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Has Appraising Failed the Public Good?
by Steven R. Smith, MSREA, MAI, SRA
The term Public Good is in the opening paragraph of the Uniform Standards of Professional Appraisal Practice (USPAP). An appraiser friend once wrote that our regulations and guidelines are intentionally ambiguous—and that may be. But what is crystal clear to me is that the industry has put the interests of its clients before the public good.
The Public Trust statement and the Ethics Rule have been largely ignored over the years with loan production put first.
Expert Witness testimony by appraisers routinely provides favorable reports for the side who hires them. Neither the residential nor commercial side of the industry is immune.
As a reminder, the Preamble to USPAP states:
“The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers. It is essential that appraisers develop and communicate their analyses, opinions, and conclusions to intended users of their services in a manner that is meaningful and not misleading.”
It is interesting that the Appraisal Foundation does not require an Ethics Course and hasn’t in over 30 years. Instead, there is a silent assumption made by all parties that anyone who becomes licensed is ethical. The majority of appraiser licensees have never had an ethics course, I would guess. Where would they take it? Only a few professional associations even offer it, and only those with a four-year degree are required to take it in college.
The states have taken some steps, like criminal background checks, which keeps most felons out…most but not all. Many white collar criminals have never been charged or convicted and work within the industries that employ appraisers. Few appraisers have ever been convicted of inflating values or writing misleading reports. FIRREA directs lenders to fill out a Suspicious Activity Report (SAR) when they spot appraisal fraud, but over the years few have. If it had been a regular practice, perhaps the 2002–2006 bubble may not have happened.
Sadly, licensing attracted a criminal mind, some of whom work for the largest organizations that provide appraisal services. Some lost their licenses along the way but that did not stop them from owning or being employed by an appraisal management company.
It is unfortunate that the legislation that mandated licensing, FIRREA (1989), had poorly worded language regarding appraisal fraud and pressure. It directs regulated lenders to report appraisal fraud. The world would be so different if it had simply mandated that Lenders Should Not Pressure Appraisers or allow their agents to pressure appraisers to inflate values or to write misleading reports. Almost the same number of words, but such a different outcome would have resulted.
Appraising Your Clients
What can an individual appraiser do to support the public good, even before they start an assignment? For me, the answer always has been to appraise the client and the appraisal assignment. There are some clients and assignments that simply should be avoided because of the wants, needs and desires of the client, with respect to the assignment results.
My first step was avoiding work from loan brokers unless paid in advance. Next, I stopped doing appraisals on loans with a high loan to value, which are the most likely to default. When contacted for litigation work, I inform the attorney involved that my testimony will be unbiased, regardless of which side of the case they are on. Half of them do not use me. I have been happy with both decisions. I find it easy to face hours of withering cross examination when I have not slanted the value.
Thankfully, along my path, there was a class on Litigation Issues in Valuation, which was mostly about Eminent Domain. The lead attorney said something the very first morning that stuck with me: “Your job is not to help me row the boat to win the case, but to do your work objectively without bias and then, if needed, provide testimony, and then leave.”
That has stayed with me all these years and has served me well. I hope this helps at least one appraiser find clarity to stake out their position in this industry. It all starts with a decision on how you want to do business. Mine was clear. Where do you stand?
About the Author
Steven R. Smith, MSREA, MAI, SRA is an example of a person who started out doing lender work fast and cheap as what he has learned to all call a Vocational appraiser. Somewhere along his path he was introduced to the term Professional Appraiser and it began a process that took years and lots of education. Two degrees in real estate and two professional credentials later he remains busy no matter what the real estate market is doing because he does little to no transactional business. No longer fast and cheap, but then, his fees are in the thousands of dollars, not hundreds. Through the years he has tried to help other appraisers, starting what is now the National Appraisers Forum on Groups.IO. He mentors appraisers who want to change, long distance.
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by John Center
I can only speak for myself and I choose to only work for ethical companies. I would think most grown adults know what is ethical or not. I’ve been appraising over 30 years. Our MLS board requires appraisers to take the same ethics courses as Realtors and hold us to all of their standards as well. I am more concerned when companies are buying up all the business and eventually everyone ends up working for Corelogic or such.
