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USPAP: Shifting (Quick) Sand for Appraisers
By Bob Keith, MNAA, IFA
If you’re like me, you make a decision about whether to read an article in a magazine based on its title and the first few sentences. If you’re an appraiser, then you should keep reading.
Before you do, however, it would be beneficial to understand exactly who is delivering this message to you. If you are a professional appraiser, enough said! We’re on common ground but there is more. After earning a bachelor’s degree in Real Estate and Urban Land Development in 1981, I embarked on a career as a professional appraiser which I did for 21 years, mostly in the residential mortgage lending arena.
About 10 years later, I was honored to be a gubernatorial appointee to the first Oregon Appraiser Certification and Licensure Board in response to the FIRREA mandate that all states license/ certify real estate appraisers for the protection of public trust. For many years after my time on the board, I served as a member of its Appraisal Review and Advisory Council, which is a peer review committee used by the board at that time in its complaint investigation process.
Subsequently, I served 12 years as the Executive Director of the Oregon Appraiser Certification and Licensure Board. During this time I was an AQB Certified USPAP Instructor. Prior to my employment with the Oregon board, I taught pre-license appraiser education coursework for what was at the time the largest provider of appraiser qualifying education in the country, while owning and operating a 13-person appraisal firm with multiple offices.
During my service to the Oregon board I was involved as a board member, officer and President of the Association of Appraiser Regulatory Officials (AARO), and during that time I represented AARO on The Appraisal Foundation and Advisory Council (TAFAC) as an officer and later its Chair in 2010.
One of my primary responsibilities with the Oregon board was to investigate complaints against appraisers, make decisions about whether USPAP violations occurred, and represent the board in the prosecution of alleged USPAP violations by appraisers.
Since I left the employment of the board in 2013, I have consulted with many appraisers across the country who were defending themselves against complaints filed against them by various parties who felt aggrieved by the appraiser. During this time it has become apparent to me that many state appraisal boards lack appraisal and/or USPAP expertise on staff. And those with whom the boards subcontract to make decisions about USPAP violations are not sufficiently knowledgeable in USPAP to make those determinations.
Just today I was reviewing a case from a northern state in which the “independent contractor” hired by that state to perform a “review” on an appraisal report criticized my client for including a copy of his E&O insurance binder in his report because, “an appraiser should never include liability insurance declarations within a report; it invites litigation.” Just in case you were wondering, no, this is not a USPAP violation! Nevertheless, this reviewer was the “expert” that state appraiser board was relying on to tell them where the appraiser erred. Often times USPAP is not applied consistently within a state or in comparison with other state appraisal boards for the same or similar (alleged) violations.
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Moving Target
Exacerbating this problem is the fact that USPAP has changed too much in a short period of time to be considered as a legitimate minimum standard for professional appraisal practice. Not only is USPAP a moving target for appraisers, it is also a moving target for those charged with enforcing it. If USPAP really is the minimum set of professional appraisal standards, then it’s like a house built on shifting sand. Consider the following: in the beginning we had the Departure Provision (later it became the Departure Rule) because at that time it was considered to be important to communicate whether a “complete” appraisal process was conducted, or something “less than or different from” the complete process (i.e. a “limited” appraisal).
Then, in 2006, the Departure Rule was deleted “to resolve misunderstandings related to Departure and public trust…” (2006 USPAP Page V). Apparently, the Departure Rule turned out to be not such a good “minimum standard,” so the Appraisal Standards Board (ASB) decided to replace it with a two-page Scope of Work Rule. That’s good—a clear, concise “minimum standard,” except it required a four-page (non-binding) advisory opinion (AO28) to provide “guidance from the ASB…to illustrate…and offer advice” on the twopage binding Scope of Work Rule.
In 2001 the ASB added Statement 10 to USPAP “to provide clarification, interpretation, explanation, and elaboration to reaffirm an appraiser’s USPAP obligation when performing assignments” for federally related transactions (2001 USPAP page VI). Statement 10 was so large that it had its own table of contents and it became a new binding minimum standard.
