Why Are Appraisers Banned?
I just got out of an interesting conversation I had with my CPA. Eventually, our conversation veered onto the topic of work. I was curious about what it takes to get into his field (not that I’m interested in getting into it at all).
We talked about our respective professions and about changes occurring in the real estate appraisal field. We got into talking about what it means to be a CPA, which is different than being an accountant. A CPA is an accountant, but an accountant isn’t always a CPA.
He said anyone can hang up a shingle and say they do tax returns. It’s different, detail-wise, when a CPA does it. I asked if, as a CPA, he was disallowed from doing anything. The example I asked specifically about was that he does my tax planning and someone else in his company does my bookkeeping. He said that was just the way he had set things up, but he could do both if he wanted.
Because much of what he does has to do with the law, he said he must make it clear that he is not an attorney and cannot do work as one. A CPA can be an attorney and vice versa, but that is typically not the case. This didn’t really answer my question, though.
As a pay scale situation, even though he could do bookkeeping, it made more sense for him to hire a bookkeeper than be one. This made sense to me, since he could take tasks that would pay higher, such as tax preparation, and leave those lower-paying tasks to subsidiaries. He can do audits and compilations, as well as other tasks, but he is held to a different standard for all of these. All he must do is disclose his scope of work, for example just stating, “This is an audit.”
I got to thinking that, as a real estate appraiser, I am disallowed from doing certain things that I am highly qualified to do. Some United States jurisdictions have passed laws that allow an appraiser to do “Evaluations.” Everywhere else, we are barred from doing so even though we are highly qualified to perform the task (whether you want to is another topic altogether).
My CPA can choose to only do audits. As real estate appraisers, shouldn’t we have a similar choice? Is it fair that my CPA can choose which services he will perform, but an appraiser can’t? I don’t know of any other profession that disallows you from doing something just because you have a higher-end license. As appraisers, shouldn’t we be able to choose whether we want to do an Evaluation, review, or full appraisal if we want to?
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode:
- Be Nice or Be Quiet - July 2, 2021
- Being Liberal with Values Hurts Homeowners - June 28, 2021
- Why Are Appraisers Banned? - April 15, 2021
Regarding your comment “Some United States jurisdictions have passed laws that allow an appraiser to do Evaluations. Everywhere else, we are barred from doing so even though we are highly qualified to perform the task (whether you want to is another topic altogether).” ……………are you suggesting that only a licensed real estate agent or broker can do a BPO or a CMA ?
You’ve answered your own question. The services you describe from the CPA won’t get “confused”. An “evaluation”, signed by someone with an APPRAISER license number next to their name, WILL get confused by most users of services as well as the public for an appraisal. It’s just that simple. The requirements for an evaluation (based on the Interagency standards) versus an appraisal with a very limited scope of work have minimal differences, so the answer it to convince more clients that we can provide a product very SIMILAR to an evaluation but still complying with USPAP and that will serve the same purpose for a similar cost.
Sure, appraisers should be able to choose their scope of work. When the person most effected by this decision has a say in it. The borrower.
Just as soon as borrowers can select their own appraiser, we should open up the doors for more personalized risk management approach.
Lenders just dump the risk on taxpayers so if evals are to be common, we taxpayers insist the government is no longer involved with lending insurance.
Think they’d still be pushing those products if they had to deal with actual risk management without taxpayer backing?
As usual, Dustin puts the cart before the horse.
Apples and oranges. Until relatively recently CPAs didn’t follow USPAP. MANY CPAs of AICPA simply do not believe in USPAP. They (AICPA) have their own (IMHO) more stringent requirements that USPAP cannot possibly encompass. Though God knows TAF twisted itself (& USPAP) into a pretzel trying to make USPA a one size fits all set of rules for both appraisers and CPAs.
More importantly, there is no law saying that all CPA audits or reports for use in federal purposes have to comply with USPAP. There are no state laws to that effect either as far as I know. They are regulated differently.
FIRREA 1989 contains the specific rules concerning evaluations and who may perform them. In FIRREA as originally written, evaluations were not permitted to be called appraisals. Because they weren’t appraisals, no license required.
Fast forward to the self-serving interests of today- Lenders and title companies wanted “evaluations” as another cut-rate fee, half-assed analysis that doesn’t have to conform to any known standards. That is why appraisers couldn’t do them. WE have to perform in accordance with USPAP.
Then TAF decided to further confuse the issue showing “how” we could do them. Then about 16 of the 50 states introduced contradictory language in their own USPAP legal requirements /state laws and complete confusion results. I know I’ve written about the various contradictory state regulations (here) previously.
Some states say that since they aren’t an appraisal, USPAP doesn’t apply. Other states mandatorily call them “evaluation appraisals” and carve out exceptions.
Promoting ‘evaluations’ is no different than promoting use of AVMs or bifurcated hybrids inspected by incompetent runners.
They are intended to be done to circumvent USPAP and sound appraisal requirements. Now lenders want appraisers to do them in the mistaken belief that if done by us they are given more credibility.
