Holding the Appraiser Accountable
By Charlie Elliott, MAI, SRA

We know that in most cases a mortgage loan cannot be made until an appraisal is made which supports the amount of the loan to be made on the property. We further know that in some cases, appraisals, which are made for the purpose of supporting a mortgage loan, come in at a value too low for the loan to be funded.

Next is the heartburn. Is the problem with the appraisal or with the property? What can be or should be done to correct the problem? Do we, as loan originators, just accept the appraisal as provided or do we challenge the appraiser? Who is to say if the appraiser is right? Was his or her opinion an unbiased one? Is the appraiser bound to follow some formula or guideline in doing his or her work? What governing body determines the ground rules, and how can one be sure that the appraiser is following them? Who does the appraiser answer to? Is there some place up the chain where the appraiser is held accountable to the client?

Perhaps, it is best to approach this by first getting the answers to a few questions. Since we are all intelligent people, I will not bore you with the questions; I’ll just list the answers.

• An appraisal is an opinion of value, generally expressed by a state licensed or certified appraiser.

• Prior to calling himself or herself an appraiser, the appraiser is required to complete educational and experience requirements as established by the appraisal board in the state in which the appraiser practices.

• Appraisers are accountable to this appraisal board, generally appointed by the governor or other 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. The Appraisal Foundation is made up of a group of appraisal organizations and government agencies having an interest in finance and appraisals on a national basis. A copy of USPAP may be found on the web at the Web site for The Appraisal Foundation at www.appraisalfoundation.org.

• The Appraisal Foundation is overseen by the Appraisal Standards Subcommittee and it consists of the five federal banking agencies including the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration and the office of Housing and Urban Development.
  The local state appraisal board is charged with the responsibility of insuring that licensed and certified appraisers comply with USPAP when preparing appraisals. Anyone having concerns about an appraiser’s work may submit a complaint to the state appraisal board in the appraiser’s state of practice.

• The appraiser is held basically to two standards, ethical and professional. The appraisal board has the responsibility to discipline the appraiser if he or she is found guilty of violating standards. Discipline may range anywhere from a slap on the wrist for minor offenses to license termination for the most serious violations. Some of the more popular forms of punishment include reprimands, fines, additional education, license suspension and license revocation. License termination is rare and fines are becoming more popular since the boards in some states rely upon this revenue to fund the board activities.

• In order for an appraisal to conform to standards it must be performed in an ethical manner whereby the appraiser has no bias. Appraisers demonstrating a bias could come in various forms. Appraisers performing an appraisal in such a way as to participate in fraud would be committing an ethical violation. This would likely be involving a kickback or other remuneration expected by the appraiser contingent upon him or her delivering an appraisal at a predetermined opinion of value. Other ethical violations would involve personal bias. It may be a payback for a previous encounter whereby the appraiser has had a bad experience with someone involved in the transaction.

• The appraisal must also conform to professional standards. An example of a violation of professional standards would be for the appraiser to fail to do a thorough job of researching the market for comparable sales thereby causing the appraised value to be different, than its true market value. This most often is a result of sloppy work or the appraiser simply not taking the time to properly research the market. Another example would be that of the appraiser relying primarily on the results of the income approach to value, for an owner occupied property in a neighborhood made up of like properties. Such an example would likely be considered appraiser incompetence, whereby the appraiser was not able to employ generally accepted appraisal practices in accordance with professional standards due to lack of education, experience and or inherent ability.

In concluding our discussion about what makes an appraiser accountable, the “rubber meets the road” when the appraisal report complies with USPAP. The appraisal may or may not meet the need 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 as the appraisal is designed to ferret out nonconforming or otherwise unfit collateral. If there is a question about the report it is the responsibility of the appraiser to explain how he or she derived the value opinion. The appraiser is further obligated to correct any mistakes, which are made and provide a new and revised report at no additional cost.

Just as in the case of a medical opinion, if at the end of the day, one is not satisfied with the opinion of an appraiser, there is always the option of getting a second opinion from a different appraiser. Yes, it will cost more, however this avenue represents the best route in cases where other options have failed.

Furthermore, as in the case of the medical example, those holding themselves out to be professionals should be just that. Those proving to be less than professional should, in my opinion, be reported to their state appraisal boards. If and when this happens the appraiser will be held accountable for his or her actions and disciplined for any wrongdoing.