Monthly Archives: November 2016
ICAP Attended The 2016 Fall AARO Conference
ICAP attended three days of the four day 2016 Fall AARO Conference held at the Westin City Center Hotel in Washington, DC. Opening sessions began Friday afternoon, October 21, 2016. The conference concluded on Monday, October 24, 2016. Future AARO conferences are scheduled to be held in Tampa, Florida, April 7-9, 2017 and Washington, DC, October 13-16, 2017.
Friday, October 21, 2016
ASC & TAF Updates session panelists included Appraisal Foundation (AF) Board of Trustees President David Bunton, Appraisal Subcommittee (ASC) Executive Director Jim Park, Appraisal Qualifications Board (AQB) Vice-Chair Mark Lewis, Appraisal Standards Board (ASB) Chair Margaret Hambleton, and Appraisal Practices Board (APB) Chair Shawn Wilson. Comments and points presented by the panelists follow.
Out of the 346 registered to participate in the AQB August webinar, 285 actually participated. Over 100 questions were submitted. The webinar was posted to the TAF Utube channel and received over 500 views within the first week. The next Standards Board public meeting is scheduled to be held in Dallas, Texas on February 3, 2017.
The State Investigators Training program is offered through a partnership between TAF, AARO, and the ASC. In 2016, 26 States participated in the Level I training, 24 States participated in the Level II training, and 22 States participated in the Level III training programs, respectively offered on May 23-25, August 1-3, and September 19-21, 2016. Currently there are four instructors; two more will be added. Standard Administrator Aida Dedajic can be reached at 202-624-3058.
California, Florida, and Texas dealt with legislation pertaining to the use of other Standards rather than USPAP. There is a joint effort under way between AI (Appraisal Institute) and TAF in an attempt to address many of the issues surrounding USPAP and Alternative Standards. To date, not one State has adopted alternative standards.
During the past several weeks the issue of “appraiser shortage” has seen congressional interest which leads to oversight hearings. Economic and dispersion factors and the need to educate users of appraisal services need to be considered. Today, there are more certification credentials than there were 10 years ago.
2006 2016 (as of Oct 21, 2016)
Certified General 34,812 39,154
Certified Residential 46,701 49,612
Licensed 29,921 7.983
State of Oregon 2014 2016
Certified Residential 652 679
Improved regulatory efficiency streamlined by the creation of a national clearinghouse for background checks, reciprocity and temporary practice forms, and State appraiser rules and regulations. A new 20-page publication describes the appraiser regulatory system in the United States, a unique partnership 25 years in the making.
Who is the ASC? It is an FFIEC subcommittee with oversight of the real estate appraisal process relating to federally related transactions (FRTs). Dodd Frank expanded the general responsibilities as defined in Title XI. Oversight includes the 55 State appraisal regulatory programs making sure the States employ the minimum standards and qualifications set by the Standard, Qualifications, and Practices Boards of the Appraisal Foundation. Ten (10) States received perfect reviews in 2016: Texas, Georgia, Nevada, Washington, South Dakota, Arizona, Missouri, North Dakota, Oregon, and California. Five (5) States received “good” reviews, and two (2) received “needs improvement” reviews.There were no “not satisfactory” or “poor” ratings given. The ASC has responsibility for:
- Oversight of 55 States, Territories, and the District of Columbia appraiser certification and licensing requirements. This includes Guam, Northern Mariana Islands, Virgin Islands, and Puerto Rico.
- Monitor and review the Appraisal Foundation practices, procedures, activities and organizational structure.
- Maintain a national registry of State licensed and certified appraisers eligible to perform FRTs. The National Registry can be found at: ASC.gov. In order to perform appraisals for FRTs the appraiser listed must have a checkmark in the active status category.
- Monitor appraisal standard requirements for FRTs established by the Federal financial regulatory agencies.
- Monitor the States’ regulations and supervision of AMCs.
- Maintain a national registry of States’ registered and licensed AMCs.
The MBA (Mortgage Bankers Association) projects a decline in mortgage originations for the 2017-2018 period. Distinct appraisers in the year 2013 is 84,000. In September 2016, the number is 79,000. A comparison of the overall number of credentials for the following years is:
The combination of a number of factors are related to appraiser “shortage” and “decline” issues. The number of persons taking entry examinations is less than in prior years which has created a concern in DC. Fees in some markets have increased. Examples provided include Washington State ($800) and Oregon ($750) providing an $180,000 annual income. This means for an $800 per appraisal fee, an appraiser must complete five (5) appraisals per week for one year based on a 45 week year. For a $750 per appraisal fee, an appraiser must complete five (5) appraisals per week for one year based on a 48 week year. Additional factors include: Increasing Scope of Work, AMCs, lender restrictions, Collateral Underwriter (CU), approved /DNU (do not use) lists, and AQB Qualifications Criteria.
The National Registry is being upgraded to include a Unique Identification Number (UID). The upgrade includes three phases. Phase 1 involves States data inconsistency analysis and validations. Phase 2 is the conversion of States’ data to the UID. Phase 3 eliminates the use of social security numbers on the Registry. Three objectives for the upgrade are to eliminate the transmission of Personal ID Info (PII), increase continuity of data on the Registry, and improve information sharing between all users of the National Registry.
ASC rule making, established under Title XI, and expanded authorization under the 2010 Dodd Frank Act, requires AMC Regulation. AMCs will not be able to provide AMC services in a State that does not have an established AMC program. These restrictions will become effective August 18, 2018. The final ASC rule on AMCs is anticipated to be completed by mid-year in 2017. It was written with the intent to keep it and to minimize fees on the industry. The various options being considered are:
- If an AMC has been in existence for more than a year:
Option 1: $25
Option 2: $25 for those on panel who received an assignment.
Option 3: $25 for those on panel and completed an appraisal within past 12 months.
- If an AMC has been in existence for less than one year:
Option 1: $25 or fee established by the State.
Option 2: Federally regulated institution exempt from States’ AMC program.
What does the future hold?
- AVM QC requirements
- Appraisal Review
- Economic Growth & Regulatory Paperwork Act (EGRPRA) decrease in the De-minimis.
There is a real risk posed to the lender by taking the collateral.
- Temporary Exceptions to FIRREA appraisal
- Requirements in Louisiana areas affected by severe flooding; 22 parishes have been waived.
