Appraiser Focus February 2018

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What 1 2018 do at to see and the A CTS

NATIONAL ASSOCIATION OF APPRAISERS

magazine

Professionals from around the country will meet in Nashville this spring for the first conference of its kind.

VA L U AT ION

Appraising in the Wake of Disaster PG. 8

VALUATION

Avoiding E&O Claims PG. 9

INSIDE THIS ISSUE

A closer look at the value approach

R EGULATION

What a Regulator Wants PG. 12

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NATIONAL ASSOCIATION OF APPRAISERS

magazine

From the

ON THE COVER

President

Appraisers from around the country set to meet in Nashville this spring for the first conference of its kind.

VAL UAT I ON

Appraising in the Wake of Disaster PG. 8

VA L U AT I O N

Avoiding E&O Claims PG. 9

Appraisers from around the country are meeting in Nashville for the first Appraiser's Trade Show and Conference. Learn more on page 15.

R EG U L AT I O N

What a Regulator Wants PG. 12

INSIDE THIS ISSUE

A closer look at the value approach

Meet the Team Subscribe

PUBLISHER

Teresa Walker

CONTACT

SENIOR EDITOR

George Harrison, MNAA teresa@naappraisers.org NAA PRESIDENT

John Dingeman, MNAA EDITOR-IN-CHIEF

Jessica Guerin

CREATIVE DIRECTOR

Traci Knight

Feedback is very important to us here at Appraiser Focus. Send us your thoughts on this issue and let us know how we're doing.

Printer The Ovid Bell Press Advertising Information email : teresa@naappraisers.org Subscriptions email : teresa@naappraisers.org Editorial Content email : jessicalinn22@gmail.com 2018 Reproductions or distribution of any materials obtained in the publication without written permission is expressly prohibited. The views, claims and opinions expressed in articles and advertisements herein are not necessarily those of Appraiser Focus, its employees, agents or directors. This publication and any references to products or services are provided “as is” without any expressed or implied warranty or term of any kind. While effort is made to ensure accuracy in the content of the information presented herein, Guerin Consulting LLC is not responsible for any errors, misprints or misinformation.

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A NOTE FROM JOHN DINGEMAN, MNAA Happy New Year! Time seems to just fly and 2017 was no exception for appraisers. The NAA accomplished quite a lot last year: we were selected to chair the North American Conference of Appraisal Organizations (NACAO) for 2017-2018; we created our very own appraisal conference for appraisers, by appraisers called the Appraiser’s Conference and Trade Show (ACTS), which will take place in Nashville this April; we presented to the Association of Appraisal Regulatory Officials (AARO) at their annual conference; and we opposed the continued attempts by the users of our services to obtain appraiser waivers.

I was recently asked by the Real Estate Appraisers Association of California to attend a Senate hearing to oppose SB-70, which was proposed to remove certain USPAP requirements for Restricted Reports. While this was not my first visit of this kind, I am reminded each time by how little people (especially our legislators) really know about real estate appraising. For two years now I have said that no one entity needs to divide us as appraisers, we do it all on our own.

Even worse, we do it publicly and we do it in front of the legislative bodies across the country, demonstrating a troubling lack of unity and consensus.

The Appraisal Qualification Board (AQB) has released its fourth draft regarding proposed changes to the Real Property Qualification Criteria. The AQB commented after the third draft that while there was an agreement by all parties that change was needed, there was no agreement as to what those changes should be and how to implement them. Lost in the conversation is a heated debate regarding an appraiser shortage. In my humble opinion, I believe there has always been a shortage in rural areas (like most professions) and that changing markets may present similar conditions that are certain to change again and again far into the future. There is even room for our aging population—as appraisers, like many, we are working longer and further into our twilight years. One constant that remains is the lack of entrants into this field. Ignoring the issue solves nothing, and without new entrants the legacy of the profession that you and I both love is doomed.

Personally, I do not share the same gloomy opinion that the appraiser is on the cusp of extinction. I do recognize, as an entrepreneur, that change is certain and our adaptation to it is paramount to our survival.

We can challenge the system and demand change, but being angry serves only one purpose and it is highly unproductive. Kodak and Blockbuster believed that they understood their market and the consumer. This should remind us of the need to add value for our users where they do not currently see it. We must unite together and provide solution-driven answers rather than simply complaining about the circumstances that we find ourselves in. The NAA is positioned to provide such an opportunity and your continued membership and support strengthens this mission.

JOHN DINGEMAN, MNAA Connect with me about how you can participate.

Reach me at john@dingeman.com

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appraiser focus magazine Q1 2018

U YES YO CAN LEARN MORE, EARN MORE.

