conclusion.
Question: What would you recommend we do about real estate agents applying pressure?
Answer: Complain loud and often to numerous entities. Start with notifying your client (AMC and lender) of the problem. Next, complain to the real estate agent’s managing broker. Keep it polite, business-like and include a copy of the Dodd/Frank law that explains the illegality of their actions.
Question: Big Box AMC/lender always “suggests” additional comps once a report is completed and asks us to tell them why we did or did not use them. How should I deal with this?
Answer: Expect that you will always be providing additional service to this particular client. Increase your fees to compensate for the anticipated additional work. The appraiser’s job is to provide services to clients, and clients should pay for the appraiser’s time. My most common response to lenders like this is: We did consider these properties and found that they were not superior to the comparables used in the report. We use this response so often we made it a macro in our word processing program. Two clicks of a key and we are done and on to the next appraisal. Oh, did I also suggest- increase your fees?
Question: I did an appraisal a few months ago. The bank did not get their underwriting done in time for selling the loan. I also did a follow up inspection three months later for some repairs. The bank has now asked me to change my appraisal date to the final inspection date. Can I change my appraisal date?
Answer: No! What they really want is a new appraisal without paying for it. Have them order a new appraisal.
Question: When we looked at the current USPAP manual, 2012?2013, under FAQs, page F?62 & Question #135. The response says: “If the client does not require a more current effective date, USPAP would not mandate treating the request as a new assignment. However, if the client does require a more current effective date, the request must be treated as a new assignment.” Richard, why do you interpret this the way you do if the answer in USPAP says this?
Answer: Your question and the request by the client deals with far more than simply changing the date of the appraisal. The question concerned the buyer and seller changing the deal…. the sales price and the contract addendums that would go along with the changes. When the buyer and seller change the agreed upon sales price, they have altered the original agreement and, created a NEW contract. Appraisals must reflect the current agreement including all addenda. Think about the issues, if you have a new contract with a newer date:
- Your original appraisal order was dated before the current agreement. How is that possible? How would you explain the inconsistencies to an auditor?
- You pulled MLS and county data before the most recent contract date. Why would that happen? With inconsistent dates on the appraisal order, the original appraisal, instructions from the lender and, the most recent appraisal, it appears like you were trying to hide something. It looks suspicious, and you don’t need that if a government agency comes and inspects your work files.
- So what inspection date would you place on the appraisal? A date that occurred prior to the current contract date? Have you gone out and re-inspected? On the current appraisal, have you noted that you have performed services on this property within the prior X weeks?
- You have new information including the sales price. You must analyze all listing and sales information. Are you simply going to ignore the prior purchase and sale agreement and say nothing about it? Hopefully not.
- USPAP is designed as a generic guide for appraisers. If your client is a lender, then there are additional requirements that must be met. At a minimum, the requirements in addition to USPAP are: The Inter Agency Appraisal Guidelines and Fannie Mae’s Seller Guidelines. When I provided the answer in the Webinar, I considered these additional requirements as well.
Question: What about the client who, either reviews the appraisal or sends to the lender who reviews the appraisal, then asks the appraiser to provide additional comp(s) or to add a statement after delivery, without the intention to increase value, but simply to meet an underwriting condition, such as, “the well and septic distances meet FHA guidelines.” Is this acceptable and how should it be done, or is it not acceptable and how should the appraiser respond?
Answer: Depends on what you have in your engagement letter between the appraiser and the AMC/Lender. You do have a master engagement letter don’t you? How to handle issues and questions like this should be decided by the appraiser and client prior to accepting the assignment, not after. This way, appraisers can set their fees according to the work effort (Scope of Work). Yes, clients can ask for clarification or more information if the questions are related to a deficiency in the appraisal information. A problem regarding the septic system- how would the appraiser know if the well and septic distances meet FHA guidelines? Does the appraiser know the location of an underground septic tank? Does the appraiser know the location of the drain field? For most of the U.S., appraisers would not have a clue about the drain field location. I’ve talked to county health inspectors who have a copy of the As Built and even they don’t know the location. So, I’d be very careful before you go guaranteeing that you know about the location of that well and septic system. Why? Because if you are wrong, you could get sued and end up buying that house out of your personal savings. Ouch!
In the future, anticipate that this client will do this again. Increase your rates to cover the anticipated added work effort. Take my webinar, or live class, on Appraiser Independence and the Mandatory Reporting of USPAP Violations. In this live class/webinar we take time to go over the difference between deficiencies and influence.
