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Appraiser Disciplinary Levels and Their Consequences
by Kendra Budd, Editor
Years ago, the appraisal industry used to be an unlicensed and vastly unmonitored business. Nowadays, that is far from the case. Years ago, it was decided that states needed a standard of practice, but how were they going to determine those standards? That’s when states began adopting USPAP.
The Uniform Standards of Professional Appraisal Practice (USPAP) soon became the generally recognized ethical and performance standard for the appraisal profession in the United States. States began to immediately enforce USPAP, with each state deciding the level of sanction based on the facts and circumstances of each case. Decades later, the “Voluntary Appraiser Disciplinary Action Matrix” was offered to the states. These were created to discipline appraisers as needed, based on the level of their violation. Many states do not use the matrix.
In his CE course, Learning from the Mistakes of Others, attorney and educator Mel Black explains the appraisal disciplinary levels and the consequences that follow once an appraiser is in violation of them. It’s important for appraisers to be aware of these disciplinary actions, so they know how to best avoid potential mistakes.
Here’s what we learned.
The Ethics Rule
The Ethics Rule as described by USPAP is: “An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics.” Meaning that an appraiser must comply with USPAP when required by law or regulations, or by agreement with a client.
The Ethics Rule is divided into three sections:
The conduct portion of the Ethics Rule refers to the fact that, an appraiser must perform assignments without impartiality, objectivity, and independence—all without accommodation of personal interests. “An appraiser must not perform an assignment with bias; must not advocate the cause or interest of any party or issue, must not accept an assignment that includes the reporting of predetermined opinions and conclusions,” explains Black.
This section even goes into detail that an appraiser must not engage in criminal conduct.
“The conduct section is simple,” Black explained, “Be independent, impartial, and objective in everything when acting as an appraiser and focus on appraising the property and not the people. That’s it.” Essentially, the conduct section is put into place to make certain that appraisers are always conducting themselves in a professional manner.
Management is set in place to ensure an appraiser must disclose that they paid a fee or commission, or gave a thing of value in connection with the procurement of an assignment. According to USPAP, said disclosure “must appear in the certification and in any transmittal letter in which conclusions are stated.” However, the amount paid to the appraiser is not required to be disclosed.
Furthermore, Black emphasizes, “this clause means an appraiser must not accept an assignment, or have a compensation that is contingent on the reporting of a predetermined result, the amount of a value opinion, or a direction in assignment results that favors the cause of the client, etc.” This section even applies to an appraiser’s advertisements that might be false, misleading, or exaggerated.
Finally, confidentiality is pretty self-explanatory in nature. An appraiser not only must protect the confidentiality of the appraiser-client relationship, but also must act in good faith with regards to the legitimate interest of the client, as well as have a complete understanding of confidentiality and privacy laws applicable with an assignment.
This includes that an appraiser must not disclose any confidential information or assignment results to anyone other than the client, or parties they have specially authorized, state appraiser regulatory agencies, or any third party authorized by law.
An appraiser must take all reasonable steps to safeguard all confidential and assignment results, and to make sure that their employees are aware of the prohibitions on disclosure of the information as well. “If an appraiser’s activity is in conflict of the confidentiality section, they not only risk getting punished by the state, but may also face civil liability as well,” Black informs us.
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The Competency Rule
The Competency Rule refers to much more that an appraiser just obtaining a license, that’s only one of many aspects you’ll need. According to USPAP the competency rule, “requires that an appraiser both identify the problem to be addressed and to have the knowledge and experience to complete the assignment.” Meaning that an appraiser must be properly trained, and continue their education as rules and regulations are updated.
Your competency as an appraiser could be challenged if you don’t take the necessary steps to keep developing your skills. USPAP urges appraisers to continuously improve their skills so they may remain proficient in their reviews. “There are constant changes in finance, law, technology, and even society that can impact an appraiser’s profession—it’s important for an appraiser to stay current when these changes occur,” says Black.
This includes utilizing the necessary data and tools, to make sure you’re always procuring the most accurate results for an appraisal. “It can be frustrating to keep up with the never-ending changes in the appraisal profession, but there are several sources of information that help appraisers maintain and increase their competence,” Black iterates.
Levels of Discipline
There are five total levels of violations according to the voluntary matrix. “The level of a potential appraisal violation is dependent of the severity of the action, and may be impacted by aggravating and mitigating factors,” says Black. These levels were put into place to make sure that an appraiser receives the appropriate amount of punishment, while also remaining impartial and fair. This allows an appraiser to understand the severity of their violation clearly
• Level 1: Minor Violation
The first disciplinary level is a minor violation that does not break the Ethics Rule or Competency Rule. “This level of violation typically means that a very minor mistake was made on the part of the appraiser. An example of this could be an appraiser working in a state that has a law or rule that requires license/certification numbers in all reports. The appraiser affixes their signature to an appraisal report but fails to include their certification number. The appraiser just missed it and can issue an amended report,” Black explains.