But then, in the 2008–09 edition of USPAP, Statement 10 was retired because according to the ASB (the author of USPAP), “The Statement did not distinguish between laws (such as FIRREA), regulations and guidelines (such as the Interagency Appraisal and Evaluation Guidelines), resulting in confusion for both appraisers and users of appraisal services.” And “The format and complexity of Statement 10 were obstacles to its understanding and effective enforcement”… and “Substantial editing of Statement 10 would not have resulted in increased understanding” (2008–09 USPAP page U-vi).
Some of the issues that were in Statement 10 were moved to a new, non-binding Advisory Opinion (AO30) which now offers guidance and advice on the same issues. Keep in mind that USPAP Advisory Opinions are nonbinding and not part of USPAP.
Also in the 2008–2009 edition of USPAP the definition of Supplemental Standards and the Supplemental Standards Rule were deleted from USPAP. According to the ASB (2008- 09 USPAP page U-vi), “Appraisers must comply with laws and regulations because of the nature of law itself, not because of USPAP. Thus, continued use of Supplemental Standards as defined by the term was unnecessary.”
As of January 1, 2016 (the effective date of the 2016–2017 edition of USPAP), all of the binding Statements on Appraisal Standards will be retired. Remember that the Statements were originally added to USPAP to “to provide clarification, interpretation, explanation, and elaboration” of USPAP.”
According to the ASB: “After evaluating the content of the five remaining Statements, the Board (ASB) concluded that most of the content was guidance. In order to make USPAP a clearer, more user-friendly document, the Board retired all of the remaining Statements. The ‘few requirements’ that were in the Statements were moved into other parts of USPAP and the guidance was reissued in the form of new Advisory Opinions” (USPAP 2016–2017 page Vii.). So those “few requirements” that were formerly binding requirements then became “non-binding” guidance in the Advisory Opinions.
What message does it send when the author of professional standards (the ASB) uses words like the following to describe past minimum standards of practice: “confusing,” “misunderstandings” and “obstacles to…understanding and effective enforcement;” “editing… would not have resulted in increased understanding” and “continued use of… [the standards] as defined by the term was unnecessary.”
While there may be only one set of appraisal standards of practice effective at any given time, in reality USPAP changes so frequently and so significantly that it is very difficult for appraisers and regulators to keep up. One could say that there is nothing “uniform” or “standard” about the Uniform Standards of Professional Appraisal Practice, at least not over time.
Let the Sentence Fit the Crime
One might ask: “What is the solution to the problem of USPAP being like shifting sand?” I honestly don’t know. All I know for sure is what I have seen and experienced myself, that many appraisers have been sanctioned by their state appraiser boards for violations of minimum standards of practice (at the time) for which it was later decided that those standards were deemed “confusing… obstacles to understanding/enforcement and/or unnecessary.”
Why is this important? Well, how would you feel to be one of those appraisers who was sanctioned by your licensing board for a violation of minimum standards that were subsequently deemed to be, “confusing… obstacles to understanding/enforcement and/ or unnecessary.” Those who have been sanctioned by their state boards report significant consequences that vastly exceed the actual “punishment” that was meted out by their state board.
For example, suppose an appraiser is found to be in violation of several USPAP requirements that result in a $1,500 fine plus a requirement to take one 30-hour appraisal class. On its face, that’s not such a bad result. Particularly, in comparison with the cost to hire an attorney to challenge the case through the administrative hearing process. Remember, this is the “punishment” deemed appropriate by the state licensing board for the crime. What that board doesn’t often consider is that the true consequences for “the crime” far exceed their determination of appropriate punishment (fine and a class).
Appraisers who have been disciplined by their state boards, even for relatively minor transgressions, report that their E&O insurance premiums increase— sometimes dramatically, that they are denied approval on potential new-client fee panels, dropped from existing client fee panels, and/or are disqualified as expert witnesses in litigation-support assignments. The cumulative financial and reputational effects far outweigh the $1,500 fine, $350+/- class, plus the loss of one week’s earnings on the job.
For many years, what appraisers have had in terms of stable minimum professional standards of practice and ethics is not only not perfect…but in fact is far from perfect and has had serious professional consequences for many appraisers.
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About the Author
Bob Keith, MNAA, IFA, is an AQB Certified USPAP Instructor, Certified General Appraiser, former Executive Director of the Oregon Appraiser Board, past President of the Association of Appraiser Regulatory Officials, past Chair of The Appraisal Foundation Advisory Council, and has served as a subject matter expert for two national appraiser exam providers. Mr. Keith currently serves as the Treasurer of the National Association of Appraisers. Keith also offers consulting to appraisers nationwide facing state board complaints. OREP Members receive a FREE 1/2 hour consultation with Bob Keith and 25% off his consulting services.