-by Spencer
There is always going to be people that will do what is asked of them without recourse. Then there are those who use the data and speak in behalf of said data. They could care less about the desires of the banks, seller, buyers and so on. Observe, analyze and report. That is what we do and that alone can piss a lot of people off, but also attracts the right kind of clientele. Folks that are looking, honestly looking, for Appraisers to good work, they will find them. They will use them over and over because it weeds out the over or undervalued homes in the market, while assisting on what to actually loan on. They handle if the buyer can afford the house and not put pressure on the appraiser. The relationship works and public trust is upheld. Again there is always greed in every industry, but I don’t think public trust by Appraisers has unilaterally failed.
-by Cassandra Tllman
Very good article! And yes, appraising the client and their needs and wants is tantamount to staying out of trouble. I tend to find they may be mad I didn’t hit the value they wanted but they can’t dispute the report as I try to dot all I’s and cross all T’s.
-by Patrick C.
Nicely written commentary. I will say, being an appraiser for over 35 years, the appraisal profession is no different than any other profession including accountants, lawyers or doctors; there are good people who strive to serve the public good and there are bad people who are in it to line their pockets. It has been my experience that no amount of education is going to change the bad individuals. If a class is made mandatory, like everything else, the bad individuals will sit through the class to simply satisfy the requirement and then go back to “their way” of doing things. It is unfortunate, however it is the reality of the world we live in. You can’t teach someone to suddenly have enlightenment in an 8 hour course and honest individuals don’t need a class on how to be ethical as it is human nature for them. Perhaps that is why the Appraisal Foundation does not “require” a course as they understand it won’t change human nature in 8 hours.
-by John
Very true
-by John Crane
As someone in the business 40+ years, I don’t believe the term Public Good is appropriate or an applicable term. In reality , not much has changed, the clients (lenders) expect more, which may or may not be the “public”. Appraiser’s are easy targets , after reading the last Working RE , I don’t know why anyone would want to be in or get into this business, although I have to say I still enjoy appraising. I The Foundation and State agencies are not looking out for us, the public is their concern. When they removed the word “Summary” from our form type which was probably at the request of the lenders, We went from a reasonable “sumarizing of our analysis to “detailed reporting and analysis”. Perhaps lenders should be using AVMs, so when the next recession its we are out of the picture.
-by Ken OdenheimASA, IFAS ,
I salute Steven Smith. I too have found that most appraisers I have known or taught are easily swayed to to render a value in support of his.her clients’ requests. I have been in a trial where the opposing appraiser answered that he had “”made as instructed” the appraisal and this was a designated older man who knew better. Doing a proper appraisal is like rendering correct tax forms so that when a letter arrives from IRS you don;t have to sweat before you open it. Ken Odenheim, ASA, IFAS
-by Michael T Coufalik
USPAP has a number of deficiencies, not the least of which is the absence of ethics training. Thank you for putting the spotlight on this problem.
Wouldn’t it also be nice if one of the standards of conduct in reviewing an appraisal report was to actually READ the report?
In general, appraisers are overpaid for the work which they provide but underpaid for the work which they are obligated to provide.
-by Jim
Conventional appraisers value the contract NOT the subject…. Dodd-Frank allowed the “wolf” to guard the “hen-house” by selecting their “panel of approved appraisers” (clever cover for the banks!). Glad to be retiring soon since this is NOT an honest profession anymore but has become a dishonest trade.