The AQB received 700 comments in response to the discussion drafts. Two issues addressed in the Second Exposure Draft are education and experience hour requirements. It is proposed the education requirements for licensed and certified residential categories be rolled back to “none” for licensed appraisers and an Associate Degree or 21 hours in specific college courses mixed and matched with CLEP exams. In an effort to provide as many options as possible to entry level appraisers, the college degree program is extended to junior colleges. These economic or finance based programs are intended for approval towards appraisal hours. The approved list will be issued shortly. The practicum course or newly defined practical application courses have been available for a very long time. While the intent was to make entry level appraisers more marketable, it has not been utilized by anyone. At this time, the practical applications topic has been temporary tabled as additional information is sought from providers who already provide this service. The AQB is also looking for additional comments regarding this topic. The second topic addressed is the experience hour requirements. The proposal is to eliminate all time limit requirements and to reduce minimum number of hours for all categories. The proposal is 1,000 experience hours for licensed, 1,500 experience hours for certified residential, and 2,000 experience hours for certified general categories. To date, the comments received have been well-reasoned with a 50/50 split in favor of or opposed to the change. While the exams are working well, the number of first time test takers substantially decreased in 2015. The underlying objective is to protect the public. The AQB is interested in rule making for the minimally required, not the best. The number of AQB USPAP instructor discipline cases is “somewhere close to zero.”
The ASB will be issuing a Third Exposure Draft between now and December. This new exposure draft will be the focus of the February 3, 2017 meeting in Dallas, Texas. ASB activities include:
- Publication of the “Yes, I Can Accept That Assignment!” document which can be found at the following link: https://appraisalfoundation.sharefile.com/share?#/view/s5e341713f9b4ec8a
- Working out inconsistencies with the International Language Standards Board.
- International Valuation Standards Board also deals with methods and techniques. These will need to be addressed by the Practices Board.
- Issuance of a sample report for both residential and commercial restricted appraisal report.
- 2017 Work Plan – to include whether or not to amend the cycle term.
- Second Exposure Draft
- Third exposure draft to be issued by year end covering:
- Report definitions
- Intended use and intended users
- Extraordinary assumption and hypothetical conditions
- Personal property
- Business valuations
- SR 3 and SR 6
- Divide into development and reporting standards which would allow for more consistency throughout USPAP.
- Advisory Opinions
- AO 37 – This is a new one.
- AO 18 – This is an old one, needs to be modified or updated.
- AO 21 – Compliance, Appraisal Practice modification and updating of graphs and examples.
- AO 1 – Sales History Analysis, modification of “analysis” which means more than just reporting of facts.
There are all kinds of resources addressing valuations and methods. The APB issues “voluntary” guidance in the form of valuation advisories. “Who will be reading these?” Appraisers, enforcement arenas and investigators, reviewers, and others involved in the process. There are eleven (11) different valuation advisories in process either from a blank page to an extensive document. The APB is looking for subject matter experts on these topics and on the Sales Adjustments in the Sales Comparison process in Residential 1 to 4 Units advisory. The APB is looking for any “hot topic” issues or topic for which the APB might provide guidance. Before publication, every advisory is “put out” for review. They are considered a reference document that puts the topic highlights in one place. The desire is for these valuation advisories to be user-friendly and readable. On September 23, 2016 the APB sent out a survey. It is a short survey, requiring about five minutes to complete. It will be kept open for a few more weeks. The APB issued valuation advisories can be found through the following link: https://www.appraisalfoundation.org/imis/TAF/Resources/Guidance/TAF/Valuation_Advisories.aspx?hkey=d74f24ae-8dcb-412e-947f-6df153626ae2
Presentation documents provided by Mr. Park and Mr. Lewis can be found at the following links:
The Q & A included a question as to whether or not there is an agreement with USPAP instructors regarding any USPAP non-compliance outside of the classroom. If so, has this agreement been modified? A quick poll of participants as to whether or not their State has a “shortage of appraisers.” And, a comment regarding the topic of when an assignment is concluded was offered, which is, “it is the intent of the appraiser as to when the assignment is concluded.”
“Federal Financial Regulators to Discuss Examination Practices Related to Appraisal Issues” closed out Friday’s sessions. Carmen Holly, Senior Supervisory Financial Analyst at the Federal Reserve Bank’s Risk Policy Section, and Beverlea S (Suzy). Gardner, Senior Examination Specialist at the FDIC Division of Risk Management and Supervision were the session speakers.
Examiners do have responsibilities when assessing a bank’s real estate portfolios. Individual appraisals, the bank’s established overall valuation program, independence and competency need to be examined. Is there a separation between the order request, the loan approval, and/or any stakeholders’ interest in the value? Does the appraiser have the competency.to understand real estate and concepts? Examiners generally are not appraisers. However, there is some level of in-house training on some aspects of appraisals. For appraisals and evaluations on individual loans, an examiner looks for overall reasonableness in the assumptions and adjustments in an appraisal and/or evaluation and whether or not it meets the loan specifications underwriting. Other areas examined include if there are any conflicts of interest, is there authority to obtain a new appraiser, current market values on problem credits, sufficient time to obtain a new valuation if one is needed, handling of modifications, moderating their collateral through life of the loan, and the safety and soundness perspective. Examiners will not initiate a State complaint, but will instruct the banks to take the necessary steps to file complaints. AVMs and such are a tool for valuation. The OCC provides risk modeling related to computer based financial models. Examiners look to how was it used and was it appropriately used in the evaluation.
The vast majority of appraisers provide a work product that satisfies expectations of their agencies. The question, “Why do lenders get appraisals?” was asked and answered: “The appraisal is to help the lender determine if the borrower has a true equity investment in the property, or in the project.” When there are multiple issues put in context with each other there is more concern and questions about the program start to be raised. A huge problem is cloning. Within a year adjustments have gone from 20-25% to 50%. There must be an understanding for the basis of the numbers. A difficult problem is inadequate market analysis and a declining market analysis. Is there enough information provided to support the value based on information available at the time of assignment? A shortage in evaluation activity is a lack of understanding in the market. USPAP has no requirement to inspect a property. But the condition of the property is important. The higher the risk, more inspection should be conducted. Base of market conditions is the condition of the property which should be described to the extent an inspection was performed. Is the description of the improvements correct? The question of geographical competency is: “If you are competent, come on down. If not, don’t accept the assignment.” Issues with independence include whether or not in-house evaluation appraisers are independent of loan productions and whether or not appraisers have an interest in the property. People do make honest mistakes. Recent top three issues found by examiners is the large issue of total reliance on AMCs, loan production’s over involvement in the process, and appraisal reviews that just don’t have any type of review within the process.
