As this magazine issue examines professionalism and public perceptions of real estate practitioners, the focus is rightfully on real estate brokers and agents. But we should not neglect the appraisers in our midst. Not only are many appraisers REALTORS® and subject to the same REALTOR® Code of Ethics, but appraisers also have additional ethical rules and standards of professionalism they must observe. The working relationship between brokers and appraisers should reflect the high standards of conduct each profession aspires to.
Professionalism in the appraisal world
Prior to the 1990s, lenders and appraisers didn’t have a cohesive set of rules and regulations to follow. The Financial Institutions Reform Recovery and Enforcement Act (FIRREA) was enacted in 1990 to protect federal financial and public policy interests in real estate-related transactions by requiring that real estate appraisals in federally related transactions are performed in writing, in accordance with uniform standards, by individuals whose competency has been demonstrated and whose professional conduct is subject to effective supervision. FIRREA established uniform federal guidance for appraisers who are charged with reviewing real estate purchase contracts, inspecting properties and providing opinions of value so that buyers can be approved for their purchase loans.
The Uniform Standards of Professional Appraisal Practice (USPAP) was authorized by Congress in 1989 and adopted by the Appraisal Standards Board of The Appraisal Foundation as the minimum performance standards for appraisal practice in the United States. USPAP provides details on what an appraiser must consider to arrive at a credible opinion of value. FIRREA recognizes USPAP as the generally accepted appraisal standards and requires USPAP compliance for appraisers in federally related transactions. State appraiser boards and regulatory agencies, such as the Wisconsin Real Estate Appraisers Board and the Department of Safety and Professional Services (DSPS), mandate appraiser compliance with USPAP. Enforcement of USPAP appraisal standards is provided by the state appraiser regulatory agencies including the DSPS.
What does USPAP provide?
The 80 pages in USPAP contain complex and lengthy rules and standards pertaining to the development of an appraisal and the reporting of that value opinion to the client.
How does USPAP address the problem areas that brokers encounter?
Brokers sometimes express concern with the appraisals performed for lenders in purchase transactions.
The parties may be unhappy because the appraised value is not what was hoped. In such scenarios, the appraiser’s job is to provide an opinion of value, supported by legitimate reasoning and analysis, expressing market value — what a typical buyer would pay for the property in that market area. As professionals, REALTORS® should stop to consider whether an appraisal causing dissatisfaction simply reflects current market conditions or is the result of other factors.
Excerpts from USPAP
Within the ETHICS RULE, the Conduct section provides, “An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.
An appraiser:
- Must not perform an assignment with bias;
- Must not advocate the cause or interest of any party or issue;
- Must not accept an assignment that includes the reporting of predetermined opinions and conclusions; …”
The COMPETENCY RULE provides, “An appraiser must: (1) be competent to perform the assignment; (2) acquire the necessary competency to perform the assignment; or (3) decline or withdraw from the assignment.” The comments to this section state: “Competency may apply to factors such as, but not limited to, an appraiser’s familiarity with a specific type of property or asset, a market, a geographic area, an intended use, specific laws and regulations, or an analytical method.”
STANDARD 1: REAL PROPERTY APPRAISAL, DEVELOPMENT provides, “In developing a real property appraisal, an appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete research and analyses necessary to produce a credible appraisal.”
Why should the agent provide a copy of the offer to purchase to the appraiser? Won’t they just target the contract price then? Shouldn’t they arrive at a value independently?
A contract purchase price is a good indicator of the property’s value, and it may be logical and reasonable for an appraiser to conclude that they are the same. However, this is not always the case. In some situations, an offer to purchase price will exceed what is typical in the marketplace, while in others, it may be less. While the price in an offer is a significant piece of market data, it must not become the target in an appraisal assignment. Instead, competent analysis of relevant and credible market data must serve as the basis for the market value conclusion. If an appraiser consistently finds that the contract price equals market value, the appraiser’s impartiality, independence and objectivity may be called into question under the USPAP ETHICS RULE.
Appraisers working for appraisal management companies are sometimes asked to perform appraisal assignments outside the market areas they are familiar with. The assignments also require quick turnarounds, such as 48 hours, which does not allow enough time to research the local market. Should appraisers accept such assignments?