Question: Many banks require that their name be listed as the Lender/Client even though the order has been placed by an AMC. What is the best practice in this case?
Answer: Best answer according to USPAP: The client is the entity that orders the appraisal. As such, the AMC is your client and should be listed as such on the appraisal. Then make the lender as the additional intended user. Acceptable practice (not the best answer): indicate both the AMC and the lender as the Client. Common practice according to FNMA: place the lender’s name on the front page of the report, then list the AMC and the lender on the signature page.
Question: What can we do if we notice that volume falls off after we did not hit contract price for a client?
Answer: Ask the lender why but don’t expect a reliable answer. There’s not much you can do if a client does not hire you, that’s their business decision. Time to find another client.
Words from Fannie Mae regarding removal of an appraiser for cause: How does Section I.B.(8) [of the selling guide] impact how lenders may remove appraisers from a list of qualified appraisers?
Answer: Section I.B. (8) addresses the removal of an appraiser from a list of qualified appraisers in connection with influencing or attempting to influence the outcome of an appraisal. However, Section I.B. (8) does not preclude the management of appraiser lists for bona fide administrative reasons based on written, management?approved policies. Also, Section VIII provides for lenders to have written policies and procedures implementing Appraiser Independence Requirements (AIR), including rules on appraiser independence, and to have mechanisms in place to report and discipline anyone who violates these policies and procedures.
Question: It is legal for an AMC to remove an appraiser’s name from their list if the appraiser does not accept their fees?
Answer: First of all, I’m not providing legal advice. What is legal or illegal is up to the government regulators and the court system. You can read numerous laws and you’ll have a good idea of what is illegal. Can one business not hire an appraiser because they charge more than others? Yes, welcome to America and free enterprise. Is it right for the AMC to pay ridiculously low fees? No! The solution is simple, improve the quality of your appraisals so you can find clients who pay more and stop working for clients that will not pay a reasonable fee.
Please understand, the people calling from the AMCs are usually lying to you about the fees and what others are charging. Weekly, we get AMCs that offer $200 for a residential appraisal. We say no. Often they come back and offer more. They are negotiating with you, except appraisers are unaware of the negotiation. We set our minimum fee at $600 and DO NOT work for less. And for $600, that house better be within close proximity of our office. Often we obtain $800 – $1,200 fees from AMCs (Seattle area). We’ve also been paid $5,000+ for complex waterfront properties.
In this order: A) Increase your skills, B) produce better quality appraisals and, C) increase your fees!!!
I strongly suggest taking the webinar on Appraiser Independence and the Mandatory Reporting of USPAP Violations at WorkingRE.com. Search the Hagar Institute website for classes, or ask us to hold a class in your area. The information you will receive will blow your mind and make your life easier. Finally, and I’m not sure but did I say… good appraisers should increase their fees!?
Notice: Mr. Hagar is not an attorney and CAN NOT PROVIDE LEGAL ADVICE OR COUNSEL. Nothing in this story shall be construed or interpreted as legal advice. Please seek the advice of your legal counsel. The contents of this document are for informational purposes only.
About the Author
Richard Hagar, SRA, is an appraiser, author and nationally-renowned instructor and consultant for banks, state and federal regulators and appraisers on federal and state compliance issues. Hagar has helped author numerous laws, regulations and guidelines at both state and federal level and is a nationally-recognized expert on appraisal/lender regulatory issues.
by Diana Jacobs
It’s a curious time in which the appraiser finds themselves practicing.
There is greater oversight with demands for shorter turnaround time. There are appraisal management companies (AMCs) that shop the appraiser’s turnaround time and price.
There are software companies that download data the appraiser enters with graphs, market conditions analysis, regression analysis and a wide variety of maps and pictures, which makes it appear as though the appraiser has chartered a plane, shot an aerial view, contacted governmental agencies and obtained tax information, flood information, environmental information, a soils survey, zoning and of course, provided a complete breakdown of the current Multiple Listing Data.
All of this information is at the very finger tips appraisers, who are being encouraged to consider, in the future, having someone else do their inspection while they work with the data from their desktop. The trend among users and providers is to have the appraiser focus on their “critical thinking” time. So just how much time is involved in an appraisal and how many decisions does an appraiser have to make?
Using the form 1004 residential form (most widely used form for a large majority of lending practice) the appraiser has numerous decisions to make in roughly six to eight hours.