Some of the issues raised during the Q & A period include mandatory reporting, re-opening the C & R fee topic, quality control for valuation models, appraiser review, optional appraisal portability under certain circumstances, appraisal independence, and retiring the interim final rule. The FDIC is receiving an increase in C& R fee complaints. The complaints need to be supported by the claim itself. While some individual States may have additional requirements, there is no AQB requirement that once a trainee is competent to inspect a property the trainee must be accompanied by a supervisor. This is a bank assignment condition. Within the bank, it is acceptable to use restricted reports in the evaluation process. They must be in writing, comply with USPAP, support the value and apply adjustments and discounts if appropriate.
Saturday, October 22, 2016
Saturday morning began with several Breakout Groups. The AMCs & Professional Organizations session was hosted by Evalyn Fran Oreto. Ms Oreto is an AMC Representative Board Member of and Chairman for the Florida Real Estate Appraisal Board and a staff appraiser with an AMC. To initiate discussion, the first question asked was, “How can we get a staff appraiser to take on the responsibility of a trainee?” In Florida, the Statutes state the trainee “may only receive compensation through or from the primary supervisory appraiser.” http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0400-0499/0475/Sections/0475.6221.html
A number of AMC representatives, including MetroWest, REVAA, and Forsythe, offered comments including a variety of training programs including an eleven (11) module training program designed for internal training and Forsythe developed S.T.A.R.T. program. The initial training process can take approximately two to three months before ever spending a day with any appraiser. Utilization of some of these training programs produces less turn times, greater quality ratings, and increased production in the number of completed appraisals. The biggest problem occurs in States which the supervisor is required during the entire training process. Questions: Is it economically feasible for a supervisor to train, and is it feasible for end-users to accept trainees? The use of employment contracts versus non-compete agreements were mentioned. Some of the programs utilized take two years to complete. The trainee is required to sign an agreement to stay on for an additional two year period. Additional suggestions made included enacting a proactive rule in the industry and qualifying the training modules/programs for eligibility as CE credit. AMCs were reminded that when any State opens their rules for revision, it is a good opportunity for the AMC to work toward implementing any changes desired by the AMCs. AARO could help in educating the bank industry as some banks have the mistaken impression that they cannot use “trainees. “ Some lenders will only accept “certified” appraisers and will not accept a “licensed” appraiser. A suggestion was made that if an appraiser only holds a “license” credential, has never had any disciplinary action, and can pass the certification examination they be entitled to move up to the “certified” credential category. The National ID Program and AMC National Registry topic raised questions in regards to fee panels, appraisers in multiple States, and AMC management of their panels.
In answer to the question, “What is needed from State Regulators to help AMCs accomplish their goals?” the following ideas were put forth:
- Communication is a challenge, whether it be with coalitions, the Appraisal Institute, regulators, or legislatures, and needs to be improved.
- AMCs blame the “clients” for imposed assignment conditions.
- Some States, like Florida, have specific guidelines as to how long a supervisor must accompany a trainee.
- If a State is silent on an issue, the AMC interrupts it as being the most restrictive.
- Assist AMCs in the push for enacting national standards.
The Saturday morning sessions closed with the topic,”How to Handle Complaints with Advanced Data Analytics or Statistics, for the Non-Math Nerd.” Topic presentations were provided by Stephen O’Brien, Director of Real Estate Analytics at House Canary; Craig Steinley, AARO Vice-President and USPAP Compliance Examiner, South Dakota; and Allison McDonald, Deputy Chief Attorney, Florida.
O’Brien: Analytics allows one to crunch massive amounts of information and come out with a credible answer. Analytics requires slow thinking as Nobel Prize in Economics Sciences winner (2002) Daniel Kahneman’s 2011 book, Thinking, Fast and Slow explains two systems that drive the way we think. System 1 is fast, intuitive, and emotional; System 2 is slower, more deliberative, and more logical. Outlining the progression of data accumulation begins with no data and went to only data. When there was no data one must make calls and visit the courthouse. MLS books provided little data. When small data became available, it was downloaded into Excel. Big data represents the MLS and regions. Only data splits valuations, and this will cost your job. “With the new tools to predict, it is amazing what we can prevent.” Analytics myths versus analytic facts:
- Myth #1: Analytics equal AVMs.
- Fact # 1: AVMs are tools in the analytics toolbox providing a reality check.
Housecanary.com is being made available to both States and appraisers.
- Myth #2: Analytics will do away with appraisers.
- Fact #2: Not so.
- Myth #3: Analytics is just there to make you faster.
- Fact #3: Analytics makes everyone faster.
“What is analytics? The discovery, interpretation, and analysis of meaningful patterns. A few analytics questions:
- Does it smell right?
- Where are we?
- How strong is the evidence?
- Does its shape resemble a football?
- What is the strength of the regression?
- Is there more than one factor?
- Have things changed?
- Do people think like that?
- Dan Ariely’s book, Predictably Irrational: The Hidden Forces that Shape Our Decisions is a look at why we all make illogical decisions.
- Why do analytics? Why doesn’t every appraisal contain analytics?
This is the biggest question of all. Mr. O’Brien expressed the viewpoint that appraisers are an endangered species, and we should be doing all we can to prevent this from happening.
Steinley: Defining data analytics as the science of examining raw data with the purpose of drawing conclusion(s) about that information. Statistical analysis is the science of collecting, interpreting, exploring, and presenting large amounts of data to discover underlying facts. The collateral underwriter was the catalysts for the increased use of analytics in real estate appraisals and what brought us to the place we are at now. Your world is changed. Are you prepared?” As a result, marketing opportunities ensued. Appraisal companies began marketing add-on or stand-alone products that would use statistical methods, typically some form of regression. The proposed and new Advisory Opinion 37 speaks to computer assisted valuation tools and Advisory Opinion 18 speaks to the use of an automated valuation model (AVM). What is inputted into the “black box” determines what the output is. How do we judge USPAP compliance? Examples of tools are an AVM, regression analysis tools, and the MLS market addendum. Can you “prove up” how you comply with USPAP. Do you retain in your record keeping file both the “input” and “output” side? In relation to the input of sales or rentals do you know if the data has been scrubbed? How were the inputs selected and verified? Are they compatible with the subject? What are the closed dates? Is the number of inputs appropriate for the intended use? [SR1-1(b)(c)]. How about the output? Was it AO37 generated? Is it credible? Can it be reconciled with results from other accepted tools? Does it pass the “curb” test? This symbolized any new method or technique. If the appraiser has built the model or analysis tool, the regulator may need to have an outside expert analysis. If using the AO18 AVM analysis tool one needs to have a basic understanding of how the analysis tool works and be able to use it properly. Regardless of AO37, the appraiser is responsible for input and output and some portion of the “black box.”
