Guest Appraiser Columnist:
Joe Palumbo, SRA
Palumbo On USPAP is written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions here. View his earlier handiwork on Soapbox and his published article in the Employee Relocation Council’s Mobility Magazine.
There are many debatable topics in the appraisal world and within USPAP. There is one that is not really a USPAP issue but an issue of law….though it does draw some parallels in that some “interpret” things differently. To me there is only one correct interpretation which boils down to common sense. This time around I thought I would step outside of USPAP issue and a practical specific relationship to a valuation assignment and talk about something that has been “bugging me” over the past several years. I was reminded of this issue after reviewing the Appraisal Standards Board Q and A for Feb 2009. I can also recall debating this issue with a former supervisor of mine, who while extremely intelligent and knowledgeable in appraisal and (other matters) seemed to take the find any crevice in order to disagree with me. It got me so hot that I got a friend of mine (now unfortunately and untimely deceased) on the NJ State RE Appraisal Board to write me an e-mail explaining how my “view” was correct in fact and law…which I sent to multiple parties who “disagreed” with my view and the topic was never discussed again. Here is the issue as taken from the Q and A:
Must a Review Appraiser be licensed or certified in the state jurisdiction where the subject property is located?
Does a review appraiser have to be licensed or certified in the state where the subject property is located?
Appraiser credentialing requirements are not covered by USPAP. However, since this question is often asked, we have provided the following response from the Appraisal Subcommittee (ASC):
“Included in ASC Policy Statement 5 is the ASC’s position on when an out-of-state review appraiser must obtain a credential for purposes of performing a technical review. The ASC has concluded that for federally related transactions, so long as the review appraiser does not perform the technical review in the state within which the property is located, and so long as the review appraiser is certified or licensed by another state, that appraiser need not be registered for temporary practice or otherwise credentialed by the state agency where the subject property is located. With that said, state law may be more restrictive than federal law and may require a temporary practice permit or other credential. It is therefore imperative to consult with the state where the property is located.”
(ASC Policy Statements may be downloaded)
It is important to point out here that the “problem” I have is with a technical review that INCLUDES as part of the scope an alternate value conclusion (= APPRAISAL) even concurrence and NOT the Standard 3 Qualitative Review.
I’ll use the info from my friend at the NJ State Board to elaborate on this using NJ as an example. NJ is mandatory state which also requires a temporary practice permit should anyone with an out of state who wants to “appraise” a property. Simply put you need a NJ APPRAISAL LICENSE OR TEMPORARY PERMIT to appraise a property here. If you are a realtor, asset manager, outsource company, AMC, and you are “reconciling VALUES” between appraisals on NJ properties YOU NEED the specific permission granted under NJ LAW. If you want to do the qualitative Standard 3 review WITHOUT a value conclusion as stated above, that is acceptable. This restriction on “appraisals” would logically extend in any states that require practice permits. I fail to see how this can be interpreted any other way yet it does all the time. Ask yourself why the states would go through the legal process of protecting consumers and then allow someone that is (legally) unqualified to value a property? It flies in the face of why licensing came about. As an example, If a Pennsylvania appraiser without a temporary practice permit does a review with an alternate value conclusion on a NJ property and the valuation is flawed loans are made based on the valuation and things fall apart; whose economy is affected? Certainly this burdens NJ more than PA? What is the difference between getting in a car driving across a state line inspecting, measuring, photographing, conducting a quality and condition survey and rendering a value opinion OR rendering a value opinion from the desk after reviewing someone else’s report? Other than a difference in scope THERE IS NO DIFFERENCE, both are appraisals. And just to be clear I am not saying that you cannot be geographically competent because you can be….. but there is a technicality in that in the license MAY be required first. The problem is that this scenario presents a very difficult enforcement task from a timing perspective. Even further, this situation is taking place all over the country with major lending institutions who see the mandated use of a state-asset-specific appraiser to be a (costly) inconvenience. Hence we are left with the truth about how unenforceable the “e-review” is from a realistic perspective. The last thing any state board has is the resources to police cross-border electronic appraisals. ( the state would have to issue the cease and desist). The only real policing is for those in the industry to recognize the issues here and do a bit of self policing and refuse the review or for the banks to set up staffing and appraiser panels to comply. I worked at a large bank that did just that and I will not deny that it was very challenging economically and from a staff efficiency point of view. It was however the right thing to do for consumer the bank and the licensed staff. Current economics have made that more difficult but not IMPOSSIBLE.
