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Editor’s Note: The current edition of Working RE is in the mail. OREP E&O insureds enjoy it free!
Why Appraisers Need Uniform, Federal Enforcement of USPAP
By Mike Ford, AGA, GAA, RAA Realtor®
Federal licensing for appraisers, to replace the tangle of inconsistent state regulations, best serves the public good and is much fairer for appraisers. Here’s why.
In 1989, the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) resulted in monumental changes to the real estate appraisal profession. FIRREA authorized The Appraisal Foundation (TAF) as the source of appraisal standards and qualifications while requiring states to license, regulate, and supervise appraisers, under the supervision of the Appraisal Subcommittee (ASC).
In terms of enforcing the profession’s new standards, the Uniform Standards of Professional Appraisal Practice (USPAP), the states were also tasked with enforcing USPAP on all appraisals for federally related transactions, with the ASC responsible for supervising each state’s regulatory program.
After 30 years the question for appraisers is: has FIRREA delivered on its promise to protect the public and effectively regulate the appraisal profession? In a word: No. The result of the 50-state regulatory framework has led to twisted, opportunistic interpretations of USPAP and corresponding abuses propagated by many state boards nationwide.
Non-Uniform Standards
For appraisers and the public there is no uniform protection or uniform enforcement provided by USPAP because many state boards lack even a basic understanding of the standards. Part of the problem is that many state boards lack appraisal expertise. Oftentimes, state investigators are not appraisers and are not familiar with USPAP let alone expert in it.
Many appraisers, myself included, have witnessed widespread abuse among state regulators. There are very few states that even follow USPAP compliant review procedures but instead move almost immediately to a prosecutorial posture on receipt of a complaint against an appraiser—guilty until proven innocent. The goal is not to determine whether an appraiser has committed a legitimate or significant USPAP violation, but instead to steamroll the appraiser with a laundry list of alleged violations, offering a smaller fine if the appraiser signs a consent decree admitting to a minor violation. (See Beware Consent Decrees, visit WorkingRE.com, search “Consent.”)
As Chairman of the National Peer Review Committee of the American Guild of Appraisers (AGA), I have personally seen evidence of the inability of the state boards to fairly or consistently enforce USPAP in Maryland, Minnesota, Virginia, Georgia, Texas, Illinois, Oregon and California. At the AGA, we do not provide appraiser representation but we do provide an impartial third-party analysis and advice when a complaint is filed against one of our members. In most instances we see that the state boards do not follow their own state laws concerning the applicability of USPAP. Certainly they aren’t following USPAP review SR3 requirements themselves. I have also experienced this personally in California as a respondent/defendant.
These experiences have shown me that enforcement is not uniform or consistent anywhere in the country. Some states have processes that are commendable. In New York and New Jersey, for instance, the state boards will receive a complaint and send the file out to be reviewed by an individual appraiser before taking any action. If no basis for the complaint is found, the Board won’t pursue the allegations.
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However, in most other states that I’ve dealt with when reviewing complaints in my capacity at the AGA, the first step they take is not to seek expert appraisal advice or have an actual appraiser review the file, but to instead prepare a list of alleged violations and attempt to coerce settlement stipulations from the appraiser. If an appraiser makes an honest mistake on a report, with no deceit involved, not only does the state board nail you for that particular item but they will add on anything that could be remotely considered a violation in an attempt to intimidate you and force you to accept whatever plea agreement or consent decree they are offering.
The idea that USPAP is not enforced consistently is not new. Appraisers have long noted this with even members of Congress taking note! At a Congressional hearing in November 2016, Congressman Jeb Hensarling (R) testified that the states have failed to uniformly enforce USPAP. Specifically, he cited the lack of consistency in enforcement from state to state.
That USPAP is not uniformly administered is a direct outgrowth of having federal legislation reinterpreted by TAF, a private corporation, and then overseen by a tiny but powerful federal agency (ASC) that apparently lacks authority to assure consistency of enforcement from state to state. TAF’s efforts to shift its mission from real estate appraisers/appraisal to “valuators” and to increasingly incorporate the standards of other professions has even further exacerbated the problem. For example, while TAF was originally created to manage the standards of the real estate appraisal profession, it now purports to be a “multi-disciplinary organization” that offers resources for “those practicing in the area of business valuation, intangible assets, and valuation in financial reporting (VFR).” This shift away from real estate appraisal as the sole focus of TAF and USPAP only further complicates matters as USPAP departs from its original purpose of real estate appraisal.
Harm to Appraisers and Public
The result of this non-uniform, inconsistent and often unjust application of USPAP by the various state programs has been harmful both to appraisers and to the public.
There is a reason that FIRREA called for uniform standards 30 years ago. The standards of our profession should be the same. When I’m training someone in California, or if another appraiser is training someone in Virginia, we need to know that there is a uniform set of guidelines and standards that will be enforced. There needs to be a minimum level of performance that is expected. Furthermore, if appraisers have to spend all of our time worrying about whether we will meet some bureaucrat’s approval as to how well we dotted an “i” or crossed a “t,” then we may lose focus on the core principles of our professional responsibilities.
