Promoting Public Trust Part 12: Frequently Asked Questions

When the Uniform Standards of Professional Appraisal Practice (USPAP) first came on the scene, its purpose was “to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers.”  In part one of this blog & podcast series, I shared with you a few questions which were on my mind.  “Does the public trust appraisers?  If so, is it because of USPAP?  Or does the public not trust us; and if not, why not?  We have this enormous document that was created for the promotion and maintenance of the public’s trust in us.  Is it working?”

As we are now wrapping up our 12-part series, I can say with no degree of uncertainty that over the years, the public’s trust in appraisers has definitely waned.  And I can say that because I’ve seen it happen.  As a second-generation appraiser, I’ve been in and around this wonderful business for over 40 years.  And, for a host of reasons, I sincerely believe that in many cases, confidence in what appraisers provide for our clients has not increased.  

[bctt tweet=”As a second-generation appraiser, I’ve been in and around this wonderful business for over 40 years.  And, for a host of reasons, I sincerely believe that in many cases, confidence in what appraisers provide for our clients has not increased.  ” username=”RiverfrontApp”]

So it’s impossible for us to maintain a high level of public trust, but we can promote that confidence the public (loan officers, Realtors, homeowners) can and should have in us.  And over time, I sincerely believe we can and will build up public trust, and continue to maintain that trust.  That’s what our series has tried to do.  I hope it has done just that for you.

And that brings me to our last installment.  The FAQ blog.  In this final post, we’ll look at some of the most frequently asked questions regarding an appraiser’s professional standards.  Some will be fresh looks at standards we’ve already discussed, and some will be new ideas not already covered in this series.

I hope you’ve enjoyed reading this blog or listening to our accompanying podcast.  So let’s begin!

• Can an appraiser accept an assignment contingent upon the home appraising for a specific amount?

For more information, see USPAP FAQ #10.

This first FAQ is for our lenders.  Thankfully, most lenders know better than to ask an appraiser this, but maybe you’re new to the profession, or maybe you never learned this in the first place.  Either way, let’s assume you contact an appraiser with a potential order and follow it up with something like “Here’s a new order to appraise a home at 1200 E. 25th Street, but if you can’t appraise it for $195,000, please don’t accept the assignment.”  I think you can already tell from my tone that this is a no-no, so what’s the appraiser to do?

*USPAP states that this request would be seen as an attempt to violate the appraiser’s independence, and the request itself may be illegal.

Part of the Ethics Rule in USPAP states that:

An appraiser must not agree to perform an assignment, or have a compensation arrangement for an assignment, that is contingent on any of the following:

• the reporting of a predetermined result (e.g., opinion of value);

• a direction in assignment results that favors the cause of the client;

• the amount of a value opinion;

So in this case, the appraiser could simply respond by saying something along these lines:  “This is a violation of our ethical standards, and I cannot comply with this request.  I can complete this assignment once your stipulation has been removed.”

2. Should an appraiser always ‘hit’ the contract price?

For more information, see USPAP FAQ #28.

How often do you think the appraiser’s value conclusion equals the contract price?  If you said a lot, you’d be right.  In fact, most of the time (I think the number is in the very high 90% range), when appraising a home for a purchase transaction, the value conclusion equals the contract price.  In modern parlance – ‘the home appraised’ or ‘made value’.  

USPAP poses a question, however, about appraisers who consistently conclude that the market value of any property they appraise is equal to the contract sale price.  USPAP rightly points out that in doing so, the deal gets done, and their client is happy.  I say ‘rightly’ because it’s a no-brainer that in almost every single case if a home is under contract to sell at $300,000 and it appraises for $300,000, everyone is happy.  Of course, it’s when it appraises for $290,000 that all the wheels fall off.  So is this ok?  Is it a violation of USPAP for an appraiser to always ‘hit the value’?

USPAP states that the contract price can sometimes be a good indicator of value and that it might be reasonable for the appraiser’s value opinion to be equal to that of the contract price.  You have a willing buyer & seller, both acting in their own best interest, both informed parties, and buying/selling a home marketed for sale.  They agree on a price.  Everyone’s done their homework and it appraises at contract price.  Not uncommon.  Not unreasonable.  However, many times a contract price might be higher or lower than what is typical in the market.  Perhaps the buyer is under duress because the house is the only one for sale in their desired neighborhood and in order to purchase it, they have to offer a 10% premium.  Or maybe the seller is just dumping a home because they’ve already purchased another one out of state.  In any case, the contract price is a valuable piece of information for the appraiser to analyze, but should never be the target to hit.