The ASC does imply some driver’s license logic above; one must have a driver’s license to drive and that simple qualification extends the license to do so in any other state without additional requirements. That is where an appraisal license and a drivers license differ: An appraiser MAY have to have a specific license rather than just “any license” whereby automatic temporary practice is granted for driving from here to California. While some states do grant reciprocity most require the application and (fee of course) so there may be a state or two with “automatic driver’s license” reciprocity but based on my research they are a very small minority.
I have also heard the argument that the law only applies to those who ARE licensed and that the layperson can do anything….because the laws and subsequent restrictions only apply to those licensed. This was a statement made to me by the President of a AMC who was trying to justify the use of “non-licensed specialists” to reconcile appraisals via review with alternate conclusions. This is the most ridiculous thing I have ever heard which brings me back to the driver’s license analogy: Do the laws apply just to the licensed drivers? No unlicensed drivers can cited as well.
Defending your position based on what you have to gain is nothing new for business. At least in the case of major lenders using out of state appraisers they have “a” license. I guess they believe in half truths or bending laws unlike those who practice valuation with indifference altogether. They probably have their share of motor vehicle moving violations The amount of hypocrisy in this industry never ceases to amaze me.
Tags: Joe Palumbo, Appraisal Management Companies, AMC, Palumbo on USPAP, NAR, National Association of Realtors
Good stuff Joe.
Extremely relevant and critically important to the profession. I’m sure I have an opinion about what you have to say and I will share it with you shortly. I know I support the AI effort to designate appraisal reviewers. At this point adding accountability requirements for real estate appraisers of all kinds has no horizon in my opinion. Real estate appraisers are building a strong foundation in USPAP and in education and it is well past the time to anchor practitioners irrevocably to it or invite them ’em do something else for a living.
OK, I thought about it.
Based on the published results, the workings of the various appraisal committees are a mystery to me. Far, far too often the opinions that are published just beg more questions and fail to answer the one that prompted the opinion in the first place. It does seem to me that the committees are balancing the interests of the clients with the undeniable need to improve the quality of appraising. That concerns me since we’ve pretty well established that the interests of clients (particularly mortgage clients) consist mostly of whether the appraiser can hit the number, how quick he can hit it, and can he hit it cheap enough. Why the appraisal profession continues to care about that sort of stuff is beyond me, but I suspect it has more to do with biting the hand that feeds you than it does with improving appraisal quality. Competence and accountability for it are what I think you are speaking of and I haven’t yet seen what the upper limits of those are, but I don’t think we are anywhere near the zenith. Competence in appraising is built upon the twin pillars of education and experience, and they are not interchangeable. Appraisal competence requires a healthy dose of both and I think the industry has recognized that, even as it struggles with the balance. But, then there is accountability. Historically appraisers have mostly been accountable only to the client and the dynamics of that relationship have survived and been codified to some extent into USPAP. There has also been some measure of accountability exercised by appraisal organizations as well. Now we know we have we have an accountability to the public trust as well and the mechanism for enforcing that accountability has shifted to the the states. With all of this effort to improve the industry and its practitioners by beefing up competence and accountability, my mind is as boggled as yours how review appraising has escaped the spot light. I, like most appraisers, have been reviewed completely nonsensically by anybody and everybody and by appraisers who have never been to Colorado let alone to my neck of the woods. Infrequently reviewers call to give me their opinion of this market, and occasionally they call to ask questions they consider relevant to the appraisal. But, the critical and important issue you raise is whether anyone should be reviewing an appraisal produced in a market they have absolutely no familiarity with (i.e. competence in). I have tried to address this issue previously and the whole discussion is derailed by the term “geo-competency.” Of course it is common for discussions on any issue among appraisers to take on an explosive and vigorous life of their own with no consensus emerging. But, it is impossible to deny the strong resistance among those of us who review to being accountable. Reviewers particularly resist any notion that they should be held responsible for being familiar with the market and sometimes the type of property involved in the review. I suspect this also is a hold over from the “old days” when appraising was a journeyman/apprentice cottage industry, but as you observe things have changed a lot. I believe the clients for the most part use appraisal review for CYA and the industry uses it as lip service for credibility. And the states (at least the State of Colorado) use it in enforcement of licensing regulations.
The most useful function of review to improve the profession is noticeably missing from the list. EDUCATION. Education of the appraiser involved and education for the rest of us.
But as you observe, if review is to truly have relevance and usefulness at any level the reviewer must be competent and accountable, to a higher degree than the appraiser.