This not only hurts us as a profession, but by subjecting us to inconsistent and often unfair levels of enforcement, it also hurts the public. Appraisers are the only party to a real estate transaction who doesn’t earn a commission. We are independent third-parties who are charged with analyzing a property according to our professional uniform standards. Inconsistent enforcement of USPAP standards distorts the independent, non-biased valuation of properties and prevents appraisers from doing our jobs. If appraisers have to live in fear of being the subject of arbitrary state board enforcement actions that do not apply USPAP consistently, we are much more likely to roll over and “meet value” instead of facing a state board complaint from an unhappy real estate agent or seller. The result is that a law intended to preserve and protect the appraiser’s integrity and the public’s ability to rely on appraisals, has had the opposite longterm effect.
Ultimately, this haphazard and inconsistent enforcement of USPAP from state to state has failed to protect the public at nearly all levels. Fifty states with 50 different sets of rules and nuances that affect USPAP’s interpretation is not the solution.
Toward Uniform, Federal Enforcement
The solution to this problem is for Congress to recognize that individual states are not capable of effectively and uniformly enforcing USPAP as mandated under FIRREA. Congress must modify FIRREA and establish federal licensing and federally administered USPAP enforcement as a function of the ASC.
Converting our existing state licenses to federal licenses is an easy matter since all were obtained under federally mandated uniform guidelines. Both the Appraisal Institute as well as other industry stakeholders have proposed a kind of Nationwide Multistate Licensing System (NMLS) for appraisers. To achieve uniformity it would not be enforced at a state level but instead on a national level.
Federal enforcement is the only way we can eliminate local politics and human subjectivity. States have proven they lack the will or ability to adopt necessary, fair, bipartisan, real estate and appraisal regulations in a timely manner.
Such a federal system would be more efficient and effective as well. Many state boards are indicating that they lack sufficient funding due to the declining number of appraiser licensees and the fees they generate. This lack of funding means that state boards are having trouble meeting staffing requirements to effectively run their own operations. However, adding staff to investigate and enforce on a federal level would likely be less costly than giving grants to states to continue as they have. This could also facilitate enforcement of appraiser independence and customary and reasonable fee requirements.
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About the Author
Mike Ford, AGA, GAA, RAA Realtor® is Chairman of the National Appraiser Peer Review Committee of the American Guild of Appraisers. He is a former Senior Appraiser with the Treasury Department (IRS Large Business and International Division). The American Guild of Appraisers is a professional peer organization that intercedes on behalf of its individual members with regulators, AMCs and lenders alike.
Send your story submission/idea to the Editor: isaac@orep.org
by Commercial Appraiser
The call for federal licensing for appraisers to replace the current state-by-state regulations makes a compelling case. The inconsistencies in USPAP enforcement across states have led to unfair practices, undermining the integrity of appraisals and harming both professionals and the public. Adopting a federal system could ensure uniform standards, enhance efficiency, and eliminate local biases, ultimately benefiting the entire real estate industry.
-by Terri J
Having licensure at the federal level with one set of licensing rules and being able to work in multiple states without obtaining an additional temporary license (or obtaining a permanent license in the additional state); together with CE that is applicable to every state, etc., would be worthwhile.
I would agree that having local boards or review is still needed vs. a federal board for complaints. This means the industry would need to have members on an appraisal board (or board who will review complaints) who are familiar with the appraisal industry; or if not familiar, need some education to become competent to be on the board (just as appraisers we need to become competent in order to complete appraisals for specific property types or geographic areas).
-by Michael Ford, AGA, SCGREA, GAA, RAA, Realtor®
Hello Terry. I agree that local review is a critical component. However if federal regulation were to be implemented I’d envision first a quick or cursory ‘review’ by federal screeners for obvious issues; including obvious issues that there has been no credible support to sustain a complaint OR indications of retaliatory motivations. This type of screening could eliminate a need for the appraiser to ever even be notified or worried by false complaints.
Only where there appears to be some degree of potential merit to a complaint would it then be sent to what I’d hope would purely volunteer field reviewer with no motivation for bias one way or the other. That review (mandatorily SR3 & SR 4 compliant) would or could then be sent to a local review board comprised of respected appraisers who would or could determine if the error(s) are substantive and likely to have had a significant impact on the conclusions and or value in the context of the specific clients intended use. Only on a majority adverse finding would the matter be referred back to ASC or other agency to (1st) reeducate the appraiser; or (2) if egregious, to fine, suspend or revoke a license. The incentive for making issues up to support higher fines by states would be eliminated. As a former Senior Appraiser Reviewer for a federal agency I can attest we were never encouraged to ‘find fault’. Just the opposite. Considerable latitude was expected to be given to th originating appraisers.