It breaks down like this:
Page 1: 206 decisions (134 without the condition and individual blocks of choice)
Page 2: 205 decisions (potential blanks to be completed)
Page 3: 41 decisions (narrative blanks for the possible additional comments)
1004MC: 71 decisions/blanks to complete
Total: 523 possible decisions (451 without condition of materials and blocks of choice)
All of these decisions are without directions on what the appraiser must do when inspecting the neighborhood and the subject and the comparative transactions or the Limiting Conditions or the 25 Ethical Obligations of the Signed Certification Page, which at a minimum, has to have an additional item #26 for the history of service disclosure.
Keep in mind, you have to plan your inspection and never leave a neighborhood the same way you came in. Why? Because you stated you inspected the neighborhood: how did you do that if you didn’t drive all of the streets or charter a plane to fly over to ensure everything is the same or similar in terms of maintenance, condition, and general conditions that create and affect the value?
What’s the running total? 523 Decisions on the form. Twenty-six (26) Ethical Obligations to promise and be held legally accountable for by up to 30 years in prison and a fine of up to $1 million, according to Title 18 U.S. Code Section 1001 or similar state laws.
Whew! Now it’s time, of course, to consider the remaining decisions;
- 3 Directives of USPAP SR 2-1
- 12 Directives of the Written Report in SR 2-2 (a) of the 2014-2015 USPAP Appraisal Report
- 10 Directives of SR 2-3 but we aren’t going to count those 10 as they are part of the 26 on the Supplemented Form.
There are four USPAP Rules and each has very specific decisions and directives which appraisers are required to prove they have taken into consideration and/or performed. The Ethics Rule has three subsections; the Record Keeping Rule includes nine items of musts. The Competency Rule has three directives on being competent; three directives on acquiring competency and three directives on what to do if you discover you’re not competent. The Scope of Work and Jurisdictional Exception rules both have multiple directives of exhortations and prohibitions (do’s and must not do’s).
We’re not through yet. Mortgage lending comes with a host of additional decisions which result in approximately 130 pages of assignment conditions of which about 40 pages relate to the residential appraisal report form and each page adds its own specific directive on the additional requirement of performing and reporting an appraisal in the secondary market. There are easily 100-200 additional considerations that must be made under those assignment conditions.
Oh, lest we forget, 67 of those fields of the 1004 form must be UAD compliant.
784 Decisions to Make, 784 Decisions
My count, and it doesn’t break down the multiple directives of the assignment conditions or specifics of the Statements of USPAP or the Scope of Work Rule, etc., is 784 decisions for the appraiser in every residential assignment.
Don’t get me wrong, I’m all for maintaining quality management and quality control over this most serious issue of performing an appraisal assignment. When an appraiser makes a mistake they should be grateful for the opportunity to correct the error. In the event the error was discovered after the fact, the appraiser needs to accept accountability.
Often the appraiser, in an effort to get the job done in time, will fail to keep the appropriate documentation in their workfile. It’s not always about the intentional act of trying to withhold or mislead. It’s simply a time issue for the appraiser. In the appraiser’s mind if it’s available through Internet research why does it have to be printed out when it can be retrieved if needed? Of course, that has proven to be the Achilles Heel of many state-disciplined appraisers as the workfile is the evidence needed to prove compliance with all of the regulations in those many decisions that have to be made during an assignment.
Now, may I ask you this question? Is the appraiser really getting the respect, support and monetary remuneration for the service they provide? Isn’t it time for the users of the appraisal services to recognize the work that goes into the appraisal product? Shouldn’t the users of appraisal services and the regulators of appraisers recognize the obvious potential for errors when so many decisions have to be made in such a short amount of time? Isn’t that what our forefathers thought when they stated in the development rule of SR 1-1 (c) “Perfection is impossible to attain, and competence does not require perfection”?
About the Author
Diana Jacob currently lives outside Hillsboro, Texas on a small ranch and has been involved in real property appraisal since the latter part of the 1980s. She holds the Certified General Certification from the states of North Carolina, Georgia and Texas and a Residential Certification from the state of Louisiana. She is a certified USPAP instructor and represents the Texas Association of Appraisers at The Appraisal Foundation Advisory Council (TAFAC).
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by David Brauner, Senior Broker, OREP
Editor’s Note: The rise in state board complaints-from consumers, agents and others, is one more headache appraisers face these days. Below are two stories that can help. One correction to our last News Edition: Victory for Customary & Reasonable Fees in Louisiana: the 2055 C&R fee is $325.
