Editor’s Note: The following Q&A is from Lee Hess, PhD, author of Navigating USPAP. “The USPAP Q&A that have appeared in Working RE previously have generated many additional questions from readers,” said Hess. “Here are more questions and answers that affect the every day practice of appraising.”
USPAP Q&A: Clarifying Competency, Reviews, Past Sales & More
By Lee Hess, PhD
With all of the new licensees the past few years, it seems that the quality of appraiser work is getting worse, not better. How does the Competency Rule deal with this?
The competency rule deals with two major sections: competency to perform the actual appraisal and geographic competency. An interesting part of this rule deals with how an appraiser can take an assignment for which he/she does not have competency at the time of the assignment. There are three steps that have to be followed which are discussed in this rule.
An appraiser preparing an appraisal in an unfamiliar location must spend sufficient time to understand the nuances of the local market and the supply and demand factors relating to the specific property type and the location involved.
The most common means to overcome geographic lack of competency is to interview local real estate agents and discuss the neighborhood and the local market conditions. The appraiser has to be able to provide the bridge between a sale and a comparable sale or a rental and comparable rental. If the appraiser is not in a position to spend the necessary time in a market area to obtain this understanding, he/she may need to affiliate with a local appraiser who has the appropriate knowledge and experience to appraise in a particular market.
How do I know if my appraisal work is being reviewed or not? What if the reviewer does not agree with me?
It is important to remember that there are two possible review actions: the actual appraisal review which is conducted under SR 3 and then also the client may ask the reviewer to become a second appraiser. The reviewer as a second appraiser is discussed at length in AO 20.
I am often asked about what kind of data the reviewer can use. Is it fair that the reviewer can use whatever data is available when he performs his own appraisal? This is an area of confusion which bothers many appraisers. If the reviewer is performing the review function under SR 3, he may not use any data that was not available to the original appraiser. However, if the reviewer is performing a second appraisal, he can have a different scope of work, a different date of value and may use whatever data is available.
Appraisers generally do not know when their work is under review. If there are no major problems, the appraiser will not hear anything from the client. The client occasionally has a review appraiser talk to the original appraiser but this does not happen often.
There are some reviews ordered by the secondary money market participants such as Fannie Mae, Freddie Mac, Ginny Mae and others. These reviews can be very important, for if the loan was based on a faulty appraisal, the original lender may have to buy the loan back. And Fannie Mae has been known to turn the appraiser in to the office of real estate appraisal for the state in which the appraisal was done. Be sure to read the Advisory Opinions as they contain a lot of important information.
I understand that as appraisers, we have to analyze all previous sales of the subject property for the past three years. What does USPAP say about analyzing past sales of comparables?
USPAP does not discuss any time periods for analyzing the sales for comparables. Most intended users such as Fannie Mae require the appraiser to analyze sales of comparables for the past year. So this requirement, although not in USPAP, becomes a Supplemental Standard, when the appraiser accepts the assignment.
I have heard that not all appraisers have to follow USPAP. Is this true?
Yes, it is. Personal property and business appraisers do not have to follow USPAP unless they are also licensed real estate appraisers. Whether or not an appraiser has to follow USPAP is a matter of state law. If the appraisal is for a federally related transaction, USPAP must always be followed. It also depends upon whether or not the valuation service is an appraisal service. Some states allow individuals to be appraisers without becoming licensed and these appraisers are not required to follow USPAP. Other states require every appraiser in their state to be licensed and to follow USPAP. So, this is one case where it varies from state to state. If an unlicensed appraiser wishes to follow USPAP, he may do so by choice or he may follow USPAP as a result of agreement with his client.
If an appraiser who is obligated to follow USPAP does not follow it, there are several possible consequences. First, the public can lose confidence in the appraisal profession. Additionally, the client could decide not to use the appraiser for future assignments. If the appraiser is turned into the state office of real estate appraisal, he could be disciplined if their investigation indicates that this is appropriate. Discipline can involve fines, additional USPAP courses, restricted license or loss of license and possible criminal prosecution.
So the best course of action is to learn USPAP, follow it and perform your appraisals in a professional, non-biased manner.