Restricted Appraisal Reports Consumer Alert

AI Efforts Focused on Debasing the Appraisal ProfessionalsThe 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:

The real estate appraisal process concludes with the appraiser’s opinion of value. Development of an appraisal includes the gathering of facts and evidence, using recognized methods and techniques of analysis, and applying reasoning and judgement. An Appraisal Report is a summary communication of this process and includes the data, relevant evidence, and an explanation of the reasoning and judgement used to support a credible value opinion.

As a stand-alone document an Appraisal Report can be read and understood by users and be the subject of an Appraisal Review by other appraisers. The Appraisal Reviewer’s role is often an essential part of the business process to establish a level of confidence in an appraisal, given the wide variety of skills, knowledge and experience existing among appraisers.

A new law recently enacted in California makes changes to the reporting requirements for licensed appraisers. During 2019 Licensed Appraisers can for the first time provide broadly circulated brief reports for users other than the client; reports that do not summarize the data, evidence, or reasoning used to develop the value opinion. Similar brief reports labeled for users other than a client could previously only be prepared by un-licensed appraisers.

These reports are known as Restricted Appraisal Reports and do not contain sufficient information to be read and understood as a stand-alone document. Restricted Appraisal Reports may not contain enough information for independent verification of facts, analysis or conclusions without access to important additional information.

If you, as a consumer, are considering a significant financial decision that relies upon the services of a licensed real estate appraiser in 2019, be aware that this change may affect you. The Bureau recommends that you do not rely on a Restricted Appraisal Report. Instead, ask for an Appraisal Report; a report that contains written support for the credibility of the value opinion.

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.

Jonathan Miller
Jonathan Miller

Jonathan Miller

Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts.

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14 Responses

  1. Baggins Baggins says:

    The hits keep on coming. Great read, thank you.

  2. Avatar Advocate says:

    Great warning to consumers. Every state should post warning about those hybrid products. Consumer protection is the reason we are licensed!

  3. Avatar JW says:

    Looks like someone has their hand in the cookie jar. Gravitating to the popular fashion of the week seems to be the norm for the higher ups these days. Dismantle the AI in the residential real estate profession. If residential appraisers could all just get along and group up and create the RAI (residential appraisal institute) now would be a good time.

  4. Avatar certresidential says:

    Great article. Unfortunately, it’s the rare consumer who checks state websites. If the information, caveats and knowledge regarding the differences in these types of evaluations and appraisal reports were able to find their way towards better general PUBLIC exposure (geared towards consumers/borrowers) the purpose of the states posting would be better served.

    • Baggins Baggins says:

      The newspapers used to serve these functions better before corporate monopolization and either buy outs or shuttering of most. No more newspaper posting requirements in many jurisdictions. Now that tech companies are boldly advocating for corporate interests as their apparent first priority, calling dissenting opinion as something valid to routinely censor on every front, it’s more difficult than ever for regular consumers to get valid data on who and what to trust. Trusting the government to keep us safe with food, medicine, and finances is a common first mistake in this current period of time.

      Did you know lenders offer a trust option where they virtually guarantee you’ll close on a home, so long as you voluntarily reject your most important forms of unbiased separated consumer protection? And if that does not work out there is another guy standing in line whom will pay cash for your property, no appraisal required. It never ends, caveat emptor. Who’s providing warranty on the hybrid products? The state alert is just window dressing so they could wash their hands of the issue without actually doing anything about it.

  5. Great article Johnathan. This goes all the way back to California AB624 that ASA, AGA and CaCAP successfully killed after it passed (in appropriations).

    I can’t believe AI is undercutting it’s own membership like this. Truly the only people helped by these spurious products are those relatively few MAI’s that own or manage residential AMCs or national “appraisal” firms where high volume production of garbage products is OK by them as long as they can hide behind the scope of work rule (more bad regulation – though foisted on us by TAF…by a few insiders that are bashful about disclosing their designations)

    The majority of MAI’s that still compete for C&I work where their training deservedly makes them among the cream of the crop. It is only those few that can’t cut it in the C&I world that have to push out the ‘junior member’ SRA’s that should be providing corporate appraisal expertise for residential appraisal…if only designation were to be the basis for leadership.