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by Michael Ford, AGA, GAA, RAA
One of best articles I’ve read in years. It echoes one of the most frequent complaints heard about USPAP from appraisers all across the country.
I’m sending a link to this article to every single one of our members, including several that are currently litigating or otherwise fighting state disciplinary actions.
With respect to TAF and ASB, ‘principles’ do not change with the tides. If they did, then they would not be ‘principles in the first place, but merely trends or habits.
IF they want t make USPAP an effective document, then make ONE more change and no more than this in the next ten years: Eliminate the preamble, ethics rule, record keeping, competency etc. as separate rules or sections. Incorporate them as one liners in the basic SRs (those that are not already incorporated by at least inference).
TAF and all its Boards have done honest, good work over the years. We commend them, but the document with they are charged with overseeing has been allowed to ‘grow’ beyond what was ever envisioned. Barring changes in technology or data availability it is not a document that should be changing as often as it has.
If an appraiser is “aware of” all the elements required to develop a credible appraisal is it really necessary to also add; “Don’t be a liar, cheat and a thief” in a separate section?
-by David Rij
The article focuses on the end result of the appraisal process, but I can’t help but focus on what leads up to the problem, similar to focusing on why a plane crashed rather than the aftermath. The vast majority of lender appraisals are run through appraisal management companies who make their money on the margin. How was this ever going to provide a superior appraisal product? It never was intended to and it doesn’t. Who among us would ever refer an appraisal management company to someone looking for an appraisal for estate purposes or a divorce? I refer people to many appraisers every year and not once have I considered referring an AMC. Our profession is broken at the foundation and with that comes all the problems we have. If our profession found a way to get the best appraisers hired for lending appraisals rather than the cheapest that would be a good start.
-by mikecra@bellsouth.net
After many years in this business, it appears to me the primary worry is a missing standard comment or a routine box that was not checked. The lesser worry, it seems, is those appraisers who consistently “make as instructed” for lenders, Realtors, and attorneys; No worries about those overlooking needed repairs, sagging floors, mold or mildew, external obsolescence, site concerns, etc. I’m looking for the name of that appraiser who can differentiate between a comp(THAT IS A COMP-inspected from the street) that is at the very top of a condition or quality rating or at the very bottom of the next better rating. I am in my 4th decade of appraising and 5th decade in the real estate business. The involved Realtors have no idea which rating to put their listed or sold properties in. Other Appraisers(maybe 85% of them) say they choose the same ratings for the comps they use to avoid warnings and never call the involved real estate agents. Forgot to take the ESP course when I was trying to get my license many years ago. Reminder to all, be sure to call the agents to see if that microwave was built in or freestanding in a $300,000 house so you can make an adjustment and explain it in the comments.
-by Wade Schroeder
Claiming the changes are too much to keep up with is a weak argument for avoiding what is required to be a professional in our field. It is our Job. Mr. Keith is flat wrong. Here is why, USPAP changes are the result of changes in our profession. USPAP Standard Rule 1-1(a) clearly requires appraisers to “…be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal;” The Standards Rule comment goes on to say, “[s]ocial change has also had an effect on appraisal theory and practice. To keep abreast of these changes and developments, the appraisal profession is constantly reviewing and revising appraisal methods and techniques and devising new methods and techniques to meet new circumstances. For this reason, it is not sufficient for appraisers to simply maintain the skills and the knowledge they possess when they become appraisers. Each appraiser must continuously improve his or her skills to remain proficient in real property appraisal.” Yes, USPAP changes, but so does The appraisal of Real Estate, which is now on the 14th Edition. The Appraisal of Rural Property is on the second edition as well as Real Estate Valuation in Litigation. The Dictionary of Real Estate Appraisal is on its sixth edition. A new version of the Uniform Appraisal Standards for Federal Land Acquisitions will be out within a year. Maintaining a current reference library, including USPAP, is an important part of continuously improving skills to remain proficient in real property appraisal.