McDonald: Litigating an appraisal case involves the administrative complaint process, expert witnesses and the case presentation. Involved in the administrative complaint process is to define your audience, comprehend and understand the facts in the case, the procedures for the charging document, and to know how the case will be tried. Deciding whether or not to hire an expert witness involves recognizing if the legal threshold in your State has been met, and understanding the discovery process. The case presentation also requires one knows their audience, expecting the unexpected and consideration of any demonstrative exhibits.
Closing out Saturday afternoon was a session entitled TAF Courses Developed for Corrective Education. The panelists included Kelly Davids, TAF; John Brenan, TAF; and Mark Ratterman, Rattterman Group.
AARO’s desire to help appraisers improve rather than simply punish inspired TAF to develope limited offerings in certain topic areas. These courses are to be used for corrective education. They are not available for CE credit. This is a small market. The ASC 2014 annual report noted during a ten year period only 3,671 times has additional education been required in disciplinary actions. The courses were based on input from State regulators, include a testing component, and are offered in an on-line format, in four hour segments. TAF reserves funded the project, no grant dollars were used. The courses were designed to teach appraisers’ tools. They will not make an unethical appraiser ethical. To start the program the following four courses were chosen, and information on them can be found at the following link noted below:
- Appraiser Self-Protection: Documentation and Recording Keeping
- Report Certifications: What Am I Signing and Why?
- Residential Report Writing vs Form Filling
- Scope of Work: Appraisals and Inspections
Documentation and Record Keeping course covers, but is not limited to, work file production and retention issues, the most common work file related deficiencies encountered in appraisals, best practices for maintaining files, “legacy errors” in report cloning, and unacceptable assignment conditions. Some of the topics covered in the Report Certifications course addresses an appraiser’s ethical obligations under USPAP, most common deficiencies encountered in an appraisal report, distinguishes between limiting conditions and certifications, and provides examples of prohibited behavior. The Residential Report Writing vs Form Filling course includes a variety of topics including, but not limited to, the connection between scope of work, intended use, and level of report detail, USPAP minimum requirements for appraisal reports, and problematic statements preprinted on report forms.An appraisal is not a report and a report is not an appraisal. Many believe the report form requested by the client controls the appraisal process and if completely filled out it complies with USPAP. Nothing is further from the truth. A preprinted form is NOT a template for USPAP compliance. The Scope of Work: Appraisals and Inspections include, but is not limited to, examples of how assignment conditions affect the scope of work, summarizes the scope of work elements, and recognize an inappropriate scope of work. Common deficiencies are the failure to use scope of work that is sufficient for the production of credible assignment results. USPAP does not require an inspection unless it is necessary to produce credible assignment results. One should state what they did and what they didn’t do. When in doubt, disclose. Looking at a picture does not meet the “visual” inspection statement found in form reports that says “the appraiser visually inspected the exterior of the comparable sales.” Drive to see those comparable sales. The link to TAF “Corrective Education Course Learning Objectives” document is as follows:
Sunday October 23, 2016
Two morning and three afternoon sessions were offered on Sunday. The morning topics include AMC Final Rules: Statutes and Regs: What Works, What Does Not and Moving Forward: AARO’s Governance & Website. Afternoon meetings included Getting Beyond the Experience Hours, Case Law & Other Legal Considerations, and Valuing Solar PV Without Sales Data? No Problem!
Presenting comments on the topic AMC Final Rules: Statutes and Regs: What Works, What Does Not were Toni Bright from Coester VMS (firstname.lastname@example.org), Jeff Dickstein from Pro Teck Valuation Services (email@example.com), Mark Schiffman, a public policy guide from REVAA (Mark.firstname.lastname@example.org), and Morey Barnes Yost from Alston & Bird, LLP (email@example.com). The FDIC Rules & Regulations (https://www.fdic.gov/regulations/laws/rules/2000-4300.html) defines “federally related transaction” to mean “any real estate-related financial transactions entered into after the effective date hereof that: (1) The FDIC or any regulated institution engages in or contracts for; and (2) Requires the services of an appraiser.” The Part 323 Rules also defines what a “Real estate-related financial transaction” is, and lists the twelve (12) exemptions when an appraisal is not required. Examples are transaction values of $250,000 or less, and a business loan with a transaction value of $1 million or less. Section 323, Subpart B lays out the minimum AMC requirements in accordance with the Dodd-Frank Act of 2010. States determine whether or not they will participate in the AMC Registry program. One of AMCs greatest concerns is participating States enacting rules within their State laws and rules exceeding the minimum standards. AMCs members desiring to be regulated in all the States would like a “fair and balanced” policies and to be represented. In addition, they respectively request “civility, communication, and collaboration.” Some issues of concern include: Not being aware of pending legislation in each and every State, a lack of AMC representation on State Boards, and the ‘tone” in communications. The AMCs want to work with everyone and are willing to collaborate. AMCs would like regulators to consider the impact of their decisions on individuals being regulated. Some suggestions offered to regulators were:
- State Websites provide an AMC section that is regularly updated, has an AMC specific Q & A section, and provides a feature whereby one can easily find the State statutes and rules for reference.
- Regulatory costs of doing business in States including start-up, minimum regulatory, surety bonds, license renewals, USPAP Standard 3 reviews and staffing is $553,000, plus panel fees estimated to be an additional $150,000 annually. Total annual costs would be over $702,000. Excluded from the example costs, but should be included are: Secretary of State filings, panel change fees, amending or correcting addresses, background check updates, and any State per appraiser panel member fee above the ASC panel fee.
- Please consider the unintended consequences of any regulation enacted.