New lending guidelines are causing a spike in complaints to appraisal boards nationwide, and with it, more headaches for real estate appraisers. With borrowers now able to obtain a copy of their appraisal upon request, and agents/brokers attempting to intimidate appraisers by blaming low values on “bad appraising,” frivolous complaints to state boards are a new reality for more and more appraisers- even the careful ones.
A dashed off email complaint by a consumer, agent or other disgruntled party who didn’t get their value, can have serious ramifications to an appraiser’s business- innocent or not.
Dealing with a complaint, even one without merit, can be time-consuming and frustrating, and if not handled correctly, can be ruinous to your appraisal business. Most insurance companies, including the one’s OREP works with, provide free legal guidance to their insureds and this is often the best place to start, especially when dealing with legal suits. But untangling state board complaints, that accuse appraisers of specific violations of the Uniform Standards of Professional Practice (USPAP), require a different set of skills. To be on equal (or better) footing with the stable of attorneys your state board has at its disposal and to properly defend your interests, you often need an expert’s understanding of USPAP and an insider’s knowledge of how state boards operate to enjoy the best result.
According to Bob Keith, Former Executive Director and Appraiser Program Compliance Coordinator for the Oregon Appraiser Certification and Licensure Board, what many appraisers don’t realize is that not all state board investigators are trained appraisers and few are experts in USPAP. “Only slightly more than one-half of one percent of all credentialed appraisers are qualified as experts in the minimum Uniform Standards of Professional Appraisal Practice. As a result, those making decisions about your professional license and career may be less of an expert in USPAP than you are,” says Keith. “It pays to have any expert on your side.”
Keith says to have a fair chance in a complicated and often unfair process, appraisers must understand a few basics about protecting their license and their livelihood and how to obtain expert advice when they need it.
Keith is providing consulting services to appraisers facing state board complaints since leaving the Oregon Board. “Having a complaint filed against you is a frightening experience, but it does not automatically mean that you’re going to be disciplined by your state licensing board. Don’t panic but don’t delay either. You can ‘fight city hall,’ but you must be willing to utilize resources that are readily available,” Keith said.
You can learn more about Keith’s consulting practice at OREP.org (click Benefits). OREP Members and Affiliates and subscribers to Working RE Magazine receive the first half hour consultation from Keith free and a significant discount on consulting services if needed. Note: Due to his recent close association with the Oregon Appraiser Board, he is not providing consulting services to appraisers for properties located in Oregon at this time, but Keith can make a referral to a local expert that can be of assistance.
Beware of Consent Decrees
by Isaac Peck, Associate Editor
There is some very good news for appraisers regarding fulfillment of the promise of customary and reasonable fees, as envisioned by the framers of Dodd-Frank. For now, the good news extends only as far as the borders of the state of Louisiana but new legislation has the potential to change the rules of the game nationwide.
As most appraisers know, the concept of “Customary and Reasonable” appraisal fees was written into Dodd-Frank legislation, only to be neutered by the Interim Final Rule, which interpreted the concept of customary and reasonable (C&R) as the lowest fee an appraisal management company (AMC) can persuade an appraiser to accept (find link to related story below). With the passage of new regulations, low-fee bidding, in Louisiana at least, may be a thing of the past.
Louisiana is not the first state to pass AMC regulation that addresses C&R fees, but it is the first to empower its Real Estate and Appraisal Board to determine whether a fee meets the C&R threshold and if not, to sanction the offending AMC. While it remains to be seen if other states will follow, the latest regulations passed in Louisiana should be of interest to appraisers nationwide.
How It Works
Joseph Mier, SRA and an Louisiana appraiser over 20 years, has been actively involved with industry partners such as the Louisiana Home Builders Association, Louisiana Realtors Association, Louisiana Banker’s Association, and the Real Estate Board, to craft the new AMC rules that passed in November of last year. Mier says that complaints have already been filed reporting AMCs for not paying C&R fees. “Appraisers have been notifying the Real Estate Board when they find a company they feel is not paying a customary and reasonable fee. For example, when a firm offers $200 for a full 1004 UAD appraisal, and then, when questioned about it by an appraiser for being too low, just sends the order to a different appraiser,” says Mier.
The Executive Director of the Louisiana Real Estate Board, Bruce Unangst, previously a Market-Area President for a Louisiana based bank, confirmed that the Board is currently investigating several complaints relating to C&R fees. “I can’t comment on the complaints we have received because they are not public record and we may find that no wrongdoing has occurred. However, I suspect you will see some enforcement actions relating to C&R fees over the coming year,” says Unangst.