Contents

Keep up on the latest news affecting the appraisal space and read about how you can grow your business.

Stay connected on Facebook and LinkedIn.

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06

10

Is the income approach to value applicable and necessary in the appraisal of residential real estate?

How to minimize the potential for error

VALUATION THE INCOME APPROACH

Timothy C. Andersen, MNAA

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VALUATION IN THE WAKE OF DISASTER Considerations for property appraisers working in the aftermath of a natural disaster

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12

REGULATION WHAT A REGULATOR WANTS When an inquiry is launched, compliance and competence are the issues at hand.

Charles R. Franklin & Craig M. Capilla

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How to keep your reports from being challenged John Torvi

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Jamie Owen, MNAA

Kimberly A. DeMarino

VALUATION AVOIDING E&O CLAIMS

Feature

VALUATION A CLEAN REPORT

AN OPINION OF VALUE IN THE SPIRIT OF THE NEW YEAR Ten resolutions for the ambitious appraiser Steve Kahane, MNAA

"If you find yourself under the microscope of a regulator, it is critical that you are prepared to demonstrate that competence on their demand."

-Franklin & Capilla

THE ACTS: THE APPRAISER'S CONFERENCE AND TRADE SHOW Appraisers from around the country will meet in Nashville this spring for the first conference of its kind.

Jessica Guerin

n n

"Bringing together nationally recognized experts on timely and relevant topics."

Read more on pg. 12

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TIMOTHY C. ANDERSEN, MNAA

CHARLES R. FRANKLIN

06 | The Income Approach

12 | What a Regulator Wants

Timothy C. Andersen has been a real estate appraiser and consultant since 1986. He has SRPA and MAI designations and is an AQB Certified USPAP instructor. Andersen is an active member of the NAA, an affiliate member of the Association of Texas Appraisers and an adjunct instructor at the Columbia Institute. Previously, he had a real estate brokerage specializing in high-end condominiums. He earned a degree in real estate appraisal from The University of St. Thomas in Minneapolis.

Charles R. Franklin manages the Franklin Law Group, where he focuses on first and third-party defense, recovery, insurance coverage and related work.

He is experienced in representing professional real estate appraisers and licensed property inspectors in malpractice claims, lawsuits and disciplinary hearings.

He often serves as a neutral or independent arbitrator and is rated "AV Preeminent" with Martindale-Hubbell.

Franklin is a founder and original board member of the Claims Association of Greater Chicago.

Maitca@bellsouth.net

Cfranklin@charlesfranklinlaw.com

KIMBERLY A. DeMARINO 08 | In the Wake of Disaster Kimberly A. DeMarino, Esq. is assistant vice president and risk management director with the Professional Liability Division of Great American Insurance Group. She is a graduate of Chicago-Kent College of Law and the University of Illinois, with experience handling thousands of professional liability matters. Great American is proud to provide coverage for real estate appraisers throughout the country via the Landy Insurance Agency.

Kdemarino@gaig.com

12 | What a Regulator Wants Craig M. Capilla is a trial lawyer at the Franklin Law Group. He worked previously as a prosecutor in the real estate division of the Illinois Department of Financial and Professional Regulation.

He often appears on behalf of clients before state regulators and in state and federal courts. Capilla frequently speaks for associations like the NAA, Illinois Coalition of Appraisal Professionals, NAIFA, the American Society of Appraisers and the Chicago Chapter of the Appraisal Institute. He is a graduate of the University of Michigan and DePaul University College of Law. Ccapilla@charlesfranklinlaw.com

09 | Avoiding E&O Claims

Johnt@landy.com

JAMIE OWEN, MNAA 10 | A Clean Report Jamie Owen has been a certified residential real estate appraiser in Northeast Ohio for 20 years. He is the owner of Aspen Appraisal Services in Brecksville, Ohio. He works as a full-time, independent fee appraiser and his clients include lenders, real estate agents, homeowners, investors, relocation companies and attorneys. He is a member of the NAA, holds a CREA designation with the National Association of Real Estate Appraisers, and is a member of the Ohio Coalition of Appraisal Professionals.

Aspenappraisals@gmail.com

The NAA needs you—and you need the NAA.

CRAIG M. CAPILLA

JOHN TORVI John Torvi is the VP of marketing and sales at the Herbert H. Landy Insurance Agency of Needham, Massachusetts. For over 27 years, Torvi has been in the insurance industry, focusing on the needs of business owners. He has a bachelor’s degree from Providence College and a master’s degree from Springfield College and is a frequent speaker and contributor to professional associations in the legal, accounting, real estate and insurance industries.

JOIN THE NAA!