The COMPETENCY RULE requires an appraiser to notify the client if the appraiser lacks the necessary competency before accepting the assignment. In this case, the appraiser is concerned with his geographical competency. If proceeding, the appraiser must take steps to become competent and report those measures in the appraisal report. The appraiser may affiliate with a qualified local appraiser or spend enough time in the market area to attain geographic competency, or decline the assignment. In this case, the 48 hours would appear to preclude the appraiser researching the market area and conducting the appraisal. Such circumstances are also addressed in the SCOPE OF WORK RULE in USPAP, which indicates that an appraiser should withdraw from the assignment if the appraiser begins an assignment but then finds the time frame is too short for the development of a credible appraisal.
How can a REALTOR® get questions on a finished appraisal report answered by the appraiser?
Generally, the appraiser may only discuss the report with the client, or the appraiser must have authorization from the client to discuss a completed appraisal report with another person. If the appraisal has been completed, it may be best to speak with the lender and ask them to raise any concerns.
Professional pointers for working with appraisers
Although it may be a bit challenging to address concerns after the appraisal report has been issued, real estate agents may converse with appraisers, optimally before or during the property inspection. This is the agent’s opportunity to provide information about the property, indicate how the list price or offer price was arrived at, and provide comparables that may be helpful to the appraiser — in a friendly, professional manner. Real estate agents may:
- Meet appraisers when they arrive at the property for inspection or, if that is not possible, be available by phone or e-mail. Show them unique features, but keep the presentation factual. Agents can talk to appraisers as long as they are not pressuring them to arrive at a certain value.
- Provide a detailed list of upgrades, with costs if possible, and predominant features.
- Provide any CMA, comps or other research demonstrating how the price was set. Include any sketch or other record of the measurements used. Share this information on the telephone or by e-mail if a personal meeting is not possible. The appraisers might or might not use this information but at least it was made available.
- Provide information regarding offer activity.
- Document any discrepancies with the assessor’s data.
- Share hyper-local insight and resources regarding the neighborhood or market area that may contribute to overall value.
Brokers and agents should always proceed from a respectful, educational standpoint. Be courteous and pleasant, and be sure to return calls and thoroughly answer any questions. Agents may offer information but should never tell appraisers “here are your comps” or tell them how to do their jobs.
Distribution of information
Can brokers share information on pending sales (sale price) with appraisers?
The general rule is that real estate licensees must maintain the terms and conditions of the offer to purchase as confidential. However, in the new Distribution of Information section of the updated offers to purchase, the parties grant brokers the authority to share what would otherwise be confidential information so that appraisers can obtain the information they need to comply with various regulatory and client-imposed standards and provide a more accurate valuation. The appraisers may be looking for information regarding listings, pending offers, concessions and other pre-closing data. Upon inquiry, a broker may provide pending sale information to appraisers researching comparable sales, including sales prices for pending sales. This information helps appraisers make proper adjustments to comps and arrive at better, more accurate appraisals.
The term “REALTOR®” has come to connote competency, fairness and high integrity resulting from adherence to a lofty ideal of moral conduct in business relations. Both brokers and appraisers should show respect for property, the public and their peers, and conduct business with the utmost respect and professionalism.
Resources
USPAP online: www.uspap.org.
“Can You Head Off Inaccurate Appraisals?” NAR blog, Robert Freedman, November 12, 2011: speakingofrealestate.blogs.realtor.org/2011/11/12/can-you-head-off-inaccurate-appraisals.
“How to Challenge that Low Appraisal” Michele Lerner of HSH.com: realestate.msn.com/how-to-challenge-that-low-appraisal.
“Are You Reporting Sales Concessions?” in the September 2007 edition of the Wisconsin Real Estate Magazine: www.wra.org/WREM/Sept07/SalesConcessions.
Appraisal Foundation information pamphlets:
“A Guide to Understanding a Residential Appraisal” provides consumers an overview of the residential appraisal and how it relates to the homebuying process: appraisalfoundation.sharefile.com/download.aspx?id=scfe7be1162c4358b#.
“Appraisers, Appraisals & You: A Lender’s Guide to USPAP” provides insight to lenders in working with appraisers as well as an overview of the entire appraisal process: appraisalfoundation.sharefile.com/download.aspx?id=s5d634c9fee34c6da#.
NAR’s “A Pathway to Professionalism: Respect Starts Here”: www.realtor.org/professionalism.
Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.