Holding the appraiser accountableCharlie Elliott, MAI, SRAMortgage appraisal
In most cases, a mortgage loan cannot be completed without an
appraisal that supports the amount of the loan being made on the
property. Sometimes, however, appraisals come in at a value too low
for the loan to be funded.
Now comes the heartburn. Is the problem with the appraisal or
with the property? What can be done to correct the problem? As a
loan originator, do you just accept the appraisal as provided or
challenge the appraiser? Who can determine if the appraiser is
right? Was their opinion an unbiased one? Is the appraiser bound to
follow some formula or guideline in doing their work? What
governing body determines the ground rules, and how can you be
certain that the appraiser is following them? Who does the
appraiser answer to?
Let's begin by getting the answer to some of these important
questions.
An appraisal is an opinion of value, generally expressed by a
state licensed or certified appraiser. Prior to calling oneself an
appraiser, a person is required to complete educational and
experience requirements as established by the appraisal board in
the state in which they seek to practice. Appraisers are
accountable to this appraisal board, which is usually appointed by
the governor or another high-ranking officials within the state.
The appraiser is required to prepare appraisals in accordance with
the Uniform Standards of Professional Appraisal Practice (USPAP) as
promulgated by The Appraisal Foundation, which is made up of a
group of appraisal organizations and government agencies. The
Appraisal Standards Subcommittee of the Federal Financial
Institutions Examination Council oversees The Appraisal Foundation.
The Subcommittee consists of the five federal banking agencies
including the Office of the Comptroller of the Currency, Board of
Governors of the Federal Reserve, the Federal Deposit Insurance
Corporation, Office of Thrift Supervision, National Credit Union
Administration and the U.S. Department of Housing and Urban
Development.
The local state appraisal board is responsible for ensuring that
its licensed and certified appraisers comply with USPAP when
preparing appraisals. Anyone having concerns about an appraiser's
work can submit a complaint to the state appraisal board in the
appraiser's state of practice.
Appraisers are held to two standards--ethical and
professional--and the appraisal board has the responsibility to
discipline the appraiser if they are found guilty of violating
these standards. Discipline may range anywhere from a slap on the
wrist for minor offenses, to license termination for the most
serious violations. Penalties include reprimands, fines, additional
education, license suspension and license revocation. License
termination is rare and fines have become popular recently because
the appraisal boards in some states are funded by revenue from
fines.
In order for an appraisal to conform to the set standards, it
must be performed in an ethical manner whereby the appraiser has no
bias. Appraisers can demonstrate bias in various ways. Performing
an appraisal in such a way as to participate in fraud would be an
ethical violation. This might entail a kickback or other
remuneration expected by the appraiser contingent upon their
delivering an appraisal at a predetermined opinion of value. Other
ethical violations involve personal bias. For example, an appraiser
may allow a bad experience with someone involved with a transaction
to affect the outcome of an appraisal.
Appraisals must also conform to professional standards.
Violations include the failure of an appraiser to thoroughly
research the market for comparable sales, causing the appraised
value to be different than a property's true market value. This is
often a result of sloppy work, or because the appraiser did not
take the time to properly research the market. Another example of a
professional standards violation would be appraiser incompetence,
whereby the appraiser was not able to employ generally accepted
appraisal practices in accordance with professional standards due
to a lack of education, experience or inherent ability.
The rubber meets the road, so to speak, when an appraisal report
complies with USPAP. The appraisal may or may not equal the amount
needed to fund a loan, but it must conform to professional
appraisal standards. The problem may very well be with the property
and not the appraisal, because an appraisal is designed to ferret
out non-conforming or otherwise unfit collateral. If there is a
question about the report, it is the responsibility of the
appraiser to explain how they derived the value opinion. The
appraiser is further obligated to correct any mistakes that are
made and provide a new and revised report at no additional
cost.
Just like a medical opinion, if you are not satisfied with the
opinion of a particular appraiser, there is always the option of
getting a second opinion. Yes, it will cost more, but this avenue
represents the best solution when other options have failed.
Appraisers who prove to be less than professional should be
reported to their state appraisal boards. When this happens, the
appraiser will be held accountable for their actions and
disciplined for any wrongdoing.
Charlie Elliott, MAI, SRA is president of ELLIOTT &
Company Appraisers, a national real estate appraisal company. He
may be reached at (800) 854-5889 or e-mail
[email protected].