-by Joe Milkes, MAI
Well said. It should not be a cook book. What appears to be happening is that one change begats a follow-up change and just like in the Bible, the begats multiply to the point of absurdity. One year, X needs to be in the report. The next year, it does not. then the following year, Y has to be included, etc.
-by Michael Ford, AGA, GAA, RAA
Best comment on the board!
-by Scott Williams
Thought provoking article which has obviously struck a chord with many readers. I do think Bob is a bit hard on the ASB, however. Every branch of government including state legislatures and state agencies revise their laws and regulations on an ongoing basis, and the ASB is no exception. As might be expected, there were more revisions in the early years when there was a new USPAP edition every year. The ASB felt this was not necessary after awhile and went to a 2-year schedule. Often, there are relatively few significant changes from edition to edition. Once every 10 or 15 years there are some substantial changes, but even then probably 80% to 90% of the document is left unchanged except for minor edits.
The two-year continuing education cycle in most states coordinates with the USPAP changes enabling appraisers to keep up for the most part. Although many say they would prefer it if rules and regulations never changed, that would entail its own set of problems. I applaud the ASB for its careful approach in recent years, trying to garner maximum user input and delaying the implementing of controversial items until they are thoroughly understood.
The issue of how fast USPAP changes should be made has been around since the start of the ASB and will probably always be with us. Within the last 5 to 10 years, however, I think things have appropriately slowed down. A two or three year cycle seems right to me. As for the ASB’s attempts to “enhance clarity and understandability” it seems to me that is their job, similar to all other rule making bodies.
-by Mike Ford, AGA, SCREA, GAA, RAA
Wade, all you said is true except justification for changing standards simply because new techniques come into favor.
-by John Hicks
Great article! I agree with a lot of the ideas expressed. I’ve long been a proponent of doing away the USPAP updates every other year. It only diminishes the public’s trust if we are constantly changing the minimum standards by which we conduct our business. It stands to reason that an appraisal done before any particular “update” would possibly no longer comply to USPAP. In essence, it says the appraisal someone performed prior to that particular change is relatively worthless after the USPAP update has taken place. Nonetheless, great article-well articulated!
-by Kenneth Tamblyn
Amen! USPAP is way too confusing and the basis for appraisers to be punished. Then it changes every two years? Why does it need to change? It is the law for us, it is the minimum standards. They should rarely . . . if ever be changed.
If they are changed, there should be a 2 to 4 year adjustment time so that everyone can read the advisories, interpret the changes and understand whether the changes were even really necessary.
-by Kenneth Tamblyn
I meant to say that there should be a 2 to 4 year trial window on USPAP changes.
-by George Hatch
With respect, Mr Kieth’s primary complaint seems to be that the DEPARTURE RULE – which most appraisers never understood and which no client ever understood – was replaced with the SCOPE OF WORK RULE in 2001.
By my count, 2001 was 15 years ago. That 2001-2016 is a much longer period than the 1991-2001 period in which the pre-SOWR versions of USPAP existed that most appraisers were exposed to.
It took the ASB a couple more years to retire the SUPPLEMENTAL STANDARDS RULE which had been rendered obsolete by the SOWR, and a few more years to move the remaining STATEMENTS ON STANDARDS materials to the Advisory Opinions (also due to lack of standing as a Uniform Standard by the SOWR), but all that’s doing is promoting simplicity and *consistency*, which as a former state regulator should be a big improvement for all concerned.
I’ve been teaching USPAP to appraisers since 1996, with literally thousands of appraisers having made their way through my courses over the years. This period spans both the majority of the Departure Rule era as well as the Scope or Work Rule era. I can tell you for a fact that a far higher percentage of appraisers understand how the SOWR functions than ever understood Departure and what makes a Limited Appraisal limited, or where a Supplemental Standard fits in relation to the minimums of any of the STANDARDS RULES.
Long story short – the profession took a detour in the 1990s and added a bunch of superfluous material to USPAP proper. Since 2000 the ASB has retired much of the dead weight and relegated the remaining info that is assignment-specific back to the AOs where it arguably should have been in the first place. Not counting the AOs and the FAQs (which are not part of USPAP and never have been) the 2016 edition of USPAP now clocks in with 30% fewer pages and 30% less material than the 2000 edition . Slimmed down and easier than ever to understand.