STEVE KAHANE, MNAA 18 | In the Spirit of the New Year Steve Kahane is a certified residential real estate appraiser outside of Houston, Texas. He transitioned from commercial properties to residential after moving from Chicago to Texas 16 years ago and has appraised properties ranging from $1 to over $100 million. Kahane is a member of the NAA and the Association of Texas Appraisers, and was the recipient of ATA’s 2015 Outstanding Service Award for the Houston region. He has advocated on behalf of appraisers to the Appraisal Foundation, Appraiser Qualifications Board and Texas Appraisal Licensing and Certification Board. He has presented seminars to hundreds of Houston Realtors about appraising real estate and authored numerous articles about appraising for trade publications. He specializes in litigation consulting and residential mortgage valuations.

Steve@ghaa.net

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appraiser focus magazine Q1 2018

Valuation

Timothy C. Andersen, MNAA Real Estate Appraiser and Consultant

The income approach and its value in appraising income-producing properties

NAA’s Mission UNITE: Bring appraisers together to advocate for positive change.

The Income Approach

Is the income approach to value applicable and necessary in the appraisal of residential real estate?

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A 1004 Form uses the relationship between a residential property's sales price and its monthly income at the time of sale, or the Gross Rent Multiplier (GRM). A GRM analysis does not account for a property's vacancy and income loss factors, nor does it account for a property's operating expenses.

GRM analysis is not sophisticated enough to look at a residential property as an investment. Its use, though, raises a question: If the analyst appraises the property based on its potential to produce a monthly income, is that analyst appraising to the standard of investment value rather than the standard of market value?

By definition, these two standards of value are acres apart in meaning, thus are not synonyms. So the appraiser who appraises to the standard of market value, yet uses the protocols and procedures of the income

approach to do so, does so possibly at his professional peril. How so?

A homeowner purchases a house as a shelter from the storms of life, not as a moneymaking vehicle. Indeed, houses usually generate a negative cash flow given the costs of owning and maintaining it, and servicing the mortgage debt. In other words, the market sees the act and purpose of purchasing a home as something other than an investment, thus such a purchase and sale does not qualify as investment value.

Subject A: Traditional SFR

Some market participants do buy houses specifically to generate a monthly income.

When this is true, that participant's motivations are not those of the traditional SFR market. With these motivations, it is difficult to call its purchase price one reflecting market value. Rather, it likely represents one indication of investment value. To use such a sale as a comparable, if the standard of value is market value, violates the concept that a comparable sale is one with the same highest and best use as the subject.

Subject B: Investment

naappraisers.org

F O C U S O N V A L U AT I O N

calculate a GRM as part of a market value analysis.

Nevertheless, to use the income approach to value this property would be inappropriate (and likely misleading) for at least two reasons, despite the acknowledged relationship between rental income and sales price.

"The income approach is likely applicable and necessary to formulate a credible value opinion when the appraiser's challenge is to appraise a residential income-producing property. If the property is not income producing, then use of the income approach could mislead the client."

That subject "B" has the same highest and best use as subject "A" is the basis of comparability. If the purchasers of "A" bought it as a traditional SFR, yet the purchasers of "B" bought it as an investment, that should make it clear these properties are not comparable. Lack of comparability means one is not the market value analogue of the other.

Further, the appraiser must do the necessary verification due diligence to understand the differences between the purchase and sale of "A" and "B." It is this due diligence by which appraisers learn which sales are truly comps.

It is possible that a rented house (i.e., a monthly income-generating investment) could sell to a new owner who planned to occupy the residence after the closing of escrow. It would be possible, therefore, to

First is that the purchaser did not buy an income property. It is clearly the sale and purchase of a single-family home, nothing more. Therefore, the use of income methodology would imply the purchaser bought the property to produce income, which is not true. A duly diligent verification of this transaction would be the evidence of that conclusion. Thus, analysis of this as an income producing property would be misleading.

Second is that to use the protocols of the income approach is to imply that the property's highest and best use is as an

income-producing property. Since this is clearly not the case in this example, there is no reason to mislead the client and intended users that it is.

Data from the income approach, however, may aid the appraiser in supporting adjustments. Hypothetically, assume two houses sold. One, without a pool rented at time of sale for $1,000 per month. One with a pool rented at $1,100 per month. Thus, the pool commanded a monthly rental premium of $100. Assuming the appropriate GRM is 120, the pool had a maximum market value of $12,000.