States are requiring independent AMC third party audits and Appraisal Independence Requirement (“AIR”) compliance. AMCs are seeking consistency in State AMC regulations. Mr. Dickstein suggested AARO create a criteria document which could include:
- “The independent third party audit” for each appraisal delivered to a client and the fee paid to the appraiser for such appraisal shall be C & R in geographic market where property is located taking into account type of property, scope of work, appraiser qualifications, experience, professional record, and work quality.
- Policies and procedures.
- Panel of appraisers without influence or recommendation of client or any employee of the client, shall not prohibit excluding ineligible appraisers.
- Any attempt by any person to influence the development, report, result of review of an appraisal.
- Procedures to ensure each appraiser is paid.
- Any unfair or anti-competitive actions that affect the fee paid to an appraiser.
- Reporting to authorities any violation of the fee paid, unfair or anti-competitive actions.
- Maintaining accurate records for 3 years after any expectation or termination of agreement.
Presentation Documents Link:
During the Q & A period questions posed to the AMC panelists included whether AMCs want to be regulated and why, have the AMCs considered implementing a “best practices” policy, and does the AMC use the State or National registries?
Moving Forward AAROs Governance and Website closed out Sunday morning. Currently out of 55 jurisdictions AARO has 44 paid member jurisdictions and 18-25 affiliate members. At AAROs inception in 1991 there were 12 jurisdictions. The President is not elected but rather ascends from the President-Elect Position. The Committees include Planning and Policy; Finance, Budget, Sponsorship; Nominating; and Communications. Advisory Councils include: Appraisal Foundation and Industry Advisory Councils. TAFAC is a three-year term. Participants were encouraged to get involved through a variety of means including sit-in on board meetings or business/election meetings, join a committee, ask questions, provide feedback or volunteer for vice-chair or moderator. During the 2016 Fall Conference there will be a vote on minor By-Law changes and the implementation of Vice-Chair. Proposal Two will be issued and feedback is requested via a survey. The 2017 Spring Conference will include discussion on the survey feedback with a vote on the proposed changes taken at the 2017 Fall Conference. Efforts were made to improve the website and in the process made it a better tool. There is now a public and a private site. The public site provides resources and meeting information. The comment made was, “AARO is like a leadership with training program.” The member and private site enables on-line registration, Boards and committees, and maintenance of historical documents. It enables the sharing of work projects, provides a discussion forum, and communication with all AARO attendees, either just members or just particular groups, by email. One may also share templates from other States. If the template is not copyrighted, one may take it. Speakers for the Moving Forward: AAROs Governance and Website presentation included AARO President Anne Petit, AARO Vice-President Craig Steinley, AARO Treasurer Dave Campbell, North Carolina Assistant Attorney General Roberta Ouellette, and AARO Past President Nikole Avers.
Getting Beyond the Experience Hours opened the Sunday afternoon sessions. AQB Vice Chairman Mark Lewis, Appraisal Institute President Scott Robinson, and Principal Richard Knitter, MAI, CPM, FRICS at Great Realty Advisors were the panelists. Mr. Robinson introduced the topic by asking whether experience hours are, “a hurdle or is it a step ladder?”
His key points focused on the recent AQB history, beginning with the 2011 changes adopted through the current 2016 time period, the Appraisal Institute’s position on proposed changes, and experience hours credit via case study learning. Section 1: Licensed Residential and Certified Residential College-Level Education Requirements provided practical relief and resolves a number of impediments. As finding supervisors and inconsistent experience continue to be impediments to entry, suggestions relative to Section 2: Practical Applications of Real Estate Appraisal include a dual track qualification criteria which would include both the proposed criteria and alternative experience. New curriculum would need to be developed; it should replicate field experience and require testing to pass the course. While the AQBs Section 3: Experience Requirements proposal is favorable, a critical issue is the field experience versus the education experience hours. What percentage of education experience hours is reasonable? 20%, 25%?
The licensing level should not require experience at all. For example accounting or legal professions require education, not experience, for entry into the profession; the experience follows. What if we had both a “licensed residential” and a “licensed general” category and eliminated the “trainee” category? An outline or overview of case studies as an alternative to experience requirements provided the How, the Process, and the Benefits of Case Studies. Working together we build the profession and protect the public trust.
Mr. Knitter’s presentation document, “Rethinking Qualifying Education and Experience for Appraisers,” can be found through the following link: http://www.aaro.net/docs/Rethinking_Education__Experience-_R_Knitter.pdf
Mr. Knitter asked the participants to consider and ponder the following questions, “If you could remake the AQB, what would it look like? What does an appraiser learn from experience that cannot be taught? Is requiring appraisal experience the best measure of competency? Is qualifying experience truly necessary or even beneficial? Is education a viable alternative? Alternative experience must provide for demonstrated competency. Problems related to the experience requirement include, but are not limited to: Ineffective supervisors, differences in length of time a trainee will require supervision, and subjective experience reviews. For education to be a viable alternative there needs to be an exam to replace the experience requirement and new curriculum needs to be developed which would include competency models. Visit the following link for Mark Lewis’s presentation document. http://www.aaro.net/docs/AQB_Update_F_2016-_M_Lewis.pdf
Jan Sell, MAI,SRA, CCIM, SRWA and Ted Whitmer, MAI, AI-GRS, CRE, CCIM presented Case Law and Other Legal Considerations. Their shared presentation document can be found at the following link: http://www.aaro.net/docs/Law_Cases-_F_2016-_Whitmer__Sell.pdf. Their contact information is as follows: firstname.lastname@example.org and Jan@sellassoc.com.
Citing multiple court cases, the presentation addressed a variety of considerations. Four criteria questions are:
- Can the theory or technique be tested?
- Has the theory or technique been peer reviewed?
- Has an error rate been established for the theory or technique?
- Is the theory or technique accepted in the industry?
