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The State Appraisal Board Wants to Throw Me Under the Bus, Right?
by Barry Phillips and Tim Andersen
Despite what a lot of appraisers conjecture, the workings of a state appraisal board are public records. Meaning workings are open to the public (unless state law allows otherwise). All the state’s evidence, and all the respondent’s evidence is available for public scrutiny too. Therefore, upon proper request, if a state appraisal board has publicly sanctioned an appraiser, you can look at the contents of that appraiser’s workfile, the appraisal report, the results of the state’s investigation, the logic and reasoning behind the state’s conclusions, and so forth. This openness can be a great learning opportunity.
While there are those who would declare the workings of a state appraisal board to be a star-chamber, this simply is not true. This means you, as a member of the public, are free to see these files and whatever is in them (with some exceptions of course), because the records are open to all who are willing to engage in the research. The rest of us can receive help from one appraiser’s misfortune.
In line with this opportunity to receive help from one appraiser’s bad luck, this article takes a short look into some of the questions a state investigator will ask the appraiser. As you consider them, realize that none of them centers on the value in the appraisal. This absence is simply because an appraiser’s value opinion is just that—an opinion. Simply put, there is no way to measure the accuracy of an estimation.
So, what do the investigator and the state board look for as part of their investigation? Again, simply put, the investigator and board look to see if the appraisal meets the requirements of USPAP’s Standard 1, and if the report meets the requirements of USPAP’s Standard 2. Everything else in such an investigation is merely an elaboration of the answers to these two questions.
Nevertheless, there is a warning due here. Increased numbers of state appraisal boards are looking at complaints against appraisers from the standpoint of the consumer, rather than that of the client and/or the intended user(s). This, to a great extent, is a function of the current political climate. As all appraisers are aware, the consumer has no standing with the appraiser (assuming the consumer is not the named client or intended user). Nevertheless, state boards tend to favor the consumer (the complainant) over the appraiser (the respondent).
Part of the investigation includes what our legal friends call “interrogatories.” In other words, to prepare its case against the appraiser, the other side (i.e. the state) asks the appraiser to answer a series of questions. Much of the state’s decision whether to dismiss the complaint or elevate the complaint to a formal charge, rests on the appraiser’s answers to these questions. Unfortunately, this is the point in the process where the appraiser’s knowledge of USPAP (or lack thereof), formal and informal training, and past supervision and mentoring come into the cold, harsh light of what the state expects and what the appraiser did.
You are about to read a series of questions from state investigations. Each state requires the appraiser, via an oath or affirmation, that the answers to these questions be true and complete. In other words, once the appraiser has signed these answers, and then sent them to the state, there are no do-overs, unless there is a scrivener’s error to correct. Those answers are there forever, for all to see, until the end of time.
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Consider these 10 questions, as well as how you would answer them (note the numbering protocol is the authors’):
- “Please describe the process(es) by which you chose your comparable sales, as well as show, from the data in your workfile, how and why you chose them. Please indicate how and why you chose these sales but not others. Please indicate the filters you applied to choose these sales, as well as how and why you chose those filters. Please point out where in the workfile you maintain the details of this process (these processes).”
- Please show, from the data in your workfile, the protocols and/or analyses by which you concluded it was necessary to make the adjustments you made to the comparable properties. From the same source(s), please show the analyses by which you arrived at the dollar amounts of your adjustments.
- You chose to omit the cost approach from your analyses, thus from your value conclusion as well. From the data in your workfile, please show the process(es) by which you arrived at the conclusion the analyses of the cost approach were neither applicable nor necessary to the formation of a credible value conclusion.
a. Since you chose to omit the analytics of the cost approach from your appraisal, there is no indication of value of the subject site as if vacant. This means you also chose not to analyze and then form an opinion of the subject site’s highest and best use as if vacant. From your workfile, please show the market support you have for this decision.
b. Even though you chose not to value the subject site as if vacant, you made size adjustments to the comparable to the sites of the comparable sales as if they were vacant and available to be put to their highest and best use. Please show, from the data in your workfile, the following:
c. Since you adjusted the comparable sales’ sites for their differences in size from that of the subject, please show the process(es) etc. By which you arrived at the value of each of the subject sites as if they were vacant and available to be utilized to their highest and best use.
d. Since you chose not to conclude a value to the subject site as if it were vacant and available to be used to its highest and best use, from the data in your workfile, please show the process(es) by which you concluded how much to adjust the comparable sales to bring their values into line with the subject’s value as if vacant, etc.
e. In the cost approach you made a $X per square foot adjustment for GLA differences. From the data in your workfile, please describe and explain the process(es) by which you arrived at this adjustment.
