Switch off USPAP

States That Allow Appraisers To Switch off USPAPSenseless Acts Harmful to the Profession…

This past Tuesday, (June 19, 2018), I was a keynote speaker at the Ohio Coalition of Appraisal Professionals (OCAP). I’ve always seen this organization as one of the stronger state coalitions in the context of getting things done at the legislative level. I had been looking forward to attending the Columbus conference for several months.

After I made my presentation, I listened to the next speaker from the Appraisal Institute. I was startled because the speaker said there were about 5 states that currently allow certified appraisers to turn off their USPAP compliance and about 5 more that were to follow them soon including Virginia. I texted and emailed a number of my coalition and regulatory appraiser colleagues and spoke with several OCAP board members. No one was aware of any of this.

Now if any of you know my good friend and appraiser Pat Turner of VACAP, you know that we would all have known this by now. The Virginia law that Scott DiBiasio of the Appraisal Institute sneaked in at the last second to sidestep VACAP got passed against the wishes of nearly all residential appraisers in Virginia. But it was immediately neutered as explained in the following summary.

I reached out to The Appraisal Foundation (TAF) and was given this summary of all state activity on this issue. In other words, NO STATE has effectively agreed to this.

Here is the information I received from TAF as a direct quote:

The Appraisal Foundation is aware of AI-promoted activities regarding evaluations in the following states during 2017 and 2018:

Florida: After two years of failed attempts before the Florida Real Estate Appraiser Board to change regulations to allow alternative standards and evaluations without complying with USPAP, AI was successful in getting state law changed to allow appraisers to follow the Interagency Guidelines “and other standards as prescribed by the Appraisal Board.” (See Florida 475.612(7)) In April, by a 7-1 vote, the Board decided to proceed with developing a rule that requires Florida appraisers to follow USPAP regardless of assignment. At the Florida Board’s June meeting, AI raised a procedural issue and demanded reconsideration, so a workshop on the issue is scheduled in August.

California: The bills before the CA legislature have gone through several iterations of carving up USPAP. The original version during this legislative session gave appraisers six exemptions to compliance with USPAP. The current version (See SB 70), that has not passed but is likely to in the coming weeks, is whittled down to a single issue. It allows CA appraisers to not comply with USPAP’s requirements regarding intended users of Restricted Appraisal Reports. The section of this new law has a sunset date of Jan 1, 2020 (to coincide with the effective date of USPAP 2020-21). AI leadership has stated that if the ASB’s current exposure draft concept of an appraisal report is adopted, the CA law will be moot (as will all their efforts regarding evaluations).

Kansas:  After failing in 2017, AI once again attempted a legislative effort this year that would have allowed evaluations to be performed in conformance with USPAP or the AI standards. Opposition included the Kansas Appraiser Board and the Kansas Chapter of AI. The bill died in committee on May 4, 2018. (See KS HB2414)

North Carolina:  After a failed attempt in 2017 by AI in the state legislature regarding exemptions to following USPAP for evaluations and certain other transactions (See North Carolina S576 and H431), AI requested that the state appraiser board take up the issue. The legal staff of the board subsequently ruled that the board did not have the authority to enact such regulation.

Virginia: Legislation passed in 2017 that would allow appraisers to perform evaluations without adhering to USPAP. But subsequent legal analysis by the Virginia appraiser board determined that the definitions of appraisal and evaluations were too similar so the board determined that appraisers must still comply with USPAP regardless of assignment type. (See Virginia Real Estate Appraiser Board Guidance Document issued 5/16/17). New legislation was then introduced to clarify the definition of evaluation (See Virginia HB 1453) It passed and becomes effective on July 1, 2018.

Texas: The Texas Board has proposed a rule for public comment (See 22 TAC §155.3) that they promote “to implement federal law raising the threshold under which an appraisal is not required in a commercial real estate transaction.” The proposed rule would allow Texas appraisers to prepare evaluations in commercial real estate transactions with a transaction value of $500,000 or less without complying with USPAP as long as they include a specific disclaimer as spelled out in the rule. The staff’s request for emergency adoption was unanimously denied by the Board; the rule has not been adopted; the public comment period is open (see the 4/23/2018 TACLB Meeting Record/Video, Items 20 and 22).

These are the only states we know of with legislative activities during 2017 and 2018 regarding evaluations. The Appraisal Foundation has no government relations staff, so we acknowledge there may be others about which we are not aware. We appreciate the appraisers and regulators who brought these activities to our attention as they sought help fighting what they described as senseless acts that are harmful to the profession. We also recognize that there are some states whose appraiser laws and regulations only apply to federally-related transactions (FRTs) as defined by the federal financial institution regulatory agencies, but their statutes have been in place for years. Evaluations do not come under the definition of FRTs.

We have also been in public settings where AI has referenced Georgia and Tennessee when speaking about evaluations.