When someone reports an AMC to the State Board for not paying a C&R fee, the Board contacts the AMC to inquire how its fees are determined. “The first thing we do when we receive a complaint,” said Unangst, “is to write the AMC stating the allegations against them and giving them a timeframe to respond. Once we get all the facts, we can determine whether we need to audit their activities, inspect their records, or take other actions such as fines or license suspension or revocation.” According to Unangst, the Board has the authority to fine AMCs up to $5,000 per violation and up to $50,000 aggregate per year.
Unangst says that the Board is doing its best to educate AMCs about what the requirements are. “We did not pass these rules to be punitive and our goal is voluntary compliance. With that said, these rules do give us the tools we need. If we have an AMC that would seek to gain unfair competitive advantage by not paying C&R fees, we plan to take enforcement action,” says Unangst.
In addition to empowering the state board to enforce C&R fee requirements, the new Louisiana AMC regulations have also empowered the board to conduct “full or partial compliance audits…to determine compliance with all provisions of applicable law and rules.” This provision is meant to assist the Board in conducting investigations and ensuring AMC compliance.
Fee Survey Said
Just like under Dodd-Frank, AMCs may choose between two presumptions of compliance. The first presumption, clarified in the Louisiana legislation, is “Evidence for such fees may be established by objective third-party information such as government agency fee schedules, academic studies, and independent private sector surveys. Fee studies shall exclude assignments ordered by appraisal management companies.”
To assist in the determination of what constitutes a C&R fee, a statewide survey was conducted by the Southeastern Louisiana University Business Research Center (SLUBRC). The survey focused on fees being paid by banks, not AMCs, to determine the C&R fees for specific assignments in specific areas. The survey also included appraiser input for comparison, based on their work with banks and other non-AMC clients. The table below represents the median appraisal fee reported in the survey paid by banks directly to appraisers. (Read the complete fee survey report here.)
The result, in many cases, is that AMCs are simply using the fees from the statewide survey conducted by the SLUBRC. “A lot of very reputable AMCs are now paying the fees outlined in the survey and we have had AMCs change their fee structure to be in compliance,” said Mier. “I really think AMCs want to do the right thing now, but they are also under pressure because they don’t want to tell the bank that they need to pay more than they’ve been paying because they fear the bank will go elsewhere.”
Under the second presumption of compliance, AMCs have an option of not using a third-party fee survey, but they must then provide extensive documentation and justification for paying fees other than those supported in the surveys. Unangst reiterates that the fee survey is not a mandated fee schedule. “The survey was done because one of the complaints that many out-of-state AMCs had was that there is nothing out there giving them an indication of what C&R fees are in our state. Our rules simply state that if an AMC chooses to establish C&R fees that are not based on an independent fee study, they can as long as they verify certain quality provisions. There are six factors an AMC must consider in determining C&R fees under the second presumption of compliance. These conditions are required at the federal level and we simply wrote them into our state law,” says Unangst.
How It Began
According to Mier, the momentum for the new rules began in 2012, as many AMCs were rapidly entering the appraisal market with few regulations on how they should be conducting business. “It was a free-for-all and no one was following Dodd-Frank, so a group of fee appraisers approached our Real Estate and Appraisers Boards in Louisiana and asked them to take a look at what was going on,” says Mier.
Mier says that what started as a dialogue between fee appraisers frustrated with what was happening in the appraisal industry, soon became a statewide discussion that involved real estate professionals from many different fields. Mier describes how he and other fee appraisers began reaching out to not only the Louisiana Appraisers Board, but also to the state’s Realtors Association, Home Builders Association, and Bankers Association. “We told them ‘Look, this is hurting our industry as a whole because low fees are causing geographic competency to be compromised.’ AMCs are just looking for the cheapest appraisal fee in general, regardless of geographic competency. And one of the problems we recognize is that there were no policies in place to enforce the provisions of Dodd-Frank,” says Mier.
Louisiana appraisers found common allies among Realtors, bankers, and home builders, each of whom has an interest in quality appraisals that are compliant with federal laws. “We called in the other associations and partners in our industry. None of us were happy with the way some AMCs were doing business in the state. Realtors and builders were not happy with the way appraisals were being ordered because they had appraisers coming into their market who weren’t geographically competent,” says Mier.