In dispute about an appraiser’s qualifications the liability case determined the gate keeper is the judge and determines what gets into a case, and what does not. An expert witness is one who has scientific, technical, or other specialized knowledge. The courts don’t care about USPAP. What they want to know is if the technique and methodology is utilized. There is a need to know the difference between substantial evidence and deference. In a case cited, the agency’s interpretation of what it means is given deference. Deference—the Chevron Test requires a need to understand the difference between interpretation and application. Is the theory, technique, methodology applied correctly, and is it reasonable? If a claimant is going to say, the right comparable(s) and adjustment(s) weren’t produced, then the prosecutorial side must provide the court the right ones. Bracketing creates negative scenarios where really good comparable(s) are passed over because one can “bracket” with others. Wisdom requires one should do the appraisal with the best comparable(s) available, and then “bracket” if you can. If “bracketing” is a separate technique, then not bracketing is not wrong. It is not enough to have the word of an expert, one must produce evidence. A Supreme Court case at the State level cited says the standard of review is a “strong presumption of validity favors an agency’s actions.” Interpretation versus application issues. USPAP may not be subject to deference. There are various definitions of an appraisal. USPAP, an opinion of value; FIRREA, a written opinion; State Law, any opinion as to the nature, value, quality or utility of an aspect of or interest in identified real estate (review). Which definition do you use when the State definition is not the same as the USPAP definition? USPAP Standard Rule 2 “credible” is only used once. In Standard Rule 1, credible is used multiple times and has to do with the development. When using USPAP as a legal document, Scope of Work only applies to Development and only applies to Data and Analysis. The minimum requirement of a report is its intended use; SR1 is development, SR2 is reporting (communicating). SR1-1(c) does not apply to types. Condition precedents in USPAP, SR1-1(a) only applies if it is necessary for credible results. SR1-4 only applies if the approach is necessary for credible results.
SR1-3 and 1-5 only apply if the appraisal is for market value. The Ethics Rule only applies if one is acting as an appraiser in an assignment. An assignment must have compensation and an agreement and/or contract. View the presentation document, and document conclusion pages which provide informative Minimum Requirements of a Report. http://www.aaro.net/docs/Law_Cases-_F_2016-_Whitmer__Sell.pdf.
Closing out Sunday sessions is Valuing Solar PV without Sales Data? No problem! presented by Sandra Adomatics, LEED Green Associate. Contact information: email@example.com. The learning objectives for Sunday’s final session were to:
- Identity a credible description of a solar photovoltaic system.
- Reveal areas of the appraisal that signal inadequate analysis.
- List resources.
It is important to ask, “What is the knowledge of the intended user?” On the residential side, the intended users’ knowledge is very limited. “What is a credible description of a solar photovoltaic system?” Solar thermal versus solar PV? How many panels are there? What are the panel sizes? What directions do the panels face? What is the wattage? Wattage affects energy production and the cost new. Sandra’s presentation included “A Credible Description Made Easy.” This document lists the information one needs to include to describe each array in the system. The AI Residential Green and Energy Efficient Addendum report defines a list of the items needing consideration within the appraisal value of the subject property. Is the system leased or owned? Be aware that solar company leases are not standardized. Each page of the lease states the system is personal property, and personal property cannot be included in market value. While homeowners may be making payments on a system, they often do not know whether they own it or are leasing it. The session included discussion about warranties, credible methods to value solar and their the pros and cons of using the three approaches to value, areas of an appraisal that reveal inadequate analysis, the reasons homeowners consider in their solar PV buying decisions, and some of the reference websites providing useful tools: https://www.pvvalue.com, http://www.1mt.org/resources/detail, https://emp.lbl.gov/publications/appraising-sun-six-state-solar-home. For the complete resource list presented see the presentation document at the following link: http://www.aaro.net/docs/Valuing_Solar_PV-_Adomatis.pdf
While ICAP was unable to attend the final day of the Conference on Monday, one presentation document from the early morning session entitled, Mass Appraisal Experience, Should It Be Allowed?, is available for viewing at the following link: http://www.aaro.net/docs/Mass_Appraisal_Experience-_Rasmussen__Hobart.pdf
In attendance were regulators, AMCs, lobbyists, representatives from various appraisal associations and State appraisal coalitions. ICAP hopes its Members will find the AARO report informative, providing every reader at least one new piece of knowledge or information that will be helpful and beneficial to both the individual member and to our collective profession. ~~~Reporting Karen Emerle, SRA, Current ICAP Executive Board Secretary
ICAP Attended The October 2016 ASB Public Meeting
ICAP attended the October 21, 2016 ASB Public Meeting held at the Double Tree Hotel in Washington, D.C. The public meeting was an open discussion centered on the Second Exposure Draft of proposed changes for the 2018-19 Uniform Standards of Professional Appraisal Practice (USPAP). Change topics include:
- Report Definition and edits to Ethics and Record Keeping Rules
- Assignment, Intended Use, Intended User Definitions, and edits to the Competency Rule
- Assumption and Extraordinary Assumption Definitions
- Proposal to divide Standard 3 into two Standards — Standard 3 and Standard 4
- Proposal to divide Standard 6 into two Standards — Standard 5 and Standard 6
- Removal of Market Value term from Standards 7 and 8
- Edits to the Personal Property Certification in Standards Rule 8-3
- New Advisory Opinion 37
- Edits to Advisory Opinions 1, 21, and 31.
Appraisal Standards Board (ASB) Chair Margaret Hamilton provided a brief history of the proposed changes from the initial draft issued on January 15, 2016 up to the Second Exposure Draft released on August 16, 2016 and the Executive Summary.
Appraisal Foundation (AF) Board of Trustees President David Bunton’s report included updates on the April 2016 AQB meeting in Phoenix, AZ. Working through a closer relationship with the International Valuation Standards Board, the International Council Standards Board and the Appraisal Foundation entered into an agreement to implement a bridge document whereby if one adheres to USPAP, with a few additional Standards, one would be in compliance when using IVS Standards. Development of “corrective” education currently includes four on-line courses: Residential Report Writing vs Form Filling, Scope of Work: Appraisals and Inspections, Report Clarifications: What Am I Signing and Why, and Appraiser Self-Protection: Documentation and Record Keeping. Each four hour course includes an exam. Both the course and exam must be completed prior to being released from “corrective education” status. State Board members, who are not appraisers, may also utilize these courses as a means for learning and understanding appraisal terms. A 7-hour residential review course has been developed by Chair Margaret Hamilton. Two Standards publications are the Uniform Appraisal Standards for Land Acquisitions (Yellow Book) and Uniform Standards for Professional Appraisal Practice (USPAP). Working closely with the American Society of Agricultural Appraisers (ASAA) and the American Society of Farm Managers and Rural Appraisers (ASFMRA), a two-day course on Yellow Book was offered. The AQB webinar had 300 plus registered, 285 actually participated, and over 100 questions were submitted. The video and webinar were posted on the website and within the first seven days it had 500 views. Similar to Real Property Appraising in the 1980s, Personal Property appraising is basically unregulated. USPAP Standards is for all disciplines, and work is ongoing with Personal Property Appraisers to update USPAP Standards for this discipline. John Brenan, Director of Appraisal Issues will answer any question anyone may have; submit a Q & A form, and get a response within 24 hours. The question(s) and response(s) will be published if it is of interest to others. The year 2016 ushers in the 25th anniversary of FIRREAs implementation. A 20 page booklet highlighting FIRREAs 25 years is being released at the 2016 Fall AARO Conference.
