Question: Recently, I’ve read that many appraisers, as they expand their client bases, are working directly with (potential) buyers and buyer’s brokers to provide the (potential) buyer with an appraisal before making offers on the house. This sounds fine to me since it is a potential market appraisers have traditionally avoided! However, it also appears that many of those who are advocating this shift for appraisers are also advocating that appraisers become “consumer advocates”, but do not define or explain what that means.
Finally, it also appears that, by getting their own appraisals, not depending on the lender to give them a copy of it right before closing, buyers somehow will conclude the appraiser is on their side, thus they can expect the appraiser to advise them on whether or not they are getting a “good deal”. This, to me, sounds as if the (prospective) purchase may expect the appraiser to appraise to a predetermined number – one that will protect them from paying too much for the house.
Many appraisers are also advocating the fact that without the appraiser, the public will have no advocate in the lending process. USPAP prohibits all of this, doesn’t it? We are not advocates, are we? Help!
Answer: USPAP has no problem at all with a potential purchaser hiring an appraiser to appraise a property that potential buyer may want to purchase. Anybody can hire an appraiser at any time for any reason they want to. So, in and of itself, that is not a USPAP issue. USPAP has no problem at all with appraisers jumping all over such assignments, since this is a legitimate area of expertise for many residential appraisers.
However, as you indicate in your question, appraisers need to look at this situation with some rational exuberance, for the very reasons you brought up. However, before they jump into this potential and growing market niche, there are ethics issues of which appraisers need to be aware.
In the Ethics Rule, under CONDUCT (ll. 190 to 193), what do we learn? We learn that USPAP expects the appraiser not to “…perform an assignment with bias” (notice it says “…any assignment…”, not any appraisal assignment); “…must not advocate the cause or interest of any party to the issue…”; and the appraiser “…must not accept an assignment that includes the reporting of predetermined opinions and conclusions” (ibid). These ethical standards are, therefore, clear.
Further, USPAP’s definition of an appraiser, from which the CONDUCT section comes, is equally clear on the matter. An appraiser is someone “…who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective. Comment: Such expectation occurs when
[appraisers]
…represent that they comply [with USPAP]” (ibid; ll. 78 to 82).
So, what is it about an appraisal for the (potential) buyer that might put the appraiser in a place to abandon these ethics and assume the role of a biased advocate?
First, by definition and ethical canon, the appraiser is not the consumer’s advocate, despite what some appraisers appear to think. By putting the appraiser in the role of the potential buyer’s advocate, the appraiser is putting on the mantle of an advocate for the consumer. If the above quote means anything at all, then it should be clear the appraiser cannot be the consumer’s advocate, nor that of anybody else for that matter.
Second, if the consumer, the potential buyer and/or mortgagor, hires the appraiser, there is the potential to conclude the consumer will feel as if the appraiser “…works for us…”; i.e., advocate their cause(s) or interest(s). This is true, frankly, but in a limited sense only. True, that consumer hired the appraiser, true that consumer is, by definition, the appraiser’s client, and true, the appraiser assumes an appraiser-client relationship with that consumer. But, despite whatever that consumer may conclude, the appraiser does not “represent” the consumer, does not have the consumer’s best interests at heart, is not there to help “…that nice young couple to get the house of their dreams”, and is not the buyer’s advocate. Advocacy is the job for attorneys, CPAs, and doctors.
Next, it should follow from the above discussions that the ethical appraiser is not going to come in at a predetermined value or conclusion. Nevertheless, since the consumer has the mindset that “…we hired the appraiser, so the appraiser works for us”, it follows the consumer is going to conclude the appraiser is going to conclude a value to the property that helps them – after all, the appraiser works for them! This is not to say the appraiser’s consumers will dictate to the appraiser the number they want (although that is a real possibility). Rather, it means that if the client-consumer tells the appraiser “We can’t afford any more than $330,000 for that house”, then the consumer client will likely expect an appraisal around $329,000. If that is legitimately the value, then so be it. But if the appraiser even rounds up or down inappropriately, then that steps over that ethical line.
There is an illustrative scene in the movie Field of Dreams. Kevin Costner has built his baseball field of dreams in his cornfield. All of baseball’s past greats, as they were when they were in their primes, have come to play. One of those baseball players, played by the late, great Burt Lancaster, went on to become a physician after he left baseball. As an old doctor, he longed to return to the glory of his youth when was a nationally famous baseball player.
As the teams were playing, Costner’s daughter in the movie, while watching a night game, falls of one of the higher bleachers and hurts herself seriously, her breathing impaired. The players all rush to the boundaries of the diamond since they care for her, human being-to-human being. But they don’t leave the field since, if they do, they will become old again and cannot ever return to their youthful glory or the field of their young-man dreams. The doctor, as a young baseball player, wants to help her, knowing her can since, after all, he became a doctor after his playing days. Costner begs him to save his daughter. Lancaster’s character knows he can help her but, once he leaves the field, he can never go back. However, he knows he has a higher calling as a physician, a healer, than as merely a baseball player on this field of dreams.
So, with no hesitation at all, he leaves the field, immediately reverting to the old, wise physician he was and was truly meant to be, to administer to the little girl. He braces her neck, finds the obstruction, removes, it and, in so doing admits to himself that, while at one time he dreamed of baseball, and lived that dream for a while, on his field of dreams. But he realized where he really belonged, where his glory days were and would always be, was where he already was, healing people.
So, what’s the point? Appraisers are human beings, with all the glory that title implies and the baggage it carries. Appraisers have hopes & dreams, kids & mortgages, aspirations & frustrations to motivate them. So long as these do not influence appraisers to become their client’s advocates, there is no problem. But because we are human, that temptation exists mightily. Yet, as appraisers we are not consumer advocates, we are not the last bastion against evil and rapacious lenders having their financially carnal way with innocent mortgagors. Those are not our jobs.
Our job is to provide independent, impartial, and objective valuation services to those who hire us. It is not to advocate for those who hire us.
So, while USPAP does not counsel us against working for potential mortgagors (indeed, we should, since we are qualified to do so), it does counsel us against stepping over the line of independence, impartiality, and objectivity since, once we do, we can never step back.