-by Joe
Ummm no
-by Ron Bryant
The more local the government, the more accountable & responsive to the public it is. County Government is more responsive than State, which is infinitely more responsive than Federal. The states are designed by the founders to be 50 laboratories to experiment with what may work best. If your own State is ineffective, you can always move as a last resort – Not so with one size fits all Fed-Regs. If you like dealing with the IRS & the Postal Service, you will love giving Washington exclusive Federal control of the appraisal industry.
-by Michael Ford, AGA, SCGREA, GAA, RAA, Realtor®
Only in theory Ron. We presently have 57 jurisdictions (50 states and 7 territories or Districts) with NO uniformity of enforcement or interpretation of USPAP. FIRREA is a federal law that mandated USPAP. The operative term being mandated a UNIFORM standard. One that is NOT an experiment or civics laboratory; but rather one that is a uniform practice, uniformly and fairly judged for all appraisers…not merely those living in states that are small enough for local influence to be felt at state levels. Federal regulators in California operate the same as a federal regulator in ALabama, Illinois, Oklahoma or New York.
-by Rocco Pallante
Mike, Very seldom would I argue for federal oversight of anything, but this is a case where it makes sense. Since the rules and standards come from the top down, it seems silly to have piecemeal enforcement by individual states. Two issues you did not mention are appraisers who are licensed in multiple states, and temporary licenses. While most residential appraisers will stay within one state, it is quite common for commercial appraisers to be licensed in multiple states, especially if they work on specialized property types. I am currently certified in five states, and just keeping track of CE requirements is a logistical nightmare, as each license expires on a different date. Also, some states require a special CE class, typically total BS, that is unique to their state. As for temporary licensing, FIRREA specifies that a state must recognize a license issued by another state. There should not even be an application involved, since the second state has no authority to deny my right to work there, yet some states have turned it into a complex application process. A few states (AZ,IL,WY) require finger prints and background checks for temporary permits, which is specifically contrary to FIRREA. If it takes 6 weeks to get a temporary permit in these states, then you are effectively prohibited from working there. Sadly, ASC does absolutely nothing about forcing states to comply with FIRREA, so I would not expect much from them in other enforcement areas. Nevertheless, I think a national licensing program would solve lots of problems.
-by Michael Ford, AGA, SCGREA, GAA, RAA, Realtor®
Rocco-concur. The present system is not working effectively.
-by Mike Ford, AGA, GAA, RAA, Realtor(r)
Noam Chomsky might be proud of the creative grammar. For the rest of the readers-apologies for my editing gaffs.
-by David
Federal Government over site is and will always not serve the best interests of the citizens of the US (with a few exceptions). Federal Governments have too much on their plate to ever operate efficiently and with understanding what goes on in the real world. I have personally witnessed this with Fed Govt HUD reviewers of my FHA work. First they operate with impunity (no accountability when they make mistakes) IE one criticism of my work included: back view of house didn’t include roof (new home) “because the roof might be burnt ” so in their mind there’s a chance a builder might slip a burnt roof under the radar to a unsuspecting buyer that nobody would catch or mention. (this is only one of many). I’ve been appraising in Texas for 34 years, a realtor/broker for 35 years and built homes for 5 years. Mike Ford you are very naive, and over estimate the capacity of the fed’s and under estimate their ineptness.
-by Dale Bailey
Mike, I agree with your platform and have concerns about States following suit. I will say that The State of South Carolina, in my Opinion, does exactly what you outline. I am proud of how they handle their position on the Board. All professional people, most appraisers, some bankers, Real Estate, Public at Large and they understand USPAP. We also have a Peer Review Committee for complaints.
-by Michael Ford, AGA, SCGREA, GAA, RAA, Realtor®
Thank you, Ron. Several states do an outstanding job. We have had zero complaints concerning South Carolina.
-by Michael Ford, AGA, SCGREA, GAA, RAA, Realtor®
Thank DALE! Sorry for name post error.
-by Ron Maloney
Mike-I am a Subject Matter Expert for New York State and have handled many complaints made against Appraisers.
-And I couldn’t agree with you more.
Great article Mike and thank s for taking the time and effort to write it.
Ron Maloney
by Michael Ford, AGA, SCGREA, GAA, RAA, Realtor®
Thank you Ron. New York has been one of the better states to work with on complaints against appraisers. Rebuttals are fairly reviewed and cleared in a timely manner when complaints were not credibly supported. New Jersey has also been good to work with.
-by Michael S. Elliott, SRA
Great idea – so with this proposal instead of trying to deal with 6 board members from my state that understand local issues I get to deal with some federal regulatory board across the country? Uh, no thanks. The states may not be perfect but let’s fix the system, not toss it out for some grand federal system which will only make each of the problems you talk about worse. I realize the AGA is a union-backed organization and thus has a great affinity for large-government, centralized federal control, but this is the worst idea I have heard in years. You think it’s hard to get an answer from an under-funded, incompetent board in your state capitol, why would you trade that for an under-funded, incompetent board half way across the country? Are we so naive that we believe the feds would give us a well-funded, competent federal agency? Your own article admits how poorly the feds are doing already.
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