To summarize, the income approach is likely applicable and necessary to formulate a credible value opinion when the appraiser's challenge is to appraise a residential incomeproducing property. If the property is not income producing, then use of the income approach could mislead the client and intended users that such is its highest and best use. Since, in the main, this is not true of an SFR, avoid the protocols of this approach except as an analytical tool. Perhaps the greatest applicability of the income approach is in extracting adjustments. n

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appraiser focus magazine Q1 2018

FOCUS ON V A L U AT I O N

Kimberly A. DeMarino AVP, Director of Risk Management Professional Liability Division Great American Insurance Group Appraising in the wake of disaster

SOMETHING ON YOUR MIND? Need to get something off your chest?

Hate something we do? Love something we do? Letters to the editor may be emailed to JESSICALINN22@GMAIL.COM.

In the Wake of Disaster

Considerations for property appraisers working in the aftermath of a natural disaster "An appraiser should be cautious about opining on the cost to repair any property damage unless it is within the scope of the assignment and the appraiser is qualified to provide such information."

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No doubt, 2017 has been a remarkable year for natural disasters.

Thousands of U.S. homes were affected by hurricanes, floods, mudslides, fires, earthquakes and tornadoes. This has led to the disruption of countless real estate transactions.

Real estate sales and mortgage refinancing that were not completed before the disaster typically spur the lender to determine whether the property condition was materially changed by the disaster and whether the market value remained intact. Lenders monitor FEMA to determine which zip codes were affected by a natural disaster, but damage might also affect properties outside of the officially designated area. Many lenders seek a re-inspection report from the appraiser to certify that the property is free from damage.

In other instances, an additional drive-by inspection or disaster area inspection report may be required. Exterior-only observations are common unless the property is located within a damaged area, in which case an interior inspection is also sought. Additionally, determining fair market value after a disaster is more complicated due to market disruption and multiple unknown factors.

The Appraisal Institute offers some technical guidance in Guide Note 10: Developing an Opinion of Market Value in the Aftermath of a

Disaster, which was originally published in 2010 with minor revisions in 2017. One of its most important reminders is to be wary of requests to provide anything other than appraisal services. For example, lenders and other clients might ask an appraiser to attest to a property's condition and make judgments about the property damage. While an appraiser can provide a report on what he or she observed, they should refrain from making unsubstantiated conclusions about those observations. For example, a proper report would indicate an observation of "a black substance on the walls" instead of stating that mold was growing on the walls, unless the appraiser is a fungi expert and can conclusively identify mold.

Further, an appraiser should be cautious about opining on the cost to repair any property damage unless it is within the scope of the assignment and the appraiser is qualified to provide such information.

Beyond certain liability issues raised by non-traditional appraisal services, these types of assignments could also raise coverage issues under the professional’s E&O policy (if the work is considered to fall outside the scope of the insurance policy definition of appraisal services).

Appraisers should also avoid providing opinions relating to whether pre-hurricane or post-hurricane remediation work was done up to the applicable municipal code, or whether the property at issue is subject to mandatory flood insurance (i.e., in a designated flood plain). Appraisers should avoid providing opinions relating to the adequacy of insurance coverage on a property.

As a final note, appraisers working in a disaster area should be mindful of their own well-being and turn down any assignment that is inherently unsafe or incompatible with their own medical conditions. If an appraiser is unsure about a re-inspection assignment or concerned about language proposed by the client, they should contact their professional liability insurance agent or carrier for guidance. n

naappraisers.org

John Torvi VP of Marketing and Sales Herbert H. Landy Insurance Agency

FOCUS ON V A L U AT I O N

The appropriate inclusion of facts and a diligent review is the best defense against a claim.

factually incorrect information? In reviewing the multitude of claim reports and board complaints received, we can determine that a significant percentage of them arise from factual errors, rather than judgments over what comps to use, quality ratings and so on. Factual errors can be defined as information that cannot be generally disputed but can in fact be proven true.

Avoiding E&O Claims

How to keep your reports from being challenged Most of us can agree that real estate appraisers are vulnerable to lawsuits and state board complaints that allege some fault in the report. The common denominator amongst the various types of allegations is the final valuation of a property and the resulting dispute of that, typically from the homebuyer, lender or AMC. A slight difference in value, even a 5 percent variance, might cause the buyer to be disapproved for a loan, be subject to higher interest rates, qualify for a different type of loan or force the purchase of private mortgage insurance. Errors & Omissions claims abound from this and similar types of valuation disputes. It is instructive to look at the actual— or alleged—faulty parts of the appraisal that influenced the final valuation to learn if something could have been done differently to avoid a dispute of value.