Appraiser Qualifications Board (AQB) Vice-Chair Mark A. Lewis provided an update on the draft. The Practicum Applications section has been temporarily pulled from the proposed changes. This issue requires more work and an attempt is being made to find alternatives to handle this topic. Vice-Chair Lewis indicated the exposure draft received 700 responses. The issues are the college degree and experience hour requirements. The comments were diverse and about 50/50. While the comments have slowed down, AQB is still looking for more comments to be submitted. The AQB draft proposes the following requirements:
- College Degree
Licensed Residential: None
Certified Residential: Associate Degree of 21 Hours in very specific core courses mixed with CLEP
Certified General: No Change
- Experience Hours
Licensed Residential: 1,000 Hours with no minimum time requirements
Certified Residential: 1,500 Hours with no minimum time requirements
Certified General: 2,000 Hours with no minimum time requirements
Appraisal Practices Board Chair, Shawn Wilson reported there are 11 (eleven) valuation advisories in process. Finalization of the Collection and Verification of Sales in Residential Comparison Approach advisory should be completed in the near future. The APB is looking for subject matter experts pertaining to the Adjustments to Comparable Sales advisory. There are four advisory opinions under this broader view. Chair Wilson stated these advisories are “voluntary guidance”, that best practices are not well-defined or up-to-date, and the advisories are a collaborative effort targeted for those appraisers not associated with any appraisal group or organization.
The Appraisal SubCommittee (ASC) is a federal government agency with oversight for the appraisal regulatory system. There is a partnership between the States, the Appraisal Foundation (AF) and the ASC/federal government. Appraisal Subcommittee (ASC) Executive Director Jim Park’s report included information pertaining to unique identification numbers, AMC regulation, Second USPAP Exposure Draft, and other projects the ASB is working on. The unique identification number is to increase continuity, eliminate the use of social security numbers and improve overall information sharing. Ultimately it will tie all names together from all States. At present compliance is voluntary, but if States elect not to participate further incentive may become necessary. The Phase 1 letter was issued October 19, 2016 to all States, completion date is the end of 2017. Finalization on the AMC Fee Rule is anticipated to be complete by mid-2017.
Some comments regarding the USPAP Second Exposure Draft include:
- Section 1 Definition of Report – Clarifying communicating interim results.
- Section 2 Intended Use and Intended User – change “timing” to be replaced with “during.”
- Section 3 Extraordinary Assumption – Definition revisions –A work-in-progress. Comments would be appreciated.
- Section 4 Standard 3 – Split into “development” and “reporting” would provide greater consistency. Minor administrative edits and definition of “appraisal review.” Additional comments would be appreciated.
- Section 5 Standard 6 – Same concept as Standard 3 to split into two Standards, “Development” and “Reporting”. Additional information regarding the terms “to state” and “to describe.
- Section 6 Standards 7 and 8 –Qualifications do not apply as most personal property appraisers do not provide market value appraisals. Took out or changed the market value qualifier, prior sales, and cash equivalency.
- Section 7 Personal Property Appraisers – Certification in Standard Rule 8. Made allowances for large differences in the personal property being appraised. The example provided is jewelry versus helicopters.
- Section 8 Advisory Opinion (AO) 37 – This received the greatest number of comments. The use of AVMs is 20 years old. In the next exposure draft, Advisory Opinion (AO) 18 will be “tweaked.”
- Section 9 Advisory Opinion (AO) 21 – USPAP Compliance – Appraisal practice versus valuation services. The intent is to add new charts and examples (ovals vs. charts) to accommodate people who learn differently.
- Section 10 Advisory Opinion (AO) 31 – Definition of “significant appraisal assistance” needs improvement to provide clarification. The definition needs to answer the questions, “What does it mean to provide significant appraisal assistance?” and “How do you explain or report this?”
- Section 11 Advisory Opinion (AO) 1 – Possible analyses that could be included in the analysis of prior sales.
A third exposure draft is to be issued. The goal is to publish the third exposure draft in December 2016. Additional advisory opinions, which will be significantly affected, will be included in the third exposure draft. There are to be other edits to the 2019-2020 edition. Written comments will be accepted through January 2017. Oral comments will be accepted at the next public meeting on February 3, 2017 in Dallas, Texas. It is anticipated the Board will adopt approved changes at the February meeting. The effective date would be January 1, 2018.
Other products that ASB is working on include a sample or template for restrictive appraisal reports. The intent is to provide information to answer the question: “If one had to write their own, and did not have a template, what would be expected in a restrictive appraisal report?” Another project is to answer the question, “What would USPAP look like if one had a blank slate?” The ASB would like to get attorneys and regulators involved to “look forward” with the intent of presenting a “new look– new book” format for USPAP.
The meeting concluded with the opportunity for questions and comments from the public in attendance. Time allowed for only seven participants to speak. Some highlights of questions posed or comments made include, but are not limited to:
- Analysis of prior sales should include the dictionary definition of sale, “the transfer of property from one person to another.
- Extraordinary Assumption should be left alone. Just because a few people don’t understand it, doesn’t mean you have to create new definitions. The change is not necessary and would create more unintended consequences. Assumption is a common-use word. Extraordinary Assumption is a safe harbor for appraisers.
- Assignment and Assignment Results and link to Record Keeping Rule. The question asked was, “What is required in a work file? Reference was made to Page 8 in the Exposure draft. USPAP does not address this change in definition, and linking it to record keeping takes it a step beyond. It is not necessary as it is covered in the Ethics Rule.
- Intended Use and Intended Users topic. Identifying and intent of appraiser is critical. Some believe if move to “during” an assignment it would create numerous problems.
- Standard Rule 3 comment is there is no need to do this, however the train has already left the station.