    AI recently joined with many others to oppose the increase in the de minimis level. A step that unites appraisers and preserves our professionalism. I absolutely cannot fathom why AI National in Chicago also promotes this self destructive policy all over America.

    All AI Chapters are doing by promoting these short-sighted bills is to undermine the entire profession.

    When minimal standards of performance are no longer required, then there ceases to be a need for even the restricted bifurcated hybrid hucksters or the MAI’s that want to do them.

    They are creating the false illusion that “appraisal” can be performed in assembly-line fashion…by software designers that know nothing of appraisal. Just so long corporate ownership or management is held by an MAI.

    A premise that is not unlike thinking Congress Members (or state legislators) are personally reviewing the legislation they author – rather than the paid lobbyists that draft and write the final bills.

    Like SB 70.

  6. “brief reports ….. that do not summarize the data, evidence, or reasoning used to develop the value opinion.”

    Sounds more like a description of the thousands of mortgage appraisals performed every week by certifieds for $275.

    • Baggins Baggins says:

      Is that your fee and turn time? If that is a consistent fee you’re willing to offer, we can offer you increased volume. Please sign these documents indemnifying us from all wrong doing, accept the liability of wrong doing by others which you may have no control of, and we’ll look forward to having you on our appraisal management panel. We recently received recognition for being the fastest growing company in our state and our employee satisfaction ratings are through the roof. We also have an exciting new project in the works, which is a hybrid appraisal on our own proprietary forms. We have appraisers completing these in as little as half an hour and at $50 dollars each, many are earning over $100 an hour. We offer typing services for a very low price so we can write most of that report for you, and we also have someone else do the inspection. You’re going to love these, can we sign you up for our hybrid panel as well? Management.

      • Avatar Vicki Grant says:

        I swear you hacked the emails we receive!! Spot on!!

        • Baggins Baggins says:

          We all get them. Or at least used to, before we had sense enough to jump off those amc panel lists. Amc is telecom out of the box, they’re all the same. The appraiser is their customer, they could not exist without the appraiser, and the marketing line is always the same. If we’re going to support amc’s, all we ask is they do a better job than we would do, in terms of advocating on our behalf and helping us get a better deal than we would otherwise have in their absence. Who actually selects an agent from a middle management agency whom purposefully drives workload up and fees down?

          That’s a tough sale… That’s why the dress it up with all that other hoo ra. But in the end, regardless of the amc’s glorious claims, the far majority of them are all the same. Worst agents imaginable.

  7. Avatar mdwnlk says:

    AI are sell-out a**holes, plain and simple

  8. Avatar don says:

    What of the certified appraiser who make unverified assumptions recklessly. What does the appraisal FEE have tooooo dooo with the work spelled out in the contract, what of the liability incurred by using the clients criteria???

    Appraisers are either licensed contractors with the ability do CLEARLY state their job, or employees who are bound to their employers demands. Are appraisers licensees violations JUST enforced by the STATE or The State and other appraisers?

    Contractors MUST keep the rights to make a beneficial contract with their clients. Employers can demand almost anything and then fire the employee Licensed contractors have liability from many directions, employees can only be fired!

    • Hi Don, as we both know all assumptions (extraordinary or otherwise) are supposed to have a reasonable basis for being made. It is that subjective ambiguity that causes the problems. Skippy will ‘assume’ clearly bootlegged units are permitted and ‘good appraiser will ask for permits.

      Not sure where you were going with the rest of distinctions re ICs vs employees. Any licensed ’employee’ can be held accountable by the state whether IC or employee. Same as any doctor could be. There may be other civil liabilities beyond license regulatory agencies.

      • Avatar don says:

        YES, Believable appraisers write a convincing H&B section in the report which (should) defend the writer. The independent contractor has to defend his net worth, insurance may not cover. The employee has fewer choices, but fewer consequences Doing E.R.C. and working against another appraiser was enlightening. When opinions differed greatly the usual situation was H&B interpretations. The walkout basement, Excess land separately salable, Proximity to bad stuff, The contribution of the MIL hse, etc.


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Restricted Appraisal Reports Consumer Alert

by Jonathan Miller time to read: 5 min