There are significant parts of an appraisal that require subjective judgment. If the appraiser documents sound reasoning or methodology used to arrive at these judgments, he or she is likely to fare better when represented by a defense attorney in a lawsuit or in responding to a board complaint. Note the word “document.” In fact, many insurance claims or complaints can be significantly lessened in severity or dismissed altogether if the path to subjective judgment is included as part of the report. In other words, explain how you came to that opinion and the reader might not take issue with the report in the first place.

What happens when the allegation of error is not related to subjective judgment but to the inclusion of

"In fact, many insurance claims or complaints can be significantly lessened in severity or dismissed altogether if the path to subjective judgment is included as part of the report. In other words, explain how you came to that opinion and the reader might not take issue with the report in the first place."

As examples, there are numerous claims over square footage and measurements. Other common errors include noting a property has a septic system when it has a cesspool, or is tied into public sewers or water supply when it is not; failure to note proper zoning; failure to disclose easements; noticeable condition factors like observable water in basements or holes in walls; failure to identify unpermitted improvements; failure to identify manufactured homes; failure to identify property amenities such as parking spaces; and failure to identify slab versus basement construction. Delayed and late appraisals resulting in the cancellation of a loan or closing is another common source of claims. One might argue that there may be, at times, mitigating factors resulting in these types of errors, yet a significant number of these can be avoided or corrected by a more careful approach to the assessment and review of the property and related information. While it is very possible for a defense lawyer to successfully defend an appraiser on a matter relating to sound professional judgment, it is extremely unlikely that an appraiser will prevail in court or arbitration, or before a licensing board when he or she got the cesspool/ septic system matter wrong, or improperly measured the living room.

In summary, an appraiser can significantly reduce the chance of a report being challenged or improve the chance of a successful defense by diligent review and accurate inclusion of information that can be proved as factual. n

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appraiser focus magazine Q1 2018

Jamie Owen, MNAA Certified Residential Real Estate Appraiser

FOCUS ON V A L U AT I O N

My tips for producing a top-notch report

A Clean Report

How to minimize the potential for error

SO HOW CAN WE AVOID MAKING MISTAKES?

HERE ARE SOME THINGS THAT CAN HELP MINIMIZE MISTAKES:

1

Proofread your report in a different format before sending it out. After scanning through my report several times with my eyes, I convert the report to PDF format and then re-read it. For me, the change in font helps my eye to catch errors that I might not have otherwise seen.

2

Run a spellcheck on the entire report. Most appraisal software offers a tool that can do this. It only takes a minute.

3

Run a UAD error checker, as most lenders require reports to conform to UAD standards. You'll find most appraisal software has this function.

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4

Run a comp consistency checker to make sure that the data on the comparable sales you utilized is consistent with those same sales you may have used in previous reports. Most appraisal software also offers tools that can accomplish this.

For appraisers, and no doubt many other professionals, 2017 proved to be a great year for business. I think I speak for most appraisers when I say that at times our workloads were heavier than we could have anticipated.

A crazy workload has its disadvantages, but when we are busy we are more profitable, and that is great.

One of the drawbacks of being so busy is the potential for errors in our reports. As much as we hate to admit it, the question is probably not "if " but "when" with regard to making a mistake on a report. As professional appraisers, we pride ourselves on the accuracy of our reports. And rightly so! After all, USPAP Standards Rule 1-1(b) warns that appraisers should “not commit a substantial error of omission or commission that significantly affects an appraisal.” Rule 1-1(c) states that an appraiser should “not render appraisal services in a careless or negligent manner, such as by making a series of errors that, although individually might not significantly affect the results of an appraisal, in the aggregate affects the credibility of those results."

A couple of key words to consider are "careless" and "negligent." USPAP also states, "Perfection is impossible to attain, and competence does not require perfection. These Standards Rules require an appraiser to use due diligence and due care." Of course, even when we use due diligence and due care, mistakes can still happen because we are not perfect people.

As the USPAP comments make clear, a mistake is not necessarily an indication that we are incompetent. It may simply be a mistake.

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Before sending your report, step away from the report for a short time. This is not always possible due to time constraints, but I find it helpful to take a break from the work and come back to it a little later. For me, this is especially helpful when working on complex assignments. This helps me to clear my head and have a fresh set of eyes on my work.

6

Work somewhere free from distraction. Sometimes this is not possible, but the fewer the distractions, the fewer mistakes we are likely to make.

7

If possible, have a respected peer review your report. Even if you cannot do this on every report, do this from time to time whenever you can; it can help.

8

Perform appraisal reviews on occasion. Performing reviews is not my favorite type of appraisal work. However, when we are analyzing someone else's work, it can help us to see how others view our work and can make us aware of potential errors we might make when we are completing our own reports.

naappraisers.org

"Don't make excuses...