To quote USPAP, If an appraiser consistently concludes that the contract sale price of every appraised property equals market value, particularly when a competent analysis of credible market data indicates otherwise, the appraiser’s impartiality, objectivity, and independence appear to have been compromised. 

Throughout this series, we’ve discussed all the different ways an appraiser should remain impartial.  Our Ethics Rule in USPAP (particularly the Conduct section) states that appraisers must remain impartial, objective, and independent.  Additionally, we cannot show bias or advocate the cause or interest of any party.

But how can an appraiser always hit contract price, you ask?  I’ve had this conversation several times, usually with homeowners who are unhappy with my value conclusion.  It goes something like this:  

Homeowner:  Why did you appraise my home only at $175,000?  I had it appraised last year, and that appraiser appraised it at $190,000.

Me:  Well, I can’t speak to someone else’s work, but I can say this – I can hit any sale price or any number anywhere if I only use the right (read:  wrong) sales.  All it takes is ignoring that really close sale that might’ve sold lower than others, and instead look outside the neighborhood for a really high sale. 

Now, did that happen last time?  Who knows?  Maybe it did, maybe it didn’t.  But I guarantee that it happens, and it happens a lot.

You get the point.  USPAP states that an appraiser must develop an opinion of market value impartially and objectively. An appraiser who selects only data that complements a contract sale price or analyzes data in a manner to purposefully support a contract sale price violates the ETHICS RULE.

Did you get that?  “An appraiser who selects only data that complements a contract price…”  That’s how it’s done, folks!  Just look at that contract price, and then go out and find sales that make that number work!  Congratulations, Mr. Appraiser!  You’ve just made your client happy!  And, you’ve just violated USPAP. 

I’ll add one more thing.  If you as a lender are looking for appraisers who always ‘hit the value’, then shame on you.  What you are welcoming into your financial institution is nothing short of unethical and unprofessional practices that will only do you and your homeowner clients harm.  Don’t think there are lenders out there that do this?  Think again.  I was told point-blank by the largest lender in my hometown that they were removing me from their panel.  Why?  Because a couple of real estate agents complained that I had come in under contract price on a deal or two, and they threatened the lender to take their business elsewhere if they continued to use me.  And then, the lender proceeded to tell me that in this economy, I should never be coming in under contract price!  So yes, it does happen.  It shouldn’t.  But it does.

3. What can an appraiser disclose?
   
   For more information, see USPAP FAQ #55 and #218

I’m going to reword the USPAP FAQs just a little, but their essence will remain the same.  Basically, these FAQs deal with sharing the results of an appraisal.  Can an appraiser disclose the results of an appraisal assignment to anyone other than their client?  And, the answer is ‘yes…but’.

Yes, an appraiser can talk about their appraisal report with someone who is not their client, but only if the appraiser receives authorization from their client.

The Confidentiality section of USPAP states in part that

An appraiser must not disclose: (1) confidential information or (2) assignment results to anyone other than:

• the client;

• parties specifically authorized by the client;

So what does this mean to Lender B who is taking over the loan from Lender A?  Lender B wants to discuss the appraisal report with the appraiser, but cannot do so until the appraiser receives authorization from Lender A.

The same can be said about homeowners.  Most of the time, homeowners think that since they paid for the appraisal, and the appraisal was done on their home, that they should be able to speak with the appraiser about their appraisal, right?  Not exactly.  In most cases, the homeowner is not the client, so unless and until the client (usually a bank or mortgage company) authorizes the appraiser to speak with the homeowner, the appraiser cannot discuss their results with anyone else.

Moving to part two, we consider physical characteristics.

Piggybacking off the previous question comes this one.  “Are physical characteristics confidential?”  The appraiser must keep assignment results confidential, but the physical characteristics of a home aren’t part of the appraiser’s assignment results, so is it correct to say that they don’t need to be kept confidential?  

