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[Vortex] Palumbo on USPAP: The Industry Reality And The Unenforceable (Truth) Law

palumbo-on-uspap [1]

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 [2] and his published article [3] in the Employee Relocation Council’s Mobility Magazine.
…Jonathan Miller

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?

Question:

Does a review appraiser have to be licensed or certified in the state where the subject property is located?

Response:

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 [4])

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.