Just humbly admit that you made the mistake, if indeed you did, and do everything in our power to correct that mistake."

So why is it so hard to catch our own mistakes? On his blog about cyber writing, Terry Nelson calls it "inattentional blindness."

When overloaded, we simply see what we expect to see, Nelson explains. "The brain... is processing outside of conscious awareness to prevent overload like a computer crash, it will only process so much information,” he writes. “It filters out what we expect to see. I expected to see a quotation mark, so my brain filled the gap. I thought it was there, but it wasn't."

Now think about how much data we must analyze as appraisers. Clearly, we need some systems in place—besides just our own eyes— to check our work.

So what happens if we make a mistake and our client points it out? Don't make excuses.

There is a difference between making an excuse and explaining what happened.

Explaining what led to the error might be useful in helping our client see that we were not being careless. Just humbly admit that you made the mistake, if indeed you did, and do everything in our power to correct that mistake.

a

"Perfection is impossible to attain, and competence does not require perfection.

These Standards Rules require an appraiser to use due diligence and due care."

-USPAP

The more difficult question is what to do if you discover that you have made serious mistake in a prior appraisal that impacts the original opinion of value. Perhaps our client is not aware of our error.

Some may just not say anything and hope that the mistake never comes to light.

That is an option, however, I would not recommend. If you discover such a mistake, the best thing to do, in my

LOOKING TO CONNECT WITH THE APPRAISER COMMUNITY?

opinion, is to let your client know. That's a scary thing, because we rely on our license or certification for our livelihood. It is terrifying to think of being put on a do-not-use list, or worse, getting in trouble with our state board because we made a mistake.

While there's no guarantee that this will not happen, I do believe that most of our clients would rather we be honest and forthright and just admit what we did and then take the necessary steps to simply correct our error. Lenders and state boards fully realize that mistakes happen. We really should not have to worry unless our mistake was due to carelessness or neglect. I believe that most if not all state boards are usually reasonable and merciful to those who make an honest mistake that was not due to carelessness.

When we make mistakes, whether large or small, we may feel like we are the only appraiser in the world who has made an error. This is simply not the case. We all make mistakes from time to time. So don't loose heart! Just keep trying to improve and take the steps necessary to not make the same mistake again.

A word of warning: Please don't take the information in this article as legal advise. If you find that you have made a serious error, it is advisable to call your E&O company to get advise on how to handle the situation. The main thing to remember is to be honest in all that we do. If we are, in the long run it will work out to our benefit and to the benefit of our clients. n

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appraiser focus magazine Q1 2018

Regulation

Charles R. Franklin Principal Franklin Law Group Craig M. Capilla Trial Lawyer Franklin Law Group

NAA’s Mission PROMOTE: Encourage continued education and high standards of conduct.

What a Regulator Wants

When an inquiry is launched, compliance and competence are the issues at hand.

In our practice, we deal with a lot of regulators at both the state and federal levels. Regulatory agencies have significant control over your license and your ability to earn a living and practice as a professional. While we live in a world of many shades of gray, a regulator deals in one where things are supposedly only black and white, where rules are written to be obeyed or followed and compliance is supposed to be an absolute.

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This is a subtle but important distinction from any accusation of malpractice. As the old cliché goes, even broken clocks are correct twice a day. Regulators are there to ensure the applicant or license holder has had sufficient training or education to have satisfied (or demonstrated) some minimum standard of competence and compliance, which all practitioners in that specific licensed profession must have or follow. Regulators do not guarantee performance for a Frequently, when professionals are particular job or event. For many contacted by a regulator, called in practical reasons, they should not for a conference, because then or an inquiry "Regulators want to know every gripe or has been made complaint— if you know what you are concerning their trivial, significant, doing and they want you license, their or in between— initial reaction to demonstrate that. If you would be and response submitted to find yourself under the is, “But I did microscope of a regulator, the regulator to nothing wrong” act as an arbiter. it is critical that you are or “But I got the Although it prepared to demonstrate right answer” sometimes seems that competence on their or “But nobody like that is exactly demand." was hurt.” All of what happens, these responses non-specific may be accurate, gripes from a reasonable and appropriate disgruntled consumer are often when you have been accused closed without further inquiry by of malpractice, but they are not the regulator if the complaint has necessarily responsive or relevant nothing to do with the rules and to the regulator’s query. With regulations of the profession. regulators, the question usually is not whether the license holder has Remember, the issuance of a committed malpractice. Rather, the license by a regulatory authority concern is whether the professional is not a warranty that the license has complied with the rules and holder will excel or even just be regulations of the profession, good at his or her job. Nor is their and if not, should the licensed review an endorsement of the professional be allowed to continue quality of his or her performance at to practice. any one time. While it is certainly Be a part of the conversation. Share your ideas with your colleagues on how we can advance the appraiser profession.