-by JERRY A ALLEGRO
THERE IS NO SUCH THING AS PUBLIC TRUST. THE ONLY THING THAT MATTERS IS THE “DEAL” REALTORS, UNDERWRITERS, LENDERS DO NOT GIVE A GOOD DAMN ABOUT THE PUBLIC TRUST. ITS ONLY ABOUT $$$. TRY DOING THE RIGHT THING. DOING YOUR JOB. MISTAKENLY TRUSTING THE SYSTEM. DONT EVEN TRY. JUST WAIT FOR IT. IF YOU DONT PLAY THEIR MARIONETTES THEY WILL COME DOWN ON YOU LIKE A TON OF BRICKS. THE STATE OF TEXAS TALCB IS SO CORRUPT THEY ALLOW A FELON TO CONTINUE AS AN APPRAISER, RUN AND AMC AND SANCTION HIM STEALING FHA FUNDS, PERJURY, AND A LAUNDRY LIST OF FELONIES. BUT ITS OK THEY ARE BUDDIES AND DADDY IS A LAWYER. MARK LEE IS A CRIMINAL, THE TALCB IS TOTALLY CORRUPT LIKE ALL THE AGENCIES. YOU COULD TAKE THE CASE OF APPRAISAL NATION, SENDING OVER AN ORDER THEN WANTING THE SUBJECT 60% + INCOMPLETE HOUSE VALUE ON PAGE 2 WITH THE “SUBJECT TO” VALUE BUT NOT MARKING THE “SUBJECT TO” BOX. THEY DEMANDED THE “AS IS VALUE” BURIED IN THE REPORT SO THEIR LOAN OFFICER WHO WAS IN BED WITH THE BORROWER COULD PUSH THROUGH A FRAUDULENT REPORT. WHEN THAT WAS NOT ACHEIVED THEY FILED AGAINST MY LICENSE AND OF COURSE THAT GARBAGE CAN MARK LEE TOOK ME TO TASK BECAUSE WE ARE ALWAYS WRONG. NO MATTER WHAT. EVEN THE STATE HAD NEVER SEEN A COMPLAINT ON ANYTHING LIKE. BUT WOAH IT WAS MY FAULT FOR PROTECTING THE LENDER AND NOT GRABBING MY ANKLES. IT WAS GREAT HAVING MY LIFE THREATENED BY THE BORROWER FROM ALL THE MISINFORMATION PROVIDED BY APPRAISAL NATION. THEY ARE A REAL BUNCH O SLIMEBALLS. GUESS WHAT? THE HOUSE WAS FORECLOSED TWO MONTHS LATER AND IS STILL INCOMPLETE TWO YEARS LATER!! IT CANT BE SOLD JUST LIKE I STATED. I GUESS I SHOUD HAVE TAKEN THE FALL FOR THE BAD DEAL BUT THAT WAS THEIR END GAME. JUST IMAGINE IF I HAD YIELDED TO THEIR DEMANDS WHERE I WOULD BE? HERES THE KICKER MARKE LEE TRIED TO TAKE MY LICENSE AND I GOT STUCK WITH MAJOR LAWYER BILLS IN ORDER TO PROVE MY INNOCENCE. THEN AFTER I ADDRESSED THE REPROBATES IN APPRAISAL NATIONS STATE THEY STATED” TOUGH COOKIES IT WAS IN TEXAS AND WE WONT DO ANYTHING SO GO SCREW YOURSELF ” YEA YOU CAN ORDER IN MY STATE BUT YOU HAVE ABSOLUTELY NO RECOOURSE!!! HELL OF AN INDUSTRY!! TYPICAL. SO AS FAR AS IM CONCERNED USPAP CAN GO TO HELL AND ALL THESE REPROBATE CRIMINAL AGENCIES TOO!!! RETIREMENT CANT GET HERE FAST ENOUGHT
-by FRED VANDER WAL
I look at every assignment the same way:; it is what it is. I’ve lost more AMCs and Lenders than I can count and I hardly care. Chase is my worst enemy. After not hitting value on a property and then the buyers paying cash so Chase missed out on the fleece, Chase sent me warning letter and notified a number of AMCS they CONTROL not to use me. Nothing has changed. It’s quite simple; it’s your opinion of value and if the AMC/Lender don’t like it, too bad. there are so many decent Lenders out there. who needs chase/bank of america/wells fargo/etc?
-by Alan Getch
I always found ethic classes an oxymoron. The only ones who need an ethics class have no ethics. And one with no ethics will derive nothing from the class. The whole thing is Fooey I tell you Fooey!
-by Spencer B Humphrey
Thanks to Steven R. Smith. There certainly are, and I think alwayys have been, two types of appraisers – what he calls Vocational Appraisers nd I call form fillers, and Professional Appraisers. Perhaps that is appropriate. Ther are also at least two types of clients. I sleep better working for only those who want a professional appraisal, but maybe that’s not appropriate for everyone in our “businss”. Spencer Humphrey
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