- Please show where in the workfile are the market data and analyses supporting the subject’s effective age of X-years.
- Please show where in the workfile are the market data and analyses supporting your conclusion that the subject has X% accrued depreciation as of the appraisal’s effective date.
- Please show where in the workfile are the market data and analyses supporting $X per square foot or replacement cost.
- You chose to omit from your appraisal the analytics of the income approach.
a. Please show where in the workfile are the market data and analyses supporting this omission.
b. Please describe from the data in the workfile, the process(es) by which you concluded the analytics of the income were neither applicable to, nor necessary for, the formation of a credible value opinion.
- On p. 1 of the appraisal report, you indicated the highest and best use of the subject property as improved was in its present improvements. Nowhere in the report is a summary of the support and rationale for this conclusion.
a. Given such a summary is a requirement of USPAP’s SR2-2(a)(xii), please explain how the omission of this summary, etc. results in a credible value conclusion.
b. Please describe and explain from the data in your workfile the market support you have for your highest and best use conclusion.
- In your appraisal report you indicated that from the oldest sale to the most recent sale first mortgage interest rates had increased by approximately 25%. Nevertheless, in the report’s narrative there is no discussion on how this increase might have affected market value. From the data in your workfile please indicate the process(es) by which you concluded that such an interest rate increase did not affect market values over the time between the earliest comparable sale and the most recent comparable sale.
- In your reconciliation, you indicated you gave greatest weight to comparable sale #Z and least weight to comparable sale #Q.
a. From the data in your workfile please describe and explain the market support you have for giving these two sales these weights.
b. Despite this statement about the weight you gave to each of the comparable sales, the final value conclusion is the average of the post-adjustment sales rounded upward to the nearest $100. From the data in your workfile please explain this potential inconsistency or explain why it is not an inconsistency.
These questions are merely examples of the questions an appraiser could be asked to answer as part of the complaint process. There are at least two takeaways from these questions of which we appraisers need to be aware. First is that every one of these questions required the appraiser to answer it based on nothing more than the research, data, and information that was already in the appraisers workfile. The answers to these questions must come from the workfile cementing the importance of having a complete and thick workfile. Framing the questions in this manner shows the importance the state is going to put on the contents of the workfile. If the appraiser cannot show that the answers to these questions are already in the workfile, then the state is going to charge the appraiser with a violation of the RECORD KEEPING RULE.
The RECORD KEEPING RULE requires the appraiser to keep in the workfile “…all…data, information, and documentation necessary to support the appraiser’s opinions and conclusions and to show compliance with USPAP…” In addition, Standards Rule 2-3 requires the appraiser to certify that the statements of fact contained in an appraisal report are both true and correct. To show these qualities requires the appraiser to have verified backup data in the workfile. If not, the state may choose to elevate the complaint to a full charge, rather than to dismiss it.
Second of the takeaways is the emphasis of these questions to demonstrate, show, and explain. If the appraiser had demonstrated, shown, and/or explained in the appraisal report all the procedures, processes, and protocols covered in these questions, the state would not need to ask for them as part of the interrogatories since their answers would be obvious.
So, do state appraisal boards exist to throw appraisers under the bus? Frankly, the jury is still out on that question. Nevertheless, there are times when the appraiser, due to action or inaction, inclusion or omission, makes that process far too easy. Learn from these two takeaways. Maintain absolutely every piece of paper, every text, every e-mail, every field note, every photograph, every phone conversation, etc. in the workfile. Then, avoid such meaningless boilerplate statements such as “…the comparable sales are as shown.” This statement is intellectually empty and is misleading because it does not lead the client and/or the intended user(s) anywhere. State appraisal boards take notice of omissions that are misleading.
Rather, it is the wise appraiser who summarizes how and why they chose the comparable sales in the report. The wise appraiser summarizes the market evidence showing that an adjustment was necessary and the processes by which they determined the quantity of that adjustment.
When a state appraisal board does throw the appraiser under the bus, it may or may not be fair. However, in many cases, if that appraiser did not take advantage of the two takeaways we covered, the appraiser made it all too easy for the board to take disciplinary action. It is our job as appraisers to give state appraisal boards the least possible amount of ammunition.
About the Author
Tim Andersen is retired and, in addition to teaching, writing, consulting, and podcasting, does whatever his wife tells him to do. He helps Barry on Mondays with Appraisal Trainee Talk. On Tuesdays at 4:00 PM EST, Tim and Barry host Tuesdays with Tim on Clubhouse. Contact Tim at email@example.com. Barry Phillips, a licensed real estate appraisal instructor in North Carolina serves the real estate appraisal profession as an active member of the National Board of Directors of the National Association of Appraisers (NAA). Contact Barry at firstname.lastname@example.org.
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