According to Unangst, the issue of low appraiser fees was one that adversely affected appraisal quality. “I read an article in Working RE a few months ago regarding low-bid appraisal ordering and that’s exactly what we were dealing with here in Louisiana. Speaking strictly in terms of residential appraisals, what we saw happening was that more experienced appraisers, who weren’t dependent on AMCs, were declining assignments when they felt they couldn’t do an adequate quality job for the fee being offered. So the bottom 20 percent of appraisers in terms of experience, quality, and geographic competence were getting a lot of the residential work and it resulted in a lower quality product. Some AMC’s argue that price has no bearing on quality. However, our experience in Louisiana, working with the Banker’s Association and Realtor’s Association, is that price does have a significant impact. We were getting appraisers who lacked geographic competency, experience, and didn’t put time into doing quality appraisals,” says Unangst.
Passing the Legislation
Along with Realtors, bankers, and home builders, the Appraisal Institute was also very supportive and actively involved in helping to draft proposed rules to present to the legislative branch in Louisiana, Mier says. “The state took a really hard look at Dodd-Frank with help from the Appraisal Institute. Most of our proposed rules were already in Dodd-Frank. Obviously we had some pushback from the Real Estate Valuation Advocacy Association (REVAA) but we persisted and got the legislation through and it was signed by Governor Jindal,” says Mier.
Mier explains that once the rules were agreed upon, there was a need to implement enforcement mechanisms to ensure statewide compliance. “Our regulations allow the Real Estate Board to implement a process that will be followed if AMCs don’t comply with the law. That’s been the missing key of everything. Dodd-Frank is out there but there was no way to enforce it. The Louisiana law allows for our State Board to enforce the C&R requirement directly by sanctioning AMCs that fail to comply. Dodd-Frank states that appraisers must be geographically competent and the AMC must pay a C&R fee for the area and the type of the assignment, and now our state has been empowered to enforce these requirements,” says Mier.
Throughout the drafting, and eventual passage of Louisiana’s AMC regulations, REVAA has actively participated in crafting the legislation according to Don Kelly, Executive Director.
However, REVAA opposes several parts of the regulations that were eventually passed into law and currently holds the position that the Louisiana’s State Board does not have the authority to act on its own to determine C&R fees. “We disagree that the Board can enforce their own version of what C&R fees are. We think it is illegal for a state to enforce federal law. Our understanding of the C&R provisions of the Truth in Lending Act (TILA) is that a Board has the authority to sanction an AMC only after the AMC is found to be in violation of the C&R Fee requirement. That finding can come through the state Attorney General or through a federal agency action, but cannot come directly from the Board,” says Kelly.
Kelly says that the regulations create unnecessary confusion and additional bureaucracy. “It ultimately leads to inconsistent standards. The Louisiana Board is applying its version of C&R fees and then we have federal C&R requirements, based on the presumptions that are articulated in the Interim Final Rule. Ultimately the cost of doing business will go up. The more regulations, the more it costs to ensure compliance. Banks aren’t typically the ones who pay these costs. Who pays? The consumer often pays. In this case, we just don’t think that added regulations are justified,” argues Kelly.
REVAA also objects to the idea that the State Board can audit AMCs or mandate timely payments on the grounds that the board lacks authority over these issues as well. Louisiana’s Licensing and Registration Act, passed in 2010, forbids AMCs from “withholding timely payment for an appraisal.” “We don’t think they have jurisdiction to audit AMCs. They are also trying to dictate when AMCs should pay appraisers and we can’t find any statutory authority for them to do that,” says Kelly.
Kelly makes it clear that despite its opposition to parts of Louisiana’s AMC legislation, REVAA is committed to paying C&R fees. “REVAA companies (members include Clear Capital, CoreLogic, DataQuick, and ServiceLink) pay and will pay C&R fees to the appraisers that we engage. The problem is that because Louisiana wants to strike their own C&R rates, it will be a state that is different than all the other states. I believe, and our members believe, that appraisers absolutely deserve to be paid C&R fees. That is the law of the land throughout the country. But fees are set by the marketplace and if the Louisiana Board comes in and sets a fee, I don’t know that the appraisers, or AMCs, or anyone else involved can be sure that those fees are going to be C&R,” says Kelly.
According to Kelly, REVAA plans to address the Louisiana State Legislature in spring 2014 and encourage it to reopen this issue. REVAA plans to continue advocating that Louisiana’s State Board lacks the authority to determine C&R fees and is hoping to convince state legislators to reconsider the current language in the AMC regulations.
