If this statement is the width, breadth, and depth of your defense against a state board’s charges, you probably should just sign the consent agreement now. In other words, that statement should not be the width, breadth, and depth of your defense, defense strategy, or defense tactics when your state board charges you with a USPAP violation(s). So, what to do? Read on…
Appraisers, as a group, tend to be very independent[1], which is generally to their benefit. By being independent, they tend to avoid “groupthink”, which is basically a herd mentality when it comes to a concept or an idea. Further, USPAP’s definition of an appraiser involves the concept of independence (and has nothing to do with credentials). Therefore, it makes sense for an appraiser to be independent; to go his or her own way, no matter what the rest of the group/reviewer(s)/client(s)/intended user(s) thinks. This independence is, to a great extent, an important component of critical thinking.
However, this tendency toward independence can have its drawbacks, among which is the concept of “if you want it done right, do it yourself!” There are times when this mindset is adequate, and maybe even necessary. However, there are times when the appraiser must seek outside counsel and advice. One of these times is when the appraiser has a complaint or charge filed. While the chances of this happening are approximately 3% in any given year, if an appraiser has been appraising for 30 years, it increases to about 90%.
If you were to find yourself as a defendant in a civil suit, the first thing you would do is obtain legal counsel. The reason for this is that you do not understand the courts, you do not understand their rules and regulations, and you have not been trained in the reasoning, strategies, and tactics going to court requires. Therefore, this area is outside your expertise. True, you could represent yourself. However, there is a saying among attorneys that “a man acting as his own attorney has an ass for a client and an idiot for an attorney”. This is likely self-serving for attorneys (they do charge by the hour), but it illustrates a valid point.
Therefore, when the appraiser finds him or herself on the wrong side of a letter from the state’s appraisal board regarding a USPAP or state appraisal statute violation, the first thing the appraiser should do is contact his/her E&O provider immediately. Then the appraiser should hire competent legal counsel. This would be an attorney well versed in the area of administrative law. Those who practice in this area are accustomed to representing professionals before their various state boards.
Despite counsel’s experience, it might be necessary for the appraiser, after consultation with the attorney, to hire qualified USPAP counsel. This is a USPAP instructor who can advise you and your attorney in matters pertaining to USPAP. Please understand how important it is to take advantage of these two counsels. Your attorney is an expert in the law, and all that description comprehends. Your USPAP counsel is an expert in USPAP, as well as its meaning, proper interpretation, implementation, nuances, strenghts & weaknesses, and so forth.
Many appraisers, when that letter comes in from the state appraisal board, in an attempt to save money, choose to be their own USPAP and legal counsel. OOPS! That gurgling sound you her is that appraiser’s career circling the drain (a sound no appraiser wants to hear).
That letter from the state appraisal board will set forth the charges (USPAP and/or state appraisal statute) to which the appraiser has to respond, and so forth. It is also likely that, with that letter, or very soon thereafter, the appraiser will receive a series of questions from the state board’s attorney and/or investigator. This is common. However, the problem is the appraiser may seek to answer these questions without the advice and benefit of proper USPAP and legal counsel. This is the wrong step to take, as the above reasoning supports.
That this is the wrong step to take finds support in the fact the appraiser does not know how to answer the questions. There is an art to responding to the complaint (an art at which attorneys are adept). The appraiser has no experience or training in that art. Given this lack of training, it is common for appraisers to put in their responses some or all of the following statements, all of which are examples of how not to respond to that letter from the state appraisal board. Note that the statement in parentheses are the reasons these are exactly the responses to avoid:
- “I didn’t mean to do anything wrong!” (This admits a lack of competence, which is a violation of both the Ethics Rule as well as SR1-1. The appraiser probably didn’t mean to do anything wrong. However, that the appraiser did engage in some error or another is obvious – otherwise the state would not have filed the charge. This statement also essentially admits to the appraiser’s “guilt”, which is not something the appraiser wants to do – at least, not at this stage of the game).
