- by Julie Friess SRA
- Compliance is defined as the, "doer of an action, or the manufacturer or supplier of a product, meeting the requirements of accepted practices, legislation, prescribed rules and regulations, specified standards, or the terms of a contract.(1)"
Sometimes it appears as if complying with tedious laws and regulations, or "Rules" can and are burden-son, and rigid. Often it appears this way when there lacks an understanding of why they exist and how following these rules and/or standards benefit not only the professional, but the recipient as well. It is for this reason that I decided I would write this article and "blog" and begin posting simple and easy to follow explanations for why it is so important for each and every real estate appraisal reported to be in compliance with the uniform professional standards of practice. These are the minimum requirements that are outlined and explained by The Appraisal Foundation, whose only mission is to advance the appraisal profession by ensuring that appraisals are independent, consistent and objective. This is THE ORGANIZATION that sets the Congressionally authorized standards and qualifications for real estate appraisers, and provides voluntary guidance on recognized valuation methods and techniques for all valuation professionals.
This section is included here so anyone reading these publications can feel confident that the information being dispelled is qualified and accurate. My years of diversified experiences in the industry, and lessons learned from these experiences are so valuable to every professional appraiser that will take the time to hear what I have to say and try to absorb some of the valuable information, which is FACTUAL, I am providing.
With that being said, there will never be a time that I will express something, and not be open to constructive discussion and additional interpretations. I am even open to the possibility that I am incorrect at time, as I do make errors and am as imperfect as the next person. I only request that should anyone question me, they do so by supplying relevant facts, and qualify whatever they are saying. Intellectual debate is welcomed. Arrogant disrespect and conjecture is not.
A little about me...
I am a certified residential real estate appraiser with a Finance and Marketing undergraduate, and Clinical Psychology graduate degree. I have 29 years of extensive “boots-on-the-ground” concrete, uncompromising fee appraisal work experience in all types of real estate appraisals and multiple States I have successfully trained many individuals to become certified successful real estate appraisers, and ahve successfully assisted as an Appraisal Institute SRA Mentor, many others to earn their SRA Designations. I did differing types of appraisal assignments for many years with AMC's as a fee panel appraiser, and then worked on "the other side," behind the scenes "so-to-speak," as both a staff appraiser and in a vendor management position. I was in the trenches, working processing, QC, appraisal reviews, and status as well for an AMC, and I have to tell you, THAT is a difficult job these days!
I have beta tested many types of software, forms, new designed for software, desktop type forms, web forms, updates, and completed many different desktop forms and types of alternative appraisal reports. I have instructed and developed courses for all practically every industry stakeholder, given live and taped webinars on repurchase demands, negotiations for buybacks, mortgage fraud and USPAP compliance, among many others.
I was asked to and did develop and instruct a USPAP for Non-Appraisers course. It is designed for the employees of the bank, or institution, that are non-appraiser's who reach out and interact with appraisers regularly. Following writing and implementing this course at this organization, I was retained to write and develop specific education course designed and written for the mortgage/loan originators, and underwriters education in appraisal. These course included an on-line and/or on-site certification program that included quizzes and a final exam that when it was completed it was (is) designed to train the loan originators and specifically underwriters, in basic appraisal methods, and USPAP compliance.
For the past 17 years, I have been present and participating in multiple conferences, Appraisal Foundation proceedings, events, speaking on panels, contributing to panels and discussions at events, attending regulatory board meetings, volunteering on appraisal coalition, education, and Appraisal Institute committees, writing and publishing articles nationwide, sitting on and contributing to appraisal related and/or realtor-related round-tables, committees, meetings, and panels. All related to industry issues and directly with all stakeholders and relevant parties as well. I show up where most people in the industry and appraisers do not. I love being an appraiser and I believe in this profession. Most people who come in contact with me face to face know this. My love for this profession is contagious. As appraiser's, we are given the honor and job of protecting the public and being neither friend nor foe, but the voice of reason as emotions fly.
Over the past 17 years I have been offered 5 Chief Appraiser positions, 1 Quality Control Vendor Management position and 3 additional Compliance Management positions, and turned all of them down because my integrity, and moral compass would not allow me to accept them. I am not the "Mother Teresa" of the industry. I just understand The Appraisal Process and the true need for compliance with the true professional standards, and the need for enforcement and law. These are the things in our society that protect our children and families, and ensure that our futures will be safe.
USPAP; Uniform Standard of Professional Appraisal Practice
Why so much confusion?