Reach out to us at teresa@naappraisers.org.

naappraisers.org

more difficult to get a professional license, on a very basic level it is similar to getting or keeping a driver’s license. To get one, at the time you apply for one, you need to be able to show you can operate and drive a car safely. You need to pass a driver’s test and demonstrate you know the rules of the road.

If you pass, you get a license. It does not mean you are or will always be a good driver, or that you will always parallel park without tapping the car in front or behind you. And if you get too many tickets, your license can be taken away even if you’ve never been in an accident. Getting a professional license means you have permission to work; you have demonstrated sufficient skill to be deemed competent. You can proceed. That someone else may not like what you did (or thinks you are a bad driver) is not really relevant or important to the regulator.

Mistakes happen and no one is perfect. To practice, no profession requires perfection.

Rather, to practice requires only a baseline of competence or skill that all professionals in that field must meet and maintain. Regulators want to know if you know what you are doing and they want you to demonstrate that. If

you find yourself under the microscope of a regulator, it is critical that you are prepared to demonstrate that competence on their demand. Whether that opportunity will come at the first response to an investigation, at a conference, or at trial on the merits of the complaint, you must be fully prepared to address the regulator’s concerns.

For that reason, it is never too early to get help when dealing with regulators. Your first instinct when you receive notice of an inquiry may be to ignore it and then hope for the best. Your first proactive step, however, should be to seek assistance. Reach out to your professional associations. Speak with a lawyer—hopefully one with experience in dealing with the regulator. Contact your liability insurer. Reach out to those resources that have more experience than you in dealing with regulators. Knowing how to maneuver through the regulatory investigation and complaint process can make all the difference in addressing the regulator’s concerns, ensuring that you maintain your license and sustain your livelihood. n

When Regulators Come Calling When you RECEIVE NOTICE OF AN INQUIRY, don’t ignore it! Address the situation head on.

STEP 1

Reach out to your professional associations for guidance.

STEP 2

Speak with a lawyer who has regulatory experience.

STEP 3

Contact your liability insurer.

CONTRIBUTORS WANTED

WRITE FOR US Appraiser Focus is always looking for dedicated appraisers who care about the future of this profession.

We are on the hunt for hard-working, forward-thinking professionals who are interested in contributing to our magazine’s coverage of the appraisal world.

REACH OUT TO US FOR MORE INFORMATION. TERESA@NAAPPRAISERS.ORG

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appraiser focus magazine Q1 2018

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Professionals from around the country will meet in Nashville this spring for the first conference of its kind.

-By Jessica Guerin Ten years ago, five seasoned appraisers from various parts of the country got together to discuss issues affecting the profession. They were bothered by the fact that there were no organized outlets for people like them to discuss their work on a national level.

They discussed with consternation why just 30 percent of credentialed appraisers at the time belonged to any kind of professional organization.

“We started brainstorming, discussing what would it look like if there were an entity that represented all appraisers,” says Michael Brunson. “Wouldn’t it be nice if there were a group similar to the National Association of Realtors that could represent the interests of appraisers with the same passion and power?”

From this conversation, Brunson and his colleagues, led by George Harrison of the Columbia Institute, formed the National Association of Appraisers, an organization

dedicated to providing appraisers with advocacy, information and professional development. “Our goal is to represent all appraisers, keep it cost effective, keep it timely and make it beneficial to the profession as a whole,” Brunson says.

Now, a decade later, the NAA is set to co-host its first Appraiser's Conference and Trade Show (ACTS) with Appraiser eLearning this spring, a major event intended to bring together appraisers from around the country to discuss issues affecting their work.

Billed as an event for appraisers and by appraisers, the ACTS will be held in Nashville April 8-10. Attendees can expect to hear presentations and panel discussions on important regulatory concerns and current issues impacting the appraisal space, and they can take classes for continuing education credits.

“We are bringing together nationally recognized experts on timely and relevant

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topics that are affecting boots-on-the-ground appraisers,” Brunson says. “People who are out there doing work for residential or commercial properties are going to hear from the regulators that directly impact their work. They’re going to hear from Fannie and Freddie; they are going to hear from the VA and FHA; they are going to hear from the Small Business Administration.

Representatives from banks will be present and representatives from other appraisal entities will be there.”

The 2018 ACTS The Sheraton Music City Hotel Nashville, Tennessee April 8-10, 2018

Brunson says that what makes the ACTS different from other industry events is that anyone can attend, even non-NAA members.