- “I did not know I was not supposed to do <insert charge here>!” (This, too, admits to incompetency, as well as essentially admits the charges the state has leveled. Not to know what it is you are (not) supposed to do in any given appraisal situation is a direct violation of the Competency Rule, thus of SR1).
- “But that’s the way I’ve always done it!” (This admits to (a) long-term incompetency, as well as (b) ignorance of every edition of USPAP since it first came out in 1996. It also implies the appraiser has not kept up with the latest techniques, protocols, and/or thinking in appraisal theory, a violation of SR1-1(a)).
- “Well, those statements should not have been in the report, but I cloned an old report and just didn’t remove the irrelevant parts! I really have done nothing wrong!” (This admits to incompetency, as well as lack of due diligence (which is synonumous with incompetency). Further, it is likely misleading since, in the certification, the appraiser certifies that every “…statement of fact in the report is true and correct”
[see SR2-3]
. Remember, when a state board considers misleading, it is looking at results not intent. It does not concern itself with intent, but only with results).
- “USPAP is bullshit!” (An appraiser’s opinion on the quality of USPAP is not relevant to an investigator or a state board, nor is it a cogent response to the state’s questions. It also shows the appraiser to have an attitude of ignorance and arrogance, not one of teachability. Copping a ‘tude with the state appraisal board, or its investigator(s), generally does not make for pleasant days and nights. It also shows the appraiser has such an insufficient command of English that it was necessary to revert to barnyard profanity).
- “But my client reviewed the appraisal report and liked it!” (This is irrelevant. Is the client really going to turn in an appraisal report that helped it to close a deal? Further, the client has no metric by which to measure[2] an appraisal. Such a statement as this could also imply advocacy and/or bias[3] on the part of the appraiser, both of which are violations of SR1 and the Ethics Rule. This advocacy lies in the statement makes it look as if the appraiser appraised the property, and then reported that appraisal, in a manner to please the client).
- “Well, this is why I have E & O insurance!” (True, but this statement is not a demonstration of the logic and reasoning behind a value conclusion, nor is it an explanation for any errors. This, in and of itself, implies incompetency as well as ignorance of the requirements of USPAP for an appraisal (be credible – see SR1) and report – not misleading [see SR2]).
- “At , what kind of job that they expect me to do!?” (For good or ill, the quantity of the appraisal fee is irrelevant in light of USPAP’s credibility and due diligence requirements. When the appraiser accepts an appraisal assignment, the appraiser thereby promises to follow USPAP’s Standards 1 and 2. This statement from an appraiser also admits to misleading the client, as well as an ignorance [i.e., a lack of competence] of USPAP and its development and reporting standards. Again, the quantity of the fee is irrelevant to a state appraisal board; credibility and due diligence are paramount. To raise the issue of fees [especially when the appraiser fees the fee is too low] makes the appraiser look mercenary. That the appraiser under-bid the job is neither the client’s not the state’s fault – or concern, for that matter).
- “What’s the big deal about highest and best use?! It’s a house in a residential subdivision! I checked the box!” (It is true that, right now, the concept of a complete highest and best use analysis for a residential house in a tract subdivision is a cause of disagreement, as well as one the appraisal authorities must revisit. Nevertheless, to raise this “defense” demonstrates incompetency relative to the knowledge of highest and best use, a recognized method & technique necessary to produce a credible appraisal. That ignorance is a major violation of Standards Rule 1 – 1(a). It is also a violation of Standards Rule 1 – 3(a, b). This Standards Rule specifically addresses the concept of highest and best use, as well as those components of value the appraiser must analyze to arrive at a credible highest and best use conclusion. It is a violation of SR1-4, which requires the appraiser to “…collect, verify, and analyze all information necessary…” as part of the appraisal development process. Finally, since the definition of a comparable is one with the same H&BU as the subject, it is essentially impossible to choose comps without having determined the H&BU of the subject first).
