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Has Appraising Failed the Public Good?
by Steven R. Smith, MSREA, MAI, SRA
The term Public Good is in the opening paragraph of the Uniform Standards of Professional Appraisal Practice (USPAP). An appraiser friend once wrote that our regulations and guidelines are intentionally ambiguous—and that may be. But what is crystal clear to me is that the industry has put the interests of its clients before the public good.
The Public Trust statement and the Ethics Rule have been largely ignored over the years with loan production put first.
Expert Witness testimony by appraisers routinely provides favorable reports for the side who hires them. Neither the residential nor commercial side of the industry is immune.
As a reminder, the Preamble to USPAP states:
“The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers. It is essential that appraisers develop and communicate their analyses, opinions, and conclusions to intended users of their services in a manner that is meaningful and not misleading.”
It is interesting that the Appraisal Foundation does not require an Ethics Course and hasn’t in over 30 years. Instead, there is a silent assumption made by all parties that anyone who becomes licensed is ethical. The majority of appraiser licensees have never had an ethics course, I would guess. Where would they take it? Only a few professional associations even offer it, and only those with a four-year degree are required to take it in college.
The states have taken some steps, like criminal background checks, which keeps most felons out…most but not all. Many white collar criminals have never been charged or convicted and work within the industries that employ appraisers. Few appraisers have ever been convicted of inflating values or writing misleading reports. FIRREA directs lenders to fill out a Suspicious Activity Report (SAR) when they spot appraisal fraud, but over the years few have. If it had been a regular practice, perhaps the 2002–2006 bubble may not have happened.
Sadly, licensing attracted a criminal mind, some of whom work for the largest organizations that provide appraisal services. Some lost their licenses along the way but that did not stop them from owning or being employed by an appraisal management company.
It is unfortunate that the legislation that mandated licensing, FIRREA (1989), had poorly worded language regarding appraisal fraud and pressure. It directs regulated lenders to report appraisal fraud. The world would be so different if it had simply mandated that Lenders Should Not Pressure Appraisers or allow their agents to pressure appraisers to inflate values or to write misleading reports. Almost the same number of words, but such a different outcome would have resulted.
Appraising Your Clients
What can an individual appraiser do to support the public good, even before they start an assignment? For me, the answer always has been to appraise the client and the appraisal assignment. There are some clients and assignments that simply should be avoided because of the wants, needs and desires of the client, with respect to the assignment results.
My first step was avoiding work from loan brokers unless paid in advance. Next, I stopped doing appraisals on loans with a high loan to value, which are the most likely to default. When contacted for litigation work, I inform the attorney involved that my testimony will be unbiased, regardless of which side of the case they are on. Half of them do not use me. I have been happy with both decisions. I find it easy to face hours of withering cross examination when I have not slanted the value.
Thankfully, along my path, there was a class on Litigation Issues in Valuation, which was mostly about Eminent Domain. The lead attorney said something the very first morning that stuck with me: “Your job is not to help me row the boat to win the case, but to do your work objectively without bias and then, if needed, provide testimony, and then leave.”
That has stayed with me all these years and has served me well. I hope this helps at least one appraiser find clarity to stake out their position in this industry. It all starts with a decision on how you want to do business. Mine was clear. Where do you stand?
About the Author
Steven R. Smith, MSREA, MAI, SRA is an example of a person who started out doing lender work fast and cheap as what he has learned to all call a Vocational appraiser. Somewhere along his path he was introduced to the term Professional Appraiser and it began a process that took years and lots of education. Two degrees in real estate and two professional credentials later he remains busy no matter what the real estate market is doing because he does little to no transactional business. No longer fast and cheap, but then, his fees are in the thousands of dollars, not hundreds. Through the years he has tried to help other appraisers, starting what is now the National Appraisers Forum on Groups.IO. He mentors appraisers who want to change, long distance.
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