Georgia: Georgia has a rule adopted in February, 2013 regarding evaluation reporting formats: Ga. r. 539-3-.04: If the Evaluation Appraisal is prepared for a nonfederal financial institution and said institution is not regulated by a federal financial institutions regulatory agency, and if USPAP compliance is not required by said institution for the appraisal reporting format, then the Evaluation Appraisal may be prepared in any reporting format, such as, but not limited to a self-contained appraisal report, a summary appraisal report, and a restricted use appraisal report if the reporting format meets the requirements of the nonfederal financial institution.

Tennessee: Tennessee appraiser laws last updated in 1994 do not apply to evaluations but also do not prohibit appraisers from doing an evaluation as long as it is marked on its face, “this is not an appraisal.” (See Tenn. Code Ann. § 62-39-104). At a recent Tennessee Board meeting (see January 2018 meeting video recording starting around 1:06 through 1:20), the members and audience participant discussed evaluations and lamented that the Board has no jurisdiction over those who do them – nor does any other body – so it is bad for public trust.

Jonathan Miller
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Image credit flickr - Marcin Wichary
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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5 Responses

  1. Kimberly Pugh DeFilippis on Facebook Kimberly Pugh DeFilippis on Facebook says:

    Thank you for keeping us aware

    5
  2. Mike Ford Mike Ford says:

    Excellent analysis and update Jonathon. Thank you. Two thoughts:

    1. So much for the Uniform part of any Standards of Professional Appraisal Practice.

    2. “Evaluations” and Hybrid or Third Party Inspection Reports (Called APPRAISALS by many of their hucksters) are so ambiguously defined that ALL could potentially fall under USPAP exceptions…& I believe that is the intent

    Lets try something different this time with exposure draft comments to USPAP. Instead of tweaking specific line items, let’s just go ahead and make two fundamental changes.

    USPAP will now become “The 57 Flavors of Varietal Valuation” (T57 for short) to be individually added to the definitions section allowing complete elimination of SR1 and SR2 (soon with SR3 and SR4 to follow).

    By not requiring any specific rules or standards, American businesses and TAF can save millions on lobbying to change them immediately upon their adoption as is presently done.

    Guidance in lieu of rules or standards will be contained in and limited to the name of each T57 product.

    Let’s also try a novel approach with respect to report types. Lets have a:

    (1) Fully Self Contained Appraisal Report (self explanatory);

    (2) A Summary Appraisal Report wherein data and analysis is summarized in sufficient detail to be properly understood by intended users and lastly

    (3) A Restricted Appraisal Report wherein data, analysis and conclusions are simply stated and where such reports may ONLY be prepared for use by unique individual human beings (not corporate or business entities).

    It may be a little confusing initially but start off by using the Summary Report version for most FRTs employing myriad forms that already exist for this purpose.

    Since the above is clearly overly restrictive for the profiteering needs of movers and shakers of MISMO and other stakeholders, we could also add a 4th category called “Exempted Valuation Products” (EVPs) which may be ANY written or verbal report that prominently declares “This is not an appraisal under any accepted definition or format.” No rules required.

    9
    • Avatar don says:

      Some years ago I was a certified appraiser and a licensed RE broker in CA.

      I took a job advising a widow how to negotiate the best price for her house on a key lot backing to a busy street.  it was an ordinary home in a tract neighborhood and prices were around $45,000.

      The Key lot was just off the freeway in a community which 25,000 sf of area was required for a gas station.  The offeror came from the adjoining owner who only had 15,000 sf.  Three of the five major stations had locations within this five mile strip of freeway.  prices were going for $300,000 to $500,000.

      The best value of the property was for joinder with house being a penalty. The city had allowed several similar zone changes over the years.

      An appraiser could have met USPAP with a value of $40,- $50,000

      A Realtor would have been sued for not representing his client for a share of the whole..

      I advised the client as a Realtor charging a reasonable appraisal fee and felt I could defend myself.

      The AI was an affiliate of the of the NAR.  They merged with others were sued for not adequately representing the SRA or the SREA members.  The loss of members was ,I believe critical to the profession,  many of which believe can continue as technicians, not advancing as professionals.

      don

      1
  3. I agree with Mike. This is all a result of regulators implicitly recognizing that a USPAP compliant report cannot be produced in 20 minutes–something many AMCs state is the time to start, develop, and complete a Hybrid or an Evaluation.

    The lending industry has lost its way. This is a direct result of too big to fail and liability being shifted onto tax payers if another horrendous implosion happens in the real estate market.

    I understand USPAP is trying to be a living document that responds flexibly to the changing market, but weakening standards helps no one.

    The ideal for the lending world appears to be infinite loans and infinite growth. The medical community has a word for unrestricted, unlimited, and unregulated growth: cancer.

    10
  4. Abdur,

    I like the way you think.

    3

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Switch off USPAP

by Jonathan Miller time to read: 4 min
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