- “There were no land sales comps, so I backed into the site’s value in the cost approach. What’s wrong with that?!” (There are six recognized ways by which the appraiser can credibly form an opinion as to the value of the vacant site. Backing into it is not one of them. Therefore, the statement evidences incompetency relative to SR1–1(a), as well as the six recognized techniques. It is also possibly misleading in that, without an explanation to the contrary, the client has the right to expect the appraiser to arrive at a vacant site value via one of those six standard protocols. It is also a potential violation of SR1-3(a, b) in that a vacant site value is a component of the highest and best use analysis this Standards Rule requires).
- “I followed the depreciation tables in ! What do you mean I have to extract depreciation from the market?!” (There is only one-way to calculate accrued depreciation, which is the protocol in SR1-4(b)(iii). Therefore, this statement evidences ignorance of not only this Standard Rule, but also Standard Rule 1-1(a). Ignorance of the contents of the Standards Rules is basic incompetency. It is also potentially misleading since the client has the right to assume the appraiser knows how to extract accrued depreciation from the market, not merely look it up on a grid).
This list of “defenses” serves as but a summary of some of the common excuses with which appraisers “defend” themselves. Really, they are not defenses; they are all essentially admissions of “guilt”, as well as indictments of the appraiser’s lack of competence in basic real estate appraisal theory and practice, especially in the area of due diligence. Their use may convince the state appraisal board the appraiser engaged in misleading[4] professional behavior, too. That conclusion can lead to charges of bias and/or advocacy. To avoid that indictment is but one reason appraisers should hire competent legal and USPAP counsel to defend them against state charges. There are more.
Finally, remember that SR2-3, the 8th bullet point, makes it clear the appraiser has certified to the fact that his/her “…analyses, opinions, and conclusions were developed, and this report has been prepared, in with in conformity with…[USPAP]”. This certification must be part of every report that ever goes out an appraiser’s door. Yet if the appraiser certifies to something that is not true and correct, if indeed the appraiser did not comply with USPAP in the formation of the value conclusion, as well as its reporting, then the appraiser, at worst, lied and, at best, made a serious misrepresentation.
Again, a charge by the state appraisal board is serious, thus worthy of a vigorous professional, well-prepared defense. Please, don’t do this by yourself! Retain and pay experts in the law and USPAP. Those professionals who can assist in your defense are ready, willing, and able to provide you with the legal assistance and USPAP counsel you’ll need. Take advantage of their professional help knowing the fees for their services are not only reasonable operating expenses, they are also an investment in your own professional continuing education and well-being. Eventually, you may end up signing that consent agreement this essay mentions in the first paragraph. But you’ll take that strp only after a spirited defense!
I am available to consult with you on USPAP matters, as well as work with your legal counsel. Contact me, tim@theappraisersadvocate.com.
[1] When it comes to real estate appraisers and independence, think of herding cats.
[2] USPAP cannot be the measure of the quality of an appraisal because USPAP cannot measure itself. To believe USPAP is that measure is to beg the question that USPAP is a standard of what is “correct” or “accurate” since an appraiser’s scope of work is open to interpretation as well as proper execution. USPAP cannot serve as that standard since, if for no other reason, it changes every two years. A standard that flexible and subject to change isn’t a standard. It is, at best, a touchstone or series of recommendations.
[3] It implies potential advocacy or bias because, since the client “liked” the report, the appraiser may have written it merely to please the client and meet its expectation, not with the purpose of credibly forming and communicating a value opinion.
[4] To mislead the client is a major Ethics Rule violation since violation of ethics is one state boards consider to be voluntary, not one of a mere lapse in judgment.
Tim, I have always appreciated your clear logic and sage advice on these matters! Thank you for this, as well as your other articles, and podcasts! I personally appreciate it. I always have much I am trying to improve upon in my appraisal work. Your articles are always helpful and appreciated.
Thank you, Jamie!
Tim, it would be great if the Appraisal Foundation published this and sent it to all licensees.
Thanks, Steven!