Catch -22 Yossarian!
“The Interagency Appraisal and Evaluation Guidelines (IGs) defines an evaluation as a “valuation permitted by the Agencies’ appraisal regulation for transactions that qualify for the appraisal threshold exemption, business loan exemption, or subsequent transaction exemption.”
Further, the IGs declare that USPAP “identifies the minimum set of standards that apply in all appraisal, appraisal review and appraisal consulting assignment,” but USPAP has nothing to add on the development and communication of evaluations. Since, by definition, an evaluation is not an appraisal (except insofar as USPAP and some state appraisal boards are concerned) this description makes it clear that appraisals and evaluations are two completely different animals with different purposes and functions.
Here are the major differences between an appraisal and an evaluation:
An appraisal requires both an analysis of the property’s highest and best use, as well as a summary of the logic and rationale behind that analysis within the report. There is no such requirement in an evaluation.
An appraisal requires an analysis of reasonable exposure time, as well as its statement within the report, but not in an evaluation.
Currently, an appraisal can present in only one of two formats, an Appraisal Report, or a Restricted Appraisal Report. An evaluation has no such requirement.
USPAP requires an appraisal to be credible. The IGs require an evaluation to be reliable. However, the IGs do not define reliable, which USPAP defines as credible as worthy of belief. The two terms are not synonymous.
Who is qualified to perform evaluation? Section VI of the IGs carries the title “Selection of Appraisers or Persons Who Perform Evaluations.” According to the qualifications listed as necessary for persons to do appraisals or evaluations under the IGs, the work performed must be periodically reviewed by the client institution. The person selected must also:
Possesses the requisite education, expertise, and experience to competently complete the assignment.
Be capable of rendering an unbiased opinion.
Be independent and have no direct, indirect, or prospective interest, financial or otherwise, in the property or transaction.
Hold the appropriate state certifications or license at the time of the assignment, if they are an appraiser. Persons who perform evaluations should possess the appropriate appraisal or collateral valuation education, expertise, and experience relevant to the type of property being valued.
Since federal banking regulators do not consider evaluations to be appraisals, there is the question of who will enforce evaluations as state appraisal boards enforce USPAP Standards. Putting this question to those who are in the positions to know revealed that nobody has an answer to that question.
Therefore, appraisers should have the opportunity to choose to perform or not perform evaluations, just as they are free to perform, or not perform, any of the [various] types of appraisal services.”
“The secret to success is knowing which assignments NOT to take” [Gene B. Gracer, MAI]
Great response Julio. For what is worth, according to TAF we DO have that freedom.
As long as they conform to USPAP. That in turn makes them appraisals when performed by appraisers.
State licensing laws may further restrict what appraisers can or cannot do.
Respectfully you missed a significant difference between the two. Appraisers who provide appraisals are subject to stringent and enforceable specific standards. There is nothing similar for evaluations.
Yep, that’s probably why this particular appraiser is advocating for this yet again. Million dollars a year is not enough for that guy, he wants to be some appraisal enterprise and we’d really all appreciate if he would just move to sales or some other brokerage already. He can certainly afford to do so. I would remind Mr Harris that the appraisal is a key function of collateral worth reliability and comes quite literally at the end of the mortgage production line after nearly all other qualification functions and housekeeping events are completed. This is one of the most important functions of mortgage lending, the value assurance process, which should not be diminished or taken lightly just to earn an extra dollar. Appraisal is not just all about the numbers and we don’t make value, we analyze value. Geesh. Mike you continue to impress with great well thought out commentary, Julio hot on your heels.
I’ve never seen Dustin’s work. I HAVE been on his podcast years ago. I wont criticize everything an appraiser does if I’ve never reviewed or even seen his work.
I have respected peers (& personal friends) that use SOME of his suggested methods, whose work I have seen. Their work is not just good, but usually darn good. Not perfect, but certainly very good.
I don’t agree with all his power group suggestions (for me). But for those in areas where some or all could apply I discourage dismissing out of hand. Find out the facts before rejecting it because some here regularly post negative comments about him.
IF you want to double your volume or income, consider all LEGAL & ETHICALLY permissible options.
If something seems ‘out if line’ for your area, then recognize it and don’t do it.
Just be fair.
Appraisers who provide appraisals are subject to stringent and enforceable specific standards. There is nothing similar for evaluations.
Very, very good point!!!!!!!
Thesaurus pigeon? Awesome. Dustin backs into these arguments, as he advocates for himself. He did the same thing for bifurs and just can’t get away from the dream of something for nothing and outsourcing everything. He’s dreaming right now of sailing away on a yacht while someone far far away takes all the evals and completes them with his signature in a practically liability free setting. I imagine him being like a hollywood actor, kicking back alligator boots on his rainforest wood desk, cigar and whiskey in hand, berating the maid and bossing everyone around when he bothers to show up in the office. Ha! For the record, I did not outsource the production of this joke.
Concur. Thank you.