The sanction placed upon an appraiser in this case is very mild. Possible sanctions include a letter of warning, censure, corrective education (CE or QE), a small fine, or a combination. If you are required to take CE or QE, then you will have to pay out of your own pocket as well. Although these punishments could be considered light, they can still be costly.
• Level 2: Technical Error
Level 2 refers to technical errors or carelessness by an appraiser. This is when an appraiser would benefit from education and does not involve a violation of the Ethics or Competency Rules. “An appraiser who made adjustments but failed to have support for the adjustments in the workfile could find themselves facing a Level 2 violation,” says Black.
Sanctions for Level 2 include, a formal reprimand, corrective education (which cannot be used for CE for renewal, unlike a Level 1 violation), short probation, monitoring, a small fine, or a combination. Unlike Level 1, Level 2 provides no warnings. “In the appraisal profession, your punishment is based on the adjudged level of your violation, which can vary greatly state to state,” Black clarifies.
• Level 3: Minor Violation of Ethics or Competency Rules
This is the first violation level that involving the Ethics or Competency Rules. However, it can also mean other violations rose to the level of affecting the credibility of an assignment. “Let’s say that an appraiser had a lack of familiarity with the market area and with the type of property being appraised, and did not disclose this information to their client at the time of the assignment, this should be evaluated under the Competency Rule,” Black reports. The appraiser did not conduct themselves in a professional manner, and was also geographically incompetent.
The sanctions put into place of this violation include, a formal reprimand, corrective education that cannot be used for renewal, short suspension, medium probation, monitoring, restriction on scope of practice, area of practice or ability to supervise, a moderate fine, or a combination of above. Additionally, with a Level 3 violation, the cost of an investigation falls solely on the appraiser. Meaning not only could you potentially be losing business due to a potential short-term suspension, but you could also be losing a significant amount of money.
• Level 4: Significant Violation
If you find yourself facing a Level 4 violation, that means you have made a significant violation, including a violation of the Ethics and/or Competency Rules. “A case example is an appraiser engaged to appraise a Bed and Breakfast on over 100 acres, and located in a rural area. The clients requested that the subject be appraised as a single-family residence and reported on the Uniform Residential Appraisal Report. Unfortunately, the appraiser did as he was told and used single-family houses as comps with few and inadequate adjustments and issued a report with a highest and best use rationale that was not credible. One of the important things to determine when handling this case is whether the appraiser is a liar or completely uninformed,” Black tells us. “If the appraiser knew how to appraise this property properly and chose to nefariously give the client what they wanted despite the truth, the appraiser has some serious ethics issues. If the appraiser simply did not know any better, well that’s a problem too…a Competency Rule problem.”
The sanctions become much more severe in this situation. Punishments include, a formal reprimand, a significant amount of corrective education that cannot be used for CE renewal, significant suspension, significant probation, monitoring, restriction on scope of practice, area of practice or ability to supervise, a large fine, downgrade of a credential, successful completion of the national exam, payment of restitution and costs, or any combination. “This level of punishment could not only significantly affect an appraiser’s business, but their reputation. Some of these suspensions could even last several months or years,” warns Black.
• Level 5: Significant Willful Violations
A level 5 violation means you have significantly violated the Ethics and/or Competency Rules, or have committed a willful violation. “A willful violation means that an appraiser acted with intention,” Black clarifies. An example of this violation is an appraiser allowing a non-certified appraiser to use their electronic signature. The non-certified person completed several appraisal properties over an 18-month period. Black continues, “Once discovered, the appraiser was questioned at a board hearing where they testified they knew their actions were wrong, tried to stop, but then kept collecting monthly payments.” This is both a willful violation and Ethics Rule violation, plus it put several home appraisals at jeopardy.
Level 5 violations nearly always end in revocation, a long term suspension or voluntary surrender in lieu of disciplinary action. However, it could also include a large fine, and payment of restitution and/or costs. Black warns, “While possible, it is unlikely for an appraiser to have their appraiser certification reissued after a revocation.’
Laws, rules, and regulations are constantly adapting and changing in the appraisal industry. While following USPAP alone isn’t a guarantee that you will never face a state board complaint, it’s your best defense if you ever have a complaint filed against you. As an appraiser, it is important to familiarize yourself with your state’s appraisal laws and regulations, and to frequently follow updates, Black argues. It is your responsibility as an appraiser to make sure that you’re not only following your state’s standards of practice for you and your business, but for your clients as well. Policy, truth, and integrity should always be at the base of an appraiser’s work.
Mel Black is an appraisal instructor with McKissock Learning www.mckiccock.com. Information for this article was gathered during his teaching of the McKissock class “Learning from the Mistakes of Others” written by Dan Bradley.
Stay safe out there!
About the Author
Kendra Budd is the Editor of Working RE Magazine and the Marketing Coordinator for OREP, a leading provider of appraiser E&O insurance—trusted by over 10,000 appraisers. She graduated with a BA in Theatre and English from Western Washington University, and with an MFA in Creative Writing from Full Sail University. She is currently based in Seattle, WA.
OREP Insurance Services, LLC. Calif. License #0K99465