Restricted Appraisal Reports Consumer Alert
The Appraisal Institute-pushed SB-70 law I talked about a while back has been in effect since January 1, 2019 and expires December 31, 2019. I just checked back in since it went into effect and was shocked to see this warning on the California’s Bureau of Real Estate Appraisers web site say this:
In other words, the state regulator seems concerned about this law and how it exposes the most vulnerable to potential abuse – what SB70 enables. And because the safety of the consumer and the public trust was challenged it looks like they needed to issue a warning. If you want evidence on the level of damage the Appraisal Institute has caused to our industry reputation to the consumer so far, there is no need to look further. If you assume that 20%-25% of appraisals done in California are for private non-FRT (that’s another topic for discussion) such as divorces, partnerships, private loans, small carries, family notes, and other non-mortgage work, certified appraisers can do restricted appraisals without intended users and not show their work.
Here’s how it works. The entire idea of a restricted report is to be able to present something directly to your client who probably knows the property better than the person valuing it. In SB70 the report writer is required to include the following disclaimer in each restricted appraisal report, and I’m assuming the legislators could see how reckless this law is:
There may be assumptions that the appraiser has not verified that may significantly impact the appraised value of the subject of the report.
What credible, someone who can sleep at night, licensed appraiser would place their name on a report with this disclaimer? Yet the Appraisal Institute sees SB70 as an incremental win.
Draft 4 of USPAP effectively takes care of the intended user loophole on April 1 if licensed appraisers choose to do a restricted appraisal report by requiring them to include specific names rather than a class of users so if you are a certified appraiser doing these in California in 2019, I’d think twice about doing these restricted appraisal reports.
With SB70, accountability or need for a license becomes obsolete for a large swath of appraisals being completed in California. I believe this is part of the broader AI goal to remove licensing, get rid of TAF/USPAP and restore days of yore to their designation relevance. SB70 is essentially an attempt to make appraisal certifications and some bare minimum standard of qualifications obsolete for non-FRT work. AI leadership in favor of this are still reading their own press releases from the late 1970s about how important a designation is and think the consumer understands quality differences outside of the consumer’s busy personal lives. No disrespect to appraisers with hard-earned MAI and SRA designations, but in reality the organization has failed to keep the branding relevant.
The Appraisal Institute has essentially taken the position that this law makes its members competitive with a tv-repairman (no offense meant to tv-repairmen who are long obsolete) looking to make a few bucks writing restricted reports on the side. What this does in the real world is damage the meaning of “Certified Appraiser” by placing them on a level playing field with anyone writing restricted reports, i.e. pool cleaners, pet groomers, barbers, tv-repairman, nurses, or anyone who wants to do these reports on the side.
NOTE: The reason for any type of licensing is to paint a bullseye on your back – as a professional you are held to a higher standard and jump through more hoops to maintain that professional stats of which you are compensated. This is why appraisers are paid more than TV-repairman moonlighting as appraisers. Certified appraisers need to carry e&o insurance because of the likelihood of being sued and that is another reason why the market pays higher fees for professionals “you get what you pay for.” If you want some electrical work done in your house and get your unlicensed buddy to do it cheaply and illegally, you may not be aware of the potential risks such as fire and sellability later. In the case, of SB70, AI efforts are focused on taking down the difference between appraisal professionals and tv-repairmen so appraisers can get more business by being more competitive with tv-repairmen. In the quest for more appraisal volume at any cost, the cost is a lower consumer value placed on certified appraisals. This mentality has plagued our industry and was the subject of a blog post I wrote on August 9, 2005. Some of the links are broken after 14 years, but the point was made.
Speaking of bullseyes, Realtors hate the exposure this law gives them on these deals when something blows up – they will see such an appraiser as nothing but a crook. How is that for branding our industry to consumers?
The California Chapters of the Appraisal Institute are now pushing SB131 (likely without informing their members as I’m told they didn’t do with SB70) to extend SB70 for another two years.