- Section 5 Mass appraisals. This is a jurisdictional rule. If it applies, it applies to all USPAP.
- Strongly support not retiring AO 18. There will be a need in the future to use it. Further guidance is appropriate. Use of “an approach” is deemed incorrect. It really isn’t an “approach.”
- Would like to see classes eligible for CE.
- Compensation issues need to be addressed relative to the perceived “appraisal shortage.”
- Please address the practice of review appraisals being completed in India.
- Sections 1 and 8. There is concern about how it would be utilized and the effect on consumer trust. Recommended that all communications be retained regardless of whether draft or report.
- Of 52 jurisdictions only 8 only define report; 34 define any communication of oral or written. Compliance with State law. North Carolina defines report, “any communication of an appraisal whether written or oral.”
The meeting room was filled to overflow capacity. In attendance were regulators, AMCs, lobbyists, representatives from various appraisal associations and State appraisal coalitions.
~~~Reporting Karen Emerle, SRA, ICAP Executive Board Secretary
ICAP Attended The 2016 Meeting of the Network of State Appraiser Organizations
October 20, 2016
The Network of State Appraiser Organizations, which connects independent appraiser coalitions across 23 States, recently met at the National Association of Realtors (NAR) Washington, D.C. offices. Representative volunteers from nine state coalitions were in attendance. Illinois Coalition of Appraisal Professionals (ICAP) member Karen Emerle, SRA, the current ICAP Executive Board Secretary, attended the meeting. The purpose was to discuss a variety of topics affecting the appraisal profession. Invited speakers included AARO President Anne Petit, AARO President-Elect Debra Rudd, Appraisal Subcommittee (ASC) Executive Director Jim Park, ASC General Counsel Alice Ritter, and Sehar Siddiqi, NARs Regulatory Policy Representative. A special thank you to NAR for their generosity in providing a conference room for the day.
The topics discussed with Anne Petit and Debra Rudd centered around the relationship between AARO and appraiser coalitions. The Network inquired about the status of AARO’s professional organization project, trainee issues, AMC and state selective enforcement issues, and the potential to bring together AMCs, regulators, and appraisers to develop a best practices white paper. President Petit said AARO has a dual responsibility to educate and help protect consumers while not being over-burdensome to the licensees. It is important to find the sweet spot between the two. Additionally, the licensees should be treated with respect. The aim is to be instructive, utilizing a more compliance driven rather than a punitive model. Courtesy should be given to all stakeholders informing them, at the same time, of development or implementation protocol activities. President Petit requested input regarding any topic for discussion or speakers the appraiser coalitions would like to see included at future AARO conferences. The Spring AARO Conference is scheduled for April 7-9, 2017 in Tampa, Florida.
Executive Director Park provided a synopsis pertaining to the ASC. Its authority and functions started in 1989 with the Savings & Loan crisis. The Appraisal Foundation already existed and was given authority involving the private sector and State and Federal governments. One must be on the national registry to perform federal regulated transactions (FRTs). Dodd Frank gives them additional authority and responsibility, especially over AMCs and the registration fees. General Counsel Ritter drafted the AMC rule which was released for comments. Of the 103 comments received, the vast majority of appraisers did not want the AMC fee to be passed onto appraisers. The ASC does not have the authority to enact this restriction. The ASC is now working on the final rule. The question of whether State Boards are able to enforce their State rules was broached. Included in Dodd Frank is a provision whereby States might receive grant funds. In 2008 1.6 million dollars of grants were issued. Conversely, in 2015 only $350,000 grant funds were disbursed. Implementation of the AMC restriction takes effect August 18, 2018. This prevents AMCs from providing their services for any FRTs in a State that does not have an AMC program in place. The national registry serves the purpose of identifying who is an AMC. Currently, the AMC appraiser registry fee is $25. The Interagency Guidelines provides the definition for panel. The AMC must pay a fee for each appraiser listed on every panel in every state the AMC is registered in. It is not a requirement States have an AMC program. Fannie and Freddie are not FRT’s. Zach Dawson, the Director of Collateral Policy and Strategy for Fannie Mae, has said that Fannie Mae does allow the use of appraisal trainees with appropriate supervision and does not require the supervisor to inspect. This has always been Fannie’s policy. The ASC has State oversight of both AMCs and appraisers, and compliance reviews on each profession will be conducted separately. The AQB has the authority to set minimum qualification standards. The ASC has no authority to over-rule the AQB minimum qualification criteria. Executive Director Park was asked about what issues will be affecting fee appraisers in the future. The list includes the loss of control of market data and the efforts being exerted to replace appraisals with evaluations. The ASC is working with lenders and regulators to figure out what the future between lenders and appraisers will be.
The final guest speaker, NAR Policy Representative Siddiqi, involved a discussion around appraisal issues the NAR membership is experiencing, various NAR committees and their focus on appraisal, BPO, and CMA policy recommendations. A recent change in policy requires anyone serving 15 years or more on a NAR committee must take a break from service. Policy Representative Siddiqi outlined recent issues NAR has responded to with some type of NAR action taken. They include the recent FHA guideline changes, appraiser shortage, pass-down of fees, and completed appraisal delivery time frames. NARs response to the FHA guideline change resulted in FHA making a change to the newly enacted guideline. NAR is developing a survey relative to the perceived appraisal shortage. The goal of the study is to quantify it, and is being pursued through a relationship between CoreLogic and the AMCs. NARs stand on AMCs is the AMC should be properly regulated, their registry fees should not be passed on to the appraiser and/or the consumer, and an appraiser should not be precluded from the AMC registry list. Due to the length of time to get a completed appraisal, the MLS data is licensed to Corelogic who created a program which was sold to the Veteran=s Association. The NAR appraisal summit was/is a closed summit mostly for Federal Regulatory Advisors on Appraisers, bankers, and the ASC. The next NAR Annual Conference is scheduled for November 4-7, 2016 in Orlando, Florida. The Saturday, November 5, 2016 afternoon topic is: Real Property Valuation Forum: The Wide World of AVM Values. Scheduled time is 1:30 PM to 3:00 PM. Policy Representative Siddiqi can be reached at 202-383-1176 or firstname.lastname@example.org.
ICAP continues to work on behalf of and for all their members. Participating in The Network provides ICAP members the opportunity to stay abreast of issues affecting the appraisal profession nationwide.