Competency, as defined by the Google Dictionary, is “the ability to do something successfully or efficiently.” Competency is a tough beast to wrangle though, because who gets to say someone is competent? How is competency measured? Why does it matter? Competency is a big part of the appraisal world and is one of the keys to having a well-developed appraisal report. An appraiser must be competent in many areas, and we’ll look at some of those in this blog post.
This is part 11 of our series on USPAP, or Promoting Public Trust. Nothing hinders public trust like having an appraiser who is incompetent to perform the work they said they would do, so read on and learn what an appraiser should do in tough situations, and how it all impacts you – the homeowner.
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The material for this post is taken from the *USPAP Competency Rule, as well as USPAP FAQs 111-115.
The beginning of the Competency Rule acts as sort of a summary of what’s expected of appraisers. In it, we read
An appraiser must: (1) be competent to perform the assignment; (2) acquire the necessary competency to perform the assignment; or (3) decline or withdraw from the assignment. In all cases, the appraiser must perform competently when completing the assignment.
Thankfully, USPAP clarifies the difference between competency and perfection, stating that perfection is impossible to attain. I don’t know how many times I’ve spoken to homeowners and told them that! We’re not perfect, nor are we required to be. However, once an appraiser crosses into carelessness or negligence, then things can get really bad really quickly.
So what does Competency require? The Google definition at the beginning of this article leaves a lot of room for interpretation. USPAP has three criteria that must be met for an appraiser to be competent.
- the ability to properly identify the problem to be addressed;
- the knowledge and experience to complete the assignment competently; and
- recognition of, and compliance with, laws and regulations that apply to the appraiser or to the assignment.
Here are some specific examples of areas in which an appraiser must be competent:
- Specific type of property. Let’s say that one Geodesic Dome with an A-Frame addition finally sold and the bank sent me the assignment. After I finished contemplating why I chose appraising as a profession, I would have to determine if I was competent to appraise such a unique home. Or maybe next week, I get the assignment to appraise a $5M home in a market where the most expensive home to sell in the last 10 years was $800,000. Or maybe it’s waterfront property that rarely sells. You get the idea. Whatever the type of property that needs to be appraised, I need to be – or become – competent to appraise that type of home.
- Specific market / geographic area. This is a big one, and the one most Realtors have a problem with. Whatever area the appraiser appraises in, they must be familiar with that area. They must be competent to complete the appraisal in that market. In our office, we serve several counties over two different states. That doesn’t mean anything if we’re not competent. I can appraise (legally) any home I want to in Kentucky and Indiana, regardless of its location. However, I’m only competent in a handful of counties. There’s not a week that goes by where we don’t get an order in some far-off county that I’ve never even heard of. In these cases, I simply let the lender know the area is out of my service area. In order to become competent in a new county/state/market, I have to do the necessary research and due diligence to understand the market, and what it takes to complete a credible assignment there. This takes time, especially if it’s a market or geographic area that is highly unique. But it can be done! One way to spot an appraiser who might not be competent in a specific geographic area is if they fly into town, go straight to the Realtor and ask for comps. This happens all the time and is a big indicator that either the appraiser is cutting corners or may not be competent to appraise in that market.
- Specific intended use. The majority of residential appraisal assignments are mortgage-related. Either the homeowner is refinancing their mortgage, or are obtaining new financing for the purchase of a home. However, there are a host of other intended uses (purposes) of appraisals. Here’s one example. I recently got asked if I could complete an appraisal for eminent domain. It was a residential property, so that was right in my wheelhouse. However, as I’ve never done an appraisal for eminent domain, I lacked the necessary competency to complete the assignment. In this instance, rather than waiting to become competent, I chose to decline the order. Other intended uses we see are for pre-listing market value estimates, loss mitigation, estate tax purposes, divorce settlement, and on and on. For each intended use, the appraiser needs to be competent.
At the beginning of this article, I wrote the USPAP definition of Competency, part of which was that the appraiser – if not competent – could acquire the necessary competency to perform the assignment. So what does that mean? What if in my example above, I wasn’t competent to complete that eminent domain appraisal, but wanted to? What could I have done? Here’s what USPAP says:
- disclose the lack of knowledge and/or experience to the client before agreeing to perform the assignment;
- take all steps necessary or appropriate to complete the assignment competently; and
- describe, in the report, the lack of knowledge and/or experience and the steps taken to complete the assignment competently.
It should be noted that similar steps must be taken if the appraiser learns during the assignment that they’re not competent to complete the assignment. An example might be if I received an order to appraise a home that was to be built, and at the time of the site inspection, the plans & specs weren’t completed. A week later, I receive the plans and notice that the type of home to be appraised is so unique, that I lack the necessary competency to complete the assignment.
Since we’re talking about becoming competent, though, how does an appraiser become competent? One of the most common ways is personal study/course completion/education on a specific intended use, or type of property, for example. Maybe it’s manufactured homes. If an appraiser has never appraised a manufactured home, taking a course would be one of the best ways to gain competency. Alternatively, the appraiser could team up with a local appraiser who is an expert in appraising manufactured homes. Or, maybe both! Whatever the appraiser deems is necessary to become competent must be done before the appraisal is completed. If after the above steps were (or maybe were not) completed, and the appraiser is still not competent to appraise the property, he or she must withdraw from the assignment.
Now one quick exception to this rule needs to be addressed. This blog post and series is all about USPAP. And we’ve addressed the position USPAP has taken on competency. However, other entities like Fannie Mae and FHA (among others) do not share this position. While USPAP states that it’s ok if you’re not competent until you sign the report, everyone else wants the appraiser to be competent before accepting the assignment. This may seem like a minor point; however it’s anything but. So if you’re an individual just looking for a private appraisal on your home, make sure the appraiser is competent at some point before the appraisal is completed. And, if you’re a lender or a Realtor involved with an appraisal of a property being financed by one of the GSE’s (i.e. Fannie Mae or FHA), your appraiser will need to demonstrate that they are competent before accepting the assignment.
Competency is one of the most important aspects of the appraisal process, and the standards discussed here are in place for many reasons – not the least of which is to ensure the highest quality of appraisal reports are being completed by professionals who do what they say they can do. And ultimately, this works to promote public trust. Because who can trust an appraiser who isn’t able to do what they’ve been asked to do?
If you have any questions about competency and the appraisal process, feel free to drop me a line at email@example.com. I’ll be more than happy to help.
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.