With REVAA planning to push for revisions to the current AMC legislation, appraisers in Louisiana are preparing to push back and defend their hard-won victory. According to Mier, REVAA and other AMCs have had attorneys at every Board meeting and committee hearing about this issue. “They recently had a committee hearing to discuss whether or not the state has the right to enforce these rules. Attorneys representing the AMCs showed up in full force. But we also had dozens of fee appraisers, home builders, Realtors, and consumers show up to that committee hearing and we filled the room! They decided not to go ahead with the meeting because there was such a large representation of people against their position,” says Mier.
Mier says that the argument coming from the AMC industry is that fees should all be market based. This argument only works based on the presumption that there is a fair playing field, he adds. “There isn’t a fair playing field because there are major banks that own some of the AMCs. They’re charging the consumer what would be a C&R fee for an appraisal and then telling the appraiser ‘this is going to be your fee, take it or leave it,’ so the appraiser takes the fee under duress, afraid they won’t get any more work if they don’t accept the fee,” says Mier.
In response to the position of many AMCs who believe that state boards don’t have the right to enforce federal rules, Mier believes that this is what the Federal government intends. “Our state board is simply trying to follow federal law,” Mier says. “I think that’s what the Feds intend. They want states to take it into their own hands. What the state has done, with the help of the Appraisal Institute, is to help all of us stand up on the same platform, voice our concerns and put some things in force. REVAA says states don’t have any right to do that. Well then, who is going to do it?”
Unangst rebuts REVAA’s position that the Board lacks authority to enforce the new rules. “We have absolute confidence that we are legally within our power under Dodd-Frank to do what we are doing. Dodd-Frank mandates that states license and regulate AMCs. The opposing viewpoint is that C&R fee provisions under TILA must be enforced by federal regulators. However, we are not enforcing or trying to enforce TILA or federal law. We are enforcing our own state law,” says Unangst.
According to Mier, the fight taking place in Louisiana offers a lesson for appraisers across the country. “Appraisers need to look up from their monitors for a moment and pay attention to what’s happening in their industry and become active in protecting the consumer. First and foremost, we are protecting consumers on the biggest investment of their lives. By doing that, we need to pay attention to what’s happening in our industry and be prepared to voice our opinion as one group wherever you’re located. We can make a difference, but we have to step back from our monitors, talk to our peers and get involved in our industry,” says Mier.
When asked what advice he can offer to appraisers in other states who want to enact similar legislation, Mier says that appraisers should start by reaching out to others in their industry. “The first discussion that needs to happen is with your partners in your industry, Realtors, home builders and bankers. They are having the same problems and issues as appraisers, they want to be in compliance, they want to help the consumer purchase their home, they want to help the Realtor sell the house, the builder build the house, and the banker make the loan. It takes all four of these parties to voice their opinion and desire to change what’s going on in this industry,” Mier says.
Mier also urges appraisers to join an industry association. “Join somebody who’s out there doing something for you. It costs less than a dollar a day to join most appraiser organizations. If you don’t have the time to be at meetings trying to make our industry a place that protects quality working conditions and compliance on your behalf,” argues Mier.
Mier says that he is sure that the new regulations are going to be challenged by REVAA and other AMCs. “We are prepared for that and we are ready to address those items when presented. They are going to have to introduce a substantial reason why this should be changed or repealed, and that is going to be difficult to do as the state is just following federal law.”
by Tim Andersen, MAI
Editor’s Note: Author Tim Andersen, MAI shows you how to protect yourself from your state board and have as happy a New Year as possible. His advice? Beware of consent decrees.
The letter arrives. You know, the letter from the state appraisal commission. You are not expecting it since you always do your best to complete your appraisals credibly and properly. Yet, despite your best efforts, here it is anyway. It’s in your hand. You have to open it and your stomach turns. This literally may be the future of your appraisal career, condensed to what amounts to a form letter- black ink on (cheap) white paper: cold and bloodless. Here’s how to handle it in your best interests.
You read it and fact-check. Yes, you did that appraisal on that date. Yes, you came up with such-and-such a dollar value. Yes, you have appraisal license number thus-and-so. But other than these details, what you read cannot possibly apply to you. It can’t apply to you since the letter, in its dry legalese, details your “…lack of due diligence in finding appropriate comparables to the subject property…”; your “…failure to reconcile the value indication via the Cost Approach with that of the Sales Comparison approach, thereby forming a value opinion that lacked credibility…”; and/or your “…failure to develop, and then summarize within the report, your conclusion of the subject property’s highest and best use…”.