So that’s why (in my view) a 2016-2017 USPAP with 30% less material doesn’t exactly square with Mr Keith’s the allegation of a moving target and the implication that appraisers still can’t understand the nuts and bolts of the first 34 pages of the document.
-by Kelly
Wow. I almost thought I was reading comments that I have made with other appraisers for years. It’s nice to see someone with the background of Mr. Keith making these points.
-by Bob SOlotist
I understand that the USPAP book is mandated in order to take a 7 hour USPAP Update course, whether on line or hard copy. Is the book included in your course fee?
-by cassandra
sounds like ground for a class action suit against the state boards. I’d thought to throw my hat in the ring as a consideration to get on these boards…now, not so much.
-by Joe
Seriously, you should look into it. Do your homework first by researching how the agency is run, how they are carrying out their mission, personalities involved and how you have impact on how things are done. I know in TX some of the appraisers have had significant input on policies. Also having a state wide appraiser advocacy group can have a lot of influence. That is the case in TX as well. Good luck with it.
-by P. Edward Davis
Bob Keith’s article on USPAP is on of the best articles I have read on the metamorphosis of USPAP and its implications. Over the years, I have stated to numerous USPAP instructors that the Constitution of the United States, ratified in 1788, has only been updated or amended 27 times in its history. The last or 27th Amendment, was ratified in 1992. USPAP, on the other hand, had been updated every year from its adoption by the ASB in 1989 through 2005. Since 2006, USPAP has been updated every two years. If the Framers only knew.
-by MAT47
Great article; well said. USPAP has become confusing and a moving target for appraisers trying to make a living and do not have all day to sit and read every page as well as in between the lines like appraisal boards and govt agencies. Appraisal boards are typical rogue govt. agencies with an attorney/prosecutor (not an appraiser) looking to make a name for themselves all at the expense of a middle class Joe appraiser. When a 10-20 year appraiser has to spend 10,20,30K for an attorney to keep his/her license (maybe) fighting a rogue enforcement board something is wrong here. Many wonder why appraisers regret getting in to this business, its because they had no idea 10-20 years down the road their careers and livelihoods would be in the hands of rogue govt agencies out to end it over mistakes made because they had a bad day, week, or month and with no statute of limitations on anything they have done; as the author stated, punishment to the violation NOT crime. Oh yeah, lets not forget about how appraisers make the least amount in a transaction with the most liability, enforcement, and regulations. This is why no one is getting in the business or wants to become an appraiser, the word is out. Not only are appraisers not recommending the business young adults; real estate agents are not recommending us as a career path profession either and they are much larger than us.
-by Rachel Massey
Excellent article Mr. Keith! This is particularly the case for the punishment fitting the “crime”. It makes no sense to hold someone to the same standards for forgetting to include a statement such as prior services or exposure time, as it would be to someone who did not inspect and sent a runner in their stead (but signed they inspected). These types of issues have different levels of severity, and the punishments should be vastly different, but just having a violation published does in effect, often equalize them.
-by Edd Gillespie
Thanks Mr. Keith for a cogent and accurate rendition of part of what is wrong with being an appraiser. Obviously the fickle nature of USPAP contributes additional chaos, but the real problem is one of almost complete disorganization within the vocation. We just haven’t yet defined ourselves or what we do very well at all. We have no idea what quality in appraising is, aggressively compete by offering cheaper fees and faster turn times, produce “reviews” that are basically inept (as your illustration emphasizes) and consistently “throw one another under the bus.” Ephemeral minimum standards are a problem, but are really more of a symptom of a dying vocation pretending at professionalism. Thanks again to you and OREP for the alerts and keep up the good work, but let’s raze the structure and just start over. This is a mess.
-by wayne whited
Thank you so much for clarifying the difficulty appraisers face in simply trying to remain in compliance.
-by Charles Horner
What a great article. You bring up a valid point that could get some (now) former appraisers to turn around and sue for damages using those arguments. It’s not enough that we “act” professional, we have to “be” professional in many professions that most people take a lifetime to achieve in only one of those professions. We have to be a combination of accountant, photographer, writer, engineer, student, professor, artist, statistician, cartographer, computer scientist, and secretary, just to name a few. Quicksand, indeed.
-by John
All of the lenders we work for require the E & O within the report…
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