Over the past 11 years I have been primarily working on litigation cases involving loss mitigation. This began with mortgage fraud cases as a consultant for the FBI, and then investigations with the Arizona Department of Financial Institutions. I was able to directly contribute to the New York Attorney General's office development of the Home Valuation Code of Conduct, better known as the "HVCC" (don't blame me if it was not properly implemented), and then moved on to re-purchase demands/buyback negotiations with Fannie Mae, Freddie Mac, PMI Companies, the VA, FHA and loss mitigation appraisal analysis. I worked for almost 4 years consistently negotiating and defending the appraisal for buybacks, if there was justification, in litigation cases. For the last two years I have been working on numerous litigation cases where the focal point of the matters brought before the court are the compliance and credibility of the appraisal, per the Uniform Standards of Professional Appraisal Practice. The VALUE is irrelevant. What is relevant is HOW the appraisal was DEVELOPED. This has always been what is relevant and this is where the confusion lies.
Even a broken clock is accurate and correct two times a day.
One can even make statistical estimates about that broken clock and say that when the time is 1:00pm, and the broken clock is reading 1:05pm, statistically, it is 91% accurate right? But it is still a broken clock and if you KNOW that the clock is broken, would you continue to look at it on the wall to find out what time it was?
However, once you plug the clock into the wall and set it properly, and it the second hand that it has begins to go around and measure the time, and it begins to run according the way the manufacturer has designed it to, you will feel comforted by the knowledge that it is running based on the power it is getting, and the specified "clock" industry standards it is constructed with to tell you the time.
But there is no possible way that if I unplug that clock in front of you, that you can justify to me all day why the clock is accurate and correctly telling me time?
So why is it logical and rational to look at an appraisal with a reported value that has not been properly developed according to specific industry standards, so it cannot be considered credible per that definition, and continue to say that it is accurate and correctly indicating the market value?
Now remember, IT COULD BE! It could even be close! That is not relevant here. Go back to the broken clock example. Sometimes, just by mistake, or just because the property actually DID sell for the market value purchase price, the appraisal will report the correct value. Does that mean that the appraisal report complies with USPAP? The answer is no. Because like illustrated above, even a broken clock can be correct, twice a day.
Are you even more confused?
Hopefully the light-bulb has gone off but probably not yet. The reason why the light bulb may not have gone off yet, if you are reading this and his has not, is because there is a huge percentage of certified and even designated appraisers who were not properly trained, or did not ever understand the Appraisal Process, sometimes called the Valuation Process.
I want you to imagine what would happen if the designer of the clock did not know HOW to construct it properly to measure and tell time. So he or she just decided to put the clock pieces randomly together, hoping that it would work correctly.
This is what is being seen on appraisal reports all over the United States. And not just Fannie Mae 1004 form reports. Litigation "expert" narrative reports and forensic reviews as well. Within the past 18 months I have spent no less than an estimate of 12-16 hours a day, sometimes 5-7 days a week, scrutinizing and studying over one thousand appraisal reports completed from 1998 to 2016. The reports were completed in almost every state in the country. My scope of work was to investigate, research and review each one for USPAP non-compliance per the Standards and Standard Rules that applied as of the effective date of the report, think through and consider the implications of the "group of violations" as a whole, never one at a time unless that individual violation was so egregious, and how or if they affected the credibility and reliability of the report.
The assignment was to search and see if each appraisal report was properly constructed, like each clock. You cannot assemble a clock improperly. It will not tell time correctly. You also cannot construct an appraisal report, ANY appraisal report, incorrectly. It will not yield credible conclusions. The Appraisal Process doesn't work that way.
This experience has changed me. The wisdom and knowledge is almost overwhelming. The reality of how much education is needed for our professional appraiser's who are lacking the understanding of how to "properly construct" an appraisal from the ground up. I have been humbled.
Did you know?
"Appraising" is not a random, out-of-the-air type, opinion-driven vocation, or occupation. It is a profession based in general economic theory. Appraisal theory is based on this; it seeks to explain and understand what property value is. When an appraiser earns their certification from a regulatory body, which is a State in this country, the are given the license to "practice appraising." This is called Appraisal Practice.
Appraiser's who are licensed and practicing "Appraisal" are expected to know what the Appraisal Process is, and apply the distinct methods by which each appraisal problem is to be solved. This distinct method is a systematic procedure they employ to answer a clients question, typically about value. The procedure cannot be modified, altered or changed.Imagine how well that clock would tell time if it was not constructed properly to do so? Just because the outcome "looks like a working clock", does not make it one.
The development process is a process that exists whether or not the Uniform Standards of Professional Appraisal Practice outlines it, or requires it of the professional appraiser, or not. An appraiser CANNOT produce a credible appraisal without following the Appraisal or Valuation Process, and by analyzing, and "scrubbing" the information with over 1,000 appraisals over a time period of 17 years, all across the country, I am telling you, you CANNOT!
I'll write next about how simple the Standards Rules are and how they mirror the Appraisal/Valuation Process.
Feel free to send me questions if you want to. I look forward to your feedback!