This litany of infractions goes on for numerous pages, listing violations in the Uniform Standards of Professional Appraisal Practice (USPAP) Standards Rules, Ethics Rule and the Scope of Work Rule. It calls out violations of state statutes and state administrative codes and on and on. What’s worse is that the letter makes it sound as if you are already GUILTY of all of these charges. What? It’s innocent until proven guilty, right? With state appraisal boards, it’s often the other way around.
Toward the end of this horrible letter the attorney/author who seemingly holds your fate in his/her hands, generously offers what may be your professional salvation. Behold, an offer for a consent decree. Yes, salvation is near! You read it through. It is relatively short (a whole lot shorter than the document you just read containing your bill of indictment). It basically says that while the state is convinced you are already guilty of dozens of heinous appraisal infractions, if you will just sign the consent decree, all but two of them will be dropped, and you will be required to take a 15-hour USPAP class, pay a $750 fine, and be put under state supervision for six-months.
Life is looking better. You know you can take the 15-hour USPAP class online for less than $300 and you can probably complete it in less than seven hours. The $750 fine is just two appraisals. And you already know the state is too short-handed and underfunded to look over your shoulder for six months. An administrative law attorney and a USPAP consultant will cost a lot more than the total of the state’s fees. It will take you just two minutes to sign the decree, cut a check from your business account and get online to sign up for the USPAP class. This is just too simple! Woohoo!
If such a quick solution feels a little too simple and a little too painless, that’s because it may be. You open the letter back up, pull out the full package of doom from the state and read it carefully this time (which, due to your panic, you did not do earlier). You read it again and then again. Now you understand why at first it seemed so simple, so painless, and why the state wants you to sign the consent decree- now!
Now you realize that as soon as you sign that consent decree you are admitting your guilt to whatever charges the state included in the decree. You consent to whatever administrative penalties the state chooses to impose. Since your state appraisal board is a public entity, the consent decree, in its glorious entirety, with your signature on it, will soon become public record that any yahoo with Google® can find in less time than it takes to write a check.
If you sign that consent decree, not only have you admitted you are guilty of those specific violations, and accepted the administrative penalties associated with the admission of your guilt, you have also put every Errors and Omissions (E&O) provider in the world on notice that you are an insurance liability risk. And E&O providers don’t want to cash your check if they think there is any chance they will have to pay all the money back, and then some, defending you.
Bad for Business
In addition to what you just told your E&O provider, you have also just notified every potential client on the planet that, when performing an appraisal, you chose not to exercise due diligence in forming a value opinion (at least in this case). If you think that makes clients skittish, you’re right. Books of business composed of skittish clients tend to be rather thin.
When you sign that consent decree, you also have just notified every attorney in the jurisdictions in which you work that you are an ineffectual expert witness. Why? Because you just admitted to all of them, your failure to appraise per the rules and regulations governing you. This is not something you want coming out in a trial or deposition, so you’ll have to admit it up-front to your clients. Given that, some will choose not to use you.
When that letter comes in, don’t panic. First, before you respond to the state, call your E&O provider and get their advice. That’s why you pay for E&O insurance. Many providers have free claims lines. If you are not covered, for whatever reason, you need to contact an administrative law attorney before you respond to the state. An A/L attorney is experienced representing respondents in front of professional boards. Have your administrative law attorney respond to the state. The state appraisal board has a stable of attorneys representing it; you should have one too. Then take your attorney’s advice. Then, if necessary to defend yourself, you might want to retain a USPAP expert to determine if you really violated USPAP, and if the charges against you are based on its proper understanding and interpretation. (For more, please read Tim’s article Dealing Effectively with Complaints: When the State Comes Calling at WorkingRE.com, Library, Volume 24.)
It’s possible that, when all is said and done, you may end up signing a consent decree anyway but you want to sign it as a last step, not as a first one. Make the state prove its contentions that you are guilty of USPAP and/or state statute violations. Many appraisers have fought and won. You can, too.
About the Author
Timothy C. Andersen, MAI has been in real estate and consulting since 1975. He is a commercial real estate appraiser, AQB-certified USPAP instructor, USPAP consultant, Special Magistrate for the Palm Beach County Value Adjustment Board, author, instructor and expert witness. As a USPAP consultant, he works nationwide as an expert with appraisers whom the state has charged with license law violations. He is an instructor with the Appraisal Institute and has worked all over the U.S. with various proprietary schools, as well as a community college. The University of St. Thomas in Minneapolis, MN recently awarded him a Master of Science degree in Real Estate Appraisal. Tim’s e-mail address is email@example.com.