“We’re opening this up to all appraisers, anybody who wants to come, in keeping with our concept that this is the organization for all professional appraisers.”

of Governors is really integral to the concept of the NAA.”

In its efforts to serve all appraisers, the NAA has established a Board of Governors, comprising representatives from state and local organizations who serve in an advisory capacity to NAA leadership.

“There’s a difference between state issues and national issues. Sometimes they’re parallel, but in many cases you have an issue that is extremely relevant in one state that has absolutely no relevance in another.”

“It’s our intention to close the gap between existing entities, because we are all appraisers, we all have the same professional interests. We both want to make sure we get to be independent arbiters of value to help our clients measure risk,” Brunson says. “The Board

Brunson says the NAA encourages all of its members to join their local organizations so they can be represented on issues that are state-specific.

The NAA will help states without a professional organization set one up, Brunson says, explaining that the NAA’s goal is to serve as an umbrella under which state and local organizations can connect and ban together to support common interests.

“The NAA is designed so that it never becomes an oligarchy of a select few, but an organization that represents all professional appraisers.” n

appraiser focus magazine Q1 2018

CONFERENCE HIGHLIGHTS

USPAP and Regulatory Q&A / Appraising After a Disaster

JOIN US!

NAA members: $400* Non-members: $500* *Fees increase after March 30.

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WHAT TO SEE & WHAT TO DO

AT THE ACTS

After Delivery—What Happens Behind the Scenes / What’s New on the State Regulatory Front

FOOD

CULTURE

ENTERTAINMENT

If you’re looking for a great spot to dine with colleagues but don’t want to venture too far from the conference, these three spots are sure to satisfy.

The Parthenon Visit Nashville’s collection of 19th and 20th century American art in this fullscale replica of the Athenian Parthenon in Centennial Park.

The best way to take in all that Music City has to offer is to take a stroll down lower Broadway and 2nd Avenue.

On this famed row of lively bars and restaurants, you’ll find live music every night of the week.

Breakfast Phat Bites Café & Coffee Shop 2730 Lebanon Pike B phatbites.com 615.871.4055 Lunch Darfons Restaurant & Lounge 2810 Elm Hill Pike darfonsrestaurant.com 615.889.3032 Dinner Ellendale's 2739 Old Elm Hill Pike ellendales.com 615.884.0171

Frist Center for the Visual Arts See a unique collection of artistic works from around the world, housed in Nashville’s historical art deco-style post office building.

Contact naapraisers. org for exhibitor and sponsorship information.

Going somewhere nearby?

The Sheraton's shuttle will take you anywhere within three miles for free.

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appraiser focus magazine Q1 2018

Opinion

Steve Kahane Certified Residential Real Estate Appraiser

Starting the new year on the right foot

NAA’s Mission PROVIDE: Offer services designed to benefit our membership.

In the Spirit of the New Year

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Ten resolutions for the ambitious appraiser

For many appraisers, business at the beginning of the year is a bit slow. That gives us a chance to make use of the extra time to prepare for the coming year. In the spirit of the New Year, I’ve compiled 10 resolutions for the ambitious appraiser.

1. Dispose of old files (digital or physical)

that are taking up space on your hard drive or in your attic. Per USPAP, they must be “over five years after preparation or at least two years after final disposition of any judicial proceeding.”

2. Update your templates. Get rid of

any mentions of 2017 that are no longer applicable.

3. Seek out a few new clients for the year.

Find ones who pay better, have fewer stipulations or have longer turn-times.

4. Fire some old clients. Needy, high-

maintenance clients may be costing you more than they are worth and may keep you from working with better ones.

5. Reach out to the clients you’re keeping.

Chances are, if you’re slow they are too.

Say hello, see how they think you’re doing and what you can do to improve.

6. Get your oil changed, tires rotated or handle any car repairs needed so there is an official record of your year-end mileage for taxes.

7. Hook up with some fellow appraisers.

Per USPAP, “what an appraiser’s peers’ actions would be on a similar assignment” is a component to determine if the scope of work is acceptable. So get together with other appraisers to see what they are doing.

8. Learn new features of your software or

MLS. Most providers have video tutorials.

Twenty minutes now learning a new feature might save you hours over the coming year and prove vital when you get busy.

9. Update your website, resume and

references. Add last year’s CE classes to your resume. Search engines are optimized to prioritize sites that have updated content, so any changes to your website will improve its visibility and help market your business.

10. Catch up on your accounts receivable.

I love appraising, but not so much that I do it for free.

I hope you find at least one or two of these tips worthwhile. More importantly, I wish you all a happy, healthy and prosperous 2018. n

Errors & Omissions

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AND MORE...

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