Absolutely!  The only exception to this would be if the client told the appraiser to keep any or all of the physical characteristics confidential.  In that case, the appraiser couldn’t disclose any physical characteristics.  And just as a reminder, USPAP defines physical characteristics as attributes of a property that are observable or measurable as a matter of fact, as distinguished from opinions and conclusions, which are the result of some level of analysis or judgment.  So that includes things like square footage, lot size, bedroom count, basement finish, and on and on.  We often get questions from Realtors or other appraisers about a home we’ve appraised, because they need the information for their records.  And, unless we’ve been directed by our client to keep information confidential, we can share all of those physical characteristics with anyone.

4. Is it Acceptable to Readdress or Transfer a Completed Appraisal Report?

For more information, see USPAP FAQ 133.

Here’s an all-too-often scenario.  An appraiser completed an appraisal report on a home located at 123 Main Street, for Lender A.  The borrower decides – after the appraisal is complete – that they want to switch from Lender A to Lender B.  The following conversation then ensues:

Lender B:  Hello Mr. Appraiser.  Mr. & Mrs. Borrower are now going through our bank for their home loan.  You just completed an appraisal for Lender A, and we’d like you to change the client name to our name, please.  Just make that change and email us back the report.  Thank you.

Good?  No good?  Can an appraiser honor this request?

And USPAP says…

No. Once a report has been prepared for a named client or clients, the appraiser cannot readdress or transfer the report to another party. Simply changing the client name on the report cannot change or replace the original appraiser-client relationship. Therefore, this action is misleading.

I wrote at length about this topic here, so for more information, please read that post.  For now, just know that the new lender has options, but they all include a new assignment with a new appraiser-client relationship.  Many times, this can be done at a reduced rate, so that the borrower isn’t paying for two full-priced appraisals back-to-back.

5. Can an appraiser make changes to the contract price after the effective date of the appraisal?

For more information, see USPAP FAQ #153

This one is another often-requested revision from some clients.  Let’s assume a home was under contract at $295,000, but the appraisal came back less – at $280,000.  The following week, the buyer & seller agree to lower the contract price to the appraised value, or $280,000.  The lender then sends the appraiser a revised purchase agreement, as asks the appraiser to simply replace the old sale price with the new sale price.  Is this acceptable?

USPAP states that “the appraiser may not simply replace the pending sale price information in the appraisal report and resubmit the report to the client, as this would be misleading.”

Why?  Why can’t the appraiser make this seemingly insignificant change, and why would it be misleading?  Because an appraiser is to analyze all purchase agreements (in addition to listing agreements, leases, etc) as of the effective date of the appraisal.  

If the effective date of the appraisal was May 10, and the revised purchase agreement was signed & dated May 17, then it is simply a matter of fact that the new contract price was not in place as of the effective date.  So to have an effective date of May 10 with a purchase price of $280,000 would be misleading.

So what’s the best course of action for the appraiser?

It’s a two-step process.  First, on a typical appraisal form where the contract price and date are listed on page one, leave it alone.  Don’t change the price, the date, or any other terms that were in place as of the effective date.  Next, in an addendum, note that the revised purchase agreement was provided after the effective date, and list the new date/price/terms or whatever has changed.

The only way to have page one of a typical 1004 URAR appraisal form reflect the revised sale price, is to have a new assignment with a new effective date at or after the date of price revision.

Well, if you’ve made it this far, congratulations!  You’ve reached the end of this blog post!  And, if you’ve been with us through the entire series, thank you!!  This wraps up our 12-part series called Promoting Public Trust.  I hope this series has helped shed some light on the appraisal process, and how appraisers can help everyone – from lenders, to agents, to homeowners – as we all work together to assist in the home selling, buying, and refinancing process.

If you have any questions, or feedback for us, we’d love to hear from you!  You can email us at info@riverfrontappraisals.com.

And, if you’re in the western Kentucky or southwestern Indiana area, and are in need of appraisal services, nothing would make us happier than to help you! 

Helping homeowners navigate the appraisal process,

Ryan Bays, SRA, AI-RRS

* USPAP is published and copyrighted by The Appraisal Foundation.

Appraisal Standards Board, The Appraisal Foundation, 2020-2021 Uniform Standards of Professional Appraisal Practice (USPAP), Washington, DC, 2020.

Riverfront Appraisals has been granted permission by the Appraisal Foundation to use this information.